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Author: 


U.S.  Congress.  House 


Title: 


Muscle  Shoals 
propositions 

Place: 

Washington,  D.C 

Date: 

1922 


•« 


MASTER   NEGATIVE   * 


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U.S.   Congress.  House.  Committee  on  milita^y 
af  f  airs  . 

Muscle  Shoals  propositions.  Hearings  before  the 
Committee  on  military  affairs.  House  of  represen- 
tatives. Sixty-seventh  Congress,  second  session. 
Thursday,  February  9,  1922,  to  Monday,  March  13, 
1922.. •  V/ashington,  Govt,  print,  off.,  1922. 
iii,  3-1208  p.   23  ^. 


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1 


SCHOOL  01 

MUSCLE  SHOALS  PROPOSITIONS "" 


HEARINGS 


BEFOBB  THB 


COMMITTEE  ON  MILITARY  AFFAIRS 


HOUSE  OF  EEPRESENTATIVES 

SIXTY-SEVENTH  CONGRESS 
SECOND  SESSION 


THURSDAY,  FEBRUARY  9,  1922 

TO 

MONDAY,  MARCH  13,  1922 


IN  ONE  VOLUME 


ttiwo 


WASfllNGtON 

QOVBBNMBNT  PBINTINO  OFFICB 

1922 


MUSCLE  SHOALS  PROPOSITIONS 


-«.':L  i.^.J> 


BEFORE  THE 


COMMITTEE  ON  MILITARY  AFFAIRS 


HOUSE  OF  EEFRESENTiiTIVES 

SIXTY-SEVENTH  CONGRESS 
SECOND  SESSION 


THURSDAY,  FEBRUARY  9,  1922 

TO 

MONDAY,  MARCH  13,  1922 


IN  ONE  VOLUME 


/ 


92900 


WASHINGTON 

GOVERNMENT  PRINTING  OFFICE 

1922 


CONTENTS 


«  1    t    • 


■ 
I 


PaKC 


COMMITTEE  ON  MILITARY  AFFAIRS. 

House  of  Representatives, 
sixty-seventh  congress. 

JULIUS  KAHN,  California,  Chairman. 


JOHN  c.  Mckenzie,  iiunois. 

FRANK  L.  GREENE,  Vennont. 
JOHN  M.  MORIN,  Pennsylvania. 
HARRY  E.  HULL,  Iowa. 
W.  FRANK  JAMES,  Michigan. 
CHARLES  C.  KEARNS,  Ohio. 
JOHN  F.  MILLER,  Washington. 
RICHARD  WAYNE  PARKER,  New  Jersey. 
FRANK  CROWTHER,  New  York. 
HARRY  C.  RANSLEY,  Pennsylvania. 
JOHN  PHILIP  HILL,  Maryland. 
HARRY  M.  WURZBACH,  Texas. 
LOUIS  A.  FROTHINGHAM,  Massachusetts. 
THOMAS  S.  CRAGO,  Pennsylvania. 


WILLIAM  J.  FIELDS,  Kentucky. 
PERCY  E.  QUIN,  Mississippi. 
HUBERT  F.  FISHER,  Tennessee. 
WILLIAM  C.  WRIGHT,  Georgia. 
PHILIP  H.  STOLL,  South  Carolina. 
DANIEL  E.  GARRETT,  Texas. 


n 


Howard  F.  Sedowice,  Clerk, 

SCHOOL  OP 

BUSfNESS 

LI BHARY 


y 


■^ 


«i.-'<? 


Almoii,  Hoi).  E.hvar.l  B.,  Representative  in  Congress  from  Alabama.  741-742! 
Bankheail,  Hon.  William  B.,  Representative  in  Ck)ngress  from  Alabam!if^^l018- 

Beach,  ^lajOn.  Lansing  H.,  Cliief  of  Engineers....  19-21  Qjim 

Booton.  Maj.  John  G..  in  charge  of  contract  sect  ion; 'drdnVnVe  Depart 


meut 


885-889 


19-21 


895-900,  935-939 
1146 


^Fldenft'ion"  ^^"'^^^'^"^  ''^  Washinitoi7office~~oY  AmVr"icai7iSi7n7Biire^ 

Burns,  Maj.  JrH76r7n7n7e"  Departmen7.7.77  7^71  ootI^S 

Butler,  Hon.  Marion,  attorney  for  Mr.  Engstrum::::."  "900-935' 989-99^ 

S^;- 1^:^^^^^^-  Alaham7i^er7o7S5,  ^g;  K^ 
Engstrum,  Frederick  E.,  president  of  the  Newport"  Sh7p7uikling"co7po7a 

Amended  proposal IIIIII777  II 

Ford,   Henry:  "  — 

First  proposal  of,  July  8,  1921 .^lo 

Letter  of  January  11,  1922 ~_~_~_ \^ 

Present  proposal  of  Januarv  25,  1922 10  17 

Frothingham,  Francis  E.,  of  Coflin  &  Burrl'BoVtonl  m7s7  "947-909 

HnnrS'  T- 1?'  7*^«/P^^«i^ent  Air  Nitrates  CoiporationI ^3_??2 

Hull,  Col   John  A.,  Acting  Judge  Advocate  General  m  oon 

Joyes,  Col.  J.  W.,  Ordnance  Department...  Tnq?!7^?? 

Judge  Advocate  General's  office,  memorand7m  ooli? 

r.evermg,  J.  H.,  civil  engin^r .  ~mt^l% 

Mcn^ffir  w '^^'^T  ^^'  ^o'  president  National  Fert7Hz7r7\ssocMon"""  ^^^ 
mISv   F^^D  -^^J"'  «^P.rf  entative  in  Congress  from  Alabama  III-Jo21^o1S 

Mayo,^  William   B.,   chief  engineer^^Se^^o^d"^^^^^^^^^ 

Oliver,  Hon.  Willi7m"B7  Rerrese7ta7i7e"]n"57ng7^7"^^^^^^^^ 

Ordnance.  Chief  of,  memoranda....  8.33-836. 994-1002 

Parsons,  Dr.  Charles  L.,  consulting  ch^mi'stllll  iiiViiI? 

Secretary  of  War's  report  to  Congress..  ~_~_ ^^^^^™ 

eratio^''^^'  Washington  representative  of  American  FarnrBurea^Feif-        "' 

laMor,  Hon.  A.  A.,  Governor  of  the  State  of  Tennessee  HlS-l^ 

;'&i^?r/wf„iZ^-'-  ^"^  ^"™-'  Res.r.e.-La¥o7aTo-r,r^-- 
Weeks,  Hon.  John  W.,  Secretary  of  Warllllll  qlof  S^r 

';^tney.   Dr.  Milton,   Chief  Bureau  of   Soils,   Dep7r7me7t"  of"  Agric"ul 

Williams.  Maj7G7n7crd7chieroY^^^^^^^                                    17-19 "21-29^67^00 
nel^ill^i''"'  •^T^^'"  chairman  of  the  executive  committee"  of  the  Tet 
nessee  River  Improvement  Association --____  351-408 

III 


\ 


MUSCLE  SHOALS  PROPOSITIONS. 


I 


Committee  on  Military  Affairs, 

House  of  Representatives, 

Wednesday,  February  8,  1922, 
The  committee  met  at  10.30  o'clock  a.  m.,  Hon.  Julius  Kahn  (chainnan)  presidinc^. 
ihe  \hairman.  Thi5  meeting  has  been  called  for  the  purpose  of  taking  up  the 
proposal  of  Henry  Ford  which  the  Secretary  of  War  has  submitted  to  Congress.    Mr. 
i^ord  s  proposal  is  m  writing.    He  has  sent  a  copy  to  every  Member,  I  understand, 
and  his  secretary  has  also  sent  me  a  telegram  stating  that  he  was  sending  25  additional 
copies,  so  that  each  member  of  the  committee  assuredly  will  have  a  copy  before  him. 
If  there  is  no  objection,  we  will  print  as  a  part  of  this  hearing  the  report  of  the  Secre- 
tary ot  War  submitted  to  Congress  in  House  Document  No.  167,  Sixth-seventh  Con- 
gress, second  session,  as  follows: 

[House  Document  No.  167.    Sixty-seventh  Congress,  second  session.] 

War  Department, 
Washington,  February  1,  1922. 
The  Speaker  of  the  House  of  Representatives. 

Sir:  Soon  after  I  assumed  the  duties  of  Secretary  of  War,  suggestions  were  made  to 
me  by  those  intere^sted  in  the  development  of  the  power  plant  and  navigation  at 
Muscle  bhoals  that  I  should  recommend  to  Congress  that  an  appropriation  be  made  to 
complete  Dam  No.  2  (Wilson  Dam).     In  response  to  such  suggestions  I  stated  that 
when  a  proposal  was  made  which  would  assure  the  Government  a  reasonable  return 
on  at  least  the  additional  money  rec|uired  to  complete  the  project,  and  an  effective 
use  of  the^development  for  commercial  purposes,  I  would  send  it  to  Congress,  as  the 
power  to  dispose  of  these  plants  is  vested  in  that  branch  of  the  Government, 
nu- ^^M^^'  J^^^'  ^"  consequence  of  this  statement  and  of  some  negotiations  with  the 
iJiief  of  Engineers,  United  States  Army,  Mr.  Henrv  Ford  presented  a  proposal  in 
writing,  in  which  he  offered  a  fixed  annual  rental  of  $1,200,000  for  Dam  No.  2  and  its 
power  plant  and  appurtenances,  such  rental  to  commence  six  vears  after  the  installa- 
tion of  equipment  capable  of  producing  100,000  horsepower,  and  a  rental  of  $200  000 
to  be  paid  annually  during  the  first  six  years  of  the  lease.     On  proposed  Dam  No   3 
He  offered  a  fixed  annual  rental  of  $480,000  commencing  three  years  after  80  000  horse- 
power should  be  developed,  and  $160,000  per  annum  for  the  first  three  years  of  the 
leas^  period.    Provision  was  made  for  certain  upkeep  charges  and  payments  to  be 
SS  AAA  T^l^  *  sinking  fund  estimated  as  suflScient  to  amortize  approximately  $48,- 
wo,000  of  the  cost  of  the  dams.    Under  this  proposal  the  United  States  was  to  under- 
take the  completion  of  Dam  No.  2  and  the  construction  of  Dam  No.  3.    This  offer 
was  conditioned  upon  the  United  States  selling  to  Mr.  Ford  nitrate  plants  No.  1  and 
i^o.  J,  the  Waco  quarry  and  its  equipment,  and  the  Gorgas-Warrior  steam  plant  and 
trajMmission  line  and  appurtenances,  all  for  the  price  of  $5,000,000. 

The  coat  of  completing  the  two  dams  is  estimated  by  the  Chief  of  Engineers  to  be 
at  this  time,  in  round  figures,  $50,000,000.  Consequently  I  did  not  believe  that  the 
prOT>osed  rental  wa^  an  adequate  return  on  the  Government's  proposed  investment 
and  suggested  that  Mr.  Ford  modify  his  offer  so  that  it  would  be  based  upon  an  annual 
payment  eqmvalent  to  a  rate  of  interest  on  the  total  cost  to  the  Government  of  com- 
£  ?«^  •  projects.  On  January  13,  1922,  Mr.  Ford  presented  to  me  a  proposed 
modihcation  of  his  previous  offer,  by  which  he  agreed  to  undertake  the  constniction 
ana  completion,  at  actual  cost  and  without  profit,  of  the  work  referred  to  in  his  offer 
01  July  8,  1921,  and  when  completed  and  ready  for  operation  he  offered  to  pav  the 
'-mted  fetates  as  annual  Cental  of  the  property  an  amount  equal  to  4  per  cent  of  the 
total  cost  of  such  construction. 

At  my  suggestion  Mr.  Ford  placed  in  one  instrument  his  offer  as  modified   which 
was  signed  by  him  on  January  25,  1922,  and  delivered  to  me  on  January  27,  and  which 
nave  the  honor  to  transmit  herewith  for  such  action  as  Congress  mav  deem  appropriate 

in  brief,  Mr.  Ford  offers  to  undertake  the  completion  of  Dam  No.  2  and  the  con- 
'  iruction  of  Dam  No.  3  according  to  the  Government's  plans,  for  which  he  shall  be 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


reim])iirsed  the  actual  cost,  and  to  lease  the  dams  and  power  plants  at  an  annual 
rental  equivalent  to  4  per  cent  of  the  cost  to  the  Government  of  completing  Uam  ^o.  2 
and  constructing  Dam  No.  3  (exclusive  of  the  cost  of  acquiring  lands  and  tlowage 
ri<rhts  necessarv  for  Dam  No.  3).  The  rentals  at  4  per  cent  are  to  commence,  respec- 
tively in  six  years  after  Dam  No.  2  has  been  completed  to  the  point  where  equipmeiit 
for  100  000  horsepower  is  installed  and  ready  for  service,  and  three  years  after  the 
equipment  to  develop  80,000  horsepower  is  installed  and  ready  for  service  at  Dam 
No.  3.  In  the  meantime,  during  the  six-year  and  three-year  periods,  respectively, 
he  offers  to  pay  upon  Dam  No.  2  an  annual  rental  of  $200,000  and  on  Dam  No.  3 
$l()0  000.  His  offer  places  upon  the  United  States  the  responsibihty  for  repair  and 
maintenance  of  the  two  dams  other  than  the  power  houses,  which  power  houses  and 
electrical  equipment  he  agrees  to  maintain  at  his  own  expense  m  efficient  operating 

^^As^ompensation  to  the  United  States  for  the  repair  and  upkeep  of  Dam  No.  2  a  nd 
locks,  he  offers  to  pay  the  sum  of  $35,000  annually,  and  of  Dam  No.  3  and  lock,  the 
sum  of  $20,000  annuallv    He  also  agrees  to  furnish  electricity  for  operating  the  locJcs 
at  each  of  these  dams  without  charge  to  the  Government,  and  m  addition  he  agrees 
to  pay  the  sum  of  $23,373  semiannually  for  the  purpose  of  building  up  a  sinking  tund 
to  return  to  the  United  States  at  the  end  of  the  lease  period  a  sum  ofmoney  which 
he  estimates,  if  invested  at  4  per  cent,  will  be  approximately  $49,000  000.    As  a  con- 
dition of  this  offer  he  asks  that  the  United  States  sell  to  him  nitrate  plants  Nos.  1  and 
2   the  Waco  quarry,  and  the  Gorgas-Warrior  steam  plant,  with  all  appurtenances,  tor 
the  sum  of  $5.000;000,  payable  $1,000,000  down  and  the  balance  in  annual  install- 
ments of  $1,000,000  each,  with  5  per  cent  interest  on  deferred  payments.    As  a  turther 
consideration  to  the  Government  he  agrees  to  operate  nitrate  plant  No.  2  at  the  approx- 
imate present  annual  capacity  of  its  machinery  and  equipment  in  the  production  of 
nitrogen  and  other  fertilizer  compounds  throughout  the  lease  period,  and  to  maintain 
it  in  its  present  state  of  readiness,  or  its  equivalent,  for  immediate  operation  m  the 
manufacture  of  materials  necessarv  in  time  of  war  for  the  production  of  explosives 
He  further  agrees  that  the  fertilizer  produced  at  nitrate  plant  No  2  shall  not  be  sold 
at  a  profit  in  excess  of  8  per  cent  of  the  actual  annual  cost  of  production  thereof,  and 
to  turn  over  to  the  United  States  nitrate  plant  No.  2  whenever  it  shall  be  required 
for  the  national  defense.     He  likewise  asks  for  a  preference  m  opportunity  to  purchase 
or  lease  the  property  at  the  end  of  the  lease  period  and  for  the  right,  for  a  period  not 
stated   to  be  supplied  with  electric  power  at  reasonable  rates  in  an  amount  equal  to 
his  average  consumption  during  the  previous  10  years  in  case  the  plant  is  operated 
and  his  company  does  not  purchase  or  lease  it.    He  also  states  that  his  proposal  must 
be  accepted  as  a  whole  and  not  in  part.  ,,    t^    j  • 

In  order  that  you  mav  the  more  readily  understand  lust  what  Mr.  Pord  is  proposing 
to  buy  and  to  lease,  I  shall  state  briefly  what  has  occurred  in  connection  with  Govern- 
ment developments  at  Muscle  Shoals,  and  the  character  of  the  Government-owned 

^^wftliout  going  into  the  preliminary  history  in  connection  with  the  proposals  for 
the  development  and  improvement  of  the  Tennessee  River,  which  might,  if  neces- 
sary, be  traced  to  the  vear  1827,  it  is  deemed  sufficient  for  present  purposes  to  invite 
attention  to  the  letter  over  the  signature  of  the  Secretary  of  War,  dated  June  28, 
1916  and  printed  as  House  Document  No.  1262,  Sixty-fourth  Congress,  first  session, 
transmitting,  with  a  letter  from  the  Chief  of  Engineers,  reports  on  preliminary  exami- 
nation and  survey  of  Tennessee  River  between  Browns  Island  and  the  railroad  bridge 
below  the  city  of  Florence,  wherein  is  contained  a  full  discussion  oi  Dam  No.  2  now 
known  as  the  Wilson  Dam,  and  the  proposed  Dam  No.  3.  referred  to  by  Mr.  l^ord,  but 
as  TO  which  no  construction  work  has  yet  been  undertaken.  The  commencement  ot 
construction  work  on  the  Dam  No.  2  resulted  from  the  authority  contained  in  section 
124  of  the  national  defense  act  of  June  3,  1916  (39  Stat.,  166,  215),  under  which  the 
President,  in  a  letter  dated  February  23,  1918,  authorised  the  construction  ot  said 
dam  as  a  result  of  which  allotments  have  been  made  at  various  times  amounting  to 
$17  159,610.42  for  its  construction.  The  total  expenditures  on  Dam  No.  2  have  been 
$16  251038  14-  the  greater  part  of  the  balance  unexpended  will  be  required  to  meet 
payments  on  contracts  for  power  machinery  for  the  dam.  A  large  construction  camp 
has  been  built,  a  railroad  track  laid  to  the  site,  complete  construction  plant  assem- 
bled, and  the  dam  itself  approximately  30  per  cent  conipleted. 

Dam  No.  2,  when  completed,  will  have  a  total  length  of  4,267  teet,  of  which  2,890 
feet  is  a  spillway  section,  1,221  feet  will  be  the  power-house  section,  and  i&b  feet 
abutments  and  approaches.  The  height  of  the  dam  above  present  low  water  is  95 
feet,  including  crest  gates  18  feet  in  height.  The  total  height  from  tlie  bottom  ot 
the  excavation  for  the  foundations  to  the  roadway  on  top  of  the  dam  will  be  132  teet. 
There  have  been  no  expenditures  on  Dam  No.  3.  which  is  located  14.7  miles  upstream 


from  Dam  No.  2.  Dam  No.  2,  when  constructed,  will  render  14.7  miles  of  Muscle 
Shoals  navigable,  while  Dam  No.  3  will  overflow  the  remaining  portion  of  the  rapids 
and  will  improve  conditions  of  navigation  for  a  distance  of  63  additional  miles.  The 
present  estimates  of  the  Engineer  Department  for  the  completion  of  both  Dam  No.  2 
and  Dam  No.  3  is  $50,000,000.  Engineers  for  Mr.  Ford  have  presented  a  lower  esti- 
mate, but  Mr.  Ford  has  not  seen  fit  to  guarantee  the  construction  for  this  lower  figure. 

Situated  about  6  miles  southwest  from  Dam  No.  2,  at  Sheffield,  Culbert  County, 
Ala.,  adjacent  to  the  city  and  along  the  Tennessee  River,  is  United  States  nitrate 
plant  No.  1,  constructed  by  the  United  States  during  the  war  under  an  agreement 
with  the  General  Chemical  Co.,  approved  by  the  Secretary  of  War  on  June  14,  1917, 
for  use  of  its  process,  and  at  a  total  cost  of  $12,887,941.31.  The  plant  was  built  under 
the  supervision  of  the  Ordnance  Department  of  the  Army  to  produce  22,000  tons  of 
ammonium  nitrate  per  annum,  using  the  direct  synthetic  ammonia  (Haber  process) 
of  the  General  Chemical  Co.  The  details  of  the  process  were  not  sufficiently  perfected, 
however,  and  the  plant  proved  unsuccessful  in  a  test  operation.  The  construction 
of  the  plant  was  started  from  an  appropriation  contained  in  the  national  defense  act 
of  June  3,  1916,  and  completed  from  appropriations  made  for  the  national  security 
and  defense,  armament  of  fortifications  and  ordnance  service.  The  total  acreage  of 
land  embraced  within  the  plant  site  is  approximately  19,000  acres.  The  plant  is 
now  in  an  idle,  stand-by  condition,  with  part  of  the  land  leased  for  farm  purposes. 
The  cost  of  maintenance  during  the  fiscal  year  1921  was  $75,506.42. 

At  Muscle  Shoals,  Culbert  County,  Ala.,  4  miles  northeast  of  nitrate  plant  No.  1, 
and  2  miles  distant  from  Dam  No.  2,  is  located  United  States  nitrate  plant  No.  2. 
This  plant  was  constructed  under  contract  with  the  Air  Nitrates  Corporation  for  the 
production  of  munitions  of  war  under  contract  dated  and  executed  June  8,  1918,  at  a 
total  expense,  including  Waco  quarry,  of  $67,555,355.09.  The  plant  was  built  for 
an  estimated  capacitv  of  110,000  tons  of  ammonium  nitrate  per  annum,  using  the 
cyanamid  process  of  the  American  Cyanamid  Co.  The  plant  was  successful  in  a  two- 
weeks  test  operation  with  one-fifth  of  the  plant  in  use,  during  which  time  1,700  tons 
of  ammonium  nitrate  were  produced,  as  well  as  2,200  tons  of  cyanamid  not  converted. 
The  cost  of  building  said  plant  was  paid  for  out  of  the  appropriations  for  armament 
of  fortifications  and  ordnance  service.  The  plant  site,  not  including  Waco  quarry, 
embraces  2,306  acres,  acquired  at  a  cost  of  $237,711.  The  plant  is  now  in  an  idle 
stand-by  condition,  except  the  power  plant  located  thereon,  which  was  leased, 
together  with  a  transmission  line,  to  the  Alabama  Power  Co.,  under  the  provisions 
of  the  act  of  July  28,  1892  (27  Stat.,  321),  bjr  an  instrument  dated  November  17,  1921, 
V!^*/®^°S^ole  at  any  time.  The  cost  of  maintenance  of  said  plant  for  the  fiscal  year 
1921,  including  Waco  quarry,  was  $201,674.63. 

Situated  about  20  miles  south  of  plant  No.  2  in  Franklin  County,  and  5  miles  south- 
east o^  Russellyille,  Ala.,  is  located  what  is  knowTi  as  Waco  quarrv,  acquired  by  the 
L  nited  States  in  connection  with  the  operation  qi  nitrate  plant  No.  2,  embracing  an 
area  of  460  acres,  acquired  at  a  total  cost  of  $52,962.88.  This  quarrv  has  a  crushing 
plant  sufficient  to  produce  2,000  tons  of  crushed  and  sized  limestone  per  day.  The 
total  cost  of  said  quarry,  including  buildings  and  plant,  was  $1,179,076.80,  included 
however,  as  an  element  of  the  total  cost  of  nitrate  plant  No.  2.  The  plant  is  now  in  an 
idle  stand-by  condition  and  a  portion  of  the  land  is  leased  for  farm  purposes. 
_  Situated  about  88  miles  southeast  of  nitrate  plant  No.  2.  in  Walker  County,  Ala., 
i^  located  what  is  known  as  the  Government-owned  Warrior  steam  plant  at  Gorgas.  Ala! 
ims  plant  was  constructed  under  contract  with  the  Alabama  Power  Co.,  dated  Decem- 
ber 1  1917,  on  land  owned  or  acquired  by  the  said  company.     It  was  built  in  the  vicin- 

^*^QA  AA^^i^M^^^^^  ^^*^  ^  ^®^  *^  "^^^^  ^^^^  ^^^®^^  ^^^^  ^^^  mines.  It  has  a  capacitv 
ot  30,000  kilowatts,  and  the  electric  power  produced  at  said  plant  is  carried  over  *a 
transmission  hne  extending  a  distance  of  about  88  miles  to  nitrate  plant  No  2  to  fur- 
nish power  for  the  operation  of  said  plant.  The  total  cost  of  the  plant  was  $4,979,782.33. 
Jt  was  built  and  paid  for  from  appropriations  for  armament  of  fortifications.  This 
property  is  now  being  operated  as  a  part  of  the  Alabama  Power  Co.  's  svstem  on  a  rental 
oasis  as  provided  for  m  the  contract  for  the  construction  thereof,  and  during  the  cal- 
endar year  1921  netted  the  Government  approximatelv  $75,000. 

i^ome  question  was  raised  in  my  mind  as  to  the  binding  effect  of  certain  provisions 
appearing  m  the  contract  for  the  construction  of  nitrate  plant  No.  2  by  the  Air  Nitrates 
corporation  and  in  the  contract  for  the  construction  of  the  Gorgas  Warrior  steam  plant 
and  transmission  lines  by  the  Alabama  Power  Co.,  which  purported  to  give  said  com- 
panies options  to  purchase  under  certain  conditions,  but  I  have  submitted  these  quoB- 
nons  to  the  Acting  Judge  Advocate  General  who  is  of  the  opinion  that  at  the  time  these 
^oniracts  were  made  there  was  no  authority  to  sell  said  properties,  and  hence  no 
authority  to  give  an  option  for  the  purchase  of  same.  He  holds  that  as  the  Constitu- 
tion vests  m  Congress  the  sole  power  to  dispose  of  and  make  all  needful  rules  and 


I 


6 


MtrSCLB  SHOALS  PROPOSITIONS. 


>i 


regulations  regarding  the  property  of  the  United  States,  and  Congress  not  having 
authorized  the  Secretarv  of  War  to  sell  the  same,  the  plenary  power  to  dispose  of  such 
property  still  rests  solely  in  Congress.  The  Acting  Judge  Advocate  General  has  alsa 
held  that  the  provision  contained  in  section  124  of  the  national  defense  act  directing 
that  the  plant  therein  authorized  be  operated  solely  by  the  Government  and  not  in 
conjunction  with  any  other  industry  or  enterprise  carried  on  by  private  capital,  is 
applicable  to  the  plant  as  a  whole  and  is  a  restraint  upon  its  sale.  This  construction 
if  justified,  would  prevent  the  lease  or  rental  of  the  plant  for  private  operation.  The 
solution  of  the  numerous  legal  questions  involved  naturally  occasioned  more  or  less 
dela>  in  the  consideration  of  the  proposals. 

In  this  connection,  I  may  say  that  the  Air  Nitrates  Corporation  has  notified  me  in 
writing  that  it  claims  the  right  to  exercise  the  option,  which  it  claims  to  have  under 
the  terms  of  its  construction  contract,  to  purchase  nitrate  plant  No.  2  on  as  favorable 
terms  as  those  offered  by  Mr.  Ford  for  the  property,  should  the  United  States  deter- 
mine to  accept  Mr.  Ford's  offer.  The  Alabama  Power  Co.  may  make  a  similar  claim 
in  regard  to  the  Warrior  plant  and  line. 

To  briefly  summarize  Mr.  Ford's  offer  for  the  above  properties,  the  considerations 
running  to  the  Government  are: 

(a)  Four  (4)  per  cent  on  part  of  the  capital  necessary  to  complete  the  construction 
of  the  power  projects  (no  interest  is  proposed  to  be  paid  upon  that  part  of  the  Govern- 
ment's investment  which  goes  to  ;pay  for  lands  and  flowage  rights  for  Dam  No.  3, 
which  item  is  estimated  by  the  engineers  to  exceed  $2,00C,000  in  probable  cost). 

(b)  The  pa>Tnent  of  a  sum  semiannually  into  a  sinking  fund  calculated  to  produce 
about  $49,000,000  at  the  end  of  the  lease  periods.  This  payment  amounts  to  $46,746 
annually.  In  other  words,  Mr.  Ford  proposes  to  pay  approximately  $49,000,000  at 
the  end  of  the  lease  period  provided  the  Government  has  been  able  to  invest  his 
payments  at  4  per  cent  per  annum. 

(c)  Mr.  Ford  proposes  to  pay  $35,000  a  year  for  the  upkeep  of  Dam  No.  2  and  its 
locks,  and  the  sum  of  $20,000  a  year  for  the  upkeep  of  Dam  No.  3  and  its  lock.  These 
payments  are  expected  to  meet  the  ordinary  upkeep  expense  with  which  the  Govern- 
ment is  charged.  Mr.  Ford  assumes  the  responsibility  for  upkeep  and  repair  of  the 
power  houses  and  equipment,  so  that  ultimately  such  equipment  is  expected  to  be 
turned  back  to  the  Government  in  approximately  as  good  condition  as  when  received. 

(d)  The  proposal  requires  Mr.  Ford's  company  to  operate  nitrate  plant  No.  2  to  its 
approximate  present  capacity,  which  is  estimated  to  be  a  production  of  110,000  tons 
of  ammonium  nitrate  per  annum,  and  to  sell  such  product  at  a  price  not  to  return  a  net 
profit  in  excess  "of  8  per  cent  of  the  actual  annual  cost  of  production." 

(e)  Mr.  Ford 's  company  is  to  maintain  nitrate  plant  No.  2  in  its  present  state  of 
readiness  for  immediate  operation  for  the  production  of  explosives,  and  is  to  turn 
it  over  to  the  Government,  together  with  such  of  its  personnel  as  may  be  required  for 
the  national  defense. 

(/)  The  Government  will  be  saved  the  expense  of  maintaining  and  operating  the 
present  imperfect  facilities  for  navigation  at  Muscle  Shoals,  amounting  to  from  $35,- 
000  to  $85,000  per  annum. 

There  are  a  number  of  advantages  to  the  Government  in  the  present  proposal  that 
were  not  apparent  in  the  first  offer.  Mr.  Ford's  original  proposal  of  July  8,  1921, 
contained  two  paragraphs  dealing  with  the  matter  of  amortization  of  the  cost  of  con- 
struction of  the  two  dams.  The  first  of  these  paragraphs  was  numbered  2,  and  reads 
as  follows: 

"At  the  beginning  of  the  seventh  year  of  the  lease  period,  and  annually  thereafter, 
the  company  will  pay  to  the  United  States  a  sum  not  greater  than  thirty-nine  thousand 
five  hundred  thirty-seven  dollars  ($39,537)  to  retire,  during  the  remaining  period  of 
ninety-four  (94)  years,  the  total  cost  of  the  Wilson  Dam  and  its  power  house,  sub- 
structures, superstructures,  machinery  and  appliances,  including  locks,  all  taken  at 
forty  million  dollars  ($40,000,000);  the  sinking  fund  investments  to  bear  the  highest 
rate  of  interest  obtainable,  but  not  less  than  four  per  cent  (4  per  cent)  per  annum. '^ 

The  other  paragraph  was  numbered  7  and  reads  as  follows: 

"At  the  beginning  of  the  fourth  (4th)  year  of  the  lease  period,  and  annually  there- 
after, the  company  will  pay  to  the  United  States  a  sum  not  greater  than  seven  thousand 
ten  dollars  ($7,010;),  to  retire,  during  the  remaining  period  of  ninety-seven  (97)  years, 
the  total  cost  of  Dam  No.  3  and  its  power  house,  substructures,  superstructures,  ma- 
chinery and  appliances,  including  lock  all  taken  at  eight  million  dollars  ($8,000,000) ; 
the  sinking  fund  investments  to  bear  tne  highest  rate  of  interest  obtainable,  but  not 
less  than  four  per  cent  (4  per  cent)  per  annum." 

In  the  present  proposal  the  subject  of  amortization  is  covered  in  one  paragraph^ 
numbered  10,  which  reads  as  follows: 


MUSCLE   SHOALS  PROPOSITIONS.  7 

"For  the  purpose  of  enabling  the  Government  to  create  and  provide  a  sinking  fund 
to  retire  the  cost  of  Dam  No.  3  at  the  end  of  one  hundred  (100)  years,  the  company 
will,  at  the  beginning  of  the  fourth  (4th)  year  of  the  lease  period,  and  semiannually 
thereafter  for  the  remammg  term  of  the  lease,  pay  to  the  United  States  Government, 
the  sum  of  three  thousand  five  hundred  and  five  dollars  ($3,505);  and  for  the  purpose 
of  enabling  the  Government  to  create  and  provide  a  sinking  fund  to  retire  the  cost 
of  Dam  No.  2  at  the  end  of  one  hundred  (100)  years,  the  company  will  at  the  beginning 
of  the  seventh  (7th)  vear  of  the  lease  period,  and  semiannually  thereafter  for  the 
remaining  term  of  the  lease,  pay  to  the  United  States  Government  the  sum  of  nineteen 
thousand  eight  hundred  and  sixty-eight  dollars  ($19,868)." 

It  will  be  observed  that  the  provision  for  amortization  in  the  last  proposal  is  very 
much  more  favorable  to  the  United  States  than  it  was  in  the  offer  of  July  8,  1921. 
By  the  earher  proposal  the  maximum  amount  which  the  Government  could  realize 
from  the  payments  made  by  Mr.  Ford  at  the  end  of  the  lease  periods  would  be  not  to 
exceed  $48,000,000  ($40,000,000  in  the  case  of  Dam  No.  2  and  $8,000,000  in  the  case 
of  Dam  No.  3).  The  annual  payments  were  in  no  case  to  exceed  the  amounts  stipu- 
lated, which  are  the  same  in  the  present  proposal  as  in  the  former  proposal,  but  the 
former  proposal  contemplated  a  reduction  in  amount  of  annual  payments  to  corre- 
spond to  the  excess  over  4  per  cent  interest  which  might  be  earned  by  the  sinking 
fund,  whereas  under  the  present  proposal  the  fixed  installments  for  amortization  are 
T?  '^fa  ^^^r^l^fs  of  the  rate. of  interest  earned  by  the  fund.  Therefore,  if  the 
United  states  should  be  able  to  invest  the  money  at  a  higher  rate  of  interest  than 
tour  (4)  per  cent,  the  sinking  fund  at  the  end  of  the  lease  periods  would  amount  to 
very  much  more  than  $48,000,000.    This  may  be  best  shown  by  the  following  table: 

Amoiint  retired  by  Mr.  Ford's  sinking  fund  at  various  rates  of  interest,  compounded 

semiannually. 


Account  of— 

Semi- 
annual 

pay- 
ments. 

Life  of 

fund 

(years). 

Amount  retired  at  rate  of— 

4  per  cent. 

4i  per  cent. 

^  per  cent. 

5  per  cent. 

6  per  cent. 

DamNo.2 

Dam  No.  3 

$19,868 
3,505 

94 
97 

$40,919,798 
8, 152, 137 

$48,783,949 
9,786,054 

$58,319,359 
11,780,690 

$8.3,718,097 
17,150,545 

$176,030,810 
37, 103, 880 

Total 

49,071,935 

58,570,003 

70,100,049 

100,868,642 



213, 134, 690 

int^?S  D^riS"' Th1.%TnHn^®  l^^t}^^""  ^'"^J"^  ^^^  Semiannually  at  the  beginning  of  each  semiannual 
rnrarpl5i.l^n^ts^?oTs=^^^  ^^«  ^-^-^  — ^  P-^^le^  -1th  the  a&v?Sf 

hx?M^^^^  *5?  ^^^^  ^®  constructed  at  a  cost  of  not  to  exceed  $42,000,000,  as  estimated 
^■^;  A  l"^/  engineers,  there  would  be  left  to  apply  on  the  investment  of  the  Govern- 
S  the  llfmo'^  ?f'lK^*^''^'  the  amortization  payments  would  produce  in  excess 
nJ^f  f42,WO,000  If  the  amortization  fund  should  be  invested  continuously  at  4 
at  «  Z  J  ""^  r^^i^  ^^  ^*  ^T*  $7,000,000  to  be  thus  applied,  but  should  it  be  invested 
ai  a  greater  rate  of  interest  the  amount  would  be  increased,  as  shown  by  the  table 

ine  provision  for  renewal  of  the  lease  which  was  contained  in  the  proposal  of  July 
»,  1921,  was  numbered  11,  and  reads  as  follows:  ^ 

flip  oi^^^  *^°^u  ^f^?^  ^  ^^^  expiration  of  said  lease  period  of  one  hundred  (100)  years 
th!  il  P  ?^  !?^"  ^^\®  ^^®  "^^*  ^  negotiate  with  the  Government  for  a  renewal  of 

mt^i^!\^\  ^  ^'^^  ?u  ""^'^  ^^°'','  ^^"^  P?"^®^  ^^"«^«'  ^^'  I^  the  event  of  disagree- 
a^nnL^o  ^t^^^^  the  renewal,  the  Umted  States  and  the  company  shall  each 
SitStinS  ^^^^^^ll^""^  these  arbitrators  shall  choose  a  third.  The  decision  of  the 
arbitration  board  of  three  shall  be  final  and  binding  upon  both  parties  " 
forim t^!''^  this  provision  was  to  bind  the  United  States  to  a  renewal  of  the  lease 
UmW  f^f  ^^  ^"^^  terms  as  should  be  determined  to  be  just  by  a  board  of  arbitration 
as  foflows  ""^^  P^^P««^^  ^^^  renewal  clause  is  contained  in  paragraph  17,  which  reads 

fan^l^^uf /*l^f-  ^^^  company  may  be  supplied  with  electric  power  and  the 
uS^^^t  JT^f ""!  ?^*^'  *^^  termination  of  the  said  100-year  leL,  should  the 
of  samp  f  hf  l^""^  ''''*  *u  "iF^^*^  ^^}^  P^^^^  P**^*«  b^t  determine  to  leake  or  dispose 
State^L  s^f.hTr^^  shall  have  the  preferred  right  to  negotiate  with  the  United 
If  thP  ^\aZ  ^^  '''■  P^^^hase  and  upon  such  terms  as  may  then  be  agreed  upon, 
tne  said  leases  are  not  renewed  or  the  property  covered  thereby  is  not  sold  to^id 


8 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


9 


company,  its  suoressors  or  assigns,  any  operation  or  disposal  thereof  shall  not  deprive 
the  company,  its  successors  or  assigns,  of  the  right  to  be  supplied  with  electric  power 
at  reasonable  rates  and  in  amount  equal  to  its  needs,  but  not  in  excess  of  the  average 
amount  used  by  it  annually  during  the  previous  10  years."  .    , 

This  parac^raph  does  not  bind  the  United  States  to  a  renewal  of  the  lease  and  is  in 
BO  way  an  attempt  to  control  the  policy  of  Congress  beyond  the  100-year  period  of  the 
present  lease,  except  to  preserve  to  Mr.  Ford's  company  ''the  preferred  right  to  nego- 
tiate with  the  United  States  for  such  lease  or  purchase  and  upon  such  terms  as  may  then 
be  agreed  upon. "  It  also  attempts  to  preserve  for  the  company  a  right  to  be  supplied 
withelectric  power,  for  a  period  not  stated,  "at  reasonal)le  rates"  in  the  event  the 
power  plants  are  operated  or  disposed  of  to  some  one  other  than  the  company. 

In  Mr.  Ford's  offer  of  July  8,  1921,  no  provision  was  made,  except  possibly  by  in- 
ference, as  to  who  should  bear  the  expense  of  renewals,  repairs,  and  maintenance  on 
the  power  houses,  machinery,  and  appliances  which  will  be  erected  and  installed  in 
connection  with  the  dams.  Paragraphs  4  and  8  of  the  present  proposal  impose  the 
obligation  upon  Mr.  Ford's  company  of  making  such  renewals  and  repairs  and  effecting 
such  maintenance  at  its  own  expense.  These  provisions  impose  upon  Mr.  Ford  a 
considerable  obligation.  ,,.,■.•        r.u    j 

Under  the  first  proposal  the  United  States  was  to  undertake  the  building  of  the  dams 
and  power  plants,  but  under  the  present  offer  Mr.  Ford's  company  is  to  do  the  con- 
struction work  in  accordance  with  plans  and  specifications  prepared  or  approved  by 
the  Chief  of  Engineers.  '  '    .       .        ,.  .v     , 

The  proposal  of  July  8,  1921,  contained  no  provision  for  a  termination  of  the  leases 
in  case  of  default.  Paragraph  18  of  the  present  proposal  applies  substantially  the  same 
provisions  to  Mr.  Ford's  proposed  leases  as  are  contained  in  the  present  water  power 

act 

Paragraph  19  of  the  present  proposal,  except  the  first  sentence  thereof,  had  nc 
counterpart  in  the  original  proposal  of  July  8,  1921.    The  new  matter  reads  as  follows 

"Upon  acceptance  the  promises,  undertakings,  and  obligations,  shall  be  binding 
upon  the  United  States,  and  jointly  and  severally  upon  the  undersigned,  his  heirs, 
representatives,  and  assigns,  and  the  company,  its  successors  and  assigns;  and  all  the 
necessary  contracts,  leases,  deeds,  and  other  instruments  necessary  or  ajDpropriate 
to  effectuate  the  purposes  of  this  proposal  shall  be  duly  executed  and  delivered  by 
the  respective  parties  above  mentioned."  ,    ,  ,. 

Apparently  this  is  an  attempt  on  Mr.  Ford's  part  to  express  a  personal  obligation  to 
assure  the  performance  of  the  contracts  which  are  to  be  made  by  the  company  which 
he  is  to  organize.  It  might  be  contended  that  this  languagg  is  susceptible  of  a  con- 
struction to  the  effect  that  Mr.  Ford  is  personally  bound  only  to  see  that  his  company 
enters  into  the  contracts  required  to  carry  out  the  terms  of  the  proposal,  and  this  point 
should  be  cleared  up  so  that  there  can  be  no  question  as  to  its  proper  construction. 
There  should  be  some  assurance  that  the  contracts  made  by  the  proposed  company 
will  be  carried  out  or  some  penalty  imposed  for  failure  to  perform. 

In  the  event  Mr.  Ford's  proposal  is  accepted,  the  Government  must  make  new  ap- 
propriations amounting  to  $40,000,000  to  $50,000,000,  of  which  Mr.  Ford's  company 
will  have  the  benefit  for  approximately  100  years  at  4  per  cent.  The  companv  is, 
of  course,  bound  to  keep  nitrate  plant  No.  2  in  a  condition  to  produce  explosives, 
which,  as  a  matter  of  preparedness,  is  of  great  value  to  the  Government,  as,  no  doubt, 
a  plant  fully  organized  and  in  production  would  be  available  far  sooner  than  one 
maintained  merely  in  stand-by.  Nevertheless,  Mr.  Ford  is  offering  but  $5,000,000 
for  the  title  to  the  two  nitrate  plants,  the  Waco  quarry,  the  Gorgas-Warnor  steam 
plant,  transmission  lines,  and  appurtenances.  That  Congress  may  the  better  under- 
stand the  value  of  the  propertv  for  which  Mr.  Ford  is  offering  this  $5,000,000,  I  am 
attaching  to  this  letter,  as  Exhibit  A,  a  statement  prepared  by  the  Chief  of  Ordnance 
showing  the  cost  and  estimated  salvage  value  of  these  properties.  From  the  table 
contained  in  this  statement  it  will  be  saen  that  these  properties  cost  the  United  States 
approximately  $85,030,000  and  that  as  scrap  they  are  estimated  to  be  worth  $8,812,000. 
However,  the  last  column  of  the  table  in  Exhibit  A  indicates  that  the  Chief  of  Ordnance 
believes  the  War  Department  can  dispose  of  the  property  for  $16,272,000.  Mr.  Ford 
is  bound  by  his  proposal  to  operate  nitrate  plant  No.  2,  but  there  is  no  legal  obstacle 
to  prevent  his  disposing  of  the  other  properties  to  which  he  gets  title. 

Should  he  be  able  to^obtain  what  the  Chief  of  Ordnance  estimates  that  the  Govern- 
ment can  secure  for  the  various  items,  namely,  $3,000,000  for  the  Warrior  plants, 
which  have  an  installation  of  40.000  horsepower,  and  $(>00.000  for  nitrate  plant  No. 
1  and  dispose  of  the  Warrior-Muscle  Shoals  transmission  line  as  a  transmission  line 
and  not  as  scrap  for  $675,000,  and  should  he  obtain  $357,000  for  the  Waco  quarry  he 
would  have  left  the  nitrate  plant  No.  2,  with  its  80.000-horsepower  steam  plant,  at 
a  cost  to  him  of  less  than  $400,000.  The  interest  on  the  proceeds  of  such  possible 
sales  would  amount  to  a  very  large  sum  during  the  terms  of  the  proposed  contract. 


The  Prfent  revenue  from  rental  of  the  power  plant  at  nitrate  plant  No  2  is  a  mini- 
{^''$"^60  000  '  T^r'  Tr  ^'}  "  I-««i»f  it/that  in  event  of^operation  it  ma^  n 
^onWnnnA  ■  1  "^T^  ""/  '"'^in^enance  of  nitrate  plant  No.  2  was  approximate  v 
$200,000  during  the  fiscal  year  1921.  The  total  horsepower  developed  by  the  S 
th?ril^«i?^^'  '"^  "^^-'^  ^'i  ^^''^  '^"^  ^^'  ^^^^  i«  ^25,000.  which  prLXafly  doubles 
So  000  ofT  I'  P"""^'"^  horsepower  to  be  developed  at  Dam  No.  2  (approximatelv 
365'daysln  th^^^^^  '^''' ''  '"  ^'  ^'^'^^"P^^  '^'  ^^"^  ^^'  ^  will  notT  av^iS 

Inasmuch  as  f  am  vvithout  authority  in  law  to  accept  Mr.  Ford's  offer  or  disoose  of 

ar!,? TC'^-"^ wS  '^^^'^•'  f'^^^y  ^'^  «^'^  «^  ^'y  ^^^«^'  it  is  peculiarly  the  province  of  Con- 
gress to  weigh  the  considerations  which  will  pass  to  the  respective  parties  to  the  oro 
posed  arrangement  and  to  determine  whether  or  not  the  advLtage  toTh7GoverL^en^^ 
in  having  nitrate  Plant  No.  2  maintained  in  readiness  for  the  manufacture  of  exnlos hes 
and  in  actua  production  of  fertilizer,  together  with  the  improvement  to  naW^^^^^^ 
fL'Vi^'-"''^  importance  to  justify  the  proposed  departure  fron!  the  p^sentfol  ov  of 
rit  1  T  •''  '?^T/  ^S  ^S^^'^^  ^^^  t^^  water-power  resour<es  of  the  Nation  and  to  wa? 
rant  leasing  to  Mr.  Ford  Government  property  for  so  long  a  period  at  the  ren  aTpropoH 
If  Mr   Ford  s  proposal  be  accepted  by  Congress,  I  suggest  that  there  should  1  e^r 
tarn  modifications  made  to  safeguard  the  Govlrnmint's  interest.     As  hereto  ore  steted 

wnn^e  ;S  o,r'  '"""^^*'  '^^''  ''''  ^""'^"^'^^  ^"^^^^  ''y  ''^'  proposed  com^^^^^^ 

DlmKn'fT^f^f  the  cost  Of  acquiring  the  lands  and  flowa^e  rights  necessary  for 
Dam  ^o.  3  should  I  e  included  in  the  sum  upon  which  Mr  Ford  is  t^  nav  4  rTr  L^f 
interest  as  rent.  The  omission  of  the  cost  of  these  lands  from  tMs  compi^&\il,^Ts  n  o?e 
serious  than  would  be  the  omission  of  the  provision  for  a  sinking  funcf  for  he  annual 
nterest  of  4  per  cent  on  the  cost  of  such  lands  and  rights,  if  used  for  that  nurn^^^^^^ 
pr'oposaL ''''^  '  '^"'  '""'^  ^^''''  *^""  '^"^  P^^^^^^  ^«'  ^^  parag^h  10  of  L"^^^^^^^^^^^ 
ihi^  T^  the  proposed  company  sells  any  or  all  power  dexeloped  at  either  or  both  of 

Xnl T' ''  '  n^"^"^  ^-^  ^"^"^^"^.  ^«  i^  ««  "^^^r  ^^r"^«  ^"^  conditions  hnposed  bv  the 
federal  Power  Commission  or  the  Public  Service  Commission  of  Ala!  «rna    i^  fH 
manner  required  of  other  power  companies  ommission  of  Alal  ama,  in  the 

formInT  '*  >TJ^iI'!,'^",^'  P»lf  y  to  limit  the  contract  to  a  term  of  50  years  to  con- 
form to  the  e8ta])lished  policy  of  the  Federal  Government  as  set  out  in  the  watPr 
power  act.     In  my  opinion  a  contract  such  as  that  proposed  for  a  period  of  100  vea^ 
IS  not  a  wise  general  policy,  in  view  of  the  unknown  possil  ilities  siTroundino^^^^^^ 

is  l?otv  to'fhf&lH^'^l  ^.  ^^  *^''  P^'l*  P'^P^^^  P^^^-i^^^  tliat  Mr.  Ford's  companv 
in  I)?m  Nn^  f  ^  •  ^t^tes  annually  the  sum  of  $35,000  on  Dam  No.  2  and  $20  m 
on  Dam  No.  3  for  repairs,  maintenance,  and  operation  of  the  dams  ?atps  nnH  L.;.v=^ 

^A?    T^^^^  property  and  omit  these  payments.  ^ 

If  Mr.  Ford's  proposal  be  not  accepted,  it  is  my  ooinion  that  Dnm  Nn  9  nva.r.^ 
Dam)  should  be  completed  by  the  G^)vemment,  InHZ  hf  pow^r  reouirem^t^ 
for  conimercial  purposes,  the  benefits  to  navigation,  as  well  LXe  poSb  e  nepds 
of  the  Government,  would  warrant  this  expenditure  If  this  werl  doZtLf^l 
ernment  may  itself  undertake  to  sell  the  product  to '  the  best  aXanta^^^^  In  ^Th" 
mater^a^lvrH^^^'','^"  Government's  preLt  proposed  investmerw^^^^^^  be     ery 

^t  ^e  bu^l'  ^D^^^^^  ^?^  ^'  "^T^^  from^$18,000,000  to  $25,000,(Sk)  wouW 

r!^L       1     :*      ..,   ,  ^  ^^-  2  ^*  ''^'ould  not  be  necessary  to  make  the  full  installatinn  nf 
Uon  w?i^d  Vfft'  '^'  ^.^rket  should  require  such  installation     ThL  S  & 

WinT^cofd^  tlrex^^:ed^$^^^^ 

ra?^'maVe\V&^^ 

eS  of  $15  OOO^S)  d^wn^^^^^^^^  '^'^'^^  ^*/^^^^^  ^'  E^^ibit  B)'shows  a  loss  in 

t&nrJ^^n^^A^^?^  *V^  is  a  large  amount  of  unemployment  it  is  not  without  imnor- 
tance  to  consider  the  advantage  to  the  Nation  of  the  employment  of  thriaree  amo^fnt 

FvlS^^f^T^P^  hereto  the  follo.^'ing  exhibits  which  mav  prove  helpful  to  Concrress- 
ii^xhibit  A:  Proposal  of  Henry  Ford  dated  July  8,  1921:'  ^^^^P^^i  lo  congress. 


I 


10 


MUSCLE  SHOALS  PEOPOSITIONS. 


MUSCLE  SHOALS  PEOPOSITIONS. 


11 


Exhibit  B:  Letter  from  Henry  Ford  dated  January  11, 1922,  modifying  the  proposal 
of  Julv8,  1921; 

Exhibit  C:  Proposal  of  Henry  Ford  dated  January  25,  1922;  ' 

Exhibit  D:  Memorandum  from  the  Chief  of  Ordnance; 

Exhibit  E:  Memorandum  from  the  Chief  of  Engineers;  ^i.  xn  i^ 

Exhibit  F:  Cost  statement  of  Nitrate  Plants  No.  1  and  No.  2  and  ^\  amor- Sheffield 
Power  Station  and  Transmission  line;  and  ,       .,  ^  ,, 

Exhibit  G:  Memorandum  from  Maj.  John  A.  Smith,  Judge  Advocate  General  a- 

1  shall  be  glad  to  place  at  the  disposal  of  Congress  any  additional  information  which 
it  may  desire. 

^^^^  John  W.  Weeks,  Secretary  of  War. 

Exhibit  A.  • 

Dearborn,  Mich.,  July  S,  1921. 

Gen.  Lansino  H.  Beach, 

Chief  of  Engineers,  United  States  Army,  Washivqton,  D.  C. 

Sir-  In  response  to  your  advice  that  the  Government  invites  an  offer  for  the  power 
at  the  Muscle  Shoals  Wilson  Dam,  on  my  part  or  on  the  part  of  a  company  to  be  formed 
by  me  ^and  throughout  this  proposal  to  be  called  the  company),  I  hereby  and  through 
you  place  at  the  disposal  of  the  President,  the  Secretary  of  War,  and  Congress  the 
following  tender:  . 

1.  If  the  United  States  will  promptly  resume  construction  work  on  the  ^ilson 
Dam  and  as  speedilv  as  possible  complete  the  construction  of  the  dam,  and  pro- 
gressively install  hvdroelectric  facilities  and  equipment  for  generating  600,000  horse- 
power then  the  coinpanv  will  agree  to  lease  from  the  United  States  the  Wilson  Dam, 
it^  power  house,  and  all  of  its  hvdroelectric  and  operating  appurtenances,  together 
with  all  lands  and  buildings  owned  by  the  United  States,  connected  with  and  adjacent 
to  either  end  of  the  Wilson  Dam,  for  a  period  of  one  hundred  (100)  years  from  the  date 
of  the  completion  of  the  dam  and  its  power-house  facilities;  and  the  company  will 
pav  to  the  United  States  six  (0)  per  cent  on  the  remaining  cost  of  the  locks,  the 
dam  and  power-house  facilities,  taken  at  twenty  million  dollars  ($20,000,000), 
in  pavments  of  one  million  two  hundred  thousand  ($1,200,000)  annually,  except  that 
during  the  first  six  years  of  the  lease  period  payments  shall  begin  and  be  made  annually 

Two  hundred  thousand  dollars  ($200,000^  one  year  from  the  date  when  100  OOO' 
horsepower  is  generated  and  continuouslv  ready  for  service,  and  thereafter  two  hundred 
thouFand  dollars  ($200,000)  annually  at  the  end  of  each  year  for  five  yeare  A^^uu 
first  six  vears  pavment  of  one  million  two  hundred  thousand  dollars  ($1,200,000)  ehall 
be  made  annuallv,   at  the  end   of  each  calendar  year,   dunng  the  lease  penod. 

2  At  the  beginning  of  the  seventh  year  of  the  lease  period,  and  annually  thereafter, 
the" company  will  pay  to  the  United  States  a  sum  not  greater  than  thirty-nine  thou-^ 
sand  five  hundred  thirty-seven  dollars  ($39,537)  to  retire,  dunng  the  remaining  period 
of  ninety-four  (94)  years,  the  total  cost  of  the  Wilson  Dam  and  its  power  house,  sub- 
structures, superstructures,  machinery  and  appUances,  including  locks,  all  taken  at 
forty  million  dollars  ($40,000,000);  the  sinking  fund  investments  to  bear  the  highest 
rate  of  interest  obtainable,  but  not  less  than  four  per  cent  (4  per  cent)  per  annum. 

3  The  company  will  further  agree  to  pay  to  the  United  States  thirty-five  thousand 
dollars  ($35  000)  annually  for  repairs,  maintenance,  and  operation  of  the  dam,  gates,  and 
locks  at  Wilson  Dam;  all  repairs,  maintenance,  and  operation  of  the  same  to  be  under 
the  direction,  care,  and  responsibility  of  the  United  States  dunng  the  hundred  (100) 

^^4^  §'he  company  will  furnish  the  United  States,  free  of  charge,  delivered  at  a  point 
on  the  lock  grounds  designated  by  the  Chief  of  Engineers,  electnc  power  not  to  exceed 
two  hundred  (200)  horsepower,  for  the  operation  of  the  locks.  ^ 

5  If  the  United  States  shall  accept  the  above  proposal  for  leasing  the  Wilson  DaTn 
and  its  power  installation,  then  as  a  condition  of  acceptance  the  company  will  ask 
that,  immediately  upon  release  of  suitable  construction  equipment  and  facihties  at 
the  Wilson  Dam,  and  upon  the  release  of  labor  forces,  the  United  States  will  forthwith 
proceed  to  construct  and  fully  complete  with  reasonable  promptness  Dam  No.  3,  bs 
designed  and  proposed  by  the  United  States  Engineers,  the  power  installation  at 
Dam  No.  3  to  be  taken  in  this  proposal  at  two  hundred  fifty  thousand  (250,000> 

h  orseno^^ef 

6  when  the  lock,  dam,  and  power  house  installation  at  Dam  No.  3  are  completed, 
the  company  offers  to  lease  Dam  No.  3,  its  power  house  and  all  of  its  hydroelectric 


and  operating  appurtenances  for  a  period  of  one  hundred  (100)  years  from  the  date 
of  the  completion  of  the  dam  and  its  power  house  facilities,  and  the  company  will 
pay  to  the  Umted  States  six  per  cent  (6  per  cent)  on  the  cost  of  the  dam,  lock,  and 
power  house  facihties,  taken  at  a  cost  of  eight  milHon  dollars  ($8,000,000),  in  payments 
of  four  hundred  eighty  thousand  dollars  ($480,000)  annually,  except  that  dunng  the 
first  ttiree  years  of  the  lease  penod  payments  shall  begin  and  be  made  annuaUy  as 

One  hundred  f^ty  thousand  dollars  ($160,000)  one  (1)  year  from  the  date  when 
eighty  thousand  (80,000)  horsepower  is  generated  and  continuously  ready  for  service 
and  thereafter  one  hundred  sixty  thousand  dollars  ($160,000)  annually  at  the  end  of 
each  year  for  two  years.  If  and  when,  after  the  first  three  years,  the  entire  power- 
house generating  equipment  of  two  hundred  fifty  thousand  (250,000)  horsepower  is 
?SfS!)^^  ut^^  ^""I  ^^"^"^I'l  P^y^ents  of  four  hundred  eightv  thousand  dollars 
($480,000)  shall  be  made  annually  at  the  end  of  each  calendar  year  during  the  remain- 
ing mnety-seven  (97)  years  of  the  lease  period. 

7.  At  the  beginning  of  the  fourth  (4th)  year  of  the  lease  period,  and  annually  there- 
after the  company  will  pay  to  the  United  States  a  sum  not  greater  than  seven  thousand, 
and  ten  dollars  ($7,010)  to  retire  during  the  remaining  period  of  ninet  v-seven  (97)  years 
the  total  cost  of  Dam  No.  3  and  its  power  house,  substructures,  superstructures  ma- 
chinery and  appliances,  including  lock,  all  taken  at  eight  million  dollars  ($8,000  000) 
the  sinking-fund  investments  to  bear  the  highest  rate  of  interest  obtainable,  but  not 
less  than  four  (4)  per  cent  per  annum. 

Hn?i;I^^t9n''Z^''^  will  further  agree  to  pay  to  the  United  States  twenty  thousand 
dollars  ($20,000)  annually  for  repairs,  maintenance,  and  operation  of  dam,  gates,  and 
lock  at  Dam  No.  3;  all  repairs,  maintenance,  and  operation  of  the  same  to  be  under  the 
direction,  care,  and  responsibiUty  of  the  United  States  durine  the  one  hundred  (100) 
year  penod.  "  ^      ^ 

9.  The  company  will  furnish  the  United  States,  free  of  charge,  at  Dam  No.  3,  to  be 
delivered  at  a  point  on  the  lock  grounds  designated  by  the  Chief  of  Engineers,  electric 
power  not  in  excess  of  one  hundred  (100)  horsepower  for  the  operation  of  the  lock. 
*x,      1  Umted  States  shall  accept  the  above  several  proposals  in  their  entirety, 

then  the  company  offers  to  purchase  from  the  United  States  the  following  properti^' 

1  ^^)  u  *-,^-  *^®  property  at  nitrate  plant  No.  2  and  its  adjacent  steam-power  plant 
land,  building,  material,  machinery,  fixtures,  equipment,  apparatus,  appurtenances, 
tools,  supplies  and  the  right,  license,  and  privilege  to  use  any  and  all  of  the  patents 
processes,  methods  and  designs  which  have  been  acquired  bv  the  United  States  (and 
which  the  United  States  haa  a  right  to  transfer  and  assign  the  use  of  to  any  purchaser 
of  nitrate  plant  No.  2),  together  with  the  sulphuric-acid  units  now  in  storage  on  the 
premises.  ° 

Jl\  A"  ""I  the  properties  of  the  United  States  at  nitrate  plant  No.  1,  its  steam-power 
plant,  land,  buildings,  matenal,  machinery,  fixtures,  equipment,  apparatus  appur- 
tenances, tools,  supplies  and  the  right,  license,  and  privilege  to  use  any  and  all  of  the 
patents  processes,  methods,  and  designs  appertaining  to  said  nitrate  plant  No.  1 
which  have  been  acquired  by  the  United  States;  but  nitrate  plant  No.  1  shall  not  be 
operated  as  an  air  nitrogen  fixation  plant  as  designed  to  be. 

^nli  J^    °^^^^  property  at  the  quan-y  of  the  United  States,  known  as  the  Waco  quarry 
othe^  e  ui  mSTt  buildings,  quany  tracks,  machinery,  railroad  tracks,  tools,  and 

t\.^^\i^^^^  the  steam  plant,  built  and  owned  by  the  Government  at  Gorgas,  Ala.,  on 
annu^olr!^''''  T^'  ^^^^^^^^  material,  buildings,  machinery,  fixtures,  apparatus, 
?n  n?tJi?  i""^^^  if^'^^.^iP.^^'^^'  ^S?  ^¥  transmission  line  from  the  Goi^as  steam  plant 
o?  w.f  ^  ^J^""^  ^^'  ^t  Muscle  Shoals;  the  United  States  to  acquire  title  to  the  rkht- 
uZl  A    'I  ^eces^  along  the  transmission  Une,  and  also  to  acquire  the  title  to  the 

othitf  ^'*®  "^""^^^^y  t^®  «team  plant  and  by  all  Government  buildings  and 
other  structures  at^le  Gorgas  steam  plant. 

unrlol  *^\ foregoing  plants  and  other  properties,  as  set  forth  and  described  above 
(%^^ru^\  ^^Ixf'  }^  company  offers  to  pay  the  United  States  five  million  dollars 
^^0  uuo,ooO),  the  terms  of  payment  to  be  agreed  upon  between  the  Secretary  of  War 
an^  ^t  ^o^Pany' the  Secretary  of  War  having  the  authoritv  to  dispose  of  said  plants 

11     ?^'  properties  as  above  enumerated.  ^ 

vears  fhot^L*^"^®  ^^n  u°  the  expiration  of  said  lease  period  of  one  hundred  (100) 
of  thl'  lp.!f cT^fu  ^.^^^"^^^""^^^^  ''^^*  ^^  negotiate  with  the  Government  for  a  renewa 
mpnt  i!f  f  ^'^'"  *^!  *^^  ^^""""^  ^^'^^'  ^^^^  ^o^er  houses,  etc.     In  the  event  of  disagree- 
?n  arlWf  ^^/^^™«5f  the  renewal,  the  UniteS  States  and  the  companv  shall  each  ap|oint 

Sn  boa^^^^^^^  ^^^"^'r  «\^»,^.hoose  a  third     The^decision  of  the  a?C 

won  Doard  of  three  shaU  be  final  and  binding  upon  both  parties. 


I 


12 


MUSCLE  SHOALS  PROPOSITIONS. 


12.  If  the  United  States  agrees  to  sell,  and  the  company  purchases  these  severaf 
properties,  nitrate  plants,  qiiarrv,  steam  power  plants,  transmission  lines,  etc.,  and 
at  prices  and  on  terms  miituallv'satisfactory,  the  company  will  operate  nitrate  plant 
No.  2  to  approximate  present  capacity  in  the  production  of  nitrogen  and  other  fertilizer- 
compounds,  with  the  following  special  objectives: 

(a)  To  determine  by  research  on  a  commercial  scale  whether  by  means  of  electric 
furnace  methods  and  industrial  chemistry  there  may  be  produced  fertilizer  com- 
pounds of  higher  grade  and  at  cheaper  prices  than  the  fertilizer-using  farmers  have  m 
the  past  been  able  to  procure,  and  to  determine  whether  in  a  broad  way  the  applica- 
tion of  electricity  and  industrial  chemistry  may  do  for  the  agricultural  industry  of 
the  country  what  they  have  economically  accomplished  for  other  industries. 

(h)  To  maintain  nitrate  plant  No.  2  in  a  state  of  readiness  to  be  promptly  operated 
in  the  manufacture  of  materials  necessary  in  time  of  war  for  the  production  of  ex- 
plosives. 1      TT   •     J  o  J  -e 

13.  If  the  above  offers  of  the  company  are  accepted  by  the  United  btates,  and  if 

the  agreement  between  the  Secretary  of  War  and  the  company  can  be  made  for  the- 

•purchase  of  the  above-described  properties,  it  wall  naturally  and  reasonably  follow^ 

that  the  buyers  of  fertilizers  will  desire  to  be  assured  that  fertilizers  produced  at 

nitrate  plant  No.  2  shall  be  sold  at  fair  prices  and  without  excessive  profits. 

14.  To  meet  this  reasonable  expectation  on  the  part  of  the  farmers  of  the  country 
who  buy  fertilizer,  the  company  proposes  that  the  maximum  net  profit  which  it. 
shall  make  in  the  manufacture  and  sale  of  fertilizer  products  at  nitrate  plant  No.  2: 
shall  not  exceed  eight  per  cent  (8  per  cent) .  The  company  also  suggests  that  a  board 
be  created  composed  of  officially  designated  members  and  representatives  of  farmers 
national  organizations,  such  as  the  American  Farm  Bureau  Federation,  the  National 
Grange,  and  the  Farmers'  Union,  together  with  a  representative  from  the  Bureau  of 
Markets  of  the  Agricultural  Department  (to  be  an  ex  officio  member  of  this  board, 
serving  in  an  advisory  capacity,  without  right  to  vote)  and  two  representatives  of 
the  companv.  It  is  expected  that  the  board  shall  have  access  to  the  books  and 
records  of  the  company  at  any  reasonable  time  and  that  its  duty  shall  be  to  investi- 
gate costs  and  revenues  and  to  determine  for  public  information  whether  the  profits 
of  the  company  are  being  kept  within  the  established  limit  of  eight  per  cent  (8  per 
cent),  as  above  set  forth;  and  it  is  also  suggested  that  this  board  determine  upon  tha 
territorial  distribution  of  fertilizers  produced  at  nitrate  plant  No.  2.  If  and  when 
this  board  can  not  agree  upon  its  findings  and  determinations,  then  the  points  of  dis- 
agreement by  the  board,  at  any  time,  shall  be  referred  to  the  Federal  Trade  Commis- 
sion for  arbitration  and  settlement,  and  the  decision  of  the  trade  commission  shall  be 
final  and  binding  upon  the  board.  . 

15.  Whenever,  in  the  event  of  war,  the  United  States  shall  require  any  part  of  the 
operating  facilities  of  nitrate  plant  No.  2  for  the  production  of  materials  necessary 
in  the  manufacture  of  explosives  then  the  United  States  shall  have  the  immediate- 
right,  upon  notice  to  the  company,  to  take  over  and  operate  the  same  for  the  national 
defense  of  the  country,  and  the  company  will  supply  the  United  States  with  hydro- 
electric power  necessary  for  such  operations,  together  with  the  use  of  all  patented 
processes  which  the  United  States  may  need  in  time  of  war  for  munition  purposes 
and  which  the  company  owns  and  has  the  right  to  use,  and  any  of  the  company  s 
personnel  and  operating  organization  required  in  times  of  war  for  operating  any  part 
of  nitrate  plant  No.  2  in  the  manuliacture  of  materials  for  explosives  shall  be  at  the- 
disposal  of  the  United  States.  All  duly  authorized  agents  and  representatives  of  the 
United  States  shall  have  free  access  at  all  reasonable  times  during  the  lease  period 
to  inspect  and  study  all  of  the  operations,  chemical  processes,  and  methods  employed 
by  the  company  at  nitrate  plant  No.  2,  provided  that  such  agents  and  representatives 
shall  not  ilge  the  information  and  the  tacts  about  any  of  the  (5ompany's  operations, 
except  ^irfiie  benetit  and  protection  of  the  United  States. 

16.  Itiwill  be  obvious  to  you  that,  should  the  above  proposals  and  offers  of  ^.he 
company  be  accepted  by  the  United  States,  there  will  be  many  details  in  the  lease 
and  purchase  agreements  to  be  worked  out;  but  it  is  believed  that  the  above  will  fur- 
nish all  of  the  information  required  for  decision  by  the  United  States  upon  the  tender 
herein  submitted. 

17.  The  above  proposals  of  the  company  are  submitted  as  a  whole  and  not  in  part. 

18.  The  plans  of  the  company  with  respect  to  its  hydroelectric  power  needs  are 

such  that  it  is  hoped  that  you,  and  those  to  whom  you  refer  these  proposals,  will  be 

able  to  arrive  at  prompt  decisions  regarding  the  company's  offer,  and  that  it  can  be 

confidently  expected  that  the  undersigned  will  very  soon  receive  an  answer  to  this 

communication . 

Respectfully,  „  _ 

.  Henry  Ford^ 


MUSCLE  SHOALS  PROPOSITIONS. 
Exhibit  B. 


13 


,      Hon.  J.  W.  Weeks,  Dearborn,  Mich..  January  11,  1922. 

Secretxiry  of  War,  Washington,  D.  C. 
My  Dear  Mr.  Secretary:  Referring  to  offer  of  July  8  1921 
The  company  proposes  to  undertake  the  construction'  and  completion,  at  actual 
cost   of  a  1  the  work  referred  to;  and  when  completed  and  ready  for  operation  will 
pay  the  Umted  States  Government  as  annual  rental  of  the  property  an  amount  equal 
to  4  per  cent  of  the  total  cost  of  such  construction  f    f     j  u^it  e^uai 

Very  truly,  yours, 

Henry  Ford. 
Exhibit  C. 

PROPOSAL  OF  henry  FORD  FOR  THE  COMPLETION  AND  LEASING  OF  THE  DAMS  AND  HYDRO- 
ELECTRIC POWER  PLANTS  AT  MUSCLE  SHOALS  AND  FOR  THE  PURCHASE  OF  NITRATE 
PLANT  NO.  1,  NITRATE  PLANT  NO.  2,  THE  WACO  QUARRY,  AND  THE  GORGAS  WARRIOR 
RIVER    STEAM    PLANT,    ALL   IN    THE    STATE    OF   ALABAMA.  WAKKIOR 

ir.'^T,^  the  United  States   through  the  Chief  of  Engineers,  United  States  Armv 
qhnif  "^urf  ""dersigned  to  submit  an  offer  for  the  power  to  be  developed  at  the  m3 
Shoals  Wilson  Dam  (hereinafter  referred  to  as  Dam  No  2)-  and 
F^^^""^^^  the  undersigied  did   under  date  of  July  8,  1921,  submit  to  the  Chief  of 
Engineers  an  offer  for  the  consideration  of  the  President,  the  Secretary  of  War  and 
Congress  which  offer  proposed  a  lease  based  upon  the  completion  of  Dam  No.  2  Sd 

&^9fi9  "L^r^  ^  ^"^  .''■  ^  ^^  designated  by  the  United  States  Engineers  in  House 
Doc.  1262,  64th  Cong.  1st  sess.,  and  hereinafter  referred  to  as  Dam  No  3)  and  of  their 
power  houses  by  the  United  States,  and  the  payment  by  the  unders%ned  of  a  fixed 
A^rlr'i^^  ther^or,  and  proposed  to  purcW  Nitrate  Plant  No.  1  at  Sheffield 

5;^^' w*^  P^^*  '^^-  ^^^  ^""^^^  Shoals,  Ala.;  Waco  quarry,  near  Russellville  Ala  • 
Lw  pttTnd  '''^°'  ^        ^'  ^"""^^  ^*^'  ^^^  ^"  transmiiion  lines  cTnircted  t^th 

Whereas  the  undersigned,  at  the  invitetion  of  the  Secretary  of  War,  did,  on  January 
«nH  .3r.?  ^  l^  modification  of  his  former  proposal,  based  upon  the  construct!^ 
offfr  of  J?, if  riQ?l\7^  ^  ^^  1^"?^^  ^y}"'"^^  ^^  ^"  th^  ^«^k  r^f^^ed  to  in  the 

Sf  qf  a^nt^'^^^^  r  ^v'  fTu^p^r  ^cL^tTpe^^^^^^^^^^^ 

Now,  therefore,  in  lieu  of  said  offer  of  July  8,  1921,  and  in  accordance  with  said 

^^^^TVau^^w''  1''  '''''  '^'  ^^^-^^^-^  hereby  submits  to  The  SecTetrrol 
war,  and  through  him  for  appropriate  action  by  the  President  and  Cont'resa    tl  a 

cdnJTeLl  '^'''  "^^"^  '^""  ^^^""^^  ^  ^^"^i^^  ^^^«-««t  ^A  approval  ofs^m'e  I  y 

fnrm  o""""  ^^^  P^^'PTu''^  carrpug  out  the  terms  of  this  agreement,  the  undersigned  wiU 
orm  a  corporation  (hereinafter  referred  to  as  the  company),  to  be  controuS  bv  the 
undersigned   which  company  will  immediately  enter  Into  and  execute  all  nec^sar? 
or  appropriate  instruments  of  contract  to  effectuate  this  agreement  necessary 

Dam  No  9T£TJv  ^^"  complete  for  the  United  States  the  construction  work  on 
withthpnLfin  '  P.7^^.^«^««'  and  all  necessary  equipment,  all  in  accordance 
mm  the  plans  and  specifications  prepared  or  to  be  prepared  or  approved  bv  the  Chief 
of  Engineers,  United  States  Army,  and  progressively  install  the  hX^lectric  eauin 

Tmomli  P"^''  ^""T,  1"^""*?  f or  geSeSting  app^roximatelfsiSndr^  L^^^^ 
(bOO,000)  horsepower,  all  the  work  aforesaid  to  be  performed  as  speedilv  as  dossi^I p 

nec'e's^arv  landsTnd  T^'^'  ^'^^'  ^'  .*^.^-  ^T^^^'  ''  being''uTdersS>d^tM| 
tions  to^  Ik  ^""^  ^M^u^®  "^^.^^'  ^i^cluding  lands  for  railway  and  terminal  connec- 
tions  have  been  or  will  be  acquired  by  the  United  States. 

all  of  it!f  ^?''?P^''^.'^"  *T^  from  the  United  States  Dam  No.  2,  its  power  house  and 
a  rinds  ^J^^r -M •"'  ^°^  operating  appurtenances,  except  the  locks,  togethe?^°h 
or  aSnt  l^'^.^i'^'^'^i''?^  ^'  .*?  ¥  acquired  by  the  United  States  connected  wi  h 
the  Jate  wbpn  «^'  f  ^  ^^  '^^  '^^  ^^"^'^^^  ?  P^"«^  «^  «°«  ^^^^red  (100)  ^eare  fTom 
(100  000>i  W  '^'"^^"'■^«  and  equipment  of  a  capacity  of  one  hundred  thousand 
nav  fnfl  ?T^?T?r  ^^  constnicted  and  installed  and  ready  for  service  and^ll 
actual  o^t  ^i'''^'^  -^^^^^  as  annual  rental  therefor  four  per  cent  (4  peVcen?)  ofThe 
and"'p*ow?;i^^^^^^^  ^^^.  of  completii.g?heS,lm' 

power  nouse  facilities  (but  not  including  expenditures  and  obligations  incurred 


I 


wi 


14 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


15 


i 


prior  to  approval  of  this  proposal  by  Congress),  payab  e  annually  at  the  end  ot  each 
lease  vear  except  that  during  and  for  the  first  six  (6)  years  o  the  lease  period  the 
rentals  shall  be  in  the  following  amounts  and  payable  at  the  following  times  to  wit: 
Two  hundred  thousand  dollars  ($200,000)  one  (1)  year  from  the  date  when  one  hundred 
thousand  (100,000)  horsepower  is  installed  and  ready  for  serv;ice,  and  thereatter  two 
hundred  thousand  dollars  ($200,000)  annually  at  the  end  of  each  year  for  fave  (5)  years. 
4.  The  company  will  further  pay  to  the  United  States  during  the  period  of  the 
lease  of  Dam  ^o.  2  thirty-five  tWsand  dollars  ($35,000)  annually,  in  installments 
quarterly  in  advance,  for  repairs,  maintenance,  and  operation  ot  Dam  JNo.  2,  its  gates 
and  locks,  it  being  understood  that  all  necessary  repairs,  maintenance,  f^id  operation 
thereof  shall  be  under  the  direction,  care,  and  responsibility  of  the  United  btatea 
during  the  said  one  hundred  (100)  year  lease  period;  and  the  comply,  at  its  own 
expense  will  make  all  necessary  renewals  and  repairs  incident  to  effacient  naainte- 
nance  of  the  power  house,  substructures,  superstructures,  machinery  and  appliances 
appurtenant  to  said  power  house,  and  will  maintain  the  same  m  effacient  operating 

*^^5  xTail  times  during  the  period  of  the  lease  of  Dam  No.  2  the  company  will  furnish 
to  the  United  States,  free  of  charge,  to  be  delivered  at  any  point  on  the  lock  grounds 
designated  by  the  Chief  of  Engineers,  United  States  Army,  electric  power  to  an 
amount  necessary  for  the  operation  of  the  locks,  but  not  m  excess  of  two  hundred 

(200)  horsepower.  ^       j  i  u      «  * 

6  As  soon  as  the  release  of  suitable  construction  equipment  and  labor  forces  at 
Dam  No  2  will  permit,  or  at  an  earUer  date  if  desired  by  the  companv,  the  company 
shall  construct  and  complete  for  the  United  States  Dam  No.  3,  its  lock,  power  house, 
and  all  necessary  equipment,  all  in  accordance  with  plans  and  specifications  prepared 
and  to  be  prepared  by  the  Chief  of  Engineers,  United  States  Army,  or  by  the  company, 
at  its  option,  and  approved  by  the  Chief  of  Engineers,  United  States  Army,  and  pro- 
eressivelv  install  the  hydroelectric  equipment  in  said  power  house  adequate  for 
generating  approximately  two  hundred  fifty  thousand  (250,000)  horsepower,  all  the 
work  aforesaid  to  be  performed  as  speedily  as  possible  at  actual  cost  and  without 
profit  to  the  company,  *it  being  understood  that  the  necessary  lands,  fiowage  rights, 
and  rights  of  way  shall  be  acquired  by  the  United  States 

7  Tie  company  will  lease  from  the  United  States  Dam  No.  3,  its  power  house  and 
all  of  its  hvdroelectric  and  operating  appurtenances,  except  the  lock,  together  with  all 
lands  and  "buildings  owned  or  to  be  acquired  by  the  United  States  connected  with  or 
adjacent  to  either  end  of  the  said  dam,  for  a  period  of  one  hundred  (100)  yearsfrom  the 
date  when  structures  and  equipment  of  a  capacity  of  eighty  thousand  (80,000)  horse- 
power are  constructed  and  installed  and  ready  for  service,  and  will  pay  to  the  United 
States  as  annual  rental  therefor  four  per  cent  (4  per  cent)  of  the  actual  cost  of  construct- 
ing the  lock,  dam,  and  power-house  faciUties,  payable  annually  at  the  end  of  each 
lelse  year,  except  that  during  and  for  the  first  three  (3)  years  of  the  lease  period  the 
rentals  shall  be  in  the  following  amounts  and  payable  at  the  following  times,  to  wit: 
One  hundred  sixty  thousand  dollars  ($160,000)  one  (1)  vear  fropa  the  date  when  eighty 
thousand  (80,000)  horsepower  is  installed  and  ready  for  service,  and  thereafter  one 
hundred  sixty  thousand  dollars  ($160,000)  annually  at  the  end  of  each  year  for  two 

^^8^Th«'  company  will  further  pay  to  the  United  States  during  the  i)eriod  of  the 
lease  of  Dam  No.  3  twenty  thousand  dollars  ($20,000)  annually,  m  installments, 
quarterly  in  advance,  for  repairs,  maintenance,  and  operation  of  Dam  JNo.  3,  its  gates, 
and  lock,  it  being  understood  that  all  necessary  repairs,  maintenance,  and  operation 
thereof  shall  be  under  the  direction,  care,  and  responsibihty  of  the  United  states 
during  the  said  one  hundred  (100)  year  period;  and  the  companv  at  its  own  expense 
will  make  all  necessary  renewals  and  repairs  incident  to  the  efficient  maintenance 
of  the  power  house,  subsiructures,  superstructures,  machinery,  and  appliances  appur- 
tenant to  said  power  house,  and  will  maintain  the  same  in  efficient  operating  condition. 

9  At  all  times  during  the  period  of  the  lease  of  Dam  No.  3  the  company  will  furnidi 
to  the  United  States,  free  of  charge,  to  be  delivered  at  any  point  on  the  lock  grounds 
designated  by  the  Chief  of  Engineers,  United  States  Army,  electric  power  necessary 
for  the  operation  of  the  said  lock,  but  not  in  excess  of  one  hundred  (100)  horsepower. 

10  For  the  purpose  of  enabling  the  Government  to  create  and  provide  a  sinking 
fund  to  retire  the  cost  of  Dam  No.  3  at  the  end  of  one  hundred  (100)  yeara,  the  company 
will  at  the  beginning  of  the  fourth  (4th)  year  of  the  lease  period,  and  semiannually 
thereaftei^for  the  remaining  term  of  the  lease,  pay  to  the  United  States  Government 
the  sum  of  three  thousand  five  hundred  and  five  dollars  ($3,505);  and  for  the  purpose 
of  enabling  the  Government  to  create  and  provide  a  sinking  fund  to  retire  the  cost  of 
Dam  No  2  at  the  end  of  one  hundred  (100)  years  the  company  will  at  the  beginning 
of  the  seventh  (7th)  year  of  the  lease  period,  and  semiannually  thereafter  for  the 
remaining  term  of  the  lease,  pay  to  the  United  States  Government  the  sum  of  nineteen 
thousand  eight  hundred  and  sixty-eight  dollars  ($19,868). 


']}-  fi^l^Ti?^''^  ^^^^  ^  purchase  from  the  United  States  and  the  United  States 
will  sell  the  following  properties,  namely:  oiaiea 

(a)  All  of  the  property  constituting  nitrate  plant  No.  2  (as  officially  known  and 
designated),  including  lands,  power  plants,  buildings,  material,  machi/eiy   fixtur^ 
equipment,  apparatus,  appurtenances,  tools,  and  supplies,  and  the  riifit    ifcenTe 
and  privilege  to,  use  any  and  all  of  the  patents,  processes  methods,  and  Sns  whkh 
have  been  acquired  and  may  be  transferred  or  assigned  to  a  purchkser  of  St?ate  nlant 
ihe  pre^'     "^^'^  ^*"*'''  ''^''^''  ^'^  '^'  8ul?huric-aci§  units  now  fn  sto^'oa 

(b)  All  of  the  property  constituting  nitrate  plant  No.  1  (as  officiallv  knovvn  and 
designated),  including  lands,  power  plants,  buildings,  material,  machinerl   tou?es 
equipment,  apparatus,  appurtenances,  tools,  and  supplies,  and  thTrighi'   HcenS' 
and  pnvilege  to.  use  any  and  all  of  the  patents,  processes,  methods,  and  dlsi^s  whidl 
have  been  acquired  and  may  be  transferred  to  a  purchaser  of  nitmte  plant^o   1  bv 

^^{i<^  iS^uS^^t^^^^  l^^  ^-^-4 

™'C°ad;ra<;k8,  appurtenances,  tools,  and  e.ippli<4.  v  iracKs,  macninen . 

(d)  All  of  the  property  constituting  the  steam  power  plant,  built  and  o^vned  bv  th« 
Government  at  6orgas,  Ala    on  the  Warrior  Ri'ver,  including  lands   ri^teofUv 
building,  machinery  material,  fixtures,  apparatus,  appurtenances  too  s  and  sud^^« 

tltt^^TTT"  '°*  '"'■"»•*'»«  «<"-g»«  ^^'^  Pl^nt  to  nitrate  plkS  2  at "Fiscl^ 
aioals,  and  all  other  tninsmission  lines  belonging  to  the  United  States  and  TOnnected 
mth  any  of  the  aforesaid  Government  propertils.  The  United  State  Xuacauh^ 
all  necessary  easements  or  titles  for  right-Sf-way  lands  alonrall  traSiSon  llZ 
and  convey  same  to  the  company ,  and  the  United  States  shall  acqi^re  the  tS  the  laS 
and  site  occupied  by  the  said  steam  plant  and  bv  all  Government  bidldinw  and  other 
Government  structures  at.theGorgas  plant,  whidi  will  be  con^  eveSTto  Si?  ™mmnv 
fo  tL  /„     f^'^^^t  P^T^?  *°r  *«  foregoing  plants  and  properties  to  be  con!?vid 

^ve  milliTddlla,^  ($' oK>  fnT''  ■*",  ^'"'"'''y  ^'iV  ««  *e  UnitS  Stat^ 
J«i  nnn  nJS  collars  ($5,000,000,  in  five  installments,  as  follows:  One  million  dollars 
($1,000  000)  upon  the  acceptance  of  this  offer,  and  one  million  dolla^rsi  O(¥»onm 

TeTer'' *n?%'Ter"centf^er^*'  P"^^  'f  *"'!7  ^'^'  -th  intesrat'K^ 

pa^'^nX-Lrp^oTniTr^^^^^    »'  ~"^-^^^^«  ^  "^  <»««-^  ^-- "» 

prop  JvSore^sLTw^A^'-^?'!  'i  f  ""^^^  *•>»*  *«  P»r<^J>a«e  Price  for  the 

Igp^lnTtiL^^rn^^-g^r^^^^ 

Mates  in  preser^ng  and  safeguarding  the  aforesaid  real  and  personal  proi^rtv  iXct 
until  possession  thereof  passes  to  the  company .     If  any  part  or  mrts  of  tKnil^f^ 

S^T^r"^.  '^ Wr  "P^'^*T  ^^  «^^^^^^^  been  Xoved  PLvt^dSt^s 
panv%ppr' f'  '^^"  ^^  ''*"?^^^  ^^^"^  possession  of  said  plants  passes  o  the  S 
Numbered     ""^^^^^^^^  ^^  ^^^^  P^^P^'^^  ^^a"  warrant^the  title  to  be  gL  a^d 

anita?caDrc?tr7i>T^?i-  ^P^^^^e^i*^?^  plant. No.  2  at  the  approximate  present 
other  fprH?f.?.^  machinery  and  equipment  in  the  production  of  nitrogen  Ind 

oiner  fertihzer  compounds  (said  capacity  being  equal  to  appioximatel v  1 1 0  Om  f^n« 

veS  b'V'Tn'kV'rt?^  T^^^  '^'^^4"*  ^^^  '^^'^  periT'xcTpfalt  ma^^^  p^' 
agrees    ^  '  accidents,  fires,  or  other  causes  beyond  its  control,  and  further 

industrial'^cS^^^^^^  ^yj^'^^^  o^  electricfumace  methods  and 

pounds  of  h1^^^2  ^  ??  ^  produced  on  a  commercial  scale  fertilizer  com- 
S  hpp^  okf  f  ^^^^  ^""^^^  *T®^  P"^^«  *^an  fertilizer-using  farmers  have  in  the 
electrickv^iH  V  2^*^',^^^^  t»  determine  whether  in  a  broad  lay  ^1  apXatTon  of 
the  Pnni7  and  industrial  chemistry  may  accomplish  for  the  agriculturalmdust^  of 

(6) TrJ;^ W  ^^  ^^^/  ?^T  ^c<?.r°^i<^ally  accomplished  for  otESries      ^ 
for  immpS*^'°  nitrate  plant  No.  2  in  its  present  state  of  readiness  or  fte  equivalent 
^e^^n^LTef^^i^es""'  "^'^^'^^'^  ^'  -^^^als  necessary 'in  tSTaX 

wilLu^^xctssite^L^^^^^  "^^y  ^^  '"PP"?^  \^*^  fertilizers  at  fair  prices  and 

oui  excessive  profits,  the  company  agrees  that  the  maximum  net  profit  which  it 

92900—22 2 


16 


MUSCLE  SHOALS  PROPOSITIONS. 


shall  make  in  the  manufacture  and  sale  of  fertilizer  products  at  nitrate  plant  No.  2 
shall  not  exceed  eight  per  cent  (8  per  cent)  of  the  actual  annual  cost  of  production 
thereof.  In  order  that  this  provision  may  be  carried  out  the  company  agrees  to  the 
creation  of  a  board  of  not  more  than  nine  (9)  voting  members,  chosen  as  follows:  The 
three  (3)  leading  representative  farm  organizations,  national  in  fact,  namely:  The 
American  Farm  Bureau  Federation,  The  National  Grange,  The  Farmers  Educational 
and  Cooperative  Union  of  America  (or  their  successors),  shall  each  designate  not  more 
than  seven  (7)  candidates  for  said  board.  The  President  shall  nominate  for  member- 
ship on  this  board  not  more  than  seven  (7)  of  these  candidates,  selected  to  give  repre- 
sentation to  each  of  the  above-mentioned  organizations,  said  nominations  to  be  made 
subject  to  confirmation  by  the  Senate;  and  there  shall  be  two  voting  members  of  said 
board  selected  by  the  company.  A  representative  of  the  Bureau  of  Markets,  Depart- 
ment of  Agriculture  (or  its  legal  successor),  to  be  appointed  by  the  President,  shall 
also  be  a  member  of  the  board  serving  in  an  advisory  capacity  without  the  right  to 
vote.  The  said  board  shall  determine  what  has  been  the  cost  of  manufacture  and  sale 
of  fertilizer  products  and  the  price  which  has  been  charged  therefor,  and,  if  necessary 
for  the  purpose  of  limiting  the  annual  profit  to  eight  per  cent  (8  per  cent)  as  aforesaid, 
shall  regulate  the  price  at  which  said  fertilizer  may  be  sold  by  the  company.  For 
these  purposes,  said  board  shall  have  access  to  the  books  and  records  of  the  company 
at  any  reasonable  time.  The  said  board  shall  also  determine  the  equitable  territorial 
distribution  of  fertilizer  products  produced  at  nitrate  plant  No.  2.  If  and  when  said 
board  can  not  agree  upon  its  findings  and  determinations,  then  the  points  of  disagree- 
ment shall  be  referred  to  the  Federal  Trade  Commission  (or  its  legal  successor)  for 
arbitration  and  settlement,  and  the  decision  of  said  commission  in  such  cases  shall  be 
final  and  binding  upon  the  board. 

16.  Whenever,  in  the  national  defense,  the  United  States  shall  require  all  or  any  part 
of  the  operating  facilities  at  nitrate  plant  No.  2  for  the  production  of  materials  neces- 
sary in  the  manufacture  of  explosives  or  other  war  materials,  then  the  United  States 
shall  have  the  immediate  right,  upon  five  days'  notice  to  the  company,  to  take  over  and 
operate  the  same,  and  the  company  will  supply  the  United  States  with  hydroelectric 
power  necessary  for  such  operations,  together  with  the  use  of  all  patented  proressei 
which  the  United  States  may  need  which  the  company  owns  or  has  the  right  to  use;. 
When  required  for  national  defense  any  of  the  company's  personnel  and  operating 
organization  necessary  for  operating  any  part  of  nitrate  plant  No.  2  in  the  manufacture 
of  materials  for  explosives,  or  other  war  materials,  shall  be  at  the  disposal  of  the  United 
States.  For  the  facilities  and  services  aforesaid  the  United  States  shall  protect  the 
company  from  losses  occasioned  by  such  use  and  shall  return  the  said  property  in  as 
good  condition  as  when  received  and  reasonably  compensate  the  company  for  the  use 
thereof.  All  duly  authorized  agents  and  representatives  of  the  United  States  shall 
have  free  access  at  all  reasonable  times  to  inspect  and  study  all  of  the  operations, 
chemical  processes,  and  methods,  employed  by  the  company  at  nitrate  plant  No.  2, 
provided  that  such  agents  and  representatives  shall  not  use  the  information  and  the 
facts  concerning  any  of  the  company's  operations  except  for  the  benefit  and  protection 
of  the  United  States. 

17.  In  order  that  said  company  may  be  supplied  with  electric  power  and  the  farmers 
with  fertilizers  after  the  termination  of  the  said  one-hundred-year  leases,  should  the 
United  States  elect  not  to  operate  said  power  plants  but  determine  to  lease  or  dispose 
of  same,  the  company  shall  have  the  preferred  right  to  negotiate  with  the  United  States 
for  such  lease  or  purchase  and  upon  such  terms  as  may  then  be  agreed  upon.  If  the 
said  leases  are  not  renewed  or  the  property  covered  thereby  is  not  sold  to  said  company, 
its  successors,  or  assigns,  any  operation  or  disposal  thereof  shall  not  deprive  the  company, 
its  successors,  or  assigns,  any  operation  or  disposal  theieof  shall  not  deprive  the  com- 
pany, its  successor  or  assigns,  of  the  right  to  be  supplied  with  electric  power  at  reason- 
able rates  and  in  amount  equal  to  its  needs,  but  not  in  excess  of  the  average  amount 
used  by  it  annually  during  the  previous  10  years. 

18.  As  a  method  of  procedure  in  the  event  of  the  violation  of  any  of  the  terms  of 
this  proposal  or  any  contracts  made  in  furtherance  of  its  terms,  the  company  agrees 
that  the  Attorney  General  may  upon  the  request  of  l^e  Secretary  of  War  institute  pro- 
ceedings in  equity  in  the  District  Court  of  the  United  States  for  the  Northern  District 
of  Alabama  for  the  purpose  of  canceling  and  terminating  the  lease  of  Dam  No.  2  or 
Dam  No.  3,  or  both  of  them,  because  of  such  violation  or  for  the  purpose  of  remedying 
or  correcting  by  injunction,  mandamus,  or  other  process  any  act  of  commission  or 
omission  in  violation  of  the  terms  of  this  proposal  or  any  contract  made  in  furtherance 
thereof. 

19.  The  above  proposals  are  submitted  for  acceptance  as  a  whole  and  not  in  part- 
Upon  acceptance,  the  promises,  undertakings,  and  obligations  shall  be  binding  upon 
the  United  States,  and  jointly  and  severally  upon  the  undersigned,  his  heirs,  repre- 
sentatives, and  assigns,  and  the  company,  its  successors  and  assigns;  and  all  the  neces- 


MUSCLE  SHOALS  PROPOSITIONS. 


17 


jary  contracts,  leases  deeds,  and  other  instruments  necessary  or  appropriate  to  effec 
tuate  the  purposes  of  this  proposal  shall  be  duly  executed  a nfdKed  bv  the 
respective  parties  above  mentioned  ^^"•-^u  dua  ueiiverea  by  tne 

u^^ri922^  ^""^  ''^°'^  ^^  "^^  ^*  Dearborn,  Michigan,  this  twenty-fifth  day  of  Jan- 

Witness:  '  Henry  Ford. 

W.  B.  Mayo. 


Exhibit  D. 

War  Department, 
Office  of  the  Chief  op  Ordnance, 

Memorandum  for  the  Secretary  of  War-  Jammr;^  28,  m2. 

Subject:  Analysis  of  the  Ford  offer  for  the  Muscle  Shoals  projects  in  so  far  as  it  npr 
tams  to  the  interests  of  the  Ordnance  Department.         P^^^^^^^'  ^^  ^  ^^  as  it  per- 

1.  In  compliance  with  your  instructions  of  the  26th  instant  the  OrdnanoA  Dor^ort 

nitrogen  preparedness 

Urdted  States  Nitrate  Plant  No.  1~Arliclp  11  (h\      >'     *    *    *    xi  ,    .. 

ind^'"tri^^htSv^,h^r^,^v 'l"''*'!i*''  *>?  "^"^  "*  eleetric-fumace  methods  and 

Ordnance  K^eS^^th  rSnce  Z  ^hT/n^""^  "^^t  ?«  ''^^^^"^  »'  *« 
and  it  is  not  nijcSvfcim  thf  .^n^i^-  ,  fP™.^*^  ^^'  *erefore,  been  achieved 
plant  be  peKd^S^o^Sted    ''*'"*P<"°»  °^  ""'"^en  preparedneea  that  the  No.  1 


M 


18 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


19 


ment  of  the  nitrogen  fixation  business  on  a  large,  long-enduring,  and  commercial 
S  In  other  words,  it  completes  the  objective  which  the  Ordnance  Department 
Seves  es^ntYalfo^^^^^^^  making  of  the  United  States  able  to  be  self-sustaming  in  its 
supply  of  nitrogen  compounds. 

ORDNANCE-CONTROLLED  PROPERTY  TO  BE  TRANSFERRED. 

Article  11  outlines  the  ordnance-controlled  property  which  is  to  be  transferred 
under  the  offer  and  includes  (a)  nitrate  plant  No.  2,  (6)  nitrate  Pl^^  .^^«- J' (^)  ^aco 
quarry,  (d)  Gorgas  power  plant  on  Warrior  River  and  transmission  hne  from  Gorgas 

^^Item  (d)*requires  the  United  States  to  acquire  title  to  the  lands  on  which  the  power 

plant  and  transmission  line  are  located.         ,       ^    ^  ,  -rw        +rv.««+  «^w  yio«  a 

In  respect  to  (a)  it  is  desired  to  point  out  that  the  Ordnance  Department  now  has  a 
contract  (T-66)  with  the  American  Cvanamid  Co.  which  contains  the  following  clause: 
-Allele  XIX  Sale  of  plants:  If  upon  cessation  of  this  war  or  for  any  other  reason 
the  United  States  determines  to  cease  the  construction,  equipment,  or  operation  ot 
ant  of  the  said  plants  and  to  dispose  of  the  same,  the  agent  shall  be  given  the  A^^^^ 
opportunity  (for  a  reasonable  period  of  time  not  to  exceed  six  months  after  receipt 
oF^tten  notice  stating  the  determination  of  the  United  .States  to  dispose^^^^^^^^^^ 
and  the  material  terms  upon  which  such  disposition  will  be  made)  to  purchase  the 
Lme  upoTaX^^^^^  tefms  as  the  United  States  is  willing  to  accept  therefor  before 
the  United  States  shall  sell  the  same  to  any  other  party.  .  ^^    ,  .v      » 

It  irbelieved  that  due  consideration  should  be  taken  of  this  right  of  the  American 

Cyanamid  Co.  ,       ,      ,        .,    ^ 

*In  respect  to  (b)  the  offer  is  believed  to  be  satisfactory. 

In  respect  to  (c)  the  offer  is  believed  to  be  satiefactorj-. 

ll  respect  to  (d)  it  should  be  noted  that  the  Ordnance  Department  now  has  a  con- 
tract (T-69)  with  the  Alabama  Power  Co.  which  provides  definitely  for  the  sale  of 
these  properties  to  that  companv.  The  provisions  of  the  contract  covenng  such  sale 
SfnotoSoted  on  account  of  length.  It  is  believed  that  our  contmctual  obhgations 
?eqiS?e  ?is  to  meet  both  the  spirit  and.letter  of  this  contract  unless  the  Alabama  Power 
Co.  is  willing  to  siurender  or  sell  its  rights. 

PURCHASE   PRICE    OF   PLANTS. 

Article  12  of  the  offer  states  that —  .•      ^     r  ^  ,„^  +« 

"As  the  purchase  price  for  the  foregoing  plants  and  properties  to  bo  con^eyed  to 
the  company  bv  the  United  States  the  company  will  pay  to  the  Lnited  States  five 
million  dollars  ($5,000,000)    *    *    *."  .  .  ,.•,•*•        x      .:,«i„ 

If  this  is  cons  derod  to  be  onlv  a  part  of  the  consideration  to  be  paid,  it  is  not  entirely 
fair  to  ^tch  it  up  against  the  estimated  salvage  value  of  the  properties  to  be  trans, 
ferred  However  the  following  summarv  of  estimated  salvage  va  ues  is  submitted. 
Nroti.  have  been  received  to' substantiate  these  figures^thou^^^^^^  steam  plant 
at  nitrate  plant  No.  2  is  now  leased  on  the  basis  of  $6,000,000  valuation. 

Estimated  salvage  value  of  ordnance  property  in  the  State  of  Alabama. 


'     Approxi- 
mate cost. 


United  States  nitrate  plant  No.  1,  1,900  acres 

of  land •■-•- $12,888,000 

United  States  nitrate  plant  No.  2,  2.300  acres  , 
of  land,  including  the  Muscle  Shoals  substa-  | 
tion  (surplus  materials  at  plant  2,  costing  ' 
$1,500,000  and  having  salvage  value  of  $900,000, 

are  included  in  plant  2) >      ^?'So7'2SS 

Warrior  generating  plant '.tai'nfvi 

Warrior  substation l  r^'lvnA 

Drifton  railroad -••-:.■ n^'nnn 

Warrior-Muscle  Shoals  transnussion  hne |       ,  ?I^'  "xx 

Waco  quarry,  400  acres  of  land l,  I7tf,  om 


Salvage  value 


As  operating 
concern-. 


Total i      88,417,000 


(') 


(») 


$3,000,000 

/  675, 000 
357,000 


As  scrap. 
$600,000 

7,250,000 

800,000 

60,000 
102,000 


As  operating 

concern  and 

scrap. 


10,032,000  (        8,812,000 


$600,000 

8  11,640,000 

3,000,000 

675,000 
357.000 


16,272,000 


i  N»  SlL^Te  wllsfn'Bam  ifcX'leTed^  of  60.000  kio  watt  steam-electric  power  plant 

whicrhas^akie  of  DosSv^  OTO  ^^  value  of  United  States  nitate  plant  No.  2  as  an  operating 

J^^cern  dewnds  ma^SlyuJon  the  price  which  must  be  paid  for  power  for  its  operation.  If  power  is  to 
^^^f  5f>  ftii  K?k  w  h  the  Dlant  ha?  practicaUy  no  earning  power  and  th  erefore  has  no  value.  However, 
iftowe??aS'L  obTained  Itttl  pe^^^^^^^^^  hal  In  earning  capacity  and  corresponding  value. 

» Basis  of  steam  plant  as  operating  concern  and  balance  of  plant  as  scrap. 

<  75  per  cent  of  cost. 


In  this  connection  It  should  be  noted  also  that  before  the  United  States  can  turn 
over  to  Mr  Ford  all  of  the  properties  that  he  desires  that  some  sort  of  an  arrangement 
will  have  to  be  concluded  between  the  United  States  and  the  American  Cyanamid  Co 
which  may  require  a  money  consideration  and  arrangements  will  also  have  to  be 
concluded  between  the  United  States  and  the  Alabama  Power  Co.,  which  will 
undoubtedly  require  a  substantial  money  consideration. 

SUMMARY. 

The  Ford  offer  from  the  standpoint  of  the  Ordnance  Department  has  the  very 
important  advantage  of  materially  assisting  in  the  development  of  nitrogen  prepared- 
ness and  has  the  disadvantages  of  conflicting  vvith  contractual  obligations  with  the 
American  Cyanamid  Co  and  the  Alabama  Power  Co.  and  of  making  a  net  return  to 
laL^Xre'ne  0^^^^^^       $5,000,000  for  properties  which  have  an  estimated  salvage 

^fl^Lt  .^^^^^^^e;$li;000;000,  appears,  therefore,  to  be  the  price  which  the  United 
States  IS  paying  for  mtrogen  preparedness.  If  the  plant  is  diverted  to  any  purposes 
which  do  not  include  nitrogen  fixation,  this  asset  is  lost  to  the  Government    ^"^^^""^^ 

,,  .    ^  G.  C.  Williams, 

Major  General,  Chief  of  Ordnance,  United  States  Army, 


Exhibit  E. 

War  Department, 
Office  of  the  Chief  of  Engineers 
Memorandum  for  the  Secretary  of  War.  Washington,  January  SO,  m2. 

Subject:  Analysis  of  Mr.  Ford's  offer  for  Muscle  Shoals  power  plants 

Ju^'t;tnf-X.^t^'^'-  "^""'^  ^"'^  '^^  ^'^  ^"^^^^  ^""'^'^  p«--  pi-*  -  -»>- 

Ti'f  ?T  *-!J^*?."?  ""?  the  offer   as  concerns  hydroelectric  plants  at  Muscle  Shoals- 
The  Umted  States  is  to  furnish  the  funds  for  the  completion  of  Dam  No  2  and  for 

Ind  Ttn '"'*^"  ^^  ^^™  ^^-  ?'  T^"^^°^  P«^^^  generating  machinerTand  structures 
and  18  to  operate  and  maintain  the  dams  and  locks  Btruciures, 

A  company  to  be  formed  by  Mr.  Ford  is  to  have  a  lOO-year  lease  of  the  power  nlant«, 
beginning  with  the  dates  on  which  certain  specified  amounts  oT^ower  L^availaM^ 

In  consideration  of  this  lease  the  companv  is  to  pay:  (a)  $200,000  per  annum  fnr  tVio 
^frj.T"^  ^^^  the  power  plant  at  No.  2  is  in  operation;  $mOOOpTZ 
^Jlt  ^^""^  ^^^''  ^}^^  *^^  P^^^^  P^^^t  ^t  No.  3  is  in  opemtioi^Tnrr^pSfv 
H«?^      !f  ^  ^""^  ^?"^^  ^^  ^  P^^  ^«^t  «^  t^e  net  capital  cost  to  the  United  sStS^of  th« 

arsrofTh.^T^^^"^'"-  ^'^'^r^"  "^  *>S  amounte  heretofore  expended  and  e?cW^ 
also  of  the  cost  of  acquinng  flowage  rights  for  Dam  No.  3.  exclusive 

(2  Q  P^^-^F;?  annual  sums  to  cover  the  cost  of  operating  and  maintaining  the  dam« 
of  thVl^^e  p^ri^!^"''  ^^'^^^^  ^^^^^  '"  P^^^^^  ^^^^^°^  ^'  $48  oSWat  the  e^^^ 

fo/n«^1^^!^''''  *^®  company  ^ees  to  maintain  the  nitrate  plant  in  good  condition 
ronS  V^  war  emergency  and  to  produce  nitrates  at  a  reasonable  profit     As  a  miC 

aSnt'o  nn  "'  n'^^^^"'^'^  '^^  ^'"1*^^  States  without  charge  a  llrSited  but  suffident 
amount  of  power  for  the  operation  of  the  locks  at  the  dams.  utBumcieni 

PerioHs'^ri  '^^"^  ""K^^^  consideration  for  the  lease  is  the  payment,  after  specified 
Wnment  in^frtS'  '^  *^%Ti.'  "^P^'"*  expenditures  to  be  hereafter  nlde^by  the 
tMJreh^n  H  ^7*h«ra^,^e  f  the  agreement.  A  determination  of  the  adequacy  of 
hS  pav  o?.?tf7o^''''^^^^  interest  that  the  Federal  Government  liH 

1^  th^n^?^  Its  loans  Considering  that  the  Government  is  now  paying  somewhat 
^specifi^^^^^^^^  ^«^^«'  i*  i«  believed  reasonable  to  J^rithaTwhen 

the  ^nftid  qlf    "^^"^n  ^  ^f^T  1^  ^4^;  some  10  years  hence,  the  interest  mtes  paid  by 

The  mvminl^  "^"-fi  "!$  «"bstentially  exceed  4  per  cent  and  may  be  less.  ^ 

sidereda/pnno.^fP^'^'^^'^i^'i-^^  operation  and  maintenance  of  the  dams  are  con- 

Thp  «n«^V^^^  ^  "^^^^  ^"  ordinary  operation  and  maintenance  costs. 
000  at  thp  wT^^T^*^  specified  to  create  an  amortization  or  sinking  fund  of  $48  000  - 
aUy  prSnrrr.   rATu^^  ^¥  l^afe^re  relatively  small  in  amount    The  siun  evS- 

th]  r vKS  tXS'l^^^^'^^ir''''''^  ^^  --^^^^'^^  exp^Tdifu^r^st 
costs  WeTnlL^/SotcL^^^^^^^^^^ 


I 


20  MUSCLE   SHOALS  PEOPOSITIONS. 

ing  the  early  rental  periods  in  which  the  full  rental  at  4  per  cent  is  not  to  be  paid,  nor 
does  it  include  a  return  on  the  cost  of  acquiring  flowage  rights  for  Dam  No.  3.  An 
estimate  of  the  amount  in  question  depends  upon  the  cost  of  the  two  dams. 

The  engineer  department's  estimate  made  in  July,  1921,  for  completing  Dam  No.  2 
with  its  full  power  equipment  is  in  round  numbers  $28,000,000;  and  in  August,  1921, 
for  constructing  Dam  No.  3,  $28,000,000. 

The  estimate  of  Mr.  Ford's  engineers  for  completing  Dam  No.  2  is  in  round  numbers 
123,230,000;  for  Dam  No.  3,  $19,000,000. 

Construction  of  Dam  No.  2  has  so  far  advanced  that  foundation  conditions  are  thor- 
oughly established  and  the  work  required  can  be  predicted  with  certainty,  leaving 
as  the  only  uncertainty  the  cost  of  executing  the  work.  The  condition  does  not  exist 
at  Dam  No.  3,  where  the  foundation  work  necessary  will  not  be  certainly  determined 
until  the  bed  of  the  river  is  laid  bare.  The  engineer  department's  estimates  are  re- 
garded as  adequate  to  meet  any  reasonable  eventuality  of  construction  at  the  costs 
current  when  tne  estimates  were  prepared. 

Subsequent  to  the  preparation  of  the  engineer  department's  estimates  the  prices  of 
material  and  labor  have  generally  declined,  and  it  is  believed  that  a  reduction  of 
about  10  per  cent  in  the  prior  estimates  is  now  justifiable.  The  cost  of  completing  the 
two  dams  with  power  equipment  for  purposes  of  this  analysis  is  therefore  taken  at 
$25,000,000  each,  in  round  numbers,  or  $50,000,000  in  all. 

The  time  of  completion  of  Dam  No.  2  has  been  placed  at  40  months,  of  No.  3  at  36 
months.  Considering,  however,  the  fact  that  the  hydroelectric  machinery  for  the 
first  100,000  horsepower  of  No.  2  is  already  under  contract,  and  that  the  first  units 
can  be  put  in  operation  prior  to  the  eventual  completion  of  the  entire  installation,  it  is 
considered  that,  for  purposes  of  analysis,  the  time  before  payments  begin  to  accrue 
may  be  placed  at  three  years  for  each  dam. 

Interest  during  the  preliminary  period  is  taken  at  5  per  cent. 

On  these  assumptions  the  carrying  charges  become  as  follows: 

Dam  No.  2: 

Funds  required  for  completion $25, 000, 000 

Interest  during  construction,  one-half  of  three  years,  at  5  per  cent. .      1,  875, 000 

Interest  for  first  six  years  subsequent $7, 500, 000 

Less  six  payments  of  $200,000 1,200,000 

Net  deficiency 6, 300, 000 

Total  accrued  interest  before  full  payments  begin 8, 175, 000 

Dam  No.  3: 

Funds  required  for  completion 25, 000, 000 

Interest  dmring  construction,  one-half  of  three  years,  at  5  per  cent. .      1, 875, 000 

Interest  for  first  three  years  subsequent $3, 750, 000 

Less  three  payments  of  $160,000 480,000 

Net  deficiency 3, 270, 000 

Total  accrued  interest  before  full  payments  begin 5, 145, 000 

The  gross  cost  of  carrying  the  expenditures  during  the  preliminary  periods  will 
therefore  be  $13,320,000.  Such  carrying  charges  are  not  customarily  considered  in 
Government  work  but  are  here  included  in  order  that  the  analysis  may  be  complete. 
The  cost  of  the  flowage  rights  for  Dam  No.  3  is  estimated  at  $2,331,000,  giving  a  total 
of  $15,651,000. 

The  interest  charges  on  this  sum  at  4  per  cent  will  amount  to  $626,040  per  annum 
during  the  life  of  the  lease,  subsequent  to  the  preliminary  period.  During  the  pre- 
liminary period  these  charges  will  increase  from  about  $100,000,  on  the  completion 
of  Dam  No.  2,  to  the  ultimate  figure  stated.  The  exact  amount  of  this  annual  charge 
will  depend  upon  the  actual  costs  of  the  dams  and  the  periods  required  for  construc- 
tion, but  it  can  scarcely  be  less  than  $500,000  per  annum  and  it  should  not  exceed 
$650,000  per  annum. 

Indirect  benefits  accruing  to  the  United  States  are: 

(a)  The  maintenance  of  a  nitrate  plant  in  readiness  for  a  war  emergency. 

(6)  The  production,  in  the  interest  of  the  public  welfare,  of  large  amounts  of  ferti- 
lizer at  a  cost  not  exceeding  the  reasonable  cost  of  production,  providing  that  the 
production  of  nitrates  adapted  to  fertilizing  purposes  is  found  to  be  practicable. 


MUSCLE  SHOALS  PROPOSITIONS. 


21 


t  (.<;)  The  elimination  of  the  cost- of  maintaining  and  operating  the  present  imnerfprt 
innum"'        ^^^^^^^^^  ^^  ^^^^^^^  Shoals,  amounting  to  from  $35!ooST$85To  p^^ 

(t/)  The  advantage  to  interstate  commerce  and  navigation  of  the  far  suoerior  farili 
ties  to  navigation  that  will  be  secured  through  the  constructyn  of  thfdam^rnd  iS" 

The  funds  that  have  been  expended  on  Dam  No.  2  have  not  been  inHndpH  in  th. 
analysis,  for  the  reason  that  neither  the  acceptance  nor  thrreject^oi^^^^^ 
offer  would  restore  any  substantial  portion  of  them  to  the  Public  TreLSrv  If  Dam 
No.  2  be  not  completed,  either  bv  Mr.  Ford's  company,  the  United  SteTes'  or  of hp? 
wise,  the  work  done  will  be  wholly  without  value  idthin  a  brieTDeriod  of  V/rf  a.H 
the  only  recovery  possible  from  the  investment  aSy  Si^de  w  U  ^^^^^^^^ 
snaTyt."''^"''^  ''  '""  ^'  ^'^P°^^^  ^^'  ^^^  '^^^  in^mounrto  affect%'he  ^ei^^ 

Lansing  H.  Be.\ch, 
Major  Gen£TaL,  Chief  of  Eiigineen. 


Exhibit  F. 

War  Department, 
Oppicb  op  the  Chief  op  Ordnance, 
From:  Chief  of  Ordnance.  Washington,  November  18,  mi. 

To:  Secretary  of  War 

'"'^It^^l^Zi^i^^.^t:''  '"^"*'  ^"-  ^  ""-^  '  «^  Warrior-Sheffield 

1,  .     ^  C.  C.  Williams, 

Major  Gerural,  Chuf  of  Ordnance,  U.  S.  Army. 

Cost  statement  of  United  States  nitrate  plants  Nos.  1  and  2  and  Warrior-Sheffield  power 

station  and  transmission  lin£  '^ 

ISubmitted  by  G.  B.  AttersaU,  chief  Accounts  Branch,  Nitrate  Division,  O.  O..  Nov  1  19>,  j 

Chemical  plant  ^''"^''  ^^^^^'  ^'^^^^^  ^^^^'^  ^o.  1. 

Oxidation  plant.. ..:;;::::::::;;::;;;; irmqTfi'fi^^^'^^^'^^^-^ 

Soda-recovery  plant ^  '     I'llt^l 

Processplant .  o^k Vka  o^ 

Neutralization  plant \\ '?OQ'Q?«?f 

Coal  and  coke  storage * f^'V,lfa 

Gas  plant t            3^SI? 

Concentration  plant... ;::;;;;;::;::::;;;; 28908320 

^^^  Ammonium  nitrate  plant ;;;;        If^'j^^- 20 

^^U^'V----^ 

Oil  house..... ;.;•;;;;;; 140,686.72 

^     Warehouses. . .  .* * " "  „?' i??-  ^^ 

Powerhouse         73,27L96 

Land 1,271,665.23 

Village 615,127.20 

Public  worS.  ...!!';;;: 928,298.02 

Sewer  svstem        ^^»  ^^^-  ^ 

-5^^-:::::::::::::::::::::::::,^         -.-33 

Electric' distribuiion  sysiem.V.V.: \ \ '. [ [ ] W::]:''        J^?'  fi' II 


314  076  00 


1,026,  OIL  60 


Total 


101,  288.  88 


<^Perations: 'Sheffield  operation  and 


Grand  total. 


•••.•; V  •, 12, 887, 941. 31 

maintenance  to  July  1 ,  1920 794]  359.  g5 


mtenance  to  July  I  19*2*1 1^,  682, 301. 16 

^    •  75,506.42 


22  MUSCLE  SHOAlrS  PROPOSITIONS. 

United  States  Nitrats  Plant  No.  2. 

Chemical  plant $35,984,090  55^ 

Raw  material  and  storage  group $2, 809,  361.  o3 

Carbide  group 5, 768, 305. 82 

Cyanamid  group 4, 987, 045. 31 

Liquid  air  group 4, 005, 50.3. 09 

Ammonia  gas  group 3, 710,  872. 79 

Nitric  acid  group - 12,627,103.80 

Ammonium  nitrate  group 1, 236,  Oib.  39 

Process  steam  plant 559, 577. 74 

Laboratory 280,245.08 

Shops :    2, 696, 481. 30 

Engine  terminal  and  machine  shops 937, 049. 35 

Blacksmith  shop 187,284.30 

Woodworking  shop 168, 202. 88 

Warehouse »67,  662. 53 

Switch  house 495,772.14 

Foundry 90,650.64 

Gatebuilding ^^^'^^^'^^  19  <^ofi  aqo  o-. 

Powerhouse 'oo^'iii'nk 

viCe ;■;::::::::::::.:::::::: 3,121,193.31 

fee  plant 166,312.32 

Permanent  dwellings 1, 984, 120.  64 

Temporary  dwellings (*) 

HospitaL. 142,877.97 

First  quarters  hotel 586, 924 .  89 

Soldiers' barracks 240,957.49 

Public  works 8,843,007.62^ 

Roads  and  walks 583,201.94 

Sewer  svstem 1,132,606.80 

Water  svstem 2, 265, 452. 59 

Railways 2,025,478.13 

Trolley  lines 173,393.99 

Fencing 107,641.25 

Telephone  svstem 22,  o55. 46 

Electrical  distribution  system 2, 532, 677. 46 

Inventories  (approximately  one-half  of  these  inventories 
have  been  disposed  of) 3, 043,  516. 20 

WacoQuarrv 1,302,962.88 

Construction 1,250,000.00 

I^d 52,962.88 

Total 67,  555, 355. 09 

Operations.'.!'.!!-'.'.'.'." '.". ! ! ! ! ;  -  -  -  -     3, 424,  496. 85 

Rockwood  quarry 986, 858. 85 

Muscle  Shoals 1,840,568.32 

Ordnance  maintenance  to  July  .1,  1920 597,069.68 

Grand  total 70,979,851.94 

Maintenance  to  July  1.  1921 201, 674. 63 

Warrior-Sheppield  Power  Station  and  Transmission  Line. 

W'arrior  generating  plant $3, 417,  702. 70 

W^arrior  substation 383, 756. 35 

Transmission  line 938, 057. 35 

Muscle  Shoals  substation  * 189, 843. 99 

Drifton  Railroad '^0>-^21.94 

Total 4,979,782.33 

Maintenance  to  July  1, 1920 -  25, 804. 57 

Maintenance  to  July  1 ,  1921 7,  Oo6. 8:i 

1  Temporary  buildings,  the  cost  of  which  was  $5,174,377.19,  have  been  allocated  to  the  cost  of  the  per- 
manent plant  as  overhead.  • 
»  Located  on  Government-owned  land  at  Muscle  Shoals,  Ala 


MUSCLE  SHOALS  PROPOSITIONS. 


23 


Exhibit  G. 

War  Departme.vt, 
Office  op  the  Judge  Advocate  General, 

•»f  J        r     xt.    o        .  ,  T,.  Washmgton,  January  28,  193-2. 

Memorandum  for  the  Secretary  of  War.  ,  -'^'.-. 

Subject:  Legal  questions  involved  in  Henry  Ford's  Muscle  Shoals  proposal. 

Instead  of  discussing  at  length  the  legal  points  involved  in  Henry  Ford's  Muscle 
Shoals  proposal,  you  will  observe  that  this  subject  has  all  been  covered  in  one  short 
paragraph  in  the  draft  submitted.  I  am  transmitting  herewith,  however  a  copv  of 
my  notes  covering  this  subject^  originally  intended  for  your  consideration  as  a  part  of 
your  contemplated  report  t«  Congress,  which  you  mav  find  helpful  or  available  for 
your  use  if  needed.  .  ^  «.  axA^iciui 

John  A.  Smith,  Major,  Judge  Advomfe. 
notes. 

Shortly  after  receipt  by  me  of  the  offer  of  Henry  Ford  for  the  leasing  of  the  dams 
and  proposed  power  plant  at  M  uscle  Shoals  and  disposition  of  the  power  to  be  developed 
at  tha  place  my  attention  was  invited  to  certain  provisions  conuined  inX  com^ct 
T'trLilLZ^^^^^  ^  orporation  dated  June  8,  ftlS.  under  which  nitrate  plant  No 
2  was  constructed  granting  to  said  company  an  option  to  purchase  same  under  certain 
S"?or^^  ,firont7nT'r'  "f  ^^  agreement  enWd  intS  with  the  General  CherS 
^  ;.  t  V  1  UK  Pf  ^""^  ^"""^  processes  in  the  construction  and  operation  of  nitrate 
ritPnt^ln'  n'n''^  ^^^^^?  certain  limitations  and  restrictions  upon  the  use  oi^d 
patents  and  processes  and  enjoined  secrecy  on  the  part  of  the  Government  as  lon^ 
as  the  Government  shall  continue  to  use  said  processes;  also  to  certain  provdsions  if 
the  contract  for  the  construction  of  the  Goi^as  Warrior  River  ste^  p?ant  and  tmn^ 
mission  line  constructed  by  the  Alabama  Power  Co.  at  the  expTns^  of  the  Unfted 
States  on  and  owned  by  saia  company,  but  with  a  provision  in  the^conTr^t  luthoiS W 
the  operation  of  Gorgas  VVarnor  station  under  certain  conditions  and  the  sale  of  eW? 

r^ilL^nr^.''^^  C^/'T.r^  T^^'^^°  "P«^  '^^  P^>°^«^t  to  the  UiSted  S?ate^  of  U 
mills  for  each  kilowatt-hour  of  ener^gy  produced,  ;vith  an  option  to  the  AlabamrPower 

he  wa?at'a  vah^Tn'bP  n7JT  'frV'"''  '^*^^^^  ^^^^  ^^er  the  terr^nation  of 
tne  war  at  a  value  to  be  fixed  by  arbitration;  and  more  important  still   the  auestiou 
wa^  raised  a^  to  my  authority,  in  view  of  the  provisions  of  the  national  defe^ns? act 
to  sell  or  make  any  other  disposition  of  these  properties,  under  existing  laws     A^co^dl 

kt^ocSrOe^nrir  o^piS  "^^^'  '-'"^  '^-^  '^  ^-^'  submitted  to%hfjTJ^ 

for  7h^  flT^"^  'J^'  the  Acting  Judge  Advocate  General  that  the  onlv  existing  authority 

in  thP  alt  nf  fv.n  ^"^^'"^  P'^P^T^?  f^^il  ^  ^^^t  contemplated  herein  is  tllrgranted 
n  the  act  of  (  ongress  approved  July  28,  1892  (27  Stat.,  321)  which  nrovides  for  th^ 
leasing  by  the  Secretary  of  War  of  property  o  the  Un  ted  St^te^  under  hi^^^^ 
which  may  not  for  the  time  being  be  required  for  public  use  or  a^eri^^  Lot  1o  pxop^' 
five  years  and  revocable  at  any  time,  and  that  the  onirau^orityTo^^e  ^all ^T^^^^ 
tbnTfs'trP''*^  that  might  possibly  be  applicable,  in^he  S'^e  of  sped^^ 
io  Ita?  s^o^'T?!^"^- ^"l^  contained  in  the  act  of  Congress,  approved  July  9  918 
mlt  .  '  M^'  authorizing  the  President,  through  the  head  of  any  executive  denart- 
ment,  to  sell  war  supplies,  material,  and  equipment-  ^  executive  depart- 

aiul  any  building,  plant,  or  factory  acquired  since  April  6.  1917  includincr  the  lanH«i 

Bpeciai  attention  to  the  following  pro\asion  in  said  act:  ^ 

mle\v\Jf^^^L^^T^^^  "^^^''  ^^}'  ^^t  «^^"  '^«  constnicted  ana  operated 

r^i^L^  u  ^^Xemment  and  not  in  conjunction  with  anv  other  industrv-  or  enterori^ 
earned  on  by  pnvate  capital."     ^39  Stat.,  215  )  '  mu«ir>  or  enierpri^e 

in  the  same  opinion  the  Acting  Judge  Advocate  General  said: 

PrP«iV«tl'''^'^^?^^^I^'^  ^^"^^  *^^*  ^f^^«^^®  ^^hoal^  ^-as  selected  bv  authoritv  of  the 
th«t  ^1  ^.  V  ^f  *^H^^?r."^*'^^^  P^^"t  authorized  by  the  nationaf  defence  act  and 
pa?  From\h^orl*to^'^''^  ^"^  ??  ^^l*"^"  otheJ:  facilities  have  bVen  paiSfoHn 
abou    $?^.  mn  nfi^'f^'?^  appropriated  by  the  national  defense  act.     It  appears  that 


24 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


25 


"It  thus  appears  that  the  Muscle  Shoala  nitrate  project,  considered  as  a  whole,  was 
initiated  b}r  Congress  by  the  provisions  of  the  national  defense  act  of  June  3,  1916,  and 
that  a  considerable  portion  of  the  expenditures  for  the  plant  have  been  made  from 
the  $20,000,000  appropriated  by  that  act. 

*'In  my  opinion  the  general  authority  contained  in  the  act  of  July  9,  1918,  supra, 
for  the  sale  of  war  supplies  and  plants  acquired  since  April  6,  1917,  does  not  apply  to 
the  Muscle  Shoals  project,  considered  as  a  whole.  It  is  a  rule  of  statutory  construc- 
tion that  a  general  statute  does  not  repeal  or  supersede  a  prior  particular  statute  imless 
there  is  some  express  reference  to  the  previous  legislation  on  the  subject,  or  unless 
there  is  a  necessary  inconsistency  in  the  two  acts  standing  together.  *  *  *  I  con- 
sider, therefore,  that  the  provision  contained  in  section  124  of  the  national  defense  act 
directing  that  the  plant  therein  authorized  be  operated  solely  by  the  Government 
and  not  in  conjunction  with  any  other  industr\^  or  enterprise  carried  on  by  private 
capital  13  applicable  to  this  plant  as  a  whole  and  is  a  restmint  upon  its  sale.  The 
same  statute  would  prevent  the  lease  or  rental  of  the  plant  for  priv^ate  operation." 

Acting  upon  the  advice  of  the  Acting  Judge  Advocate  General,  I  have  taken  the 
position  that  I  have  no  authority  to  act  finally  upon  the  Ford  offer  or  any  other  offer 
submitted  for  the  Muscle  Shoals  project  as  a  whole,  the  disposition  thereof,  in  any 
event,  being  subject  to  the  will  of  Congress.  It  is  because  of  such  fact  that  I  submit 
tliis  proposal  to  Congress  for  appropriate  action. 

With  reference  to  the  option  to  purchase,  contained  in  the  contract  for  the  con- 
struction of  the  power  plant  by  the  Alabama  Power  Co.,  covering  the  Gorgas  Warrior 
Bteam  plant  and  transmission  lines,  which  contract  was  dated  and  executed  December 
1,  1917,  the  Acting  Jud^e  Advo::ate  General  has  advised  me  that  at  that  time  there 
was  no  authority  under  existing  law  for  the  sale  of  such  property,  and  therefore  the 
Secretary  of  War,  or  contracting  ofiScsr  reoresenting  the  United  States,  was  without 
authority  to  enter  int")  a  central  for  the  sale  of  siid  property  or  for  granting  an  option 
for  the  purchase  theraof,  and  as  the  Constitution  vests  in  Congress  the  sole  power  to 
dispose  of  and  make  all  needful  rules  and  regulations  respecting  the  property  of  the 
United  States,  and  Congress  not  having  vested  that  authority  in  the  Secretary  of  War 
or  anyone  else,  it  was  beyond  the  power  of  the  S9cretary  of  War  or  contracting  officer 
to  bind  the  hands  of  Congress  in  the  matter  of  determining  to  whom  or  upon  what 
terms  said  property  might  be  sold  or  otherwise  disposed  of.  Attention  is  also  invited 
to  the  date  of  the  contract  with  the  Air  Nitrates  Corporation  for  the  construction  of 
nitrate  plant  No.  2,  which  was  executed  on  June  8,  1918.  And  as  there  was  at  that 
time  no  authority  for  the  sale  of  said  plant,  the  same  situation  exists  with  reference 
to  the  option  granted  to  the  Air  Nitrates  Corporation  purporting  to  give  to  said  cor- 
poration an  option  for  a  period  not  to  exceed  six  months  after  the  date  of  notice  stating 
the  determination  of  the  United  States  to  dispose  of  the  same.  This  provision  is 
nugatory  and  void  and  is  not  binding  upon  the  United  States. 

With  reference  to  nitrate  plant  No.  1,  which  was  constructed  upon  plans  of  the 
General  Chemical  Co.  and  contained  provisions  for  the  use  of  patents  and  processes 
of  said  company  and  provided  for  secrecy  in  the  use  thereof,  it  appears  that  the  Gen- 
eral Chemical  Co.  has  treated  said  contract  as  at  an  end  and  construed  the  same  as 
binding  only  so  long  as  the  Government  shall  continue  to  use  said  processes.  In  a 
letter  received  from  the  General  Chemical  Co.  under  date  of  September  13,  1919, 
replying  to  a  request  for  certain  information  from  the  General  Chemical  Co.,  appears 
the  following  : 

"If,  as  we  understand,  your  request  for  information  was  made  pursuant  to  clause  4 
of  our  tender  of  June  5,  1917,  we  need  only  remind  you  that  by  the  express  terms  of 
this  clause  our  obligation  to  communicate  improvement  to  the  Government  was 
limited  to  the  period  during  which  the  Government  should  continue  the  use  of  our 
process,  and  that  the  Government's  plant  for  the  use  of  that  process  has  been  shut 
down  for  nearly  a  year." 

In  reply  to  an  inquiry  as  to  whether  or  not  the  equipment  used  in  the  synthetic 
process  at  nitrate  plant  No.  1  could  be  sold  or  removed  from  the  reservation,  without 
restriction  as  to  its  use,  the  Acting  Judge  Advocate  General  said: 

"The  subject  matter  of  the  contract  was  processes  and  apparatus,  and  the  machinery 
installed  is  not  shown  to  fall  within  those  classes,  and  no  restrictions  being  set  fortn 
as  to  its  use,  may  be  sold  without  restriction  or  reservation  as  to  its  use,  and  the  future 
use  of  the  plant  by  the  purchaser  as  a  plant  for  manufacturing  the  subject  matter 
embodied  in  any  patents  would,  of  course,  be  a  question  between  the  purchaser  and 
any  patentee  owning  processes  to  be  used. 

"Inasmuch  as  processes  covered  by  the  contract  are  no  longer  in  operation  or  use 
by  the  Government,  the  prohibition  relating  to  the  exclusion  of  the  public  is  no  longer 
applicable  and  the  equipment,  not  being  the  subject  matter  of  the  contract,  may  be 
sold  for  whatever  purposes  the  Government  may  see  fit. " 


With  reference  to  the  question  as  to  whether  or  not  the  United  States  may  transfer 
the  right,  hcense,  and  privilege  to  use  any  or  all  patents,  processes,  methods,  and  designs 
which  have  been  acquired  by  the  United  States  under  the  license  agreement  with  the 
American  Cyanamid  (b.,  my  attention  has  been  invited  to  the  fact  that  said  agreement 
provides  that  the  United  States  may  transfer  to  the  purchaser  of  said  plant  the  right 
to  avail  itself  of  the  license  granted  in  the  operation  of  the  plant  so  purchased,  subject, 
of  course,  to  the  conditions  of  use  granted  to  the  United  States,  but  that  it  is  extremely 
doubtful  that  the  term  "purchaser"  as  used  in  the  contract  could  be  construed  to 
include  a  "lessee"  of  said  plant. 

With  reference  to  the  present  use  of  the  Gorgas  Warrior  steam  plant  by  the  Alabama 
Power  Co.  under  the  provisions  of  the  contract  for  the  construction  thereof  I  am  advised 
by  the  Acting  Judge  Advocate  General  that  the  only  authority  for  such  use  at  the  time 
the  contract  was  entered  into  was  the  authority  contained  in  the  general  leasing  act 
of  July  28,  1892,  which  provided  that  any  use  permitted  under  the  authority  thereof 
shall  be  revocable  at  any  time,  and  hence  the  use  by  the  Alabama  Power  Co.  must  be 
construed  as  subject  to  termination  at  any  time  by  the  Secretary  of  War. 

With  reference  to  the  use  of  the  transmission  line  and  power  plant  at  nitrate  plant 
No.  2,  covered  by  the  lease  to  the  Alabama  Power  Co.,  dated  November  17    1921 
attention  is  invited  to  the  fact  that  this  lease  was  executed  under  the  authority  of  the 
said  act  of  July  28,  1892,  and  is,  by  its  terms,  revocable  at  any  time. 

It  IS  believed  that  the  construction  placed  upon  these  contract  provisions  and  upon 
the  lease  above  mentioned  by  the  law  officers  of  the  Army  is  correct  and  would  be  sus- 
tained in  the  event  these  questions  should  later  arise.    In  any  event  Con«Tess  mav 
if  It  sees  fit,  ignore  them.  °  ' 

STATEMENT  OF  HON.  JOHN  W.  WEEKS,  SECRETARY  OF  WAR  AC- 
COMPANIED BY  MAJ.  GEN.  C.  C.  WILLIAMS,  CHIEF  OF  ORDNANCE- 
MAJ.  GEN.  LANSING  H.  BEACH,  CHIEF  OF  ENGINEERS:  AND  COl' 
JOHN  A.  HULL,  ACTING  JUDGE  ADVOCATE  GENERAL. 

•'^^^i,^^'*^^'^^'  ^^^^  *^®  desire  of  the  committee,  as  I  understand  it,  to  get  through 
with  this  matter  as  reasonably  speedily  as  possible,  and  we  will  confine  ourselves  for 
the  present  entirely  to  the  Ford  matter. 

Mr.  Secretary,  have  any  jother  proposals  been  made  to  you? 

Secretary  Weeks.  Yes;  there  are  two. 

The  Chairman.  Have  you  sent  them  to  Congress? 

Secretary  Weeks.  I  have  not  yet.  I  am  having  them  analyzed  and  I  will  send 
them  m  a  few  days. 

The  Chairman.  How  soon  can  we  expect  them? 

Secretary  Weeks.  I  should  say  by  the  end  of  this  week. 

The  Chairman.  Mr.  Secretary,  the  committee  would  like  to  have  you  explain  as 
lully  as  possible  the  offer  of  Mr.  Ford,  as  you  understand  it;  but  before  you  begin 
with  that  I  desire  to  offer  for  the  record  section  124  of  the  national  defense  act  of 
June  3, 1916,  as  follows: 

.  ''Sec  124.  Nitrate  supply.— The  President  of  the  United  States  is  hereby  author- 
ized and  empowered  to  make,  or  cause  to  be  made,  such  investigarion  as  in  his  judg- 
ment IS  necessary  to  determine  the  best,  cheapest,  and  most  available  means  for 
me  production  of  nitrates  and  other  products  for  munitions  of  war  and  useful  in 
tne  manufacture  of  fertilizers  and  other  useful  products  by  water  power  or  any 
otner  power,  as  m  his  judgment  is  the  best  and  cheapest  to  use;  and  is  also  hereby 
autnorized  and  empowered  to  designate  for  the  exclusive  use  of  the  United  States  if 
in  nis  judgment  such  means  is  best  and  cheapest,  such  site  or  sites,  upon  anv  naAi- 
gabie  or  nonnavigable  nver  or  rivers  or  upon  the  public  lands,  as  in  his  opinion  will 
oe  necessary  for  carrying  out  the  purposes  of  this  act;  and  is  further  authorized  to 
ujnsiruct,  maintain,  and  operate  at  or  on  any  site  or  sites  so  designated,  dams,  locks 
^provements  to  navigation,  power  houses  and  other  plants  and  equipment  or  other 
means  than  water  power  as  in  his  judgment  is  the  best  and  cheapest,  necessarv  or 
con\enient  for  the  generation  of  electrical  or  other  power  and  for  the  production  of 
uurates  or  other  products  needed  for  munitions  of  war  and  useful  in  the  manufacture 

.rJ^Jjlizers  and  other  useful  products. 
mif  }^  President  is  authorized  to  lease,  purchase,  or  acquire,  by  condemnation 
?t" ,'  f.''^^*'  ^l  devise,  such  lands  and  rights  of  way  as  may  be  necessary  for  the  con- 
acruction  and  operation  of  such  plants,  and  to  take  from  anv  lands  of  the  United 
nafof;  J  purchase  or  acquire  by  condemnation  materials,  minerals,  and  processes, 
anrfS^l^'  othemse,  necessary  for  the  construction  and  operation  of  such  plant^ 
and  for  the  manufacture  of  such  products.  f"*  « 


i 


26 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


27 


"The  products  of  such  plants  shall  be  used  by  the  President  for  military  and  navat 
purposes  to  the  extent  that  he  may  deem  necessary,  and  any  surplus  which  he  shall 
determine  is  not  required  shall  be  sold  and  disposed  of  by  him  under  such  regulations: 

as  he  may  prescribe.  ,  ,  ^  ,  u     a: 

"The  President  is  hereby  authorized  and  empowered  to  employ  such  otticers, 
agents  or  agencies  as  may  in  his  discretion  be  necessary  to  enable  him  to  carry  out 
the  purposes  herein  specified,  and  to  authorize  and  require  such  officers,  agents,  or 
agencies  to  parform  any  and  all  of  the  duties  imposad  upon  him  by  the  provisions^ 

bereof.  .       ,  ,  •    ^u    m- 

"The  sum  of  $20,000,003  is  hereby  appropriated,  out  of  any  moneys  m  the  rreasury 
not  otherwisa  appropriated,  available  until  expended,  to  enable  the  President  of  the 
United  States  to  carry  out  the  purposes  herein  provided  for. 

"The  plant  or  plants  provided  for  under  this  act  shall  be  constructed  and  operatect 
solely  by  the  Government  and  not  in  conjunction  with  any  other  industry  or  enter- 
prise carried  on  by  private  capital. 

"In  order  to  raise  the  money  appropriated  by  this  act  and  necessary  to  carry  its 
provisions  into  effect,  the  Secretary  of  the  Treasury,  upon  the  request  of  the  Presi- 
dent of  the  United  States,  may  issue  and  sell,  or  use  for  such  purpose  or  construction 
herein  above  authorized,  any  of  the  bonds  of  the  United  States  now  available  m  the 
Treasury  of  the  United  States  under  the  act  of  August  5,  1909,  the  act  of  February  4, 
1910  and  the  act  of  March  2,  1911,  relating  to  the  issue  of  bonds  for  the  construction 
of  the  Panama  Canal,  to  a  total  amount  not  to  exceed  $20,000,000:  Provided,  That 
any  Panama  Canal  bonds  issued  and  sold  or  used  under  the  provisions  of  this  section 
may  be  made  payable  at  such  time  after  issue  as  the  Secretary  of  the  Treasury,  in  his 
discretion,  may  deem  advisable,  and  fix,  instead  of  50  years  after  date  of  issue,  as  in 
said  act  of  August  5,  1909,  not  exceeding  50  years."  ,  ^    ^r.    t^,. 

And  also  the  so-called  Leasing  Act  of  July  28,  1892,  which  was  passed  by  the  l^ifty- 
second  Congress,  first  session,  as  follows: 

"Chap.  .316.  An  act  authorizing  the  Secretary  of  War  to  lease  pubUc  property  in  certain  cases. 

''Be  it  enacted  by  the  Senate  and  the  House  of  Representatives  of  the  United  States  of 
America  in  Congress  assembled,  That  authority  be,  and  is  hereby,  given  to  the  Secre- 
tary of  War,  when  in  his  discretaicn  it  will  be  for  the  public  gcod,  tc  lease,  for  a  period 
not  exceeding  five  years  and  revokable  at  any  time,  such  property  of  the  United  States 
under  his  control  as  may  not  for  the  time  be  required  for  public  use,  and  for  the  leasing 
cf  which  there  is  no  authority  under  existing  law.  and  such  leases  shall  be  reported 
annually  to  Congress:  Provided,  That  nothing  in  this  act  contained  shall  be  held  to 
apply  to  mineral  or  phosphate  lands. 

"Approved,  July  28,  1892. " 

Now,  Mr.  Secretary,  will  you  kindly  proceed. 

Secretary  Weeks.  Mr.  Chairman,  I  am  a  little  embarrassed  t«  know  ]ust  exactly 
what  the  committee  wants.  I  have  analyzed  the  Ford  offer  in  the  statement  which 
I  sent  to  Congress.  I  can  do  it  again  if  it  is  desirable,  but,  of  coiu^e,  it  would  take  a 
very  considerable  amount  of  time.  If  the  committee  could  ask  me  any  questions 
it  desires  regarding  any  phase  of  the  analysis  or  the  offer,  I  think  the  committee 
would  gain  time  and  I  would  not  unduly  burden  it  by  much  repetition. 

The  Chairman.  Of  course,  the  committee  felt  that  this  whole  matter  was  before  us 
really  for  the  first  time,  and  I  think  it  would  be  ad\dsable  for  you  to  analyze  the  offer 
as  best  you  can,  and  get  the  matter  before  us  in  that  way. 

Secretary  Weeks.  Very  well.  Very  soon  after  the  4th  of  March,  people  interested 
in  the  Muscle  Shoals  development  came  to  me  and  asked  if  I  would  be  willing  to 
recommend  an  appropriation  to  complete  the  work  there,  meaning,  presumably,  I  sup- 
pose, the  Wilson  Dam,  although  it  was  not  so  definitely  stated.  I  replied  that  when 
a  proposition  was  made  which  seemed  to  me  to  promise  commercial  results  commen- 
surate with  the  expenditures  that  would  have  to  be  made,  I  should  consider  it  my  duty 
to  send  that  proposition  to  Congress.  .    . 

On  the  8th  of  July,  the  first  offer  came  to  Gen.  Beach,  who  had  been  in  negotiations 
with  Mr.  Ford,  or  his  engineers.  That  is  before  you.  There  were  necessarily  some 
considerable  delays,  which  I  could  refer  in  detail,  if  it  were  desirable.  For  example, 
the  representative  of  a  very  large  company  informed  me  at  the  time  that  his  company 
proposed  to  make  an  offer  and  asked  me  if  I  would  delay  taking  action  until  they 
had^prepared  their  offer.  That  delay  covered  something  like  six  weeks,  and,  finally, 
the  president  of  the  company  came  to  me  and  said  they  had  decided  not  to  make 
an  offer;  that  they  would  have  made  one  or  would  make  one,  if  I  had  any  power  to  act; 
not  referring  to  me  specifically  in  making  that  statement,  but  if  any  one  had  the  power 


to  act,  but  they  did  not  want  to  make  a  competitive  offer  that  might  develop  into  a 
political  controversy.     I  suppose  they  had  reasons  for  coming  to  that  conclusion 
.  Then  matters  developed  from  time  to  time.    It  was  difficult  for  Mr.  Ford  to  come 
to  Washington^    His  engineers  came  more  or  less  frequently.    I  had  consultations 
with  Gen.  Beach,  Gen.  Taylor  and  Secretary  Hoover,  who  had  come  in  at  my 
request   being  an  engineer,  and  with  Mr.  Ford's  two  engineers.    Various  phases  of 
the  Ford  offer  were  discussed  of  course,  at  these  meetings.    I  suggested  at  the  begin- 
ning  that  there  should  be  modifications  in  the  offer;  that  it  was  not  specific  or  definite 
^nough  m  many  respects;  and,  in  a  word,  these  negotiations  continued  until  the 
latter  part  of  November,  when  Mr.  Ford  did  come  to  Washington.     Unfortunatelv 
I  was  sick  m  bed  at  the  time,  and  it  was  not  desirable  for  me  to  go  into  any 
^!n   tIIwI^hV^w^  ^^^  Mr.  Ford  come  to  my  house,  after  seeing  Gen  Beaph  and 
•Gen  Taylor  and  Mr.  Hoover,  and  talking  over  the  situation  with  them.    Mr  Ford  told 
me  then  that  he  intended  to  go  down  to  Muscle  Shoals.    As  I  recall,  he  said  he  had 
■only  been  there  one  day  and  he  wanted  to  look  it  over  again  and  was  going  to  take 
Mr.  Edison  down  with  him  and  when  he  had  made  this  inspection  with  M?   Edison 
lie  would  return  to  Washington  and  take  the  matter  up  with  me.    He  did  not  return 
to  Washington  but  sent  his  engineers.     I  make  no  criticism  of  Mr.  Ford  for  that 
We  had  another  discussion  and  the  engineers  finally  made  several  rather  specific  state- 
ment, and  I  asked  them  if  they  had  authority  from  Mr.  Ford  to  make^th^e  sS  t 
ments.    They  said  they  had  not.    Then  I  said  that  I  thought  if  we  were  going  to  make 
progress  on  this  matter  and  reach  any  conclusion,  which  I  was  anxious  to  do,  that  thev 
•ought  either  to  get  written  authority  from  Mr.  Ford  to  represent  him  or  that  Mr  Ford 
should  come  here  himself .    The  result  was  that  Mr.  Ford  came  himself  on  whatevoT 
day  is  stated  in  this  review,  early  in  January. 
The  Chairman.  January  11. 

Secretary  Weeks.  Yes.  At  that  interview-and  the  members  of  the  committee 
Tl^'^Z'^'^t^  *S^  statement  which  I  made  at  the  time,  and  which  Mr.  Ford  madi 
liltoJlfj'^  A-.  n^'^  Practically  dissented  from  many  of  the  things  which  his  end- 

unnn  «n^  '  t^^^/'^^^.f  V^''  ^/"^  ^^^f  ^  ^  ^^^^§^*  ^^  ^'^^«  ^^  Comparative  agreement 
upon,  and  it  did  not  look  as  if  we  had  made  any  progress  toward  a  modification  of  his 
of^er,  except  that  at  about  that  time  he  submitted  a  letter,  or  his  engineers  did  r^ 
suiting  from  my  attempt  to  get  a  guaranty  from  him  that  he  would  pay  interest  on 
w!?  r ''''  ^A  tj?  d<?^'elopment  and  not  leave  a  large  amount  of  monev  that  would 
have  to  be  provided  by  Confess  on  which  there  would  be  no  return,  either  in  principal 
or  m  interest.    He  submitted  the  letter,  which  is  in  the  record,  which  brieSy  states 

after  a'l^pse'o^ix^^^^^^^^^  ^"  *^^  ^"*^"  ^'^^^^^^^^  -^*  ^'  ^^^  --P^^*--  -^  ^L  dam 

lasYoff^f  w  nn*iw?;^«7l^''  engineers  went  to  him,  and  they  did  incorporate  i:.  his 
last  offer  not  only  this  letter,  but  a  good  many  other  things  that  had  been  under 
f «  ?n??Q  Tl  ^TT^l^^  in  controversy,  particularly  relating  to  paragraphs  16  17 

Vv^niV^  M^  ^^^ff.'  \^^S^/  ^^  i^«^«*^d'  ^  ^^^  a«  I  ^oSld,  should  be  done     ' 
Evidently,  Mr.  Ford  after  he  left  my  office  changed  his  mind  regarding  the  points 

Irlcp'iJ'T"*^'  •^'^iP"*  1*^^^  V^  *^^  ^«^^'  ^^^  that  makes,  in  mYopMon  a^very 

tTe  npiwn^^  '''  *5^  "^^l"!  ?*  *\^  ^^^'.  ^''^^  *h^  standpoint  of  the^Govemment  and 
the  people  concerned.    That  is  substantially  the  history  of  the  matter,  Mr.  Chainnan 
I  have  two  propositions  in  my  office,  one  of  which  is  not  completed,  as  T  unde^nd" 

com^fttee'^sfthfe^'  ^"  ''T  ^^^^\^y  ^^"V,^^.^^  brought^o  the  attention  oHhe 
8t«Worff  /  that  the  committee  will  have  all  the  information.  I  have  a  verbal 
ThS  n!^-  T  ^°''*^^'  responsible  company  relating  to  the  completion  of  Dam  \o  ? 
GovPr^nT?i''y^^'.S?°'P^^y  ""'^^^^  complete  the  dam  at  its  own  expense,  furnishing  the 
SuTfavlble  I?t  IT'  ^'  ^*  P^^<i^d  for  nitrate  purposed,  under  terms  ^hich 
others  h« v2  w  o  A  ''*'*  ^^  wntmg,  and  I  simply  mention  it  to  indicate  that 
oiners  Have  been  and  are  considenng  this  proposition. 

of  npnrSL^'.^'f'?i5*''^  ^"^  ^^'.^  "^^""^^  "^^"^^  i^  the  belief  on  the  part  of  a  great  number 
obtS  ^^V^!^  ^'^  ?^?^^  ^  °^^^i^  ^^"^^^^  ^t  a  lower  cost  than  has  heretofore 
thiT!hn.J.^^^^  no  opinion  to  express  on  that  subject  because  I  do  not  know  anv^ 
in  tfp  H^rt  ^^^  manufacture  of  fertilizer.  I  think  ^t.  Ford  himself  is  rathe?  grop?n- 
hp  hL^^^  ^"^  "^h^t  th^  ^®^^lt«  of  ^"^  enterprise  may  be.  I  judc^e  that  not  bvwW 
tehet^  ^''  ?"  ?^^^  ^^"*  ^''  ^'^«^^  thi^^ks  he  cin  cai^y  out  th^^ 
tilizer  a^H  ?t  '^"^^,^-    If  \t  yere  not  for  the  possibility  of  the  manufacture  of  feJ? 

b&cepte^  lThttTt'?«  «if "  l""^'  V"i??^y  '^?'^  ^^^"1^  '^«"lt  from  thi^  offer 
velon  t  W  ^.7  I-  ^  ^*  if  ^^J.^  t?  ^y  th^t  BS  good  an  offer  could  be  obtained  to  de- 
No  3  fnr  L^  ""T'^f  °  ^  ^^l-  ^^^^'^-  There  would  be  no  reason  for  bSldin- Dam 
^No.  3,  for  example,  for  any  other  purpose  than  to  carry  out  his  proposed  p?o  ec?" 


28 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


29 


Just  what  he  intends  to  do  with  the  power  that  is  to  be  developed,  I  do  not  know. 
Incidentally,  I  did  put  a  provision  in  my  statement  that  the  power  should  be  dis- 
posed of  if  sold,  under  the  same  conditions  as  the  power  of  other  companies,  either 
under  the  direction  of  the  Federal  Water  Power  Board  or  the  public  service  com- 
mission of  Alabama,  but  except  for  the  carrying  out  of  his  plans,  at  this  time  there 
would  be  no  reason  for  the  construction  of  Dam  No.  3. 

The  Chairman.  How  much  would  it  cost  to  construct  that  dam?  ^ 

Secretary  Weeks.  There  are  various  estimates.  I  think  probably  the  estimates 
vary  from  forty  to  fifty  miUion  dollars  for  the  completion  of  both  dams  and  equip- 
ping them.  I  have  left  a  pretty  wide  latitude  there.  I  think  the  engineers  of  the 
War  Department,  in  order  to  be  safe,  have  probably  put  the  cost  higher  than  it  will 
be.  It  depends  somewhat  about  Dam  No.  3  on  the  foundations  The  committee 
will  understand  that  the  rock  in  that  section  is  very  porous.  It  is  difficult  to  be  sure 
that  you  have  got  a  firm,  solid  foundation.  I  think  they  are  sure  as  far  as  the  Wilson 
Dam  is  concerned.  That  foundation,  and  what  has  been  done,  looks  as  substantial 
as  the  Rock  of  Ages,  but  there  was  a  development  at  what  is  known  as  Hale  s  Bar 
on  the  Tennessee  River,  not  far  from  there,  where  it  was  originally  anticipated  that 
$3,000,000  would  be  expended,  and  $11,000,000,  as  I  recall,  was  expended  before 
the  dam  was  completed.  There  were  caves  and  holes  and  all  that  sort  of  thing  under 
the  dam  which  had  to  be  filled  in  at  very  great  expense.  The  foundations  of  Dam 
No  3  have  not  been  as  clearly  determined  as  engineers  would  like  before  they  say 
the  final  word,  and  that  is  one  reason  for  the  variation  in  the  estimate  for  the  con- 
struction of  these  dams.  If  there  is  no  material  fault  in  the  foundations,  my  judg- 
ment is  that  these  dams  would  be  completed  and  equipped  for  between  forty  and 
forty-five  million  dollars.  If  there  is  material  fault  found  there,  which  has  to  be 
corrected,  I  should  think  no  one  could  say  exactly  how  much  it  would  cost.  I  am 
speaking,  Mr.  Chairman,  as  a  layman  now,  rather  familiar  with  the  discussions  that 
have  taken  place  relating  to  the  subject.  x   .  *.o  aaa  aaa 

The  Chairman.  I  think  in  Mr.  Ford's  offer  he  puts  the  probable  cost  at  $42,000,000. 

Secretary  Weeks.  There  have  been  contractors,  who  have  tentatively  looked  over 
the  proposition,  and  thev  can  determine  pretty  definitely  about  the  completion  of 
the  Wilson  Dam,  but  there  are  no  specifications  drawn  yet  relating  to  Dam  No.  3. 
I  think  I  am  right  about  that,  Gen.  Beach? 

Gen.  Beach.  Yes,  sir.  .     .    ^  ^v,         ^      n  u 

Secretary  Weeks.  So  no  man  can  make  an  estunate  yet  of  what  the  cost  will  oe. 
I  think  there  is  a  pretty  wide  latitude  there  from  forty  to  fifty  million  dollars,  which 
would  be  pretty  certain  to  cover  the  requirements.  ,  t^       at     o 

The  Chairman.  The  $42,000,000,  as  I  recall,  was  for  the  completion  of  Dam  No.  2. 

Secretarv  Weeks.  Oh,  you  are  mistaken.  That  would  complete  both  dams. 
Incidentally,  I  think  I  am  justified  in  saying  that  anv  delay  that  has  taken  place  on 
account  of  the  n^otiations  that  have  been  going  on  has  been  entirely  justified  from 
the  standpoint  of  probable  cost.  The  estimates  a  year  ago  were  substantially 
$10,000,000  higher  than  any  one  puts  them  to-day.  The  cost  of  constniction  has 
very  materially  declined,  and  I  think  it  is  safe  to  say  that  the  delay  of  a  y^r  m  the 
completion  of  that  dam  will  save  whoever  furnishes  the  money  to  complete  the  whole 
project  from  five  to  ten  million  dollars  at  least. 

The  Chairman.  Have  you  anvthing  further  to  submit,  Mr.  Secretary? 

Secretary  Weeks.  I  expressed  a  doubt,  Mr.  Chairman,  a  few  minutes  ago  about  the 
final  results  of  the  fertilizer  development.  Very  largely  the  impetus  for  the  comple- 
tion of  this  project  came  from  those  who  believed  that  they  were  going  to  get  fertilizer 
at  a  lower  cost 

Mr  Ford's  modified  offer  in  sections  17.  18  and  19,  does  give  some  assiurance  that  a 
real  attempt  will  be  made  to  do  this.  I  say  "some  assurance,"  a  great  deal  of  assur- 
ance. It  will  be  noted  in  his  first  offer,  to  which  I  made  strong  objections  he  stated 
he  was  going  to  form  a  company  or  a  corporation  for  the  purpose  of  carrying  out  this 
general  proposition.  There  was  no  statement  made  of  the  amount  of  capital  with 
which  that  company  should  be  equipped  or  anything  relating  to  Mr.  Ford's  con- 
nection with  it.  It  did  not  seem  to  me  that  that  was  a  sufficient  assurance  that  the 
work  would  be  carried  out,  at  least,  during  the  life  of  the  contract,  and  Mr.  Ford 
has  partially  remedied  that  by  pro^iding  that  proceedings  may  be  brought  against 
him:  that  he  and  his  estate,  in  other  words,  will  back  up  this  company.  Now, 
just  what  those  proceedings  would  am9unt  to.  in  case  he  stopped  manufacturing 
fertilizer,  except  a  matter  of  damages  against  him  or  against  the  company  which  he 
forms,  I  am  not  verv  clear,  and  I  have  not  submitted  to  the  law  department  of  the 
War  Department  any  question  on  that  subject.    That  is  somethihg  that  the  com- 


because  in  my  conversation  with  Mr   FoM  I  e2?^«  hi™    *  ^  "^  **  agreement, 

kn^we  what  foCh&''^3irte^^3  bfli^i"*  fTl^i?-^  .^T  ""Y  y^^'  ""^  "<>  -« 
Mr.  Garrett.  Yes,  sir. 

Agricultural  ChemiSi  Co  Chemical  Co.  and  the  other  is  the  American 

panlS  ItTh^Trn'^o^em^'SepenSe^tly  17!  ^T^  "^^  f  -™-  «>- 

preferred  XTand  onlv  mid  il^dPnH^^r  ''^''^'  ^^^^  ^^^^  ^  P^^  ^^^^  «°  its 

abIut%*^CCte'bIforVSl'S^L*?S-  P'^™'/^  ^  **•'«  "  fro"  '••"'t  you  have  said. 
Secretary  Weeks   Y^        ^  "^"""^  agreement  which  is   now  before  us! 

4r?"?<>'-^°"^^^^^^  the  time  he  to>d 

inWomt^inTsoricdntlir— tTnl^rP'^nl"^  *t«  construction  had  to\e 
feferr^  in  th«e  paShs  M  the  enH  nfil^ff  *■"**«  o*er  things  to  which  I  have 
i>''  agreed  to  bv  his  pf^E«!^  i?.!  t  *?*  "?f'  '^'"<='»  "^  substantially  new,  were 
of  thfm  thei  tLk  th^ftS^rt  mT/S**^!  Advocate  General's  Department.'  One 
•■ack  by  the  sa^e  me^lnger  ^"'^  ""  °**™"  *"<*  ^^  ''Sned  it  and  sent  it 

sXton- WEEKS^ri^i^Wwl  ",\t°^«g*»  "^king  you  questions  now? 
HousI  v^u  makesomTretrt^'f"'^  "'  ^<""  ^t^**"^*"*  sent  to  thi  Sp^ker  of  the 


30 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


31 


4 

I 


« 


"I  also  suggest  that  the  cost  of  acquiring  the  lands  and  the  flowage  rights  necessaiy 
for  Dam  No  3  should  be  included  in  the  cost  on  which  Mr.  Ford  is  to  pay  4  per  cent 

Secretary  Weeks.  That  is  a  matter  of  figures,  Mr.  Chairman.  Of  course,  that  one 
item  is  much  more  important  in  this  whole  transaction  than  the  amortization 
which  he  proposes  to  make  for  the  payment  of  the  principal  at  maturity;  probably 
twice  as  important  in  the  matter  of  dollars  and  cents.  Our  engineers  estimate  that  it 
will  be  likely  to  cost  $2,000,000  to  obtain  the  land  and  flowage  rights  which  would  be 
aftected  by  the  construction  of  Dam  No.  3.  That  figure  may  be  high.  Mr  ^ord  s 
engineers  placed  it  lower.  I  do  not  believe  any  one  knows  exactly,  because  1  do  not 
think  they  have  gone  into  it  in  sufficient  detail,  but  Mr.  Ford  s  engineers  express 
the  view  that  it  would  not  be  over  $1,500,000;  but  anybody  can  take  his  pencil 
and  figure  what  $1,500,000  paid  at  this  time  would  amount  to  in  100  years,  ana  it 
will  be  found,  of  course,  that  that  is  of  very  great  moment  compared  with  the 
fund  proposed  to  be  established  to  amortize  this  debt,  and  that  was  my  reason  tor 
saying  that  I  thought  that  amount  should  be  included  in  the  cost  of  the  enterprise. 

It  is  a  part  of  the  cost  of  the  enterprise.  _       ,,     t.     ,       ,  »«.  +^  inoao 

The  Chairman.  As  I  understand  the  proposition,  Mr.  Ford  makes  an  offer  to  ease 
a  certain  part  of  the  plant,  and  then  he  wants  certain  other  parts  of  the  plant  sold  to 
him  outright;  that  is,  the  nitrate  plants  1  and  2,  and  the  Waco  quairy  and  also  the 
Warrior  River  plant  and  the  transmission  line.     He  wants  that  sold  to  him  outrignt. 

The  Cha^trman.  And  he  wants  to  lease  the  Wilson  Dam  and  also  Dam  No.  3  when 

it  is  completed. 

Secretary  Weeks.  Yes.  .  ,  ,      ^  ^i.        i      *  +i,^c^ 

The  Chairman.  You  make  some  comment  m  your  letter  about  the  sale  ot  those 

nitrate  plants.    What  was"the  original  cost  to  the  Government  of  those  plants.^ 
Secretary  Weeks.  About  $87,000,000.  .- nn^  c^m 

The  Chairman.  And  he  wants  to  buy  them  outright  for  $o,ouo,uuu. 
Secretarv  Weeks.  That  is  his  ofler.  .      ,  .^-i     -.y,  ^u^ 

The  Chairman.  I  presume  we  had  better  take  up  those  matters  in  detail  witn  tne 

Chief  of  Ordnance,  when  we  come  to  that.  ,       ,       .u  +  o4o+«T^or.t 

Secretary  Weeks.  Mr.  Chairman,  in  order  that  I  may  make  clear  that  statement, 
Congresssman  Quin  calls  my  attention  to  the  fact  that  perhaps  I  did  not  answer  the 
quesuon  correctlv.  I  understood  you  to  ask  me  about  the  cost  of  nitrate  plants  Nos. 
1  and  2,  the  Warrior  plant,  the  Waco  quarry,  and  the  transmission  line. 

The  Chairman.  Yes.  ^      ^  ,  -j  ■  +„*«,v,«t,+ 

Secretary  Weeks.  And  I  stated  about  $87,000,000.     I  have  said  in  my  statement 
to  the  committee  here  $85,000,000,  and  thatis  probably  nearer  cojrect  than  $87,000  WO 
but  that  does  not  include  what  has  been  expended  m  the  construction  of  the  Wilson 
Dam  which  is  between  sixteen  and  seventeen  million  dollars. 

The  Chairman.  Of  course,  the  Wilson  Dam  is  not  yet  completed.  You  sav  m  yoiir 
letter  that  it  is  about  30  per  cent  completed  and  it  will  require  according  ^  the  Ann> 
engineers,  to  build  and  complete  the  Wilson  Dam  and  also  Dam  No.  3,  about  5)0U,- 

000  000  t 

Secretary  Weeks.  Yes.    The  cost  of  what  has  been  done  at  the  Wilson  Dam,  of 
course  is  very  much  higher  than  the  same  cost  would  be  at  this  time     I  do  not  know 
about  the  30  per  cent.     I  am  not  very  clear  in  my  own  mind  about  that. 
The  Chairman.  I  think  your  report  states  that  it  is  about  30  per  ^^^^  completed^^ 
Secretary  Weeks.  I  think  the  Wilson  Dam  could  be  completed  for  $22,000,000 
which  would  make  a  total  of  about  $39,000,000  for  that  dam  but  if  it  were  constructed 
at  this  time  I  think  it  could  be  constructed  for  $30,000,000,  and  bear  m  niind   M  . 
Chairman  and  gentlemen,  that  I  am  talking  as  a  layman  about  these  figures  and  engi- 
neering propositions,  because  I  am  not  an  engineer;  but  this  is  stated  after  consider- 
able familianty  with  the  discussions  that  have  been  held  m  my  presence  by  engineeis 
representing  both  sides  of  the  matter.  -^      •     j       *  „  ^^^..f  atai- 

The  Chairman.  Have  you  with  you,  Mr.  Secretary  an  itemized  cost  account  stat 
ing  just  exactly  how  much  money  has  been  expended  by  the  Government  up  to  tne 
present  time  on  all  these  projects?  .     i-|i-_i,„x_^„q 

Secretary  Weeks.  I  have  an  itemized  statement,  and  it  was  included  m  what  wa 
marked  "Exhibit  F"  in  the  report  which  I  sent  to  Congress  on  page  23,  of  the  co.t 
of  the  nitrate  plant  and  everything,  I  think,  except  the  Wilson  Dam.    That  is  the 

^""fhe^CHlfRMl^^^^^  Exhibit  F,  on  page  21  of  the  pamphlet,  there  is  a  stateme^^^^^^^^ 
the  approximate  cost  of  the  nitrate  plant,  of  the  Warnor  River  plant,  the  Waco  quarr} , 
and  so  on. 


am^unffo*"™^"-  ™'   ^"^   ^''^^^  ""^'^  *<"  ">«  '^"'^  )"«»   what   that  would 

ii^mfi^l!"^^"-  ^'-  ^^^'''''  °»t  i^^'-di"?  maintenance,  the  total  cost  is 

The  Chairman.  For  nitrate  plant  No  1 

poSsTS^y*"'^'''  (interposing).  That  includes  the  properties  that  Mr.  Ford,  pro- 

wMch  hS'oreven'beent^'^"^  '"  ''"^  ''''  ^''^^  """^  -"  '"^  »»-  No.  3, 
equipped"  ofl'.^"-  """■'  t'^t^-'-tte  proposes  to  lease;  the  two  dams,  electricaUy 

S'cret^  WKEKS^'lljriS^.te:'  *^'^  "^'  **  Gc^emment  up  to  the  present  time? 
The  Chairman.  For  the  two  dams'? 
Secretary  Weeks    Nothing  has  been  done  on  Dam  No.  3 
^.®,..   *'' w"^"^-  ^^t^^ig  lias  been  done  on  that  property  at  all? 
Secretary  Weeks.  There  may  have  been  some  exploration  work  and  the  Chipf  nf 
r^n^neers  is  here  and  can  inform  you  about  that  when  he  te^tiTes   ^"""^  *^^  ^^'^^  ^^ 
The  Chairman.  What  is  it  estimated  it  will  cost  to  complete  Dam  No  3 

The  Chairman.  You  make  a  recommendation  that  a  lease  of  100  vears  wnnlH  ho 
TorZ^ir^.t^^..1r.^,  -<1  ^-  -^^^  P-i^y  a  ^Ve^rS."°^y^<; 

^Ib.  C.ui«...  Up.li  .tu  Mm.  do.  Mr.  r,rt  rm^  K.  km.  Din  N„.  2 

becretary  Weeks.  It  would  unless  Mr.  Ford  aereed  to  it 
*ouU  wSiffereS  cSions In^^^'^n'^'f.^'  *  50-yearfranchise,  he  undoubtedly 
l.e  ha.  nTdl  h^X^'lW-yrfmnc"  ""  *'  '^""*^*=*  '""^  '""^^  "^  "^^  P-P'^'^ 

courl'rbZiYff  nn'  ^n  t  ™'""'*'  T*°i  *?  ?S?°8e  his  method  of  amortizing  the  debt  of 
any  mteri^^ifff,  ^^"  instead  of  100  years,  but  I  do  not  think  it  would  nike 
been^^lSL  ^f^X^  otherwise  You  must  remember,  Mr.  McKenzie,  tS  mvl 
knowlXaf^ltas^vSftCl^/"'^  considerable  transaction,  he  having  the 

increase  the  exnensf  to  Zfv.Tff  Ti,^  50-y^r  franchise,  that  would  proportionately 
Secretafv  W?^^    w^'  ^  ?i^  ^"""^  ^^^  ^^^^^t  he  would  derive  from  the  proposUion 
wouW  n^t  be  anv  gr^^^^^  the  indebtedness  so  that  the  annSrexpe^'^e 

loi  De  any  greater,  but  it  would  not  be  entirely  paid  at  the  end  of  50  years 

92900—22 3 


32 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


33 


Mr.  McKenzie.  Of  course,  it  is  true  as  you  suggested,  that  the  waterpower  legisla- 
tion provides  for  a  50-year  term  franchise? 

Secretary  Weeks.  Yes.  . 

Mr.  McKenzie.  That  was  a  controverted  question,  was  it  nots" 
Secretary  Weeks.  I  think  it  was.  ,       .        ,         ,        ^        /       v 

Mr.  McKenzie.  There  are  very  many  who  hold  the  view  that  a  long-term  franchise 
is  advantageous  not  only  to  the  licenses,  but  also  to  the  general  public;  is  that  not 

Secretary  Weeks.  Yes.    I  am  simply  expressing  my  own  personal  view  in  the 

^Mr^'^ilcKENZiE.  However,  if  the  committee  should  object  to  the  100-year  proposi- 
tion, as  one  element  in  the  plan,  it  would  necessarily  involve  the  redrafting  of  the 

whoie  proposition,  would  it  not?  j    *x«       rpi,^^^ 

Secreta^  Weeks.  I  do  not  think  there  would  be  any  material  redrafting,  mere 
would  have  to  be  a  redrafting  of  the  amortization  plan. 

Mr.  McKenzie.  In  regard  to  your  suggestion  that  if  this  plan  should  go  throiign 
there  shoald  be  some  provision  put  in  which  would  make  Mr.  Ford  s  company  liable 
under  the  State  laws  of  Alabama,  or  that  might  bring  him  under  the  general  water- 
power  law  of  the  country,  is  it  your  view  that  there  is  not  an  implied  understanding 
fiiat  he  would  come  under  those  laws,  regardless  of  any  specific  reference  to  it  in  the 

^  Secretary  Weeks.  I  do  not  know  whether  he  would  be  or  not.  That  was  discussed, 
and  there  was  some  little  doubt  about  it.  There  is  no  reason  why  it  should  not  l^e 
put  in,  if  there  would  not  be  any  certainty  about  it.  .  x-        u 

Mr.  McKenzie.  So  far  as  you  know,  neither  Mr.  Ford  nor  his  representatives  have 
any  objection  to  that  sort  of  a  provision  going  in? 

Secretary  Weeks.  I  think  they  would  not  have.  ^^        -.  x,    xt 

Mr  McKenzie.  Now,  Mr.  Secretary,  in  regard  to  the  amount  to  be  paid  by  Mr. 
Ford 'for  the  property  he  is  to  take,  that  is,  his  offer  of  some  $5,000,000,  as  set  forth  in 
the  contract,  is  it  your  judgment  that  that  offer  was  based  on  what  he  considered  a 
fair  salvage  value  for  the  property,  if  taken  over,  simply  as  a  matter  of  salvage,  or  was 
the  figure  of  $5,000,000  put  in  as  a  part  of  the  consideration  of  the  whole  scheme? 
In  other  words,  if  there  were  no  other  conditions  connected  with  this  matter,  would 
it  not  be  reasonable  to  presume  he  might  have  made  a  greater  offer  to  take  that  property 
over  as  a  mere  matter  of  salvage?  .      ,,    „     ,       , ,  . 

Secretary  Weeks.  I  can  not  tell  what  course  of  reasoning  Mr.  Ford  and  his  engineers 
followed  to  arrive  at  the  $5,000,000  figure,  but  they  have  refused  m  any  way  to 

modify  it.  ,   ,  ^x^  *.  4.u 

Mr  McKenzie.  I  notice  by  your  letter  and  the  report  of  the  engineers  that  the 

maximum  sum  that  can  be  expected  to  be  received  from  the  sale  of  this  property 

would  be  $16,000,000? 
Secretary  Weeks.  A  Uttle  in  excess  of  $16,000,000 

Mr  McKenzie.  And  that  you  think  a  fair  estimate  would  be  $8,000,000.' 
Secretary  Weeks.  The  $8,000,000  is  based  entirely  on  scrapping  and  salvaging  the 

property    and  the  War  Department  has  done  so  much  of  that  kind  of  thing  that 

Its  estimates  are  fairly  accurate  as  to  what  can  be  obtained  by  scrapping. 
Mr  McKenzie.  It  has  occurred  to  me,  Mr.  Secretary,  that  the  minds  of  Mr  i^orU 

and  the  Army  engineers  did  not  meet  on  the  point  of  the  salvage  value  m  its  entirety, 
*  that  Mr   Ford  took  into  consideration  other  elements  in  connection  with  the  whole 

proposition  and  simply  said  that  among  other  things  he  would  give  $5,000,000  for  this 

^Tecretan^^WEEKS.  I  can  not  tell  about  that.  Of  course,  there  has  been  a  great  deal 
of  discussion  about  this  matter.  Mr.  Ford  originally  proposed  to  pay  6  per  centfon 
$20  000,000  as  the  amount  he  was  willing  to  provide  for  the  completion  of  the  dams. 
That  matter  was  discussed  for  a  long  time,  and  his  engineers  repeatedly  said  to  me 
that  Mr.  Ford  could  not  afford  to  do  any  more  than  that  because  he  was  going  to  put 
ten  or  twelve  million  dollars  into  a  plant  for  the  manufacture  of  fertilizer,  and  that 
would  prohibit  his  paying  interest  on  any  more  of  the  cost  of  construction  and  make 
the  proposition  a  reasonable  one  from  a  commercial  basis.  That  would  seem  to  indi- 
cate that  they  had  considered  all  parts  of  this  offer.  Of  course,  Mr.  Ford  has  modifaed 
the  matter  of  the  payment  of  interest  on  the  cost  of  construction . 

Mr  McKenzie.  I  take  it  from  your  statement,  Mr.  Secretary,  that  you  have  some 
apprehension  as  to  whether  or  not  Mr.  Ford  or  his  company  would  continue  the  manu- 
facture of  fertilizer  at  this  plant  through  the  whole  period  of  the  lease. 

Secretary  Weeks.  If  I  were  operating  for  myself  and  this  were  my  prop- 
erty I  should  insist  on  a  guaranty  that  the  manufacture  should  contmue 
dunng  the  life  of  the  contract,  and  I  say  that  without  any  reEection  whatever 


on  Mr.  Ford  or  Mr.  Ford's  estate,  or  on  the  company  he  is  goin-  to  form      That  ,*<, 
simply  a  common-sense  business  proposition.  S"i"«  lo  lorm.     mat  is 

Mr.  McKenzie.  I  am  not  sure  but  what  you  are  risht  about  that   Mr   <5^..«*« 
because  there  is  no  question  whatever  but^hafthXtere^t  of^^^^^  peopirSlS^ 
country  has  been  centered  around  the  fertilizer  nronnmti-nn  of  fV.^.  ^  E^  ^1    ^V"^ 
But  I  take  it  from  your  statement,  f u/ther  IhTt^^hTLT^^^^^^  Kzer  h^^o't 

been  a  great  financial  success,  up  to  date,  in  this  country  fertilizer  has  not 

I  do  notkLw.'""'-  '  ''  "^'  "^"*  ''  ''^  *^^*  fi"^"y^"  --y  '^Pe-ifi-  case,  because 

Mr.  McKenzie.  Speaking  of  the  two  large  companies - 

Secretary  Weeks  (interposing).  I  just  happened,  last  night  in  dancing  through  « 

'"Secretary  Weeks.  Yes. 
Co^'lre^wSUdltiri;  rawr*^"'"^  '"^^  **•«  ^•^™^  "'  *«  ^'^"ama  Power 

Department  durinii  fte  war  Tnrt  tWf„       ^  ^/  5?®  contract  section  of  the  War 

kfr  McKFvJ^r  I      ^  very  much  surprised  when  I  received  that  decL  on 
from  t^'^Xct  tbJbTdTnTT'"'  "'  **  T't'  ^*  ^-  Ford,  uTevident 

taking  a  dollaXm  thp^^'J.,^!  -^  (xovernment  could  complete  that  dam  without 
and  the  sale  of  tKSwer^^^^^^  that  couM  be  sold,  based  on  the  dam 

?4rne^e^s^£^^^  '  ^^I 

bility  for  it  anH  ?  ?h '  ?^^  ""^^"^/^"^  ^^^'  additional  power,  and  Siere  is  the  W 
PowJr  pLnt  at  nilt'^i^^^^^^^  understand  that  we  are 'nowle^in^^the 

reaches  the  mms  of  North  CaroHnl      T  L  J  .^^"^l^Jr/i^^"  ^^  ^  ^^^^^  ^^^t  jSwer 
^^  ere  on  rather  o^^«  i  *l     ^^f^^i'^*/    1  had  to  make  that  lease  while  these  neeotiatinns 

,  ^^l^PeT^X^TnVtoS^  Ford's  engineers.  TlrX^'d  W 

«nd  South  Carolina  and  Sat  w^  tT^^^^  because  there  wa^  a  shortage  of  power  in  North 
plant  was  st^rtlli   ««?  ^^    ..  ^^^  available  place  to  get  power.    So  that  now^r 


I 


84 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


35 


Secretarv'  Weeks.  You  will  have  to  ask  one  of  the  officers  about  that;  I  do  not 
know  I  do  not  mean  to  sav  that  power  is  now  being  transmitted  from  Alabama  to 
North  Carolina.  It  is  being  diverted  so  that  it  reaches  North  Carolina.  What  I  mean 
to  say  is  that  it  has  a  specific  application  to  this  100-year  lease— in  that  nobodjr  knows 
what  we  are  going  to  see  in  10  or  20  years  in  the  transmission  of  power.  It  is  in  its 
infancy.  We  can  develop  perfectly  enormous  power  in  the  Colorado  River.  The 
greatest  power  in  the  United  States,  far  and  away,  is  there,  and  I  anticipate  that  in 
the  course  of  a  comparatively  few  years  there  will  be  means  of  transmission  of  power 
to  the  Central  West,  anvway,  and  perhaps  to  the  whole  country. 

Mr.  McKenzie.  It  is  being  transmitted  now  as  far  as  200  miles,  is  it  not? 

Secretary  Weeks.  More  than  that.  I  am  reminded  that  it  is  being  transmitted  700 
miles  in  California.     I  am  not  personally  familiar  with  that. 

Mr.  McKenzie.  At  any  rate,  if  this  proposition  is  turned  down  by  the  committee, 
you  would  recommend  the  completion  of  this  dam  for  power  purposes,  and  in  that 
event  possibly  all  of  these  improvements  would  be  salvaged  and  dismantled. 

Secretary  Weeks.  Would  be  salvaged.  I  suppose  members  of  the  comnntteo 
have  been  there.  There  are  two  villages  there,  one  at  nitrate  plant  No.  1,  the  Sheffield 
plant,  and  one  in  Florence.  There  are  400  or  500  houses  at  those  plants,  and  most  ot 
them  are  not  occupied.  A  few  of  them  are  occupied  by  our  officers  and  men  who  are 
there.  Those  houses  are  of  stucco  construction,  reinforced  concrete,  or  whatever  it 
may  be..  I  went  into  one  of  them,  and  there  is  not  one  of  them  that  is  not  suitable 
for  any  man  to  live  in  unless  he  has  a  family  which  is  too  large.  If  there  is  any  de- 
velopment of  commercial  enterprise  there,  those  houses  are  coming  into  the  market, 
and  while  the  estimate  of  their  salvage  value  is  very  small  now,  I  have  no  doubt 
those  houses  cost  $3,000  or  $3,500,  and  that  they  would  cost  |2,500  each  now,  on  an 
average,  and  you  could  get  quite  a  large  salvage  value  out  of  them. 

Mr.  McKenzie.  But  this  much  can  be  said  in  favor  of  this  proposition,  perhaps,  that 
Mr.  Ford  agrees  to  take  over  all  that  property  for  the  sum  of  $5,000,000,  and  that  he 
vdW  continue  to  operate  the  nitrat«  plant  from  which  we  expect  to  get  the  material  to 
make  exolosives. 

Se-'  retary  Weeks.  He  will  keep  the  nitrate  plant  in  condition  for  the  Government's 
use,  and  that  is  favorable  from  the  standpoint  of  the  War  Department. 

Mr.  McKenzie.  He  further  agrees  to  undertake  the  manufacture  of  fertilizer  to  the 
maximum  amount  of  110,000  tons  per  annum? 

Secretarv  Weeks.  He  does  now,  yes. 

Mr.  McIvenzie.  To  that  extent  he  is  taking  on  a  pretty  good-sized  contract  on  his 

part? 

Secretarv  Weeks.  Undoubtedly. 

Mr.  Greene.  Mr.  Secretary,  if  this  offer  were  declined,  considering  your  suggestion 
that  the  completion  of  the  Wilson  Dam  be  carried  through,  would  it  be  done  with  the 
idea  of  maintaining  it  as  a  Government  enterprise,  or  simply  preparing  it  to  get  it  into 

shape  for  salvage?  ,  .      .  i.  ,  i 

Secretary-  Weeks.  I  think  the  whole  thing  could  be  leased  and  m  time  probably 
salvaged,  but  that  is  simplv  an  expression  of  opinion  on  my  part. 

Mr.  Greene.  Then,  so  far  as  I  understand  it,  this  whole  business  is  looked  upon 
primarily  as  a  proposition  for  salvage,  and  that  the  question  as  between  one,  two,  or 
three  or 'any  different  forms  of  salvage  which  may  be  offered  is  simply  which  form 
carries  with  it  the  greatest  operating  benefits  and  the  best  financial  terms? 

Secretary  Weeks.  Yes. 

Mr.  Greene.  Salvage  is  the  motive  in  the  whole  proposition? 

Secretary  Weeks.  The  motive  is  to  get  the  Government  out  of  an  enterprise  in 
which  it  is  involved  as  a  result  of  the  war.  •   •      .      i.  a 

Mr.  Greene.  Are  you  prepared  to  give  us  anything  like  an  opinion  for  the  record 
as  to  whether,  if  this  particular  form  of  Mr.  Ford's  offer  should  be  declined,  that 
would  terminate  all  negotiations  wdth  him,  or  whether  he  might  be  likely  to  come  back 
with  a  second  proposition? 

Secretary  Weeks.  I  am  not  justified  in  speaking  for  Mr.  Ford  in  that  matter,  but  as 
I  tried  to  explain  awhile  ago,  I  have  taken  the  position  that  unless  something  were 
done  we  would  not  make  a  trade.  My  position  was  to  get  the  best  offer  possible  from 
Mr.  Ford  or  someone  else  and  send  it  to  Congress. 

Mr.  Greene.  I  appreciate  that,  and  I  did  not  mean  to  ask  the  question  to  put  you 
into  the  attitude  of  expressing  Mr.  Ford 's  mind.  I  wondered  whether  the  negotiations 
were  attended  with  such  circumstances  as  might  lead  to  the  reasonably  presumable 
assumption  that  he  would  come  in  with  another  offer. 

Secretary  Weeks.  1  do  not  know  that  he  would  come  in  with  another  offer,  but  ne 
might  make  some  changes  in  this  offer. 


nec'tion  with  Smr^aT^o"?  o^^^^PP'^ft  ^'^^^  y°"  ^^'^  «'«°«'««'  ^^«  i°  oon- 
necHonwim  nitrate  plant  No.  2.    You  wou  d  not  recommend  that  wonlH  ™ii? 

Secretary  VVeeks    I  would  not;  no.    That  refera  enS  to  No   2  ^ 

I:  „f  «^'         ■  \  *"  4*'' }°  ^^'  y""  =ay  *•>»».    in  Mr.  Ford-s  offer  he  soeaks  of  a. 
Clude^'theTpeTolnT.  ^"^^  '"''"^"' '''''  ''"^  -'*-*-  -<•«  aat"h^7Ctu.l 

c^npZ:f:u^'^f--l^:^^tlJ^^^^     a  conCuaion.  but  the  «na. 

Mr.  Hull.  That  would  be  rather  excessive,  would  it  not'' 
r  ttu:^clTd^LKt1v:?Jr^^*°en^  -to  *•"«  -"ufaeturing  business  unless 

pl!fs''i"ts!'did"wtiot7^  '■^'^'"""^  '"  *'^«  ""•  ^"  «"'"«'=«i°°  'rith  these  cost- 
Secretary  Weeks.  This  is  not  a  cost-plus  contract. 
SecreteJ^' Weeks^?  iTf^t^  turnover  even  if  he  turns  it  over  two  or  three  times.' 

a  y^ar?     "'•  ^'  ''""''*  *"  ^'^'"^  "^  ^^^  """b^r  of  ti^es  he  could^Tt  over  in 
Secretary  Weeks.  Yes. 

Mr.  Hull.  That  is  another  thing;  that  is  8  per  cent 

Secretary  Weeks.  That  is  the  production  ot  fertilizer. 

Mr  Fo7d"' wIuMrno^tet'tfiiTt'  '«?P<'°«ib.Uty  or  what  was  back  of  the  offer  of 

S.;.o,      •  J  *'^"''  i^'''  ^^  ">  'lie  second  one,  too:  'urniea. 

tw^cl'^Tn^'^T-till'S  isTefiSef  f  ?°  "^  ^"^  't'h'''  ''-^  «>">''ine  the 

t'ord  wfnS^suViSth^^^^^^^  1  H  T'^  '*^^-  »"'  ^  '^^'^^  i°  view  of  Mr. 
in  the  manSure  of  fcrtiUze^  tW  mlSht'^  *°  "^^'it^u  "■■  ^'^"^^^  "^"i""  dollar 
the  capital  of  thU  company  ^     ^  considered  their  opinion  of  his  idea  of 

Secr^ti;r'V''wi'^K.'T'ihinl\1»^  '=°?'P*"y  °'"  operating  the  dams  at  all. 

'hmkitUnl^nL'd-thatulouldSXr''  "  *"  "^""^  ""*  '""^  ''''*-  oP«™«™;  ^ 

''^i^^i^^^o^n^^^J^l:-'^^^^        --••  you  did  not  say: 


I 


Serrptamr  vtr  /• "  "'       .^®  companies  you  cited 

secretary  Weeks  (interposing).  One  company  I  cited. 


S6 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


37 


Mr.  Hull.  Yes;  I  believe  you  cited  only  one  company;  but  that  company  does  not 
manufacture  nitrates,  it  simply  assembles  the  nitrates  it  buys  of  the  importers;  is 
that  not  true? 

Secretary  Weeks.  Undoubtedly.  -^     .,    .     .^ 

Mr  Hull.  This  is  an  entirely  different  proposition.  This  is  evidently  for  the  nianu- 
facture  of  the  nitrates  which  would  take  the  place  of  the  Chilean  nitrates,  which  are 

imported.  -^^i      , 

Secretary  Weeks.  We  can  fix  nitrogen,  however,  at  that  plant,  without  any  ques- 
tion. I  want  to  offer  this  opinion,  however,  that  the  fixation  of  nitrogen  is  m  its  in- 
fancy and  that  ten  or  twenty  vears  from  now  we  will  be  surprised  at  the  development 
which  has  been  made.  If  you  will  ask  Gen.  Williams  the  question  he  will  tell  you 
about  observations  he  has  made  recently  along  that  line  which  would  substantiate  the 
general  statement  1  made  in  that  regard.  r    -x    * 

Mr  Hull.  I  think  that  is  true;  but  my  point  was  that  in  the  manufacture  of  nitrates 
this  company  which  you  cite  probably  has  to  pay  $90,  $100,  or  more  per  ton  for  its 
nitrates 

Secretary  Weeks.  About  $40,  I  think. 

Mr.  Hull.  During  the  war  they  paid  $90. 

Secretary  Weeks.  It  is  about  $40  now.  ,r    ,.    j  •       n- 

Mr  James.  Section  11,  Mr.  Secretary,  enumerates  the  things  that  Mr.  J^ord  is  willing 
to  buy,  and  which  cost  us  $85,000,000.  You  figure  the  salvage  value  at  $8,000,000 
and  you  say  that  possibly  they  might  sell  for  as  much  as  $16,000,000.  Under  section 
12  Mr.  Ford  agrees  to  pay  $5,000,000.  I  understand  that  you  feel  that  in  view  ot  Mr. 
Ford's  offer  to  manufacture  nitrates  and  fertilizer,  Congress  should  accept  the  proposi- 
tion, although  there  is  quite  a  difference  betwean  your  figures  and  his? 

Secretarv  Weeks.  I  think  the  Government  is  making  a  sacrifice  m  selling  at 
$5  000,000.'  I  tried  to  get  Mr.  Ford  to  pay  the  salvage  value  on  the  property.  He 
has  declined  to  make  any  change  in  the  amount  he  will  pay  for  it.  There  are  so  man\ 
contingencies  and  benefits  that  result  from  this  that  it  is  a  question  for  Congress  to 
decide  whether  it  can  afford  to  make  a  monetary  sacrifice  in  the  sale  of  its  property, 
but  in  any  case  you  should  remember  that  the  salvage  includes  the  salvage  of  nitrate 
plant  No.  2,  which  I  would  not  be  in  favor  of  doing  at  all.  There  the  Government 
has  a  complete  plant  which  can  now  produce,  by  using  steam  power,  without  an>- 
development  of  waterpower,  about  100,000  tons  of  ammonium  nitrate  a  year. 

Mr  James.  WTiat  would  be  the  salvage  value  without  the  nitrate  plant? 

Secretary  Weeks.  Those  figiu-es  are  given  in  detail  in  Gen.  Williams's  report. 
Let  me  add  a  word  here,  so  that  it  may  clarify  the  statement  I  have  made.  The 
Government  is  now  equipped  to  produce  nitrates  for  its  purposes  through  the  use  oi 
this  nitrate  plant  No.  2.  Under  present  conditions  it  would  have  to  operate  the  plant 
by  steam  power,  which,  of  course,  would  be  more  expensive,  presunia])ly,  than  to 
operate  by  waterpower,  and  there  is  an  advantage  in  that  the  steam  plant  is  kept  in 
condition  all  the  time,  so  that  regardless  of  Mr.  Ford's  or  any  other  offer  the  Govern- 
ment has  that  property  now  and  can  produce  in  any  year  it  wishes  to,  100,000  tons  ot 

ammonium  nitrate.  „   ,  .        ^         ,,  ,., 

Mr.  Kearns.  Mr.  Secretary,  I  think  the  answers  to  all  the  questions  I  would  like 
to  ask  you  are  in  this  document  we  have  before  us.^but  in  order  to  assemble  them,  1 
would  like  to  ask  you  a  few  questions.  How  much  money  has  the  Government 
already  expended  in  the  entire  project  at  Muscle  Shoals? 

Secretary  Weeks.  Including  maintenance? 

Mr.  Kearns.  I  mean  including  everything. 

Secretary  Weeks.  You  want  that  figure  definitely? 

Mr.  Kearns.  Approximately.  ^       .     ,    , 

Secretary  Weeks.  That  amount  is  $106,203,016.07.  That  includes  maintenance 
to  July  ]  1921 .  Incidentally,  I  want  to  say  a  great  many  statements  have  been  made 
about  the  cast  of  carrving  on  those  plants  now,  as  being  $700,000  a  year  or  figiires  to 
that  effect.  That  has  been  modified  in  the  last  year,  we  having  leased  the  Warrior 
plant  and  the  power  plant  No.  2,  and  my  opinion  is  that  we  are  getting  enough  out 
of  those  two  leases  to  pay  the  expenses  we  are  going  to  be  put  to  there  so  that  we  are 
probably  breaking  even  at  this  time.  ,  , 

Mr.  Kearns.  If  the  Go^  ernment  should  enter  into  this  contract  or  lease  with  "vir- 
Ford,  and  should  complete  this  project,  how  much  would  the  additional  cost  amount 

Secretary  Weeks.  It  would  be  from  $40,000,000  to  $50,000,000  more.    That  would 

make  a  total  of  approximated  $150,000,000.  ,j  ^r,. 

Mr.  Kearns.  After  the  work  was  all  completed,  on  what  sum  of  money  would  Mr- 

Ford  pay  rental?  ^  ,    .      i^        ^t     ^      j  v     ' 

Mr.  Weeks.  On  whatever  the  additional  cost  of  compleUng  Dams  2io.  2  and  so.  o 

may  be,  and  tlie  equipment  of  those  dams. 


oxpInfedXwnlhere ?*"  ^"''^'"""'''^'^''"^'^  S^t  "«  ^ntal  from  the  money  already 

Secretary  Weeks.  No,  sir. 
down  therir^*  ^^^^  ^^'^'  ^^'^  P'^l^«  to  finance  the  completion  of  this  entire  project 

Secretary  Weeks.  He  expects  to  contract  to  construct  the  dams,  and  the  Govern- 
ment  to  furnish  the  money  to  do  it,  and  the  terms  on  which  the  interest  payments 
are  to  be  made  are  stated  clearly  in  his  o  ffer .  ^^  "ttruio 

Mr  Kearns  If  the  Government  should  enter  into  this  lease  with  Mr.  Ford  and  he 
'  knt?  ''''^®^**^®  ^  P^"*^^^®  fertihzers  and  should  fajl,  what  would  become  of  the 

Secretary  Weeks.  He  makes  the  offer  for  the  whole  or  nothing.  I  asked  him  if  he 
failed  to  manufactiu-e  fertilizer  if  that  would  mean-I  asked  in  various  terms-if  tlu^ 
would  mean  the  cancellation  of  the  balance  of  the  contract,  that  is,  relating  to  the 
power  obtained  from  the  dams,  and  he  said  not  at  all,  that  his  offer  included  eveiy! 

S'^U l^l^^.^.'^^w  i^^^'P^'^^il^  ^^T'  *°  manufacture  fertilizer  unless  he 

could  do  It  at  a  profit,  but  his  modified  offer  does  modify  that  statement 

Mr.  Kearns.  If  this  lease  should  be  granted  to  him,  there  is  no  assurance  then  that 
he  would  continue  the  manufacture  of  fertilizer  throughout  the  term  of  the  lea^e  th^t 

to  thaTeffect?^'''^'''  ''''' ''''  ^^'^  *^^*  ^^  '^*"  ^""^  ^^''^  ^'  ^^^  ^^^^  «^  ^  |uamn?y 
the'c'omi.'^wMci  It'to^^''''''''  '''^"P^  *^  ^^^  ^^^«^«  ^^^  his  estate  behind 
periodf^"'^^^^'  ^"*  ""^^  agreeing  to  manufacture  fertilizer  throughout  all  of  the  lease 

Secretary  Weeks.  I  do  not  think  it  is  quite  in  businesslike  shape  in  that  respect 
Mr.  Kearns.  In  connection  with  the  manufacture  of  fertilizer  he  intends  to  fu^h 
he  not?  corporations  and  individuals  in  that  section  of  the  cSm^rTdJ^^ 

Secretary  Weeks.  I  do  not  know.    That  is  entering  into  a  question  which  la 

a  rilvif^^t^^^i,^^^®''  *?®  ^^^  ^^  *^®  ^^^^  ^  submitted  by  Mr.  Ford,  he  would  have 
a  right  to  furnish  power  to  any  one  to  whom  he  saw  fit  to  furnish  it? 
Secretary  Weeks.  Undoubtedly. 

ml'en^h^^gh^Lrfi^t?^  ^^""^  '^"  ''^^'  ''  '^  '^'  manufacture  of  fertiUzer  the 
gcretary  Weeks.  That  is  clearly  stated,  I  think,  in  paragraph  14  of  the  Ford  offer 
Mr.  Kearns.  In  your  opimon,  would  he  be  reqmred  i^der  the  provSions  of  the 

agreement  to  produce  fertiHzer  during  the  Ufe  of  the  lease?  Provisions  of  the 

secretary  Weeks.  If  you  will  look  at  page  10  of  my  comment  in  the  sPcnnH  nara 

a^th^iT  *^^V  ^^'Z  •"  ^^//^  ?  Proposa/be  a Wd  by  C^^^^^ 
^est  that  there  should  be  certain  modifications  made  to  safeguard  the  Gdv^men^s 
mlrK'-u-"^'  heretofore  stated  there  should  be  some  assuXce  that  thl^Xcts 
made  by  his  proposed  company  will  be  carried  out. "  contracts 

100  vefr^'Tthp^o^*?^^-^''*^^  '^'^"^'^.^^  ^""^  *^**  ^^^^  li^e  t^'o^J^  the  period  of 

SecreSVv  W^t  ^^^  ^  *^''  company  for  the  manufacturer  of  fertiliser? 
its  f^wTn  Hn  «nt.  u'^'^''^'^  provide  the  company  with  sufficient  capital  so  that 

Secretary  Weeks.  You  mean  the  Alabama  Power  Co.? 
Mr.  Kearns.  Yes. 

denf  nf  ^^  ]^^u  ^®-  l}"^""^  *  ^^**®'  ^®'«  <^ated  the  28th  of  May,  1921.  from  the  nreai- 

fulfhLtoJ,%ftH^«^L^^^^^*"  ^"^'  ?^^^^  '^'S^'^  ^^  Engineers,  whT^SvIX 
deX  m^nevlSpr^^P??^  '  connection  with  that  project.  They  have  spent  a  good 
unreasoSV?  rt  ?  ^^  preliminary  operations,  and  I  do  not  tMnk  ft  would  be 

Mr  K^A  PMo    t'  S^"??^'  to  ask  that  this  letter  be  put  into  the  record, 
this  option?  """^^^  ^  ^^  '"^  ^^  '^^^^^-    ^^  ^^y  claim  they  received 

beltte^Terecortatlr^^^  *^^^*^^  Secretary  will 


38 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


39^ 


(The  letter  referred  to  is  as  follows:) 

Alabama  Power  Co., 
-     Birmingham,  Ala.,  May  28,  1921. 

Maj.  Gen.  Lansing  H.  Beach, 

Chief  of  Engineers,  Washington,  D.  C. 

Dear  Sir:  We  duly  received  your  communication  of  April  2,  1921,  inquiring  what 
arrangements  can  be  made  to  derive  a  reasonable  return  upon  the  investment  if  the 
Government  completes  the  dam  and  hydraulic  power  plant  at  Muscle  Shoals,  len- 
nesseeRiver,  and  you  invite  a  discussion  of  the  matter  if  we  are  interested.       ^ 

We  have  given  the  subject  of  your  letter  careful  consideration  since  its  receipt  and 
wish  to  make  a  reply  as  follows:  ,         ,     ™  t.- 

1.  The  site  at  which  the  dam  is  bein^  constructed  on  the  Tejinessee  River  was 
purchased  by  our  company  in  1906,  and  from  that  tune  until  1919,  a  period  of  \l 
years,  we  expended  large  sums  of  money  in  making  studies,  exploring  foundations 
and  in  the  pi^chase  of  reservoir  lands,  with  the  view  of  its  development  as  an  integral 
part  of  the  hydroelectric  system  which  woiUd  be  requu-ed  to  meet  the  needs  of  the 
communities  which  the  company  proposed  to  serve  from  time  t«  time.  It  was  our 
plan  to  construct  storage  reservoirs  and  to  connect  them  with  the  proposed  Muscle 
Shoals  development  to  make  up  the  deficiency  in  power  at  the  latter  place  during 
seasons  of  low  water.  This  fact  alone  would  have  enabled  this  company  to  plan  for 
an  ultimate  instaUation  at  Muscle  Shoals  largely  in  excess  of  the  installation  that 
should  be  made  as  an  independent,  separate  development.  In  short,  our  plans  were 
adapted  to  fully  conserve  and  utilize  in  the  public  interest  the  navigation  and  water 

resources  of  the  region.  .       .     » ,  i  j       j  „«+ 

2.  In  the  meanwhile  we  acquired  other  power  sites  in  Alabama,  and  under  an  act 
of  Congress  of  1907  constructed  a  dam  and  power  plant  on  the  Coosa  Kiver,  a  smaller 
hydro  plant  on  a  nonna^dgable  stream,  and  several  steam  plants  at  different  points  on 
our  system,  with  a  total  capacity  of  177,400  horsepower  (not  including  the  Govern- 
ment steam  plant  at  Wamor).  This  system  embraces  about  1,500  miles  of  high- 
tension  lines  over  which  we  are  distributing  ener^  to  the  public  in  m9re  than  two- 
thirds  of  Alabama,  including  one  of  the  greatest  industrial  and  mining  districts  in  the 

^^3^  Dming  the  same  period  engineers  of  the  United  States  were  investigating  the 
project  pu^uant  to  the  direction  of  Congress.  A  special  board  of  engineers  was 
created  for  the  purpose  of  obtaining  information  and  estunates  relative  ^  the  coordi- 
nation of  proposed  improvements  for  navigation  and  water  power,  and  that  board 
invited  bids  for  cooperation  by  water-power  interests  in  the  proposed  development. 
This  compnay,  through  its  subsidiary,  Muscle  Shoals  Hydroelectric  Power  Co.,  sub- 
mitted a  plan  in  response  to  that  invitation  of  the  United  States  engineers.  Plans 
were  also  submitted  by  others,  but  upon  careful  investigation  the  special  board  recom- 
mended that  Congress  undertake  the  improvements  m  cooperation  with  this  com- 
pany, and  that  recommendation  was  concurred  in  by  the  Board  of  Engineers  for 
fcvere  and  Harbors  and  by  the  Chief  of  Engineers.  Believing  that  this  was  an  eco- 
nomical and  profitable  undertaking,  we  were  prepared  under  the  conditions  then 
existing  to  prc^eed  with  our  share  of  this  undertaking  and  if  this  recommendation  had 
been  favorably  acted  upon,  the  project  would  have  been  available  for  the  manufac- 
ture of  nitrates  during  the  war  period,  and  many  millions  of  dollars  would  have  been 

4.  A  further  examination  and  survey  of  the  project  was  made  by  the  engineers  ot 
the  United  States  in  compliance  with  the  provisions  of  the  River  and  Harbor  Act 
approved  March  4,  1915.  Receommendation  was  again  made  that  the  improvements 
be  undertaken  in  cooperation  with  this  company,  but  the^^n-me^ers  further  recom- 
mended that  action  be  suspended  until  it  should  be  determmed  whether  the  Muscle 
Shoals  power  would  be  utilized  for  a  nitrate  plant  under  the  act  of  Congress  of  June  •>. 
1916.     (Doc.  No.  1262,  64th  Cong.,  1st  sess.,  1916.) 

5.  We  are  adverting  to  these  matters  in  order  that  you  may  see  that  we  were  for  a 
number  of  years  interpsted  in  working  out  a  feasible  plan  for  the  development  of  the 
Muscle  Shoals  power  for  general  industrial  use  on  lines  of  coordination  with  improve- 
ments for  na\igation.  Howevf.r,  in  3 918- 19,  this  particular  site  was  selected  for  de- 
velopment by  the  United  States  to  supply  power  for  a  nitrate  plant;  and  as  it  seemed 
that  the  United  States  needed  to  go  forward  quickly  in  its  war  program  to  make  pro- 
vision for  nitrates,  we  concluded,  as  the  result  of  various  conferences  mth  representa- 
tives of  the  Government,  to  donate  to  the  United  States  the  dam  site  and  other  land, 
owned  in  fee  by  this  company,  leaving  entirely  to  the  Government  the  question  of^anv 
Plan  for  future  cooperation  with  the  United  States.  This  donation  was  made  and  we 
received  irom  the  United  States  its  voucher  for  the  sum  of  $1,  being  the  nominal  cou- 


K  1foT/iTfl!r?T'' -f  ^  is  ^}^  u^^A-    ^^  ^""'^  "^7  '^^^"'  ^^«  donation  was  accepted  in 
behalf  of  the  Tainted  States  by  the  Secretary  ol  War  under  date  of  Februarv  '>0  1918 
who  expressed  the  thanks  of  the  Government  for  the  company 's  aL 'ion  hfS  Sonatina 
the  property.     The  property  thus  donated  represented  on  our  books  a  to?al  invest'^ 
meiit  by  this  company   to  the  time  of  the  donation,  of  approximately  $476,000,  but 

in'that  snir^t     l^n^^?i'?  l' '  Government  in  its  war  program  and  made  the  donit^n 
m  that  spirit.     From  that  time  until  the  receipt  of  your  letter   we  have  takpn  no 

'virnTtn-  .-"'?•  *"  '}'  ^'"^^^  «hoals  pro3ect^ther^han  the  invest  oom^^^^^ 
n^r^t^'Lf^Tc^J^Zl^^^  ^^^  development  of  the  Tennessee 

thf;  «ri  nffho  M,T''t  S^^^T^^^t  ^  course  contrary  to  the  expressed  purpose  of  Congress 
nrn^niff  .^fJ^H '?^  Shoalspower  shall  be  used  in  the  manufacture  of  ^trates  or  othei 
products  needed  for  mumtions  of  war  and  useful  in  the  manufacture  of  fertilize! 
and  Sn^ol^iSol^'^Al  ^^^^^^l^y  ^l^^  ^^  electrical  power  used  in  indusS 
w  m^l v^tvP.  H^iT  ""  Alabama  is  furnished  by  this  company,  in  addition  to  which 
of  th^  S?lte  ^n  J  ?n*  f?.  ''''  f^^'  municipal  requirements  in  more  than  two-thirds 
hi  rptrvpl  for  ^ilLf  *^  '^'^^'^  ""^  Congress  all  of  the  power  at  Muscle  Shoals  should 
hpnpfit  Thf  wT.^^^Ki^'''^^'^^^  "^^  ^P?^^^  ^  ^^y  «t*^^^  "««  considered  to  be  of  greater 
nro^m  tolvplnrnfl'"^  '"T"^^  '^^^^'^^  t^  *^P  company,  we  will  continue  our 
program  t»  develop  other  water  powers  as  the  pubUc  needs  may  require. 

.„L!^fni  oT/i?-^  .™^  to  mention  the  following  difficulties  in  the  wly  of  making  any 
Sr^h^^rSe^nitttu:^^^^  ll^Lf''^''''^'  ^^^^^^  ^  the^Govemm/nt  i^ 

ShoilH^dam^'w  1.^^  ''^^''''^^  ^^^f"^  ^f*-^^  "^"^^  3'  1916'  "^^er  ^l^ch  the  Muscle 
clause  P'''^^''  P^^""*  ^'^  ^^'""^  constructed,  contains  the  following 

nZL.*A  Z  i^u  Pj?^*?'  P^^^te  provided  for  under  this  act  shaU  be  constructed  and 
operated  solely  by  the  Government,  and  not  in  conjunction  with  any  other  inSustrv 
or  enterprise  earned  on  by  private  capital     *    *    *»     t  uu  wim  any  omer  industry 

of  W^r  ?hGTp'dp;^?'pnwi^  P  serious,  legal  question  as.to  the  authority  of  Secretary 
vv;  i         federal  Power  Commission  or  other  agencies  of  the  Government  to  deal 

eteunlnTUp^^^^^^^^^  '"'  """''"'^  ''  '^'""  '^  ^"^^  ^  ^^^'^  ^^'"^ 
Aiit^  ^}^  company  is  not  advised  as  to  the  extent  to  which  the  Government  is 
wKorttn'Z'^"'  ^  P^r^"^  "^  *^"  investment  as  being  due  to  war  eme^enc?  or 
tlon  to  wh??h^?^- /'''P^'^ VT?^^*  its.power  supply  for  nitrate  purposes^  in  Jddi- 
naWil^n?  {,f  T^''"'^'^  %•*  ^  P^Sr  ^^  ^«  ^h^^d  to  the  improvement  of 
exSvp  n^fa^  m'1!'®T^  S'"'^'-  .^^^^  ^^«  vital  considerations,  inasmuch  as 
fhf  f  y®  f"^^  ^"""^^^  ^^""^^^  ^^^  ^^t^e  ^ture  of  the  power  development  increase 
tewl^we7c'o^^Tr?r'  ^f  *^^^  '?  dT^^rage^industrial^enfe^ris^;"^^^^^^^^ 
(c)  S3  nfW  'rf.w''^'^  '"PP^^  ^  market  for  a  part  of  the  Muscle  Shoals  power 
promptlv  to  finH  i^^H  ^T?  ^^°^P^^««  f^g^ed  in  public  service  are  in  duty  Lund 

ply  tW^raSidfv  fnPrp^frn^  ""S  ''''''T  ^f  ?e^^"  ^*  t^^  l«^««t  practicable  cost  to  sup- 
arJnf  fi.f  P    ^  mcreasmg  demands  of  the  communities  served.    These  demands 

mf  ha^aDoTpTto'^t^pTf  "^^^  ^A^"  ^*?  immediate  requiremente  thlcom 

PAW      ?  applied  to  the  Federal  Power  Commission  for  a  license  and  is  about  to 

STt'i^'^n^^^^^^^       ^^^^<>^i  hydroelectric  development  oTtheCc^rRiver 
Boirts  re^u^^^^^^  'T'^^  T"  be  coWletely  absorbed  and  nlw 

Hiffin»if-   ^  J^         y      .  t^®  t^®  Muscle  Shoals  dam  cou  d  be  completed    vet  the 
?afcetf  Cont'p'^^^  mentioned  and  the  doubt  which  arises  from  tSrappa'^t^  rd 
of  the  act  of  ?qi1  nhn^r^'^''.  ^J"  arrangement  of  cooperation,  as  shown  bv  the  clause 
fiprl  fn  ?       ^-     ^^^^  ®  quoted,  suggest  that  this  company  would  scarcelv  be  iusti- 

which'a^eTe^&oT^^^^^^^  '?  ^^^  ''''  /^^^'^  more  remote^ demands, 

8  If  thp  ?Wo  l-S^i?'"'^  '^^i'^^  """"^t  ^^  .prepared  for  well  in  advance. 

and  excessive  ro«t  A  vn^H^^i^^  ^"l"^-  ^^^^^^tamties  can  in  any  manner  be  cleared  up, 
poses  aXmnrnlnlo^^^^  ^?f-  ""^^"^^^  *^  ^^  emergency,  power  for  nitrate  purl 
^^ngotLSr^nf^^^  ''  ?^  ?^  ^Pi^i^^  ^b^t  '^^  development 

eient  voW  ornowpr  ril^"^  "^^M^^  ^^"^  ^^  *^^  ^^^  ^^^  distribution  of  a  suffi- 
Public  serW  irf  thf f^r  '''°'^^^  ^^  company  and  other  companies  engaged  in 
States  to  dli?^'?.^  territory  adjacent  to  this  development  to  enable  the  United 
erlv  aiwli  f  a  reasonable  return  upon  such  part  of  the  investment  as  may  be  proi^ 

9  o        ^  *®  *^®  P^^®^  feature  of  the  project  ^       ^    ^ 

sary  organSn7nr  Jh^f h^T  -w^  ^^l^?f ""^  P^^^"  companies,  possesses  the  neces- 

cipal  markers  ?n  IV^  df  nbution  of  the  power  to  the  public;  Vnd  while  the  prin- 

WeCwould  hav^^^^  now  served  by  those  companies,  their  transmiLion 

would  have  to  be  supplemented  by  new  lines  and  other  equipment  to  market 


40 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


41 


I 


this  power.  The  power  systems  in  the  southeastern  States  are  now  interconnected 
and  the  advantage  to  the  public  of  such  interconnection  was  the  subject  of  a  careful 
survey  by  eminent  engineers  acting  under  your  direction,  and  the  subject  is  thoroughly 
discussed  in  a  report  prepared  in  the  office  of  the  Chief  of  Engineers  by  Col.  Charles 
Keller  and  now  printed  as  an  official  document  entitled,  "The  Power  Situation  During 

the  War." 

We  are  inclosing  with  this  letter  further  excerpts  from  that  report  which  discuss 
at  length  the  Muscle  Shoals  development.     (See  page  792.)  j  /.   • 

10.  It  will  require  much  consideration  and  study  to  enable  us  to  present  any  dehmte 
commitment,  and  would,  furthermore,  require  a  more  definite  statement  as  to  when 
the  power  would  be  available  and  as  to  just  what  portion  of  the  cost  would  be  accepted 
as  the  investment  in  the  power  project;  these  being  elements  which  you  will  appre- 
ciate are  vital  in  determining  a  course  in  the  matter  so  far  as  our  ability  is  concerned 
to  take  the  power  at  a  price  affording  the  United  States  a  reasonable  return. 

We  may  add,  however,  that  during  our  connection  with  the  project,  as  shown  by 
our  formal  proposals  in  response  to  the  Government's  invitation  (Docs.  Nos.  20  and 
1262),  we  regarded  the  construction  of  a  power  dam  (at  reasonable  costs  and  on  com- 
mercial plans)  at  this  locality  as  both  a  practicable  and  profitable  undertaking;  and 
if  there  is  a  possibility  that  the  Government  will  wish  to  have  any  part  of  the  power 
used  in  a  practical  way  for  commercial  purposes,  then  we  would  like  to  urge  now 
that  some  disposition  of  the  matter  be  made  as  early  as  possible  ^  you  can  appreciate 
that  in  its  present  status  it  is  a  disturbing  feature  in  the  industrial  situation  in  this 

If,  therefore,  authority  is  conferred  by  Congress  to  conclude  a  contract  for  the  use 
of  any  part  of  the  power  by  power  companies,  we  wish  to  assure  you  that  we  are  ready 
to  work  out  a  mutually  satisfactory  arrangement  looking  to  the  completion  of  the 
dam  and  the  disposal  of  such  part  of  the  power  as  Congress  wishes  to  place  in  com- 
mercial use;  desiring  now,  as  at  all  times  in  the  past,  to  cooperate  in  every  way  desired 
by  the  United  States  in  working  out  the  matter. 

Yours,  very  truly, 

Alabama  Power  Co., 

By  Thos.  W.  Martin,  President. 

Mr.  Kearns.  Does  this  company  claim  in  this  letter  that  this  option  was  granted 
them  because  of  the  money  they  had  expended  in  the  preliminary  construction  t f 
that  plant? 

Secretary  Weeks.  In  effect,  I  should  think  so.  . 

Mr.  Miller.  Mr.  Secretary,  there  are  six  units  in  which  the  Government  is  inter- 
ested, as  I  understand  it,  five  of  which  are  completed,  that  is,  Dam  No.  2,  nitrate 
plants  Nos.  1  and  2,  the  Warrior  plant,  and  the  Waco  quarry. 

Secretary-  Weeks.  And  the  transmission  line.     You  do  not  understand  that  the 

dams  are  completed?  *       i.        i. 

Mr.  Miller.  No.  In  referring  to  the  numbers  of  those  dams  some  of  us  have  been 
a  little  bit  confused.    Is  there  a  dam  No.  1  at  Muscle  Shoals? 

Secretary  Weeks.  I  would  like  to  have  Gen.  Beach  explain  that  when  he  makes  a 
statement  to  you.  There  is  a  dam,  No.  1,  scheduled  as  a  part  of  the  whole  Muscle 
Shoals  navigation  project.  .    . 

Mr.  Miller.  Then  Dam  No.  1  has  no  relation  to  these  negotiations? 

Secretary' Weeks.  No;  that  is  a  navigation  project. 

Mr.  Miller.  I  notice  the  Warrior  steam  plant  is  88  miles  southeast  of  nitrate  plant 

No.  2. 

Secreta/v  Weeks.  Yes. 

Mr.  Miller.  There  is  a  transmission  line  running  there,  is  there  not? 

Secretary  Weeks.  Yes.  The  Government  constructed  the  transmission  line  on 
land  that  belongs  to  the  Alabama  Power  Co.        .        .     ,  ..    ,      ,         .i. 

Mr.  Miller.  Are  there  any  negotiations  pending;  is  that  entirely  above  there,  or 
are  there  easements  or  rights  of  way  to  be  acquired? 

Secretary  Weeks.  That  land  is  not  paid  for.  ^  .    . 

Mr.  Miller.  About  how  much  would  be  the  outlav  for  completing  the  transmission 
line  from  the  Warrior  steam  plant  to  nitrate  plant  Is  o.  2  —that  is,  88  miles? 

Secretary  Weeks.  You  mean  to  clear  the  title? 

Mr.  Miller.  Yes. 

Secretary-  Weeks.  That  has  never  been  figured,  I  am  informed. 

Mr.  Miller.  It  would  be  a  substantial  sum,  would  it  not? 

Secretary  Weeks.  It  is  through  comparatively  wild  countiy,  but  it  woidd  be  » 
substantial  sum,  because  of  the  distance  of  88  miles.  ^     , ,  ^         t>      r 

Mr.  Miller.  At  the  present  time  the  Warrior  plant  is  leased  to  the  Alabama  1  owei 
Co.  for  $75,000  a  year? 


Secretary  Weeks.  Yes,  that  was  our  return  for  the  calendar  y«ar  1921 

Mr.  Miller.  Figuring  on  the  basis  of  |4,(j05,000  that  vour  report  gives  as  the  cost 
that  would  be  between  1^  and  If  per  cent  of  the  cost?    * 

Secretar\^ Weeks.  That  is  leased  on  the  basis  of  1^  mills  per  kilowatt  hour,  and  thev 
used  enough  power  last  year  to  provide  a  revenue  of  $75,000. 

Mr.  Miller    That  is  between  1^  and  If  per  cent  of  the  cost  of  that  plant? 

Secretary  Weeks.  Yes. 

(Thereupon  the  committee  took  a  recess  until  2  o'clock.) 

after  recess. 

The  committee  met,  pursuant  to  recess,  at  2  o'clock  p.  m 
u'^^?  ^^i^^^^A  '^¥  ?®cr^ary  has  not  yet  arrived,  and  whUe  we  are  waiting  for 
him  I  will  have  the  clerk  of  the  committee  read  a  letter  which  I  have  received  from 
the  American  l^m  Bureau  Federation  through  Mr.  Silver,  who  is  at  the  head  of  that 
institution  or  the  representative  of  the  institution  in  Washington.  He  asked  that 
the  letter  be  read  to  the  conunittee.     It  is  a  farmer  proposition  and  favors  the  Ford 

(The  clerk  read  as  follows:) 

American  Farm  Bureau  Federation 
Hon.  Juuos  Kahn,  Washington,  D.  C,  February  7,  mi. 

Chairman  House  Committee  on  Military  Affairs, 

House  of  Representatives,  Washington,  D.  C. 
Dear  Mr.  Kahn:  The  American  Farm  Bureau  Federation  desires  to  present  to 
you  the  following  statements  which  we  would  ask  that  you  have  read  before  your 
committee  when  it  meets.  It  is  not  a  brief  but  a  practical  statement  of  a  business 
Situation  mvohang-  our  interests  m  the  Muscle  Shoals  development.  We  are  making 
onr'^ll^nn  o^^r^-  "^^^  \^^  sure  that  you  and  your  committee  will  sympathize  wUfi 
our  P08  tion  and  desire  to  have  this  statement  at  the  outset  of  your  considerations 
tn  nrZ^f.  f  ^.r  representative  of  the  American  Farm  Bureau  Federation  I  desire 
IJf^^fn  XfuJ'^T''^^^^,^  ''tPJ  ""^  *^^  resolution  adopted  at  our  last  annual  con- 
.^?S  f  ,A*^^^*^'  ^a.    Also   I  desire  to  present  a  copy  of  the  resolution  adopted 

;^»htTthl^K^^^  ^^^^^'^^^^  -"^^  ^y  ^^^  administraU 

(Resolutions  follow.) 

Wo  have  indorsed  the  Ford  proposal  and  urge  its  acceptance  in  good  faith  The 
SI'Tk"^^^^  ^^  *?"  Secretary  of  War  axl  not  new  objections"^  W  been 
bPforpl.^1^^  opponents  of  the  propo^I,  all  of  which  have  been  considered  by  v^ 
offp^  o  fi  ?^  ^\^  conclusion  on  this  broad  question.  We  believe  that  this  proposal 
of  the  dPvlr  *^t^^^uscle  Shoals  question  that  will  provide  for  the  compS 
with  th.  rn^^^''^  ?  ^^^  ^'?^^''^  *?  *^^  ^^^  ^terests  of  the  people  of  the  Nation, 
by  a^cuuS^e    ""^^  explosives  safeguarded,  and  sec^ire  the  results  sought 

nrnLoo?^®^*'°\'^i*^  *?®  appropriation  suggested  as  necessary  to  carry  out  the  Ford 
onTm  ;ro''''*'  ^  '^^r *  ^  ^?Pyi>f.tl^«  letter  we  addressed  to  the  Secretary  of  wS 
sarv  ^^  -  ^^jommending  a  bond  issue  to  cover  the  additional  investment  neces- 
sary We  wish  to  advocate  the  same  proposal  for  your  consideration. 
timr''H^oL'',?o!'^T*5^'*-''T'^^''*'  on  the  Ford  proposal  that  we  desire  to  make  at  this 
be  wesP^  Jh  ;? '  /  "^  •'"'^.*^  rt^H^"*  ^^^  the  interests  I  represent  that  should  arguments 
offeMK  be  heaT    '''^*'  '''  ^""'  ^^"^  ^  '"  '^'  advisability  of  accepW  the 

WU^on  nfm^fn?'-''^  ^*'*  has  recommended  as  an  alternative  the  completion  of  the 
3iblf..~?^xl^^^  'commercial  purposes,  the  benefits  to  navigation,  as  well  as  the  pos- 

bi^proluLlo^the^^^^^ 
the  ?,i n  Hof  1       ®  best  advantage.       He  goes  on  to  point  out  that  by  not  completing 

ThisGovprn±Er''*  the  Government  will  only  be  required  to  expend  $22,000,m 
tioi^  w?fZ?.^^*  completion  and  operation  of  the  Wilson  Dam  will  not  furnish  naW 

makern^sVL'p.HP^^*'''?  \^'  -^  ^^"^  ^^^  ^""^^^^^  disregards  the  nitrate  planSTd 
Dam    S^  ?,^?gestion  as  to  their  operation.    Obviously,  the  ''product"  of  the  Wilson 

though^iLtrt^^^^^  rto  the  best  advantage"  is  lot  fertifizer,  but  power.    ThS 

pletina?hJ\x7?®^^®i^®  that  your  committee  would  report  to  Congress  in  favor  of  com 
seSe  oni^r^^^  r  *  rT^"  ^"^*^?  ^^^^^^^  ^t  least  an  equal  opportunity  to 

posal      A  r.^  ^*T.u  \^.®  '''*^^^®,  P^^^*  *^^  t^e  research  provided  for  in  the  Ford  pro^ 
Posal.    AncT  we  ask  that  m  case  the  Ford  proposal  is  rejected  and  you  decide  to  c^y 


42 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


48 


,j 


out  the  recommendation  to  appropriate  the  necessary  money  to  complete  the  Wilson 
Dam  as  a  Government  activity,  that  you  will  include  some  plan  for  the  Government 
operation  of  the  nitrate  plants  such  as  was  before  the  last  Congress  in  H.  R.  10329,  the 
Kahn  bill,  and  which  passed  the  Senate,  and  at  the  same  time  authorize  the  appropri- 
ation of  the  needed  amount,  at  least  $12,500,000,  which  was  carried  in  this  bill  for  the 
purpose  of  operating  the  plant  and  carrying  on  research  provided  in  the  Ford  proposal. 
The  above  states  our  position  as  expressed  in  the  Atlanta  resolution,  and  we  must  en- 
deavor to  safeguard  our  interests  in  any  authorization  for  the  completion  of  the  Wilson 
Dam  by  amending  it  with  the  Wadsworth-Kahn  bill  or  an  equally  efficient  alternative,, 
carrying  at  the  same  time  the  necessary  appropriation.  <.  .     t^    j 

We  wish  to  make  plain  our  position.  We  are  for  the  acceptance  of  the  Ford  pro- 
posal. We  believe  the  Government  interests  and  ours  are  mutual  and  amply  safe- 
guarded in  that  proposal  and  we  believe  it  will  prove  a  solution  of  the  Muscle  Shoals 
problem.  Our  contentions  for  Go\  ernment  operation  are  to  be  considered  solely  in 
case  you  decide  against  accepting  the  Ford  proposal  now  before  you,  and  in  such  case 
we  must  ask  for  extended  hearings  on  this  question  of  the  operation  of  the  plant,  and 
will  need  a  reasonable  amount  of  time  to  prepare  our  case. 

I  respectfully  request  yon  to  present  this  statement  to  the  committee  and  leeL 
confident  you  will  appreciate  our  position. 

Very  truly,  yours,  ^ 

American  Farm  Bureau  Federation, 
Gray  Silver,   Washington  RepresenU>tiv( . 

(The  two  resolutions  referred  to  follow:) 

resolution  in  regard  to  muscle  shoals,  passed  by  the  AMERICAN  FARM   BUREAU 
federation   at  the   ANNUAL  CONFERENCE   AT  ATLANTA,    GA. 

We  recognize  in  the  Muscle  Shoals  nitrate  water-power  project  in  Alabama  such  an 
essential  measure  to  secure  the  preservation  of  our  soil  resources  as  well  as  to  develop 
the  industrial  and  transportation  facilities  of  our  Nation,  that  we  urge  the  Congress  of 
the  United  States  to  authorize  the  Secretary  of  War  to  enter  into  such  contract  or 
contracts  with  Henry  Ford  for  the  completion  and  continuous  operation  of  the  project 
as  will  protect  the  public  welfare.  If  such  authority  is  not  prom})tly  given,  we  reserve 
the  right  to  institute  such  action  as  will  guarantee  the  completion  and  operation  ol 
this  enterprise  under  Federal  supervision. 

RESOLUTION  ADOPTED  IN  REGARD  TO  MUSCLE  SHOALS  AT  THE  AGRICULTURAL  CON- 
FERENCE CALLED  BY  SECRETARY  OF  AGRICULTURE  WALLACE  AT  THE  REQUEST  OF 
PRESIDENT  HARDING. 

Resolved,  To  accomplish  results  without  any  further  delay  whatsoever,  we  urge  the 
Secretary  of  War  to  recommend  and  the  Congress  to  accept  Henry  Ford's  proposal  to 
take  over  the  hydroelectric  power  and  air  nitrate  plant  at  Muscle  Shoals  under  a 
guaranty  to  operate  same  for  TOO  years,  at  its  present  capacity  of  approximately. 
100,000 'tons  of  ammonium  nitrate  per  annum,  opening  the  Tennessee  River  to  navi- 
gation, cheapening  the  production  of  fertilizer,  metals,  and  other  commodities  and 
assuring  the  United  States  nitrogen  independence  in  peace  or  war. 


STATEMENT  OF  HON.  JOHN  W.  WEEKS, 

Besumed. 


SECRETARY  OF  WAR 


The  Chairman.  I  think  when  we  adjourned,  Mr.  Secretary,  Mr.  Miller  was  aakinir 
you  some  questions,  and  we  will  proceed  from  that  point. 

Mr.  Miller.  Mr.  Secretary,  according  to  Mr.  Ford's  offer  there  is  a  governmental 
investment  here  of  between  $105,000,000  and  $106,000,000,  out  of  which  we  will  got 
nothing  whatever  except  the  $5,000,000  offered  for  the  plant. 

Secretary  Weeks.  Substantially  that  is  correct. 

Mr.  Miller.  In  other  words,  there  is  $12,887,941.31  invested  in  plant  No.  1,  $70,- 
979,851  in  plant  No.  2,  $4,979,000  in  the  Warrior  plant,  and  $52,000  in  the  Waco 
quarry,  and  $16,251,000  in  the  Wilson  Dam,  making  a  total  of  $105,943,000,  as  I  figure 
it.     Now,  we  will  get  no  amortization  or  anything  out  of  that? 

Secretary  Weeks.  No;  except  as  $49,000,000  may  exceed  the  cost  of  future  con- 
structions and  of  site  and  flowage  rii-hts. 

Mr.  Miller.  Then  we  have  that  much  of  a  dead  investment  there;  we  will  get 
amortization,  though,  on  what  it  mil  cost  to  complete  the  Wilson  Dam? 

Secretary  Weeks.  Yes. 


moi(^OOof ''■  ^"""^  *^^  installation  of  Dam  No.  3,  which  Mdll  be  approximately 

Secretary  Weeks.  Yes;  that  means  completion  of  the  two  dams  and  equippin-  them 
Mr.  Miller.  In  other  words,  then,  we  have  a  dead  investment  tWreZmNvS 
the  Government  will  get  nothing,  of  $105,000,000  or  $106,000,000 
Secretary  Weeks.  Except  $5,000,000 

th^'f5^^0  OOoIfihTK^^  ?5,000,000.  By  the  way,  will  not  the  major  portion  of 
Dal  Nn  ?o^3  ^1.  ^^«^^b,^^.in  paying  for  the  overflow  damages  in  connection  with 
Dam  No.  3  and  the  conap  etion  of  the  transmission  line  from  the  Warrior  plant? 

Secretary  Weeks.  I  think  about  $1,500,000  will  be  absorbed  in  paying?or  the  land 
damages  and  overflow  damages  from  Dam  No.  3;  probably  a^  much  L  that 

S^'cr^tary'^WElK^^  7^""''  ^'*''^^*^  '*  '"^  ^'''''  '^^""'^  ^*  12,000,000.        ' 
.    Mr.  Miller.  Now,  it  will  cost  a  substantial  amount  to  complete  the  transmission 
Ime  and  the  easements  and  the  right  of  way  from  the  Wamoryant  to  ni^t^am 

Secretary  Weeks.  Just  how  much  that  will  cost  no  one  knows 
v5q  ^^^^^'  ^""^  1^^^  amount,  whatever  it  is,  and  the  overflow  damages  on  Dam 

^  Q  ^  "?"  ^A^'^  ^  ^^I^^  P^^i^^^  «^  ^^^  $5,000,000  that  Mr.  Ford  pays  fo?  the  plam 
Secretary  Weeks.  A  considerable  portion  of  if  yes  ^ 

Mr.  Miller.  In  other  words,  our  $5,000,000,  or  the  major  portion  of  it  is  eone  and 
hat  would  leave  $105  000,000  or  $106,000,000  out  of  which  we  would 'get^no^^^^^ 
Just  for  the  purpose  of  getting  the  matter  geographically  located    on  wMchide  of 
the  river  are  these  plants,  or  are  they  on  each  Ide  of  the  river?      '  ^  ^^^  ""^ 

m/ Mfr^^r^^TK  ^-  •■^"  ^li^^  ^''^^'^^  ^^^  «^  th^  ««"th  side  of  the  river, 
saf  th^  Se  dW^^       f'rd  "^r*  ^^Tv.^^  ^  southwestern  direction,  because  you 

Secretary  Weeks.  Yes. 

lecrm^^WEEKr  "no*"*'"  *'^''"'^'»"  ""»  ^"""^  '«  <="■<««  *«  river? 

Mr  MiLLEK   There  are  apparently  two  angles  to  Mr.  Ford's  proposition-  one  is  the 

Secretarv  Weeks.  Yes. 
h. vL'Jl^pi;;tiIS^^^^^  ^V^  :^^  "'  ^''^  "orsep^.wer  for  sale 

Secretary  Weeks  There  mil  be  developed  there  about  140,000  horseoower  m-imarv 
power;  perhaps  350  000  more  that  is  available  from  10  to  12  months  of  the  vearanri 
t^^^T^'  ^''^  horsepower,  a  lesser  time,  from  4  to  10  months  a^totk?  of 
^IteTbut  ZCbout  lioZlt  ""  '^'  ^"T'  °'  ^»"r '  ""-^  *«  ^nditfon  oT  the 

^ecretary  Weeks.  At  all  seasons  of  the  year;  ves 

and  not  install  DZ"\rT^ny^1w7'''"r"'^  '^'^^^l^^  ^P  ^^^  ^^^"^P^^^^  ^'^'^  ^^-  2 
mission  ifrfirlr  ^  1^  ' u""^  l^"  ^^'^  "^'^^^^  P^"^^"'  ^^  ^^^  Govcmment  anv  trans- 
SttThe^  ^-«^-^^  ^5^-  -  -^-  to  distribute  this  pow^^r 

is  tha^tS  ^"^"^1^^-  ^^l"  '^''''^^  ^^''X?  t«  construct  more  or  less  lines,  but  mv  jud<mient 
commUi  1  ^^"/"^  ""-^  !f  ^  ''^'y  ^ifl^^"^t  °^^"er,  because  there  are  sevefal  S»wer 
?hS?lfnl^?^'?,*'"v.^  '^  t^^*  ^^\^'^^  ^^^^'^^  «f  the  country,  and  vou  could  efthH^ 

Mr  Mm  //  r  w  ^^T  I''  '?T'  ^'  ^^  '^'^  ^^^^^  ^^^  dispose  of  it.  ^ 

that  thp  A^^K*  S"*  "n^^^stood  that  a  rather  peculiar  situation  obtained  there  and 
pan  of  thp  i'f'^  ^"""^^'a^^u  hacl  practically  a  monopoly  of  transmission  lines  in  that 
prohibUvel^xpenkte        ''  '^'  construction  of  additional  lines  would  be  abnost 

ff^^^ftary  Weeks.  I  do  not  think  that  is  true, 
the  Alfh^m^fp'^^®  S^'^^'^i  purchaser  of  this  surplus  hydroelectric  power  wouM  be 

WHr^  w"""^^'  ^?-  ^n^.^ay^  ^t  distributed  ovpr  its  lines;  is  not  that  true^ 
anySyXl'^^^^^^  ^^^^^"^  ^^^^  ^^  -^^^  ^-^^^  it  bXV  than 

land  w^reacauiLn'^nn^  with  nitrate  plant  No.  1  that  19,000  acres  of 

SecTetarv  W^ito   ^1  *M ^^f^Pu^""*  l*^^^'  '^  *^®  °^^^^«  ^^  ^hat  tract  of  land. 
Mr  Mtt 7v^  ?     •  ^^at^should  have  been  1,900  acres  instead  of  19,000. 

of 'land  there         ™  wondering  how  it  happened  that  there  should  be  5J  square  miles 


44 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PBOPOSITIONS. 


45 


II 


Secretary  Weeks.  That  is  a  misprint.  *     ♦* .  *k« 

Mr  Miller.  Does  the  Government  have  any  royalties  to  pav  on  anv  patent  to  the 

General  Chemical  Co.  as  a  royalty  on  their  process  for  the  manufacture  of  ammoniu.Q 

^^S^ecretarv  Weeks.  That  is  one  of  the  agreements  that  is  in  controversy.  That  is  a 
matter  that  came  up  for  discussion  this  morning.  The  Air  Nitrates  Corporation  I 
understand,  is  owned  by  the  American  Cyanamid  Co.    Are  you  talking  about  the 

^  MrM^I^Tlas'talking  about  the  General  Chemical  Co.    That  relates  to  plant 

No.  L  ,  1        >T     1 

Secretary  Weeks.  Yes;  that  relates  to  plant  JNo.  1. 

Mr.  Miller.  Do  we  have  to  pay  them  any  royalty  or  have  we  any  engagement 
to  pay  them  any  royalty  for  their  process  which,  I  believe,  is  the  Haber  process.' 

Secretary  Weeks.  I  will  read  this  paragraph  of  the  agreement: 

"In  so  far  as  the  Government  shall  see  tit  to  employ  the  said  processes  or  apparatus 
or  any  of  them  in  the  manufacture  of  products  to  be  used  for  fertilizers  the  Govern- 
ment shall  pay  to  the  General  Chemical  Co.  a  royaHy  for  such  use. .  The  royaHy  so 
to  be  paid  shall  be  based  upon  the  nitrogen  content  of  the  material  V^ducedior 
fertilizer  purposes,  and  shall  be  at  the  rate  of  $5  for  each  ton  of  2,000  Pounds  of  hxed 
nitrogen  in  whatever  form  combined,  and  shall  be  payable  quarterly  until  the  ?th  day 
of  November,  1932,  and  thereafter  ilntil  the  expiration  of  all  patents  involving  any 
substantial  features  of  the  process  or  apparatus." 

Mr.  Miller   Then  from  niw  until  1932  we  are  to  pay  $5  a  ton  as  a  royalty  for  the 

Haber  process. 

MT'^XhLLER.^That  plant  Mr.  Ford  does  not  intend  to  operate,  as  I  understand  it. 

Secretary  Weeks.  I  do  not  understand  that  he  intends  to  operate  it. 

Mr  Miller.  Now,  on  plant  No.  2,  which  is  the  one  that  the  Air  Nitrates  Co.  con- 
structed, what  royalties,  it  any,  do  we  pay  on  that? 

Secretarv' Weeks.  I  will  just  read  you  that  paragraph:  .  i  i,«,^f 

^In  coiSideration  of  the 'granting  of  the  licenses  provided  for  m  article  Ih^^^^^ 
and  of  the  other  conditions  to  be  performed  by  the  licensor  the  ^^^^^fff.^ff  ^*^  ^ 
to  the  licensor  during  the  term  thereof  specided  in  said  article  as  royalty  an  amount 
e^Snt  to  6  mills%er  pound  of  all  nitrogen  fixed  as  lime  nitrogen  manufactured 
at  the  plant  horeinbef ore  described  in  the  contract  of  even  date  herewith  between 
the  Unfted  States  and  the  Air  Nitrate.  Corporation,  and  to  which  reference  has  here- 
iSLfore  been  made  and  up  to  and  including  the  first  91 ,700,0M  pounds  of  s^^^^^ 
gen  so  fixed  in  any  fiscal  year  of  the  United  States;  and  in  addition  thereto,  3  milJe 
le?  ^und  of  all  nitrogen  h^xed  as  lime  nitrogen  in  any  said  fiscal  year  m  excess  of  the 
8^i^d^91,V000  pounds  of  nitrogen,  it  being  further  underatood  and  agreed  that  no 
party  of  such  royalty  shall  directly  or  indirectly  inure  to  the  benefit  of  an  alien  enemy 
of  the  United  States  except  as  may  appear  upon  a  diEflosure  of  stock  lists  made  pur 
suant  to  law     Payment  for  royalties  shall  be  made  each  month  as  early  m  the  month 
rpmcUcabie  upoTthe  presentation  of  satisfactory  evidence  «l^owmg  the  pr^^^^^^^ 
during  the  preceding  month  of  nitrogen  iixed  as  lime  nitrogen  at  the  plants  herem 

^  Mr'^MllER"^  Then  at  each  of  these  plants,  if  we  are  to  pay  these  respect  we  royalties. 
I  su^DC^e  that  will  become  a  part  of  tie  overhead  in  the  manufacture  of  the  fertihzei^ 
^  ZSy  We^ks    Just  a  mWent,  and  I  ^^ill  add  something  Pertinent  to  that  las 
statement     The  royalty  to  the  Air  Reduction  Co.  until  January,  1931,  is  $2.72  per 
ton  oTiStrogen  fixJd  allime  nitrogen.    After  that  date,  there  will  be  no  royalties 

That  is  in  addition  to  what  I  have  just  read.  imrlprstand  it 

Mr.  Miller.  Have  we  paid  those  companies  any  royalty?  As  I  understand  it, 
Dlant  No.  1  has  never  produced  anything.  ^.     .    .  ,      x     t        *  i^  +v.o+  r.nt 

^Secretary  Weeks,  /o  royalty  has  been  paid  on  No.  1  at  least.     I  am  told  that  not 
in  excess  of  $1,500  has  been  paid  at  No.  2.  ,  , 

Mr  Miller.  I  suppose  those  royalties,  whatever  they  may  be,  will  be  a  part  of  the 
overhead  ii  the  manufacture  of  fertiUzer  and  the  United  States  wj  not  be  bound  for 
the  payment  of  those  royalties  although  this  contract  is  with  the  United  States? 

KSer^'S  ^  be  a  part  of  the  overhead,  charge  if  Mr.  Ford  is  to  operate 

the  plant  and  will  go  into  the  cost  of  the  fertilizer,  is  not  that  the  idea.' 

Secretary  Weeks.  I  think  so.  .        ^      i.  x  +•  „  «f  ihp 

Mr.  Mil£er.  Has  your  department  made  any  research  as  to  what  Proportion  of  the 

amount  of  commerckl  fertilizer  used  in  the  United  States  will  be  produced  at  the 

Muscle  Shoals  plant  by  the  full  operation  of  plant  No.  2? 


SecretaryA\EEKs.  The  total  production  of  fertilizer  in  the  United  States  during 
1920  amounted  to  7  70W0  tons.     The  total  nitrogen  content  of  this  fertiliser  3 

^^}lTr!'''%t^  M  ^^o^'^.^  ^.^^'i    ^^^"*  ^^^-^^"  «^  this,  or  80,000  tons,  was  inor^nic 
nitrogen.    The  No.  2  nitrate  plant  can  produce  some  200,000  tons  of  sulphate  ofam- 
raonia  per  year,  which  contains  some  40,000  tons  of  nitrogen.     Or,  in  other  words 
^^'!  ^l^^Jf^  I>roduce  about  one-fourth  of  all  the  nitrogen  used  in  fertilizer  or  about 
^^;    ifl       ^  inorganic  nitrogen  used  in  fertilizer 

L^°'>^^  "^^f  for  the  purpose  of  information,  both  of  these  plants  produce  am- 
""Tprn^H"??'  I^^'S^^;  i  ^y  *^^  ?^^^'  P'«^^««'  ^^d  Pl^^t  No.  2  by  the  cyaSmTd 
K  n'l^^f  1  in^nnJTi  ^^^""^  ^^'  a  production  of  22,000  tons  a  year  if  operated,  and  the 
atter  plant  110,000  tons  a  year  i  opterated.  I  do  not  know  myself  how  many  tons  of 
fertihzer  one  ton  of  ammomum  nitrate  will  make 

Secretary  Weeks.  I  think  you  had  better  ask  that  question  of  Gen.  WilUams  or 
Maj.  Clement  or  somebody  who  has  been  giving  particular  attention  to  it,  because  my 
answer  quite  hkely  would  not  be  accurate.  "c^uee  my 

Mr.  Miller.  I  read  some  time  ago  a  rather  astounding  article  in  an  agricultural 
paper  which  was  to  the  effect  that  if  the  Muscle  Shoals  plant  should  be  opLted  S 
commerml  fertihzer  manufactured  there,  and  if  it  was  possible  to  manufacture  that 

nl'-l  o^®"!  .-^i^^.^iJ^^'^^^.P'''^®  t^^^  fertiUzer  commands  in  the  market— that  is.  the 
Chilean  article— that  our  imports  would  cease.  i-uano,  ui« 

Secretary  Weeks.  You  are  speaking  of  nitrates  now 
fv,^M      1    q5-  y^s;  and  that  the  American  farmer  would  be  whoUy  dependent  upon 
he  Muscle  Shoals  plant  because  they  could  not  compete  with  that.  ^  I  do  not  suppC 
there  is  any  apprehension  along  that  line  Huppoee 

thfrUn?"^  Weeks.  I  have  not  been  called  upon  to  have  any  apprehension  along 

Mr  Miller  The  main  point,  Mr.  Secretary,  that  I  was  after,  was  to  ascertain 
whether  or  not  the  operation  of  the  Muscle  Shoals  plant  would  yield  the  very  bX- 
ficent  results  to  the  American  farmer  that  he  is  expecting  out  of  it 

Secretary  Weeks    I  wish  I  could  answer  that  question  with  definiteness.    I  do  not 

thmk  any  one  can,  but  I  am  fearful  that  the  American  farmer  will  be  disappointed 

fv,    fi  T'^^^^-  lu  ''^f®^?^^^  to  the  sale  of  this  surplus  hydro-electric  power  there  'in 

he  first  pMce,  the  navigation  of  the  Tennessee  River  is  inseparably  ?onnected^ith 

this  enterpnse  down  there,  is  it  not?  ^  cuuueciea  wim 

at feiSe  ^^^^^'  "  *^^  "^^'*  '^  ^"^  ^^  navigated,  it  must  be  taken  into  consideration 

fi^'^"^^^'  ^k^?""^.^"^  his  proposition  sets  aside  an  amount  sufficient  for  the  prac- 
tical  operation  of  the  locks  at  Dams  No.  2  and  No  3  ^ 

Secretary  Weeks.  Yes. 

Da^'N^^'f  anH^liQ^^fif/^^^  sinking  fund  from  a  semi-annual  payment  of  $3,505  for 

vea^  or  97  w^l!  'P^^  ^""'^  ^T  ^^''^  ^'  "^^'^^  P^^^®^  ^*  '""^^^^^  ^^^  ^  Period  of  100 
years  or  97  and  93  years,  respectively,  would  yield  about  $49,000,000. 

Secretary  Weeks.  Yes;  that  is,  at  4  per  cent. 

plet^'nflifNn*  7ii!?ft®  ^^!?®'  ^"^^^^^  ^?  pay  4  per  cent  on  what  it  will  cost  to  com- 
plete Dam  No.  2  and  the  entire  construction  of  Dam  No  3 
^secretary  Weeks.  Yes. 

Govp'r^t''^^-  ^^^  Government,  then,  is  doing  this:  It  is  advancing  to  Mr.  Ford 
reS  oToverTl  7^0^ ^^^  giving  W  the  benefit  without  anythin/iS 

not?  $17,000,000  that  we  have  expended  on  Dam  No.  2.    That  is  right,  is  it 

Secretary  Weeks.  Yes. 
now  is^o^t*  fc^""  *^  enterprise  which  I  guess  we  are  all  in  a  position  to  admit 
tCl^  fi^i^  H  ''l''^  practical  benefit  to  the  farmer,  or  at  least  not  the  benefit  he 
Ford^  tl     ^^^   ?   .^'  ^^®  Government  is  going  into  an  enterprise  of  financing  Mr. 
and  $lof  EnHw*^^  extent  of  $50,000,000  more  and  losing  between  $105,0W,0W 

4?er/atty^ 

§loto(5)^^^^^  '"^^^^^^   "^   *^^   fi^"^-   y^^   ^'-''^oned   before   of 

^r.  Miller.  That  is,  the  Wilson  Dam? 
^ecretary  Weeks.  Yes. 

Ww  ^^^^'t  ^^^^  ^*  ^^^1  ^®  cut  down  to  $80,000,000  or  $87,000,000? 
^ecretary  Weeks.  Yes.  -*-,,. 

^iew'  w  «ri''i7-^®''  "^f-  T  S'^'^^  ^-  Ford,  or,  from  the  Government's  point  of 
Plant  No  1  Jh  N^  entirely  the  investment  of  $85,000,000  that  we  have  in  nitrate 
hav.  .J'?- }  ^^^  ^o.  2,  the  Warrior  plant,  the  Waco  quarry,  and  the  $16,000,000  we 


w 


e  spent  on  Dam  No.  2? 


46 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


47 


I 


Secretary  Weeks.  Well,  you  do  not  want  to  say  -entirely." 
Mr.  Miller.  No;  we  get  $5,000,000  for  it. 

mT  M^LLER.^^Titch.  as  we  have  seen  previously,  will  be  almost  wholly  absorbed 
in  paying  the  overflow  damages  on  Dam  No.  3  and  the  completion  ot  the  Warrior 

power  plant. 

Secretary  Weeks.  Partially  absorbed.  .     ,  „  ^  *  •        **• 

Mr.  Mil£er.  The  fact  of  the  matter  is  the  United  States  Government  is  getting 
nothing  out  of  this  thing,  as  I  see  it.  ,  xi,    ^  *i,- 

Secretary  Weeks.  The  United  States  Government  is  getting  two  or  three  things 
.out  of  it  which  vou  have  not  called  attention  to. 

Mr.  Miller.  We  are  getting  this  plant  as  a  stand-by  in  case  of  war  to  make  ammo- 
nium  nitrate  for  war  purposes.  *    +^  ^i„  + 

s^onrptnrv  Wffks  Mr  Ford  is  to  keep  in  condiUon  for  operation  the  nitrate  plant 
No  2  foftL  use  of  the  ^^^^  K  would  cost  about  $2,500  000  for  the  locks  at 

the  Wilson  Dam.  That  is  included  in  the  cost  on  which  Mr.  Ford,  as  his  proposition 
now  stands  will  pay  interest  at  4  per  cent.  So  that  the  Government  gets  those  two 
benefits  Then  if  Mr.  Ford  is  going  to  develop  industrial  business  there,  which  1 
shSid  think  he  'would  be  able  to  tell  and  be  willing  to  tell  the  Congress,  it  is  of  monaent 
to  the  people  of  the  country  to  have  developed  industrial  business,  and  I  think  those 

things  should  be  taken  into  account.  ^       ,        •  ^-        v.« ,+  +>.«+.  v^„t 

Mr  Miller.  Yes;  that  is  an  indirect  benefit;  there  is  no  question  about  that  bi 
80  far  as  the  United  States  Government  is  concerned,  Mr.  Secretary,  if  we  should  tel 
Mr  Ford  to-day,  "We  will  make  you  a  present  of  the  Waco  quarry,  the  nitoate  plants 
No'  1  and  No  2,  the  Warrior  steam  plant,  and  what  we  have  put  into  the  Wilson  Dam. 
Dro^-ided  YOU  will  complete  the  Wilson  Dam  and  furnish  the  money  yoiu-self,  and  keep 
Sitrate  plant  No.  2  in  readiness  for  war  emergency,"  the  United  States  Government 
would  be  ahead  in  the  transaction,  would  it  not?  ./-._     + 

Secretary  Weeks.  I  do  not  think  the  United  States  Government,  as  a  Government, 
is  at  all  interested  in  Dam  No  3. 
Mr  Miller.  I  did  not  say  Dam  No.  3;  I  said  Dam  No.  2.         ,    ,    ,  .     , 
Secretary  Weeks.  Of  course,  if  Dam  No.  2  is  constructed,  and  electrical  power  is 
furnished  to  run  the  nitrate  plant  in  case  the  Government  needs  to  operate  it,  it  would 
be  very  much  cheaper  than  steam  power.  ttxjc,^* 

Mr  Miller.  But  what  I  was  getting  at,  Mr.  Secretary,  is  that  if  the  United  fetates 
Government  should  say  to  Mr.  Ford,  "We  will  give  you  nitrate  plants  Nos  1  and  2 
.out  and  out,  we  will  give  you  the  Warrior  steam  plant,  we  will  give  7^^  the  Waco 
<iuarrv  we  will  give  you  what  we  have  put  into  the  Wilson  Dam,  which  is  |16,000 ,UUU, 
ii  vou  mil  go  on  and  complete  the  Wilson  Dam  and  pay  us  the  amount  of  rental  at  4 
per  cent  on  what  has  been  put  into  it,"  the  United  States  Govermnent  would  be  ahead 
.on  the  deal;  that  is, it  woidd  be  better  for  the  Umted  States  Government  than  the 

^"^SeCTetaiy^WEEKS.  I  do  not  think  it  would  be  very  much  ahead,  and  1  do  not  think 

it  would  be  very  much  behind.  . .     , 

Mr.  Miller.  Then  we  are  practically  giving  this  proposition  and  hnancing  it  loi 

100  years  at  4  per  cent. 

Secretary  Weeks.  Yes;  but  you  are  getting  your  money  back. 

Mr.  Miller.  We  get  om-  money  back  at  the  end  of  100  years,  five  generations  on. 
-when  we  will  all  be  dead  and  gone.  ,    ,£^i.  **• 

Secretary  Weeks.  You  know  that  I  want  to  get  it  back  in  half  that  time. 

Mr.  Miller.  Yes;  I  understand  you  favor  50  years. 

Secretary  Weeks.  May  I  call  your  attention  to  the  fact  that  a  navigation  project  is 
"being  developed  in  connection  with  the  development  of  the  dam,  and  m  connection 
with  that  navigation  project  the  man  who  is  making  the  development  pays  interest 

on  the  cost  and  returns  the  money.  .      .        <,  .,     m  -d  •  ,«r  bp 

Mr.  Miller.  That  is  right,  but  would  the  navigation  of  the  Tennessee  River  oe 

possible  without  the  completion  of  the  projected  Dam  No  1?    Suppose  we  go  aheao 

and  build  Dam  No.  2,  as  Mr.  Ford  wants  us  to  do,  how  about  the  navigation  ot  tne 

Tennessee  River?  _       ^      ,       ^       m     i     *   ^    x-*,    ^„^flv 

Secretary  Weeks.  I  should  have  to  ask  Gen.  Beach  or  Gen.  Taylor  to  testify  exacuy 

*^M^r.  Miller.  Is  it  your  understanding  that  the  Tennessee  River  will  be  rendered 
perfectly  navigable  without  the  construction  of  Dam  No.  1?  -r^       xt     o  ,it) 

Secretary  Weeks.  I  do  not  think  it  can  be.    Of  the  expenditures  on  I>am  No.  ^  "P 
to  this  time,  $500,000  is  allotted  to  navigation,  and  it  will  cost  about  $2,500,uuu 
complete  the  locks. 


Mr.  Miller   Then  from  the  standpoint  of  aiding  navigation  on  the  Tennessee  River 
we  wUl  have  to  complete  a  third  dam,  will  we  not?  euuesi^e  iviver, 

..uoh^^lA^^^^f'  u^a'  ^"^  ^2«^Plete  it,  but  just  exactly  what  that  would  cost  or  how 
much  would  have  to  be  done  there,  I  can  not  say 

Mr.  Miller.  Then  take  the  three  propositions— the  fertiUzer,  the  navigation  of  the 

Secretajy  Weeks.  You  will  be  'told  by  these  engineers  that  the  cost  of  making  the 

isToo  oortr"'  ^•^'??'  ^^2^^^'  "  '^^  ^^'  ^^^^«t  constructed,  will  a^roxiLatl 
dams  navigation,  however,  would  not  be  as  good  aa  that  creTted  by  the 

jn^ifjo^l?^^;  T?f  t^ree  dements  I  have  mentioned  are  the  three  elements  involved 
in  this  project  at  Muscle  Shoals,  as  I  see  it. 

Secretary  Weeks.  They  are  a  part  of  it. 

Mr.  Millee..  Absolutely,  and  you  can  not  separate  them,  as  I  see  it.  because  Mr 
,7Tw*wf.^^  ^"^^T"  ^^  f^'^^  ^  ^t^'  ^^^  t^^  «P«^*i«^  «f  «^e  of  those  S!  and 
velveTinThTit^raT^^^^^^  ''  ^^""'  ^^^^^  '\  ^^  ^^^^^^  *^-^>  -<^  ^^  ^-  ^^^'^  of 

Secretary  Weeks.  I  am  not  so  sure  about  that.  I  am  not  so  sure  but  what  thp 
Government  would  get  that  $35,000  if  one  rowboat  went  through  th^ 

Mr.  Miller.  Mr.  Secretary,  I  notice  at  the  bottom  of  page  4  you  say  that  the  Waco 

'  sTci^rry'^E^^  Ye'.''''  "^  ^''''''  ""^  '''^^'^'  '''''''''  ^^  ^^^ 

Dp^arwif  ^io^'^'Ii*?^''?  ''''^'"  *?3P^^®  20  Of  your  report,  I  see  that  the  Ordnance 
wir.^*^        t^^i^h^t  we  paid  $52,000  for  can  be  scrapped  for  $102,000. 

cnf^^^hl^i^^^^^' -^^^A   •'  ^^figH^e.  but  that  includes  the  equipment     The 
^"^rry  has  been  equipped  since  that  time.  ^    ^ 

2,  wf we^'not?^^  ^^^^  ^"^^^  ^  ''^^^''^^  ^"^"^  *^^  ^^''^  "^"^^'y  ^P  ^  ^^''^^^  P^^^*  No. 

Ur'mMf^T^L  l^^  Government  did  build  a  spur  back  there  about  1  mile  long. 
Mr.  Miller.  Then  we  installed,  I  daresay,  some  very  expensive  eauinment  at 
Waco  quarry-rock  crushers,  and  things  of  that  kind  ^^P^^^^e  equipment  at 

Secretary  Weeks.  I  have  no  doubt  but  what  it  is  adequate 

iJH^'  ^^^^^\  The  purpose  of  the  erection  of  this  Warrior  plant,  88  miles  distant 

rora  nitrate  plant  No.  2  and  the  dam  at  plant  No.  2,  was  for  the  purpo^  of  nutti^ 

the  steam  pl^it  near  the  coal  mines  where  fuel  would  be  reaSly  avaffi?      ^       ^ 

Secretary  Weeks.  Yes;  that  was  the  purpose.  ^ 

Mr.  Miller    Does  the  Government  own  that  coal  mine? 

^ecretary  Weeks.  No,  sir. 

Mr.  Miller.  The  Government  buys  its  fuel  there? 

^ecretary  Weeks.  That  is  what  the  Government  would  have  to  do 

fl  voo.     i:^®^'-   C^^}  P^*^*  ^^  being  leased  now  to  the  Alabama  Power  Co  for  $75  000 
a  >ear,  which  is  between  ^  and  If  per  cent  of  the  cost  of  the  plant.  *    ' 

aafo^tX^wTr^tLr^^^^^  ^^''  '^'  P'""'  "^'*^^  ''''  ^'^'>  ^^^'^'  "^^'^  -^  '^- 
Ww  ^^^  XX7  ^^^  ^^^  ^}^^^^  ^^  *bat,  may  I  ask,  Mr.  Secretary? 

<lisposeofThr^Tan?:  "'  '^'  ^^'  "^  ""^''"^^  ^"'^  "'^^  until  th?Government  shaU 
Mr.  Miller.  I  thank  you,  Mr.  Secretary.    I  think  that  is  all. 

and  can1fp^if<SH  ^l'  ^^^Jf  ^7'  ^  understand  that  plant  No.  2  is  useful  for  war  purposes 
ana  can  be  used  now  with  steam  power  and  will  be  retained  even  if  the  dam  k  not 

^ecretary  Weeks.  Undoubtedly, 
from  V^"^^^^^-  Y?U5>oke  of  some  royalties  payable  from  that  plant,  but  in  reading 
nTstlte  ^:CZ  t'^.  r.^  ^^^  '  -^^«  ^  P-^^  -<i  ^^e  oth'er  royaltie^  ^^d^l 

is  «ie  Aif^dSn  Co"!^  ""^  *^^  ^'''^'''^'^  ''  *^^  American  Cyanamid  Co.,  and  the  other 
Mr.  Parker.  You  read  one  that  received  a  royalty  of  6  mills  a  Doiind 
Secretary  Weeks.  That  is  the  American  Cyanlmid  Co  ^ 

Spprff"^^^^-  ^^®  ^h?^^  licenses  to  the  United  States  or  to  somebody  else? 
Secretary  Weeks.  They  are  both  made  to  the  United  States.         ^ 
-^r.  barker.  Are  they  assignable,  so  that  they  would  go  to  Mr  Ford? 
92900—22 4 


48 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


49 


m 


Secretan-  Weeks.  That  is  a  question  that  is  somewhat  debatable,  1  think.  I  would 
like  to  have  you  ask  Gen.  Hull,  the  Acting  Judge  Advocate  General,  about  that 

subject. 
Mr.  Parker.  There  is  nothing  in  the  proposal  of  Mr.  Ford  proposing  to  take  over 

those  licenses  or  anything  of  the  sort. 
Secretar>^  Weeks.  In  subdivision  (a),  under  section  11,  page  16,  of  Mr.  l^ord  s  offer, 

it  savs' 

"AH  of  the  propertv  constituting  nitrate  plant  No.  2  (as  officially  known  and  desig- 
nated), including  lands,  power  plants,  buildings,  material,  machinery,  fixtures, 
equipment,  apparatus,  appurtenances,  tools,  and  supplies,  and  the  right,  license  and 
pri\dlege  to  use  anv  and  all  of  the  patents,  processes,  methods,  and  designs  which  have 
been  acquired  and  may  be  transferred  or  assigned  to  a  purchaser  of  nitrate  plant 
No.  2  by  the  United  States,  together  with  the  sulphuric  acid  units  now  m  storage  on 
the  premises. "  .       „    ,  • 

Mr  Parker  I  see  from  the  proposal  that  he  proposes  to  pay  $5,000,000  lor  all  this 
propertv  in  five  installments,  and  that  after  he  pays  $1,000,000  gets  possession,  and 
after  he'pavs  the  whole  $5,000,000  he  gets  a  deed  of  conveyance.  Of  course,  that  gives 
him  full  title  with  warrantv  of  the  title  to  be  good  and  unencumbered,  and  nevertheless 
he  agrees  after  he  gets  title,  seemingly,  to  operate  this  nitrate  plant  No.  2.  This  is  not 
made  a  part  of  the  deed .  After  he  has  acquired  that  title,  have  you  anything  to  prevent 
him  from  selling  the  title  to  somebody  else  free  of  the  clauses  of  this  contract? 

Secretary  Weeks.  The  title  to  No.  2? 

Iklr  Parkfr    Y^es.  • 

Secretary  Weeks.  He  agrees  to  keep  that  in  condition  for  100  years  for  the  use  of 
the  Government.     I  think  that  would  prevent  his  selling  it. 

Mr.  Parker.  He  is  to  maintain  it,  but  he  takes  a  deed  and  the  title  to  it  first. 

Secretary'  Weeks.  I  know,  but  he  can  not  sell  a  piece  of  property  which  he  agrees  to 
maintain  for  100  years  for  the  use  of  the  Government.  ,     tt  •    j 

Mr.  Parker.  There  would  have  to  be  some  sort  of  a  reservation  by  the  United 
States  in  the  deed,  I  take  it.  I  notice  we  are  to  give  him  a  full  deed,  free  and  un- 
encumbered. I  am  speaking  now  of  his  proposal  and  not  of  your  way  of  carr>dng  it 
out,  because  I  have  no  doubt  we  will  get  that  straightened  out,  but  it  seems  to  me 
rather  odd  when  a  man  takes  a  piece  of  property  under  an  agreement  to  maintain  it 
for  100  years,  that  he  should  take  a  deed  instead  of  taking  a  lease.  The  deed  ought 
not  be  effective  until  the  end  of  the  100  years. 

Secretary  Weeks.  Mr.  Ford  declined  to  consider  a  lease  of  that  property. 

Mr.  Parker.  And  he  would  get  a  full  title  and  the  Government  would  have  only  a 
collateral  agreement  to  use  it  in  a  certain  way. 

Is  there  any  navigation  now  on  the  Tennessee  River? 

Secretarv  Weeks.  At  Muscle  Shoals. 

Mr.  Parker.  Through  from  above  Muscle  Shoals  down,  say,  to  New  Orleans. 

Secretary  Weeks.  There  has  been  some  navigation  there  but  there  is  no  navigation 
now  possible  on  account  of  the  condition  of  Dam  No.  2. 

Mr.  Parker.  I  notice,  and  I  think  I  am  right,  that  the  4  per  cent  on  the  $50,000,OCO 
which  is  to  be  spent  on  Dam  No.  2  and  Dam  No.  3  and  the  other  pa>Tnents  prehnii- 
nary  to  the  4  per  cent  do  not  begin  until  after  the  dams  are  completed  so  that  they 
furnish  horsepower.  .      . 

Secretary  Weeks.  There  are  slight  payments  commencing  at  the  beginning.  Mr- 
Ford's  offer  is  quite  explicit  on  that  subject,  but  on  Dam  No.  2  the  lidl  payments 
do  not  commence  until  six  years  after  the  first  100,000  horse  power  are  available. 

Mr.  Parker.  Taking  up  No.  2  first,  I  notice  that  he  leases  the  property  from  tl^^ 
date  when  structures  and  equipment  of  a  capacity  of  100,000  horsepower  are  con- 
structed and  installed  and  ready  for  ser\'ice— that  is,  after  the  completion  of  the  clam: 
and  by  paragraph  7  he  leases  No.  3  for  100  years  from  the  time  when  80,000  horse- 
power is  installed  and  ready  for  service. 

Secretary  Weeks.  You  will  notice  in  the  latter  part  of  paragraph  3,  page  15,  $200,000 
one  year  from  the  date  when  100,000  horsepower  is  installed  and  ready  for  service, 
and  thereafter  $200,000  annually  at  the  end  of  each  year  for  five  years. 

Mr.  Parker.  I  notice  that  covers  the  five  years,  but  none  of  those  payments  i? 
made  until  after  the  dam  is  completed. 

Secretary  Weeks.  Until  100,000  horsepower  has  been  installed. 

Mr.  Parker.  And  that  can  not  be  until  the  dam  is  completed. 

Secretary'  Weeks.  No. 

Mr.  Parker.  And  the  same  thing  is  tnie  of  the  other  dam,  so  that  the  United  htaU'^ 
get  no  payment  whatever  on  account  of  the  interest  on  what  it  spends  until  after  the 
dam  is  completed. 

Secretar)^  Weeks.  Substantially,  I  think,  that  is  correct. 


Afr.  Parker.  How  long  will  it  take  to  complete  Dam  No.  2*? 
Secretary  Weeks.  That  would  depend  on  the  way  it  is  dohe;  but  in  all  probabilitv 
two  years.  *^  -^ 

Mr.  Parker.  Hom-  long  will  it  take  to  complete  Dam  No  3*^ 

^rifr^7  ^^.l'  ^l^"*!!!^  *?'"'*'  P'-o^ably  the  construction  would  take  about  the 
f^me  time.  Whether  the  two  dams  would  be  constructed  at  the  same  time  or  not  I 
do  not  know.  ' 

Mr.  Parker.  On  Dam  No.  3  you  have  to  find  out  about  the  foundations? 

vef  ?e  aJ?d  Nobody  knows  about  that.    The  plans  and  specifications  are  not 

Mr.  Parker  Then  you  do  not  know  how  long  it  will  take  to  complete  that  dam 
after  you  once  begin  to  spend  money  on  it? 

J!a^7f^^^^^'  '^^^/'Py  engineers  place  the  time  of  completion  of  Dam  No.  2 
wnrt  i^Hpi  fho  P?^«of.a»y  I  think  that  IS  too  much,  and  if  Mf.  Ford  contracts  this 
Jwi^p  S  J^^  t^,e.^tion  of  the  Army  engineers,  I  think  it  will  be  done  quicker. 
The  time  of  completion  of  Dam  No.  3  is  placed  at  36  months. 

Mr.  Parker  Does  that  include  the  installation  of  the  machinerv  etc  for  the 
development  of  the  80,000  and  100,000  horsepower?  «*^iii"eo ,  etc.,  lor  tne 

Secretary  Weeks.  I  think  it  does.  The  first  100,000-horsepower  machinery  is 
already  under  contract  for  Dam  No.  2.  ,  y     ^i  xu^tcuauf  ry  is 

Mr  Parker.  During  the  time  of  the  building  of  the  dams,  the  United  States  gets 
no  interest  on  its  expenditures,  and  after  completion  for  th^  first  five  years  it  lets 
rather  small  interest,  $200,000  on  $22,000,000,  which  is  a  little  less  than  l^rcl^t 
for  the  first  five  years,  is  it  not?  ^  ' 

Secretary  Weeks.  It  would  depend  on  how  much  money  is  already  put  into  it 
ih^A'S^^^^^A  ^  f"^"^  ^^^"^  they  get  to  paying  interest,  after  the  le^e  is  made  and 
a  vpfrTr  fW  ^/r  '^'^'^^'  and  $22,000,000  has  been  spent,  they  get  only  $200,000 
a  year  for  the  first  five  years,  which  is  less  than  1  per  cent  on  the  $22  000  000 

w  v^,^'^  r.^\^}i^^  guestion  of  interest  is  covered  in  the  statement  on  page  22. 
but  you  are  substantially  right  m  saying  that  the  Government,  for  the  first  six  yeare 
does  not  receive  any  substantial  interest  on  the  investment  ^       ' 

ing  the  d^m^^'  ^^^''  *^^  ^^"^  '^  completed,  aside  from  the  time  consumed  in  build- 

Hke'wa  w^!^^,^f  ^-  ^"""^  '* ''  true  that  if  this  were  being  done  in  an  entirely  business- 
like  way,  the  interest  on  construction  cost  would  become  a  part  of  the  capital  of  the 
enterpnse  on  which  interest  should  be  paid.  capiuti  oi  me 

Mr.  Parker.  And  that  is  not  in  this  contract? 

Secretary  Weeks.  That  is  not  in  this  contract.    That  would  be  in  accordance 
with  the  pohcy  of  the  Interstate  Commerce  Commission  ^ccoraance 

mf/k  f  •  ^7- Secretary,  there  are  two  things  I  would  like  to  ask  you  about  On 
Comnr^H  ^T  ^^"^l*^  *^^  ^P^^^?"  reference  is  made  to  the  claims  of  the  Air  NitratS 
ted  ^.H^P^^'w^  "^^"^^  P^^^u*  ^^-  ?  ^^  ^  ^^^«^ble  t^rms  as  those  offere^by 
a  s^Ir '.f.^!?^"^  ^^^^l  "^J*'^^'  ^y  '^**'^^  *^^*  *^«  Alabama  Power  Co.  may  make 
SpI«  T.  \^^'^  *^  ^t  ^l""^"  P^^^*  ^^^  1^«-  I  tl^ink  the  committee  would 
Xdias?  m^inX/^"*^"' *^^Vr^^^  seriously  interfere  with  this  proposal  to 
SofthSmpanf^^^^^  '"""'''  ^''^*'"^  ^^'  '^'  Government  arising^out  of  the 

NifefrJr^ff.^''-  i  ?""  Z'^*  1*^"  how  serious  it  would  be.  I  supposed  that  the  Air 
is  a  mini  r'^^''^''  ^1^  ?  legal  option  to  purchase.  I  am  informed  it  has  not.  That 
Judn^'^o^r'r ''  *^f  ""i^  ^^""^  ^  ^"  adjudicated,  and  if  you  will  ask  the  Acting 
morf  comn?i?  1    General,  who  IS  present.  Col.  Hull,  he  will  answer  that  question 

^mUhT^lti\^^^  V'^'l^l^^^f  y  i^^il  ^^  necessary  for  the  United  States  to 
Mr  H  title  both  to  plant  No.  2  and  the  Warrior  River  plant 

I  the  tSS"  qVI^P^^^  ^  *^^  statement  is  made  in  your  letter  that  these  properties  cost 
^0  be  worth  IrIT9  nffiTl"if  f  ^i^^^^l^-^^/fA  ^^  **^^*  ^«  «^^P  ^^^^^^^  estimated 

jecretary  Weeks.  Yes.       '       ' 

Ito  the  ^nLi^"""  ^^\'f  ^f-^'i.  ''^^^^''  questions  about  the  Ford  proposal  in  reference 
CWnrn  '  v-^'"'-  •'''^^  interests,  and  I  would  like  to  ask  you  regarding  the  Muscle 
h  it  stSTt^r  "''  '*'  P;f-'°*  ^^^^:  forgetting  what  it  cost,'  but  iSoking^at  it  simply 
^yCWp«!l,  ?  present  1:ime  if  the  Ford  proposition  were  not  favorably  received 
put  a  mT     '  P^^^y  .as  a  national-defense  proposition,  has  the  War  Department  worked 

Pu  elvT.T°'!?^^^'T  .**^^*  '^  ^^^^^  "^^^^  ^«^  the  disposition  of  th^  plan?;  that  2^ 
Se  Lf  ^  national-defense  matter,  what  would  they  do  ^^ith  it?  ' 

\^^-  2  bSnl^lf!/'  ^f  as  plant  No   2  is  concerned,  they  would  maintain  plant 
I       ->  because  that  does  furnish  them  the  facilities  for  obtaining  nitmtes  in  case  of 


50 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


51 


war  up  to  100,000  tons  a  year.  Then  the  United  States  might  conclude  to  complete 
Dam  No.  2  to  obtain  the  power  cheaply  and  to  sell  the  Power  m  the  ^e^ntP^f^  I 
have  not  very  much  doubt  but  what  it  would  sell  a  considerable  P^^  of  the  balance 
of  the  property,  and  I  think  I  have  assurances  that  it  could  sell  that  property  at 
materially  more  than  the  estimated  scrap  value  by  tal^lng  time. 

Mr.  Hill.  If  they  maintained  plant  No  2  for  national-defense  P^^f.^^^^^,!?^^^ 
the  rest  of  the  plant,  the  United  States  would  then  retam  all  the  benefits  of  the  defense 
elements  of  the  situation  without  the  expenditure  of  any  very  great  amount,  would 

they  not? 
Secretary  Weeks.  Yes.  ,  ,  ..        -  -.r^   t^^  ^ 

Mr.  WuRZBACH.  Mr.  Secretary,  I  understand  the  second  proposition  of  Mr.  * ord 
is  based  upon  the  theory  that  the  Government  will  accept  or  refuse  his  Proportion 
implying  that  Mr.  Ford  is  not  favorable  to  listening  to  any  counterproposal  made  by 

^^'se^^etry'wEEKS.  I  do  not  know  whether  he  is  or  not.  Mr.  Ford  left  my  office  on 
the  13th  of  January  saying  that  he  would  not  do  several  things  which  he  prettj 
promptly  permitted  his  en|ineers  to  put  into  this  contract  which  is  before  the  com- 

"^Mr.  WuRZBACH.  You  do  not  think,  then,  that  the  failure  of  the  Government  to 
accept  his  last  proposal  would  mean  that  he  would  not  consider  any  counter  proposi- 

'tecTe^^EEKS.'!  fhl^k  uTvery  difficult  for  Congress  to  make  counter  proposi- 
tioi^  or  toagree  on  counter  propositions.  I  should  think,  as  a  practical  measure,  as 
a?^  the  Fofd  proposition  is  concerned,  practically  speaking,  it  is  ^P  jor  acceptence 
or  rejection  If  an  individual  were  dealing  with  Mr.  Ford,  it  would  be  compara- 
tivelv  easv  to  make  counter  propositions.  ,  ,     ,  . .,  ^-^^  „,^ 

Mr^ WURZBACH.  I  understand,  but  do  you  not  think  he  haa  put  the  Proposition  up 
to  the  Government  in  a  way  that  it  does  not  admit  of  any  counter  proposals  by  the 
Government,  or  do  you  construe  it  in  that  way?  ^.„««ooi 

SecrXry  Weeks.^  If  you  think  you  could  get  through  Congress  a  counter  proposal 
which  I  d^  not  think  you  could-I  think  it  would  be.  almost  a  hopeless  ta^k-and 
the  counter  proposal  were  better  than  this,  Mr.  Ford  might  accept  it. 

Mr  WurzbIch  I  notice  in  section  14  of  Mr.  Ford's  last  proposal,  the  company 
a^ees  to  operate  Nitrate  Plant  No.  2  at  the  approximate  present  f^^^^\^^P^^%^^ 
ite  machinery  and  equipment  in  the  production  of  mtrogen  and  other  fertihzer  com- 
plTsLII  capacity  Ving  equal  to  approximately  110,000  tons  of  am  jmm^ 
nitrate  per  annum)  throughout  the  lease  period,  except  as  it  may  be  prevented  by 
Ss  and  so  on  I  wish  you  would  translate  that  110,000  tons  of  ammomum  mtrate 
intft  fprtili/pr  products.    What  does  that  mean? 

Sec^tarr'v^^^^^  would  mean  about  200,000  tons,  or  perhaps  a  little  more, 

of  ammonium  sulphate. 
Mr  WuRZB\cH.  That  is  the  fertilizer  product.  ,    .     ,   ,.  t 

Secretarv  Weeks.  But  I  do  not  want  you  to  get  me  into  a  technical  discussion  of 
fertilizer  Droducts,  because  I  might  become  emliarrassed. 

X  Wurzbacu    This  is  sort  ol  Greek  to  me,  and  I  am  simply  trying  to  get  some 

information  about  it.    Do  you  not  take  it,  Mr.  Secretary  that  that  me^^^f  ^.'J^ligation 

on  the  part  of  Mr.  Ford  to  a-ree  to  this  proposal  to  furnish  a  certain  amount  of  fertihzer. 

Secretarv  Weeks.  That  para-raph  says  that  the  company  will.  , 

Mr.  WURZBACH.  That  the  company  will,  without  reference  to  t^^®  authority  of  the 

company  to  bind  itself,  but  this  does  mean  that  this  proposal  agrees  to  bind  the  obU- 

<Tors  to  the  performance  of  a  certain  obligation,  does  it  not^  .      ^   ^  .^  ^n  rin 

Secretary  Week<.  It  agrees  that  the  company  that  Mr.  Ford  is  going  to  form  will  do 

*  tfr  WiTR7B\rii  Yes  Now,  I  have  some  serious  doubts  myself  about  the  necessity 
of  requiring  Mr.  Ford  or  whoever  makes  this  application  t<)  secure  the  faithfu  per- 
formance of  his  contract,  but  do  you  not  think  that  section  19  which  ^eafs  as  olb^^^^^ 
''the  above  proposal s-that  includes  14  and  all  the  other  sections^are  submitted  foi 
accepLnce  as Twhde  and  not  in  part.  Upon  acceptance  the  promises,  undertakinas 
and  obligations  shall  be  binding  upon  the  United  States  and  jointly  and  severall} 
u^n  thfundersigned,  his  heirs,  representatives  and  assigns  and  the  company ,  its 
s^cessors  and  assigns  and  all  the  necessary  contracts,  l^««',^f,f/' ^^^^^^^^^^^ 
ments  necessary  o?  appropriate  to  effectuate  the  purposes  ot  this  propo^l  shall  be 
dTuTy  executed  and  delivJred  by  the  respective  parties  above  mentioned  ''do  you 
not  think  that  that  contemplates  some  further  contract  upon  the  part  of  the  Govern- 
niPTit  and  also  uDon  the  part  of  Henrv  Ford  to  carry  out  these  agreements. 

Secreta^  WEEK^Oh!^  un^^^^  there  will  have  to  be  other  contracts  and 

jigreements  relating  to  the  details  of  this  subject. 


Mr.  Wurzbach.  To  carnr  out  the  purposes  of  this  proposal. 

Secretary  Weeks.  But  I  should  not  have  raised  the  query  in  my  comment  if  I  had 
thought  that  that  was  entirely  satisfactory  from  the  Government's  standpoint. 

Mr.  Wurzbach.  In  other  words,  this  proposal  of  Henry  Ford  is  not  supposed  to  be 
the  final  agreement  that  is  to  be  entered  into  between  Henry  Ford  and  the  Government 

Secretary  Weeks.  I  do  not  think  that  he  would  be  willing  to  say  that  there  should 
be  any  essential  change  in  this  proposal. 

Mr.  Wurzbach.  But  within  the  limits  of  this  proposal,  binding  himself  and  his 
heirs  and  assigns,  do  you  not  think  it  was  contemplated  by  Henry  Ford  that  he  would 
be  willing  to  enter  into  other  agreements,  the  details  of  which  would  be  set  out  in  the 

finalagreementtoprotecttheGovernmentinthefaithful  performance  of  his  agreement*^ 
Secretary  Weeks.  I  should  hope  he  would. 

Mr.  Wurzbach.  Do  you  not  think  that  section  19  was  contemplated  by  Henry  Ford 
as  leaving  the  way  open  to  provide  for  the  protection  of  the  Government  in  the  car- 
rying out  of  the  obligations  undertaken  in  this  agreement? 

Secretary  Weeks.  Yes;  but  you  must  remember,  Mr.  Wurzbach,  that  Congress  is 
going  to  accept  or  reject  this  proposal,  and  if  Mr.  Ford  said  that  that  was  satisfactory- 
and  that  is  what  the  Government  had  accepted,  I  do  not  see  how  he  could  be  led  into' 
doing  something  more  than  he  has  promised.     I  am  not  impugning  Mr.  Ford's  good 
faith  or  hw  intentions,  but  100  years  is  a  long  time.    You  are  dealing  with  a  corpora- 
tion that  has  no  fixed  capital.    You  do  not  know  anything  about  how  long  Mr  Ford 
IS  going  to  live,  or  what  shape  his  estate  will  be  in;  not  that  it  will  not  be  solvent 
I  do  not  mean  to  suggest  that,  but  in  what  way  it  will  be  tied  up,  and  the  only  recourse 
you  have  here  is  for  the  Attorney  General  to  proceed  against  somebody  for  damaees 
Now,  that  IS  a  difficult  matter  to  settle. 

Mr.  Wurzbach.  Do  you  not  think  there  would  be  a  natural  disposition  upon  his 
part,  in  view  of  the  fact  that  by  the  terms  of  section  19  he  obligates  and  binds  himself 
his  heirs  and  assigns,  to  give  some  adequate  protection  to  the  Government  to  secure 
the  faithful  performance  of  this  contract? 

Secretary  Weeks.  I  should  think  there  would  be,  but  if  I  were  making  the  contract 
and  was  responsible  to  the  Government,  I  would  have  that  guaranteed. 

Mr  Wurzbach.  Yes;  I  would,  too.  Of  course,  you  understand  that  a  proposal  of 
this  kind  or  a  preliminary  proposal  in  any  kind  of  a  contract  could  not  go  into  the 
details  of  the  entnre  proposition .    It  would  be  a  general  proposition,  would  it  not? 

Secretary  Weeks.  That  question  of  a  guaranty  has  been  brought  to  Mr.  Ford's 
attention.    It  is  not  in  his  offer. 

Mr.  Wurzbach.  This  implies  by  its  very  terms  that  Mr.  Ford  intended  to  go  into 

u m?**^  ?  ^*  *^®  matter  of  protecting  the  (government  because  it  reads: 
The  above  proposals  are  submitted  for  acceptance  as  a  whole  and  not  in  part 
Upon  acceptance,  the  promises,  undertakings,  and  obligations  shall  be  binding  upon 
the  United  States  and  jointly  and  severally  upon  the  undersigned,  his  heirs,  repre- 
sentatives, and  assigns,  and  the  company,  its  successors  and  assigns;  and  all  the 
necessary  contracts,  leases,  deeds  and  other  instruments  necessary  or  appropriate  to 
etfectuate  the  purposes  of  this  proposal  shall  be  duly  executed  and  delivered  by  the 
respective  parties  above  mentioned. " 

Secretary  Weeks.  Let  me  turn  questioner  for  a  moment,  suppose  you  accepted  this 
otter  of  Mr.  Ford  and  then  you  wanted  to  put  a  guaranty  in  there,  do  you  think  vou 
would  have  any  right  to  compel  him  to  make  a  guaranty? 

Mr.  Wurzbach.  I  think  the  plain  implication  of  this  proposition  would  be  that  the 
^jovernment  would  be  entitled  to  protect  itself  in  this  contract. 

Secretary  Weeks.  I  hope  that  is  so. 

Mr.  Wurzbach.  Yes;  I  hope  so,  too,  because  I  would  not  be  in  favor  of  it  unless 
there  was  some  secunty  to  the  Government  that  these  obligations  that  are  undertaken 
in  this  proposal  were  secured  to  the  Government,  and  I  waa  wondering  whether  that 
last  section,  section  19,  did  not  provide  for  that  very  thing. 

Secretary  Weeks.  That  is  the  reason  I  raised  the  query,  to  bring  it  to  the  attention 
ot  the  committee. 

Mr.  Wurzbach.  Yes;  I  understand.    That  is  all. 
r  .^J^®  pHAiRMAN.  At  this  point  I  will  read  into  the  record  a  telegram  I  had  from  Mr 
J^iebold,  private  secretary  to  Mr.  Ford.    I  wired  Mr.  Liebold  to  say  that  the  com- 
jnittee  would  begin  its  hearings  to-day  and  that  the  Secretary  of  War  would  be  before 
the  committee  the  greater  part  of  the  day,  but  we  would  like  to  have  Mr.  Ford  or  hia 
representatives  present.    Mr.  Liebold  sent  me  this  telegram: 

an!'^°^'  *®^®^^"^  ®^®°  ^^^^  received;  at  this  date  it  is  impossible  for  Mr.  Ford  to 
'irrange  to  appear  before  your  committee  on  the  date  mentioned;  if  there  is  any  special 
iniormation  you  desire  can  we  not  furnish  same  from  here? 

''E.G.  Liebold." 


52  MUSCLE  SHOALS  PROPOSITIONS. 

Washington,  D.  C,  February 


MUSCLE  SHOALS  PROPOSITIONS. 


53 


on  everything 


1922. 


Mr  E  G.  LiEBOLD,  ^.  , 

mittee  to  treat  Mr.  F»i°'/'« '^P/u^Sf  TeSe  t«  finish  JKatt^r  with  as 
{SraeWrp'oSa:*  *^o»r"  ^^^d^^istp^ntativee  come  on  the  9th,  .0th. 
or  nth?  Julius  Kahn,  Chawnan. 

T  have  had  no  answer  to  that  telegram.  ^^„ij  nvo  +n  ask     Mr   Secre- 

M?^WUKZBACH.  There  iB  just  one  n>ore  question  I  ^^^"^^d^^^^i^^^ecially  is  con- 

tary,  do  you  not  think  that  the  proposal  ««  ^^g' J°™„\™Xn  of  t^ie  contract  to 

'^\l,'^rhl^?^.s''an]-'eV™^^^^  P^*""'"^^  "'  ''"'  •=""■ 

%r^Trs'«e '^r  Mi  ^^nSrS'ut  with  who.  is  he  going  to  do 

**Mr  Whbzbach.  You  do  not  think  there  is  anything  in  the  proposal  that  is  incon- 

there  what  I  wanted  to  put  in^that  Jf-^^f contract  wS  to  be  carried  out. 
^X"^i::^xoHTlMnrr.^!'bt^V-  dTr^^^^  his  proposal  is  inconsistent 

^ii:^i^^^l^^r:L^\^^''^°i''^^  no  desire  t.  question  Mr.  Ford's 
"Mi'cKXOO.  Mr.  Secretary,  recognizing  the  fact  t^t^  a^ar^^f  our  miUta^J^^^^^^^ 
of  preparedness,  the  Government  alj^adyh^nvested^to  ^^  ^J^  .^ 

rn^it^-"?  bl.rJs^'ird^r  a'-pS-S^n!^^^^^^^^  of  Congress 

accepting  ttif^propj^tio^,,  ^,,  ,  ,  ^         ^  ^^^^It  of  this  apeement 

Secretary  Weeks.  If  I  thought  >^fj^^^^  in  the  cost  of  fertihzers 

with  Mr.  Ford,  imperfect  as  I  ^«^^J,^*' ?^°L^^^^^^^^^^  I  think,  if  1  were 

to  the  usei-s  of  fertihzers;  if  I  thought  ^^^  ,TAm  s^much  in  doubt  about  it  that  I 
in  Coi^ess,  I  should  vot^  for  ^^f  P^Xothef  ^^^  ^^  ^his  plant. 

Sg^fruitifn^^^^^^^^^^  -^^^  -^^  ^-^^  ^-^^- 

adv^nfage  to  the  Government  than  th^  particular  mie^  ^  ^^^^ 

Mr.  FfELDs.  Mr.  Secre^,   Xec'^SnlMbe  ^^^  tSLt  Mr.  Ford  is  asking 

ago  one  not  famihar  with  th^  ^i^^vSn  worth   or  possibly  $105,000,000  worth   of 

is  $8,812,000? 

^'F^S)8^TwIrrMr.  Ford's  offer  is  only  $3,812,000  less  than  the  department  8 
estimated  scrap  value  of  the  property? 

Secretary  Weeks.  Yes.  Fxhibit  E  an  analysis  of  the  cost  to  the  Gov- 

Mr.  Fields.  I  notice  on  page  20.  in  E^^it  ^;^n  ana^y  t^^tion  of  the 

emment  by  reason  of  its  ^,^,%«J^.^l^5^^^^  to  ask  at  this  point  that 

S^fnIS'a^b^e%^ar|rn»fo|eV^^^^ 

tti^te'^XrgTh^'sre^ttrfrl^errcra^esr^^^^ 
Secretary  Weeks.  I  wiU  have  that  done. 


Mr.  Fields.  I  believe  you  stated  earlier  in  the  hearing  that  this  plant,  nitrate 
plant  No.  2,  IS  ready  tor  the  production  of  nitrates;  that  is,  nitrates  used  in  explosives 
18  it  not?  *  ' 

Secretary  Weeks.  Yes. 

Mr.  Fields.  There  would  be  considerable  additional  expense  to  prepare  this  plant 
for  the  production  of  the  elements  going  into  fertilizer? 

Secretary  Weeks.  Yes;  but  depending  altogether  on  the  manner  in  which  the  fer- 
tilizer was  going  to  be  made;  1  mean  tho  process  that  was  to  be  used  and  the  amount 
to  be  used. 

»,^^T%'^j^^^^','^^®^™^^'^*  ^^^^^  ^  apparently  contemplated  by  the  proposition  of 
Mr.  I^ord  is  110,000  tons  a  year.  What  would  be  the  additioanl  cost  of  equipping 
this  plant  for  the  production  of  that  amount  of  ammonium  sulphate?  ^    *-''  -» 

Secretary  Weeks.  If  you  put  in  an  ammonium  sulphate  plant  to  use  the  entire 
product  the  estimated  cost  would  be  about  three  million  dollars.  Mr.  Ford's  engi- 
neers stated  in  interviews  which  I  had  with  them  that  it  was  his  proposition  to  inv^t 
between  ten  and  twelve  million  dollars.  I  do  not  know  exactly  how  he  would  in- 
vest that,  and  I  do  not  know  that  he  knows  exactly  how. 

Mr.  Fields.  He  would  at  least  have  to  invest  three  million  dollars  before  he  could 
begin  to  produce  ammonium  sulphate? 

Secretary  Weeks.  In  any  considerable  amount. 

Mr.  Fields.  Before  he  could  get  very  far  he  would  have  to  invest  about  three  mil- 
lion to  possibly  ten  milhon  dollars  in  the  equipment  of  his  plant? 

Secretary  Weeks.  1  think  so,  probably. 

Mr.  Fields.  [  believe  it  is  stated  in  House  Document  No.  167,  either  in  your  report 

.^^S?^i^^  *^®  Chief  of  Engineers,  or  the  report  of  the  Chief  of  Ordnance,  that  it 
cost  $201,674  to  maintain  nitrate  plant  No.  2  in  stand-by,  idle  condition  last  vear? 

Secretary  Weeks.  Yes.  *       ' 

Mr  Fields.  Approaching  this  from  the  standpoint  of  preparedness,  in  which  we 
are  all  hrst  interested,  that  is,  the  members  of  this  committee,  if  the  Government  is 
to  maintain  this  plant  for  preparedness,  its  first  cost  would  be  $200,000  a  year  to  main- 
tain it?  '' 

Secretary  Weeks.  Not  necessarily,  because  we  are  leasing  the  steam  plant  now  for 
110,000  a  month,  plus  2  mills  a  kilowatt  hour  for  the  amount  of  power  used  so  that 

iofn'^^"^^ '®^®^iP^  ^*^^^^  ^®  *^®^*  $120,000,  and  the  maximum  receipts  about 
$250,000.    That  is  leased  for  a  year,  on  a  revocable  lease. 

Mr.  Fields  At  least,  in  computing  the  charges  against  the  plant,  we  would  first 
have  to  consider  the  cost  to  the  Government  of  maintaining  it,  which  would  be  $200  - 

000  a  year?  -^      i 

Secretary  Weeks.  Let  me  correct  you  on  that.  I  am  informed  by  an  officer  who 
is  perfectly  familiar  with  the  plant  that  it  will  cost  this  year  about  $120,000 

Mr.  Fields.  Calling  that  insurance  for  preparedness,  then,  for  the  life  of  Mr  Fotd's 
lease,  that  would  run  into  several  million  dollars. 

Secretary  Weeks.  You  will  note— I  do  not  know  that  it  can  be  done  every  year 
but  we  will  get  out  of  the  Warrior  plant  and  this  plant  at  least  $300,000  this  year' 
and  quite  likely  as  much  as  $400,000.    Three  hundred  thousand  dollars  would  be  6 
per  cent  on  the  entire  amount  that  Mr.  Ford  is  to  pay  us. 

Mr.  Fields.  This  item  of  expense  you  refer  to  covers  not  only  maintenance  but 
the  upkeep,  repair,  etc.,  of  the  plant. 

Secretary  Weeks.  The  lease  is  made  in  such  form  that  the  lessor  a^ees  to  main- 
tain the  plant  m  as  good  condition  as  it  was  received. 

Mr.  Fields.  Will  this  cost  of  maintenance  materiallv  increase  within  a  few  vears 
by  reason  of  deterioration?  '  ^ 

Secretary  Weeks.  Undoubtedly  there  \d\\  be  some  expense  everv  vear  in  the 
maintenance  of  those  plants.  *    ' 

Mr.  Fields.  I  have  heard  it  stated  that  the  entire  roof  of  the  buildings  which  is  a 
very  considerable  item,  would  have  to  be  replaced  within  10  years. 

Secretary  Weeks.  I  do  not  think  that  is  so.  There  have  been  more  foolish  thin<^8 
said,  pro  and  con,  m  reference  to  Muscle  Shoals  than  in  reference  to  any  other  matter 

1  nave  ever  investigated. 

Mr.  ^lELDs.  If  my  memory  serves  me  correctly,  I  saw  somewhere  in  House  Docu- 
ment 167,  that  if  this  plant  is  maintained  in  a  stand-by  condition  it  will  practically 
all  have  to  be  replaced  in  20  years,  because  of  deterioration  and  obsolescence 

becretary  Weeks.  I  would  not  attempt  to  answer  that  question.  I  should  refer 
that  question  to  the  Chief  of  Engineers. 

,  -^^/l?^^^'  ^^-  Secretary,  I  would  like  to  ask  at  this  point  whether  Mr.  Ford  sub- 
mitted this  proposition  upon  his  own  volition  or  at  the  request  of  the  War  Department, 
mat  18,  the  original  proposition? 


54  MR.  ford's  muscle  shoals  proposition. 

"PM^rKrWUl  you  put  in  the  hearings  at  this  point  a  copy  of  that  letter? 

SecreUry  Weeks.  Yes.  ^ 

g^^i^Z'tZiC^l  S'ent  to  many  individuals  or  iinns  thro.^hout  ,he 
country?    I  assume  it  was. 

have  been  sent  along?  favorable  ud  to  the  time  Mr.  Ford's  offer  was 

Jri'lrr  I^=.?^S  Sro^^oft^cl^Und  to  send  here  so  that  the 

rommit'i^e  may  have  the  ir^o^a^^onw^^^^^^^  ^  ,„,  I  ,^i,e 

Mr.  Fields.  I  notice  this  !^  l'««'i/.f.![Xt  m7Wii^^^^^      discussed  in  reference 

to  turn  to  it  in  connection  with  »  q-Jjf »°  ^f^^^^iately  proceeds  to  install  a  plant, 

*°  ^S^^Vc'om^yThrat  Ih^^^  oTTol  ^^^Am.  which  it  haa  been 

suggested  it  contemplated — -  ,      ^    Ford— that  is,  Mr.  Ford  in 

Jrcrior^^hCXTn^d  \o'l^nZ}^l^n  any  amount  of  money,  so 

Siltta^atement  oi.ght  to  be  moafled  U.  tl^^^e=^^°^^„_  ^  j„  ^  the  company  it- 

J\^'S^rI^^;r:V^'!X'^X'  t^r.,  Ws  agreement  with  the 

«°^ecr^  wTE^^'Tpm^^^^^^  ,„a  his 

Mr.  Fib£d8.  As  Mr.  Wurzbach  <=a"ed  attention  w,Mr^r^^^^ 

heirs  and  assigns  and  for  the  P'^.^"*' °';''""^S  h^/rthfGo^^^  would'it  not? 

auaraBty  behind  any  agreement  *at  he  makes  mtnine>.^o^        ^  ^^^^ 

"Secretary  Weeks.  It  would  be,  except  that  yo*!  hf/e  got  t«  P™.ee     =    ^iff^cnlt. 
forTama^s.  and  to  prove  d^ '^^tS  coSmrison  fhat  a  ter'thrcontractis^made,  for 

an  appropriation.    What '^""if,  J'^ranVc^eement  signed  by  somebody  authorized 
J?;'^^S™fh:p%7"t!L'U^^Tor;hef  this  Lvernment  is  going  to 

^°ilf  FT.LflThope't;  too;  but- sometimes  appropriations  have  been  materially 
deteyed,  and  ihat  thought  came  to  my  mind  in  passing. 

IrCJTrotiJrnt^f^xnep^^^^^^^ 

j-Ss'  tUtrbrgraJ^^rto%h'£^i- ^orl^^^^  -  "^  *» 

^^'^pI^^WeekI   I  have  not  that  information,  but  the  policy  of  the  Government 
nolls^^-y^r  Wdl*^^^  length  of  a 

j^^h^rrso^l  I'^^Ty  trn^^tXof  *e  propc^ition,  as?t  would  be  harder 
to  finance  a  Iwger  ProP»f ««"  ^»^  »  ^X^Aing  about  what  is  going  to  happen  in 

fcTISra^!b/'rr?o1&%KM^^^^^ 

ically  become  subject  to  tj^at  stetute?  ^^  question.    The  Ford  engineers 

Secretary  Weeks.  That  ^^,J,^f  J^^^^^^^^^^^^  it  in  the  agreement? 

thought  that  would  be  tme^   B^if  ^^^^^J^  JnTe  hearing  the  pertinent  parts  of  the 

Alaba^S^^^^^  ^^^^^d^  '^  '"^  "'""• 

^  Th^H^RMAN  ^^  have  put  the  statute  in  the  record 


MUSCLE   SHOALS  PROPOSITIONS. 


55 


Mr.  Fields.  We  have  not  put  in  the  Alabama  law.     I  ask  to  insert  the  pertinent 
parts  of  the  Alabama  statute,  Mr.  Chairman. 

The  Chairman.  If  there  is  no  objection,  that  will  be  done. 

(Sections  of  the  Alabama  public  utility  act,  approved  October  1,  1920,  governing 
the  operation  of  electric  power  companies  in  Alabama,  are  as  follows:) 

"Sec.  2.  *  *  *  Utility. — Unless  otherwise  specified,  the  term  'utility,'  when 
used  in  this  act,  shall  mean  and  include  every  person,  not  engaged  solely  in  inter- 
state business,  that  now  or  may  hereafter  own,  operate,  lease,  or  control  (1)  any  plant, 
property,  or  facility  for  the  transportation  or  conveyance  of  or  for  the  public  of  pas- 
sengers or  property  by  street  or  interurban  railway;  (2)  any  plant,  property,  or  facility 
for  the  generation,  transmission,  or  distribution,  sale,  or  furnishing  to  or  for  the  pub- 
lic of  electricity  for  light,  heat,  or  power  or  other  uses,  including  any  conduits,  ducts, 
or  other  devices,  materials,  apparatus,  or  property  for  containing,  holding,  or  carry- 
ing conductors  used  or  to  be  used  for  the  transmission  of  electricity  for  light,  heat, 
or  power  or  other  uses;  (3)  any  plant,  property,  or  faciUty  for  the  manufacture,  stor- 
age, distribution,  sale,  or  furnishing  to  or  for  the  public  of  natural  or  manufactured 
gas  for  light,  heat,  or  power  or  other  uses;  (4)  any  plant,  property,  or  facility  for  the 
supply,  storage,  distribution,  or  furnishing  to  or  for  the  public  of  water  for  manu- 
facturing, municipal,  domestic,-  or  other  uses;  (5)  any  plant,  property,  or  facility 
for  the  production,  transmission,  conveyance,  delivery,  or  furnishing  to  or  for  the 
public  of  steam  for  heat  or  power  or  other  uses;  (6)  any  public  wharf,  dock,  or  ter- 
minal; (7)  any  toll  bridge,  ferry,  or  road;  (8)  any  boat  line  propelled  by  any  power 
and  not  regulated  by  the  laws  of  this  State  heretofore  or  hereafter  enacted  as  a 
steamboat  or  steam  packet  line.  Unless  otherwise  specified,  the  term  'utility '  shall  also 
mean  and  include  two  or  more  utilities  rendering  joint  service. 
1  "Rate.— Unless  otherwise  specified,  the  term   rate,'  when  used  in  this  act,  shall 

I  mean  and  include,  in  plural  number  as  well  as  in  the  singular,  every  individual 
or  joint  rate,  classification,  fare,  toll,  charge,  or  other  compensation  for  ser^ico  ren- 
dered, or  to  be  rendered,  by  any  utility,  and  every  rule,  regulation,  practice,  act, 
requirement,  or  pri  .ilege  in  any  way  relating  to  such  rate,  fare,  tull,  charge,  or  other 
compensation,  and  any  schedule  or  tariff,  or  part  of  a  schedule  or  tariff  thereof. 

"Service  regulation. —Vnlees  otherwise  specified,  the  term  'service  regulation '  shall 
mean  and  include  every  rule,  regulation,  practice,  act,  or  requirement  in  any  way 
relating  to  the  service  or  facilities  of  a  utility  including  the  voltage  of  electricity,  the 
heat  units,  pressme  and  candlepower  of  gas,  the  purity  and  pressure  of  water*  and, 
in  general,  the  quality  of  any  commodity,  service,  or  product  supplied. 

"Sec.  14.  Valuation  of  the  property  of  a  utility  by  the  covimission.— The  commission 
may,  upon  its  own  motion,  at  any  time,  and  upon  reasonable  notice  to  any  utility, 
when  the  commission  deems  it  necessary  to  ascertain  the  value  of  the  property  of 
such  utility,  proceed  to  investigate,  ascertain,  and  report  the  value  thereof,  and  shall 
make  such  investigation,  ascertainment,  and  report  upon  the  request  and  application 
of  any  utility.  To  enable  the  commission  to  make  such  investigation  and  report, 
if  upon  its  own  motion  it  is  authorized  to  employ  such  experts  and  other  assistants  as 
It  may  deem  necessary.  If  such  investigation  and  report  be  made  upon  the  applica- 
tion of  a  utiUty,  the  same  shall  be  made  and  the  experts  and  assistants  employed  by 
the  commission  for  that  purpose  shall  be  employed  at  the  expense  of  the  utility  mak- 
ing such  application.  The  commission  may  appoint  examiners  who  shall  have  the 
power  to  administer  oaths,  examine  witnesses,  and  take  testimony  in  connection 
with  any  such  investigation. 

"  In  arriving  at  a  valuation  of  the  property  of  any  utility  as  provided  in  this  section, 
the  commission  shall  give  due  conaideration  to  the  history  and  development  of  the 
utility  and  its  property,  original  cost,  cost  of  reproduction  as  a  going  concern,  and  other 
elements  of  value  recognized  by  the  law  of  the  land  for  rate-making  purposes.  For 
the  purpose  of  making  such  investigation,  the  members  of  the  commission  and  its 
duly  authorized  agents  and  employees  shall  at  all  reasonable  times  have  free  access 
to  the  property,  accounts,  records,  and  memoranda  of  the  utility  whose  property  and 
rights  are  being  -^^alued,  and  it  shall  be  the  duty  of  such  utility  to  aid  and  cooperate 
with  the  commission  and  its  duly  authorized  agents  and  employees  to  the  fullest 
degree  for  the  purpose  of  facilitating  such  investigation.  Upon  the  completion  of 
the  valuation  of  any  utility,  as  herein  provided,  the  commission  shall  thereafter  keep 
Itself  informed  of  all  extensions  and  improvements  or  other  changes  in  the  condition 
^J^d  values  of  the  property  of  such  utility  and  shall  ascertain  the  value  thereof,  and 
shall  from  time  to  time  revise  and  correct  its  valuation  to  the  extent  that  may  be 
necessary  by  reason  of  such  extensions  and  improvements  or  other  changes  in  the  phys- 
ical condition  and  resulting  value  of  such  property;  and  to  this  end  every  utility  shall 
^^lo  '"^^  report  and  furnish  such  information  as  the  commission  may  require. 

'Sec.  17.  Supervision  and  regulation  of  utilities. — The  commission  shall  have  general 
and  exclusive  power  and  jurisdiction  to  regulate  and  supervise  every  utility  in  respect 


.56 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


57 


""'^^^ITf^^'o Deration   rates   etc-Everv  utility  shall  miintaiQ  its  plants   ficilities, 

be  reasonable  and  just  to  both  the  utility  and  ^lie  public 

•'^pr    -'5    Schedules  and  contracts  to  be  filed.— hvery  utilit>  snaii  nie  ^n^"  ";«  ^" 

**'^Sec.  3->.  Comn^ission  ma„  ,-uAe  «r*«. -Whenever  after  ^^^^^^^^f^ZTlt 
.anee  with  the  P-^^-^ /'jj^ -,*-^'>':,'^^^^^^^^^  'l^ 

?^K  orllceepTanv  service  from  a  utility  for  a  rate  greater  or  less  than  that  pre- 

""^  W  '?5'"sWarl"or,;.r,i«.-That  commission  may  prescribe  adequate  standards 
of  service  renderer*  ti  te  rendered  by  any  utility  and  may  prescribe  regulations 
f4TeTx^"^tL  and  t«,ting  of  such  ^ervice  and  for  *«  "^-^i*,"*  f.^^^'eon- 

*  tS  FedemrWater  Power  Commission  has  jurisdiction  over  a  matter  of  this  kind 

'"'{^IcZKT^.'irmight  be  well  for  the  purpose  oUWb  committee  to  have  both 
.the  laws  before  the  committee  when  we  consider  the  matter. 

Mrvi^Ds^Mf  WW  I  believe  it  was  stated  in  your  letter  that  the  Air  Nitrates 
Co^Sn  ciatoiTCe'a  ^ntract  with  the  Government  for  some  of  this  property 
proposed  to  be  purchased  by  Mr.  Ford. 

^'f^Tos*  wSt  i^  youJ'o^i^n,  if  you  care  to  state  it,  as  to  the  attitude  of  this 
Mr.  */.E'''>s-  wnat  w  your  ojuu  "  ,     ^  No.  2  or  the  operation  of  nitrate  plant  No.  2? 

""^reui^  w7^8*!  dTiSt  taow  a?^"t  thkt,  but  the&  attitude  is  that  they  expect 
to  h^velSs  property  offe°^  to  them  at  the  price  the  Government  is  willing  to  sell 

'*Mr*Fri,DS°?toire  to  state  at  this  point,  Mr.  Chairman,  for  the  beneet  of  the 
vplant  No.  2. 


The  Chairman.  That  is  for  the  benefit  of  the  Chief  of  Ordnance,  the  Chief  of 
Engineers,  and  the  Acting  Judge  Advocate  General? 

Mr.  Fields.  Yes. 

The  Chairman.  I  hope  those  officers  will  kindly  take  notice  of  your  statement. 

Mr.  QuiN.  Mr.  Secretary,  is  there  anything  in  the  language  of  the  proposition  of 
Mr.  Ford  that  would  indicate  that  he  would  not  pay  for  the  cost  of  acquiring  the  land 
and  the  flowage  rights? 

Secretary  Weeks.  He  does  not  intend  to;  he  states  to  me  he  does  not  intend  to 
and  would  not  agree  to  do  it. 

Mr.  QuiN.  He  could  not  of  his  own  accord  acquire  that  property  under  condemna- 
tion proceedings;  that  would  have  to  be  done  by  the  Federal  Government. 

Secretary  Weeks.  Probably. 

Mr.  QuiN.  Then,  as  a  legal  proposition,  the  only  way  to  acquire  that  land  and  the 
flowage  rights  is  by  condemnation  proceedings  on  the  part  of  the  Federal  Government, 
provided  the  people  who  own  them  will  not  sell  tliem. 

Secretary  Weeks.  I  do  not  think  the  question  is  so  much  the  matter  of  acquiring 
the  property;  it  is  the  question  of  who  is  going  to  pay  for  it. 

Mr.  QuiN.  You  say  that  it  will  cost  at  least  a  million  and  a  half  dollars? 

Secretary  Weeks.*  That  is  what  Mr.  Ford's  engineers  believe  it  might  be.  Thp 
Government  engineers  say  about  12,000,000. 

Mr.  QuiN.  When  was  the  contract  or  lease  made  with  the  Alabama  Power  Co.? 

Secretary  Weeks.  On  plant  No.  2? 

Mr.  QuiN.  Yes. 

Secretary  Weeks.  That  was  made  last  November. 

Mr.  QuiN.  1921? 

Secretary  Weeks.  Yes. 

Mr.  QuiN.  For  a  five-year  period? 

Secretary  Weeks.  For  one  year. 

Mr.  QuiN.  Mr.  Ford  did  agree  to  bind  himself  and  his  heirs  and  assigns  to  carry 
out  this  contract  in  the  proposal  which  he  submitted,  did  he  not? 

Secretary  Weeks.  You  can  read  the  language;  as  far  as  his  statement  is  concerned, 
he  does. 

Mr.  QuiN.  You  spoke  of  a  guaranty,  and  some  gentleman  asked  you  some  question 
about  the  type  of  guaranty.    What  have  you  to  say  about  that? 

Secretary  Weeks.  If  he  were  to  organize  a  company  with  a  capital  of  between  ten 
and  fifteen  million  dollars,  I  think  that  might  be  considered  one  type  of  guaranty. 
But  I  have  not  any  assurance  that  there  is  going  to  be  any  money  behind  the  capital 
stock  of  this  company  which  he  is  going  to  organize.  Another  form  of  guaranty  would 
be  a  bond  to  carry  this  out.  As  tnis  proposition  now  reads  you  have  got  to  proceed 
against  Mr.  Ford  or  his  estate  for  damages,  in  case  they  do  not  carry  out  the  agreement. 

Mr.  QuiN.  Would  not  the  Government  be  bound  to  proceed  in  the  same  manner 
against  any  guarantor  in  the  form  of  an  indemnity  company,  or  corporation  you 
speak  of? 

Secretary  Weeks.  You  do  not  have  to  proceed  in  the  courts  against  an  indemnity 
company.    They  pay  the  indemnity. 

Mr.  QuiN.  They  do  not  just  shell  out  the  money.  Do  you  not  have  to  show  lia- 
bility? 

Secretary  Weeks.  Oh,  yes. 

Mr.  QuiN.  I  beg  to  diPi'er  with  you  about  these  bonding  companies.  I  have  had 
some  litigation  with  them  and  you  have  to  sue  them  like  you  do  anybody  else. 

Secretary  Weeks.  That  has  not  been  my  experience. 

Mr.  QuiN.  Mr.  Secretary,  in  the  hearings  of  1920  it  was  stated  before  this  committee 
that  the  War  Department  had  on  hand  300,000  tons  of  nitrate.  I  do  not  know  what  it 
cost,  but  it  is  worth  $40  a  ton  to-day,  you  state? 

Secretary  Weeks.  About  that. 

Mr.  QuiN.  In  case  that  plant  at  Muscle  Shoals  were  thoroughly  equipped  for  opera- 
tion, the  War  Department's  representative  stated  before  this  committee  that  they 
could  sell  that  nitrate. 

Secretary  Weeks.  We  have  sold  80,000  tons  of  it. 

Mr.  QuiN.  With  this  plant  turned  over  to  Mr.  Ford,  could  you  sell  150,000  tons  of 
the  remainder?    You  would  be  safe  in  doing  that,  would  you  not? 

Secretary  Weeks.  The  Chief  of  Ordnance  tells  me  he  thinks  it  would  be  safe  to 
reduce  the  stocks  to  about  150,000  tons,  which  would  be  about  60,000  tons  more  that 
could  be  sold. 

Mr.  QaiN.  You  could  sell  130,000  tons,  approximately,  altogether. 

Secretary  Weeks.  Yes,  but  only  some  60,000  tons  additional. 

Mr.  QuiN.  That  much  money  could  be  put  on  this  dam  to  finish  it,  could  it  not, 
without  any  other  draft  on  the  Treasury? 


58 


MUSCLE  SHOALS  PEOPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


59 


Secretary  Weeks.  Of  course,  if  that  money  were  obtained  from  any  source  and 
were  appropriated  by  Congress,  it  could  be  used  to  build  the  dam. 

Mr.  QuiN.  In  the  time  mentioned  by  Mr.  Ford,  100  years,  he  proposes  to  give  that 
back  to  the  Government;  the  Government  does  not  give  him  any  title  to  it,  and  he 
is  giving  it  back  to  the  Government  at  the  expiration  of  that  time,  is  he  not? 

Secretary  Weeks.  The  Government  gets  all  the  dams  back. 

Mr.  QuiN.  Does  not  the  Government  get  back  that  land  which  he  is  paying 
$5,000,000  for? 

Secretarv  Weeks.  No. 

Mr.  QuiN.  What  is  that  considered  to  be,  a  straight-out  sale? 

Secretary  W^eeks.  That  is  a  straight-out  sale.  .  ,     ,  ,        , 

Mr.  Quis.  The  dams  themselves  go  back  to  the  Government,  with  the  preferred 
right  in  Ford  or  his  company  to  make  a  new  contract  with  the  Government  at  the 
expiration  of  the  lease? 

Secretarv  Weeks.  Yes;  the  dams  and  the  power  plants. 

Mr.  QuiN.  Mr.  Secretarv,  what  is  the  real  objection  to  the  lease  being  for  100  years? 

Secretary  Weeks.  I  do  not  think  it  is  good  public  policy  in  this  developing  period 
that  we  are  going  through  to  have  a  lease  made  for  as  long  a  period  as  100  years. 

Mr.  QuiN.  Granting  all  that  to  be  true,  this  is  an  immense  proposition  in  financing 
a  plant,  and  it  will  take  many  millions  of  dollars. 

Secretary  Weeks.  The  Government  is  furnishing  that.  . 

Mr.  QuiN.  That  is  true  to  the  extent  of  building  the  dams,  but  in  the  operation  of 
them  the  Government  will  not  furnish  that.  What  assurance  will  Mr.  Ford  have  that 
he  could  finance  them  for  so  short  a  period  as  50  years? 

Secretary  Weeks.  Simply  drawing  his  check  on  the  bank  would  finance  him.  He 
has  got  more  cash  in  the  bank  than  he  will  ever  put  into  this  enterprise. 

Mr.  QuiN.  There  is  no  doubt  about  Mr.  Ford  having  financial  backing  to  operate 
the  plant  successfully? 

Secretary  Weeks.  Undoubtedly. 

Mr.  QiTiN.  It  is  your  idea  that  the  lease  ought  to  be  made  for  50  years,  the  Govern- 
ment to  get  a  better  proposal  at  the  end  of  the  50  years? 

Secretary  Weeks.  Possibly  so;  yes.  . 

Mr.  QuiN.  If  this  man,  or  the  Ford  Corporation,  developed  the  fertilizer  l)usineBS 
there  and  the  current  business  to  carry  such  an  enterprise  across  600  or  700  miles,  do 
you  not  think  it  would  be  reasonable  to  give  him  a  lease  for  100  years,  if  he  could 
do  that? 

Secretarv  Weeks.  I  do  not  think  so.  .         i  ^ 

Mr.  QuiN.  In  view  of  the  probability  of  the  Government  making  a  better  contract 
at  the  end  of  50  vears',  you  think  it  is  better  to  lose  that  now? 

Secretary  Weeks.  I  am  not  in  favor  of  the  Government  making  any  lease  for  100 
years? 

Mr.  QuiN.  No  kind  of  a  lease?  ,  .  ,  ^       ,  1 1   i.  x  t  j 

Secretary  Weeks.  No  kind  of  a  lease.  However,  I  think  I  ought  to  add  that  1  do 
not  think  that  is  vital  to  this  offer. 

Mr.  QuiN.  That  is,  the  term  of  years? 

Secretary  Weeks.  No.    I  would  not  think  it  was  vital  at  all. 

Mr.  QuiN.  I  believe  Mr.  Ford  considers  that  a  vital  question.  ,    ,      . 

Secretary  Weeks.  I  do  not  know  why  he  should.  The  amortization  of  the  in- 
debtedness would  be  reduced  from  100  to  50  years;  the  plant  would  not  be  paid  for  at 
the  end  of  50  years,  but  the  Government  would  have  its  investment  there  and  it  would 
not  make  any  difference  to  Mr.  Ford.  . ,   ,  ,     r^ 

Mr.  QuiN.  It  would  be  paid  for  entirely  at  the  end  of  50  years,  provided  the  Govern- 
ment got  4  per  cent,  and  it  costs  $40,000,000  or  $50,000,000  to  build  it? 

Secretary  Weeks.  It  would  take  97  years  to  accumulate  the  fund  to  retire  $40,000,000 

at  4  per  cent.  .  ,  i       •      x-  ^   x 

Mr.  QuiN.  The  loss  you  have  on  that  plant  now  in  actual  detenoration  amounts  to 
more  than  the  cost  to  the  Government  of  maintaining  it,  annually? 

Secretary  Weeks.  On  No.  2? 

Mr.  QuiN.  Taken  as  a  whole. 

Secretary  Weeks.  We  do  not  know  what  the  deterioration  amounts  to. 

Mr.  QuiN.  The  Government  is  put  to  a  fixed  cost  in  guarding  it  and  looking  after  it. 

Secretary  Weeks.  Not  while  it  is  under  lease. 

Mr.  QuiN.  You  have  no  expense  at  all  during  that  time? 

Secretary  Weeks.  There  is  a  lot  of  property  around  there.  There  is  the  property 
at  the  nitrate  plant  No.  1,  which  the  Government  had  to  look  after,  but  the  lessee 
takes  care  of  the  power  plant  while  it  is  under  lease. 


Mr.  QuiN.  What  I  would  like  would  be  to  have  you  give  the  difference  between 
what  the  Government  has  to  pay  out  every  year  and  what  it  receives  from  these  leases 
you  mention.    I  would  like  to  have  that  statement  in  the  record. 

Secretary  Weeks.  As  to  the  matter  of  dollars  and  cents,  the  Government  is  getting 
more  out  of  those  leases  than  it  is  spending  there  now. 

Mr.  Qum.  Of  course;  the  normal  deterioration  is  a  big  element  in  fieurinc  the 
amount  invested.  s^  ^b  *^^ 

Secretary  Weeks.  That  is  considerable,  but  we  do  not  have  to  take  that  into  con- 
sideration at  the  Wamor  plant,  because  that  is  to  be  returned  in  as  good  condition  as 
It  was,  and  at  power  plant  No.  2  the  condition  is  the  same.  That  is  the  onlv  outside 
property  we  have  to  look  after.  ^ 

Mr.  QuiN.  The  territory  adjacent  has  phosphorus  rock  in  it,  has  it  not? 

Secretary  Weeks.  I  have  been  told  that  there  is  some  of  that  in  Tennessee. 

Mr.  QuiN.  About  how  many  miles  above  this  dam  is  phosphorus  rock? 

Secretary  Weeks.  About  100  miles. 

Mr.  QuiN.  If  the  river  was  navigable  the  phosphorus  rock  could  be  floated  down  in 
barges  from  the  phosphorus  beds  to  the  plant  at  Muscle  Shoals? 

Secretary  Weeks.  This  is  near  the  town  or  city  of  Columbia,  which  is  on  the  Duck 
Kiver,  not  far  from  Naflh\dlle,  I  think,  and  not  on  the  Tennessee  River  at  all,  so  the 
1  ennessee  River  navigation  would  not  apply  to  that. 

Mr.  Qum.  It  would  have  to  come  in  on  other  streams,  if  they  could  take  it  down 
on  barges?  ^  ^  ^   ^ 

Secretary  Weeks.  Yes. 

Mr.  QuiN.  Mr.  Secretary,  I  suppose  that  the  contract  which  the  Government  has 
with  these  pwple  who  own  the  patents  for  the  fixation  of  nitrogen  is  such  that  it  could 
be  transferred  to  Mr.  Ford  by  the  Government,  or  to  his  company? 

Secretary  Weeks.  I  think  there  is  a  question  about  that,  and  I  would  like  to  have 
you  ask  that  question  of  the  Acting  Judge  Advocate  General.    I  am  not  a  lawyer 
and  1  do  not  want  to  get  into  a  legal  discussion.  ' 

Mr.  QuiN.  I  simply  wanted  to  know  whether  the  Government  could  carry  out  its 
contract  with  Mr.  Ford,  in  case  his  offer  is  accepted. 

Secretary  Weeks.  Col.  Hull  can  answer  that  question. 

Mr  Fisher.  Mr.  Secretary,  have  we  before  us  now  all  of  the  propositions  you  have 
^9^ J'l^.  purchase  or  transfer  of  Muscle  Shoals  that  you  have  thought  worthy  of  con- 

Secretaiy  Weeks.  I  have  another  I  am  going  to  send  to  vou  in  three  or  four  days 
which  I  think  the  committee  ought  to  have. 
Mr.  Fisher.  May  I  ask  how  many  propositions  have  been  presented  to  the  Secretary 

Secretary  Weeks.  Five  in  all. 

Mr.  Fisher.  Woald  it  be  possible  for  the  committee  to  have  the  advantage  of  havine 
a  copy  of  each  one  of  those  five  propositions  in  the  hearing? 

Secretary  Weeks.  Two  of  them  have  been  withdrawn,  so  I  do  not  think  thev  are 
01  any  moment.  ^ 

Mr.  Fisher.  That  would  leave  three  still  pending. 

Secretary  Weeks.  Yes;  Mr.  Ford's  and  two  others. 

Mr.  Fishek.  Would  you  be  kind  enough  to  let  the  committee  have  copies  of  those 
before  it,  and  put  them  in  the  record? 

Secretary  Weeks.  Yes.  (These  offers  appear  hereafter.) 
. '  lili  ^i?^^'?  •  ^  notice  on  page  10  of  your  letter  to  the  Speaker  of  the  House  you  say. 
J  /if*  4.-  ^  proposal  be  accepted  by  Congress,  I  suggest  that  there  should  be  certaii 
modihcations  made  to  safeguard  the  Government  s  interests.  As  heretofore  stated 
there  should  be  some  assurance  that  the  contracts  made  by  his  proposed  company  wili 
be  earned  out  I  will  ask  you  whether  or  not,  in  the  negotiations  that  have  been  had 
between  Mr.  Ford  and  the  War  Department  since  last  Julv,  such  suggestions  in  refer- 
ence to  the  proposed  assurance  have  been  made  by  the  War  Department  to  Mr.  Ford 
or  his  representatives?  r  «^ 

Secretary  Weeks.  Frequently  to  him  or  to  his  representatives. 

Mr.  Fisher    They  were  not  included  in  the  last  draft  presented  by  Mr.  Ford? 

n^rf^rfitf'iQ     i!?l'      "■•  ^"^'J^  declines  to  guarantee  anything  whatever,  but  he  put  in 
paragraph  19,  which  you  are  fanuliar  with.  r     **• 

Mr.  Fisher.  In  the  otheT  propositions  that  have  been  presented  are  there  any  more 
assurances  than  m  the  Ford  proposition?  t;  r  «,uy  uiore 

Secretary  Weeks.  They  are  in  very  different  form. 

Mr.  Fisher.  They  are  different  propositions  altogether?  * 

Secretary  Weeks.  Yes. 

Mr.  Fisher.  I  would  like  to  know  whether  or  not  the  War  Department  has  to-day  a 
plant  for  nitrate  preparedness  which  is  comparable  to  the  provisions  of  section  16  of 


60 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOAI^  PROPOSITIONS. 


61 


the  Ford  offer,  which  provides  for  the  turning  over  upon  five  days  notice  m  time  of 
\^ar  of  the  entire  facilities  of  nitrate  plant  No.  2,  with  the  personnel,  and  the  keeping- 
up  for  100  years  of  an  adequate  and  efficient  laboratory  for  the  use  of  our  Army  otticers^ 

Secretarv  Weeks    No. 

Mr  Fisher.  In  the  estimate  that  has  been  made  by  the  War  Department  as  to  the 
salvage  value,  shown  on  page  22,  the  salvage  value  of  No  2  is  shown  to  be  a  little 
over  $7,000,000.  I  would  like  to  know  whether  or  not  the  offer  ot  Mr.  tord,  if  accepted, 
tendering  to  the  Government  at  all  times  a  magnificently  equipped  nitrate-producing 
plant,  would  be  worth  more  than  $7,000,000,  the  tender  running  for  100  years,  or  ten- 
dering it  to  the  Government  in  the  event  of  war. 

Secretary  Weeks.  That  is  of. material  value,  of  course.  w         *•      i 

Mr.  Fisher.  I  would  like  to  ask  you  whether  or  not  it  is  not  an  asset  for  national 
preparedness  such  as  we  had  never  hoped  for  before. 

Secretary  Weeks.  I  do  not  want  to  admit  that. 

Mr.  Fisher.  That  we  had  planned  for  even  with  the  money  that  would  be  appro- 
priated by  Congress.  ,  .„  ,        .  u       r    i     * 

Secretary  Weeks.  I  believe  that  in  20  years  there  will  be  a  large  number  of  plants 
in  the  United  States  producing  nitrates;  that  it  is  going  to  be  a  very  common  process 

Mr.  Fisher.  But  the  proposal  as  offered  in  paragraph  16  is  a  magnificent  one  as  it 
stands  to-day,  with  the  present  financial  condition  of  our  Government?         ,    ^     .^, 

Secretary  Weeks.  I  dx)  not  know  that  I  would  agree  with  your  adjective,  but  with 

your  sentiment  I  do  agree.  ,     „7     t^      _x        *  v      „ 

Mr  Fisher  I  would  like  to  know  whether  or  not  the  War  Department  has  any 
plan 'for  the  utilization  of  these  plants  so  that  chemicals  could  be  manufactured  or 
produced  to  be  used  in  the  making  of  cheap  fertilizers.  Has  the  War  Department 
now  a  plan  for  the  utilization  of  the  Muscle  Shoals  plant  for  the  production  of  chem- 
icals which  could  be  used  in  the  manufacture  of  cheap  fertilizers? 

Secretary  Weeks.  I  think  you  had  better  ask  Gen.  Williams  that  question. 
Mr  Fisher.  I  would  like  to  ask  you  this  question:  In  the  event  the  Ford  offer  is 
not  accepted,  is  it  the  attitude  of  the  War  Department  now  that  a  recommendation 
will  be  made  to  Congress  to  complete  the  Wilson  Dam? 

Secretary  Weeks.  I  would  make  that  recommendation.  •      .        u        u 

Mr.  Fisher.  Would  that  recommendation  carry  with  it  anything  further  than  the 
production  of  power? 

Secretary  Weeks.  No.        ^  ,.,,-,   ^     ^u 

Mr.  Fisher.  So,  as  far  as  the  outlook  for  the  production  of  chemicals  for  the  manu- 
facture of  cheaper  fertilizer  is  concerned,  no  plan  has  been  made  for  that? 

Secretary  Weeks.  I  ought  to  modify  that  answer,  that  unless  we  could  use,  by 
lease  or  otherwise,  the  plant  we  have  there  for  that^purpose.  Of  course,  the  Govern- 
ment will  retain  that  plant  for  its  own  requirements.  At  present  at  least  the  Govern- 
ment will  do  that,  and  it  will  make  use  of  its  property  wherever  it  may  be  without 
affecting  its  ultimate  use  for  governmental  purposes. 
Mr.  Fisher.  The  present  plan  would  be  to  retain  it  in  a  stand-by  condition.' 

Secretary  Weeks.  Yes.  ,  ,        ^^     «      .  n         •*. 

Mr  Fisher  Is  the  condition  of  a  plant  like  nitrate  plant  Jso.  2  as  favorable  as  it 
would  be  if  it  were  maintained  under  section  16  of  Mr.  Ford's  offer?  Is  a  plant  m 
stand-by  condition  as  effective  or  efficient  as  one  operated  with  personnel,  as  de- 
scribed in  section  16?  ,  i      ^  i,  t     -i^ 

Secretary  Weeks.  I  would  not  undertake  to  say  that  we  could  get  enough  for  it 
to  entirely  provide  for  the  maintenance  of  the  plant.  In  some  years  we  might  and 
in  some  years  we  might  not.     I  do  not  know.  „.     ^  .  ,  . 

Mr.  Fisher.  I  judge  from  your  answers  that  the  W  ar  Department  is  working  on  a 
proposal  for  the  utilization  of  No.  2  other  than  in  a  stand-by  condition. 

Secretary  Weeks.  Perhaps  there  is  nothing  definite  because  it  is  a  matter  which 
has  been  before  the  department  for  six  months.  If  this  is  accepted,  there  is  no  reason 
why  the  War  Department  should  work  on  other  plans. 

Mr  Fisher  Something  has  been  said  relative  to  an  option  which  has  been  retained 
by  two  companies  which  had  had  contracts  with  the  Government.  Do  you  consider 
that  there  is  any  moral  obligation  to  defer  everything  because  of  that  option,  which 

has  been  declared  illefiral? 

Secretary  Weeks.  Undoubtedly  a  Government  board  gave  the  option  and  it  is 
charged  in  the  legal  opinion  that  that  board  had  no  right  to  do  it.  I  leave  it  to  you 
to  make  up  your  own  mind  what  the  Government  ought  to  do  under  those  circum- 
stances. ,  ,.,    , 

Mr.  Fisher.  Did  the  Government  draft  the  agreement,  or  did  these  two  corpora- 
tions draft  the  agreement,  that  was  finally  entered  into? 

Secretary  Weeks.  I  do  not  know  about  that. 


Mr.  Wright   Mr.  Secretary,  there  is  no  dam  No.  1? 
pr^'i't      "^  ""'•  ^^''^  ''  ""  ^^'^  ^"-  1  i^  '^^  proposition.    That  is  a  navigation 

Ka^rv  Week!'  77a "Z^l^^\t  '^  ^^^;  '^^'t  ^P^t^mplated,  about  6  feet  high? 
imrld^^h  thp  tntcfri  ^-^  ^^^^  t.h«  exact  height,  but  it  is  a  small  dam  and,  corn- 
er Wright   TlaafZ^ll''^,.  '^ ''  "-^^  ""{^^^^  importance  in  regard  to  cost. 

Mr   WRIGHT    A  good  deal  has  been  said  of  the  salvage  value  and  it  has  bppn  Psti 

"JaS^'NoT?  *''^''^   •"  ««.000,000.    That  would  Lclude  the  «i*v^1  ^^i^l^ 
Secretary  Weeks.  Yes. 
^o';.!^f  ^^  w-  ^^^^  i?  ^^^  P^'^J^^*  *^«  department  does  not  feel  it  should  let  eo*^ 

Mr  CL^^  if  i,  %  r  ^^^l^  ?^^*.^^  *^^*  ^^^^^  P^^«^^t  conditions         ^ 
Mr.  WRIGHT    It  should  be  maintained  and  retained? 

Secretary  Weeks.  Under  present  conditions 

Secretary  Weeks.  Except  for  Mr.  Ford's  requirements 

s/.r!;,"'"  w-  "  '^"l"'?  •'*  *  '"'•'''izer  proposition  and  also  a  navigation  propositioni- 
M^-ST^^T^^^^^-  ^  '^''  ''°*  '"«*°  •»  "'««'«'•  that  in  the  affirmative  beraiS^S^uma 
SL'^J^acSfS^^r"' wL'^F  r'?***^.'"  W«  P<"-er  for  some  otW  pTrp'TZan 

.oj[d  ix^eir;tesee^/i,r;?r  ^'^^  ^-^^  '-^-  p'^"o„ 

^}uZ^^2  ^.rf^-  ^.i''^''^  ^®?^^«  *^at  i«  necessarily  so.    Dam  No  2  would  furnish 
all  the  power  that  would  be  used  for  the  manufacture  of  fertiUzer 

D^^rZfT^'  ?^  ''''"'^^  this  whole  project  is  primarily  essentially  one  for  the  War 
Department  for  the  purpose  of  producing  explosives?    that  is  thel,rimar^  e^ential 

Secretary  Weeks.  That  was  the  original  purpose. 
re£e^rStl^u"K^4f^ii  t  t^h"a?'pTr^''«  ^"  ^^P^''-"*'  »  '» *»  ^  - 

Secretary  Weeks.  That  is  the  pending  proposition. 
Mr.  Wright    That  was  always  the  thought,  was  it  not? 

|crp"^EE\T  IW^rtSTmlir  ^  "'  *'^  '-'  ''"^'■ 

arp^\7/t;Tn'^^  ^o'teiL^^^^e^,  "^^  ^~-'   «  *'  ^-^  "«->'» 
Secretary  Weeks.  I  tried  to  do  that  in  the  comments  which  I  made  to  Conges, 

mT  Wr^ht"  Whi  V°<  ""*  ''"?,"■  "'*'■ "  ^*"'  •»  materially  change  that. 

^ecretary  Weeks.  Yes. 

Mr.  Wright.  Tliat  is  the  big  thing 

^^ecretary  Weeks.  From  the  Government  standpoint 


62 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


63 


Mr.  Wright.  Then  incidentally  it  might  develop  a  great  quantity  of  cheap  fertilizer 
could  be  produced  there.  ,         ^,        ,    ,  ..  .        ^    , 

Secretary  Weeks.  There  is  the  sticking  point.  It  anybody  could  convince  me  to 
a  certainty  that  there  could  be  a  large  amount  of  fertilizer  produced  I  should  f^l 
much  more  enthusiastic  about  Mr.  Fork's  offer  than  I  do  now.  But  I  have  not  suffi- 
cient evidence  that  that  can  be  done,  and,  incidentally,  I  do  not  believe  Mr.  l^ord, 

or  his  engineers,  know  whether  it  can  be  done. 
Mr  Wright.  You  regard  that  as  in  the  experimental  stage: 

Secretary  Weeks.  I  do;  in  fact  Mr.  Ford  put  it  into  his  offer  that  he  would  experi- 
ment on  the  manufacture  of  fertilizer.  1  ..    J      •*V.^l,„+,r«,.,,;^«o 

Mr.  Wright.  Perhaps  subparagraph  A  of  paragraph  was  inserted  with  that  very  idea 

^"''To  deteriS'by  research  whether  by  means  of  the  electric  furnace  method  and 
industrial  chemistry  there  may  be  produced  on  a  commercial  scale  f ertihzer  compounds 
of  higher  grade  and  at  lower  prices  than  fertilizer  using  farmers  have  in  the  past  been 
able  to  obtain,  and  to  determine  whether  in  a  broad  way  the  application  of  electricity 
and  industrial  chemistry  may  accomplish  for  the  agricultural  industry  of  the  country 
what  thev  have  economically  accomplished  for  other  industries.    . 

Secretary  Weeks.  Mr.  Ford  undoubtedly  believes  there  are  going  to  be  ^eat  de- 
velopments along  those  lines,  and  undoubtedly  he  took  Mr.  I^<i^««°/9.^^/^^Xm 
get  his  judgment  on  that  subject.  Just  how  valuable  the  judgment  of  either  of  them 
Is  I  would  not  undertake  to  say,  but  it  would  be  a  very  bold  man  who  would  be 
willin<'  to  say  there  was  not  going  to  be  any  development  in  chemistry  along  those 
lines,  and  Mr.  Ford  may  work  out  something  of  great  benefit.  ^w;^*^, 

Mr.  Wright.  That  is  why  I  have  called  attention  to  subparagraph  A.  Me  obligate^ 
himself  to  make  those  experiments.  „    .i.  +    ,.r^„i^ 

Secretary  Weeks.  YesT  but  the  very  fact  that  he  calls  them  experiments  would 
indicate  that  he  is  not  certain  about  it.  ,,    ^,.       ,      •  *i,o*  ,«attor'' 

Mr  Wright.  Do  you  happen  to  know  what  Mr.  Edison's  views  are^on  that  matter^ 

Secretar>'  Weeks    I  have  never  talked  to  him  about  it.     I  know  what  his  views  are 

about  paving  for  the  property.  ^,0 

Mr  Wright.  Does  he  think  it  is  worth  anytlung ; 

Secretarv  Weeks.  I  refer  to  the  manner  of  paying  for  it.  _„+w 

Mr.  Wright.  Mr.  Miller  propounded  quite  a  number  of  questions  about  this  mattei 

and  the  trend  of  his  questions  would  indicate  perhaps  it  would  be  a  good  idea  to  donate 

the  propertv  to  Mr.  Ford.  .  ■,        1,        x 

Mr  Miller.  I  made  no  suggestion  of  that  character. 

Secretin  Wee^  I  think  Mr.  Miller  meant  that  the  Government  was  not  going 
to  get  xeT^r  much  out  of  the  $5,000,000  Mr.  Ford  was  going  to  pay. 

Mr  Wright.  $5,000,000  sounds  very  small  in  companson  with  the  many  billions 
of  dollars  the  Government  has  spent;  but  is  not  this  hke  the  Government  money  spen 
on  other  war  projects?    It  is  a  question  of  whether  having  passed  over  the  wheel  it 

is  not  alreadv  lost. 

Secretary  Weeks.  Most  of  this  was  lost.  ^  ..  ,     .,     r^  ^  „„a 

Mr   wSght.  You  are  striving  to  get  the  most  out  of  it  for  the  Government  and 

utilize  it  in  the  best  way  for  the  Government  aud  the  people? 

Mr^'tSoZ^lndlTcidenX^lly  there  might  grow  out  of  the  Ford  offer  quite  a 
development  in  four  or  five  States  around  there? 

Secretarv  Weeks.  That  is  possible;   1  have  had  that  in  mind.      ^_^  ^    ,    ^    ^^ 

Mr  Wright.  Do  you  share  in  common  with  some  of  us  the  thought  that  whatever 
Henrv  Ford  touches  is  like  magic,  and  it  is  a  go  from  the  very  start? 

S^  Weeks.  I  do  not  know  of  any  of  Mr.  Ford's  activities  that  have  been 

"^^•mGH^*  I  beUeve  he  took  over  a  railroad  and  is  now  operating  that  railroad 
Bo  profitably  that  he  wants  to  reduce  the  rates  and  the  Interstate  Commerce  Com- 
mission will  not  let  him  do  it.  ^    -,     n 
Secretarv  Weeks.  I  have  not  analyzed  the  figures.  ,^^    m 
Mr.  Wright.  In  addition,  Mr.  Secretary,  the  question  of  navigation  of  the  Tennessee 
River  would  be  very  material,  would  it  not? 
Secretary  Weeks.  You  want  my  absolute  opimon  on  tnat: 

sirlt^TwES!  I  would  not  advise  the  developnient  of  the  Tennessee  River  at 
Muscle  Shoals  for  navigation  purposes;  that  is,  I  would  not  appropriate  the  mone> 

*^Mr^  Wright.  I  speak  of  this  as  an  incident  that  would  grow  out  of  the  development. 
Secretary  Weeks.  If  it  were  not  for  the  building  of  the  dam  development  for  navi- 
gation this  perhaps  would  cost  much  more. 


Mr.  Wright.  Following  the  construction  of  the  dams  will  come  navigation  on  the 

Secretary  Weeks.  With  the  probability  that  at  some  time  the  river  will  be  improved 
for  navigation  at  this  locahty  it  is  necessary  to  put  the  locks  in  at  the  time  the  dams 
are  constructed,  so  I  am  entirely  in  favor  of  doing  that. 

Mr.  Wright.  It  is  simply  independent  of  the  project? 

Mr.  Stoll.  Referring  again  to  the  guarantees,  the  Government  has  made  some 
le^es  to  private  concerns  of  certain  water  powers,  has  it  not? 

Secretary  \Veeks.  All  I  know  about  that  is  this:  T  am  chairman  of  the  Federal 
Water  Power  Commission  now,  and  the  Wat«r  Power  Commission  is  acting  under  the 
provisions  of  the  water  power  act,  and  those  leases  and  permits  are  limited  to  50 
years. 

Mr.  Stoll    Are  there  any  guarantees  there  by  the  lessees  to  the  Government? 

Secretary  Weeks.  They  furnish  their  own  money. 

Mr.  Stoll.  But  they  take  over  Government  properfy. 

Secretary  Weeks.  They  are  granted  a  permit  on  a  navigable  stream  to  build  a 
dam,  for  example,  and  they  build  the  dam  with  their  own  money.  The  Government 
has  nothing  to  do  with  financing  those  propositions  and  the  permit  only  continues 
tor  50  years.  '' 

Mr.  Stoll.  In  regard  to  the  50-year  period,  if  the  Ford  offer  should  prove  satis- 
factory  in  every  respect  except  the  50-year  period,  do  you  think  that  is  sufficiently 
wrong  m  principle  to  warrant  the  discrediting  of  the  Ford  offer*^ 

T  t^^^^i^^y  Weeks.  If  it  was  satisfactory  in  all  respects,  so  far  as  Congress  is  concerned. 
1  should  say  not.  .  x        7  ©  , 

Mr.  Stoll.  You  mean  that  the  50-year  period  would  not  be  considered,  but  that 
you  would  let  it  go  at  100  years? 
Secretary  Weeks.  I  would  consider  it  to  be  my  duty. 

Mr  Stoll.  You  do  not  think  it  would  warrant  rejecting  the  offer  if  it  is  satisfactory 
m  other  respects?  '' 

Secretary  Weeks.  I  do  not  think  so. 

Mr.  Stoll.  From  the  standpoint  of  the  Government,  which  is  better,  the  Ford 
otter  or  the  salvagingof  Muscle  Shoals? 

na^Z7f^''^u^A''^-  ^  ^isli.I  could  answer  that  question  with  great  frankness  and 
certainty.  But  I  can  not  with  certainty.  I  believe  that  a  sale  of  the  Warrior  plant 
and  the  properties  m  that  neighborhood  can  be  made  for  more  than  the  Ford  offer  is 
paying  for  all  that  property.  I  believe  that  can  be  done.  I  believe  that  the  Wilson 
^m^s^""        completed  without  taking  a  dollar  out  of  the  Treasury  of  the  United 

Mr  Stoll.  I  do  not  mean  that.  The  Ford  offer  contains  certain  specific  things, 
mow  f  ^  maintaining  of  the  plant  for  the  benefit  of  the  Government  and  the 
manufacture  of  fertilizer  for  the  benefit  of  the  farmers.    I  am  taking  the  Ford  offer 

oXr  "a4e"Mus"l^^^^^^^^^^^        '"^  ^^^"^^^^^^^  ^^  ^^^  Govermnent,  to  accept  that 

Secretary  Weeks.  The  Government  is  not  going  to  salvage  plant  No   2    and  the 

TXtlfTr  '^  ^''-  TTf '  f  ^^  'V""  "^y  ^'^^^^^t'  ^h^ther  p^eople  are  gdng  toge! 
Jt^riJh  ""^Z  """^i  ^^^^  heretofore.  If  that  phase  of  the  offe?  were  diminatfd, 
offer  ^^  advantageous  disposition  could  be  made  of  this  property  as  Mr.  Ford's 

7  000  fSflTn^^,? /•''''. ^^Vr'-f  JU^  *^^  fertUizer  proposition?  There  was  about 
isTlw  t^iuZ^  'V^^.  ^""'^^  ^^  ^'  \^  ^^20,  I  think.  What  per  cent  of  nitrate 
18  m  that  fertilizer— about  3  per  cent,  is  there  not*? 

Secretary  Weeks.  There  are  all  kinds  of  fertilizer 

Mr.  Stoll    I  know;  but  the  usual  fertilizer  is  3  per  cent  nitrate,  is  it  not? 

Secretary  W  eeks.  I  am  a  farmer,  and  when  I  want  to  buy  fertilizer,  I  send  soil  to 

If  ^      ^^  ^°  analvsis  and  I  buy  fertilizer  that  fits  the  soil  u   o  1  w 

3  per  cen^'o'f"  nUrat^^n  U?^""^  *^^^  *^^  average  fertilizer  which  a  farmer  uses  has  about 

Secretary  Weeks.  I  do  not  know  that. 

Mr.  Stoll.  That  is  my  information. 

Mr.  Garrett.  Mr.  Secretary,  Mr.  Stoll  and  other  members  of  the  committee  have 
covered  very  well  practically  all  the  questions  I  M-anted  to  ask  you.     If  I  understood 

JomtZT  ^  \^r 'i"^.  ^/  ^^'•-  ^'^^  ''  ^"^  '^^'  ^'^1«  y«^  hid  certain  objections 
von  wl!fSii^"  \^^  pointed  put  m  your  communicatiou  to  the  Speaker  of  the  House, 
f^ct  Mf  ^ri'^^  ^A^y  ^^f  H  y^""  "^^'^  convinced  in  your  own  mind,  as  a  matter  of 
Toh  ^        !■    ^?u^^  manufacture,  or  would  manufacture,  fertilizer  at  this  location  in 

92900—22 5 


64 


MUSCLE  SHOALS  PEOPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


65 


Secretary  Weeks.  That  is  in  substance  what  I  said.  However,  that  is  a  pretty- 
important  question,  and  I  want  to  have  the  privilege  of  revising  that  answer,  putting 
it  in  just  the  form  I  would  like  to  have  it.  I  do  not  want  to  have  somebody  else  put 
phraseology  in  my  mouth. 

Mr.  Garrett.  I  am  not  attempting  to  do  that. 

Secretary  Weeks.  I  know  you  are  not. 

Mr.  Garrett.  I  understood  you  to  say  that  in  your  opinion,  from  the  facts,  the  mat- 
ter would  have  to  appeal  to  each  Member  of  Congress  when  the  whole  record  was  pre- 
sented as  to  whether  Mr.  Ford  could  materially  reduce  the  price  of  fertilizer  to  the 
consuming  public  by  taking  over  this  plant  under  certain  terms  and  conditions  as 
shown  in  the  evidence  before  the  committee. 

Secretary  Weeks.  Getting  a  lease  for  100  years? 

Mr.  Garrett.  Yes.  Do  you  consider  his  contract  is  so  hedged  about  with  provisions 
that  he  would  be  required  to  produce  fertilizer  to  the  capacity  mentioned  in  his  con- 
tract for  the  period  of  the  time  mentioned? 

Secretary  Weeks.  I  do  not  think  so. 

Mr.  Garrett.  Then  you  want  that  part  of  it  strengthened?  ^ 

Secretary  Weeks.  I  do;  and  lest  I  may  be  accused  of  not  giving  Mr.  Ford  the  inten- 
tion of  good  purposes  in  carrying  out  his  proposition,  I  want  to  say,  if  Mr.  Ford  said 
he  would  see  that  it  was  done,  as  long  as  he  lived  it  would  be  done. 

Mr.  Garrett.  In  a  proposition  of  this  kind  we  have  to  have  it  so  framed  and  drawn 
that  it  will  be  done  after  the  man  who  made  it  is  dead  and  gone?  ,  ,  •,  j 

Secretary  Weeks.  Yes;  we  are  here  providing  something  for  oiu:  great-grandchildren. 

Mr.  Garrett.  I  think  we  should  hedge  it  about  with  every  precaution  and  restric- 
tion to  bring  the  desired  results  to  future  generations.  But  these  110.000  tons  of  nitrate 
of  ammonia  that  his  contract  calls  for  would  be  a  component  part  of  about  3,000,000 
tons  if  made  up  into  fertiUzer,  as  commonly  used  by  the  farmer,  would  it  not? 

Secretary  Weeks.  I  can  not  answer  that  question. 

The  Chairman.  This  Muscle  Shoals  plant  originated  under  a  provision  of  the 
national  defense  act,  passed  in  1916,  I  think  on  June  3, 1916,  was  it  not?  That  was 
provided  for  in  section  124  of  that  act,  was  it  not? 

Secretary  Weeks.  The  correct  answer  to  that  question  apphes  to  No.  1  plant,  not 

to  No.  2.  T     e  t      1     •  1  i- 

The  Chairman.  Were  not  all  the  plants  started  as  a  result  of  that  legislation,  cover- 
ing the  development  of  the  Muscle  Shoals  plant,  as  provided  in  section  124? 

Secretary  Weeks.  I  think  not.  I  have  a  copy  of  a  letter  from  President  Wilson 
to  the  Secretary  of  War,  dated  February  23, 1918,  which  refers  to  his  wishes  regarding 
the  setting  aside  of  money  to  construct  plant  No.  2. 

The  Chairman.  I  think  we  appropriated  in  that  act  120,000,000. 

Secretary  Weeks.  I  will  read  this  letter: 

The  White  House, 
Washington,  February  23,  1918. 

My  Dear  Mr.  Secretary:  I  refer  to  section  124  of  the  national  defense  act  of  June 
3,  1916,  authorizing  the  President  to  determine  the  best  means  and  adopt  the  most 
advantageous  projects  for  the  production  of  nitrates,  and  appropriating  the  sum  of 
$20,000,000  for  that  purpose.  Of  this  appropriation,  I  am  advised  that  there  is  an 
available  unallotted  balance  of  $13,785,000. 

The  completion  of  Dam  and  Power  House  No.  2,  at  the  Muscle  Shoals  on  the  Ten- 
nessee River,  as  designed  and  projected  by  your  department,  is,  in  mv  judgment,  of 
vital  importance  in  accomplishing  the  purpose  of  the  law.  I  should  be  pleased, 
therefore,  to  have  you  allot  to  that  work  all  of  the  aforesaid  balance,  after  deducting 
the  sum  of  $400,000,  which  I  understand  will  be  required  for  the  purchase  of  land 
required  in  connection  with  another  project. 
Cordially  and  faithfully,  yours, 

WooDROw  Wilson. 

"Hon.  Newton  D.  Baker, 

Secretary  of  War. 

The  Chairman.  That  shows  that  Muscle  Shoals  was  originally  provided  for  under 
that  section  of  the  national  defense  act. 

Secretary  Weeks.  I  am  informed,  Mr.  Chairman,  that  this  money  applies  to  dam 
No.  2,  and  not  the  nitrate  plant.  ^     .-  i       j 

The  Chairman.  WTiat  money  went  into  the  nitrate  plant?  Or,  if  I  may  broaden 
the  question  somewhat,  what  funds  were  called  upon  to  complete,  so  far  as  they  have 
been  completed,  these  various  projects?  .■,■,. 

Secretary  Weeks.  The  money  to  construct  the  nitrate  plants  was  provided  m  the 
fortifications  act. 


The  Chairman.  A  military  proposition? 

Secretary  Weeks.  Yes. 

The  Chairman.  This  whole  proposition  was  a  military  proposition? 

Secretary  Weeks.  Fundamentally,  undoubtedly, 
ernment?^^'**''^^'  ^^^  ^^^  purpose  is  primarily  to  furnish  explosives  for  the  Gov- 
pmlZT"^  ^'^^^^'  ^  *^^^^  probably  that  is  a  correct  statement  of  the  primary 

imnmvp^i'f'nll'"'  ^""^  .Mr  Ford  promises  that  he  will  keep  alive  permanently  and 
mJ^ZVi^^uT"^'  ""'^"^^  plant  No.  2  and  turn  it  over  t5  the  Government  for  the 
making  of  explosives  any  time  the  Government  wants  it? 

thftX  r!X  JL^^""^-  ^  ^^""^  ^^  "^^  ^^  ^  ^^"•^^t  a'^^^^  ^  yo"^  OTigiBB,!  inquiry 
to^on«tr^.f  hn.rr^^^'  ^P^?*  *o^  P"'^^^^^  ^^^  ^^^^  ^t  ^^-  1  Pla^t>  but  the  money 
^^f^T  -ii^u*^  ^.''- 1  ^""^  ^^-  2  came  from  the  fortifications  act.  If  that  is  not 
puUn  the^iL^r  ''  ^^^^«^^^^i«^«  °^de,  and  I  will  have  the  correct  aiLweJ 

is  KcUsTnot?"^*  "^^  '"*''  *^^*  ^^^^y  ^*«  ^^^^  ^^^«^  *  ^^^^y  source;  that 
praSt7a^&X'^e'^^^     '' ''  ""^  '""  *'^  ^^^^^'"*^^^^  -^ ''  --  ^PP- 

Secretary  Weeks.  Yes. 

ti<^t  yormfnd  atprient*?"'  '"^^  "*"''*'"°'  '""^  *""*  '^  ^  ^^^^  ^P-«-°*  ?-•«- 
emS'^r^s^''^-  '^'  -^°te°*°ce  of  thia  plant  should  be  continued  for  Gov- 

tot  s^:nT|.^i?e  Vr^rr  Vh^;;  iTo.'Z'tci  '*'"■'  »•-*  """"^^  -"•'^  >-- 

thfoXSeTboU'""'  --^--t.  can  be  made  to  produce  that  money 
Mr.  Parker.  Other  people  would  produce  it? 

m'TtZZ^^Vr.J'"'  "r'!,f'-»."'  *«  Government  standpoint? 
Mr.  fARKER.  J?  rom  any  standpoint. 

thera1pleSnlJpTjf,r"°Pj''*'  ^^"^  ^"^  ^-  ^'^'■"'^  you  have  a  foundation 
thire  to  ISl  power^""^  "*  ''°'^-  '""^  ^^^  ^°>  "*  '^y  "P'-^o".  develop  power  enough 

Mr.  Parker.  You  would  spend,  you  say,  $22,000,000' 
MT'l^Z.^'^^if  ••  Twenty-two  million  dollars  and  probably  more, 
power  y*ucandevelop?°  '  ^''-"■"^'■^""  proposition  to  complete  it  for  the  sake  of  the 
Secretary  Weeks.  That  is  my  judgment. 


66 


MUSCLE   SHOALS  PROPOSITIONS. 


Mr  Parker.  With  reference  to  the  manufacture  of  these  nitrates  by  the  cyanamide 
process  can  not  that  be  done  wherever  there  are  coke  ovens,  coal,  and  limestone.' 
Secretary  Weeks.  It  could  be  done.  i      •  j      i 

Mr.  Parker.  Is  it  not  better  to  have  it  done  where  there  are  coal  mmes  and  coke 

^^Secretary  Weeks.  I  think  there  is  a  large  surplus  of  that  material  at  this  time. 
Mr.  Parker.  It  is  not  made  there,  is  it? 

Mr'^PASER^^S^^tharthe  manufacture  is  usually  carried  on  where  there  are  coke 
ovens  or  where  they  have  limestone  in  the  neighborhood. 

Secretary  Weeks.  You  must  necessarily  have  power  for  the  cyanamide  process. 

Mr.  Parker.  Is  there  much  power  needed  in  that  process? 

Secretary  Weeks.  A  good  deal  of  power,  I  understand. 

Mr.  Parker.  But  if  you  are  near  a  coal  mine,  the  smallest  coal  is  sometimes  used 

Secretary  Weeks.  It  can  be.  .      ,     ,      .        .  .         x-     i  . 

Mr  Parker.  There  is  therefore  no  particular  necessity  for  haying  this  particular 
place  for  manufacturing  large  quantities  of  nitrate  by  the  cyanamide  process .' 

Secretary  Weeks.  To  manufacture  successfully  you  need  very  cheap  power  Of 
course,  in  time  of  war  we  would  not  pay  much  attention  to  the  cost  of  power,  but  if 
that  were  to  be  used  in  time  of  peace  it  would  be  very  desurable  for  the  Government  to 

have  cheap  power  for  the  purpose.  i    i     •     u     ^^^  *u„r.  +>,« 

Mr  Parker.  Do  you  know  whether  water  power,  on  the  whole  is  cheaper  than  the 
power  that  can  be  gotten  from  coal,  if  you  are  close  to  coal  mines? 

Secretary  Weeks.  It  makes  a  vital  difference  where  it  is.    There  are  cases  where 

power  can  be  developed  from  coal  cheaper  than  almost  any  water  power,  and  water 

powers  are  not  the  gold  mines  that  many  people  imagine.  ,       i   ,  +u    , 

Mr.  Parker.  And  if  they  are  at  the  coal  mine  where  they  can  get  coal  cheaper,  they 

can  develop  cheaper  power  than  by  water  power. 

Secretarv  Weeks.  I  am  told  so.  ,  •»  x 

Mr.  Hull.  My  mind  is  not  clear,  Mr.  Secretary,  in  regard  to  your  idea  as  to  com- 
pleting this  proposition.    Just  how  is  that  to  be  done?    If  you  issue  bonds  on  it, 

It  would  require  legislation,  would  it  not?  ,  .  ,  t       u      *  u^f^,^  +v.^  ^r^m 

Secretary  Weeks.  If  I  had  a  definite  proposition  which  I  could  put  beforejhe  com- 
mittee'I  would  do  so,  but  I  have  not.  The  discussions  I  h^^^had^^VrNo 
people  lead  me  to  the  conclusion  that  water  power  can  be  developed  at  Dam  JNo. 
2^MchTill  carry  an  issue  of  probably  $25,000,000  bonds;  that  is  to  say,  if  the  Govern- 
LnVwould  gfvTyou  that  foundation  and  you  could  sell  the  power  developed  by 
Sit  dam  at  what  are  normal  prices  in  that  vicinity  you  could  probably  float  an  issue 
of  $20,000,000  or  $25,000,000  in  bonds  to  complete  the  dam. 

Mr   HuLl    I  quite  agree  with  you  on  that.    Would  it  be  possible  to  do  the  same 

^'^Ki'J^y  Wee^k^  C'ht^^fcomplicated  with  Dam  No.  3,  which  is  quite  a  differ- 

ent  matter.  .   . 

Mr  Hull    I  lust  wanted  your  opimon  oi  it.  .  .^t.  i..        , 

^reta^  wJeks  It  depinds  on  what  Mr.  Ford  is  going  to  do  mth  his  power 
If^So  manufacture  krninum  and  use  the  entire  power  f«^*at  pun>ose  and 
he  would  allow  a  sufficient  rate  tor  the  power  you  m^ht  do  it.    But  I  do  not  know 

"^Mr  '^HuLf  ?f  ^u  dSde'to  complete  the  proposition  outside  of  the  Ford  matter, 
there  would' be  practSly  no  difference  in  the  time  of  the  completion  of  the  dam, 

'"«iii^»t^  WKF.KS    I  think  the  dam  can  be  completed  under  contract  in  30  months. 
M^H^Yt    In  efther  case  it  would  not  make  much  difference  whether  it  was  for 

X?:u^  W^EKrrcTpVfnlhe  Ford  proposition  you  will  lose  the  interest  on  the 

*  ^f  +>,«  rvnTTinlption  of  the  dam  for  a  considerable  period. 

Mr  HuLt  Tn  yoTopUon  there  would  not  be  much  difference  in  the  cost,  whether 
it  was  for  Ford  or  for  somebody  else? 

^'O.\ou''would  braUrS  saTvage  it  better  as  a  completed  project  than  you 
are  at  the  present  time? 

meSon^TlsS  o^ul^rp.  m.,  the  committee  adjourned  to  meet  to-morrow, 
Thursday,  February  9,  1922,  at  10.30  a.  m.) 


MUSCLE  SHOALS  PROPOSITIONS. 


Committee  on  Military  Affairs, 

House  op  Representatives, 

Thursday,  Fehniary  9,  1922. 

The  committee  met  at  10.30  o'clock  a.  m.,  Hon.  Julius  Kahn  (chairman)  presiding. 
The  Chairman.  Gentlemen,  I  have  received  a  telegram  from  Mr.  Liebold  in  response 
to  the  telegram  that  I  sent  him  and  which  was  read  at  the  hearing  yesterday.     It  is 
as  follows: 

Detroit,  Mich.,  January  8,  1922. 
Mr.  Julius  Kahn, 

Chairman  Committee  on  Military  Affairs, 

Washington,  D.  C. 

Your  telegram  received.  In  view  of  the  fact  that  Mr.  Ford  finds  it  impossible  to 
come  to  Washington,  we  are  asking  Mr.  J.  W.  Worthington  to  call  on  you  and  to  be 
of  such  service  as  is  possible. 

E.  G.  Liebold, 
General  Secretary  to  Henry  Ford. 

I  want  to  say  that  this  morning  Mr.  Worthington  did  call  on  me  and  said  that 
Mr.  Ford's  representatives  will  be  glad  to  answer  any  questions,  but  they  are  all  very 
busy  and  will  not  be  able  to  appear  before  the  committee  until  next  Monday.  He 
has  stated  that  Mr.  Mayo,  whose  name  appears  in  connection  with  the  offer  of  Mr. 
Ford,  I  think  as  a  witness 

Mr.  Fields.  May  I  state  in  that  connection,  Mr.  Chairman,  that  I  read  in  this 
morning's  paper  a  statement  given  to  the  Associated  Press  in  Detroit  by  Mr.  Ford 
to  the  effect  that  while  he  is  very  busy,  he  would  come  in  person  if  the  committee 
thought  it  necessary  to  do  so. 

The  Chairman.  Mr.  Worthington  stated  that  they  would  be  here  at  10.30  o'clock 
Monday  morning  to  answer  any  questions  that  the  committee  might  desire  to  ask. 

STATEMENT  OF  MAJ.  GEN.  C.  C.  WILLIAMS,  CHIEF  OF  ORDNANCE, 
ACCOMPANIED  BY  MAJ.  JAMES  H.  BURNS,  ORDNANCE  DEPART- 
MENT. 

The  Chairman.  General,  we  are  considering  the  offer  of  Henry  Ford  for  the  Muscle 
Shoals  property.  We  understand  that  you  have  had  considerable  to  do  with  the  de- 
velopment of  the  plants  there,  and  the  committee  would  be  very  glad  to  hear  you  in 
connection  with  the  work  that  has  been  done  down  there.  Will  you  kindly  proceed  in 
your  own  way? 

Gen.  Williams.  Mr.  Chairman,  the  Muscle  Shoals  project  or  enterprise  is  very 
clearly  di\aded  into  two  entirely  separate  and  distinct  parts;  one  has  to  do  with  the 
water  power  development  and  the  other  has  to  do  with  the  installation  of  two  nitrate 
plants,  together  with  certain  auxiliaries  that  go  with  tho^e  plants  in  order  to  make 
them  complete. 

With  the  water  power  question  the  Ordnance  Department  has  not  now  nor  has  it  ever 
had  anything  to  do.    That  comes  entirely  under  the  Chief  of  Engineers. 

As  to  the  nitrate  plants  at  Muscle  Shoals  the  Ordnance  Department,  of  course,  lias 
started  those  plants,  built  them,  and  brought  them  to  their  present  state  of  develop- 
ment.   The  main  facts  concerning  these  two  plants  are  briefly  about  as  follows: 

The  first  plant  to  be  started  down  there  is  the  one  that  we  call  plant  No.  1  located  at 
Sheffield,  Ala.  The  plant  was  constructed  to  fix  nitrogen  from  the  air  in  accordance 
with  what  is  known  as  the  Haber  process.  It  was  designed  and  built  by  the  General 
Chemical  Co.,  but  in  a  vital  part  of  the  plant  it  failed  to  operate  and  never  pro- 
duced any  appreciable  quantity  of  product.  We  think,  however,  that  by  certain 
jnodifications  in  the  part  of  the  process  in  which  the  nitrogen  gas  is  welded  to  the 
hydrogen  gas  to  form  ammonia,  the  plant  could  be  made  to  operate  successfully.  As 
a  matter  of  fact,  the  plant  at  Sheffield  was  designed  by  the  engineers  who  have  since 

67' 


68 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


69 


designed,  along  the  same  lines,  a  successful  plant  which  has  been  installed  at  Syracuse 
N.  Y.,  by  the  Solvay  Process  Co.  They  of  course  had  considerable  experience  in  the 
design  and  attempted  operation  of  the  plant  at  Sheffield.  Then  the  Solvay  Co.  spent 
a  year  and  a  half  or  two  years  in  research  work  concerning  this  particular  phase  of 
this  process,  and  they  finally  installed  the  plant  at  Syracuse,  which  Maj.  Burns  and 
myself  visited  this  past  summer  and  found  to  be  working  very  successfully.  It  looks 
very  much  as  though  the  plant  was  a  very  considerable  success;  unusually  so  for  a 
new  thing  of  this  kind. 

The  various  figures  concerning  the  cost  of  the  installation  of  No.  1  nitrate  plant,  etc., 
are  contained  in  a  memorandum  that  the  Ordnance  Department  submitted  to  the 
Secretary  of  War,  and  forms  an  appendix  to  the  letter  from  the  Secretary  of  War  to  the 
Speaker  of  the  House  of  Representatives,  dated  February  1,  1922.  I  do  not  know 
whether  the  committee  would  care  to  go  into  those  figures  again  or  not. 

The  Chairman.  I  do  not  recall  that  they  were  gone  into  in  detail,  but  they  are  set 
out  on  page  23  of  the  document. 

Gen.  Williams.  Yes,  sir;  they  are  set  out  in  detail  on  page  23. 

The  Chairman.  And  the  whole  letter  was  introduced  in  the  hearing  yesterday,  so 
that  that  is  already  a  part  of  the  record. 

Gen.  Williams.  Yes,  sir.  I  can  state  briefly  the  figures,  if  you  care  to  have  me 
do  so. 

The  total  cost  of  this  plant  has  been  $12,887,941.31.  The  operation  and  mainte- 
nance of  this  plant  to  July  1,  1920,  has  cost  $794,359.85,  making  a  grand  total  of  $13,- 
682,301.16.  This  plant  is  included  in  the  list  of  properties  for  which  Mr.  Ford  pro- 
poses to  pay  the  sum  of  $5,000,000. 

The  Chairman.  WTiat  do  you  mean  by  operation  of  the  plant  at  Sheffield. 

Gen.  Williams.  I  should  have  said  attempted  operation.  We  attempted  to  run 
the  plant  to  see  if  it  would  produce  the  material  it  was  designed  to  produce,  and  it  did 
not  produce  it  satisfactorily. 

The  Chairman.  But  that  much  was  expended  in  vour  effort  to  make  the  plant 
work? 

Gen.  Williams.  Yes,  and  in  maintenance  of  the  plant  since. 

The  other  and  main  plant  at  Muscle  Shoals  is  what  we  call  the  nitrate  plant  No.  2. 

This  plant  was  designed  to  fix  nitrogen  from  the  air  by  the  cyanamid  process,  and  the 
plant  has  a  rated  capacity  of  110,000  tons  of  ammonium  nitrate  per  year.  The  plant 
was  completed  sufficiently  to  start  operating  just  a  very  short  time  before  the 
armistice.  We  continued  the  operation  of  the  plant  for  a  sufficient  length  of  time 
and  to  a  sufficient  extent  to  demonstrate  that  it  would  produce  the  ammonium  nitrate 
in  the  quantities  that  it  was  designed  to  produce.  The  investment  in  nitrate  plant 
No.  2  is  given  on  page  23  of  the  letter  of  the  Secretary  of  War  referred  to  before,  and 
the  total  cost  is  shown  to  be  $67,555,355.09.  The  operation  cost  $3,424,496.85,  making 
a  total  of  $70,979,851.94.  In  addition,  there  was  the  cost  of  maintenance  to  July  1, 
1921,  of  $201,674.63. 

At  the  time  it  was  decided  to  install  this  plant  there  was  a  very  great  demand  for 
nitrate  of  soda  and  also  some  question  as  to  the  sufficiency  of  t  his  supply  during  the 
remainder  of  the  war.  The  object  of  the  Ordnance  Department  was  to  install  a  nitrate 
plant  which  it  felt  absolutely  certain,  or  as  certain  as  one  could  be,  Would  operate  and 
protiuce.  The  cyanamid  process  was  a  very  well  known  proce33  and  also  was  ia 
successful  operation  in  this  country. 

The  Chairman.  In  successful  operation  in  this  country? 

Gen.  Williams.  Yes,  sir;  part  of  the  process  was  operating  in  this  country. 

The  Chairman.  WTiere  else  was  it  being  produced? 

Gen.  Williams.  In  Canada  and  in  this  country  together,  as  well  as  in  several 
European  countries. 

Thft  Chairman!  By  private  concerns? 

Men.  Williams.  Bv  a  private  concern  in  Canada  and  in  this  country,  not  on  such 
a  large  scale  as  the  No.  2  nitrate  plant,  but  on  a  sufficient  scale  to  be  sure  that  they 
would  be  able  to  design  a  plant  of  this  size  and  successfully  operate  it. 

The  Chairman.  When  you  say  in  Canada,  do  you  mean  at  Niagara  Falls? 

Gen.  Williams.  Making  use  of  the  water  there,  I  think,  at  Niagara  Falls,  for  the 
purpse  of  making  the  calcium  carbide  and  the  cyanamid,  and  then  there  was  another 
portion  of  the  plant  situated  within  the  United  States  itself  which  transformed  the 
cvanamid  to  other  nitrogen  products. 

The  No.  2  nitrate  plant  was  designed  and  built,  and,  as  I  said  before,  had  just 
come  into  operation  and  had  been  nearly  finished  at  the  time  of  the  armistice. 

The  Chairman.  Is  that  plant  completely  finished  at  the  present  time? 


Gen  Williams.  It  is  practically  ready  to  operate  at  the  present  time.  The  power 
plant,  the  quarry,  and  the  plant  itself,  in  fact  the  whole  thing,  forms  one  unit  and  is 
ready  to  operate. 

The  next  one  of  the  properties  we  have  down  there  included  in  Mr.  Ford's  offer  is 

StTu    ""-^^^  P^^^^  station  and  the  Warrior-Sheffield  transmission  line 

When  It  was  decided  to  install  in  the  nitrate  plant  No.  2  the  cyanamid  process  it 
was  known  of  course,  that  a  very  considerable  amount  of  power  would  be  necessary 
lo  have  built  a  power  station  of  the  size  that  was  needed  would  have  taken  a  longer  time 
iu^^^^u^^^^'k*^®  ^*J^®^  portions  of  the  process,  so  that  the  matter  was  taken  up  with 
the  Alabama  Power  Co.  I  should  say  that  the  whole  power  situation  down  there  was 
looked  into  very  carefully  and  it  was  found  that  the  quickest  results  in  the  wav  of 
obtaimng  power  could  be  had  by  a  contract  with  the  Alabama  Power  Co  They  had 
in  progress  of  construction  or  had  just  completed  at  that  time,  I  think,  a  plant  at  Gorgas 
on  the  Warrior  River,  some  88  miles  from  nitrate  plant  No.  2.  The  Ordnance  Depart- 
ment made  arrangements  whereby  an  extension  to  their  plant  should  be  completed 
for  the  account  of  the  Ordnance  Department  and  be  the  property  of  the  Ordnance 
Department,  subject  to  certain  conditions. 

A  question  has  arisen  concerning  an  obligation  on  the  part  of  the  United  States  to 
sell  this  plant  to  the  Alabama  Power  Co.  There  is  no  question  in  my  mind  but  what 
a  moral  obligat;ion  exists  on  the  part  of  the  Government  to  deal  with  the  Alabama 
Power  U.,  as  is  stated  in  the  contract.  The  lawyers  say  that  there  is  not  a  legal 
option  there.     In  our  opinion  there  certainly  is  a  moral  one 

The  Chairman  Could  you  state  to  the  committee  why,  in  your  opinion,  there  is 
not  a  legal  obligation,  but  only  a  moral  obligation?  -^ '       -^  ^ 

Gen.  Williams.  I  am  not  sufficiently  familiar  with  the  law,  Mr.  Chairman,  to  enter 
^""^^lAi®^^^  discussion  of  it.  The  Acting  Judge  Advocate  General  is  here  and  he 
could ^ve  you  a  much  better  analysis  of  it  than  I  can. 

The  Chairman.  We  will  ask  the  Judge  Advocate  General  about  that  when  he  makes 
nis  statement.     State  why,  in  your  opinion^  there  is  a  moral  obligation 
A 1  i?°"      "'^^^Ms    The  Government  found  itself  very  greatly  in  need  of  power.    The 
Alabama  Power  Co    had  already  projected  this  extension,  and  all  their  plans  had 
been  drawn,  and  they  came  to  the  assistance  of  the  Government  at  a  critical  time 
PHfV^»n^*  ^^  disposal  their  facilities  and  the  plans  which  they  had  already  made    ' 

ine  Chairman.  And  those  facilities  and  plans  were  accepted  by  the  Government "i* 

J^en.  Williams.  They  were  accepted  by  the  Government. 

The  Chairman.  And  have  been  used  ever  since  by  the  Government,  have  they? 

Gen.  Williams.  They  were  used  for  a  while  by  the  Government  in  the  operation 
of  the  plant  at  Muscle  Shoals,  and  they  have  since  been  leased  to  the  Alabama  Power 
CO.  VVe  entered  into  a  very  definite  agreement  with  the  Alabama  Power  Co.,  and  so 
tar  as  we  are  concerned,  we  believe  that  that  agreement  should  be  carried  out 

1  he  Chairman.  What  was  that  agreement? 

Gen.  Williams.  The  agreement  is  contained  in  the  contract,  Mr.  Chairman  The 
agreement  18  contained  in  article  22  of  contract  T-69,  which  I  can  give  to  the  commit- 
tee and  enter  on  the  records  if  you  care  to  have  that  done 

iJn?\.2^r!^^^'t''-  ^  ^f^l  ^?°fi/ient  the  committee  would  like  you  to  put  that  contract 
into  the  official  record  of  the  hearings.  ^  f 

p  ^IJs^^^"^*'®-  I  ^i"  be  glad  to  do  so.    [Later  put  in  record  by  Col.  Hull;  see 
M^Jji^e  sE*^^  °''^''  properties  that  the  Ordnance  Department  is  interested  in  at 

The  Chairman.  Is  that  contract  with  the  Alabama  Power  Co  quite  lono-*? 

txen.  Williams.  Yes,  sir;  it  is  a  long  contract.  "'" 

if  Ji^®  Chairman.  And  was  signed  by  the  Alabama  Power  Co.,  by  James  Mitchell 
a^""  WM?""*'  ^o^t^^e^Power  company,  and  for  the  United  States  of  America  by  Will 
nam    VVilliams,   lieutenant  colonel.  Ordnance   Department,    United   States   Army 
contracting  officer,  and  was  witnessed  by  C.  F.  BeSunes  and  Frank  D.  Mahoney^' 

Is  that  all  you  have  to  submit,  General?  ^ 

Gen.  Williams.  Yes,  sir;  that  is  all  I  have  to  say,  sir 
Pnnf     V^^i«man.  Article  22  of  this  contract  relates  to  the  sale  to  or  purchase  bv  the 
contractor;  are  you  familiar  with  article  22  personally?  Furcimse  oy  me 

Gen.  Williams.  Yes,  sir;  I  know  the  general  contents  of  it. 
standby  thTa'^S^^^^^^^        ^'^'^  ^""^^^  ^^^^^^  '^  '^^  committee  what  you  under- 

v^hh'\hY'xut''^-  ^l^-  ^1^^™^^'  r^^-  ^"™'  ^^«  ^^^"^  handling  this  whole  question 
betL^^Lfl  c^^n^rfi,^- •'  ^""^  ^^  i^""  "^P>^^  '^  '^  ^^'  committee  ve^'  much 
bfvprv  cSL  ff     '      ^  f^*"^  '^  very  much  more  familiar  with  the  details,  and  I  should 

The  clLiR^^^^^^  ,  ^i^.^V*'^  explaining  rather  than  have  me  do  it. 

ine  Chairman.  We  will  be  very  glad  to  hear  from  Maj.  Burns. 


70 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


71 


Maj.  Burns.  Mr.  Chairman,  that  article  is  quite  complicated.  It  is  so  compli- 
cated that  most  of  us  have  really  hesitated  to  summarize  it,  and  if  I  could  escape  a 
summary  of  it,  I  should  be  very  ^lad.  However,  the  ^st  of  it  is  that  at  a  certain 
period  after  the  war  is  terminated,  it  is  agreed  that  we  will  sell  to  the  Alabama  Power 
Co.  the  properties  of  all  kinds  that  are  included  in  the  contract,  at  a  price  to  be  de- 
termined by  a  board  of  arbitrators,  one  arbitrator  to  be  selected  by  the  Alabma  Power 
Co.,  one  to  be  selected  by  the  Government,  and  the  third  to  be  selected  by  the  other 
two.  That  is  the  substance  of  it.  There  are  many  complications  as  to  time  and  other 
things  that  I  think  would  confuse  the  committee. 

The  Chairman.  In  what  way? 

Maj.  Burns.  If  I  read  it,  I  believe  I  could  bring  out  the  points. 

The  Chairman.  I  think  it  is  sufficiently  important  to  have  it  read  at  this  time. 

Mai.  Burns  (reading): 

^  ''Article  XXII. 

''Sale  to  or  purchase  by  contraHor .—{\)  At  any  time  subsequent  to  three  years  after 
the  termination  of  the  war,  the  United  States  shall  have  the  option  to  sell  to  the  con- 
tractor and  the  contractor  shall  upon  written  demand  of  the  United  States  buy  all  its 
rights,  title,  and  interest  in  and  to  the  Warrior  extension  and  Warrior  substation  with 
all  rigiits  appurtenant  thereto  at  the  value  fixed  by  arbitration  as  hereinafter  provided. 
The  accumulated  fund  referred  to  in  Article  XIX  shall  be  applied  in  payment  of  said 
value,  and  anv  excess  of  said  fund  over  said  value  shall  be  paid  over  to  the  contractor: 
Provided,  That  if  the  actual  cost  of  Warrior  extension  and  Warrior  substation  to  the 
United  States  shall  exceed  said  value,  then  only  the  excess  of  said  fund  over  said  cost 
shall  be  paid  over  to  the  contractor.  If  said  value  shall  exceed  said  fund,  then  the 
contractor  shall  pay  to  the  United  States  the  excess  in  the  manner  hereinafter  provided. 
As  soon  as  the  amount  of  said  value  shall  be  paid  or  secured  as  in  this  article  pr<y\  ided, 
the  United  States  shall  convey  all  of  its  right,  title,  and  interest  in  and  to  said  proper- 
ties to  the  contractor. 

"  (2)  If  and  when  said  accumulated  fund  shall  be  equal  to  or  greater  than  the  actual 
cost  to  the  United  States  of  the  Warrior  extension  and  the  Warrior  substation,  the 
contractor  may  demand  that  the  United  States  convey  all  of  its  right,  title,  and  in- 
terest in  and  to  said  properties  to  the  contractor  and  that  it  pay  over  to  the  contractor 
the  excess,  if  any,  of  said  fund  over  said  cost,  retaining  the  balance.  The  United 
States  shall  comply  promptly  with  such  demand. 

"(3)  The  contractor  may  also  at  any  time  demand  that  the  United  States  convey 
to  it  all  of  the  right,  title,  and  interest  of  the  United  States  in  and  to  the  Warrior  exten- 
sion and  Warrior  substation  upon  payment  to  the  United  States  of  any  excess  of  the 
actual  cost  of  said  properties  over  the  amount  of  said  accumulated  fund  then  in  the 
possession  of  the  United  States.  And  upon  payment  to  the  United  States  of  such 
excess  the  United  States  shall  comply  with  said  demand,  retaining  the  whole  of  said 
accumulated  fund. 

**  (4)  At  any  time  after  December  1, 1926,  or  such  earlier  period  as  the  United  States 
shall  finally  cease  to  take  energy  under  this  contract,  said  accumulated  fund  being 
less  than  the  actual  cost  to  the  United  States  of  the  W^arrior  extension  and  Warrior 
substation,  the  contractor  may  demand  that  the  value  of  said  properties  be  fixed  by 
arbitration;  and 

**(a)  If  the  value  so  fixed  is  equal  to  or  less  than  the  amount  of  such  accumulated 
fund,  then  the  United  States  shall  convey  to  the  contractor  all  of  its  right,  title,  and 
interest  in  and  to  said  properties  by  proper  instruments  in  writing  within  60  days 
after  notice  of  the  award,  retaining  in  payment  the  whole  of  said  fund. 

"(b)  If  the  value  so  fixed  be  greater  than  said  fund  then  the  United  States  shall 
upon  payment  by  the  contractor  of  the  amount  by  which  such  value  is  greater  than 
said  funS,  or  payment  thereof  being  secured  as  hereinafter  provided,  convey  all  of 
its  right,  title,  and  interest  in  and  to  said  properties  to  the  contractor  by  proper  instru- 
ments, in  writing,  within  60  days  after  notice  of  the  award,  retaining  m  payment  the 
whole  of  said  fund. 

"(5)  In  the  event  that  the  contractor  shall  on  demand  of  the  United  States  fail 
or  refuse  to  purchase  the  Warrior  extension  and  Warrior  substation  under  any  of  the 
foregoing  subdivisions  of  this  article,  the  United  States  may  sell  the  same  to  another 
subject  to  the  conditions  that  said  properties  shall  not  be  operated  and  that  they  shall 
not  be  removed  within  six  months  after  the  sale  has  been  consummated.  Upon  the 
consummation  of  such  a  sale  with  another  purchaser  the  United  States  shall  pay  over 
to  the  contractor  the  whole  of  said  accumulated  fund,  less  the  amount,  if  any,  by 
which  the  actual  cost  of  the  said  properties  shall  exceed  the  price  realized  from  such 
sale. 


(6)  In  the  event  that  (a)  the  Warrior  extension  and  Warrior  substation  are  not 
sold  m  the  manner  herein  provided  to  the  contractor  or  to  another  within  the  period 
of  10  years  referred  to  in  Article  XV  or  (b),  said  properties  not  having  been  so  sold, 
the  United  btates  or  it«  said  successor  shall  cease  for  365  consecutive  days  to  take  any 
energy  from  the  Warrior  extension,  the  United  States  shall,  upon  six  months'  notice 
m  writing  from  the  contractor,  remove  the  Warrior  extension  and  Warrior  substation 
from  the  lands  of  the  contractor  unless  it  shall  within  90  days  after  receipt  of  such 
notice  proceed  to  exercise  its  option  under  subdivision  (1)  of  this  article.  In  the 
event  of  removal  pursuant  to  such  notice,  the  United  States  shall  leave  the  premises 
in  a  ne^t  and  workmanlike  condition  and  shall  pay  over  to  the  contractor  the  entire 
amount  of  the  said  accumulated  fund  then  in  its  possession. 

*  (7)  If  the  United  States  or  its  said  successor  shall  for  a  period  of  two  consecutive 
years  fail  to  take  energy  from  the  Warrior  extension,  and  in  any  event  at  the  expira- 
tion of  said  period  of  10  years,  the  United  States  shall,  upon  6  months'  written  notice 
trom  the  contractor,  remove  such  of  said  transmission  lines  and  appurtenances  owned 
by  It  as  are  located  on  land  or  rights  of  way  owned  by  the  contractor:  Provided  That 
upon  receipt  of  any  such  notice  the  United  States  mav  require  the  contractor  to  pur- 
ctiase  all  of  its  right,  title,  and  interest  in  and  to  said  transmission  lines  and  their 
appurtenances  at  their  fair  value  as  fixed  by  arbitration. 

"  (8)  The  contractor  shall  have  a  period  of  5  years  in  which  to  make  payment  of 
any  amounts  due  the  United  States  under  subdivisions  (1)  and  (4)  of  this  article  over 
and  above  said  accumulated  fund:  Provided,  That  all  deferred  payments  shall  be 
secured  m  a  manner  satasfactorj^  to  the  Chief  of  Ordnance.  During  such  period  the 
contractor  shall  pay  to  the  United  States  interest  on  deferred  payments  at  the  rate  of 
b  per  cent  per  annum.  At  the  request  of  the  contractor  said  period  shall  be  extended 
two  and  one-half  y^rs,  interest  during  such  extended  period  to  be  at  the  rate  of  6  per 
cent  per  annum.  The  contractor  may  anticipate  any  deferred  pavment  in  whole  or 
in  part.  * 

"  (9)  The  value  of  ^id  properties  to  be  determined  under  this  article  shall  be  their 
fair  value  and  it  shall  be  fixed  by  arbitration  under  Article  XXIV 

(10)  Actual  cost  under  this  arricle  shall  be  computed  as  provided  in  Article  XI  " 

ihe  Chairman  After  having  read  the  article,  would  you  desire  to  pass  upon  the 
various  features  of  it  for  the  benefit  of  the  committee?  i'         P 

Maj.  Burns  I  would  like  to  say  that  the  accumulated  fund  which  is  referred  to 
constantly  m  that  article  never  started  because  of  the  fact  that  we  purchased  very 
little  power  under  the  contract;  in  fact,  I  do  not  think  we  purchased  any  under  the 
contract  because  of  the  stoppage  of  the  war  at  about  the  time  we  were  ready  to  operate, 

article   ^^  *  ^*^^'  ^^  *  ^^^'  ^"*  ^  ^^^"^  P^®^^'  °°^  *^  *'y  ^  interpret  the  whole 

The  Chairman.  The  Acting  Judge  Advocate  General  being  the  law  officer  of  the 
War  Department  can  probably  pass  upon  that  when  we  reach  him 

Gen  W  ilhams,  what  do  you  think  about  the  offer  of  Mr.  Ford  of  $5,000,000  for  these 
properties  which  you  have  shown  cost  the  Government  approximately  $85,000,000? 

ben  Williams.  Taking  the  money  alone  and  leaving  out  of  consideration  anv 
advantages  that  come  to  the  Government  because  of  the  operation  of  the  plant  by  Mr. 
Ford,  I  should  say  that  $5,000,000  for  these  properties  is  a  very  inadequate  sum! 

Ihe  Chairman.  Will  you  explain  why  you  think  so? 

Gen.  Williams.  Because  the  estimated  scrap  value  of  these  properties  is  $8,812,000 
mil  A  ^"^^gements  be  made  to  operate  certain  portions  of  them  and  scrap  the  re- 
c le^?  t?tl.  ?%tf ^'""^-^^^  ''^^"f  ''  $16,272  000.  Mr.  Ford  is  getting  these  properties,  a 
f.  ol  •  ^  ""  *^.®"''  '"^  f^^cordance  with  his  offer,  for  $5,000,000.  and  that  to  my  mind 
acmi^fn  t^fr^  fH^'if 7'"!  ''''^  ?1  consideration,,  as  I  say,  any  benefits  that  would 
l^^Z^^o^C^J^^  {h"e.  ^"'  ^^^"^"^  '''''  P^^^^  continuously  under 

ihJrtl^^^'^^^^^u'  ^"^  scrapping  the  property  of  the  Government  that  we  accumulated 
aiinng  the  war.  have  you  found  that  your  estimates  were  not  reached  in  the  realization 
havp  fit!frT     .  fi^  l""!  ^^^  estimated  on  the  property.     For  instance,  you  say  you 

i^  ^^1  ^  ^.^"^^^^*  *^^'®  P^^"^s  ^^^^^  ^^  scrapped  ^vith  a  value  of  $8,000,000;  that 
ii>  only  an  estmiate  on  your  part? 

Gen.  Williams.  It  is  only  an  estimate,  that  is  very-  true;  but  it  is  based,  however 

h^.t  ^''/''P^T''^!  ""^^  ^*^®'*  ^^'S®  properties  that  we  have  salvaged,  and  it  is  our 
be^t  judgment  as  to  what  may  be  obtained.     Now,  it  may  or  may  not  be  realized. 

Gen.  W^lTiams'  ThaUs'^all  ^^"^  estimate  is  only  a  matter  of  your  judgment. 

The  Chairman.  You  might  not  receive  even  $5,000,000. 
ben.  \ViLLiAMs.  That  is  entirely  possible. 


rz 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


73 


The  Chairman,  The  committee  will  probably  want  to  ask  you  some  questions  now. 

Gen.  Williams.  Did  you  ask  me  if  we  think  we  may  not  receive  $5,000,000? 

The  Chairman.  Yes.  /v«/.  a 

Gen.  Williams.  I  should  say  almost  positively  we  will  receive  more  than  $5,000,000. 
We  may  not  realize  the  $8,000,000  or  almost  $9,000,000  that  we  have  estimated,  but 
we  believe  without  any  question  we  would  realize  more  than  $5,000,000. 

The  Chairman.  I  also  asked  whether  you  knew  you  would  receive  the  $8,000,000. 

Gen.  Williams.  That  we  do  not  know.  • 

Mr.  McKenzie.  General,  the  estimate  made  by  the  Ordnance  Department  of  the 
salvage  value  of  these  plants,  of  course,  brings  in  speculative  or  problematical  ques- 
tions, does  it  not? 

Gen.  Williams.  Yes. 

Mr.  McKenzie.  In  other  words,  you  are  not  sure  whether  you  can  get  $8,000,000 
or  $4,000,000  if  these  plants  are  sold  for  scrap? 

Gen.  Williams.  We  are  not  sure  we  could  get  $8,000,000,  of  course,  and  that  is 
based  upon  our  judgment  as  to  the  present  market  we  would  have  to  sell  it  in. 

Mr.  McKenzie.  It  is  a  problematical  proposition? 

Gen.  Williams.  It  is.  «.       •    .        t  c    x 

Mr.  McKenzie.  And  this  much  can  be  said  of  Mr.  Ford's  offer,  it  is  a  dehnite, 
fixed  offer  of  $5,000,000. 

Gen.  Williams.  Yes. 

Mr.  McKenzie.  So  we  know  what  he  is  willing  to  pay  for  these  various  plants. 

Gen.  Williams.  Yes. 

Mr.  McKenzie.  Now,  General,  I  want  to  ask  you  just  one  or  two  questions  in  con- 
nection with  the  purpose  of  this  whole  proposal.  When  the  law  was  enacted  in  1916 
there  were  several  things  taken  into  consideration  in  writing  the  legislation,  but  as  I 
remember— and  I  was  a  member  of  the  committee  at  that  time,  and  helped  to  write  the 
legislation— the  main  contention  at  that  time  was  to  enact  legislation  that  would 
enable  the  Government  to  establish,  not  at  Muscle  Shoals  particularly,  but  at  some 
point  or  points  within  the  United  States,  certain  plants  for  the  manufacture  of  nitrate 
to  be  used  in  preparation  for  war  in  the  manufacture  of  munitions  and,  as  I  understood 
it.  that  was  the  primary  purpose  of  the  legislation;  am  I  right  about  that? 

Gen.  Williams.  That  is  the  way  I  understand  it,  sir.  ■  .       v       u 

Mr.  McKenzie.  It  was  also  understood  in  connection  with  that  proposition  that  the 
War  Department  would  have  unquestioned  jurisdiction? 

Gen.  Williams.  Yes.  sir.  .        -   ,     ^  , 

Mr.  McKenzie.  And  you  have  handled  it  as  the  representative  of  the  Ordnance 

Department? 

Gen.  Williams.  Yes,  sir.  r    .       • 

Mr.  McKenzie.  Another  proposition  involved  was  the  development  of  the  river 
for  navigation  purposes:  that  is,  in  developing  the  water  power  which  could  be  utilized 
in  the  manufacture  of  nitrate  navigation  was  taken  into  consideration  as  a  secondary 
proposition,  over  which  the  War  Department  also  has  jurisdiction. 

Gen.  Williams.  Yes.  . 

Mr.  McKenzie.  And  the  third  proposition  involved,  which  at  that  time  was  under- 
stood to  be  incidental,  was  that  these  plants  when  established  and  not  ))eing  used  for 
the  manufacture  of  nitrates  to  be  used  in  the  munitions  of  war  the  Government  could 
utilize  the  plant  in  the  production  of  nitrates  to  be  used  as  one  of  the  elements  m  the 
production  of  fertilizer  to  be  used  on  the  farm;  am  I  right  about  that? 

Gen.  Williams.  I  understand  so,  sir. 

Mr.  McKenzie.  Of  course,  at  that  time,  the  manufacture  of  nitrates  to  be  used  for 
munitions  was  the  primary  and  basic  proposition. 

Gen.  Williams.  Yes.  ,     .  ,    ,  ♦ 

Mr.  McKenzie.  Of  course,  the  Great  War  ha\'ing  been  fought  and  with  the  prospect 
of  a  number  of  years  of  peace  ahead  of  us— we  all  hope  so  at  least— and  with  no  real 
necessity  for  the  operation  of  these  plants  for  the  production  of  nitrates  for  munitions, 
they  could  be  advantageously  used  for  the  manufacture  of  this  element  of  fertilizer 
which  could  be  sold  to  the  farmers  of  the  country,  and  while,  as  a  matter  of  fact,  in  the 
inception  of  this  proposition  the  manufacture  of  fertilizer  was  incidental,  yet  at  the 
present  time  when  we  are  at  peace,  the  manufacture  of  fertilizer  becomes,  perhaps, 
the  most  important  proposition,  and  to  that  is  attached  the  condition,  even  under 
Mr.  Ford's  proposition,  that  the  plant  shall  be  maintained  continuously  in  such  a 
condition  so  that  in  case  of  war  or  in  case  the  Government  needs  it  in  any  way  for  the 
manufacture  of  munitions  it  can  be  immediately  turned  over  to  the  Government  as  u 
matter  of  national  defense  and  preparedness. 

Gen.  Williams.  Yes.  .  .  ,  .     •   t-« 

Mr.  McKenzie.  And  to  that  extent  it  would  be  under  the  super\ision  and  jurisdic- 
tion of  the  War  Department;  am  I  right  about  that? 


Gen.  Williams.  Yes,  sir. 

Mr.  McKenzie.  Now,  I  just  want  to  ask  one  or  two  questions  about  this  contract. 
The  contract  with  the  Alabama  Power  Co.,  as  I  understand  it.  was  entered  into 
between  that  company  and  representatives  of  the  Ordnance  Department? 
Gen.  Williams.  Yes,  sir. 

Mr.  McKenzie.  And  as  I  understand  it,  the  Alabama  Power  Co.  owns  all  of  the  land 
over  which  this  transmission  line  extends,  owns  the  land  where  the  plant  is  con- 
structed, and  is  referred  to  in  the  contract  as  the  contractor.     Am  I  right  about  that? 
Gen.  Williams.  Yes,  sir. 

Mr.  McKenzie.  The  Government  put  up  that  money  to  build  that  plant  and  to 
build  the  transmission  line,  as  I  understand  it? 
Gen.  Williams.  Yes,  sir. 

Mr.  McKenzie.  Was  that  plant  built  on  what  is  now,  perhaps,  not  the  famous  but 
the  infamous  cost-plus  contract  system? 

Gen.  Williams.  I  think  it  was,  Mr.  McKenzie;  with  a  limit  as  to  total  fee  to  be  paid 
to  the  contractor. 

Mr.  McKenzie.  At  any  rate,  the  Alabama  Power  Co.  simply  got  the  money  from 
the  Government,  constructed  the  plant,  built  the  transmission  line,  entered  "into  a 
contract  to  sell  back  to  the  Government  electric  current  for  its  use  at  this  plant  for 
the  manufacture  of  nitrates. 
Gen.  Williams.  Yes. 

Mr.  McKenzie.  As  I  understand  it,  notwithstanding  the  law  of  1892,  the  Ordnance 
Department  entered  into  a  contract  giving  these  people  an  option  to  purchase  this 
property  that  the  Government  has  built  at  its  own  expense    Am  I  right  about  that? 
Gen.  Williams.  Yes,  sir;  I  think  so. 

Mr.  McKenzie.  It  was  built  at  the  exclusive  expense  of  the  Government,  and  that 
^  one  of  the  propositions  with  which  we  are  confronted  at  this  time,  the  Alabama 
Power  Co.  claiming  to  have  certain  equities  and  that  we  can  not  enter  into  a  legal 
contract  with  Mr.  Ford  or  anyone  else  until  we  first  settle  with  them  when,  if  the 
statute  of  1892  is  still  in  force,  they  have  not  any  standing  in  court,  and  it  is  so  stated 
by  the  department  of  the  Judge  Advocate  General:  but  as  I  understand  you  knowing 
you  to  be  always  fair  and  charitable  to  all  mankind,  notwithstanding  you  are  an 
officer  of  the  Army  and  supposed  to  be  somewhat  Prussianized,  you  fee'l  we  ought 
to  take  the  claim  of  the  Alabama  Power  Co.  into  consideration  and  at  least  treat  them 
equitably  and  justly  in  case  we  go  on  with  this  proposition. 
Gen.  Williams.  I  think  so. 

Mr.  McKenlie.  That  is  all  I  want  to  ask  you.  General,  at  this  time. 
Mr.  Hull.  In  speaking  of  scrapping  or  salvaging  these  plants,  I  presume  that 
means  the  Government  would  lose  its  capacity  to  produce  nitrates  for  war  purposes 
if  they  did  that,  would  it  not?  ' 

Gen.  Williams.  The  $8,812,000  includes  the  scrapping  and  consequent  destruction 
of  the  mtrate  plant  No.  2  which  wipes  out  the  capacity  to  produce. 

Mr.  Hull.  As  a  matter  of  fact,  is  not  that  a  perfectly  unthinkable  proposition  from 
the  national  preparedness  standpoint. 

Gen.  Williams.  Mr.  Hull,  I  do  not  put  that  forward  as  a  recommendation.  I  put 
that  forward  simply  as  a  statement  of  the  money  that  could  be  obtained  from  these 
plants  under  certain  conditions.  In  so  far  as  the  Ordnance  Department  is  concerned 
it  feels  it  is  vitally  interested  in  the  question  of  the  fixation  of  nitrogen;  that  it  is  a 
measure  of  preparedness  that  it  must  use  every  endeavor  to  see  brought  about  and 
m  so  far  as  we  are  concerned,  the  guaranty  of  Mr.  Ford  to  keep  that  plant  in  operation 
during  the  term  of  his  lease  is  a  matter  of  vital  importance  to  us. 

Mr.  Hull.  And  instead  of  recommending  that  we  scrap  them  you  would  positively 
be  opposed  to  that  proposition?  ^  j  t^  j 

Gen.  Williams.  I  should  be  opposed  to  that  proposition,  and  I  have  not  made  any 
recommendation  that  they  be  scrapped.  I  am  simply  stating  what  would  happen  if 
they  were  scrapped. 

Mr.  Hull.  And  your  opinion  of  this  is  all  from  the  national  defense  standpoint? 

Gen.  Williams.  Exactly  so;  and  whether  or  not  Mr.  Ford's  offer  is  accepted   the 
Urdnance  Department  should  most  earnestly  recommend  that  nitrate  plant  No   2  be 
maintained  m  a  stand-by  condition  whether  operated  or  not. 
CO  d^-f^^^'?*  ^^'  ^^^^'^  proposition  positively  agrees  to  keep  these  plants  in  working 

Gen.  Williams  Very  true,  and  from  that  point  of  view  it  is  a  very  great  advantage 
to  the  Ordnance  Department.  ^ 

Mr.  Hull  And  about  $11,000,000,  you  estimate,  is  what  the  Government  would  be 
paying  for  that  measure  of  preparedness? 

Gen.  Williams.  That  is  the  statement  we  make  at  the  end  of  our  report. 


74 


MUSCLE  SHOALS  PROPOSITIONS. 


Mr.  Hull.  In  your  opinion  is  that  too  much  or  too  little  to  pay  to  be  prepared  with 

nitrates? 

Gen.  Williams.  I  think  that  is  a  very  moderate  sum. 

Mr.  Hull.  You  are  selling  some  water  power  at  the  present  time  from  Dam  JNo.  ^, 

*'Gen!* WILLIAMS.  No,  sir;  Dam  No.  2  is  not  completed.    There  is  no  water  power  at 

Muscle  Shoals  at  the  present  time.  ,      .  ,      .  v  •   „  ^i^ 

Mr  Hull.  I  thought  something  was  said  yesterday  about  some  power  being  sold. 

Gen.  Williams.  That  was  steam  power.    We  have  leased  the  steam  power  plant  at 

the  nitrate  plant  No.  2. 

Mr.  Hull.  That  is  steam  power? 

Gen.  Williams.  Yes,  sir. 

Mr.  Hull.  What  are  you  getting  for  that?  ,  x,       ..        •  .  • 

Gen.  Williams.  $120,000  a  year,  I  think,  is  guaranteed,  and  then  there  is  a  certain 
other  return  dependent  upon  the  amount  of  power  that  is  supphed.  , .  v.    .u 

Mr.  Hull.  You  spoke  of  the  cost  of  the  changes  in  plant  No.  1  what  would  be  the 
estimated  cost,  approximately,  of  the  changes  necessary  to  make  that  a  working  plant ' 

Gen.  Williams.  We  estimate  that  to  change  this  plant  oyer  so  as  to  retainits  present 
capacity  of  22,000  tons  of  ammonium  nitrate  a  year  would  cost  about  |4,000,uuu. 

Mr  Hull.  And  there  would  not  be  much  doubt,  if  we  did  that,  but  what  it  would 
be  a  successful  plant,  inasmuch  as  you  have  seen  a  plant  m  this  country  working  that 
is  made  on  the  plan  that  you  would  adopt  for  plant  No.  1. 

Gen.  Williams.  We  believe  it  could  be  done  successfully.  ,         t     •  i, 

Mr  Hull.  WTiere  do  we  get  nitrates  at  the  present  time,  and  as  y9U  go  along,  1  wish 
you  would  state  how  much,  for  instance,  we  get  from  Chile,  or  what  is  the  approxunate 

amount  that  is  imported  at  the  present  time.  ,    j-  j  *u    u«o+  c+o+^afi^a 

Gen  Williams.  We  have  prepared  a  chart  in  which  is  embodied  the  best  statistics 

we  could  find  concerning  the  consumption  of  inorganic  nitrogen  and  the  various 

sources  of  supply.     I  ean  put  that  chart  into  the  record. 

Mr.  Hull.  That  would  show,  would  it  not,  all  the  sources  for  nitrat^  at  the  present 

time  with  the  approximate  amount  we  are  getting  from  those  sources? 

Gen.  Williams.  Yes,  sir.  ■,    n  xv      xv      o 

Mr.  Hull.  That  would  include  the  coal-tar  process  and  all  the  others.^ 

Gen.  Williams.  Yes,  sir.  . 

Mr.  Hull.  I  wish  you  would  put  that  chart  into  the  record. 

Gen.  Williams.  Yes,  sir.     (See  p.  75.)  ,       »,  ,  t.  r^       le  ^r^ 

Mr  Hull.  You  spoke  of  a  moral  obligation  to  the  Alabama  Power  Co  If  we 
made  a  contract  with  the  Alabama  Power  Co.  and  we  asked  them  to  carry  out  certain 
provisions  of  it  and  they  did  not  carry  them  out,  would  there  be  any  moral  obhgation 
on  our  part  to  carry  out  the  written  contract?  ^     ,  ^  i  •    *v    i    „i  «^r« 

Gen.  Williams.  I  do  not  think  I  am  entirely  competent  to  explain  the  legal  com- 
plications involved  in  these  contractual  relations.  ^      *    i         +v,^ 

Mr  Hull  That  is  not  a  legal  question;  that  is  a  moral  question.  You  took  up  the 
question  of  the  moral  obligation,  and  I  would  like  to  have  your  opimon  of  that  as  a 

moral  obligation  only.  ,.  .  ..     ,  ... 

Gen.  Williams.  So  far  as  I  know,  the  condition  you  specify  does  not  exist. 

Mr.  Hull.  If  it  did  exist?  ^,    x  •  i     „   ^    ;r««Nr 

Gen.  Williams.  I  would  rather  not  answer  a  question  that  is  purely  and  8impl> 

supposititious.  ,  ^      ,  ^,    ^        *      ^o 

Mr  James.  General,  what  was  the  exact  date  of  that  contract? 
Gen.  Williams.  With  the  Alabama  Power  Co.? 

Gen.  Wi^uAMS^The  contract  was  signed  in  November,  1918,  but  it  was  negotiated 

"^Mr.  James.  Was  that  contract  ever  submitted  to  the  Judge  Advocate  General's 
office  for  approval?  ,     ,       -.  j. 

Gen.  Williams.  I  do  not  know,  sir,  whether  it  was  or  not.  p__„^,„t  i. 

Mr  James.  Do  you  not  think  that  all  important  matters  when  the  Government  is 
practically  gi vine'  away  money  should  be  first  submitted  to  the  Judge  Advocate 
General's  office  before  we  get  into  trouble  and  not  afterwards? 

Gen.  Williams.  No,  sir;  I  do  not,  because  we  had  during  the  whole  time  {his  con- 
tract was  negotiated  some  of  the  best  lawyers  in  the  country  who  were  employed  on 
this  kind  of  work,  and  I  should  very  much  object,  m  so  far  as  the  operations  of  the 
Ordnance  Department  are  concerned,  to  first  call  upon  the  Judge  Advocate  General 
for  approval  before  we  could  make  a  contract.    Nothing  would  slow  up  business  more . 

Mr  James.  Did  some  of  those  lawyers  approve  of  this  contract? 

Gen.  Williams.  They  did,  and  it  was  negotiated  by  lawyers. 


MUSCLE  SHOALS  PROPOSITIONS. 


76 


Con3UMPvgi  amd  sSupply 

IM     UNfTCD    STATED     1900-1920 

CONsunprioh  in  tACH  ypa/^  TAKen  eqpal  to  /^et  ^^pply  roK,   that 

TEA^  A3   OATA    LACKi/iG    rOf^.    STOCKS  C^  HAfiD  AT  EfiD  OF    rmAfZ, 


6oo>ax> 


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AOO.COO 


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^OOJXO  - 


100,000 


i 


100.000 


200,000 


300000 


400,000 


£00,000 


1920 


CYAhlMtO 


IS*  20 


76 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


77 


Mr.  James.  When  these  negotiations  were  entered  into,  the  war  was  on? 

Gen.  Williams.  The  war  was  on;  yes,  sir;  in  1917.  .  ,  ,  . 

Mr.  James.  Under  the  war  powers,  did  we  not  have  the  right  to  take  any  property 
or  anything  else  that  the  Alabama  Power  Co.  had  that  we  wanted? 

Gen.  WiLLLiMS.  I  think  we  did  have  the  legal  right  to  do  that,  but  it  was  a  right 
that  was  very,  very  seldom  exercised;  only  in  the  most  exceptional  cases. 

Mr.  James.  If  we  had  carried  out  that  legal  right  which  we  had  at  that  time  we 
would  not  be  in  this  controversy  with  the  Alabama  Power  Co. 

Gen.  WiLLLAMS.  But  the  properly  constituted  agents  of  the  Government  did  make 
this  contract  with  the  Alabama  Power  Co.,  and  that  is  the  fact  we  are  confronted  with. 

Mr.  Kearns.  General,  the  Air  Nitrates  Corporation  has  something  to  do  with 

Muscle  Shoals,  has  it  not?  ,  .  ,  ,  j 

Gen.  Williams.  The  Air  Nitrates  Corporation,  I  think,  was  the  company  we  made 
the  contract  with  to  build  nitrate  plant  No.  2. 

Mr.  Kearns.  How  many  men  compose  that  corporation? 

Gen.  Williams.  I  do  not  know,  sir. 

Mr.  Kearns.  Is  it  not  a  fact  that  there  are  only  10  of  them? 

Gen.  WiLLLA-MS.  I  have  no  idear  whatever. 

Mr.  Kearns.  And  they  only  put  in  a  capital  of  $100  apiece? 

Gen.  Williams.  I  do  not  know. 

Mr.  Kearns.  And  that  they  are  capitalized  for  $1,000? 

Gen.  Williams.  I  do  not  know. 

Mr.  Kearns.  And  they  have  already  made  $2,000,000  out  of  this  proposition,  and 
they  still  have  other  claims  pending  against  the  Government,  have  they  not? 

Gen.  Williams.  I  know  nothing  about  their  profits.       ^^     ,      ,     ,  ,  „ 

Mr.  Kearns.  Thev  still  claim  some  interest  in  Muscle  Shoals,  do  they  T^otf 

Gen.  Williams.  They,  or  rather  their  parent  company,  the  American  Cyanamid  Co., 

have  certain  royalty  rights.  •  i         •         x        *    * 

Mr.  Kearns.  And  it  is  a  corporation  composed  of  10  men  with  an  investment  ot 

$100  each,  and  they  have  already  made  at  least  $2,000,000  out  of  it. 
Gen.  Williams.  I  do  not  know  about  that.  ,     ,r      ,    oi_     i 

Mr.  Kearns.  Your  department  has  had  control  of  the  Muscle  Shoals  operations, 

has  it  not? 
Gen.  Williams.  I  know  nothing  about  their  profits.  r     ^.i, 

Mr.  Kearns.  Whatever  profits  they  have  made  have  been  paid  to  them  by  the 

United  States  Government?  ,       ,     ^t  •     ■.  o.  .     ^  +«> 

Gen,  Williams.  They  have  been  paid  to  them  by  the  Umted  States  Government.^ 

Mr.  Kearns.  Yes.  ,  ^     ,  ,        x    *  xu 

Gen.  Williams.  We  had  a  contract  with  them;  what  profit  they  made  out  ot  the 
contract  I  do  not  know,  just  as  I  do  not  know  the  profits  that  other  people  make  out  of 

Mr.  Kearns.  I  believe  it  is  a  fact  that  the  Alabama  Power  Co.  was  in  charge  of  Mus- 
cle Shoals  at  the  time  the  Government  took  over  the  project?  ,*•*!, 

Gen.  Williams.  I  think  they  did  have  some  land  holdings  there  at  the  time  the 
Government  became  interested  in  that  plant.  x-      xi.         x  xv 

Mr.  Kearns.  Did  they  have  any  acti\ities  that  they  were  operating  there  at  the 

time? 

Gen.  Williams.  Not  so  far  as  I  know.  x  x    i  •*         «> 

Mr  Ke \Rxs.  What  was  there  at  Muscle  Shoals  before  the  Government  took  it  over.^ 
Gen.  Williams.  In  so  far  as  the  actual  use  of  the  waterpower  was  concerned,  noth- 

ino-  was  being  done  as  far  as  I  know;  there  was  no  activity  that  corresponded  to  the 

United  States  nitrate  plant  No.  1  or  the  United  States  nitrate  plant  No.  2. 
Mr.  Kearns.  Was  the  Alabama  Power  Co.  carrying  on  any  activity  of  any  kind 

at  Muscle  Shoals  when  the  Government  took  it  over? 

Gen.  Williams.  Not  so  far  as  I  know.  „  x    xi.    />.  * 

Mr.  Kearns.  WTiat  did  the  Alabama  Power  Co.  have  to  sell  to  the  Government— 

just  the  land?  ,      ,  ,  ,         x  xv  i  -ui    *v,^,r 

Gen.  Williams.  We  may  have  bought  some  land  from  them;  I  think  possibly  they 

did  have  some  holdings  there.  x      x     -xi, +1,^ 

Mr.  Kearns.  How  did  the  Alabama  Power  Co.  come  to  have  this  contract  with  the 

^In.  Williams.  Because  they  were  so  situated  that  they  could  build  a  sufficient 

power  plant  and  deliver  power  to  the  Government  quicker  than  anybody  else  couia 

do  it,  in  so  far  as  we  knew. 

Mr.  Kearns.  Thev  had  no  activity  there  of  any  kind?  ,     x  xt     o       a  .r^ 

Gen.  Williams.  No;  but  the  plant  they  built  is  88  miles  from  plant  No.  2,  and  we 

had  a  transmission  line  to  bring  the  power  to  nitrate  plart  No.  2. 


1.0^  fW  of  fi;  \^^  ^T"^*^  ^""^  ''''^  J"«*  ^^*  ^ater  rights  the  Alabama  Power  Co 
had  there  at  the  time  the  Government  took  it  over.    What  was  the  Alabama  Powpr 
Co  doing,  and  what  did  the  Government  buy  from  it?  Alabama  Power 

T  ^^^  Williams.  I  do  not  know  what  they  were  doing  at  Muscle  ShoaJs     So  far  as 
I  know,  they  were  not  doing  anything.  '  ouoajg.     00  lar  as 

Mr.  Miller.  General,  I  want  to  ask  you  a  few  questions  in  regard  to  this  contract 
This  contract  relating  to  the  erection  of  the  station  at  the  Warriof  ste^Xnt  Xch 

n  f^.h^"'°'  '^^^'  "^^^  ^^^  "Hy^l^  ^^  '^  ^^^g  the  Alabama  Power  cH  ^AoTr^hlZ 
purchase,^  was  drawn  under  the  law  of  June  3,  1916,  was  it  not?  ^ 

Gen.  Williams    Is  that  the  reorganization  act  of  June  3.  1916?    Not  so  far  as  T 
know;  I  should  think  it  had  nothing  to  do  with  it.  so  lar  aa  1 

Mr.  ^^ler.  Under  what  law  was  the  contract  drawn? 

Gen.  Williams.  I  do  not  know  under  what  law  it  was  drawn 

Mr^  Miller.  I  will  read  that  portion  of  the  act  of  June  3,  1916,  which  authorizes 
^^'f Jr^i^"^^^  l^^,  Y"'i?^.  ^*^*^«  ^  «^^^t  nitrate  plants.     It  says:  ^^^^^"^^s 

The  President  of  the  United  States  is  hereby  authorized  and  empowered  to  make 
or  cause  to  be  made,  such  investigation  as  in  his  judgment  is  neceskry  to  dete^ne 
the  best,  cheapest,  and  most  available  means  for  the  Wduction  ofStes  and  Xr 
products  for  munitions  of  war  and  useful  in  the  manufacture  of  f eSere  and  oSeJ 
useful  products  by  water  power  or  any  other  power  as  in  his  judgS  is  the  btt  and 
cheapest  to  use;  and  is  also  hereby  authorized  and  empowered  to  S-nate^r X 
exclusive  use  of  the  United  States.,  if  in  his  judgment  sucS  means  is  btt  and  chSp^t 
such  site  or  sites,  upon  any  navigable  or  nonnavigable  river  or  riv?i;  or  up^^^he 
pubhc  lands  as  in  his  opinion  will  be  necessary  for  carrying  out  Sie  pur^se?  of  tWs 
act;  and  is  further  authorized  to  construct,  maintain,  and  operat^at  3n  any  sul 
or  sites  so  designated,  dams,  locks,  improvements  to  navigation,  power  houLs  and 
other  plants  and  equipment  or  other  means  than  water  power  as  fn  hL  jud^nt^^ 
the  best  and  cheap^t,  necess:^ry  or  convenient  for  the  generation  of  elecS  0I 
0  her  power  and  for  the  production  of  nitrates  or  otlier  products  needed  for  mmdtioM 
of  war  and  useful  in  the  manufacture  of  fertilizers  and  other  useful  prnducts" 

Then  further  along  m  the  same  section  it  is  provided •  prouucis. 

Ji  IJlf  '""^  ""^  ?20,000,()00  is  hereby  appropriated,  out  of  any  moneys  in  the  Treasury 

not  otherwise  appropriated,  available  until  expended,  to  enable  the  President^^he 

Lnited  States  to  carry  out  the  purposes  herein  provided  for  ^resmeni  01  the 

The  plant  or  plants  provided  for  under  this  act  shall  be  constructed  and  onerated 

VrS<^r^X^Z'^^Xi^^'^  ""^"°^"°"  ^*'  '"''  "*"*'  '"^"^'^  -  -^ 

Mr.  Miller.  Then  it  was  not  provided  for  under  this  acf 
den.  Williams.  No. 

Mr.  Miller.  United  States  plants  No.  ]  and  No.  2  were  installinl  bv  tha  ii«o  nf  fV,^ 
money  provided  for  in  this  fuid,  were  they  not?  ^^^talled  by  the  use  of  the 

Gen.  Williams.  No,  sir,  they  were  not. 
Mr.  Miller.  Out  of  the  fund  appropriated  for  fortifications? 
Gen.  Williams.  Yes. 

^^  Mr.  Miller.  Plant  No.  2  was  completed  and  ready  for  operation  at  the  close  of  the 

Gen  W^iLLiAMs.  Yes,  not  long  after  the  close  of  the  war. 

Air.  Miller.  When  was  this  rock  quarry  at  Waco  purchased? 

M^r   ^^^^^^^^-  It  was  purchased  after  the  war. 

Mr.  Miller.  How  long  after  the  war  closed? 

Gen.  Williams.  T  should  sav  about  a  year. 

Mr.  Miller.  Out  of  what  fund  was  that  purchased? 

ytT\f       '^^^r^i  ^*  "^^  ^^'^  ^^'^  ^"^  ^^  *^*^  fortifications  appropriation. 

with  ;  ^1'^'^^''/  ^^^  '^^'*  "7^  ''^^'''  ?"*  «^i^l  ^^  acquired  a  rock  quarry  in  connection 
with  a  plant  for  the  manufacture  of  war  munitions  or  nitrates  conneciion 

uTun'^^l!'''^\A       acquired  facilities  that  were  necessary  to  complete  the  plant. 
ferHli,^    1     ;  2'^  y^"^  understand  you  were  authorized  to  go  ahead  and  install  a 
(^^Bh  W^^L?AMs '  T^^^^       funds  provided  for  the  fortification!  of  the  vSted^uL? 
Mr  Mr^T  J^l    Ti;     ^1  ^^  "^""^  ^''''^  '^  connection  with  that  fertilizer  plant. 
Ge'n'wirLrAM^s^^^^^^^^  ""''  ^^^^^^^^  '''  '"^^  P"^--? 

Mr.  A^ller  (interposing).  What  was  it  purchased  for? 

Mr'^M^ t';''^'''^^^^.  ^?  .^o^nection  with  the  ammonium  nitrate  plant, 
^vir.  Miller.  WTiat  is  used  in  that  production? 


78 


MUSCLE  SHOALS  PROPOSITIONS. 


Gen.  Williams.  The  limestone  is  first  converted  into  lime,  and  that  is  one  of  the  raw 
materials  for  making  the  cyanamid. 
^:„*wSam^°1  Sku"^uU  2,000  tons  a  day  for  the  full  operation  of  the 

T)lant  * 

Mr  Miller.  Two  thousand  tons  of  the  stone? 
Gen  Williams.  Two  thousand  tons  of  the  limestone. 
Mr  Miller.  To  make  how  many  tons  of  the  ammonmm  mtrates. 
Gen.  Williams.  That  is  to  make  110,000  tons  a  year. 
Mr.  Miller.  It  requires  2,000  tons  a  day? 

Gen.  Williams.  That  is  my  recollection  of  the  figures.  «nnnrtP 

Mr  Miller.  This  rock  crushing  plant  at  the  quarry  was  used  as  a  part  of  the  appurte- 

"^Gen  l\\'ilK  was  one  of  the  faciUties  necessary  to  supply  needed  raw  material 

%\^.  MTL^^Nott^  process  at  plant  No.  1,  which  you  speak  of,  is  a  different 
process  from  that  at  plant  No.  2? 

Gen.  Williams.  Yes.  ,     ^  „ 

Mr.  Miller.  That  is  the  Haber  process-the  German  process? 

process? 
Gen.  Williams.  Completely. 

G«fe%Tu.M?  utfaTalh^^e^tt  s,  that  part  of  it  which  is  known  a.  the  Haber 
p^cess;  where  the  nit^gen  w?^  wkded  to  the  h5;drogen ;  the  other  parts  were  entirely 

fliir*o^ssilll  ^ 

Mr  Miller.  But  so  far  as  the  output  is  concerned-— 

Gen  Williams.  So  far  as  the  output  is  concerned,  it  is  a  failure. 

Mr  Miller.  Did  it  follow  the  correct  Haber  formula? 

Gen  Williams.  It  was  a  modification  of  the  Haber  process. 

^e'n^^T.f.MrThra^nl'lll  OhISTo.  designed  it.    They».ad  made  certain 
experiments  which  had  convinced  them  that  they  could  modify  it,  as  they  thought. 

*°rtTL:rwI?KtC  given  to  them  to  modify  this  process,  with  the  under- 
"■SetC^i^Ml 'iT^o^^no'w^Xrr ^^^^^^^^ 

we^de  a  coSracrwFth  them  in  the  light  of  the  best  information  we  had. 

Mr  MiiiER.  And  authorized  them  to  put  in  the  process 

Gen.  WiLUAMS  (interposing).  That  proved  a  failure. 

^L''^^.^'Q2^lo''^MZt^e!r^  ge'^S'^ordrGermanv,  but  there 
wiS  no  i^o'mXn  h",l!  ^^far  as  I  know,  in  regard  to  it  on  which  we  could  go  ahead 

*"Mr*!  iM^'who  was  the  authority  that  designated  that  this  Haber  process  should 

''*rr^'^W,?«lMs'"i*t^was^done  by  the  Chief  of  Ordnance,  acting,  however,  under 
12.  Vn, ^.tp^ions  frim  the  Secretary  of  War  and  the  President,  who  acted  on  the 
T"  .r^hp  ni  .Z.  XDlfcomiSttee,  a  committee  composed  of  leadi.^  engineers 
andTci^nttramo^Te,^  'S"?harles  L,  Parsons,  an  enthusiastic  advocate  of  the 
Haber  proSand  at'that  time  chief  chemist  of  the  Bureau  of  Mines. 

wS  a  pioneer^  procest  and  it  would  have  been  rather  extmordinary  if  it  had  come 
*'Mr"'L:i*^Knt'Sir»t'Te*Goverument  went  into  a  112,000,000  venture  which 

P'fVn''  wtu^s   Yes-  but  they  were  entirely  justified  in  doing  so,  in  my  opinion. 
M^M^LERThalis  a  question,  as  to  whether  the  Government  wants  to  go  into  it. 

r  M^^.r(?an?hlV='S  ^owTXSd  at  a  reasonable  expensed 

?,rMYil"""caJifnorb"  turned  ii,to  the  cyanamid  proce.? 
Gen.  Williams.  Oh,  no;  it  is  entirely  different. 


MUSCLE  SHOALS  PBOPOSITIONS. 


79 


Mr.  Miller.  But  it  can  be  turned  into  a  productive  concern,  in  your  judornent? 
Gen.  Williams.  Yes;  it  could  be.  j     o  • 

Mr.  Miller.  Out  of  what  fund  was  the  $16,000,000  which  wa^  put  into  Dam  No  2 
taken? 

Gen.  Williams.  That  was  entirely  out  of  the  $20,000,000  appropriated  in  the  act  you 
have  just  referred  to.  "^ 

Mr.  Miller.  That  came  out  of  this  $20,000,000? 
Gen.  Williams.  Yes,  sir. 
Mr.  Miller.  That  is  the  dam  proposition? 
Gen.  Wilxiams.  Yes. 

Mr.  Miller.  General,  you  are  acquainted  somewhat  with  the  manufacture  of  fer- 
tilizer? 

Gen.  Williams.  I  know  nothing  about  the  manufacture  of  fertilizers     The  only 
thing  we  have  gone  into  has  been  the  production  at  Muscle  Shoals  in  nitrate  plant  No 
2  of  one  of  the  essential  components  of  fertilizers. 

Mr.  Miller.  Was  the  construction  of  Dam  No.  3  at  Muscle  Shoals,  or  the  proposed 
construction  of  it,  for  the  purpose  of  furnishing  power  for  either  of  these  nitrate  Dlants 
plant  No.  1  or  plant  No.  2?  ^         * 

Gen.  Williams.  No,  sir;  it  was  not  necessary  for  that  purpose. 

Mr.  Miller.  Any  power  produced  at  that  time  would  have  been  merely  for  com- 
mercial purposes;  that  is,  around  the  two  nitrate  plants,  to  sell  or  do  whatever  they 
wanted  to  do  with  it. 

Gen.  Williams.  The  continuous  operation  of  nitrate  plant  No,  2  would  require 
about  90,000  horsepower,  and  that  would  take  up  nearly  all  the  primary  power  that 
would  come  from  Dam  No.  2. 

Mr.  Miller.  Then,  so  far  as  the  continuation  of  nitrate  plant  No.  2  is  concerned,  that 
is,  it  being  held  in  reserve  and  in  readiness  as  a  war  preparedness  measure  Dam  No.  3 
has  no  connection?  * 

Gen.  Williams.  No,  sir. 

Mr.  Miller.  The  Warrior  steam  plant  is  88  miles  distant? 

Gen.  Williams.  Yes,  sir. 

Mr.  Miller.  And  that  furnishes  the  power  to  each  of  these  nitrate  plants,  plant 
No.  1  and  plant  No.  2?  r         .  t- 

Gen.  Williams.  Yes,  sir;  but  nitrate  plant  No.  1  has  its  own  power  plant;  very 
little  power  is  required  in  the  Haber  process,  and  that  is  one  of  its  great  advantages. 

Mr.  Miller.  Then,  the  power  from  the  Warrior  steam  plant ° 

Gen.  Williams  (interposing).  Will  be  needed  principally  at  plant  No.  2. 

Mr.  Miller.  Has  plant  No.  2  any  local  power  plant? 

Gen.  Williams.  It  has  a  power  plant  which  is  almost  of  sufficient  capacity  to  run  it 
by  itself.  That  power  plant,  however,  was  not  expected  to  be  entirelv  completed  by 
the  time  its  power  would  be  needed  by  the  remainder  of  the  plant.     * 

Mr.  Miller.  That  plant  is  still  in  existence? 

Gen.  Williams.  It  is  there,  and  is  now  leased. 

Mr.  Miller.  And  it  is  sufficient  to  operate  plant  No.  2? 

Gen.  Williams.  Yes;  practically  so. 

Mr.  Miller.  Then  the  presence*  of  the  Warrior  steam  plant  would  be  simply  as  a 
reserve  power,  and  is  of  no  practical  use  in  operating  plant  No.  2? 

Gen.  Williams.  It  is  not  essential  to  plant  No.  2,  assuming  that  in  case  of 
emergency  some  20,000  horsepower  can  be  obtained  over  the  transmission  line  from 
the  Alabama  Power  Co.'s  system. 

Mr.  Miller.  Then  that  can  be  disposed  of  without  in  anywise  interfering  with  the 
output  of  plant  No.  2,  so  far  as  fertilizer  production  is  concerned? 

Gen.  Williams.  Yes;  because  water  power  rather  than  steam  power  would  be 
necessary  to  manufacture  fertilizer  commercially. 

Mr.  Miller.  That  could  probably  be  disposed  of  to  the  best  advantage  of  any  of 
these  units  around  Muscle  Shoals,  could  it  not? 

Gen.  Williams.  I  should  think  probablv  so. 

Mr.  Miller.  Wh&t  would  be  the  difficulty,  so  far  as  preserving  plant  No.  2  as  an 
eiemejit  of  national  preparedness  is  concerned,  in  disposing  of  the  Warrior  steam 

Gen.  Willla-ms.  There  would  be  no  difficulty. 

Mr.  Miller.  You  have  placed  a  pretty  high  value  on  the  salvage  of  the  plant,  have 
you  not? 

Gen.  Williams.  Our  figures  there  are  based  on  information  we  s'ot  from  the  Federal 
rower  Commission,  m  which  they  estimated  that  a  plant  of  that  kind  was  worth  about 
*iuu  per  kilowatt. 

Mr.  Miller.  That  would  make  the  value  how  much? 

92900—22 6 


80 


MUSCLE  SHOALS  PBOPOSITIONS. 


Gen.  Williams.  About  $3,000,000. 

Mr.  Miller.  If  we  should  dispose  of  the  Warrior  steam  plant  we  would  receive 
salvage  to  the  amount  of  three-fifths  of  what  Mr.  Ford  intends  to  give  for  the  entire 
property,  including  the  W^arrior  plant? 
Gen.  Williams.  Yes,  sir. 

Mr.  Miller.  If  that  can  be  done,  it  seems  to  me  it  would  be  rather  imprudent  to  sell 
the  whole  thing  for  $5,000,000,  when  you  could  sell  a  little  angle  of  it  for  $3,000,000. 

Gen.  Williams.  According  to  our  estimates,  Mr.  Ford  could  salvage  everything 
except  the  nitrate  plant  No.  2,  and  get  a  sufficient  return  to  make  nitrate  plant  No.  2 
stand  him  a  cost  of  about  $400,000;  in  other  words,  almost  give  it  to  him. 

Mr.  Miller.  Do  we  own  all  of  the  right  of  way  on  the  transmission  lines  from  the 
Warrior  plant  to  plant  No.  2? 
Gen.  Williams.  We  do  not  own  any  of  it. 
Mr.  Miller.  What  would  it  probably  cost? 
Gen.  Williams.  We  do  not  know. 
Mr.  Miller.  Have  you  estimated  the  probable  cost? 
Gen.  Williams.  No,  sir;  we  have  not. 
Mr.  Miller.  Who  has  estimated  what  that  would  be? 
Gen.  Williams.  So  far  as  I  know,  there  has  been  no  estimate  made  on  that. 
Mr.  Miller.  Mr.  Ford's  contract  presupposes  that  that  would  not  only  be  acquired 
but  paid  for  by  the  United  States? 

Gen.  Williams.  As  I  understand  it,  the  United  States  must  give  him  a  clear  title 
to  all  those  properties. 

Mr.  Miller.  Tlie  cost  of  that  would  probably  be  a  very  substantial  sum,  would 
it  not? 

Gen.  Williams.  I  should  think  so. 

Mr.  Miller.  According  to  Mr.  Ford's  contract  the  United  States  is  also  to  pay  any 
overflow  damages  at  Dam  No.  3,  which  your  department  estimated  to  be  $2,000,000, 
as  I  understand  it? 
Gen.  Williams.  That  is  the  ^timate  of  the  Engineers. 

Mr.  Miller.  Wh&t  I  was  getting  at  is  this:  The  purchase  of  the  transmission  line 
from  the  Warrior  steam  plant  to  plant  No.  2,  a  distance  of  88  miles,  adding  also  to  that 
the  expense  to  which  the  United  States  Government  would  be  put  for  damages  for  the 
overflowing  at  Dam  No.  3.  would  probably  absorb  the  greater  portion,  if  not  all,  of  thi£ 
$5,000,000  that  Mr.  Ford  is  going  to  pay? 
Gen.  Williams.  I  should  think  it  might. 

Mr.  Miller.  Then  the  United  States  Government  would  get  nothing  whatever  in 
the  shape  of  payment? 

Gen.  Williams.  Practically  nothing. 

Mr.  Miller.  But  we  can  salvage  the  little  unit  down  there  at  the  Warrior  plant  for 
$3,000,000  and  get  something  out  of  it? 
Gen.  WujJAMs.  Yes,  sir. 

Mr.  Miller.  And  by  eliminating  Dam  No.  3,  that  would  eliminate  the  .•!;2,000,000 
of  consequential  damages  that  would  arise  in  the  event  of  damage  to  that  property? 
Gen.  Williams.  Yes,  sir. 

Mr.  Miller.  It  would  also  eliminate  about  $20,000,000  for  the  construction  of  that 
dam? 

Gen.  Wili  iams.  Yes,  sir. 

Mr.  Miller.  And  if  that  amount  were  put  into  the  construction  of  the  Wilson  Dam 
vou  would  have  a  completed  dam  that  would  generate  how  many  horsepower? 
Gen.  Williams.  It  would  generate  about  100,000  primary  horsepower. 
Mr.  Miller.  Wliat  do  you  mean  by  primary  horsepower? 

Gen.  Williams.  That  means  power  available  every  day  for  365  days  in  the  year, 
24  hours  a  day. 

Mr.  Miller.  At  some  periods  of  the  year  there  would  be  in  excess  of  that? 
Gen.  Williams.  Yes,  sir.     The  Engineer  Department  have  ligures  in  reference  to 
the  probable  horsepower  that  could  be  developed. 

Mr.  Miller.  Then  by  eliminating  Dam  No.  3,  selUng  this  Warrior  steam-power 
plant,  and  completing  the  construction  of  Dam  No.  2,  the  Government  would  be  way 
ahead  in  the  deal,  would  it  not? 
Gen.  Williams.  It  seems  so  to  me. 

Mr.  Parker.  Gen  Williams,  how  much  property  does  that  option  of  the  Alabama 
Power  Co.  cover? 

Gen.  WiLi.iAM^s.  I  think  there  are  about  15  acres  at  the  Gorgas  plant.  You  mean 
the  value? 

Mr.  Parker.  No:  I  mean  what  property  does  it  cover.  Of  course,  it  covers  the 
Warrior  steam  plant  and  the  transmission  line. 


MUSCLE  SHOALS  PROPOSITIONS. 


81 


Gen.  Williams.  It  covers  a  total  of  .$4,979  382  33 

rl'r.   w  ^^"^^  ^^^\*  other  property  would  be  included  in  the  nurchase? 

station   and  what  was  called  the  DrXn  railro^  ^""^  *^^  ^^^^  '"^- 

Mr.  Parker.  It  does  not  coA^er  plant  No  2^ 

Mr°■p!^';;t'^''?;  -^  ^f  °.2*>^^  ^  ^«  ^ith  plant  No.  2  at  all. 

Mr.  Parker.  It  is  only  this  extra  power? 

Gen.  Williams.  Yes,  sir.  *-         •  ^ 

undir  theroonti'c*'^  ""  "'  ^'^  ^^"""^  ^^'^'^  t"  P^^  *e  cost  of  construction, 

cos't  of^com'uot'i^n*'"  *''■  """"'  '^^'  ''  ^*  *  P"'^  '^'^<J  to  «>■"«  extent  upon  the 

Gen.  Williams.  No,  sir:  not  at  all 

nitmer-rnUnto\Krtiri.lror  dXf  ;^^^^^      ^y}"^  I  unde..taud  you  to  say  that 
monia  before  the^  go  intftheTertmzer*^       '"  *"  ^  "^^"^'^  ""^  «"'P''«'«  "^  ^- 

Oen.  Williams.  Theammoniummtrate  which  we  make  at  tl,or>io„«i.„o»  t  _.i-  • 
^rJ^  "  ™^  ^-^  """•  ""*  '^  P'^>--'  <=ha-te?i:rcsirsu«ari?4'3?&t 

Mr.  Parker.  It  is  dangerous  to  carry;  it  might  explode? 

Gen^WiAMs'  Thf  "^  r/ef'^iJper,  or  is  the  sulphate  used? 

ferdlizfr^""^"-  '^'''"  ''  ^  ''''^"""*  """«•    ^he  ammonium  nitrate  is  not  used  in 

Mr"p^'!:"'"'!i  *^"'5' '°  ^  'ery  limited  extent,  if  at  all, 

cL  iVl  "v*  «"?  a°V  facilities  for  making  ammonium  sulohate' 

anSnium  sulpSate"' '"'  ^'''""■"" '"''"'''--  --'<»  "ave  to  bettkl  to  produce 
y.^r?  ^•""'^''-  ^"'^  ■"""'•  '"°"«y  ^°"W  that  '^<^<  for  a  capacity  of  110,000  tons  a 

-<^on^""^LiItl^!:XliyJ)L^^^^^  ■^^"-«'  to  produce 

«.000,000,  capacity  ol  the  plant,  215,000  tons  a  year,  would  be  about 

|n3^;;^Ls^T=^;^^^  -ery  well-known  article  of  commerce? 

Gen  Wn?T'!;,«^^Tf -^^^^  '^  ^f}^  ^'^"  ^t  '^^^^  Pr^s^nt  time? 

Mr  PARKKrTi/*.  •'  ^r  'fV"^  ^'^'  ^^  ^  ton. 
n     \^J^*^ER.  That  IS  the  sulpliate? 

<jen.  Williams.  Yes,  sir. 

bei'ause  it'L^'ot'iie^by  Iteelp  ''  ""'^^  '''''''  ''  ^^  ^^^  '^  ^^^  ^-rilizer  people 

^en.  Wiluams^  That  would  be  the  market  for  it 

J^en   WWm  JThTTi"^  ^^r  ^^  r^^  "P^^  «»^h  a  market  at  $50  a  ton? 
Mr  Parker    How  m,fnr^''^  market  price  is  perhaps  subnormal. 

Mr  T>^^fr°"  "^^^^  ammonium  nitrate? 

-^iy.  j^arker.   1  es.  • 


82 


MUSCLE  SHOALS  PRaPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


83 


profit,  taxes,  insurance,  depreciation,  or  re- 


Gen  Williams.  We  estimate  that  by  using  steam  power  it  will  ^ost  us  $96.92  ip)er 
ton  to  make  nitrate  of  ammonia;  using  the  cheap  waterpower  we  estimate  it  will 

'tr.'^PAlKd'  Cs'that  include  any  overhead  charges,  or  only  the  actual  cost  of 

Te'll'x^^LLLMS.  It  does  not  include 'any  .allowance  for  interest  on  the  capital 
cost  for  depreciation,  obsolescence,  taxes,  or  insurance. 

Mr.  Parker.  Or  profit  of  any  kind? 

Gen.  Williams.  No  profit,  no. 

Mr.  Parker.  Nothing  for  interest, 

repairs?  .     ,    ,  • 

Gen.  Williams.  It  includes  repairs. 
Mr  Parker.  But  not  depreciation? 

I^ARK^rComme^cially  then,  you  can  not  make  it  tor  much  less  than  flOO  a 

^^\r^  WT.TTAMq    T  should  think  that  would  be  about  right. 

Mr  P^RKBrThit "e  nTtrate.    How  much  ^o""  ^e  added  to  that  c<^t  in 

convert  hi"  U^nto  sulphate  for  getting  sulphuric  acid   and  *i"S=  °' *»*  ^jf '  tu. 

?„t  \v,,>i.M«    \Vp  would  not  convert  nitrate  into  sulphate  of  ammonia,     the 

coSS;>oX  "aphate  pric^  would  be,  using  the  steam  power,  $58.70  per  ton;  and 

using  water  power.  $48.07  per  ton. 

Mi-  Parker.  For  the  sulphate? 

Gen  Williams.  For  the  sulphate;  yes,  sir.  •♦  ,+^0 

Mr  Parker.  So  that  that  can  be  made  cheaper  than  the  mtrate? 

Apn  WiiiiAMS    Cheaper  than  the  ammonium  mtrate;  yes,  sir. 

Mr  Parker    Of  cours'^  something  ought  to  be  added  for  deprecia  urn 

ran  \V^.  I  lAMs    That  price  was  figured  on  the  same  basis  as  the  other.         . 

Mr  Parker    Commercially ,  you  would  add  at  least  25  per  cent  tor  that? 

pnii  Wttttams    I  should  sav  that  was  not  unreasonable.  ,    ,       ^ 

Mr  Parker  So  tCwouli  make  it  $75  a  ton.  approximately  if  made  by  stoam 
power,  and  approximately  $62.50  per  ton  if  made  by  water  power? 

Gen.  Williams.  Yes.  . 

Mr  Parker.  It  is  now  selhng  in  the  market  for  $dO  a  ton? 

Gen.  Williams.  Yes;  but  that  is  a  very  low  price  for  it 

Mr  Parker.  It  is  low  compared  to  what  it  was  during  the  war. 

Gen.  Williams.  And  right  after  the  war. 

Mr.  Parker.  What  was  the  price  before  the  wai-; 

n^r^   tVttttamq    It  averao^ed  about  $60  a  ton.  I  tnink. 

MrPA^Er  Wur  figuref  h^  both  instances  are  rather  higher  than  the  figures  show- 
in^  file  average  price  paid  for  it  before  the  war. 

fvn   WrfLllMs    Yes-  if  you  add  25  per  cent  to  your  cost  to  manufacture. 

Mr  P.rker  I'added  25  per  cent^for  contingencies.  Any  manufacturer  would 
have  tracwLmething  for  thai  and  Mr.  Ford  proposes  to  add  8  per  cent,  by  way  of  his 
profits? 

MrPrRKER.'^HowTs  this  ammonium  sulphate  usually  made-by  this  process  or  in 

"^Ten'\fiZ7u..  I  think  the  largest  sources  of  supply  are  the  by-product  coke  ovens 
and  the  eas  works     Those  two  constitute  the  principal  sources  of  supply. 

Mr  p!rkIr  Thevare  by-products  in  the  coke  ovens  and  gas  factories,  so  that 
any 'hing  tbey  get  o^t  of  it  Is^o  their  advantage,  and  they  can  lower  their  prices  if 
they  have  to,  in  order  to  meet  the  market. 

MrP^^'KE^UndeX^e  circumstances  it  does  not  seem  to  me  that  a  very  strong 
ca^e  is  made  outTo  tL  eYect  that  fertilizer  can  be  made  much  cheaper  here  than 

^^Gen^WiLLi\MS   We  have  never  been  able  to  make  out  such  a  case. 

Mr  p\rker  You  can  not  make  out  a  case  if  fertilizer  can  not  be  made  cheaper,  or 
its Ingre^ntrcan  Lt  be  made  cheaper  at  Muscle  Shoals  than  at  the  coke  ovens  and 

^^ofn  Wn  LI  .MS    Our  estimates  on  the  cost  of  ammonium  sulphate  produced  at  these 

pla^i'sdoesnolSdu^^^ 

Mr.  Parker.  As  I  understand  it.  fertilizer  contains  only  about  3  per  cent  of  tuis 

material. 


Gen.  Williams.  I  do  not  know  much  about  fertilizer,  but  I  understand  that  tl^re 
are  three  essential  elements  in  it — phosphorous,  potassium,  and  nitrogen.  Now,  the 
formula  specifies  a  certain  percentage  of  each  of  these  elements  contained  in  the 
fertilizer. 

Mr.  Parker.  What  did  fertilizer  sell  for  before  the  war? 

Gen.  Williams.  I  suppose  that  would  be  a  question  of  the  formula  on  which  it  was 
made. 

Mr.  Parker.  I  am  getting  at  the  practical  end  of  it.  You  do  not  think  the  opera- 
tion of  this  plant  would  materailly  reduce  the  cost  of  fertilizer,  under  these  circum- 
stances? 

Gen.  Williams.  This  plant  would  produce  only  one  of  the  components  of  fertilizer. 
Mr.  Parker.  And  not  at  a  cheaper  price  than  it  can  be  produced  elsewhere? 
Gen.  Williams.  I  do  not  think  that  we  would  find  the  cost  of  that  component  would 
be  materially  reduced. 

Mr.  Hill.  General,  Mr.  Ford's  offer  includes  nitrate  plant  No.  1,  nitrate  plant  No.  2, 
the  Waco  quarry,  and  the  Gorgas-Warrior  steam  plant? 
Gen.  Williams.  Yes. 

Mr.  Hill.  As  I  understand  it,  the  question  as  to  the  possible  rights  of  the  Alabama. 
Power  Co.  only  apply  to  the  Gorgas-Warrior  steam  plant? 
Gen.  Williams.  And  the  transmission  line. 

Mr.  Hill.  The  transmission  line  is  included  in  the  properties  which  Mr    Ford 
wishes  to  buy,  and  that  would  come  under  the  head  of  the  Gorgas-Warrior  steam 
plant? 
Gen.  Williams.  Yes. 

Mr.  Hill.  Nitrate  plant  No.  1  is  not  in  operation? 
Gen.  Williams.  Neither  one  is  in  operation. 

Mr.  Hill.  Asa  matter  of  national  defease,  nitrate  plant  No.  I  ie  not  essential 
Gen.  Williams.  Nitrate  plant  No.  1  to-day,  as  a  producing  plant,  has  no  value. 
Mr.  Hill.  Mr.  Ford  does  not  propose  to  keep  that  up? 
Gen.  Williams.  No;  he  does  not. 

Mr.  Hill.  Nitrate  plant  No.  2  is  the  one  that  it  is  proposed  to  keep  up" 
Gen.  Williams.  Yes;  that  is  the  only  one. 

Mr.  Hill.  The  only  inducement  to  the  Government,  from  a  national-defense  point  of 
view,  so  far  as  this  office  is  concerned,  is  the  upkeep  of  nitrate  plant  No.  2" 
Gen.  Williams.  That  is  the  one  that  is  of  material  benefit  to  the  Government 
Mr.  Hill.  Nitrate  plant  No.  2,  as  listed  by  Mr.  Ford,  is  entirely  self-sustaining-  it 
has  all  Its  elements  of  power?  °' 

Gen.  Willl\m8.  Yes. 
Mr.  Him,.  Does  it  depend  on  Dam  No.  2? 

Gen.  Williams.  Of  course,  the  cost  of  the  product  of  nitrate  plant  No.  2  would  be 
materially  reduced  by  using  the  cheap  watc^r  power  that  would  come  from  Dam  No  2 
Mr.  Hill.  He  could  use  this  power  so  obtainable? 

Gen.  Williams.  Yes;  he  would  have  the  steam  plant,  and  mv  guess  would  be  that 
fie  would  use  the  steam  plant  so  that  in  time  of  low  water  he  would  materiallv  increase 
the  primary  power  and  at  the  season  of  high  water  he  would  cut  off  the  st^am  plant 
and  let  it  he  inactive.  "  •  ^ 

Mr.  Hill.  Is  the  Waco  quarry  essential  to  nitrate  plant  No.  2? 
Gen.  Williams.  It  is  essential  in  that  one  of  the  raw  materials  used  in  the  manu- 
tacture  of  the  cyanamid  comes  from  the  quarry.    That  is,  we  take  the  limestone  and 
™ake  from  it  the  lime  which  is  used  in  the  manufacture  of  carbide 

iiTV'  ^Vf:  1^  o^^^T"^^  a  question  asked  you  by  Mr.  Miller  you  estimated  that 
that  would  take  2,000  tons  a  day?  . 

Gen.  Williams.  That  is  for  the  whole  operation  of  the  plant. 
Mr.  Hill.  I  suppose  that  would  be  on  a  basis  of  300  days  a  year"? 
Gen.  Williams.  Yes,  sir. 
Mr.  Hill.  To  make  110,000  tons? 
Gen.  Williams.  Yes. 

Mr.  Hill.  That  is,  600,000  tons  altogether? 
Gen.  Williams.  Yes. 

Mr.  Hill.  Has  it  been  e^imated  how  long  the  quarry  would  be  able  to  furnish  that? 
Ixen.  Williams.  No  defimte  estimate  has  been  made,  but  there  is  a  large  amount 
01  stone  there. 

Mr.  Hill.  The  reason  I  asked  that  question  is  that  it  has  a  bearing  on  the  matter 
oUhe  term  of  the  lease,  whether  it  is  50  years  or  100  years.  It  is  not  an  outright  pur- 
cnase,  but  looking  at  it  from  a  national-defense  point  of  view,  I  wanted  to  find  out 
wnether  the  products  of  that  quarry  were  available  elsewhere  in  the  vicinity  Is 
mat  material  met  with  frequently  in  the  neighborhood*? 


■i 


84 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PBOPOSITIONS. 


85 


Gen.  Williams. 

Mr.  WURZBACH. 

Gen.  Williams. 
Mr.  WruzBACH. 


Gen  Williams.  I  think  so.  I  am  told  by  one  of  our  officers  that  the  exploration 
of  Waco  quarry  so  far  made  has  disclosed  a  supply  for  20  years,  and  the  estimate  is 
that  there  will  be  enough  for  80  or  100  years.  ,     .     , ,     •     .i,         •  ui     u     j 

Mr.  Hill.  But  the  products  of  the  quarry  are  obtainal)le  in  the  neighborhood 

for  use? 

Gen.  Williams.  I  think  so;  yes. 

Mr.  WuRZBACH.  Are  there  any  plants  in  Germany  in  successful  operation  which 

are  using  the  Haber  process  at  this  time?  ,     ^^  i 

Gen.  Williams.  I  think  the  plant  at  Oppau  was  using  the  Haber  process. 
Mr.  WuRZB  ACH.  That  was  the  plant  that  blew  up  some  time  ago . 
Yes. 

Yo!i  do  not  know  of  any  other? 
There  is  one  at  Merseburcj.  ^ 

That  is  the  only  one  which  has  used  that  process  since  the  destruc- 
tion of  the  plant  at  Oppau? 
Gen.  Williams.  So  far  as  we  know.  .  . -^ 

Mr  FiELi>«^.  General,  referrinjr  to  the  discussion  of  the  puce  of  tertihzer,  it  is  highly 
probable,  is  it  not,  that  new  developments  and  new  comi)ounds  may  materially  re- 
duce the  cost  of  the  production  of  fertilizer  at  this  or  any  other  point  in  the  near  future, 

with  our  present  progress?  ,        .    .  4.    v^,.- 

Gen.  Williams.  We  do  not  produce  fertihzer;  we  produce  just  one  component,  ^o^v 
it  seems  to  me  that  the  fixation  of  nitrogen  from  the  atmosphere,  in  so  far  as  1  know  it. 
is  just  really  be<>inning. 
TheCHAiKMAN.  You  do  not  produce  fertihzer'  ..^,,;^„ 

Gen.  Williams.  No,  sir;  we  produce  only  one  ingredient  of  tertihzer.  ^  ^he  question 
of  the  fixation  of  nitrogen  is  one  that  is  being  constantly  studied  in  all  of  the  scientific 
countries,  and  it  is  something  that  all  recognize  as  essential.  The  supplies  in  (  hile 
are  being  exhausted,  and  it  probably  will  not  be  a  great  many  years  betoie  they  will 
no  lon-er  be  able  to  supply  the  needs  of  the  world.  Therefore  it  is  essential  to  develop 
this  process.  Just  what  is  ?oing  to  be  the  successful  method ,  I  do  not  believe  anybody 
can  sav.  The  people  who  have  studied  the  question  all  difier  among  thems^-hes  as  to 
just  what  is  the  best  process.  They  all  agiee  that  it  is  of  great  benefit;  they  all  agree, 
I  think,  that  some  time  or  other  in  the  not  far  distant  future  the  fixation  of  nitrc^en 
will  be  on  a  commercial  basis,  just  as  the  production  of  pig  iron,  but  nobody  will  dare 

to  say  what  ]>rocess  is  ffoins>  to  bring  that  out.  ,  .  ,   ^,  „^  «««o^Kiii>;oo9 

Mr.  Fields.  They  all  agree  it  is  a  proposition  m  which  there  are  great  possibihties .' 

Mr^FiE^Ds'^  Taking  the  proposition  at  Muscle  Shoals,  the  whole  outiit  down  there, 
we  have  got  to  do  one  of  five  things:  First,  scrap  it;  second,  operate  it  by  the  Govern- 
ment; third,  maintain  it  in  an  idle,  stand-by  condition  for  the  use  of  the  Government 
in  time  of  energency;  fourth,  lease  it  to  private  individuals  or  a  corporation;  or  fafth, 
let  it  rust  down  and  become  a  wreck.  „      _  .        ir       j      *     j 

Let  us  take  the  propositions  in  their  order.  .  The  War  Department,  as  I  undeiH^^and 
from  the  standpoint  of  national  preparedness,  is  opposed  to  the  scrapping  of  this  plant.' 

Gen.  Williams.  Yes. 

Mr.  Fields.  Under  any  circumstances? 

Mr^ipl^lD^s^'Then  the^next  proposition  would  be  its  operation  by  the  Govemmejit 
Probably  the  Secretary  of  War  has  made  some  suggestion  along  that  line.     I  \\^U  ask 
YOU  to  prepare,  if  you  have  not  already  done  so,  an  aiialysis  covering  the  ^P^^^^^^^^ 
Dknt  No  2  for  a  period  of  six  years,  we  ^iU  say,  by  the  Government,  sho^^^ng  the  cost 
of  operation  and  the  proceeds  therefrom,  including  depreciation,  etc.,  everything 
that  a  business  concern  would  put  into  its  operating  computation. 

Gen.  Williams.  I  will  have  that  prepared. 

Estimate  of  results  of  operation  by  Government  of  United  States  nitrate  plant  No.  2, 
"^  Muscle  Shoals,  Ala.,  for  period  of  6  years. 

llncluding  fixed  charges,  etc.,  figured  in  accordance^ith  commercial  but  not  with  Government  account- 

estimated  receipts. 
Sale  of  6X215,000  tons  of  ammonium  sulphate,  at  $65  per  ton. 


$83, 850, 000 


estimated  expenses. 
Cost,  f.  o.  b.  cars,  of  6x215,000  tons  of  ammonium  sulphate,  assuming 

l^cf  ?n  F^r/^^'n^^  ^^'.^  ^^^"^  ^""^  "^^^^^  P*^^^^  ^^^^  ^or  ^  years,  at 

$o8. 70  and  $48.07  per  ton "^        '        «aq  7r«  ri=n 

Extra  expense  in  building  up  business. ."'. i'  ^on  000 

WeciS^^^^                                 ""*  ""'f^  ^"^  sulphate  manufact-ure'.:  '  180,'  Z 

Lfepreciation  on  itJO.OOO.OOO    for  6  years,  at  5  per  cent 6  000  000 

Interest  on  $24,140,000  ^  for  6  years,  at  5  per  cent 7'  249  OOO 

Taxes  ^  on  $24,140,000  for  6  years,  at  U  per  cent o'  172'  fiOO 

Insurance  on  $15, 140,000  *  for  6  yeara,  at  1  per  cent  -..'.■.'.■.■.'.■.:::"::;;::  908,'  400 

^""^^^ 86,  769,  650 

Excess  estimated  expenses  over  estimated  receipts 2~919~6S 

note. 

Estimated  present  value  of  plant 1 1  fi40  non 

^  bSnV?t^  ""^  sulphate  of  ammonia  department;  "including  'storage 

i^:stimated  working  capitaineeded  .'.'.*. '. ."  .'.'.*.'.".". .... '. '. '. '.  ]  [  [  [  [  [  ]  ]  ]  ]  [  [  [  [  [  [      9'  J^'  ^ 

HiHnn  ^'u^f;  'ri^«,jShird  proposition  is  that  of  maintenance  in  an  idle  standby  con- 
dition.     A\Tiat  would  be  the  annual  cost  of  maintaining  this  plant  in  an  idle  condition? 

ZT^T.lS':^^V'!^'  ^•^'  "^  ^"^^if  ^^  ^"^^>-«  -'  that\ind  at  the  present  tlr? 
because  the  nlLt  h.^  w  f  "^^  ^''^  *?^i  ^^^''^^-  ^^P^^ditures  for  its  maintenance, 
Decause  tlie  plant  had  not  been  operated  since  it  was  closed  down  shortlv  aftpr  thp 

\[;%irn «  ^  the  fiscal  year  1922  the  cost  of  maintenance  ^ill  be  about  $125  0(^ 
Mr.  fields.  Does  that  include  the  receipts  from  the  power  company?  ' 

Gen  Williams.  No,  sir;  that  is  the  expenditure 
nithL  w"^"?^^-  "^^^^  I  ^o"ld  like  to  have  you  prepare  an  analysis  showing  the  cost 

S  tion      I  blSev^itl^  «f.f  H  P"'^'^"^  ^''  "  P™.^  i  '^  y'^''  ^^  ^^  idle  stand-by  con- 
mtion.     1  believe  It  is  stated  in  your  report  and  also  in  the  exhibit  included  in  the 

thnwKn'  'l^'^  -^  ^^T'f '  ^^^*  depreciation  and  obsolescence  would  result  iS  the 

condftinn  ^  T  fr^'^'??  '^^"Hl''  '^  ^^  T^'^'  '^  '^  ^'^^^  maintained  in  an  idle,  stand-by 
condition.     I  am  asking  for  this  in  order  to  trv-  to  airive  at  a  correct  estimatP  of  vrhnt 

he  cost  to  the  Government  would  be  for  the  period  of  tL  proposed  lea^M^^^ 
tplepi^di^^^^^^^^       ""'"^^  ''  maintain  W  plant  inL?dle  stan^b?  conS 

Then,  General,  how  long  would  it  take,  if  the  plant  were  maintained  in  this  wav 
to  secure  an  organization  for  the  operation' of  the  plant  in  time  of  eme?|ency ?  ^' 

x^or  the  sake  of  companson  which  we  may  want  in  the  future  in  the  considprfltioTi 
tstViT5nfa%l^^^^^^  liketohaveyou  put  In  the  record  the  ci't  o^he  nTrfpS^^ 
Al^  I  w^milf  f^iT^^"^  '^^''^-^  "^t^"^'  ^^^  t?^  P"^^  that  the  Government  got  for  it 
^ll^/  a!^  'f  *?  ^^r  y^"^  Pyt  in  the  same  information  in  regard  to  the  Old  Hickorv 
plant  and  the  mtrate  plant  on  the  Ohio  River,  so  we  may  understand  or  know  whethpr 
these  plants  have  brought  the  Government  the  estimated  sXage  value 

r^-  }^ '^"^MS-  Yes,  sir;  I  >.ill  put  those  statements  in  the  record 

( ihe  following  statement  was  later  furnished  for  the  record :) 

in  idle  standtv7n^r*fnlrfn  w  9n '*  ^^  maintaining  United  States  Nitrate  Plant  No.  2 

for  the  fo-ve^r  period ^n  u A2  000 S  ^^"^f  ^'"'^^^  ^^^^'^^^  P^'  ^^^^  «^  $2,000,000 
20-year%rfod  '  ^2,000,000  for  replacements,  or  a  total  of  $4,000,000  for  the 

for'thi^rf'*'"'t*«  °^  $100,000  per  year  for  maintenance  is  based  on  maintenance  cost 
$2  ono  nSr^^'f  ^^""^^  y^^^  .^^^'^S  i^*«  ^^count  savings  made  and  to  be  made  The 
Lp.?^^  replacement  estimate  is  made  on  the  cost  of  those  replaceme^  which  it 
appears  now  would  have  to  be  made,  viz,  the  various  vent  stacL,  pSSlTy  all  ^f 

orlflefem  pro?els'  ''^'^''  plant  at  end  of  20  years  by  plant  of  equivalent  capacity,  using  same 
ammon?a"pKlce1s?t^^^^^^  construction  necessary  to  manufacture  sulphate  of 

ammonia.  ^        ^  ^  ^°^^  °^  additional  construction  necessary  to  manufacture  sulphate  of 


86 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


87 


which  are  too  small  to  permit  of  painting  inside;  flashing  where  these  stacks  and  others 
project  through  the  roof;  all  rubber  and  the  greater  part  of  the  leather  conveyor  and 
drive  belting;  helicoid  conveyor  casings;  boiler  tubes  of  the  power  houses  and  steam 
plant-  a  large  amount  of  the  piping;  and  much  of  the  equipment  of  the  acid  area. 
Replacement  expense  will  not  start  for  possibly  from  5  to  10  years  and  then  in  rather 
small  amount,  but  will  increase  in  such  proportion  that  by  probably  the  end  of  20 
years  this  expense  per  year  will  be  prohibitive.  WTiile  it  is  reasonably  certain  that 
these  replacements  will  have  to  be  made,  it  is  also  likely  that  there  will  be  others 
which  may  amount  to  as  much  as  $7,000,000.  ^ 

"(2)  With  the  plant  maintained  in  idle  stand-by  it  is  estimated  that  sufficient 
organization  for  emergency  operation  could  be  secured  to  start  operation  in  one  and  one- 
half  months,  to  start  production  in  three  months,  and  to  reach  capacity  production 

"(3)  The  smokeless  power  plant  at  Nitro,  W.  Va.,  cost  $60,631,400,  but  materials 
aggrecrating  $2,798,329  were  sold  or  transferred  from  the  plant  prior  to  its  sale.  The 
estimated  salvage  value  was  placed  at  $8,736,026.  The  sale  price  of  the  plant  was 
$8  551,000  plus  a  storage  space  of  67,500  square  feet  for  two  years  valued  at  25  cents 
per  square  foot  per  year  or  $33,750. 

"The  Old  Hickory  plant  cost  $84,912,000,  but  materials  aggregating  $5,708,000  were 
sold  or  transferred  from  the  plant  prior  to  its  sale.  The  estimated  salvage  value  was 
placed  at  $7,600,000.  The  sale  price  of  the  plant  was  $3,505,000  plus  a  storage  space 
of  866,000  square  feet  for  five  years  valued  at  25  cents  per  square  foot  per  year,  or 
$1  082,500  for  the  five-year  period. 

**The  nitrate  plant  near  Cincinnati,  Ohio,  was  never  completed,  but  cost  $7,321,400 
as  far  as  completed.  This  plant  has  been  retained  by  the  War  Department  and  is 
beino'  used  as  a  storage  depot." 

Mr.  QmN.  General,  you  are  the  Chief  of  Ordnance  of  the  United  States  Army? 

Gen.  Williams.  Yes,  sir. 

Mr.  QmN.  Let  us  see  what  difference  there  is  between  us.  I  am  a  Congressman 
of  the  United  States,  and  we  both  represent  the  people.  I  believe  we  ought  to  accept 
this  proposition  of  Mr.  Ford.    I  do  not  think  you  believe  we  ought  to  accept  it,  do 

^*A8 1  understand  it,  this  Congress  ought  to  do  the  best  thin^  for  the  American  people. 
You  start  out  with  an  investment  of  $85,000,000  or  a  little  more,  which  Mr.  Ford 
proposes  to  take  over.  As  I  understand  it,  the  estimate  submitted  bv  the  Secretary 
of  War  as  well  as  your  estimate  shows  that  the  scrap  value  which  the  Government 
could  get  out  of  these  plants  is  something  over  $8,000,000? 

Gen.  Williams.  Yes,  sir.  ,       xt     oo 

Mr.  QuiN.  That  includes  the  nitrate  power  plant  No.  2? 

Gen.  Williams.  It  includes  everything.  ,      . ,  ,  t.  n 

Mr  QuiN.  What  did  the  Government,  through  you,  pay  the  Alabama  Tower  Co. 
forerectingnitrateplant.No.  2,  powerplantNo.2?  •..-..      i     , 

Gen.  Williams.  The  Alabama  Power  Co.  had  nothing  to  do  with  nitrate  plant 

Nn    9 

Mr.  QuiN.  They  had  nothing  to  do  with  it? 
Gen.  Williams.  No,  sir.  ,„,.,, 

Mr.  QxHN.  What  did  you  pay  them  for?    What  did  they  construct? 
Gen.  Williams.  We  made  a  payment  to  them  amounting  to  $4,789,938.34. 
Mr.  QuiN.  That  was  with  a  profit  to  them  of  10  per  cent  upon  the  cost,  was  it  not? 
That  was  one  of  the  10  per  cent  cost-plus  contracts? 

Gen.  Williams.  Six  per  cent,  with  a  limit  as  to  total  fee. 

Mr.  QuiN.  Did  they  have  a  contract  different  from  the  contracts  of  these  other 

fellows,  General?  .         .    , 

Gen.  Williams.  The  percentage  on  the  cost-plus  contracts  varied. 
Mr  QuiN    I  would  like  vou  to  get  the  exact  information  on  that  to  show  us  exactly 

what  those  gentlemen  got,  because  4  per  cent  on  $4,000,000  makes  quite  a  difference. 
This  nitrate  plant  No.  2  and  the  power  plant  at  No.  2  is  proposed  by  Mr.  Ford  to 

be  left  intact,  ready  for  operation,  is  it  not? 

Gen.  Williams.  Yes,  sir.  .  •  ,     ^        xi.  i.    v    ;= 

Mr.  QuiN.  In  yoiu:  estimate  of  what  Mr.  Ford  is  getting,  aside  from  that,  lie  is 

pa>'ing  $2,000,000  mote  than  you  estimate  in  yoiu-  figures  of  $8,000,000  as  the  scrap 

value. 
Gen.  Williams.  I  do  not  understand  you.  . 

Mr.  QuiN.  Mr.  Ford  is  offering  to  give  the  Government  $3,000,000  more,  is  ne 

not?  ,   ,.  1, 

Gen.  Williams.  I  do  not  understand  that  at  aU. 


Mr.  QuiN.  You  have  estimated  the  total  scrap  value  at  $8,000,000  and  a  little  over, 
have  you  not? 

Gen.  Williams.  The  total  for  everything  as  scrap  is  estimated  as  $8,812,000. 

Mr.  QuiN.  Close  to  $9,000,000. 

Gen.  Williams.  Mr.  Ford  gets  a  clear  title  to  all  the  property  represented  by  that 
amount. 

Mr.  QuiN.  Except  this  nitrate  plant  No.  2  and  power  plant  No,  2,  which  he  leaves 
to  the  Government? 

Gen.  Williams.  He  gets  a  clear  title  to  that. 

Mr.  QuiN.  But  he  is  to  hold  it  in  readiness  for  the  use  of  the  Government  at  any 
time? 

Gen.  Williams.  He  obligates  himself  under  the  contract  to  operate  plant  No.  2 
for  the  purpose  of  fixing  nitrogen,  eventually  for  the  purpose  of  producing  fertilizer, 
but  in  such  condition  that  it  can  produce  explosives  needed  by  the  United  States 
in  the  event  of  an  emergency,  so  that  it  can  be  turned  over  to  the  United  States. 

Mr.  QuiN.  He  obligates  himself  to  keep  that  plant  in  working  condition  with  the 
personnel  and  the  officers  there  so  that  it  may  be  turned  over  to  the  United  States 
Government,  or  to  the  War  Department,  in  case  of  emergency? 

Gen.  Williams.  And  to  pay  a  profit  of  8  per  cent.  He  told  the  Secretary  of  War 
that  unless  he  got  8  per  cent  profit  he  would  not  operate  it. 

Mr.  QuiN.  But  he  would  have  it  ready,  so  that  if  somebody  just  blew  a  whistle 
everybody  would  go  to  work  and  turn  out  nitrates. 

Gen.  Williams.  Nothing  like  that  ever  happened. 

Mr.  QuiN.  That  is  what  he  says  in  this  proposition.  He  does  not  use  that  language, 
but  that  is  the  effect  of  it,  is  it  not? 

Gen.  Williams.  No,  sir;  I  do  not  think  so.  If  that  were  all  there  were  to  the  propo- 
sition of  getting  munitions,  it  would  be  a  very  simple  proposition  indeed. 

Mr.  QuiN.  But  that  would  be  a  part  of  it? 

Gen.  Williams.  He  will  not  make  explosives  there  at  all  during  this  time. 

Mr.  QuiN.  But  at  this  time  we  are  getting  it  from  Chile,  or  from  these  coke-oven 
plants? 

Gen.  Williams.  Yes;  we  get  nitrate,  but  in  so  far  as  explosives  are  concerned  he 
would  not  during  peace  times,  as  I  understand  it,  actually  manufacture  any  explosives 
at  all.  He  would  maintain  the  portion  of  the  plant  that  is  needed  to  make  the  explo- 
sives. 

Mr.  QuiN.  In  other  words,  he  will  maintain  it  for  the  purpose  Congress  put  it  up  for? 

Gen.  Williams.  Yes;  but  in  whatever  way  he  intends  to  maintain  it,  it  will  take 
time  to  get  the  product  for  explosives  because  of  the  fact  that  the  process  beyond  the 
point  where  you  make  ammoma  will  not  be  in  operation;  there  will  be  no  organization, 
nobody  will  be  trained,  so  that  you  will  have  to  get  your  organization  and  train  them 
to  go  ahead  and  make  this  particular  product. 

Mr.  QuiN.  That  is,  to  turn  nitrate  into  explosives? 

Gen.  Williams.  No,  sir;_you  do  not  turn  nitrate  into  explosives. 

Mr.  QuiN.  Mix  it  with  T.  N.  T. 

Gen.  Williams.  No;  the  thing  that  happens  here  is  that  the  process  for  making 
ammonium  sulphate  and  the  process  for  making  ammonium  nitrate  are  the  same  up 
to  a  certain  point.  Up  to  that  point  you  would  have  an  organization  and  machinery 
and  a  plant  working,  but  from  the  point  where  you  get  your  ammonia  on  unt;il  you 
produce  the  ammonium  nitrate  the  plant  would  not  be  in  operation  in  peace  time. 

Mr.  QuiN.  That  would  be  ready,  would  it  not? 

Gen.  Williams.  Yes;  it  would  be  ready. 

Mr.  QuiN.  That  is  all  the  Government  could  do  with  it? 

Gen.  Williams.  That  is  all  the  Government  would  do. 

Mr.  QuiN.  My  friend,  Brother  Miller,  seems  to  have  engendered  a  special  hostility 
against  Dam  No.  3.  If  Dam  No.  3  is  completed,  or  constructed,  any  sensible  man 
knows  it  is  going  to  back  the  water  up  into  the  Tennessee  River  and  other  streams. 
Is  that  not  true? 

Gen.  Williams.  Yes. 

Mr.  QuiN.  That  water  will  be  held  in  reserve  for  the  dry  season  of  the  year  to  keep 
a  normal  supply  running  at  the  maximum  rate  for  Dam  No.  2? 
.  Gen.  Williams.  I  do  not  know  about  that,  the  Chief  of  Engineers  can  give  you  that 
information. 

Mr.  QuiN.  That  is  a  reasonable  conclusion  to  reach,  is  it  not? 

Gen.  Williams.  I  understand  the  building  of  Dam  No.  3  would  not  increase  the 
primary  power  of  Dam  No.  2. 

Mr.  QuiN.  That  is  one  of  the  purposes  of  Dam  No.  3,  is  it  not? 

Gen.  Willl\ms.  No;  not  as  I  understand  it.    But  I  am  not  familiar  with  it. 


88 


MUSCLE  SHOALS  PEOPOSITIONS, 


MUSCLE  SHOALS  PROPOSITIONS. 


S9 


Mr.  QuiN.  Furthermore,  the  construction  of  Dam  No.  3  will  make  navigable  certain 
waters  above  there  that  would  not  be  navigable  above  that. 

Gen.  Williams.  Yes,  sir.  _  ^     -  ^u-        *•      *  j 

Mr  QuiN  Then,  under  Mr.  Ford's  proposition,  you  have,  out  of  this  estimated 
scrap  value  of  something  over  $8,000,000,  a  plant  which  has  been  estimated  b^  the 
Secretary  of  War  to  be  worth  $7,200,000.  That  is  nitrate  plant  No.  2,  and  that  is  the 
estimated  amount  it  is  stated  to  be  worth  on  page  20  of  the  Secretary's  report  to 
Congress. 

Gen.  Williams.  Yes.  sir;  that  is  right.  *-  ^^  a/v.      j 

Mr.  QiJiM.  Mr.  Ford  ir>  asking  the  Government  to  let  him  advance  So,0(H),()00  under 
that  i3ropr»sition  in  the  periods  named,  the  Government  to  construct  and  finish  Dam 
No.  2  and  Dam  No.  8  at  an  estimated  co^'t  of  between  $42,000,000  and  $')(),000,fl00,  as 
i  understand  it.  You  do  not  know  what  he  is  going  to  do,  so  far  as  damming  up  other 
places  there  is  concerned  and  making  the  water  supply  l^etter,  do  you? 

Gen.  Williams.  No.  .  i     ,    ^■^^       ^^ 

Mr.  QiiN'.  Mr.  Parker  seems  to  think  it  would  cost  more  to  maire  fertilizer  there 
than  it  ever  did  l^efore.  Do  vou  not  believe  that  Mr.  Ford  can  make  certain  hy- 
oroducts  as  a  result  of  liis  investment  at  this  place,  such  as  aluminum  and  other  metal 
products  that  will  make  this  fertilizer  product  a  mere  waste,  so  far  as  expense  is  con- 
cerned, at  ?S  or  >iO  a  tm;  is  that  not  possible? 

Gen.  WiLTJAMs.  No,  sir:  I  have  no  such  idea  as  that. 

Mr.  QriN".  I  !>elieve  thev  can  do  it,  and  the  farmers  believe  it  too.  Do  you  not 
believe  that  if  this  proposition  is  accepted  Mr.  Ford  can  take  the  power  from  these 
dams  and  transmit  electric  current  several  hundred  mile?  away  from  there;  that  is, 
in  addition  to  what  he  needs? 

Gen.  WiLLrAMs.  Oh,  yes.  _  •        •       n  *i,  " 

^fr.  Qri\.  Then,  that  would  develop  manufactunng  enterpnses  in  all  tne  sur- 
rounding States  within  a  reasonable  distance,  would  it  liot? 

Gen.  Williams.   It  would  encourage  them. 

Mr.  Oris.  If  those  manufacturing  enterprises  can  get  cheap  current  wita  coal  at 
$10  or  :^'12  a  ton.  would  that  not  be  a  reasonable  proposition? 

Gen.  WiiLiAMs.  That  is  an  important  element  of  the  cost. 

Mr.  Qmn.  Tlien,  the  construction  of  the  dam  would  improve  and  increase  naviga- 
tion? 

Gen.  Williams.  Yes.  ,  ,    ,       -.r      i    ci      i  o 

Mr.  Qcis.  That  would  help  all  the  territory  both  above  and  below  Muscle  5^hoals. 

Gen.  WifLiAM^.  I  should  think  so.  ,1 

Mr.  Quix.  And  commercial  activities,  agricultural  interests,  and  everything  else 

would  be  bound  to  be  helped? 

Gen.  Williams.  Yes.  .  ,  .      ,     ^  x      j   i.     t,« 

Mr.  QuiN.  This  man  Ford  has  made  a  success  m  everything  he  has  entered,  has  he 

not? 

Gen.  Williams.  Undoubtedly. 

Mr.  QriN.  It  is  no  chimerical  dream  with  him? 

Gen.  W^iLLiAMS.  No.  .      ,     -rr  .       r,  j  1,    v  ^ 

Mr.  Qrix.  He  has  one  of  the  best  factories  in  the  Unites  States,  and  now  he  has 

succeeded  in  the  raiboad  business,  considering  the  short  time  he  has  been  in  it,  has 

he  not?  , .  ,  ,  -         .  ,    . 

Gen.  Williams.  That.  I  should  think,  would  require  analysis. 

Mr  QuiN.  He  has  succeeded  so  well  in  the  railroad  business  that  he  tried  to  get  the 
Interstate  Commerce  Commission  to  reduce  the  rates  on  his  railroad,  which  they 
refused  to  allow  him  to  do,  and  he  has  reduced  the  employees  on  the  raikoad  from 
2  700  to  1  600  and  raised  all  of  their  salaries.  Does  that  not  show  that  he  is  a  man 
of  more  than  ordinarv  abilitv?  If  he  could  do  that,  while  the  other  roads  were  cr\^ng 
that  thev  had  to  increase  their  rates  and  decrease  the  salaries  of  their  employees,  do 
vou  not 'think  there  is  some  chance  for  Mr.  Ford  to  decrease  the  price  of  commercial 
fertilizer  to  the  agricultural  classes  of  the  country  by  the  development  of  this  project. 

Gen.  Williams.  I  see  no  relation  between  the  one  and  the  other. 

Mr.  QuiN.  I  think  there  is  a  relation  between  them.  General.  Mr.  Ford  does  not 
propose,  as  I  understand  it,  to  hold  this  for  himself  and  his  estate,  as  a  profit-making 

proposition,  does  he?  .        ,    .  ,     ,  x-     «   1.    ^m 

Gen.  Williams.  He  stipulates  that  in  the  operation  of  nitrate  plant  !so.  2,  he  wiu 
not  make  more  than  8  per  cent  profit,  but  he  said  to  the  Secretary  of  War  in  an  inter- 
view with  reference  to  making  a  profit,  that  he  will  not  operate  it  unless  he  does  make 
a  profit,  and  I  take  it  that  he  means  he  must  make  a  profit  on  the  whole  enterprise. 

Mr.  Quix.  As  I  understand  it,  this  gentleman  wants  to  set  an  example  to  the  people 
of  the  United  States  as  to  what  can  be  done. 


Gen.  Williams.  My  understanding  is  that  the  operation  of  nitrate  plant  No.  2  is  not 
necessarily  tied  up  with  the  rest  of  it,  according  to  his  statement  to  the  Secretary  of 
War.  There  would  be  various  elements  of  the  enterprise,  and  if  one  part  were  not 
successful,  he  would  lop  it  off. 

Mn  QuiN  Mr.  Ford  proposes  that  the  Government  would  have  this  back  at  the  end 
01 100  years  c 

Gen.  Williams.  It  is  a  lease. 

Mr.  QuiN.  He  wants  the  right  of  renewal. 

Gen.  Willlams.  It  is  a  lease. 

Mr.  QuiN.  He  wants  the  right  of  renewal,  with  his  estate  operating  this  after  he  ia 
gone.     He  proposes  to  keep  in  operating  condition  and  turn  over  to  the  Government 

".'  i'^^lno  nnT^'fT"''^  ^^'^  P>?^  ^H  ^^tin^ated  scrap  value  of  which  has  been  put 
at  $/  200.000  Do  you  not  believe,  laying  aside  all  benefit  to  the  people  and  iu«.t 
considering  the  benefit  to  the  Government  for  the  purpose  of  securing  nitrates  in  case 
ol  an  emergency  or  m  case  of  war,  that  it  is  a  good  proposition *» 

Gen.  Williams.  It  is  of  value;  yes, 

Mr.  QuiN.  You  and  I  both  believe  we  ought  to  keep  the  nitrate  plant  ready. 
AC     S"  j,^^^^^*'®-.  ^®^5  I  should  not  recommend  that  this  plant  be  not  retained.     If 
Mr.  foras  otter  IS  not  accepted,  then  our  recommendation  would  be  that  nitrate 
plant  JNo.  2,  with  its  steam  power  plant,  be  retained. 

Mr.  QuiN.  Then  you  would  either  have  to  maintain  it  at  a  cost  to  the  Government 
or  you  would  have  to  lease  it  to  somebody  else. 

Gen  Williams.  We  could  lease  the  power  plant  for  a  sufficient  amount  to  main- 
tain tne  rest  of  it. 

Mr.  QuiN.  There  could  not  be  a  profit  on  it? 

Gen.  Williams.  No,  sir;  there  would  be  no  profit. 

Mr.  QuiN.  Under  Mr.  Ford's  proposition  you  have  the  element  of  navigation  vou 
have  the  element  of  industrial  development,  not  only  for  the  immediate  territory 
but  you  have  all  the  prospective  development  in  the  territorv  surrounding  that 
country  for  700  miles.  If  the  proposition  stated  bv  my  friend,  Mr.  Miller  if  true 
would  you  not  cut  out  navdgation  and  cut  out  development  and  have  nothing  there 
except  the  power  plant?  ° 

Gen  Williams.  No,  sir;  I  do  not  think  that  follows,  because  you  have  the  steam 
plant  tliere  to  be  operated  in  connection  with  the  dam. 

You  could  very  materially  increase  your  primary  power,  and  then  vou  would 
have  a  considerable  period  during  the  year  when  you  would  have  a  large  excess 
or  power  beyond  what  would  be  needed  for  the  nitrate  plant. 

Mr.  QuiN.  It  would  not  be  sufficient  to  carry  out  a  great  program  If  vou 
went  ahead  and  built  Dam  No.  3  you  would  have  water  for  the  very  periods  of 
the  year  when  it  would  be  needed. 

Gen.  Williams.  Dam  No.  3  may  very  materially  increase  vour  power 

inni^*  i^^^^^'-^^^^^  Government— and  I  believe  righteously  so— has  irrigated  the 
land  of  the  farmers  in  the  West,  has  it  not? 
Gen.  Williams.  Yes. 

beUeve^^fhnt  ^wT  '*  l^^  ^'''}^  ^''"'^  ^^  "'^<^  ^^^'^^  "^  ^^''-  ^^^"^^'8  State.    I 
Delieve  m  that.    We  turn  the  water  on  these  arid  lands  and  that  fertilizes  them 
The   Government,  through  its  agencies,   is  turning  the  water  on   that  land' 
^utv'ft  atVrV'\  '"'f  rf  '^"  Government  owes  tliat  same  responsl^Uy' and 

souL  or  ifr^o^H^^^  ""^  ^^'^  '^.^"''^'''^'  *^  ^'""^  ^^^  ^^'•"^^r^  fertilizer  from  this 
somce  or  some  other  source,  just  as  the  Cxovernment  turns  water  on  the  arid 

no^cLSt^'^o'pJss^o^^  ""  '"''''"'  ''  governmental  policy  which  I  think  I  am 

Mr.  QuiN.  Mr.  Parker  suggested  that  the  coke  ovens  could  sunnlv  this  am- 
nmnium  sulphate.    How  much  do  thev  supply  now'  ^  ' 

fo.uf ^*^  Williams.  The  capacity  of  the  by-product  coke  ovens  is  about  500  000 

" Ir   Omrwilh  f^^JP^^t^^  year.    This  plant  has  a  capacity  of  2^U  ti^ 

n^a^y-  ti^s'of  Tei?ilL'eV^  S  T^^l'^f  ^""  ^^^^"^^«^^'  ^'^  ^^^'^  ^-«'  ^^ 
Gen.  Williams.  I  do  not  know,  sir. 
Mr.  QuiN.  About  three  or  four  million  tons,  would  it  not? 

M?'(^m%hf;i^^^^^  ''''*  *^"  y-""'  ^  ^^  ^^*  ^^^^  *^«  ^«^°^«la  ^«r  fertilizer. 
Gen  Wn  •  TJilf  ^T?  """^  ''''"'^f  out  in  a  concentrated  form,  as  I  understand  it. 
i^mze7  '''''^^'  """^  ^'  '""^P*"^^^  ^^  ammonia,  which  is  an  ingredient  of 

The  Cttairman.  But  it  is  not  fertilizer? 
^en.  Williams.  No,  sir;  it  is  not. 


90 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PflOPOSITIONS. 


91 


Mr  QuiN    It  is  the  basis  of  fertiUzer.    You  understand,  do  you  not,  that  certain 

^termiuM^;!  t^^^^^^  are  three  essential  elements  that  go  into  fer- 

*^^r  QSrA^^rcr^^^^^  at  Muscle  Shoals  has  all  three  of  them. 

Phosphorus  is  there  in  great  quantities,  is  it  not? 

Gen  Williams.  There  is  i^hosphorus  rock  m  Tennessee. 

Mr.  QuiN.  And  limestone  is  in  the  quarries  there. 

Gen.  Williams.  Yes.  ^»«i«^v  t^  m  ^ 

(Thereupon  the  committee  took  a  recess  until  2  o  clock  p.  m.) 

AFTER  RECESS. 


The  committee  met  pursuant  to  recess  at  2  o'clock  p.  m. 


STATEMENT  OF  MAJ.  GEN.  C.  C.  WILLIAMS,  CHIEF  OF  ORDNANCE-^ 

Besuxned. 

Mr  0cm  General,  did  you  find  out  during  the  recess  the  cost  of  cj"^*™^*'""  «' 
thft  mrt  of  the  ptot  that  the  Alabama  Power  Co.  put  up.  You  said  you  did  not 
Sl'^he&er  it  wTlO  or  6  per  cent,  but  you  thought  it  was  6  per  cent. 

MrbmN"co^d'yo,Ke*out'in  dollars  and  cents  how  much  it  was  then  that 
th^AlSZa  Power  Ifo  reeved  from  the  Government  for  its  work  in  that  construc- 

^^  gL  Williams.  The  contract  provides  that  "the  total  of  said  fee  shall  not  exceed 
''Ki'N.Vteftriura^iToter  Co.  received  from  the  Government  1225,900 
for  its  services  in  that  construction  work. 
Sf  Qum'under^Aetontract  of  the  Ordnance  Department  or  the  Government 

with  t&b^a  Power  Co.  you  stated  they  were  •'"t^"  PPt't'T  ^Pf/.^^  wlr  'Zed 
during  the  war  under  that  contract  any  power  because  of  the  fact  that  the  war  closea 

■^cTfeilMivl^Vtal'^wt'^ 

^°lr  QvixX^^at^^^l^'tir  whSfo^^^  and  some  odd  dollars  was  ex- 

wnded  the  Government  put  up  the  money  and  not  the  Alabama  Power  Co. 

SfQ^ Tnl  tL^^  Sretv1d«uL^rS6(^«ch  w.k  .their  f.s 
anH  DTofits     On  the  question  you  were  discussing  about  the  moral  obligation  on  the 

"^T  w.'f,fAM°,''Mv*JJFnt  of  view  Mr.  Quin,  is  that  the  Government,  through  its 

acSl^ditXeX  e^r^^ntd^aitM^^^ 

and,  so  far  as  it  knew,  in  accordance  with  the  law,  and  1  tlunk  tne  uo\ernmeni, 

it  eAtered  into  that  contract,  assumed  an  obhgation  to  carry  it  out. 

Mr  OuiN    And  you  do  not  think  the  $225,000  that  they  received  would  be  a  s^^^^ 
cient  compensTto  and  warrant  that  contract  to  be  nullified  without  additional 

TeTwiiuAMT'lna^^      as  the  $225,000  was  itself  a.part  of  the  contract   I  can 
noTseeihatThas  any  relation  whatever  to  the  obligation  which  the  Goverrnnent 

""""Mf  ^Omv    In  the  estimate  for  scrapping  this  entire  outfit  at  Muscle  Shoals  for 
$8'812,Xdo  ?ou"tn^o^^^^^^    s^e  type  of  estimate  that  the  other  plants  were 

"^Gel' Williams.  Yes,  sir;  we  axnve  at  that  figure  through  our  experience  with  other 

^^ Mr.'QuiN.  Well,  take  Hog  Island.    We  lost  a  great  sum  of  money  there;  wa^  it  based 

*^^Gen.  WiIliams.  No,  sir;  I  had  nothing  to  do  with  that. 
Mr.  Quin.  That  was  not  under  the  Ordnance  Department? 
Gen.  Willla-ms.  No,  sir. 


Mr.  Quin.  This  West  Virginia  plant  was  under  the  Ordnance  Department. 

Gen.  Williams.  At  Nitro? 

Mr.  Quin.  Yes;  how  about  that? 

Gen.  Williams.  Our  experience  there  was  taken  into  consideration  and  our  expe- 
rience at  Old  Hickory  and  various  other  places  where  we  have  salvaged  large  plants. 

Mr.  Quin.  We  lost  a  great  deal  of  money  on  the  West  Virginia  business,  did  we  not? 
About  $100,000,000  was  put  into  that? 

Gen.  Williams.  No,  sir;  we  put  in  there  about  $60.000,0000,  as  I  remember  the 
figures,  and  we  expect  to  get  out  t)f  it  anywhere  from  eight  to  eleven  million  dollars. 

Mr.  Quin.  How  much  did  you  have  in  the  Tennessee  plant,  the  Old  Hickory  plant, 
I  believe  they  call  it. 

Gen.  Williams.  We  put  in  there  about  $80,000,000  and  we  are  getting  out  of  that 
about  $3,500,000. 

Mr.  Quin.  $3,500,000  out  of  $80,000,000,  about  what  per  cent  is  that? 

Gen.  Williams.  That  would  be  about  4i  per  cent. 

Mr.  Quin.  To  scrap  the  outfit  at  Muscle  Shoals  for  the  sum  named  would  mean  the 
dismantlement  and  abandonment  of  the  whole  business  there. 

Gen.  Williams.  Yes,  the  whole  thing.    That  is  what  we  mean  by  scrapping. 

Mr.  Quin.  And  the  bats  would  fly  over  there  and  nest  there  instead  of  having  smoke- 
stacks and  having  1.000,000  men  at  work  there.  * 

Gen.  Williams.  There  would  be  nothing  left  there  for  the  bats  to  fly  over  or  to 
nest  ill. 

Mr.  Quin.  They  would  have  to  make  their  nests  on  the  bare  ground,  whereas  Mr. 
Ford  stated  when  he  had  his  enterprise  completed  it  would  employ  1,000,000  men. 
If  that  be  true,  and  he  pays  about  $5  a  day,  that  would  be  about  $5,000,000  a  day  in 
pay  rolls  down  in  that  community,  would  it  not,  General? 

Gen.  Williams.  Yes,  sir. 

The  Chairman.  Of  course,  that  is  not  officially  before  us,  Mr.  Quin. 

Mr.  Quin.  No,  sir;  but  that  is  the  statement  he  made.  I  have  no  means  of  knowing 
whether  it  is  true  or  not. 

The  Chairman.  Of  course,  Mr.  Ford's  representatives  will  be  before  the  committee 
on  Monday  and  undoubtedly  will  state  just  what  is  intended. 

Mr.  Quin.  We  know  he  is  going  to  employ  some  labor  down  there.  He  is  bound  to 
do  that. 

Gen.  Williams.  Yes,  sir. 

Mr.  Quin.  And  it  is  bound  to  be  a  good  thing  for  that  territory,  especially. 

Gen.  Williams.  Yes,  sir. 

Mr.  Quin.  Under  his  offer  $5,000,000  will  be  received  by  the  Government  for  the 
property  and  the  Government  will  have  nitrate  plant  and  power  plant  No.  2  at  its 
disposal,  as  you  stated  this  morning,  in  case  of  war,  or  threatened  war,  on  the  basis  of 
8  per  cent  profit  to  Mr.  Ford. 

Gen.  Williams.  The  8  per  cent  profit,  as  I  understand  it,  is  what  he  limits  himself 
to  in  the  case  of  producing  fertilizer. 

Mr.  Quin.  That  was  my  understanding,  l)ut  I  asked  the  question  this  morning 
about  turning  it  over  to  the  Government  to  operate 

Gen.  Williams  (interposing).  I  do  not  understand  that  the  8  per  cent  applies  to 
that.  The  nitrate  plant  No.  2  will  be  Mr.  Ford's  property,  and  when  that  is  taken 
over  by  the  Government  in  rase  of  a  crisis,  undoubtedly,  there  will  be  negotiations 
between  the  Ford  Co.  and  the  United  States  as  to  the  terms  under  which  it  will  be 
taken  over. 

Mr.  Quin.  Then,  General,  you  do  not  mean  to  state,  as  I  understand  it,  that  he 
would  get  8  per  cent  out  of  the  Government  during  a  war. 

Gen.  Williams.  No,  sir. 

Mr.  Quin.  Or  in  case  of  an  emergency  when  it  was  turned  over. 

Gen.  Williams.  No,  sir. 

Mr.  Quin.  And  if  he  did  get  that  it  would  be  a  heap  more  reasonable  than  what  we 
got  from  other  concerns  during  our  last  experience  from  1917  to  1919. 

Gen.  Williams.  I  do  not  think  that  necessarily  follows. 
.  Mr.  Quin.  It  may  not  necessarily  follow,  but  then  you  know  something  about  what 
It  cost  your  department  and  you  know  what  other  departments  had  to  pay  for  a  great 
many  things  where  the  Government  was  hogged.  You  could  not  help  it  and  we  could 
not  help  it,  but  it  was  hogged  at  Hog  Island,  and  at  a  great  many  other  places,  and  by 
these  airplane  concerns  in  Ohio  and  elsewhere.  Now,  the  record  will  show  your 
answer  to  be  that  under  his  proposition,  if  accepted  by  the  Congress  and  the  Govern- 
ment, plant  No.  2  and  the  power  plant  at  No.  2  will  be  under  the  control  of  the  Govern- 
ment through  the  War  Department  at  whatever  terms  the  Government  sees  proper  to 
niake,  or  they  can  take  it  for  nothing  if  they  want  to. 
Gen.  Williams.  No,  sir;  they  could  not  take  it  for  nothing. 


92 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


93 


Mr  QuiN.  Well,  we  conscripted  men,  and  I  believe  if  we  are  going  to  conscnpt  men 
we  should  go  ont  and  conscript  everything  we  need  in  case  of  war. 

The  Chairman.  The  gentleman  did  not  believe  m  conscripting  men  for  the  war. 

Mr  QuiN.  No,  I  did  not  believe  in  it  until  they  put  it  up  to  me  that  they  could  not 
get  thern  in  any  other  way  and  then  I  was  for  conscription,  and  I  do  not  think  we 
ought  to  conscript  them  ^vithout  conscripting  such  enterprises  ^«  this  if  the  GoveTn^ 
ment  needs  them.  That  is  my  honest  judgment  about  it.  Gen.  Williams,  $7,250,000 
is  the  estimated  value  of  nitrate  plant  No.  2  and  the  power  plant  for  .^^rapping. 
How  much  more  is  the  total  amount  of  all  of  the  business  at  Muscle  Shoals  lor 
scrapping? 

Gen.  Williams.  $1,562,000.  ,       .   .  j  v  t 

Mr  QuiN.  Then  Mr.  Ford  or  his  con  pany  will  be  gmng  Ypu— and  by  you  I  mean 
the  Goveniment-all  of  the  estimated  value  except  $1,220,000  and  the  Government 
will  have  for  its  own  use  the  main  thing  it  needs  for  war,  namely,  mtrate  plant  No.  2. 

Gen  Williams.  No,  sir;  because  I  should  have  no  idea  that  the  Ford  company 
would  scrap  these  properties.    They  would  dispose  of  them  as  going  concerns  if  they 

ot)t  control  of  them,  I  take  it.  .       ,       ,,  ^  ^     j       -.^i- 

^Mr  QuiN.  You  liiisunderstood  me.    I  think  that  is  what  they  want  to  do  mth 
them',  but  I  said  that  for  scrap  purposes-I  am  trying  to  get  the  difference  between 

•what  we  would  be  out.  xi_    v    •    t  *^a   fi.of  *>.«., 

Gen  Williams.  Then  I  think  you  must  take  it  on  the  basis  I  suggested,  that  they 
would 'make  the  best  disposirion  of  those  properties  they  could,  and  the  best  disposi- 
tion,  as  we  indicate  bv  these  figures,  is  not  to  scrap  them. 
Mr  QuiN.  You  do  not  know  whether  they  would  be  scrapped  or  not. 
Gen.  Williams.  I  can  not  imagine  they  would  scrap  them. 
Mr.  QuiN.  You  do  not  know  that?  , ,      ^  xi.    i     *     * 

Gen  Williams.  Because  that  would  not  be  the  way  they  would  get  the  best  return. 
Mr.  QuiN.  In  the  analysis  presented  by  the  Secretary  of  War,  the  question  of  lease 
for  100  years  came  up. 
Gen.  ^\^illiams.  Yes,  sir.  ,  tt  •    i 

Mr.  QuiN.  And  he  is  against  it  and  beUeves  in  a  50-year  lease.    Have  you  a  judg- 
ment on  that  proposition.  General?  .V    '       **      +1.^4^  T  +l,i„l' 
Gen.  Williams.  No,  sir;  I  have  no  particular  thoughts  on  the  matter  that  1  think 

^Mr  QuiN  ^It^would  be  immaterial  to  you  which  was  adopted,  and  you  would  not 
object  to  a  100-year  lease  if  we  decided  in  favor  of  the  Ford  proposition? 
Gen.  Williams.  No;  we  would  raise  no  objection,  particulariy.  ,  „ 

Mr.  QuiN.  What  you  want  is  that  nitrate  plant  to  be  kept  there  ready  lor  an 

^"gS^  A\^lliams.  That  is  our  prime  concern  in  so  far  as  the  Ordnance  Department 
is  concerned,  1  ecaiise  it  has  to  do  with  preparation  for  furnishing  the  materials  ot  war. 

Mr  Fisher  General,  a  good  deal  has  been  said  al  out  the  options  that  were  gi\  en 
to  the  two  I  ig  corporations  that  did  work  for  the  Government  in  that  section.  1  ou 
are  very  familiar  with  those  options,  are  you  not;  that  is,  as  to  the  phraseology  ot  me 
contracts  reserving  the  options?  •     i  x  -i 

Gen.  Williams.  I  am  not  sufficiently  tanuliar  to  discuss  them  m  detail. 

Mr  Fisher  From  what  you  know  of  them,  do  you  consider  that  the  GovernmenT, 
as  it  stands  now,  without  an  expression  from  those  companies,  is  in  a  position  to  aycepi 
the  Ford  offer;  that  is,  in  the  al  sence  of  a  declaration  from  those  two  companies,  is 
the  Government  in  a  position  to  accept  the  Ford  offer?  . -^    i    ,.i,i 

Gen.  Williams.  It  seems  to  me  that  as  parties  at  interest,  their  side  of  it  sliouiu 
certainlv  I  e  heard  and  considered.  , 

Mr  FisHER  Have  your  had  any  communication  with  the  representatives  ot  eitner 
of  those  corporadons  to  determine  their  atritude  about  the  exercise  of  the  options, 
that  is,  whether  they  expect  to  exercise  that  right  or  not? 

Gen.  Williams.  I  think  the  Secretary  of  War  testified  that  the  Air  Nitrates  (  orpora- 
tion  said  they  would  desire  to  exercise  their  opdon,  and  also  that  he  expecteu  me 
Alabama  Power  Co.  would  desire  to  do  the  same  thing. 

The  Chairman.  Mr.  Fisher,  I  would  say  to  you  that  both  companies  have  written 
the  chairman  of  the  committee  asking  to  be  heard  on  the  proposition. 

Mr  Fisher.  On  the  question  of  section  16  of  the  Ford  contract,  I  would  like  w 
ask  you  whether  or  not  you  consider  that  if  the  contract  is  carried  out,  that  the  pro- 
visions as  indicated  in  section  16  would  give  the  United  States  Government  ^Nnai 
you  would  consider  as  preparedness  in  the  way  of  nitrates  for  munitions  in  case  ot  au 

©merEfencv*^  •     tna 

Gen.  Williams.  It  would  very  materially  contribute  to  preparedness  for  nitrates 

in  so  far  as  munitions  are  concerned. 


Mr.  Fisher.  Has  the  Ordnance  Department  or  the  War  Department  a  laboratory 
with  otticers  or  representatives  studying  these  chemical  problems  and  making  experi- 
ments such  as  would  be  offered  to  the  Government  under  section  16? 

Gen  Williams.  During  the  war  we  started  a  chemical  research  laboratory  alon'^ 
these  lines  at  the  American  University,  just  out  of  Washington.  That  wak  main- 
tained by  the  Ordnance  Department  until  last  July,  when  we  turned  it  over  to  the 
Agricultural  Department.     That  laboratory  is  in  operation  now 

Mr.  Fisher  WTiat  would  you  consider  the  approximate  cash  value  to  the  Ordnance 
Department  of  a  plant  that  is  functioning  with  skilled  personnel,  as  is  indicated  in 
section  16? 

Gen  Williams.  The  nearest  answer  I  can  give  to  that  would  be  the  cost  to  install 
this  plant  because  Mr.  Ford's  offer  provides  for  the  maintenance  of  that  plant  at 
approximately  its  capacity  output.  Now,  then,  under  war  condidons,  I  can  see  no 
reason  to  suppose  that  we  are  going  to  do  things  very  much  cheaper,  reladvely,  in 
any  crisis  to  come,  m  the  course  of  the  next  25  or  30  years  than  we  did  in  this  crisis, 
thecBBh^vilu'  ^^  ^^^*  ^^®  '^^^  ^^  ^^^®  P^^^*  ^'^"^^  represent  practically 

Mr.  Fisher.  If  the  Ford  offer  is  not  accepted,  is  it  the  plan  of  the  Ordnance  De- 
partment to  keep  ^0.  2  in  a  stand-by  condition? 

Gen.  Williams.  It  is;  we  recommend  it. 

Mr  Fisher.  Is  a  plant  in  a  standby  condition,  such  as  you  propose  to  keep  plant 
^o.  2,  comparable  as  a  ready  plant  for  the  production  of  nitrate  ^ith  one  that  is  a 
going  concern  as  indicated  by  section  16? 

Gen.  Williams.  No;  it  is  not. 

Mr.  Fisher  I  would  like  to  know  whether  or  not  the  Ordnance  Department,  in 
the  failure  of  the  acceptance  of  the  Ford  offer,  has  a  plan  for  nitrate  preparedness. 

Gen.  Williams.  Our  plan  is  simply  the  retention  of  tliis  plant  in  a  standby  condi- 
tion ready  to  be  put  in  operation  as  soon  as  an  organization  can  be  gotten  together  and 
started  going.  We  estimate  it  will  take  about  three  months  to  start  production  and 
live  months  before  we  would  be  producing  to  capacity 

Mr.  Fisher.  Whereas,  if  the  Ford  offer  was  accepted,  it  is  ready  within  five  davs. 

Gea.  Williams.  No:  not  wUhin  five  days,  I  should  say.  because  under  the  Ford 

IZa1^'^F''u'''''  ""S^^^  P^''^'^^?  ^^"^^  ^'^  ^^"^^^  oil  normally,  and  the  remainder 
would  have  to  be  put  into  operation,  and  that  of  necessity  would  take  time. 

ab^ndo^nSieXTNoT?  '''"^  '"'  "'^'^  ''  ^^'^^^  ^  ^^""^  ^^^^^^^  P^^^^^'  ^ 

Gen  Williams.  I  think  it  would  be  contrary  to  a  sound  military  policy;  ves,  sir. 
JJ^;.f^/'?h^; .t^'i'^'''^^  ^^"""i  ''''*  further  recommend  if  the  Ford  proposition  is  not 
Sate  plant  No  2?  "^^^^^  complete  Dam  No.  2  to  be  used  in  conjunction  with 

Gen.  Williams.  That  does  not  come  within  my  province  at  all.    The  Secretarv  of 
War  has  stated  he  would  recommend  it  and  has  so  stated  in  the  record 
power?  '^*         ^^^  ^^^  ^^^^^  *^^^  cheaper  power  is  essendal  there  than  steam 

Gen.  Williams.  That  would  cheapen  the  product 

attpnH^''''^.T'"  ^"""^^  ^^  M  H?5!«^^nd  you,  the  fertilizer  feature  of  this  project  is  one 
attended  with  great  possibilities.  ^     ■" 

of  nrnH.^ff'^'''-^^'  ^'^^^'  ^^'^  ^u  ^^t^^^  ^^^  ^^^^  possibilitics of  it 80 far as cheapuess 
ttfw  mk''.?  concerned  The  thing  to  my  mind  that  offers  the  greatest  possibili- 
dowrthi  J"^  w%K  fvf' ^i"  H^«^^t?^y.  that  Mr.  Ford  says  he  is  going  tS  put  in  operation 
down  there.    With  the  fixation  of  nitrogen  in  the  stage  of  development  in  wh^h  it  is 

be  Ld"ai^  W^^  '^"^  "^^  ""^^^  P'^"^ ''  ^""^^  *^  ^'  ^^  P^^^^  that  will 

Mr.  Wrig'ht.  That  is  largely  what  I  meant  by  great  possibilities.      • 
nitr^en   "^'^'''''^"  ^""^  ^""^^^  possibilities  in  the  question  of  the  fixation  of 

Mr.  Wright.  And  in  the  development  of  this  industry? 
Gen.  Williams.  Yes,  sii-;  I  think  so. 

Powrlv'or  tS  Gover^en^t?'  "^"""^  ''''  ^""'^^  P'""'  "*  ^"^^^'  '^'  ^^^^^"^ 
th^bp.Z'^'^'''''f. J^^  property,  the  land  on  which  the  plant  is  built  there,  was  at 

Mr  T.?.  '""^TK  ^n^  '^^''  ^""^  ^.P^^'  th^  property  of  the  Alabama  Power  Co. 
^ir.  feTOLL.   Ihe  Government  did  own  it  for  awhile? 

^jen  Williams.  The  Government  has  never  owned  it. 

Air.  Stoll.  The  Government  has  never  owned  the  land? 

^en.  Williams.  No,  sir. 


94 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


95 


Mr.  Stoll.  I  believe  you  have  stated  that  that  plant  is  about  88  miles  from  nitrate 
plant  No.  2.  ^  , 

M^S^L^  wLl^lihl^^^  point  at  Muscle  Shoals  to  this  Warrior  steam  plant? 

Gen  Williams.  Muscle  Shoals  is  about  2  miles  from  the  Muscle  Shoals  No.  2  Dam. 
Mr   Stoll.  Then,  how  did  this  Warrior  steam  plant  at  Gorgas  get  connected  up 
with  the  Muscle  Shoals  project  if  it  is  88  miles  away  from  it? 
Gen.  Williams.  Bv  building  a  transmission  line. 

Gen^WiLufML^F^r  SeTrpose  of  tmn^mitting  power  from  the  Alabama  Power 

Co.  to  nitrate  plant  No.  2.  . 

Mr.  Stoll.  For  the  manufacture  of  nitrates? 

Gen.  Williams.  Yes,  sir.  ,         ,        ^  4^    *i,    ^i^^f^^u^.9 

Mr.  Stoll.  Did  vou  not  have  a  steam  plant  there  to  generate  the  ^l«^tnat>  ? 
Gen.  Williams. 'We  had  one  in  process  of  construction  which  was  not  completed 

^^Mr.^STOL^^Tle^r^^^^^^  Co.  is  furnishing  electricity  to  various  portions  of 

that  countrv'? 

Mrl'sTOLL.' And  iL^NoTember  of  last  year  the  Alabama  Power  Co.  leased  the  steam 
plant  at  plant  No.  2,  did  they  not? 

Gen.  Williams.  Yes,  sir;  in  November  of  last  year. 

Mr  Stoll.  Did  thev  ever  use  it?  .         ,,    •  *        x-      • 

Gen  Williams.  I  do  not  think  they  have  put  it  into  operation.  My  information  is 
that  thev  put  a  gang  of  men  in  there  to  put  it  in  operation,  but  at  about  the  time 
they  were^ready,  th?  rains  came  and  increased  their  water  power  to  the  point  where 
it  was  not  necessarv  for  them  to  throw  in  that  plant. 

M?^Stoll    Nitrate  plant  No.  2  produces,  I  believe  you  stated,  110,000  tons  annually? 

Gen.  Williams.  Of  ammonium  nitrate;  yes,  sir.  • 

Mr  Stoll.  That  will  make  how  much  sulphate  of  ammonia  .^ 

Gen.  Williams.  About  215,000  tons,  I  am  informed 

Mr.  Stoll.  You  sold  some  of  your  nitrates  there,  did  you  not.' 

Gen.  Williams.  We  produced  only  a  very  small  amount  and  I  do  not  think  ije 
have  yet  sold  anv.  We  made  about  1,700  tons  of  the  ammonium  nitrate,  and  m  addi- 
tion to  that  about  2,000  tons  of  cyanamid. 

Mr.  Stoll.  Did  you  have  any  Chilean  nitrate  there.' 

Sfs^L'^'what  are  the  different  parts  of  commercial  fertilizer  besides  the  sodium 

P^Gen^WiLLivMs.  I  know  verv  little  about  fertilizers,  Mr.  Stoll.  As  I  understand  it, 
the  ammonium  sulphate  is  simply  one  of  the  ingredients  that  carry  the  nitrogen. 

Mr  Stoll.  Is  not  that  about  the  hardest  one  to  get? 

Gen.  Williams.  For  the  fixed  nitrogen  we  are  dependent  now  on  the  sodium  nitmte 
that  comes  from  Chile;  that  is  the  largest  source  of  supply  in  the  world.  There  is 
also  the  ammonia  recovered  at  the  by-product  coke  ovens  and  the  gas  works 

Mr.  Stoll.  And  that  is  the  hardest  ingredient  the  fertihzer  people  have  to  get,  is 

^  Gen.  Williams.  I  think  so,  sir,  although  I  am  not  positive  about  that. 

Mr.  Stoll.  If  we  had  a  supply  in  this  country,  that  would  tend  to  solve  the  ter- 
tilizer  problem? 

MrS^OLL^i'lTl  understand  it,  only  about  3  per  cent  of  sodium  phosphate  is  used 
in  fertiUzer,  and  there  is  a  little  over  7,000  000  tons  of  fertilizer  used  in  the  Un  ed 
States-  would  not  that  200,000  tons  go  a  long  ways  toward  supplying  the  sodium 

''''^^'^^^:''TmAI  r/er  fentTh^ich  you  refer  to  is  th.  nitrogen  content. 

w^!£S>!SlFsSt^hrfinit%^^^ 

Mr.  Stoll.  I  thought  the  common  brand  of  fertilizer  was  8,  3,  and  3. 

Mr^'STOil^^lliere  are  2,000  pounds  in  a  ton  of  fertilizer  and  the  great  part  of  the 
2,()00*pounds  is  bulk  that  is  simply  used  to  distribute  the  ingrements  put  into  u,  an 
as  I  understand  it.  there  is  onlv  3  per  cent  of  the  fertihzer  that  is  sodium  phosphate. 


Gen.  Williams.  My  understanding  of  the  meaning  of  that  formula  is  this:  You 
liave  three  elements  that  are  essential  to  plant  life.    You  have  *he  phosphorus 
nitrogen,  and  potassium.     Now,  the  formula  of  8,  3,  and  3  refers  to  the  percentage 
by  weight  of  those  three  elements  in  the  total  weight  of  the  fertilizer. 

Mr.  Stoll.  I  will  put  it  in  this  way:  You  do  not  know  how  many  pounds  of  ammonia 
there  would  be  in  a  ton  of  commercial  fertilizer? 

Gen.  Williams.  Of  ammonium  sulphate,  no,  sir,  I  do  not.  That  could  be  figured 
back  very  easily.  The  figures  I  have  here  indicate  that  for  the  average  nitrogen 
rontammg  fertilizer  sold  in  1919  there  were  56.7  pounds  of  ammonium  sulphate  per 
2,000  pounds  of  fertilizer. 

Mr.  Stoll.  How  many  pounds? 

Gen.  Williams.  56.7  pounds. 

Mr.  Stoli,.  In  a  ton? 

Gen.  Williams.  In  a  ton. 

Mr.  Stoll.  If  there  are  200,000  tons  that  would  make  about  how  many  ton  of 
fertihzer?    Would  not  that  be  around  8,000,000  tons? 

Gen.  Williams.  I  am  inclined  to  think  there  must  be  something  wrong  about  sthat 
figure. 

Mr.  Stoll.  Of  course,  I  do  not  know.  They  are  the  figures  you  give.  There  are 
about  7,000,000  tons  of  commercial  fertilizer  used  and  if  we  get  enough  of  the  ammonia 
there  to  make  8,000,000  tons,  we  are  doing  the  farmers  a  considerable  service,  do  you 
not  think? 

Gen.  Williams.  Assuming  those  figures  are  correct  and  you  can  produce  the  am- 
monium sulphate  at  less  than  the  present  market  prices.  Mr.  Chairman,  I  would  like 
to  have  a  chance  to  look  into  this  matter  of  the  formulas  and  the  amount  of  various 
ingredients  further  and  correct  my  statement  in  the  record  accordingly. 

The  Chairman.  If  there  is  no  objection,  that  may  be  done. 

(The  statement  referred  to  follows:) 

'  *  Ammonium  sulphate  furnishes  only  a  part  of  the  nitrogen  in  commercial  fertilizers. 
Among  other  nitrogenous  materials  are  nitrate  of  soda,  cyanamid,  slaughterhouse 
tankage,  and  cottonseed  meal.  In  1919,  according  to  the  census  figures,  the  average 
mixed  fertihzer  contained  45.7  pounds  of  nitrogen.  The  56.7  pounds  of  ammonium 
sulphate  furnished  11.7  pounds  of  the  nitrogen.  Nitrate  of  soda  furnished  8.4  pounds 
of  nitrogen,  and  cyanamid  1.3  pounds.  These  chemical  or  inorganic  materials  fur- 
nished thus  a  total  of  21.4  pounds  of  nitrogen.  The  other  24.3  pounds  was  furnished 
by  the  organic  materials,  such  as  cotton  seed  meal,  and  slaughter  house  tankage. 

"  If  all  of  the  21.4  pounds  of  'inorganic '  nitrogen  had  been  furnished  by  sulphate  of 
ammonia,  there  would  have  been  104  pounds  of  sulphate  used  per  ton  of  fertilizer. 
On  this  basis  215,00  tons  of  sulphate  would  furnish  enough  nitroeen  for  some 
4,000,000  tons  of  fertilizer.  ^        "i  eume 

*'  If  the  entire  45.7  pounds  of  nitrogen  had  been  furnished  by  sulphate,  it  would  have 
required  222  pounds  of  sulphate  per  ton  of  fertilizer.  On  this  basis  215,000  tons  of 
sulphate  would  furnish  all  the  nitrate  for  nearly  2,000,000  tons  of  fertilizer." 

Mr.  Stoll.  Mr.  Chairman,  I  have  here  a  table  furnished  me  by  the  Department  of 
Agriculture  that  §ives  the  amount  of  fertilizers  used  by  the  various  States  and  I 
would  like  to  put  it  in  the  record  at  the  proper  place.  ' 

The  Chairman.  If  there  is  no  objection,  that  may  be  done. 

fertilizer  tonnage  by  states. 

Following  is  the  list  of  States,  showing  the  consumption  of  fertilizers  for  the  fiscal 
years  ending  in  1913,  1914,  1915,  1916,  1917,  1918,  1919,  and  1920,  compiled  from  the 
most  reliable  statistics  that  are  obtainable.  In  some  of  the  States  there  are  absolutely 
no  accurate  figures  available. 

92900—22 7 


96 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


9 


State. 


Fiscal 

year 

euSing— 


Alabama 

Arizona! 

Arkansas 

California 

Colorado  i 

Connecticut  ^ 

Delaware  1 

Florida 

Georgia 

Idaho! 

Illinois ' 

Indiana 

lowai 

Kansas 

Kentucky ' 

Louisiana 

Maine  1 

Maryland 

Massachusetts '... 

Michigan  ^ 

Minnesota! 

Mississippi 

Missouri! 

Montana! 

Nebraska! 

Nevada ! 

New  iiampshire !. 
New  Jersey...:... 

New  Mexico! 

New  York! 

North  CaroUna... 
North  Dakota!... 

Ohio 

Oklahoma! 

Oregon  i 

Pennsylvania 

Porto  Rico! 

Rhode  laland!... 

South  Carolina 

Scuth  Dakota! 

Tennessee 

Utah! 

Vermont! 

Virginia 

Washington! 

West  Virginia 

Wisconsin' 

Wyoming! 


Oct.  1 
June  30 
Sept.  30 
June  30 
Dec.  31 
...do — 
...do.... 

...do 

...do.... 
July  1 
Apr.  30 
Dec.  31 
Apr.  30 
Dec.  31 

...do 

Aug.  31 
Dec.  31 

...do 

June  30 
Dec.  31 

...do 

Oct.  1 
Dec.  31 
No  law.. 

..do 

..do 


Apr.  30 
Oct.  31 
No  law.. 
Dec.  31 
Dec.  1 
Dec.  31 
...do.... 


June  30 
Aug.  3J 
Dec.  31 
June  30 
Mar.  31 
June  30 
July  1 
May  31 
Sept.  1 
Dec.  31 
June  30 
Dec.  31 
Mar.  31 
June  30 
Dec.  31 
No  law. 


1913 


Tom.   i 
4»4,730 
600 
52,000 
36,000, 
5001 
62,000' 
50,000 
213, 728 
1,120,693 
2001 
30,000 
193,!s99 
3,500 
7,3a0 
75,000 
9S,778 
160,000 
169,000 
51,000 
57,985 
3,500 
128,050 
60,0001 
800 
500l 
800| 
18,000] 
156,6611 
200 
380,000 
840,447 
500 
183,476 
2,000 
4,500 
340,000 
18,836 
9,000 
918,336 
700 
84,060 
75,500; 
1,000 
14, 500| 
412,434 
1,500 
31,852 
4,000; 
200 


1914 


Tons. 
592,200! 
650j 
S4,S50 
39,471 
500 
74,000! 
."w,000 
240, 812 
1, 2<s2,  OSS 
500 
40,000 
219,000 
4,200 
9,460 
83,000 
90,5SS 
168,000 
183,350 
54,000 
60,000 
3,800 
127,400 
65,000 
900 
100 
950 
20,000 
155,414 
200 
420,000 
872, 820 
550 
203,000 
2,000 
e.3C0 
381,900 
18,164 
12,500 
l,09f.,728 
1,000 
93,550 
77,400 
1,200 
18,000 
437, 808 
2,400 
35.475 
4,500 
400 


Total ' 

Hawaii June  30 


6,544,345  7,340,528 
'   67,000       80,000 


Tons. 
302, 350 
650 
26,396 
31,540 
600 
80,000 
45,000 
208, 7^2 
872, 979 
500 
35,000 
156, 152 
5,100 
10,600 
85,000 
73, 41:0 
150,000 
168,000 
56,000 
65,000 
4,000 
85, 414 
57,000 
l,00(j 
50J 
1,000 
16,000 
153,075 
500 
400,000 
&47,188 
600 
225,000 
2,000 
6,500 
316,319 
20,000 
11,000 
670, 610 
1,500 
77,390 
17,500 
1,500 
13,500 
406,077 
3,000 
46,010 
5,000 
500 


Tons. 

206,000 

600 

65,600, 

29,415 

1,000 

73, 000 

45,000, 

212,250 

741,347' 

500 

42,000; 

132, 159 

5,000 

7,940{ 

62,000 

90,  4l;o 

15o,0(K) 

154,000i 

5o,000' 

70,000! 

4;.:00 

75,6671 

41,000; 

1,100 

500; 

1,000, 

18,U00| 

129,  SOOi 

500; 

400,  OCO; 

650,000; 

700 ! 

187, 848' 

3,000 

6,500j 

268,4551 

37  725; 

12, 000 1 

833,6241 

1,500 

91,128! 

39,845' 

i,ooo! 

15,000i 

369.5201 

3,000 

40,000 

5,000 

500 


1918 


1919 


5,563,212  5,390,519 
70,000;      65,000 


Tons. 
210,000 
500 
5S,500 
43,964 
1,000 
78,000 
50,000 
214,0>vs 
S95, 897 
500 
45,000 
156,0001 
5,000 
7,600 
93,000 
9N,  -^64 
160,923 
191,900 
64,000 
91,4.i5 
4,500 
76,717 
65,000 
1,000 
500 
1,000 
20,000 
176,4.S1 
500 
420  600 
849,728 
1,000 
165,857 
3,000 
7,000 
334,309 
45, 767 
11,500 
850.790 
2,500 
99, 5W 
40,500 
1,000 
14,500 
496, 217 
4,000 
41,000 
6,500 
500 


Tons,    i 

289,990 

500 

8S,500| 

32,036 

1,000 

80,000' 

54,0001 

197,954 

923, 020' 

500; 

45,000! 

244,340| 

5,000; 

8,0001 

128,0001 

81,0-25 

155,  OJJ; 

173,000' 

6^,000, 

78,0(J0l 

o.tRX) 

104, 700 

90,0oO 

1,0.0 

oOJ 

1,000 

i«,ojo 

153, 19ft 
500, 
430,  OOC' 
921,962 
1,000 
219,328 
3,000 
6,  COO 
340, 898 
40,811 
10,000 
1,064,8861 
2,i00| 
113,000 
58,000. 
l.OOOi 
lO.OOOi 
;    430, 549! 
4,010 
'      59,036' 
7,500; 
5001 


1920 


Detailed  estimate  of  cost  of  sulphate  of  ammonia  and  nitrate  of  ammonia  at  United  States 

nitrate  plant  No.  f ,  Muscle  Shoals,  Ala. 


Tons. 

297,903 

500 

64,427 

43,126 

1,000 

65,000 

30,398 

2.J0,6i3 

990, 919 

500 

45,000 

241,000 

5,000 

16, 937 

103,000 

97,724 

156,000 

174,500 

61,000 

103,264 

5,000 

110,000 

91,0J0 

1,1>0J 

500 

i,Ojo 

14,000 
149,485 
1,500 
410,000 
961, 238 
1,000 
335, 1:36 
4,000 
7,500 
340,000 
21,  815 
9,000 
,033,8871 
3,0001 
109,3661 
46,000 
1,000 
18,000| 
421, 4841 
4,0001 
63,000| 
10,000 
500 


Tons. 

388,341 

500 

81,  S75 

58,6;iG 

1,000 

65,000 

61,537 

272, 316 

978, 090 

500 

45,000 

230,  IW 

5,000 

12,050 

90,000 

95.^64 

16x,  000 

173,  OUO 

61, 4.50 

112,616 

5,000 
139,000 
120,332 

1,0(M) 
500 

1,000 

17,000 

164,820 

1,500 

400,000 

,221,796 

1,000 
300,000 

4,000 

5,500 

326,864 

20,000 

10,000 
,253,890 

3,000 
112, 2C2 

56,701 

1,00C 

20,00( 
429,024 

4,(X)0 
121,052 

12,000 
.500 


6, 206, 543  6, 756, 743  6, 891, 32217, 654. 239 
'  S0;000|      64,000|      71,000|      70,000 


I  Estimated. 

Mr  Parker.  General,  I  asked  vou  about  the  cost  of  manufacture,  and  I  would  like 
for  vou  to  put  in  your  detailed  statement  the  cost  by  water  power  and  steam,  so  that 
I  can  see  how  much  you  allow  per  horse  power.    I  do  not  suppose  you  allow  much  per 

horse  power  for  the  water  power.  ^    *  .i.  ^  r     *i,  a 

Gen  Williams    I  will  give  you  a  detailed  statement  of  that  for  the  record. 
Mr  Parker.  I  wanted  to  see  whether  you  allowed  any  cost  for  the  water  power. 
Gen.  WttLiAMS.  Yes,  sir;  that  is  taken  into  consideration.    That  is  shown  m  ine 

cost  per  ton  as  we  estimate  it.  .,  ,     ,  j  ,.    i  j   *  *         * 

Mr  Parker.  Then  I  will  wait  until  I  get  your  detailed  statement. 


SULPHATE  OF  AMMONIA. 


Limestone 

Coke 

Coal ;.;;.; 

Electrodes 

Soda  ash 

Snlphuric  add,  60" 

•MiscoJIaneons  materials. 
Supplies  and  repair  narl,^ 

Steam  pow  er 

Water  power 

Steam 

Compressed  air 

Labor  (operation ) 

Labor  ^maint enance ) 

Superintendence 


Quantity  per  ton. 


1.81  tons 

0.56  ton 

0.23  ton 

39.1  pounds. 

0.034 

0.96  ton 


Unit 
cost . 


$1.  25 

6.00 

4.00 

.05 

25.00 

10.00 


Cost  per  ton. 


2,973  kilowatt  hours.. 
do 

2.19  thousan  d  pounds. . 
3.7  thousand  cubic  feet ' 


.004 
.00075 
.285 
.013 


Total  product  ion  cost 

Bugging  and  loading  (as.suming  less  ihan  35  r  er  cent 

of  product  will  be  bagged ) . 
Sales 


Itesearoh  and  main  ollice. 


Cost ,  wit  hout  royalties 

.Mlowanre  for  rovaities  at   10  per  cent.  a.KsuiVin" 
!c  luction  by  arbitration. 


Using 
steam 
pover. 

|;2.26 

3.36 

.92 

1.96 

.85 

9.60 

1.62 

2.01 

11.89 

.62 

.05 

9.08 

2.93 

2.30 


Cost,  f.  o.  b.  cars,  Muscle  Shoals,  Ala. 


49. 45 
..50 

1.87 
1.54 

53.  .36 
5.;34 


Using 

^vater 

po  .ver. 

f2.26 
3. 36 
.92 
l.t>6 
.8.5 
9.60 
1.62 
2.01 

.  62 

.05 

9.08 

2.93 

2.3(» 


58. 70 


39.79 
.50 


<7 
.54 


43. 70 
4.37 


4S.07 


NITRATE  OF  AMMONIA. 


/iEf«t°"« 13.54  tons |$L25 

r",i i  1 .09  tons |    6. 00 

V^ltrr^'^^ 0.42  ton 4.00 

slS^nS     176.4  pounds .a5 

w'^'^f.^** V---,- '  0.067  ton I  2.5.00 

Miscellaneous  materials i     j.w 

Supplies  and  repair  parts 

Steam  power i.^'."!!!^".".".'!'6,d(W  kilowatt  hours." 

vNater  power i        dn 

M^m....        j  5.88  thousand  pounds 

t  omprcssed  air 51 .94  thousand  cubic 

feet 
Labor  (operation ) 

Labor  (maintenance) 

"superintendence 


Total  production  cost . 

BagKing  and  loading 

Sales 

Keseareh  and  main  office 


Cost,  withput  royalties 

Allowance  for  royalties  at  10  per  cent,  assuming  reduc- 
tion by  arbitration. 


Cost,  f.  o.  b.  cars,  Muscle  Shoals,  Ala. 


.004 
.00075 
.285 
.013 


$4.43 
6.  .54 
1.68 
3.82 
1.68 
.3.19 
4.83 

24.24 


1. 


68 
68 


16.67 
6.47 
4.57 


W.43 
6.54 
1.68 
3.82 
1.68 
3.19 
4.83 

•L54 

L68 

.68 

16. 67 
6.47 
4.57 


80.48 
2.00 
3.08 
2.55 


88.11 
8.81 


96.92 


60.78 
2.00 
3.08 
2.55 


68.41 
6.84 


75.25 


NOTES. 

MimTrT  ?f/"i>^'^a"al.v«i«  of  certain  of  the  above  items  will  be  found  in  "Hearing  before  the  Committee  oi'i 
S  33W"  1920  ""       Representatives,  Sixty-sixth  Congress,  second  session,  on  H.  R.  10:i29  and 

<ol^}Y  l""od"ction  cost  estimates  the  quantit  y  of  raw  materials  and  power  used  in  the  manufacture  of  the 
sneral  products  are  l>ased  on  the  actual  results  of  the  two  weeks'  operating  test  of  the  plant  at  one-fifth 
ctr.fV  "^  Ja'^'ary,  1919.  The  quantity  of  materials  used  in  the  several  manufacturing  processes  were 
anH  u  y  measured  and  weighed  daily  and  theconsumpt  ion  for  the  entire  period  of  the  test  thus  determined 
''"a  the  products  manufactured  carefullv  determined. 
nf  li^,^"'"*; Prit^es  of  materials  are  those  which  existed  at  the  time  the  estimate  was  made,  in  the  summer 

iyi9,  and  it  is  believed  will  prevail  as  conditions  U'come  more  stabilized, 
wifh^'^t"^®  ^^^  royalties  and  fees  has  been  figured  in  accordance  with  the  provisions  of  the  present  contracts 
R'H     t^  American  Cyanamid  Co.  and  its  subsidiary,  the  Air  Nitrates  Corporation,  and  with  the  Air 

^auction  Co.,  due  consideration  being  given  to  arbitration  clauses  in  estimates  of  cost  after  June  1.1921. 

1  iiese  estimates  do  not  include  any  allowance  for  interest  on  capital  cost,  depreciation  .and  obsolescence 
monf^**''  mV^  insurance.    These  estimates  are  also  based  upon  th  as.sumption  that  all  community  arrange^ 

"US  will  be  self  supporting  in  so  far  as  current  operating  expenses  are  concerned. 


98 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


99 


The  Chairman.  General,  do  you  consider  the  production  of  nitrates  essential  to 
this  country  for  military  purposes? 

'  G^  ^CuaLTo'u' ^pStoent  has  built  all  of  the  establiBhmente  that  are  then, 

"''^el^^STn^'uwfsTorthe  primary  purpose  of  supplying  material  in  case 

we  got  into  war.  .  . . 

Gen.  Williams.  That  was  the  primary  purpose  of  it.  Mi,«nlp  ^hnala 

The  Chairman.  And  all  the  money  that  is  invested  in  the  plant  at  Muscle  Shoals, 

I  take  it,  was  taken  from  the  appropriations  for  ^^^^^^J'y  f^J^^f-     -.^.^  -.i^nt  No  2 
Gen.  Williams.  Armament  of  fortifications,  yes.  sir,  that  is,  for  J^*J^Jf  P^^J^* -^^^^^^ 

I  think  the  land  on  which  plant  No.  1  is  located  was  paid  for  out  of  the  $20,000,000 

'^C^'chmrman' And  that  was  the  national  defense  bill,  which  was  a  military  bill? 

Mfitan  wouwTik^to  ask  for  the  record  one  question  more  and  that  is  how 
lo^  was  the  peri^of  time  that  the  Bahama  Power  fco.  was  engaged  in  constructing 
the^^?k  ther^f^rwhich  they  received  the  $4,000,000  plus,  or  for  which  that  amount 
was  paid? 

'i^r^'-^TGeler^fT^  this  question  has  been  answered   or 

it  may  be  that  vou^an  not  answer  it  offhand;  but  I  think,  for  the  record,  it  shoidd  be 
staTel  and  that  is  provided  we  accept  Mr.  Ford's  offer  or  some  proposition  of  tha 
Hnd  how  lon^  would  it  take  to  change  that  plant  from  a  fertilizer  plant  into  a  plant 
t  ?he  nTanScture"  of  nitrates  for  high  explosives?    There  has  been  some  question 
along  that  line,  but  I  did  not  hear  any  definite  answer,  and  I  would  like  to  have  tne 

^'^'Zt  'wiuiois  I  think  Mr.  Ford  in  his  proposition  proposes  to  maintain  the  plant 
roadv  to  nroduce  the  explosive.  The  time  it  would  take  would  be  the  time  it  would 
tSkeCd'  ver^^^^^^  producing  ammonium  sulphate  to  producing  ammo- 

nium nitmre,  and  ^hat  should  be  a  comparatively  short  time;  just  what  length  of 

'"Slr.'HrLL^.  T'thlnk  we  should  have  something  from  the  experts  io  show  about 

how  long.  ^,      -r   ,      ,  , 

Gen.  Williams.  About  three  months,  I  should  say. 

Mr.  Hull.  As  long  as  that?  ^    .  n  •+ 

Gen.  Williams.  Before  it  would  be  producing  to  full  capacity. 

qTATEMENT  OF  MAJ.  GEN.  LANSING  H.  BEACH,  CHIEF  OF  EN- 
gI^^S  ACC^PANIED  BY  BBIG.  GEN.  HARRY  TAYLOR, 
ASSISTANT. 

Tb.^  Chairman.  Hen.  Beach,  we  are  considering,  as  you  ^"^w,  the  proposal  of^Mr. 
ronV  wi  h  reference  to  the  Muscle  Shoals  proposition      1  understand  that  the  Fn-i 
nee  ;    ave  had  considerable  to  do  with  the  building  of  that  plant.     W  ill  7^  « 
sttte  in  vour  own  way  just  what  you  know  about  the  proposition  and  what  interest  the 

^'^fenTEArr  Thl^'on?tm^tion  or  building  of  Dam  No.  2  was  intrusted  to  the  Engi- 
nopr  Department  which  has  charge  of  river  and  harbor  works  tliroughout  the  countr> . 
™s?am  w^'t^rt^d  as  a  means  of  reducing  the  cost  of  operating  the  nitrate  plants, 
nhicl  had  been  installed  at  that  locality  by  another  branch  of  the  Government. 

The  unds  ^hi-h  were  allotted  were  from  the  appropriation  for  fortific^ition  and  anna- 
mcl  .i^^a^riaUon  with  which  the  Engineer  Department  of  the  Army  ordinari . 
rL^hinfto  do  except  to  build  fortifications,  and  the  allotment  «ot  Slaving  e^ 
'  n f.dent  to  complete  the  dam,  a  year  ago  when  we  were  n«inng  the  end  of  the  und 
L  Hnd  we  had  to  a^k  for  an  additional  appropriation  from  Congress.  .Tjift  ^^^ 
ref.Hel  at  the  la"  t  session  of  the  last  Congress,  and  after  the  present  admmistratio 
t^^cl  arl  o^'o^  e^^^^  affairs  1  was  directed  by  the  Secret^rv  of  W  ar  to  ascerta  n 
whotherth^  of  this  dam  and  power  plant  was  a  practical  arrangemen   o^ 

not  and  to  a'certahi  what  I  could  in  regard  to  that  feature  of  the  case  a"^  report  t^^^^^^^^^ 

T  tt-rnf P  in  all  the  nower  companies  and  different  parties  throughout  the  country 

thLuhUhtmigh^^  ^J■r'''':^^T'''^'^''^^zZtc- 

one  which  was  received  up  to  the  time  it  was  presented,  and  I  forwarded  it  to  the  Sec 
?etliy  of  War,  as  evidence  of  the  fact  that  the  completion  of  this  dam  was  a  practicable 


undertaking;  and  he  has  had  charge  of  the  negotiations  with  regard  to  Mr.  Ford  and 
other  parties  since  that  date. 

The  Chairman.  The  Secretary  himself  has  had  direct  communication  with  Mr. 
Ford  respecting  the  turning  over  of  the  plant  rather  than  the  Chief  of  Engineers? 

Gen.  Beach.  Yes,  sir.  After  I  forwarded  Mr.  Ford's  proposition  to  the  Secretary 
of  War,  he  has  handled  those  matters  directly.  He  has  had,  I  believe,  four  interviews 
with  Mr.  Ford  or  his  representatives,  at  only  one  of  which  I  was  present,  because  it 
happened  that  on  the  first  two  occasions  I  was  out  of  town,  and  on  the  last  occasion 
I  was  not  notified,  or  my  office  was  not  notified,  until  Mr.  Ford  was  in  the  office,  and 
at  that  time  I  was  tied  up  in  a  conference  with  officers  of  the  General  Staff. 

The  Chairman.  Is  there  any  special  statement  that  you  desire  to  make  to  the 
committee  respecting  Mr.  Ford's  offer?  As  I  understand  it,  the  first  offer  made  on 
July  8,  1921,  was  made  to  you  and  not  to  the  Secretary?    * 

Gen.  Beach.  Yes,  sir;  it  was  made  to  me  in  response  to  that  inquiry  which  I  sent 
out  to  all  the  parties,  as  I  have  mentioned. 

The  Chairman.  About  how  many  letters  did  you  write,  or  about  how  many  parties 
did  you  communicate  with? 

Gen.  Beach.  Probably  10  or  12. 

The  (  'hairman.  And  the  only  answer  you  got  was  from  Mr.  Ford? 

(Jen.  Beach.  The  only  proposition  which  I  received. 

The  ('Hairman.  The  only  proposition,  yes. 

Gen.  Beach.  I  sent  out  this  letter: 

''The  Secretary  of  War  has  directed  me  to  ascertain  what  arrangements  can  be 
made  to  derive  a  reasonable  return  upon  the  investment  if  the  United  States  coin- 
l)lete8  the  dam  and  hydraulic  power  plant  at  Muscle  Shoals,  Tennessee  River. 

*'  If  you  are  interested,  I  would  be  pleased  to  discuss  the  matter  with  you  at  this 
office  at  the  earliest  date  that  may  be  mutually  determined. 

"It  is  desired  to  develop  the  matter  and  come  to  a  conclusion  at  as  earlv  a  date  as 
possible." 

That  is  practically  the  same  letter  that  the  Secretary  was  requested  vesterday 
to  put  on  file. 

The  Chairman.  In  response  to  that  letter  the  only  offer  was  the  one  received  from 
Mr.  Ford. 

Gen.  Beach.  The  only,  what  I  would  call,  genuine  offer.  I  gave  as  wide  publicity 
to  that  letter  as  was  possible.  A  good  many  papers  printed  it.  I  furnished  it  to  the 
press.  T  did  receive  some  responses  which  from  their  tone  and  the  character  of  writ- 
ing were  evidently  from  irresponsible  parties. 

The  Chairman.  Would  you  mind  stating  to  the  committee  just  what  some  of  those 
answers  were? 

Gen.  Beach.  One,  I  remember,  was  to  the  effect  that  the  man  would  be  pleased 
to  undertake  that  if  the  Government  would  pay  him  $1,000,000.  Another  one  was 
from  a  man  who  said  that  he  was  accustomed  to  forming  large  companies  and  under- 
taking matters  of  great  import,  and  if  he  could  be  allowed  $40,000  as  expense  money , 
he  thought  he  could  put  it  over,  and  there  were  others  to  that  effect.  I  paid  no  atten- 
tion to  them  beyond  filing  them,  for  the  reason  that  I  felt  if  the  parties  were  genuinely 
interested  in  the  matter,  they  would  follow  it  up  and  none  of  them  did. 

The  Chairman.  You  heard  nothing  after  the  first  letter? 

Gen.  Beach.  I  heard  nothing  from  any  one  of  those  parties  after  the  fir.st  letter. 
The  power  companies  in  the  South  to  whom  I  wrote  replied.  The  Mabama  Power 
Co.  replied  under  date  of  May  28.  The  gist  of  their  letter  is  reallv  in  the  final  para- 
gmph : 

"If,  therefore,  authoritv  is  confeiTed  by  Congress  to  conclude  a  contract  for  the  use 
of  any  part  of  the  power  by  power  companies,  we  wish  to  assure  you  we  are  ready  to 
work  out  a  mutually  satisfactory  arrangement  looking  to  the  completion  "of  the  dam 
and  the  disposal  of  such  part  of  the  power  as  Congress  mshes  to  place  in  commercial 
use,  desiring  now  as  at  all  times  in  the  past,  to  cooperate  in  every  way  desired  by  the 
United  States  in  working  out  the  matter." 

I  had  several  interviews  with  the  officers  of  the  Alal  ania  Power  Co.  and  they  stated 
that  they  had  always  l>een  interested  in  this  proposition.  It  was  a  verv  large  and  im- 
portant power  development  in  their  territory,  and  I  have  understood  that  thev  would 
liave  been  very  glad  to  establish  this  dam  if  it  had  not  been  beyond  their  financial 
resources.  They  pointed  out  that  they  were  naturally  most  interested  because  any 
invasion  of  their  field  with  as  large  a  power  plant  as  this  would  mean  a  great  deal  to 
them  in  their  business  relations  with  tlieii*  clients  or  customers,  and  they  said  they  did 
not  see  their  way  clear  to  make  a  proposition  because  I  was  not  in  a  position  to  state 
^vlien  the  power  would  be  available,  and  the  terms  on  which  they  could  obtain  it.  1 
requested  them,  as  I  did  all  the  others  with  whom  I  had  conferences,  to  make  their 


100 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSC3LE  SHOALS  PBOPOSITIONS. 


101 


own  Dioposition.  I  '.vas  asked  by  several  of  them  to  draw  up  specifications  bu  . 
said  that  the  matter  was  so  larj^e  and  so  complex  that  I  was  very  much  afraid  that  ;- 
1  drew  up  anv  set  of  specifications  it  might  hamper  the  development  in  some  respects 
rather  than  facilitate  the  development  of  the  whole,  and  they  were  all  invited  to 
come  in  and  make  their  own  propositions  to  start  with,  so  that  we  could  then  work  oui 
something  definite  after  their  proposition  was  received.  i     .u    r    , 

I  found  that  1  was  verv  hadlv  handicapped,  as  the  Secretary  found  later,  hy  the  fact 
that  we  could  not  £?ive  these  people  anv  definite  assurance.  AVe  could  not  coine  to  anv 
contract  or  definite  agreement  with  them,  and  that  I  think  may  have  possibly  pre- 
^ented  some  definite  offers,  but  Mr.  Ford  was  the  only  one  that  came  in  with  a 

definite  respons?.  ,  ,  _  ,,  ,     ,        •*  •    ^i 

To  save  time  I  will  just  ^le  this  reply  of  the  Alal  ama  Power  Co.  and  place  it  m  the 

record  if  vou  care  to,  or  it  can  be  read.  ^  •    .i  i        . 

The  Chairmax.  Is  that  the  same  letter  that  the  Secretary  pi:t  in  the  record  yeeter- 

dav'* 

Gen.  Beach.  Yes,  sir;  he  was  requested  yesterday  to  frrnish  it. 

The  Chairman.  Then  it  would  simply  be  a  duplication,  as  that  letter  is  already  in 
the  record. 

Gen.  Be.\ch.  Yes.    (See  p.  790.)  ...or.  i         o 

The  Chairman.  The  Alabama  Power  Co.  was  organized  when?    Do  you  know? 

Gen  Be\ch.  No;  I  do  not  know  the  date  of  organization,  but  I  do  know  that  along 
in  1912  and  1913  it  made  a  proposition  to  the  United  States  in  regard  to  taking  over 
of  the  power  at  this  locality,  which  was  the  subject  of  exanamation  and  report  by 
the  Board  of  Engineers  for  Rivers  and  Harbors,  and  it  was  then  recommended  that 
the  offer  of  the  Alabama  Power  Co.  be  accepted.  ,  ^  ^o 

The  Chairman.  That  was  before  the  World  War  in  Europe  started/ 

Gen.  Beach.  That  was  in  1912  and  1913.  x.  t       ^u      u 

The  Chairman.  So  that  the  company  had  had  some  existence  before  they  began 
to  get  in  closer  relationship  with  our  Government? 

Gen.  Beach.  Yes,  sir.  .       .,    x  i    jxv.- 

The  Chairman.  I  assumed  from  some  of  the  questions  that  were  asked  this  morning 
that  perhaps  this  company  was  gotten  up  during  the  war  particularly  for  the  purpose 
of  setting  these  contracts  with  the  Government.       ,.,.,,    ^  *     m, 

6en.  Beach.  No,  sir;  there  was  nothing  of  the  kind  in  that  respect.  The  com- 
panv  was  a  well-organized  and  going  concern  in  northern  Alabama  at  the  time  of  the 
outbreak  of  the  war.  It  had  built  its  large  dam,  known  as  Dam  No.  12,  at  the  Coosa 
River  before  the  war  and  was  engaged  in  the  distribution  of  power  from  that  dam. 

The  Chairman.  What  did  they  offer  to  do?    AVhat  offer  did  they  make? 

Gen.  Beach.  In  1913? 

The  Chairman.  Yes.  ,  .     t    ^  t  j        *  v        +i.    ..«r^«rf= 

Gen  Beach.  I  would  have  to  get  the  record  in  that  case.  I  do  not  have  the  reports 
here.  It  is  all  reported  and  published,  and  I  am  sorry  I  do  not  have  a  copy  ot  that 
report  with  me,  but  I  will  obtain  it.  ,.-        u      ^^     i 

The  Chairman.  What  was  the  sense  of  the  offer  that  they  made?  W  ere  they  to  do 
the  building  or  was  the  Government  to  do  it?  ,     ,     .    -n- 

Gen  Be  \ch  To  the  best  of  mv  recollection  the  Government  was  to  do  the  building 
and  lease  the  plant  to  them  at  a  rate  which  would  amortize  the  investment  and  pay  a 
reasonable  return  to  the  United  States  for  the  use  of  the  money.  There  was  consider- 
able discussion  as  to  whether  the  term  should  be  50  years  or  100  years,  and  it  was  hnall> 
decided  that  in  the  state  of  water-power  development  and  the  market,  that  the  com- 
pany would  be  badlv  handicapped  by  a  shorter  term,  and  100  years  was  recommended 

The  Chairman.  W'as  the  general  water  power  act  m  effect  at  that  time?  W  hen  ma 
you  sav  this  was? 

(>n:  Beach.  In  1912  and  1913.  v    •.        .u  if*-         o  tWo 

The  Chairman.  Then,  of  course,  there  was  no  limit  on  the  period  of  time  as  tnert 

is  now? 

The  Chairman.  Is  there  anything  further  you  would  like  to  state  with  reference  lo 

the  matt<^r?  .  ,    ,       .  ,  .         <■ ..     i-     -^  *-^t,  nt 

Gen  Be\ch.  There  is  only  one  thingand  that  is  on  the  question  of  the  limitation  oi 
time  It  seems  to  me  that  it  is  not  always  advisable  to  apply  one  general  rule,  ^ou 
do  not  always  treat  the  large  bodies  the  same  as  the  small  ones,  because  the  conditions 
which  are  necessary  to  be  imposed  on  a  large  body  would  unduly  restrict  a  small 
or<ranization  in  the  transaction  of  business,  and  it  is  just  a  question  of  whether  in  as 
bi^"  and  important  a  matter  as  this  the  50-year  rule  would  not  work  a  hardship.  I  ii^ 
Secretary  yesterday  recommended  the  application  of  the  50-year  rule  on  the  grounf 
that  he  did  not  desire  to  make  an  exception.    At  the  same  time  it  seems  to  me  thai 


there  are  some  other  features  which  come  into  this  case.  For  instance,  this  is  not  as 
yet  a  thickly  settled  portion  of  the  country.  It  is  not  given  over  to  manufactures 
and  It  is  a  very  different  matter  from  what  the  installation  of  a  power  plant  at  Niagara 
1  alls  would  be.  There  they  have  a  large  city,  Buffalo,  and  cities  all  along  the  Great 
Lakes,  Kochester  and  other  large  places  contiguous,  and  it  is  a  manufacturing  section. 
Northern  Alabama  and  Tennessee  adjacent  to  Muscle  Shoals  are  not  manufactiu-ing 
sections,  and  the  length  of  time  it  would  take  to  find  a  market  for  the  power  which 
can  be  developed  there  might  be  a  very  serious  matter  in  the  whole  case,  and  it  seems 
to  me  that  the  matter  should  receive  careful  consideration. 
The  Chairman.  Then  there  is  the  matter  of  labor  that  would  be  required  at  the 

Gen.  Beach.  Yes;  and  in  many  cases  the  power  is  used  for  operating  municipal 
utilities  Birmingham  and  Memphis  are  the  only  two  places  anywhere  near  here. 
^Mashville  niight  be  considered,  but  they  are  quite  a  long  distance  away,  compara- 
tively, and  the  marketing  of  the  power  and  the  development,  if  it  is  going  to  be  done 
along  ordinary  commercial  lines,  would  be,  I  think,  slower  here  than  at  other  places 
wheTe  no  large  water-power  projects  have  been  developed.  I  think  it  has  taken  at 
least  JO  years  to  utilize  all  the  water  power,  amounting  to  about  750,000  horsepower, 
that  has  been  developed  at  Niagara  Falls,  in  spite  of  its  greater  advantage  of  location. 

Ihe  Chairman.  How  long  a  distance  has  it  been  proven  positively  that  electric 
power  can  be  carried?  r  t-  j 

«K^®f  ii^^nnn"'  Ti^^. ^^^^^°'^  ^^T^  ^^'^  ^  ^^^^^  ^re  sending  power  at  a  voltage  of 
about  110,000  volts  to  a  distance  of  250  miles. 

The  Chairman.  Two  hundred  and  fifty  miles? 

Gen.  Beach  Yes.  There  have  been  claims  made  by  people  engaged  in  electrical 
transmission  of  power  that  they  are  perfecting  that  work  so  that  they  can  transmit 
power  as  economically,  or  will  be  able  soon  to  transmit  power,  to  a  distance  of  400  miles 
as  economically  as  they  do  at  present  to  a  distance  of  200  miles. 

ihe  Chairman.  I  think  that  it  is  claimed  by  the  engineers  of  the  water-power  com- 
panies  m  California  that  they  can  transmit  power  400  miles 

Gen.  Beach.  But  there  is  another  feature  of  the  case  which  has  been  developed 
as  a  result  of  the  power  survey  during  the  war,  which  makes  a  great  difference  in  that 
matter  and  that  was  referred  to  yesterday  in  the  Secretary  of  War's  testimony  when 
lie  spoke  about  relaying  the  power.  I  do  not  know  whether  the  committee  exactly 
understood  it  but  it  might  be  put  in  this  way.  There  might  be  a  demand  in  New 
1  ork  greater  than  tlie  power  plants  there  could  supply,  using  these  cities  as  an  illus- 
tration, Philadelphia  could  not  supply  any,  neither  could  Baltimore,  but  Washington 
could     Aow,  then,  they  all  say  all  along  the  line,  if  you  will  send  forty  or  fifty  thou- 

n?fn  P^iffT^f'T^J-*^  ^^i^SiT:,  Baltimore  can  send  forty  or  fifty  thousand  horsepower 
oil  to  Philadelphia,  and  Philadelphia  can  turn  that  much  loose  for  New  York,  and  by 
that  means  of  tying  together  they  are  now  sending  power  600  miles, 
used^  ^^hairman.  Do  you  call  that  relaying  power?    Is  that  the  technical  term 

Gen.  Beach.  Yes,  sir;  that  is  one  term  that  is  used.  As  I  say,  thev  are  actually 
sending  the  power  in  that  way  through  different  stations  to  a  distance  of  GOO  miles. 

Mr  Kearns.  General,  I  do  not  understand  that  that  is  relaving  power.  Washington 
uould  send  Its  power  to  Baltimore  and  Baltimore  would  use  the  Washington  power 
^h  n??'  B^lti"^ore  would  send  power  to  Philadelphia,  and  Philadelphia  would  use 
the  Baltimore  power  and  not  the  Washington  power. 

Gen.  Beach.  Yes;  they  would  use  the  Baltimore  power. 

Vnlt   ^^^ff  ^^'  :i^d„t^^ii  ™iadelphia  would  send  power  on  to  New  Yorx  and  New 
I  ork  would  use  the  Philadelphia  power. 

Gen.  Beach.  Yes. 

Mr.  Kearns.  That  would  not  be  relaying  the  power. 

allff  ;i?!^^?xT  Jh*  ^^  *¥  *®"^  ^  ^^^^^  ^^^^^  ^ised.    Mr.  Martin  is  here  and  could  tell 
M  What  term  do  you  generally  use? 

Mr.  Martin.  That  is  the  usual  expression  that  we  use  in  the  business. 

th^fT*  ^^^?^'    .1'  ^^^^^111'  T^:ho  is  the  president  of  the  Alabama  Power  Co.,  savs  that 
mi  ^  the  term  they  generally  use.  " 

The  Chairman.  You  may  proceed.  General, 
r.rm^^"  B^^^°;  I  was  just  going  to  say  that  those  developments  in  transmission  mig  h 
proMde  a  market  at  Muscle  Shoals  much  earlier  than  would  have  been  provided  by 
va.  0.?'%"'^*^^'^  of  simply  supplying  everything  from  the  station  where  the  power 
kpff.  Vu  ^  generated,  and  it  imght  be  possible  that  the  period  of  developing  a  mar- 
hlMl  ^  P^T^^  f  ^"^^^®  ^^^^^^  ^^"^^  ^^^  that  very  reason  be  shorter  than  would 
ot^Mn  J?^lV'''^w  ^'^u^'''"T^'?^*^'''^5  but  there  is  not  much  in  the  immediate  vicinitv 
Muscle  Shoals  to  absorb  this  power.    Things  will  have  to  be  brought  there;  either 


*  Z' 


100 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PBOPOSITIONS. 


101 


■ 


own  proposition.  I  was  asked  by  several  of  them  to  draw  up  specifications.  })i!  • 
said  that  the  matter  was  so  lars:e  and  so  complex  that  I  was  very  much  afraid  that  ;• 
I  drew  up  anv  set  of  specifications  it  might  hamper  the  development  in  some  respects 
rather  than  facilitate  the  development  of  the  whole,  and  they  were  all  invited  to 
come  in  and  make  their  own  propositions  to  start  with,  so  that  we  could  then  work  out 
something  definite  after  their  proposition  was  received.  ^        ,  ,  ,       , 

I  found  that  I  was  verv  hadlv  handicapped,  as  the  Secretary  found  later,  by  the  tad 
that  we  could  not  give  these  people  an %'  definite  assurance.  We  could  not  come  to  anv 
contract  or  definite  agreement  with  them,  and  that  I  think  may  have  possibly  pre- 
vented some  definite  offers,  but  Mr.  Ford  was  the  only  one  that  came  m  with  a 
definite  respons?.  ,  ,  ^  ^  ,    ,        .,  .      , 

To  save  time  1  will  just  $le  this  reply  of  the  Alal  ama  Power  Co.  and  place  it  in  tho 
record  if  vou  care  to,  or  it  can  be  read.  -it 

The  Chairman.  Is  that  the  same  letter  that  the  Secretary  put  m  the  record  yestor- 

dav?  -  e      ■  I,   4^ 

Gen.  Beach.  Yes,  sir;  he  was  requested  yesterday  to  frmish  it.  .     ,       , 

The  Chairman.  Then  it  would  simply  be  a  duplication,  as  that  letter  is  already  in 
the  record. 

Gen.  Beach.  Yes.    (See  p.  790.)  .     ,     ^     o    t^ 

The  Chairman.  The  Alabama  Power  Co.  was  organized  when?    Do  you  know? 

Gen.  Beach.  No;  I  do  not  know  the  date  of  organization,  but  I  do  know  that  alonf? 
in  1912  and  1913  it  made  a  proposition  to  the  United  States  in  regard  to  taking  over 
of  the  power  at  this  locality,  which  was  the  subject  of  examination  and  report  by 
the  Board  of  Engineers  for  Rivers  and  Harbors,  and  it  was  then  recommended  that 
the  offer  of  the  Alabama  Power  Co.  be  accepted. 

The  Chairman.  That  was  before  the  World  War  in  Europe  started? 

Gen.  Beach.  That  was  in  1912  and  1913. 

The  Chairman.  So  that  the  company  had  had  some  existence  before  they  began 
to  get  in  closer  relationship  with  our  Government? 

Gen.  Beach.  Yes,  sir.  .       .,    .  i    j^u- 

The  Chairman.  I  assumed  from  some  of  the  questions  that  were  asked  this  morning 
that  perhaps  this  company  viks  gotten  up  during  the  war  particularly  for  the  purpose 
of  getting  these  contracts  with  the  Government. 

Gen.  Beach.  No,  sir;  there  was  nothing  of  the  kind  in  that  respect.  The  com- 
pany was  a  well-organized  and  going  concern  in  northern  Alabama  at  the  time  of  the 
outbreak  of  the  war.  It  had  built  its  large  dam,  known  as  Dam  No.  12,  at  the  Coosa 
River  before  the  war  and  was  engaged  in  the  distribution  of  power  from  that  dam. 

The  Chairman.  What  did  they  offer  to  do?    What  offer  did  they  make? 

Gen.  Beach.  In  1913? 

The  Chairman.  Yes. 

Gen.  Beach.  I  would  have  to  get  the  record  in  that  case.  I  do  not  have  the  reports 
here.  It  is  all  reported  and  published,  and  I  am  sorry  I  do  not  have  a  copy  of  that 
report  with  me,  but  I  will  obtain  it. 

The  Chairman.  What  was  the  sense  of  the  offer  that  they  made?  Were  they  to  do 
the  building  or  was  the  Government  to  do  it?  . 

Gen.  Beach.  To  the  best  of  my  recollection  the  Government  was  to  do  the  building 
and  lease  the  plant  to  them  at  a  rate  which  would  amortize  the  investment  and  pay  a 
reasonable  return  to  the  United  States  for  the  use  of  the  money.  There  was  consider- 
able discussion  as  to  whether  the  term  should  be  50  years  or  100  years,  and  it  was  finally 
decided  that  in  the  state  of  water-power  development  and  the  market,  that  the  com- 
pany would  be  badly  handicapped  by  a  shorter  term,  and  100  years  was  recommended. 

The  Chairman.  \Vas  the  general  water  power  act  in  effect  at  that  time?  ^\^len  did 
you  say  this  was? 

Gen.  Beach.  In  1912  and  1913. 

The  Chairman.  Then,  of  course,  there  was  no  limit  on  the  period  of  time  as  there 
is  now? 

Gen.  Beach.  No,  sir. 

The  Chairman.  Is  there  anything  further  you  would  like  to  state  with  reference  to 
the  matter?  .      .       ^ 

Gen.  Beach.  There  is  only  one  thing  and  that  is  on  the  question  of  the  limitation  ot 
time.  It  seems  to  me  that  it  is  not  always  advisable  to  apply  one  general  rule.  You 
do  not  always  treat  the  large  bodies  the  same  as  the  small  ones,  because  the  condition? 
which  are  necessary  to  be  imposed  on  a  large  body  would  unduly  restrict  a  small 
organization  in  the  transaction  of  business,  and  it  is  just  a  question  of  whether  in  as 
big  and  important  a  matter  as  this  the  50-year  rule  would  not  work  a  hardship.  The 
Secretary  yesterday  recommended  the  application  of  the  50-year  rule  on  the  ground 
that  he  did  not  desire  to  make  an  exception.    At  the  same  time  it  seems  to  me  that 


there  are  some  other  features  whicb  come  into  this  case.  For  instance,  this  is  not  as 
yet  a  thickly  settled  portion  of  the  country.  It  is  not  given  over  to  manufactures, 
and  it  is  a  very  different  matter  from  what  the  installation  of  a  power  plant  at  Niagara 
Falls  would  be.  There  they  have  a  large  city,  Buffalo,  and  cities  all  along  the  Great 
Lakes,  Rochester  and  other  large  places  contiguous,  and  it  is  a  manufacturing  section. 
Northern  Alabama  and  Tennessee  adjacent  to  Muscle  Shoals  are  not  manufacturing 
sections,  and  the  length  of  time  it  woidd  take  to  find  a  market  for  the  power  which 
can  be  developed  there  might  be  a  very  serious  matter  in  the  whole  case,  and  it  seems 
to  me  that  the  matter  should  receive  careful  consideration. 

The  Chairman.  Then  there  is  the  matter  of  labor  that  would  be  required  at  the 
plant. 

Gen.  Beach.  Yes;  and  in  many  cases  the  power  is  used  for  operating  municipal 
utilities.  Birmingham  and  Memphis  are  the  only  two  places  anywhere  near  here. 
Nashville  might  be  considered,  but  they  are  quite  a  long  distance  away,  compara- 
tively, and  the  marketing  of  the  power  and  the  development,  if  it  is  going  to  be  done 
along  ordinary  commercial  lines,  would  be,  I  think,  slower  here  than  at  other  places 
where  no  large  water-power  projects  have  been  developed.  I  think  it  has  taken  at 
least  20  years  to  utilize  all  the  water  power,  amounting  to  about  750,000  horsepower, 
that  has  been  developed  at  Niagara  Falls,  in  spite  of  its  greater  advantage  of  location. 
The  Chairman.  How  long  a  distance  has  it  been  proven  positively  that  electric 
power  can  be  carried? 

Gen.  Beach.  The  Alabama  Power  Co.,  I  know,  are  sending  power  at  a  voltage  of 
about  110,000  volts  to  a  distance  of  250  miles. 
The  Chairman.  Two  hundred  and  fifty  miles? 

Gen.  Beach.  Yes.  There  have  been  claims  made  by  people  engaged  in  electrical 
transmission  of  power  that  they  are  perfecting  that  work  so  that  they  can  transmit 
power  as  economically,  or  will  be  able  soon  to  transmit  power,  to  a  distance  of  400  miles 
as  economically  as  they  do  at  present  to  a  distance  of  200  miles. 

The  Chairman.  I  think  that  it  is  claimed  by  the  engineers  of  the  water-power  com- 
panies in  California  that  they  can  transmit  power  400  miles. 

Gen.  Beach.  But  there  is  another  feature  of  the  case  which  has  been  developed 
as  a  result  of  the  power  survey  during  the  war,  which  makes  a  great  difference  in  that 
matter,  and  that  was  referred  to  yesterday  in  the  Secretary  of  War's  testimony  when 
he  spoke  about  rela,ying  the  power.  I  do  not  know  whether  the  committee  exactly 
understood  it,  but  it  might  be  put  in  this  way.  There  might  be  a  demand  in  New 
York  greater  than  the  power  plants  there  could  supply,  using  these  cities  as  an  illus- 
tration, Philadelphia  could  not  supply  any,  neither  could  Baltimore,  but  Washington 
could.  Now,  then,  they  all  say  all  along  the  line,  if  you  will  send  forty  or  fifty  thou- 
sand horsepower  to  Baltimore,  Baltimore  can  send  forty  or  fifty  thousand  horsepower 
on  to  Philadelphia,  and  Philadelphia  can  turn  that  much  loose  for  New  York,  and  by 
that  means  of  tying  together  they  are  now  sending  power  600  miles. 

The  Chairman.  Do  you  call  that  relaying  power?  Is  that  the  technical  term 
used? 

Gen.  Beach.  Yes,  sir;  that  is  one  term  that  is  used.  As  I  say,  they  are  actually 
sending  the  power  in  that  way  through  different  stations  to  a  distance  of  600  miles. 

Mr.  Kearns.  General,  I  do  not  understand  that  that  is  relaying  power.    Washington 
would  send  its  power  to  Baltimore  and  Baltimore  would  use  the  Washington  power 
and  then  Baltimore  would  send  power  to  Philadelphia,  and  Philadelphia  would  use 
the  Baltimore  power  and  not  the  Washington  power. 
Gen.  Beach.  Yes;  they  would  use  the  Baltimore  power. 

Air.  Kearns.  And  then  Philadelphia  would  send  power  on  to  New  Yorx  and  New 
York  would  use  the  Philadelphia  power. 
Gen.  Beach.  Yes. 

Mr.  Kearns.  That  would  not  be  relating  the  power. 

Gen.  Beach.  That  is  the  term  I  have  heard  used.    Mr.  Martin  is  here  and  could  tell 
about  that.    What  term  do  you  generally  use? 
Mr.  Martin.  That  is  the  usual  expression  that  we  use  in  the  business. 
Gen.  Beach.  Mr.  Martin,  who  is  the  president  of  the  Alabama  Power  Co.,  says  that 
that  is  the  term  they  generally  use. 
The  Chairman.  You  may  proceed,  General. 

Gen.  Beach.  I  was  just  going  to  say  that  those  developments  in  transmission  mig  h 
provide  a  market  at  Muscle  Shoals  much  earlier  than  would  have  been  provided  by 
the  former  method  of  simply  supplying  everything  from  the  station  where  the  power 
Jt'as  actually  generated,  and  it  might  be  possible  that  the  period  of  developing  a  mar- 
ket for  the  power  at  Muscle  Shoals  would  for  that  very  reason  be  shorter  than  would 
he  the  case  under  the  former  method;  but  there  is  not  much  in  the  immediate  vicinity 
of  Muscle  Shoals  to  absorb  this  power.    Things  will  have  to  be  brought  there;  either 


*t 


m 


102 


MUSCLE  SHOALS  PKOPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


103 


some  establishments  created  in  order  to  utilize  the  power  or  you  will  have  to  send  it 
out  to  other  fields  if  you  are  going  to  utilize  it  at  any  time  within  the  reasonable  future 
after  the  completion  of  the  dam.  .      j  .r. 

The  Chairman.  You  mentioned  several  cities  that  are  along  the  coast  and  then  you 
also  mentioned  Nashville,  in  Tennessee.    Wilmington,  I  think  was  one  of  the  cities 

you  mentioned?  .     ,  ,  xr    i.    -n  xi 

Gen.  Beach.  No;  I  named  Memphis,  Birnungham,  and  Nashville  as  the  only 
cities  within  reasonable  distance  or  within  such  distance  that  they  could  receive  their 
power  by  direct  transmission.    I  probably  might  have  included  Chattanooga  also. 

The  Chairman.  How  far  are  they  from  this  place? 

Cien.  Beach.  They  are  all  probably  within  a  distance  of  150  or  200  miles. 

The  Chairman.  So  that  it  would  not  be  impossible  to  supply  them  with  power  if 
this  plant  were  developed  as  it  is  proposed  to  develop  it. 

Gen.  Beach.  But  Birmingham  is  already  fully  supplied  by  the  Alabama  Power  Co. 
from  its  power  plants  on  the  Coosa  River.  Chattanooga  is  also  ab-eady  provided  with 
power  from  the  power  plant  at  Hale's  Bar,  about  8  miles  below  the  town.  That  leaves 
only  the  two  other  cities.  .      •      ,  ^  - 

The  Chairman.  Of  course,  it  might  develop  some  competition  in  the  supplying  of 

T)ower. 

Gen.  Beach.  That  would  he  a  matter  that  would  be  under  the  public  utilities  com- 
missions of  the  States.  . 

The  Chairman.  At  any  rate  it  would  supply  an  additional  factor  m  supplying 
power  to  the  various  communities. 

Gen.  Beach.  Yes/sir.  T  told  all  the  parties  who  came  to  consult  with  me  with 
regard  to  making  a  proposition,  that  it  was  my  idea  that  the  United  States  did  not 
desire  to  instiill  this  power  plant  for  the  purpose  of  being  a  disturbing  element  to  vested 
interests;  that,  other  things  being  equal,  we  would  give  preference  to  that  proposal 
which  fitted  in  best  ^^ith  existing  conditions  and  did  not  destroy  established  business 
which  had  already  been  built  up  at  considerable  expense  and  time. 

The  Chairman.  General,  in  the  memorandum  which  you  prepared  for  the  Secretary 
of  War  and  which  is  referred  to  as  Exhibit  E  in  his  letter  to  the  Speaker  of  the  House  of 
Representatives,  you  say  that  "the  Engineer  Department's  estimate  made  in  July, 
1921,  for  completing  Dam  No.  2,  with  its  full-power  equipment  is  in  round  numbers, 
$28,000,000;  and  in  August,  1921,  for  constructing  Dam  No.  3,  $28,000,000."  The 
estimate  of  Mr.  Ford's  engineers  for  completing  Dam  No.  2  in  round  numbers  is 
$23,430,000  and  for  Dam  No.  3,  $19,000,000;  in  other  words,  the  estimates  of  the 
engineers  for  the  two  dams  is  $56,000,000,  while  the  estimates  of  Mr.  Ford's  engineers 
is  a  little  over  $42^000,000.    How  do  you  explain  such  a  great  disparity  in  the  estimates? 

Gen.  Beach.  There  is  really  very  little  difference  in  most  cases  between  Mr.  Ford  s 
unit  price  and  the  unit  price  of  the  Engineer  Department.  If  one  were  building  a 
dam  and  had  unusual  good  luck  and  was  not  called  upon  to  provide  for  contingen- 
cies, it  might  be  possible  to  get  through  with  Mr.  Ford's  figures.  Our  figures  are  an 
estimate  for  an  appropriation.  We  have  to  allow  for  contingencies,  and  when  one  is 
engaged  in  large  construction  in  a  big  river  like  the  Tennessee  he  has  to  provide  a 
large  appropriation  for  contingencies  because  of  floods,  or  even  ordinary  freshets,  or 
delays  and  interruptions  to  the  work.  You  can  easily  see  if  we  were  caught  in  a  big 
flood,  our  derricks  thrown  over,  and  our  cofferdams  washed  out,  we  would  have  to 
spend  a  great  deal  to  get  back  to  where  we  were  before. 

The  Chairman.  I  have  seen  that  exemplified  in  California. 

Gen.  Beach.  I  made  the  remark  at  one  interview  with  Mr.  Ford  when  I  was  present 
that  I  never  in  all  my  experience  had  seen  a  man  engaged  for  the  first  time  in  river 
work  that  he  did  not  make  an  underestimate.  Mr.  Ford  smiled  and  said  he  could 
bear  me  witness  to  that  effect;  that  he  had  started  on  one  little  improvement  which 
he  expected  would  cost  from  twelve  to  fifteen  thousand  dollars,  and  it  had  cost  him 
over  $100,000.  But  we  felt  we  could  not  send  an  estimate  here  to  Congress  and  then 
find,  on  account  of  large  floods  or  serious  interruptions  to  work,  that  we  were  running 
short  of  funds  and  then  have  to  come  back  and  ask  for  another  appropriation.  VVe 
have  made  our  estimate  at  that  figure  at  which  we  feel  that  we  can,  so  far  as  human 
foresight  can  go,  complete  the  work  for  the  amount  asked,  and  if  we  have  good  fortune 
and  are  not  interrupted  by  great  floods  or  have  any  disaster  on  the  work  we  hope  we 
can  complete  it  at  a  sum  well  within  our  estimate  and  have  something  to  return  to 
the  Treasury.  ,         ,  ^f 

The  Chairman.  Later  on,  in  this  estimate  which  you  made  of  $28,000,000  for  each  oi 
the  dams,  you  reported  to  the  Secretary  of  War  that  by  reason  of  prices  after  the  war 
having  come  down  considerably  you  thought  you  would  be  able  to  complete  both  dame 
for  $50,000,000.  .  ,     ^       T,r     a 

Gen.  Beach.  There  is  another  feature  connected  with  the  estimate  for  Dam  iNo.  J- 
We  have  made  no  attempt  at  examination  of  the  rock  on  which  that  dam  will  rest. 
Our  information  is  to  the  effect  that  it  is  not  as  good  rock  as  the  rock  at  Dam  ^o.  ^ 


Mr.  Ford  has  made  more  of  an  examination.  I  believe  he  had  parties  make  an  ex«»mi- 
nation  for  him  at  Dam  No.  3  which  is  more  extensive  than  the  examination  we  have 
made.  But  our  information  is  not  definite  enough  at  that  locality  to  allow  us  to  sub- 
mit an  estimate  for  a  better  state  of  foundation  than  we  belieye  we  may  encounter. 

The  Chairman.  In  this  same  memorandum  you  state  that  the  indirect  benefits 
accruing  to  the  United  States  are  the  maintenance  of  a  nitrate  plant  in  readiness  for 
war  emergency.    You  put  that  first.    Is  that  still  your  opinion  in  regard  to  the  matter? 

Gen.  Beach.  My  opinion,  Mr.  Chairman,  is  that  preparedness  is  of  the  first  impor- 
tance, and  that  we  ought  not  to  be  caught  a  second  time  as  we  were  a  short  while  ago . 

The  Chairman.  So  that  the  use  of  nitrates  for  explosives  in  case  anything  happens 
ought  to  be  looked  after  primarily  by  the  oflicials  of  the  War  Department  before  they 
take  up  the  matter  of  fertilizer  and  things  of  that  kind. 

Gen.  Beach.  I  can  not  understand  anybody  who  is  acquainted  with  the  conditions 
being  willing  to  put  the  United  States  in  such  a  position  that  in  case  of  hostilities  it 
would  have  to  depend  upon  securing  its  nitrates  from  a  foreign  source  of  supply. 

Mr.  Hull.  General,  if  you  completed  the  dam,  how  long  a  time  do  you  estimate  it 
would  take,  that  is,  Dam  No.  2? 

Gen.  Beach.  Mr.  Hull,  I  have  a  saying  which  I  try  to  live  up  to,  that  no  man  ever 
gets  a  date  out  of  me,  but  in  order  to  answer  your  question  to  the  best  of  my  ability  I 
would  say  that  if  we  are  not  unduly  interrupted  by  floods  or  some  big  disaster  of  some 
kind,  we  ought  to  be  able  to  get  through  with  that  work  in  two  and  a  half  or  three 
years. 

Mr.  Hull.  If  you  finish  it,  you  ought  to  be  able  to  finish  it  under  the  same  condi- 
tions, of  course,  as  Mr.  Ford  would  finish  it,  approximately  as  cheaply  as  he  would 
finish  it;  is  that  not  true?  I  mean  taking  into  consideration  the  character  of  the  work 
that  would  go  into  the  dam. 

Gen.  Beach.  As  far  as  the  cost  of  the  materials  is  concerned,  we  probably  could 
obtain  them  as  reasonably  as  Mr.  Ford.  I  think  we  could  buy  our  cement,  obtain  our 
sand  and  gravel,  and  obtain  the  machinery  at  as  reasonable  a  figure  as  he  could.  We 
are  limited  in  our  work  to  an  8-hour  day.  Mr.  Ford,  in  all  probability,  would  not  be 
limited  to  an  8-hour  day.  And  there  are  other  restrictions  which  might  interfere 
\nth  our  work.  Under  an  Executive  order  we  have  to  give  our  men  a  hdf  holiday  on 
every  Saturday  between  the  15th  of  July  and  the  15th  of  September.  That  amounts 
to  an  appreciable  item.  Mr.  Ford,  on  those  two  items,  might  be  able  to  do  the  work 
at  a  somewhat  less  price  than  it  would  cost  us. 

Mr.  Hull.  Suppose  the  Government  was  to  finish  the  proposition  in  the  next  two 
or  three  years.  You  know  something  about  the  power  situation.  Do  you  think  it 
would  be  possible  for  the  Government  to  sell  the  power  to  such  an  advantage  that  it 
would  pay  the  interest  on  the  investment,  on  the  entire  cost  of  Dam  No.  2? 

Gen.  Beach.  I  have  very  serious  doubts  as  to  our  ability  to  dispose  of  that  power 
immediately,  if  we  completed  the  dam  ourselves.  I  have  no  doubt  as  to  our  abiuty  to 
develop  a  market  for  the  power  in  course  of  time;  but  if  Mr.  Ford's  offer  is  accepted, 
we  have  a  market  immediately  developed.  I  understand,  not  from  Mr.  Ford  himself, 
but  from  people  who  have  talked  with  him  in  regard  to  the  matter,  that  he  intends  to 
utilize  this  secondary  power,  which  is  a  very  large  proportion  of  the  product,  in  a  way 
that  we  would  have  considerable  diflSculty  in  finding  a  customer  for.  In  other  words, 
I  belieye  he  proposes  to  install  electrical  furnaces.  They  would  be  used  whenever  the 
power  is  available,  and  he  could  utilize  the  secondary  power  in  that  way  to  great  ad- 
vantage, and  do  it  immediately,  whereas  we  would  probably  not  be  able  for  a  good 
many  years,  if  we  were  marketing  the  power  ourselves,  to  find  a  customer  who  could 
use  this  secondary'  power,  except  for  the  purpose  of  relaying  it,  as  I  mentioned  awhile 
ago. 

Mr.  Hull.  Was  it  your  branch  of  the  Army  that  made  the  contract  with  the  Alabama 
Power  Co.  as  to  the  transmission  line? 

Gen.  Beach.  We  have  had  nothing  to  do  with  the  Alabama  Power  Co.,  except  to 
accept  a  deed  from  them  for  the  land  on  which  they  acquired  flowage  rights. 

Mr.  Hull.  You  know  nothing  about  this  contract? 

Gen.  Beach.  Nothing  that  I  would  like  to  express  an  opinion  upon. 

Mr.  Hull.  You  expressed  an  opinion  here  in  regard  to  the  limit  of  time.  You  have 
already  made  a  contract,  as  I  understand  it,  a  minor  contract,  perhaps,  for  a  hundred 
years,  down  there.    Is  that  not  so?    I  understood  you  had  made  such  a  contract. 

Gen.  Beach.  No,  sir. 

Mr.  Hull.  Was  there  not  one  contemplated? 

Gen.  Beach.  Not  by  my  department. 
.  Mr.  Hull.  If  I  understood  you  correctly,  you  think  that  there  might  be  something 
la  the  contention  that  in  a  proposition  of  this  kind  it  would  not  be  unreasonable  to 
&ive  them  a  hundred-year  lease? 

Gen.  Beach.  I  expressed  the  opinion  that  there  were  conditions  at  this  locality 
regarding  the  state  of  development,  the  character  of  development  of  the  surrounding 


104 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


105 


country,  and  the  amount  of  power  involved  which  would  make  the  development  of 
the  market  for  this  power  under  ordinary  circumstances  slower  than  it  would  be  in 
other  places,  and  that  I  did  not  think,  on  account  of  those  conditions,  that  you  should 
necessarily  apply  the  same  rule  simply  because  you  had  the  rule. 

Mr.  Hull.  You  have  read  the  offers  of  Mr.  Ford,  both  the  first  offer  and  the  second 
offer  in  modified  form.  Do  you  care  to  express  any  opinion  for  the  information  of 
the  committee  as  to  what  you  think  we  should  do?  ' 

Gen.  Beach.  That  is  practically  the  same  question,  is  it  not,  which  the  Secretary 
hesitated  so  long  yesterday  in  answering,  and  the  member  of  the  committee  who  asked 
it  offered  to  withdraw  it  if  the  Secretary  did  not  want  to  answer  it? 

Mr.  Hull.  That  is  the  same  question. 

Gen.  Beach.  I  would  say  this,  that  there  is  one  feature  of  the  case  connected  with 
an  award  to  Mr.  Ford  that  appears  to  be  worthy  of  consideration,  and  that  is  this: 
The  Tennessee  River  possesses  an  immenj^e  potentiality  with  resrard  to  wat«:»r-power 
development.  I  believe  there  is  no  stream  in  the  country,  conddorijio;  the  amount 
of  water  which  is  carried  and  the  steepness  of  its  slope,  which  will  furnish  the  amount 
of  water  power  that  the  Tennessee  Ri\'er  has,  except  perhi]>s  the  St.  Tiawren^^e  River. 
At  Muscle  Shoals  we  count  on  about  100,000  primiry  horsepower  and  aV>out  440,000 
or  450,000  secondarv  horsepower. 

Mr.  Hull.  That  is  at  Dam  No.  2? 

Gen.  Beach.  Yes;  but  every  dam  that  is  built  on  the  up])er  Tennessee  whi -h  will 
restrain  the  flood  waters  and  let  them  out  a:radually  during  the  low -water  season  will 
increase  the  primary  power  at  Dam  No.  2,  with  a  correspondin ;  decrease  in  the  second- 
ary power.  Mr.  Ford  has  said  that  if  he  obtained  the  lease  of  this  property  at  Dam 
No.  2,  or  the  lease  of  the  propirtv  according  to  his  proposition,  he  intends  to  come  in 
and  make  applicaiion  for  other  dams  on  the  unper  river  and  develop  them  up  there 
above  with  the  idea  of  utilizino:  the  power  which  he  can  obtain  from  them  and  increas- 
ing the  value  of  the  power  which  he  has  made  arrangements  to  obtain  by  his  ©"^er 
at  Dam  No.  2.  That  one  feature  of  the  case  alone  appears  to  me  to  be  worthy  of  the 
most  careful  con.«ideration  by  Congress,  for  I  believe  that  the  leasing  of  Dam  No.  2 
to  Mr.  Ford  will  be  followed  by  a  development  along  the  Tennessee  River  which  would 
be  very  material,  and  would  probably  amount  in  a  few  years  to  more  than  you  would 
get  in  any  other  way  in  the  coiu^e  of  a  generation  or  two. 

Mr.  Hull.  That  is  a  very  comp"ehensive  answer,  and  I  think  it  is  what  the  country 
wants  to  know.  Have  you  any  opinion  to  express  in  regard  to  the  effect  upDn  the  river 
navigation  in  the  development  of  the  two  d  ims? 

Gen.  Beach.  The  navigation  of  the  Tennessee  I  regard  as  of  great  importance— that 
is,  the  development  of  navigation.  The  Tennessee  River  is  one  of  the  richest  rivers 
in  the  country  in  regard  to  mineral  deposits  along  its  banks.  Thev  have  immense 
coal  fields  in  eastern  Tennessee,  and  in  the  upper  reaches  of  the  Tennessee  Hivcr, 
which  have  not  been  touched.  They  have  some  coal  beds  up  there,  I  unierstand, 
which  are  30  feet  thick  in  solid  coal,  and  anv  development  which  would  permit  that 
coal  to  reach  the  market  economically  would  be,  I  consider,  of  nitional  importance. 
The  Tennessee  River  is  not  subject  to  tHe  same  floods  that  the  Ohio  is  subject  to,  and 
vet  it  carries  practicallv  the  same  amount  of  water  throughout  the  vear  that  the  Ohio 
does  above  the  junction  of  the  two  streams.  The  reason  for  that  is  that  the  upper 
waters  of  the  Tennessee  lie  in  a  region  where  they  receive  the  rainfall  of  storms  that 
come  from  Arkansas  and  Texas,  moving  northeast,  and  they  also  feel  the  effect  of 
rainstonns  that  come  up  the  coast  and  do  not  extend  west  of  the  Appalachian  system. 
The  consequence  is  that  the  Tennessee  carries  a  larger  volume  of  water  than  almost 
anv  other  stream  in  the  United  States  in  proportion  to  the  area  of  its  watershed. 

Mr.  Hull.  You  have  given  us  a  very  comp-ehen^ive  answer  to  that  question.  Taero 
is  another  question  I  would  like  to  ask  vou.  You  have  some  development  down 
there  in  what  is  known  as  a  stand-by  condition.  Your  whole  organizaticn,  as  I  under- 
stand it,  is  decimated  and  gone,  and  you  would  have  to  reorgani/.e,  which  would  take 
yon  some  time.     FTave  you  anv  opinion  as  to  what  that  would  cost  the  Government . 

Gen.  Beach.  Yes,  sir. 

Mr.  Hull.  Will  you  give  us  that? 

Gen.  Beach.  It  is  close  to  $20,000  a  month,  so  far. 

Mr.  Hull.  That  continues  as  long  as  it  stands  there;  is  that  true? 

Gen.  Beach.  And  we  have  any  money  to  meet  the  pay  roll. 

Mr.  Hull.  In  other  words,  we  ought  shortly  to  do  something  with  it. 

Gen.  Beach.  Yes,  sir;  because  you  are  spending  that  amount  of  money 
tically  $200,000  a  year,  without  one  cent's  benefit  from  it. 

Mr.  Kearns.  General,  most  of  your  testimony  has  been  along  the  line  of 
ooing  water  power  for  commercial  purposes,  and  very  little  has  been  said  about  tne 
maniifacture  of  nitrate  for  the  purpose  of  making  fertilizer.    What  is  Mr 
idea  as  to  developing  water  power  and  manufacturing  nitrate  for  fertilizer? 


prac- 

devel- 
ut  the 
Ford's 


Gen.  Beach.  It  is  very  hard  to  tell  what  another  man's  idea  is  if  he  has  not  talked 
hiiut^elf,  and  all  that  I  have  to  go  on,  in  reply  to  your  question,  is  the  remarks  that 
have  been  made  to  me  by  Mr.  Ford,  not  directly  on  this  point,  and  those  which  have 
been  repeated  to  me  by  people  with  whom  he  has  conversed  on  the  subject.  I  know 
that  Mr.  Ford  has  the  idea  that  he  would  like  to  stand  in  the  same  relation  to  the- 
farmer  and  to  agricultural  pursuits  that  John  D.  Rockefeller  stands  in  to-day  in  re- 
pird  to  the  eradication  of  disease  and  the  promotion  of  medical  science.  He  has  said 
that  he  hoped  to  be  able  to  get  the  production  of  his  machines  to  such  a  price  that  the 
farmers  can  buy  a  Ford  automobile,  a  Ford  tractor,  and  a  Ford  truck,  all  for  $1,000. 
And  I  have  every  reason  to  believe  that  he  aspires  to  go  down  in  history  as  the  man 
wlio  has  done  the  most  to  develop  the  agricultural  resources  of  his  country  and  the 
agricultural  possibilities  of  the  world. 

Mr.  Kearns,  In  his  talk  with  you  has  he  discussed  the  building  of  other  dams  by 
means  of  which  he  might  produce  greater  horsepower? 

Gen.  Beach.  That  has  been  mentioned,  not  with  me,  but  with  other  parties  who 
have  reported  the  conversation. 

Mr.  Kearns.  Do  you  know  how  many  tons  of  nitrate  are  used  in  the  manufacture 
of  fertilizer  throughout  the  United  States  to-day? 

Gen.  Beach.  No,  sir,  I  do  not. 

Mr.  Kearns.  Can  you  get  that  information? 

Geu.  Beach,  Yes,  sir.  I  understand  that  representatives  of  the  American  Farm 
Bureau  Federation  have  requested  to  be  heard  by  this  committee. '  They  can  give 
you  more  definite  and  direct  information  on  that  subject  in  five  minutes  than  I  can  in 
an  entire  afternoon. 

Mr.  Kearns.  Has  your  department  those  figures? 

Gen.  Beach.  No,  sir. 

Mr.  Kearns.  Do  you  know  how  many  tons  of  nitrate  could  be  manufactured  at 
,  provided  Mr.  Ford  were  to  get  the  plant  and  operate  it  at^  full 

No,  sir,  I  have  no  information  on  that.    That  is  entirely  outside  of 


Muscle  Shoals 

capacity? 
Gen.  Beach, 

my  province. 
Mr.  Kearns 
Gen.  Beach 
Mr.  Kearns 
Gen.  Beach 


Can  you  get  it? 

I  can  get  it  for  you  very  readily,  sir. 

Has  not  some  bureau  of  the  War  Department  those  figures? 

The  Ordnance  Department,  whom  you  have  just  heard,  has  more 

information  on  that  point,  or  should  have  it,  than  any  other  branch  of  the  Army. 

Mr.  Kearns.  I  would  like  to  get  it  from  that  department  if  I  could.  Can  you  get 
it  from  them? 

Gen.  Beach.  I  would  prefer,  if  there  are  no  objections,  and  I  am  to  bring  that 
information  to  you,  to  go  where  I  think  I  can  get  it  most  reliably  and  accurately. 

Mr.  Kearns.  Has  not  the  Ordnance  Department  these  figures,  and  will  those 
Hgures  not  bo  reliable? 

Gen.  Beach.  I  would  not  like  to  say  they  would  not  be  reliable,  because  they 
ought  to  be,  and  if  they  have  not  got  those  figures  themselves  they  ought  to  go  to  the 
best  place  to  get  the  information. 

Mr.  Kearns.  I  would  like  to  get  the  information  from  as  many  different  sources  as 
possilde  in  order  to  show  how  nearly  they  correspond,  and  whether  anv  reliability 
can  be  placed  in  any  of  the  figures. 

C^en.  Beach.  I  will  be  very  glad  to  do  that,  and  if  I  can  get  information  I  will  do 
this:  I  will  try  to  obtain  it  from  different  sources,  and  if  I  find  they  do  not  agree  I 
will  try  to  reconcile  them  for  you. 

Mr.  Kearns.  If  they  do  not  agree,  why  can  you  not  put  the  different  answers  in 
iho  record  and  show  the  disagreement? 

Gen.  Beach.  That  is  what  I  mean.  I  only  meant  I  would  try  to  see  whether  the 
^liferent  estimates  had  any  explanation,  just  as  in  the  case  of  Mr.  Ford's  figures  for 
completing  the  dams  and  mine,  wliich  although  they  are  quite  different,  yet  as  soon 
as  the  reasons  for  those  different  figures  are  given  the  discrepancy  is  perfectly  intcl- 
"f?ible  to  any  maji. 

j^ccurate  figures  upon  fertiliz.er  production  are  difficult  to  obtain;  those  noted  in  the 
gble  following  have  been  derived  from  the  following  sources:  The  American  Fertilizer 
Jandbook  for  1921;  Bulletin  No.  798,  United  States  Department  of  Agriculture,  The 
f"^Y®y  o^  the 'Fertilizer  Industry;  Census  Bureau's  Advance  Summary  Concerning 
the  Fertilizer  Industry,  May  18, 1921;  Senate  Document  No.  551,  Sixty-fourth  Congress, 
nrPt  session,  Report  on  the  Fertilizer  Industry  bv  the  Federal  Trade  Commission, 
ine  following  is  quoted  from  the  American  Fertilizer  Handbook  with  regard  to  its 
Jtatistics:  "Following  is  a  list  of  States  showing  the  consumption  of  fertilizers  for  the 
15'cal  vears  ending  in  1913,  1914.  1915,  1916,  1917,  1918,  1919,  and  1920,  compiled 
*rom  the  most  reliable  statistics  that  are  obtainable.  In  some  of  the  States  there  are 
•^osolutely  no  accurate  figures  available;  in  these  States  estimates  have  been  made 


106 


MUSCLE  SHOALS  PROPOSITIONS. 


r 

I. 


(  : 


■    / 

I 
I 


V 

^ 


^)ri 


based  on  information  obtained  from  State  officials  and  fertilizer  manufacturoiv.  • 
Bulletin  No  798,  Department  of  Agriculture;  contains  figures  prepared  by  the  assistant 
to  the  secretary  in  charge  of  fertilizer  control  for  1917  and  1918  during  which  years  the 
fertilizer  industry  was  under  Government  supervision,  and  figures  should  be  quite 
reUable  The  Census  Bureau  report  gives  figures  for  1914  and  1919;  m  this  case, 
however,  there  is  apparently  some  duplication,  which  makes  the  totals  appear  greater 
than  they  might  be  expected  to  be.  The  report  of  the  Federal  Trade  Commission 
quotes  figures  from  the  American  Fertilizer  Handbook  for  1915,  hence  they  are  not 

'^Ther^are  apparent  discrepancies  between  the  figures  of  the  Department  of  Agri- 
culture and  the  Fertilizer  Handbook  for  1917  and  1918.  It  must  be  remembered 
however,  that  fertilizer  is  sold  in  two  important  forms,  namely,  mixed  fertilizer  and 
acid  phosphates.  A  certain  amount  of  the  acid  phosphates,  sold  as  such,  is  bought  by 
the  manufacturers  of  mixed  fertilizer  for  use  in  their  product.  It  is  evident  that  we 
must  subtract  from  the  acid  phosphate,  sold  as  such,  the  amount  used  m  mixed  ferti- 
lizer in  computing  the  total  fertilizer  production.  If  this  is  done,  figures  of  the  Depart- 
ment of  Agriculture  tally  closely  with  those  of  the  American  Fertilizer  Handbook. 
If  similar  precuations  are  taken  it  is  possible  to  make  the  Census  Bureau  figures  also 
tallv  with  reasonable  closeness  mth  those  of  the  American  Fertilizer  Handbook.  It 
should  here  be  noted  that  the  latter's  figures  are  for  consumption  and  not  production. 

The  percentage  of  nitrogen  in  mixed  fertilizer  is  a  variable  quantity.  Computa- 
tions based  on  the  statistics  of  the  Department  of  Agriculture  would  indicate  that  in 
1917  the  percentage  of  nitrogen  in  mixed  fertilizer  was  3.4,  whereas  the  same  source 
would  show  that  in  1918  the  percentage  was  only  2.5.  Best  available  sources,  though 
uncertain,  indicate  that  this  percentage  varies  on  the  average  between  2.5  and  3.o. 
Aeain  using  the  figures  of  the  Department  of  Agriculture  and  assuming  the  production 
of  nitimte  plant  No.  2  at  Muscle  Shoals  as  110,000  tons  of  ammonium  nitrate  per 
annum;  the  tables  show  that  this  plant  at  that  capacity  would  produce  for  those  years 
from  25  to  30  per  cent  of  the  total  nitrogen  used  in  mixed  fertilizer. 

The  foregoing  discussion  does  not  take  account  of  organic  fertilizer  such  as  hsh 
scraps,  dried  blood,  cottonseed  meal,  etc.,  as  these  products  form  only  a  small  and 
uncertain  proportion  of  the  total  fertilizer  produced.  ^  The  foregoing  consideration.^ 
also  seem  to  show  that  the  figures  of  the  American  Fertilizer  Handbook  are  in  the  mam 
reasonably  accurate  as  regards  total  fertilizer  consumption. 

Fertilizer  production. 


[All  figures  in  1 

tons  (2,000  pounds)  unless  otherwise  noted.] 

1914 

1915 

1916 

1917 

1918 

1919 

1920 

Total     production     (all 
kinds):i 
American    Fertilizer 
Handbook 

7,340,528 
8,432,000 

5,612,000 

5, 563, 212 

5, 390, 549 

6,206,543 

6,756,743 

6,891,322 
8,291,000 

4,696,000 

7,mrm 

Census  Bureau 

Mixed  fertilizer: 

Census  Bureau 

Department  of  Agri- 

4, 442, 528 

4,9.57,799 

culture 

Acid  phosphate  (sold  as 
such): » 

Census  Bureau 

Department  of  Agri- 

1,761,000 

2,457,000 

2,097,625 
494,261 

2,02.'>,116 

culture 

Acid  phosphate  (used  by 
mixed  fertilizer  manu- 
facturers), Department 

oi  Agricuiiure 

Other  fertilizers,  Census 

1,059,000 
1 



1,138,000 

Total  ammonia  in  mixed 
ferilizer.  Department  of 
Agriculture 

1 

186,000 

130,000 

Per  1'^^; 

cent.  ^■^•f.\ 

4  2  ■'• 

Ammonia  in  mixed  fertilizer •  —  *•  t  -i.-^ 

Nitrogen  in  mixed  fertilizer •\. 

Total  nitrogen  supplied  by  nitrate  plant  ^ 


m 


31 
the 


1  Federal  Trade  Commission's  report  in  1916  states  that  80  per  cent  of  all  fertilizer  produced  is 

form  of  mixed  fertilizer.    (P.  XVI.) 
s  There  is  no  nitrogen  in  acid  phosphate.  ^.      .  a  «„«„«1  nroc^i'" 

»  Based  on  110,000  tons  of  ammonium  nitrate,  or  38,500  tons  of  nitrogen,  the  estimated  annual  i> 

tion  of  nitrate  plant  No.  2,  at  Muscle  Shoals. 


MUSCLE   SHOALS  PBOPOSITIONS. 


FERTILIZER  TONNAGE   BY   STATES. 


107 


Following  is  the  list  of  States,  showing  the  consumption  of  fertilizers  for  the  fiscal 
years  ending  in  1913,  1914,  1915,  1916,  1917,  1918,  1919,  and  1920,  compiled  from 
the  most  reliable  statistics  that  are  obtainable.  In  some  of  the  States  there  are 
absolutely  no  accurate  figures  available.  For  these  States  indicated  by  an  asterisk, 
estimates  have  been  maide,  based  on  information  obtained  from  State  officials  and 
fertilizer  manufacturers. 


State. 


Alabama 

*,\riiona 

Arkansas 

California 

♦Colorado 

♦Connecticut 

♦Delaware 

Florida 

Georgia 

♦Idaho 

♦Illinois 

Indiana 

♦Iowa 

Kansas 

♦Kentucky 

Louisiana 

♦Maine 

Maryland 

♦Massachusetts 

♦Michigan 

*Minnesota 

Mississippi 

*Missouri 

♦Montana 

*Nebraska 

*Nevada 

*New  Hampshire. 

New  Jersey 

*New  Mexico 

*New  York 

North  Carolina 

*North  Dakota.... 

Ohio 

*Oklahoma 

*Oregon 

Pennsylvania 

*PortoRico 

*Rhode  Island 

South  Carolina 

♦South  Dakota 

Tennessee 

Texas 

*Utah 

♦Vermont 

Virginia 

♦Washington 

West  Virginia... 

'Wisconsin 

Wyoming 


Fiscal 

year 

ending— 


„      Total. 
Hawaii... 


Oct.  1.. 
June  30 
Sept.  30 
June  30. 
Dec.  31.. 
...do-... 

...do 

...do 

...do 

Julyl... 
Apr.  30.. 
Dec.  31.. 
Apr.  30.. 
Dec.  31.. 
...do.... 
Aug.  31 . 
Dec.  31.. 

...do 

Jime  30. . 
Dec.  31.. 
...do — 
Oct.  1... 
Dec.  31.. 
No  law.. 

...do 

...do 

Apr.  30. . 
Oct.  31.. 
No  law.. 
Dec.  31.. 
Dec.  1... 
Dec.  31.. 

...do 

June  30.. 
Aug.  30. 
Dec.  31.. 
June  30.. 
Mar.  31.. 
Jime30.. 
Julyl... 
May  31.. 
Sept.  1.. 
Dec.  31.. 
June  30.. 
Dec.  31.. 
Mar.  31.. 
June  30. 
Dec.  31.. 
No  law.. 


1913 


June  30.. 


Tons 

474,730 

600 

52,000 

36,000 

500 

62,000 

50,000 

213,728 

1,120,693 

200 

30,000 

193,899 

3,500 

7,380 

75,000 

98,778 

160,000 

169,000 

51,000 

57,985 

3,500 

128,050 

60,000 

800 

500 

800 

18,000 

156,661 

■  200 

380,000 

840,447 

500 

183, 476 

2,000 

4,500 

340.000 

18,836 

9,000 

918,336 

700 

84,060 

75,500 

1,000 

14,500 

412,434 

1,500 

31,852 

4.000 

200 


1914 


Tons. 

592,200 

650 

84,850 

39,471 

500 

74,000 

55,000 

240,812 

1,282,088 

500 

40,000 

219,000 

4,200 

9,460 

83,000 

90,588 

168,000 

183,350 

54,000 

60,000 

3,800 

127,400 

65,000 

900 

500 

950 

20,000 

155,414 

200 

420,000 

872,820 

550 

203,000 

2,000 

6,300 

381,900 

18,164 

12,500 

1, 095, 728 

1,000 

93,550 

77,400 

1,200 

18,000 

437,808 

2,400 

35, 475 

4,500 

400 


1915 


6,544,345  7,340,528 
67,000   80,000 


Tons. 

302,350 

650 

26,396 

31,540 

600 

80,000 

45,000 

208,782 

872,979 

500 

35,000 

156,152 

5,100 

10,060 

8.5,000 

73,420 

150,000 

16K,000 

56,000 

65,000 

4,000 

85,414 

57,000 

1,000 

500 

1,000 

16,000 

153,075 

500 

400,000 

647, 188 

600 

225,000 

2,000 

6,500 

316, 319 

20,000 

11,000 

670, 610 

•1,500 

77,390 

17,500 

1,500 

13,500 

406,077 

3,000 

46,010 

5,000 

500 


1916 


5,563,212 
70,000 


Tons 

206,000 

600 

65,600 

29,415 

1,000 

73,000 

45,000 

212,250 

741,347 

500 

42,000 

132, 159 

5.000 

7,940 

62,000 

96,426 

155,000 

154,000 

53,000 

70,000 

4,500 

75,667 

41,000 

1,000 

500 

1,000 

18,000 

129,800 

500 

400,000 

650,000 

700 

187,848 

3,000 

6,500 

268,455 

37,725 

12,000 

833,624 

1,500 

91,128 

39,845 

1,000 

15,000 

369,520 

3,000 

40,000 

5,000 

500 


1917 


Tons 

210,000 

500 

58,500 

4.3,964 

1,000 

78,000 

50,000 

214,088 

895,897 

500 

45,000 

156,000 

5,000 

7,600 

93,000 

98,264 

160,923 

191,900 

64,000 

91,455 

4,500 

76,717 

65,000 

1,000 

500 

1,000 

20,000 

176,483 

500 

420,000 

849,728 

1,000 

165, 857 

3,000 

7,000 

334,309 

45.767 

11,500 

850,790 

2,500 

99,584 

40,500 

1,000 

14,500 

496,217 

4,000 

41.000 

6,500 

500 


1918 


1919 


1. 


0*  tJ^^Jy   Ovf 

65,000 


6,206,543 
80,000 


Tons 

289,900 

500 

88,500 

32,036 

1,000 

80,000 

54,000 

197,954 

923,020 

500 

45,000 

244,340 

5,000 

8,000 

128,000 

81,025 

155,000 

173,000 

68,000 

78,000 

5,000 

104,700 

90,000 

1,000 

500 

1,000 

18,000 

153,198 

500 

430.000 

921,962 

1,0001 

219,328 

3,000 

6,000 

340,898 

40,8111 

10,000, 

064,8861, 

2,500i 

113,0001 

58,000: 

1,000 

16,000 

430,549 

4,010 

59.036 

7,500 

500 


6, 756, 743 
64>000 


Tons. 

297,903 

500 

64,427 

43, 126 

1,000 

65,000 

30,398 

250.613 

990,919 

500 

45,000 

241,000 

5,000 

16,937 

108,000 

97,724 

156,000 

174,500 

61,000 

103,264 

5,000 

110,000 

91,000 

1,000 

500 

1,000 

14,000 

149,485 

1,500 

410,000 

961,238 

1,000 

305,236 

4,000 

7,500 

340,000 

21, 8151 

9.000 

033, 887  1, 

3,000 

109,366 

46,000 

1,000 

18,000 

421,484 

4,000, 

63,000 

10,000 

500 


1920 


1, 


6,891,322 
71,000 


Tons. 

388,341 

500 

81,875 

58,636 

1,000 

65,000 

61,537 

272,316 

978,090 

500 

45,000 

230,184 

5,000 

12,650 

90,000 

95,864 

168,000 

173,000 

61,450 

112,616 

5,000 

139,000 

120,332 

1,000 

500 

1,000 

17,000 

164,820 

1,500 

400,000 

221,796 

1,000 

300,000 

4,000 

5,500 

326,864 

20,000 

10,000 

253,890 

3,000 

112,202 

56,700 

1,000 

20.000 

429,024 

4,000 

121,052 

12,000 

500 


7,654,239 
70,000 


Mr.  Parker.  General,  under  this  contract  or  proposition  of  Mr.  Ford,  he  agrese  to 
coTnplete  the  construction  work  at  the  two  dams  and  install  the  power,  etc.,  for  the 
''nit<}d  States  at  actual  cost,  and  without  profit  to  the  company.  That  makes  him  a 
contractor  with  the  United  States.  Would  he  not  therefore  be  bound  by  the  rules  as 
f^  the  8-hour  day,  Saturday  half  holidavs,  etc.? 

Oen.  Beach.  That  is  quite  questionaf»le.  Tf  we  were  to  simply  make  a  contract  to 
^naplete  that  dam,  take  over  the  construction  of  the  dam  and  complete  it  without 
'be  usual  form  of  contract  specifying  that  he  must  adhere  to  the  8-hour  law,  J  would 
"i^J  myself  that  the  8-hour  law  would  not  apply. 


«.•« 


108 


MUSCLE  SHOALS  PBOPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


109 


!■' 


I 

i 


'? 


*1 


Mr  P\RKER.  This  is  a  contract  with  the  United  States  to  complete  a  da.n  and  to  do 
certain  work  at  actual  cost.  Tn  carrpng  out  the  details  and  making  a  contract,  under 
the  statutes  should  not  that  l^e  put  into  the  contract^  ,  ,     .1     o  .     , 

Gen  Heach.  That  is  questionable.  At  any  rate,  he  is  not  bound  }>y  the  >atur(iay 
haU-holiday  provision.  He  would  have  that  advantage.  It  has  been  held  in  a  imm- 
ber  of  cases  that  even  where  the  8-hour  law  applies,  it  does  not  apply  to  Rubcontrartors. 
and  it  seems  tn  nie  it  would  deT>end  on  the  manner  in  which  that  contract  whs  made. 
as  to  vv-hether  the  8-hour  law  was  a  n9ce3sary  part  of  the  contract  or  not. 

Mr.  Parker.  I  oiilv  brouo:ht  it  up  becaiLse  you  said  it  would  apply  to  liim:  1  was  a 
little  doubtful  about  it  and  you  are  a  little  doubtful  about  it. 

Gen  Bea(^h    \  es. 

VxT  Hilt.  General,  I  understood  vou  to  say  the  United  States  at  the  present  tin.e 
wa^  expending  about  $2^,000  a  month  at  Muscle  Shoals.  Does  that  take  into  con- 
sideration the""  amount  of  rental  received  from  the  Alabama  Power  Co.? 

Gen  Beach.  We  are  not  receiving  any  rent  from  the  Alabama  Power  to.  1  hose 
properties  which  have  been  leased  to  the  Alabama  Power  Co.  belong  to  the  Ordnancu 
Department  and  not  to  the  Engineer  Department.  ',.     .    ,      ^. 

Mr  Hill.  Then  I  would  like  to  try  to  get  those  two  things  coordinated.  \ou  say 
th3  Engineer  Department  is  spending  al  out  $200,000  a  year  down  there  at  the  present 

time. 

Gen.  Beach.  Yes.  ...         ,,„ 

Mr  Hill.  Do  you  know  how  much  the  Ordnance  Department  is  receiving  m  rentals? 

Gen  Beach.  They  stated  that  they  had  made  the  lease  at  the  rate  of  $10,000  a 
month,  or  $120,000  a  year,  plus  certain  other  features,  which  varied  with  the  amount 
of  power  supplied,  1  believe.  .     ,  ^       1     1 

Mr  Hill.  I  was  not  clear  from  the  Secretary's  statement  yesterday  as  to  whether 
Muscle  Shoals  at  present  is  costing  the  Government  anything  ultimately  or  not.  1 
understood  the  Secretary  to  say  that  the  income  from  leases  at  the  present  tmie  wa.s 
such  that  Muscle  Shoals  was  not  costing  the  Government  anything. 

Gen.  Beach.  I  understood  the  Secretary's  reply  to  refer  to  the  nitrate  })lants  and 

not  to  the  dams.  .  ,        ,    ,  x-  /^ 

Mr  Hill.  I  would  like  to  ask  that  question  as  to  the  whole  proposition.  (  an  you 
give  us  that?  We  will  be  asked  that  question  undoubtedly  on  the  floor  as  to  what  tin 
stand-by  situation  is  at  the  present  time. 

Gen.  Beach.  I  will  very  gladly  do  that.  .       .  ,  , 

Mr  Wurzbach.  General,  quite  a  thorough  examination  and  sur\ey  was  made 
during  the  year  1915  by  the  Engineer  Department  \^'ith  reference  to  the  foundations 
at  both  these  dams,  No.  2  and  No.  .3,  was  there  not?  ,       ,     ,  ,    ,  ,        , , 

Gen.  Beach.  We  have  had  no  survey  made  at  No.  3  of  such  character  that  1  would 
like  to  be  held  responsible  for  the  detailed  plans  and  the  foundations.  We  would  have 
to  make  further  examinations  at  No.  3.  ,,1,0 

Mr.  Wurzbach.  Maj.  Burgess,  I  think,  made  a  report  on  that,  did  he  not/ 

Gen.  Beach.  At  No.  2. 

Mr.  Wurzbach.  Did  that  not  include  No.  3? 

Gen.  Beach.  No,  sir;  No.  3  was  only  referred  to  incidentally. 

Mr.  Frothingham.  I  would  like  to  ask  you,  General,  where  the  Tennessee 
rises.     Does  it  rise  in  West  Virginia,  or  eastern  Tennessee? 

Gen.  Beach.  The  Tennessee  River  rises  in  Virginia,  and  North  Carolina. 

Mr.  Frothingham.  Virginia,  or  West  Virginia?  ^ 

Gen.  Beach.  Part  of  it  goes  up  into  West  Virginia,  as  well  as  Virginia.     1 
there  are  some  small  branches  there,  but  the  West  Virginia  portion  is  so  small  as  to  be 
practically  negligible.  ,.    ,    ^ 

Mr.  Fields.  General,  what  is  the  annual  cost  of  the  Muscle  Shoals  Canal? 

Gen  Beach  The  probable  annual  cost  of  the  present  Muscle  Shoals  Canal  woula 
run  in'the  neighborhood  of  between  $30,000  and  $40,000. 

With  regard  to  the  question  in  reference  to  the  condition  of  Dam  No.  2, 1  would  like  to 
show  the  committee  some  pictures  that  illustrate  the  present  progress  of  the  work. 
I  would  state  as  you  s?e  by  this  map,  which  is  ri^ht  here  in  front  of  you,  which  most 
of  you  have  examined,  the  river  is  divided  at  this  point  by  an  island,  and  the  total 
length  of  the  dam  is  about  4, 800  feet,  nearly  a  mile  long.  We  have  pushed  the  concrete 
work  on  the  island  a  little  faster  than  at  other  points,  because  we  could  work  in  the  dry 
at  that  point,  and  we  wanted  to  leave  as  much  as  possible  of  the  waterway  for  the  river. 
Consequently ,  the  greatest  height  of  the  dam,  as  shown  by  thesa  pictures,  is  on  the  islaim- 
This  one,  which  1  suggest  be  kept  s?parat3  [indicating  photograph],  is  a  view  from  tiij^ 
south  bank,  looking  north,  showing  the  enture  work,  with  our  construction  camp  01 
the  other  bank,  and  this  one  with  the  little  house  down  in  front  [indicating  photogmpn  1 


Rivei 


think 


is  a  view  from  the  north  bank  looking  toward  the  south.  They  will  give  you  a  better 
idea  of  the  construction  than  you  can  get  from  my  description  of  it 

Mr  Fields  At  the  suggestion  of  Judge  Parker,  I  will  ask  you  at  this  point  how 
,  much  the  water  is  raised  there  by  the  dam? 

Gen.  Beach.  We  have  not  raised  the  water  any  as  yet. 

Mr.  Fields.  How  much  will  it  be  when  it  is  completed'? 

Gen.  Beach.  One  hundred  feet. 

Mr.  Fields.  What  did  you  say  the  annual  cost  of  the  Muscle  Shoals  canal  is?     • 

Gen  Beach  Between  $30,000  ^nd  $40,000.  That  varies,  depending  on  how  many 
locks  have  to  have  new  gates,  and  other  matters  of  that  kind 

Mr  Fields.  The  use  of  that  canal  would  cease  with  the  construction  of  the  dams 
^08.^  and  6,  would  it  not? 

Gen.  Beach.  That  would  be  entirely  drowned. 

Mr.  P^elds.  The  Government  would  be  saved  that  amount  of  expense  for  all  time 
to  come;  that  is,  as  far  as  the  operation  of  the  canal  is  concerned 

Gen.  Beach.  Yes.    The  cost  has  varied  between  $35,000,  which  I  think  is  about  as 

'""^^  is?  nnn^^^^^  ^^^"^  ^^^'  "P  *°  $85,000,  but  it  will  probably  average  between  $40  000 
and  $50,000. 

Mr.  Fields.  Mr.  Ford  offers  to  pay  the  Government  $35,000  and  $20,000,  respec- 
tively, for  the  maintenance  of  Dams  2  and  3,  and  the  operation  of  the  gates  and  locks. 
The  b^cretary  of  War  suggests  to  Congress  the  advisability  of  letting  Mr.  Ford  do  that 
work  himself  and  relieve  him  of  paying  this  amount.  Is  it  not  a  fact,  General,  that 
the  operation  of  the  locks  pertains  strictly  to  navigation? 

Gen.  Beach.  I  did  not  understand  the  Secretary's  proposition  to  relate  to  the  locks 
*n  th   d^^  ^^^Vh  relating  to  the  maintenance  of  the  dams  and  the  controlling  gates 

Mr.  Fields.  I  may  have  misread  it.  He  proposes  to  elieve  the  Government  of  the 
expeiise  of  operating  these  locks  and  gates.  1  was  going  to  ask  the  question,  if  the 
operation  of  the  gates  was  not  strictly  a  governmental  function? 

Gen.  Beach.  Oh  yes;  we  could  not  allow  anybody  else  to  operate  the  locks  or  the 
lock  gates  for  us.  The  dam  is  pro^nded  with  controlling  gates  across  the  entire  length 
of  the  dam,  which  will  regulate  the  height  of  the  water  in  time  of  flood,  and  those  Ire 
the  gates  which  Mr.  tord  must  necessarily  operate  if  he  operates  the  power  house, 
house^^^^  ^'^^  ^^*^^  ^^  necessary  in  connection  with  the  operation  of  the  power 

^l^/^?Jf  ^-  ^^^  government  could  not  delegate  to  him  any  function  which  is  con- 
nected with  navigation. 

Gen.  Beach.  It  could  not,  and  would  not. 

Mr.FiELDS.  I  misconstrued  the  Secretary's  letter  to  that  extent.  The  Secretary  also 
su^ests  on  page  10  the  operation  of  plant  No.  2  a«  a  power  proposition  and  the  sale 

«ti^S    ?i''''^-    i  T  l*'^  y^''  ^"^  P^*/^  '^  *^^  "^^^^''d  at  t^«  Poi^t'  General,  an  analysis 
homng  the  cost  of  the  operation  of  power  plant  No.  2  by  the  government  for  a  term 
ot  SIX  years,  and  what  its  income  would  be  from  such  operation.     I  would  like  to  see 
where  we  would  be  on  a  propos  tion  of  that  kind. 

for  the'firelrix '  ^re?^^''*  *^^  ^^^^  °^  operation  of  the  power  plant  itself  and  the  dam 

a  1  w  ^J^^i,      '    ^?i?  the  proceeds,  or  the  value  of  its  income.    I  would  like  to  have 
a  statement  showing  the  interest  on  the  investment  for  the  time  Mr.  Ford  is  building 
these  dams.    It  might  be  well  to  state  the  interest  on  this  proposition  too 
^en.  Beach.  I  will  be  glad  to  do  that. 

Jl!*^^^^^^'  ^?'^  F^"^^  concerns  are  operating  under  franchises  from  the  Govern- 
ment m  navigable  streams  for  a  penod  of  99  years,  or  an  indefinite  period? 

ijen.  Beach.  I  do  not  recall  any  offhand  that  are  operatine  on  a  99-vear  basis 
now  ZIT^^  power  plants  in  navigable  streams  without  any  limitation,  the  most 

M.  S""®  being  the  dana  across  the  Mississippi  River  at  Keokuk,  Iowa. 

Mr.  J^ields.  It  was  an  indefinite  lease? 

Mf  F?.^^^'^  J^^'^l^  °?  *^'''^.  *?  *^®  P^^^i*  ^^^^^  w^  granted  that  cf)mpany. 
Rivlr?  '^  ^  ^^^  ^'^^  ^^^  Tennessee  River  at  Chattanooga 

Gen.  Beach.  At  Hales  Bar? 

Mr.  Fields.  Yes. 

Gen.  Beach.  That  has  no  term. 

Gen^Sfnt  i^"^.*^®-  ^ff^l""^  ^ht  Alabama  Power  Co.  at  Lock  12  is  indefinite? 
and  ^11^  .k'  ^^^^  19  indefinite.  That  portion  of  the  Coosa  River  is  not  navigable 
•^^a  will  not  be  navigable  until  a  large  number  of  dams  are  built.  "^vigaoie 


'  ■  I 


110 


MUSCLE  SHOALS  PBOPOSITIONS. 


Mr.  FIEID3.  Under  the  recent  power  act,  what  has  been  the  progress  of  the  devel- 
opment  under  the  50-year  lease  ^an?    Have  they  been  able  to  finance  projects,  m 

^Tenl^BiA^H.  You  must  remember,  Mr.  Fields  that  that  is  not  my  province  and  I 
onlv  have  such  information  as  comes  to  me  incidentally.  , ,     ^       ,    ,  i  , 

^  fIelds  I  kn^^  but  by  reason  of  your  position  you  would  get  Probably  much 
rawe  information  than  the  balance  of  us  would  get,  and  if  you  have  no  objection  to 
^i^^SigXe  question  I  should  be  very  glad  to  have  your  opinion.    But  if  you  prefer 

"^Grn.TE^^H^VwtM  nolrr^^^  regard  to  the  matter  because  I 

do  not  feel  that  the  information  which  has  come  to  me  was  P^esf  ted  to  me  m  the 
same  manner  and  with  the  same  care  that  a  person  would  make  that  statement  if  he 
knew  I  were  going  to  quote  it  and  the  statement  be  spread  throughout  the  country . 
In  oTher  words,  we  find  in  holding  hearings  with  regard  to  nver  and  harbor  matters, 
that  it  is  of  the  greatest  impotance  to  have  those  statements  made  m  writing  if  we 
Sn  getX  partifsTo  do  so.'because  they  will  make  statement,  they  ^viU  be  came^^^ 
away  with  enthusiasm,  or  if  they  beUeve  theb-  statements  would  affect  the  parties  to 
whom  they  are  presenting  them  they  will  make  them  a  little  bit  stronger. 
Mr.  Fields.  A  little  more  reckless.  ,  ,    .  .1.  i  j      *  *^«i  +u„+ 

Gen  Beach.  A  little  more  reckless,  and  because  of  that  they  would  not  feel  that 
it  i^  fair  to  those  parties  to  quote  them,  nor  would  I  like  to  be  in  a  position  of  stating 
those  oninions  made  to  me  in  that  way.  ^    ,  ^  ^  „  . , 

^Thereupon  the  committee  adjourned  at  3.55  o'clock  to  meet  to-morrow,  Fnday, 
February  10,  1922,  at  10.30  o'clock  a.  m.) 


MUSCLE   SHOALS   PROPOSITIONS. 


Committee  on   Military  Affairs, 

House  of  Representativtcs, 

Priday,  February  10,  1922. 

inesllu'r  '"'^  "'   ^"^'^^  '^'"''^'^  ''■  ""'  ^^"-  -^"""^  ^^^^^^    (chairman) 

The  Chairman.  Gen.  Beach,  when  we  adjourned  last  night,  Mr.  Fields  was 
askmg  yqu  some  questions,  and  we  will  continue  from  that  point. 

STATEMENT  OF  MAJ.  GEN.  LANSING  H.  BEACH,  CHIEF  OF 
ENGINEERS,  WAB  DEPARTMENT— Besumed. 

Mr.  Fields.  General,  when  we  adjourned  yesterday  we  were  discussing  op- 
erations under    eases  of  99  years,  or  for  indefinite  periods.    Has  there  beli 

vou  kno'w  ^o^Thaf  '^'m  "^  "^"  ^^^^^'"""^  "^  ^""^  ^'  ^^^^^  ^^"^  f mnchfses  tha 
sirabl'eTharyfhl  KraThi^r  '^  ""'^  ^  '^'^"^'^^"^  ^^  '''^'  ^^"^  ^^'^ 
Gen.  Beach.  The  only  power  dams  that  are  located  in  navigable  rivers  at 
,  ?r^^"v5  ^'""'^  T^^  ^"^^t  ^^^«^^  the  national  water  power  act  was  pass^ 
and  they  have  no  limit  whatever.     They  are  simply  there  with  riXts  Fn  d^: 
etiiity,  and  Congress  when  it  passe]  the  water  power  act    took  the  position 
hat  the  use  of  the  water  power  was  likely  to  beconie  so  valuabirthat  th^co^^^^^^^ 
tions  might  change  very  materially,  and  the  privilege  whidi  was  give!i  th^^^^^^ 
partes  might  become  so  valuable  that  they  thought  a  readhistinent  at  the 
end  of  a  definite  period  would  be  advisable,  and  they  put  that  S 
years.    Now    that  was  the  view  of  Congress   and  the  p^fnt  that  I  made  vef 
terday  was  that  while  that  might  be  very  advisable  in   the  ordinary   case 
such   as  minor  streams,   for   instance,   like   the  Coosa  or  the  Tle4env    o^' 
ivers  of  that  kind,  yet  in  the  case  of  Muscle  Shoals,  with  as  large  a  river 
nn,f  J^"^^''^k;  ^^"/  considering  conditions  of  business  in  «mt  '  icinity    U 
would  be  advisable,  I  think,  to  consiler  the  circumstances  very  carefulTv  and 

''I  '"'^^^^^''   ^^^'^   r'^  "^^   '"^'^   ^«  t^   J"«tlfy   an   exception    to   the   rSL 

of^ho  f'cf'T  ^"n^'Ji^"  ''^^'^"'  -^'^^  ^'^  "^  «  ^^-^^  at  least,  measure  the  tenure 
of  the  franchise  by  the  magnitude  of  the  proposition? 

frl^;^^^'^'  ^^^^  f»tirely.  I  would  take  all  conditions  hito  consderation  I 
tiled  to  invite  attention  yesterday  to  the  fact  that  there  was  no  immed  ate  sigii 
of  a  market  at  this  locality.  There  are  ordy  four  towns  withirtl  e  ordinafv 
r  aeh  of  direct  electric  distribution  from  Muscle  Shoals-cStanLga  Bi7- 
nmgliam,  Nashville,  and  Memphis.  Birmingham  already  is  sup^Hed  with 
(•  lectrical  power  bj;  the  Alabama  Power  Co. ;  Chattanooga  is  LpplitTwith  nmver 
trom  Hales  Bar  a  dam  on  the  Tennessee  River  8  miles  below    imtcrtv     Nash- 

n  fA  ^  fb  '^^^''  '""^'^^'^'^  ^'^  P^^^'^^*  f^^n^  ^  dam  on  one  of  the  sum  U  streams 
"1  the  State  of  Tennessee,  and  that  leaves  Memphis  alone  as  the  onlv  HkPiv 
immediate  market  for  all  the  electric  power  at  Musde  Shoals,  and  «i  situa- 

1011  seems  to  be  very  similar  to  a  man's  establishing  a  large  department  .to"^ 

,nrkS7  ^T  ^  ''''^'^'^  "f  •^^^''^'  '''''^  ^*^^t  is  all  he  can  raise  he "^1^1  a 
•nai^et  for  his  goods  in  almost  any  small  town.  But  if  he  is  go  n-  to  est  .hb^S 
;;  sore  with  a   million  dollars  capital,  he  has  to  go  where  h^can^iiw 

expenditure'  '''  '"  '""'  '""'  '^  "^^'^  "^  ^  trade  which  would  justifv  that 

den.  Beach.  Exactly ;  and  that  is  the  point  to  which  I  am  inviting  attentinn 

wherf  fh''*^^''f^i."^  ^  "i"^*"'^  ''''''^'  «^^^-^'  ««  t«  ^-«1^'  here  irthVs  fo?nm^^^^^^^ 

^here  the  population  and  the  business  interests  are  not  yet  sufficient  to  suDDorJ: 

.    I  just  want  to  invite  attention  to  the  fact  that  the  coLmupUon  of  elect^^^^^ 

1^  something  that  I  do  not  believe  is  generally  understood.    People  see  Sric 


92900—22- 


111 


112 


MUSCLE  SHOALS  PROPOSITIONS. 


i 


lights  burning,  street  cars  running,  and  they  think  that  a  large  quantity  ot 
electricity  is  being  used.  Now,  I  understand  that  the  entire  electric  lighting  of 
the  whole  State  of  Alabama  does  not  require  more  than  about  2o,000  horsepowei. 
If  you  go  into  Chattanooga  you  will  see  a  little  building,  not  much  more  than 
a  shed  not  much  larger  than  a  three-automobile  garage,  standing  besiue  thy 
railroad  tracli.  That  little  building  uses  more  electric  power  than  all  ot  the  rest 
of  the  city  of  Chattanooga  put  together,  because  it  has  some  electric  furnaces 
in  there  for  use  in  making  electroferrosilicon,  and  those  electric  furnaces  alone 
use  more  than  all  the  other  industries,  tlie  lightmg  and  the  running  of  the 

street  cars  in  Chattanooga.  ^  ..  ^  i    i.     4.  xt.- 

Mr  FiEiJ)S.  You  spoke  of  Memphis  being  the  only  possible  market  at  this 
time.'  It  is  probable,  is  it  not,  that  the  plants  at  Memphis  are  equipi^  for  the 
production   of   additional   industries   that   would   require    additional    electric 

^Gen'  Beach.  I  have  been  told,  but  I  do  not  know  whether  the  inforniation 
is  authentic  or  not,  that  Memphis  could  probably  not  absorb  more  than  50,000 
horsepower  in  all  particulars,  if  the  dam  were  built.  ^  t,     ^i,     1 

Mr.  Fields.  Then,  aside  from  that,  a  market  must  be  found  by  the  lessee, 
ivhoever  takes  this  proposition,  for  the  entire  consumption  of  power? 

Gen.  Beach.  Yes,  sir;  the  entire  use  of  power.  ,^       . 

Mr.  Fields.  That  is  what  I  mean.  The  Alabama  Power  Co.  could  not  use 
it,  apparently,  from  their  statement,  could  they? 

Gen.  Beach.  Thev  have  said  so,  in  connection  with  the  installation  ot  the 
new  unit  which  they  ajre  putting  in  at  Duncans  Riffle,  on  the  Coosa  River. 

Mr.  Fields.  They  are  putting  in  a  new  plant  there  now? 

Gen  Beach.  They  have  received  a  permit  for  that  recently,  and  work  has 
just  started,  and  they  said  that  with  the  installation  of  that  plant  they  would 
be  more  than  supplied  with  power  for  the  immediate  future. 

Mr.  Fields.  For  the  benefit  of  the  committee  will  you  put  that  statement  of 
theirs  in  the  record? 

Gen.  Beach.  I  have  just  made  it. 

Mr.  Fields.  You  have  covered  what  they  said  in  your  statement? 

Gen.  Beach.  Yes,  sir;  but  I  have  a  copy  of  their  letter,  a;id  I  will  read  you 
what  they  said  on  that  point.  This  is  a  letter  addressed  to  me,  dated  July  14, 
1921,  in  which  they  say: 

"Since  that  letter  was  forwarded  to  you  (referring  to  their  former  letter) 
the  Federal  Power  Commission  has  issued  to  this  company  a  license  to  con- 
struct the  Coosa  development.  We  are  planning  to  install  60,000  horsepower, 
and  preliminary  construction  is  now  beginning.  It  is  our  purpose  to  prose- 
cute the  work  with  all  diligence,  with  the  view  of  having  power  available 
therefrom  in  the  spring  of  1923.  While  the  initial  installation  as  now  planned 
is  60,000  horsepower,  the  ultimate  installation  will  be  120,000  horsepower.  In 
going  forward  with  this  development  we  considered  that  we-  w^ere  in  duty  bound 
to  proceed,  because  it  did  not  seem  at  all  possible  that  the  Muscle  Shoals  hydro 
development  could  produce  any  power  during  1923  or  1924.  Our  power  demands 
are  at  present  in  excess  of  our  waterpow^er  capacity,  but  the  power  which  will 
result  from  the  new  Coosa  development  will  fnlflll  our  immediate  require- 
ments—that is,  will  enable  us  in  1923  to  greatly  reduce  our  steam  running— 
and  we  will  thus  be  enabled  to  meet  the  public  demands  during  1923  and  for 
the  most  part  of  1924  with  the  output  of  our  hydro  plants. 

"  However,  we  wish  to  say  that  study  of  the  power  markets  in  the  territory 
served  by  our  company  convinces  us  that  the  demands  for  power  will  require 
further  sources,  which  should  be  available  during  1925  at  the  latest. 

"We  must  make  our  plans  for  several  years  in  advance  of  actual  power 
needs,  and  longer  notice  than  one  year  in  advance  of  actual  date  at  which  the 
Muscle  Shoals  power  could  be  delivered  would  be  necessary  for  this  company 
to  commit  itself  for  the  taking  of  definite  amounts  of  power;  and  unless  a 
commitment  can  be  made  not  later  than  March,  1922,  by  the  United  States 
Government,  for  the  delivery  of  definite  amounts  of  power  we  will  find  it 
jiecessary  to  proceed  with  another  hydro  development  in  Alabama  to  meet  our 
requirements.  We  will  be  glad,  meanwhile,  to  discuss  the  subject  with  you 
in  a  definite  way  if  desired." 

Mr.  Fields.  Did  not  the  Alabama  Power  Co.  plant  supplement  the  secondary 
iwwer  at  Muscle  Shoals,  the  power  from  storage  reservoirs  on  the  Coosa  ana 
Tallapoosa  Rivers,  when  they  made  their  offer  of  1913? 

Gen.  Beach.  It  js  my  understanding  that  they  did. 

Mr.  Fields.  And  that  dam  was  in  the  interest  of  navigation,  was  it  not? 


MUSCLE   SHOALS  PROPOSITIONS. 


Gen.  Beach.  It  could  be  made  so. 


113 


lit  it 


rage  of  Dams  Nos.  2  and  3  would  properly 


by  each  dam  If  that  dam^^re  m-mX  w  Vh^    1'  ^7^^^^^^"  ^"  "^^  ^^^'  ^-^' 

Mr.  F1E1.DS.  It  is  permit  IT^^^ 
would  furnish  navigation?  Probable,  under  that  arrangement  tlu 

Gen.  Beach.  There  is  the  possibility 

Mr.  I  lELDs.  What  part  of  the  flowag 
l>e  chargeable  to  navigation?  - 

and  the  total  '""^■'^'"^''  '**''^^^™  »«  fl««age  for  necessary  navigation  alone 

f<:^z^:^si  innZsro^^if  jeZ-jir^trof  tsr..*'^"'^ ""  '*"'  ^^°~ 

ot  -Muscle  Shoals,  the  cost  wou  d  be  ab^t  ^0^  ^  "i7  "'^''^*  ^pisid'-'-ins 

;;:;;;:rt"ira?  ^'r^^,^xs,^ '-  umtedraKvs  ^^ 

Jg-  l^liUfM^^^^^^^^  prU-sltUTtf  ^^r^  rt'hVraSlS 

Mr.  Fields.  I  understand  there  is  some  difference  of  opinion  onTat 
Gen  Beach.  In  other  words,  the  interpretation  which  I  have  placed  on  that  is 
this    I  understood  Mr.  Ford  to  state  that  he  would  not  procure  K  nS^tl 
leaving    t  to  the  Government  to  procure  them  by  its  right  of  eminent  dom^^^ 
Ru    he  does  not  say  that  the  cost  was  not  included  in  tfie  cost  ™f  constSn' 
smne  all  ?he  "cosrof""th.^  fl  statement  to  mean  that  the  VnZ  StaTes  musf  "s' 
rnTttn  JfoJ     ^^^^^^  ^h?  flowage  rights,  but  that  it  merely  meant  that  the 
I nted  States  must  acquire  them,  and  did  not  prevent  the  L^ited  States  from 
including  that  amount  in  the  costs  of  the  work  ^ 

Now,  I  would  like  to  just  invite  attention  to  one  feature  of  the  question  of 
bind  condemnation.  If  the  Government,  or  a  very  wealthy  partv  li^e  Henrv 
Ford,  desires  land,  it  immediately  goes  up  tremendously  in  value,  and  it  sSs 
ro  me  that  it  would  be  only  a  good  business  move  on  Mr.  Ford's  part  to  place  the 
Sn'^n.^  I'V^'  land  upon  the  Government  under  the  right^f  eminent  do 
rna^n,  and  I  did  not  understand,  and  I  do  not  yet  understand,  that  his  propo- 
sition means  that  he  is  opposed  to  that  being  included  in  the  cost  of  the  work 

vaf  t\  ^^^'^"S:  ^  ^^^^  V2^  ^'^"  ^"  ^^^^^'  ^^^^  ™y  reading  of  the  proposition  ;  and 
>et  I  know  there  IS  a  difference  of  opinion,  and  I  was  trying  to  bring  out  some 
tacts  for  our  guidance  in  the  future.  In  that  connection,  the  maintenance  of  a 
reservoir  up  there  is  a  very  necessary  appurtenance  to  the  production  of  hvdro 

no^.'l  "J  Pi?'""^^'  \^  '!  "*^*  •  ""  r»^^^  "^"^*^  '^^  maintained,  and  therefore  it  becomes  a 
part  of  the  project. 

J^J!'4^^^^^\  ^^  y^s-  You  can  not  obtain  a  uniform  and  a  definite  supply 
fn.?-  V    ^  P^?  ^^  considerable  magnitude,  or  a  reservoir  of  sufficient  area  to 

M^*^  17?  uniform  supply  during  the  lower  stages  of  the  stream 
Ti^ll:       ^^^1'  ^^^  **'^  maintenance  of   the  pool  naturally   requires   flowage 
the  W)'we"r     ^^®^**^®  ^^"  ^^'^"'^  connect  flowage  rights  with  the  production  of 

Gen  Beach.  As  Napoleon  said.  "  Yon  can  not  make  an  omelet  w.tliout  broak- 
'ng  eggs,    and  you  can  not  make  a  pool  without  overflowing 

Oommiff'^''fi;  \  ?;?"^^  ^''.^^."5f  Document  No.  20,  of  the  Rivers  and  Harbors 
M)mmittee,  that  the  Board  of  Engineers  on  May  18,  1914,  said  that  the  amount 

Shoi^r.^'r^'^f '5^'!!^  ^^  '''^  ^'^'"^  ^^  «^«  P^«I^«^^1  improvement  at  mS 
chariLS^^^''"^^  be  Chargeable  to  navigation,  and  the  remainder  would  be 
ynn^^-^  *  f  *^  power  development.  Would  that  statement  be  true  to-dav?  In 
J'our  opinion,  would  the  condition  that  prevailed  then,  or  the  estimate  made  at 


114 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


115 


H 


that  time  be  a  proper  estimate  at  this  time  of  the  amount  which  would  l,o 
chargeable  to  navigation? 

Gen.  Beach.  If  you  are  going  to  use  that  basis  for  determination ;  that  is,  if 
you  are  go'.ng  to  aUow  the  amount  which  the  United  States  would  have  to  spend 
in  order  to  provide  navigation  over  this  stretch  of  river  without  providing  any 
power  whatever. 

Mr.  Fields.  Would  Dam  No.  2  alone  make  the  river  navigable  over  the  shoaLs? 

Gen.  Beach.  No,  sir ;  it  needs  Dam  No.  3  also. 

Mr.  FiEiJ>s.  How  much  6-foot  navigation  would  you  get  from  Dam  No.  2? 

Gen.  Beach.  We  would  get  6-foot  navigation  up  to  the  side  of  Dam  No.  3. 

Mr.  Fields.  That  would  be  the  minimum? 

Gen.  Beach.  Yes. 

Mr.  Fields.  How  much  6-foot  navigation  would  you  get  from  Dam  No.  3? 

Gen.  Beach.  Dam  No.  3  would  back  the  water  up  a  good  deal  farther  than 
Dam  No.  2,  because  that  section  of  the  river  does  not  have  as  steep  a  slope. 
I  have  not  looked  up  the  exact  figures  recently,  but  it  is  my  impression  that  it 
would  go  about  60  miles. 

The  Chaikman.  If  you  will  permit  me,  Mr.  Fields,  the  Secretary  of  War  in 
his  letter  to  Congress  shows  that  it  will  go  63  miles. 

Mr.  Fields.  Dam  No.  1  has  nothing  to  do  with  the  power  proposition,  but 
relates  to  navigation  only? 

Gen.  Beach.  Dam  No.  1  is  navigation  only.  It  is  a  dam  with  a  small  lift, 
too  small  to  be  provided  with  a  power-house  adjunct. 

Mr.  Fields.  It  does  not  amount  to  a  very  large  item? 

Gen.  Beach.  I  think  our  estimate  for  that  is  about  $1,400,000. 

Mr.  Fields.  I  believe  you  stated  yesterday  that  no  examination  had  l»e^ii 
made  for  the  foundation  of  Dam  No.  3.  I  have  House  Document  1262,  Sixt.v- 
fourth  Congress,  first  session,  which  states  on  i)age  54  that  some  insp:»ctioii 
was  made  there.  I  just  wanted  to  call  that  to  your  attention.  You  probnl)ly 
had  forgotten  that  when  you  testified  yesterday. 

Gen.  Beach.  I  was  going  to  ask  the  committee  for  permission  to  say  a  wonl 
upon  that  point,  because  I  f<nnid  by  speaking  with  certain  parties  tliat  my 
statement  was  misunderstood. 

The  Chairman.  You  may  proceed  to.  explain  that. 

(JeiL  Beach.  I  did  not  mean  to  say  that  no  examination  had  been  made. 
What  I  intended  to  say,  or  what  I  de.^ired  to  be  understood  as  saying,  was  tliat 
the  exanunation  which  we  made  into  foundation  conditions  at  Dam  No.  3  had 
not  been  sufficient  to  let  us  make  a  definite  plan  for  the  foundations  at  tliat 
l(K-ality.'  We  have  had  several  borings,  and  the  borings  have  shown  some  cavi- 
ties. Now,  the  borings  we  did  make  were  not  sufiicient  to  develoi)  the  extent 
of  those  cavities,  or  to  deternune  to  what  extent  that  rock  underneath  tlu' 
sand  was  honeyccmibed,  and  I  felt  we  had  to  allow  a  greater  amount  tor  the 
foundation  conditions  at  that  locality  in  our  estimates  than  might  possibly  Ik- 
necessary  if  we  had  fully  developed  the  facts  at  our  disiwsal. 

Mr.  Fields.  I  believe  this  report  shows  that  133  holes  were  bored,  and  in  the 
133  holes  three  cavities  were  found.    I  will  insert  it  in  the  record  at  this  point. 
(The  report  referred  to  by  Mr.  Fields  is  as  follows:) 
lielow  is  given  a  table  showing  core  recovery  at  each  dam  site : 


Dam 
No.  2. 


Number  of  holes 

Total  linear  feet  in  rock 

Aggregate  length  of  cores  recovered 

Percentage  of  core  recovery: 

Maximum 

Minimum 

Average 

Scams: 

Number 

Aggregate  depth  (feet) ■ 

Cavities: 

Number 

Aggregate  depth  (feet) 


90 
.1,194 
4,591 

99.0 
73.0 

S8.4 

100 
22.94 

12 
24.85 


Dani 
No.  3. 


i:« 
4,9-47 

4,oo:^ 

9fi.4 
.V2.4 

m.' 

18.33 

:{ 

25.Sfi 


Gen.  Beach.  I  have  here  the  estimates  for  lock  and  dam  No.  1.    It  is  $1,401),00<). 

as  I  stated  a  few  moments  ago.  ^,.      .      ri»r 

Mr.  Fields.  General,  the  Secretary  of  War  states  that  the  Air  Nitrates  (><)i 
poration  has  notified  him  in  writing,  or  the  letter  probably  went  to  you  i" 


reply  to  the  invitation  you  extended,  and  that  is  why  I  ask  you  this  question- 
that  the  Air  Nitrates  Corporation  claims  the  right  to  exercise  the  option  which 
it  claims  to  have  to  purchase  Nitrate  Plant  No.  2  under  as  favorable  terms  as 
offered  by  Mr.  Ford.  Was  this  Air  Nitrates  Corporation  invited  to  submit 
bids  along  with  Mr.  Ford  and  the  other  people  to  whom  invitations  were  ex- 
tended? 

Gen.  Beach.  I  do  not  remember  whether  an  invitation  was  sent  to  tliem  or 
not.  I  would  have  to  look  that  up.  I  would  like  to  state  that  their  letter  has 
not  been  referred  to  my  office,  as  far  as  I  know.  % 

Mr.  Fields.  Do  you  know  whether  or  not  an  invitation  was  extended  to  Mr 
James  B.  Duke? 

Gen.  Beach.  It  was. 

^Ir.  Fields.  Do  you  know  what  his  connection  is  with  the  Air  Nitrates  Cor- 
l)oration  ? 

Gen.  Beach.  I  understand  that  he  is  closely  connected  with  that  companv. 
Mr.   Fields.  Do  you  know   whether  or  not  he  is  also  connected   with   tlie 
American  Cyanam'd  Co.? 

Gen.  Beach.  I  have  been  told  that  he  is,  but  I  have  no  proof  of  my  own 
knowledge. 

Mr.  Fields.  Did  Mr.  Duke  submit  a  proposition  to  lease  plant  No.  2? 

(Jen.  Beach.  He  did  not.    He  wrote  a  letter  stating  that  the  whole  project 
at  Mus<.*le  Shoals  was  very  inadvisable  and  foolish  on  the  part  of  the  Govern 
iiient.    That  is  practically  a  synopsis  of  his  letter. 

Mr.  Fields.  Will  you  put  his  letter  in  the  record  in  its  entirety? 

Gen.  Beach.  I  will. 

Mr.  Fields.  Do  you  know  whether  or  not  Mr.  Duke  requested  Mr.  Lee  to 
prepare  a  recommendation  or  a  letter  upon  the  subject,  and  if  .so,  was  it  sub- 
mitted by  Mr.  Duke  or  by  anyone  else? 

Gen.  Beach.  Mr.  Duke  sent  Mr.  Lee's  rei)ort  to  me.  I  have  here  Mr.  Dukes 
letter  which  I  could  read,  if  the  committee  would  care  to  have  it. 

Mr.  Fields.  I  would  be  glad  to  have  it  read  for  the  information  of  the  com- 
mittee. 

Gen.  Beach  (reading)  : 

Southern  Power  Co., 
.  New  York,  June  2J,,  1021. 
Lansing  H.  Beach, 

Major  General,  Chief  of  Engineers,  United  States  Army, 

Washington,  D.  C. 
Dear  Sir:  In  further  reply  to  your  letter  in  which  you  ask  whether  I  am 
interested  in  any  arrangement  that  might  enable  the  Government  to  derive  a 
reasonable  retuni  from  its  investment  should  it  complete  the  Wilson  Dam 
and  hydraulic  power  plant  at  Muscle  Shoals,  on  the  Tennessee  River,  let  me 
say  that  I  have  given  this  subject  some  consideration.  I  have  also  examined 
the  report  of  Mr.  W.  S.  Lee,  vice  president  and  chief  engineer  of  the  Southern 
Power  Co.,  on  the  Muscle  Shoals  situation.    My  conclusions  follow : 

1.  The  steam-power  stations  built  during  the  war  to  supply  the  Government's 
nitrate  plants— No.  1,  at  Sheffield,  Ala.,  and  No.  2,  at  Muscle  Shoals,  Ala.— are 
of  the  most  modern  design  and  of  high  efficiency  for  use  in  connection  with 
the  nitrate  plants.  They  are  adequate  sources  of  power  for  these  plants  in  the 
emergency  of  war.  They  render  unnecessary  for  military  purposes  the  com- 
pletion of  the  Wilson  Dam  and  hydroelectric  power  station. 

2.  Under  the  law  ai)propi-iating  money  for  Muscle  Shoals  hydroelectric  devel- 
opnient,  tooperation  betwten  the  (Government  and  any  private  corporation  in 
the  use  of  such  devehjpnient  is  specifically  forbidden.  Unless  this  law  is 
ainen(le<l  the  Southei-n  Power  C<».  can  make  no  use  of  power  from  this  dam. 

3.  The  cost  of  the  Muscle  Shoals  hydroelectric  development,  estimated  before 
the  war  at  .$1.S,()()0,(MX),  in  April,  1920.  l)y  the  Secretary  of  War  at  not  less  than 
J25,0(X),()00,  and  in  February,  11)21,  by  represents! tives  of  the  (jovernment  at 
•V)0,000(MX),  will  be  not  less  than  .$.56.(KM),0(X)  if  completed  at  this  time.  This 
<'ost  is  of  importance  as  indicating  the  difficulty  vi^hich  the  Government  will 
encounter  in  se<uring  an  adequate  return  upon  its  investment  should  it  complete 
this  project  now. 

4.  The  primary  power  available. at  Muscle  Shoals  has,  in  Mr.  Lee's  opinion, 
>een  largely  overestimated.  Measured  in  kilowatt  hours  annually  at  various 
'"►ad  factors  that  power  will  be  as  follows: 

At  100  per  cent  load  factor,  413,018,000  to  416,107,000  kilowatts. 
At  90  per  cent  load  factor,  371,716,000  to  374,496,000  kilowatts. 


\ 


116 


MUSCLE  SHOALS  PROPOSITION'S. 


MUSCI/B  SHOALS  PROPOSITIONS. 


117 


I 


m 


At  65  per  cent  load  factor,  268,462,000  to  270,470,000  kilowatts. 

At  35  per  cent  load  factor,  144,556.000  to  145,637,000  kilowatts. 

I  understand  that  the  Government  has  been  advised  that  the  primaiy  output 
will  be  700,000,000  kilowatt  hours  annually,  using  the  flow  as  it  occurs  each 
24  hours.  The  serious  discrepancy  between  700,000,000  kilowatts  and  Mr.  Lee's 
estimates  arises  from  two  causes: 

A.  The  consulting  engineer  advising  the  Government  has  used  as  his  minimum 
the  average  monthly  mininuim  flow.  Mr.  Lee  has  taken  as  his  mininmm  the  mini- 
nium  flow.  Under  the  first  method  a  heavy  rainfall  during  the  last  of  the  month 
increases  the  average  flow  for  the  whole  month,  and  therefore  the  minimum 
power  estimate  for  that  month.  Inasnmch  as  the  power  station  can  not  during 
the  first  of  the  month  operate  on  water  which  falls  during  the  last  of  the 
month,  :Mr.  Lee's  method  of  computation  must,  in  my  opinion,  be  followed,  if  wo 
are  to  secure  dependable  estimates. 

In  this  connection  it  has  been  suggested  to  one  of  the  congressional  committee 
investigating  Muscle  Shoals  thnt  there  has  been  constructed  above  the  Wilson 
Dam  storage  sufl^icieiit  to  overcome  any  periods  of  dry  weather.  Large  storage 
projects  have  been  projected,  but  Mr.  Lee  has  investflgated  those  actually  con- 
structed and  finds  that  they  are  not  of  size  suflicient  to  increase  substantiallv 
the  primary  power  of  Muscle  Shoals. 

B.  The  Government's  estimate  of  700,000.000  kilowatt  hours  annual  primary 
output  and  the  revenue  to  be  derived  from  it  assumes  a  load  factor  of  100  per 
cent.    I  know  of  no  public  utility  corporation  that  attains  such  a  load  factor 

The  load  factor  of  the  Southern  Power  Co.  is  less  than  50  per  cent  I  would 
regard  a  load  factor  of  65  per  cent  as  unduly  favorable  to  the  project ;  no  power 
company  in  the  South  has  such  a  load  factor,  but  even  at  that  figure  the  primary 
power  for  Muscle  Shoals  will  be  less  than  40  per  cent  of  the  700,000,000  kilowatt 
estimate. 

The  power  companies  of  the  South  can  not  take  power  from  the  Wilson  Dam 
at  a  100  per  rrent  load  factor,  for  they  have  plants  which  can  furn  sh  all  tho 
|K>wer  they  need  for  this  part  of  the  load.  Under  the  plan  projiosed  to  the 
Government  for  Muscle  Shoals  power  distribution  the  power  companies  of  the 
South  would  have  to  shut  down  a  part  of  their  power  equipment  in  order  to 
use  the  100  per  cent  of  the  primary  power  from  Muscle  Shoals.  This  thev  can 
not  jiflford  to  do. 

5.  So  far  as  the  Southern  Power  Co.  is  concerned,  the  cost  of  transmission 
from  Muscle  Shoals  to  the  Southern  Power  Co.'s  market  is  prohibitive.  Not 
less  than  420  miles  of  transmission  line  would  be  required.  The  capital  in- 
vestment involved  would  exceed  $20,000,000.  Transmission  costs  based  on  so 
large  an  investment  are  more  than  the  traffic  will  bear.  As  a  matter  of  fact, 
for  $20,000,000  the  Southern  Power  Co.  can  develop  in  its  territory  more  hydro- 
electric power  of  its  own  than  could  be  transmitted  over  the  proposed  trans- 
mission lines.  Furthennore,  if  the  Government  will,  at  its  own  expense,  con- 
struct transmission  lines  from  North  Carolina  to  Muscle  Shoals  the  Southern 
Power  Co..  after  investing  $20,000,000  in  new  hydroelectric  plants  in  its  terri- 
tory in  North  Carolina,  will  s^U  to  the  Government  at  the  North  Carolina  end 
of  such  transmission  lines  primary  power  at  3  mills  per  kilowatt-hour  on  the 
100  per  cent  load  factor  proposed  by  the  Government,  instead  of  at  the  four  and 
four-tenths  mills  charge  proposed  by  the  Government  for  primaiT  power  at  the 
Wilson  Dam. 

The  market  for  power  from  the  Muscle  Shoals  Dam  has,  in  my  opnion,  been 
overestimated.  The  demand  for  power  in  this  district  during  the  war  has  mn- 
terially  decreased.  Some  c«)mpanies  have  an  excess  supply.  The  shortage  in 
any  one  company  or  in  all  combined,  including  those  which,  1  ke  the  Southern 
Power  Co.,  are  too  far  away  to  take  from  Muscle  Shoals,  is  less  than  the  pri- 
mary output  of  the  Shoals  and  is  likelj'  to  remain  so  for  some  years.  One 
reason  for  this  overestimate  is  that  the  Government's  consulting  engineer  has 
counted  on  supplanting  most  of  the  steam  power  within  electric  transmission 
distance.  In  practice  all  steam  power  can  not  be  replaced  by  hydroelectric. 
There  are  many  isolated  cases  where  the  cost  of  transmission  is  st)  great  thnt 
steam  power  remains  cheaper  even  though  generated  by  an  inefficient  plant. 

0.  I  have  said  enough  of  the  cost  of  generating  power  in  the  territory  of 
the  Southern  Power  Co,  and  of  transmission  co.sts  to  indicate  that  the  estimates 
of  the  price  at  which  power  can  be  sold  from  the  Wilson  Dam  will  prove  dis- 
appointing. Primai-y  power  on  a  40  per  cent  load  factor  is  being  sold  in  tlit* 
South  at  20  per  cent  less  than  the  rate  proi>osed  for  the  snle  of  power  from 


the  Wilson  Dam.  It  only  remains  for  me  to  add  that  the  estimates  of  revenue 
to  be  derived  from  the  sale  of  secondary  power  are  even  less  reliable.  There 
is  no  dependable  market  for  four  months'  secondary  power  in  the  southern 
field. 

With  every  desire  to  assist  the  Government  in  the  solution  of  its  problem  at 
Muscle  Shoals  I  am  forced  by  the  facts  to  the  conclusion  that  the  Government 
should  leave  the  permanent  work  as  it  is  and  salvage  the  construction  plant. 
The  Government  should  then  wait  until  labor  and  materials  render  possible 
the  completion  of  the  project  at  reasonable  cost  and  until  there  has  developed 
some  near-by  use  for  power  at  the  Wilson  Dam  at  an  80  or  90  per  cent  load 
factor. 

The  loss  in  discontinuing  and  deferring  the  work  will  be  small  compared 
to  the  loss  which  will  inevitably  be  sustained  if  the  work  is  completed  at  this 
time.  Meanwhile,  the  Government  should  maintain  the  nitrate  plants  and  their 
steam  power  stations  in  stand-by  condition,  ready  for  war. 

In  my  opinion,  the  United  States  Government  can  not,  at  the  present  time, 
complete  the  Wilson  Dam  and  hydroelectric  plant  and  obtain  a  reasonable  re- 
turn on  its  investment. 

I  have  referred  several  times  to  Mr.  Lee's  report  on  this  subject.    This  re- 
l)ort  is  exhaustive.    I  have  no  doubt  that,  should  you  wish  to  avail  yourself  of 
(he  information  it  contains,  Mr.  Lee  would  be  glad  to  hand  a  copy  to  you. 
Very  truly,  yours, 

J.  B.  Duke,  President. 

Mr.  Fields.  So  this  gentleman  who  is  insistent  upon  his  right  to  lease  this 
])roposition  does  not  think  very  favorably  of  it  for  some  reason,  and  therefore 
it  seems  he  would  not  go  very  far  toward  the  operation  of  it  if  the  Government 
should  turn  it  over  to  him. 

What  is  the  American  Cyanamid  Co.?  Where  does  it  operate?  Is  it  con- 
nected with  Niagara  Falls? 

Gen.  Beach.  It  has  a  plant  at  Niagara  Falls.  I  understand  the  larger  portion 
of  its  production  comes  from  the  Canadian  side. 

Mr.  Fields.  And  at  any  other  points  in  the  country?  What  is  the  extent  of 
its  operations? 

Gen.  Beach.  I  could  not  answer  that,  I  do  not  know. 

Mr.  Feelds.  Anyhow,  it  is  a  part  of  this  Niagara  proposition. 

Gen.  Beach.  That  is  a  fertilizer  proposition  I  have  not  gone  into  very 
thoroughly. 

Ml'.  Fields.  Do  you  recall  a  joint  letter  written  by  four  southern  power  com- 
panies in  response  to  your  request  for  bids,  and  would  you  give  us  the  gist  of 
that  letter? 

Gen.  Beach.  There  was  a  letter  received  by  me  on  June  2,  1921,  It  is  signed 
oy  the  Georgia  Railway  &  Power  Co.,  by  H.  M.  Atkisson,  chairman  board  of 
directors ;  the  Columbus  Power  Co.,  by  H.  H.  Hunt,  vice  president ;  the  Central 
Oeorgia  Power  Co.,  by  P.  G.  Gossler,  vice  president ;  and  the  Tennessee  Power 
Co.,  by  C.  M.  Clark,  president. 

The  letter  is  quite  long,  being  seven  pages  of  legal  cap,  and  in  a  general  way 
they  state  they  can  not  utilize  the  power  and  they  regard  the  construction  as 
inadvisable.  I  would  state  that  these  gentlemen  all  came  to  me  together  and 
handed  me  the  letter.  After  I  read  the  letter  I  asked  them  if  they  realized  what 
impression  it  made  on  me,  and  they  said  no,  and  I  told  them  that  it  struck  me 
«s  exactly  the  kind  of  a  letter  a  man  would  write  me  who  wanted  to  buy  a  horse 
I  had  for  sale. 

The  Chairman.  Pardon  me,  Mr.  Fields,  will  you  allow  me  to  get  the  dates 
flear  in  my  mind.    This  letter  was  written  on  the  2d  of  June,  1921? 

Gen.  Beach.  I  notice  it  is  dated  at  the  end.  It  was  dated  May  20,  1921,  but 
was  presented  in  person  by  Mr.  Atkisson  and  the  other  gentlemen  at  my  office  on 
June  2,  1921. 

The  Chairman.  And  Mr.  Ford's  first  offer  was  presented  on  July  8,  1921. 

Gen.  Beach.  July  8;  yes.    ' 

The  Chairman.  I  simply  wanted  to  get  those  dates  in  my  mind. 

Gen.  Beach.  These  gentlemen  state  that  the  completion  of  the  dam  is  inadvis- 
able, and  there  is  nothing  in  it. 

Mr.  Fields.  I  gather  from  the  chairman's  questions  that  he  probably  has  the 
impression  these  gentlemen  considered  a  proposition;  in  fact,  they  did  not 
Submit  a  proposition  at  all? 

Gen.  Beach.  No,  sir;  they  advised  me  I  was  wasting  my  young  life  in  trying 
^0  secure  propositions. 


118 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


119 


■mI 
HP' 


I 


*i 


Mr.  Fields.  In  order  to  keep  that  matter  straight,  I  will  ask  you  to  put  that 
letter  in  the  record. 

The  CHAmMAN.  Mr.  Fields,  will  you  let  me  ask  just  one  other  question: 
were  they  asked  to  submit  a  proposition? 

Gon.  Beach.  Yes,  sir. 

The  Chairman.  And  this  is  their  answer? 

Gen.  Beach.  This  is  their  reply. 

Mr.  Fieij)S.  Recommending  against  the  development  of  Muscle  Shoals? 

Gen.  Beach.  Yes,  sir. 

(The  letter  referred  to  follows:) 

The  United  States  Government,  through  Gen.  Lansing  H.  Beach,  Chief  of 
Engineers,  asks  the  southeastern  power  companies  the  following  question : 

"  The  Secretary  of  War  has  directed  me  to  ascertain  what  arrangements  can 
be  made  to  derive  a  reasonable  return  upon  the  investment  if  the  United  States 
completes  the  dam  and  hydraulic  power  plant  at  Muscle  Shoals,  Tennessee 
River." 

The  answer  to  that  question  depends  upon  a  correct  determination  of  the  fol- 
lowing points: 

(1)  What  commercially  usable  power  output  can  be  produced  at  Muscle 
Shoals,  Tennessee  River,  taking  into  consideration  the  flow  of  the  river,  its 
characteristics,  and  Government  regulation  requiring  a  uniform  river  flow  for 
navigation  of  not  less  than  10,000  second-feet  at  all  times? 

(2)  What  market  is  available  for  the  sale  of  the  power  and  at  what  rates? 

(3)  What  gross  revenue  can  be  derived  from  the  sale  of  the  commercially 
usable  available  power  output? 

AN  S WEB  TO  QUESTION    (1). 

(a)  Based  on  data  contained  in  various  reports  available,  which  further 
investigations  have  confirmed,  the  continuous  24-hour  primary  power,  i.  e.,  100 
per  cent  use  of  available  power,  is  approximately  700,000,000  kilowatt-hours 
per  annum. 

This  figure  is  arrived  at  by  assuming  a  plant  capacity  of  100,000  kilowatts 
and  operating  at  100,000  kilowatts  for  12  daylight  hours  and  at  60,000  kilowatts 
during  12  night  hours.  To  obtain  a  plant  capacity  of  100,000  kilowatts  dur:n? 
f/eriods  of  high  water  it  will  be  necessary  to  have  an  installation  considerably 
in  excess  of  that  amount. 

The  portion  of  the  700,000,000  kilowatt-hours  primary  power  per  annum  wliicli 
could  he  used  under  existing  commercial  conditions  in  southeastern  territory 
estiniate<l  to  be  570,000,000  kilowatt-hours  per  annum  maximum,  including  d  s- 
placement  of  approximately  135.000,(X)0  kilowatt-hours  at  present  produced  by 
steam ;  and  in  view  of  the  uncertainty  of  the  amount  of  steam  which  could  be 
displaced  and  of  the  amount  of  power  which  could  be  taken  at  night,  it  would 
l>e  safer  to  tstimate  upon  not  to  exceed  500,000,000  kilowatt-hours  maximum.  It 
is  estimated  fhat  the  demand  for  power  in  southeastern  territory  will  absorb  this 
latter  amount  of  additional  power  by  the  year  1927. 

There  are  nine  years  dur"ng  the  26-year  i>eriod  coveretl  by  the  hydrograph 
of  the  Tennessee  River  at  Florence,  Ala.,  during  which  the  total  availability 
of  primary  power  on  100  per  cent  load  factor  was  less  than  700,000,000  kilowatt- 
hours  per  annum.  To  supply  such  deficiencies,  which  will  undoubtedly  occur 
periodically  in  future  as  tlu»y  have  in  the  past,  steam  backing  equal  to  the  fuH 
capacity  of  the  Sheffield  steam  plant,  i.  e.,  60,000  kilowatts,  nmst  be  exclusively 
available  subject  to  call  to  meet  such  deficiencies;  in  certain  years  that  cupacit> 
would  not  have  been  sufficient. 

(a-1)  The  10  months  secondary  power  which  it  is  possible  to  produce  ni 
Muscle  Shoals  has  little  or  no  commercial  value. 

ANSWER  TO  QUESTION    (2). 

(ft)  The  only  market  for  the  power  at  present  available  is  the  market  served 
by  the  southeastern  power  companies,  and  the  rates  for  delivered  power  pei- 
mitted  to  be  charged  by  those  companies  are  the  published  rates  fixed  by  t'le 
various  public  ut  lity  conunlssions  of  the  States  in  which  those  compame 
operate,  and  the  value  of  the  power  at  Muscle  Shoals  must  take  into  considera- 
tion all  elements  of  cost  between  generation  and  delivery. 


ANSWER  TO  QUESTION    (3). 

(c)  The  amount  of  gross  revenue  which  it  will  be  possible  for  the  United 
States  to  derive  from  the  sale  of  power  is  definitely  fixed  by  the  amount  of 
(onunerclally  usable  power  available  ami  the  prevailing  rates  fixed  bv  public 
regulation. 

REASONS    FOR    CONCLUSIONS    AS    TO    PRIMARY    POWER. 

Considering  the  southeastern  territory  (including  Muscle  Shoals)  a  study 
of  hydrographs  of  the  various  rivers  now  serving  the  existing  and  proposeil 
power  plants  shows  that  years  come  periodically  when  drought  is  coincident  and 
shortage  of  water  is  general.  Such  years  have  come  with  unfailing  certainty 
and  will  undoubtedly  come  in  future. 

The  safe  capacity  rating  for  public  service  uses  of  the  existing  and  pro- 
posed water-power  developments,  even  granting  the  full  effect  of  coordination 
of  watersheds,  is  limited  definitely  to  the  sum  total  of  their  respective  com- 
bined capacity  ratings  during  these  low  years.  This  limitation  is  absolute 
and  contracts  to  deliver  primary  power  must  not  exceed  it,  except  as  supple- 
mented by  steam  production. 

The  hydrograph  of  the  Tennessee  River  at  Florence,  Ala.,  for  26  years  (from 
1894  to  1919,  both  inclusive)  proves  that  there  were  9  years  during  the  26-year 
period  when  it  would  have  been  necessary  to  use  the  Sheffield  steam  plant 
(and  m  certain  of  those  years  its  full  capacity  would  not  have  been  sufficient) 
to  supply  the  deficiency  in  primary  power.  Tliis  condition  will  inevitablv 
occur  periodically  in  future  and  steam  backing  equal  to  the  full  capacity  of 
the  Sheffield  steam  plant  must  be  exclusively  available  at  all  times  to  supply 
the  deficiencies. 

SEASONS  FOR  CONCLUSIONS  AS  TO   10  MONTHS'  SECONDARY  POWER. 

There  is  no  coordination  of  the  other  existing  and  proposed  water-ix)wer 
plants  (including  both  storage  and  river  flow  plants)  in  the  southeastern  terri- 
tory under  any  plan  of  operation  that  seems  commercially  practicable  that  will 
convert  any  large  amount  of  Muscle  Shoals  secondary  power  into  continuous 
primary  power ;  at  least  it  would  not  be  safe  for  public  service  corporations 
serving  the  commercial  uses  of  the  public  to  base  contracts  on  any  such  result 
leo.!  ^y^^'^snwh  of  the  Tennessee  River  at  Florence,  Ala.,  for  26  years  (from 
1894  to  1919,  both  inclusive)  shows  frequent  periods  of  time  varying  from  por- 
tions of  a  month  to  an  entire  month,  to  several  entire  months,  up  to  a  year. 
When  there  is  no  10-nionth  secondary  power.  There  are  only  3  years  during 
the  period  of  26  years  during  which  such  periods  or  gaps  do  not  occur  There 
are  7  years  in  the  26-year  period  observed  during  which  there  is  either  no  10- 
raonth  secondary  power  at  all  or  only  a  negligible  amount.  These  gaps  in  the 
lO-months  secondary  power,  together  with  the  impossibility  of  predicting  when 
they  will  occur,  inevitably  lead  to  the  conclusion  that  the  10-months  secondary 
power  has  no  commercial  value  for  public  service  use  capable  of  measurement. 

Steam  backing  to  convert  any  substantial  amount  of  10-months  secondary 
power  into  primary  would  be  very  expensive  because  a  steam  plant  of  large 
capacity  would  have  to  stand  by  subject  to  call,  probably  continuously,  cer- 
tainly for  large  and  frequently  recurrent  portions  of  almost  every  year,  for 
operation  under  extremely  variable  conditions  both  as  to  load  and  duration  of 
time.  Steam  stand-by  costs  would  be  a  permanent  annual  charge  on  the  cost 
01  the  total  power  output,  whereas  the  annual  kilowatt-hour  production  by  the 
steam  plant  would  be  relatively  small  and  very  costly,  meaning  an  average 
cost  per  kilowatt-hour  of  the  combined  water  and  steam  power  produced,  much 
m  excess  of  water  power  cost. 

To  attempt  to  convert  any  substantial  amount  of  10  months'  secondary  ix)wer 
j'lto  primary  power  by  use  of  the  Sheffield  steam  plant  owing  to  its  character- 
stics  and  its  location  with  respect  to  the  distributing  companies  it  would  have 
0  serve,  would  result  in  such  a  high  average  cost  per  kilowatt-hour  delivered 
to  the  distributing  companies  as  to  make  the  total  water  and  steam  power  pi-o- 
•luced  unmarketable  at  the  rates  and  standards  of  service  fixed  by  the  pi-esent 
ngorous  public  service  regulations  in  the  Southeastern  States.  This  steam 
Plant,  consisting,  of  only  one  unit  of  60,000  kilowatts,  must  be  held  exclusively 
n  reserve  at  all  times  to  make  up  the  deficiencies  in  primary  power;  therefore 
't  will  not  be  available  to  convert  10-months  secondary  power  into  primary 
power. 


X 


118 


MUSCLE   SHOALS  PROPOSITIONS. 


Mr.  Fields.  In  order  to  keep  that  matter  straight,  I  will  ask  you  to  put  that 
letter  in  the  record. 

The  Chairman.  Mr.  Fields,  will  you  let  me  ask  just  one  other  question: 
were  they  asked  to  submit  a  proposition? 

Gen.  Beach.  Yes,  sir. 

The  Chairman.  And  this  is  their  answer? 

Gen.  Beach.  This  is  their  reply. 

Mr.  Fields.  Recommending  against  the  development  of  Muscle  Shoals? 

Gen.  Beach.  Yes,  sir. 

(The  letter  referred  to  follows:) 

The  United  States  Government,  through  Gen.  Lansing  H.  Beach,  Chief  of 
Engineers,  asks  the  southeastern  power  companies  the  following  question : 

"  The  Secretary  of  War  has  directed  me  to  ascertain  what  arrangements  can 
be  made  to  derive  a  reasonable  return  upon  the  investment  if  the  United  States 
completes  the  dam  and  hydraulic  power  plant  at  Muscle  Shoals,  Tennessee 
River." 

The  answer  to  that  question  depends  upon  a  correct  determination  of  the  fol- 
lowing points: 

(1)  What  commercially  usable  power  output  can  be  produced  at  Muscle 
Shoals,  Tennessee  River,  taking  into  consideration  the  flow  of  the  river,  its 
characteristics,  and  Government  regulation  requiring  a  uniform  river  flow  for 
navigation  of  not  less  than  10,000  second-feet  at  all  times? 

(2)  What  market  is  available  for  the  sale  of  the  power  and  at  what  rates? 

(3)  What  gross  revenue  can  be  derived  from  the  sale  of  the  commercially 
usable  available  power  output? 

answer  to  question  (1). 

(a)  Based  on  data  contained  in  various  reports  available,  which  further 
investigations  have  confirmed,  the  continuous  24-hour  primary  power,  i.  e.,  100 
per  cent  use  of  available  power,  is  approximately  700,000,000  kilowatt-hours 
per  annum. 

This  figure  is  arrived  at  by  assuming  a  plant  capacity  of  100,000  kilowatts 
and  operating  at  100,«300  kilowatts  for  12  daylight  hours  and  at  f>0,000  kilowatts 
during  12  night  hours.  To  obtain  a  plant  capacity  of  100,000  kilowatts  during 
r*eriods  of  high  water  it  will  be  necessary  to  have  an  installation  considerably 
in  excess  of  that  amount. 

The  portion  of  the  700,000,000  kilowatt-hours  primary  power  per  annum  which 
could  be  usetl  under  existing  commercial  conditions  in  southeastern  territory 
estimate  1  to  be  .')70,000,000  kilowatt-hours  per  annum  maxinuim.  including  ds- 
placement  of  ai)proximately  135,000,000  kilowatt-hours  at  present  produced  by 
steam ;  and  in  view  of  theuncertainty  of  the  amount  of  steam  which  could  be 
displaced  and  of  the  amount  of  power  which  could  be  taken  at  night,  it  woul<l 
be  safer  to  estimate  upon  not  to  exceed  HOO.OOO.OOO  kilowatt-hours  maximum.  It 
is  estimated  that  the  demand  for  power  in  southeastern  territory  will  absorb  this 
latter  amount  of  ad<litional  power  by  the  year  1927. 

There  Jire  nine  years  dur'ng  the  26-year  jieriod  covered  by  the  hydrograph 
of  the  Tennessee  River  at  Florence,  Ala.,  during  which  the  total  availability 
of  priniai-y  power  on  100  per  cent  load  factor  was  less  than  700,(KX),000  kilowatt- 
hours  i)er  annum.  To  supply  such  deficiencies,  which  will  undoubtedly  occur 
iieriodicallv  in  future  as  they  have  in  the  past,  steam  backing  equal  to  the  full 
capacity  of  the  Sheflield  steam  plant,  i.  e.,  00,000  kilowatts,  nuist  be  exclusively 
available  subject  to  call  to  meet  such  deficiencies;  in  certain  years  that  capacity 
would  not  have  been  suflicient.  .. ,     .  ^  . 

((7-1)  The  10  months  secondary  power  which  it  is  possible  to  produce  at 
Muscle  Shoals  has  little  or  no  commercial  value. 

ANSWER  TO  question    (2). 

(h)  The  only  market  for  the  power  at  present  available  is  the  market  serve«l 
by  the  southeastern  power  companies,  {ind  the  rates  for  delivered  power  per- 
niitted  to  be  charged  bv  those  conqmnies  are  the  published  rates  fixed  by  the 
various  public  ut  litv  commissions  of  the  States  in  which  those  companies 
oi>erate,  and  the  value  of  the  power  at  Mus^-le  Shoals  must  take  into  considera- 
tir.n  all  elements  of  cost  between  generation  and  delivery. 


MUSCLE   SHOALS  PROPOSITIONS. 


ANSWER  TO  QUESTION   (3). 


119 


(c)  The  amount  of  gross  revenue  Avhich  it  will  be  iiossible  for  the  l.nited 
States  to  derive  from  the  sale  of  power  is  definitely  fixed  by  the  amount  of 
lommeicially  usable  power  avaiial)le  and  the  prevailing  rates  fixed  by  public 
regulation. 

KKASONS    FOR    CONCI.TSIOXS    AS    TO    PIJIMAUY    POWEIL 

Considering  the  southeastern  territory  (including  Muscle  Shoals)  a  study 
of  hydrographs  of  the  various  rivers  now  serving  the  existing  and  proposed 
power  plants  shows  that  years  come  periodically  when  drought  is  coincident  and 
shortage  of  water  is  general.  Such  years  have  come  with  unfailing  certainty 
and  will  undoubtedly  come  in  future. 

The  safe  capacity  rating  for  public  service  uses  of  the  existing  and  pro- 
posed water-power  developments,  even  granting  the  full  effect  of  coord. nation 
of  watersheds,  is  limited  definitely  to  the  sum  total  of  their  respective  com- 
bined capacity  ratings  during  these  low  years.  This  limitation  is  absolute 
and  contracts  to  deliver  primary  power  nuist  not  exceed  it,  except  as  supple- 
mented by  steam  production. 

The  hydrograph  of  the  Tennessee  River  at  Florence,  Ala.,  for  26  years  (from 
1894  to  1919,  both  inclusive)  proves  that  there  were  9  years  during  the  26-year 
period  when  it  would  have  been  necessary  to  use  the  Sheffield  steam  plant 
(and  in  certain  of  those  years  its  full  capacity  would  not  have  been  suflicient) 
to  supply  the  deficiency  in  primary  power.  This  condition  will  inevitably 
occur  periodically  in  future  and  steam  backing  equal  to  the  full  capacity  of 
the  Sheffield  steam  plant  must  be  exclusively  available  at  all  times  to  supply 
the  deficiencies. 

REASONS  FOR  CONCLUSIONS  AS  TO   10  MONTHS'  SECONDARY  POWER. 

There  is  no  coordination  of  the  other  existing  and  proposed  water-power 
plants  (including  both  storage  and  river  flow  plants)  in  the  southeastern  terri- 
tory under  any  plan  of  operation  that  seems  commercially  practicable  that  will 
convert  any  large  amount  of  Muscle  Shoals  secondary  i)ower  into  continuous 
primary  power;  at  least  it  would  not  be  safe  for  public  service  coi-porations 
serving  the  commercial  uses  of  the  public  to  base  contracts  on  any  such  result. 

The  hydrograi>h  of  the  Tennessee  River  at  Florence,  Ala.,  for  26  years  (from 
1894  to  1919,  both  inclusive)  shows  frequent  periods  of  time  varying  from  por- 
tions of  a  month  to  an  entire  month,  to  several  entire  months,  up  to  a  year, 
when  there  is  no  10-month  secondary  power.  There  are  only  3  years  during 
the  period  of  26  years  during  which  such  periods  or  gaps  do  not  occur.  There 
are  7  years  in  the  26-year  period  observed  during  which  there  is  either  no  10- 
nionth  secondary  po^^•er  at  all  or  only  a  negligible  amount.  These  gaps  in  the 
10-months  secondary  power,  together  with  the  impossibility  of  predicting  when 
they  will  occur,  inevitably  lead  to  the  conclusion  that  the  10-months  secondary 
power  has  no  commercial  value  for  public  service  use  capable  of  measurement. 

Steam  backing  to  convert  any  substantial  amount  of  10-months  secondary 
power  into  primary  would  be  very  expensive  because  a  steam  plant  of  large 
capacity  would  have  to  stand  by  subject  to  call,  probably  continuously,  cer- 
tainly for  large  and  frequently  recurrent  portions  of  almost  every  year,  for 
operation  under  extremely  variable  conditions  both  as  to  load  and  duration  of 
time.  Steam  stand-by  costs  would  be  a  permanent  annual  charge  on  the  cost 
«'f  the  total  power  output,  whereas  the  annual  kilowatt-hour  production  by  the 
steam  plant  would  be  relatively  small  and  very  costly,  meaning  an  average 
cost  per  kilowatt-hour  of  the  combined  water  and  steam  power  produce<l,  much 
in  excess  of  water  power  cost. 

To  attempt  to  convert  any  substantial  anxnint  of  10  months'  secondary  iM>wer 
into  primary  power  by  use  of  the  Sheffield  steam  plant  owing  to  its  character- 
istics and  its  location  with  respect  to  the  distributing  companies  it  would  have 
to  serve,  would  result  in  such  a  high  average  cost  per  kilowatt-hour  delivere<l 
to  the  distributing  companies  as  to  make  the  total  water  and  steam  power  pro- 
•uced  unmarketable  at  the  rates  and  standards  of  service  fixed  by  the  pi-eseut 
vigorous  public  service  regulations  in  the  Southeastern  States.*  This  steam 
plant,  consisting,  of  only  one  unit  of  60,000  kilowatts,  must  be  held  exclu.sively 
in  reserve  at  all  times  to  make  up  the  deficiencies  in  primary  power ;  therefore 
It  will  not  be  available  to  convert  10-nionths  secondary  power  into  primarv 
power.  11. 


120 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


121 


The  above  brief  statement,  together  with  a  study  of  various  reports,  data, 
and  hydrographs  available,  including  original  hydrographs  of  the  Tennessee 
River  prepared  new  from  various  standpoints  at  Florence,  Ala.,  for  20  years 
(from  1894  to  1919,  both  inclusive)  leads  inevitably  to  the  following  con- 
clusions in  answer  to  the  questions  on  page  2  of  progress  report  of  April  9, 

*is  follows  * 

"(d)  From  a  strictly  business  commercial  standpoint,  could  private  capital 
afford  to  undertake  the  Muscle  Shoals  development,  or  make  investments  to  use 

*  ^"?e)^Ca*n  the  Government  afford  to  invest  additional  public  money  in  the 

Muscle  Shoals  development?  . ,      ..  •       :«       * 

♦•(/)  If  the  Government,  regardless  of  business  considerations,  in  view  of 
the  large  investment  alreadv  made,  determines  to  complete  the  Muscle  Shoals 
development,  on  what  basis,  if  any,  can  the  southeastern  power  companies 
cooperate  so  that  the  United  States  may  '  derive  a  reasonable  return  upon  the 
investment,'  or  any  partial  return?" 

ANRWEB   TO   QUESTION    (D). 

(g)  From  a  strictly  business  commercial  standpoint,  and  considering  the 
comparable  cost  of  production  of  power  at  existing  water-power  plants  and 
proposed  water-power  plants  in  the  southeastern  territory,  private  capital  could 
not  afford  to  undertake  the  Muscle  Shoals  water-power  development,  nor  make 
investments  to  use  its  output  on  the  basis  of  the  present  plans.  Lnder  pre- 
vailing conditions  and  rates  for  which  power  is  sold  under  regulation  in  the 
southeastern  territory  the  usable  primary  continuous  available  power  output 
of  the  "  dam  and  hydraulic  power  plant  at  Muscle  Shoals,  Tennessee  River, 
can  not  be  sold,  delivered  to  the  public-service  market,  at  an  average  price 
that  will  pay  operating  expenses,  taxes,  reserve  for  renewals,  and  replace- 
ments, and  a  fair  rate  of  interest  on  the  estimated  cost  of  the  proposed  p  an 
as  planned,  and  upon  the  necessary  transmission  system  to  reach  the  distant 
and  only  market. 

ANSWER    TO    QU1j:ST10N     (E). 

ih)  Nor  can  the  United  States  afford  to  invest  additional  public  money  to 
complete  "the  dam  and  hydraulic  power  plant  at  Muscle  Shoals,  Tennessee 
River  "  as  planned  if  the  same  tests  which  control  the  investment  of  priva^o 
capital  are  applied;  because  on  the  latter  basis  it  can  no  be  made  to  derive  a 
reasonable  rate  of  interest  on  the  estimated  total  investment  from  the  sale 
of  the  commerciallv  unsable  available  power  to  the  public  service  market,  nor 
even  on  the  amount  necessary  to  complete  the  plant  as  estimated  by  Govern- 
ment engineers. 

ANSWER   TO   QXJE.STT0N    (F). 

(i)  If  the  United  States,  in  view  of  the  large  investment  already  made. 
f«e^ermines  to  complete  the  Muscle  Shoals  development  as  planned,  the  south- 
eastern power  companies  can  cooperate  so  that  the  United  States  may  derive 
a  reasonable  rate  of  interest  upon  some  part  of  the  cost  of  "the  dam  and 
hydraulic  power  plant  at  Muscle  Shoals,  Tennessee  River."  That  portion  o 
the  investment  upon  which  a  reasonable  rate  of  interest  may  be  expected 
can  be  worked  out  with  certainty  because  the  flow  of  the  river  limits  the 
amount  of  commercially  usable  power  available  and  the  value  of  the  product 
is  definitely  fixed  by  the  rigid  public  service  regulation  of  rates  and  service 
in  the  Southeastern  States.  ^      ^.  ^    „„,i 

But  the  Muscle  Shoals  water  power  development  is  being  <^^nstructed,  an 
1*-  is  reported  the  United  States  has  already  spent  approximately  $17,000,(M"' 
on  "  the  dam  and  hydraulic  power  plant "  and  navigation  improvement  there. 
If  the  United  States  decides  to  complete  "  the  dam  and  hydraulic  power  plant 
«t  ATn«;cle  Shoals  Tennessee  River,"  some  of  the  southeastern  iwwer  companies 
llnve^^nXc^^^  the  United  States  to  the  extent  of  formulati.^ 

and  making  a  definite  proposition  for  the  lease  of  the  plant  or  purchase  of 
u«  nntnut   but  only  within  the  limitations  stated  above. 
'%Smic  conditions  new  existing,  and  undoubtedly  permanent,  demand  tha 
nnv  arrangement  with  the  United  States  for  the  lease  of  "  the  dam  and  hj- 
^^•[ul'cT^v^V^^^^^       Muscle  Shoals,  Tennessee  River,"  or  for  the  purchase 
of  the  pm^^r  output  of  the  development  must  be  based  exclusively  on  the  com- 


niercially  usable  primary  power.  The  details  of  this  propos  tion  can  be  readily 
formulated  if  the  principles  and  data  upon  which  it  is  to  be  based  are  agreed  to. 
If  it  is  true  (as  estimated  by  the  Government  eng  neers)  that  the  cost  of 
the  completed  dam  and  hydraulic  power  plant  and  navigat'on  improvements 
at  Muscle  Shoals,  Tennessee  River,  will  be  $50,(XK),000,  exclusive  of  transmis- 
sion costs  according  to  the  plans  upon  which  it  is  being  at  present  constructed, 
St  large  portion  of  that  amount  will  have  to  be  charged  off  or  charged  to  war 
loss  and  improvement  of  navigat'on,  because  the  portion  of  the  cost  upon  which 
the  sale  to  the  public-service  market  of  the  commercially  usable  available 
power  output  can  be  made  to  derive  a  reasonable  rate  of  interest  is  limited 
definitely  by  the  existing  regulation  by  public  authorities  of  rates  and  service 
in   the   southeastern   territory. 

This  statement  is  based  upon  engineering  data,  hydrographs,  and  estimates 
of  costs  as  to  Muscle  Shoals,  as  compared  to  actual  costs  and  results  of  seven 
southeastern  power  companies. 

Georgia  Railway  &  Power  Co., 
By  H.  M.  Atkinson,  Chairman  Board  of  Directors. 

Columbus   Power  Co., 
By  H.  H.  Hunt,  Vice  President 
Central  Georgia  Power  Co., 
By  P.  G.  Gossler,  Vice  President. 

Tennessee  Power  Co., 
By  C.  M.  Clark,  President. 
Atlanta,  Ga.,  May  20,  1921. 

Mr.  Fields.  General,  just  one  other  line  of  questions  and  then  I  am  through. 
If  you  have  it  at  hand,  how  much  did  the  Panama  Canal  cost? 

Gen.  Beach.  I  would  not  like  to  say  offhand. 

Mr.  Fields.  (Jould  you  put  that  in  the  record? 

(Jen.  Be-vch.  Yes,  sir. 

Mr.  P'lELDs.  Has  it  ever  paid  4  per  cent  on  the  investnuuit? 

(Jen.  Bkacii.  I  doubt  very  much  if  it  has.    I  can  ascertain  that  correctly. 

Mr.  Fields.  Will  you  put  that  information  in  the  record,  and  also  what  it  is 
pjiying  now? 

Gen.  Beach.  Yes.  I  bplieve  from  what  I  have  heard  recently  that  they  are 
•luite  proud  of  ili^  fact  that  it  has  recently  approached  a  pay.ng  basis,  and  has 
more  than  covered  expenses. 

Mr.  Pakker.  :May  I  ask  what  is  the  difference  between  kilowatt  and  horse- 
powcr— in  other  words,  how  you  reduce  kilowatts  to  horsepower?  We  have  one 
statement  in  horsepower  and  the  other  in  kilowatts. 

(Jen.  Beach.  If  you  want  \o  reduce  kilowatts  to  horsepower,  vou  divide  by 
soven-tenths. 

Mr.  Park;:r.  Multiply  or  divide  by  seven-tenths? 

(Jen.  Beach.  Divide  by  seven-tenths,  and  if  you  want  to  reduce  horsepower  to 
Kilowatts  you  multiply  by  seven-tenths. 

^Ir.  QuiN.  Gen.  Beach,  for  the  benefit  of  the  record,  what  is  the  official  title 
fliMt  you  hold  in  the  United  States  Government? 

Gen.  Beach.  I  am  Chef  of  Engineers  of  the  Army. 

Mr.  QuiN.  You  are  a  graduate  of  the  West  Point  Military  Academy,  I  presume? 

Gen.  Beach.  Yes,  sir. 

Mr.  QuiN.  What  year.  General? 

Gen.  Beach.  1882 ;  quite  a  ways  back. 

Mr.  QriN.  You  have  had  experience  in  engineering  from  that  date  up  until 

'low? 

Gen.  Beach.  Constantly. 

^Ir.  QuiN.  The  statements  that  you  have  made  with  reference  to  the  poten- 
Hnlities  of  the  Tennessee  River  and  its  tributaries  are  based  on  actual  ex- 
iK'iieiu^e  and  ol)servation  and  knowledge  acquired  from  your  long  experience 
"»  that  line  of  work,  as  I  understand  it? 

(Jen.  Beach.  I  would  state  that  they  are  based  on  quite  intimate  acquaint- 
"|He.  For  four  and  a  half  years,  before  I  became  Chief  of  Kiig  neers,  I  was 
I'ivision  engineer  of  the  central  division,  wliich  embraces  the  Ohio  River  an'l 
''Jl  its  tributaries,  and  I  think  I  have  been  over  every  portion  of  the  Tennessee 
'^iver  that  a  boat  could  go  on,  and  have  visited  pretty  nearly  every  part  of  its 
^vatershed. 

Mr.  (^uiN.  I  want  the  record  to  show  that  so  that  these  gentlemen  making 
"'ese  propositions  in  the  press  trying  to  discountenance  what  we  are  attempt- 


\ 


122 


MUSCLE   SHOALS   PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


123 


iiig  to  do  heiv  and  what  you  are  atti  niptini:  to  ,lo.  may  knoxv  that  you  uurtcr- 

'' Whar'in  vouruulgn.ent  anul  Worn  your  knoNvUMl.i:e  of  tlu;  inatlor.  would  ir 
cost  to  maU;.  the  Muscle  Shoals  stretch  navijjable  without  the  eoustruetion  ul 

these  dams,  No.  '2  and  No.  3V  .  <«<m^hw»<i 

Gen    r.E\cn    As  I  stated,  our  estimate  is  somethmji  o\er  .WHKMK)0. 

Air  OriN  How  much  of  the  Tennessee  Uiver  and  its  tiihutaries  is  now  navi- 
i;ai)le  witlKmt  the  construction  of  these  <Uims  and  without  the  comiaetion  oi 
The  Muscle  Shoals  stretch  for  navigation?  ^       ,.  .  .  n    *  • 

(Jen    IJEACH.  We  can  carry  G  feet  from  the  Olfo  at  ordinary  sta.!zes :  that  is. 
excel  t  the  verv  lowest  sta;ies,  as  far  as  Florence,  and  we  have  a  2-toot  naviira 
ion^eve     at   low  water  between  (Miattanoo.'a  and  Knoxville.     The  portion  he- 
tween  Florence  and  (^hattanooga  is  not  ordinarily  navigal.Ie  unless  the  river 
irets  un  several  feet  al)Ove  low-water  stage.  

Mr.  (irix.  How  nmch  would  he  navigahle  wiih  the  completion  ol  these  dams 
•IS  contemplated,  after  they  are  completed?  . 

gZbkmu.  Dams  No.  L  No.  2,  and  No.  8  would  extend  the  .K.v.gatum,  as 
we  said  a  whle  airo.  to  a  tritle  more  than  CA^  miles  above  No.  8.  Tha  would 
require   Hnre   lowdift   dams   between   that   point    and   Hales   liar,   just   helow 

^%TlTlTno^^■  mu.h  w</uid  he  navigalde  with.mt  the  completion  of  the  da.n 
but  with  th'.'  opening  of  the  Muscle  Shoals  stretch  for  navigation? 

Gen  Beach.  I  do  iu>t  think  I  quite  understand  your  question. 

M?  (n-iN  What  I  am  driving  at  is  how  much  more  will  the  completion  ,.! 
Dams  8  and  '2  mean  in  navigation  as  compaiv<l  with  not  completing  the  dan.s. 
but  simiily  inaking  the  Muscle  Shoals  stretch   navigable  thnuigh  dredging  ur 

''^fvirifJuii    Dams  "'  and  8  will  extend  the  navigati<m  about  IM>  miles. 

CoriN    W^l    the'.mipletion  .f  Dam  No.  2  and  Dam  No.  8.  If  FonKs  pr.,,  ' 
sition  is  accepted,  the  information  is  communicated  to  you  that   he  intends  t- 
build  <»ther  dams  aliove  there,  as  I  understood  you.  ,,,    ^  , 

(Vn  KENcn  Yes  sir:  but  I  would  state  that  1  did  lu.t  iind<'rstand  that  he 
ccm^enphUed  buih^^^  in  that  secthm  of  the  r  ver  bel<»w  Chattanooga, 

ifwo  1     pn»bably.  aiul  if  he  were  wise,  he  would  go  further  up  W;iv     ;«' 
slopes  are  steeper  and  where  the  cost  of  building  the  dams  woijUl    "• /*'^^'   !  '  • 
he  c^ould  gefa  grea^       return  in  power  for  his  money  than  he  could  by  bu  Nl 
ing  them  on  that  section  of  the  river,  which  .s  very  wide  and  where  the  slopes 

"'Mr  IkT?'  ThaT  would  then  be  the  cause  of  w<m,lerful  .levelopment  of  water 
p<,we;^  ami  of  course.  allie<l   industries  c<.nnecte<l  wi'h   it.  it  that  were  done. 

''  rpn  'rexch  I  take  it  for  granted,  if  I  understand  your  question  that  Mr. 
Ford  would  not  build  locks  and  dams  unless  he  had  some  immediate  use  tor 
tlifr*  iw>wer  which  thev  would  produce. 

Ml  OUIN  Ml  Ford  from  vour  evidence  intends  to  make  this  a  great  monu- 
ment'to  his'life  for  the  benefit  of  the  American  people  as  I  understand  it. 

Gpu    Bevch.  I  did  not  say  that.  .    ,  ..  ^ 

Mr  QuiN.  You  stated  it  in  other  language.  Y»m  stated  that  he  wantwl  it  t<. 
be  a  lifework  for  the  agricultural  interests.  ^,      ..     ,- 

Gen  Be\ch.  I  stated  in  general  terms  what  might  be  termed  as  Mr.  I'oul- 
desiring  to  build  a  monument  to  himself,  Init  I  made  no  specification  as  to  an.N 
stones  that  he  intendeil  to  put  into  that  monument. 

Mr  QriN  Well  it  occurs  to  me  from  the  proposition  he  has  made  here  tuat 
there  is  a  large  element  of  philanthropy  in  his  ultimate  intentions.  If  Mi'- 
Ford  with  the  vast  amount  of  wealth  he  has— more  than  rm  men  c(»uld  evci 
spend— would  take  upon  himself  this  gigantic  scheme  involving  worhls  or 
work  and  studv  and  money,  it  means  either  one  of  two  things,  that  he  is  attt 
amassing  more  money  for  himself  or  that  he  is  endeavoring  to  accompli^'i' 
something  great  for  the  benetit  of  the  American  people.  Do  you  not  think  tnai 
that  is  a  logical  conclusion? 

Gen  Bevch.  Not  necessarily.  I  made  the  statement  that  he  desired  to  gam 
a  reputation  on  certain  lines.*  Now.  he  might  desire  to  secure  that  reputation 
and  a  good  financial  return  at  the  same  time.  I  have  not  the  information 
from  him  as  to  whether  he  desires  to  separate  the  tw^o  or  not. 

Mr  QriN.  If  it  were  purely  a  selfish  motive  to  make  money  for  himself  ano 
his  familv  and  estate,  would  it  not  be  a  fine  thing  for  the  peoide  if  those  dan«^ 


;iic  constructed  and  this  territory  developed  for  the  puriKises  which  we  believe 
his  i»roposition   sliows? 

Gen.  Beach.  UiKpialifiedly  so. 

Mr.  Qi  IN.  Some  of  the  gentlemen  engjigcd  in  competitive  lines  of  water 
power  think  it  inadvisable  and  foolish  to  proceeil  and  complete  these  dams 
aial  develop  this  wonderful  territory.  Did  any  of  them  agree  to  lease  it  or 
buy  it  or  submit  a  proposition  that  could  be  placed  in  a  relative  or  compara- 
tive position  to  the  one  of  Mr.  Ford? 

(Jen.  Beach.  Those  letters  which  I  have  just  placed  in  the  record.  I  think, 
are  the  best  answers  to  that  question. 

.Mr.  (}urN.  To  my  mind  they  indicate  they  do  not  want  it  done,  and  I  believe 
lor  the  reason  that  it  is  in  competition  with  their  business.  You  do  not  know 
about  the  i)roduction  of  nitrates  personally,  do  you.  ot  vour  own  knowledire'' 

Gen.  Beach.  No,  sir.  *  ' 

Mr.  QuiN.  That  is  under  Gen.  W^illiams's  department.  You  do  not  know 
about  the  production  of  fertilizer? 

(^en.  Bea(  n.  No,  sir ;  not  sufficiently  to  be  willing  to  testify  before  the  com- 
mittee. .  yji  > 

Mr.  QuiN.  You  stated  the  river  would  be  navigable  to  Florence,  Ala.;  where 
is  1^  lorence  with  reference  to  Muscle  Shoals? 

Gen  Beach.  It  is  practically  at  the  lower  end  of  Muscle  Shoals.  Dam  No 
1  \yould  be  at  1^  lorence.    Dam  No.  1  would  be  just  above  the  railroad  bridge 

''.  «i^  ^^\  f  ^T^"  ^^'^  '"^P'  '''^^^*^  connects  the  town  of  Florence  with  the  towTi 
of  Shettield.  I  would  state  that  the  town  of  Florence,  in  actuality,  it  not  as 
large  as  shown  on  the  map  and  does  not  reach  up  as  close  to  No.  2  as  the  man 
would  indicate.  * 

Mr.  QuiN.  You  would  have,  then,  6  feet  of  navigation  from  the  Ohio  River 
up  to  Florence  at  the  lower  end  of  Muscle  Shoals? 

Gen.  Beach.  Y'es. 

.Mr.  QuiN.  How  many  miles  is  it  betAveen  Dam.  No.  1  and  Dam  No  3 

(Jen.  Beach.  A  little  less  than  30  miles,  or  about  30  miles. 

Mr.  Fisher.  General,  something  has  been  said  about  the  avaihible  market 
for  the  water  ix)wer  if  the  Ford  offer  should  be  accepted.  Have  you  ever  made 
a  survey  of  the  industrial  needs  of  the  cities  within  loO  miles 

(Jen.  Beach.  No,  sir. 

Mr.  Fisher.  You  are  not  familiar  with  the  industrial  needs,  for  instance  at 
Alemphis,  except  in  a  general  way? 

Gen.  Beach.  Only  in  a  general  way,  knowing  the  citv  and  its  general  busi- 
ness tendencies  and  size. 

^Ir.  Fisher.  You  are  familiar  with  the  fact  that  Memphis  is  short  on  power 
for  its  industrial  needs? 

Gen.  Beach.  Memphis  has  no  water  power  inunediately  available.  Thev 
iiave  to  depend  upon  coal. 

Mr.  Fisher.  Art?  you  familiar  with  the  fact  that  even  with  the  steam  power 
that  we  have  lor  our  industrial  plants,  we  are  now  short  on  that  kind  of 
lK)wer? 

Gen.  Beach.  I  do  not  know. 

Mr.  FrsiiEu.  You  are  not  familiar  with  that  situati(m? 

(Jen.  Beach.  I  do  not  know^  the  definite  data  on  that  point. 

Mr.  Fisher.  You  stated  you  are  pretty  familiar  with  the  terriory  through 
which  the  Tennessee  River  fiows,  I  will  ask  you  whether  or  not  the  farm  lands 
through  that  country  are  sadly  in  need  of  thorough,  scientific  fertilization  after 
many  years  (d"  cultivation  of  cotton,  and  so  on. 

Gen.  Beach.  Are  you  referring  to  the  lands  of  the  entire  State  or  only  those 
iimuediately  adjacent  to  the  Tennessee  River? 

Mr.  Fisher.  I  mean  the  States  of  Alabama,  Georgia,  Tennessee,  and  Mis- 
sissippi. 

(Jen.  Beach.  I  have  understood  and  have  been  told  on  my  trips  through  that 

section  of  the  country  that  they  do  need  fertilization  very  greatly. 

Mr.  Wright.  General,  the  foundations  of  Dam  No.  2  are  limestone,  are  they 
Hot? 

<Jen.  liEACH.  Yes,  sir. 

Mr.  Wric.ht.  There  is  no  question  about  that  being  a  suitable  and  safe  foun- 
'l;ition? 

Oen.  I^.eacit.  At  that  particular  point  we  think  we  are  perfectly  safe.  We 
^yont  into  that  question  very  carefully  before  we  started  the  construction  of 
f''<»  dam.    Lime  rock  is  always  more  or  less  an  uncertain  quantity,  owing  to  the 


124 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


125 


fact  that  if  water  can  run  through  it,  through  a  crevice  or  in  any  other  way, 
for  any  length  of  time,  it  dissolves  the  rock  and  makes  cavities.  That  is  the 
way  the  Mammoth  Cave  in  Kentucky  is  formed,  and  that  section  of  the  country 
is  all  honeyeomhed  with  caverns,  and  you  will  find  up  there  in  that  part  of  the 
country  there  are  no  creeks  at  all.  You  go  through  a  farm  and  you  will  find 
a  saucer-shaped  depression  which  is  the  sinkhole  or  the  drainage  for  that  par- 
ticular territory.  The  water  collects  there  and  then  runs  underground  and 
tinds  its  way  through  these  cavities  into  tlie  Gi-een  River  antl  the  Harreii 
River  and  some  of  the  other  tributaries.  This  honeycombed  condition  exists 
more  or  less  wherever  you  have  limestone,  but  the  excessive  honey-combing 
which  you  tind  in  that  section  has  largely  disappeared  by  the  time  you  reach 
the  Tennessee 

Mr.  Wright.  You  made  such  investigations  there  at  Dam  No.  2  that  mako 
it  practical  from  an  engineering  standr/oint  to  construct  the  dam,  so  far  as 
the  foundations  are  concerned? 

Gen.  Beach.  Yes,  sir ;  we  carried  our  borings  in  some  cases  over  100  feet  in 
depth  into  the  rock. 

Mr.  Wright.  So  you  think  that  is  entirely  practicable,  then? 

Gen   Reach    Yes  sir. 

Mr.  Wright.  What  would  be  the  length  of  Dam  No.  2  w^hen  completed? 

Gen.  Beach.  Almost  1  mile.    I  think  it  is  about  4,800  feet. 

Mr.  Wright.  What  would  be  the  height. 

Gen.  Beach.  One  hundred  feet. 

Mr.  Wright.  Do  you  get  material  conveniently  there  foi-  the  construction? 

Gen.  Beach.  We  obtain  the  sand  and  gravel  a  few  miles  below  from  the  bed 
of  the  river.  That  is  dredged  up,  washed,  and  then  brought  up  and  placed  in 
bins  on  the  work.  TMie  cement,  of  course,  we  have  to  buy  and  bring  in  by  the 
ordinary  methods  of  transportation. 

Mr.  Wright.  AVhat  are  the  nearest  points  at  which  you  can  secure  this 

cement  ? 

Gen.  Beach.  That  has  varied.  There  are  some  points  in  northern  Georgia 
where  cement  is  made,  and  there  are  cement  mills  close  to  the  Ohio.  There  aiv 
some  in  Indiana  and  Illinois. 

Mr.  W^RiGHT.  What  is  the  horseiM)wer  which  could  be  developed  at  No.  2? 

Gen.  Beach.  We  have  ordinarily  counted  on  about  100,000  primary  power. 

Mr.  Wright.  What  is  the  secondary  power? 

Gen.  Beach.  The  secondary  power  is  probably  about  440,000  horsepower. 

Mr.  Wright.  General,  there  is  quite  a  difference  in  the  cost  of  primary  and 
secondary  power,  is  there  not? 

Gen.  Beach.  To  the  consumer;  yes,  sir. 

Mr.  Wright.  I  mean,  to  the  consumer. 

Gen.  Beiach.  Yes  sir. 

Mr.  Wright.  Will  you  please  explain  the  difference  between  primary  and 
secondary  power,  and  how  each  is  used? 

Gen.  Beach.  Primary  power  is  that  which  the  company  can  contract  to 
deliver  at  the  switchboard  of  the  consumer  at  any  time  he  wants  it.  Conse- 
quently, it  has  to  be  power  which  is  available  every  day  or  at  any  hour  of  the 
day.  Secondary  power  is  power  which  is  not  primary  power,  and  you  may 
have  different  grades  of  secondary  power.  For  instance,  at  Muscle  Shoals 
you  would  have  a  very  large  amount  of  power  which  might  be  called  primary 
for  8  months  of  the  year,  but  it  is  not  primary  for  the  full  12  months.  You 
have  another  amount  which  would  be  primary  for  six  months,  if  I  may  use 
the  term  in  that  way,  and  you  have  quite  a  considerable  portion  which  wouUl 
be  primarj'  for  four  months  of  the  year,  a  still  larger  amount.  It  manifestly 
follows  that  anybody  that  can  adopt  any  method  of  manufacture  or  any  use  for 
this  secondary  power  is  enabled  to  use  it  very  advantageously.  I  understand 
that  Mr.  Ford  contemplates  putting  in  electrical  furnaces,  and  he  could 
use  a  very  large  portion  of  that  secondary  power  almost  as  advantageously 
in  that  way  as  if  it  were  primary  power. 

Mr.  Wright.  General,  speaking  about  tran-^mission,  the  percentage  of  los!- 
in  the  current  or  in  the  power  is  increased  the  further  you  undertake  to  transinit 
the  current,  is  it  not? 

Gen.  Beach.  Yes,  sir ;  that  is,  you  get  less  at  the  end  of  the  line. 

Mr.  Wright.  What  is  the  average  percentage  of  loss  in  transmitting  it  •>^' 

miles?  ,  , 

Gen.  Beach.  I  could  not  state  that  offhand,  because  it  would  depend  a  go«»u 

deal  on  the  methods  used.    They  are  constantly  improving  methods  of  insuhi- 


tion,  and  it  varies  considerably  with  the  voltage  at  which  it  is  placed.  You 
understand,  voltage  means  what  you  might  call  the  electrical  head,  the  push 
of  the  current,  and  if  you  have  a  high  voltage  you  get  through  more  electricity 
than  if  you  have  a  low  voltage. 

Mr.  Wright.  It  is  true  that  the  percentage  of  loss  has  been  reduced  very 
materially  by  modern  appliances  and  inventions? 

Gen.  Beach.  Oh,  yes.  The  extension  of  the  distance  to  which  they  are  sending 
electricity  now  proves  that,  and  I  have  been  informed  by  some  of  the  best 
electrical  engineers  that  they  soon  expect  to  be  able  to  transinit  electricity 
directly  to  a  distance  of  400  miles  as  efficiently  as  they  formerly  did  to  a 
distance  of  200  miles. 

Mr.  Wright.  Have  you  made  an  estimate  of  how  much  per  kilowatt  it  would 
cost  to  produce  power  at  Dam  No.  2? 

Gen.  Beach.  No,  sir;  I  have  not  figured  that  out  exactly.  Col.  Cooper  gave 
that  m  his  testimony,  but  I  have  not  done  that  myself. 

Mr.  Wright.  You  know  the  average  price  at  which  it  is  sold  by  the  power 
companies  in  that  section;  that  is,  primary  power? 

Gen  Beach.  Yes,  sir.  Those  parties  who  signed  that  joint  letter  stated 
that  they  got  an  average  of  9  mills  per  kilowatt. 

Mr.  Wright.  General,  what  is  the  life  of  an  ordinary  cement  dam  such  as 
you  are  constructing  down  there? 

Gen.  Beach.  It  ought  to  be  perpetual  if  your  cement  is  of  proper  quality 

Mr.  Wright.  And,  of  course,  properly  constructed,  there  is  not  much  element 
of  risk  in  its  being  washed  away? 

The  Chairman.  Mr.  Wright,  will  you  permit  me  to  ask  just  one  question' 
Mr.  Wright.  Certainly. 

The  Chairman.  I  think  those  gentlemen  said  they  w^ere  able  to  furnish  the 
power  at  3  mills  per  kilowatt,  whereas  it  would  cost  a  little  over  4  mills  if  the 
dam  was  constructed  by  the  Government? 

Gen.  Beach.  I  asked  them  what  their  average  selling  price  per  kilowatt  was 
and  they  told  me  9  mills. 

Mr.  Wright.  General,  the  construction  of  storage  dams  on  the  upper  part  of 
the  river  and  its  tributaries  would  very  materially  increase  the  production  of 
power  at  Dams  2  and  3,  would  it  not? 

Gen.  Beach.  Every  reservoir  which  is  built  on  the  Tennessee  above  Muscle 
Shoals  IS  naturally  beneficial  to  Muscle  Shoals  because  the  difference  be- 
tween the  primary  power  and  the  >econd  power  is  due  to  the  loss  of  water 
which  escapes  during  high  stages  of  the  river  and  leaves  only  a  relatively 
small  proportion  to  fiow  down  during  the  low  stages.  Every  reservo  r  tha't 
IS  built  on  the  upper  section  of  the  river  will  impound  that  much  flood  water 
and  consequently  tend  to  equalize  the  flow,  keep  the  flood  waters  from  beinc 
wasted,  and  supposing,  naturally,  tliat  the  outflow  from  your  powerhouse  is 
regular,  it  will  tend  to  increase  the  low  water  flow.  Consequently  with  the 
construction  of  dams  on  the  upper  river  or  its  tributaries,  the  amount  of  ori- 
mnry  power  at  Dam  No.  2  will  be  increased.  * 

Mr.  Wright.  General,  speaking  about  the  market  for  this  power,  you  have 
named  Memphis  as  possibly  the  greatest  prospective  market  for  this  power 
Ut  course,  there  are  numerous  towns  and  cities  dotted  all  over  that  country  of 
smaller  size  than  Chattanooga,  Mem^-^s,  Nashville,  and  the  others  you  have 
mentioned  that  would  be  customers  fc    this  power,  would  they  not' 
,,.  ;|®^;  Beach    I  imagine  that  they  would,  but  I  would  say  from  my  experience 
Mth  tiie  people  of  that  section,  they  are  very  slow  to  adopt  innovations     I  am 
leferring  now  to  the  people  of  the  rural  sections  of  that  countiT 
Mr    Wright   But  taking  good-sized  towns  like  Ozark,  Florence,  Huntsville 
ec^tur,  and  towns  of  that  size  and  character,  they  are  modern  to  the  extent 
at  they  want  elec-tric  lights  and  they  use  a  grea  deal  of  hydroelecric  power 
"1  their  small  industries,  do  they  not?  f^  v^i 

.in!lT'  Bf^^H- .^'«'  sii*;  the  amount  which  they  would  consume  in  manufacturing 
urn  for  domestic  purposes  under  present  conditions  would  be  very  small  indeed 
Mr.   \V  right.  It   IS  true,  generally  speaking,  that  the  use  of  hydroel^^c 
I'ower  is  constantly  on  the  increase,  is  it  not? 

n.P  iJ;  ?^'^^"'  ^^'  ^;^^'  decidedly.  I  find  that  there  are  manufacturers  that 
use  electric  power  when  it  costs  them  more  than  steam  power.  They  do  that 
npn,w  ""l  M '*^f  ''^'^^^^^«'  «"^  of  the  first  reasons  is  that  it  is  ordinarily  inde- 
wl^  ^^"^  '"'"^"  equation,  as  nearly  so  as  you  can  make  it.  It  does  not 
"^pend  on  whether  the  firemen  happen  to  get  hold  of  some  fire  water  or  some- 


126 


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MUSCLE  SHOALS  PROPOSITIONS. 


127 


lliiir'  of  tlmt  kind  which  incapacitaUs  them  from  atteiuling  to  the  fmnace. 

s^l  so  o  eaner  and  does  m)t  involve  the  question  of  ashes  or  the  fi^tn^fion 

of  ashes  ami  cinders.     It  also  removes  one  very  ajrgravating  feature  of  the 

'"•M^Tumr  GJ:;:^al,  .ettin.  hack  to  the  leased  period   I  mn^  ]^^^ 
from  what  you  said  pretty  thoroughly  your  posit.on,  ^^"t  is    ^lot  tiue  t^^^^^^^ 
power  companies  or  people  who  want  to  invest  m  the  constiuc^um  of  electiical 
plants  insist  on  long-term  leases?    Is  not  that  the  g^"^»;^l  f"j^  •,, 
Gen   Bevch.  It  is  when  they  think  they  have  a  good  hargain 
Mr    Wright    Well,  let  us  analyze  that  just  a  little,  General.     In  the  firs 
place  it  rSessoine  vears  to  get  the  plant  constructed  and  equipped    am 
[bat  inuslT  taken  into'consideratio.i,  and  you  e.stimate  that  perhaps  it  would 
require*  two  and  a  half  or  three  years  to  complete  Dam  No.  2. 

M^^VmGnT  ^There   is  an   immense   amount   of   capital   entering  into   that 
proi^-t  all  the  while,  and  the  investor  is  waiting  for  some  return,  and  tli(>n 
!  f?ei  he  gets  his  plant  conipleted  and  f(,uipped  he  must  develop  a  market  to 
ids  poweI^  and.  as  y<m  suggested,  the  more  sparsely  the  territory  is  inhahite<l 
the  longer  he  will  be  in  finding  a  market  for  Ins  power. 

MT^'wRKnrr   AU 'those  thngs  must  he  taken  into  consideration,  and  he  has 
hif  capkal  hive^e.1  while  he  Ts  waiting  a  market  for  his  product.     Is  not  that 

^^'Gen!' BEA^^H.^That  feature  of  the  case  should  be  taken  into  consideration, 
if  «t»pni<i  tn  lue  ill  determining  the  life  of  the  lease.  , 

Mr    Wek  HT   In   ofher  wonls,  you  .lo  not  think  a  seneral    nnn-^r.a    rule 
should  be  appHed  to  all  these  projects,  and  that  it  .hould  depend  on  the  creum- 

'*^"ef  Rl\rH''ThTnoint  I  try  to  make  is  that  a  rule  which  would  be  perfectly 
iust  anr^pmaSle  tSTie  less'ee  in  the  case  o(  a  small  installation  might  be  a 
i  ,r.i«bin  nil  M  lessee  who  had  a  very  great  amount  to  dispose  of.  .    ^     ^  ,, 

Mr  Wright  1^^^^^  nionrent  you  can  not  think  of  a  project  of  the 

inagJlitudeTihe  Muscie  Shoals  project  where  you  would  be  more  in  favor  of 

'  l^^^^r  Nc^'slr.  n  U^il^^l^lt  is  justined  anywhere  it  is  justified  at  this 

^"^Mr^  Wright  Of  course  these  dams  No.  2  and  ^o.  3  would  be  the  property  of 
the  Government  at  the  end  of  the  100-year  lease. 

Mr^^'STOLrGeTSaryou  are  familiar  with  all  the  great  water  powers  in  the 

I'nited  States  in  a  general  way? 
rtin   Ri.  \rH    I  have  seen  several  of  them.  .      , 

Mr  s?or      Wbari  want  to  know  is  whether  there  is  any  water  power  in  the 

Smitli  ec^ual'to  the  Tennessee  Iliver  or  the  Muscle  Shoals  water  i^wer? 

mT' S^TOLi^'ls^ theie  any  east  of  the  Mississippi  River  that  is  equal  to  it? 

Gen   Beach   Nothing  that  is  installed  so  far  except  Niagara. 

Mr    Stoll   I  n?ean  wholly  within  the  United  States.     That  is  partialis   m 

Ten^BiJn   Wdl,  you  understand  that  at  Niagara  Falls  it  is  divided  into 
*wn^r«^s   and  we  control  our  part  and  the  Canadians  control  theirs. 
*  Mr'^iTOLL   well,  with  tbe  exception  of  Niagara,  is  there  any  water  power 
east  of  the  Mississippi  equal  to  Muscle  Shoals? 

Gen.  Beach.  No,  sir.  ,    . 

Mr   Stoll  How  about  west  of  the  Mississippi? 

nf;  ^factT  I  doubt  very  much  if  you  woud  find  anything  west  of  the 
Tin^^^inni  I'do  not  know  of  any  possible  case  except-I  do  not  believe  even 
™  Rapids  o^n  the  Slum^^^  RWer  would  be  equal  to  it,  but  I  am  not  cor- 

**Mr^^T^lL*^The  Tennessee  River  project  or  the  Muscle  Shoals  project,  at 
onv  rntP  i^  one  of  the  biggcst  projects  in  the  country. 

GerB^cH   It  is  unqu^^^^^^^  one  of  the  biggest  projects  in  the  countr 

Mr  rl^i  Generah  looking  back  over  your  many  years  of  experience  n 
de^e^op?ngTa"ter^v^^^^^^^  powers,  that  have  meant  the  ^-at  deve  |  J; 

«rJ^i  ).i  fi.o  Pnnntrv   hfls  nOt  vour  great  trouble  been  with  pessimists,  dui  nv 
Sl'^at    fme?'rnTbecause"^^^^^^^  not  calculate  the  immediate  results  of 

a  gr^t  projeJit,  they  could  not  see  why  it  should  be  undertaken? 


Gen.  Beach.  That  has  been,  to  a  certain  extent,  a  drawback   but  T  would 
'.  ?fnn^n?V  'H'^'^  the  greatest  drawback  to  the  developmenrhtrbeen  tL^^^^^^^^ 

in  fnVn    ^n^'  n      '    i  "^'^^  ^^^^^^  ^^^  answer  of  the  gentleman  in  that  respect 
n  toto.    Now,  General,  you  have  covered  this  subject  verv  comnletelv  but  T 

^^er^'^Vlr^ol!^^^  ^""T  ^'''''''  ''  *^^^  charac'te'r  t  abou 

owf  oPfi?  f^^.J^^ts.  So  far  as  the  public  are  concerned,  they  have  not  been 
able  at  the  beginning  to  see  the  great  results  that  have  followed  the  work  ol 
'^^''.I'K^  J'^^^^^^^  who  had  the  vision  of  what  the  development  meLr  Has 
not  that  been  one  of  the  great  troubles  in  developing  the  g^lt  watLw^ 

bX'TenTvvSen'^th^c^r'''"  ^"^^^  ^^"^  ^^«  *^^^"  spent.^at  '11^^111"  U  was 
being  spent,  when  the  criticisms  were  made  of  the  appropriations    were  made 

l^.fl  ^/  P^^P^^  "l^^  ^^"^d  "«*  «^  the  immediate  results,  and  is    t  Lot  also 
true  that  you  can  hardly  calculate  the  immediate  results?    For  instance    we 
will  take  the  Panama  Canal,  there  was  great  criticism  at  the  tLrof  the  he 
gmnmg  of  that  project,  that  it  would  be  a  failure  and  would  be  a  useless  et 

arc^/ncTrS:^:  h?vrtht'^^otr^  ^"  '''-'' '-^'^  '^  '^''  -  t."Ta^na- 
remwks^^^eVy.*^^''^  ^  ^^^^  ^^^""^  '^""^  transcontinental  railroads  making 
The  Chairman.  I  wanted  to  ask  a  question  about  that  verv  matter  wlien 
you  were  through     I  was  in  Congress  when  we  put  through  rhfpanama  Cana 

gL^upro%lM'(^'^^^^^^^    r'^'i^  cost  would  be  $120,000,0(^"'Tt%'naltv 
grew  up  to  $4(X),000,00,  so  that  they  missed  the  final  cost  by  a  good  manv  mil- 
lion dollars.     So  that,  after  all,  it  is  all  problematical  when  vou  sta?t  out 
and  you  can  not  tell  just  what  you  will  run  up  against  befZe  you  are  through 
Gen  Beach.  That  is  just  one  of  the  points,  Mr.  Chairman,  that  I  endeavoi^^^^^ 
to  make  yesterday,  that  while  people  can  make  an  estimate  on  unit  qi  antkies 

h-mdSit'^ui?rk1w?  "^-^  ^"^^^i«^«'  those  Who  have  not  been  accustomed  to 
i.indlmg  work  in  the  rivers  or  large  works  where  such  an  element  of  un- 

orSes\lnaUnr  '"  '''"  ''""''''"''  "'""''  '""""'"'^  makeX"  mistake 
Mr.  Garrett.  General,  I  want  to  ask  you  this  general,  hvpothetical  question 
nd  you  can  answer  it  if  you  see  fit:  Assuming  when  these  dams  arrcompfe^' 
ami  assuming  that  the  lease  should  be  left  to  Mr.  Ford  as  submitted?  a ruT?S 
into  consideration  the  general  conditions  of  the  country  surround  n-  this 
l);;o.iect  the  opportunity  to  manufacture  large  quantities  of  tot^zer  for  the 
-UTicultural  and  the  horticultural  people  and  the  truck  growers  ai  d  evervbodv 
who  uses  fertilizer,  and  the  extension  under  modern  plals  of  this  elS 
power  far  out  into  the  country,  all  around  them,  in  your  opinion    woiUd  vou 

:"r?r  ^^''^  ^  P'^^*^'.^  ^^^^  '^^^"^^  ^^  «^«Pted  by  the  Congress,  or  wou  d  voi" 
care  to  express  an  opinion  upon  that  particular  feature  of  itv  * 

nh^nf^P^^^•7''"''  question  rather  involved  two  considerations.  You  spoke 
MrFord^  development  of  the  country  and  at  the  same  time  assigning  it  to 

Mr.  Garrett.  Or  to  any  one  else. 

Gen.  Beach.  It  is  my  understanding  that  if  Mr.  Ford  is  given  the  lease  of 

.e  power  from  this  dam,  he  will   establish  industrial  plants  right  in  fhat 

^lelnlty.    Now,  that  will  unquestionably  be  an  immense  benefit  to  that  section 

Of  the  country,  but  the  general  growth  due  to  the  existence  of  that  powlr  wiU 

<^tvl^^l^'l  ^""^^'i^-  ^V*^^'^^'*^  *^  somebody  who  has  the  financial  ability  to 
le  eiop  It  immediately,  be  very  slow,  indeed.  If  the  member  from  TennSse^ 
IpHn^nY  ^"^^  my  saying  so,  I  made  the  remark  about  the  people  in  the  rural 

hoi  1  n   hf'''^''  *^'^'^i  ^T^  ''^""^  ^^^'''-    ^  ^^'''  y^'^^^  '-^^^   I  ^ad  occasion  to 
01a  a  hearing  on  the  Tennessee  River  in  order  to  help  the  peonle  of  Ch^t- 

anooga  obtain  flowage  rights.  Congress  had  made  tW  appropriation  for 
witw;  r^^  the  condition  that  the  flowage  rights  should  be  provided 
^ithout  expense  to  the  United  States.  The  people  of  Chattanooga  in  en- 
u^voring  to  get  those  flowage  rights,  found  they  could  not  do  a  thi'ng  with 
PHcesnff  -^^  *^^  property.  In  a  few  cases  they  would  sell  at  exofbiTant 
a  kerfn^rl'''  '^  ^^"^  '^''''l  £^^^^  ^^^y  ^<>"ld  '^^^t  do  anything  at  all.  Thev 
anri  ?h^^  ,  ""T^  ^'''Z''  """l^  ^^^P  t^^°^'  ^^<1  I  ^'e°t  down  and  held  a  hearing 
thaf  in  fH  ^f^  T  '''5!'^  ^^^  ^^""^^^^  ^0"l<i  ^«  i^  that  dam  were  built.  I  said 
Of  inn.  .''^u  P^^^^  ^^^  construction  of  the  dam  would  bring  in  a  large  amount 
so  °i2°^y  to  be  spent  right  in  that  section.     They  said:  «We  do  not  tMnk 

alon</wtfh T-  ^^"^^Mf  '\'^L^u^^^'^  ""^""^y  ^"^  *^^  ^tore  people  that  he  brings 
*"n^  with  him  will  get  it  but  we  won't  get  any  of  it."    "  Well,"  I  said,  "  W^hat 

92900—22 9 


128 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


129 


is  more,  it  will  enable  you  to  ship  your  goods  to  market  more  cheaply  than  you 
can  do  so  at  the  present  time."  They  said,  "That  does  not  interest  us.  The 
middlemen  will  get  all  that."  I  said,  "  Well,  the  fact  that  the  property  can  be 
devekmed  will  bring  people  down  here  with  money  and  that  will  help  develop 
vour  section."  They  said,  *'  We  have  got  all  the  people  here  now  we  want  and 
We  don't  want  anybody  here  with  any  more  money  than  we  have  got. 

Mr  Garrett.  That  is  along  the  same  line  as  these  letters  you  have  been  re- 
ceiving from  people  concerning  this  project  to  the  effect  that  it  wil  be  a  fail- 
ure Those  who  do  not  want  to  furnish  you  any  dumping  ground  or  things 
of  that  kind  were  those  directly  interested  and  wanted  to  dispose  of  \yliatever 
thev  might  have  to  the  Government  or  to  the  other  people  at  whatever  prices  they 
might  secure,  and  they  were  not  taking  into  consideration  the  general  welfare 
but  were  c-onsidering  their  own  particular  interests.  ^     ^    ,  ^ 

Gen  Beach.  No,  sir;  they  were  people  who  were  perfectly  contented  to  go 
along  the  way  that  they  were  going,  and  did  not  want  to  be  disturbed. 

Mr  Garrett.  On  that  flowage  question,  did  they  not  argue  that  the  Goverii- 
inent'should  take  care  of  that,  and  afterwards  did  not  Congress  take  care  of  it| 

Gen  Beach.  1  reported  to  Congress  that  it  was  absolutely  impossible  to  fulhU 
that  condition ;  that  the  people  could  not  obtain  the  lands  necessary  for  flowage 
richts  and  Congress  removed  the  restriction. 

Mr  Garrett  Has  it  no  always  been  true.  General,  in  all  ot  your  experience, 
that  'people  everywhere,  generally  speaking,  are  slow  to  give  way  to  progress 
and  tlTey  are  rather  sloW  to  change  their  conditions ;  that  is,  in  the  old,  estab- 

^"Jfen  "^each'  ^"uZl  tlfal  u  trait  of  human  character  everywhere.    You  kno^y 
that  tiie  people  objected  to  the  construction  of  railroads  because  a  cow  might 

^'llJ"  gTrSt^  And  the  men  wlio  drove  their  wagons  objected  to  that  because 

thev  would  go  out  of  business.  „  ,^.  c   rxi.-     t>«;i 

Gen  Be  Jh.  The  town  of  Frederick,  Md.,  paid  the  Baltimore  &  Ohio  Rail- 
riad  Co  $10,000  to  keep  out  of  the  town  because  it  was  one  of  the  important 
iM lints  on  the  stage  route  to  the  W^est. 

The  Chairman  There  are  one  or  two  things  I  think  you  can  clear  up  very 
nicely  General,  in  connection  with  this  matter.  How  long  has  this  matter  of 
the  tixation  of  nitrogen  from  the  air  been  in  existence? 

(Jen  Beach.  That  I  could  not  answer  without  looking  it  up. 

The  Ch\irman.  It  is  comparatively  recent,  is  it  not? 

Gpu  Beach  Yes :  I  do  not  suppose  it  is  20  years  old. 

The  Chairman   How  long  has  Germany  been  using  that  method  of  securing 

"^G:^BE.c^^^ll,'lo^^^^^  than  they  let  the  rest  of  the  world  know;  but  the 

^^T^'hai^^^^^^^^^  Po-ible  to  secure  nitrogen  by  fixation 

from  the  air  here  in  the  United  States?  ,r     ^,    •  ;fi> 

(^n  BEA.CH  You  are  getting  into  a  branch  of  the  subject,  Mr.  Chairman  with 
wh  c  'l  am  not  acqu^^^^^  This  is  outside  of  the  work  of  my  department,  and 
I  ha!Vin?ornmthm  upon  it  only  incidentally,  and  I  would  not  like  to  give  any 
evidence  where  my  information  is  of  that  character. 

The  Chairman.  My  information  has  been  that  the  whole  proposition  is  com 

naratively  modern. 

Gen   Be\ch.  I  do  not  think  there  is  any  question  on  that  point. 

The'CHAiRMAN.  That  is,  it  has  only  been  within  10  or  12  years  that  the  thing 
h-is  been  developed.  So  that  this  is  all  a  new  development,  and  therefore  it 
s  reasonable  to  suppose  that  many  additional  inventions  will  be  made,  and 
that  the  process  will  be  materially  developed  in  the  years  to  come? 

Cen  Beach    I  do  not  think  there  is  any  question  upon  that  point. 

The"  Chairman.  That  is  what  I  had  in  mind  myself.  .^efifvi.w 

Mr   Mckenzie.  General,  on  yesterday  afternoon,  when  you  ^vere  testifj  ng. 

if  niiX  hP  imnossible  to  construct  successfully  a  dam  at  that  point  »>^<^a^^; 
^f  ThffoundaS^^K  should  happen,  you  can  see  it  would  very  greati; 

change  the  conditions  of  the  whole  proposition. 


of ^hl^'unUed'sfUes  "i?' vnn'«'ri'  ^-n-^^  ^^  ^^"  ^^^P«  ^^  Engineers  of  the  Army 
Uiat  in  vo  ir  in  S^  '''   ''"^  ^"^  ^^"^^  "^  unhesitatingly  an  assurance 

niai  in  join  judgment  the  Government  will  be  able  to  perform  that  nnrt  of 
the  contract  in  case  we  enter  into  the  contract  P^rrorm  tnat  part  of 

at  the  s^teT'hrvrno^"r.«ln%''^^KT-  '^^^  ^'^  ^^^'^'  "^^  ^^^^^^s  of  our  borings 

s  innos^ihlP     Tf  t,o     K^^^'vi?  ^^^'^''^  ^^^*  ^^^  construction  of  Dam  No.  3 

\o  "      Rnf  to  uaT^  ^^  ''  ^'"^^  "^^^^  expensive,  proportionately,  than  Dam 

del;'  e^es  t    fl  P    ff^?  rf  ?l  ^^  ^^"^''^  ^^^^  ^*  ^«  impossible,  and  all  our  evi- 
dence goes^  to  the  effect  that  it  is  perfectly  practicable. 

If  iJ";  n.-m?'^«f;  lZu^^  ^^""^i  ''^'^^^?^  hesitation  are  willing  to  assure  us  that 
It  is  a  piettj  safe  gamble,  so  far  as  the  United  States  is  concerned? 

th^nVrcondlti^n"'  ''''    ^""^  '"'"''^^  ^'"""^  *^  ^"^  ^  ^^^^^'  ^'^^  ^^  ^^'P«'  "^^^  ^« 

P«^fnn/y r^^^'f'^^o^''''  ^''*''  ^^"^^  "^'  offhand,  what  the  present  return  on  the 
1  aiiama  v^anai  is  I 

Gen.  Beach  No,  sir.  I  think  it  has  recently  gone  on  a  paying  basis;  that  is, 
it  has  covered  expenses.  ^  j    &      ^^    .  -^"^i-  i=>, 

Mr.  Mckenzie.  I  think  probably  that  is  true,  because  I  was  informed  day 
before  yesterday  that  they  had  raised  the  wages  down  there.  I  am  referring 
to  the  cost  of  operation. 

Gen.  Beach.  I  understand  that  it  is  only  recently  that  the  revenue  of  the  canal 
is  more  than  the  cost  of  operation. 

Mr.  McKenzie.  It  would  amount  to  more  than, 4  per  cent  on  the  investment 
would  it  not?  ' 

Gen.  Beach.  Tlie  present  return,  as  I  understand  it,  has  not  reached  the  4  per 
cent  basis.  ^ 

Mr.  Hull.  General,  speaking  of  the  worth  of  horsepower,  it  seems  to  me  it 
would  be  interesting  for  the  committee  to  know  what  the  value  of  this  horse- 
power would  be,  provided  it  could  be  sold  at  the  rates  that  are  now  prevail- 
ing at  such  developments  as  Niagara  Falls  and  the  Keokuk  Dam.  I  do  not 
mean  to  say  you  can  sell  it,  but  I  would  like  to  know  myself,  if  this  dam  is 
completed  as  proposed  in  the  Ford  offer  and  the  power  could  be  sold  at  the  going 
rates  that  now  prevail  at  Niagara  Falls  and  the  Keokuk  Dam,  what  the  value 
of  the  horsepower  would  be.  I  do  not  presume  you  can  answer  that  question 
offhand,  but  if  you  can  obtain  the  information  and  put  it  in  the  record,  I  shall 
be  glad  to  have  it.  You  can  get  that  information,  can  you  not? 
Gen.  Beach.  Yes,  sir. 

Mr.  Hull.  I  might  say,  giving  my  impression  of  the  matter,  that  the  dis- 
crepancy in  the  cost  of  the  Panama  Canal^  it  seems  to  me,  is  too  great  for  en- 
gineers to  permit  to  go  unchallenged.  I  think  if  it  was  investigated  we  would 
find  that  the  great  share  of  the  difference  in  the  cost  of  the  Panama  Canal  is 
<lue  to  the  change  in  the  plans  after  they  started  to  work ;  that  is,  not  all  of  it, 
but  a  great  part  of  it  would  be  due  to  that. 

Gen.  Beach.  It  would  have  cost  more  if  they  had  constructed  the  Panama 
Canal  on  the  original  plans  or  cont'nued  the  construction  on  the  original  plans. 
Mr.  Hull.  I  understand  that,  too.  There  is  just  another  question  I  want  to 
«sk  you  in  regard  to  Dams  1,  2,  and  3.  You  stated  in  one  place  that  to  make 
the  Tennessee  River  navigable  you  would  have  to  build  Dam  No.  1,  I  believe, 
at  a  cost  approximately  of  $4,500,000? 
Gen.  Beach.  No,  sir;  the  amount  was  $1,400,000. 

Mr.  Hull.  Then  you  stated  afterwards  that  if  you  completed  Dams  No.  2 
and  No.  3,  as  proposed  in  the  Ford  offer,  you  would  make  the  Tennessee  R'ver 
navigable  for  60  miles.    You  meant  with  Dam  No.  1,  did  you  not? 

Gen.  Beach.  Dam  No.  1  is  such  a  short  distance  below  Dam  No.  2  that  it 
rtoes  not  make  very  much  difference.    It  is  <mly  4  or  5  miles  below 

Mr.  Hull.  I  understand  that,  but  what  I  want  to  bring  out  is  this-  In  con- 
siclering  this  proposition  of  making  the  Tennessee  River  navigable,  the  Govern- 
ment ^^^ll  have  to  build  Dam  No.  1  itself,  because  that  is  not  contained  in  the 
*^ord  offer;  is  that  not  true? 

Gen.  Beach.  That  is  correct;  yes,  sir. 
nf\V*  Hull.  You  spoke  of  some  of  the  power  people  writing  to  you.    Have  any 
"I  the  fertilizer  people  interviewed  you  at  all? 
Gen.  Beach.  No,  sir;  I  have  seen  none  of  them. 
Mr.  Hull.  Have  they  sent  you  any  literature? 

Gen.  Beach.  I  can  only  sny  that  a  few  days  ago  I  received  circular  No   2, 
'^nitii  said  that  further  information  could  be  given  me  if  I  desired  it.    I  wrote 


i 


130 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIOXS. 


131 


for  it  and  it  came,  I  think,  day  before  yesterday  morning,  when  I  came  up  here, 
and  I  have  not  had  a  chance  to  r^ad  it  waterpower  In  the 

Mr.  Parker.  General    you  sP^^^.t^^^ll^'.^L  this  wXrpower  mat  er  in  connec- 
United  States.    We  had  ^^^^.^^'^^^^^  f  tim^^  ^^  ^^^^  the 

tion  with  the  waterpower  bdl  s^™^, Jf ^Y,%?,^^' .fi^e  is  from  ten  to  twenty  mil- 
otal  amount  of  waterpower,  as  ^^^^f  ^^^^^ll^^f^m^^^        n  various  streams 
lion,  and  three-quarters  of  it  is  west  of  the  l^^cky  Mounui      ^ 

that  come  from  the  snow  mountains  ^J^^^^^f  f^ ^^^^eTnA^^^^^  States? 

did  not  go  into  that  investigation  in  regard  t^  velterday  was  to  the  effect  that 
Gen.  BEACH.  No,  sir.    The  statement  I  mad^^^^^^^  ^.^^.  development 

jf^:?ft:r^o::^e^^^^^^^  ^'^^'' '''''''''  ^'^  '^-  ^^^'- 

rence  River.  wP^tprn  streams,  and  as  I  understood  you, 

tion  was  that  it  was  ^-^^Sf-  ^^o^pct  was  not  greater  than  any  that  could 

be^'^-adfu^'n  KiSpVVKr^  7^  I^did  not  .no.  how  It  con.- 

"Tr  ?iL'krind  *ereTe"^wlse  ver,-  great  water  powers  in  the  streams 

-S&  ervS  ■•  a^r^h^lrrairS^  ^  water  powers  out  there 

very  rapidly,  and  very  hei^?fi^i^J.^J'  ^^  oomnarison    then,  in  total  horsepower. 

Th'^^r,rbabrc<:merrrtte%:rortT^^^^^^^ 

"  GerBE"c?rrdS''not  understand  that  the  comparison  was  in  the  total.    I 

Z  Sardir;"4rrUnh\TarTrrUrhr/or  mVost  o.  the  united 

States;  is  that  not  so? 

Gen.  Beach.  Yes,  sir  ,„nttpr  von  mentioned,  in  which  you  said 

Mr.  PARKER.  I.pa^  to    he  otherjtter  >o^^^[^"tmnea^^  ^^^^^  ^  ^^^^^   ^^ 

^^i^^^r^ir^^^o^^  Which  they  sold  it? 

investigation  by  the  ^^^^mitte^  on  Interstate  ^nd  foreign  ^  ^^^^  ^^^^ 

called  power  bill,  in  ^<>»"ection  with  power  ^^^^  made  by  a  Government 

distributed,  and  tha    a  very^^^^^^^^  tie  p^wer  com^v  sold  their  power? 
witness  concerning  the  PJ^^^  ,?,t^  which  the  P^^^^j^  ^^^.^f  ^Jij^g  p^wer  to  small 

I  ^nf  o^r":  Ce  'u'J^dr ^ml?  y^ a^n^ VC^o^  "n^V  that  matter. 
'''■d''Ut^:TJ^^%lTi^'inTX!^''^:t  matter.  ,       ^  ^^,^„ 

at  prices  as  low  "^  thatj  commercially  in  Tacoma  and  Seattle, 

thans,^«^"derSrom  the  water  coming  down  from  Mt.  Ranier  at  1  cent 

"  mI"  P^BK^^That  is  water  power.     I  am  talking,  now,  about  steam  power, 
and  the  "Sr^of  that  power  between  the  different  power  companies  m  the  Ea.t. 

You  do  not  know  about  that?  ^  ^,    . „.^ 

fjpn   Reach.  I  do  not  know  about  that;  no,  sir.  ^..^^f^ri  it 

Mv  pT^f'Fn   You  did  not  know  that  that  had  been  thoroughly  investigated  a 
n  ^/Vi^tp    and  tMt  thrpower  bill,  when  it  was  proposed,  did  provide  such 
po'4r  by'es^^^^^^^  power 'plants  at  the  coal  mines  and  distributing 

^"Sln  ^BE^^c^'lTlnow  the  superpower  survey  has  been  made.     I  am  not 
familikr  with  the  details  of  the  report  in  connection  with  that. 
Mr.  Parker.  Who  would  be  able  to  give  it  to  us? 


Gen.  Beach.  I  think  probably  Col.  Keller,  the  present  Engineer  Commissioner 
of  the  District  of  Columbia,  would  be  able  to  give  you  as  much  information  on 
that  point  as  anybody  you  could  call  locally. 

Mr.  Parker.  Does  it  or  not  seem  to  you  to  be  important  to  know  with  refer- 
ence to  the  value  of  this  place  what  can  be  done  in  that  way  with  steam? 

Gen.  Reach.  I  should  think  it  would  be  very  important. 

Mr.  Fields.  General,  what  time  elapsed  between  the  submission  of  your  invi- 
tation to  Mr.  Ford  and  the  receipt  of  his  first  proposition? 

Gen.  Beach.  Probably  two  months  and  a  half  or  two  months. 

Mr.  Fields.  From  the  time  you  submitted  it  to  him? 

Gen.  Beach.  From  the  time  I  first  wrote  to  him. 

Mr.  Fields.  Until  his  offer  came  to  you? 

Gen.  Beach.  I  do  not  think  I  wrote  to  him  at  quite  as  early  a  date  as  I  wrott 
to  the  power  companies  in  the  South,  because  it  did  not  occur  to  me  at  first 
that  he  would  be  interested. 

Mr.  Fields.  In  Exhibit  E,  on  page  22  of  the  Secretary's  report,  Avhich  exhibit 
is  signed  by  yourself,  you  make  an  interest  charge  of  $1,875,000  against  the 
Ford  proposition  for  the  investment  of  the  Government  during  the  construction 
period  and  the  first  six  years  of  the  lease.  Is  that  an  ordinary  interest  charge, 
or  is  not  that  out  of  the  ordinary  on  Government  propositions? 

Gen.  Beach.  You  will  notice  in  the  second  sentence  below  that  tabular  state- 
ment it  says  "such  carrying  charges  are  not  customarily  considered  in  Govern- 
ment work." 

Mr.  Fields.  Do  you  know  whether  or  not  a  charge  of  this  kind  has  ever  been 
considered  in  Government  work? 

Gen.  Beach.  I  do  not  know  of  its  ever  being  included  before.  I  think  if  the 
Government  did  include  those  that  the  appropriations  by  the  Rivers  and  Har- 
bors Committee  would  be  very  differently  made  than  they  have  been  made  ff>r 
many  years  past. 

Mr.  Fields.  Upon  what  do  you  base  that  opinion — how^  do  you  reason  that 
out? 

Gen.  Beach.  We  liave  spent  in  the  course  of  the  last  15  years  something  like 
$60,000,000  on  the  Ohio  River  to  improve  that  stream,  and  the  interest  charges 
on  that,  it  seems  to  me,  if  Congress  were  going  to  consider  them,  would  help 
expedite  the  work. 

Mr.  Wright.  General,  in  the  construction  of  these  plants  and  development  of 
electrical  current  by  water  power  it  is  very  necessary  or  desirable  to  have  an 
auxiliary  steam  plant  in  connection  with  it,  is  it  not? 

Gen.  Beach.  That  depends  entirely  upon  the  manner  in  wiiich  the  power  is 
utilized.  If  you  are  selling  your  power  you  have  to  provide  some  means  to 
cover  the  production  of  the  total  power  for  which  you  have  made  a  contract.  If 
you  can  sell  more  than  your  primary  power  itself,  and  you  have  a  period  where 
the  secondary  power  is  of  value,  you  can  supplement  your  primary  power  you 
obtain  from  the  water  by  a  steam  plant,  making  a  large  portion  of  your  second- 
ary power  primary. 

Mr.  Wright.  Then  it  is  verj'^  desirable,  from  the  standpoint  of  a  breakdown. 
The  consumer  wants  his  power  with  regularity. 

Gen.  Beach.  Yes,  sir. 

Mr.  Wright.  That  is  also  an  element,  is  it  not? 

Gen.  Beach.  That  is  quite  an  element.  We  could,  of  course,  guard  aga'nst 
tliat  by  duplication  of  transmission  lines.  It  would  be  a  question  of  whether 
the  duplication  of  transmission  lines  for  the  establishment  of  a  separate  steam 
plant  would  be  more  economical. 

STATEMENT   OF   COL.    JOHN  A.   HULL,   ACTING  JUDGE   ADVOCATE 

GENERAL,   WAR  DEPARTMENT. 

The  Chairman.  Colonel,  we  are  discussing  the  proposition  of  Mr.  Ford  for 
certain  rights  at  ^luscle  Shoals  and  it  seems  that  the  Alabama  Power  Co.  and 
the  Air  Nitrates  Corporation  also  make  claims  for  those  separate  propositions. 
I  understand  that  you  have  looked  into  the  matter  very  fully  and  are  in  a  r>osi- 
tion  to  explain  the  matter  to  the  committee  at  this  time. 

Col.  Ht'll.  The  question  as  to  the  Alabama  Power  Co.  was  submitted  to  the 
otfice  in  November  with  the  request  to  give  it  great  expedition,  so  it  was  tl.ere  a 
•^•omparatively  short  time.  I  made  a  report  to  the  Adjutant  General  of  the 
'^rmy,  under  date  of  November  16,  1921,  and  I  have  a  copv  of  that  report  with 
nie. 

(Thereupon  the  committee  took  a  recess  until  2  o'clock  p.  m.) 


\ 


132 


MUSCLE   SHOALS  PROPOSITIONS. 


AFTER  RECESS. 


MUSCLE   SHOALS  PROPOSITIONS. 


133 


The  committee  met  pursuant  to  recess  at  2  o'clock  p.  m. 

STATEMENT   OF  COL.   JOHN  A.   HULL,   ACTING  JUDGE   ADVOCATE 
GENERAL,  UNITED  STATES  ARMY — Resumed. 

The  Chairman.  Colonel,  at  the  time  of  adjournment  you  were  going  to  offer 
some  letter  for  the  record.  Will  you  kindly  continue  your  statement  just  as  you 
were  doing,  and  in  your  own  way  tell  the  storj\ 

Col.  Hull.  I  stated  that  at  the  end  of  October  of  last  year,  the  office  was 
asked  its  opinion  as  to  what  steps  were  necessary  to  clear  title,  so  that  the 
Warrior-Sheffield  transmission  line  and  the  Warrior  Power  Plant  and  Substa- 
tion, and  other  incidental  properties  of  the  Government  erected  by  the  Alabama 
I'ower  Co.  for  the  account  of  the  United  States  and  all  as  described  in  con- 
tract T-69,  could  be  dispos'^d  of  by  the  United  States  to  other  than  the  Alabama 
Power  Co.,  and  in  such  a  way  that  they  can  all  be  operated  as  at  present 
located.  As  a  result,  the  office  prepared  an  opinion  dated  November  16,  1921,  a 
copy  of  which  I  will  at  this  place  insert  in  the  record. 

The  Chairman.  Is  it  very  long? 

Col.  Hull.  Four  pages,  sir. 

The  Chairman.  Would  you  kindly  read  it  so  that  the  committee  may  have 
it  before  them. 

Col.  Hull.  I  will  be  glad  to. 

»  [First  indorsement] 

War  Depart^ient, 
Judge  Advocate  General's  Office. 

November  16, 1921. 

T  lie  An.iUTANT  General  : 

1.  In   the   attached   communication,   dated   October  31,- 1921,   the  Chief  of 

Ordnance  states : 

"  The  Secretary  of  War  desires  information  as  to  what  steps  are  necessary  to 
clear  title  so  that  the  Warrior-Sheffield  transmission  line  and  the  Warrior 
power  plant  and  substation  and  other  incidental  possessions  of  the  Government 
erected  bv  the  Alabama  Power  Co.  for  the  account  of  the  United  States,  and 
all  as  described  in  contract  T-69,  copy  of  which  is  attached,  can  be  disposed  of 
by  the  United  States  to  other  than  the  Alabama  Power  Co.  and  in  such  a  way 
that  they  can  all  be  operated  as  at  present  located. 

"  The  Secretary  of  War  is  desirous  that  this  information  be  supplied  at  the 
earliest  possible  date." 

2.  Contract  T-69,  dated  December  1,  1917,  provided  for  the  construction, 
maintenance,  and  operation  of  the  following: 

Warrior  extension,  a  new  power  station,  adjacent  and  in  effect  an  addition 
to  the  power  plant  of  the  Alabama  Power  Co.  on  Warrior  Creek,  to  be  erected 
upon  land  belonging  to  the  Alabama  Power  Co. 

Warrior  substation,  a  new  substation  and  substation  apparatus,  to  l)e  erected 
near  the  Warrior  extension,  on  land  belonging  to  the  Alabama  Power  Co.,  and 
to  constitute  an  extension  to  the  switching  house  of  that  company. 

Muscle  Shoals  substation,  a  structural-steel  bus  and  switching  structure  with 
concrete  foundation,  at  Muscle  Shoals,  on  land  belonging  to  the  United  States. 

The  transmission  lines  for  transmission  of  electrical  current,  extending  from 
said  Warrior  substation  to  the  Muscle  Shoals  substation,  said  lines  to  run  over 
the  present  right  of  way  of  approximately  100  feet  in  width  and  20  miles  in 
length;  thence  over  a  right  of  way  to  be  acquired  by  the  Alabama  Power  Co. 
at  its  own  expense,  from  its  present  right  of  way  to  land  of  the  United  States, 
and  thence  over  the  land  of  the  United  States  to  the  Muscle  Shoals  substation. 

The  quarry  branch  line,  for  the  transmission  of  electrical  current,  extendinj; 
from  a  point  on  the  transmission  line,  near  Russellville,  to  a  limestone  quarry, 
the  property  of  the  United  States,  a  distance  of  approximately  3,000  feet,  the 
right  of  way  "  to  be  provided  by  or  at  the  expense  of  the  United  States." 

Drifton  extension  railroad,  extending  about  8,000  feet  from  the  terminus  or 
the  disused  Drifton  branch  of  the  Southern  Railway  to  the  Warrior  extension, 
the  right  of  way  from  the  terminus  of  said  disused  track  to  the  property  ol 
the  Alabama  Power  Co.,  and  all  of  the  rails  and  rail-joint  material  to  be  fur- 
nished by  the  United  States.  .  •  ,   .  ^  .    ^,,    •  «„4rv 

This  office  understands  that  all  of  these  properties  are  included  in  the  inquiry 
which  is  the  subject  of  the  present  reference. 


3.  It  is  specifically  provided  in  the  contract  that  title  to  these  facilities,  with 
the  exception  of  the  Drifton  extension  railroad,  shall  be  vested  in  the  Uiiireu 
States,  although  the  land  upon  which  are  located  the  Warrior  extension,  the 
Warrior  substation  and  the  major  portion  of  the  transmission  lines  belong  to 
the  Alabama  Power  Co. 

4.  This  contract,  furthermore,  provides  for  the  maintenance  and  operation 
of  these  facilities  and  for  electrical  current  to  be  supplied  the  Government 
thereunder  for  a  period  of  10  years,  terminable,  however,  under  the  condition.^ 
therein  stated ;  and  that  the  right  to  receive  such  current  may  be  transferred 
or  assigned  to  the  purchaser  or  lessee  of  the  Muscle  Shoals  nitrate  plant. 

5.  Under  this  contract,  the  Alabama  Power  Co.  is  obligated  to  purchase  the 
Warrior  extension  and  the  Warrior  substation,  if  at  any  time  subsequent  to 
three  years  after  the  termination  of  the  war  the  United  States  shall  so  demand 
the  price  to  be  paid  therefor  to  be  fixed  by  arbitration.  The  power  company 
may  also  at  any  time,  upon  its  own  election,  purchase  these  two  facilities,  anil 
if  it  elects  so  to  do,  the  United  States  is  obligated  to  sell  to  it.  A  fund  which 
was  to  accumulate  from  sums  withheld  by  the  Government  from  its  payments 
for  electrical  current  was  to  apply  on  the  purchase  price,  if  sold  under  the  above 
provision.s. 

6.  It  is  further  provided  that  if  the  Alabama  Power  Co.  shall  not  purchase 
these  facilities  upon  the  demand  of  the  Un'ted  States,  the  property  may  be 
sold  to  another,  subject  to  the  conditions  that  the  properties  shall  not  be  oper- 
ated and  that  they  shall  be  removed  within  six  months  after  such  sale.  If  not 
sold  they  must  be  removetl  by  the  Government  at  the  expiration  of  the  10-year 
period  of  operation,  or  sooner  under  certain  circumstances  therein  set  out. 

7.  The  Government  also  has  the  right  under  this  contract,  upon  receipt  of 
notice  by  the  Alabama  Power  Co.,  to  remove  its  transmission  lines  and  ap- 
purtenances located  upon  land  or  rights  of  way  belonging  to  the  power  com- 
pany, to  require  the  power  company  to  purchase  the  same,  at  a  value  to  be 
fixed  by  arbitration.  If  not  sold  the  Government  is  obligated  to  remove  such 
lines  and  appurtenances  at  the  expiration  of  the  10-year  period  during  which 
it  is  provided  that  current  shall  be  supplied. 

8.  The  contract  is  not  specific  as  to  the  title  to  the  Drifton  extension  rail- 
road. As  to  that  portion  of  it,  however,  which  is  on  the  right  of  way  pro- 
cured by  the  Government,  this  office  considers  that  the  title  thereto  may  safely 
be  considered  as  in  the  United  States,  in  view  of  the  fact  that  the  contract  is 
silent  as  to  the  ownership  and  the  Government  furnished  not  only  the  rails 
but  also  paid  $40,000  toward  the  expense  of  its  construction.  The  Govern- 
ments  ownership  of  that  portion  of  such  railroad,  however,  which  is  on  land 
belonging  to  the  power  company  is  possibly  limited  to  the  ownership  of  the 
rails  which  were  furnished  by  it.  The  contract  makes  no  specific  provision  for 
disposition  of  this  railroad. 

9.  This  office  is  informed  by  the  Chief  of  Ordnance  that  no  energy  has  been 
furnished  the  Government  under  the  contract  T-69,  but  that  such  energy  has 
been  received  under  the  terms  of  an  informal  agreement  made  in  October,  1918. 
Therefore  the  situation  is  not  complicated  by  any  rights  of  the  companv  under 
paragraph  2,  article  17,  of  the  contract.     (See  J.  A.  G.  164,  Mar.  29,  1921.) 

10.  It  is  the  understanding  of  this  office  that  the  plant  constructed  at  Muscle 
Shoals  was  constructed  under  the  authority  of  section  124  of  the  national 
defense  act  of  June  3,  1916.  (39  Stat,  166,  215.)  That  act  authorized  and 
empowered  the  President  of  the  United  States  to  construct,  maintain,  and 
operate  plants  for  the  generation  of  electrical  or  other  power  and  for  the  pro- 
duction of  nitrates  or  other  products  needed  for  munitions  of  war  and  useful 
in  the  manufacture  of  fertilizer  and  other  useful  products.  It  also  empowered 
the  President  to  acquire  by  lease,  purchase,  or  condemnation  lands,  rights  of 
way,  and  materials,  minerals,  and  processes  patented  or  otherwise  necessary 
for  the  construction  and  operation  of  such  plants  and  for  the  manufacture  of 
such  products.    It  also  provided : 

"  The  plant  or  plants  provided  for  under  this  act  shall  be  constructed  and 
operated  solely  by  the  Government  and  not  in  conjunction  with  any  other  indus- 
try or  enterprise  carried  on  by  private  capital." 

Notwithstanding  the  foregoing  provision,  the  contract  of  December  1,  1917, 
was  entered  into  with  the  Alabama  Power  Co.  and  in  consequence  the  I'nited 
States  now  finds  itself  the  owner  of  a  plant  and  transmission  lines  on  land 
belonging  to  the  Alabama  Power  Co.  which,  by  the  terms  of  the  contract,  the 
Alabama  Power  Co.  may  under  certain  conditions  acquire,  and  the  United 
States  in  accordance  with  the  contract  may  requife  the  company  to  purchase 


134 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


135 


the  plant  and  transmission  lines  under  certain  circumstances  not  yet  developed. 
The  question  presented  to  this  office  is  how  best  to  free  the  Government's  plant 
and  transmission  lines  from  any  interest  which  the  Alabama  Power  Co.  has 
therein,  so  that,  if  authorized,  it  may,  if  so  advised,  dispose  of  the  property  to 
some  other  purchaser  or  lessee  free  and  clear  of  the  rights  of  the  Alabama 
Power  Co.  As  to  the  lands  constituting  the  right  of  way  and  site  upon  which 
the  transmission  lines  and  power  plants  are  located,  the  United  States  has 
authority,  under  section  124  of  the  national  defense  act  above  cited,  and  other 
condemnation  statutes,  where  funds  are  available,  to  proceed  by  condemnation 
if  necessary  to  acquire  the  interest  of  the  Alabama  Power  Co.  therein ;  and 
that  feature  of  the  situation  presents  no  difficulty.  There  remains  but  the 
right  of  the  power  company  to  purchase  the  plants  and  transmission  lines  be- 
longing to  the  United  States  which  by  the  terms  of  the  contract  are  made  per- 
sonalty and  its  right,  in  the  event  that  the  United  States  should  take  the  plants 
and  lines  under  the  terms  of  the  contract  and  dispose  of  them  to  some  other 
purchaser,  to  compel  the  United  States  or  such  purchaser  to  remove  the  same 
from  the  real  estate.  This  right  to  compel  removal  will,  of  course,  be  nugatoiy 
in  the  event  of  the  acquisition  by  the  United  States  of  the  real  estate  upon 
which  the  transmission  lines  and  plants  how  stand.  Tliis  leaves  to  be  considered 
only  the  contract  right,  if  any,  of  the  Alabama  Power  Co.  to  purchase  the 
property  of  the  Government  which,  by  the  terms  of  the  contract,  is  to  be  con- 
sidered  personalty. 

This  contract  was  entered  into  December  1,  1917 ;  then  and  now  there  is  no 
authority  for  the  sale  of  this  plant  or  any  part  thereof.  Therefore,  the  option 
to  purchase  purporting  to  be  given  by  the  contract  is  unauthorized  and  void. 
Consequently  the  only  action  necessary  is  to  condemn  the  land  constituting  the 
right  of  way  and  plant  sites,  authority  for  which  is  granted  by  the  statutes 
above  cited. 

J.  A.  Hull. 
Acting  Judge  Advocate  General. 

Col.  Hull.  I  might  state  that  the  conclusion  that  this  option  is  null  and  void 
is  based  specifically  on  article  4,  section  3,  clause  2,  of  the  Constitution,  which 
reads  in  part  as  follows: 

"The  Congress  shall  have  power  to  dispose  of  and  make  all  needful  rules 
and  regulations  respecting  the  territory  or  other  propertv  belonging  to  the 
United  States." 

The  Chairman.  Colonel,  section  124  of  the  national  defense  act  of  June  3, 
1916,  contains  this  provision: 

"The  plant  or  plants  provided  for  under  this  act  s-hall  be  constructed  and 
operated  solely  by  the  Government,  and  not  in  conjunction  with  any  other  in- 
dustry or  enterprise  carried  on  by  private  capital." 

Are  you  familiar  with  that  section? 

Col.  Hl^x.  Yes,  sir;  I  cited  that  in  my  memorandum. 

The  Chairman.  That  was  passed  on  the  3d  of  June,  191G,  and  became  the 
law  of  the  land  on  that  date. 

Col.  Hull.  Yes,  sir. 

The  Chairman.  This  contract  with  the  Alabama  Power  Co.  was  negotiated 
in  December,  1917,  I  think  you  said? 

Col.  Hull.  Yes,  sir;  that  is  the  date  of  the  contract. 

The  Chairman.  Fully  a  year  and  a  half  after  the  passage  of  this  law  by  Con- 
gress forbidding  entering  into  contracts  with  any  private  concern  on  the  part 
of  the  United  States. 

Col.  Hull.  Yes,  sir. 

The  Chairman.  So  that  in  your  opinion  the  officers  of  the  Federal  Govern- 
ment who  entered  into  that  contract  with  this  private  corporation  exceeded 
their  authority,  and  the  whole  thing,  in  your  opinion,  is  therefore  void. 

Col.  Hull.  Yes,  sir.    The  option  is  nonenforceable  by  the  Alabama  Power  Co. 

The  Chairman.  Now,  will  you  kindly  state  anything  else  with  reference  to 
any  of  these  contracts.    Was  there  a  contract  with  the  Air  Nitrates  Corporation? 

Col.  Hull.  Yes,  sir;  there  is  a  contract  between  the  Air  Nitrates  Corpora- 
tion and  the  United  States  of  America  and  the  American  Cyanamid  Co.  ar.d 
the  United  States  of  America  negotiated  by  the  Ordnance  Depariment,  dated 
June  8,  1918,  which  is  in  relation  to  nitrate  plant  No.  2. 

The  Chairman.  That  was  practically  two  years  after  the  passage  of  this 
law. 

Col.  Hull.  Yes,  sir.  The  opinion  of  the  office  was  not  ^i^cifically  asked  in  re- 
gard to  this  contract,  but  it  also  has  an  option  of  purchase,  I  believe.  Article  lO 
of  this  contract  reads  as  follows: 


If.^^l^i  ?^^°*^"  ^^  "P^"^  cessation  of  this  war,  or  for  other  reasons  the  United 

receipt  of  written  notice  stating  the  determination  of  the  United   States  f-^ 
dispose  of  the  same  and  the  material  terms  upon  which  such  disposifion  4on 
be  made)  to  purchase  the  same  upon  as  favorable  terms  ^s  the  Unii^^^^^ 
ir^^ir  parT;-"'  '^^^^'^^'  ""'''''  *^^  ""^''^^  ltS"sh\u"rell\"r  samf  to 

the^lVbTm7S  rSef  ro%K!itrc?  ^^^  ^^^^  '^  ^^^^  ^  ^^^^^  ^« 
thJplir^fetrtn'er^es^^^^^^^  ^^^  ^^^^^°^^  -"^-^^  -^<^«^  who  were 

^iS'rica^'''4p^corr?Pf*^^  Alabama  Power  Co.  and  the  United  States  of 
sented  bv  wminm  wnr  ^^  ^^^^^ted  by  the  Ordnance  Department,  repre- 
senrea  oy  William  Williams,  an  emergencv  officer  '       i   ^ 

The  Chairman.  Was  that  Gen.  Williams' 

Col.  JJjn^.  No,  sir ;  that  is  Gen.  C.  C.  Williams. 

±ne  chairman.  Col.  Williams  was  an  emergencv  officer? 

Col.  Hull.  Lieut.  Col.  William  Williams ;  yes 

Po?er  g^r''*'^'  ^^"^^  "^'"^"^"^^  *^^  concract'on  the  part  of  the  Alabam. 
its^presm'Si^  ^*  '"''"  "^"'"^''^  ^^  ^""^  "^'^^"^'^  ^^^^^^^  ^^^  ^y  ^^^^^  ^^itchell, 
ref^erlnS'to'^"''''''  ^'''''  '''''^"*  "'^  ^^^^'  contracts  which  you  have  just  made 
Col  Hull.  The  Air  Nitrates  Corporation  contract  was  executed  bv  nartin^ 
named  at  the  end.  The  copy  I  have  does  not  give  the  Ime  of  its  presfdent 
but  It  was  prepared  to  be  executed  by  the  president  and  the  sec,-eLn  of  th - 
American  Cyanamid  Co.  and  by  a  colonel  of  the  Ordnance  DepartS  of  t  e 
.\ational  Army  At  the  head  it  is  the  Air  Nitrates  Corporation  of  te  first  p^^^^^ 
and   Samuel  McRoberts,  colonel.   Ordnance  Department    National   Armv    Ihl 

StaSrlV"£y?''^^^^  '''''''  ^'^  '^'^^^  ^^  "^^  ^^^^^  Of  Trdn'^^ncrof  ^u^! 

b.v't?he';«i^"-p^?t?^^  '"'"  "'^'"^^  '^  "^*  *'^  ^^"^^^^^  ^^'  ^"^>'  --<^"ted 

wiSLJ^-Y'^^"  ^^^^  ^opy  fails   to   show  whether   it  was   formallv  executed   or 
TMiether  it  was  proxy  signed.     I  have  only  a  borrowed  copy  here 

..TiJ^^S.?^'^^'^^-  ^^"^?  ^^"  ^"^^  t^^at  <>"t  and  state  that  in  the  hearings  la  er 
so  that  the  record  may  be  as  nearly  complete  as  we  can  make  j^,    ^^^'^"-^  ^'^'^^ 
Col.  Hull.  I  will  be  glad  to  do  so. 

nJ^lf  Chairman.  I  might  suggest  that  you  put  in  the  record  for  the  benefit  of 
the^  hearings  the  contract  in  full.  ^f^innu  oi 

Col.  Hull.  I  will  pui  in  the  record  both  contracts. 
They  are  as  follows: 

[Order  xNo.   War-OrdP  9771-1029  E  T  1006— Cont.   T— 66.     Ordnance  Department 

U.  S.  Army.     Dated  and  executed  June  8,  1918.]  ^epaitment, 

AiK  Nitrates  Corporation  and  United  States  of  America-American  Cyxna- 
olL.lf.^^''^^  ^""^  ^""V^  ^^^^^^  ^^  America-Contract  for  Erection  and 

Oo^nnL^t'?''^''''''^'  "'^^^  }^'^  ^^^  ^^y  ^^  J"^^'  1918'  t>y  and  between  Air  Nitrates 
toiporation,  a  corporation  organized  under  the  laws  of  the  State  of  New  York 
(hereinafter  called  the  "  agent »),  party  of  the  first  part,  and  the  United  States 
tmv'ZT;-  by  Samuel  McRoberts,  colonel.  Ordnance  Department,  NationS 
.ti  t^'oritv  o?  thfph-r."^?  A^'i     ^^^t^^^ting  officer  "),  acting  by  and  'under  the 

tion  nf  fL  Q  .^  '^^Z/.^^'''^"^''^^'  ^""'^^^  S^^t^«  '^^"^y'  and  under  the  direc- 
tion of  the  Secretary  of  War,  party  of  the-  second  part, 

Witnesseth : 

Whereas  a  state  of  war  exists  between  the  United  States  of  Americn  nnri  iha, 
mZT  «"<i.;^"«tro-Hungarian  Governments,  constituting  a  natfonaremer4nc^ 
^^^^y^^'^^'^  spates  requires  the  performance  withiS  the  shortest  possS 
T"iie  of  the  work  hereinafter  described;  and  snoitest  possible 


136 


MUSCLE   SHOALS   PROPOSITIONS. 


MUSCLE   SHOALS   PROPOSITIONS. 


137 


^^H' 
^^' 


Whereas  the  American  Cyanamid  Company,  a  corporation  of  the  State  of 
Maine  is  the  producer  of  certain  chemicals  by  the  so-called  "  cyanamid  proc- 
esses "'  necessary  for  the  production  of  ammonium  nitrate,  and  is  familiar  with 
and  controls  exclusive  patents  and  processes  for  the  production  of  such  chemi- 
cals in  this  country,  and  proposes  to  assist  the  United  States  in  performing  this 

contract  ^^^^J^g.^J^^j'^^  United  States  and  the  said  Air  Nitrates  Corporation  as 
agents'of  the  United  States  to  use  its  patents  and  processes.  ^  ^.         „   .^ 

9  By  placing  at  the  disposal  of  the  said  Air  Nitrates  Corporation  all  its 
experiences,  records,  and  plans  appertaining  to  the  production  of  the  said  chemi- 

3 '  Bv  placing  at  the  disposal  of  the  said  Air  Nitrates  Corporation  certain 
members  of  its  executive  and  technical  force  for  the  construction  and  operation 
of  the  plants  hereinafter  mentioned.  .     ^.,      .      ^  ^.       „ii   -^^ 

4  Bv  placing  at  the  disposal  of  the  said  Air  Nitrates  Corporation  all  its 
plants  for  the  purpose  of  training  superintendents,  foremen,  and  chief  opera- 

*' And  the  United  States  proposes  to  compensate  the  American  Cyanamid  Com- 
pany for  the  foregoing  as  set  forth  in  a  contract  marked  Exhibit  1,  beaiiULr 
even  date  herewith  and  annexed  heretcf ;  and  ^         ^  4.    + 

Wherels  the  said  company  is  unwilling  to  subject  its  property  and  assets  to 
liabilitv  in  connection  with  the  planning,  construction,  and  operation  of  the 
pr^^^^^^^  !»««  accordingly  organized  the  Air  Nitrates  Corporation 

Uhe  agenUnder  this  agreement),  which  shall  act  as  the  agent  of  and  which 
shall  be  solely  responsible  to  the  United  States  and  others  in  the  plannnm 
construction   and  oi^eration  of  the  proposed  plants,  and  according  to  the  terms 

^^Whe'rea^'s^he  United  States  entered  into  a  contract  with  the  said  Air  Nitrates 
CnrnSon  under  date  of  November  16,  1917,  for  the  construction  and  opera- 
UoHf  agenrfor  the^^^^  States,  at  Muscle  Shoals,  Alabama,  of  a  plant 
for  ihe  manufacture  of  ammonium  nitrate,  of  an  aPProxhnate  capaci^^,  of  liom 
short  tons  of  ammonium  nitrate  per  annum,  hereinafter  referreil  to  as  the 
Muscle  Shoals  plant,  and  work  thereon  has  been  commenced ;  and 

Whereas  ^t  has  no^^  became  necessary  that  two  additional  plants,  each  with 
a  camdtv  of  approximatelv  55,000  short  tons  of  ammonium  nitrate  per  annum. 
shaTbe  constTucted  and  operated  at  sites  to  be  selected  as  hereinafter  pro- 

""' Whereas  it  is  desirable  that  a  new  contract  be  entered  into  for  the  construc- 
tion completion,  and  operation  of  all  the  said  plants  of  an  approximate  aggre- 
gate caSv  of  220,000  tons  of  ammonium  nitrate  per  annum  such  new  con- 
fract  to  supL^rbf^^  consent  of  the  parties  hereto  and  in  accordance 
wfth  the  best  interests  of  the  United  States  said  contract  of  November  16,  191- . 
W  ther^^^^^^^  of  the  mutual  agreements  herein  con  amed 

th^said  pam^^^^^  and  by  these  presents  do  agree  with  each  other  a. 

follows : 

ABTICLE  I. 

Fxclmive  services.— The  agent  shall  engage  exclusively  in  the  ^'o^k  of  execut- 
ing thi^  contract,  including  the  designing,  constructing,  and  operating  of  the 
n^ontshPrX  described  It  shall  use  its  best  endeavors  to  construct  the  saul 
San  s  as  qrck^as  pm^^^^^^  and  at  the  least  possible  cost  consistent  with  h 
Sroner  performance  of  this  contract.  This  shall  include  availing  itself  of  the 
cooplrat^^^^^^^^  American  Cyanamid  Company  to  the  full  extent  conte^p^^^^^^^^^ 

irthis  contract  and  the  one  of  even  date  herewith  between  the  United  State, 
and  he  American  Cyanamid  Company,  hereunto  attached  and  marked  Ex 
hibit  1"  The  agent  will  maintain  such  departments  as  shall  be  necessary  cu 
«nnroDriate  for  the  carrying  out  of  this  agreement,  including  engineering. 
XTnSive  purchasing,  construction,  manufacturing,  inspection,  labor  rela- 
?fonr  workmen's  comp^  statistical,  commissary,  police,  fire,  medical 

housing,  accounting,  and  legal  departments. 

ABTICLE  n. 

Muscle  Shoals  site.-The  agent  shall,  at  the  cost  of  the  United  States,  conduce 
fhP  Tipo'otintions  heretofore  begun  for  the  acquisition  by  and  in  the  name  of  tn^^ 
UnitKatTof  th^^^^^^^^^  said  plant  at  Musde  Shoals  is  now  being  con- 

structed. 


Selection  and  purchase  of  sites  for  new  plants.— The  agent  acting  as  a'^ent 
for  and  at  the  cost  of  the  United  States,  shall  forthwith  select  two  sites,  each 
•suitable  for  the  construction  and  operation  thereon  of  plants  of  the  character 
hereinafter  described  for  the  production  of  ammonium  nitrate.  After  such 
sites  shall  have  been  severally  approved  in  writing  by  the  contracting  officer, 
they  shall  be  secured  at  the  sole  cost  of  the  United  States  and  be  conveved  to 
the  United  States  of  America  by  deeds  in  form  and  substance  satisfactbrv  to 
the  contracting  officer,  subject  only  to  such  liens  and  Incumbrances  as  the  con- 
tracting officer  shall  approve  in  writing.  The  deeds  shall  be  properly  executed 
and  acknowledged  in  form  for  recording  in  the  counties  in  which  the  sites  are 
located. 

ABTICLE  III. 

Plans  for  and  construction  of  plants.— The  agent,  acting  as  agent  for  and  at 
the  cost  of  the  United  States,  agrees — 

1.  To  proceed  with  and  complete  the  planning,  laying  out,  constructing,  erect- 
ing installing,  and  equipping  of  the  said  plant  at  Muscle  Shoals  with  an  approxi- 
mate capacity  as  aforesaid,  and  to  furnish  all  necessary  labor,  tools,  machinerv 
and  materials,  and  to  do  all  other  things  necessary  or  appropriate  thereto  All 
plans  and  specifications  in  relation  to  said  plant  heretofore  approved  bv  or  on 
behalf  of  the  Chief  of  Ordnance  or  the  contracting  officer  shall  be  considered 
for  the  purpose  of  this  agreement  as  having  had  the  approval  of  the  Chief  of 
Ordnance  and  the  contracting  officer. 

2.  To  plan,  lay  out,  construct,  erect,  install,  and  equip  at  each  of  said  two 
new  sites  a  complete  plant,  with  an  approximate  capadty  as  aforesaid,  for  the 
production  of  ammonium  nitrate,  furnishing  all  necessary  labor,  tools,  machin- 
ery, and  materials,  and  doing  all  other  things  necessary  and  appropriate  in  the 

Each  of  said  plants  shall  indude  the  necessary  land;  also  necessary  lime  car- 
bide, nitrogen  gas,  lime-nitrogen,  ammonia,  nitric  add,  and  nitrating  plants ;  also 
all  necessary  temporary  buildings,  houses  for  employees,  administrative  build- 
ings, laboratories,  shops,  warehouses,  hospitals,  stores,  commissaries,  structures 
lines  of  communication  and  transmission,  plant  machinery,  railway  and  trolley 
tracks,  dredging,  docks,  boiler  plants,  roundhouses,  roads,  wavs.  waste  disposal 
and  sewerage,  water  and  lighting  systems,  locomotives,  cars,  fixtures,  tools  equip- 
ment, apparatus,  and  appurtenances ;  also  power  houses  adequate  for  the  de- 
velopment and  transmission  of  such  power  for  the  operation  of  said  plants  as 
can  not  be  advantageously  obtained  through  outside  sources  or  agencies-  also 
gravel  pits,  limestone  quarries,  coal  mines,  and  other  things,  to  such  extent  and 
m  such  manner  as  may  be  reasonably  necessary  for  the  prosecution  of  the  work 
contemplated  by  this  contract ;  but  no  coal  mine  shall  be  acquired  without  the 
written  approval  of  the  contracting  officer. 

ARTICLE   IV. 

Operation  of  plants.— The  agent,  acting  as  agent  for  and  at  the  cost  of  the 
r?lt^rr''T/i  Article  XVII  hereof.  The  agent  shall  do  all  things  neces 
ciently  completed  and  ready  for  operation,  forthwith  to  proceed  to  operate  the 
same  and  to  continue  the  operation  thereof  up  to  June  1,  1921,  and  thereafter 
for  so  long  as  the  United  States  shall  remain  in  the  present  war,  subiect  to 
the  provisions  of  Artide  XVII  hereof.  The  agent  shall  do  all  things  neces- 
sary or  appropriate  in  and  about  the  operation  of  said  plants,  including  the 
mS-r?^^"  necessary  labor  and  power  and  the  purchase  of  all  necessary 

Operation  under  this  article  shall  indude  placing  ammonium  nitrate  pro- 
duced hereunder,  as  from  time  to  time  directed,  on  cars  or  lighters  or  in  ware- 
nouses  at  the  site  of  the  plant  where  manufactured. 

Revenue  from  housing,  etc.— Any  revenue  from  the  operation  of  any  housing 
boarding  houses,  commissary,  stores,  infirmary,  hospital,  or  other  fadlities  or 
Sta?  ^^  ^*®^'  refunds,  etc.,  shall  be  accounted  for  by  the  agent  to  the  United 

ABTICLE  V. 

Materials.— The  United  States  may  at  any  time  furnish  the  agent  any  ma- 
terials necessary  for  use  ih  the  performance  of  this  contract. 


138 


MUSCLE   SHOALS  PROPOSITIONS. 

ARTICLE  VI. 


MUSCLE   SHOALS  PROPOSITIONS. 


139 


ARTKXE    X. 


Agent  to  follow  directions.— The  agent  shall  from  time  to  time  consult  with 
the  contracting  officer  upon  the  general  character  of  the  work  contemplated. 
Upon  written  request,  made  from  time  to  time  by  the  contractmg  officer,  the 
agent  shall  inform  the  contracting  officer  at  the  earliest  practicable  time  as 
to  any  plan,  contract,  purchase,  and  method  contemplated  in  the  construction 
and  operation  of  the  plants  and  properties,  and  the  United  States  may  reject, 
or  from  time  to  time  require  the  agent  to  modify  any  such  plan,  contract, 
purchase,  or  method,  or  to  substitute  therefor  and  carry  out  such  other  plans, 
contracts,  purchases,  or  methods  as  in  the  judgment  of  the  contracting  officer 
may  be  in  the  interest  of  the  United  States,  all  at  the  expense  of  the  United 
States.  The  agent  in  the  planning,  constructing,  equipping,  and  operation  of 
the  plants  shall  abide  bv  such  directions  as  the  contracting  officer  shall  from 
time  to  time  give  the  agent.  All  such  requests  and  directions  shall  be  in  writmg 
or  by  telegraph,  addressed  to  the  agent  at  its  address  hereinafter  stated. 

ABTICLE  VII. 

Specifications.— The  processes  and  work  involved  in  the  manufacture  of  the 
final  product  of  ammonium  nitrate  to  be  produced  hereunder  shall  be  con- 
ducted so  that  said  final  product  may  be  in  accordance  with  such  specifications 
as  the  Ordnance  Department  may  from  time  to  time  adopt  for  ammonium 
nitrate  to  be  manufactured  under  this  contract. 

ARTICLE   VIII. 

Processes —The  said  plants  shall  be  constructed  for  operation  under  tlie 
evanamid  process,  unless  the  United  States  shall  direct  that  some  otlier 
process  be  used,  in  which  case  all  changes  in  construction  thereby  necessitated 
shall  be  made  bv  the  agent  at  the  cosfe  of  the  United  States. 

If  at  any  time  hereafter  in  the  judgment  of  the  Chief  of  Ordnance  the  oxi- 
dation of  ammonia  and  its  conversion  to  dilute  nitric  acid  or  the  manufacture 
of  ammonium  nitrate  from  dilute  nitric  acid  by  interaction  with  ammonia 
inav  be  done  more  advantageously  by  improvetl  methods  or  processes  of  per- 
sons or  companies  other  than  the  agent,  the  Chief  of  Ordnance  shall  be  free 
to  call  upon  the  agent  to  install  and  use  such  methods  or  processes  in  its  opera- 
tion of  the  plants,  at  the  cost  and  expense  of  the  United  States.  The  Chief 
of  Ordnance  shall  be  free  to  consult  with  parties  other  than  the  agent  upon 
all  matters  relating  to  the  operation  of  the  plants,  to  the  end  that  the  best 
results  of  operation  may  be  obtained. 

The  agent  shall  use  its  best  efforts  to  make  contracts  with  its  emplojees 
pursuant  to  which  anv  inventions  relating  or  applicable  to  the  production  of 
carbide,  evanamid,  ammonia,  and  nitric  acid  or  ammonium  nitrate  made  b.v 
such  emplovees  while  in  the  service  of  the  agent,  shall  be  protected  by  United 
States  patents,  which  patents  shall  become  the  property  of  the  Air  Nitrates 
Corporation,  subject,  however,  to  the  condition  that  it  shall  grant  to  the 
United  States  at  the  time  of  issue  of  such  patent  or  patents  a  nonexclusive 
license  without  rovaltv  under  each  and  all  of  them,  such  license  to  be  restricted 
to  the  United  States  and  to  the  purchasers  of  any  or  all  of  said  plants  who 
mav  receive  a  license  under  the  provisions  of  Article  X  of  the  agreement  or 
even  date  herewith  between  the  American  Cyananiid  Company  and  the  Lnit(^ 
States  The  term  "  employees  "  used  in  this  paragraph  shall  not  be  deemeil  to 
include  the  persons  described  in  paragraph  numbered  3  in  Article  X  hereof. 

ARTICLE   IX. 

Suhcontracts.—The  agent  shall  submit  to  the  contracting  officer  for  his 
written  approval,  in  advance  of  its  execution,  any  proposed  subcontract  a^ 
to  which  the  contracting  officer  may  direct  in  writing  that  his  approval  ne 

first  obtained.  ,  .  ^      ^        ,  ^^^„» 

All  subcontracts  shall  contain  a  reference  to  this  contract  and  an  express 
provision  that  thev  are  subject  to  all  provisions  hereof  and  that  they  may  o^ 
assigned  by  the  agent  to  the  United  States.  Upon  request  in  writing  a  copy 
of  any  subcontract  shall  be  delivered  to  the  contracting  officer  promptly  upon 
the  execution  thereof. 


vosts  and  expenses— Audit  and  payment  thereof.— The  United  States  sliall 
bear  all  costs  and  expanses  of  every  character  and  description  incurred  or 
made  in  connection  with  the  planning,  construction,  equipment,  and  operaticm 
of  each  of  the  said  plants  or  any  part  thereof,  and  in  the  conduct  of  any  other 
business  or  activities  of  the  agent  hereunder;  and  the  United  States  shall 
supply  all  money  necessary  therefor  in  such  amounts  and  in  such  manner  as 
to  permit  all  of  the  agent's  activities  with  respect  to  the  planning,  construc- 
tion, equipment,  and  operation  of  the  plants  to  proceed  without  delays  or 
interruptions  and  without  the  necessity  of  the  agent  providing  anv  capital  or 
borrowing  any  moneys.  Vouchers  for  all  accounts  pavable  shall  from  time  to 
time  be  furnished  to  the  Chief  of  Ordnance,  and  upon  presentation  of  satis- 
factory evidence  he  shall  either  furnish  the  agent  funds  to  the  amounts 
thereof,  which  funds  shall  be  immediately  paid  out  bv  the  agent  under  the 
supervision  of  a  representative  of  the  Chief  of  Ordnance,  or  the  vouchers  may 
be  paid  direct  by  the  Chief  of  Ordnance  to  the  persons  entitled  to  payment 
thereunder.  Such  vouchers  shall  be  acted  upon  bv  the  Chief  of  Ordnance 
promptly. 

All  accounts  payable  by  the  United  States  hereunder,  ^including  those  in  rela- 
tion to  costs  and  expenses  of  construction  or  operation,  shall  be  subject  to 
audit  by  the  United  States,  which  shall  maintain  at  the  plants  and  elsewhere 
if  necessary,  a  sufficient  number  of  auditors  promptly  to  audit  the  same 

To  expedite  payments  to  the  agent  the  United  States  shall  detail  representa- 
tives at  each  of  the  said  plants  and  at  the  agent's  home  office,  with  power  and 
suffic  ent  funds  to  discharge  the  pay  rolls  and  to  make  any  other  payments  as 
they  shall  become  due  hereunder.  Payments  by  the  United  States  shall  be  sub- 
ject to  correction  for  errors,  if  any. 

The  agent  shall  make  no  charge  to  the  United  States  for  the  following  things : 

1.  For  procuring  from  the  American  Cyanamid  Company  a  license  to  it  as 
agent  of  the  Unted  States  to  use  the  said  company's  patents  and  processes. 

2.  For  procuring  from  the  American  Cyanamid  Company  the  disposal,  for 
purposes  of  the  Air  Nitrates  Corporation,  of  the  said  company's  experiences, 
records,  and  plans  appertaining  to  the  production  of  the  said  chemicals  herein- 
above referred  to. 

3.  For  procuring  from  American  Cyanamid  Company  the  disposal,  for  the 
purposes  of  the  Air  Nitrates  Corporation,  of  the  following  members  of  the  said 
company's  executive  and  technical  force,  namely,  the  president,  vice  president 
and  general  manager,  sales  and  traffic  manager,  engineering  assistant  to  gen- 
eral manager,  superintendent  of  manufacture,  chief  technologist,  chief  engi- 
neer, assistant  engineer,  and  in  addition  thereto,  in  connection  with  the  opera- 
tion of  the  said  plants,  two  principal  works  managers,  as  such  offices  may  from 
time  to  time  be  filled. 

4.  For  procuring  from  the  American  Cyanamid  Company  the  disposal,  for  the 
purposes  of  the  Air  Nitrates  Corporation,  of  all  of  the  sa'd  companv's  plants 
for  the  purpose  of  training  superintendents,  foremen,  and  chief  operatives. 

ARTICLE  XI. 

Agent's  compensation. — As  full  compensation  for  the  services  of  the  agent 
the  United  States  shall  pay  to  the  agent  the  following  fees : 

1.  Construction  fee. — Three  and  one-third  (3J)  per  cent  of  the  cost  in  con- 
nect'on  with  the  construction  and  equipment  of  the  said  plants  until  such  cost 
(exclusive  of  the  agent's  compensation)  shall  equal  thirty  million  (30,000,000) 
dollars,  and  thereafter  one  and  two-thirds  (1§)  per  cent  of  such  cost  in  excess 
of  said  thirty  million  (30,000,000)  dollars.  Said  fee  shall  be  payable  monthly 
upon  that  portion  of  the  cost  for  which  payment  has  been  made  during  the 
month  or  months  preceding  and  as  to  whch  the  fee  is  unpaid.  There  shall  be 
credited  on  account  of  said  construction  fee  any  payments  for  construction  com- 
pensation heretofore  made  to  the  agent  under  the  provisions  of  said  contract 
of  November  16,  1917.  The  total  of  the  construction  fee  shall  not  exceed  one 
niillion  five  hundred  thousand  (1,500,000)  dollars. 

2.  Operation  fee. — One-quarter  of  one  cent  ($0.0025)  per  pound  of  ammonium 
nitrate  produced  in  compliance  with  Article  VII  hereof  and  accepted  or  utilized 
'>y  the  United  States,  up  to  and  including  110,000  tons  produced  in  any  fiscal 
year  of  the  United  States,  and  one-eighth  of  one  cent  ($0.00125)  per  pound  of 


140 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


141 


i 


ammonium  nitrate  so  produced  and  accepted  or  utilized  in  any  said  fiscal  year 
in  excess  of  such  110,000  tons.    Payment  shall  be  made  monthly. 

The  Chief  of  Ordnance  may  direct  the  agent  to  produce  at  any  one  or  more 
of  said  plants  products  other  than  ammonium  nitrate,  and  to  the  extent  that 
such  products  are  not  utilized  in  the  making  of  ammonium  nitrate  in  any  of 
said  plants  operated  by  the  agent,  the  agent  shall  receive  as  compensation  for 
making  such  products  an  operation  fee  computed  upon  such  a  basis  as  will  give 
the  agent  for  making  such  products  the  same  amount  as  the  agent,  by  way  of 
operation  fee,  would  have  received  (1)  where  such  products  are  nitrogenous 
compounds,  for  fixing  an  equivalent  amount  of  nitrogen  in  the  form  of  ammo- 
nium nitrate,  and  (2)  where  such  products  are  other  than  nitrogenous  com- 
pounds, for  making  ammonium  nitrate  equivalent  in  cost  to  that  of  such 
products. 

ARTICLE  xn. 

Basis  of  cost  for  construction  fee.—The  cost  upon  wliich  the  construction 
tee  of  the  agent  is  based  shall  be  the  entire  cost  of  the  construction  of  the 
plants  herein  mentioned,  including,  amongst  other  items,  those  mentioned  in 
Schedule  A  hereto  annexed  and  made  a  part  hereof.  The  enumeration  of  said 
items  shall  not  be  deemed  to  be  inclusive  of  all  items  of  cost  and  shall  not  be 
construed  to  exclude  in  determining  cost  and  the  fee  thereon  other  items  of 
expenditure  entering  into  the  cost  of  planning,  constructing,  and  equipping  the 
plants  not  therein  enumerated. 

ARTICLE  xiir. 

Maintename.—The  agent  shall,  at  the  expense  of  the  United  States,  maintain 
the  plants  in  suitable  condition  for  economical  operation,  and  to  this  end  it 
shall  make  all  proper  repairs.  The  contracting  officer  may  from  time  to  time 
specifv  extraordinary  repairs,  which  shall  be  made  only  with  his  written  ap- 
proval Should  anv'part  of  any  plant  be  destroyed  wholly  or  partly  by  fire 
or  otherwise  the  Chief  of  Ordnance  shall  determine  whether  such  part  shall 
be  restored. 

ARTICLE  XIV. 

Title  to  ©roperf//.— The  title  to  all  proi)erty,  real  or  v>ersonal,  paid  for  or 
partly  paid  for  bv  the  United  States,  shall,  immediately  upon  such  payment, 
or  upon  coming  into  the  possession  of  the  agent,  vest  forthwith  in  the  United 
States. 

ARTICLE   XV. 

Records. The  agent  shall  keep  complete  records  as  to  all  construction  and 

operation  expenses,  all  of  which  records  shall  at  all  times  be  open  to  the  inspec- 
tion of  the  dulv  authorized  representatives  of  the  United  States.        ^ 

Inspection.— The  inspection  officers  of  the  Ordnance  Department  shall  at  air 
times  have  full  access  to  the  plants  for  the  purpose  of  inspecting  in  every 
detail  all  work  done,  materials  used,  and  ammonium  nitrate  produced,  and  be- 
coming familiar  with  all  processes  and  methods  used  in  the  manufacture 
thereof,  and  the  agent  shall  afford  them  all  necessary  facilities  and  assistance 
for  performing  their  duties  aforesaid. 

ARTICLE  XVI. 

Loss  and  damage— The  agent  in  oiDerating,  caring  for,  and  storing  property 
<5hall  use  all  reasonable  effort  adequately  to  protect  the  same,  but  this  shair 
not  authorize  or  require  the  agent  to  take  out  or  carry  insurance  for  this  pur- 
IX)se  The  United  States  shall  hold  and  save  harmless  the  agent  from  all  los» 
or  damage  (exclusive  of  future  profits)  by  accident,  fire,  flood,  explosion,  or 
otherwise  arising  or  growing  out  of  the  construction  or  operation  of  the  sai'i 
Dlants  and  all  losses  and  expenses  not  compensated  by  insurance  or  otherwise. 

ARTICLE  XVII. 

Termination  of  agreement  as  to  any  plant.— In  the  event  that  in  the  opinioiv 
df  the  Chief  of  Ordnance  the  public  interests  so  requii-e,  this  contract  may  be 
terminated  as  to  any  or  all  of  tlie  plants  described  herein  by  notice  in  writin:^ 


i.»  the  agent  without  prejudice  to  any  claim  which  either  of  the  parties  hereto 
may  then  have  against  the  other.  In  the  event  of  the  tenniuation  of  this  con- 
tract, as  aforesaid,  the  United  States  shall  pay  to  tlie  agent  all  costs  and  dis- 
charge all  obligations  of  the  agent  rising  in  connection  with  the  construction 
or  operation  of  the  said  plant  or  plants  theretofore  properly  incurred,  but  not 
previously  paid  or  discliarged,  as  to  which  said  notice  is  given.  At  the  option 
of  the  United  States  the  agent  shall  assign  or  transfer  to  the  United  States 
iill  contracts  outstanding  at  the  date  of  termination  as  to  anv  plant  previously 
entered  into  by  the  agent  hereunder  in  respect  of  such  plant.  In  addition 
thereto  the  United  States  shall  make  the  following  payments  under  the  follow- 
ing conditions: 

(1)  In  the  event  that  this  contract  is  terminated  as  aforesaid  as  to  anv  plant 
during  the  construction  thereof,  if  the  agent  is  not  in  deiault  in  any  snbstuntial 
agreement  herein  contained,  the  United  States  shall  pnv  the  agent  such  per- 
(entage  of  the  construction  fee  provided  for  in  Article  XI  hereof  and  not  there- 
tofore paid  as  may  be  found  by  the  Chief  of  Ordnance  as  fairly  and  justly 
amounting  to  the  percentage  of  the  work  tlieu  performed,  including  obliga- 
tions incurred  in  respect  to  said  plant,  and  for  which  payment  has  been  or 
will  be  made. 

(2)  In  the  event  that  this  contract  is  terminated  as  aforesaid  as  to  any 
Ulant  during  or  prior  to  the  operation  thereof  by  the  agent,  then  the  agent 
shall  be  paid  the  sum  of  money,  if  any,  then  due  on  account  of  the  production 
of  ammonium  nitrate  in  said  plant,  and  the  United  States  shall  thereafter 
continue  to  pay  during  the  period  set  forth  in  Article  IV  hereof  to  the  agent 
for  the  ammonium  nitrate  produced  therein  one-quarter  of  one  cent  ($0.0025) 
per  pound  for  all  ammonium  nitrate  produced  in  said  plant  in  any  fiscal  year 
of  the  United  States  until  such  date  in  .said  year  as  the  amount  produced  at 
said  plant,  together  with  that  produced  by  the  other  plants  referred  to  herein 
shall  equal  one  hundred  and  ten  thousand  (110,000)  tons;  and  as  to  the 
amount  produced  in  said  plant  in  said  fiscal  year,  if  any  there  be,  after  the 
said  one  hundred  and  ten  thousand  (110,000)  tons  of  ammonium  nitrate  have 
been  produced  as  aforesaid,  the  United  States  shall  pay  the  agent  one-eighth 
of  one  cent  ($0.00125)  per  pound.  The  aggregate  payments  to  the  agent  under 
this  paragraph  (2)  on  account  of  plants  as  to  which  this  contract  may  have 
been  terminated  as  aforesaid,  shall  not  exceed  five  hundred  and  fifty  thousand 
tlollars  ($550,000)  in  any  said  fiscal  year.  Wherever  the  designation  ammoni- 
um nitrate  is  used  in  this  paragraph  (2),  it  shall  be  deemed  to  include  other 
products,  described  in  paragraph  numbered  2  in  Article  XI  hereof  if  any 
there  be,  produced  in  the  plants  described  herein,  but  the  fees  due  on  said 
other  products  shall  be  calculated  and  determined  according  to  the  provisions 
of  said  paragraph  (2)  of  Article  XI  hereof. 

Provided,  however,  and  it  is  understood  and  agreed,  that  this  contract  shall 
not  be  terminated  as  to  any  plant  prior  to  June  1,  1921.  or  so  long  as  the 
tnited  States  shall  remain  in  the  present  war,  except  for  the  permanent  cessa- 
tion of  all  activities  of  the  United  States  in  connection  with  said  plant  unless 
the  agent  exhibits  such  default  or  negligence  as  respects  such  plant  as  to 
require  that  the  United  States  in  its  best  interests  should  directly  construct 
i«ud  operate  said  plant. 

In  the  event  of  the  termination  of  this  contract  as  to  any  plant  or  plants 
aforesaid,  the  agent  agi-ees  to  cooperate  with  the  United  States  and  to  give 
to  It  its  good  offices  and  such  assistance  as  the  United  States  may  from  time 
to  time  request,  in  making  the  planning,  construction,  equipment,  and  operation 
ot  such  plants  successful  and  economical  in  all  respects. 

AETICLE  XVIII. 

.h?n^f  *  ^J  ^'^*^  States  to  discontinue.— l^othing  in  this  contract  contained 
^  an  be  deemed  to  prevent  the  United  States  from  at  any  time  discontinuing 
"le  construction  or  operation  of  any  or  all  of  the  said  plants,  and  in  the  event 
Z  ^!!^*  discontinuance  the  United  States  shall  be  under  no  liability  to  the 
•M^nt  for  any  payments  as  respects  such  plant  or  plants  beyond  those  in 
m  s  agi-eement  specified.     In  the  event  that  construction  or  operation  is  re- 

fnnl-     ^i  ^°'^'  ^*  ^*^^  P^*"^^  ^^  ^'^^^^  construction  or  operation  has  been  dis- 
continued, the  provisions  of  this  contract  shall  govern  the  rights  and  obliga- 
»ns  ot  the  parties  with  respect  to  any  such  plant  to  the  same  effect  as  though 
"e  construction  or  operation  thereof  had  not  been  discontinued. 


■ 


i 


142 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS   PROPOSITIONS. 


143 


ABTICLE  XIX. 

Sale  of  plants.— It  upon  cessation  of  this  war  or  for  any  other  reason  the 
United  States  determines  to  cease  the  construction,  equipment,  or  operation  of 
any  of  the  said  plants  and  to  dispose  of  the  same,  tlie  agent  shall  be  given  the 
first  opportunity  (for  a  reasonable  period  of  time,  not  to  exceed  six  months 
after  receipt  of  written  notice,  stating  the  determination  of  the  United  States 
to  dispose  of  the  same,  and  the  material  terms  upon  which  such  disposition  will 
be  made)  to  purchase  the  same  upon  as  favorable  terms  as  the  United  States 
is  willing  to  accept  therefor,  before  the  United  States  shall  sell  the  same  to  any 
other  party. 

ABTICLE   XX. 

Bo7id.— The  agent  shall  furnish  to  the  United  States  within  20  days  after  the 
execution  of  this  agreement  a  bond  in  the  sum  of  five  hundred  thousand 
($500,000)  dollars,  conditioned  upon  the  full  and  faithful  performance  by  the 
agent  of  all  terms,  covenants,  and  conditions  of  that  part  of  this  agreement 
providing  for  the  construction  of  said  plants.  The  surety  on  said  bond  and  the 
form  thereof  shall  be  satisfactory  to  the  contracting  officer.  Unless  such  bond  is 
furnished  within  said  time  limit  this  agreement  may,  at  the  option  of  the  con- 
tracting officer,  be  canceled. 

ABTICLE  XXI. 

Contract  nonassignable.— This  contract  shall  not,  uov  shall  any  right  to  receive 
payment  or  anv  other  interest  therein,  be  transferred  or  assigned  by  the  ag*nt 
to  any  person,  firm,  or  corporation  without  the  written  consent  of  the  Secre- 
tary of  War.  .  _  ,     t  ^ 

Disputes.— BxQeiit  as  this  contract  shall  otherwise  provide,  any  doubts  or 
disputes  which  mav  arise  as  to  the  meaning  of  anything  in  this  contract  shall 
be  referred  to  the  Chief  of  Ordnance  for  determination.  If,  however,  the 
agent  shall  feel  aggrieved  at  any  decision  of  the  Chief  of  Ordnance  upon  such 
reference  he  shall  have  the  right  to  submit  the  same  to  the  Secretary  of  War. 

Persons  not  to  benefit.-^o  Member  of  or  Delegate  to  Congress  or  Resident 
Commissioner,  nor  any  person  belonging  to  or  emplyed  in  the  military  service 
of  the  United  States  is  or  shall  be  admitted  to  any  share  or  part  of  this  contract, 
or  to  any  benefit  that  may  arise  therefrom,  but  this  article  shall  not  apply  to 
this  contract  so  far  as  it  may  be  within  the  operation  or  exception  of  section 
116  of  the  act  of  Congress  approved  March  4,  1909  (35  Stats.,  1109). 

Prison  labor.— No  persons  shall  be  employed  in  the  performance  of  this  con- 
tract who  are  undergoing  sentences  of  imprisonment  at  hard  labor  which  have 
been  imposed  by  the  courts  of  the  several  States,  Territories,  or  municipalities 
having  criminal  jurisdiction. 

ABTICLE  XXII. 

Service  of  notices.— Any  notice  addressed  to  the  agent  at  511  Fifth  Avenue, 
New  York  N.  Y.,  or  at  such  other  address  as  the  agent  shall  by  notice  m  writ- 
ing advise  the  contracting  officer,  and  either  there  delivered  or  deposited  in  a 
postpaid  wrapper  in  any  post-office  box  regularly  maintained  by  the  United 
States  shall  be  deemed  to  have  been  served  upon  the  agent.  Nothing  herein 
contained  shall  preclude  service  of  notices  upon  the  agent  by  delivery  thereof  to 
any  of  its  coriX)rate  officers  in  person. 

ABTICLE   XXIII. 

Prior  agreement  superseded.— This  agreement  shall  supersede  the  agreement 
of  November  16,  1917,  between  Air  Nitrates  Corporation  and  the  United  States 
by  which  Air  Nitrates  Corporation  is  authorized  to  act  as  agent  of  the  United 
States  in  the  construction  and  operation  of  the  Muscle  Shoals  plant  herein- 
before referred  to.  .        t    „      *    «*    ^  *  ^i,^  ,,icrht< 

Provided,  however,  that  such  supersession  shall  not  affect  any  of  the  iiguts 
or  obligations  of  the  parties  hereto  which  have  accrued  or  become  fixed  undei 
said  agreement  of  November  16,  1917,  prior  to  the  date  hereof,  except  in Jo 
far  as  it  is  clearlv  intended  by  these  presents  that  such  rights  or  obligations 
shall  be  affected,  whether  through  extinguishment,  the  substitution  of  other;, 
therefor,  or  otherwise. 


Provided,  also,  that  such  supersession  shall  not  in  any  way  affect  any  of 
the  subcontracts,  obligations,  or  commitments  which  the  Air  Nitrates  Corptv 
ration  has  heretofore  in  good  faith  entered  into,  made,  or  incurred  under  said 
agreement  of  the  16th  of  November,  1917. 

ARTICLE   XXIV. 

New  contract  for  deficient/  in  appropriations. — In  the  event  that  the  existing 
appropriations  applicable  to  the  purposes  of  this  agreement  shall  be  inadequate, 
the  United  States  shall  have  the  right  to  execute  and  deliver,  and  the  agent 
shall  thereupon  also  execute  and  deliver,  a  new  contract  having  the  same  terms 
and  conditions  as  are  contained  herein. 

ABTICLE   XXV. 

Definitions. — Wherever  in  this  contract  the  words  hereinafter  enumenUed 
are  used  they  shall  mean  what  is  set  opposite  them : 

Agent. — The  party  of  the  first  part  and  its  duly  authorized  representatives, 
successors,  and  assigns. 

Chief  of  Ordnance.— The  Chief  of  Ordnance,  the  Acting  Chief  of  Ordnance, 
or  any  duly  authorized  representative  of  either. 

Contracting  officer. — The  contracting  officer  executing  this  contract,  his  suc- 
cessor or  successors,  his  or  their  duly  authorized  agent  or  agents,  and  anyone 
from  time  to  time  designated  by  the  Chief  of  Ordnance  to  act  as  contracting 
officer. 

Ton. — Two  thousand  (2,000)  pounds. 

Fiscal  year  of  the  United  States. — The  period  from  .Tuly  1st  in  any  year  to 
June  30th  in  the  following  year,  both  dates  inclusive. 

In  witness  whereof,  the  parties  hereto  have  caused  these  presents  to  be  exe- 
cuted and  delivered,  in  triplicate,  at  Washington,  D.  C,  the  day  and  year  first 
above  written. 

AlB    NlTBATES    COBPOKATIOX. 

By  Fbank  S.  Washburn,  President. 
By  A.  E.  Bonn,  Secretary. 

United  States  of  Am  erica. 
By  Samuel  McRoberts, 
Col.,  Ord.  Dept.,  N.  A.,  Contracting  Officer. 
W'ltnesses : 

A.  G.  Logan. 

C.  Lavega  Cohen. 

William  Williams. 

Schedi'^le  A, 
items  of  cost  referred  to  in  article  xti. 

ia)  All  the  land.  Including  gravel  pits,  quarries,  and  coal  mines,  labor, 
iiijtterial,  machinery,  fixtures,  e^iuipment,  apparatus,  appurtenances,  tf>ols  not 
"^^ued  by  the  workmen,  supplies  and  equipment  necessary  for  either  temporary 
<>••  permanent  use  for  the  construction  and  ojieration  of  the  plants,  including  the 
^Mx'ning  up  and  operation  of  gravel  pits,  qnarries,  and  coal  mines. 

ih)  Rental  for  construction  plants  and  for  the  main  and  branch  offices,  and 
f<»i-  furnishings  and  equipment  for  such  offices. 

((')  Loading  and  unloading  con.^truction  plant,  the  transportation  thereof, 
iucjiiding  transportation  to  and  from  the  place  or  places  where  it  is  to  be  used 
h)  connection  with  said  work,  the  installation  and  dismantling  thereof  and 
^"■•linary  repafrs  and  replacements  dnr'ng  its  nse  in  the  said  work. 

^d)  Transportation  and  expenses'  including  transportation  tax  to  and  from 
^l'»'  work  of  the  necessary  field  and  office  forces,  procuring  labor,  an<l  expediting 
^'x'  I>roduction  and  transixntation  of  material  and  equipment.  All  freight 
<liarges  on  (equipment,  furnishing.s.  material,  and  supplies,  including  transporta- 
^'<^»ii  tax  thereon. 

*^')  Salaries  of  managers,  engineers,  superintendents,  timekeepers,  account- 
ants, clerks,  foremen,  and  other  employees  at  the  main  and  field  offices  of  the 
^S<^nt  in  connection  with  said  work,  salaries  of  the  executive  officers  of  the 
'iffent  except  such  as  shall  be  placed  at  the  disposal  of  the  agent  by  the  Ameri- 
can Cyanamid  Company  and  set  forth  in  said  contract  market  Exhibit  1. 

92900—22 10 


i 


144 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


145 


(/)  Buildings,  houses,  warehouses,  hospitals,  infirmaries,  stores,  cominis- 
^aries,  and  structures,  and  the  equipment  required  therefor  and  furnisliings 
and  equipment  reciuired  for  main  and  field  oftices,  and  the  cost  of  maintaming 
and  operating  the  same,  and  including  such  minor  expenses  as  telegrams,  tele- 
phone service,  expressage,  postage,  etc.  .     ^     ^      . 

(a)  Buildings  of  different  grades,  warehouses,  local  power  plant,  structures, 
plant  machinery,  railway  and  trolley  tracks,  locomotives,  cars,  roundhouses, 
roadways,  gradmg  and  sewerage,  water  and  lighting  systems,  and  fixtures. 

ik)  All  bonds  required  by  this  agreement  and  all  bonds  necessary  or  proper, 
fire  liability,  and  other  insurance,  and  all  losses  and  expenses  not  compen- 
sated by  insurance  which  have  been  actuaUy  sustained  by  the  agent  in  con- 
nection with  said  work.  Such  losses  and  expenses,  when  mcurred  by  the 
agent  in  connection  with  damage  to  third  persons  resulting  from  the  work  or 
due  to  the  agent's  fault  or  neglect,  shall  be  included  in  the  cost  of  the  work, 
but  not  for  the  purpose  of  determining  the  agent's  fee ;  but  such  losses  and 
expenses  when  incurred  by  the  agent  in  connection  with  constructing  and 
replacing  any  of  the  work  destroyed  or  damaged  shall  be  included  in  the  cost 
of  the  work  for  all  purposes  hereunder.  „iA^^^.^^  ^ 

(0  Permit  fees,  royalties,  and  other  similar  items  of  expense  incidental  to 

the  execution  of  this  agreement. 

(i)  Transportation,  including  all  transportation  tax,  traveling  and  hotel 
expenses,  and  telephone,  telegraph,  mail,  and  express  expenses  of  officers, 
engineer^,  and  other  employees  of  the  agent  as  are  actually  incurred  in  con- 
nection with  this  work.  .  ^  vi  K,r  +i,« 

(k)  Amounts  paid  to  contractors  or  subcontractors  and  sums  paid  by  the 
United  States  upon  contracts  made  with  any  person  at  the  request  of  the 
agent,  and  the  cost  of  all  materials  furnished  by  the  United  States. 

(n  All  manner  of  expense  of  the  agent  in  creating  and  constructing  the 
plants  and  their  equipment,  including  administration,  superintendence  engi- 
neering materials,  labor,  freight,  transportation  tax,  power,  heat,  light,  rentals, 
Tnturancr  UabiUties,  losses  nSt  covered  by  insurance,  and  all  overhead,  general 
and  legal  cost  and  expense,  and  including  all  other  items  of  expenditure  made 
hv  the  aeent  not  properly  chargeable  to  manufacturing. 
^  im)  if  admtion  thereto  further  allowances,  if  any  there  be,  of  cost  as  from 
time  to  time  may  be  made  by  the  contracting  officer. 

Exhibit  I. 

LICENSE    AGREEMENT. 

This  agreement  entered  into  this  8th  day  of  June,  1918,  between  American 
Cvanamid  Company,  a  corporation  organized  and  existing  under  and  pursuant  to 
the  laws  of  the  Stat^  of  Maine,  of  the  first  part,  hereinafter  called  the  licensor 
and  the  United  States  of  America,  hereinafter  called  the  licensee,  by  Samuel 
McRoL^r^^^^^^^^^^^^  Dep'artment,  National  Army    hereinafter 

the  contracting  officer,   acting  by   and  under  the  authority  of  the  Uuei  oi 
Ordmmce    Unued  S^^  Army,  'and  under  the  direction  of  the  Secretary  of 

AVar,  of  the  second  part. 

WhereaT^he  licensee  has  entered  into  an  agreement  of  even  date  here«-itb 
with  Mi  Nitrates  Corporation,  a  corporation  organized  and  existing  under  .uiu 
pu4ait  to  the  laws  of  the  State  of  New  York,  by  which  agreement  said  oor- 
nni^tion  has  aereed  as  agent  of  the  licensee  to  construct  and  operate  foi  tbe 
renseepVantsSrtte  manufacture  of  ammonium  nitrate,  all  for  the  reasons  nnd 
«o  is  more  oarticularlv  set  forth  in  said  agreement;  and  , 

Whereas  the  licensor  possesses  certain  United  States  letters  patent  and  js 
the  owner  of  excSive  licenses  under  certain  other  letters  patent  of  the  U.  jrf 
States  all  as  set  forth  in  Schedule  A  hereto  annexed  and  made  a  part  he  eof, 
wvering  certain  processes  and  methods  involved  in  the  "'"""^f '"'^..^rti  Ion 
^troffPn  (calcinni  cyanamid),  its  conversion  to  ammonia  gas  and  the  oxidation 
^J»3^nni^  to  weak  nitric  acid,  and  may  grant  licenses  thereunder ;  and 

Whereas  the  ^i^nsor  to  enable  said  Air  Nitrates  Corporation  to  carry  -ut 
said  aOTent.^1  place  at  the  disposal  of  said  corporation  its  expenene., 
'wdies  rSs.  desi^s,  plans,  and  certain  of  its  executive  and  technical  fo.ce, 

"wherrafthe  iTclnt^intered  into  a  contract  with  the  licensee  under  d.^ 
nf  November  le!  1917,  which  contract  was  executed  on  behalf  of  the  licen^ 


by  J.  W.  Joyes,  colonel.  Ordnance  Department,  United  States  Army,  contracting 
officer,  with  respect  to  the  license  hereinafter  granted : 

Now,  therefore,  in  consideration  of  the  mutual  agreements  herein  contained 
the  said  parties  have  agreed,  and  by  these  presents  do  agree,  to  and  with  each 
other  as  follows,  to  wit: 

ARTICLE   I. 

License  to  use  certain  patented  processes,  etc. — The  licensor,  for  use  and 
application  exclusively  by  the  United  States  Government  of  the  aforesaid  agent 
at  said  plants,  has  given,  granted,  assigned,  and  does  hereby  give,  grant,  and 
assign  to  the  licensee  the  right,  license,  and  privilege  to  use  any  and  all  of 
the  processes,  methods,  and  designs  covered  by  letters  patent  of  the  United 
States  and  involved  in  the  manufacture  of  lime  nitrogen  (calcium  cyanamid), 
its  conversion  to  ammonia  gas  and  the  oxidation  of  the  ammonia  to  weak  nitric 
acid,  which  said  letters  patent  are  described  in  Schedule  A,  annexed  hereto 
and  made  a  part  hereof,  for  and  during  the  time  the  United  States  shall  remain 
in  the  present  war,  and  in  any  event  until  June  1,  1921,  together  with  all  im- 
provements therein  and  all  patents  or  other  rights  relating  thereto  which  the 
licensor  may  hereafter  make  or  secure  during  said  period. 

The  licensor  agrees  that  nothing  contained  in  this  agreement  shall  restrict 
the  licensee  to  the  use  only  of  such  rights  and  patents,  as  the  licensor  now 
possesses  or  may  hereafter  possess,  and  the  licensee  has  the  privilege  of  using 
the  processes,  rights,  and  patents  of  persons  other  than  the  licensor,  either 
in  conjunction  with  the  processes,  rights,  and  patents  of  the  licensor  or  inde- 
pendent thereof  if  in  the  judgment  of  the  contracting  officer  such  action  is 
required  to  obtain  the  best  results  of  operation. 

ABTICLE  n. 

Use  of  licensor's  experiences,  records,  etc. — The  licensor  agrees  to  place  at 
the  disposal  of  the  said  Air  Nitrates  Corporation  and  the  contracting  officer, 
for  the  production  of  ammonium  nitrate  and  the  construction  and  operation  of 
the  plants  referred  to  in  the  agreement  between  the  licensee  and  the  Air  Nitrates 
Corporation  above  referred  to,  all  the  experiences,  records,  studies,  designs,  and 
plans  of  the  licensor  bearing  on  and  pertaining  to  the  processes  necessary 
or  incidental  to  the  manufacture  of  ammonium  nitrate  now  owned  by  the 
licensor  and  agrees  that  the  said  Air  Nitrates  Corporation  and  its  representatives 
and  the  contracting  officer  shall  have  access  to  said  experiences,  records,  studies, 
designs,  and  plans  at  all  reasonable  hours,  and  shall  be  permitted  to  make 
copies  thereof  and  excerpts  therefrom.  The  licensor  further  agrees  to  divulge 
to  the  said  Air  Nitrates  Corporation  and  the  contracting  officer  for  the  sole 
purpose  of  this  agreement  and  said  agreement  between  Air  Nitrates  Corpora- 
tion and  said  licensee,  all  of  the  secret  processes  which,  combined  with  the 
processes  covered  by  the  aforesaid  letters  patent,  go  to  make  up  the  system 
of  manufacture  of  ammonium  nitrate. 

ARTICLE  III. 

Use  of  licensor's  plants  for  training  purposes. — The  licensor  agrees  to  place 
at  the  disposal  of  the  said  Air  Nitrates  Corporation  and  the  contracting  officer 
all  of  the  plants  now  owned  or  operated  by  the  licensor  for  the  purpose  of 
training  of  superintendents,  foremen,  chief  operatives,  and  the  like  for  the 
proposed  plants  to  be  constructed  and  operated  by  the  Air  Nitrates  Corporation, 
and  further  agrees  that  the  said  cori)oration  and  its  representatives  and  the 
contracting  officer  shall  have  access  fu  said  plants  at  all  reasonable  hours  for 
the  purpose  above  referred  to. 

ARTICLE   IV. 

i<crviccs  of  certain  of  licensor's  technical  me7i. — ^The  licensor  agrees  to  place 
af  the  disposal  of  the  said  Air  Nitrates  Corporation  for  tlie  construction  and 
•operation  of  the  plants  under  the  contract  above  referred  to  the  following  mem- 
bers of  the  executive  and  technical  forces  of  the  licensor  as  from  time  to  time 
constituted,  namely,  president,  vice  president  and  general  manager,  engineering 
^s^sistant  to  general  manager,  superintendent  of  manufacturing,  sales  and  traffic 
^lanager,  chief  technologist,  chief  engineer,  assistant  engineer,  and,  in  addition 


1 


146 


MUSCLE   SHOALS   PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


147 


thereto  in  connection  with  the  operation  of  said  plants,  two  principal  works 
nianajjers ;  and  furtlier  agrees  to  pay  the  entire  salaries  of  such  persons  during 
the  terms  of  said  agreement  between  the  licensee  and  said  corporation,  and 
agrees  that  at  all  times  it  will  maintain  an  executive  and  technical  force  which 
shall  he  familiar  witli  the  operation  of  the  processes  involvetl  in  the  manu- 
facture of  ammonium  nitrate. 

ARTICLE  V. 

Benefit  hereunder  to  acerue  to  Air  Nitrates  Corporation.— The  licensor  agrees 
that  all  of  the  benefits  to  accrue  to  the  licensee  by  the  terms  of  this  agreement 
mav  be  at  anv  time  assigned  to  the  Air  Nitrates  Corporation  and  shall  in  any 
event  accrue  to  the  Air  Nitrates  Corporation,  but  only  for  the  purposes  of  said 
agreement  between  the  United  States  and  the  Air  Nitrates  Corporation.  The 
licensor  shall  have  the  right  to  grant,  and  at  the  written  request  of  the  licensee 
will  grant,  a  license  in  all  respects  similar  to  the  license  herein  granted  to  the 
Air  Nitrates  Corporaticm  to  enable  said  corporation  to  carry  out  its  agreement 
with  the  United  States  of  even  date  herewith. 

ARTICLE    VI. 

Royalty.— lu  consideration  of  the  granting  of  the  license  provided  for  in 
Article  I*  hereof  and  of  the  other  conditions  to  be  performed  by  the  licensor, 
the  licensee  agrees  to  pav  the  licensor  during  the  term  thereof  specified  m 
said  article,  as  rovalty,  an  amount  equivalent  to  six  mills  ($0,006)  per  pound 
ot  all  nitrogen  fixed  as  lime  nitrogen  manufactured  at  the  plants  hereinbetore 
described  in  the  contract  of  even  date  herewith  between  the  United  States 
and  the  Air  Nitrates  Corporation,  and  to  which  reference  has  hereinbetore 
been  made,  up  to  and  including  the  first  ninety-one  million  seven  hundnM 
thousan  1  (91,700.1MX))  pounds  of  such  nitrogen  so  fixed  in  any  fiscal  year  ol 
the  United  States,  anil  in  addition  thereto  three  mills  ($0,003)  per  pound  of 
all  nitrogen  fixed  as  lime  nitrogen  in  any  said  fiscal  year  in  excess  of  the  saul 
liir.etv-one  million  seven  hundred  thousand  (91,700,000)  pounds  of  nitrogen,  it 
])"ino-*  further  understood  and  agreed  that  no  part  of  such  royalty  shall  directly 
or  indirectlv  inure  to  the  benefit  of  an  alien  enemy  of  the  United  States  except 
.MS  mav  appear  upon  a  disclosure  of  stock  lists  made  pursuant  to  law.  Pay- 
ment for  rovalties  shall  be  made  each  month  as  early  in  the  month  as  prac- 
ti.  able  upon*  the  presentation  of  satisfactory  evidence  showing  the  production 
<Uu-ing  the  preceding  month  of  nitrogen  fixed  as  lime  nitrogen  at  the  plants 
In  reinbefore  ivferretl  to. 

ARTICLE    VIT. 

icknoicledfjment  of  ownership  of  patents,  iwoeesses,  etc.— It  is  understood 
atd  agreetl  that  so  far  as  the  right,  license,  and  privilege  to  use  any  and  all  or 
the  patents  processes,  methods,  and  designs,  as  described  in  Schedule  a 
Ik  ivto  annexed,  is  dven,  granted,  and  assigned  hereby,  the  Government  anj 
its  a<^ents  and  other  parties  claiming  under  this  license,  do  and  they  slum 
:i ("-knowledge  and  reco-nize  the  American  Cyanamid  Company  as  the  sole  owner 
of  said  i^atents.  processes,  methods,  and  designs  and  of  the  exclusive  right  lO 
r.se  the  same,  sublect  only  to  the  rights  granted  to  the  United  States  by  tins 
license  and  anv  license  granted  said  Air  Nitrates  Corporation,  and  the  LnitH 
States  shall  so  far  as  practicable,  exclude  the  public  from  all  works  in  wUicn 
sa  d  process  shall  be  employed,  and  generally  shall  use  all  reasonabe  means  to 
preserve  sa'd  rights  unimpaired.  ^ 

ARTICLE    VIII. 

Jmlemnitii  aflair.st  infrinoement.— To  the  extent  only  that  the  licensor  shall 
have  received  cash  hereunder  the  licensor  agrees  to  defend  and  save  hariuit^^ 
the  Air  Nitrates  Corporation  and  the  United  States  from  all  suits  and  clan  » 
for  infringement  ])v  reason  of  the  use  by  either  of  them  of  its  patents  for  \w 
making  of  cvanamid  and  the  making  of  ammonia  gas,  which  said  patents  ait 
de.scribed  in*  Schedule  B  hereto  annexed  and  made  a  part  hereof,  and  pay  an 
iud^'inents  which  mav  be  obtaint^l  therefor  against  the  licensee  or  the  said  au 
N:trates  Corporation,  but  only  to  the  extent  aforesaid.  x^iH-ites 

The  licensor  will  defend  and  save  harmless  the  licensee  and  the  Air  ■^^\\^^\1 
Corporation  from  anv  action  or  suit  brought  by  any  person  in  privity  witn 


in  which  the  right  of  said  licensee  or  said  corporation  to  use  said  patents  de- 
scribe<l  in  said  Schedule  A  shall  be  attacked:  Prorided,  however.  That  the 
Inited  States  shall  promptly  give  the  licensor  written  notice  of  anv  and  ail 
such  suits,  actions,  or  claims  described  in  this  article,  and  tender  the  defense 
thereof  to  the  licensor. 

ARTICLE    IX. 

Termination  of  af/reenicnt  as  to  any  plant.— In  the  event  that  the  United 
States  shall  terminate  this  agreement  as  to  any  one  or  more  of  the  plants  to  be 
constructed  by  the  Air  Nitrates  Corporation  under  said  agreement  of  even  date 
lierewith  and  pursuant  to  the  provisions  in  that  behalf  therein  contained,  all  of 
the  rights  and  lu-ivileges  herein  inuring  to  the  said  Aid  Nitrates  Corporation 
shall  mure  in  respect  of  the  plant  or  plants  as  to  which  said  agreement  is  ter- 
minated, to  the  benefit  of  the  United  States,  but  only  until  June  1,  1921,  and  .so 
long  thereafter  as  the  United  States  shall  remain  in  the  present  war. 

ARTICLE    X. 

License  to  use  patents,  processes,  etc.,  after  1921  or  the  end  of  the  imr;  arbi- 
tration of  royalties  thereunder.— The  licensor  hereby  gives  and  grants  to  the 
licensee,  in  addition,  for  use  and  application  exclusively  bv  the  licensee  in  the 
operation  of  the  aforesaid  plants,  the  right,  license,  and  privileges  to  use  any 
and  all  of  the  patents,  processes,  methods,  and  designs  embraced  in  the  liceni 
hereinbefore  granted  to  the  licensee  by  Article  I  hereof,  from  and  after  the  l<t 
day  of  June,  1921,  or  the  date  upon  which  the  United  States  shall  cease  to  be 
in  the  present  war  (whichever  date  shall  last  occur)  and  until  the  expiration  of 
the  United  States  i>atents  covering  the  same,  upon  the  following  terms,  to  wit  • 

The  licensee  shall  pay  monthly  to  the  licensor  for  such  additional  license 
under  this  article  a  royalty,  unless  and  until  changed  by  the  arbitration  here- 
inafter provided,  of  one  and  one-lialf  cents  ($0,015)  per  pound  of  nitrogen  con- 
tent in  any  and  all  products  manufactured  by  the  licensee  at  each  and  every  of 
said  plants  under  and  by  the  use  of  any  of  the  patents,  processes,  methods  or 
designs  embraced  in  the  said  additional  license. 

In  the  event  that  either  the  licensor  or  the  licensee  shall  be  dissatisfied  with 
the  aforesaid  royalty  in  this  article  defined,  either  or  both  may,  within  the 
first  three  years  of  the  period  fixed  for  the  duration  of  said  additional  license 
demand  that  the  amount  of  the  royalty  to  be  paid  hereunder  shall  be  determined 
and  fixed  by  arbitration.     Such  demand  shall  be  made  in  writing  and  shall  be 
delivered  to  the  other  party  hereto,  together  with  the  name  and  address  of  the 
arh'trator  chostii  by  the  party  demanding  the  arbitration,  and  the  other  party 
hereto  shall,  within. fifteen  (15)  days  thereafter,  choose  a  second  arbitrator  and 
notify  the  i)aity  demanding  the  arbitration  of  its  choice  and  give  the  name  and 
address  of  such  arbitrator.    The  two  arbitrators  so  chosen  shall,  within  fifteen 
'lo)  days  after  being  notified  by  either  party  that  the  second  arbitrator  has 
l»oen  chosen,  choose  a  thii-d   arbitrator.     The  arbitrators,  when  chosen,  shall 
promptly  fix  a  time  and  place  for  tlie  hearing,  and  then  and  there  the  parties 
hereto  shall  attend  and  present  their  respective  proof ts  and  arguments      The 
'•ejiring  may  from  time  to  time  be  adjourned  by  the  arbitrators  by  a  writin*' 
n^^tifying  the  parties  of  the  time  and  place  to  which  such  adjournment  is  mm\e. 
The  arbitrators  shall  with  all  reasonable  speed  ascertain  and  determine  what] 
"1  their  opinion,  under  all  the  circumstances,   are  adequate  and  reasonable 
•oyalties  to  bo  paid  under  this  article  and  the  date,  not  e-arlier  than  that  of  the 
demand  for  such  arbitration,  from  which  the  said  award  shall  be  effective 
iliey  shall  notify  the  parties  in  writing  of  the  royalties  so  ascertained  and  de- 
termined and  state  the  amount,  if  any,  that  either  party  may  then  owe  to  the 
<»nier  with  re.spect  to  royalties  under  the  terms  of  the  award.'   The  said  award 
^vhen  signed  by  any  two  of  the  arbitrators  shall  be  final  and  conclusive  upon 
"d  parties  concerned. 

.  In  the  event  that  either  the  second  or  the  third  arbitrator  shall  not  be  chosen 
[>»  the  manner  and  within  the  time  hereinabove  fixed,  anv  United  States  dis- 
"'»f;t  judge  for  the  southern  district  of  the  State  of  New  York,  upon  the  appli- 
[ation  of  either  party,  may  choose  an  arbitrator  or  arbitrators,-  as  the  case  mav 
'^N  to  act. 

Xo  terms  with  respect  to  royalty  contained  in  this  agreement  or  in  the  said 
agreement  of  November  16,  1917,  or  in  any  agreement  between  said  Air  Nitrates 
'-oiporation  and  the  United  States,  or  in  any  negotiations  or  proposals  between 


'N 


148 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS   PROPOSITIONS. 


ARTICLE  XVII. 


149 


the  paid  several  parties  looking  to  the  making  of  the  said  agreements  or  relat- 
ing to  the  subject  matter  thereof  shall  be  utilized  by  either  party  in  said  arbi- 
tration or  taken  into  consideration  by  the  arbitrators  in  making  their  award. 

The  costs  and  expenses  of  the  arbitrators  and  of  the  arbitration  shall  be 
ascertained  by  the  arbitrators  and  shall  be  borne  equally  by  the  parties  hereto. 

The  licensee  mav  transfer  to  the  purchaser  of  any  one  or  more  of  said  plants 
the  right  to  avail  itself  of  the  license  in  this  article  granted  in  the  operation  of 
the  plant  or  plants  so  purchased,  if  said  purchaser,  as  a  term  of  said  purchase, 
expressly  covenants  to  undertake,  observe,  and  perform  all  the  terms  of  this 
article,  including  the  payment  of  royalties  and  the  findings  of  the  said  arbitra- 
tors, if  any,  as  respects  the  plant  or  plants  so  purchased. 

ABTICLE    XI. 

Cessafion  of  royalties.— Jt  the  use  of  the  inventions  of  the  aforesaid  letters 
parent  and  the  methods,  apparatus,  and  processes  owned  by  the  licensor  and 
disclosed  hereunder  to  the  Air  Nitrates  Corporation  and  the  licensee  shall  be 
discontinued  bv  the  Air  Nitrates  Corporation  or  by  the  licensee  or  its  assigns, 
the  obligation  "for  the  payment  of  royalties  hereunder  shall  cease  as  to  those 
of  said  parties  who  shall  have  so  discontinued  such  use. 

ABTICLE  XII. 

Contract  fwt  assipnahle.-^This  contract  shall  not,  nor  shall  any  right  to  re- 
ceive payment,  or  any  other  interest  herein,  be  transferred  or  assigned  by  the 
licensor  to  any  persons,  firms,  or  corporations. 

ABTICLE  xin. 

Persons  not  to  benefit— '^o  Member  of  or  Delegate  to  Congress,  or  Resident 
Commissioner,  is,  or  shall  be,  admitted  to  any  share  or  part  of  this  contract  or 
to  any  benefit  that  may  arise  therefrom,  but  this  article  shall  not  apply  to  this 
contract  so  far  as  it  may  be  within  the  operation  or  exception  of  section  116  of 
the  act  of  Congress  approved  March  4,  1909  (35  Stat.,  1109). 

ABTICLE  XIV. 

Disputes,— Except  as  this  contract  shall  otherwise  provide,  any  doubts  or  dis- 
putes  which  mav  arise  as  to  the  meaning  of  anything  in  this  contract  shall 
be  referred  to  the  Chief  of  Ordnance  for  determination.  If,  however,  the 
licensor  shall  feel  aggrieved  at  any  decision  of  the  Chief  of  Ordnance  upon  such 
reference,  he  shall  have  the  right  to  submit  the  same  to  the  Secretary  of  War. 

ABTICLE  XV. 

Definitions.— Whenevev  in  this  contract  the  words  hereinafter  enumerated 
are  used  thev  shall  mean  what  is  set  opposite  them. 

Licensor.— The  party  of  the  first  part  and  its  legal  representatives,  succes- 
sors, and  assigns.  ^,  .  „     «  ^  ^ 

Chief  of  Ordnance.— Thh  Chief  of  Ordnance,  the  Acting  Chief  of  Ordnance, 
or  any  duly  authorized  representative  of  either. 

Contracting  officer.— The  contracting  officer  executing  this  contract,  his  suc- 
cessor or  successors,  his  or  their  duly  authorized  agent  or  agents,  and  anyone 
from  time  to  time  designated  by  the  Chief  of  Ordnance  to  act  as  contracting 
officer. 

ABTICLE  x^^:. 

Neio  contract  for  deficiency  in  appropriations.— This  agreement  shall  he 
binding  upon  the  licensor  for  the  term  of  the  license,  but  in  the  event  of  tlie 
existing  appropriations  applicable  to  the  purposes  of  this  contract  being  inade- 
quate, the  licensee  shall  have  the  right  to  execute  and  deliver,  and  the  licensor 
shall  thereupon  also  execute  and  deliver,  a  new  contract  having  the  same  terms 
and  conditions  as  are  contained  herein. 


Previovs   affreemrnf   .wperseded.—Thifi  agreement   shall    super.^ede   Uw   <a\a 
agreement  of  November  16,  1917,  between  the  licensor  and  the  licensee 

In  witness  whereof,  the  parties  hereto  have  caused  this  contract  to  be  exe- 
nited  in  triplicate,  at  Washington,  D.  C,  the  day  and  year  first  above  written. 

Amp:rican   Cyanamid   Company, 

Licensor. 
By  Frank  S.  Washburn  President. 
By  C.  M.  Grant,  Secretary. 

United  States  of  America, 
By  Samuel  McRoberts, 
Colonel,  Ordnance  Dcpt.,  N.  A.,  Contracting  Officer. 
Attest : 
Witnesses : 

M.  6.  Logan. 
E.  J.  Pbanke. 
WiLLiAii  Williams. 

Schedule  A. 
[Being  a  part  of  license  agreement  hereto  annexed.! 

LIST  OF  PATENTS  COVEBING  PBOCESSES  AND  PBODUCTS  OF  THE  PBOPOSED  G0\-EBNMENT 

NITBATE  PLANTS. 

U.  S.  patent  776314.  "  Process  of  making  ammonia,"  November  29,  1904. 
U.  S.  patent  785161.  "  Process  of  making  nitrogen  compounds,"  March  21, 1905. 
U.  S.  patent  12762.  "  Process  of  making  nitrogen  compounds,"  March  10,  1908. 
U.  S.  patent  996011.  "  Method  of  making  nitrogen  compounds,"  June  20,  1911. 
U.  S.  patent  999071.  "Apparatus  for  producing  calcium  cyanamid,"  July  25, 
-lyi-j., 

U.  S.  patent  1009705.  "  Process  of  making  calcium  cyanamid,"  November  21, 

U.  S.  patent  987674.  "  Process  of  producing  nitrogen  compounds,"  March  21, 

U.  S.  patent  1006927.  "Method  of  producing  nitrogen  compounds  from  car- 
bids,"  October  24,  1911. 

U.  S.  patent  1010404.  "Apparatus  for  producing  nitrogen  compounds  from  car- 
bids,"  November  28,  1911. 

U.  S.  patent  1100582.  "  Process  of  crushing  and  grinding  calcium  "carbid." 
June  16,  1914. 

.n^:^'  P^*®°t  1100539.  "Cyclical  process  of  fixing  atmospheric  nitrogen,"  June 
16,  1914. 

U.  S.  patent  1103060.  "  Method  and  means  for  fixing  nitrogen,"  July  14,  1914. 
U.  S.  patent  1103061.  "  Process  and  apparatus  of  fixing  atmospheric  nitrogen." 
July  14,  1914. 

U.  S.  patent  1103062.  "Method  of  and  apparatus  for  fixing  nitrogen,"  July 
14,  1914. 

U.  S.  patent  1149653.  "  Process  of  making  ammonia  from  calcium  cyanamid  " 
August  10,  1915. 
U.  S.  patent  1183885.  "Apparatus  for  producing  ammonia,"  May  23,  1916 
IJ.  S.  patent  1154640.  "  Process  of  producing  ammonia,"  September  28,  1915. 
U.  S.  patent  1163095.  "  Process  of  making  ammonia  from  calcium  cyanamid  " 
December  7,  1915. 
U.  S.  patent  1193796.  "  Method  of  oxidizing  ammonia,"  August  8,  1916 
U.  S.  patent  1193797.  "  Process  of  and  apparatus  for  oxidizing  ammonia,"  Au- 
gust 8,  1916. 

iq!^  ^"  P^*®^*  1193798.  "  Catalyzer  apparatus  for  oxidizing  ammonia,"  August  8, 

•1916. 

y.  S.  patent  1193799.  "  Platinum  catalyzer,"  August  8,  1916. 
y.  S.  patent  1193800.  "  Catalyzer  for  oxidizing  ammonia,"  August  8,  1916. 
U.  S.  patent  1206062.  "  Process  of  making  nitric  acid  and  other  products,"  No- 
vember 28,  1916. 

U.  S.  patent  1206063.  "  Process  of  making  nitric  acid  and  other  products,"  No- 
vember 28,  1916. 

y.  S.  patent  1217247.  "  Process  of  making  ammonia  nitrate  and  other  prod- 
'icts,"  February  27.  1917. 
U.  S.  patent  1242953.  "  Process  for  producing  nitrose  gases,"  October  16,  1917. 


150 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS   PROPOSITIONS. 


151 


i 


Schedule  B. 
[Being  a  part  of  license  agreement  hereto  annexed.] 

V.  S.  patent  776314.  "  I'rocess  of  making  aniiiionia,"  Xoveiiiher  29,  1904. 
U.  S.  patent  785161.  "  Process  of  making  nitrogen  compounds,"  March  21,  1905. 
U.  S.  reissue  12762.  "  Process  of  making  nitrogen  compounds,''  :Marcli  10,  1908. 
U.  S.  patent  987674.  "  Pro<*ess  of  producing  nitrogen  compounds,"  March  21, 

1911. 

r.  S.  patent  996011.  "Method  of  making  nitrogen  compounds,"  June  20.  1911. 
r.  S.  patent  999071.  "  Apparatus  for  producing  calcium  cyanamid,"  .July  25, 

1911. 

r.  S.  patent  1(X)97(>5.  "Process  of  making  calcium  cyanamid,"  November  21, 

1911.  ,     ^ 

r.  S.  patent  K)06927.  "  Method  of  producing  nitrogen  compounds  from  car- 
bids."  October  24,  1911.  ,    ^ 

r.  ,S.  patent  1010404.  "  Apparatus  f<u'  producing  nitrogen  compounds  from  car- 

l.ids."  November  28,  1911. 

V.  S.  i)atent  1100539.  "Cyclical  process  of  fixing  atmospheric  nitrogen,    June 

V.  S.  patent   1100582.  "  Proces's  of  cruslung  and  grinding  calcium  carbid. 

June  16.  1914.  „  ^  ,     ^  •    ir^i  • 

r   S   patent  1103060.  "Method  and  means  for  fixing  nitrogen.    July  14.  1914. 
r.  S.  patent  1103061.  "  I'rocess  and  apparatus  for  fixing  atmospheric  nitrogen." 

Julv  14,  1914.  .      ^    .         ..  M  T  1     n 

I  .  S.  patent  1103062.  "  Method  of  and  apparatus  for  fixing  nitrogen,    July  14, 

1914 

r.  S.  patent  1149653.  "  Process  of  making  ammonia  from  calcium  cyanamid." 

August   10,    1915.  ......       ^        ,         oo    -im- 

r   S  patent  1154640.  "  Process  of  producing  ammonia.    September  28,  19lo. 
I'.  S.  patent  1163095.  "  Process  of  making  ammonia  from  calcium  cyanamid." 

December  7,  1915.  •    ,»  T»r      oo   imp 

r.  S.  patent  1183885.  "  Apparatus  for  producing  ammonia.    Alay  23,  1916. 


Copy  of  (\)ntract  No.  T-69,  Army  No.  12835.  Dated  December  1,  191  <,  between 
The  United  States  and  Alabama  Power  Co.  for  Construction  of  Generat- 
ing Station,  Substations,  and  Transmission  Lines,  and  for  Supply  of  Elec- 
trical Energy  to  United  States  Nitrate  Plants  at  Muscle  Shoals  and 
Sheffield.  Ala. 

[Office  of  the  Cliief  of  Ordnance,  Nitrate  Division,  Wasliington,  D.  C] 

This  agreement,  datetl  December  1,  1917,  between  Alabama  Power  Co.,  a  cor- 
poration organized  and  existing  under  the  laws  of  the  State  of  Ah>baina  (herein- 
after called  the  "  contractor  "),  party  of  the  first  part,  and  the  I  nited  States  ot 
\merica  by  William  Williams,  lieutenant  colonel,  Or<lnance  Department,  Lnited 
States  \rniv,  acting  as  contracting  (»tticer  by  authority  of  the  Chief  of  Ordnance 
United  States  Army,  and  under  the  <lirection  of  the  Secretary  of  War,  party  ot 

the  second  part,  witnesseth :  o,    *«  ,,    vi  i      ..    n..,- 

Whereas  the  United  States  is  constructing  at  or  near  Slieftield,  Alabama,  ct  i- 
tain  plants  for  the  production  of  ammonium  nitrate  and  other  chemicals  and  \mii 
require  electric  energy  for  their  operation  and  for  other  purposes;  and 

Whereas  the  contractor  owns  and  operates  an  electric  generating  tiansmittinu' 
ami  distributing  svstem  in  the  State  of  Alabama  which  includes  hi  general  ( l ) 
a  hvdroelectric  plant  on  the  Coosa  River  with  an  installed  capacity  of  b<,.)(n/ 
K  V  \  •  (2)  a  transmission  network  (including  a  110,000-volt  system)  connect- 
ing tiie  aforesaid  plant  with  various  other  plants  and  substati<ms;  (3)  a  steani 
reserve  generating  plant,  hereinafter  referred  to  as  the  Warrior  Station,  situated 
on  the  Black  Warrior  River  at  the  junction  of  said  river  with  Bakers  Creek. 
Walker  County,  and  having  an  installed  capacity  of  25,000  K- V-  A. ;  (4)  certain 
rights  of  wav  extending  approximately  twenty  miles  from  said  Warrior  Station 
toward  Sheffield,  Ala.,  and  available  for  the  construction  thereon  of  a  portion 
of  the  transmission  line  hereinafter  referred  to;  and  ,    ,      ^      •  ^  xv^v- 

Whereas  the  contractor  represents  that  it  now  owns  and  control?  at  said  A>  ai 
rior  Station  things  and  facilities  which  will  be  useful  in  c(mnection  \vith  tne 
installation,  construction,  and  operation  of  the  Warrior  extension  and  Warrioi 


substation  hereinafter  referred  to,  hicluding  (a)  adequate  circulating  water  in- 
take and  discharge  facilities  with  gates,  screens,  canals,  and  tunnels;  (6)  par- 
tially constructed  building  and  apparatus  foundations;  (c)  camps,  roads,  tracks, 
jind  docks;  ((i)  plans  and  specifications;  (e)  a  staff  for  engineering,  construc- 
tion and  operation;  (f)  ash-handling  facilities  and  ash-dumping  spaces;  and 
iff)  other  facilities  in  existence  at  or  about  said  station  at  the  commencement 
of  work  under  this  contract  which  will  be  useful  in  the  maintenance  and  opera- 
tion of  said  Warrior  extension  as  a  plant  for  the  generation  of  electric  energy; 
and 

Whereas  the  existing  state  of  war  creates  a  national  emergency  and  the 
United  States  requires  the  performance  of  the  work  and  the  supply  of  electric 
energy  herein  described  at  the  earliest  date  possible: 

Now,  therefore,  in  consideration  of  the  mutual  agreements  herein  contained, 
the  said  parties  have  agreed  and  by  these  presents  do  agree  with  each  other  as 
follows : 

Article  I. 

Tie  line  from  contractor's  system  to  M^arrior  substation. — The  contractor 
shall  at  its  own  cost  and  expense  furnish  the  labor,  materials,  tools,  machin- 
ery, equipment,  facilities,  and  supplies  and  do  all  things  necessary  for  installing 
between  its  said  110,000-volt  system  and  the  Warrior  substation  mentioned  in 
Article  II  hereof,  a  tie  line  and  other  facilities  of  capacity  and  character  suffi- 
cient for  transmitting  continuously  30,()(X)  K.  W.  of  3-phase,  60-cycle,  alternat- 
ing current  at  IIO.OCK)  volts,  to  said  Warrior  substation  and  through  it  to  the 
transmission  lines  referre<J  to  in  Article  III. 

Article  II. 

Neiv  facilities  at  Warrior  »S7aY/oH.— The  contractor  shall,  at  the  expense  of 
the  United  States,  prepare  and  submit  to  the  contracting  officer  for  approval, 
general  plans  and  specifications  for  additional  plant  and  other  facilities  at  or 
near  its  Warrior  Station  as  follows: 

(a)  Warrior  extension  .—For  a  new  power  station  building  with  a  33,333 
K.  V.  A.  steam  turbo  generator  with  boilers  and  switchboard  and  for  other 
facilities  as  more  fully  described  in  schedule  A  hereto  annexed  and  made  a  part 
hereof.  The  aggregate  of  the  new  facilities  to  be  erected  or  installed  under 
this  subdivision,  including  all  movable  property  thereto  pertaining,  are  here- 
inafter referred  to  as  the  "  Warrior  extension." 

[b)  Wanior  substation. — For  a  new  substation  ami  substation  apparatus, 
as  more  fully  described  in  schedule  B  hereto  annexe<l  and  made  a  part  hereof* 
The  aggregate  of  all  new  facilities  to  be  erected  or  installed  umler  this  sub- 
flivision,  including  all  movable  property  thereto  pertaining,  are  hereinafter 
referred  to  as  the  "  Warrior  substation." 

Upon  the  approval  by  the  contracting  officer  of  said  plans  and  specifications 
for  the  Warrior  extension  and  the  Warrior  substation  or  any  part  thereof  the 
contractor  shall  as  the  agent  for  and  at  the  expense  of  the  United  States  fur- 
nish labor,  materials,  tools,  machinery,  equipment,  facilities,  and  supplies  and 
<lo  all  things  necessary  for  the  construction  and  completion  of  all  builllings 
and  structures  for  the  installation  of  all  equipment  and  for  the  performance 
of  all  other  work  described  in  the  plans  and  specifications  so  approved  as  thev 
may  be  amplified  by  detailed  plans  and  specifications  submitted  to  and  approvei^l 
by  the  local  representative  of  the  contracting  officer. 

Article  III. 

Transmission  lines.— (1)  The  contractor  shall,  subject  to  the  approval  of 
rne  contracting  officer,  but  at  the  sole  expense  of  the  contractor,  select  sur- 
vey, and  acquire  the  title  to  the  necessary  right  of  way  of  approximatelv  one 
inindred  feet  width  to  provide,  in  conjunction  with  its  said  present  right  of 
jyay  of  approximately  twenty  miles  lengtli  and  one  hundred  feet  width  a  con- 
nmious  and  reasonably  direct  right  of  way  for  a  transmission  line  from  said 
^^arrlor  substation  to  a  point  (to  be  designated  by  the  Chief  of  Ordnance)  on 
nie  land  of  the  United  States  on  which  is  located  its  Muscle  Shoals  nitrate 
I'nnit  and  substation. 

<2)  The  c<mractor  shall,  at  the  expense  of  the  Unite<l  States,  prepare  and 
^"onnt  to  the  contracting  officer  for  approval  general  plans  and  specifications 


y 


152 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


153 


for  a  transmission  line  of  the  general  character  described  in  Schedule  C  liereto 
annexed  and  made  a  part  hereof,  extending  from  said  Warrior  substantion  over 
said  right  of  way  to  said  land  of  the  United  States,  thence  over  said  land,  as 
determined  by  the  contracting  officer,  to  the  Muscle  Shoals  substation  referred 
to  in  Article  IV.  Upon  the  approval  by  the  contracting  officer  of  said  plans  and 
specifications  or  any  part  thereof,  the  contractor  shall  as  the  agent  for  and  at 
the  expense  of  the  United  States  furnish  all  the  labor,  materials,  tools,  ma- 
chinery, equipment,  faciUties,  and  supplies,  and  do  all  things  necessary  to  clear 
so  much  of  said  right  of  way  and  so  much  of  the  land  of  the  United  States  alon^ 
the  line  which  may  be  indicated  by  the  contracting  officer  as  may  be  necessary 
and  to  construct  thereon  a  transmission  line  and  appurtenances  in  accordance 
with  the  plans  and  specifications  so  approvetl,  as  they  may  be  amplified  by  de- 
tailed plans  and  specifications  submitted  by  the  contractor  to  and  approved  by 
the  local  representative  of  the  contracting  officer.  Such  transmission  line  and 
appurtenances  are  hereinafter  referred  to  as  tbe  transmission  line. 

(3)  The  contractor  shall,  at  the  expense  of  the  United  States,  prepare  and 
submit  to  the  contracting  officer  for  approval  general  plans  and  specifications 
for  a  branch  transmission  line  of  the  general  character  of  the  transmission 
line,  extending  from  a  point  on  the  transmission  line  at  or  near  Uussellvdk 
to  tiie  limestone  quarry  of  the  United  States,  a  distance  of  approximately  3.0(X) 
feet  Such  branch  transmission  line  and  appurtenances  are  hereinafter  referrei'i 
to  as  the  quarry  branch  line.  Upon  the  approval  by  the  contracting  officer  of  such 
plans  and  specifications  the  contractor  shall  as  the  agent  for  and  at  the  expense 
of  the  United  States  likewise  construct  the  quarry  branch  line  on  a  right  of 
wav  to  be  provided  by  and  at  the  expense  of  tlie  Unite<l  States. 

(4)  The  contractor  shall,  until  the  termination  of  the  war.  on  written  request 
bv  the  contracting  officer,  construct  at  the  expense  of  the  United  States  any 
other  branch  transmission  lines  required  by  the  Unite<l  States  in  connection 
with  the  operation  of  said  nitrate  plants,  on  a  right  of  way  to  be  provided 
by  and  at  the  expense  of  the  United  States.  The  Unted  States  shall  pay  the 
contractor  as  compensation  for  its  services  under  this  subdivsion  such  fee 
as  mav  be  allowed  by  the  contracting  ofiicer.  • 

(5)' The  contractor  may  construct,  operate,  and  maintain  only  such  other 
transmission  lines  and  appurtenances  on  its  said  right  of  way  as  in  the  opinion 
of  the  Chief  of  Ordnance  will  not  in  any  way  interfere  with  the  construction 
and  operation  by  the  United  States  of  the  transmission  line  or  of  an  additional 
110  000  volt  transmission  line  and  appurtenances,  if  the  United  States  desires 
to  construct  such,  paralleling  the  transmission  I'ne.  The  contractor  shall  not 
use  the  poles  or  wires  erected  nor  the  way  cleared  at  the  expense  of  the  United 
States  without  the  written  authority  of  the  Chief  of  Ordnance. 

Article  IV. 

Muscle  SnoaU  suhsfation.— The  contractor  shall,  at  the  expense  of  the  Unitecl 
States  prepare  and  submit  to  the  contracting  officer  for  approval,  general 
plans  and  specifications  for  a  substation  and  substation  apparatus  at  Muscle 
Shoals,  as  described  in  Schedule  D  hereto  annexed  and  made  a  part  hereof. 
Said  substation  and  substation  apparatus  are  hereinafter  referred  to  as  the 

"Muscle  Shoals  substation."  .      .,     ,  ^  •«    ^•.„. 

Upon  the  approval  by  the  contracting  officer  of  said  plans  and  speclficatlon^ 
or  any  part  thereof,  the  contractor  shall,  as  the  agent  for  and  at  the  expense 
of  the  United  States,  furnish  all  labor,  materials,  tools,  machinery,  equipment. 
facilities,  and  supplies  and  do  all  things  necessary  for  the  construction  of  all 
buildings  and  structures,  for  the  installation  of  all  equipment  and  for  the 
performance  of  all  other  work  described  in  the  plans  and  specifications  so  ap- 
proved, and  as  amplified  by  plans  and  specifications  submitted  by  the  contractor 
to  and  approved  by  the  local  representative  of  the  contracting  officer. 

Article  IVa. 

Drifton  extension  raUroad.—The  contractor  shall  prepare  and  submit  to  tht 
contracting  officer  for  approval  general  plans  and  specifications  for  the  ex 
tension  of  the  Drifton  branch  of  the  Southern  Railway  from  the  terminus  ot 
said  branch  to  the  Warrior  extension,  a  distance  of  8.000  feet,  more  or  less. 
Upon  the  approval  by  the  contracting  officer  of  said  plans  and  specification- 
or  any  part  thereof,  the  contractor  shall  furnish  all  the  labor,  materials,  tools, 
machinery,  equipment,  facilities,  and  supplies,  and  do  all  things  necessary  for 
the  construction  of  said  Drifton  extension  railroad,  and  of  all  other  work  de- 


scribed in  the  plans  and  specifications  so  approved,  and  as  amplified  by  plans 
and  specifications  submitted  by  the  contractor  to  and  approved  by  the  local 
representative  of  the  contracting  officer.  The  construction,  operation,  and  main- 
tenance of  said  Drifton  extension  railroad  shall  be  on  the  terms  and  condi- 
tions set  forth  in  Schedule  B  hereto  annexed  and  made  a  part  hereof.  The 
parties  hereto  shall,  without  unnecessary  delay,  execute  a  supplemental  con- 
tract in  relation  to  the  subject  matter  of  this  article,  which  shall  embody  such 
further  details  and  contain  such  reasonable  clauses  as  the  contracting  officer 
shall  deem  necessary. 

Article  V. 

Changes  in  drawings  and  specifications.— The  contracting  officer  may,  from 
time  to  time,  by  written  instructions,  make  changes  in  the  drawings  and  speci- 
fications prepared  by  the  contractor  and  require  additional  work  or  direct  the 
omission  of  work  previously  ordered,  and  the  provisions  of  this  contract  shall 
apply  to  all  such  changes,  modifications,  and  additions  with  the  same  effect  as 
if  they  were  embodied  in  the  original  drawings  and  specifications;  but  the 
contractor  shall  not  be  held  responsible  for  delays  resulting  from  such  changes 
or  delays  in  giving  approvals.  Changes,  modifications,  and  additions  affecting 
the  contractor's  property  or  system  to  be  mutually  agreeable ;  provided  that  the 
submission  by  the  contractor  for  approval  and  the  approval  by  the  contracting 
officer  of  any  such  change,  modification,  or  addition  shall  be  evidence  of  such 
agreement. 

Article  VI. 

Subcontracts.— The  contractor  may,  with  the  written  approval  of  the  con- 
tracting officer,  perform  any  part  of  the  construction  and  equipment  work 
under  this  contract  through  the  means  of  subcoutracts,  but  such  subcontracts 
shall  contain  a  reference  t.o  this  contract  and  an  express  provision  that  they 
are  subject  to  all  provisions  hereof,  and  that  with  the  consent  of  the  United 
States  they  may  be  assigned  by  the  contractor  herein  to  the  United  States  or 
its  nominee.  Nothing  in  thi«  article  contained,  nor  the  approval  of  said  sub- 
contracts, shall  relieve  the  contractor  of  any  of  its  obligations  hereunder.  A 
copy  of  every  subcontract  shall  be  delivered  to  the  contracting  officer  promptly 
upon  the  execution  thereof. 

Article  VII. 

Use  by  United  States  of  contractor's  lands. — (1)  The  contractor  agrees  dur- 
ing such  period  as  the  United  States  shall  remain  the  owner  of  said  Warrior 
extension  and  substation  and  until  their  acquisition  by  the  contractor  or  their 
removal  by  the  United  States  (a)  that  the  United  States  shall  have  the  right 
to  occupy  for  the  purposes  of  this  contract  all  parcels  of  lard  upon  which 
any  building  or  structure  of  whatever  nature  (including  lines,  pipes,  poles, 
apparatus,  or  connections),' may  or  shall  be  erected  under  this  contract  for  or 
at  the  expense  of  the  United  States  in  connection  with  the  Warrior  extension 
or  Warrior  substation;  (6)  that  the  United  States  shall  have  rights  of  ingress 
and  egress  for  the  purpose  of  this  contract  to  and  from  all  such  parcels  of 
land  and  from  one  to  the  other  with  the  right  to  make  all  necessary  connec- 
tions across  any  of  such  lands,  to  lay,  relay,  maintain,  and  repair'  conduits 
and  pipes  and  to  erect  poles,  and  in  general  to  do  all  acts  and  things  necessary 
to  enable  the  United  States  to  make  the  most  convenient  use  of  such  buildings, 
structures,  machinery,  intake  and  discharge  facilities  and  connections  in  carrv- 
ing  out  this  contract;  in  such  manner,  however,  as  not  to  interfere  with  tlie 
operation  of  the  contractor's  Warrior  station  without  its  previous  consent. 

(2)  The  contractor  also  agrees  that  the  United  States  may  erect  and  main- 
tain transmission  lines  on  the  contractor's  said  right  of  way  from  the  Warrior 
^xtension  to  the  land  of  the  United  States  on  which  is  located  its  said  Muscle 
Shoals  nitrate  plant  during  such  period  as  the  United  States  shall  remain  the 
owner  of  tlie  transmission  line. 

Nothing  in  this  article  contained,  however,  shall  prevent  the  contractor 
from  utilizing  in  such  manner  as  it  may  desire  any  of  its  lands  not  occupied 
ny  the  United  States  on  December  1,  1918,  subject,  however,  to  the  provisions 
of  subdivision  (5)  of  Article  III. 


154 


MUSCLE   SHOALS  PROPOSITIONS. 


Article  YIII. 


MUSCLE   SHOALS   PROPOSITIONS. 


155 


Maintenance  of  Warrior  evtemimi,  substations,  and  the  transmission  line- 
Insurance— The  contrnctor  shall  at  its  own  expense,  upon  the  termination  of  the 
period  of  preliminary  operation  mentioned  in  Article  XIV  and  during  the  period 
de'^cribed  in  the  first  paragraph  of  Article  VII,  maintain  the  Warrior  extension 
and  the  Warrior  substiition,  including  all  equipment  and  appurtenances,  in 
tirst-class  repair  and  suitable  condition  for  efficient  and  continuous  operation. 

The  contractor  shall  at  its  own  expense,  upon  the  termination  of  said  period 
♦►f  preliminary  operation  and  during  the  period  described  in  the  second  para- 
graph of  Article  VII  hereof,  maintain  the  transmission  line  ainl  the  quarry 
branch  line  in  good  repair  and  suitable  condition  for  efficient  and  continuous 
operation.  The  contractor  shall  upon  written  request  by  the  contracting  officer 
cause  the  W^arrior  extension,  said  substations,  and  said  transmission  lines  to 
be  duly  policed,  but  at  the  expense  of  the  United  States.  Upon  failure  of  the 
contractor  after  reasonable  notice  from  the  contracting  officer  tx)  maintain  saul 
proijerties  in  repair  as  hereinabove  provided,  the  United  States  shall  make 
such  repairs  and  charge  the  cost  thereof  to  the  contractor. 

The  contractor  shall,  upon  the  termination  of  said  period  of  preliminary 
operation,  insure  and  keep  insured  all  of  said  property  of  a  character  which 
it  is  customary  to  insure,  against  loss  or  damage  by  tire  and  any  other  casualty 
customarily  covered  bv  insurance;  loss  or  damage  to  be  payable  to  the  Lnited 
States  as  its  intere^  may  appear :  all  policies  to  be  subject  to  the  approval  of 
the  contracting  officer.  The  cost  of  such  insurance  shall  be  borne  by  the  con- 
tractor In  the  event  of  damage  to  or  the  destruction  of  said  Warrior  extension 
or  Warrior  substation  from  whatever  cause  after  the  contractor  begins  to  oper- 
ate the  s-ame  as  a  part  of  its  system  the  contractor  shall,  at  its  own  expense 
promptly  replace  the  property  so  damaged  or  destroyed.  Insurance  collecte(I 
in  respect  of  such  damage  or  loss  may  be  paid  to  the  contractor,  as  the  work  of 
reconstruction  progesses,  in  such  amounts  as  the  contracting  officer  deems 
proper  If  anv  right  of  action  or  claim  exists  in  favor  of  the  United  States 
as  the  beneficiary  of  such  insurance  or  as  the  purchaser  of  any  damaged  or 
destroved  apparatus  or  property  connected  with  ^aid  Warrior  extension  or 
Warrior  substation,  the  contractor  shall  be  entitled  to  the  benefit  of  such  fight 
or  claim  for  the  pui-pose  of  reimbursing  or  protecting  it  in  replacing  property 
so  ilamaged  or  destroye<l :  and  the  United  States  agrees  either  to  assign  such 
riirht  or  claim  to  the  contractor  or  to  pursue  the  s-ame  for  the  benefit  of  the 

During  the  construction  of  the  Wai'rior  extensicm.  the  Warrior  substation, 
and  th-e  transmission  line,  and  until  the  contractor  shall  have  commenced 
operation  of  the  same  as  part  of  its  system  (but  not  thereafter)  the  United 
States  shall  bear  all  losses  or  accidents  to  person  or  property  occurring  in  the 
course  of  the  work. 

AUTICLK  IX. 

Title  to  propertif  paid  for  hy  I  uited  States.— The  title  to  all  property  pur- 
cha-^ed  acquired  erected,  or  installed  at  the  expense  or  for  the  account  of  the 
Unitetl'  States,  including  the  Warrior  extens'on.  Warrior  substation.  Muscle 
Shoals  substation,  the  transmission  line,  and  the  quarry  branch  line  shall  forth- 
with upon  such  purchase,  acquisition,  erection,  or  installment  vest  in  the  Unite<i 
States  Wl  propertv  of  the  United  States  shall,  so  far  as  practicable,  be  kept 
separate  and  apart  from  property  belonging  to  the  contractor  and  the  contractor 
shall  acquire  no  property  right  or  interest  therein.  Such  property  shall  at  all 
times  be  considered  personalty,  which  shall  not  be  deemed  to  be  so  affixed  to 
the  real  estate  as  to  become  a  part  thereof.  It  shall  be  plainly  marked  to 
denote  ownership  as  the  contracting  officer  may  direct.  «    ^      #      i 

The  contractor  agrees  to  protect  and  save  harmless  the  United  States  from 
anv  and  all  claims  that  may  be  made  by  or  on  behalf  of  any  mortgagee,  trustee, 
bondholder,  or  lienor  to  anv  building,  structure,  machinery,  equipment,  or  other 
propertv  of  the  United  States  that  may,  under  the  provisions  of  this  contract, 
be  placed  upon  any  of  the  contractor's  land  which  now  is  or  hereafter  shall  )e 
subjei-t  to  a  mortgage,  lien,  or  dee<l  of  trust,  including  the  first  mortgage  of  tlic 
Alabama  Power  Co.,  dated  March  1.  1916. 

Article  X. 

Schedule  of  I  nitrd  States  propertif.-il)  As  soon  as  practicable  a  schedule 
of  the  propertv  belonging  to  the  United  States  under  this  contract  shall  be  ma(ie 
in  duplicate  bv  the  contractor  and  approved  an<l  identified  by  the  parties  hereto. 


As  additional  property  is  acquired,  at  the  expense  of  the  United  States,  for  use 
in  connection  with  the  Warrior  extension,  the  Warrior  substation,  the  Muscle 
Shoals  substation,  the  transmission  line,  or  the  quarry  branch  line,  a  like  sched- 
ule thereof  shall  be  made,  approved,  and  identified  as  aforesaid ;  and  all  proi>- 
erty  so  acquired  shall  become  a  part  of  the  Warrior  extension,  the  Warrior 
substation,  the  Muscle  Shoals  substation,  the  transmission  line,  or  the  quarrv 
branch  line,  as  the  case  may  be. 

(2)  In  said  schedule  there  shall  be  indicated  the  articles  or  apparatus  and 
the  value  thereof  which  have  been  installed  to  replace  those  existing  in  the 
property  of  the  contractor  \vhere  such  replacement  was  necessarj-  to  adapt  the 
apparatus  or  system  of  the  contractor  to  the  requirements  or  apparatus  of  the 
United  States.   , 

Article  XI. 

Cost  payahle  by  United  States.— The  cost  of  the  work  mentioned  in  Article  II 
in  subdivisions  (2)  and  (3)  of  Article  III,  and  in  Article  IV  shall,  upon  approval 
(»r  ratification  of  such  cost  by  the  contracting  officer,  be  borne  and  paid  by  the 
I'nited  States.  Included  in  the  items  of  such  costs  are  those  listed  in  Schedule 
F  hereto  annexed  and  made  a  part  hereof.  The  Uiiite<l  States  shall  pav  such 
cost  in  the  manner  following : 

(a)  It  shall  pay  directly  to  laborers  and  and  material  men  all  labor,  mate- 
rials, and  supplies,  the  cost  of  which  has  been  so  approved  or  ratified  also  all 
rent  due  the  contractor  under  Schedule  F  in  respect  of  anv  construction  plant 
or  office  si)ace  of  the  contractor. 

(b)  It  reserves  the  right  to  pay  directly  to  comm<m  carriers  any  or  all  freight 
and  express  charges  on  materials,  supplies,  or  machinerv  certified  bv  the  con- 
tracting officer  as  being  for  use  under  this  contract. 

(c)  It  shall  reimburse  the  contractor  for  all  costs  and  expenditures  incurred 
and  paid  by  the  contractor  upon  the  same  being  approved  or  ratified  bv  the 
contracting  officer. 

The  United  States  shall  detail  a  sufficient  number  of  disbursing  officers  for 
service  on  the  work  with  power  and  funds  to  make  prompt  pavment  of  all  sums 
dJie  upon  this  article. 

Article  XII. 

Compensation  by  United  States  for  use  of  contractor's  lands  and  other  facili- 
ties, and  in  lieu  of  overhead.— \J\}on  the  signing  and  delivery  of  this  contract  the 
I  nited  States  shall  pay  to  the  contractor  the  sum  of  sixtV  thousand  (60  000) 
dollars  in  full  satisfaction  (a)  for  all  uses  of  contractor's' lands  mentioned  in 
Article  VII  and  for  the  use  of  the  facilities  ownied  or  controlled  bv  the  con- 
tractor and  referred  to  in  the  recitals  to  this  contract;  (&)  for  overhead  ex- 
penses of  the  contractor. 

Article  XIII. 

Contractor's  fee.— As  full  compensation  for  the  services  of  the  contractor  in 
all  work  of  construction  and  equipment  to  be  performed  hereunder,  including 
the  work  mentioned  in  Schedules  A,  B,  C,  and  D,  the  United  States  shall  pav 
to  the  contractor  a  fee  equal  to  six  per  cent  of  the  cost  described  in  Article  XI 
except  that  no  fee  shall  be  paid  in  respect  of  the  following : 

(a)   Plant  or  equipment  funiished  by  the  United  States. 

(6)  Freight  and  express  charges,  other  than  charges  for  transportation  of 
the  contractor's  construction  plant,  equipment  for  construction,  and  tools. 

(c)  Premiums  on  bonds,  losses  and  expenses  menti(med  in  subdivision  (//) 
of  Schedule  F. 

^  (d)  Cost  of  reconstructing  or  replacing  any  damaged  work,  unless  the  fee 
thereon  shall  be  authorized  by  the  contracting  officer  under  subdivision  (A)  of 
Schedule  F. 

The  amount  of  said  fee  shall  be  computed  by  the  contracting  officer  and 
payments  shall  be  made  monthly,  based  upon  the  cost  of  disbursements  of  the 
preceding  month.  In  determining  said  fee  the  payments  bv  the  United  States 
flescribed  in  Article  XII  shall  not  be  included  as  a  part  of  the  cost  of  anv  of 
the  work.  The  total  of  said  fee  shall  not  exceed  tw^o  hundred  and  twentv-five 
thousand  (225,000)  dollars. 

Article  XIV. 

Period  of  preliminary  operation.— From  such  time  as  the  Warrior  extension, 
ihe  Warrior  suUstation,  and  the  transmission  line  are,  in  the  opinion  of  the 
^contracting  officer,  ready  for  preliminary  operation  and  until  December  1,  1918, 


\ 


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MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


157 


or  until  such  later  date  as  the  same  are  deemed  by  the  Chief  of  Ordnance  as 
complete  and  ready  for  use  in  the  performance  of  this  contract,  the  contractor 
shall  operate  the  said  properties  at  the  expense  of  the  United  States,  such  ex- 
pense to  include  all  labor,  coal,  material,  and  supplies  which  may  be  used  in 
the  testing  or  operation  of  said  properties,  and  also  a  fair  proportion  of  the 
expense  of  the  contractor's  regular  operating  staff  engaged  in  said  work.  Such 
expense  shall  be  paid  to  the  contractor  monthly,  but  shall  not  be  included  in 
the  cost  of  such  properties  for  the  purpose  of  determining  their  value. 

During  the  period  of  preliminary  operation  all  energy  developed  by  the  War- 
rior extension  shall,  to  the  extent  that  the  United  States  shall  require,  be  deliv- 
ered to  the  transmission  line  and  no  charge  shall  be  made  therefor  by  the  con- 
tractor. The  equivalent  of  any  energy  generated  during  suqji  period  at  the 
AVarrior  extension  and  used  by  the  contractor  for  commercial  purposes  shall  be 
recorded  and  returned  to  the  United  States  by  the  contractor  at  the  Warrior 
extension  switchboard,  either  from  its  own  systetm  or  from  the  Warrior  exten- 
sion after  the  contractor  shall  have  commenced  operations  thereof  as  part  of  its 
system. 

Arttclk  XV. 

Operation  of  Warrior  extension,  of  suhstatloufi,  and  of  transmission  lines— 
EJertriv  envryy  to  he  furnished. — Upon  tlie  termination  of  the  period  of  pre- 
limiunrv  «)i>eration  menti<  ned  in  Article  XIV,  the  contractor  shall  at  its  own 
expense  operate  said  Warrior  extension.  Warrior  substation.  Muscle  Shoals 
substntion,  the  transmission  line,  and  thr  quarry  branch  line  as  part  of  its 
.^vstem  and  shall  maintain  the  same  in  readiness  to  supply  and  shall  supply 
the  demands  of  the  United  States  and  those  of  its  successor  in  interest  herein- 
after referred  to  under  this  contract  to  the  extent  of  the  capaciy  of  the  War 
rior  extension  at  the  time;  provided,  that  all  repairs,  renewals,  or  replace- 
ments to  and  in  the  Muscle  Shoals  and  quarry  branch  substati(>ns  and  their 
apparatus  shall  be  made  by  the  contractor  nt  the  expense  of  the  United  States. 
Nothing  in  this  contract  contained  shall  authorize  the  contractor,  i?xcept  with 
the  written  approval  of  the  Chief  of  Ordnance,  to  transmit  energy  over  said 
transmission  lines  otherwise  than  for  the  use  of  the  United  States  or  its  said 
successor.  But  with  such  approval,  and  upon  terms  and  conditions  approved 
by  the  Chief  of  Ordnance,  the  contractor  may  transmit  energy  over  said  lines. 
All  energv  to  be  supplied  by  the  contractor  shall  be  in  the  form  of  three  phase,. 
GO  cycle,  alternating  current,  at  a  pressure  of  approximately  110.000  volts.  It 
shali  be  measured  at  the  low  tension  switchboard  of  the  Warrior  substation 
and  thence  delivered  to  the  transmission  line  at  the  Warrior  substation  to  be 
transmitted  to  the  J^Iuscle  Slioals  substation  and  that  of  the  quarry  branch 
line,  as  may  be  required  by  the  United  States,  and  all  at  the  expense  of  the 

contractor.  ,   ■,      „ 

The  contractor  shall  operate  said  properties  in  an  efficient  manner  and  do  an 
things  necessary  or  appropriate  in  and  about  such  operation,  including  pro- 
curement of  alflabor  and  materials,  except  that  the  United  States  may  at  any 
time  furnish  the  contractor  with  the  necessary  coal  for  the  operation  of  the 
Warrior  extension,  subject,  however,  to  the  provisions  of  Article  XVI.  The 
contractor  shall  use  its  best  eftVirts  to  maintain  a  reserve  of  coal  adequate  to 
insure  a  continuous  supply  of  energy  from  the  Warrior  extension. 

The  manufacturers'  rated  capacity  of  the  generating  unit  in  the  Warrior  ex- 
tension is  30,000  kw.  when  operated  under  the  following  conditions:  Steam 
pressure,  200  pounds  per  square  inch ;  superheat,  200  degrees  F. ;  vacuum,  29  " ; 
and  power  factor,  90  per  cent. 

The  contractor  shall  so  maintain  the  operating  conditions  of  the  Warrior  ex- 
tension which  are  within  its  control,  that,  provided  the  power  factor  of  the 
load  of  the  United  States  at  the  Warrior  extension  is  not  less  than  90  per 
cent,  the  United  States  shall  receive  from  the  Warrior  extension  a  supply  of 
electric  energy  at  least  equal  to  that  which  said  unit  is  capable  of  producing 
under  normal  operating  conditions. 

The  Warrior  extension  and  Warrior  substation  are  to  be  operated  in  paraiie* 
with  the  steam  generating  plant  of  the  United  States  nitrate  plant  No.  2  at 
Muscle  Shoals  and  the  contractor  shall  maintain  at  the  Warrior  extension 
and  substation  and  the  United  States  at  its  said  steam  generating  plant  sucn 
usual  and  proper  operating  conditions  as  to  voltage  and  frequency  as  may 
be  required  to  make  such  operation  in  parallel  successful. 

The  contractor  shall  operate  said  properties  and  supply  energy  as  aforesaia 
for  the  United  States  or  its  said  successor  for  the  period  of  ten  (10)  yeai-» 
from  the  date  of  this  contract. 


The  United  States  shall  upon  request  furnish  the  contractor  from  time 
to  time  such  information  as  it  may  possess  concerning  its  probable  require- 
ments for  energj',  in  order  that  the  contractor  may  make  all  necessary  arrange- 
ments to  supply  the  same  in  an  efficient  and  economic  manner. 

Should  the  United  States  at  any  time  during  the  war  and  within  three 
years  after  its  termination  require  more  energy  than  the  Warrior  extension 
is  capable  of  producing  and  delivering  at  such  time,  or  should  an  emergency 
arise  preventing  the  operation  of  the  Warrior  extension,,  then,  in  either  event 
the  contractor  shall  supply  energy  to  meet  the  requirements  of  the  United 
States  from  its  own  system,  provided  it  can  do  so  without  curtailing  the  service 
to  any  of  its  firm  power  customers  existing  on  December  1,  1918,  or  operating 
the  steam  generating  plant  of  the  Birmingham  Railway,  Light  &  Power  Co  • 
and  provided  further,  that  the  requirements  of  the  United  States  in  respect 
to  such  energy  shall,  to  the  extent  of  the  capacity  of  the  Warrior  extension, 
be  met  in  preference  to  those  of  any  customer  of  the  contractor  other  than  said 
firm  power  customers  existing  on  December  1, 1918. 

Article  XVI. 

Supply  of  coal  hp  the  United  States.— All  coal  supplied  to  the  contractor  by 
the  United  States  shall  be  so  supplied  at  prices  not  in  excess  of  those  at  which 
coal  can  be  obtained  by  the  contractor  delivered  at  the  Warrior  extension 
making  due  allowance  for  the  difference,  if  any,  in  the  quality  of  the  coal  from' 
that  specified  in  Article  XX  and  in  accordance  with  the  procedure  therein  indi- 
cated. In  exercising  this  option  the  United  States  shall  supply  coal  in  such 
quantity,  at  such  a  rate,  and  in  such  a  manner  as  not  to  put  the  contractor  to 
any  additional  expense,  and  so  as  not  to  interfere  with  the  continuous  operation 
of  the  Warrior  extension  at  its  capacity,  with  a  sufficient  supply  on  hand  for 
reserve ;  provided  that  the  contractor  may  use  coal  for  the  purchase  or  supply 
of  which  it  has  previously  and  in  good  faith  become  definitely  committed  in 
preference  to  coal  to  be  supplied  by  the  United  States.  The  price  of  any  coal 
supplied  by  the  United  States  shall  be  deducted  from  any  payments  due  the 
contractor  for  energy  as  such  coal  is  from  time  to  time  used  in  the  generation  of 
energy. 

Article  XVII. 

Payments  hy  eontraetor.—  (l)  Beginning  at  the  termination  of  the  period  of 
preliminary  operation  mentioned  in  Article  XIV,  and  so  long  as  the  United 
States  shall  require  the  contractor  to  supply  energy  to  the  United  States  for 
the  operation  of  either  or  both  of  said  nitrate  plants,  the  contractor  shall  pay 
to  the  United  States  monthly  for  the  use  of  the  Warrior  extension  and  Warrior 
substation  interest  at  the  rate  of  6  per  cent  per  annum  upon  the  actual  cost  to 
the  United  States  of  said  extension  and  substation,  less  the  amount  of  the 
accumulated  fund  referred  to  in  Article  XIX,  as  the  same  may  vary  at  each 
monthly  computation  of  such  interest.  In  computing  such  cost  there  ^hall  be 
excluded  all  payments  by  the  United  States  for  supervision,  inspection,  and 
protection  of  the  Warrior  extension  or  Warrior  substation,  but  there  shall  be 
moluded  the  nro  rata  share  of  the  contractor's  fee  mentioned  in  Article  XIII 
nttributablA  to  the  construction  and  equipment  of  the  Warrior  extension  and 
Warrior  substation.  The  contractor  shall  also  pay  to  the  United  States  interest 
monthly  at  the  rate  of  six  per  cent  (6  per  cent)  per  annum  upon  the  sum  of 
thirty  thousand  dollars  ($30,000)  and  upon  the  cost  of  the  rails  and  rail-.ioint 
material  referred  to  in  subdivision  7  of  Exhibit  E.  The  payments  hereunder 
^Itnll  be  m.nde  at  the  same  time  as  the  monthly  payments  due  the  contractor 
from  ti^e  United  States  under  Article  XVIII  are  made. 

(2)  Durinsr  such  period  as  the  contractor  may  under  the  provisions  of 
-^^rticle  XXT  bp  relieved  of  said  monthly  payments,  the  contractor  shall  pav  to 
t'i«  United  Stntes  monthly  in  lieu  of  said  monthly  payments,  one  and  one-half 
i\i'll  for  each  kilowatt  hour  of  energy  produced  by  the  contractor  at  the  War- 
nor  extension  and  measured  at  the  Warrior  extension  switchboard  for  sale 
fo  customers  other  than  the  United  States.  Said  rate  of  U  mill  is  subject  to 
^pHuction  by  an  amount  to  be  ascertained  on  the  first  day  of  each  month  by 
nividing  by  200.000,000  the  interest  at  6  per  cent  per  annum  on  the  then 
accumulated  fund. 


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MUSCLE  SHOALS  PROPOSITIONS. 


159 


Akticlk  XVIII. 

Payments  by  the  United  States  for  electric  energy,  including  mininium  pay- 
^ewfs.— (1)  The  United  States  shall  pay  to  the  contractor  at  the  rate  of  six 
and  one-half  (6^)  mills  for  each  k.  w.  h.  of  energy  actually  delivered  to  the 
United  States  at  the  Warrior  substation.  Said  rate  is  based  upon  the  power 
factor  of  the  load  of  the  United  States  measured  at  the  Warrior  substation 
being  no  less  than  eighty-five  per  cent  (85%).  Energy  generated  at  the 
Warrior  extension  or  the  Warrior  substation  shall  be  measured  at  the  low- 
tension  side  of  the  step-up  transformers  at  said  Warrior  substation;  and 
energA^  generated  elsewhere  on  the  contractor's  system  and  delivered  to  the 
United  States  hereunder  shall  be  measured  at  the  Warrior  substation  either 
at  the  low-tension  side  of  the  said  transformers,  or,  at  the  contractor's  option, 
at  approximatelv  110,000  volts.  If  so  measured  at  110,000  volts,  the  contractor 
shall  supply  the  necessary  instruments  and  accessories  at  its  own  expense 

(^)  Where  the  amount  due  for  energy  at  said  rate  of  six  and  one  half  mills 
in  anv  one  calendar  month  from  and  after  December  1,  1918  (said  energy 
having  been  delivered  at  a  maximum  rate  not  in  excess  of  t,»^«;,  ^^^P^f i^y  «f  ;'^^; 
Warrior  extension),  is  less  than  thirty  thousand  (30,000)  dollars,  the  Unitec 
States  shall,  nevertheless,  pay  to  the  contractor  the  sum  of  thirty  thousand 
(30  000)  dollars  as  a  minimum  payment  for  service  during  such  month,  subject, 
however,  to  the  provisions  of  the  first  paragraph  of  Article  XXI. 

(3)  The  contractor  shall  render  all  bills  on  or  before  the  tenth  day  of  each 
calendar  month  for  electric  energy  furnished  during  the  preceding  calendar 
month,  and  payment  thereof  shall  be  made  within  fifteen  days  after  such  bills 
are  rendered. 

Article  XIX. 

Amount  to  be  retained  by  United  States  from  payments  for  electric  energy.- 
From  and  after  such  date  as  the  contractor  shall  begin  to  operate  the  ^^  arrior 
extension  and  Warrior  substation  as  a  part  of  its  own  system  the  L  nited  States 
shall  retain  two  mills  per  k.  w.  h.  from  the  amounts  payable  to  the  contractor 
bv  the  United  States  under  Article  XVIII  hereof,  except  that  (a)  in  no  case 
shall  the  said  minimum  numthly  payment  by  the  United  States  be  less  than 
$30  000,  and  (6)  the  United  States  shall  retain  no  part  of  the  payments  due 
for 'energy  delivered  bv  the  contractor  at  a  rate  in  excess  of  the  capacity  at  the 
time  of  the  said  Warrior  extension,  provided  that  said  two  mills  shall  no  longer 
be  retained  bv  the  United  States  when  the  accumulated  fund  shall  equal 
the  actual  cost'  to  the  United  States  of  the  Warrior  extension  and  the  W  arrior 
subsSn.  computed  as  set  forth  in  Article  XI.  The  funds  so  retained  shnl 
accumulate  in  the  hands  of  the  United  States  but  without  the  addi  ion  ot 
interest,  and  shall  be  applieil  or  otherwise  disposed  of  in  accordance  with  the 
provisions  of  Article  XXII. 

Article  XX. 

» 

Price  for  electric  energy  to  vary  with  price  of  coal  and  labor.— (1)  The  rMte 
of  six  and  one-half  mills  per  k.  w.  h.  is  based  upon  the  use  of  unwashed  ruii- 
of-mine  Alabama  coal,  having  a  heat  value  of  approximately  thirteen  thousaim 
five  hundred  (13,500)  British  thermal  units  per  pound  "as  received,  at  the 
mine  price  of  two  dollars  and  thirty  cents  ($2.30)  per  ton,  and  for  variations 
from  such  standards  the  following  adjustments  shall  be  made  monthly  la 
said  rate,  but  only  as  it  relates  to  energy  generated  in  the  Warrior  extension 
or  Warrior  station  for  the  use  of  the  United  States. 

The  actual  average  cost  per  ton  of  coal  consumed  under  the  boilers  ot  fiie 
Warrior  extension  and  the  warrior  station  shall  be  the  average  cost  per  ton 
of  the  total  quantitv  of  coal  consumed,  calculated  on  the  basis  of  the  mine 
prices  fixed  bv  the'  United  States  Fuel  Administration  for  the  respective 
mines,  plus  tra'nsportation  charges.  In  the  event  that  the  United  States  Fuel 
Administration  shall  not  fix  such  mine  prices,  then  such  actual  average  cost 
shall  be  calculated  on  the  basis  of  the  prevailing  competitive  market  prices 
at   the  various  mines  from  which   the  coal  is  obtained,  plus   transportation 

charsres 

In  the  event  that  the  average  heat  value  of  the  coal  used  during  any  calendar 
month  is  less  than  thirteen  thousand  (13,000)  or  more  than  fourteen  thousand 
(14,000)  British  thermal  units,  then  said  actual  average  cost  of  coal  used  during 
such  month  shall  be  corrected  by  multiplying  such  actual  average  cost  by  the 


ratio  of  thirteen  thousand  five  hundred  (13,500)  to  the  actual  heat  value  of 
the  coal  as  determined  by  tests.  If  the  average  heat  value  of  the  coal  falls 
within  the  Umits  of  13,000  and  14,000  British  thermal  units  no  change  shall 
be  made  in  the  actual  average  cost. 

The  said  rate  of  six  and  one-half  miUs  ($0.0065)  shall  be  adjusted  for  such 
calendar  month  by  an  increase  or  a  decrease  of  one  hundredth  of  a  mill 
($0.00001)  for  each  increase  or  decrease  of  one  cent  ($0.01)  per  ton  in  the 
corrected  average  cost  of  coal  above  or  below  said  price  of  two  dollars  and 
thirty  cents  ($2.30)  per  ton. 

The  price  for  coal  used  in  determining  said  rate  of  six  and  one-half  mills 
($0.0065)  shall  not  exceed  the  price  at  which  an  adequate  and  bona  fide  supply 
of  coal  for  the  operation  of  the  Warrior  extension  can  be  procured  at  the  time, 
and  said  cost  of  coal  so  used  in  determining  said  rate  shall,  except  as  other- 
wise provided  herein,  be  the  said  actual  average  cost  of  the  coal  consumed 
during  the  calendar  month  for  which  the  determination  is  made. 

As  soon  as  practicable  after  the  first  day  of  each  month  the  contractor  shall 
render  to  the  United  States  a  statement  showing  the  actual  average  cost  per 
ton  for  coal  delivered  during  the  preceding  month  to  the  track  hoppers  or 
coal-storage  piles  at  Gorgas,  the  amount  so  delivered,  the  heat  value  of  the 
coal,  and  the  actual  average  cost  of  coal  on  hand  at  the  beginning  of  the 
month  for  which  bill  is  rendered.  The  term  "  ton  "  as  used  in  this  article  shall 
mean  the  net  ton  of  two  thousand  (2,000)  pounds. 

Either  the  contracting  officer  or  the  contractor  may  at  any  time  request 
that  analysis  of  representative  samples  of  the  coal  used  in  the  operation  of 
the  Warrior  extension  and  Warrior  station  be  made  by  a  competent  person 
acceptable  to  both  parties  to  determine  its  quality  and  heat  value.  Upon  fail- 
ure of  the  parties  to  agree  upon  such  a  person  within  ten  days  after  such 
request  is  made  known,  the  Bureau  of  Standards  shall  make  the  analysis.  If 
any  such  analysis  shows  that  the  heat  value  is  higher  than  fourteen  thousand 
(14,000)  British  thermal  units  per  pound,  then  the  United  States  shall  pay 
the  cost  of  the  analysis ;  if  the  heat  value  is  shown  to  be  lower  than  thirteen 
thousand  (13,000)  British  thermal  units,  the  cost  of  the  analysis  shall  be 
paid  by  the  contractor,  and  if  the  heat  value  is  show^n  to  be  not  less  than 
thirteen  thousand  (13,000)  nor  more  than  fourteen  thousand  (14,000)  British 
thermal  units,  the  cost  of  the  analysis  shall  be  divided  equally  between  the 
United  States  and  the  contractor. 

All  coal  tests  made  under  this  article  shall  be  conducted  in  accordance  with 
the  standard  method  of  analysis  of  the  American  Chemical  Society  and  the 
bomb  calorimeter  shall  be  used  in  determining  the  heat  value. 

(2)  In  the  event  that  the  United  States  shall  use  energy  obtained  under  this 
contract  otherwise  than  in  the  manufacture  of  munitions  of  war,  or  in  the 
event  that  the  United  States  shall  assign  or  transfer  to  another  the  right  to 
obtain  energy  under  this  contract  as  hereinafter  provided,  then  the  following 
labor  adjustment  clause  shall  apply : 

Should  the  cost  of  tabor  for  the  operation  of  the  Warrior  extension,  said 
transmission  lines,  and  said  substations  be  increased  the  contractor  may  sub- 
mit to  the  contracting  ofllcer  or  to  the  successor  of  the  United  States,  as  the 
case  may  be,  a  schedule  at  intervals  of  six  months  or  more  showing  such  in- 
creased cost  over  the  cost  prevailing  on  October  1,  1918.  Upon  the  acceptance 
of  such  schedule,  the  rates  payable  for  energy  shall  be  increased  by  an  amount 
proportionate  to  such  increase  in  the  cost  of  labor.  Similarly,  if  in  the  opinion 
of  the  contracting  officer  or  the  successor  of  the  United  States,  as  the  case  may 
1'^,  such  cost  of  labor  shall  be  decreased,  the  contracting  officer  or  such  suc- 
cessor, as  the  case  may  be,  may  at  like  intervals  submit  a  schedule  to  the 
contractor  showing  such  decrease  below  the  cost  prevailing  on  October  1, 
J^OIS.  Upon  the  acceptance  of  such  schedule  the  rates  payable  for  energy  shall 
oe  decreased  by  an  amount  proportionate  to  such  decrease  in  the  cost  of  labor. 
The  contractor  shall  with  all  convenient  speed  file  with  the  contracting  officer 
a  schedule  showing  said  cost  of  labor  prevailing  on  October  1,  1918. 

Each  party  to  whom  a  schedule  may  be  presented  under  this  subdivision  shall 
have  one  month's  time  within  which  to  verify  the  correctness  thereof.  Any 
schedule  not  rejected  within  such  time  shall  be  deemed  to  have  been  accepted 
as  correct.  In  the  event  of  disagreement  as  to  any  schedule  within  one  month 
of  presentation  thereof  the  matter  in  dispute  shall  be  adjusted  under  Article 
"^XV.  Any  changes  in  rates  under  this  article  shall  relate  back  to  and  take 
effect  on  the  first  day  of  the  month  next  following  the  submission  of  said 
schedules  or  from  such  other  date  as  may  be  fixed  under  Article  XXV. 

92900—22 11 


\ 


160 


MUSCLE  SHOALS  PROPOSITIONS. 
Abticle  XXI. 


MUSCLE   SHOALS  PROPOSITIONS. 


161 


Suspension  of  demand  for  electrical  energy  by  the  United  States.— The  United 
States  raav  at  any  time  and  from  time  to  time  upon  sixty  days'  written  notice, 
suspend  its  demand  for  energy,  in  which  event  and  provided  such  suspension 
shall  exceed  sixty  days,  the  United  States  shall  during  the  period  thereof  be 
relieved  of  the  obligation  to  make  said  minimum  monthly  payment  of  thirty 
thousand  (30,000)  dollars  and  the  contractor  shall,  during  such  period,  be 
correspondinglv  relieved  of  the  payments  mentioned  in  subdivision  (1)  of 
Article  XVII  '  The  service  to  be  rendered  under  this  contract  shall  be  restored 
on  sixty  davs'  written  notice  to  the  contractor  by  the  United  States,  and  after 
such  restoration  said  minimum  monthly  payment  and  said  payments  for  the 
use  of  Warrior  extension  and  substation  shall  again  be  made,  as  if  there  had 
been  no  suspension.  ^     ,        ,.         ,, 

A  suspension  of  service  under  this  article  shall  not  operate  to  relieve  the 
contractor  of  the  obligation  to  maintain  said  transmission  lines.  In  case  such 
suspension  exceeds  sixty  (60)  days,  the  United  States  shaU  for  the  period  of 
suspension  in  excess  of  sLxty  (60)  days,  pay  the  contractor  the  cost  of  main- 
taining said  transmission  lines,  plus  10  per  cent  of  such  cost.  The  United 
States  may,  on  thirty  (30)  days'  written  notice  to  the  contractor,  take  over 
the  maintenance  of  said  transmission  lines  during  any  period  of  suspension  of 

service  x» 

Nothing  herein  contained  shall  prevent  the  contractor  during  any  such  suspen- 
sion from  continuing  to  operate  the  Warrior  extension  and  substaUon  upon 
making  payment  for  enegy  as  provided  in  subdivision  (2)  of  Article  XVII. 

Article  XXII. 

Sale  to  or  purchase  hy  cmtr actor. —{!)  At  any  time  subsequent  to  three 
years  after  the  termination  of  the  war,  the  United  States  shall  have  the  option 
to  sell  to  the  contractor  and  the  contractor  shall,  upon  writt^en  demand  of  the 
Un  ted  States,  buy  all  its  rights,  title,  and  interest  in  and  to  the  Warrior 
extension  and  Warrior  substation  with  all  rights  appurtenant  thereto  at  the 
value  fixed  by  arbitration  as  hereinafter  provided.  The  accumulated  fund  re- 
ferred to  in  Article  XIX  shall  be  applied  in  payment  of  said  value,  and  any 
excels  of  said  fund  over  said  value  shall  be  paid  over  to  the  contractor  pro- 
vwld^that  if  the  actual  cost  of  Warrior  extension  and  Warrior  substatiou 
to  the  United  States  shall  exceed  said  value,  then  only  the  excess  of  said  fum 
over  said  cost  shall  be  paid  over  to  the  contractor.  If  said  value  shall  exceed 
said  fund,  then  the  contractor  shall  pay  to  the  United  ftate««ie  excess  i 
the  manner  hereinafter  provided.  As  soon  as  the  amount  of  said  value  shall 
be  P?W  or  secured  as  in  this  article  provided,  the  United  States  shall  convey 
all  of  its  right   title,  and  interest  in  and  to  said  properties  to  the  contractoi. 

(2)  If  and  when  said  accumulated  fund  shall  be  equal  to  or  greater  than 
the  actual  cost  to  the  United  States  of  the  Warrior  extension  and  the  Warrioi 
substation,  the  contractor  may  demand  that  the  United  States  ^o^^ey  all  of  it^ 
right,  title  and  interest  in  and  to  said  properties  to  the  contractor  and  tha  t 
mv  over  to  the  contractor  the  excess,  if  any,  of  said  fund  over  said  cost,  reta u  - 
ine  the  balance.    The  United  States  shall  comply  promptly  with  such  demaiul. 

(3)  The  contractor  may  also  at  any  time  demand  that  the  United  States  coii- 
vey  to  it  all  of  the  right,  title,  and  interest  of  the  United  States  in  and  to  tbo 
Warrior  extension  and  the  Warrior  substation  upon  payment  to  the  Unite  i 
States  of  any  excess  of  the  actual  cost  of  said  properties  over  the  amount  ot 
sakl  accumulated  fund  then  in  the. possession  of  the  United  States.  And  upu 
pavmentTo  tl^^^^  States  of  such  excess  the  United  States  shall  compl> 
with  said  demand,  retaining  the  whole  of  said  accumulated  fund. 

m  At  anv  time  after  December  1,  1926,  or  such  earlier  period  as  the  United 
States  shall  finally  cease  to  take  energy  under  this  contract,  said  accumulated 
fund  being  l^s  than  the  actual  cost  to  the  United  States  of  t^e  Warrior  ex^e^^^ 
sion  and  Warrior  substation,  the  contractor  may  demand  that  the  value  of  saiU 

Dronerties  be  fixed  by  arbitration ;  and 

propert^es^oe  n^^^^  ^y  ^^^^  .^  ^^^^^  ^^  ^^  ^^^^  ^^^^^  ^^^  ^^  of  such  acciin  v 

lated  fund,  then  the  United  States  shall  convey  to  the  contractor  all  of  it^^ 
ri-ht    title    and  interest  in  and  to  said  properties  by  proper  instruments  m 
writLg  wi^^^^^^  sixty   (60)   days  after  notice  of  the  award,  retaining  in  paj 
ment  the  whole  of  said  fund. 


(&)  If  the  value  so  fixed  be  greater  than  said  fund,  then  the  United  States 
shall  upon  payment  by  the  contractor  of  the  amount  by  which  such  value  is 
greater  than  said  fund,  or  payment  thereof  being  securetl  as  hereinafter  pro- 
vided, convey  all  of  its  right,  title,  and  interest  in  and  to  said  properties  to 
the  contractor  by  proper  instruments  in  writing  within  sixty  (60)  davs  after 
notice  of  the  award,  retaining  in  payment  the  whole  of  said  fund. 

(5)  In  the  event  that  the  contractor  shall  on  demand  of  the  United  States 
fail  or  refuse  to  purchase  the  Warrior  extension  and  Warrior  substation  under 
any  of  the  foregoing  subdivisions  of  this  article,  the  United  States  may  sell 
the  same  to  another,  subject  to  the  conditions  that  said  properties  shall  not 
be  operated  and  that  they  shall  be  removed  within  six  (6)  months  after  the 
sale  has  been  consummated.  Upon  the  consummation  of  such  a  sale  with  an- 
other purchaser  the  United  States  shall  pay  over  to  the  contractor  the  whole 
of  said  accumulated  fund,  less  the  amount,  if  any,  by  which  the  actual  cost  of 
the  said  properties  shall  exceed  the  price  realized  from  such  sale. 

(6)  In  the  event  that  (a)  the  Warrior  extension  and  Warrior  substation  are 
not  sold  in  the  manner  herein  provided  to  the  contractor  or  to  another  within 
the  period  of  ten  (10)  years  referred  to  in  Article  XV,  or  (&)  said  properties  not 
having  been  so  sold,  the  United  States  or  its  said  successor  shall  cease  for  365 
consecutive  days  to  take  any  energy  from  the  Warrior  extension;  the  United 
States  shall,  upon  six  months'  notice  in  writing  from  the  contractor,  remove 
the  Warrior  extension  and  Warrior  substation  from  the  lands  of  the  con- 
tractor unless  it  shall  within  ninety  (90)  days  after  receipt  of  such  notice  pro- 
ceed to  exercise  its  option  under  subdivision  (1)  of  this  article.  In  the  event  of 
removal  pursuant  to  such  notice,  the  United  States  shall  leave  the  premises  in 
a  neat  and  workmanlike  condition  and  shall  pay  over  to  the  contractor  the 
entire  amount  of  the  said  accumulated  fund  then  in  its  possession. 

(7)  If  the  United  States  or  its  said  successor  shall  for  a  period  of  two  con- 
secutive years  fail  to  take  energy  from  the  Warrior  extension,  and  in  any  event 
at  the  expiration  of  said  period  of  10  years,  the  United  States  shall,  upon  six  (6) 
months'  written  notice  from  the  contractor,  remove  such  of  said  transmission 
lines  and  appurtenances  owned  by  it  as  are  located  on  land  or  rights  of  way 
owned  by  the  contractor;  provided,  that  upon  receipt  of  such  notice  the 
United  States  may  require  the  contractor  to  purchase  all  of  its  right,  title,  and 
interest  in  and  to  said  transmission  lines  and  their  appurtenances  a  their  fair 
value  as  fixed  by  arbitration. 

(8)  The  contractor  shall  have  a  period  of  five  years  in  which  to  make  pay- 
ment of  any  amounts  due  the  United  States  under  subdivisions  (1)  and  (4)  of 
this  article  over  and  above  said  accumulated  fund,  provided  that  all  deferred 
payments  shall  be  secured  in  a  manner  satisfactory  to  the  Chief  of  Ordnance. 
During  such  period  the  contractor  shall  pay  to  the  United  States  interest  on 
deferred  payments  at  the  rate  of  5  per  cent  per  annum.  At  the  request  of  the 
contractor  said  period  shall  be  extended  two  and  one-half  years,  interest  during 
such  extended  period  to  be  at  the  rate  of  6  per  cent  per  annum.  The  contractor 
may  anticipate  any  deferred  payment  in  whole  or  in  part. 

(9)  The  value  of  said  properties  to  be  determined  under  this  article  shall  be 
their  fair  value,  and  it  shall  be  fixed  by  arbitration  under  Article  XXIV. 

(10)  Actual  cost  under  this  article  shall  be  computed  as  provided  in  Ar- 
ticle XI. 

Article  XXIII. 

Energy  for  successor  in  interest  of  the  United  States. — If  at  any  time  within 
the  period  of  ten  years  referred  to  in  Article  XV  the  United  States  shall  sell 
or  lease  its  said  nitrate  plants  at  Sheffield  and  at  Muscle  Shoals,  or  either  or 
any  part  of  said  plants,  the  United  States  may  assign  and  transfer  to  the  pur- 
chaser or  lessee  thereof  (in  this  contract  referred  to  as  the  successor  of  the 
United  States)  the  right  to  demand  and  receive  electric  energy  under  this  con- 
tract to  the  extent  of  the  capacity  of  the  Warrior  extension  'at  the  time,  and 
any  other  rights  hereunder  as  may  be  agreed  upon  between  said  successor  and 
the  United  States,  excluding,  however,  the  right  to  furnish  coal  to  the  con- 
tractor and  the  right  to  require  the  contractor  to  supply  energy  from  other 
Parts  of  its  system  under  Article  XV,  also  the  provisions  of  Articles  XVI,  XVII, 
subdivision  (3)  of  Article  XVIII,  Articles  XIX,  XXI,  and  XXII. 
.  ff  the  successor  desires  to  accept  said  assignment  and  transfer,  it  shall  so 
signify  in  writing  simultaneously  with  the  execution  of  said  assignment  and 
transfer  by  the  United  States,  and  shall  thereupon  be  deemed  to  have  accepted 


.V 


162 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS   PROPOSITIONS. 


163 


and  assumed  all  of  the  obligations  of  the  United  States  under  this  contract 
in  relation  to  the  portion  thereof  so  assigned  and  transferred  (including  the 
obligation  under  subdivisions  (1)  and  (2)  of  Article  XVIII),  except  as  modi- 
fied  in  the  following  respects :  .       .  .^. 

(a)  Such  successor  may  give  the  contractor  six  months'  notice  m  writmg 
that  it  will  cease  taking  energy  under  this  contract.  Such  notice  shall  have 
the  effect  of  terminating  all  of  the  rights  and  obligations  of  the  successor  under 
this  contract  from  and  after  the  expiration  of  such  six  months'  period,  and  the 
successor  shall  thereafter  have  no  further  right  to  demand  energy  hereunder. 

(&)  Bills  shall  be  rendered  monthly  by  the  contractor  for  energy  supplied 
during  the  previous  month,  and  if  not  paid  at  its  office  within  ten  days  from  the 
date  of  rendition  the  contractor  shall  haye  the  right  upon  five  days'  written 
notice  to  suspend  service;  and  if  not  paid  within  a  further  period  of  thirty 
days  the  contractor  shall  have  the  right,  at  its  opton,  by  notice  to  the  succes- 
sor, to  cancel  and  terminate  its  agreement  for  further  delivery  of  energy  to 
the  successor,  whereupon  all  rights  of  the  successor  as  to  such  further  energy 

shall  cease 

(c)  Without  the  written  consent  of  the  contractor  the  successor  shall  not  sell 
or  dispose  of  any  energy  furnished  hereunder  or  which  may  be  generated 
directly  or  indirectly  therefrom,  except  to  tenants  on  the  successor's  premises ; 
nor  transfer  or  assign  to  anyone,  directly  or  indirectly,  the  right  to  obtain 
energy  under  this  contract.  No  right  or  benefit  hereunder  shall  be  assigned  or 
transferred  by  operation  of  law  without  like  consent. 

(d)  Service  to  said  successor  shall,  in  addition,  be  subject  to  such  other  rea- 
sonable rules  and  regulations,  not  inconsistent  with  the  terms  of  this  contract, 
as  may  then  be  in  effect  or  as  may  thereafter  be  established  from  time  to  time 
by  the  contractor  or  by  the  Alabama  PubUc  Service  Commission. 

Upon  the  execution  of  said  assignment  and  transfer  by  the  United  States  and 
its  acceptance  as  above  provided  by  the  said  successor,  the  United  States  shall 
be  relieved  of  all  of  its  liabilities  under  this  contract  in  so  far  as  they  relate  to 
the  portion  thereof  so  assigned  and  transferred. 

Abticle  XXIV. 

Arhitration.-Whenevev  either  party  is  entitled  to  and  desires  the  determina- 
tion of  the  value  of  any  of  the  properties  mentioned  in  Article  XXII,  it  shall 
so  .tate  in  writfng  to  the  other  party  and  shall  add  the  name  and  address  of 
the  arbit?a^r  chosen  by  the  party  demandng  the  arbitration.  The  other 
nartvshaH  within  fifteen  (15)  days  thereafter,  choose  its  arbitrator  and  no- 
tffv  the  paVtTdemam^^  the  arbitration  of  its  choice,  giving  the  name  and 
adLess  oTsuch  a^bttrator.  The  two  arb'trators  so  chosen  shall,  withm  twenty 
?20rdavs  after  being  notified  by  either  party  that  the  second  arbitrator  has 
been  chosen  choose  a  third  arbitrator.  If  said  two  arbitrators  are  unable 
v.Mthin  twintv  (20)  davs  after  being  so  notified  to  agree  upon  such^  third  arbi- 
Trator  then  iipon  tL^^^^  of  Either  party,  the  senior  judge  of  the  United 

Q?nVa«  riroiiit  Court  of  Appeals  for  the  Fifth  Circuit  shall  have  the  power  to 
^  -l  Snhthiv^  arbitrator -ten  (10)  days'  notice  of  the  application  to  the 
rd"seX\ircuU  ju™^  by  thJ  party  aPP^nf  to  th^^^^^^^^^^ 

Tn  the  event  of  the  disqualification  or  refusal  to  act  of  the  said  senior  circuu 

^'^utfther  party  fails  to  ohoose  an  arbitrator  within  thirty   (30)   days  after 

,„i.i»,„.  ™ia«     Ml..  i~rt  M^^ 

mmmmsmm 


such  adjournment  is  made.  The  arbitrators  shall  with  all  reasonable  speed 
determine  aU  disputes  and  questions  submitted  to  them  and  notify  the  parties 
in  writing  of  their  determination.  Any  award  when  signed  by  any  two  of 
the  arbitrators  shall  be  final  and  conclusive  upon  both  parties.  The  expense  of 
the  arbitration,  including  the  arbitrators'  fees,  shall  be  ascertained  and  borne 
as  determined  by  the  arbitrators.  Said  fees  shall  be  subject  to  the  approval 
of  the  Chief  of  Ordnance. 

ArticI/E  XXV. 

Disputes. — Except  as  herein  otherwise  provided,  all  disputes  and  questions 
which  shall  arise  under  this  contract  shall  be  referred  to  the  Chief  of  Ordnance 
for  determination.  If,  however,  the  contractor  shall  feel  aggrieved  at  any  deci- 
sion of  the  Chief  of  Ordnance  upon  such  reference  it  shall  have  the  right  to 
submit  the  same  to  the  Secretary  of  War. 

Article  XXVI. 

Time — Delays  due  to  causes  beyond  contractor's  control. — It  is  essential  that 
all  work  and  operations  under  this  contract  be  carried  out  as  expeditiously  as 
possible,  and  to  this  end  the  contractor  agrees  to  perform  all  such  work  and 
operations  on  its  part  with  great  diligence  and  the  highest  speed  practicable 
consistent  with  the  proper  performance  thereof. 

The  contractor  shall  not  be  held  responsible  for  or  be  deemd  to  be  in  default 
hereunder  by  reason  of  delays  in  the  performance  of  this  contract  or  interrup- 
tions to  service  caused  by  strikes,  fires,  explosions,  riots,  acts  of  God,  failures  of 
transportation,  or  other  causes  beyond  the  control  and  without  the  fault  of  the 
contractor :  ProiHded,  That  the  contractor  shall  have  promptly  and  fully  notified 
the  contracting  officer  of  any  such  cause  of  delay  and  shall  have  used  its  best 
efforts  promptly  to  remove  the  same  and  to  obviate  the  effects  thereof :  And  pro- 
vided further.  That  such  delay  shall  not  have  been  due  to  the  contractor's  fail- 
ure to  comply  with  any  of  the  provisions  of  this  contract.  The  contractor  shall 
proceed  with  the  performance  of  this  contract  as  soon  as,  and  to  the  extent  that, 
any  such  cause  of  delay  shall  have  been  removed. 

Article  XXVII. 

CANCELLATION    AND    TERMINATION    BEFORE    COMPLETION. 

Section  1.  Cancellation  for  contractor's  default. — If  the  contractor  shall  aban- 
don any  construction  work  under  this  contract,  the  Chief  of  Ordnance  may  can- 
cel this  contract  by  thirty  days'  notice  in  writing,  without  prejudice  to  any  other 
lights  or  remedies  or  to  any  claim  which  the  United  States  may  have  against  the 
contractor.  Thereupon  the  United  States  shall  have  the  power  to  complete 
such  constructtion  work  or  enter  into  agreements  with  others  for  the  completion 
thereof,  in  whole  or  in  part,  at  the  expense  of  the  contractor.  Work  completely 
performed  in  accordance  with  the  requirements  of  this  contract  at  the  date  of  any 
such  cancellation  shall  be  accepted  and  paid  for  by  the  United  States. 

Sec.  2.  Termination  in  public  interest. — If,  in  the  opinion  of  the  Chief  of 
Ordnance,  the  public  interest  shall  so  require,  the  construction  work  required 
by  this  contract  may  be  terminated  by  the  United  States  by  thirty  days'  notice 
in  writing.  Such  termination  shall  be  without  prejudice  to  any  claims  which 
the  United  States  may  have  against  the  contractor  under  this  contract.  After 
the  receipt  of  such  notice  the  contractor  shall  not  order  any  further  materials 
or  facilities,  or  enter  into  any  further  subcontracts,  or  make  any  further  pur- 
chases in  connection  with  the  performance  of  this  contract,  without  written 
consent  previously  obtained  from  the  contracting  officer,  but  inspection  of  the 
completed  work  and  acceptance  thereof  by  the  United  States  in  accordance 
with  the  terms  of  this  contract  shall  continue  during  such  period  of  thirty 
days  as  though  such  notice  had  not  been  given. 

In  the  event  of  and  upon  such  termination  of  this  contract  prior  to  com- 
pletion for  any  reason  other  than  the  abandonment  thereof  by  the  contractor, 
the  United  States  shall  make  payments  to  and  protect  the  contractor  as  fol- 
lows : 

(1)  The  United  States  shall  pay  for  (a)  all  expenditures  made  by  the 
contractor  in  good  faith  and  in  connection  with  the  performance  of  this  con- 
tract for  which  the  United  States  is  obligated  to  pay  under  the  terms  of  this 
contract  and  which  the  United  States  has  not  previously  paid,  (ft)  in  addition 


8 


164 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


165 


the  United  States  shall  pay  the  contractor  for  all  work  completed  in  accord- 
ance with  the  provisions  of  this  contract  the  sum  provided  as  profit  thereon 
under  the  terras  of  this  contract  and  not  theretofore  paid. 

(2)  The  United  States  shall  discharge  the  contractor's  outstanding  obliga- 
tions incurred  by  the  contractor  in  good  faith  in  connection  with  the  per- 
formance of  this  contract  for  which  the  contractor  has  not  theretofore  receive<l 
reimbursement  or  protection  from  the  United  States  and  which  are  of  such 
character  that  the  United  States  would,  under  the  terms  of  this  contract, 
have  become  liable  to  reimburse  the  contractor  for  its  expenditures  thereunder, 
had  this  contract  not  been  so  terminated. 

Sec.  3.  Assignment  of  subcontracts. — In  the  event  of  the  cancellation  and 
termination  of  this  contract,  pursuant  to  the  provisions  of  the  above  sections 
1  and  2,  the  contractor  shall,  upon  the  request  of  the  contracting  officer, 
assign  to  the  United  States,  or  to  such  person  as  the  contracting  officer  may 
direct,  the  unperformed  portion  of  any  or  all  contracts  and  subcontracts  made 
by  the  contractor  in  contemplation  of  or  in  connection  with  the  performance 
of  this  contract.  In  the  event  of  the  failure  of  the  contractor  to  assign  any 
such  contract  or  subcontracts  as  herein  provided,  this  contract  shall  operate 
as  such  assignment.  It  is  understood  that  such  assignment  in  and  of  itself 
shall  not  compel  the  United  States  to  assume  or  become  responsible  for  any 
obligation  of  the  contractor  which  has  arisen  prior  to  such  assignment  by 
reason  of  the  contractor's  performance  of,  or  failure  to  perform,  the  contract  or 
subcontract  so  assigned. 

Sec.  4.  Taking  possession  of  contractor's  plant. — In  the  event  of  the  cancel- 
lation or  termination  of  tbis  contract  pursuant  to  the  provisions  of  the 
above  sections  1  and  2,  the  United  States  may,  for  the  purpose  of 
completing  the  i)erformance  of  the  work  herein  contracted  for,  or  any 
part  thereof,  take  possesion  of  and  use  any  or  all  of  the  plants  and  properties 
of  the  contractor  used  in  accordance  with  Article  VII,  in  carrying  out  this 
contract.  In  such  event  the  United  States  shall  pay  to  the  contractor  such 
reasonable  sum  for  the  use  thereof  as  may  be  agreed  upon  between  the  con- 
tracting officer  and  the  contractor,  or,  if  they  fail  to  agree,  as  may  be  de- 
termined in  the  manner  and  with  the  effect  provided  in  Articles  XXIV  or 
XXV.  Such  plants  and  properties  shall  be  occupied  and  used  by  the  United 
States  without  cost  or  expense  to  the  contractor;  and  during  such  use  the 
United  States  shall  save  the  contractor  harmless  from  all  damages  for  injury 
to  person  or  property  resulting  from  such  use,  the  United  States,  however, 
reservii'i;  any   claims  which  it  may  have  against  the  contractor  under  this 

contract 

Article  XXVIII. 

Measuring  instruments — Testing. — All  energy  delivered  shall  be  measured 
bv  duplicating  polyphase  integrating  watt-hour  meters  or  others  of  standard 
make,  to  be  provided  by  and  installed  at  the  expense  of  the  United  States,  and 
kept  in  repair  to  the  satisfaction  of  the  contracting  officer  by  the  contractor 
at  its  expense.  All  energy-  shall  be  measured  both  as  to  rate  of  supply  and 
quantity  by  the  average  duplicate  readings  of  the  meters. 

The  meters  shall  be  tested  and  adjusted  by  the  contractor  to  measure  and 
record  within  one  per  cent  of  absolute  accuracy  under  average  operating  con- 
ditions. In  case  of  dispute,  each  of  the  parties  hereto  shall,  upon  seven  days' 
written  notice  to  the  other,  have  the  right  to  disconnect  any  meter  and  have  it 
tested  bv  a  competent  and  disinterested  person  acceptable  to  both  parties;  and 
for  failure  of  the  parties  to  agree  upon  such  a  person  within  ten  days  after 
such  notice  has  been  served,  he  shall  be  selected  by  the  Chief  of  Ordnance.  It 
any  meter  shall,  upon  being  tested,  record  more  than  two  per  cent  in  excess 
of  correct  registration,  the  contractor  shall  pay  the  cost  of  the  test ;  if  it  shall 
record  less  than  ninety-eight  per  cent  of  the  correct  registration,  the  United 
States  shall  pay  the  cost  of  the  test;  and  if  the  error  shall  not  exceed  two 
per  cent,  the  cost  of  the  test  shaU  be  borne  by  the  party  in  whose  behalf  the 
test  was  made.  Any  adjustment  in  the  charge  for  energy  made  necessary  on 
account  of  an  error  in  the  meter  shall  cover  a  period  of  not  exceeding  thirty 
days  prior  to  the  time  when  such  test  was  called  for.  The  United  States  shau 
pay  for  current  consumed  during  such  time  as  a  meter  is  out  of  order  in  ac- 
cordance with  the  registration  of  the  second  or  duplicate  meter  above  referred 
to  and  in  case  both  meters  are  in  error  an  amount  to  be  estimated  upon  tne 
basis  of  the  registration  of  the  meter  during  a  similar  period  when  they  were 
functioning  properly. 


At  all  tests,  calibrations,  readings,  and  adjustments  by  either  party  the  other 
party  shall  have  the  right  to  be  represented. 

Abticle  XXIX. 

Approval  by  contracting  officer.— The  contractor  shall  not  enter  into  con- 
tracts in  connection  with  construction  work  or  proceed  with  such  work  until 
the  approval  of  the  contracting  officer  has  been  obtained. 

Inspection.— All  work  of  every  kind  to  be  performed  and  all  property  to  be 
acquired  or  installed  under  this  contract  shall  at  all  times  be  subject  to  inspec- 
tion and  test  by  the  duly  authorized  inspectors  of  the  Ordnance  Department, 
and  the  contractor  shall  (but  at  the  expense  of  the  United  States)  furnish 
all  reasonable  facilities  and  assistance  requested  by  such  inspectors  for  the 
performance  of  their  duties.  Such  inspectors  may  reject  all  work  and  mate- 
rials not  complying  with  the  terms  of  this  contract,  and  all  work  and  materials 
so  rejected  shall  be  replaced  by  the  contractor  without  charge  therefor  to  the 
United  States. 

Access  to  properties.— The  duly  authorized  representatives  of  the  United 
States  shall  at  all  times  have  free  access  to  the  Warrior  extension,  the  War- 
rior substation,  the  transmission  lines,  and  all  other  property  owned  by  the 
United  States  for  the  purposes  of  inspection  testing,  making  inventories,  and 
any  other  purpose  under  this  contract,  provided  that  no  directions  or  instruc- 
tions shall  be  given  the  employees  of  the  contractor  in  respect  to  the  operation 
of  said  properties  except  as  in  Article  XXXV  provided.  Such  representatives 
of  the  United  States  shall  also  have  free  access  to  the  properties  of  the  con- 
tractor for  the  purposes  of  inspection  and  testing  so  far  as  necessary  under 
this  contract. 

Records.— The  contractor  shall  keep  complete  records,  of  such  character  and 
in  such  form  as  may  be  approved  or  required  by  the  contracting  officer,  as  to 
all  construction  expenses  and  as  to  such  operating  expenses  as  may  effect  the 
rate  to  be  charged  the  United  States  for  energy  or  any  other  right  of  the 
United  States  hereunder,  all  of  which  records  shall  at  all  times  be  open  to 
the  inspection  of  the  United  States  or  its  duly  authorized  representatives. 
Said  records  shall  be  retained  by  the  contractor  at  the  disposition  of  the 
United  States  for  the  period  of  six  years  after  the  termination  of  this  con- 
tract. 

Audit— Erroneous  payments.  All  accounts  shall  be  subject  to  audit  by  the 
United  States.  Payments  by  thte  United  States  shall  be  subject  to  correction 
for  errors,  if  any. 

Abticle  XXX. 

Payments  not  subject  to  cmmter  claims. — All  payments  hereunder  shall  be 
nuide  as  and  when  due,  without  deduction  for  any  claim  or  counterclaim ;  pro- 
vided, however,  that  the  United  States  before  making  any  payment  as  to  which 
there  may  be  a  bona  fide  question  may  require,  as  a  condition  thereof,  the  giv- 
ing of  an  adequate  bond  for  the  repayment  of  such  part  thereof  as  may,  under 
Article  XXV  or  otherwise,  be  found  not  to  be  due,  failing  which,  payment 
shall  be  made  in  escrow,  subject  to  the  terms  of  this  agreement,  to  some  national 
hank  in  the  city  of  Birmingham,  to  abide  the  decision  of  competent  authority. 

Abticle  XXXI. 

Incumbrances.— The  contractor  agrees  not  to  create  or  suffer  to  be  created 
any  lien  or  incumbrance  against  any  work  paid  for  by  the  United  States,  or 
against  any  property  entering  into  its  performance,  and  in  the  event  any  such 
hen  or  incumbrance  is  created,  the  contractor  agrees  promptly  to  pay  and  dis- 
charge the  same  or  to  furnish  proper  bond  or  security  to  have  the  same  re- 
leased, to  the  end  that  said  work  may  become  the  property  of  the  United 
States  free  and  unincumbered.  In  case  the  contractor  shall  fail  to  pay  and 
discharge  any  such  lien  or  incumbrance  or  to  furnish  proper  bond  or  security 
to  have  the  same  released,  the  United  States  may  do  so  at  the  contractor's 
expense  and  may  deduct  from  any  payments  due  to  the  contractor  hereunder 
the  amount  of  any  expense  so  incurred  by  the  United  States. 


» 


] 


166 


MUSCLE  SHOALS  PEOPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


167 


Article  XXXII. 

Band. — The  contractor  shall,  prior  to  December  1,  1918,  furnish  to  the 
United  States  a  bond  in  the  sum  of  fifty  thousand  dollars,  conditioned 
upon  the  full  and  faithful  performance  by  the  contractor  of  all  terms,  cove- 
nants, and  conditions  hereof  in  relation  to  construction  worli  and  upon  the 
prompt  payment  to  all  persons  supplying  labor  or  materials  in  the  prosecution 
of  the  construction  work  under  this  contract.  Such  bond  shall  be  in  form  and 
with  sureties  satisfactory  to  the  contracting  officer,  and,  unless  it  is  furnished 
within  the  time  limited,  this  agreement  may,  at  the  option  of  the  contracting 
officer,  be  canceled.  The  United  States  shall  reimburse  the  contractor  for  the 
premium  of  such  bond. 

Abticle  XXXIII. 

Revenue  from  housing,  stores,  etc. — All  revenue  from  the  operation  of  any 
housing,  boarding  houses,  commissaries,  stores,  infirmary,  hospital,  and  other 
facilities,  the  property  of  the  United  States,  and  from  refunds,  shall  during 
the  period  of  construction  be  accounted  for  by  the  contractor  to  the  United 
States  and  shall  belong  to  the  United  States. 

Aeticle  XXXIV. 

Contract  nonassignable. — ^Neither  this  contract  nor  any  interest  herein  shall 
be  transferred  by  the  contractor  to  any  other  party,  except  to  the  extent 
permitted  by  section  3477,  United  States  Revised  Statutes. 

Officials  not  to  benefit. — No  Member  of  or  Delegate  to  Congress  or  Resident 
Commissioner  is  or  shall  be  admitted  to  any  share  or  part  of  this  contract,  or 
to  any  benefit  that  may  arise  therefrom;  but  this  article  shall  not  apply 
to  this  contract,  so  far  as  it  may  be  within  the  operation  or  exceptions  of  sec- 
tion 116  of  the  act  of  Congress  approved  March  4,  1909  (35  Stats.,  1109). 

Prison  labor. — ^No  person  or  persons  shall  be  employed  in  the  performance 
of  this  contract  who  are  undergoing  sentences  of  imprisonment  at  hard  labor 
which  have  been  imposed  by  the  courts  of  the  several  States,  Territories,  or 
municipalities  having  criminal  jurisdiction. 

Article  XXXV. 

Service  of  notices. — Notices,  directions,  instructions,  and  demands  under  this 
contract  shall  be  given  in  writing  only  and  shall  be  deemed  served  upon  the 
contractor  if  addressed  to  it  at  Birmingham,  Ala.,  and  either  delivered  to  the 
general  manager  at  its  office  in  said  city  or  deposited  in  a  postpaid  or  penalty 
envelope  in  any  post-office  box  regularly  maintained  by  the  United  States.  The 
address  of  the  contractor  may  be  changed  at  any  time  by  notice  in  writing  to  the 
contracting  officer. 

Notices  shall  be  deemed  served  upon  the  United  States  if  deposited  in  the 
registered  mail  addressed  to  the  Chief  of  Ordnance,  Washington,  D.  C.  All 
such  notices  shall  identify  this  contract  by  stating  the  contractor's  name,  the 
date  thereof,  and  the  file  and  war  order  number  as  given  on  the  cover  hereof. 

The  said  general  manager  and  the  contracting  officer  may  from  time  to  time 
designate,  in  writing,  others  to  receive  and  give  notices,  directions,  and  instruc- 
tions as  to  specific  matters  as  well  as  the  manner  in  which  the  same  may  be 

given  and  received.  

Article  XXXVI. 

Definitions. — Whenever  in  this  contract  the  words  hereinafter  enumerate(! 
are  used,  they  shall  mean  what  is  set  opposite  them : 

Contractor :  The  party  of  the  first  part  and  its  legal  representatives,  succes- 
sors, and  assigns. 

Chief  of  Ordnance :  The  Chief  of  Ordnance,  the  Acting  Chief  of  Ordnance,  or 
any  duly  authorized  representative  of  either. 

Contracting  officer:  The  contracting  officer  executing  this  contract,  his  suc- 
cessor or  successors,  his  or  their  duly  authorized  agent  or  agents,  and  any  one 
from  time  to  time  designated  by  the  Chief  of  Ordnance  to  act  as  contracting 
officer. 


Termination  of  the  war :  The  time  when  the  President  of  the  United  States 
shall  by  proclamation  declare  the  war  terminated. 

In  witness  whereof  the  parties  hereto  have  caused  these  presents  to  be  exe- 
cuted and  delivered  in  quadruplicate  at  Washington,  D.  C,  the  day  and  year 
first  above  written. 

Aj,abama  Power  Company, 
By  James  Mitchell,  Its  President. 

United  States  of  America, 
By  William  Williams, 

Lt.  Col.  Ord.  Dept.,  U.  8.  A., 

Contracting  Officer. 
Witnesses : 

C.  F.  Beames. 
Frank  D.  Mahoney. 

schedui.e  a. 

Being  description  of  Warrior  extension,  annexed  to  and  made  a  part  of 
agreement  dated  December  1,  1917,  between  Alabama  Power  Co.  and  United 
States  of  America : 

WARRIOR  EXTENSION. 

1.  New  power  station  building  of  structural  steel  and  brick  construction 
adjacent  to  contractor's  present  power  generating  station. 

2.  One  225  feet  by  18  feet  inside  diameter  radial  brick  stack. 

3.  Apparatus  to  be  installed  in  said  new  power  station  building. — One  30,000 
k.  w.  General  Electric  Co.'s  (33,333  k.  v.  a.)  13,200  volt,  3  phase,  GO-cycle  turbo- 
generator with  140  k.  w.  250  volt  direct  connected  D.  C.  exciter. 

4.  One  56,000  square  feet  Worthington  surface  condenser  together  with  one 
48-inch  centrifugal  circulating  pump  driven  by  653  h.  p.  General  Electric  Co.'s 
motor;  three  No.  10  Worthington  hydraulic  vacuum  pumps;  two  combined 
steam  driven  hydraulic  supply  hot- well  pumps;  necessary  piping;  car  spring 
supports;  200  spare  condenser  tubes;  200  spare  ferrules;  and  500  tube  pack- 
ings. 

5.  Twelve  1,200  B.  H.  P.  Babcock  &  Wilcox  Stirling  type  boilers  with  super- 
heaters designed  for  225  pounds  pressure,  200  degrees  superheat. 

6.  Twelve  sets  of  soot  blowers  for  above  boilers. 

7.  Eleven  12-retort  Westinghouse  underfeed  stokers  with  driving  mechanism 
and  Westinghouse  engines. 

8.  One  12-retort  Taylor  stoker  with  ABC  engine  and  steam  dump  grate. 

9.  Two  36-inch  link  belt  coal  conveyors,  crusher,  and  screen  with  necessary 
structural  support,  cross-over  dump  tracks  and  housing,  substantially  as  shown 
on  drawings,  E-6900,  E-6902,  C-6658,  C-6633,  C-6794,  C-7158. 

10.  Two  reinforced-concrete  coal  bunkers. 

11.  Twenty-four  coal  gates. 

12.  Twenty-four  automatic  weighing  machines  under  coal  gates. 

13.  Twenty-four  coal  chutes. 

14.  Twelve  reinfoi*ced-concrete  ash  hoppers. 

15.  Thirty-six  36  by  36  inch  ash  gates. 

16.  One  l,()00-gallon  50-foot  head  vertical  sump  pump  direct  connected  and 
driven  by  a  motor,  witJi  automatic  float  switch  in  condenser  room. 

17.  One  1,000-gallon  20-foot  head  centrifugal  sump  pump  for  ash  room. 

18.  Two  100-gallon  40-foot  head  vertical  bilge  pumps  with  automatic  float 
switch. 

19.  One  15-ton  electric  trolley  locomotive,  250  volt,  for  handling  ashes. 

20.  Twelve  2  cubic  yard  rocker  dump  ash  cars,  36-inch  gauge. 

21.  One  set  of  boiler  gauges  and  instruments. 

22.  Two  double  unit  430,000  pounds  per  hour  Cochrane  feed  water  heaters. 
^d.  Twelve  Copes  water  feed  regulators. 

24.  Four  1,400-gallon  565  feet  head  Alberger  centrifugal  boiler  feed  pumps; 
^driven  by  General  Electric  Co.  motors  and  2  driven  by  Alberger  steam  tur- 
omes. 

25.  Four  80,000  cubic  feet  per  minute  Buffalo  blowers,  each  directly  connected 
to  a  150  H.  P.  Westinghouse  motor. 

«  r^A  ??"^  80,000  cubic  feet  per  minute  Green  fans,  each  directly  connected  to 
a  150  H.  P.  Kerr  steam  turbine. 


168 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


169 


27  Two  l,200^galloii  150-foot  head  Alberger  centrifugal  house  service  pumps; 
one  driven  by  General  Electric  Co.  motor;  one  driven  by  Alberger  steam  tur- 

iune. 

28.  One  42-inch  Crane  Co.'s  atmospheric  exhaust  valve. 

29.  One  set  steam  exhaust  and  water  piping. 

30.  One  set  of  Nonpareil  steam  pipe  covering. 

31.  One  9-panel  550  volt  service  switchboard  for  powerhouse  motors. 

32.  One  4-panel  D.  C.  exciter  and  railway  switchboard. 

33.  One  150-KW.  250  volt  D.  C.  550  volt  A.  C.  motor-generator  set. 

34.  Six  2,000  amp.,  15.000  volt,  3-phase  oil  switches,  with  cells. 

55   One  800  amp.,  15,000  volt,  3-pole  single-throw  oil  switches,  with  cells. 
36   Two  300  amp.,  15.000  volt,  3-pole  single-throw  oil  switches,  with  cells. 

37.  Two  750  KW.,  13,200-55  volt,  3-phase  indoor  type  oil  insulated  self-cooled 
transformers,  for  station  service. 

38.  Two  13,200  volt  busses  with  compartments  and  with  all  copper  connec- 
tions and  insulators. 

39.  Three  reactance  coils,  complete,  with  mountinga 

40.  Eleven  sets  of  control  cables  and  conduits. 

41.  Provision  for  storage  of  coal,  grading,  trestles,  and  tracks,  as  shown  ou 
drawing  C-7139,  but  not  including  crane  or  other  coal-handling  devices. 

42.  Yard  tracks  as  shown  on  drawing  E-6887. 

43.  One  standard-gauge  steam  locomotive.     (Used  during  construction.) 

44.  Eight  standard-gauge  coal  cars,  for  reloading  from  coal  storage. 

45.  One  15-ton  standard-gauge  locomotive  crane  with  boom  about  35  feet  long, 
used  during  construction  and  to  be  overhauled  and  equipped  with  coal  bucket 
for  auxiliary  coal  handling. 

46.  One  steel  guy  derrick  and  engine,  for  use  during  construction. 

47.  One  wood  guy  derrick  and  engine,  for  use  during  construction. 

48  Twelve  type  D  or  E  frame  houses,  to  be  in  accordance  with  drawings  dated 
May  29,  1918,  sheets  1,  2,  3,  4  for  each  type— no  serial  number— by  Warren  & 
Knight,  architects,  Birgingham,  Ala. 

49.  One  bath  and  locker  building,  in  accordance  with  drawing  C-<055. 

50.  Twenty  four-room  frame  houses,  used  during  construction,  to  be  im- 
proved according  to  drawings  C-6453  and  6454,  for  housing  operators. 

51.  Seventeen  two-room  frame  shanties. 

52.  Four  bunk  liouses,  for  use  during  construction. 

.53.  One  hospital.  ,,,^.         ^      .,  .       „ 

54.  One   mess   hall,   commissary,   and   storeroom,   as   additions   to   Alabama 

Power  Co.  facilities,  as  shown  on  drawing  E-6887. 

55.  One  ice  plant. 

56.  Six  miscellaneous  commissary  and  office  building><  of  a  temporary  nature 

for  use  during  construction  work  only. 

.57.  Water,  sewer,  light,  and  telephone  lines  as  additions  to  Alabama  Powei 
Co.  facilities,  as  shown  on  drawing  E-6887. 

.58.  One  guard  fence  (with  towers)  to  inclose  powerhouse  and  substation, 
substantialfv  as  shown  on  drawings  G-Q5S2,  A-6914,  E-6887. 

59.  Also  such  additional  facilities  as  may  be  authorized  by  the  contracting 
officer  prior  to  December  1,  1918,  for  use  in  connection  with  the  construction 
and  operation  of  said  Warrior  extension.  .^  ^   ,      ..t, 

60  Copies  of  the  drawing  referred  to  in  this  schedule,  identified  by  tne 
parties  hereto,  are  on  file  in  the  office  of  Col.  .1.  W.  .Toyes,  Ordnance  Department, 
Washington,  D.  C,  and  are  hereby  made  a  part  of  this  agreement. 

Schedule  B. 

Being  a  description  of  the  Warrior  substation  and  the  apparatus  therein, 
annexed  to  and  made  a  part  of  agreement  dated  December  1,  1917,  between 
Alabama  Power  Co.  and  United  States  of  America. 

1  The  Warrior  substation  shall  consist  of  an  extension  to  the  present  switcn- 
ing'  house  of  the  Alabama  Power  Co.  of  brick  and  concrete  to  house  switch- 
boards and  control  apparatus,  and  be  the  terminus  of  control  conduits  ana 

^^2  ^Also  an  extension  to  the  Alabama  Power  Co.  power  plant  to  house  oil 
switches,  bus  structures,  and  auxiliary  transformers  and  equipment. 

3  One  110,000-volt  structural  steel  bus  and  switching  structure,  as  shown 
on  drawing  C-6532,  all  erected  on  suitable  concrete  foundations. 


4.  Ten  6667  kva  110,000/13,200-volt  single  phase  oil  insulated,  water-coolotl 
transformers. 

5.  Four  3333  kva  44,000/13,000-volt  single  phase  oil  insulated,  water-cooled 
transformers. 

6.  Two  750  kva  13,200/5.50-volt  3-phase  oil  insulated,  water-cooled  trans- 
formers. 

7.  One  completed  set  of  oil  and  water  piping  for  all  transformers. 

8.  Two  110,000-volt  electrolytic  lighting  arresters. 

9.  Six  300-ampere  110,000-volt  choke  coils. 

10.  Eight  13,200-volt  2  pole  single-throw  indoor  type  oil  switches. 

11.  Eight  110,000-volt  disconnecting  switches. 

12.  Eight  15,000-volt  disconnecting  switches. 

13.  One  complete  set  of  110,000-volt  copper  busses,  with  necessary  connections 
to  apparatus  and  insulators. 

14.  One  12-panel  switchboard  for  controlling  above  apparatus,  complete,  with 
necessary  indicating  and  measuring  instruments  and  appurtenances. 

15.  One  set  of  control  cables  and  conduits,  as  shown  on  drawing  0-6532. 

16.  Copies  of  the  drawings  referred  to  in  this  schedule,  identified  by  the  parties 
hereto,  are  on  file  in  the  office  of  Col.  J.  W.  Joyes,  Ordnance  Department,  Wash- 
ington, D.  C,  and  are  hereby  made  a  part  of  this  agreement. 

Schedule  C. 

Being  a  description  of  the  transmission  line  extending  from  the  Warrior 
substation  to  the  Muscle  Shoals  substation  on  the  land  of  the  United  States 
adjacent  to  United  States  nitrate  plant  No.  2,  annexed  to  and  made  a  part  of 
agreement  dated  December  1,  1917,  between  Alabama  Power  Co.  and  United 
States  of  America : 

1.  One  single-circuit,  3-phase,  60-cycle,  l(X),(X)0-volt  transmission  line  from  the 
Warrior  substation  at  Gorgas,  Ala.,  to  the  land  of  the  United  States,  on  which 
is  located  its  Muscle  Shoals  nitrate  plant  and  substation,  and  a  double-circuit 
transmission  line  of  similar  specifications  from  the  boundaries  of  the  said  land 
of  the  Uniteil  States  to  the  Muscle  Shoals  substation  adjacent  to  the  steam 
generating  plant  of  the  United  States  nitrate  plant  No.  2,  all  as  shown  on 
drawing  No.  A-6914. 

In  general,  the  transmission  lines  to  consist  of  three  250,000  C.  M.  B.  &  S. 
gage  copper  conductors,  supported  by  suspension  type  insulators  from  H  frame 
structures,  consisting  of  two  creosoted  wooden  poles  and  wooden  cross  arms. 
Also  two  /ff"  galvanized  Siemens-Martin  ground  wires  to  be  attached  to  the 
poles,  together  with  the  necessary  guy  wires,  braces,  and  other  hardware  and 
appurtenances,  in  accordance  with  specifications  and  bill  of  material  shown  on 
drawing  C-7070. 

2.  A  single-circuit  telephone  line  consisting  of  two  No.  10  copper-clad  wires 
supported  on  wooden  cross  arms  attached  to  wooden  poles  separate  from  the 
transmission  line  and  parallel  thereto  and  made  available  for  use  at  frequent 
intervals  by  means  of  telephone  booths  and  instruments. 

3.  A  sectionalizing  and  lightning  arrester  station  located  approximately  half- 
way between  Gorgas,  Ala.,  and  United  States  nitrate  plant  No.  2  at  Muscle 
Shoals. 

4.  Six  patrolmen's  and  10  guards'  houses  and  storehouse  located  at  proper 
intervals  along  the  line. 

5.  Transformer  and  substation  equipment  located  at  the  point  of  junction  of 
the  quarry  brancli  line  with  the  transmission  line. 

6.  Such  other  facilities  as  may  be  authorized  and  approved  from  time  to  t'me 
by  the  contracting  officer  and  erected  or  installed  by  the  United  States  in  con- 
nection with  the  transmission  lines  and  appurtances  mentioned  in  said  agree- 
ment. 

7.  Copies  of  the  drawings  referred  to  in  this  schedule,  identified  by  the  par- 
ties hereto,  are  on  file  in  the  office  of  Col.  J.  W.  Joyes,  Ordnance  Department, 
Washington,  D.  C,  and  are  hereby  made  a  part  of  this  agreement. 

Schedule  D. 

Being  a  description  of  the  Muscle  Shoals  substation  and  the  apparatus  con- 
tained therein,  annexed  to  and  made  a  part  of  -agreement  dated  December  1, 
1917,  between  Alabama  Power  Company  and  United  States  of  America : 

1.  One  110,(X)0-volt  structural  steel  bus  and  switching  structure,  as  shown  on 
drawing  C-6792,  erected  on  suitable  concrete  foundations. 


I: 


170 


MUSCLE   SHOALS  PROPOSITIONS. 


2.  Seven  6667  kva  13,200/110,000  volts  single  phase  transformers. 

3.  Two  110,Q00-electrolytic  lightning  arresters. 

4.  Four  110,000-volt  outdoor  type  3-pole  oil  switches. 

5.  Four  110,000-volt  3-phase  choke  coils. 

6.  Eight  110,000-volt  disconnecting  switches. 

7.  One  set  of  oil  and  water  piping  for  all  transformers  including  spare  oil 
tank. 

8.  One  set  of  110,000-volt  buses  with  necessary  connections  to  apparatus  and 
insulators. 

9.  Such  other  facilities  as  may  be  authorized  and  approved  from  time  to  time 
by  the  contracting  officer  and  erected  or  installed  by  the  United  States  in  con- 
nection with   the   transmission  line.  • 

10.  Copy  of  the  drawing  referred  to  in  this  schedule,  identified  by  the  parties 
hereto,  is  on  file  in  the  ofiice  of  Col.  J.  W.  Joyes,  Ordnance  Department,  »Wash- 
ington,  D.  C,  and  is  hereby  made  a  part  of  this  agreement. 

Schedule  E. 

In  relation  to  Drifton  extension  railroad,  annexed  to  and  made  part  of  agree- 
ment, dated  December  1,  1917,  between  Alabama  Power  Co.  and  United  States 
of  America : 

(1)  The  United  States  Railroad  Administration  shall  rehabilitate  and  put  in 
condition  for  service  at  its  expense  the  disused  track  extending  southeast  from 
Drifton  about  7,000  feet. 

(2)  The  United  States  shall  acquire  the  right  of  way  for  the  Drifton  exten- 
sion from  the  end  of  the  disused  track  of  Drifton  branch  to  the  property  of  the 
Alabama  Power  Co. 

(3)  The  Alabama  Power  Co.  shall  construct  at  its  expense  said  extension 
from  the  end  of  the  disused  track  to  the  terminal  at  Warrior. 

(4)  The  Railroad  Administration  shall  operate  said  extension  for  which 
the  Alabama  Power  Co.  shall  pay  the  Railroad  Administration  a  rate  of  30 
cents  per  ton  on  coal  from  mines  on  the  Drifton  extension  to  the  Warrior 
station  and  Warrior  extension,  such  rate  to  be  added  to  the  cost  of  coal  trans- 
ported over  said  extension  for  use  in  operating  the  Warrior  station  and  War- 
rior extension. 

(5)  The  Railroad  Administration  shall  maintain  the  rehabilitated  track,  but 
the  cost  of  maintaining  said  extension  shall  be  assumed  by  the  power  company. 

(6)  The  Railroad  Administration  shall  assist  the  power  company  in  building 
said  extension  and  shall  furnish  the  construction  plant  for  this  purpose  if 
required. 

(7)  The  United  States  shall  supply  the  rails  and  rail-joint  material  required 
for  the  portion  of  said  extension  to  be  built  by  the  Alabama  Power  Co.,  and 
shall  in  addition  contribute  $30,000  toward  the  cost  of  work  to  be  done  by  the 
Alabama  Power  Co.,  said  sum  and  the  cost  of  said  rails  and  joints  shall  be 
deemed  a  part  of  the  actual  cost  of  the  Warrior  extension  for  the  purposes  of 
Article  XXII. 

(8)  The  United  States  shall  grant  the  Alabama  Power  Co.  an  easement 
over  the  right  of  way  to  be  acquired  by  the  United  States  pursuant  to  the 
foregoing  for  the  period  of  such  easement,  and  provided  such  period  is  twenty- 
five  years  or  more  the  Alabama  Power  Co.  shall,  upon  taking  over  said  railroad 
extension,  reimburse  the  United  States  for  the  cost  of  such  easement. 

Exhibit  F. 

Items  included  in  cost  of  the  work  annexed  to  and  made  a  part  of  agreement 
dated  December  1,  1917,  between  Alabama  Power  Co.  and  United  States  of 
America : 

(a)  All  labor,  material,  apparatus,  and  supplies.  All  hand  tools  not  owned 
by  the  workmen,  supplies  and  equipment  necessary  for  said  work;  but  this 
shall  not  be  construed  to  cover  machinery  or  equipment  mentioned  in  section 
(c)  of  this  schedule.  The  contractor  shall  make  no  departure  from  the  stand- 
ard rate  of  wages  being  paid  in  the  locality  where  said  work  is  being  done 
without  the  prior  consent  and  approval  of  the  contracting  officer. 

(ft)  All  subcontracts  made  by  the  contractor  in  accordance  with  the  provi- 
sions of  this  agreement. 

(c)  Rental  actually  paid  for  construction  plant  and  other  equipment,  in 
sound  and  workable  condition,  at  such  rates  as  may  be  approved  by  the  con- 


MUSCLE  SHOALS  PROPOSITIONS. 


171 


tracting  officer  as  being  necessary  for  the  proper  and  economical  prosecution 
of  the  work. 

Rental  to  the  contractor  for  such  construction  plant  or  parts  thereof  as  it 
may  own  and  furnish  at  such  rates  as  may  be  approved  by  the  contracting 
officer. 

When  such  construction  plant  or  any  part  thereof  shall  arrive  at  the  site  of 
the  work  the  contractor  shall  file  with  the  contracting  officer  a  schedule  setting 
forth  the  fair  valuation  at  that  time  of  each  part  of  such  construction  plant. 
Such  valuation  shall  be  deemed  final  unless  the  contracting  officer  shall  within 
five  (5)  days  after  the  machinery  has  been  set  up  and  is  working  modify  or 
change  such  valuation,  in  which  event  the  valuation  so  made  by  the  contracting 
officer  shall  be  deemed  final. 

When  and  if  the  total  rental  for  any  such  part  shall  equal  the  valuation 
thereof,  no  further  rental  thereafter  shall  be  paid  and  title  thereto  shall  vest 
in  the  United  States. 

The  contracting  officer  may  at  his  option  purchase  for  the  United  States  any 
part  of  such  construction  plant  by  paying  the  difference  between  the  valuation 
of  such  part  or  parts  and  the  rentals  paid  therefor. 

Rates  of  rental  as  substitutes  for  rental  rates  then  in  effect  may  be  agreed 
upon  in  writing  between  the  contractor  and  the  contracting  officer,  such  rates  to 
be  in  conformity  with  the  rates  of  rental  charged  in  the  particular  territory 
in  which  the  work  covered  by  this  contract  is  to  be  performed.  If  the  con- 
tracting officer  shall  furnish  or  supply  any  such  plant  or  equipment,  the 
contractor  shall  not  be  allowed  any  rental  therefor.  Rental  for  the  use  of 
the  contractor's  machine  shop  at  the  site  of  the  work  to  be  at  such  rates  as 
shall  be  agreed  upon  by  the  contracting  officer  and  the  contractor. 

(d)  Loading  and  unloading  such  construction  plant,  the  transportation 
thereof  to  and  from  the  place  or  places  where  it  is  to  be  used  in  connection 
with  said  work,  subject  to  the  provisions  hereinafter  set  forth,  the  installation 
and  dismantling  thereof,  and  ordinary  maintenance,  repairs,  and  replacement 
during  its  use  in  the  said  work. 

(e)  Transportation  and  expenses  to  and  from  the  work  of  the  necessary 
field  forces  of  the  contractor.  Procuring  labor  and  expediting  the  production 
and  transportation  of  material  and  equipment. 

if)  Salaries  of  engineers,  superintendents,  timekeepers,  foremen,  and  other 
employees  at  the  field  offices  of  the  contractor  in  connection  with  said  work, 
also  the  salaries  of  other  employees  engaged  on  this  work  at  the  contractor's 
principal  office.  In  case  the  full  time  of  any  such  employee  of  the  contractor 
IS  not  applied  to  said  work  but  is  divided  between  said  work  and  other  work 
his  salary  shall  be  included  in  this  item  only  in  proportion  to  the  actual  time 
applied  to  this  work.  The  salaries  of  the  contractor's  executive  and  general 
officers  shall  not  be  included.  • 

(g)  Rent  for  office  space  required  for  necessary  offices  in  the  city  of  Bir- 
mingham, Ala.,  but  this  shall  not  include  payment  of  any  rent  for  the  con- 
tractor's regular  offices  or  any  expense  incident  to  conducting  same.  Rent  for 
buildings  and  equipment  required  for  necessary  field  offices,  and  the  cost  of 
maintaining  and  operating  commissaries  and  hospitals  and  minor  expenses  as 
telegrams,  telephone  service,  expressage,  postage,  etc.,  in  cojinection  with  such 
office. 

(h)  Such  bonds,  fire,  liability,  and  other  insurance  as  the  contracting  officer 
may  approve  or  require  and  such  losses  and  other  expenses  not  compensated 
by  insurance  or  otherwise  as  are  found  and  certified  to  by  the  contracting 
officer  to  have  been  actually  sustained  (including  settlements  made  with  the 
written  consent  and  approval  of  the  contracting  officer)  by  the  contractor  in 
performance  of  said  work. 

(i)  Permit  fees,  deposits,  royalties,  and  other  similar  items  of  expense  inci- 
dental to  the  execution  of  this  contract  and  necessarily  incurred  and  specifi- 
cally approved  in  advance  by  the  contracting  officer. 

(?)  Such  proportion  of  the  transportation,  traveling,  and  hotel  expenses  of 
the  officers,  engineers,  and  other  employees  of  the  contractor  as  is  actually  in- 
curred in  connection  with  this  work. 

.  (k)  Such  other  items  as  should,  in  the  opinion  of  the  contracting  officer,  be 
included  in  the  cost  of  the  work.  Before  such  an  item  is  allowed  by  the  con- 
tractmg  officer,  it  shall  have  been  specifically  certified  as  being  allowed  under 
this  paragraph. 

il)  Such  cost  shall  not  include  interest  on  capital  or  borrowed  money  nor 
Charges  for  the  use  or  occupancy  of  the  contractor's  property  or  facilities  ex- 
cept as  otherwise  specifically  herein  provided. 


\ 


172 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


173 


State  of  New  York,  County  of  New  York: 

I  hereby  certify  that  the  following  are  correct  extracts  from  the  minutes  of 
certain  meetings  of  the  board  of  directors  of  Alabama  Power  Co.,  at  which  said 
meetings  there  was  present  a  quorum  of  the  said  board  authorized  to  transact 
the  business  hereinafter  described;  that  the  proceedings  of  the  said  meetings 
were  in  accordance  with  the  charter  and  by-laws  of  the  company,  and  that 
the  same  have  not  been  revoked,  annulled,  or  amended  in  any  manner  what- 
soever. 

I  further  certify  that  I  am  the  custodian  of  certain  records  of  said  company, 
including  the  minutes  of  meetings  of  the  board  of  directors. 

Special  meeting  held  November  4,  1918. 

On  motion, 

Resolved,  That  the  president  and  vice  president,  or  either  of  them,  is  sepa- 
rately authorized  to  sign  and  execute  on  behalf  of  this  company  any  and  all 
proposals  which  may  be  submitted  and  any  contracts,  bonds,  or  other  documents 
relative  to  any  work  which  is  or  may  be  awarded  by  the  United  States  Govern- 
ment to  this  company,  and  also  any  contracts  and  bonds  with  the  said  Govern- 
ment concerning  such  work. 

Armual  meeting  held  March  11,  1918. 

On  motion  duly  made  and  seconded,  the  following  officers  of  the  company 
were  elected  to  serve  for  the  ensuing  term  and  until  their  successors  are  elected 
and  qualified : 

James  Mitchell,  president ;  Thomas  W.  Martin,  vice  president ;  Wiley  Alford, 
secretary;  Wiley  Alford,  treasurer;  H.  S.  Swan,  assistant  secretary;  H.  S. 
Swan,  assistant  treasurer ;  M.  P.  Randall,  assistant  secretary ;  M.  P.  Randall, 
assistant  treasurer. 

In  witness  whereof  I  have  hereunto  set  my  hand  and  affixed  the  corporate 
seal  of  the  company  the  7th  day  of  November,  A.  D.  1918. 

[SEAL.]  H.  S.  Swan,  Assistant  Secretary. 


November  9,  1918. 

From :  Lieut.  Col.  William  Williams,  Ordnance  Department,  United  States  Army. 
To :  Col.  J.  W.  Joyes,  Ordnance  Department,  United  States  Army,  Chief  of  the 

Nitrate  Division,  Ordnance  Office,  through  the  Chief  of  Ordnance. 
Subject:  Designation  of  contracting  officer  under  contract  No.  T-69.     (Army 

No.  12385.) 

1  You  are  herebv  authorized  to  act  in  my  stead  as  contracting  officer  for  all 
purposes  and  in  all  respects  contemplated  by  the  contract  dated  the  1st  day  of 
December,  1917,  between  the  Alabama  Power  Co.  and  the  United  States  of 
America,  by  Lieut.  Col.  William  Williams,  Ordnance  Department,  United  States 

Armv 

William  Williams, 

Lieutenant  Colonel,  Ordnance  Department,  U.  8.  Army, 

Contracting  Officer. 

[First  indorsement.] 

From:  The  Chief  of  Ordnance,  United  States  Army,  November  12,  1918,  to 
Col.  J.  W.  Joyes,  Ordnance  Department,  United  States  Army. 
1  In  accordance  with  the  terms  of  the  above-mentioned  contract,  dated  the 
1st  day  of  December,  1917,  between  the  Alabama  Power  Co.  and  the  United 
States  of  America,  by  Lieut.  Col.  William  Williams,  Ordnance  Department, 
United  States  Army,  therein  designated  as  the  contracting  officer,  you,  as  Chief 
of  the  Nitrate  Division,  Ordnance  Office,  and  in  the  event  of  your  relief  from 
that  position,  your  successor  therein,  are  hereby  designated  to  act  as  contractmg 
officer  thereunder  in  all  respects  and  for  all  purposes  contemplated  by  that 

contract.  ,^   r-,  ^^ 

C.  C.  Williams, 

Major  General,  Chief  of  Ordnance,  U.  S.  Army. 

The  Chairman.  By  reason  of  the  specific  language  of  the  contract  itself, 
you  came  to  the  conclusion  that  these  separate  contracts  which  were  entered 


into  by  the  officers  of  the  corporation,  I  imagine,  and  the  Government  of  the 
United  States,  are  absolutely  void  and  of  no  effect. 

Col.  Hull.  The  options  to  purchase  are  nonenforceable  unless  ratified  by 
Congress. 

The  Chairman.  Will  you  go  right  ahead  with  your  statement  and  state 
anything  else  you  have  to  say  about  the  matter? 

Col.  Hull.  Another  question  that  was  before  the  office  was  the  contract 
that  we  had  between  the  General  Chemical  Co.  and  the  United  States  relative 
to  nitrate  plant  No.  1,  the  apparatus  and  the  processes  for  nitrate  plant 
No.  1.  The  opinion  of  the  office  is  dated  December  14,  1920.  We  answer  a 
number  of  inquiries  as  to  the  rights  of  the  Government  as  to  the  use  of  our 
properties.    It  relates  primarily  to  patent  rights. 

The  Chairman.  Will  you  kindly  insert  that  in  the  record?  Who  is  that 
contract  signed  by,  or  was  it  signed? 

Col.  Hull.  I  have  not  that  contract  in  front  of  me  now.  I  can  get  that  and 
insert  it.  It  w^as  a  tender  by  the  General  Chemical  Co.,  dated  June  5,  1917,  sub- 
mitted by  Mr.  W.  H.  Nicholls,  chairman  of  the  board,  and  Mr.  John  A.  Martin, 
secretary,  and  accepted  on  behalf  of  the  President  July  14,  1917,  by  Newton  D. 
Baker. 

The  Chairman.  Do  you  hold  that  that  contract  or  that  agreement  comes  in 
the  same  category  as  the  agreements  with  the  Alabama  Power  Co.  and  the 
Air  Nitrates  Corporation? 

Col.  Hull.  No,  sir;  the  question  here  was  a  limitation  whereby  the  Govern- 
ment received  the  right  to  use  certain  patent  processes  and  apparatus,  together 
with  all  improvements  in  the  art  made,  so  long  as  the  Government  continued  the 
use  of  the  process,  and  the  Government  agreed  to  exclude  the  public  from  all 
works  "  in  which  said  process  shall  be  employed^"  etc. ;  in  other  words,  to  keep  it 
secret,  and  we  held  that  the  obligation  of  secrecy  had  expired  by  reason  of  the 
fact  that  the  contract  was  no  longer  recognized  by  the  General  Chemical  Co.  and 
whatever  we  had  there  was  a  matter  of  general  information  obtained  from  the 
other  side,  after  the  war,  anyway. 

The  Chairman.  Are  those  the  only  contracts  you  have  respecting  these 
matters? 

Col.  Hull.  They  are  the  only  ones  submitted,  except  the  one  of  Mr.  Ford's. 
On  January  17  the  Secretary  of  War  called  upon  my  office  for  a  memorandum 
as  to  whether  there  was  a  mandlate  upon  him  to  sell  the  Muscle  Shoals  nitrate 
plant,  which  I  answered  in  a  short  memorandum  that  there  was  not,  and  that  it 
was  a  matter  for  Congress,  which  I  will  also  insert  in  the  record. 

(The  memorandum  referred  to  is  as  follows:) 

January  17,  1922. 
Memorandum  for  the  Secretary  of  War. 
Subject:  Is  there  any  mandate  upon  the  Secretary  of  War  to  sell  the  Muscle 

Shoals  nitrate  plant? 

The  only  statute  authorizing  the  sale  of  manufacturing  plants  under  the 
jurisdiction  of  the  War  Department  is  contained  in  the  act  of  July  9,  1918 
(40  Stat.  850),  in  the  provision  authorizing  the  President,  through  the  head 
of  any  executive  department,  to  sell  war  supplies,  material,  and  equipment 
"  and  any  building,  plant,  or  factory  acquired  since  April  6,  1917,  including 
the  lands  upon  which  the  plant  or  factory  may  be  situated,  for  the  production 
of  such  war  supplies,  materials,  and  equipment    *    *     *  " 

This  authority  may  be  considered  in  the  nature  of,  or  equivalent  to,  a  direc- 
tion or  mandate  to  sell  war  supplies,  material,  and  equipment,  and  also  manu- 
facturing plants  no  longer  needed  for  Government  use,  but  does  it  apply  to 
the  Muscle  Shoals  nitrate  plants?  This  question  must  be  answered  in  the 
light  of  the  provisions  of  section  124  of  the  national  defense  act  of  June  3, 
1916  (39  Stat,  215),  which  authorized  the  President  to  cause  to  be  constructed 
a  nitrate  plant,  at  some  location  to  be  determined  by  him  after  an  investigation, 
for  the  manufacture  of  nitrate  for  military  purposes  in  time  of  war  and  for 
fertilizers  for  agricultural  purposes.  There  was  appropriated  the  sum  of 
$20,000,000  theefor,  this  sum  to  be  raised  by  the  Secretary  of  the  Treasury 
from  the  sale  of  Panama  Canal  bonds.  Among  other  provisions  of  the  section 
special  attention  is  invited  to  the  following : 

"The  plant  or  plants  provided  for  under  this  act  shall  be  constructed  and 
operated  solely  by  the  Government  and  not  in  conjunction  with  any  other 
industry  or  enterprise  carried  on  by  private  capital." 


174 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


175 


It  is  understood  by  this  office  that  Muscle  Shoals  was  selected  by  authority 
of  the  President  as  a  site  for  the  nitrate  plant  authorized  by  the  national- 
defenle  act  and  that  Plant  No.  1  and  the  Wilson  Dam  and  certain  other 
Sties  have  been  paid  for  in  part  from  the  $20,000,000  appropriated  by  the 
nationa^^^^^^  act.  It  appears  that  about  $16,000,000  has  been  expended  from 
^at  apDropriation,  chiefly,  however,  for  the  construction  of  the  Wilson  Dam. 
It  is  SStood  tl  at  the  and  for  the  Nitrate  Plant  No.  1  was  paid  for  from 
JLt  approprYatlon,  but  the  construction  of  Plant  No.  1  and  all  expenses  in  con- 
ne^tion\vX  No.  2  were  paid  for  from  war  appropriations  for  the  Ordnance 

^Tthus^appears  that  the  Muscle  Shoals  nitrate  project,  considered  as  a  whole, 
was  inimted  by  Congress  by  the  provisions  of  the  national-defense  act  of  June 
ri9lHnd  that  a  cfLiderable  portion  of  the  expenditures  for  the  plant  have 
been  made  from  the  $20,000,000  appropriated  by  that  act 

In  my  opinion  the  general  authority  contained  in  the  act  of  July  9,  I9lb, 
sunra  for  the  sale  of  war  supplies  and  plants  acquired  smce  April  6  1917, 
d^s  not  apply  to  the  Muscle  Shoals  project,  considered  as  a  whole.  It  is  a 
r^e  of  statutory  construction  that  a  general  statute  does  not  repeal  or  super- 
St  a  prior  particular  statute  unless  there  is  some  express  reference  to  the 
devious  legisfation  on  the  subject,  or  unless  there  is  a  necessary  inconsistency 
in  the  two  acts  standing  together.  Ex  parte  Crow  Dog  ^^^^^^  f|  5.0.) 
T  f.nn«iripr  therefore  that  the  special  provision  contained  in  section  i^4  01  rne 
LtXal  dk ense  a^^^^  directing  that  the  plant  therein  authorized  be  operated 
^iX  by  thraovern^^^^  and  not  in  conjunction  with  any  other  industry  or 
Ste^rise  carri^  on  by  private  capital,  is  applicable  to  this  plant  as  a  whole 
and  ?sfre™t  upon  its  sale.  The  same  statute  would  prevent  the  lease 
or  rental  of  the  plant  for  private  operation.  ^  ^  ^^^^^ 

Acting  Judge  Advocate  General. 
[Second  indorsement.] 

Wab  Depabtment, 
Judge  Advocate  General's  Office, 

December  U,  1921. 

^o  The  Adjutant  General  of  the  Army  : 

1  Bv  the  preceding  indorsement  you  refer  to  this  office  for  opinion  the  ques- 
tions set  forth  in  subparagraphs  (a)  to  ((f),  inclusive,  of  paragraph  4,  and 
Xaralraphs  (a)  to  if)  of  paragraph  5,  of  the  letter  of  the  Chief  of  Ordnance 

^I'^Thesnue^'tfonf^^^^^^^  between  the  General  Chemical  Co 

and  ?heUnuld  Spates  executed  on  July  14,  1917,  whereby  the  Government 
r^eived  {he  right  to  use  certain  patented  apparatus  and  processes  therein 
described  together  with  all  improvements  in  the  art  made  or  acquired  by  the 
rPTiJrTchemical  Co  at  any  time  "so  long  as  the  Government  shall  continue 
fhe Tsl  of  saTd  proce^^^^^^^^^  The  authority  for  the  contract  appears  to  have  been 
sectfon  ?24  of  the  act  of  June  3,  1916  (39  Stat.,  215).  The  patented  processes 
mentioned  in  the  agreement  are  embodied  in  patents  Nos.  1141947  1141948 
n423^    1151537,    1159364,    and   1159365,    and    the    agreement    contained    no 

'llTorftlme  IfteX'eZ^e^nt  was  made  the  Government  proceeded  to 
huL  nitrate  pSnt  No  1  at  Sheffield,  Ala.,  in  accordance  with  the  plans  of  the 
Ka   Chemi^^^^  first  unit  being  completed  in  June,  1918     Thereafte 

trial  onerations  were  carried  out  in  the  above-mentioned  unit  with  the  as 
•i?L^ronTnnder  the  instruction  of  the  General  Chemical  Co.  organization 
tCr^out  ?he  ?eSainTng  m^^^^^^^  of  the  year  of  1918.  It  became  evident  to  those 
4«  ^io™  nhnlit  the  latter  part  of  December,  1918,  that  extensive  changes  m 
l?/nw  would  b^necelsa?y  before  it  would  operate  successfully,  and  thert.- 
nftJ  thi  nersinnel  was  r^uc^  to  the  point  of  stand-by.    Presumably  on  ac- 

tafan  understanding  with  all  its  officers  and  employees  as  follows: 


"In  consideration  of  my  employment  by  the  United  States  and  its  agree- 
ment to  pay  me  for  my  services,  and  in  consideration  of  my  access  through 
such  employment  to  confidential  information  as  to  processes  and  apparatus 
used  by  or  communicated  to  the  United  States,  I  agree  that  I  will  not  divulge 
any  information  so  gained  without  express  written  permission  of  the  Secretary 
of  War,  or  his  duly  appointed  representatives,  and  that  I  will  use  my  best 
efforts  to  prevent  improper  disclosures  of  any  confidential  information  by 
others." 

This  agreement  being  between  the  Government  and  its  employees  was  not 
shared  by  the  contractor,  the  chemical  company. 

4.  The  Ordnance  Department  appears  to  have  been  still  interested  in  the 
development  and  research  incident  to  the  Government  experiments  in  the  above- 
mentioned  plant,  for  on  August  13,  1919,  Mr.  A.  E.  Hecker,  of  the  nitrate  divi- 
sion, requested  information  from  the  General  Chemical  Co.  as  to  the  methods 
of  manufacture  and  durability  of  catalysts  No.  719,  No.  698,  and  No.  744,  in 
response  to  which  request  the  General  Chemical  Co.  on  August  22,  1919,  replied : 

"  In  response  to  the  request  for  information  contained  in  your  letter  to  us 
of  the  13th  instant,  the  writer  is  directed  by  the  chairman  of  the  board  to 
advise  you  that,  as  this  company  is  under  no  present  obligation  to  furnish  such 
information  to  your  office,  we  must  respectfully  decline  to  do  so." 

Apparently  having  in  mind  the  above-mentioned  contract.  Col.  Burns,  of  the 
Ordnance  Department,  on  September  8,  1919,  requested  by  letter  of  the  General 
Chemical  Co.  the  reason  for  their  refusal  to  give  the  information  called  for  in 
the  Hecker  letter  of  August  13,  and  the  chemical  company  replied  by  their 
letter  of  September  13,  1919,  as  follows : 

"  If,  as  we  understand,  your  request  for  information  was  made  pursuant  to 
clause  4  of  our  tender  of  June  5,  1917,  we  need  only  to  remind  you  that  by 
the  express  terms  of  this  clause  our  obligation  to  communicate  improvement 
to  the  Government  was  limited  to  the  period  during  which  the  Government 
should  continue  the  use  of  our  process  and  that  the  Government's  plant  for  the 
use  of  that  process  has  been  shut  down  for  nearly  a  year." 

5.  On  June  6,  1919,  a  commission  designated  the  "  United  States  Fixed  Nitro- 
gen Commission  "  was  sent  to  Europe  to  ascertain  the  development  of  nitration 
processes  abroad.  This  board  investigated  the  British,  French,  and  German 
processes,  and  reported  particularly  on  the  German  development,  and  their  re- 
port show  that  the  processes  as  covered  by  the  patents  of  the  General  Chemical 
Co.  were  not  only  well  known  and  understood,  but  that  they  had  been  exten- 
sively practiced  for  several  years  in  Germany. 

6.  The  agreement  of  July  14, 1917,  contains  no  express  provision  for  its  termi- 
nation other  than  the  terms  "  so  long  as  the  Government  shall  continue  to  use 
said  process,"  and  "  in  which  said  processes  shall  be  employed."  The  letter  of 
August  22,  1919,  in  which  the  chemical  company  states  "  this  company  is  under 
no  i)resent  obligation  to  furnish  such  information  to  your  office  "  would  indi- 
cate that  the  chemical  company  believed  that  the  contract  was  no  longer  in 
force.  By  the  further  information  contained  in  the  letter  of  September  13  the 
chemical  company  states  that  their  refusal  to  give  the  information  is  upon  the 
ground  that  the  use  of  their  process  in  the  Government  plant  has  been  discon- 
tinued for  more  than  a  year  and  therefore  fell  outside  the  provision  of  para- 
graph 4  of  the  agreement  to  furnish  information  "  so  long  as  the  Government 
sholl  continue  the  use  of  said  processes."  It  appears  that  although  the  plant 
was  shut  down  because  the  process  as  used  under  the  advice  and  direction  of 
the  chemical  company  did  not  prove  satisfactory,  the  Government  agents  car- 
ried on  experiments  and  inquiry  along  that  line  with  a  view  to  determining  an 
efficient  method  of  obtaining  the  product  desired.  The  plant  having  been  placed 
in  standby  and  so  remaining  for  about  a  year,  the  question  arises  as  to  whether 
this  was  a  discontinuance  of  the  use  of  the  process.  The  chemical  company 
takes  the  stand  the  the  process  has  ceased  to  be  used  by  the  Government. 
This  position  implies  that  the  contract  is  completed  and  has  expired,  because 
the  only  limitation  on  its  life  is  governed  by  its  terms,  which  include  "  so  long 
as  the  Government  shall  continue  to  use  said  process,"  "  exclude  the  public 
*  ♦  *  from  all  works  in  which  said  processes  shall  be  employed,"  etc.  These 
terms  appear  in  the  contract  where,  had  there  been  a  definite  time  limit  in  the 
minds  of  the  parties,  it  would  have  been  set  forth.  It  appears  that  the  inten- 
tions of  the  parties  were  that  the  contract  should  govern  as  long  as  the  Gov- 
ernment made  use  of  the  process  and  no  longer.    The  action  by  the  chemical 

92900—22 ^12 


.\ 


id. 


176 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


177 


company  estops  that  company  from  taking  the  position  that  the  process  was 
merely  temporarily  discontinued.  ^  ^    ^r. 

7.  The  questions  propounded  by  the  Chief  of  Ordnance  are  set  forth  and 

answered  seriatim :  «,    ^„     »  mv,  4.      . 

(4a)  Is  the  agreement  of  July  14, 1917,  still  in  effect?  Answer.  The  contract 
of  July  14,  1917,  may  be  considered  as  terminated  as  of  the  date  of  the  discon- 
tinuance of  the  process  by  the  Government.  _ 

(4b)  Can  the  plant  be  sold  as  a  going  concern  to  parties  desiring  to  develop 
it  as  a  nitrogen  fixation  plant?  Answer.  Since  it  clearly  appears  that  the  plant 
was  operated  without  success  and  later  completely  closed  down  due  to  the  fact 
that  operation  resultetl  in  a  failure,  it  can  not  be  said  to  be  a  going  concern,  and 
therefore  could  not  legally  be  sold  as  such,  and  in  the  sale  of  the  plant  no 
further  w^arrantv  should  be  given  than  a  statement  that  it  is  sold  "  as  is." 

(4c)  Can  the^ equipment  in  the  synthetic  process  be  sold  for  removal  from 
the  reservation,  without  restriction  as  to  its  use?  Answer.  The  subject  matter 
of  the  contract  was  in  process  and  apparatus,  and  the  machinery  installed  is  not 
shown  to  fall  within  those  classes,  and  no  restrictions  being  set  forth  as  to  its 
use  may  be  sold  without  restriction  or  reservation  as  to  its  use,  and  the  future 
use  of  the  plant  by  the  purchaser  as  a  plant  for  manufacturing  the  subject  matter 
embodied  in  any  patents  would,  of  course,  be  a  question  between  the  purchaser 
and  any  patentee  owning  processes  to  be  used.  ^        ^^  ^ 

(4d)  Can  the  equipment  used  in  the  synthetic  ammonia  process  be  sold  for 
use  other  than  for  nitrogen  fixation,  allowing  prospective  buyers  to  inspect  the 
plant*?  Answer.  Inasmuch  as  processes  covered  by  the  contract  are  no  longer 
in  operation  or  use  by  the  Government,  the  prohibition  relating  to  the  exclusion 
of  the  public  is  no  longer  applicable,  and  the  equipment,  not  being  the  subject 
matter  of  the  contract,  may  be  sold  for  whatever  purposes  the  Government  may 

see  fit 

(5a)  Can  operations  at  Sheffield  be  described  and  published?  Answer.  TTie  in- 
formation received  bv  the  Government  from  the  General  Chemical  Co.  was  the 
subject  matter  of  the  six  patents,  together  with  the  knowledge  and  experience 
of  the  engineering  force  of  the  chemical  company.  It  appears  that  at  the  outset 
the  chemical  companv  relied  on  the  information  of  their  engineers,  Mr.  De  Jahu 
and  Mr  Schultze  but  after  several  weeks'  trial  these  gentlemen  were  replaced 
by  others  who  had  no  experience  with  this  type  of  project  and  who  met  with 
no  greater  success.  It  would  appear  that  at  the  time  the  contract  was  made 
there  were  no  other  plants  of  this  type  in  operation  in  this  country,  and  that  the 
chemical  company  had  merely  the  patents  and  a  theoretical  idea  as  to  the  means 
of  the  operation,  which  means  were  intended  to  be  worked  out  at  the  expense 
of  the  Government.  The  terms  upon  which  the  contract  was  undertaken  clearly 
show  that  it  was  intended  as  an  experiment,  the  chemical  company  giving 
services  and  theory  as  expressed  in  their  patents  and  the  Government  financing 
the  proposition  in  addition  to  giving  the  services  of  its  employees.  The  sub- 
ject matter  set  forth  in  the  patents  can  be  under  no  injunction  of  secrecy,  be- 
cause they  are  as  a  matter  of  law  complete  publications  which  may  be  dis- 
cussed and  criticized  at  will.  Under  the  terms  of  the  contract  the  Government 
agreed  to  "  exclude  the  public  from  all  works  in  which  said  processes  shall  be 
employed."  The  process  being  no  longer  in  operation,  the  restriction  as  to  the 
public  appears  to  be  terminated.  The  Government  did  not  agree  to  any  secrecy 
other  than  this  clause  and  is  now  at  liber iy  to  give  such  information  as  it 
chooses.  As  to  the  agreement  of  secrecy  between  the  Government  and  its  em- 
ployees, the  General  Chemical  Co.,  not  being  a  party  to  the  agreement,  has  no 
authority  to  claim  under  it.  .  •  a 

(5b)  If  not,  can  operations  be  described  v^hen  these  operations  were  carnea 
out  in  exact  accordance  with  published  patents,  or  can  it  be  published  that 
operations  described  in  patents  were  actually  used  at  Sheffield?  Answer:  As 
to  the  information  received  by  the  Government  and  its  employees  as  a  result  oi 
experience  and  experiments  carried  on  at  Nitrate  Plant  No.  1,  the  only  stipula- 
tion referring  to  this  matter  in  the  contract  is  that  the  General  Chemical  Co. 
receives  an  implied  license  to  use  such  information.  Information  thus  received 
belongs  to  the  Government  to  do  with  as  it  sees  fit.  The  rights  thus  obtamea 
by  the  chemical  company  would  be  necessarily  restricted  to  an  implied  license 
to  the  matter  which  would  plainly  not  entitle  it  to  restrict  the  publication  oi 
such  information  by  the  Government.  ...        ,»,_,  ,-n 

(5c)  If  not,  can  the  principles  involved  in  these  operations  and  described  i" 
the  patents  aiid  other  literature  be  described  if  no  reference  is  made  to  the  fact 
that  actual  operation  at  Sheffield  was  in  accordance  with  these  principles. 


Answer :  As  to  the  information  received  as  the  result  of  the  inspection  of  the 
European  plants  by  a  board  of  officers,  any  information  thus  obtained  would 
be  clearly  outside  the  contract,  inasmuch  as  it  was  obtained  after  the  cessation 
of  operations  at  Plant  No.  1,  and  therefore  would  preclude  the  chemical  company 
from  any  interest  therein. 

(5d)  Can  the  advantages  and  disadvantages  of  certain  variants  from  the 
process  described  in  the  patents  be  discussed,  even  though  such  variants  were 
used  at  Sheffield,  provided  no  statement  is  made  that  they  were  actually  used? 
For  example,  a  discussion  of  the  relative  merits  of  pressures  or  temperatures 
higher  or  lower  than  those  described  in  the  patents.  Answer :  In  the  letter  of 
October  3,  1921,  the  General  Chemical  Co.  to  Maj.  Burns,  Ordnance  Department, 
the  writer  urged  that  the  Government,  under  paragraph  5  of  the  contract  of 
July  14,  1917,  agreed  to  keep  the  designs  and  processes  secret.  Examination  of 
this  paragraph  cited  shows  that  the  Government  agreed  to  recognize  the  chemical 
company  as  the  sole  owner  of  the  processes  under  the  patent,  and  further  agreed 
to  exclude  the  public  from  the  works  in  which  said  processes  shall  be  employed. 
This  office  can  not  agree  with  the  position  taken  by  the  chemical  company  as 
to  its  construction  of  the  prohibition,  and,  on  the  other  hand,  is  of  the  opinion 
that  all  powers  of  this  paragraph  were  terminated  upon  the  cessation  of  the 
use  of  the  processes. 

(5e)  If  certain  information  was  obtained  by  the  Government  during  the 
operation  of  the  Sheffield  plant  and  was  subsequently  obtained  from  the  British 
Ministry  of  Munitions  or  by  inspection  of  the  German  synthetic  ammonia 
plants,  can  this  be  published  if  no  reference  is  made  to  Sheffield?    Answer :  Yes. 

(5f)  There  have  been  researches  on  problems  that  arose  at  Sheffield,  and 
others,  the  outgrowth  of  collateral  researches,  on  problems  which  have  arisen 
since  the  operation  at  Sheffield  and  which  are  entirely  distinct  from  the  opera- 
tion of  that  plant  but  which  might  be  construed  to  be  indirectly  the  result  of 
knowledge  acquired  during  the  operation  at  Sheffield.  To  what  extent  can  the 
results  of  this  research  work  be  described  and  published?  Answer :  The  contract 
under  consideration  can  place  no  restrictions  upon  the  Government  as  to  dis- 
closure of  information  resulting  from  its  independent  researches,  even  though 
the  original  reason  for  such  research  arose  out  of  operations  at  Sheffield,  and 
the  publication  of  such  information  is  purely  a  matter  of  departmental  determi- 
nation as  the  interests  of  the  Government  may  appear. 

J.  A.  Hull, 
Acting  Judge  Advocate  General. 

The  Chairman.  Col.  Hull,  were  you  present  before  the  committee,  or  in  the 
committee  room,  when  Gen.  Williams  stated  that  in  his  opinion  there  was  a 
moral  obligation  on  the  part  of  the  Government  to  recognize  the  validity  of 
the  Alabama  Power  contract? 

(^ol.  Hull.  Yes,  sir. 

The  Chairman.  What  do  you  think  about  that  moral  obligation? 

Col.  Hull.  Ordinarily,  I  am  strictly  in  favor  of  the  Government  carrying  out 
its  contracts  that  are  duly  entered  into,  notwithstanding  that  the  officer,  in  the 
time  of  emergency,  exceeded  his  powers.  But  in  this  contract  I  notice  it  is 
n  cost-plus  contract.  It  is  a  long  contract  that  bears  many  evidences  of  having 
been  very  carefully  prepjired  by  the  attorneys  for  the  company,  and  they  have 
provided  several  very  remarkable  things,  namely,  the  construction  of  a  power- 
transmission  line  and  power  plant  at  the  expense  of  the  United  States,  but 
at  the  same  time  providing  that  the  company  takes  th.e  real  estate  and  an 
option.  The  company  can  not  get,  ordinarily,  in  time  of  war,  the  right  of  way 
.'IS  cheaply  or  as  expeditiously  as  the  Government  can,  and  it  certainly  would 
have  been  a  matter  of  ordinary  business  sense  when  they  were  constructing 
a  plant  and  buying  real  estate  to  do  it  in  that  way.  Therefore,  I  believe  it  is 
a  proper  ease  to  leave  to  Congress,  after  a  due  investigation,  to  determine  what 
the  equities  of  the  matter  may  be. 

The  Chairman.  You  are  not  greatly  impressed,  I  take  it.  with  the  moral 
obligation? 

Col.  Hull.  I  do  not  know  the  nature  of  the  negotiations  that  lead  up  to 
that  contract,  but  they  had  a  profit  of  about  $285,(X)0  on  the  face  of  the  contract, 
for  the  construction. 

The  Chairman.  For  the  construction  of  the  transmission  line? 

Col.  Hull.  And  the  properties  there  which  were  constructed. 


I 


•k 


178 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


179 


The  Chairman.  Is  there  anything  else  you  want  to  explain  to  the  committee 
regarding  these  contracts? 

Col.  Hull.  The  contract  with  Mr.  Ford  was  prepared  in  my  office;  that  is. 
the  proposal  of  Mr.  Ford,  after  an  interview  with  Secretary  Weeks.  The  Secre- 
tary of  War  and  Mr.  Ford  wanted  it  expressed  in  a  little  more  legal  language, 
and  it  was  drafted  in  my  office.  Several  of  my  best  assistants  worked  a  couple 
of  weeks  on  it  with  Mr.  Ford's  representatives  to  try  to  express  Mr.  Foil's 
idea.  It  was  not  a  negotiation  in  my  office.  The  contract  which  he  sent  here 
was  the  result  of  that  drafting  in  the  office. 

The  Chairman.  Do  you  mean  the  signed  contract  of  January  25,  1922? 

Col.  Hull.  Yes.  sir.  But  we  were  acting  there  more  as  a  drafting  agency 
for  Mr.  Ford  than  negotiating  across  the  table. 

Mr.  Fields  was  asking  some  questions  on  which  I  might  throw  a  little  more 
light.  If  vou  will  turn  to  page  15  of  the  contract,  section  3,  in  regard  to  the 
flowage  lands  and  rights,  you  will  find  the  following  language,  after  4  per  cent : 
*'  Of  the  actual  cost  of  acquiring  lands  and  flowage  rights,  and  of  completing 
the  locks,  dam.  and  power-house  facilities  (but  not  including  expenditures 
and  obligations  incurred  prior  to  approval  of  this  proposal  by  Congress)." 

Similar  language  was  also  in  the  draft  as  it  left  the  office,  in  section  7,  but 
before  signing  it  was  stricken  out,  which  causes  a  certain  amount  of  misun- 
derstanding. I  understood  that  what  Mr.  Ford  was  afraid  of  was  that  that 
would  obligate  him  to  get  that  land,  and,  being  a  private  party,  he  was  afraid 
he  would  have  difficulty  in  condemnation  proceedings,  whereas  the  Government 
could  condemn.  But  the  omission  leaves  it  in  question,  and  I  believe  you  will 
find  that  his  representatives,  who  will  appear  before  you  next  week,  will  clear 
that  up  to  the  satisfaction  of  the  committee. 

The  Chairman.  Of  course,  the  experience  of  this  committee  has  shown  con- 
clusively that  when  the  Government  tries  to  negotiate  for  land  the  value  goes 
up  enormously. 

Col.  Hull.  Of  course,  it  is  liable  to  go  up  even  still  more  in  the  case  of  a 

private  individual. 

The  Chairman.  I  believe  it  would  also  go  up  if  a  very  wealthy  man  like  Mr. 
Ford  were  known  to  be  in  the  market  for  the  purchase  of  real  estate. 

Col.  Hull.  Of  course,  the  Government  is  protected'  by  the  right  of  em'uent 
domain. 

The  Chairman.  But  I  find  that  juries  generally,  when  you  go  into  court  on 
condemnation  proceedings,  are  more  apt  to  save  the  private  citizen  than  to  save 

the  Government.  ,      ,    ,     , 

Col.  Hull.  I  would  have  recommended  to  the  Secretary  of  War,  if  funds  had 
been  available,  that  condemnation  proceedings  start  at  once  on  the  Alabama 
Power  Co.  property,  so  that  that  could  be  completely  disposed  of  before  we 
attempted  to  sell  it.  But  there  were  no  funds  available,  so  there  has  been  no 
authority  given  to  start  condemnation  proceedings. 

There  has  been  a  great  number  of  legal  questions  which  have  arisen  around 
this  table,  and  I  will  be  willing  to  answer  those  questions  as  far  as  I  can.  I  do 
not  recall  just  what  they  were.  What  I  have  mentioned  are  the  principal  ques- 
tions that  have  been  in  the  office. 

The  Chairman.  By  the  by,  I  heard  it  stated  that  there  is  a  rumor  around  that 
quite  a  number  of  private  corporations  and  private  individuals  own  consider- 
able land  around  Muscle  Shoals,  and  that  if  any  effort  is  made  to  secure  those 
lands  there  will  be  a  pretty  big  increase  in  the  value.    Have  you  heard  anything 

of  that  kind?  .  ,.,..,  i  .„ 

Col.  Hull.  I  have  not  heard  anything.  Those  stories  were  likewise  told  in 
Washington  when  the  Union  Station  was  started,  I  believe. 

The  Chairman.  Oh,  yes.  We  have  those  things  all  over  the  country,  uliat 
have  you  to  sav  regarding  this  language  in  the  Secretary's  report,  on  page  o : 
"The  Acting  Judge  Advocate  General  has  also  held  that  the  provision  con- 
tained in  section  124  of  the  national  defense  act  directing  that  the  plants 
therein  authorized  be  operated  solely  by  the  Government,  and  not  in  conjunc- 
tion with  any  other  industry  or  enterprise  carried  on  by  private  capital,  is 
applicable  to*the  plant  as  a  whole,  and  is  a  restraint  upon  its  sale.  This  con- 
struction, if  justified,  would  prevent  the  lease  or  rental  of  the  plant  for  private 
operation."    What  have  you  to  say  in  regard  to  that?  ^.,      „« 

Col  Hull.  Section  124  of  the  national  defense  act,  which  I  read  a  whde  ago, 
Mr  Chairman,  I  think  is  clear  and  unambiguous,  and  consequently  the  Secre- 
tary of  War  is  without  power  to  dispose  of  these  properties  until  authorized  Dy 
Congress. 


I  I^^  ^^''^f^^^:  ^^"  ^^^^  *^^*  ^^  Congress  were  to  authorize  the  sale  and  the 
coXovefsy?'      "''''''^''' '"  "'"  ^'"''^"  ^''^^^^  P^^^^^'  *^^^  ^'^"^^  settle  the  whole 

Col.  Huu..  It  is  entirely  a  question  for  Congress 

Mr.  Hull.  Colonel,  you  spoke  of  the  contract  with  the  General  Chemical  Co 
in  connection  with  patent  rights  and  royalties.  Is  it  your  opinion  thaT  we  are 
not  under  any  obligations  under  that  contract' 

Col  Huix  That  contract  with  the  General  Chemical  Co.  has  practically  ter- 
mmated.    That  is  on  nitrate  plant  No.  1.  piatucauy  rer 

Mr  Hull.  Would  there  be  any  on  nitrate  plant  No.  2? 

Col.  Hull.  On  nitrate  plant  No.  2  we  have  a  number  of  processes  and  patents 
which,  under  the  contract  we  have,  we  could  transfer,  and  which  under  ths 
contract  with  Mr.  Ford,  he  has  an  option  on.  Whether  he  will  take  them  or  no? 
depends  upon  his  investigation.  If  he  does  take  them  and  produces  an^nitrate 
there,  under  these  patents  he  must  pay  a  royalty.  nuraie 

Mr.  Hull.  Then  under  the  contract  with  Mr.  Ford,  we  would  have  to  pav 
that  royalty.    Would  that  money  be  charged  against  the  contract  with  Mr.  Fo?di» 

col.  hull.  If  he  took  over  those  patent  rights  that  rovaltv  wonld  be  a  mrt 

''m/  Hnxr^S?'"  ^'^"^'^  f  ^?."'  *^^  fertilizer  Which  he  wiulKuce  there"^ 
Mr.  Hull.  If  we  accept  this  contract  with  Mr.  Ford,  does  that  leave  us  free 

of  any  contract  or  liability  with  any  other  company?  ^ 

Col.  Huud.  I  should  say  so. 

of^his^?ntmd:T  ^^^  ^^"^ething  to  do,  as  I  understand  it,  with  the  drafting 

Col.  Hull.  It  was  drafted  in  the  office. 

Col  Hull.  Yes  sir ;  it  has  been  studied, 
wa^  fou^'ijo^^ble^  ^^  ^^  ^''"''^  ^"^  P'*'^'''^^  fertilizer  under  that  contract,  if  it 

Col.  Hull.  As  now  drafted? 

Mr.  Hull.  As  now  drafted  he  would  have  to  produce  at  least 

Col.  Hull  (interposing).  To  the  maximum  capacity  of  plant  No  2 

Mr  Hull.  There  would  not  be  any  question  about  that? 

Col.  Huix.  There  is  not  any  in  my  mind. 

The  Chairman.  Under  what  section? 

Col.  Hull.  Section  14. 

Mr.  Hull.  Suppose  he  could  not  produce  it;  that  it  was  found  nhvsicallv 
impossible  to  produce  the  fertilizer  compound  in  paying  quantities  what  woud 
be  the  result,  so  far' as  the  contract  with  the  Government  goes?       '  • 

Col  Hull.  If  the  Government  insists,  a  court  of  equity  would  ''rant  relief 
and  not  compel  the  performance  of  the  impossible  ' 

Co7.  Hull  lection^"*'''  ""^  ^^^  ^^''''^  contract  with  Mr.  Ford  covers  that? 

Mr.  Hull.  If  it  was  found  impossible  to  produce  this  fertilizer,  I  presume 
of  course  he  would  be  enabled  to  take  the  hydroelectric  power  that  vvas  supS 
to  go  into  the  production  of  the  fertilizer  and  use  it  or  s^l  it  as  he  saw  fit^'^ 

fnrv  or.H     ^"     -^^ '  \^^'  ^^  ^'^"^^^'  ^^  ^^'^"^^  ^^  Obligated  to  maintain  his  labora- 
tory and  experiments  and  try  to  produce.  ^tiuura 

Mr.  Hull.  He  would  have  to  keep  experimenting  and  trying  to  produce 


fertilizer? 
Col.  Hull 
Mr.  Hull, 


Yes,  sir. 

^"^^^  *^'^  contract  there  is  nothing,  as  I  understand  it  at  the 
Pi'esent  time  at  least  to  guarantee  the  fulfillment  of  the  contracrexcept  the 

ft'ouT^  w^r.'^"'^  ^'  ^'''7  ^"^•^^-  ^"^  ^^  ^''^"^^^  ^«  binds  hTs  estate  tTcar^ 
It  out.    What  IS  your  opinion  as  to  the  liability  of  the  estate  ^i    I  have  not  nnv 

^loubt  about  the  liability  of  Henry  Ford,  but  ^.^Iat  wouWhe  tbe  liSty  of  th^ 
estate?    Can  he  make  his  estate  liable?  Humiy  or  me 

iimipl.*  Si'''"  •".•   ''''V^'^  '^^^^.  ^^^  ^^^""^^  "''^^^^  *^"^  the  estate  would  be  bound 
nnder  the  existing  law— that  is,  the  estate  in  Michigan  where  he  signs  this 

nin?"'-  JK^  ^'^  }r^  '"^^^^"^  ^^  tb«  «t^t"t«  in^iichigan  to  wMch  my 
attention  has  been  called  which  I  would  like  to  read  to  vou  I  auote  from 
the  compiled  laws  of  Michigan  of  1915  (vol.  3,  p.  4867)T 

'(13898)  Sec.  16.  If  the  court  shall  be  satisfied  from  the  report  of  the  com- 
mSSr^T  T  ^^*^^  P"^."^.^  exhibited,  said  court  may  order  the  executor  or  ad- 
whPn  fvf  ^"^  ""t^^'iV  ^'^  ^l""^.^  sufficient  estate  to  pay  such  contingent  claim 
vvnen  the  same  shall  become  absolute,  or  if  the  estate  shall  be  insolvent  sufficient 
^0  pay  a  proportion  equal  to  the  dividends  of  the  other  creditors." 


» 


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180 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


181 


Following  a  little  later  down  you  find  this : 

"(13905)  Sec.  23.  When  the  heirs,  devisees,  or  legatees  shall  have  received 
real  or  personal  estate  and  shall  be  liable  for  any  debts  as  mentioned  in  this  chap- 
ter they  shall  be  liable  in  proportion  to  the  estate  they  may  have  respectively 
received,  and  the  creditor  may  have  any  proper  action  at  suit  or  in  law  or 
equity  and  shall  have  a  right  to  recover  his  claim  against  a  part  or  all  of  such 
heirs,  devisees,  or  legatees  to  the  amount  of  the  estate  they  may  have  respectively 
received,  but  no  such  action  shall  be  maintained  unless  commenced  within  one 
year  from  the  time  the  claim  shall  be  allowed  or  established." 

Of  course  there  is  one  obvious  difficulty  in  that,  and  that  is  if  he  should 
breach  the  contract  on  a  question  of  production  of  fertilizer  for  the  Government 
to  maintain  a  suit  for  damages  it  would  have  to  show  that  the  Government  was 
damaged  because  the  farmers  of  the  country  did  not  receive  fertilizer  at  a 
cheap  rate.  I  will  leave  It  to  the  lawyers  on  this  committee  as  to  how  difficult 
It  would  be  to  secure  a  measure  of  that  in  dollars  and  cents.  Of  course  we  can 
compel  specific  performance,  but  as  long  as  Mr.  Ford  is  alive  I  do  not  think 
that  would  be  necessary. 

Mr.  Hull.  Under  this  contract  Henry  Ford  obligates  himself  and  his  company 
to  start  to  develop  certain  properties  down  there.  Unquestionably  there  would 
be  considerable  property  that  would  be  worth  something  to  the  Government. 
Would  there  be  any  question  at  all,  or  could  there  be  any  question,  raised  in 
case  Henry  Ford  failed  to  carry  out  the  contract  as  to  whether  that  property 
would  revert  to  the  Government?    That  is  the  property  he  puts  on  our  property 

down  there.  ,     ^   ^i,  i.  *    ^ 

Col  Hull.  He  does  not  contract  to  put  any  property  on  land  that  is  to 
remain  In  the  United  States,  so  that  anything  we  could  hold  would  have  to 

be  held  after  judgment 

IMr  Hull.  There  would  be  more  property  there  on  which  we  could  recover? 
Col.  Hxjll.  I  should  say  we  would  have  to  hold  it  after  judgment,  but  we  could 

not  hold  it  otherwise.  ,    .  ^x.  , 

Mr  Hull   We  would  have  a  cause  for  damages  against  the  company? 

Col".  Hull.  If  there  was  a  breach  on  which  you  could  recover  damages,  the 
property  of  the  company  would  be  subject  to  execution? 

Mr  Hull.  I  do  not  know  whether  you  would  care  to  do  so 

Col  Hun  (interposing).  I  presume  your  suggestion  is  in  regard  to  the  pos- 
sibility of  the  insertion  of  a  clause  returning  to  us  the  properties  we  dispose  of 
in  case  of  a  breach? 

Mr.  Hull.  There  is  no  such  clause  in  there  now. 

Col.  Hull.  No  such  clause  there  now. 

:Mr.  Hull.  Should  there  be? 

<\>1  HuiL   It  would  be  an  additional  protection  to  the  United  States. 

Mr  Hull.  Tliev  should  not  object  to  putting  it  in,  should  they? 

Col  Hull   I  have  given  it  no  consideration  at  all  along  that  line.  , 

Mr'  HuiL  Do  vou  care  to  express  to  the  committee  a  general  conclusion 
in^  regard  to  this  contract,  anything  that  would  be  of  interest  to  the  com- 

'"col  HuLT  I  have  never  given  the  business  features  of  it  any  real  considera- 
tion except  in  hearing  the  testimony  which  has  been  given  the  committee. 

Mr.  Hull.  You  have  heard  a  good  deal  of  testimony? 

Col  Hull.  I  have  simply  the  information  that  the  other  members  of  the  com- 
mittee have  had,  and  I  would  not  consider,  without  further  evidence,  that  i 
would  be  able  to  arrive  at  any  definite  conclusion. 

Mr.  James.  Colonel,  under  the  contract  entered  into  by  the  Alabama  Power 
Co.  with  the  United  States,  how  much  money  was  invested  by  the  Umtea 

States  ** 

'  Col.  Hull.  About  $4,676,000>  I  think. 

Mr.  .Tames.  How  much  was  invested  by  the  Alabama  Power  Co.? 

Col.  Hull.  I  have  no  knowledge  of  that. 

Mr.  James.  Have  you  any  idea  what  profit  they  made? 

Col.  Hull.  The  contract  provided  for  $60,000  for  overhead ;  also  6  per  cent 
profit  on  the  expenditure,  with  a  limit  of  $225,000.  ^^  .^  ^    ^^  ^  ,    .,       ,^j. 

Mr.  James.  Under  the  contract  between  the  Umted  States  and  the  Aii 
Nitrates  Corporation,  how  much  money  was  invested  by  the  United  States . 

Col  Hull   The  total  cost  was  $69,000,000,  approximately  $70,00(),000. 

Mr.'  James.  How  much  money  did  the  Air  Nitrates  Corporation  invest? 

Col.  Hull.  It  was  a  cost-plus  contract. 

Mr.  James.  At  what  rate? 


Col.  Hull.  Article  10  of  the  contract  of  the  American  Air  Nitrates  Corpora- 
tion with  the  United  States  provides : 

"  Costs  and  expenses — Audit  and  payment  thereof. — The  United  States  shall 
bear  all  costs  and  expenses  of  every  character  and  description  incurred  or 
made  in  conn^tion  with  the  planning,  construction,  equipment,  and  operation 
of  each  of  the  said  plants  or  any  part  thereof,  and  in  the  conduct  of  any  other 
business  or  activities  of  the  agent  hereunder;  and  the  United  States  shall 
supply  all  money  necessary  therefor  in  such  amounts  and  In  such  manner  as 
to  permit  all  of  the  agent's  activities  with  respect  to  the  planning,  construc- 
tion, equipment,  and  operation  of  the  plants  to  proceed  without  delays  or  inter- 
ruptions and  without  the  necessity  of  the  agent  providing  any  capital  or  bor- 
rowing any  moneys.  Vouchers  for  all  accounts  payable  shall  from  time  to  time 
be  furnished  to  the  Chief  of  Ordnance,  and  upon  presentation  of  satisfactory 
evidence  he  shall  either  furnish  the  agent  funds  to  the  amounts  thereof,  which 
funds  shall  be  immediately  paid  out  by  the  agent  under  the  supervision  of  a 
representative  of  the  Chief  of  Ordnance,  or  the  vouchers  may  be  paid  direct  by 
the  Chief  of  Ordnance  to  the  persons  entitled  to  payment  thereunder.  Such 
vouchers  shall  be  acted  upon  by  the  Chief  of  Ordnance  promptly. 

"  All  accounts  payable  by  the  United  States  hereunder,  including  those  in  re- 
lation to  costs  and  expenses  of  construction  or  operation,  shall  be  subject  to 
audit  by  the  United  States,  which  shall  maintain  at  the  plants  and  elsewhere, 
if  necessary,  a  sufficient  number  of  auditors  promptly  to  audit  the  same. 

"  To  expedite  payments  to  the  agent  the  United  States  shall  detail  represen- 
tatives at  each  of  the  said  plants  and  at  the  agent's  home  office,  with  power  and 
sufficient  funds  to  discharge  the  pay  rolls  and  to  make  any  other  payments  as 
they  shall  become  due  hereunder.  Payments  by  the  United  States  shall  be  sub- 
ject to  correction  for  errors,  if  any. 

"The  agent  shall  make  no  charge  to  the  United  States  for  the  following 
things : 

"  1.  For  procuring  from  the  American  Cyanamid  Co.  a  license  to  it  as  agent 
of  the  United  States  to  use  the  said  company's  patents  and  processes. 

"2.  For  procuring  from  the  American  Cyanamid  Co.  the  disposal,  for  pur- 
poses of  the  Air  Nitrates  Corporation,  of  the  said  company's  experiences,  rec- 
ords, and  plans  appertaining  to  the  production  of  the  said  chemicals  herein- 
above referred  to. 

••  3.  For  procuring  from  the  American  Cvanamid  Co.  the  disposal,  for  the  pur- 
poses of  the  Air  Nitrates  Corporation,  of  the  following  members  of  the  said 
company's  executive  and  technical  force,  namely,  the  President,  vice  president 
and  general  manager,  sales  and  traffic  manager,  engineering  assistant  to  gen- 
eral manager,  superintendent  of  manufacture,  chief  technologist,  chief  engi- 
neer, assistant  engineer,  and,  in  addition  thereto,  in  connection  with  the  opera- 
tion of  the  said  plants,  two  principal  works  managers,  as  such  offices  may 
from  time  to  time  be  filled. 

•'  4.  For  procuring  from  the  American  Cyanamid  Co.  the  disposal,  for  the  pur- 
poses of  the  Air  Nitrates  Corporation,  of  all  of  the  said  company's  plants  for 
the  purpose  of  training  superintendents,  foremen,  and  chief  operatives." 
Article  XI  provides: 

"Agent's  compensation. — ^As  full  compensation  for  the  services  of  the  agent 
the  United  States  shall  pay  to  the  agent  the  following  fees : 

"1.  Construction  fee. — Three  and  one-third  (3^)  per  cent  of  the  cost  in  con- 
nection with  the  construction  and  equipment  of  the  said  plants,  until  such  cost 
(exclusive  of  the  agent's  compensation)  shall  equal  thirty  million  (30,000,000) 
dollars,  and  thereafter  one  and  two-thirds  (If)  per  cent  of  such  cost  in  excess 
of  said  thirty  million  (30,000,000)  dollars.  Said  fee  shall  be  payable  monthly 
upon  that  portion  of  the  cost  for  which  payment  has  been  made  during  the 
month  or  months  preceding  and  as  to  which  the  fee  is  unpaid.  There  shall  be 
credited  on  account  of  said  construction  fee  any  payments  for  construction 
compensation  heretofore  made  to  the  agent  under  the  provisions  of  said  con- 
tract of  November  16,  1917.  The  total  of  the  construction  fee  shall  not  exceed 
one  million  five  hundred  thousand  (1,500,000)  dollars. 

"2.  Operation  fee. — One-quarter  of  one  cent  ($0.0025)  per  pound  of  ammo- 
nium nitrate  produced  in  compliance  with  Art'cle  VII  hereof  and  accepted  or 
utilized  by  the  United  States,  up  to  and  including  110,000  tons  produced  in  any 
fiscal  year  of  the  United  States,  and  one-eighth  of  one  cent  ($0.00125)  per 
pound  of  ammonium  nitrate  so  produced  and  accepted  or  utilized  in  any  fiscal 
year  in  excess  of  such  110,000  tons.     Payment  shall  be  made  monthly. 

"  The  Chief  of  Ordnance  may  direct  the  agent  to  produce,  at  any  one  or  more 
of  said  plants,  products  other  than  ammonium  nitrate,  and  to  the  extent  that 


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MUSCLE   SHOALS  PROPOSITIONS. 


183 


4-11 


Ml 


such  products  are  not  utilized  in  the  making  of  ammonium  nitrate  in  any  of 
said  plants  ojierated  by  the  agent  the  agent  shall  receive  as  compensation  for 
making  such  products  an  operation  fee  computed  upon  such  a  basis  as  will  give 
the  agent  for  making  such  products  the  same  amount  as  the  agfnt,  by  way  of 
operation  fee,  would  have  received  (1)  where  such  products  are  nitrogenous 
compounds,  for  fixing  an  equivalent  amount  of  nitrogen  in  the  form  of  ammonium 
nitrate;  and  (2)  where  such  products  are  other  than  nitrogenous  compounds, 
for  making  ammonium  nitrate  ejquivalent  in  cost  to  that  of  such  products." 

Mr.  James.  Is  Lieut.  Col.  William  Williams  still  in  the  Army? 

Col.  Hull.  No,  sir;  I  think  not. 

Mr.  James.  Do  you  know  what  his  present  business  is? 

Col.  Hull.  I  am  informed  that  he  is  living  in  New  York  and  just  recently  left 
for  the  Orient. 

Mr.  James.  Do  you  know  what  his  business  is? 

Col.  Hull.  I  do  not. 

Mr.  James.  Is  Lieut.  Col.  Samuel  McRoberts  still  in  the  Army? 

Col.  Hull.  No,  sir. 

Mr.  James.  Do  you  know  what  business  he  is  in? 

Col.  HxjLL.  He  is  in  the  National  City  Bank,  I  believe. 

Mr.  James.  He  is  a  banker? 

Col.  Hull.  Yes,  sir. 

Mr.  James.  I  understood  you  to  say  that  Lieut.  Col.  Williams,  who  signed  this 
contract  on  behalf  of  the  United  States  with  the  Alabama  Power  Co.,  and  Lieut. 
Col.  McRoberts,  who  signed  the  contract  on  behalf  of  the  United  States  with  the 
Air  Nitrates  Corporation,  are  out  of  the  Army? 

Col.  Hull.  Yes,  sir. 

Mr.  Kearns.  Colonel,  do  you  know  what  the  capital  stock  of  the  Air  Nitrates 
Corporation  amounted  to?  Is  it  not  true  that  that  was  a  company  composed  of 
10  men  and  each  one  put  $100  into  the  organization  ? 

Col,  Hull.  I  have  so  heard,  but  I  have  never  looked  into  that  matter. 

Mr.  Kearns.  If  this  was  a  company  composed  of  10  men,  each  putting  in  the 
company  $100,  making  the  capital  stock  $1,000,  what  business  or  activity  could 
they  have  that  the  Government  would  want  to  buy? 

Col.  Hull.  Possibly  the  relationship  of  the  Air  Nitrates  Corporation  with  the 
parent  company,  the  American  Cyanamid  Co.,  might  explain  why  they  made  a 
separate  company  for  the  purpose  of  the  contract. 

Mr.  Kearns.  I  have  been  told — I  do  not  know  how  true  it  is — that  these  10 
men  got  from  the  Government  or  got  from  some  one,  something  over  $2,000,000 
on  a  capital  stock  of  $1,000  out  of  this  project  at  Muscle  Shoals.    Is  that  true? 

Col.  Hull.  I  do  not  know.  I  have  heard  a  great  many  stories  on  both  sides  of 
that,  but  I  have  never  had  occasion  to  go  into  it  officially. 

Mr.  Kearns.  I  was  wondering  how  a  company  with  a  capital  stock  of  $1,000 
could  furnish  the  Government  anything  in  the  way  of  materials  that  would  be 
worth  over  $2,000,000.  Do  you  know  of  any  service  that  they  have  rendered  to 
the  Government  that  would  justify  a  payment  of  $2,000,000? 

Col.  Hull.  I  do  not  know  enough  about  the  business  to  pass  any  intelligent 
judgment  on  that  at  this  time.  I  could  imagine  a  condition — for  instance,  if 
you  take  the  10  leading  men  of  the  United  States  Steel  Corporation  and  they 
would  start  a  small  corporation  for  the  purpose  of  helping  us  out  in  the  con- 
struction of  steel  for  a  couple  of  years ;  their  experience  might  be  worth  a  good 
deal,  considering  Mr.  Carnegie's  old  statement  that  he  did  not  care  whether  his 
mills  burned  down  as  long  as  he  had  his  personnel. 

Mr.  Miller.  Colonel,  under  section  15  of  this  contract,  which  might  be 
called  the  advertising  section  of  it,  you  find  this  peculiar  language :  "  In  order 
that  the  farmers  may  be  supplied  with  fertilizers  at  fair  prices  and  without 
excessive  profits,  the  company  agrees  that  the  maximum  net  profit  which  it 
shall  make  in  the  manufacture  and  sale  of  fertilizer  products  at  nitrate  plant 
No.  2  shall  not  exceed  8  per  cent  of  the  actual  annual  cost  of  production 
thereof.  In  order  that  this  provision  may  be  carried  out,  the  company  agrees 
to  the  creation  of  a  board  of  not  more  than  nine  voting  members,  chosen  as  fol- 
lows: The  three  (3)  leading  representative  farm  organizations,  national  in  fact, 
namely:  The  American  Farm  Bureau  Federation,  the  National  Grange,  the 
Farmers  Education  and  Cooperative  Union  of  America  (or  their  successors) 
shall  each  designate  not  more  than  seven  (7)  candidates  for  said  board.  The 
President  shall  nominate  for  membership  on  this  board  not  more  than  seven 
(7)  of  these  candidates,  selected  to  give  representation  to  each  of  the  above- 
mentioned  organizations,  said  nominations  to  be  made  subject  to  confirmation 


by  the  Senate,  and  there  shall  be  two  voting  members  of  said  board  selected 
by  the  company.  A  representative  of  the  Bureau  of  Markets,  Department  of 
Agriculture  (or  its  legal  successor),  to  be  appointed  by  the  President,  shall 
also  be  a  member  of  the  board  serving  in  an  advisory  capacity  without  the- 
right  to  vote.  The  said  board  shall  determine  what  has  been  the  cost  of 
manufacture  and  sale  of  fertilizer  products  and  the  price  which  has  been 
charged  therefor,  and  if  necessary  for  the  purpose  of  limiting  the  annual 
profit  to  8  per  cent  (8  per  cent)  as  aforesaid,  shall  regulate  the  price  at  which 
said  fertilizer  may  be  sold  by  the  company.  For  these  purposes  said  board 
shall  have  access  to  the  books  and  records  of  the  company  at  any  reasonable 
time.  The  said  board  shall  also  determine  the  equitable  territorial  distri- 
bution of  fertilizer  products  produced  at  nitrate  plant  No.  2.  If  and  when 
said  board  can  not  agree  upon  its  findings  and  determinations,  then  the  points, 
of  disagreement  shall  be  referred  to  the  Federal  Trade  Commission  (or  its 
legal  successor)  for  arbitration  and  settlement,  and  the  decision  of  said  com- 
mission in  such  cases  shall  be  final  and  binding  upon  the  board." 

Do  you  construe  that  section  of  the  contract  to  mean  that  Mr.  Ford  is  obli- 
gated to  follow  his  product  until  it  reaches  the  farmer? 

Col.  Hull.  No,  sir. 

Mr.  Miller.  Then,  that  is  idle  phraseologj'  in  the  contract? 

Col.  Hull.  No  ;  it  limits  the  profit  of  the  manufacturer  but  not  the  profit  of 
the  middleman. 

Mr.  Miller.  I  am  asking  you.  Colonel,  whether  that  makes  it  obligatory 
on  IMr.  Ford  or  upon  his  company  to  follow  their  manufactured  product  until 
it  reaches  the  hands  of  the  farmer? 

Col.  Hull.  I  believe  it  would  be  left  entirely  to  the  discretion  of  the  board,, 
and  that  you  could  not  force  anything  by  the  terms  of  this  contract. 

Mr.  Miller.  What  board  do  you  speak  of? 

Col.  Hull.  The  board  provided  for  in  section  15. 

Mr.  Miller.  Then,  tJiat  is  of  no  more  binding  force  upon  Mr.  Ford  than 
phraseology  something  like  this :  "  In  order  that  commercial  fertilizer  may  be- 
made  at  fair  prices,  without  excessive  profits,  the  company  agrees  that  the 
maximum  net  profit  which  it  shall  make  out  of  the  manufacture  and  sale  of 
fertilizer  and  fertilizer  products  at  nitrate  plant  No.  2  shall  not  exceed  8  per 
cent  per  annum." 

Col.  Hull.  On  the  actual  cost  of  production.  You  are  just  changing  the 
preamble. 

Mr.  Miller.  I  have  left  out  that  portion  of  the  phraseology  in  here,  "  in  order 
that  farmers  may  be  supplied." 

Col.  Hull.  Yes. 

Mr.  MiLLia?.  It  means  nothing  more  than  if  the  word  "  farmers  "  was  not  in 
there. 

Col.  Hull.  It  is  a  declaration  only. 

Mr.  Miller.  Now,  Colonel,  read  section  15,  where  it  makes  use  of  the  lan- 
guage, "  In  order  that  farmers  may  be  supplied  with  fertilizer,"  and  see  if  that 
is  substantially  the  same  language  that  is  repeated  in  section  17  of  Mr.  Ford's 
offer,  which  reads  in  this  way : 

"  In  order  that  said  company  may  be  supplied  with  electric  power  and  the 
farmers  with  fertilizers  after  the  termination  of  the  said  100-year  leases,  should 
the  United  States  elect  not  to  operate  said  power  plants,"  does  not  this  con- 
tract convey  all  the  way  through  it  that  Mr.  Ford's  product  shall  be  sold 
directly  to  the  farmer,  and  that  he  shall  follow  his  product  until  it  reaches 
the  hands  of  the  farmer? 

Col.  Hull.  I  understand  that  that  clause,  15,  was  prepared  by  some  farm 
organization  and  inserted  almost  in  the  words  that  they  asked. 

Mr.  Miller.  What  farm  organization  was  that? 

Col.  Hull.  I  think  they  were  the  ones  that  'were  named  in  the  claiiee,  the 
American  Farm  Bureau  Federation,  the  National  Grange,  and  the  Farmers' 
Educational  and  Cooperative  Union  of  America. 

Mr.  Miller.  I  am  reading  from  this  contract. 

Col.  Hull.  I  am  reading  from  the  contract,  too.  They  are  mentioned  in 
paragraph  15.  Their  representatives  drafted  that  clause  and  it  was  put  in 
in  that  way.  I  see  your  point.  I  should  say  that  under  the  terms  of  the  con- 
tract, as  far  as  the  Government  and  Mr.  Ford  are  concerned,  it  limits  it  only 
to  the  price  to  the  manufacturer  and  does  not  provide  that  the  Government 
should  control  how  it  should  be  disposed  of  to  the  farmer  or  to  other  industries 


184 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


185 


Mr.  Miller.  There  is  no  effort  in  here  to  have  the  Government  do  anything. 
.  Mr.  Ford  is  to  do  it  all,  or  rather  Mr.  Ford's  company,  and  what  I  am  getting 
at  is  this,  does  Mr.  Ford  or  his  company  obligate  himself  to  get  this  manufac- 
tured product,  which  is  commercial  fertilizer,  intx)  the  hands  of  the  farmer? 

Col.  Hull.  Not  to  the  United  States.  It  does  not  so  obligate  itself  in  this 
contract. 

Mr.  Miller.  Then  Mr.  Ford,  after  he  manufactured  his  fertilizer,  could  dis- 
pose of  it  to  anyone? 

Col.  Hull.  Subject  to  the  control  of  the  board  which  is  here  set  up. 

Mr.  Miller.  He  could  sell  it  to  a  purchasing  concern  or  sell  it  through  any 
other  means  that  he  might  organize  or  anyone  might  organize  to  take  the  out- 
put of  his  factory? 

Col.  Hull.  Yes,  sir. 

Mr.  Miller.  And  all  the  limitations  that  he  and  his  purchaser  would  be  under 
would  be  that  Mr.  Ford's  profit  should  not  exceed  8  per  cent? 

Col.  Hull.  Yes,  sir. 

Mr.  Miller.  Then  it  would  be  possible  under  this  contract,  so  far  as  the  im- 
mediate effect  to  the  farmer  is  concerned,  for  his  product  to  go  through  one  or 
more  hands  before  it  reaches  the  farmers? 

Col.  Hull.  Yes,  sir. 

Mr.  Miller.  And  each  one  could  take  his  slice  out  of  the  profits,  but  Mr.  Ford 
himself  could  not  get  more  than  8  per  cent? 

Col.  Hull.  That  is  correct.  The  matter  is  covered  by  the  creation  of  a  board 
to  control. 

Mr.  Miller.  They  control  the  profit  Mr.  Ford  is  to  get,  do  they  not? 

Col.  Hull.  They  control  the  price. 

Mr.  Miller.  I  understand  that.  I  have  read  the  section  about  the  board,  and 
what  I  am  getting  at  is  that  Mr.  Ford  shall  not  make  over  8  per  cent  out  of  his 
<jommercial  fertilizer,  but  after  it  gets  beyond  Mr.  Ford's  hands,  suppose  some 
one  should  organize  a  purchasing  corporation  and  purchase  Mr.  Ford's  output, 
what  is  there  standing  between  that  company  and  the  farmer? 

Col.  Hull.  The  right  of  the  board  to  determine  the  equitable  territorial  dis- 
tribution of  fertilizer  products  at  nitrate  plant  No.  2. 

Mr.  Miller.  Suppose  that  your  board  should  distribute,  let  us  say,  so  much 
of  this  product  to  the  State  of  North  Carolina  and  so  much  to  the  State  of 
Tennessee  and  so  much  to  Kentucky  and  to  other  States  or  other  lesser  divi- 
sions than  a  State  and  say  that  they  are  entitled  to  so  much  of  this  output,  your 
board  can  control  the  quantity  produced  for  each  one  of  those  localities,  but 
what  check  has  it  on  the  price  that  the  farmer  shall  pay  in  each  one  of  those 
localities? 

Col.  Hull.  None. 

Mr.  Miller.  None  whatever,  has  it? 

Col.  Hull.  Not  that  I  can  see. 

Mr.  Miller.  In  other  words,  there  is  nothing  in  this  contract,  Colonel,  that 
controls  the  price  of  fertilizer  as  it  shall  reach  the  farmer,  and  that  is  what 
we  are  after  in  this  matter ;  that  is  the  whole  undertaking,  to  get  cheap  fer- 
tilizer into  the  hands  of  the  farmer.  Now,  would  it  not  be  salutary  in  this 
case — I  am  in  deep  sympathy  with  cheap  fertilizer  and  I  will  go  the  limit  to 
get  cheap  fertilizer  to  the  farmer,  but  should  there  not  be  some  clause  in  this 
contract  by  which  Mr.  Ford  or  his  company  have  control  of  this  product  until 
it  shall  reach  the  very  hands  of  the  people  who  will  consume  the  product,  if 
we  want  to  safeguard  it  and  get  a  cheap  fertilizer  to  the  farmers? 

Col.  Hull.  All  I  can  say  as  to  that  is  that  the  farm  organizations  that  were 
primarily  concerned  did  not  have  any  fear  of  that  kind. 

Mr.  Miller.  That  is  true,  but  there  will  be  many  farm  organizations  come 

and  go.  , 

Col.  Hull.  After  you  have  raised  the  question,  they  are  more  concern;  a 


^4th  it-^ 

Mr.  Miller  (interposing).  This  is  a  100-year  contract,  and  many  farm 
organizations  will  come  and  go  like  the  bubbles  on  the  waters,  just  as  they 
have  in  the  last  50  years,  or  20  years,  or  10  years,  and  we  are  dealing  here  wit/J 
something  that  is  almost  in  perpetuity,  five  generations  ahead  of  us,  and  it 
we  are  going  to  do  anything,  which  is  our  earnest  endeavor,  to  increase  the 
productiveness  of  the  soil  and  help  the  farmer,  should  we  not  have  something 
of  a  permanent  character  in  this  contract  rather  than  to  leave  it  to  the  associa- 
tions of  farm  organizations,  as  they  come  and  go  every  year,  dealing  with  tlus 
matter? 


Col.  Hull.  Any  clause  of  that  kind.  I  believe,  would  be  acceptable  to  the 
representatives  of  the  company  that  will  appear  before  you  next  week  if 
it  can  be  so  drafted.  ' 

Mr.  Miller.  Was  there  any  suggestion  of  a  clause  of  that  character  in  your 
draft? 

Col.  Hull.  No,  sir.    This  clause  was  not  drafted  in  the  office.    It  was  adopted 

Mr.  Miller.  We  have  a  clause  that  will  insure  to  the  farmer  the  production 
of  this  plant  at  not  to  exceed  8  per  cent  profit  to  the  manufacturer  at  the 
works.  We  have  that  safeguarded  in  this  contract.  Now,  from  there  on,  until 
it  reaches  the  farmer,  there  is  nothing  here  in  this  contract,  and  what  I  was 
thinking  of  was  some  clause  by  which  it  shall  reach  the  hands  of  the  farmers 
at  a  fair  and  reasonable  price. 

Col.  Hull.  If  a  fair  clause  of  that  kind  could  be  drafted,  I  believe  that  the 
insertion  of  such  a  reservation  would  not  meet  with  opposition.  Of  course,  you 
can  find  that  out  next  week. 

Mr.  Miller.  What  I  am  alarmed  about  in  this  contract,  and  I  am  frank  to 
say  it  right  now,  is  that  if  the  production  of  fertilizer  in  Mr.  Ford's  enterprise 
or  his  company's  enterprise  should  become  a  formidable  competitor  with  the 
very  substantial  interests  now  engaged  in  the  sale  of  fertilizer,  a  purchasing 
company  may  be  organized  for  the  purpose  of  purchasing  the  output  of  this 
factory  and  get  hold  of  that  output,  even  though  distributed  in  zones  as  the 
contract  calls  for;  because  this  board  has  no  control  over  prices  We  want 
to  keep  that  in  our  minds  clearly.  They  could  purchase  the  output  of  this' 
factory,  husband  it,  and  dispense  it  as  they  pleased,  or  send  it  to  these  zones, 
just  as  they  pleased,  and  put  the  prices  to  the  farmer  up  equal  to  what  Mr 
Commercial  Fertilizerman  gets  for  his  fertilizer  now. 

Col.  Hull.  If  a  clause  of  that  kind  can  not  be  drafted,  I  should  imagine  that 
a  criminal  statute  could  be  drafted  that  would  meet  such  a  condition. 

Mr.  Miller.  Under  what  law  have  you  in  mind  that  a  criminal  statute  could 
be  so  drawn? 

Col.  Hull.  The  interstate  commerce  clause. 

Mr.  Miller.  Does  that  control  the  price  of  anything?  Take,  for  instance  the 
10  men  who  organized  this  Air  Nitrates  CoriK)ration,  which  is  probably  a  sub- 
sidiary corporation.  I  think  it  would  be  wise  to  safeguard  these  things  be- 
cause what  we  are  deeply  concerned  in  and  what  I  think  we  are  all  in  sympathy 
with  is  that  if  the  Government  embarks  on  this  enterprise  and  puts  in  this 
enormous  sum  of  money,  $50,000,000  in  addition  to  the  $105,000,000  and  over 
that  it  has  now  invested  there,  making  in  round  numbers  $160,000  000  that 
the  Government  has  put  in  these  plants,  we  are  deeply  concerned  that  the 
agricultural  interests  shall  get  the  benefit  of  this  whole  thing,  and  that  some 
cunning  and  clever  manipulating  company  shall  not  get  this  thing  in  a  condition 
so  that  they  can  control  ultimately  the  output  of  this  enterprise  and  set  the 
price. 

Col.  Hull.  That  is  the  first  time  that  idea  has  been  expressed. 

Mr.  Miller.  It  occurred  to  me  from  an  examination  of  the  contract.  I  have 
not  had  the  time  to  devote  as  much  time  as  I  would  like  to  it. 

Col.  Hull.  If  it  had  arisen  it  would  have  been  more  fully  covered  I  have 
no  doubt,  in  this  contract.  ' 

Mr,  Miller.  I  think  it  is  very,  very  important. 

Mr.  Parker.  Col.  Hull,  if  it  should  turn  out  to  cost  more  to  manufacture  sul- 
phate of  ammonia  at  this  plant  than  the  market  price  at  which  sulphate  of  am- 
monia IS  produced  and  sold  by  others,  would  the  manufacture  go  on  •  is  there 
anything  to  insure  that  it  would  go  on? 

Col.  Hull.  Only  as  found  in  section  14.  He  obligates  himself  to  manufac- 
ture at  maximum  capacity  barring  strikes  and  other  causes. 

Mr.  Parker.  And  other  unforeseen  causes,  is  it  not? 

Col.  Hull.  Other  causes  beyond  his  control. 

Mr.  Parker.  Is  not  the  price  of  the  market  beyond  his  control? 

Col.  Hull.  I  should  say  that  would  come  under  the  ejusdem  generis  rule  and 
tne  price  would  not  be  one  of  the  causes.  ' 

Mj.  Parker.  Do  you  think  he  would  have  to  manufacture  at  a  loss  and  sell 
It  at  a  loss  if  he  could  not  make  it  for  the  price  at  which  it  was  sold  on  the 
marKet? 

orS?^\  ?.^^'  ^°^  construction  of  that  clause  would  do  it,  whether  you  could 
<-ompel  it  or  not. 

Mr.  Parker.  At  any  rate,  it  is  a  matter  of  doubt? 

^ol.  Hull.  It  would  be  a  serious  matter  of  doubt. 


I 


m 


186 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


187 


Mr.  Parker.  Then  it  is  a  serious  matter  of  doubt  whether  he  would  have  to 
go  on  and  have  to  dispose  of  the  goods  at  a  loss  if  the  market  price  was  below 
what  he  could  make  it  for? 

Col.  Hull.  He  would  have  to  do  it  unless  relieved  either  by  Congress  or  a 
court  of  equity. 

Mr.  Parker.  But  is  says,  "  other  cause  beyond  his  control,"  and  the  price  of 
the  goods  on  the  market  would  be  beyond  his  control? 

Col.  Hull.  As  I  said,  in  my  judgment,  the  courts  would  not  hold  that  price 
would  be  "  other  causes  beyond  his  control." 

Mr.  Parker.  You  think  not? 

Col.  Hull.  No,  sir. 

Mr.  Parker.  But  it  is  a  serious  matter  of  doubt,  anyhow? 

Col.  Hull.  No;  I  should  say  that  the  difficulty  would  have  to  be  somewhat 
of  a  nature  of  those  already  specified. 

Mr.  Parker.  You  think,  then,  he  would  be  bound  to  go  ahead  and  manufac- 
ture at  a  loss,  under  this  contract,  and  sell  at  a  loss,  no  matter  how  low  the 
price  of  commercial  sulphate  of  ammonia  might  be  on  the  market? 

Col.  Hull.  Unless  relieved  by  a  court  of  equity  or  by  Congress.  That  is  his 
obligation  as  it  is  written. 

Mr.  Parker.  This  contract  is  simply  a  contract,  is  it  not?  It  is  not  a 
mortgage  or  anything  of  that  sort,  but  is  a  contract  to  manufacture? 

Col.  Hull.  Yes,  sir. 

Mr.  Parker.  Under  clause  13  he  is  to  get  a  deed  for  all  this  property,  in- 
cluding the  nitrate  works,  free  and  unencumbered,  is  he  not? 

Col.  Hull.  Yes,  sir. 

Mr.  Parker.  He  could  then  mortgage  it  to  raise  money? 

Col.  Hull.  Yes,  sir. 

Mr.  Parker.  That  would  create  a  lien  on  the  property? 

Col.  Hull.  Yes,  sir. 

Mr.  Parker.  And  that  would  be  paramount  to  any  mere  contracts  that  he 
had  made? 

Col.  Hull.  Probably,  without  a  reservation  in  the  deed. 

Mr.  Parker.  So  that  unless  there  is  a  reservation  in  the  deed,  which  is  not 
provided  for  in  this  contract  here,  he  could  mortgage  the  whole  plant  for 
millions  of  dollars,  as  big  companies  do,  and  that  would  be  prior  to  the  obli- 
gations of  this  contract  or  the  lien  of  this  contract? 

Col.  Hull.  The  contract  being  made  in  the  nature  of  a  statute,  the  mortgagor 
would  be  bound  by  a  knowledge  of  the  terms  of  this  contract. 

Mr.  Parker.  But  this  contract  is  very  specific,  that  he  shall  get  a  title  which 
is  free  and  unencumbered,  and  that  means  free  and  unencumbered  of  anything 
and  ready  to  mortgage. 

It  is  a  pretty  easy  matter  to  get  up  a  strike  by  lowering  wages,  it  is  not? 

Col.  Hull.  I  think  the  committee  has  had  very  wide  experience  and  is 
perfectly  competent  to  judge  that. 

Mr.  Parker.  If  Mr.  Ford  lowered  wages,  he  would  have  a  strike  and  would 
be  perfectly  protected  under  this  strike  clause,  would  he  not? 

Col.  Hull.  I  doubt  it.    A  man  can  seldom  profit  by  his  own  wrongs. 

Mr.  Parker.  But  how  can  you  find  out  that  it  is  his  own  wrong,  if  he  says 
that  he  has  to  lower  them  in  order  to  meet  market  prices? 

Col.  Hull.  I  think  both  the  points  you  are  making  are  well  worth  discussion. 

Mr.  Parker.  That  is  what  I  think,  and  that  is  all  I  want  to  ask  about  that. 
I  will  now  pass  to  the  Alabama  contract.  Have  you  that  contract  with  you? 
I  have  not  seen  it  and  I  do  not  think  it  has  been  read  and  I  want  to  look  at  it. 

Col.  Hull.  Yes,  sir. 

Mr.  Parker.  This  Alabama  Power  Co.  contract  was  one  for  the  construction 
of  a  power  plant  and  transmission  line,  was  it  not? 

Col.  Hull.  Yes,  sir;  there  are  four  or  five  projects.  I  have  forgotten  now 
exactly  how  many  projects  were  combined  in  that  one  contract. 

Mr.  Parker.  Did  some  of  these  lands  on  which  this  was  done  already  belong 
to  the  Alabama  Power  Co.? 

Col.  Hull.  I  think  one  parcel  belonged  to  them.  * 

Mr.  Parker.    Was  the  one  on  which  the  power  plant  was  built? 

Col.  Hull.  Yes,  sir. 

Mr.  Parker.  And  that  is  the  important  one  where  almost  all  the  money  was 

si)ent,  on  their  own  lands. 
Col.  Hull.  I  do  not  know  as  to  that. 


Mr.  Parker.  Is  not  the  parcel  on  which  most  of  the  money  was  spent?  It 
certainly  can  not  be  true  that  the  transmission  line  cost  more  than  the  con- 
struction of  the  plant. 

Col.  Hull.  Looking  at  page  20  of  the  Secretary's  letter  we  find  that  the  gen- 
erating plants  (Warrior)  cost  $3,300,000;  Warrior  substation,  $384,000;  Drif- 
ton  railroad,  $90,000 ;  Warrior-Muscle  Shoals  transmission  line,  $905,000,  so  that 
the  great  percentage  of  the  expenditure  was  made  on  the  lands  which  I  under- 
stand they  already  owned. 

Mr.  Parker.  Were  the  other  lands  that  were  bought  paid  for  by  the  United 
States  or  were  they  paid  for  by  the  company? 

Col.  Hull.  I  understand  that  under  the  terms  of  the  contract  they  were  paid 
for  by  the  company. 

Mr.  Parker.  The  United  States  did  not  pay  for  the  other  lands,  then? 

Col.  Hull.  I  presume  not,  sir.    If  it  did,  we  would  own  them. 

Mr.  Parker.  I  want  to  know  whether  they  paid  for  them  or  not. 

Col.  Hull.  Under  the  terms  of  the  contract  they  were  to  be  purchased  by  the 
company  at  their  expense. 

Mr.   Parker.  At   their  own  expense? 

Col.   Hull.  Yes,   sir. 

Mr.  Parker.  So  that  this  was  a  contract  then  to  place  a  lot  of  transmission 
lines  and  power  plants  on  lands  owned  or  to  be  owned  and  bought  by  the  com- 
pany at  their  own  expense? 

Col.  Hull.  Yes,  sir. 

Mr.  Parker.  'That  contract,  I  understand  you  to  hold,  is  void  because  of  ille- 
gality so  that  it  can  not  be  enforced  by  either  party  against  the  other. 

Col.  Hull.  I  hold  that  the  clause  in  the  contract  that  provides  for  the 
option  to  purchase  is  void  for  lack  of  authority. 

Mr.  Parker.  That  clause,  however,  is  part  of  the  essential  consideration  of 
the  contract  or  part  of  the  consideration,  and  would  therefore  render  the  whole 
contract  void.    It  is  an  essential  part  of  the  contract,  is  it  not? 

Col.  Hull.  I  do  not  think  so. 

Mr.  Parker.  It  is  a  part  of  the  consideration  which  the  United  States  was  to 
pay  this  company,  is  it  not? 

Col.  Hltll.  The  rest  of  it  has  been  executed. 

Mr.  Parker.  If  the  United  States  had  put  it  in  this  form :  "  The  United  States 
agrees  with  the  Alabama  company  that  they  shall  have  the  right  to  use  the 
Alabama  company's  lands  during  the  war  and  during  the  need  for  it,"  putting 
on  what  property  they  pleased  for  which  the  Alabama  company  would  pay  them 
when  they  ceased  using  these  improvements,  that  would  be  in  the  nature  of  a 
lease  or  a  contract  for  something  to  be  done  on  another  person's  land,  limited 
in  time,  and  in  spite  of  the  part  which  provides  for  a  sale  of  these  improvements, 
that  was  the  substantial  agreement,  was  it  not,  that  the  United  States  should 
have  the  right  to  put  improvements  in  the  nature  of  power  plants  and  transmis- 
sion lines  on  the  Alabama  Power  Co.'s  lands  and  get  the  use  of  those  things  dur- 
ing the  war,  and  when  they  gave  us  that  use,  which  they  were  bound  to  do  and 
which  the  other  company  was  bound  to  ask  them  to  do,  the  company  should  pay 
them  the  value  of  those  improvements;  is  not  that  substantially  the  contract? 

Col.  Hull.  That  is  not  the  form  in  which  it  was  written. 

Mr.  Parker.  Certainly,  it  was  not,  but  nevertheless  is  not  that  the  substance 
of  the  contract? 

Col.  Hull.  I  doubt  it. 

Mr.  Parker.  It  is  a  matter  of  doubt? 

Col.  Hull.  I  doubt  it.  I  think  the  company  drafted  the  contract  so  they 
would  have  more  rights  than  that. 

Mr.  Parker.  Let  me  ask  you  another  question ;  If  that  contract  is  void  and 
the  parties  therefore  have  to  stand  in  statu  quo,  both  being  wrongdoers  in  an 
illegal  contract,  all  these  improvements  having  been  made  on  the  other  man's 
land  would  be  fixtures  which  would  go  to  the  other  man.  They  are  fixtures, 
are  they  not? 

Col.  Hull.  They  are  fixtures,  but  I  do  not  believe  your  construction  is  correct, 
sir. 

Mr.  Parker.  You  do  not  think  the  whole  contract  is  void? 

Col.  Hull.  No. 

Mr.  Parker.  Have  you  authority  for  that?  I  think  the  cases  are  very  strong, 
as  I  look  at  them,  that  wherever  a  material  part  of  the  consideration  is  illegal, 
the  whole  contract  becomes  illegal. 


\ 


188 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


189 


Col.  Hull.  I  think  I  could  find  plenty  of  authorities  upon  the  facts  as  we 
have  them  here. 

Mr.  Parkeb.  Now,  may  I  see  the  other  contract  with  the  Air  Nitrates  Corpo- 
ration ? 

Col.  Hull.  Yes,  sir.  I  might  call  your  attention,  on  the  question  of  whether 
this  was  part  and  parcel  of  the  consideration,  that  there  was  a  limit  on  the 
compensation  which  was  reached,  as  I  understand  it. 

Mr.  Parker.  Yes ;  on  the  compensation,  but  consideration  for  putting  property 
on  another  person's  land  to  which  they  expected  to  keep  the  title  and  not  con- 
vey it,  and  which  by  being  annexed  to  the  land  becomes  theirs,  is  another 
proposition.  It  was  understood  that  they  should  not  take  these  Improvements 
without  paying  the  fair  value,  and  that  does  iiot  seem  to  me  a  very  unfair 
contract,  but  I  do  not  know  what  the  courts  would  say.  Does  it  seem  to  you 
to  be  doubtful  about  its  being  a  fair  contract? 

Col.  Hull.  We  have  a  number  of  those,  and  so  far  we  have  not  got  hurt. 

Mr.  Parker.  I  now  pass  to  the  Air  Nitrates  Corporation  contract;  did  that 
cover  both  No.  1  and  No.  2,  or  only  No.  2. 

Col.  Hull.  Only  No.  2. 

Mr.  Parker.  In  that  contract,  on  the  other  hand,  the  improvements  and  work 
were  upon  lands  which  belonged  or  were  to  be  acquired  by  the  United  States. 

Col.  Hull.  Yes,  sir. 

Mr.  Parker.  It  is  not  in  the  same  jJosition,  therefore,  as  the  other  contract? 

Col.  Hull.  No,  sir. 

Mr.  Parker.  And  the  article  is  not  an  absolute  agreement  that  the  owner  of 
the  land  shall  pay  the  value  of  the  improvements,  but  is  simply  an  option,  in 
the  nature  of  an  ordinary  option,  by  which  they  have  a  right  to  bid  at  any 
sale. 

Col.  Hull.  Yes,  sir. 

Mr.  Parker.  And  it  is  not  half  as  strong  an  agreement  for  that  reason. 

Col.  Hull.  It  is  in  a  different  form. 

Mr.  Parker.  It  is  just  an  option,  and  I  think  those  options  are  always  re- 
garded with  some  hesitation  by  the  law  and  are  rather  strictly  considered  so  as 
not  to  prevent  fair  sales. 

Col.  Hull.  You  could  strike  that  out  of  that  contract  without  mutilating  the 
contract  in  any  way,  shape,  or  form. 

Mr.  Crowther.  Colonel,  not  being  a  lawyer,  I  do  not  intend  to  interpose  any 
legal  questions  at  this  time,  but,  of  course,  this  will  come  before  the  Congress 
and  is  before  the  country  absolutely  as  a  fertilizer  proposition.  That  is  the 
propaganda  that  is  being  spread  all  over  the  Nation,  and  that  is  the  pressure 
that  will  be  brought  to  bear  upon  Members  of  Congress. 

Now,  we  have  heard  with  a  great  deal  of  interest  the  discussion  regarding 
the  development  of  hydroelectric  power,  which,  I  think,  is  very  pertinent  and 
which  is  a  very  important  subject,  especially  to  the  people  in  that  vicinity  and 
within  four  or  five  hundred  miles  of  Muscle  Shoals.  But  I  do  not  find  any- 
where in  this  contract  that  Mr.  Ford  agrees  to  produce  fertilizer.  He  agrees  to 
run  plant  No.  2  at  its  capacity  of  110,000  tons  a  year  of  ammonium  nitrate 
which,  by  the  sulphuric  process  is  afterwards  changed  to  ammonium*  sulphate, 
which  is  one  of  the  principal  ingredients  in  fertilizer.  But  nowhere  do  I  find 
that  he  is  to  make  fertilizer.  That  is  one  of  the  very  small  parts  of  fertilizer, 
as  it  is  used  now. 

Is  there  any  other  provision  in  the  contract  which  provides  that  he  will 
erect  other  plants  where  he  will  make  the  base,  and,  as  Mr.  Miller  suggested, 
participate  in  the  direct  communication  to  the  farmer  of  the  product  which  has 
been  so  much  talked  about,  that  is,  participate  in  the  distribution?  I  do  not 
find  anything  in  the  contract  under  which  they  are  going  to  make  it  at  all. 

Col.  Hull.  Only  as  set  forth  in  paragraph  14. 

Mr.  Crowther.  I  read  that  one,  and  it  provides  for  the  production  of  nitro- 
gen and  other  fertilizer  compounds. 

Col.  Hull.  Yes,  sir. 

Mr.  Crowther.  Nitrogen  has  to  be  changed  into  ammonium  sulphate.  They 
produce  the  original  ammonium  nitrate,  with  which  some  of  us  are  more  or  less 
familiar,  and  then  it  is  changed  by  the  sulphuric  process  to  sulphate,  and  that 
is  what  is  used  principally  in  the  fertilizer  compound.  But  I  do  not  see  any 
provision  for  the  manufacture  of  fertilizer. 

The  great  general  populace  all  over  the  country  imagine  that  by  some  system 
or  other  there  is  to  be  erected  along  the  shores  of  this  river  plants  in  which 
they  are  going  to  employ  a  million  men,  and  that  they  are  going  to  have  some 


big  air  tunnels  fitted  up  with  some  sort  of  rotary  wheels,  and  they  are  going 
to  put  in  the  raw  materials  at  one  end  and  shoot  it  out  at  the  other  end  as 
fertilizer.  That  is  the  propaganda  which  is  being  issued  among  the  farm 
bureaus  and  granges,  where  they  meet  every  week,  and  that  is  the  proposition 
we  are  going  to  be  up  against.  But  I  do  not  think  there  is  any  provision  in 
this  offer  by  which  he  agrees  absolutely  to  make  fertilizer. 

Do  you  say  that  section  14  is  the  only  place  where  there  is  any  suggestion 
of  that  kind? 

Col.  Hull.  Yes,  sir. 

Mr.  Crowther.  That  provides  for  the  production  of  nitrogen  and  other  fer- 
tilizer compounds? 

Col.  Hull.  Yes. 

Mr.  Crowther.  Then  I  think  there  ought  to  be  something  in  this  contract 
before  you  include  Mr.  Miller's  section,  something  suggested  as  to  this  being 
routed  at  a  reasonable  cost  to  the  farmer.  We  ought  to  put  in  something  that 
will  provide  for  the  production  of  it  before  we  provide  for  its  distribution, 
that  the  other  ingredients  shall  be  furnished  to  make  at  this  plant  a  commercial 
fertilizer  that  these  trade  organizations  shall  have  such  authority  as  given  here 
for  its  distribution,  and  that  there  shall  be  territorial  equality  as  regards  the 
distribution.  It  is  a  fertilizer  proposition,  and  as  such  is  before  the  whole 
country.  People  are  talking  about  it  all  over  the  country  as  that  sort  of  a 
proposition.  There  are  a  great  many  people  making  fertilizers.  The  people 
who  make  fertilizer  buy  their  nitrates  from  Chile,  or  wherever  they  can  buy 
them  in  different  parts  of  the  country. 

Then  there  are  some  factories  in  the  South  which  use  crushed  cotton  seed  to 
make  fertilizer.  There  are  many  things  used  as  a  base.  I  do  not  find,  as  I  said 
before,  anything  in  this  contract  providing  that  Henry  Ford  is  to  produce 
fertilizer,  but  he  is  simply  to  produce  one  of  its  component  parts,  known  as 
ammonium  nitrate. 

Mr.  Wubzbach.  Colonel,  I  think  you  agree  with  Gen.  Beach  on  the  construc- 
tion of  the  proposition  with  reference  to  the  acquisition  of  land  and  flowage 
rights  on  Dam  No.  3,  that  that  means  that  the  Government  will  acquire  that, 
but  that  it  will  be  added  to  the  cost  of  construction  of  Dam  No.  3. 

Col.  Hull.  I  think  that  can  be  easily  arranged  next  week  when  we  get  Mr. 
Ford's  rpresentative  here.  The  question  arises  now  in  connection  with  the 
exact  language  in  view  of  the  fact  that  the  language  was  in  and  was  stricken 
out  before  the  contract  was  signed,  and  it  raises  a  question  as  to  just  what 
is  the  effect  of  such  omission. 

Mr.  Wurzbach.  You  do  not  think  it  is  inconsistent? 

Col.  Hull.  It  can  be  made  perfectly  clear  without  the  slightest  difl^culty. 

Mr.  Wurzbach.  Section  19  of  Mr.  Ford's  offer  says  that  "  the  above  proposals 
are  submitted  for  acceptance  as  a  whole  and  not  in  part."  Your  office  assisted 
in  the  preparation  of  this  offer.  Was  that  language  intended  to  convey,  and 
does  that  mean  that  no  modifications  or  amplifications  of  this  offer  will  be  made 
by  Mr.  Ford? 

Col.  Hull.  I  would  prefer  that  you  ask  that  question  of  his  representative. 

Mr.  Wurzbach.  The  section  reads  further,  "  Upon  acceptance,  the  promises, 
undertakings,  and  obligations  shall  be  binding  upon  the  United  States,  and 
jointly  and  severally  upon  the  undersigned,  his  heirs,  representatives,  and 
assigns,  and  the  company,  its  successors  and  assigns;  and  all  the  necessary 
contracts,  leases,  deeds,  and  other  instruments  necessary  or  appropriate  to  effec- 
tuate the  purposes  of  this  prbposal  shall  be  duly  executed  and  delivered  by 
the  respective  parties  above  mentioned." 

Do  you  not  think  that  language  in  its  very  terms  contemplates  that  this  is 
not  the  final  offer,  but  that  the  details  of  the  offer  will  be  worked  out  during 
the  hearings,  or  before  the  end  of  the  hearings,  or,  if  the  offer  is  accepted 
by  the  Government,  in  the  preparation  of  the  contracts  themselves? 

Col.  Hull.  That  depends  upon  the  legislative  enactment,  if  any,  and  the 
wording  of  it.  If  you  were  to  pass  legislation  providing  for  the  acceptance  of 
this  contract  as  it  is  there  would  be  no  necessity  of  further  papers  between 
the  United  States  and  Mr.  Ford  in  carrying  out  this  contract.  We  would 
have  certain  papers  to  execute  and  deliver  to  carry  out  the  congressional 
naandate,  and  his  company  when  organized  would  have  to  sign  some  papers 
Dinding  the  company  to  carry  out  these  ideas.  But  this  document  under 
certain  circustances,  for  instance,  by  acceptance,  would  stand  as  a  contract 
between  the  United  States  and  Henry  Ford. 


\ 


190 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


191 


Mr.  WuRZBACH.  For  instance,  in  the  matter  of  security  given  the  Government, 
a  guarantee  for  the  performance  of  Mr.  Ford's  obligations  as  contained  in  this 
offer,  you  anticipate  that  there  will  have  to  be  further  contracts  written  in 
order  to  secure  the  Government? 

Col.  Hull.  If  you  have  additional  security ;  yes,  sir. 

Mr.  WuRZBACH.  What  security  has  the  Government  under  the  present  offer,  if 
accepted  merely  by  a  blank  acceptance? 

Col.  Hull.  Mr.  Ford  obligates  his  estate,  and  the  company  when  organized. 

Mr.  WURZBACH.  Do  you  mean  to  say  his  estate  would  be  held  liable  during 
the  course  of  100  years? 

Col.  Hull.  The  estate  would  probably  be  promptly  wound  up.  You  should 
have  some  breach  of  the  contract  or  some  fixing  of  the  responsibility  of  the 
estate  before  then.  If  the  breach  might  occur  long  afterwards  practically  the 
Go\ernment  would  be  without  protection  except  the  value  of  the  corporation. 

Mr.  WURZBACH.  The  estate  would  probably  be  divided  within  5  or  10  years 
after  Mr.  Ford's  death. 

Col.  Hull.  Unless  the  Government  intervened. 

Mr.  WURZBACH.  If  there  had  been  no  breach  up  to  this  time  of  the  partition 
of  his  estate,  under  the  terms  of  this  contract  the  Government  would  not  have 
the  right  to  prevent  the  distribution  of  that  estate? 

Col.  Hull.  Unless  we  can  show  we  were  liable  to  be  harmed. 

Mr.  WuRZBATH.  Assuming  everything  went  along  in  proper  course  up  to  that 
time,  what  security  would  the  Government  have,  under  the  terms  of  section  19. 

Col.  Hull.  The  company  would  be  held.  ^      .^    *ri^AAAAA 

Mr  WURZBACH.  All  of  the  property  that  Mr.  Ford  acquires  for  the  $5,000,000, 
except  nitrate  plant  No.  2,  which  he  holds  for  certain  purposes  for  the  benefit 
of  the  Government— all  of  that  other  property  he  could  dispose  of,  not  only 
mortgage  as  was  suggested,  but  he  could  sell  it,  or  give  it  away? 

Col.  Hull.  Yes;  but,  outside  of  plant  No.  2,  I  think  the  salvage  value  of 
that  to-day  is  not  $5,000,000.  «    ^^        ,  ,      • 

Mr  WURZBACH.  It  is  worth  more  than  that,  is  it  not?  The  salvage  value  is 
over  $8,000,000,  and,  according  to  the  testimony  of  Gen.  Williams,  could  be 
made  worth  a  little  over  $16,000,000.  ,  ^    ,     . 

Col  Hull.  Does  that  not  include  plant  No.  2?  He  can  not  dispose  of  plant 
No  2  and  that  is  supposed  to  be  worth  $7,000,000  of  the  $8,000,000.  So  the 
propertv  he  can  dispose  of,  which  he  gets  for  $5,000,000,  is  worth  much  less 
than  $8,000,000,  about  which  you  have  been  talking.  ,     ,,    ,       ,     ^  ^^^     o 

Mr.  WURZBACH.  He  could  dispose  of  that,  outside  of  nitrate  plant  INo.  2, 

could  he  not?  ^  ^^     ^ 

Col.  Hull.  He  could  dispose  of  that,  outside  of  No.  2;  yes.  ^.     oo 

Mr.  WURZBACH.  All  of  the  property  he  acquired  except  nitrate  plant  >o.  -. 

Col.  Hull.  Yes.  .,    ^        ^,    ^  i,  ,     ,^.i 

Mr  WURZBACH.  What  other  property  would  he  necessarily  have  that  belongea 

to  him  that  he  could  not  give  as  security,  or  as  a  guaranty  of  the  i>erformauce 

of  this  a**'reement? 

Col.  Hull.  Of  course,  during  his  life,  everything  he  owns. 

Mr.  WURZBACH.  I  mean  what  must  he  place  upon  this  particular  property  he 
is  offering  to  lease  and  purchase? 

Col.  Ujtll.  Under  the  terms  of  this  contract? 

Mr.  WURZBACH.  Yes.  <.  .,  ^      .. 

Col.  Hull.  Nothing,  specifically  under  the  terms  of  the  contract. 

Mr  WURZBACH.  Do  vou  not  think  that  by  the  wording  of  section  19  it  was 
clearly  Mr.  Ford's  intention  to  give  some  other  kind  of  security  to  the  Govern- 
ment to  guarantee  the  performance  of  his  obligation? 

Col.  Hull.  I  do  not  think  so.  . 

Mr  WURZBACH.  You  referred  to  the  laws  of  Michigan  a  while  ago  on  tnis 
point'of  security.  Do  you  think  the  laws  of  Michigan  would  control  in  a  question 
of  the  measure  of  damages  in  a  suit  the  Government  might  bring  against  Mr. 
Ford  for  breach  of  his  contract? 

Col.  Hull.  It  depends  on  the  nature  of  the  breach. 

Mr.  WURZBACH.  For  instance,  failure  to  pay  the  4  per  cent  rental ;  do  you 
think  the  laws  of  Michigan  would  control  in  that  matter? 

Col  HLT.L.  They  are  very  important  when  you  come  to  discuss  what  you  can 
do  against  the  estate  or  the  administration  of  Henry  Ford's  estate.  That  is  tne 
reason  I  looked  up  the  laws  of  Michigan.  ,      i  ^.^ 

Mr.  WURZBACH.  That  would  only  be  with  reference  to  his  personal  estate. 


Col.  Hull.  His  personal  liability  on  a  contract  signed  in  Michigan. 

Mr.  Fields.  Colonel,  just  what  did  Mr.  Ford  say  about  his  obligations,  or 
about  binding  him  up,  if  he  said  anything? 

Col.  Hull.  He  did  not  say  anything  to  me. 

Mr.  Fields.  He  did  not  make  any  statement  that  you  know  of  to  any  officer 
'  to  bind  him  up  as  tight  as  they  cared  to?  , 

Col.  Hull.  Not  that  I  know  of.  This  was  drafted  by  the  office  with  the  idea 
to  bind  him  as  tight  as  he  could  be  bound,  probably. 

Mr.  Fields.  He  might  have  said  to  some  other'officer,  "  Bind  me  as  tight  as 
possible,"  without  your  knowledge,  might  he  not? 

Col.  Hull.  No.  I  think  the  officers  would  have  reported  that  to  me  without 
any  delay. 

Mr.  Fields.  What  additional  advantage  would  the  Government  have  should 
they  require  Mr.  Ford  to  give  a  bond,  beyond  the  conditions  in  the  present 
proposed  contract? 

Col.  Hull.  The  bond  would  probably  extend  beyond  the  life  of  Mr.  Ford  and 
should  provide  for  liquidated  damages.  I  want  to  call  your  attention  to  this, 
that  the  Government  has  a  very  serious  burden  in  a  lawsuit  to  prove  that  not 
doing  something  for  the  farmer  would  ciiuse  u  monetary  loss  to  the  Government 
of  the  United  States. 

Mr.  Fields.  If  the  Government  recovered  from  a  bonding  company,  it  would 
have  to  establish  its  claim? 

Col.  Hull.  It  would  have  to  be  in  the  nature  of  liquidated  damages. 

Mr.  Fields.  It  would  have  to  establish  its  claim? 

Col.  Hull.  If  it  was  drafted  in  the  shape  of  liquidated  damages,  only  the 
default  need  be  established. 

Mr.  Fields.  During  the  lifetime  of  Mr.  Ford,  or  so  long  as  his  estate  is  held 
intact,  any  damages  that  might  attach  against  him  would  be  secured? 

Col.  Hull.  This  clause  would  secure  the  Government  on  anything  we  could 
establish. 

Mr.  Fields.  And  any  estate  that  the  company  might  own  would  after  that  time 
secure  the  Government? 

Col.  Hull.  It  would  probably  be  used ;  yes,  sir. 

Mr.  Fields.  Even  during  the  lifetime  of  Mr.  Ford,  if  a  thing  of  that  kind 
should  occur. 

C'ol.  Hull.  Yes. 

Mr.  Fields.  In  the  nature  of  things  Mr.  Ford  must  do  one  thing  right  away, 
or  the  Government  would  have  cause  of  action  again.st  him.  He  must  invest  a 
jrreat  deal  of  money,  or  his  company  must  invest  it,  within  the  not  far  distant 
future,  or  the  Government  would  have  a  cause  of  action  against  him  for  his 
failure  to  do  so;  is  that  not  correct? 

Col.  Hull.  Under  what  part  of  the  contract,  Mr.  Fields? 

Mr.  Fields.  Well,  in  connection  with  the  production  of  the  nitrate  that  goes 
into  the  composition  of  the  fertilizer. 

Col.  Hull.  I  should  say  that  under  section  14  it  would  be  incumbent  upon 
him,  within  a  reasonable  time,  without  any  undue  delay,  to  start  producing 
at  No.  2.  There  are  other  clauses  of  the  contract  that  do  not  take  effect  until 
the  Government  has  completed  the  construction  of  dam  No.  2  and  then  other 
clauses  in  regard  to  the  completion  of  dam  No.  3.  But  with  the  machinery  and 
equipment  now  there,  under  clause  14  he  is  obligated  to  start,  which  means 
within  a  reasonable  time — not  to-morrow,  or  50  yeai*s  from  now. 

^Ir.  Fields.  If  he  failed  to  do  that  the  Government  is  protected  by  his  estate? 

Col.  Hull.  We  could  compel  specific  performance. 

Mr.  Fields.  If  he  makes  the  installation  necessary  to  do  that  he  has  quite 
»n  investment  there  which  would  also  protect  the  Government? 

Col.  Hull.  No;  he  is  bound  to  start  under  this  proposition  without  any 
installation. 

^Ir.  Fields.  He  must  have,  according  to  the  statement  of  the  Secretary  of 
^Var.  at  least  a  million  and  a  half  dollars  in  installation. 

Col.  Hull.  I  do  not  know  as  to  the  nature  of  that. 

Mr.  Fields.  The  plant  as  it  now  stands  produces  nitrates  used  in  explosives. 
and  it  will  require  an  additional  installation  of  a  million  and  half  dollars,  and 
from  that  up  to  ten  million  dollars  to  produce  the  nitrates  for  fertilizer. 

Col.  Hull.  It  would  require,  I  think,  a  million  and  a  half  dollars  to  produce 
ftnimonium  sulphate,  but  ammonium  nitrate  can  also  be  used  for  fertilizer.  I 
^^nderstand  plant  No.  2  is  ready  to  produce  nitrate  for  explosives  right  now, 
♦ii'd  has  had  a  trial  run  of  production. 

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192 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


193 


Mr  Fields.  At  any  rate,  if  Mr.  Ford  goes  very  far  with  improvements  there 
he  must  invest  a  great  deal  of  money,  which  will  be  an  additional  protection  to 
the  Government  in  the  performance  of  his  contract. 

Col  Hull.  Every  dollar  he  puts  in  will  be  that  much  protection. 

Mr  Fields.  If  he  fails  to  make  that  he  then  forfeits  his  contract  and  his 
estate  is  subject  to  any  damage  that  the  Government  might  sustain  by  reason 
of  his  failure;  is  that  not  true? 

Col.  Hull.  In  general,  yes. 

Mr  Fields  I  would  like  to  know  if  you  can  suggest  how  we  can  secure  the 
information  asked  for  by  Mr.  Reams  with  regard  to  the  capitalization  of  the 
Air  Nitrate  Corporation  and  the  profits  they  made  from  the  United  States. 

Col.  Hull.. I  do  not  know  where  that  information  can  be  easily  and  accu- 

^^Mt.  Quin."  Colonel,  this  mare's  nest  that  Mr.  Miller  thinks  he  has  discovered 
here  does  not  exist,  does  it? 

Col  Hull.  I  will  leave  that  question  to  the  committee. 

Mr  QuiN.  This  section  15  of  the  contract  proposes  to  create  a  board  of  nine 
members,  does  it  not;  that  is,  nine  voting  members,  which  it  specifically  sets  up? 

Col.  Hull.  Yes,  sir. 

Mr  QuiN  These  farm  organizations  or  their  successors  named  here  are  to 
nominate  seven  of  the  members  of  the  board,  and  the  President  is  required 
to  send  their  names  to  the  Senate,  and  they  are  to  be  confirmed  by  the  Senate; 
is  that  not  true?    That  is,  seven  out  of  the  nine  are  to  be  farmers? 

Col.  Hull.  Yes,  sir. 

Mr  QuiN.  Only  two  of  the  nine  are  to  be  named  by  the  President?     . 

Coi  Hu-LL.  Yes,  sir ;  seven  by  the  President  and  two  by  the  company. 

Mr  QuiN  Now,  it  is  reasonable  to  conclude  from  the  fact  that  these  farm 
organizations  drafted  this  themselves,  that  they  knew  what  they  were  doing; 

Is  that  not  true? 

Col.  Hull.  They  thought  they  did. 

Mr  OuiN.  The  language  is  here.  These  gentlemen  here  tried  to  read  out  of 
the  contract  the  thing  that  Mr.  Ford  has  in  it.  This  board  of  nine  members 
would  have  seven  farmers  on  it.  This  board,  in  the  language  set  out  here,  is 
to  regulate  what?  The  manufacture  and  sale  of  the  fertilizer  product  and 
the  territorial  distribution  of  it.  Mr.  Crowther  made  a  very  extravagant  state- 
ment about  what  the  farmers  of  the  United  States  thought  was  coming  to  them. 
The  language  that  Mr.  Ford  puts  into  this  contract  does  not  bear  Out  the  ex- 
travagant statement  that  Mr.  Crowther  made.  Let  us  read  it.  Section  14  says : 
"  The  company  agrees  to  operate  nitrate  plant  No.  2  at  the  approximate  pres- 
ent annual  capacitv  of  its  machinery  and  equipment  in  the  production  of  nitro- 
gen and  other  fertilizer  compounds  (said  capacity  being  equal  to  approximately 
110  000  tons  of  ammonium  nitrate  per  annum)  throughout  the  lease  period, 
except  it  be  prevented  by  strikes,  accidents,  or  other  causes  beyond  its  control. 

What  else  does  it  provide?    It  says :  .^  ^        i 

"  To  determine  bv  research  whether  by  means  of  electric-furnace  methods  anU 
industrial  chemistry  there  may  be  produced  on  a  commercial  scale  fertilizer 
com^unds  of  higher  grades  and  at  lower  prices  than  fertimer-using  farmers 
havebeen  able  to  obtain,  and  to  determine  whether  in  a  broad  way  the  applica- 
tion of  electricity  and  industrial  chemistry  may  accomplish  for  the  agricul- 
tural industry  of  the  country  what  they  have  economically  accomplished  tor 

•  ^^"IbrTo^ma^intain  nitrate  plant  No.  2  in  its  present  state  of  readiness,  or  its 
equivalent,  for  immediate  operation  in  the  manufacture  of  materials  necessary 
in  time  of' war  for  the  production  of  explosives."  ,    «,  .  ^  ^v,    ^^v, 

Is  it  not  a  fact  that  that  means  that  all  the  brains  and  efficiency  of  the  tech- 
nical minds  engaged  in  that  Industry  will  be  employed— that  is,  guaranteed-- 
Snder^ord's  nime  and  estate  for  that  special  purpose?    That  is  the  language 

^^CorHuLL^  Certainly  he  does  not  contemplate  that  all  the  men  now  in  his 

employ  shall  be  turned  over  to  this  work.  ^      ^v,  a.      ««?«/. 

Mr   QuiN.  No ;  but  he  does  propose  to  use  the  best  brains  for  that  specific 

^'^O^^^HULL.  And  also  it  might  be  well  to  call  attention  to  the  fact  that  the 
board  provided  for  here  is  not  the  board  of  directors  for  the  corporation 

Mr  QUIN.  I  understand  that.  It  is  a  board  formed  for  the  control  of  the  very 
things  Brother  Miller  was  complaining  about.  It  is  for  the  purpose  of  seein. 
that  the  ^rtilizer  and  the  sale  of  it  is  put  out  at  a  profit  of  not  over  8  per  cent. 


Mr.  Miller.  If  you  will  show  me  anything  in  that  contract  that  provides 
that  the  sale  shall  be  limited  to  the  farmers,  I  would  like  to  hear  you  read  it — 
that  is,  the  sale  of  the  product  of  this  plant. 

Mr.  QuiN.  It  provides  for  territorial  distribution.  The  language  set  out  here 
gives  certain  powers  to  the  board,  does  it  not? 

Col.  Hull.  Yes,  sir. 

Mr.  QuiN.  This  contract  provides  for  an  amount  of  fertilizer  that  Gen.  Wil- 
liams stated  yesterday,  although  I  think  he  made  a  mistake,  and  that  it  would 
be  as  much  as  all  the  farmers  in  the  United  States  use  to-day. 

May  I  ask  Maj.  Burns  a  question?  How  much  would  this  110,000  tons  per 
annum  of  nitrate  yield  in  fertilizer?    Have  you  made  that  calculation? 

Maj.  Burns.  At  the  present  time  there  is  being  used  in  fertilizer  approxi- 
mately 80,000  of  inorganic  nitrogen  in  plant  No.  2  and  40,000  tons  of  inorganic 
nitrogen  are  therefore  bound  to  produce  about  half  of  the  inorganic  nitrogen 
being  consumed  in  fertilizer. 

Mr.  QuiN.  I  believe  the  Secretary  of  War  stated  that  it  would  not  make  over 
one-thlrtleth  of  the  fertilizer  that  is  used  in  the  country.  These  are  the  con- 
centrated forms  of  fertilizer,  are  they  not? 

Col.  Hull.  Yes,  sir. 

Mr.  QuiN.  I  do  not  think  my  friends  there  who  have  talked  about  fertilizer 
ever  larnied  any.  Do  not  the  farmers  take  these  concentrated  forms  of  fer- 
tilizer and  mix  them  and  make  their  own  fertilizers? 

Col.  Hull.  I  do  not  know,  sir. 

Mr.  QuiN.  Oh,  yes ;  that  is  the  common  custom.  I  did  it  when  I  was  a  boy. 
We  would  take  acid  phosphate  and  mix  it  with  leaves  and  other  component 
parts.    We  had  to  do  that  to  save  freight  rates. 

The  Chairman.  Mr.  Quin,  Col.  Hull  is  a  lawyer ;  he  is  not  a  farmer. 

Mr.  Quin.  These  other  two  gentlemen  are  not  farmers,  and  they  were  trying 
to  tell  about  the  fertilizer.  A  sack  of  phosphate  weighs  200  pounds,  does  It 
not — what  we  call  raw-bone  phosphate — and  there  is  only  about  12  pounds  of 
nitrogen  in  that,  Is  there  not? 

Col.  Hull.  I  never  bought  a  pound  of  It  in  my  life. 

Mr.  Quin.  Do  you  believe  that  these  farm  organizations  would  be  crazy 
enough  to  want  that  sand  and  dirt  weighing  188  pounds  hauled  from  Muscle 
Shoals,  Ala.,  to  Oregon  or  to  Mississippi  or  to  Texas,  when  they  could  get  the 
same  results  by  paying  the  freight  only  on  12  pounds  of  the  concentrated 
form? 

Col.  Hull.  Hardly. 

Mr.  Quin.  We  know  they  would  not,  and  the  farmers  In  this  thing  as  directors 
know  what  they  are  doing.  They  know  that  they  are  getting  the  fertilizer  they 
want,  and  they  know  about  the  territorial  distribution  and  know  that  no  sales 
agent,  as  Mr.  Miller  seemed  to  be  afraid  of,  would  have  control  of  It. 

The  Chairman.  I  would  suggest,  Mr.  Quin,  that  you  kindly  ask  some  ques- 
tions of  Col.  Hull. 

Mr.  Quin.  There  was  a  question  raised  here  about  the  Alabama  Power  Co. 
contract.  Mr.  Parker  suggested  the  unethical  attitude  of  the  United  States 
Government  repudiating  that  contract.  I  heard  you  read  that  contract,  and 
Gen.  Williams  stated  that  he  thought  the  Ordnance  Department  had  attorneys 
who  drafted  that.  Does  it  not  appear  from  the  wording  of  that  contract  that 
the  Alabama  Power  Co.  must  have  had  some  good  lawyers  standing  close 
around? 

Col.  Hull.  I  should  say  they  had  some  attorney  in  connection  with  the 
drafting  of  that  contract. 

Mr.  Quin.  It  Is  patent  on  its  face  that  the  United  States  was  getting  the 
smutty  end  of  the  stick,  is  It  not?  I  believe  In  carrying  out  the  moral  obliga- 
tions of  this  Government,  but  I  do  not  believe  in  letting  anybody  put  up  a  job 
on  the  Government,  and  I  am  not  going  to  permit  it  with  my  vote. 

Col.  Hull.  The  .Judge  Advocate  General's  department  assumes  no  responsi- 
bility for  the  wording  of  that  contract. 

Mr.  Quin.  When  that  corporation  received  $285,000  In  about  one  year's  time, 
with  Uncle  Sam  putting  up  all  the  money  as  their  fee  for  the  construction 
>^'ork  they  did  there,  Is  It  not  reasonable  to  presume  that  they  have  been  well 
paid,  even  If  the  contract  they  had  were  not  a  nullity? 

Col.  Hull.  The  question  whether  the  compensation  shall  be  increased  is  one 
for  Congress  to  determine. 

Mr,  Quin.  Of  course,  I  do  not  presume  there  is  any  lawyer  who  would  think 
that  the  War  Department  would  have  the  right  to  bind  this  Government  on  a 


194 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


195 


contract  of  this  nature,  and  I  know  I  do  not,  and  I  practiced  law  IS  years 
before  I  came  here. 

Now,  take  up  this  contract  with  this  air  corporation,  as  they  call  it.  Is 
there  anybody  who  pretends  that  that  would  be  legitimate  after  they  had  gotten 
all  that  money  out  of  the  (Government,  from  a  moral  or  legal  standpoint? 

Col.  Hull.  *You  mean  the  question  as  to  their  having  an  option? 

Mr.  QuiN.  Yes ;  as  to  whether  that  would  act  legally  to  controvert  and  pre- 
vent the  acceptance  of  the  Ford  proposition. 

Col.  Hull.  I  can  not  add  much  to  what  the  Secretary  said  on  that. 

Mr.  B^iSHEK.  After  a  careful  consideration  of  the  contracts  entered  into  by 
the  Government  with  the  Air  Nitrates  Corporation  and  the  Alabama  I'ower  Co.. 
and  particularly  the  paragraphs  whereby  they  reserve  options,  can  you  now 
state,  as  your  judgment,  that  the  reservation  of  options  by  those  corporations 
is  not  a  legal  obstacle  to  the  United  States  Government  accepting  the  Ford 
offer? 

Col.  Hull.  That  is  my  opinion,  that  the  obligations  there  are  not  enforceable 

against  the  United  States. 

Mr.  Fisher.  If  the  Congress  of  the  United  States  should  decide  to  accept  the 
Ford  offer,  has  the  United  States  the  power  to  condenm  i)roperty,  the  title  to 
which  is  not  in  the  Unite<l  States,  but  upon  which  buildings  have  been  con- 
structed, which  are  the  property  of  the  United  States. 

Col.  Hull.  The  lower  courts  have  so  held.  I  will  call  your  attention  ti» 
the  case  of  U.  S.  r.  Forbes,  259  Fed.  585,  and  on  page  591  you  will  find  the  fol- 
lowing language: 

'•  The  claim  made  by  the  defendant  is  that  the  Secretary  of  A\  ar  has  some 
agreement  with  the  city  of  Montgomery  to  turn  this  property  over  to  the  city 
upon  the  happening  of  some  contingency.  Answering  this  claim,  it  is  apparent 
from  what  has  been  said  that  the  Secretary  of  War  bad  a  legal  right  to  con- 
demn the  fee  in  this  land  beiause,  in  liis  judgment,  he  had  determined  that 
the  fee  was  necessary,  and  Congress  in  its  wisdom  bad  given  him  the  right 
and  imposed  on  him  the  duty  of  making  this  final  determination,  and  he  has 
performed  such  dutv.  The  United  States  Government  when  these  damages  are 
fixed  and  paid  will'  own  the  fee  in  the  land.  What  final  disposition  may  be 
made  of  this  land  in  1  year,  10  years,  or  100  years  from  now  is  no  more  con- 
cern to  the  defendant  than  any  other  citizen  of  the  United  States." 

You  might  be  interested  in  the  following  language.     I  have  read  it  only 

"  Moreover,  the  court  takes  ludicial  notice  of  the  laws  of  the  United  States 
and  knows  that  no  contract  can  legally  exist.  There  is  no  law  that  confers 
authoritv  upon  the  Secretary  of  W^ar  to  sell  any  real  estate,  and  unless  such 
authoritV  is  positively  conferred  by  Congress  on  the  Secretary  of  War  he  can 
not  carrV  out  the  alleged  contract  with  the  city  of  Montgomery.  It  the  Secre- 
tary of  War  has  entered  into  such  a  contract,  it  is  void,  and  a  void  contract 
can  be  of  no  avail  to  the  defendant."  ^  .    t    x,     ,     • 

I  might  sav  that  a  similar  case  arose  in  the  Federal  court  at  Little  RixJ,  m- 
Tolvin*^  the  question  as  to  whether  the  United  States  can  condemn  with  the 
idea  of  saving  our  rights  and  protecting  our  property  with  a  view  to  salvage, 
ind  it  is  the  opinion  of  the  oflice,  and  also,  I  understand,  it  has  been  so  held  in 
the  Fe<leral  court  at  Little  Rock,  that  the  interest  of  the  United  States  m  the 
salvaging  of  property  is  a  sufficient  public  interest,  and  that  we  are  not  merel> 
iakig  the  land  from  one  man  to  give  it  to  another,  which  would  not  be  a 
public  purpose.    Of  course,  the  question  has  not  been  passed  on  by  the  higher 

^^Mr^'wRiGHT  Colonel,  the  fact  that  the  option  feature  of  the  contract  with 
the  Alabama  Power  Co.  is  void  would  not  necessarily  render  void  the  other 

narts  of  the  contract?  „    .  ,       , 

Col    Hutl   Especiallv  when  a  great  deal  of  it  has  been  executed. 

Mr    Wmght   Yes     Do  vou  understand  from  an   analysis  of  that  contra-t 
that  the  option  feature  is  one  of  the  moving  considerations? 

Col.  Hull.  It  was  not  so  expressed. 

Mr  Wright   It  is  rather  an  incident  of  the  contract? 

Col*  Hull   It  was  so  expressed  in  the  drafting  of  the  contract. 

Sr  Wrio^ht   And  is  not  really  a  part  of  the  substantial  consideration  which 
rnnvpd  the  Alabama  Power  Co.  to  execute  the  contract? 

To^  HUL^  AsTtwLn  man  and  man,  it  would  be  construed  as  a  consulera^ 
tion?  but  between  an  individual  and  the  Government,  with  the  law  as  it  i^  it 
would  not  be  so  construed. 


Mr.  Wright.  Tlie  Alabama  Power  Co..  like  every  other  person  and  corpora- 
tion, was  charged  with  knowing  what  the  law  was  when  they  executed  the 
contract? 
('ol.  Hull.  Certainly. 

Mr.  Weight.  Col.  Parker,  I  believe,  asketl  you  about  section  14  of  the  Ford 
offer,  the  first  part  of  section  14,  whereby  the  company  agrees  to  operate  ni- 
trate plant  No.  2  at  the  approximate  present  annual  capacity  of  its  machinery 
and  equipment  in  the  production  of  nitrogen,  etc.  This  particular  part  is 
what  I  desire  to  call  your  attention  to,  "except  as  it  may  be  prevented  by 
strikes,  accidents,  fires,  or  other  causes  be.vond  its  control."  The  particular 
words  there,  "  or  other  causes  beyond  its  control,"  certainly  could  not  be  con- 
strued to  mean  that  they  would  be  relieved  if  they  were  not  making  a  profit. 
Col.  Hull.  That  is  the  way  I  answered  Judge  Parker. 

Mr.  Wright.  The  words,  "  or  other  causes  beyond  its  control "  are  of  the 
same  genus  or  the  same  species  as  the  words,  "  strikes,  accidents,  fires,  etc." 
Would  not  that  be  the  proper  construction? 
Col.  Hull.  Yes,  sir. 

Mr.  Wright.  Some  act  of  God,  or  some  providential  happening  along  the 
same  lines. 
Col.  Hull.  Yes ;  in  the  same  general  class, 

W'RiGHT.  Do  you  know  what  this  Air  Nitrates  Corporation  realized  out 
contract  with  the  Government? 
Hull.  No,  sir. 

Wright.  You  have  no  information  on  that  subject? 
Hull.  I  have  no  information. 

Wright.  Do  you  know  the  character  of  transmission  line  that  was  con- 
by  the  Alabama  Power  Co.,  whether  it  consisted  of  steel  towers  or 


Mr. 
of  its 

Col. 

Mr. 

Col. 

Mr. 
structed 
poles? 

Maj.  Burns.  Wooden  poles  with  copper  wire. 

Mr.  Wright.  You  may  not  know,  but  perhaps  Col.  Burns  knows  whether 
this  nitrate  plant  No.  2  was  constructed  on  Government  land. 

Col.  Hull.  On  Government  land. 

Mr.  Wright.  That  is  where  the  principal  investment  was  made? 

Col.  Hull.  By  the  Government ;  .yes.  That  was  with  the  Air  Nitrates  Cor- 
poration. 

Mr.  Wright.  The  Air  Nitrates  Corporation  really  constructed  this  nitrate 
plant  No.  2? 

Col.   Hull.  Yes,   sir. 

Mr.  Wright.  Incidentally,  I  believe.  Colonel,  that  is  the  construction  work 
down  there  about  which  so  much  criticism  was  made  about  the  lavish  ex- 
penditure of  money.  - 

Col.  Hull.  Yes ;  it  has  been  investigated  by  Congress,  by  the  Department  of 
Justice,  and  by  the  War  Department. 

Mr.  Wright.  I  understand  you  did  not  prepare  this  section  15,  about  which 
Mr.  Miller  asked  you? 

Col.  Hull.  No,  sir. 

Mr.  Wright.  And  you  say  that  is  satisfactory  to  the  agricultural  interests? 

Col.  Hull.  So  I  am  informed. 

Mr.  Wright.  Do  you  think  it  would  be  possible  under  that  section  for  some 
purchasing  company  to  organize  and  create  a  monopol.v  on  this  product;  buy 
it  all  up  so  as  to  prevent  its  proper  distribution  at  reasonable  prices?  Do  you 
not  think  the  Sherman  Antitrust  Law  would  take  care  of  that  in  the  absence 
of  this  provision  here? 

<'ol.  Hill.  It  might  be  applicable.  They  would  also  have  to  have  the  coop- 
erijiion  of  the  board  of  directors  of  the  company. 

Mr.  Stoll.  Colonel,  I  want  to  have  a  little  legal  controversy  with  you  rela- 
tive to  section  19,  the  guaranty  clause  of  Mr,  Ford's  offer.  Secretary  Weeks 
expi-essed  some  doubt,  but  stated,  however,  he  was  not  a  lawyer,  as  to  the 
guaranty  that  Mr.  Ford  made,  and  some  of  my  brethren  of  the  bar  around  the 
table  here  also  expressed  some  doubt.  I  want  to  call  your  attention  to  that 
potion  19.  There  are  two  distinct  clauses,  you  might  sjiy,  in  it.  The  first 
1^:  "Upon  acceptance,  the  promises,  undertakings,  and  obligations  shall  be 
I'inding  upon  the  Unite<l  States  and  jointly  and  severally  upon  the  undersigned, 
his  heirs,  representatives,  and  assigns,  and  the  company,  its  successors  aiul 
assigns."  Now,  Mr.  Ford  promises  to  organize  a  company  and  do  certain 
things,  and  he  makes  his  promises  binding  upon  him  and  his  assigns.  There 
is  a  semicolon  there,  and  he  goes  on  further  to  say :  "And  all  the  necessary 


^/ 


Ul 


1^ 


196 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


197 


contracts,  leases,  deeds,  and  other  instruments  necessary  or  appropriate  to 
effectuate  the  purposes  of  this  proposal  shall  be  duly  executed  and  delivered 
by  the  respective  parties  above  mentioned?  Under  that  can  not  the  Govern- 
ment force  Mr.  Ford  to  enter  into  such  guaranties  as  would  be  necessary  to 
carry  out  the  proposal  that  he  made? 

Col.  Hull.  I  do  not  believe  so. 

Mr.  Stoll.  What  does  that  mean,  tlien? 

Col.  Hull.  You  mean 

Mr.  Stoll  (interposing).  What  does  that  section  19  mean  if  it  does  not 
mean  that? 

Col.  Hull.  Suppose  the  Government  would  say  to  Mr.  Ford,  "  Your  company 
ought  to  have  a  paid-up  capital  of  $50,000,000. '  Could  they  enforce  that 
under  that  clause,  if  the  Secretary  thought  that  was  a  reasonable  amount? 

Mr.  Stoll.  No;  I  do  not  say  that  it  says  what  the  capital  shall  be,  but  I 
say  that  it  forces  him  to  give  a  guaranty  to  carry  out  what  he  has  obligated 
himself  to  do ;  otherwise  that  last  clause  there  is  absolutely  of  no  value. 

Col.  Hull.  He  has  already  guaranteed  it  personally. 

Mr.  Stoll.  Agreed  personally  to  form  a  company,  and  he  backs  up  that 
l>romise  to  form  a  company. 

Col.  Hull.  And  also  to  do  other  things. 

Mr.  Stoll  (continuing).  By  his  own  guaranty  and  by  what  his  property  is 
worth,  and  then  it  says,  "  and  all  the  necessary  contracts,  leases,  deeds,  and 
other  instruments  necessary"  to  do  what?  Or  appropriate  to  do  what?  To 
effectuate  the  purposes  of  this  proposal.    Now,  what  does. that  mean? 

Col.  Hull.  Under  that  clause  there  was  somewhat  of  an  argument  that  Mr. 
Ford  by  the  time  he  would  organize  the  company  that  would  bind  itself  to  do 
all  these  things  would  be  excused.  A  careful  study  of  the  language  con- 
vinces me  that  Mr.  Ford  is  bound,  as  well  as  the  company,  and  is  not  dis- 
charged the  minute  the  company  is  organized  and  undertakes  these  matters, 
but  to  go  one  step  further  and  say  that  the  Government  under  that  language 
could  compel  him  to  do  this  or  that  or  the  other  thing,  except  what  he  has 
already  bound  himself  to  do,  I  do  not  believe  the  Government  can  do  it. 

Mr.  Stoll.  Mr.  Ford,  for  instance,  said  that  he  would  opej-ate  this  plant  for 
300  years  for  the  purpose  of  manufacturing  certain  elements  used  in  fertilizers, 
at  8^  per  cent  profit.  Now,  when  it  says  here,  "  necessary  contracts  to  effectu- 
ate that."  what  will  you  stipulate  in  the  contracts  to  effectuate  that  unless 
you  make  him  put  a  guaranty  in  it;  in  fact,  everything  that  he  has  promised  to 
do,  this  says  we  will  make  contracts  whereby  he  will  effectuate  what  he  has 
promised  to  do,  and  no  other  construction  can  be  put  on  it  that  I  can  see,  ex- 
cept that  he  would  be  compelled  to  enter  into  a  guaranty  to  do  it.  That  is  the 
only  practical,  legal  construction  that  could  be  put  on  it. 

Col.  Hull.  That  provides  for  the  deeds  and  contracts  he  has  already  bound 
himself  to.  I  do  not  believe  that  clause  wouhl  pernut  anyone,  the  court  or  the 
Se{  ivtarv  of  War,  to  hold  he  would  have  to  put  any  other  additional  guaranty. 

Jilr.  Stolu  What  do  you  mean,  then.  Colonel,  by  the  words,  '*  to  effei'tuate  the 
purposes  of  this  proposal  "?    What  does  that  mean? 

Co\.  Hull.  How  about  the  Government  turning  over  the  deeds? 

Mr.  Stoll.  That  is  for  the  Government  to  do,  but  both  of  them  have  got ■ 

Col.  Hull  (interposing).  What  about  the  construction  contracts  for  Dams  2 

and  3? 

Mr.  Stoll.  Well,  what  else?  To  get  back  to  the  fertilizer  proposition,  how 
under  the  contracts  that  the  Government  must  enter  into 

Col.  Hull  (interposing).  Those  are  some  of  the  contracts  that  would  have 
to  be  entered  into — those  construction  contracts. 

Mr.  Stoll.  And  also  the  payment  of  interest,  and  all  that  sort  of  thing.  How 
can  the  Government  form  a  contract  to  effectuate  the  puiT)Oses  of  that  promise 
of  Mr.  Ford  unless  they  put  a  guaranty  in  it?  What  other  means  could  they 
adopt  unless  they  put  a  guaranty  in  it  ? 

Col.  Hull.  I  am  sorry  I  do  not  fully  follow  you. 

Mr.  Stoll.  It  is  as  clear  to  me  as  the  nose  on  a  man's  face.  I  will  state  u 
again,  referring  to  the  second  clause  after  the  semicolon  in  paragraph  19 ;  I  wjU 
use  this  as  a  concrete  illustration.  Mr.  Ford  agrees  to  make  fertilizer,  or  the 
elements  of  fertilizer.  Now,  in  fixing  the  contract,  you  admit  that  the  Goveru- 
ment  and  Mr.  Ford  will  have  to  enter  into  a  contract? 

Col.  Hull.  Not  necessarily.  This  may  be  the  only  contract  as  far  as  the  main 
purposes  are  concerned. 

Mr.  Stoll.  You  have  got  to  enter  into  something. 


Ool.  Hull.  No  contract  is  necessary  to  effectuate  this  feature. 

Mr.  Stoll.  Oh,  yes ;  it  is ;  becausfe  the  Government  has  never  signed  it. 

Col.  Hull.  They  may  never  have  to,  if  Congress  accepts  the  proposal. 

Mr.  Stoll.  Of  course,  this  is  all  predicated  on  the  idea  that  this  goes  through, 
because  if  it  does  not  go  through  we  wiH  not  need  any  contracts. 

Col.  Hull.  Suppose  Congress  passes  the  resolution  and  it  is  approved  by  the 
President,  stating  that  we  will  accept  the  offer  of  Mr.  Ford.  This  instrument 
will  not  have  to  be  signed  by  anybody. 

Mr.  Stoll.  I  hardly  think  we  will  do  that.  If  they  pass  anvthing,  it  will  be 
something  authorizing  the  Secretary  of  War  or  some  one  else  to  enter  into  a 
contract  with  Mr.  Ford,  and  I  do  not  think  Congress  would  be  so  foolish  as  to 
accept  it  in  that  way.  Now,  when  they  fix  up  a  contract,  as  they  will  have  to 
do,  and  Mr.  Ford  has  promised  heretofore  to  make  this  fertilizer,  what  will  you 
place  in  the  contract  that  will  make  him  carry  out  this  part  to  effectuate  the 
purposes  of  this  proposal  unless  you  put  a  guaranty  in  it? 

Col.  Hull.  On  the  contract  as  it  stands  to-day, 'Mr.  Stoll,  his  promise  is  the 
only  guaranty.  What  the  Secretary  suggested  was  that  there  should  be  addi- 
tional guaranties.  Now  you  are  suggesting  that  the  Secretary,  under  the  terms 
of  this  contract,  could  write  those  additional  guaranties  in  the  contracts. 

Mr.  Stoll.  Oh,  no.  Colonel ;  this  is  not  the  contract.  A  contract  is  where  two 
parties  agree,  and  the  Government  has  never  agreed  to  this. 

Col.  Hull.  No. 

Mr.  Stoll.  This  is  merely  an  offer  by  Mr.  Ford,  so  it  can  not  be  construed  as  a 
contract.  He  offers  to  do  certain  things,  and  it  is  up  to  the  Government  to  accept 
or  reject  it. 

Col.  Hull.  In  connection  with  that,  ^Ir.  Ford  wanted  this  matter  to  be  vir- 
tually a  contract,  and  he  uses  language  w^hich  makes  a  contract  in  many  cases. 

Mr.  Stoll.  You  mean  the  provision  about  the  acceptance  in  whole,? 

Col.  Hull  (reading).  "The  undersigned  hereby  submits  to  the  Secretary  of 
War,  and  through  him  for  appropriate  action  by  the  President  and  Congress, 
the  following  offer,  which  shall  become  a  binding  agreement  upon  approval  of 
same  by  Congress." 

Mr.  Stoll.  Binding  agreement  on  whom,  on  Mr.  Ford? 

Col.  Hull.  Yes. 

Mr.  Stoll.  That  is  his  offer,  and  he  follows  all  that  up  wiien  the  Secretary 
was  dissatisfied  with  the  original  offer  whereby  he  guaranteed  for  himself  and 
his  assigns  to  do  a  certain  thing— and  then  he  goes  on  to  say  that  all  the  nec- 
essary contracts  must  be  made  for  the  purpose  of  carrying  this  out.  Now,  I 
ask  how  will  it  be  fixed  in  the  contract  to  effectuate  the  purposes  of  the  pro- 
posal unless  you  put  a  guaranty  in  it  of  some  kind.  You  can  not  do  it  other- 
wise. 

Col.  Hull.  That  is  what  the  Secretary  was  suggesting,  that  some  additional 
guaranty  be  put  in. 

Mr.  Stoll.  Under  this  language,  does  not  Mr.  Ford  agree  to  do  it? 

Col.  Hull.  No. 

Mr.  Stoll.  Then  what  do  you  mean  by  necessary  contracts  to  effectuate  it? 

Col.  Hull.  He  thinks  his  word  is  suflic'ent  to  protect  the  Government.  The 
Secretary  does  not.    There  is  not  a  meeting  of  minds  yet. 

Mr.  Stoll.  If  he  had  thought  that  he  would  have  stopped  at  the  first  clause 
wherein  he  bound  himself  to  do  it,  but  there  is  a  semicolon  there,  and  he  goes 
on  and  agrees  to  enter  into  contracts  and  leases  to  effectuate  these  very  things. 

Col.  Hull.  There  has  been  no  meeting  of  minds  between  Mr.  Ford 'and  the 
Secretary  yet  as  to  that  point? 

Mr.  Stoll.  No;  because  it  is  an  offer,  and  that  is  a  part  of  his  offer— to 
enter  into  a  contract  to  effectuate  what  he  has  offered. 

Col.  Hull.  What  he  may  think  will  effectuate  it  and  w^hat  the  Secretary  and 
Congress  may  think  will  effectuate  it 

Mr.   Stoll    (interposing).  As  a  lawyer,  you  say  that  is  not  an  offer  to 


guarantee? 
Col.  Hull. 
Mr.  Stoll. 
Col.  Hull. 


I  would  have  to  say  no. 

I  will  have  to  beg  to  differ  from  you. 

I  may  be  entirely  wrong. 

Mr.  Stoll.  You  certainly  are.    Now,  just  a  few  more  facts,  Colonel,  if  you 
please.    How  many  outstanding  contracts  has  the  Government  now  relative  to 
Muscle  Shoals? 
Col.  Hull.  I  have  had  three  brought  to  my  attention. 
Mr.  Stoll.  What  three  are  those? 


Ifr 

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198 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


199 


Col.  Hull. 
Mr.  Stoll. 
Col.  Hull. 
Mr.  Stoll. 


Col.  Hull.  The  Air  Nitrates,  the  Alabama  Power,  and  the  General  Chemical, 
which  I  think  has  been  terminated. 

Mr.  Stoll.  Which  of  those  affect  real  estate,  the  Alabama  Power  Co.? 

Col.  Hull.  The  Alabama  Power  Co.  is  the  principal  one. 

Mr.  Stoll.  That  is  the  only  one  that  affects  real  estate? 

Col.  Hull.  The  other  has  an  option  on  plant  No.  2.  Whether  there  are  any 
others  I  do  not  know. 

Maj.  Burns.  We  have  still  a  contract  with  the  A'r  Reduction  Co.  whereby 
we  agree  to  pay  certain  royalties  for  the  use  of  their  process  for  separating 
nitrogen  and  oxygen. 

Mr.  Stoll.  But  that  does  not  apply  to  real  estate. 

Maj.  Burns.  No. 

Mr.  Stoll.  The  power  plant  of  the  Government  is  on  land  owned  by  the 
Alabama  Power  Co.? 

Col.  Hull.  The  power  plant  at  No.  2  is  on  our  own  land. 

Mr.  Stoll.  I  mean  the  steam  plant  at  Gorgas. 

Those  are  on  the  lands  of  the  Alabama  Power  Co. 
And  the  Government  does  not  own  that  land. 
The  Government  does  not  own  that  land ;  no,  sir. 
How,  then,  can  the  Government  make  a  contract  to  sell  Mr.  Ford 
that  which  it  does  not  own? 

Col.  Hull.  We  would  have  to  condenm. 

Mr.  Stoll.  How  long  would  it  take  you  to  condemn  usually?  What  is  the 
usual  procedure  when  the  Government  undertakes  to  condenm.  do  you  know? 

Col.  Hull.  It  depends  on  how  much  it  is  litigated.  It  may  take  several  years 
before  we  can  complete  the  title. 

Mr.  Stoll.  Has  the  Alabama  Power  Co.  made  any  demand  for  specific  per- 
fonuance  of  this  contract  with  the  Government? 

Col.  Hull.  I  have  never  read  the  letter  which  the  Secretary  submitted  the 
other  day  from  them. 

The  Chairman.  Colonel,  I  want  to  try  to  make  one  or  two  things  clear.  Gen. 
Williams,  I  believe,  SJiid  that  the  funds  used  for  the  construction  of  the  Muscle 
Shoals  property  were  appropriated  in  the  fortification  bill.  You  say  that  the 
funds  were  expended  under  the  national  defense  act.  Is  it  not  a  fact  that  the 
money  that  was  used  from  the  national  defense  act  was  used  for  the  work  in 
connection  with  Dam  No.  2? 

Col.  Hltj..  Only  partly.  The  project  was  started  under  the  funds  of  the 
national  defense  act.  The  funds  provided  in  the  national  defense  act  were 
inadequate  for  all  the  expenditures  that  were  made  in  connection  with  the 
Muscle  Shoals  project 

The  Chairman.  That  is  quite  true. 

Col.  Hull.  And  the  result  is  that  a  great  many  of  the  projects  were  virtually 
all  constructed  out  of  funds  obtained  through  "  armament  and  fortification." 

The  Chairman.  As  I  recall,  for  Dam  No.  2  the  appropriations  amounted  in 
the  aggregate  to  a  little  over  .$17,000,000,  and  the  actual  money  expended  was 
a  little  over  $16,000,000,  and  the  total  embraced  in  the  national  defense  act  was 
$20,000,000. 

Col.  Hull.  $20,000,000. 

The  Chairman.  So  that  after  you  have  obligated  about  $17,500,000  there  is 
not  vei*y  much  left  out  of  that  fund  for  use  at  Muscle  Shoals,  is  there? 

Col.  Hull.  I  think  it  was  all  spent  and  then  recredited  back  from  other 
appropriations.    I  am  not  sure  as  to  that. 

Maj.  Bttrns.  May  I  help  out  a  little  bit  in  that  matter? 

Col.  Hull.  The  Ordnance  Department  can  tell  about  that  much  better  than 
I  can. 

Maj.  Burns.  The  No.  2  plant  was  always  very  carefully  kept  separate  from 
the  national  defense  act  of  1916,  and  not  one  cent  of  the  national  defense  act 
money  has  been  spent  on  the  No.  2  plant  or  any  of  its  subsidiary  plants. 

The  Chairman.  As  a  matter  of  fact,  the  No.  2  nitrate  plant  cost  the  Govern- 
ment $67,000,000. 

Maj.  Burns.  Yes,  sir. 

The  Chairman.  And  we  never  had  that  much  money  in  the  national  defense 
act  and  they  had  to  go  to  other  sources. 

Maj.  Burns.  The  national  defense  act  of  1916  money  was  used  partly  for 
the  No.  1  plant. 

The  Chairman.  Can  you  tell  the  committee  just  exactly  how  that  $20,000,0W 
was  expended  or  the  basis  of  expenditure? 


Maj.  Burns.  The  Engineer  Corps  has  had  allotted,  I  should  say,  $17,000,000, 
most  of  which  has  been  spent  on  the  dam.  I  think  they  still  have  available 
several  hundred  thousand  dollars  which  they  are  holding  to  maintain  the  plant 
until  its  final  disposition  is  known.  The  Ordnance  Department  had  a  total  of, 
roughly,  $3,000,000. 

The  Chairman.  Out  of  the  $20,000,000? 

Maj.  Burns.  Yes,  sir;  although  part  of  it  was  spent  for  the  land  at  No.  1 
and  part  of  it  is  still  available  on  the  books  of  the  Ordnance  Department. 

The  Chairman.  What  do  you  mean  by  land  at  No.  1— the  nitrate  plant  or 
No.  1  dam? 

Maj.  Burns.  No.  1  nitrate  plant;  the  Ordnance  Department  still  has  money 
under  the  nitrate  supply  act  on  its  books,  and  the  fixed  nitrogen  research 
laboratory  which  is  operated  at  the  American  University  is  also  being  financed 
i)Ut  of  that  fund  for  the  accomplishment  of  the  objective  of  the  appropriation, 
namely,  for  the  investigation  of  the  fixation  of  nitrogen  for  use  in  munitions 
of  war  and  fertilizers. 

The  Chairman.  So  anything  more  than  this  $20,000,000  comes  out  of  another 
appropriation? 

Maj.  Bltrns.  Yes,  sir;  it  comes  out  of  the  appropriation  for  fortifications 
almost  entirely.  There  has  been  a  little  ordnance  service  and  repairs  of 
arsenals'  money  spent  for  maintenance  purposes.  I  would  like  to  emphasize 
the  fact  that  not  one  cent  of  the  national  defense  act  money  was  spent  at  the 
Warrior  plant.    That  was  all  out  of  the  fortifications  appropriations. 

Mr.  Greene.  Colonel,  these  questions  are  asked  by  a  layman  and  may  not 
be  framed  correctly  to  meet  the  legal  mind,  but,  on  the  other  hand,  the  public 
interest  is  largely  on  the  part  of  laymen,  perhaps,  and  if  put  into  their  tongue 
we  may  get  something  in  the  way  of  information.  If  this  proix)sition  on  the 
part  of  Mr.  Ford  is  accepted  as  it  is  written  in  the  copy  before  us,  do  you 
understand  that  thereby  the  United  States  Government  is  freed  entirely  from 
any  resulting  obligations  to  any  corporation  or  firm  or  i^ersons  incidental  to 
the  Muscle  Shoals  project  in  any  way  after  Mr.  Ford  has  taken  possession 
imder  the  terms  of  the  accepted  proposition? 

Col.  Hull.  So  far  as  I  have  been  advised,  that  is  correct. 

^Ir.  Greene.  We  stand  clear  of  any  obligations,  except  such  as  may  be  speci- 
fied in  the  proposition  of  Mr.  Ford? 

Col.  Hull.  I  do  not  know  all  the  construction  contracts  that  the  engineer 
department  may  have  made  in  connection  with  the  dam,  or  any  other  matters. 

:Mr.  Greene.  Was  it  the  general  intent  of  this  contract  that  when  Mr.  Ford 
took  possession  he  took  it  subject  to  all  the  obligations  that  were  then  upon 
the  United  States  Government  relating  to  the  proposition? 

Col.  Hltll.  You  mean  In  regard  to  royalties,  and  things  of  that  kind? 

Mr.  Greene.  Any  kind  of  obligation  now  incumbent  upon  the  Government 
in  the  ownership  or  operation  or  utilization  in  any  way  of  the  Muscle  Shoals 
project,  using  the  general  term. 

Col.  Hull.  So  far  as  I  know,  we  have  no  obligation  outstanding  in  this  con- 
tract It  is  also  silent  in  regard  to  his  taking  over  and  holding  the  United 
States  harmless. 

Mr.  Greene.  It  is  silent  on  that? 

Col.  Hull.  So  far  as  I  can  see. 

Mr.  Greene.  So  there  is  the  possibility  of  the  threat  of  persons  assuming 
or  proposing  some  claims  or  rights  against  the  Government  which  did  not  pass 
to  Mr.  Ford  to  defend? 

Col.  Hull.  Take  the  Alabama  Power  Co.  rights,  for  instance.  We  agree  to 
turn  over  to  Mr.  Ford  the  title  to  that  property,  and  the  Alabama  Pf>wer  Co. 
claim  they  had  a  contract  with  us  that  is  legal,  and  if  it  is  legal  Mr.  Ford 
Ooos  not  agree  to  hold  us  harmless  against  the  claims  of  the  Alabama  Power 
Co.    We  did  not  ask  him  to. 

Mr.  Greene.  One  of  the  things  which  the  general  public  will  want  to  imder- 
stand  is  this :  If  we  complete  the  contract  with  Mr.  if'ord  we  step  out  and  have 
unloaded  apparently  what  is  regarded  as  a  white  elephant. 

Col.  Hull.  We  have  that  obligation,  irrespective  of  Mr.  Ford,  which  does 
not  release  us  from  or  increase  our  obligation. 

Mr.  Greene.  I  appreciate  that.  What  I  am  trying  to  get  at  is  for  general 
popular  information,  whether  we  are  free  and  clear,  and  that  all  obligations 
fjiat  were  entailed  upon  us  would  pass  to  Mr.  Ford  as  a  part  of  his  considera- 
tion? 


i 


ii 


I 


200 


MUSCLE   SHOALS  PROPOSITIONS. 


Col  Hull.  No,  sir;  he  would  take  up  the  burdens  at  the  time  he  took  over 
the  property,  aud  if  any  obligations  are  outstanding  we  are  responsible  for 

Mr.  Greene.  The  property  does  not  pass  to  him  subject  to  the  rights  or 
royalties  of  other  people?  ^^  ^        .    ^, 

Col.  Hull.  If  he  utilizes  the  patents,  of  course,  he  would  have  to  take  over 

the  royalties.  ,  ,     ^  ^  x,.*  *     . 

Mr.  Greene.  We  might  be  running  along  having  unloaded  this  property,  to 
use  tiiat  term,  upon  Mr.  Ford  and  still  ourselves  be  liable  and  subject  to  such 
claims  and  interests  as  other  persons  might  propose  against  the  Government 
irrespective  of  Mr.  Ford's  present  operation  of  the  plant? 

Col.  Hull.  No;  if  there  are  any  claims  made  for  use  of  the  royalties  they 
would  be  against  Mr.  Ford. 

Mr.  Greene.  There  would  be  these  other  things? 

Col.  Hull.  These  other  things  existing  to-day  would  still  be  a  burden  on  the 

Government.  ,  j.        ^  ^    ^ 

Mr.  Greene.  We  would  have  to  go  through  another  process  to  get  us  out  of 

those  obligations.  ,  ^         , ,  ».        4.       *. 

Col.  Hull.  If  we  are  liable  at  all  we  are  liable  now,  and  would  have  to  get 

free  any  way.  ,  ^  ^,    . 

Mr.  Greene.  So  that  to  sum  up  this  contract  it  does  not  mean  that  upon  its 

acceptance  w^e  stand  out  from  under  completely? 

Col.  Hull.  Oh,  no.  _  ^ 

Mr  Greene.  I  notice  this  much  discussed  section  15  by  which  it  is  provided 
that  there  shall  be  the  creation  of  a  board  of  not  more  than  nine  members  from 
various  farmers'  organizations  that  are  classified.  This  contract  is  to  run  for 
100  years  according  to  its  present  term.  What  is  there  to  guarantee  to  anybody 
that  farmers'  organizations  such  as  are  represented  here  are  to  continue  for 
100  years,  and  therefore  have  representatives  on  this  board?  That  may  seem 
like  an  absurd  question,  but  I  want  to  get  at  the  stability  of  this  board.  If  a 
board  were  to  be  composed  out  of  existing  governmental  institutions  we  would 
assume  it  would  be  permanent,  but  this  is  an  ephemeral  citizens'  organization 
which  may  pass  out  of  existence  as  easily  as  it  came  into  existence.  They  may 
disband,  and  what  then  would  constitute  the  board? 

Col.  Hull.  There  would  be  an  agreement  between  the  Government  and  Mr. 
Ford,  or  it  would  be  referred  to  the  courts. 

Mr.  Greene.  Then  on  the  happening  of  such  an  emergency  it  would  necessi- 
tate new  action. 

Col.  Hull.  Yes.  sir.  .  .^  ^  „ 

Mr  Greene.  There  is  nothing  in  the  contract  that  w^ould  guarantee  any 
reasonable  continuance  of  this  board  on  its  presently  proposed  foundation? 

Col  Hull.  Not  if  the  organiaztions  were  out  of  existence  and  had  no  suc- 
cessor. Upon  the  happening  of  that  contingency  you  would  have  to  have  an 
agreement  between  the  Government  and  Mr.  Ford,  or  it  would  have  to  be 
referred  to  a  court  of  equity. 

Mr  Greene.  If  this  board  should  lapse  through  any  failure  of  the  organiza- 
tions to  perpetuate  themselves,  and  failure  of  the  farmers  themselves  to  agree 
upon  any  one  who  should  represent  them,  there  must  be  a  new  meeting  of  tlie 
minds  between  the  Government  and  Mr.  Ford? 

Col.  Hull.  Yes,  sir.  „     ^  1/1  ho 

Mr.  Greene.  That  is  not  a  permanent  guarantee  that  Mr.  Ford  would  oe 

under  the  surveillance  of  the  farmers? 

Col.  Hull.  No.  ,    .  ,,      ^     ,  i^  1^ 

Mr  Greene.  That  is  not  a  permanent  guaranty  that  Mr.  Ford  would  oe 
No  2  for  the  purpose  of  producing  this  ingredient  necessary  for  the  making  01 
fertilizer  at  a  specified  capacity,  with  this  exception,  in  language  set  our. 
*•  except  as  it  mav  be  prevented  by  strikes,  accidents,  fire,  or  other  causes i  bey ona 
its  control"  It 'is  reasonable  to  assume,  of  course,  that  notwithstanding  i>ir. 
Ford's  production  of  this  sulphate  of  ammonia  for  fertilizer  purposes  under  tins 
contract  other  concerns,  chemical  laboratories,  and  similar  industries  would  ne 
at  work  on  all  sorts  of  methods  for  accomplishing  the  same  thing.  That  is 
something  which  we  are  always  trying  to  provide  for.  If  in  the  course  ot J 
few  vears  it  is  demonstrated  that  this  ingredient  of  fertilizer  can  be  procUiceu 
through  ordinarv  commercial  sources,  and  If  it  becomes  as  common  a  stap  e  as 
manv  other  commercial  products,  it  would  manifestly  not  be  to  the  business 
interest  of  Mr   Ford  to  continue  the  manufacture  at  his  nitrate  plant,    it  "' 


MUSCLE  SHOALS  PROPOSITIONS. 


201 


<'omes  a  market  condition  which  is  one  of  the  causes  looking  toward  its  control. 
Would  you  think  he  would  be  justified  then  in  ceasing  to  manufacture  this  ii»- 
gredient? 

Col.  Hull.  No,  sir.  I  do  not  think  the  conditions  which  you  outline  would 
be  construed  by  any  court  as  another  cause  beyond  his  control  as  specified  by 
this  contract.  That  is  a  technical  question  and  that  is  the  reason  I  give  vou 
the  answer  that  that  language  among  lawyers  would  mean  that  it  would  have 
to  be  something  that  is  set  forth. 

Mr.  Greene.  I  want  to  get  at  the  facts. 

Col.  Hull.  That  is  the  same  question  which  Judge  Parker  asked. 

Mr.  Greene.  Suppose  the  farming  world  commonly  accepted  as  an  economic 
necessity,  and  so  far  as  that  is  concerned,  an  economic  advantage,  an  entirely 
new  process  in  the  manufacture  of  this  product.  Would  Mr.  Ford  have  to  re- 
adapt  this  nitrate  plant  to  meet  the  new  process? 

Col.  Hull.  Yes,  sir. 

Mr.  Greene.  He  must  keep  apace  with  the  developments  in  the  outside  world 
for  100  years? 

Col.  Hull.  He  is  obligated  to  do  that  by  the  contract. 

Mr.  Greene.  That  you  think  is  quite  clear? 

Col.  Hull.  Yes,  sir. 

Mr.  Greene.  Whatever  may  be  the  change  in  the  manner  of  the  outside  world 
producing  this  product  or  its  equivalent  he  must  meet  it.  and  we  are  assuming 
that  the  laws  of  chemistry  will  not  change,  and  it  will  be  this  ammonium  sul- 
phate? 

Col.  Hull.  It  might  be  an  entirely  different  compound. 

Mr.  Greene.  Then  he  must  meet  that  compound? 

Col.  Hull.  He  would  have  to  meet  that  proposition  to  produce  fertilizer,  be- 
cause that  is  covered  in  the  very  next  clause  in  regard  to  maintaining  a  re- 
search laboratory  and  to  keep  on  experimenting  to  get  the  products  in  a  cheaper 
und  more  feasible  way. 

Mr.  Greene.  He  would  have  to  follow  the  thing  all  through  the  transmuta- 
ti(»ns  of  chemistry? 

Col.  Hull.  He  has  to  produce  to  the  maximum  given  capacity. 

Mr.  Greene.  I  thought  the  production  was  of  this  specific,  particular  element. 

Col.  Hull.  It  says  nitrogen  and  other  fertilizer  compounds. 

Mr.  Greene.  Mr.  Stoll  was  interested  in  asking  you  about  section  19,  as  to 
the  probability  of  that  section  being  interpreted  to  mean  that  Mr.  Ford  bv  the 
terms  of  the  contract  actually  guarantees  the  fulfillment  of  this  part  of  the 
contract  in  that  he  obligates  himself  to  pass  the  necessary  papers  to  do  it. 
What  do  you  lawyers  say— is  the  promise  to  make  the  guarantee  equivalent  to 
a  specific  guarantee?    I  read  no  promise  to  make  a  guarantee.    Mr.  Stoll  does. 

I  was  interested  in  following  that  question,  from  a  layman's  standpoint.  I 
thought  a  guarantee  of  anything  was  in  the  shape  of  a  specific  proiK>sition  in 
sitecified  terms  and  words  as  to  the  particular  thing  to  be  done  as  a  guarantee, 
and  generally  accompanied  by  some  proposition  of  indemnity. 

Col.  Hull.  You  and  I  come  nearer  to  agreeing  than  you  and  Mr.  Stoll. 

Mr.  Hull.  Colonel,  I  think  we  are  sometimes  liable  to  lose  sight  of  the  funda- 
mental idea  of  this  whole  matter,  and  that  is  that  this  is  a  national  defense 
proposition.  We  have  down  there  at  the  present  time  nitrate  plant  No.  2, 
built  and  in  working  shape,  ready  to  turn  out  practically  at  a  moment's  notice 
nitrates  for  high  explosives.  Now,  by  this  contract  we  agree  to  sell  this  to 
Henry  Ford.  Yet  we  have  a  string  attached  to  the  sale  to  the  effect  that  at 
any  time  we  can  take  that  plant  over  and  operate  it  for  the  production  of 
nitrates  for  the  making  of  high  explosives. 
The  Chairman.  In  case  of  war. 

Mr.  Hull.  Yes.  The  question  has  come  to  my  mind — and  I  think  it  is  of 
vital  importance — is  there  anything  in  this  contract  to  assure  the  Government 
that  this  plant  will  be  maintained  under  all  circumstances  as  a  plant  for  the 
manufacture  of  explosives  or  nitrates  for  high  explosives  in  case  of  war?  Is 
niat  fully  protected?  In  other  words,  could  Henry  Ford  assign  this  plant,  as 
^Ir.  Greene  has  suggested,  to  some  other  method  of  manufacturing  nitrate  for 
fertilizer  and  change  the  method?  In  other  words,  I  mean,  we  would  have  a 
formula  for  the  manufacture  of  nitrates  for  high  explosives  which  is  another 
method.    Is  that  fully  protected? 

Ool.  Hull.  In  section  14  you  will  find  this  provision:  "To  maintain  nitrate 
plant  No.  2  In  its  present  state  of  readiness  or  its  equivalent  for  immediate 


"11 


\ 


\ 


202 


MUSCLE   SHOALS  PROPOSITIONS. 


operation,  in  tlie  manufacture  of  materials  necessary  in  time  of  war  for  the 
production  of  liigh  explosives."    That  is  his  obligation. 

Mr  Hull.  In  other  words,  although  he  would  own  the  factory,  if  we  were  to 
find  he  was  destroying  that  factory  as  a  factory  for  the  manufacture  of 
nitrates  for  high  explosives,  we  could  stop  him? 

Col.  Hull.  It  would  be  a  breach  of  contract,  and  under  section  18  we  would 
have  the  right  to  go  into  the  district  court  for  the  northern  district  of  Alabama 
and  maintain  the  appropriate  action. 

Mr  Hull.  He  could  not  destroy  it  in  any  way  without  our  stoppnig  Inm; 
we  would  have  the  right  to  stop  him  if  he  tried  to  assign  it  to  somebody  else, 
or  sell  it  for  some  other  process?    We  would  still  have  the  right  to  go  m? 

Col  Hull.  I  think  so,  without  the  shadow  of  a  doubt.  We  would  have  the 
right  to  have  that  property  protected.  If  we  make  a  deed  for  the  transfer  of 
nitrate  plant  No.  2.  I  see  no  violation  of  the  contract  if  that  clause  was  written 
into  the  deed  we  would  give  to  Henry  Ford  for  plant  No.  2. 

Mr  Hull.  There  is  another  question  that  comes  up,  and  that  is  the  question 
of  the  profits  on  this  plant  for  the  manufacture  of  the  components  of  fertilizer. 
It  is  agreed  that  8  per  cent  on  the  money  invested  is  enough,  or  on  the  cost 
ner^annum.  Supposing  that  the  fertilizer  is  manufactured  down  there  and  at 
a  price  which,  in  the  opinion  of  this  board,  it  could  be  sold,  and  they  sell  it  at 
a  higher  price,  in  agreement  with  that  board.    What  would  become  of  the  profits 

in  excess  of  8  per  cent?  .  ^^  ..        .^i      •      fi,  .*. 

Col  Hull.  I  do  not  think  the  board  would  have  any  right  to  authorize  that. 
They  would  have  to  juggle  the  figures  by  putting  in  other  items  of  cost. 

Mr.  Hull.  How  would  they  do  that?  .        ,.  , 

Col  Hull.  In  a  manufacturing  enteiprise  where  they  have  various  lines  of 
activities,  the  figures  as  to  what  certain  articles  will  cost  are  determined  to  a 
great  degree  bv  the  items  which  they  put  in  the  overhead.       ,        ^,         .      , 

Mr  Hull.  Your  contention  is  that  they  would  have  to  reduce  the  price  low 
enough  so  they  were  not  making  but  8  per  cent ;  is  that  correct? 

Col  Hull.  That  is  in  the  contract.  ,  , , 

Mr'  Hull.  Then  how  would  they  allocate  that  fertilizer?    Suppose  they  could 
Drodiice  it  at  a  price  $20  cheaper  than  any  other  fertilizer,  there  would  be 
eertainlv  a  great  object  to  get  hold  of  it.    How  are  you  going  to  hx  the  alloca- 
tion of  it  to  the  different  factories? 
Col.  Hull.  The  board  has  to  make  the  allocation.  ^     ..  f^ 

Mr.  Hull.  They  would  have  the  right  under  the  contract  to  allocate  it  to 

^^cSrnuLL.  They  could  allocate  it  by  State  or  sections  of  the  country  or  by 

""Tr!  MILLER.  Colonel,  I  do  not  care  to  indulge  in  any  niceties  here  at  alL 
What  we  are  trving  to  get  at  is  something  practical.  Nitrate  plant  No.  2  is  the 
country's  resource:  so  to  speak,  in  regard,  to  the  production  of  ammoniu.u 
nitrate  It  is  of  intense  interest  to  the  country  that  nitrate  plant  No.  J  shall 
be  preserved  and  be  available  for  the  production  of  that  substance.  Suppose 
there  should  be  a  fire  which  should  destroy  nitrate  plant  No.  2.  Wilder  the 
clause  of  that  contract  Mr.  Ford  is  excused  trom  the  operatnm  of  this  plant. 
A  fire  hazard  is  alwavs  present,  and  accidental  destruction  is  especially  alwa.ys 
present  in  dealing  with  any  ingredient  of  an  explosion.  What  condition  would 
the  United  States  be  left  in  as  to  the  reproduction  of  nitrate  plant  No.  2  m 
the  event  of  fire,  or  any  other  fatality?  ,.     ^  ^,  . 

Col  Hull.  He  would  be  excused  from  producing  nitrate  as  a  result  ot  tiie 
fire  but  under  clause  B  of  article  14  he  would  be  obliged  to  rebuild  because  he 
must  maintain  the  plant  in  its  present  state  of  readiness  or  its  equivaleni. 

Mr.  Miller.  This  is  aside  from  that  question,  but  I  do  not  suppose  the  Unite<l 
States  would  have  an  insurable  interest  in  that  plant. 

CoL  Hull.  The  Unitetl  States  does  not  insure  its  properties. 

Mr.  Miller.  It  would  not  have  an  insurable  interest? 

Col.  Hull.  I  think  Mr.  Ford  under  that  clause  would  in  case  of  fire  or  acci- 
dent be  liable, 

Mr.  Miller.  That  would  be  acted  upon  reasonably  soon. 

Col.  Hull.  Yes ;  within  a  reasonable  time. 

Mr.  Miller.  In  reference  to  the  ultra  vires  contract  with  the  Alabama 
Power  Co. 

Col.  Hull  (intei-posing).  It  is  comparable  to  that. 

Mr.  Miller.  Practically,  as  a  lawyer— and  you  are  a  good  one— what  would 
be  the  best  method,  as  well  as  the  quickest,  of  determining  the  stability  of 


MUSCLE   SHOALS  PROPOSITIONS. 


203 


their  interest  there  in  order  to  commence  action  on  the  construction  of  the 
contract.  ^  _         , , 

Col.  Hull.  I  think  the  first  thing  the  Government  ought  to  do— and  I  would 
recommend  it  to  the  Secretary  of  War  without  any  hesitancy  if  we  had  an 
appropriation — would  be  to  proceed  to  condemn  it. 

Mr.  MiLLi-ni.  And  acquire  the  fee? 

Col.  Hull.  And  acquire  the  fee. 

Mr.  Miller.  Then,  that  would  compel  the  Alabama  Power  Co.  to  establish  its 
right,  if  any,  under  the  contract. 

Col.  HuTLL.  Yes,  sir. 

Mr.  Miller.  And  then  the  contract  would  come  properly  before  the  court? 

Col.  Hull.  I  doubt  it ;  I  think  we  would  have  the  right  to  condemn  on  ac- 
count of  the  interest  we  had. 

Mr.  INIiller.  In  the  condemnation  proceedings,  it  would  be  in  view  of  the 
Government  acquiring  the   fee? 

Col.  Hull.  Yes. 

Mr.  Miller.  If  they  desired  to  test  their  rights  under  the  contract  they  would 
have  to  set  them  up? 

Col.  Hull.  They  might  set  them  up  with  a  view  to  defeating  the  condemna- 
tion proceedings  if  they  would  prefer  to  do  that. 

Mr.  Fields.  Colonel,  I  would  like  to  hear  your  opinion  as  to  the  full  powers 
of  this  board  which  is  proposed  under  section  15  of  the  contract. 

Col.  Hull.  I  have  given  it  no  special  thought.  I  should  say  their  full  powers 
were  simply  those  recited  here,  fixing  the  price  and  determining  what  elements 
are  properly  elements  of  cost  and  what  is  the  proper  distribution. 

Mr.  Fields.  Those  are  pretty  broad  powers  which  that  board  has,  are  they 
not? 

Col.  Hull.  They  are  certainly  controlling,  so  far  as  the  profits  which  this 
company  would  make  in  the  manufacture  of  this  article  are  concerned. 

Mr.  Fields.  The  profits  on  this  commodity  are  under  the  control  of  this 
board? 

Col.  Hull.  Yes;  as  far  as  the  company  is  concerned;  they  would  have  con- 
trol of  the  sales. 

Mr.  WuRZBACH.  I  do  not  know  whether  you  understood  me  to  say  that  sec- 
tion 19  contained  a  guaranty  on  the  part  of  Mr.  Ford.  I  think  you  stated  you 
did  not  think  so. 

Col.  Hltll.  I  thought  it  did ;  that  it  contained  his  personal  guaranty  as  strong 
as  it  could  be  written. 

Mr.  WuRZBACH.  And  that  was  the  limit  of  his  guaranty  here? 

CoL  Hull.  That  w^as  the  limit  of  his  guaranty,  Mr.  Ford  and  his  estate. 

Mr.  WURZBACH.  Do  you  not  think  that  the  wording  of  section  19  is  not  incon- 
sistent with  Mr.  Ford's  intention  and  willingness  to  give  additional  security 
for  the  faithful  performance  of  his  obligation? 

Col.  Hull.  It  would  not  be  repugnant ;  if  Mr.  Ford  wantetd  to  give  any  addi- 
tional assurance,  he  would  be  at  liberty  to  do  so.  I  insert  herewith  copy  of  the 
proposal  of  the  General  Chemical  Co.,  showing  Mr.  Baker's  acceptance  thereon. 


To  the  President  : 


General  Chemical  Co.,  * 
New  York,  June  5,  1917. 


The  committee  on  nitrate  supply,  under  section  124  of  the  "  Act  for  making 
a  further  and  more  effectual  provision  for  national  defense,  and  for  other  pur- 
poses," has  reciuested  the  General  Chemical  Co.  to  state  the  terms  upon  which 
said  company  would  grant  to  the  Government  the  right  to  use  its  processes, 
which  have  been  exhibited  to  said  committee,  in  the  "  production  of  nitrates 
and  other  products  for  munitions  of  war  and  useful  in  the  manufacture  of  fer- 
tilizers." 

In  compliance  with  said  request  the  General  Chemical  Co.  begs  to  submit  the 
following  tender : 

The  General  Chemical  Co.  hereby  places  at  the  disposal  of  the  President,  for 
the  purposes  aforesaid,  and  grants  to  the  Government  of  the  United  States  the 
use  of  its  processes  and  designs  of  apparatus  for  catalytically  combining  nitro- 
gen and  hydrogen  to  form  ammonia,  as  exemplified  in  one  or  more  of  its  United 
States  patents  Nos.  1141947  and  1141948,  both  of  June  8,  1915 ;  1143366,  of  June 
15,  1915 ;  1151.537,  of  August  24,  1915 ;  and  1159364  and  1159365,  both  of  No- 
vember 9,  1915 ;  and  such  other  patents  as  may  hereafter  be  granted ;  and  the 
recovery  of  such  ammonia  as  liquified  ammonia  or  as  a  salt,  such  as  ammonium 
chloride,  sulphate,  or  nitrate,  and  further  its  process  of  catalytically  converting 


\ 


204 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


205 


ammonia  and  oxygen  into  nitric  acid  and  of  recovering  such  nitric  acid  as  a 
strong  acid  or  as  nitrate  such  as  ammonium  or  sodium  nitrate  and  on  whose 
patentable  features  final  action  has  not  yet  been  taken,  in  so  far  only  as  the 
Government  shall  desire  to  use  the  same  in  its  own  works  for  the  production 
of  the  munitions  of  war  and  products  useful  in  the  manufacture  of  fertilizers, 
upon  the  following  terms  and  conditions : 

1.  In  so  far  as  the  Government  shall  see  fit  to  employ  said  processes  or  ap- 
paratus or  any  of  them  in  the  manufacture  of  products  to  be  used  exclusively 
for  munitions  of  war,  no  compensation  by  way  of  royalty  or  otherwise  will  be 
asked  or  received  by  the  General  Chemical  Co. 

2.  In  so  far  as  the  Government  shall  see  fit  to  employ  the  said  processes  or 
apparatus  or  any  of  them  in  the  manufacture  of  products  to  be  used  for  fer- 
tilizers, the  Government  shall  pay  to  the  General  Chemical  Co.  a  royalty  for 
such  use.  The  royalty  so  to  be  paid  shall  be  based  upon  the  nitrogen  content 
of  the  material  produced  for  fertilizer  purposes  and  shall  be  at  the  rate  of  $5 
for  each  ton  of  2,000  pounds  of  fixed  nitrogen  in  whatever  form  combined,  and 
shall  be  payable  quarterly,  until  the  9th  day  of  November,  1932,  and  thereafter 
until  the  expiration  of  all  patents  involving  any  substantial  feature  of  the 
process  or  apparatus. 

3.  The  General  Chemical  Co.  hereby  places  at  the  disposal  of  the  President  the 
entire  services  of  those  members  of  its  staff  under  whose  immediate  supervision 
its  said  processes  have  been  brought  to  the  present  stage  of  development,  upon 
the  sole  condition  that  the  Government  shall  assume  and  discharge  all  obliga- 
tions which  the  company  is  now  under  with  respect  to  the  compensation 
of  said  employees,  together  with  the  necessary  increase  of  their  expense,  so 
long  as  the  Government  shall  avail  itself  of  their  services. 

4.  If  this  tender  shall  be  accepted,  the  General  Chemical  Co.  hereby  under- 
takes forthwith  to  communicate  to  the  designated  experts  for  the  Government 
all  of  its  knowledge  and  discoveries  pertaining  to  the  said  processes  and 
apparatus,  whether  or  not  the  same  shall  be  the  subject  of  patents,  and  from 
time  to  time  thereafter,  so  long  as  the  Government  shall  continue  the  use  of 
said  processes,  to  communicate  all  further  improvements  promptly  as  they  shall 
come  to  the  knowledge  of  the  company  and  without  further  charge  for  the  use 
thereof,  within  and  subject  to  the  limitations  before  expressed.  And,  re- 
ciprocally, it  is  understood  that  all  modifications  and  improvements  in  the 
processes  or  apparatus,  which  the  Government  shall  discover  or  employ,  shall 
be  at  the  disposal  of  the  General  Chemical  Co.  and  its  licensees,  if  any,  for 
use  in  its  or  their  own  works,  and  that  all  such  modifications  and  improve- 
ments shall  be  freely  exhibited  upon  request  to  the  representatives  of  the 
General  Chemical  Co. 

5.  It  is  understood  that  for  all  purposes  of  this  agreement  and  generally  so 
far  as  concerns  the  use  of  said  processes,  or  any  part  thereof,  by  the  Govern- 
ment, its  agents  or  other  parties  claiming  under  it,  it  and  they  shall  at  all 
times  acknowledge  and  recognize  the  General  Chemical  Co.  as  the  sole  owner 
of  said  processes  and  of  the  exclusive  right  to  use  the  same,  subject  only  to 
the  rights  granted  to  the  Government  pursuant  to  this  tender,  and  shall,  so 
far  as  practicable,  exclude  the  public  from  all  works  in  which  said  processes 
shall  be  employed,  and,  generally,  shall  use  all  reasonable  means  to  preserve 
said  rights  unimpaired. 

Respectfuly  submitted  by  the  General  Chemical  Co. 

W.  H.  NiCHOLLS, 

Chairman  of  the  Board. 
Jno.  a.  Mabtin,  Secretary. 

Accepted  on  behalf  of  the  President,  June  14,  1917. 

Newton  D.  Baker. 


Extracts  FRo^r  the  IMixutes  of  a  IIegit.ar  Meeting  of  the  ExECUTnE  Com- 
mittee OF  the  General  Chemical  Co.  Held  on  the  1st  day  of  June,  1917. 

In  the  matter  of  the  tender  to  the  President  of  the  use  of  certain  processes 
of  the  company  for  the  production  of  munitions  of  war  by  the  Government  free 
of  royalty,  and  for  the  manufacture  of  fertilizers  by  the  Government  upon  a 
royalty  to  be  subsequently  fixed,  approved  by  the  board  of  directors  April  20, 
1917,  Mr.  Steele  reported  that  the  nitrate  committee  of  the  War  Department 
desires  that  the  royalty  to  be  paid  for  the  use  of  said  processes  in  the  nmnufac- 
ture  of  fertilizers  should  be  fixed  at  the  present  time,  whereupon  the  following 
resolution  was  offered: 


"Resolved,  That  the  proper  officers  of  the  company  be  and  they  are  hereby 
authorized  to  execute  and  deliver  in  the  name  of  the  company  and  under  the 
company's  seal,  a  formal  tender  of  the  use  of  our  processes  or  a  contract  there- 
for for  the  purposes  and  upon  the  general  terms  above  stated  and  in  such  form 
as  shall  be  approved  by  the  counsel  for  the  War  Department  and  the  general 
counsel  of  this  company. 

"  Carried." 

A  true  copy. 

,  Secretary. 

Mr  WuRZBACH.  The  terms  of  it  are  not  inconsistent  with  his  intention  to  give 
additional  security. 

The  Chairman.  Maj.  Burns,  you  are  connected  with  the  Ordnance  Depart- 
ment of  the  Army? 

Maj.  Burns.  Yes,  sir. 

The  Chairman.  Do  you  know  the  situation  with  regard  to  Muscle  Shoals 
pretty  thoroughly?    You  made  a  study  of  it? 

Maj.  Burns.  I  made  quite  a  study  of  it. 

The  Chairman.  May  I  ask  you  to  return  on  Monday  morning,  because  we 
may  want  to  ask  you  some  questions? 

Maj.  Burns.  I  will  be  glad  to  do  so. 

(Thereupon,  at  5  o'clock  p.  m.,  the  committee  adjourned  until  Monday,  Feb- 
ruary 13,  1922,  at  10.30  o'clock  a.  m.) 


\ 


MUSCLE  SHOALS  PROPOSITIONS. 


Committee  on  Military  Affairs, 

House  of  Representatives, 

Monday,  February  13,  1922. 

The  committee  met  at  10.30  o'clock  a.  m.,  Hon.  Julius  Kahn  (chairman) 
presiding. 

STATEMENT  OF  MAJ.  J.  H.  BURNS,  OBDNANCE  DEPARTMENT, 

UNITED  STATES  ARMY. 

The  Chairman.  I  want  to  say  to  the  committee  that  Mr.  Mayo,  representing 
Mr.  Ford,  has  arrived  in  town  this  morning.  He  will  be  able  to  come  up  here, 
and  will  come  here  at  2  o'clock  for  the  afternoon  session.  In  the  meantime 
we  will  have  a  thorough  explanation  of  the  Muscle  Shoals  district  by  MaJ. 
Burns. 

Major,  the  map  which  is  before  you  is  supposed  to  represent  that  district 
pretty  well.    Can  you  use  that  in  explaining  the  matters  you  want  to  explain? 

Maj.  Burns.  Yes,  sir. 

The  Chairman.  Will  you  kindly  state  for  the  record  your  name  in  full  and 
the  position  you  occupy  in  the  War  Department? 

Maj.  Burns.  My  name  is  J.  H.  Burns,  major  of  Ordnance.  I  am  now  chief 
of  the  ammunition  division  of  the  Ordnance  Department.  I  have  been  for  two 
and  a  half  years  connected  with  the  nitrate  division  of  the  Ordnance  Depart- 
ment, which  has  control  of  the  nitrate  activities  centered  in  the  Muscle  Shoals 
region. 

The  Chairman.  Major,  as  chief  of  that  division,  was  your  presence  at  Muscle 
Shoals  required  quite  frequently? 

Maj.  Burns.  I  hnve  been  to  Muscle  Shoals  several  times.  I  went  into  the 
nitrate  division  after  all  of  tliese  activiries  had  been  started  and  practically  com- 
pleted, but  I  have  been  connected  witli  tlie  curtailing  of  activities  down  there 
and  the  establishment  of  the  enterj)r:se  on  a  peace  time  basis. 

The  Chairman.  I  understood  you  to  say  that  you  had  been  for  two  and  a 
half  years  connected  with  that  division. 

Maj.  Burns.  Yes,  sir;  but  I  came  into  the  nitrate  division  about  June  1, 
1919,  which,  of  course,  was  after  the  bulk  of  the  work  had  been  done. 

The  Chairman.  So  you  are  pretty  familiar  with  the  plant? 

Maj.  Burns.  I  think  I  am;  yes,  sir. 

The  Chairman.  Now,  would  you  kindly,  in  your  own  way,  state  to  the  com- 
mittee for  the  benefit  of  the  committee  just  what  that  plant' consists  of  and  the 
condition  it  is  in  at  the  present  time? 

Maj.  Burns.  The  Ordnance  Department  has  only  to  do  with  the  chemical  end 
of  the  project  at  Muscle  Shoals,  and  that  is  subdivided  into  two  main  projects 
the  No.  1  nitrate  plant,  and  the  No.  2.  nitrate  plant.    The  No.  1  nitrate  plant  is 
located  near  Sheffield,  Ala.,  and  the  No.  2  nitrate  plant  is  located  about  5  miles 
up  the  river,  very  close  to  Muscle  Shoals,  on  the  Tennessee  River. 

The  No.  1  nitrate  plant  was  started  in  pursuance  of  the  national  defense  act 
Of  June  3,  1916,  by  which  Congress  required  that  investigation^,  etc.,  be  made 
to  determine  the  best  method  of  fixing  nitrogen  and  of  using  such  tixed  nitrogen 
lor  munitions  of  war  and  for  fertilizers. 

In  an  effort  to  carry  out  the  will  of  Congress  the  War  Department  organizetl 
several  committees,  one  of  which  went  overseas  in  order  to  study  the  best 
Methods,  and  finally,  as  a  result  of  recommendations  of  these  various  com- 
mittees, the  No.  1  plant  was  started  to  use  a  modification  of  the  so-called  Haber 
process  of  fixing  nitrogen.    The  plant  itself  was  started  in  the  fall  of  1917,  and 


92900—22 14 


207 


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208 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


209 


it  was  not  only  to  fix  nitrogen  and  form  anwnonia  but  also  to  change  the  fixed 
nitrogen  or  ammonia  into  nitric  acid,  and  finally  to  form  ammonium  nitrate  or 
the  explosive.  There  was  also  a  plant  to  concentrate  the  nitric  acid.  The  plant, 
as  far  as  everj-  process  was  concerned,  except  the  fixation  part,  was  a  success. 
The  fixation  process,  however,  was  not  a  success.  They  did  produce  some 
ammonia,  but  the  plant  only  ran  intermittently,  and  they  had  a  great  deal  of 
difliculty  in  making  it  go  even  from  day  to  day. 

Mr.  Parker.  Was  that  the  first  part  of  the  process,  to  fix  the  nitrogen? 

Maj.  Burns.  Yes.  sir ;  the  fixation  of  the  nitrogen. 

Mr.  Parker.  And  that  you  could  not  do? 

Maj  Burns.  No,  sir;  that  was  not  a  success.  I  think  it  should  be  ponited 
out  to  the  committee,  however,  that  this  was  practically  the  pioneer  effort 
in  America  for  doing  this  work,  and  it  would  be  natural  to  suppose  that  the  first 
efforts  would  discover  many  serious  difilculties. 

The  Chairman.  You  say  that  a  committee  was  appointed  to  go  overseas  and 
study  these  processes? 

Maj.  Burns.  Yes,  sir.  ,  .    .u    ^ 

The  Chairman.  The  Haber  process  you  are  speaking  of  now  is  the  trerman 

process? 

Maj.  Burns.  Yes,  sir.  .    ^  .. 

The  Chairman.  It  was  used  extensively  during  the  early  part  of  the  war, 
especially  in  Sweden  and  Norway,  where  they  had  enormous  water  power? 

Maj.  Burns.  No,  sir;  not  the  Haber  process.  The  Haber  process  does  not 
require  very  much  power.  The  cyanamid  process  and  the  arc  process  are  the 
processes  used  up  in  Scandinavia,  and  they  are  used  up  there  because  they  have 
such  ^ery  cheap  water  power,  which  is  necessary  for  those  processes. 

The  Chairman.  And  that  is  the  process  used  in  nitrate  plant  No.  2? 

Maj.  Burns.  Yes,  sir.  The  Germans  developed  the  Haber  process  so  they 
could  make  nitrogen  without  the  consumption  of  a  great  deal  of  power. 

The  Chairman.  Was  the  Haber  process  the  one  that  was  used  in  which  a 
terrible  explosion  occurred  in  Germany  soon  after  the  war? 

Maj.  Burns.  Yes,  sir. 

The  Chairman.  I  do  not  remember  now  how  many  thousands  of  people  were 

killed  by  that  explosion.  ,    .       .   .     ^ 

Maj  Burns.  It  was  a  verv  disastrous  explosion,  but,  of  course,  the  explosion 
was  not  due  to  the  process.  It  was  due  to  the  fact  they  were  blasting  out 
the  pro<luct  which  had  been  stored  in  immense  magazines  where  the  material 
had  solidified  into  a  solid  cake.  It  was  an  explosive  material,  and  unfortunately 
the  blasting  material  which  they  used  to  get  it  out  had  sufficient  i>ower  to  set 
the  whole  thing  off. 

The  Chairman.  You  may  proceed,  Major.  ^^      -     t     *. 

Maj  Burns.  The  Ordnance  Department  has  been  holding  the  No.  1  plant 
for  some  time  in  order  to  find  out  what  the  developments  in  America  would  be 
along  the  Haber  process.  We  have  made  studies  and  designs  of  the  plant,  so 
that  we  could  modify  it  and  make  it  w<»rk  in  case  it  were  necessary ;  but,  fortu- 
nately we  do  not  believe  we  have  to  do  that  now,  because  the  Atmospheric 
Nitrogen  Corporation,  which  is  a  subsidiary  of  the  Solvay  Process  Co.,  and  the 
General  Chemical  Co.,  has  developed  at  Syracuse,  N.  Y.,  a  plant  which  can  pro- 
duce fixed  nitrogen  by  this  process.  We  visited  it,  and  it  is  a  very  fine  plant 
and  is  producing  ammonia  very  satisfactorily.  The  Haber  process  is  now  an 
accomplished  fact  in  America  and  is  on  a  commercial  basis.  The  Ordnance 
Department  has  therefore  recommended  to  the  Secretary  of  War  that  this  No.  1 

plant  be  disposed  of.  ,.    ^  ,  .  4.    4.  ,.  ^^' 

The  No.  2  plant  was  started  as  a  direct  result  of  very  large  requirements  for  ex- 
plosives during  the  war.  Shortly  after  we  entered  the  war  we  found  the  require- 
ments for  explosives  so  colossal  that  they  could  not  be  met  with  T.  N.  T.  or  the 
approved  explosive.  We  ascertained  from  the  English  how  they  were  solvmf? 
their  explosives  problem,  and  they  were  doing  it  by  means  of  amatol,  a  com- 
bination of  T.  N.  T.  and  ammonium  nitrate.  We  therefore  cast  about  for  some 
scheme  of  getting  large  quantities  of  ammonium  nitrate.  We  encountered  tANO 
difl[icultles ;  one.  a  shortage  of  nitrates  from  Chile,  and  the  other  a  shortage  oi 
ammonia.  So  the  solution  accepted  was  to  put  up  a  plant  by  the  cyanamiu 
process,  which  would  not  only  take  care  of  the  shortage  of  Chilean  nitrates,  but  it 
would  also  take  care  of  the  .shortage  of  ammonia,  as  this  plant  could  make  Dorn 
the  ammonia  and  the  nitrates  from  nitrogen  which  would  be  obtained  from  tne 
air.  So  this  No.  2  plant  is  absolutely  a  war  plant,  erected  for  the  purpose  oi 
producing  explosives. 


The  only  company  in  America  that  understood  the  cyanamid  process  was  the 
American  Cyanamid  Co.,  which  has  a  plant  at  Niagara  Falls,  Canada,  and 
therefore  that  company  was  called  in  to  erect  this  plant.  They  started  earlv  in 
1918  and  had  the  plant  practically  ready  for  operation  at*  the  time  of 'the 
armistice.  The  plant  has  been  tested  by  a  low  capacity  run,  20  per  cent  of 
its  capacity,  and  the  plant  has  proven  very  definitely  that  It  can  turn  out  the 
quality  and  quantity  of  the  material  that  was  desired. 

The  Chairman.  Is  that  plant  practically  completed? 

Maj.  Burns.  Yes,  sir ;  the  plant  Is  practically  completed.  It  is  ready  to-day 
to  turn  out  Its  full  capacity  of  material. 

The  Chairman.  If  it  should  turn  out  fertilizer  and  It  Is  de.slred  at  any  time 
to  begin  to  turn  out  explosives,  what  should  be  done  with  the  plant. 

Maj.  Burns.  The  product  of  the  plant  as  it  Is  now  constructed  Is  ammonium 
nitrate.  That  so  far  has  not  been  accepted  as  a  good  fertilizer  material.  It 
has  all  the  qualities  for  feeding  plants,  but,  unfortunately.  It  absorbs  moisture 
so  rapidly  when  you  put  It  Into  fertilizer  that  it  makes  the  fertilizer  gummy. 
So  that  you  have  got  to  produce  some  other  material  there,  with  the  present 
state  of  knowledge,  in  order  to  fit  into  the  fertilizer  market. 

You  can  take  the  fixed  nitrogen  that  is  produced  there  at  a  midway  point 
an<l  convert  It  Into  ammonium  sulphate  which  is  a  thoroughly  established  fer- 
tilizer material.  If  ycu  do  this,  you  would  have  to  put  In  an  additional  plant. 
So  I  think  you  could  produce  ammonulm  sulphate  down  there  without  In  any 
way  jeopardizing  the  value  of  the  plant  as  a  munitions  plant. 

The  Chairman.  Do  you  know  how  much  the  expense  would  be  for  making 
that  conversion? 

Maj.  Burns.  For  putting  in  an  ammonium  sulphate  plant  equal  to  the  capacity 
of  the  No.  2  plant  I  believe  would  require  a  capital  expenditure  in  the  neighbor- 
ho<^)d  of  $3,000,000. 

The  Chairman.  You  may  proceed.  Major. 

Maj.  Burns.  There  are  some  adjuncts  to  the  No.  2  plant,  namely,  the 
Warrlor-Gorgas  plant,  which  has  been  under  discussion  a  great  deal,  and  the 
Waco  quarry.  The  Waco  quarry  was  constructed  solely  for  the  purpose  of 
supplying  limestone  to  the  plant,  limestone  being  one  of  the  raw  materials. 

The  Gorgas  plant,  which  is  about  90  miles  away,  and  which  is  not  shown  on 
this  map.  Is  about  90  miles  south  of  Muscle  Shoals,  on  land  owned  by  the  Ala- 
bama Power  Co. 

There  is  a  little  history  behind  that  which  I  think  you  ought  to  know.  When 
it  was  decided  to  build  the  N<>.  2  plant  It  was  found  that  they  could  erect  the 
chemical  end  much  quicker  than  they  could  the  power  end,  so  they  endeavored 
to  find  how  they  could  ^et  pcwer  quickly.  The  Alabama  Power  Co.  Is  the  larg- 
est power  producer  In  that  region.  At  Gorgas,  Ala.,  they  already  had  con- 
structetl  and  In  operation  a  20,000-kllowatt  plant  located  on  the  W\arrlcr  River. 
They  had  foundations  laid  and  plans  made  for  increasing  Its  capacity  when 
conditions  warranted  It.  So  the  Ordnance  Department  went  to  them  and  asked 
them  to  what  extent  they  cculd  help  In  the  furnishing  of  power.  They  stated 
that  by  Increasing  their  transmission  line  to  Gorgas  they  could  guarantee  to 
the  Government  almost  at  once  power  foi-  construction  purposes  provided  the 
Government  would  tie  Into  their  line  with  this  90-mlle  transmlss'on  line.  They 
f»tated  further  that  If  the  Government  wculd  Increase  at  once  the  capacity  of 
the  plant  at  Gorgas*  they  could  guarantee  power  to  the  United  States  to  the 
extent  of  the  increase,  or  30.000  kilowatts. 

Tliat  agreement  was  finally  entered  Into  as  outlined  In  contract  T-69  and 
this  90-mlle  transmission  line  was  erected,  and  this  power  plant  addition  was 
r»laced  at  Gorgas. 

There  has  been  mention  made  of  condemniug  the  land  on  which  the  Govern- 
nient-owned  Gorgas  plant  is  located.  As  a  matter  of  fact,  it  is  a  part  and  parcel 
of  the  Alabama  Power  plant.  It  is  all  under  the  same  roof.  The  boilers  are 
fed  by  water  through  the  same  Intakes.  The  ash-dlsposal  system  and  the 
<oal-supplying  system  are  all  one,  so  that  it  would  be  just  like  unscrambling 
an  egg  to  try  to  separate  those  two  plants.    It  is  almost  impossible. 

The  Chairman.  Was  that  the  purpose? 

Maj.  Burns.  No.  sir;  the  Idea  was  very  clear-cut,  in  my  judgment,  in  the 
inliKis  of  the  contracting  parties.  The  Alabama  Power  Co.  agreed  to  put  up 
this  additional  plant  at  cost  plus  6  per  cent  for  the  Government  and  veiy  defi- 
nitely agreed  when  they  did  it  that  they  would  buy  back  from  the  Government 


\ 


210 


MUSCLE   SHOALS  PROPOSITIONS. 


at  a  specified  time  tliis  plant  at  a  fair  value,  to  be  determined  by  a  l>oard  of 
arbitrators,  one  of  whom  would  be  the  Alabama  Power  Co.'s  representative,  one 
would  be  the  Government's  representative,  and  one  would  be  selected  l)y  the 
two.  In  other  words,  by  that  contract  we  were  able  to  sell  back  to  the  Alabama 
Power  Co.  this  whole  plant  at  its  fair  valuation. 

The  Chairman.  Has  any  effort  been  made  to  sell  it  back? 

Maj.  Burns.  No  definite  offer  because  of  tlie  fact  that  the  time  limit  imposed 
by  the  contract  has  not  yet  arrived. 

The  Chairman.  In  case  the  Government  should  decide  to  hold  it  or  acquire 
it  itself,  how  would  those  eg^s  be  unscrambled? 

Maj.  Burns.  According  to  the  contract  the  Government  can  not  hold  it  itself. 

The  Chairman.  It  can  not? 

Maj.  Burns.  No,  sir ;  it  must  sell  to  the  Alabama  Power  Co..  and  if  the  Ala- 
bama Power  Co.  can  not  purchase,  then  we  have  got  to  remove  the  plant  and 
leave  the  land  in  a  satisfactory'  condition. 

The  Chairman.  That  is  one  of  the  conditions  of  the  contract. 

Maj.  Burns.  Yes.  sir.  I  think  the  idea  is  very  definitely  fixed  in  the  contract 
that  in  case  the  sale  is  not  consummated  to  the  Alabama  Power  Co.  the  Gov- 
ernment has  got  to  remove  the  plant. 

The  Chairman.  So  that,  after  all,  it  was  only  a  temporarj^  expedient. 

Maj.  Burns.  It  was  an  expedient  to  get  for  the  Ciovernment  quick  power  in 
order  to  pnxluce  explosives  at  this  No.  2  plant. 

The  Chairman.  For  war  purposes. 

:Maj.  Burns.  Yes.  sir ;  and  that  seemed  to  be  the  very  best  solution  that  the 
Government  could  make  at  that  time  of  this  problem. 

Mr.  Parker.  Mr.  Chairman,  you  might  ask  him  if  they  have  enough  power 
without  it. 

The  Chairman.  I  understand  they  are  not  running  the  plant  at  all.  It  is  in 
a  stand-by  condition. 

Mr.  Parker.  And  your  own  power  plant  is  now  completed. 

Maj.  Burns.  As  it  stands  to-day,  we  could  run  our  No.  2  plant  at  practically 
full  capacity  without  this  power  plant  at  Gorgas.  because  in  the  meantime  we 
have  completeil  a  60,000-kilowatt  plant  at  ^luscle  Shoals ;  but  this  arrangement 
with  the  Alabama  Power  Co.  was  of  great  help  to  the  Government  in  the 
early  days,  because  they  were  able  to  give  us  power  at  the  No.  2  plant  in  May. 
1918,  or  a  few  months  after  the  plant  was  started,  and  we  were  never  short  of 
power  as  a  result  of  that,  in  spite  of  the  fact  that  our  own  steam  plant  at 
Muscle  Shoals  was  not  finally  accepted  until  quite  a  long  period  of  tinre  after 
the  armistice. 

The  Chairman.  Go  right  ahead  with  your  statement,  :iIajor. 

]Maj.  Burns.  Those  are  the  main  projects  of  the  Ordnance  Department  in 
that  region.  The  rest  of  it  has  to  do  with  the  hydroelectric  development  in  the 
Tennessee  River,  which  has  l)een  handled  by  the  Corps  of  Engineers. 

The  Chairman.  And  you  have  had  little  to  do  witli  that? 

Maj.  Burns.  I  have  had  nothing  directly  to  do  with  that,  but,  of  course,  I 
have  heard  a  good  deal  of  evidence  submitted  in  regard  to  it ;  that  is  all. 

The  Chairman.  Do  you  know  how  nearly  completeil  is  Dam  No.  2? 

M;\}.  Burns.  You  appreciate,  Mr.  Chairman,  that  this  is  sec(  ndliand  infor- 
matiiin  you  are  getting  from  me.  and  the  Corps  of  Engineers  would  bi^  able  to 
give  yoii  first  hand  information ;  but  as  T  understand  it  from  the  records,  all 
t  f  the  auxiliary  construction  work  pertaining  to  Dam  No.  2  has  been  completeil. 
and  approximately  30  per  cent  of  the  concrete  work  that  goes  in  the  dam. 

Mr.  McKenzie.  I^Iajor,  in  connection  with  the  construction  of  this  plant  on 
the  land  of  the  Alabama  Power  Co.,  you  stated  that  it  would  give  the  Govern- 
ment the  benefit  of  power  much  earlier  than  they  could  otherwise  have  obtained 
power  to  operate  the  nitrate  plant;  is  that  true? 

Maj.  Burns.  Yes.  sir. 

Mr.  McKenzie.  Is  it  more  difficult  to  construct  a  steam  power  plant  than  it 
is  a  nitrate  plant  or  a  plant  for  the  manufacture  of  fixation  of  nitrates? 

Maj.  Burns.  It  took  considerably  longer  time  in  our  experience  at  the  No.  - 
plant  to  construct  the  power  plant  than  it  did  to  construct  the  nitrate  plant. 

Mr.  McKenzie.  That  is  not  the  question  I  asked  you.  Of  course,  that  might 
be  iwssible,  but  is  there  anything  more  difficult  in  the  construction  of  a  steam 
power  plant  than  there  is  in  the  construction  of  a  plant  for  the  production  or 
fixation  of  nitrogen? 


MUSCLE   SHOALS  PROPOSITIONS. 


211 


Maj.  Burns.  I  can  only  answer  that  by  saying  that  the  No.  2  chemical  plant 
or  fixation  plant  was  constructed  in  much  less  time  than  tlie  steam  plant  that 
goes  with  it. 

Mr.  McKenzie.  I  understand  that,  but  I  am  asking  you  now  for  your  judg- 
ment on  this  proposition.  Knowing  the  plants,  having  seen  them  and  the  con- 
struct'on  of  them,  would  you  say  that  it  is  a  more  difficult  proiwsition  to  con- 
struct an  ordinary  steam-power  plant  than  it  is  to  construct  a  plant  for  the 
fixation  of  nitrates? 

Maj.  Burns.  In  my  judgment,  as  a  result  of  experience  with  plant  No.  2,  you 
can  construct  a  nitrate  plant  by  the  cyanamid  process  quicker  than  you  can 
construct  the  steam-power  plant  that  would  go  with  it. 

Mr.  McKenzie.  At  any  rate,  you  had  the  power  plant  constructed  at  Muscle 
Shoals  before  you  were  ready  to  produce  nitrates  at  the  nitrate  plant,  did  you 
not? 

Maj.  Burns.  No,  s'r;  we  did  not  have  the  steam-power  plant  at  the  nitrate 
plant  constructed  until  long  after  the  fixation  plant  had  been  constructed. 

Mr.  McKenzie.  I  understand;  but  when  did  you  have  this  experimental  test? 

Maj.  Burns.  The  plant  was  producing  fixed  nitrogen  about  the  time  of  the 
armistice,  and  we  ran  it  through  this  small  test,  I  think,  in  January  and 
February,  1919. 

Mr.  McKenzie.  Did  the  Government  or  the  Ordnance  Department  proceed  hn- 
mediately  with  the  construction  of  the  power  plant  in  connection  with  the  con- 
struction of  the  nitrate  plant? 

Maj.  Burns.  Yes,  sir. 

Mr.  McKenzie.  How  long  after  they  began  that  construction  did  they  enter 
into  th's  contract  with  the  Alabama  Power  Co.  to  take  power  from  the  company 
and  also  to  build  an  addition  to  their  plant? 

Maj.  Bi  RNs.  I  think  it  was  all  taken  care  of  at  practically  the  same  time. 
You  see,  the  Alabama  Power  Co.  was  able  to  supply  us  with  power  nuich 
quicker,  because  this  Gorgas  effort  w{»  only  an  expansion  of  the  plant  which 
they  had  there.  Furthermore,  they  had  some  foundations  already  constructed 
for  this  additional  plant,  which  they  had  in  mind  for  their  own  purposes. 

Mr.  McKenzie.  Of  course,  as  I  remember  it,  it  was  the  understanding,  at 
least  of  the  ^lembers  of  Congress,  and  I  assume  it  was  also  the  understanding 
of  the  Ordnance  Department,  that  at  ^luscle  Shoals  there  could  be  developed 
sufficient  power  to  take  care  of  this  particular  proposition.  Was  not  that  your 
understanding? 

Maj.  Burns.  Of  course,  you  can  develop  steam  power  at  Muscle  Shoals  to 
almost  unlimited  extent,  I  imagine. 

Mr.  McKenzie.  Yes:  but  notwithstanding  that  fact,  this  particular  contract 
was  entered  into  with  the  Alabama  Power  Co.  to  take  power  from  the  com- 
pany, buld  a  transmission  line  88  miles  long,  build  an  addition  to  the  plant  in 
such  a  way  that,  as  you  have  suggested,  it  is  almost  impossible  to  unscramble 
it,  and  the  only  possible  chance  for  the  Government  to  get  free  from  this 
proposition  is  to  sell  it  to  the  Alabama  Power  Co. 

Maj.  Burns.  In  my  judgment  it  ought  to  be  sold  to  the  Alabama  Power  Co. ; 
yes,  sir. 

Mr.  McKenzie.  Is  it  possible  to  do  anything  else? 

^laj.  Burns.  Not  in  my  judgment. 

Mr.  McKenzie.  Of  coui-se,  this  is  all  water  that  has  gone  over  the  dam,  but 
it  has  something  to  do  with  this  proposed  proposition  which  we  are  now  consider- 
ing. That  being  true,  and  with  this  contract  entered  into  by  the  Ordnance 
Department  with  the  Alabama  Power  Co.  and  the  building  put  up  in  such  a 
way  that  it  is  absolutely  impossible  to  separate  the  Government's  interests 
from  those  of  the  Alabama  Power  Co.,  we  are  asked  now  to  consider  that  as 
one  of  the  items  that  enter  into  tlie  proposal  submitted  by  Mr.  Ford;  and, 
according  to  your  testimony,  we  would  be  absolutely  unable  to  deliver  to  him 
anything  of  any  value  unless  we  bought  out  the  interest  of  the  Alabama  Power 
Co.  in  this  particular  plant  on  the  Warrior  River;  is  that  true? 

Maj.  Burns.  That  is  exactly  the  way  I  see  it;  yes,  sir. 

Mr.  :McKenzie.   Of  course,  I  assume 

Maj.  Burns   (interposing).    I  would  like  to  point  out,  Mr.  McKenzie,  that 
if  you  tried  to  buy  out  the  Alabama  Power  Co.  at  Gorgas,  you  would  have 
to  spend  a  great  deal  of  money. 
Mr.  McKenzie.   I  understand  that. 

Maj.  Burns.   And  it  would,  probably,  run  into  the  millions. 
Mr.  McKenzie.   I  assume  that  is  true.    Then  it  appears  to  me  that  with  the 
inclusion  of  this  particular  project  in  the  proposal  of  Mr.  Ford,  we  are  attempt- 


I 


212 


MUSCLE   SHOALS  PROPOSITIONS. 


ing  to  do  something  that  is  practically  impossible  for  us  to  do  without  great 
loss  to  the  Government,  in  so  far  as  it  relates  to  this  proposal. 

Maj.  Burns.   In  my  judgment,  that  is  entirely  correct,  sir. 

Mr.  McKenzie.  I  assume,  and  I  think  it  is  fair  to  assume,  that  the  Ordnance 
Department,  when  the  department  entered  into  this  contract,  felt  they  were 
conserving  the  interests  of  this  Government. 

Maj.  Burns.  Yes,  sir. 

Mr.  McKenzie.  Do  you  remember  the  name  of  the  officer  that  had  charge 
of  this  particular  proposition  and  prepared  this  contract? 

Maj.  Burns.  The  contract  was  signed  by  William  Williams,  but  the  real 
negotiating  officer  in  the  case  was  Col.  J.  W.  Joyes,  of  the  Ordnance  Depart- 
ment. 

Mr.  McKenzie.  This  officer,  Mr.  Williams,  as  I  take  it,  was  an  emergency 
officer  commissioned  in  the  Ordnance  Department  as  an  attorney. 

Maj.  Burns.  Yes,  sir. 

Mr.  McKenzie.  Was  he  a  man  who  had  had  large  experience? 

Maj.  Burns.  I  only  know  him  more  or  less  casually,  but  I  understand  lie  Avas 
a  verj'  good  officer. 

Mr.  McKenzie.  However,  he  involved  the  Government  in  a  contract  wliich 
provided  that  the  Government  should  put  up  all  the  money  and  then  i)ay  tliis 
company  a  6  per  cent  cost  plus  profit,  and  permitted  them  to  build  an  addition 
onto  their  plant  in  such  a  way  that  when  the  Government  got  through  using 
it  there  would  not  be  anything  left  except  to  give  it  to  the  Alabama  Power  Co. 
at  such  price  as  the  Alabama  Power  Co.  might  see  ftt  to  offer;  is  not  that  the 
situation? 

Maj.  Burns.  No,  sir.  The  Alabama  Power  Co.  has  got  to  pay  a  price  that 
will  be  fixed  by  a  board  of  arbitrators;  and,  as  I  said  before,  they  have  repre- 
sentation on  the  board  of  arbitrators,  the  Government  has  a  representative 
on  the  board  of  arbitrators,  and  the  two  then  select  a  third ;  so  tliat 
the  Alabama  Power  Co.,  as  I  understand,  has  got  to  pay  to  the  Government  tlie 
fair  value  for  its  investment  at  Gorgas. 

Mr.  McKenzie.  That  is,  the  fair  salvage  value.    That  is  what  that  means. 

Maj.  Burns.  No;  the  understanding  is  not  that  tliey  shall  pay  the  scrap 
vahie ;  the  understanding  is  they  will  pay  the  fair,  going-concern  value. 

Mr.  McKenzie.  If  that  should  happen,  in  my  judgment,  it  would  be  the  first 
example  of  any  sale  of  Government  property  where  any  such  consideration  en- 
tered into  the  transaction. 

Maj.  Burns.  It  is  my  understanding  that  that  was  the  idea,  and  I  believe  that 
really  you  would  get  a  better  return  from  that  Gorgas  plant  than  you  will 
from  99  per  cent  of  the  Government  undertakings  that  we  have  had  to  salvage 
as  a  result  of  the  end  of  the  war. 

Mr.  McKenzie.  Just  one  other  question  and  then  I  will  conclude.  If  I  untler- 
stand  your  testimony  correctly,  it  is  your  judgment  that  the  inclusion  of  this 
particular  plant  in  the  so-called  Henry  Ford  proposal  makes  it  an  absolutely 
impracticable  proposition  for  Congress  to  undertake. 

Maj.  Burns.  Yes,  sir ;  it  does,  in  my  judgment. 

Mr.  McKenzie.  I  might  put  just  one  other  question  to  you.  Would  you  con- 
sider that  a  complete  barrier  to  carrying  out  this  proposal? 

Maj.  Burns.  As  an  ordnance  officer  who  is  affiliated  with  ordnance  contracts 
and  whose  duty  it  is  to  live  up  to  its  contracts,  if  I  had  to  vote  on  the  Ford 
offer  I  w^ould  vote  against  it  on  that  one  point. 

Mr.  McKenzie.  And  unless  that  can  be  eliminated  by  further  conference  be- 
tween Mr.  Ford  and  the  representatives  of  this  Government,  you  say  unhesi- 
tatingly we  should  not  consider  the  proposition. 

Maj.  Burns.  I  do;  yes,  sir. 

Mr.  Greene.  I  think  Mr.  McKenzie  has  brought  out  pretty  much  everything 
I  wanted  to  ask  you,  Major.  It  is  apparent,  I  suppose,  by  the  contract  with 
the  Alabama  Power  Co.,  providing  for  the  additional  plant  to  be  so  blended  with 
the  original  plant,  that  they  could  not  well  be  unscrambled,  as  you  say,  that 
the  Alabama  Power  Co.  then  regarded  it  as  a  probable  addition  to  its  plant 
after  the  war  emergency  was  passed. 

Maj.  Burns.  Yes,  sir. 

Mr.  Greene.  And  it  was  built  with  that  prospective  value  in  mind. 

Maj.  BuTCNS.  Yes,  sir ;  they  have  been  using  it  as  part  of  their  system  suioe 
the  war  and  have  been  paying  us  a  rental  for  it. 

Mr.  Greene.  What  was  the  idea,  then,  in  thinking  that  they  would  be  likeiy 
to  refuse  to  take  it,  and  that  they  should  have  to  be  put  to  the  expense  ot 
removing  it  from  their  land? 


MUSCLE   SHOALS  PROPOSITIONS. 


213 


Maj.  Burns.  I  do  not  think  it  was  ever  anticipated  they  would  refuse  to 
take  it. 

Mr. .Greene.  That  was  only  an  alternative  in  the  contract? 

Maj.  BuTtNS.  Yes,  sir;  that  was  an  alternative  in  case  something  happened 
that  would  prevent  their  taking  it. 

Mr.  Greene.  Is  there  any  way  to  separate  the  interests  of  the  United  States 
and  of  the  Alabama  Power  Co.  in  this  plant ;  that  is,  its  physical  structure,  if 
we  were  to  sell  our  plant  to  Mr.  Ford? 

Maj.  Burns.  I  do  not  believe  so,  sir.  I  h^\e  here  a  picture  of  the  plant  which 
might  help  to  answer  that  question. 

The  Chairman.  Maj.  Burns,  I  will  ask  you  to  explain  this  picture  so  thai 
the  members  of  the  committee  may  understand  exactly  what  the  situation  is 
at  the  plant. 

Maj.  Burns  (referring  to  picture).  This  is  a  picture  of  the  plant  at  Gorgas. 
The  part  to  the  right  as  you  look  at  the  picture  is  the  part  that  was  con- 
structed by  the  Alabama  Power  Co.  and  was  in  operation  when  we  went  to 
Gorgas.  The  part  to  the  left  is  the  plant  that  was  constructed  for  the  account 
of  the  United  States.  So  that  you  can  see  that  it  is  just  one  plant,  all  under 
the  same  roof.  Each  interest  has  a  boiler  plant  and  a  generating  plant  in- 
cluded here.  However,  the  electricity  is  all  handled  over  the  same  switch- 
board within  the  plant.  We  have  a  substation  here  owned  partly  by  the  Ala- 
bama Power  Co.  and  partly  by  the  Government.  The  water  for  the  feeding  of 
the  boilers,  to  both  sets  of  boilers,  all  comes  through  the  same  intake  from  the 
Warrior  River.  The  ash  handling  equipment  is  common,  the  coal  feeding  equip- 
ment is  common  and  upon  the  hill  here  we  have  a  village,  part  of  which  is  Ala- 
bama Power  Co.  property  and  the  other  part  Government  property. 

Mr.  Greene.  How  can  the  United  States  deliver  title  to  Mr.  Ford  to  plant 
No.  2  with  the  condition  as  it  is  down  there  now? 

Maj.  Burns.  As  I  understood  the  .Judge  Advocate  General's  Department  it 
would  be  necessary  to  institute  condemnation  proceedings,  and  get  title,  and 
then  turn  it  over  to  Mr.  Ford,  and,  of  course,  those  condemnation  proceedings 
would  require  us  to  pay  to  the  Alabama  Power  Co.  a  fair  value  for  what 
property  we  took  over  from  them,  and  what  damage  we  caused  to  them,  i 
personally  think  those  damages  would  be  very  high. 

The  Chairman.  Did  not  the  Acting  Judge  Advocate  General  take  the  position 
that  the  Alabama  Power  Co.  had  no  claim  whatever  down  there  under  the  law, 
and  that  their  contract  with  the  Government  is  absolutely  void? 

Maj.  Burns.  I  do  not  think  he  took  the  attitude  that  we  would  not  have  to 
pay  to  the  Alabama  Power  Co.  for  any  property  we  took  from  the  Alabama 
Power  Co.  or  for  any  damage  we  inflicted  on  the  Alabama  Power  Co.  He 
claimed  that  the  option  to  purchase  of  the  Alabama  Power  Co.  was  of  no  value, 
as  I  understand  it. 

There  is  another  point  covering  the  necessity  of  this  Gorgas  plant  that  I 
would  like  to  point  out.  We  not  only  needed  power  for  operation  purposes  at 
nitrate  plant  No.  2  when  it  was  completed,  but  we  also  needed  power  to  assist 
in  the  construction  of  it,  and  this  contract  with  the  Alabama  Power  Co.  allowed 
us  to  get  power,  as  I  said  before,  in  May,  1918,  or  shortly  after  construction 
work  at  Muscle  Shoals  was  undertaken. 

Mr.  Hull.  Major,  following  the  question  asked  by  Mr.  Greene,  are  you  not 
mistaken  in  saying  that  we  can  not  get  possession  of  No.  2.  The  No.  2  plant,  as 
I  understand  it,  has  nothing  to  do  with  the  development  at  Gorgas. 

Maj.  Bu-RNS.  I  did  not  understand  Mr.  Greene's  question  that  way.  I  thought 
he  meant  with  reference  to  a  clear  title  to  the  Gorgas  power  plant. 

Mr.  Hull.  No  ;  he  said  the  No.  2  plant. 

Maj.  Burns.  We  can  give  clear  title,  in  my  judgment,  to  the  No.  2  plant. 

Mr.  Hull.  That  is  what  I  thought. 

Maj.  Burns.  Yes,  sir ;  we  can  do  that. 

Mr.  Hull.  That  is  absolutely  an  entirely  different  proposition. 

^laj.  Burns.  That  is  correct. 

Mr.  Hull.  I  just  wanted  to  clear  that  question  up.  You  were  present  the 
other  day  and  heard  COl.  Hull,  the  Acting  Judge  Advocate  General,  say  that 
we  could  give  possession  of  the  Gorgas  plant  if  we  wished  to  by  a  certain 
line  of  procedure,  and  that  there  was  nothing  in  the  contract  that  would 
prevent  it.    That  was  his  testimony,  was  it  not? 

Maj.  Bltins.  Yes,  sir;  that  was  his  testimony. 

Mr.  Hull.  What  have  you  to  say  to  that? 

Maj.  Burns.  It  is  all  a  question  of  judgment.    I  do  not  think  it  can  be  done. 

Mr.  Hull.  Are  you  a  lawyer? 


i 


214 


MUSCLE   SHOALS  PROPOSITIONS. 


Maj.  BuBNS.  Ko,  sir. 

Mr.  Hull,  It  is  quite  evident  that  the  two  departments  of  the  Government 
the  Ordnance  Department  and  the  Judge  Advocate  General's  Department,  are 
not  unscrambling  these  eggs  very  well  for  the  committee. 

Maj.  BuBNS.  We  are  doing  the  best  we  can. 

Mr.  Hull.  Right  along  that  same  line,  now,  what  is  the  reason,  and  there 
must  be  a  reason,  for  Mr.  Ford  asking  for  this  plant  at  Gorgas?  As  I  under- 
stand it,  if  I  understand  it  properly,  you  have  a  complete  steam  plant  at  No.  2 
in  operation  to-day ;  is  not  that  true? 

Maj.  BuBNS.  Yes,  sir;  not  in  operation,  but  ready  to  operate. 

Mr.  Hull.  Are  you  not  selling  power  from  it? 

Maj.  Burns.  The  plant  is  leased,  but  the  Alabama  Power  Co.  is  not  operating 
it  to-day,  because  they  do  not  need  to,  because  of  the  fact  that  the  water  supply 
down  there  is  sufficient  to  take  care  of  the  demand  by  means  of  water-power 
energy. 

Mr.  Hull.  They  are  operating,  then,  your  end  of  the  plant  at  Gorgas? 

Maj.  Burns.  Yes,  sir. 

Mr.  Hull.  They  are  operating  that  plant,  and  you  are  receiving  some  reve- 
nue from  it? 

Maj.  Burns.  Yes,  sir ;  a  large  part  of  the  year. 

Mr.  Hull.  Do  you  know  why  they  want  this  plant  at  Gorgas?  I  want  to 
know  the  reason. 

Maj.  Burns.  It  is  not  a  vital  part  of  the  Ford  offer,  in  any  way. 

Mr.  Hull.  It  is  not. 

Maj.  Burns.  I  can  not  see  how  it  would  affect  the  Ford  offer  if  it  were  left 
out. 

Mr.  Hull.  Then  he  could  carry  out  the  intent  of  his  contract  without  this? 

Maj.  Burns.  Yes,  sir;  in  my  judgment. 

Mr.  Hl'Ll.  As  I  understand  it,  if  I  have  this  thing  visualized  correctly,  this 
I^lant  at  Gorgas  is  some  80  or  90  miles  away. 

Maj.  Burns.  That  is  correct;  yes,  sir. 

Mr.  Hull.  And  it  has  to  do  with  a  steam  plant  which  would  naturally 
supplement  the  water  power,  but  if  I  understand  it  correctly,  it  is  not  neces- 
sary or  vital,  as  you  say,  to  the  Ford  proposition,  because  at  the  No.  2  plant 
you  have  a  steam  plant  that  supplements  the  water  power  there. 

Maj.  Burns.  Yes,  sir;  we  have  a  steam  plant  at  nitrate  plant  No.  2  of 
60,000  kilowatt  capacity. 

Mr.  Hull.  Now,  getting  back  to  something  that  you  probably  know  more 
about  than  the  rest  of  us,  and  that  is  the  chemical  end  of  the  proposition  of 
Mr.  Ford,  there  are  two  things  you  can  manufacture  at  this  plant  No.  2, 
ammonia  nitrate  and  ammonia  sulphate;  is  not  that  true? 

Maj.  Burns.  The  plant  is  now  equippeil  to  produce  ammonium  nitrate.  It 
is  also  equipped  to  produce  ammonia,  but  it  is  not  equipped  to  convert  the 
ammonia  into  ammonium  sulphate. 

Mr.  Hull.  And  ammonium  nitrate  is  the  element  we  have  to  have  for  high 
explosives. 

Maj.  Burns.  That  was  one  of  the  high  explosives  we  used  in  great  quanti- 
ties during  the  World  War. 

Mr.  Hull.  Is  that  an  explosive  itself? 

Maj.  Burns.  Yes.  sir. 

Mr.  Hull.  It  would  explode  without  being  mixed  with  other  elements? 

Maj.  Burns.  It  would,  but  it  is  very  difficult  to  explode.  It  would  be  classed 
as  an  explosive  that  is  very  hard  to  detonate. 

Mr.  Hull.  It  would  be  very  hard  to  detonate? 

Maj.  Burns.  Yes,  sir ;  you  would  never  put  it  in  a  shell  by  itself. 

Mr.  Hull.  How  long  would  it  take  if  you  had  this  plant  running  or  if  Mr. 
Ford  had  it  running,  producing  ammonium  sulphate,  to  convert  it  back  to  where 
it  is  now  and  produce  ammonium  nitrate? 

Maj.  Burns.  That  is  a  question  of  judgment. 

Mr.  Hull.  Yes ;  I  know  that. 

Maj.  Burns.  I  should  say  it  would  take  a  month  or  two.  That  would  be  my 
estimate. 

Mr.  Hull.  What  would  be  the  probable  expense? 

Maj.  Burns.  If  he  kept  the  plant  in  a  stand-by  condition  the  expense  would 
be  more  or  less  negligible. 

Mr.  Hull.  That  is,  if  he  kept  it  running  or  in  shape  to  convert. 


MUSCLE   SHOALS  PROPOSITIONS. 


215 


Maj.  Burns.  Yes,  sir.  I  would  like  to  point  out,  Mr.  Hull,  that  the  Ordnance 
Department  is  primarily  interested  in  the  development  of  nitrogen  fixation.  It 
is  not  so  much  worried  about  changing  the  fixed  nitrogen,  once  that  is  an  accom- 
plished fact,  into  the  various  forms  that  are  necessary  for  the  manufacture  of 
explosives.  In  other  words,  if  the  Ordnance  Department  were  assured  that 
that  plant  would  continue  as  a  fixation  plant,  I  do  not  think  it  would  worry  very 
much  about  keeping  the  nitric-acid  plant  and  the  ammonium-nitrate  plant 
going. 

Mr.  Hull.  That  is  a  very  good  answer,  and  that  is  just  what  I  wanted  to 
know.  I  am  more  concerned  about  this  whole  matter  from  a  national-defense 
standpoint,  and  I  want  to  keep  something  so  that  we  may  have  an  independent 
source  of  nitrates.  If  ^ye  accepted  the  Ford  offer,  there'  would  be  no  question 
but  what  we  would  always  have  there  an  independent  source  of  nitrogen  in 
this  country. 

Maj.  BiTRNs.  Yes,  sir;  the  Ford  offer,  as  I  read  it,  has  two  very  important  ad 
vantages  from  the  standpoint  of  nitrogen  preparedness.  In  the  first  place,  it 
guarantees  to  keep  that  plant  or  its  equivalent  in  stand-by  and  ready  to  produce 
the  quantity  that  it  was  designed  for  for  a  period  of  100  years.  That  certainlv 
is  a  big  help  to  the  Ordnance  Department.  Then  it  agrees  to  operate  the  plant 
to  its  present  approximate  capacity.  There  is  a  little  doubt  in  my  mind  as  Xo 
just  what  that  means.  If  it  means  they  are  going  to  produce  anything  except 
fixed  nitrogen,  it  is  practically  of  no  use  to  the  Ordnance  Department.  In  other 
words,  if  they  are  going  to  produce  such  a  thing  as  phosphoric  acid,  that  will 
not  help  us,  but  if  they  are  actually  going  to  continue  making  fixed  nitrogen,  it 
would  be  a  very  material  help  to  the  Ordnance  Department  and  to  the  Govern- 
ment from  the  standpoint  of  nitrogen  preparedness. 

Mr.  Hull.  Under  the  contract,  as  I  understand  it,  if  they  in  any  way  con- 
verted this  plant  so  that  we  would  not  have  it  available,  we  would  have  the 
right  to  stop  them,  is  not  that  true? 

Maj.  Burns.  He  guarantees  to  maintain  this  plant  or  its  equivalent  in  stand-by. 
That  is  a  very  firm  guaranty  and  would  assure  us  always  of  having  that  plant 
ready  to  operate.  Now,  over  and  above  that,  he  may  or  may  not  guarantee  to 
run  it  as  a  nitrogen  fixation  plant.  I  think  you  can  interpret  it  very  readily  to 
the  effect  that  he  does  agree  to  run  it  as  a  nitrogen  fixation  plant,  'if  he  does, 
that  is  a  very  great  additional  benefit  to  the  Government  from  the  standpoint 
of  preparedness. 

Mr.  Hull.  You  used  the  word  "  stand-by  " ;  you  mean  if  he  is  running  it,  it 
would  be  in  stand-by? 

Maj.  Burns.  No,  sir;  if  he  were  running  it,  it  would  not  be,  although  it 
would  be  in  the  equivalent  of  stand-by.  What  I  mean  by  stand-by  is  that  vou 
are  maintaining  the  plant  ready  for  operation  but  are  not  operating  it. 

Mr.  Hull.  That  is  what  I  understand  by  stand-by.  but,  unquestionably,  he 
intends  to  run  it;  and  as  I  understand  it,  he  would  carry  out  his  contract  to 
run  it  so  that  you  could  convert  it  at  any  time  into  an  ammonium  nitrate  plant. 

Maj.  Burns.  As  I  understand  it,  he  makes  these  two  stipulations.  One  is 
that  he  will  keep  that  plant  or  its  equivalent  for  100  years  ready  to  produce  its 
present  rated  capacity  of  explosive,  and  the  other  is  that  he  agrees  to 
operate  it  to  its  approximate  present  capacity  for  the  production  of  fertilizer. 

Mr.  Parker.  And  fertilizers  may  not  mean  nitrates? 

Maj.  Burns.  That  is  the  fear  I  have. 

Mr.  Parker.  You  think  he  might  operate  it  for  some  other  sort  of  fertilizer? 

Maj.  Burns.  Yes,  sir. 

Mr.  Hull.  You  have  no  doubt  in  your  mind  but  what  he  can  take  plant  No.  2 
at  the  present  time,  when  equipped  to  manufacture  ammonium  nitrate,  and 
convert  it  into  anmionium  sulphate,  which  we  ordinarilv  sav  is  fertilizer,  but 
which  is  one  of  the  ingredients  of  fertilizer. 

Maj.  Burns.  There  is  no  doubt  in  the  world  that  the  plant  can  be  made  to 
produce  ammonium  sulphate. 

Mr.  Hull.  There  is  not  any  doubt  about  it? 

Maj.  Burns.  No,  sir.  There  is  a  doubt  as  to  the  cost  at  which  he  will  be 
able  to  produce  it. 

Mr.  Hull.  That  is  a  very  important  question  to  have  answered,  because  it 
has  been  called  into  question  very  often  as  to  whether  he  could  manufacture 
It  or  not. 

Maj.  Burns.  Physically  it  can  be  done ;  economically  it  is  doubtful. 
Mr.  Hull.  There  is  no  doubt  but  what  he  can  do  it  if  he  tries  to. 
Maj.  Burns.  There  is  no  doubt  in  my  mind. 


216 


MUSCLE  SHOALS  PROPOSITIONS. 


Mr.  Hull.  Now,  plant  No.  1,  which  is  the  Haber  process,  as  I  understand  it, 
he  takes  over  also.  Could  this  plant  be  converted,  after  being  made  a  success, 
to  manufacture  ammonium  nitrate  into  an  ammonium  sulphate  plant? 

Maj.  BuBNS.  Yes,  sir;  that  plant  can  be  reconstructed  and  can  be  made  to 
produce  ammonium  sulphate. 

Mr.  Hull.  Major,  there  has  been  some  question  in  regard  to  the  cost  of  this 
ammonium  sulphate  manufactured  at  plant  No.  2.  As  I  understand  it,  and  if 
I  am  not  correct  I  want  you  to  correct  me.  ammonium  sulphate  is  selling  around 
$50  a  ton  at  the  present  time.    Is  that  true? 

Maj.  Burns.  That  is  correct;  yes,  sir. 

Mr.  Hull.  At  times  it  was  sold,  after  the  war,  if  I  remember  aright,  at  $90. 

Maj.  Burns.  After  the  war  it  got  up  as  high  as  $150  a  ton. 

Mr.  Hull.  Yes;  it  went  as  high  as  $150  a  ton. 

Maj.  Burns.  Yes,  sir. 

Mr.  Hull.  And  the  present  price  is  $50? 

Maj.  Burns.  Yes,  sir. 

Mr.  Hull.  What  is  your  opinion  as  to  Mr.  Ford  being  able  to  stabilize  that 
price  at  $50  a  ton  or  to  be  able  in  the  future  to  reduce  it.  Of  course,  I  under- 
stand this  is  simply  asking  for  your  opinion,  but  you  ought  to  know  something 
about  the  expense. 

Maj.  Burns.  In  my  judgment,  in  accordance  with  our  estimates,  the  price 
at  which  he  can  produce  ammonium  sulphate,  exclusive  of  interest,  taxes,  in- 
surance, and  obsolescence  of  the  plant,  would  be  approximately  $48  per  ton 
to-day.  So  that  when  you  add  the  various  overhead  charges  that  a  business 
concern  would  have  to  add  he  could  hardly  produce  ammonium  sulphate  for  less 
than  $60  a  ton,  and  that  also  is  based  upon  power  at  three-fourths  of  a  mill 
per  kilowatt  hour. 

Mr.  Hull.  Using  power  at  three-quarters  of  a  mill  per  kilowatt? 

Maj.  Burns.  Yes;  so,  I  honestly  do  not  believe  Mr.  Ford,  with  the  present 
knowledge  of  the  game,  would  be  able  to  materially  reduce  the  price  of  fer- 
tilizer. I  do  believe,  however,  he  could  prevent  these  excessive  increases  in 
prices  that  sometimes  come  about. 

Mr.  Hull.  He  could  stabilize  the  price. 

Maj.  Burns.  Yes,  sir;  I  believe  he  could  stabilize  the  price  of  nitrogen 
compounds. 

Mr.  Hull.  Of  course,  you  know  nothing  as  to  his  ability  to  decrease  the  cost 
through  his  ability  to  increase  production,  etc.    You  know  nothing  about  that. 

Maj.  Burns.  No;  but  I  do  believe  there  is  quite  a  possibility  of  that.  I  be- 
lieve that  we  will  get  big  benefits  as  a  result  of  chemical  research. 

Mr.  Hull.  Of  course,  the  question  of  salaries  and  the  question  of  the  water- 
power  rates  that  he  would  pay  to  the  water-power  company  of  his  would  all 
enter  into  that  question? 

Maj.  Burns.  Yes,  sir.  The  price  of  power  is  a  very  important  matter  in  tlie 
cost  of  the  fertilizer  compound  that  could  be  produced  at  Muscle  Shoals. 

Mr.  Hull.  And  by  the  discovery  of  new  processes  and  new  inventions,  and 
by  increased  production,  he  might  be  able  to  decrease  the  price  very  materially. 

Maj.  Burns.  He  might  be  able  to  decrease  the  price.  I  do  not  know  about 
the  "  very  material  "  part  of  it. 

Mr.  Hull.  Of  course,  that  is  a  matter  of  opinion. 

Maj.  Burns.  There  are  certainly  great  possibilities  that  chemical  research 
will  be  a  big  aid  in  the  fertilizer  business. 

Mr.  Hull.  Of  course,  that  is  all  up  to  Mr.  Ford  and  is  a  matter  of  opinion, 
and  I  simply  wanted  your  ideas  in  regard  to  the  cost  under  the  present  facilities 
that  exist  at  plant  No.  2,  and  you  still  insist  that  he  could  carry  out  his  contract 
and  do  all  this  work  at  plant  No.  2  and  No.  1  without  the  addition  of  the 
Gorgas  plant. 

Maj.  Burns.  Yes,  sir. 

Mr.  Hull.  That  is  all. 

Maj.  Burns.  I  would  like  to  point  out  also,  with  reference  to  the  price  of 
ammonium  sulphate,  while  to-day  it  is  selling  for  $50,  the  prewar  average  over 
four  or  five  years  was  $60  a  ton. 

Mr.  James.  The  United  States  furnished  all  of  the  money  and  the  Alabama 
Power  Co.  did  not  furnish  a  cent,  but  had  a  6  per  cent  cost-plus  contract. 

Maj.  Burns.  That  is  my  understanding :  yes,  sir. 

Mr.  James.  And  yet  the  contract  is  so  drawn  that  the  Unitetl  States  is  tied 
up  in  such  a  way  that  it  could  only  sell  to  one  concern,  and  that  is  the  concern 
that  had  already  made  several  hundred  thousand  dollars  out  of  the  deal;  is 
that  correct? 


MUSCLE   SHOALS  PROPOSITIONS. 


217 


Maj.  Burns.  Not  several  hundred.    They  made  $225,000. 

Mr.  James.  But  it  was  so  tied  up  that  the  only  concern  that  could  buy  from 
the  United  States  was  the  concern  that  had  made  $225,000  without  the  invest- 
ment of  a  dollar. 

Maj.  Burns.  That  is  correct;  yes,  sir. 

Mr.  James.  Is  Col.  Joyes  still  in  the  service? 

Maj.  Burns.  Yes.  sir. 

Mr.  James.  Do  you  know  what  Col.  Williams  is  doing  at  present? 

Maj.  Burns.  I  understand  he  has  just  left  for  a  five-months  trip  to  the 
Orient. 

Mr.  James.  Do  you  know  of  any  particular  concern  that  he  represented  be- 
fore he  went  into  the  Army? 

Maj.  Burns.  No,  sir ;  I  do  not. 

Mr.  James.  Do  you  know  any  particular  concern  he  represents  now? 

Maj.  Burns.  I  do  not. 

Mr.  James.  You  stated  that  you  do  not  think  Mr.  Ford  can  cut  the  price  very 
materially  on  fertilizer. 

Maj.  Burns.  That  is  correct ;  yes,  sir. 

Mr.  James.  Do  not  things  of  that  kind  depend  a  great  deal  upon  the  man 
himself? 

Maj.  Burns.  Somewhat;  yes,  sir;  but,  of  course,  there  are  always  certain 
quantities  of  raw  materials  you  have  got  to  put  into  your  finished  product. 
He  can  not  get  greater  eflSciency  than  the  chemical  equation  demands,  so  that 
there  is  that  limitation.  A  man,  of  course,  can  use  labor  efficiently  or  ineffi- 
ciently, and  he  can  likewise  use  materials  efficiently  or  inefficiently. 

Mr.  James.  A  short  time  ago  the  Lincoln  Motor  Co.  failed,  and  Mr.  Ford 
bought  it  in  the  other  day  at  $8,000,000,  and  I  suppose  you  have  seen  where 
he  states  he  is  going  to  cut  the  price  of  that  automobile  $1,000,  have  you  not? 

Maj.  Burns-.  Yes,  sir;  but,  of  course,  while  I  have  very  little  association 
with  an  automobile,  I  understand  that  the  price  of  the  Lincoln  car  had  not  been 
reduced  as  the  price  of  other  cars  had  been  reduced,  and  that  this  reduction  of 
$1,000  really  only  puts  it  in  line  with  the  reductions  that  have  taken  place  in 
the  case  of  the  Cadillac,  which  is  a  comparable  car. 

Mr.  James.  Where  is  Col.  Joyes  located  at  the  present  time? 

Maj.  Burns.  At  the  Munitions  Building,  in  Washington. 

Mr.  Kearns.  What  was  the  value  of  the  plant  of  the  Alabama  Power  Co. 
when  the  Government  built  this  addition  to  its  plant? 

Maj.  Burns.  It  would  be  very  hard  to  give  that  information.  Their  generat- 
ing plant  amounted,  in  capacity,  to  20,000  kilowatts,  and  ours  had  a  capacity 
of  30,000  kilowatts,  so  that  it  had  two-thirds  as  much  capacity  as  our  own. 
Our  properties  down  there  cost  about  $4,000,000 — that  is,  our  steam  plant — 
so  that  on  that  basis  their  steam  plant  alone  would  be  worth  two-thirds  of 
$4,000,000,  or  approximately  $2,667,000.  It  probably  did  not  cost  that  much, 
but  in  addition  to  that  they  have  transmission  lines  and  stations  that  they 
erected  to  tie  in  with  their  Gorgas  plant. 

Mr.  Kearns.  That  was  at  the  expense  of  the  Alabama  Power  Co.? 

Maj.  Burns.  Yes. 

Mr.  Kearns.  What  was  the  Alabama  Power  Co.  doing  at  the  time  the  Grov- 
ernment  entered  into  the  contract  with  them? 

Maj.  Burns.  They  were  manufacturing  and  selling  power  to  the  neighbor- 
hood surrounding  Birmingham,  Ala. 

Mr.  Kearns.  You  think  they  had  an  investment  of  two  or  three  million 
dollars? 

Maj.  Burns.  I  think  they  had  an  investment  in  excess  of  $3,000,000  in  con- 
nection with  their  Gorgas  plant. 

Mr.  Keabns.  What  did  they  do  to  earn  this  fee  of  $285,000? 

Maj.  Burns.  They  built  that  plant  for  us. 

Mr.  Kearns.  What  plant? 

Maj.  Burns.  This  Gorgas  plant  I  was  speaking  about. 

Mr.  Kearns.  The  Government  paid  for  it,  did  they  not? 

Maj.  Burns.  They  built  it ;  we  had  a  contract  with  them  for  the  building  of 
the  plant. 

•Mr,  Kearns.  The  Goverment  furnished  the  money,  did  the.v  not? 

Maj.  Burns.  The  Government  furnished  the  money,  but  the  power  company 
furnished  practically  everything  else. 

Mr.  Kearns.  What  did  they  furnish? 

Maj.  Burns.  They  furnished  their  knowledge.  That  was  the  principal  thing 
they  furnished,  of  course. 


Pi 


h 


218 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


219 


•  Mr.  Kearns.  The  men  who  did  the  work  were  employed  by  the  Government? 

Maj.  Burns.  They  were  paid  by  the  Government. 

Mr.  Kearxs.  And  the  materials  were  paid  for  by  the  Government? 

Maj.  Burns.  Yes,  sir. 

Mr.  Kearns.  The  machinery  that  went  into  the  manufacture  of  that  product 
was  paid  for  by  the  Government? 

Maj.  Burns.  Yes. 

Mr.  Kearns.  The  Alabama  Power  Co.  paid  nothing? 

Maj.  Burns.  That  is  correct,  from  the  standpoint  of  dollars. 

Mr.  Kearns.  Has  the  Alabama  Power  Co.  any  interest  in  any  of  the  other 
projects  in  and  around  Muscle  Shoals? 

Maj.  Burns.  I  could  not  tell  you  that ;  I  do  not  know. 

Mr.  Miller.  Major,  on  this  Warrior  plant  the  Government  has  now  spent 
$4,979,000  and  upward,  according  to  the  report  of  the  Secretary  of  War.  You 
will  tind  that  on  page  5  of  the  report  of  the  Secretary  of  War,  near  the  top  of 
page  5. 

Maj.  Burns.  Those  figures  are  a  little  bit  high,  Mr.  Miller. 

Mr.  Miller.  That  is  all  we  have  to  guide  us. 

Maj.  Burns.  You  will  find  those  costs  of  the  projects  analyzed  on  page  24 
of  the  report. 

Mr.  Miller.  The  Secretary  of  War  has  reported  to  us  in  this  language :  "  The 
total  cost  of  the  plant  was  $4,979,782.33."  That  is  the  report  made  to  us  by 
the  Secretary  of  War.  That  is  on  page  5  of  his  report.  Then  on  page  24  of 
his  report  he  analyzes  the  items  that  constitute  that  amount,  and  informed  us 
that  the  total  is  the  same  sum,  $4,979,782.33. 

Maj.  Burns.  Of  course,  the  Secretary  of  War's  report  tries  to  generalize  the 
matter.  But  if  you  put  it  this  way,  that  the  Government  spent  $4,979,782.33 
for  the  purpose  of  getting  power  from  this  Gorgas  plant,  then  you  are  correct. 

Mr.  Miller.  Let  me  call  attention  to  this  fact:  That  these  figures,  $4,979,- 
782.33,  are  the  figures  of  the  Ordnance  Department.  You  will  see  on  page  23, 
at  the  top  of  the  page,  the  report  of  the  Ordnance  Department  to  the  Secretary 
of  War. 

Maj.  Burns.  That  is  correct.  The  jK)mt  I  want  to  make  is  this — that  all 
that  money  was  not  spent  at  Gorgas.  It  includes  the  transmission  lines  and 
the  substations  at  Muscle  Shoals. 

Mr.  Miller.  The  transmission  line  goes  along  with  the  Gorgas  plant? 

Maj.  Burns.  Yes,  sir. 

Mr.  Miller.  We  put  $4,979,782.33  into  an  enterprise  and  so  ingeniously  inter- 
twined it  with  the  lines  of  the  Alabama  Power  Co.  that  you  say  .it  can  not  be 
unscrambled  ? 

Maj.  Burns.  Yes,  sir. 

Mr.  Miller.  Then  we  have  this  situation.  The  Government  put  this  amount 
of  $4,979,782.33  into  this  one  plant  at  Warrior  to  furnish  power  to  nitrate  plant 
No.  2,  built  the  power  plant,  the  nitrate  plant  No.  2,  and  connected  it  up. 

Maj.  Burns.  And  also  to  furnish  additional  power  required  over  and 
above 

Mr.  Miller  (interposing).  The  capacity  of  the  steam  plant  at  plant  No.  2 
has  double  the  capacity  of  the  Warrior  plant? 

Maj.  Burns.  That  is  correct,  but  the  original  engineering  estimate  was  that 
the  No.  2  plant  would  require  in  the  neighborhood  of  90,000  kilowatts,  and  when 
we  add  the  Warrior  plant  and  the  steam  plant  at  No.  2  they  will  produce  90,000 
kilowatts. 

Mr.  Miller.  According  to  that  the  practical  operation  of  plant  No.  2  does  not 
produce  enough  power  in  its  own  unit  to  run  it? 

Maj.  Burns.  Not  quite ;  but  the  engineer's  estimate  at  the  start  was  that  the 
requirements  would  be  90,000  kilowatts,  and  the  plant  that  was  constructed 
was  more  eflScient  in  the  use  of  power  than  was  planned  for,  so  that  the  GO,0<X) 
kilowatts  produced  at  No.  2  plant  will  almost  completely  run  the  nitrate  plant 
at  No.  2. 

Mr.  Miller.  Then  there  are  three  distinct  power  projects  for  the  operation 
of  this  No.  2;  first,  the  Warrior  plant  constructed  at  a  cost  of  $4,979,782.33? 

Maj.  Burns.  Yes,  sir. 

Mr.  Miller.  Then  we  built  the  power  plant  at  No.  2  plant  itself? 

Maj.  Burns.  Yes,  sir. 

Mr.  MirxER.  About  how  much  did  that  cost,  approximately? 

Maj.  Burns.  Approximately  $12,000,000. 

Mr.  Miller.  That  is  $12,000,000  more.  Then  we  have  put  $16,000,000  iuto 
u  dam  to  furnish  a  third  element  for  the  operation  of  plant  No.  2? 


Maj.  Burns.  That  was  not  linked  in  with  No.  2. 

Mr.  Miller.  Then  it  was  found  that  there  was  enough  power  otherwise  to 
drive  plant  No.  2? 

Maj.  Burns.  Yes,  sir. 

Mr.  Miller.  Then  the  $16,000,000  you  put  into  Dam  No.  2  in  nowise  was 
necessary  to  furnish  power  to  operate  nitrate  plant  No.  2? 

Maj.  Burns.  No,  sir;  it  was  not. 

Mr.  Miller.  Then  clearly  there  must  have  been  some  other  motive  for  the 
construction  of  that  dam  if  we  already  had  power  enough  to  operate  all  our 
units  at  the  Muscle  Shoals  enterprise  generally.  There  must  have  been  some 
other  pressing  reasons  that  compelled  us  to  start  on  that  dam  and  put 
$16,000,000  into  it  and  require  $25,000,000  more  to  complete  it? 

Maj.  Burns.  I  do  not  know  about  that.  I  do  not  know  what  the  purpose 
was  with  reference  to  that. 

Mr.  Miller.  I  see  your  report  is  to  the  effect  that  you  can  scrap  or  sell  or 
salvage  the  Warrior  plant  at  approximately  $3,000,000. 

Maj.  Burns.  That  is  our  estimate  of  it. 

Mr.  Miller.  Then  the  Warrior  plant  can  be  disposed  of  to-morrow — that  is, 
that  single  item  can  be  disposed  of  for  three-fifths  of  what  Mr.  Ford  offers  for 
the  whole  thing? 

Maj.  Burns.  In  my  judgment ;  yes,  sir. 

Mr.  :Miller.  Probably  we  could  get  more  than  $3,000,000? 

Maj.  Burns.  In  my  judgment,  $3,000,00  is  about  what  we  would  be  able  to  get 

Mr.  Miller.  You  say  you  think  it  will  cost  a  very  substantial  sum — I  infer 
that  from  what  you  say — to  acquire  the  Alabama  Power  Co.'s  rights  in  the 
Warrior  plant. 

Maj.  Burns.  Yes,  sir;  I  think  so. 

Mr.  Miller.  Ajid  the  transmission  line  of  88  nriles  extending  from  that  plant 
to  nitrate  plant  No,  2? 

Maj.  Burns.  I  do  not  believe  it  would  cost  so  very  nruch  to  get  the  property 
rights  to  the  transmis?>ion  line,  but  I  do  feel  it  would  cost  a  great  deal  to 
get  the  property  rights  to  the  Gorgas  plant. 

Mr.  Miller.  Did  we  furnish  the  wires? 

Maj.  Burns.  We  paid  for  everything  for  the  transmission  line  except  the 
land. 

Mr.  :Miller.  Except  the  right  of  way  and  the  easements? 

:Maj.  Burns.  Yes,  sir. 

Mr.  Miller.  You  say  that  particular  item  would  not  be  very  expensive? 

]Maj.  Burns.  I  do  not  think  so.  The  condemnation  proceedings,  I  think, 
would  only  affect  the  price  of  the  land.  There  would  be  no  additional  dam- 
ages, that  I  can  see. 

Mr.  Miller.  What  I  am  getting  at  is  to  see  what  the  Government  is  getting 
ont  of  this  proposition.  We  have  in  the  neigliborhoo<l  of  $89,000,000  invested  in 
that  enterprise  down  there,  exclusive  of  the  $16,000  000  we  put  into  the  Wilso4 
Dam.  ; 

Maj.  BiRNs.  Yes,  sir. 

Mr.  :Miller.  And  we  aie  getting  $5,000,000  for  that? 

Maj.  Burns.  Le.ss  the  money  you  will  have  to  six»nd  to  acquiie  these  rights. 

Mr.  :Miller.  Less  the  money  necessary  to  acquire  the  rights  of  the  Warrior 
plant? 

Maj.  Burns.  Yes,  sir.  Q 

Mr.  Miller.  And  the  overflow  damages  at  Dam  No.  3? 

^laj.  Burns.  Of  course,  that  ties  in  more  with,  the  power  proposition  than 
with  the  nitrate  proposition. 

Mr.  ;Miller.  For  which  the  engineer  department  estimates  the  cost  to  be 
$2,000,000? 

Maj.  Burns.  Yes,  sir;  according  to  their  report. 

:Mr.  JMiller.  Then  the  $5,000,000  Mr.  Ford  is  to  pay  for  the  plant  would  be 
either  entirely  or  in  large  portion  absorbed  in  paying  for  the  Alabama  Power 
Co.'s  rights  in  the  Warrior  plant  and  paying  for  the  overflow  damages  at 
Dam  No.  3? 

Maj.  Burns.  My  judgment  on  that  is  that  it  would. 

Mr.  Miller.  So  the  enterprise  on  which  the  Government  has  put  $89,000,000. 
in  order  to  comply  with  the  conditions  of  Mr.  Ford's  contract,  we  will  get 
nothing  out  of,  substantially,  except  the  nitrate  plant  No.  2  in  a  stand-by  con- 
dition, as  a  matter  of  nitrate  preparedness  for  war. 

Maj.  Burns.  As  I  understand  it,  that  is  correct;  yes,  sir. 


i 


I 


220 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PBOPOSITIONS. 


221 


Mr.  Miller.  You  have  said  that  the  steam  plant  has  a  30,000  kilowatt  output? 

Maj.  Burns.  Yes,  sir. 

Mr.  Miller.  And  the  steam  plant  at  nitrate  plant  No.  2  has  60,000  kilowatt 
output,  or  double  the  capacity  of  the  other  steam  plant? 

Maj.  Burns.  Yes,  sir. 

Mr.  Miller.  Tliat  is  90,000  kilowatts  altogether? 

Maj.  Burns.  Yes,  sir. 

Mr.  Miller.  Have  you  an  estimate  of  the  kilowatt  output  of  Dam  No.  2?  It 
is  100,000  hoi*sepower,  is  it  not? 

Maj.  Burns.  The  Chief  of  Engineers  stated  it  would  have  a  primary  capacity 
of  100,000  horsepower  and  a  secondary  capacity  to  the  extent  of  440,000  horse- 
power. 

Mr.  Miller.  You  say  it  will  cost  in  the  neighborhood  of  $3,000,000  to  convert 
the  ammonium  nitrate  plant  into  an  ammonium  sulphate  plant? 

Maj.  Burns.  To  put  in  the  ammonium  sulphate  plant  there,  in  my  judgment, 
would  cost  abwit  $3,000,000. 

Mr.  Miller.  Would  that  be  in  the  nature  of  a  new  plant  or  an  alteration  of 
an  existing  plant? 

Maj.  Burns.  I  think  it  would  be  substantially  a  new  plant. 

Mr.  Miller.  Then  we  would  be  confronted  with  this  situation,  that  if  Mr. 
Ford  should  undertake  to  alter  the  process  at  plant  No.  2  to  change  the  produc- 
tion of  ammonium  nitrate  into  ammonium  sulphate,  we  would  have  to  transfer 
that  back  and  rework  the  plant  in  case  of  the  necessity  for  the  production  of 
ammonium  nitrate? 

Maj.  Burns.  As  I  read  Mr.  Ford's  offer,  it  is  contemplated  that  he  would 
keep  the  plant  in  good  condition  and  use  it  for  fertilizer  output. 

Mr.  Miller.  Then  you  think  he  is  obligated  to  continue  plant  No.  2  for  the 
output  of  ammonium  nitrate? 

Maj.  Bu-RNS.  Yes,  sir. 

Mr.  Miller.  He  can  erect  a  plant  or  do  anything  he  wants  to  for  the  con- 
version of  the  nitrate  into  sulphate? 

Maj.  Burns.  That  is  the  way  I  understand  it. 

Mr.  Parker.  I  wish  you  would  tell  me  briefly  what  the  Habcr  process  is. 

Maj.  Burns.  It  is  based  upon  the  welding  together  of  nitrogen  gas  which  you 
get  from  the  air  and  hydrogen  gas  which  you  get  from  water.  When  these 
gases  are  well  purified  and  brought  together  in  the  presence  of  a  catalyst  at  a 
high  temperature  and  pressure  they  combine  and  form  ammonia. 

Mr.  Parker.  What  materials*  do  you  use  in  that  process? 

Maj.  Burns.  The  raw  materials  are  air,  water,  coke,  power,  the  catalyst,  and 
some  chemical  purifying  agents. 

Mr.  Parker.  What  is  your  catalyst?    Do  you  use  a  platinum  screen? 

Maj.  Burns.  No,  sir;  not  for  the  manufacture  of  ammonia.  It  is  a  secret 
ccnrpound,  but  its  basis  is  iron. 

Mr.  Parker.  Is  it  wasted,  so  it  has  to  be  paid  for? 

Maj.  Bl-rns.  It  wastes  to  some  extent.  It  is  very  expensive  in  the  first  in- 
stallation, but  its  consumption,  if  well  treated,  is  not  so  very  great. 

Mr.*  Parker.  You  make  use  of  water,  do  you  not? 

Maj.  Bltins.  We  have  to  get  hydrogen  from  the  water. 

Mr.  Parker.  How  do  you  get  that? 

Maj.  Burns.  By  the  water-gas  method,  heating  the  coke  and  spraying  the 
water  on  it,  thus  separating  the  water  into  its  gases. 

Mr.  Parker.  That  becomes  hydrogen  and  oxygen? 

Maj.  Burns.  Yes,  sir;  hydrogen,  oxygen,  carbon  monoxide,  and  the  rest  of 
them. 

Mr.  Parker.  How  do  you  get  rid  of  the  carbon  monoxide? 

Maj.  Bu-RNS.  It  is  burned  into  carbon  dioxide  and  then  separated  from  the 
gases  by  a  purification  system.  Water  and  caustic  soda  are  used  to  absorb  the 
carbon  dioxide. 

Mr.  Parker.  That  is  another  material? 

Maj.  Burns.  That  is  one  of  the  chemicals  used  for  purification  purposes. 

Mr.  Parker.  Is  there  much  cost  in  these  materials — the  chemical  agents  and 
the  catalyst? 

Maj.  Burns.  The  costs  of  your  materials  in  the  Haber  process  are  not  so 
very  great,  but  your  capitalization  cost  is  quite  large  and  your  upkeep  charge 
is  high,  because  "the  process  is  a  very  complicated  chemical  one. 

Mr.  Parker.  Is  that  process  being  used  at  Syracuse? 

Maj.  BuTiNS.  It  is ;  yes,  sir. 


Mr.  Parker.  Then  it  is  not  secret  anymore?  You  know  what  the  real  process 
is,  since  the  war  ended,  do  you  not? 

Maj.  BuENs.  It  is  protected  by  patents,  of  course,  in  the  name  of  this  company. 

Mr.  Parker.  Have  they  the  patents? 

Maj.  Burns.  Yes,  sir. 

Mr.  Parker.  That  the  Government  can  not  use? 

Maj.  Bltins.  That  is  correct;  except  in  case  of  necessity,  undoubtedly  the 
Government  could  use  them. 

Mr.  Parker.  But  they  have  no  present  right  to  use  them? 

Maj.  Burns.  No,  sir ;  I  do  not  think  they  have. 

Mr.  Parker.  With  what  commercial  success  is  the  Syracuse  company  making 
that  product? 

Maj.  Burns.  They  are  making  approximately  10  tons  per  day  of  anhydrous 
ammonia. 

Mr.  Parker.  Do  they  make  it  at  commercial  prices? 

Maj.  Burns.  We  have  never  seen  their  cost  sheets,  and  do  not  know  about 
that.  But  they  are  continuing  in  the  operation  of  their  plant,  so  they  must  be 
making  a  commercial  success  of  it. 

Mr.  Parker.  Do  they  sell  it? 

Maj.  Burns.  Yes,  sir;  they  sell  it  as  anhydrous  ammonia. 

Mr.   Parker.  At  what  price? 

Maj.  Burns.  The  present  price  is  about  30  cents  a  pound. 

Mr.  Parker.  You  are  not  concerned  with  other  matters,  if  you  can  get 
anhydrous  ammonia  in  sufficient  quantities? 

Maj.  Burns.  No,  sir;  that  is  the  part  of  the  process  we  are  most  anxious 
about,  the  fixing  of  the  nitrogen. 

Mr.  Parker.  The  10  tons  a  day  that  they  produce  would  be  a  very  small 
amount  of  the  consumption  of  ammonia  in  the  United  States? 

Maj.  Burns.  Yes,  sir;  it  is. 

Mr.  Parker.  What  per  cent — not  1  per  cent,  is  it? 

Maj.  Burns.  Putting  it  on  a  nitrogen  basis,  the  total  consumption  of  inor- 
ganic nitrogen  in  America  is  in  the  neighborhood  of  180,000  tons.  They  would 
make  about  3,600  tons,  so  it  is  2  per  cent  of  the  total  production  of  inorganic 
nitrogen. 

Mr.  Parker.  That  is  a  very  satisfactory  result,  and  something  that  did  not 
occur  until  after  the  war? 

Maj.  Burns.  That  is  very  satisfactory :  yes,  sir. 

Mr.  Parker.  That  would  make  a  very  large  amount  of  product  which  is  easily 
converted  into  sulphate  of  ammonia  or  any  other  material  used  for  fertilizer? 

Maj.  Burns.  Yes,  sir ;  it  is  easily  converted  into  ammonium  sulphate. 

Mr.  Parker.  At  what  price  could  they  make  ammonium  sulphate? 

Maj.  Bltrns.  I  said  the  price  of  anhydrous  ammonia  in  the  market  is  30 
cents  a  pound.  I  do  not  know  what  the  Atmospheric  Nitrogen  Corporation  is 
paying  as  the  production  cost  of  ammonia. 

Mr.  Parker.  Can  they  properly  change  that  into  ammonium  sulphate  at  pres- 
ent prices,  or  is  the  ammonium  sulphate  cheaper? 

Maj.  Burns.  They  could  not  profitably  do  it  in  my  judgment  because  we  do 
not  get  as  much  for  nitrogen  in  the  form  of  ammonium  sulphate  as  in  the 
form  of  anhydrous  ammonia. 

Mr.  Parker.  Do  you  know  wherein  plant  No.  1  is  defective,  and  what  the 
remedy  is  for  it? 

Maj.  Burns.  We  do ;  yes,  sir. 

Mr.  Parker.  What  is  the  remedy? 

Maj.  Burns.  A  redesign  of  part  of  the  plant  which  has  to  do  with  the  puri- 
fication of  the  gases  and  of  the  fixing  of  the  gases  to  form  ammonia. 

Mr.  Parker.  You  know  it  would  work  if  that  were  done? 

Maj.  Burns.  We  think  it  would  work ;  yes,  sir. 

Mr.  Parker.  You  would  have  to  get  the  catalysts,  would  you  not? 

Maj.  Burns.  Yes,  sir. 

Mr.  Parker.  And  buy  those  at  large  expense? 

Maj.  Burns.  That  is  very  much  of  a  secret ;  that  is,  the  catalys*t.  We  would 
have  to  make  it  ourselves.  You  appreciate,  Mr.  Parker,  that  the  Government 
has  had  working  since  the  armistice  a  research  laboratory  on  the  problem  of 
fixing  nitrogen  and  converting  it  into  usable  forms  for  munitions  and  com- 
r>onents  of  fertilizers.  They  have  done  a  great  deal  of  very  important  work 
along  those  lines,  and  one  of  their  accomplishments  has  been  the  development 
of  a  good  catalyst. 


222 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


223 


Mr.  Pakker.  But  you  have  not  tried  it  on  a  commercial  scale? 

Maj.  Burns.  No,  sir ;  because  we  thought  the  necessity  did  not  call  for  that, 
inasmuch  as  the  Atmospheric  Nitrogen  Corporation  had  established  a  plant, 
for  we  felt  that  the  objective  of  the  Ordnance  Department  had  been  accom- 
plished and  that  we  should  not  spend  any  more  money. 

Mr.  Parker.  You  think  in  time  of  war  you  would  merely  assist  them  rather 
than  use  plant  No.  1,  except  in  an  emergency? 

Maj.  Burns.  The  Chief  of  Ordnance  has  recommended  that  the  No.  1  plant 
be  sold. 

Mr.  Parker.  What  would  it  cost  to  change  it? 

Maj.  Burns.  To  reconstruct  the  No.  1  plant  on  a  capacity  equal  to  its  present 
rated  capacity  would  cost  in  the  neighborhood  of  $4,000,000. 

Mr.  Parker.  What  is  its  rated  capacity;  how  much  a  day? 

Maj.  Burns.  Thirty  tons  of  ammonia  per  day.  , 

Mr.  Parker.  Tliat  is  three  times  the  capacity  of  the  Syracuse  plant? 

Maj.  Burns.  Yes,  sir. 

Mr.  Parker.  Do  you  recommend,  however,  that  it  be  sold? 

Maj.  BuTtNS.  Yes,  sir. 

Mr.  Parker.  I  ask  these  questions  because  I  think  your  brief  answers  ex- 
plain the  matter  nmch  quicker  than  any  scientific  discussion.  What  does  the 
other  plant  do?    What  is  the  process  used  there — that  is,  plant  No.  2? 

Maj.  Burns.  The  first  raw  materials  used  are  limestone  and  coke.  You  burn 
limestone  and  form  burnt  lime,  and  then  these  two  materials  or  burnt  lime  and 
coke  are  welded  together  to  form  calcium  carbide,  the  material  from  which  we 
get  acetylene  gas.  The  nitrogen  is  extracted  from  the  air  by  the  liquid-air  pro- 
cess and  it  is  combined  with  the  calcium  carbide  to  form  the  cyanamid  or  lime 
nitrogen. 

Mr.  Parker.  How  is  that  made? 

Maj.  Burns.  The  last  welding? 

Mr.  Parker.  The  welding  of  the  nitrogen  with  the  calcium  carbide. 

Maj.  Burns.  That  is  done  in  a  small  oven. 

Mr.  Parker.  An  electric  oven? 

Maj.  Burns.  Heat  is  the  cause  of  it.  If  you  heat  those  materials  a  reaction 
sets  in,  and  the  combination  is  made. 

Mr.  Parker.  That  makes  the  cyanamid? 

Maj.  Burns.  Yes,  sir.  If  you  treat  the  cyanamid  with  steam  you  produce 
ammonia.  Then,  if  you  pass  ammonia  and  air  through  a"  platinum  gauze  at 
a  high  temperature,  and  absorb  the  gases  in  water,  you  change  the  ammonia 
into  nitric  acid.  Then,  if  you  put  ammonia  and  nitric  acid  together,  you  will 
get  ammonium  nitrate. 

Mr.   Parker.  Is   that   under  heat? 

Maj.  Burns.  One  is  an  acid  and  the  other  is  an  alkali,  and  they  will  combine 
of  themselves. 

Mr.  Parker.  If  you  want  to  make  sulphate,  you  take  the  ammonia  and  the 
sulphuric  acid  and  put  them  together,  instead  of  using  the  nitric  acid? 

Maj.  Burns.  Yes.  sir. 

Mr.  Parker.  You  do  not  make  sulphate  out  of  the  nitric  acid,  but  out  of 
ammonia  and  sulphuric  acid? 

Maj.  Burns.  That  is  correct ;  yes,  sir. 

Mr.  Parker.  As  the  sulphuric  acid  is  much  cheaper  than  nitric  acid,  you 
can  make  the  sulphate  much  cheaper  than  nitrate,  can  you  not? 

Maj.  Burns.  Much  cheaper;  yes,  sir.  Sulphuric  acid  has  no  fertilizer  value, 
however,  whereas  nitric  acid  has  a  great  fertilizer  value. 

Mr.  Parker.  The  nitric  acid  is  used  a  great  deal? 

Maj.  Burns.  Yes,  sir ;  that  is  the  basis  of  the  Chilean  nitrate. 

Mr.  Parker.  But  the  Chilean  nitrate  is  changed  into  sulphate  before  it  is 
used  in  fertilizer? 

Maj.  Burns.  No,  sir;  it  is  used  in  fertilizer  as  such. 

Mr.  Parker.  What  is  the  comparative  cost  of  the  nitrate  which  you  get  in 
this  factory  and  the  nitrate  you  get  from  Chile? 

Maj.  Burns.  As  I  stated  before,  we  believe,  with  power  at  three-quarters 
of  a  mill,  we  can  produce  ammonium  sulphate  at  No.  2  plant  for  approximately 
$60  a  ton. 

Mr.  Parker.  I  asked  about  the  nitrate. 

Maj.  Burns.  The  nitrate  is  selling  at  about  $45  a  ton,  I  believe;  that  is  the 
Chilean  nitrate. 

Mr.  Parker.  And  the  nitrate  you  make  would  cost  you  how  much? 

Maj.  Burns.  Ammonium  sulphate  \yould  cost  $60  per  ton. 


Mr.  Parker.  I  am  talking  about  the  nitrate ;  that  costs  more  than  i^m  a  ton, 
does   It  not? 

Maj.  Burns.  Yes ;  ammonium  nitrate,  or  the  final  product  of  the  No  2  plant 
would  cost  in  the  neighborhood  of  $90  to  $100  a  ton,  depending  on  the  amount 
of  your  overhead. 

Mr.  Parker.  So,  as  a  peace  proposition  it  is  cheaper  to  buy  the  nitrate  from 
Chile  than  it  is  to  make  it  at  the  factory? 

Maj.  Burns.  Not  necessarily;  because  there  are  varying  properties  of  nitro- 
gen in  the  compounds  of  which  you  speak.  The  Chilean  nitrate  has  approxi- 
mately 16  per  cent  of  nitrogen,  the  ammonium  sulphate  has  approximately  21 
per  cent  of  nitrogen,  and  the  ammonium  nitrate  has  approximatelv  35  per  cent 
of  nitrogen.    They  are  all  rated  in  value  really  upon  their  nitrogen  content. 

Mr.  Parker.  As  a  connnercial  proposition,  if  you  made  nitrates  there,  could 
you   make   them   at   the  market  price? 

Maj.  Burns.  You  could  not  make  ammonium  sulphate  to-day  in  competition 
with  the  market  price,  because  I  do  not  believe  you  could  make  it  for  less  than 
$60  a  ton,  and  the  market  price  at  the  present  time  is  $50  a  ton. 

Mr.  Parker.  Can  you  make  the  ammonium  nitrate  at  the  market  price  of  that 
product? 

Maj.  Burns.  Just  about;  yes,  sir. 

Mr.  Parker.  Are  there  any  processes  which,  instead  of  using  air  and  water 
and  limestone,  make  it  out  of  coke  refuse  or  gas  refuse? 

Maj.  Burns.  One  of  the  by-products  thrown  off  when  you  make  coke  out  of 
coal  is  ammonia,  which  is  thrown  out  as  a  gas,  and  of  course  that  ammonia  in 
lertilizer  is  just  as  good  as  any  other  ammonia. 

Mr.  Parker.  That  ammonia  is  being  developed  more  and  more  from  year  to 
year  in   the  by-products  ovens? 

Maj.  Burns.  It  is  being  produced  in  very  large  quantities  from  the  by-product 
coke  ovens. 

Mr.  Parker.  And  the  by-product  coke  ovens  are  making  a  greater  saving 
every  year? 

Maj.  Burns.  I  can  only  answer  that  question  by  saying  that  the  by-product 
coke-oven  industry  is  expanding. 

Mr.  Parker.  There  are  a  great  many  by-products  from  the  bv-product  cok^ 
ovens,  are  there  not? 

Maj.  Burns.  Yes,  sir. 

Mr.  Parker.  All  of  which  can  be  sold? 

Maj.  Burns.  Yes,  sir. 

^Ir.  Parker.  So  that  by-product  coke  ovens,  if  they  make  ammonia  in  large 
quantities,  will  dispose  of  that  for  what  they  can  get  for  it? 

Maj.  Burns.  They  will  undoubtedly  set  the  prices  for  their  products  so 
they  can  get  the  best  combined  return. 

Mr.  Parker.  But  no  matter  what  the  price  of  ammonia  in  the  market  may 
be,  as  charged  by  the  Syracuse  company  or  anybody  else,  the  by-product  ovens 
would  be  able  to  lower  the  price  of  the  ammonia  which  they  are  making  out 
of  their  products? 

^laj.  Burns.  They  would,  if  they  could  make  their  money  out  of  their  other 
products.    But  sometimes  you  can  not  sell  coke  at  the  price  you  would  like  to. 

Mr.  Parker.  The  by-product  coke  ovens  are  making  more  and  more  ammonia 
every  year,  are  they  not? 

Maj.  Burns.  The  by-product  coke  oven  business  is  expanding.  On  the  other 
hand,  there  is  more  or  less  of  a  limit  as  to  how  greatly  it  can  expand,  because 
their  principal  product  is  coke,  and  unless  they,  can  get  a  ready  market  for 
their  coke  they  can  not  well  afford  to  put  in  additional  by-product  ovens. 

Mr.  Parker.  What  proportion  of  the  coke  ovens  are  by-product  ovens? 

Maj.  Burns.  Approximately  55  to  60  per  cent  of  all  the  ovens  are  by-proanct 
ovens,  and  the  remainder  are  beehive  ovens. 

Mr.  Pa:,ker.  Gas  works  use  coke  ovens  practically  altogether,  do  they  not? 

Maj.  Burns.  Yes,  sir ;  in  the  manufacture  of  coal  gas,  but  not  for  water  gas. 

Mr.  Parker.  And  you  have  not  included  those  in  your  estimate  of  55  per  cent, 
have  you? 

Maj.  Burns.  No,  sir.    But  they  do  not  have  any  appreciable  effect  upon  that 
percentage. 
Mr.  Parker.  Why  not? 

Maj.  Burns.  That  is,  as  far  as  the  ammonia  product  is  concerned. 
Mr.  Parker.  Because  they  do  not  save  it?    Is  that  what  you  mean? 

92900—22 15 


224 


MUSCLE  SHOALS  PROPOSITIONS. 


Maj.  BuKNs.  Their  total  production  of  ammonia,  even  though  it  were  all 
saved,  is  not  very  great  as  compared  with  the  production  in  by-product  coke 
ovens. 

Mr.  Pabker.  How  much  coke  is  made  in  coke  ovens  and  how  much  in  gas 
evens? 

Maj.  BuBNS.  I  am  informed  that  gas  plants  produce  about  one-tenth  as  much 
ammonia  as  by-product  ovens. 

Mr.  Hill.  Major,  do  you  know  what  Mr.  Ford  contemplates  doing  with 
plant  No.  1? 

Maj.  BuBNS.  No,  sir. 

Mr.  WuBZBACH.  Major,  in  taking  issue  with  Col.  Hull  on  the  construction 
of  the  contract  between  the  Alabama  Power  Co.  and  the  Government,  did  you 
have  in  mind  the  legal  obligation  or  the  moral  obligation,  if  any,  on  the  part 
of  the  Government? 

Maj.  BuBNs.  I  do  not  think  I  am  qualified  to  argue  the  legal  problems  at  all. 

Mr.  WuBzBACH.  So  what  you  had  in  mind  was  a  supposed  moral  obligation? 

Maj.  BuBNS.  Principally ;  yes,  sir. 

Mr.  WuBzBACH.  Would  you  not  be  willing  to  admit  that  if  the  officers  of  the 
Government  who  undertook  to  make  this  contract  were,  in  fact,  not  authorized 
to  make  it,  but  that  the  power  rested  with  Congress,  that  you  would  not  infer 
a  moral  obligation  from  an  unauthorized  act  of  an  agent? 

Maj.  BuKNs.  There  is  another  way  of  attacking  the  problem.  Suppose  you 
assume  the  contract  is  illegal,  and  you  start  condemnation  proceedings  to  get 
full  title  to  that  land.  You  have  got  to  pay  a  great  deal  of  money  to  estab- 
lish those  rights. 

Mr.  WUBZBACH.  Is  that  what  you  meant? 

Maj.  BuBNs.  I*ersonally,  I  believe  the  Alabama  Power  Co.  contract  should 
be  lived  up  to.  But  in  case  it  is  not  lived  up  to.  you  have  that  alternative, 
of  beginning  condemnation  proceedings  and  paying  whatever  damages  are 
awarded  by  the  power  that  controls. 

Mr.  WUBZBACH.  That  is  based  on  a  supposed  moral  obligation  due  to  the 
fact  that  the  officers  of  the  Government  attempted  to  make  a  contract? 

Maj.  BuBNS.  NR,  sir ;  exclusive  of  the  moral  obligation,  you  would  still  have 
these  very  large  damages  to  pay  if  you  tried  to  get  the  property  rights  which 
Mr.  Ford  requires  in  his  agreement. 

Mr.  W'URZBACH.  What  property  is  involved  in  the  contract  between  the 
Alabama  Power  Co.  and  the  Government  that  would  have  to  be  passed  with  a 
valid  title  under  this  contract,  according  to  your  construction? 

Maj.  BuBNs.  The  land  on  which  the  Gorgas  power  plant  is  located,  the  land 
on  which  the  transmission  line  is  located,  and  the  damages  to  the  Gorgas  plant 
that  would  be  caused  by  our  taking  that  land  away  from  them  and  giving  Mr. 
Ford  a  clear  title  to  the  plant  site. 

Mr.  WUBZBACH.  What  damages? 

Maj.  BuBNs.  As  I  said,  that  plant  is  all  under  one  roof,  and  it  is  worked  as 
a  combined  plant. 

Mr.  WUBZBACH.  Part  of  the  property  under  that  roof  belonged  to  the  Alabama 
Power  Co.  before  the  contract  was  made? 

Maj.  BuBNS.  Yes,  sir;  and  part  of  it  belongs  to  the  United  States. 

Mr.  W^UBZBACH.  In  which  item,  on  page  24  of  the  Secretary  of  War's  letter, 
is  that  particular  proposition  involved;  that  is,  the  Gorgas  power  plant? 

Maj.  BuBNs.  Under  the  heading  "  Warrior-Sheffield  power  station  and  trans- 
mission line,"  it  was  included,  and  comprises  the  first  item  under  that  heading, 
or  the  Warrior  generating  plant,  at  a  cost  of  $3,417,702.70;  then  the  Warrior 
substation,  at  a  cost  of  $383,756.35 ;  and  also  the  Drifton  Railroad,  with  a  value 
of  $50,421.94. 

Mr.  WUBZBACH.  Which  particular  part  of  that  photographed  property  is  in- 
volved in  those  items,  the  Warrior  generating  plant? 

Maj.  BuBNS.  Yes ;  and  the  Warrior  substation.  ' 

Mr.  WUBZBACH.  What  was  the  approximate  value  of  that  plant  before  the 
Government  expended  money  on  it  in  enlarging  it? 

Maj.  BuBNs.  I  can  not  tell  you  that. 

Mr.  WUBZBACH.  Was  it  a  substantial,  going  plant  at  that  time? 

Maj.  BuBNs.  Yes.  sir ;  it  was  a  producing  plant  at  that  time,  and  undoubtedly 
had  a  value  in  excess  of  $3,000,000. 

Mr.  WuBZBACH.  Which  other  one  of  these  items  is  the  Government's  property, 
£o  scrambled  up  with  the  Alabama  Power  Co.  property  that  it  is  difficult  to  un- 
scramble?   I  suppose  that  is  the  Warrior  generating  plant  proposition? 


MUSCLE   SHOALS  PROPOSITIONS. 


225 


Maj.  Burns.  You  include  by  that  question  the  Warrior  generating  plant  and 
substation,  and  the  Drifton  Railroad,  those  three?  They  are  all  part  of  the 
same  project. 

Mr.  WUBZBACH.  But  they  are  not  under  that  same  roof;  they  could  be  easilv 
separated,  could  they  not? 

Maj.  BuBNs.  The  Drifton  Railroad  is  not  under  the  same  roof.    But  the  Drif- 
ton Railroad  does  not  amount  to  much,  anyway. 
Mr  WUBZBACH.  The  value  of  all  that  property  is  given  here  as  $4,979,782.33. 
Maj.  BuBNS.  Yes,  sir. 

Mr.  WuKZHACH.  Is  that  the  cost  to  the  Government? 
]Maj.  BiRxs.  Yes,  sir. 

Mr.  WuRZBACH.  That  does  not  undertake  to  fix  the  present  value  of  that 
pronei'ty  ? 

Maj.  BuBNS.  No,  sir. 

^Ir.  WuRZRACH.  Is  that  the  cost  to  the  Government  based  urwn  a  10  ner  cent 
cost-plus  basis? 

Maj.  BuBNs.  That  is  the  entire  cost  to  the  Government,  the  money  expended 
in  the  project. 

?i'i  ^^  *o^^^^^^"  ^''^-^  ^*  ^^  ^'^"^  judgment  that  this  same  property  could  be 
sold  for  $3,000,000,  or  about  60  per  cent  of  its  cost  under  the  10  per  cent  cost- 
plus  contract? 

Maj.  BuENS.  Yes,  sir. 

^Ir.  WuRZBArH.  Wouhl  thnt  not  be  a  higher  value  received  bv  the  Government 
than  any  amount  the  Government  received  for  any  property'  built  during  the 
war  under  a  10  |)er  cent  cost-plus  contract? 

Maj.  BuBNS.  Not  for  any  property,  but  it  would  be  more  than  has  been  re- 
ceived for  a  great  portion  of  its  property. 

Mr.^  WUBZBACH.  It  generally  has  received  about  10  to  15  per  cent  of  the 

Maj.  Burns.  Approximately  that.  Of  course,  those  plants  had  to  be  sold 
practically  as  scrap  plants.  When  we  were  able  to  sell  a  plant  as  a  going  con- 
cern we  got  more  money  for  it.  I  think  in  some  instances  where  we  had  bv- 
product  coke-oven  contracts  more  or  less  similar  to  this  power  plant  contract 
we  got  a  very  substantial  proportion  of  their  cost  value.  I  think  in  some  in- 
stances it  ran  as  high  as  80  per  cent. 

Mr.  WuRZBACH.  This  proposition  involved  in  Mr.  Ford's  proposal  includes  au 
additional  expenditure  of  about  $50,000,000,  does  it  not? 

Maj.  Burns.  You  are  referring  to  the  hydroelectric  proposition' 

Mr.  ^^'^RJ'jBAc  H  The  whole  proposition,  the  completion  of  Dam  No.  2  and  the 
DuiKling  of  Dam  No.  3. 

Maj.  Burns.  As  I  understand  the  report,  that  is  correct, 
about  $105  000  wb?^^^  Government  now  has  invested  in  and  about  Muscle  Shoals 
Maj.  Burns.  Yes,  sir. 

Mr.  WURZBACH.  That  would  make  a  total  there  of  about  $150,000,000  involved 
in  tnis  proposition? 
Maj.  Burns.  That  is  correct. 

Pc>wer^CoT^'oi^- J^*?^  Government  could  salvage  or  receive  from  the  Alabama 
uTL^l  V  •  ^^-O,^-^^  f«i*  ^he  A^  arrior  generating  power  station  and  the  trans- 
«hnm  o    "^'  '^'^^'^'^  ^^  -''^"^  estimate,  then  that  part  of  the  proposition  represents 

Af  ^.^J*^^'  ^*^"*  ^^  ^^^^  ^"^^^^  proposition  in  money,  does  it  not? 

Maj.  Burns.  Yes.  sir ;  that  is  correct. 

othe!"nv^Ir''K'**^'^"«?\'',"^'^  ^'""V  ^^  '''"'"^  ^^  ^"•'^  ^<>^^'"  a  proposition  that  would 
$2,cSo(5^?      profitable  to  the  Government  on  account  of  the  possible  loss  of 

doxv!!'';.?^'^^.^*  •^*'*  ^*i  ""^*^*^^  because  of  the  possible  loss,  but  I  would  turn  it 
\i    uheu  it  causes  the  Government  to  break  a  contract. 

if  •.  y.^^^^"^^"-  Coming  back  to  the  moral  obligation? 
Maj.  Burns.  Yes.  sir. 

V(m/ tnTY^^f "V^'^-  ^i*  •^'**"  "^*  recognize,  Major,  that  your  conclusion  would  lead 
Hj;enf  tn  «, «.  'l.^^  ^""^""^^  '^^''''  ^''^""^  constitutional  provision,  if  you  permit  an 
follow  th^it  ^'^''""  "*!?  ^'*,^  '''^''''^'  ^'^  ^^^  "^  authority  to  perform  and  then 
0(.  ernnfpnt^'  l?i"^  *^^^  because  he  was  the  agent  of  the  Government  the 
leoog'  "i^?u^„7f.^^^^  ""^'Jl  <>"t  that  obligation  as  a  moral  duty,  and  do  you  not 
^oKiiize  that  that  would  be  subversive  of  all  law? 

whetlJer  th^nffi..?^.*'?"'*^,'1  ^  !^}^^  there  may  be  considerable  doubt  as  to 
»ecner  the  officer  did  really  violate  the  law  or  exceed  his  authority? 


226 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS   PROPOSITIONS. 


227 


Mr.  WuRZBACH.   Now  you  are  coiiiinir  back  to  the  lejial  obligation. 

Ma.i,  Burns.    I  am  saying  there  might  be  a  doubt. 

Mr.  WuRZBACH.    You  are  not  a  lawyer? 

Maj.  Burns.    No,  sir. 

Mr.  WURZBACH.  The  law  branch  of  the  War  Department  has  lield,  as  was 
stated  before  the  committee  by  the  Acting  Judge  Advocate  General  on  Friday 
last,  that  the  contract  is  invalid.    You  heard  that  statement? 

Maj.  Burns.   Yes,  sir;  I  heard  them  say  that. 

Mr.  Fields.    Major,  by  whom  was  plant  No.  2  constructed? 

Maj.  Burns.  The  prime  contractor  was  the  Air  Nitrates  Corporation,  which 
is  a  subsidiary  of  the  American  Cyanamid  Co. 

Mr.  Fields.  What  were  the  terms  of  the  contract  under  which  that  plant 
was  constructed — was  it  a  cost-plus  contract? 

Maj,  Burns.  Yes,  sir ;  it  was,  cost  plus  a  limited  fee. 

Mr.  Fields.   What  was  the  total  cost  of  the  construction  of  that  plant? 

Maj.  Burns.    In  round  numbers,  $70,000,000. 

Mr.  Fields.  What  was  the  totjil  amount  received  by  this  company  for  the 
construction  of  the  plant? 

Maj.  Burns.  This  company  constructed  not  only  plant  No.  2,  but  also  nitrate 
plants  Nos.  3  and  4,  which,  after  the  war,  were  declared  surplus.  Their  total 
earned  fee,  as  I  read  the  contract,  was  $1,500,000.  They  have  received  of  that 
amount,  approximately,  $1,150,000. 

Mr.  Fields.  My  question  was,  What  was  their  total  fee  for  the  construction  of 
nitrate  plant  No.  2? 

Maj.  Burns.  As  I  said,  as  I  read  the  contract  they  earned  a  fee  of  $1,500,000, 
but  they  have  only 

Mr.  Fields  (interposing).  That  is  for  plant  No.  2? 

Maj.  Burns.  Yes,  sir;  on  plant  No.  2.  They  would  have  received  the  maxi- 
mum fee  when  the  expenditures  reached  $60,000,000,  and  no  matter  how  much 
work  they  had  to  do  after  that  on  all  three  plants,  they  would  have  earned  no 
more  fee. 

Mr.  Fields.  Their  total  earned  fee  on  this  proposition  was  what? 

Maj.  Burns.  In  my  judgment  it  was  $1,500,000.  I  wish  to  point  out,  however, 
that   they  have  not  been  paid  all  of  that  fee;   they  have  been   paid  only 

$1 150  000. 

Mr.  Fields.  And  the  Gorgas  steam  plant  and  these  other  matters  we  have  been 
discussing  in  connection  with  the  Alabama  Power  Co.  contract  were  constructed 
by  the  Alabama  Power  Co.? 

Maj.  Burns.  Yes,  sir. 

Mr.  Fields.  What  was  their  total  fee? 

Maj.  Burns.  Their  total  fee  was  $225,000. 

Mr.  Fields.  That  covered  all  they  received? 

Mai.  Burns.  That  covered  all  of  their  fee.  Then  they  received  $60,000  for 
overhead  exi>enses,  but  that  was  supposed  to  be  a  direct  cost,  although  it  was 
lumped  in  order  to  avoid  cost  accounting. 

]Mr.  Fields.  Does  this  contract  between  the  Government  and  the  Alabama 
Power  Co.  for  the  purchase  of  this  property  by  the  Alabama  Power  Co.  at  a 
price  to  be  determined  by  a  board  of  arbitrators  compel  the  Alabama  Power  Co. 
to  accept  the  price  fixed  by  the  board? 

Maj.  Burns.  I  think  it  does.  Here  is  a  clause  of  that  sale  article,  "At  any 
time  subsequent  to  three  years  after  the  termination  of  the  war  the  United 
States  shall  have  the  option  to  sell  to  the  contractor  and  the  contractor  shall, 
unon  the  written  demand  of  the  United  States,  buy  all  its  rights,  title,  and 
interest  in  and  to  the  Warrior  extension  and  the  Warrior  substation,  with  all 
riehts  pertaining  thereto,  at  the  value  fixed  by  the  board  of  arbitrators,  as  here- 
iirifter  provided."  That  would  seem  to  me  to  definitely  require  the  Alabama 
Power  Co  to  purchase  provided  the  Government  wishes  them  to  do  so. 

Mr  Fields  It  might  be  a  question,  it  seems  to  me.  Now,  as  to  the  value  of 
the  nroperty  you  refer  to  as  a  going  concern— that  is,  the  Gorgas  steam  plant- 
do  vou  regard  the  estimated  salvage  value  fixed  by  the  Ordnance  Department 
as  a  fair  value  for  that  property  as  a  going  concern? 

Mr  FiH^s^  With  regard  to  the  production  of  the  fertilizer  product  contem- 
plated at  nitrate  plant  No.  2,  what  by-products  would  be  produced  along  witn 
the  production  of  fertilizer? 

Maj.  Burns.  None,  to  my  knowledge. 

Mr.  Fields.  None  at  all? 

Maj.  Burns.  No,  sir. 


Mr.  Fields.  Referring  to  your  statement  with  regard  to  the  cost  of  the  pro- 
duction of  this  product,  you  recognize  the  fact,  of  course,  that  labor  and  its 
efficiency  is  always  a  great  item  in  the  production  of  any  commodity? 

Maj.  Burns.  Yes,  sir;  that  is  correct. 

Mr.  Fields.  Were  you  basing  your  figures  upon  the  cost  of  production  by 
the  Government  or  by  private  industry  when  you  referred  to  the  cost  of  it  a  few 
moments  ago? 

Maj.  Burns.  I  do  not  know  that  we  differentiated  very  much  iti  that.  We  set 
out  against  our  work  what  we  figured  was  the  proper  labor  item.  We  assumed 
labor  would  be  utilized  efficiently.    That  was  the  basis  of  our  assumption. 

Mr.  Fields.  It  seems  to  me  Mr.  Ford  has  always  shown  great  ability  to  per- 
fect a  very  thorough  labor  organization.  Do  you  believe  it  possible  he  could 
perfect  an  organization  there  that  would  produce  this  product  more  cheaply 
than  the  Government  could  produce  it? 

Maj.  Burns.  I  think,  without  doubt.  Mr.  Ford  could  utilize  labor  more  efli- 
ciently  than  the  Government-controlletl  plant  could  utilize  labor. 

Mr.'  Fields.  In  view  of  your  statement  that  it  would  be  impossible  to  un- 
scramble this  proposition  between  the  Government  and  the  Alabama  Power  Co., 
you  think  there  is  only  one  of  two  courses  open  to  the  Government :  The  Gov- 
ernment must  institute  condemnation  proceedings  and  take  over  this  property, 
or  sell  it  to  the  Alabama  Power  Co.? 

Maj.  Burns.  Yes,  sir;  that  is  what  I  think. 

Mr.  Fields.  Following  a  little  further  what  Mr.  Wurzbach  has  said  with 
regard  to  your  contention  that  the  contract  should  be  morally  binding,  if  not 
legally  binding  upon  the  Government,  because  some  agent  of  the  Government 
happened  to  enter  into  it,  just  how  far  would  a  proposition  of  that  kind,  it 
followed  to  its  last  analysis,  carry  us? 

Maj.  Burns.  I  do  not  think  the  contract  should  be  lived  up  to  if  any  taint  of 
-.  any  kind  could  be  proved  against  the  parties  that  entered  into  the  contract. 

'  Mr.  Fields.  Granting  that  it  was  legitimate  and  that  the  parties  who  made 

it  on  the  part  of  the  Government  did  it  with  the  best  intentions,  would  it  not, 
in  the  end,  bind  the  executive  departments  and  the  Congress  as  well  to  a  re- 
pudiation of  the  constitutional  provisions  which  place  that  authority  in  the 
Congress? 

Maj.  Burns.  It  seems  that  it  might ;  yes,  sir. 

Mr.  Fields.  If  the  Congress  did  not  maintain  the  safeguards,  as  provided  in 
the  law  and  the  Constitution,  around  Government  contracts  and  Government 
expenditures,  there  might  be  no  limit  to  the  abuses  that  would  be  indulged  in 
by  agents  of  the  Goverrnnent,  probably  not  through  ulterior  motives  but  by  lack 
of  judgment,  by  which  the  Government  would  be  bound  if  it  accepts  the  con- 
tention of  the  Ordnance  Department  in  this  case. 

Maj.  Burns.  I  should  say  that  might  be  true;  yes,  sir. 

Mr.  Fields.  So  the  Ordnance  Department,  in  order  to  protect  a  contract 
made  by  one  of  its  agents,  urges  the  Government  to  embark  upon  a  rather 
dangerous  policy? 

Maj.  Burns.  I  think,  Mr.  Fields,  we  are  getting  into  a  complicated  legal 
discussion  which  I  am  hardly  qualified  to  indulge  in. 

Mr.  Fields.  Let  us  refer  to  the  legal  side  of  it  a  little  further.  Whether  you 
have  knowledge  of  the  subject  or  not,  is  it  not  fair  to  assume  that  the  Ala- 
bama Power  Co..  in  entering  into  this  contract  with  the  Government,  was  rep- 
resented by  able  counsel? 

Maj.  Burns.  Yes;  I  think  they  were. 

Mr.  Fields.  Do  you  believe  that  the  counsel  of  the  Alabama  Power  Co.  did 
not  know  that  they  were  drawing  a  contract  for  the  agent  of  the  United  States 
Government  to  sign  that  was  not  authorized  by  law  or  by  the  Constitution 
of  the  United  States? 

Maj.  Burns.  It  is. my  judgment  that  they  did  not  draw  a  contract  that  they 
thought  was  illegal.  I  do  not  think  that  either  they  or  the  representatives 
of  the  Ordnance  Department  drew  a  contract  that  they  thought  was  illegal. 

Mr.  Fields.  Was  the  gentleman  who  drew  this  contract  for  the  War  De- 
partment a  lawyer  of  noted  ability? 

Maj.  Burns.  I  do  not  know  how  noted  he  was,  but  he  was  a  lawyer. 

Mr.  Fields.  Is  it  fair  to  assume  that  great  coi-porations  like  the  Alabama 
Power  Co.  would  enter  into  a  contract  with  the  Government  or  anybody  else 
without  being  represented  by  able  counsel? 

Maj.  Burns.  I  think  unquestionably  they  were  represented  by  able  counsel. 


228 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


229 


..  ^'•- FiEij)s.  Do  you  think  it  is  possible  that  their  able  counsel  did  not  know 
that  this  contract  was  not  authorized  by  law  and  bv  the  Constitution :  that  the 
power  to  dispose  of  property  of  this  character  is  vested  in  Congress '' 

Maj.  Burns.  I  think  it  is  very  probable  that  they  did  not  know  it  was  against 
A]S^'  This  work  was  done  practically  during  the  fall  of  1917  and  the  spring 
of  1918,  when  the  war  fever  was  at  its  height,  and  when  every  effort  was  bein^ 
made  to  put  the  United  States  in  such  a  condition  that  it  could  win  the  war  as 
quickly  as  possible,  and  anybody  who  hesitated  to  enter  into  a  contract  that 
wofeld  help  along  that  purpose  was  rated  as  a  slacker. 

Mr  .Fields.  I  agree  with  you  on  that,  and  am  therefore  always  ready  to  make 
reasonable  allowance  for  an  agent  acting  on  the  part  of  the  Government  who 
might  have  exceeded  his  authority.  But  the  object  of  the  attorney  for  the 
company  entering  into  this  contract  was  to  properly  protect  his  company  and 
he  would  evidently  look  up  the  law  to  see  if  the  contract  which  he  was  entering 
into  for  his  company  was  being  drawn  in  accordance  with  the  law,  so  it  would 
^^*?  ^f^^J.  contract.    He  would  be  a  very  poor  attorney  if  he  did  not  do  that 

Maj.  Burns.  That  is  correct.  This  matter  has  been  passe«l  upon  bv*  the 
Judge  Advocate  General's  Department.  I  have  every  confidence  in  the  world  in 
that  department,  but  I  have  had  enough  experience  with  the  law  to  know  that 
sometimes  one  judge  will  say  yes  to  a  question  and  another  judge  will  say  no  to 
the  same  question.  So  I  do  not  believe  it  lias  been  proven  that  this  is  an 
illegal  contract. 

Mr.  Fields.  I  notice  that  the  Acting  Judge  Advocate  General  read  a  decision 
of  the  Supreme  Court  of  the  United  States  on  Friday  in  support  of  his  opinion 
in  reference  to  this  proposition. 

Maj.  Burns.  That  is  correct. 

Mr.  Fields.  That  is  the  highest  authority  in  the  United  States  on  legal 
matters.  * 

Mr.  QuiN.  Major,  you  are  a  graduate  of  West  Point? 

Maj.  Burns.  Yes,  sir. 

Mr.  Quin.  What  age  are  you?  I  am  not  asking  this  in  a  personal  wav  h\\t 
just  to  get  the  information  in  the  record. 

Maj.  Burns.  I  am  36. 

Mr.  Quin.  You  are  a  practitioner  of  the  law,  I  presume? 

Maj.  Burns.  No,  sir;  I  am  not. 

Mr.  Quin.  How  is  it  you  give  such  a  full  opinion  on  such  a  verv  delicate 
and  intricate  constitutional  legal  question? 

Maj.  Burns.  I  do  not  think  I  have  given  any  opinion  of  a  legal  nature  on  a 
legal  question.    I  did  not  intend  to  do  so. 

Mr.  Quin.  Did  you  not  say  that  the  United  States  Government  did  not  have 
anything  but  a  legal  contract  with  this  company,  and  that  the  Government 
could  not  enter  into  an  agreement  with  Mr.  Ford  in  connection  with  this  par- 
ticular property  on  which  the  Alabama  Power  Co.  is  interested? 

Maj.  Burns.  I  do  not  know  that  I  answered  a  question  that  was  framed  like 
that ;  I  did  not  answer  it  like  that. 

Mr.  Quin.  Tell  us  what  you  did  say  touching  the  legality  of  this  contract 
between  the  Alabama  Power  Co.  and  the  United  States  Government,  entered 
into  by  a  representative  of  the  Ordnance  Department? 

Maj.  Burns.  I  did  not  know  that  I  touched  upon  the  legality  of  it.  I  think 
you  have  a  situation  down  there  that  is  very  complicated  and  that  you  should 
solve  it  in  accordance  with  the  contract  that  has  been  drawn  up,  which  requires 
that  the  property  be  sold  to  the  Alabama  Power  Co.  If  you  do  not  do  that, 
you  will  have  to  condemn  the  land  and  pay  damages,  in  accordance  with  the 
decision  of  the  judge  advocate. 

Mr.  Quin.  You  do  not  mean  to  say  the  Government  can  not  condemn  the  land 
and  acquire  the  title? 

Maj.  Burns.  I  do  not  believe  I  have  said  that. 

Mr.  Quin.  You  did  not  mean  in  your  answer  to  say  that  under  this  alleged 
contract  the  Government  of  the  Un  ted  States  could  not  go  ahead  and  condemn 
that  property? 

Maj.  Burns.  The  judge  advocate  says  it  can. 

Mr.  Qrix.  Then  there  is  no  legal  reason,  according  to  your  idea,  why  the 
Government  can  not  proceed? 

Maj.  Burns.  Assuming  that  it  is  an  illegal  contract — I  am  now  getting  into 
the  illegality  of  it  again— I  believe  the  United  States  could  condemn. 

Mr.  Quin.  You  did  get  "nto  it  when  you  answered  the  question  very  em- 
phatically, and  if  you  are  not  for  it  I  want  the  record  to  show  your  exact  idea. 

Maj.  Burns.  I  am  very  glad  to  give  you  the  facts  as  I  see  them. 


Mr.  Quin.  I  want  to  know  just  what  you  meant. 

Maj.  Burns  I  feel  this  way  about  it,  that  wo  ha^-^  a  contract  with  the  Ala- 
bama Power  Co.  that  I  think  should  be  lived  up  to. 

Mr.  Quin.  Do  you  put  that  opinion  upon  legal,  constitutional  grounds? 

Maj.  Burns.  Principally  on  the  ground  that  we  ought  to  live  up  to  a  con- 
tract that  was  entered  into  in  all  good  faith  by  the  parties  to  the  contract. 

Mr.  Quin.  Then  if  a  contract  is  made  that  is  supposed  to  be  a  contract,  and 
made  under  the  circumstances  you  relate — that  is,  in  violation  of  the  Constitu- 
tion of  the  United  States,  and  the  party  making  the  contract  on  the  part  of  the 
Government  did  not  have  any  authority  under  the  Constitution,  nor  through 
any  legislative  act  of  Congress  to  enter  into  the  contract,  and  the  Alabama 
Power  Co.  had  people  representing  them  who,  constructively  at  least,  knew 
that  to  be  true,  you  believe  the  people  of  the  United  States  ought  to  be  deprived 
of  this  offer  on  that  ground,  that  we  should  carry  out  such  an  alleged  contract 
as  that? 

Maj.  Burns.  I  think  the  contract  ought  to  be  lived  up  to.  even  though  it 
forces  us  to  the  rejection  of  the  Ford  offer. 

Mr.  Quin.  Then  you  would  be  willing  to  see  a  contract  made  by  Mr.  Williams, 
who  some  witness  testified  was  from  the  National  City  Bank  of  New  York,  the 
Wall  Street  banking  interests,  the  Rockefeller,  Stillman  crowd,  at  a  time  when 
we  were  conscripting  our  boys  and  sending  them  to  die  in  the  trenches — you 
would  be  willing  to  see  a  contract  made  with  the  Alabama  Power  Co.  with 
nothing  but  a  lot  of  land  and  blue-prints  for  buildings  which  they  were  going 
to  construct  themselves,  and  you  think  this  Government  under  those  circum- 
stances should  allow  these  people,  after  giving  them  $285,000  clean  profit,  with- 
out their  investing  a  dollar  for  construction,  investing  nothing  but  their  knowl- 
edge, to  thwart  the  best  interests  of  the  American  people  by  preventing  the 
Government  from  making  a  contract  with  Mr.  Ford  for  the  development  of  this 
enterprise? 

Maj.  Burns.  I  believe  if  Mr.  Ford  is  going  to  insist  upon  that  provision  in 
the  contract  that  tile  Ford  offer  ought  to  be  rejected. 

Mr.  Quin.  In  other  words,  you  believe  that  if  an  armed  hold-up  man  should 
force  me  to  sign  a  check  that  I  ought  not  to  direct  the  bank  not  to  pay  out  cash 
for  the  check? 

Maj.  Burns.  You  are  asking  ihe  hypothetical  questions.  I  have  tried  to  make 
myself  plain  to  the  effect  that  I  believe  the  Government  ought  to  carry  out  that 
contract. 

Mr.  Quin.  On  what  grounds  do  you  base  that  opinion? 

Maj.  Burns.  Because  I  believe  that  contract  should  be  lived  up  to. 

Mr.  Quin.  Then  you  do  not  think  that  the  interests  of  the  American  people 
come  ahead  of  a  contract  drawn,  wherein  the  party  who  signed  it  knew  the 
law  and  the  Constitution  of  the  United  States,  and  must  have  Known  that  the 
American  people  were  being  deprived  of  their  ultimate  rights? 

Maj.  Burns.  I  can  see  no  necessity  for  the  inclusion  in  the  Ford  offer  of  the 
requirement  to  give  title  to  the  Gorgas  plant. 

Mr.  Quin.  Outside  of  your  viewpoint,  Mr.  Ford  views  It  otherwise,  and  he* 
is  the  man  who  is  putting  up  the  money  in  this  instance.     If  other  people  con- 
nected with  it  think  it  is  necessar.v — I  do  not  know  myself,  but  they  seem  to 
think  it  is  necessar.v — do  you  not  think  the  Government  ought  to  go  ahead? 

Maj.  Burns.  No,  sir ;  I  do  not.  I  think  they  ought  to  live  up  to  the  Alamaba 
Power  Co.  contract. 

Mr.  Quin.  Is  that  for  moral  reasons?  You  do  not  give  any  legal  reasons  for 
it.    You  are  unaware  of  any,  you  say. 

Maj.  Burns.  I  suppose  it  is  a  question  of  judgment,  and  my  conviction  Is  that 
they  should  live  up  to  It. 

Mr.  Quin.  That  Is  your  judgment  of  the  question,  and  not  your  opinion  as  a 
constitutional  lawyer.  You  have  not  Investigated  any  of  the  decisions  of  the 
Supreme  Court  of  the  United  States  touching  this  question? 

Maj.  Burns.  Not  in  any  way.  shape,  or  manner. 

Mr.  Quin.  When  the  Acting  Judge  Advocate  General  of  the  War  Department 
says  this  is  an  Invalid  contract,  and  that  the  Government,  so  far  as  the  law  is 
concerned,  would  have  no  trouble  in  proceeding  to  acquire  this  property  and 
turn  it  over  to  Mr.  Ford,  you  do  not  dispute  that,  do  you? 

Maj.  Burns.  I  can  only  repeat  my  statement,  and  that  is  that  it  Is  my  feeling 
that  the  Government  should  live  up  to  this  contract. 

Mr.  Quin.  What  percentage  of  dirt  and  sand  Is  there  in  the  Chilean  nitrates? 

Maj.  Burns.  You  mean  those  received  in  the  United  States? 


230 


MUSCLE   SHOALS  PROPOSITIONS. 


Mr.  QriN.  Yes :  the  nitrates  we  get  from  Chile. 

^laj.  BmNs.  Those  nitrates  are  practically  95  iier  cent  pure  sodium  nitrate 

Mr.  QuiN.  That  comes  through  the  chemical  work? 


sodium 

I  think 

the  re- 

and  the 


fer- 


Maj.  Burns.  No,  sir.     In  the  plains  of  Chile  there  are  deposits  of 
nitrate,  but  the  sodium  nitrate  is  only  a  part  of  the  soil  that  is  dug  up. 
the  deposits  now  are  about  20  per  cent  sodium  nitrate.    That  goes  to 
fineries  and  the  extraneous  matter  is  removed  by  chemical  processes, 
whole  thing  is  concentrated  until  it  is  about  95  per  cent  pure. 

Mr.  QuiN.  What  percentage  of  nitrogen  is  in  the  ordinary  commercial 
tilizer  that  is  used,  and  what  percentage  of  anmionia? 

Maj.  BuKNs.  There  are  all  kinds  of  fertilizer  materials. 

Mr.  QuiN.  You  are  acquainted  with  what  they  call  raw  bone  phosphate,  are 
you  not? 

Maj.  Burns.  No,  sir. 

Mr.  QuiN.  Are  you  acquainted  with  the  acid  phosphates? 

Maj.  Burns.  Generally. 

Mr.  QuiN.  Take  the  general  average. 

Maj.  Burns.  Ordinarily,  a  complete  fertilizer  material  has  about  2  or  3 
per  cent  of  ammonia,  about  8  per  cent  of  phosphoric  acid,  and  2  or  3  per  cent 
of  potash.    They  have  a  great  many  different  formulae. 

Mr.  QuiN.  Do  they  not  have  nitrogen  in  them,  too? 

Maj.  Burns.  That  is  contained  in  the  ammonia. 

Mr.  QuiN.  I  wish  you  would  give  us  the  total  percentage,  so  that  the  record 
will  show  the  total  percentage  of  phosphate;  tlrat  is  about  16  per  cent,  is  it  not? 

Maj.  Burns.  It  would  be  somewhere  between  13  and  15  i)er  cent. 

Mr.  QiiN.  About  14  per  cent,  on  the  average? 

Maj.  Burns.  That  is  practically  correct. 

Mr.  QuiN.  The  rest  of  it  is  what? 

Maj.  Burns.  It  is  filler  of  one  kind  or  another. 

Mr.  QuiN.  It  is  dirt  and  sand,  is  it  not? 

Maj.  Burns.  There  is  some  dirt,  but  most  of  it  is  necessary. 

Mr.  QuiN.  Because  if  you  throw  do\A'n  a  handful  of  it  and  let  rain  come  on 
it.  the  chemical  part  is  washed  away  and  the  dirt  and  sand  are  left  there. 
That  is  my  experience  in  spreading  it  over  the  ground.  This  plant  turning 
out  110.000  tons  of  nitrogen  a  year  would  make  one-half  of  the  total  amount 
of  fertilizer  consumed  in  the  United  States,  would  it  not? 

Maj,  Burns.  It  would  make  one-half  of  the  inorganic  nitrogen  content  of  the 
fertilizer  used  in  the  United  States  at  the  present  time. 

Mr.  QuiN.  That  is  what  I  meant.  It  would  make  one-half  of  the  nitrogen 
content  for  the  maximum  consumption  of  any  one  year,  and  that  is  close  to 
8,000,000  tons.  That  is  what  that  plant  would  turn  out,  running  at  a  capacity 
of  110,000  ton§  a  year? 

Maj.  Burns.  That  is  substantially  correct;  yes. 

Mr.  QuiN.  You  remember  some  questions  Mr.  Miller  asked  you  about  this 
fertilizer  business?     In  the  manufacture  of  fertilizer  for  the  farmers  there 
I  is  about  86  per  cent  of  dirt  and  sand  and  about  14  per  cent,  approximately, 
of  real  fertilizer  content.    Is  that  not  correct? 

Maj.  Bu^ns.  It  is  not  all  dirt  They  can  not  escape  putting  a  certain  amount 
of  filler. 

Mr.  QuiN.  I  understand  that.  If  it  was  all  nitrogen,  you  could  not  afford 
to  buy  it. 

Maj.  Burns.  Take,  for  instance,  the  ammonium  sulphate.  The  nitrogen 
content  is  only  20  per  cent.  You  can  not  separate  the  20  per  cent  from  the 
carrier,  because  you  have  to  have  80  per  cent  of  the  carrier  to  get  the  ammonium 
sulphate;  you  have  to  have  the  carrier  in  acid  phosphate  and  in  potash  salts, 
so  it  would  be  absolutely  impossible  to  eliminate  more  than  a  small  part  of 
all  the  carrier  or  filler. 

Mr.  QuiN.  What  is  the  carrier  composed  of? 

Maj.  Burns.  In  the  case  of  ammonium  sulphate  the  big  bulk  of  the  carrier 
is  really  sulphuric  acid,  which  you  have  to  have  to  form  the  ammonium 
sulphate. 

Mr.  QuiN.  Is  not  the  fertilizer  compound  "made  into  this  concentrated  form? 

Maj,  Burns.  It  is,  but  in  ammonium  sulphate  you  can  not  concentrate  the 
nitrogen  any  more,  because  the  chemical  equation  will  not  allow  you  to  do  so. 
Whenever  you  furnish  ammonium  sulphate  it  is  20  per  cent  nitrogen  and  80  per 
cent  filler  or  carrier. 


MUSCLE   SHOALS  PROPOSITIONS. 


231 


Mr.  Quin.  Why  can  not  the  farmer  dig  up  the  dirt  and  sand  and  mix  them 
with  1  per  cent  fertilizer  and  4  per  cent  dirt? 

Maj,  Burns.  It  can  not  be  done  because,  as  I  am  telling  you,  in  the  chemical 
equation  you  have  to  have  a  lot  of  this  carrier  to  hold  this  nitrogen  which  is 
used  in  the  fertilizer. 

Mr.  Quin.  You  mean  you  could  not  get  it  there  without  having  all  of  that? 

Maj.  Burns.  You  could  not  eliminate  more  than  a  small  part  of  it. 

Mr.  Quin.  What  is  the  distance  from  plant  No.  2,  where  the  power  plant,  or 
this  water  power  is  going  to  be,  from  the  Gorgas  plant? 

Maj.  Burns.  The  No.  2  plant  is  about  2  miles  from  the  big  hydroelectric 
dam,  and  they  are  both  approximately  90  miles  from  Gorgas. 

Mr.  Quin.  And  this  territory  over  which  the  transmission  line  runs  to  supply 
the  extra  power  which  you  state  was  contemplated  there  is  land  that  belongs 
to  the  Alabama  Power  Co,? 

Maj.  Burns.  Yes,  sir. 

Mr.  Quin.  And  the  Gorgas  plant  itself  is  on  land  that  belongs  to  the  Alabama 
Power  Co.? 

Maj,  Burns.  That  is  on  land  that  belongs  to  the  Alabama  Power  Co. 

Mr.  Quin.  How  many  acres  of  land  is  there? 

Maj.  Burns.  I  think  it  amounts  to  about  15  or  20  acres  at  the  Gorgas  power- 
plant  site. 

Mr.  Quin.  What  have  they  at  that  site? 

jMaj,  Burns.  They  have  a  power  plant  capable  of  producing  about  20,000  kilo- 
watts by  the  steam  process,  and  they  have  a  substation  for  turning  that  power 
into  their  line,  and  they  have  a  connecting  line  which  ties  the  substation  into 
their  main  distribution  system. 

Mr,  Quin,  And  that  was  tied  into  this  alleged  contract  with  the  Government? 

Maj.  Burns.  Yes,  sir. 

Mr.  Quin.  How  far  is  Dam  No.  3  above  this? 

Maj.  Burns.  As  I  heard  the  testimony,  it  is  the  neighborhood  of  16  or  17 
miles  above  No.  2  Danr, 

Mr.  Quin.  In  what  direction  does  that  stream  flow? 

Maj.  Burns.  In  that  region  it  flows  a  little  south  of  west. 

Mr.  Quin.  Into  what  does  it  empty? 

Maj.  Burns.  It  empties  into  the  Ohio  River,  as  I  understand  it. 

Mr.  Quin.  It  has  its  source  in  the  Carolinas  or  in  West  Virginia,  does  it  not? 

Maj.  Burns.  Gen.  Beach  stated  that  it  has  its  source  in  Virginia. 

Mr.  Quin.  At  what  point  does  it  enter  into  the  Ohio  River? 

Maj.  BuTtNs.  I  do  not  remember  that. 

Mr.  Quin.  It  enters  the  Ohio  River  near  Paducah,  Ky.,  I  think. 

Mr.  Wright.  What  business  is  the  American  Cyanamid  Co.  engaged  in? 

Maj.  Burns.  It  is  engaged  in  manufacturing  materials  for  the  fertilizer  trade, 
principally  the  nitrogen  and  phosphoric-acid  compounds. 

Mr.  Wright.  Where  is  its  plant  located? 

Maj.  Burns.  It  has  a  plant  near  Niagara  Falls  in  Canada,  at  which  it 
makes  cyanamid  by  the  same  process  we  use  at  the  No.  2  plant. 

Mr.  Wright.  It  makes  the  same  product? 

Maj.  Burns.  Yes,  sir. 

Mr.  Wright.  Has  that  company  any  other  plant? 

Maj.  Burns.  Yes,  it  has  a  plant  at  Warner,  N.  J.,  where  it  makes  a  ma- 
terial called  amophos,  a  combination  of  phosphoric  acid  and  ammonia. 

Mr.  W^right.  Do  you  know  what  the  capacity  of  this  Canadian  plant  of  the 
American  Cyanamid  Co.  is? 

Maj.  Burns.  It  is  about  one-fourth  the  capacity  of  the  plant  at  Muscle 
Shoals. 

Mr.  Wright.  Do  you  know  where  it  finds  a  market  for  that  product? 

Maj.  Burns.  Generally,  I  understand,  they  sell  their  cyanami;!  or  their 
amophos  to  the  fertilizer  trade  as  one  of  the  ingredients  of  a  complete  fer- 
tilizer. 

Where  is  the  Air  Nitrates  Corporation  located? 

It  had  an  oflBce  at  511  Fifth  Avenue,  New  York. 

Is  it  still  in  existence? 

Yes,  I  think  it  is. 

What  business  does  it  do? 


Mr.  Wright. 
Maj.  Burns. 
Mr.  AVright. 
Maj.  Burns. 
Mr.  Wright. 


•  I 


4 


■ 


I 


i 


232 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


233 


Mr.  Wright. 
Maj.  Burns. 
Mr.  Wright. 
Maj.  Burns. 


Maj.  Burns.  It  was  formed  solely  for  the  purpose  of  executing  this  con- 
tract with  the  Government  for  the  construction  and  operation  of  United  States 
Nitrate  Plants  Nos.  2,  3,  and  4. 

Mr.  Wright.  Do  you  know  what  the  capital  of  that  corporation  is? 

Maj.  Burns.  I  understand  the  capitalization  was  $1,000. 

Mr.  Wright.  How  much  has  it  already  received  from  the  Government  for 
constructing  these  plants  at  Muscle  Shoals? 

Maj.  Burns.  It  received  a  cost-plus  fee,  and  a  fee  has  been  paid  to  the  amount 
or  $1,150,000. 

Mr.  Wright.  They  are  claiming  considerably  more? 

Maj.  Burns.  They  are  claiming  $1,500,000. 

Mr.  Wright.  The  Air  Nitrates  Corporation  is  subsidiary  of  the  American 
Cyanamid  Co.;  is  it  not? 

Maj.  Burns.  That  is  correct ;  yes,  sir.  It  was  formed,  as  I  understand  it,  for 
the  purpose  of  protecting  the  company  from  possible  difficulties  that  might  ensue 
as  a  result  of  the  Government  contract. 

Mr.  Wright.  It  was  really  the  American  Cyanamid  Co.  which  was  acting, 
except  that  it  would  be  relieved  of  legal  liability. 

Maj.  Burns.  That  is  my  understanding. 

Mr.  Wright.  The  American  Cyanamid  Co.  would  undoubtedly  receive  the 
profits? 

Maj.  Burns.  Yes;  without  doubt.  Of  course,  the  American  Cyanamid  Co. 
turned  over  for  the  construction  and  operation  of  this  plant  all  of  their  talent. 

Mr.  Wright.  The  principal  consideration  there  was  to  secure  the  services  of 
somebody  who  knew  how? 

Maj.  Burns.  Yes,  sir. 

Where  is  the  Alabama  Power  Co.  located? 

I  understand  their  headquarters  are  at  Birmingham,  Ala. 

Do  you  know  where  they  were  chartered? 

No,  sir ;  I  do  not  know  that. 

Mr.  Wright.  Is  it  not  a  Canadian  company,  so  far  as  its  capitali74ition  is 
concerned,  and  was  it  not  chartered  in  Canada? 

Maj.  Burns.  I  beliere  it  was,  but  I  am  not  qualified  to  answer  that. 

Mr.  Wright.  Your  opinion  is  that  it  was  chartered  in  Canada? 

Maj.  Burns.  Yes,  sir. 

Mr.  Wright.  And  Canadian  or  English  capital  was  furnished? 

Maj.  Burns.  That  is  my  general  information. 

Mr.  Wright.  Is  it  not  true.  Major,  that  the  Alabama  Power  Co.  is  but  a 
branch  of  the  American  Cyanamid  Co.? 

Maj.  Burns.  I  have  never  heard  any  intimation  to  that  effect  before  this  time. 

Mr.  Wright.  Either  that,  or  that  the  American  Cyanamid  Co.  is  an  ally  of 
the  Alabama  Power  Co.? 

Maj.  Burns.  I  have  never  heard  any  intimation  of  that  before. 

Mr.  Wright.  Do  you  not  understand  that  these  three  companies  are  all  of 
the  same  origin  and  are  intertwined? 

Maj.  Burns.  No,  sir;  I  do  not. 

Mr.  Wright.  In  what  business  is  the  Alabama  Power  Co.  engaged? 

Maj.  Burns.  In  the  manufacture  and  sale  of  power  in  the  general  region 
surrounding  Birmingham,  Ala. 

Mr.  Wright.  Incidentally,  these  contracts,  or  the  one  entered  into  by  the 
Alabama  Power  Co.,  had  a  clause  which  gave  it  an  option  to  buy  the  Warrior 
Steam  Plant? 

Maj.  Burns.  Yes,  sir. 

Mr.  Wright.  That  was  a  part  and  parcel  of  the  construction  contract? 

Maj.  Burns.  Yes,  sir. 

Mr.  Wright.  That  company  received  from  $225,000  to  $285,000  for  its 
services? 

Mr.  Burns.  It  received  a  fee  of  $225,000  on  that  contract. 

Mr.  Wright.  They  executed  the  construction  of  this  steam  power  plant  at 
Gorgas? 

Maj.  Burns.  Yes,  sir;  that  is  correct. 

Mr.  Wright.  That  was  an  emergency,  so  far  as  the  Government  was  con- 
cerned, and  was  so  considered? 

Maj.  Burns.  Yes,  sir. 

Mr.  Wright.  The  prime  object  was  to  produce  nitrates  in  Alabama  for  ine 
War  Department? 

Maj.  Burns.  Y'es,  sir. 


Mr.  Wright.  And  it  was  contemplated  that  the  power  from  Dam  No.  2  would 
be  sufficient  to  run  tliat  nitrate  plant  No.  2,  when  developed,  or  to  operate 
nitrate  plant  No.  2? 

Maj.  Burns.  I  can  not  describe  or  explain  what  was  in  the  back  of  the 
minds  of  the  people  wlio  started  the  Wilson  Dam. 

Mr.  Wright.  Is  it  not  true  that  the  nitrate  project  was  started  by  the  Grov- 
emment  principally  because  they  thought  they  could  get  cheap  water  power 
there? 

Maj.  Burns.  INIy  understanding  is  that  the  No.  2  plant  was  started  there 
because  Muscle  Shoals  was  the  best-known  site,  and  the  raw  materials  were 
available. 

Mr.  W^right.  And  the  element  of  power  was  one  of  the  material  things? 

Maj.  Burns.  Hydroelectric  power  could  not  have  been  considered  very  seri- 
ously, because  they  nmst  have  known  it  would  have  taken  much  longer  to 
produce  power  from  a  dam  in  the  river  than  to  produce  power  from  a  steam 
plant. 

Mr.  Wright.  Can  you  tell  us  why  they  started  Dam  No.  2  if  it  was  not 
intended  to  use  it  in  that  way?  It  was  the  only  activity  the  Government  had 
down  there. 

Maj.  Burns.  I  can  not  explain  that. 

Mr.  Wright.  That  was  the  prime  object,  was  it  not? 

Maj.  Burns.  If  you  want  to  know  the  way  I  look  at  it  now,  it  seems  to  me 
it  was  started  to  fit  in  with  the  No.  2  nitrate  plant,  but  I  do  not  know  the 
intention  of  the  people  who  started  the  project. 

Mr.  Wright.  This  contract  for  the  Warrior  plant  was  entered  into  to  get 
power  quickly  for  nitrate  plant  No.  2,  was  it  not? 

Maj.  Burns.  That  is  correct. 

Mr.  Wright.  It  was  contemplated  that  when  that  steam  plant  near  the 
nitrate  plant  was  completed  the  Government  would  have  no  further  use  for  the 
Warrior  plant,  was  it  not?  In  other  words,  the  steam  plant  near  nitrate  plant 
No.  2  was  adequate  to  furnish  power? 

Maj.  Burns.  No,  sir;  not  quite.  When  that  plant  was  originally  designed 
it  was  expected  that  90,000  kilowatts  would  be  required  to  run  it.  and  they  got 
that  by  getting  30.000  from  the  Alabama  Power  Co.  and  60,000  from  the 
Government's  steam  plant  at  Muscle  Shoals.  In  that  contract  the  Alabama 
Power  Co.  had  to  furnish  power  during  the  war ;  they  could  not  buy  back  that 
plan*  during  the  war. 

Mr.  Wright.  It  was  contemplated  that  the  steam  plant  near  nitrate  plant  No. 
2  would  supplant  the  power  plant  at  Warrior,  was  it  not? 

Maj.  BiTRNS.  No,  sir.  When  the  project  was  designed  it  was  thought  that 
90,000  kilowatts  would  be  necessary,  and  therefore  we  had  to  make  a  contract 
for  the  30,0(¥)  kilowatts  from  the  Alabama  Power  Co.,  as  well  as  to  use  the 
capacity  of  the  steam  plant  at  No.  2.  The  operation  of  the  plant  leads  us  to 
believe  that  the  No.  2  plant  can  be  operated  nearly  to  its  complete  capacity 
with  only  the  steam  plant  at  Muscle  Shoals. 

Mr.  Wright.  Near  nitrate  plant  No.  2? 

Maj.   Burns.  Yes,   sir. 

Mr.  Wright.  That  was  the  object  of  constructing  that  power  plant — to  fur- 
nish power? 

Maj.  Burns.  Not  complete  power. 

Mr.  Wright.  Not  complete  power,  but  to  furnish  power? 

Maj.  Burns.  I'es,  sir. 

Mr.  Wright.  And  the  option  contained  in  that  contract  with  the  Alabama 
Power  Co.  provides  that  the  Alabama  Power  Co.  can  become  the  purchaser  of 
the  Warrior  steam  plant? 

Maj.  Burns.  Yes,  sir. 

Mr.  Wright,  In  other  words,  it  is  purely  an  option.  In  reference  to  the 
language  you  read  a  while  ago,  to  the  effect  that  the  Government  agrees  to  sell 
this  plant  to  the  Alabama  Power  Co.,  and  the  Alabama  Power  Co.  agrees  to 
buy  it  from  the  Government,  those  are  mutual  terms  to  make  an  option  binding? 

Maj.  Burns.  What  I  read  was  only  a  part  of  the  sales  clause. 

Mr.  Wright.  Whoever  drew  the  contract  wanted  to  avoid  a  one-sided  contract. 
There  must  be  a  mutuality.  The  Government  agreed  to  sell  it,  and  the  Alabama 
Power  Co.  agreed  to  buy  it,  so  at  last  it  simply  was  an  option. 

Maj.  Burns.  I  do  not  understand  it  that  way.  I  read  you  only  a  part  of  the 
sales  clause. 

Mr.  Wright.  That  is  the  option  feature  of  it. 

Maj.  Burns.  That  is  one  option  feature. 


234 


MUSCLE   SHOALS  PROPOSITIONS. 


I 


t 
I 


Mr.  Wright.  You  understand  that  an  option  is  a  privilege  by  wliieh  one  party 
agrees  to  do  or  not  to  do  a  certain  tiling.  Do  you  undertake  to  say  that  if  the 
Government  would  offer  this  plant  to  the  Alabama  Power  Co.  that  the  Alabama 
Power  Co.  would  be  bound  to  appoint  an  arbitrator  as  a  member  of  the  board  to 
fix  the  value  of  the  plant,  and  that  the  Alabama  Power  Co.  would  be  bound  to 
accept  the  award,  or  could  they  not  just  say  we  want  to  accept  it? 

Maj.  Burns.  There  is  a  very  long  clause  pertaining  to  the  method  of  selling 
that  plant, -and  what  I  read  to-day  was  only  a  small  extract  from  the  sales 
clause. 

Mr.  Wright.  In  the  light  of  all  that  has  transpired — and  I  am  not  criticizing 
what  was  done  during  the  emergency — can  you  not  now  see  that  it  was  the  pur- 
pose of  the  Air  Nitrates  Corporation,  which  had  an  option  in  its  contract  to  buy 
nitrnte  plant  No.  2,  and  in  the  contract  of  the  Alabama  Power  Co.,  which  con- 
tained an  option  for  it  to  buy  the  steam  plant  at  Warrior,  that  it  was  simply  a 
long-sighted,  shrewd,  ingenious  idea  to  tie  up  the  Government  so  that  it  could 
not  dispose  of  these  properties  except  these  companies  were  the  purchasers ;  in 
othf^r  words,  it  gave  them  the  key  to  the  situation? 

Maj.  Burns.  I  can  not  subscribe  to  that. 

IVfr.  Wright.  Does  it  not  do  that  by  the  very  terms  of  the  contract? 

Maj.  Burns.  No,  sir;  I  think  not. 

Mr.  Wright.  You  have  just  said  the  Government  could  not  accept  this  con- 
tract with  Mr.  Ford  because  of  the  contract  it  has  with  the  Alabama  Power  Co. 

Maj.  Bitrns.  But  I  also  said  the  Warrior  plant  was  not  a  vital  part  of  the 
Muscle  Shoals  project. 

Mr.  Wright.  The  fact  is,  it  is  included  ui  the  proposition. 

Maj.  Burns.  Yes,  sir. 

Mr.  Wright.  You  recited  that  as  a  reason  why  the  Ford  proposition  can  not 
be  accepted? 

Maj.  Burns.  Yes,  sir. 

Mr.  Wright.  Because  of  that  clause  in  the  contract  with  the  Alabama 
Power  Co.? 

Maj.  Burns.  That  would  be  only 

Mr.  Wright  (interposing).  Do  you  not  now  see  it  wns  the  purpose  of  the 
Alabama  Power  Co.  in  inserting  this  option  clause  to  so  tie  up  the  Government 
that  it  could  not  dispose  of  this  property  except  to  it? 

Maj.  Burns.  It  was  undoubtedly  the  intention  to  tie  up  the  Gorgas  plant ;  but 
by  that  they  did  not,  as  I  see  it,  put  any  restrictions  upon  the  sale  of  nitjftte 
plant  No.  2. 

Mr.  Wright.  I  am  talking  about  the  power  plant.  Do  you  not  further  realize 
that  the  Alabama  Power  Co.  has  practically  a  monopoly  of  the  hydroelectric 
power  in  that  region,  and  can  you  not  see  that  they  do  not  want  a  competitor 
to  come  into  that  field?  Can  you  not  see  that  they  put  this  clause  in  to  keep 
down  competition  and  to  prevent  further  developments  being  made  down  there? 

Maj.  Burns.  In  all  fairness  to  the  Alabama  Power  Co. 

:Mr.  Wright  (interposing).  I  am  talking  about  what  you  now  see. 

Maj.  Burns.  I  can  not  make  an  answer  to  that  question  by  simply  saying  yes. 

Mr.  Wright.  Do  you  not  further  see  that  the  American  Cyanimid  Co.  is  in 
the  market  manufacturing  the  identical  product  that  nitrate  plant  No.  2  was 
designed  to  manufacture? 

Maj.  Burns.  That  is  correct. 

Mr.  Wright.  Can  you  not  see  that  it  is  proposed  in  this  construction  contract 
whereby  they  agree  to  build  nitrate  plant  No.  2  to  also  insert  a  clause  which 
would  tie  up  the  hnnds  of  the  Government  so  that  the  Government  can  not  get  into 
competition  with  the  American  Cyanamid  Co.,  and  can  not  sell  this  land  to 
anybody  who  would  come  in  competition  with  them  ? 

Maj.  Burns.  I  should  say  that  would  be  reasonable,  businesslike  protection. 

Mr.  Wright.  So  far  as  the  American  Cyanamid  Co.  was  concerned. 

Maj.  Burns.  Yes,  sir. 

Mr.  Wright.  What  do  you  think  about  the  Government? 

Maj.  Burns.  It  does  not  seem  to  me  that  the  Government  has  the  right 

Mr.  Wright  (interposing).  You  are  a  business  man  of  very  wide  experience? 

Maj.  Burns.  I  am  not  a  business  man,  and  I  doubt  if  I  am  a  man  of  very 
wide  experience. 

Mr.  Wright.  You  would  not  say  that  a  man  of  very  wide  business  experience 
would  enter  into  a  contract  like  that  for  the  Government? 

Mai.  Bl'rns.  I  think  that  contract  is  all  right  from  the  standpoint  of  the 
Government. 


MUSCLE   SHOALS  PROPOSITIONS. 


235 


Mr.  Wright.  Can  jou  see  anything  in  it  for  the  Government  except  to  get 
nitrate  purely  as  an  emergency  feature,  and  the  other  feature  was  not  looked 
out  for  at  all  ? 

Maj.  Burns.  No,  sir ;  I  would  not  go  as  far  as  that. 

Mr.  Wright.  If  it  develops  that  the  Alabama  Power  Co.,  the  American  Cya- 
namid Co.,  and  the  Air  Nitrates  Corporation  are  practically  one,  that  the  stock- 
holders are  practically  the  same,  that  the  companies  are  simply  organized  under 
different  names,  then  you  can  readily  see  why  these  contracts  were  entered  into, 
can  you  not?    I  am  asking  you  if  that  be  true 

Maj.  Burns  (interposing).  I  do  not  believe  I  could  answer  that  question,  be- 
cause I  think  the  hypothesis  is  wrong. 

Mr.  Wright.  The  maintenance  and  operation  of  the  steam  plant  is  not  at  all 
essential  to  the  conduct  of  these  plants  down  there  at  Muscle  Shoals;  is  that 
not  true? 

Maj.  Burns.  In  my  judgment,  it  is  not. 

Mr.  Wright.  There  is  adequate  power  now  from  the  steam  plant  constructed 
by  the  Government  in  all  these  plants,  and  what  may  be  received  from  dam  No. 
1  and  dam  No.  2,  to  supply  these  plants? 

Maj.  Burns.  Yes;  there  is  almost  enough  nower  available  at  the  steam  plant 
No.  2  alone. 

Mr.  Wright.  And  with  the  construction  of  dam  No.  2  you  can  abandon  the 
power  connected  with  the  steam  plant? 

Maj.   Burns.  Absolutely. 

Mr.  Wright.  You  do  not  regard  the  Gorgas  power  plant  as  at  all  essential  to 
the  successful  operation  of  these  plants  at  Muscle  Shoals? 

Maj.  Burns.  I  do  not;  no,  sir. 

Mr.  Wright.  You  think  you  can  salvage  that  for  $3,000,000? 

Maj.  Burns.  I  do;  yes,  sir. 

Mr.  Stoll.  Where  does  plant  No.  1  get  its  power? 

Maj.  Burns.  There  was  a  small  power  plant  erected  with  a  capacity  of  5,000 
kilowatts. 

Mr.  Stoll.  Where  does  plant  No.  2  get  its  power? 

Maj.  Burns.  Its  principle  source  of  power 

Mr.  Wright.  If  the  gentleman  will  pardon  me,  I  have  one  other  question 
I  omitted  to  ask  the  Major. 

Mr.  Stoll.  Certainly. 

Mr.  Wright.  Major,  you  said  the  Alabama  Power  Co.  was  intended  to  fur- 
nish hydroelectric  power. 

Maj.  Burns.  They  furnish  both  hydroelectric  and  steam  power. 

Mr.  Wright.  Then  it  is  a  power  proposition,  pure  and  simple. 

Maj.  Burns.  According  to  my  understanding,  it  is. 

Mr.  Wright.  If  the  Air  Nitrates  Corporation  is  given  the  right  to  buy  this 
nitrate  plant  No.  2  according  to  the  terms  of  the  contract  with  the  Govern- 
ment, then  the  Governmen*^  would  have  no  use  for  dam  No.  2,  known  as  the 
Wilson  dam,  because  it  would  have  no  way  to  use  the  power. 

Maj.  Burns.  Of  course,  power  can  be  used  for  a  great  diversity  of  things. 

Mr.  Wright.  But  you  do  not  know  of  any  market  unless  it  was  used  for  the 
operation  of  the  nitrate  plant. 

Maj.  Burns.  I  do  not  personallv  know  of  any ;  no,  sir.  But  I  have  heard  the 
testimony  of  Mr.  Cooper,  and  he  claims  that  the  general  country  down  there  can 
easily  utilize  the  power  that  would  be  developed  at  Muscle  Shoals. 

Mr.  Wright.  The  idea  is  that  the  nitrate  plant  No.  2  and  Dam  No.  2  are 
supposed  to  be  built  in  conjunction,  so  far  as  the  Government  proposition  is 
concerned,  and  one  depends  on  the  other.  So  that  if  the  Government  disposes 
of  nitrates  plant  No.  2  to  the  Air  Nitrates  Corporation,  would  there  be  any 
market  for  the  power  produced  at  Dam  No.  2,  except  the  Alabama  Power  Co.? 

Maj.  Burns.  As  I  said  before,  the  testimony  of  Mr.  Cooper  indicated  there 
would  be  abundant  use  for  power  over  and  above  the  market  at  the  No.  2 
nitrate  plant. 

Mr.  Stoll.  Plant  No.  2  has  its  own  steam  plant  to  produce  its  power? 

Maj.  Burns.  It  is  expected  that  that  will  be  almost  enough  to  run  the  entire 

plant. 
Mr.  Stoll.  Who  owns  the  right  of  way  between  the  Gorgas  Plant  and  Muscle 

Shoals? 

Maj.  Burns.  The  Alabama  Power  Co. ;  I  do  not  know  whether  they  have  a 
complete  title,  but  they  either  own  it  or  they  have  control  of  the  land. 

Mr.  Stoll.  They  own  no  other  land  at  Muscle  Shoals? 

Maj.  Burns.  Not  to  my  knowledge. 


i 


236 


MUSCLE   SHOALS  PROPOSITIOXS. 


MUSCLE  SHOALS  PROPOSITIONS. 


237 


Mr.  Stoix.  Where  is  the  principal  place  of  business  of  tlie  Alabama  Power 
Co, — I  do  not  mean  its  office? 

Maj.  Burns.  I  can  only  give  you  my  general  information.  I  believe  most  of 
their  hydroelectric  power  is  generated  at  what  is  known  ns  Lock  No.  12  on  the 
Coosa  Kiver.  They  have  steam  plants  scattered  around  to  back  up  the  hydro- 
electric power,  and  one  of  those  is  their  plant  at  Gorgas. 

Mr.  Stoll.  How  much  money  has  the  Alabama  Power  Co.  put  into  the  Gorgas 
steam  plant? 

Maj.  Burns.  My  judgment  is  that  it  is  well  in  excess  of  $3,000,000. 
Mr.  Stoll.  You  stated,  I  believe,  that  the  Alabama  Power  Co.  built  a  part 
of  the  plant  and  that  the  Government  built  the  other  part  of  the  plant? 
Maj.  Burns.  Yes,  sir. 

Mr.  Stoi.l.  The  Alabama  Power  Co.  has  no  money  in  the  part  that  the  Gov- 
ernment built? 

Maj.  Burns.  No,  sir ;  except  that  they  own  the  land. 

Mr.  Stoll.  They  had  a  profit  of  something  like  $285,000  on  the  construction 
of  that  plant  for  the  Government? 

Maj.  BuTiNs.  That  is  correct;  yes,  sir;  if  you  include  the  overhead  fee  of 
$60,000  as  profit. 

Mr.  Stoll.  How  much  has  the  Government  invested  in  Muscle  Shoals? 

Maj.  Burns.  Nitrate  plant  No.  2  represents  an  investment  of  approximately 
$70.(KM).000 ;  nitrate  plant  No.  1  represents  an  investment  of  practically 
$13,000,000 ; ;  the  Wilson  Dam 

Mr.  Stoll.  The  Government  has  an  investment  there  of  something  over 
$30(»,000.()00,  has  it  not?  , 

Maj.  Bltins.  When  we  consider  plant  No.  1,  plant  No.  2,  Gorgas  power  plant 
and  the  dam,  it  is,  roughly,  $105,000,000.  * 

Mr.  Stoll.  The  Government  in  its  operation  of  Muscle  Shoals  is  to  gen- 
erate electric  power  to  manufacture  nitrates  for  the  Ordnance  Department 
and  to  manufacture  nitrates  to  use  in  making  fertilizer?  That  is  the  principal 
function  of  the  Goveniment  at  Muscle  Shoals,  is  it  not? 

Maj.  Burns.  Those  plants  were  put  up  during  the  war  for  the  purpose  of 
manufacturing   explosives. 

Mr.  Stoll.  As  it  stands  to-day,  if  it  is  developeil  it  will  be  for  electric  power 
explosives,   and   fertilizer. 

Maj.  Burns.  Those  three  could  be  produced. 

Mr.  Stoll.  They  have  already  invested  there  about  $100,(K)0,000? 

Maj.  Burns.  Yes,  sir. 

Mr.  Stoll.  What  does  the  Alabama  Power  Co.  develop? 

Maj.  Burns.  Power. 

^Ir.  Stoll.  That  is  one  of  the  elements  which  the  Government  will  develop? 

Maj.  Burns.  Yes,  sir. 

Mr.  Stoll.  What  does  the  Air  Nitrates  Corporation  develop? 

Maj.  Burns.  They  are  engaged  principally  in  the  manufacture  of  fertilizer 
materials.  * 

Mr.  Stoll.  That  is  another  element  the  Government  would  develop? 

Maj.  Burns.  Yes,  sir. 

Mr.  Stoll.  What  does  the  American  Cyanamid  Co.  develop? 

Maj.  Burns.  It  is  a  company  that  develops  fertilizer  materials.  The  Air 
Nitrates  Corporation  is  a  subsidiary  of  the  American  Cyanamid  Co. 

Mr.  Stoll.  The  only  three  companies  that  have  an  interest  at  Muscle  Shoals, 
outside  of  the  Government  interests,  develop  power  and  ingredients  of  fer- 
tilizers? 

Maj.  Burns.  That  is  correct. 

Mr.  Stoll.  How  much  money  has  the  Air  Nitrates  Corporation  invested  in 
Muscle  Shoals? 

Maj.  Burns.  None,  so  far  as  I  know. 

Mr.  Stoll.  How  much  has  the  American  Cyanamid  Co.? 

Maj.  Burns.  In  so  far  as  I  know,  they  are  in  a  similar  position.  Neither 
combination  has  any  money  invested. 

Mr.  Stoll.  Whose  interest  do  you  think  is  paramount— the  Government's, 
with  over  $100,000,000  invested  there,  or  the  interests  of  the  Alabama  Power 
Co.,  with  a  few  million  dollars  invested? 

Maj.  Burns.  I  think,  without  doubt,  the  Government's  interest  is  always 
paramount. 

Mr.  Stoll.  If  the  two  interests  conflict,  whose  interests  must  we  look  after? 
^laj.  Burns.  I  think  you  must  always  look  after  the  Government's  interests. 


Mr.  Stoll.  When  you  say  we  are  under  obligations  to  the  Alabama  Power 
Co.  and,  in  your  opinion,  this  Ford  offer  should  be  rejected  rather  than  break 
a  contract  with  the  Alabama  Power  Co.,  your  opinion  is  based  more  on  a 
desire  to  save,  as  it  were,  the  skin  of  the  Ordnance  Department  for  entering 
into  a  foolish  contract  than  it  is  concerned  with  the  rights  of  the  Government 
to  go  ahead  and  do  this  particular  thing? 

Maj.  Burns.  Not  necesessarily.  I  think  the  Government's  interests,  as  a 
matter  of  policy,  would  be  best  protected  if  it  insisted  upon  living  up  to  the 
Alabama  Power  Co.'s  contract.  I  do  not  think  you  can  always  measure  the 
Government's  interest  in  dollars  and  cents. 

Mr.  Stoll.  But  we  are  considering  this  proposal  from  the  standpoint  strictly 
of  Mr.  Ford's  offer,  whether  the  Government  should  take  the  Ford  offer,  and  iu 
considering  that  there  has  been  brought  in  the  contract  with  the  Alabama 
Power  Co.,  so  we  are  considering  that  contract  solely  in  the  light  of  the  Ford 
offer,  and  vou  stated  that  you  thought  that  ought  to  be  thrown  aside  to  protect 
the  intereiil^  of  the  Alabama  Power  Co. 

Maj.  Burns.  Yes,  sir;   I  made  that  statement. 

Mr.  Stoll.  Suppose  the  Ford  offer,  in  the  opinion  of  Congress,  would  be 
beneficial  to  the  Government,  saving  what  they  have  already  invested  in  pro- 
ducing elements  that  would  be  beneficial  to  the  Government  in  time  of  war 
as  well  as  in  time  of  peace.  Do  you  think  the  contract  with  the  Alabama  Power 
Co.  is  so  paramount  that  you  could  let  those  other  things  go  in  order  to  protect 
tliem? 

Maj.  BuKNs.  If  you  take  the  stand  that  the  Ford  offer  is  of  vital  benefit  to 
the  United  States,  I  can  see  only  one  conclusion  to  come  to,  and  that  is  to 
accept  the  offer.    But  I  do  not  take  that  stand. 

Mr.  Stoll.  That  is  a  hypothetical  question,  because  we  are  considering  the 
Alabama  Power  Co.  solely  in  view  of  its  relation  to  the  Ford  offer,  and  not  what 
we  would  do  with  the  Alabama  Power  Co.  otherwise. 

Maj.  Burns.  My  judgment  is  it  would  be  to  the  best  interests  of  the  Govern- 
ment to  live  up  to  the  contract. 

Mr.  Stoll.  That  is  not  the  question.  The  question  is.  if  the  Ford  offer  is  the 
best  interest  for  the  Government 

Maj.  Burn,  (interposing).  You  have  made  your  answer. 

Mr.  Stoll.  You  think  the  Alabama  Power  Co.'s  right  should  offset  that? 

Maj.  Burns.  If  you  make  that  assumption  to  start  with,  you  have  also  written 
the  answer,  I  think. 

Mr.  Stoll.  Then,  you  do  not  consider  the  Alabama  Powder  Co.'s  right  neces- 
sarily so  strong  it  would  offset  the  Ford  offer? 

Maj,  Burns.  I  do;  but  you  are  assuming  that  it  is  not,  and,  therefore,  you 
get  another  answer. 

Mr.  Stoll.  Perhaps  you  did  not  catch  the  drift  of  my  question. 

Maj.  Burns.  I  think  I  did.  You  are  assuming  that  the  Ford  offer  is  of  para- 
mount importance  to  the  Government. 

Mr.  Stoll.  No  ;  I  say  if  it  is  to  the  best  interests  of  the  Government,  or  if 
the  Ford  offer  is  good. 

Maj.  Burns.  If  I  understand  your  question,  you  put  it  this  way :  If  it  is  to 
the  best  interest  of  the  Government  to  accept  this  Ford  offer,  should  we  throw 
over  the  Alabama  Power  Co.  contract?  I  say,  if  you  believe  it  is  to  the  best 
interests  of  the  Government  to  accept  the  Ford  offer  as  drawn  you  have  written 
your  answer. 

Mr.  Stoll.  Suppose  there  is  no  controversy  over  the  Alabama  Power  Co.  at 
all;  suppose  there  is  no  question  about  the  Alabama  Powder  Co. — ^that  they 
have  no  claim — ^w^ould  you  think  the  Ford  offer  good? 

Maj.  Burns.  It  all  depends  on  the  point  of  view.  If  I  were  a  farmer  and 
had  the  farmers'  interests  solely  at  heart,  I  would  say  that  the  Ford  offer  is 
pood.  If  I  were  a  fertilizer  man  and  had  only  the  fertilizer  interests  at  heart, 
I  would  say  that  the  Ford  offer  is  not  good. 

Mr.  Stoll.  Why? 

Maj.  Burns.  Because  there  is  a  great  possibility  of  the  Ford  offer  hurting  the 
fertilizer  busine«='s  and  the  people  who  have  their  money  so  invested. 

Mr.  Stoll.  By  cheapening  fertilizer? 

Maj.  Burns.  There  is  a  possibility  of  that. 

Mr.  Stoll.  Then  from  the  standpoint  of  agriculture  it  would  be  a  benefit? 

Maj.  Burns.  It  has  possibilities  of  benefits ;  yes,  sir. 


I 


238 


MUSCLE   SHOALS  PKOPOSITIONS. 


Mr.  Stotx.  I  am  glad  you  have  made  tliat  statement.  From  the  standpoint 
of  developing  the  country  down  there  through  the  use  of  electricity 

Maj.  Burns  (interposing).  In  that  case,  also,  in  my  judgment,  the  Ford 
offer  has  great  possibilities. 

Mr.  Stoll.  And  from  the  other  standpoint  of  providing  in  a  permanent  way. 
ready  at  all  times  to  make  the  nitrates  that  your  department  needs  in  time  of 
war,  it  would  be  beneficial  from  that  standpoint? 

Maj.  Burns.  Yes,  sir;  it  would. 

Mr.  Stoll.  Then  from  every  standpoint,  leaving  out  the  contract  with  the 
Alabama  Power  Co.,  the  Ford  offer  is  good, 

Maj.  Burns.  It  has  great  possibilities ;  yes,  sir. 
•  Mr.  Stoll,  You  have  just  admitted  it  was  good, 

Maj,  Burns,  I  did  not  say  from  every  standpoint  except  one.  That  is  where 
you  put  in  a  proviso  I  did  not  include. 

Mr.  Stoll.  The  fertilizer,  the  electrical  power,  and  the  explosi\j«|  that  you 
use  in  time  of  war  are  the  only  three  elements  involved ;  and  if  We  thing  is 
good,  if  the  Alabama  Power  Co,  had  no  contract,  the  interests  of  the  Govern- 
ment at  all  times  being  paramount,  why  should  we  now  throw  it  aside  on  ac- 
count of  this  alleged  interest  of  the  Alabama  Power  Co,? 

Maj.  Burns,  My  own  judgment  of  that  is  that  the  Government  should  set  the 
foremost  example  in  living  up  to  its  contracts,  and  I  think  that  is  a  greater 
matter  of  policy  than  anything  else. 

Mr.  Stoll.  But  you  just  admitted  that  the  Government's  interest  is  para- 
mount, and  you  admit  that  if  these  other  things  are  true  it  would  be  for  the 
good  of  the  country. 

Maj,  Burns,  No;  I  did  not  say  that,  I  said  from  certain  points  of  view  it 
would  be  good,  and  from  other  points  of  view  it  would  not  be  good.  I  did  not 
make  the  summarized  statement. 

Mr.  Stoll.  I  think  you  have  about  admitted  yourself  out  of  court.     That 

is  all, 

Mr.  Fields.  There  is  one  question  I  overlooked,  :Major.  The  Government  fur- 
nished the  Air  Nitrates  Corporation  the  funds  on  which  it  operated,  did  it  not,  in 
the  contruction  of  nitrate  plant  No.  2? 

Maj.  Burns.  Yes,  sir. 

Mr.  Fields,  And  all  the  other  plants  that  were  built? 

Maj.  BuTiNS.  Yes,  sir, 

Mr.  Fields.  What  was  the  total  claim  of  the  Air  Nitrates  Corporation  for 
the  construction  done  for  the  Government? 

Maj.  Burns,  $1,500,000, 

Mr,  Fields.  And  they  all  applied  to  nitrate  plant  No.  2. 

Maj.  Burns.  Yes,  sir ;  they  could  all  be  applied  against  that  plant. 

Mr,  FIET.D,  Including  the  other  plants,  3  and  4,  what  was  the  total  for  the 

entire  construction  program?  *^^^^^n/^A 

Maj.  Bl-rns.  $1,500,000.  They  earned  their  complete  fee  when  $60,000,000 
was  expended,  and  since  $70,000,000  was  expended  on  No.  2  plant  alone,  that  of 
itself  earned  for  them  the  entire  fee. 

Mr.  Field.  This  corporation,  like  the  Alabama  Power  Co.,  also  secured  an 
option  for  the  purchase  of  n'trate  plant  No.  2? 

Maj.  Burns.  Yes,  sir. 

Mr.  Field.  Do  you  feel  that  that  places  upon  the  United  States  the  same 
moral  obligation  that  the  option  of  the  Alabama  Power  Co.  carries? 

Maj  Burns.  I  do  not  think  that  option  is  so  important,  because  one  of  the 
provisos  of  that  option  is  that  they  must  agree  to  pay  to  the  Government  as 
good  a  return  as  the  Government  can  get  from  somebody  else. 

Mr  Fields  If  thev  come  in  and  claim  their  right  to  purchase  nitrate  plant 
No  2  just  like  the*^  Alabama  Power  Co.  claims  its  right  to  purchase  the 
Gorgas  plant,  you   think  that   the  Government  should   also  live  up  to  that 

proposition?  ,  , ,.       .         ,       ^^         ^     t  ^  „r» 

Maj.  Burns.  Yes,  sir;  I  think  there  is  an  obligation  also  there  to  live  up 

to  the  contract.  ,         ,     «  i.  „  ,u 

Mr  Fields  And  are  you  aware  of  the  fact  that  when  the  Government  sun- 
mitted  to  Mr  Duke,  the  moving  spirit  of  the  Air  Nitrates  Corporation  and  the 
American  Cyanamid  Co.,  an  invitation  to  submit  a  proposition  for  the  lease 
or  purchase  of  nitrate  plant  No.  2,  that  he  at  that  time  declined  to  submit 
a  proposition,  condemned  the  operation  of  plant  No.  2,  either  by  the  Government 


MUSCLE   SHOALS  PROPOSITIONS. 


239 


or  by  private   interests,   and   also   recommended   against   the   completion   of 
dam  No.  2;  are  you  aware  of  that  fact? 

Maj.  Burns.  I  heard  the  letter  read  a  day  or  so  ago. 

Mr.  Fields.  Was  not  the  Alabama  Power  Co.  included  in  that  as.sociation 
of  southern  producers  of  power  which  also  subuTitted  to  the  Secretary  of  War 
a  long  letter  recommending  against  the  completion  of  Dam  No.  2  and  the  oper- 
ation of  nitrate  plant  No.  2? 

Maj.  Burns.  I  did  not  know  their  name  was  included  in  that  association 
of  power  producers. 

Mr.  Fields.  It  is  not  clear  in  my  mind  whether  it  was  or  not. 

Maj.  Burns.  I  did  not  hear  it  read. 

Mr.  Fields.  I  can  hardly  see  where  you  distinguish  between  the  option 
of  the  Alabama  Power  Co.  and  the  option  of  the  Air  Nitrates  Corporation  on 
nitrate  plant  No.  2.  If  one  is  a  binding  obligation  on  the  Government,  it  seems 
to  me  from  your  viewpoint  the  other  would  be  binding  upon  the  Government. 

Maj.  Burns.  I  appreciate  your  point,  but  as  I  said  before,  the  American 
Cyanamid  Co.  can  not  buy  that  plant  unless  it  is  willing  to  give  as  good  a  return 
to  the  United  States  as  the  United  States  is  able  to  get  from  any  other  person. 
It  is  my  own  judgment  that  the  American  Cyanamid  Co.  would  not  give  the 
United  States  what  Mr.  Ford  is  agreeing  to  give.  Therefore,  I  feel,  without 
knowing  the  facts  in  the  case,  that  the  American  Cyanamid  Co.'s  option  is  not 
going  to  be  any  impediment  at  all. 

Mr.  Fields.  In  line  with  the  questions  asked  by  Mr.  Stoll  a  moment  ago,  I 
will  ask  you,  eliminating  the  Alabama  Power  Co.  and  the  manufacturers  of 
fertilizers  in  the  country,  to  which  you  yourself  referred,  what  is  your  opinion 
as  a  military  man  of  the  completion  of  Dam  No.  2  and  the  development  and 
operation  of  nitrate  plant  No.  2  from  the  standpoint  of  preparedness ;  is  that 
of  interest  to  the  Government? 

Maj.  Burns.  Yes,  sir;  it  is.  I  would  like  very  much  to  see  the  dam  com- 
pleted and  the  plant  operated. 

Mr.  Fields.  What  would  be  the  annual  cost  of  the  maintenance  of  nitrate 
plant  No.  2  in  an  idle  stand-by  condition? 

Maj.  Burns.  We  are  keeping  it  this  year  for  a  cost  of  about  $125,000,  with 
the  additional  proviso,  however,  that  we  are  leasing  the  power  plant  for  a 
fixed  rental  of  $120,000  a  year  and  an  additional  probable  return  of  $140,000. 

Mr.  Fields.  And  if  the  Government  should  continue  this  operation  for  20 
years,  what  money  would  it  have  to  expend  for  reinstallation  and  improvement 
of  the  plant? 

Maj.  Burns.  I  can  not  answer  that  question,  Mr.  Fields,  because  it  all  de- 
pends on  the  life  which. you  give  to  the  plant  in  standby.  It  might  all  go  to 
pieces  in  10  years  or  it  might  not  go  to  pieces  for  50  years. 

Mr.  Fields.  Is  it  not  a  fact  from  the  standpoint  of  national  preparedness 
that  the  Ford  offer  would  be  a  great  saving  to  the  Government  in  the  end,  not 
including  the  4  per  cent  interest  on  the  investment,  and  the  sinking  fund,  and 
the  allowances  for  the  maintenance  of  locks  and  dams  Nos.  2  and  3,  by  reason 
of  the  fact  that  he  must  himself  keep  this  plant  in  condition  to  operate,  and  turn 
it  over  to  the  Government  upon  five  days'  notice  at  any  time  the  Government 
may  want  it. 

Maj.  Burns.  I  think  it  would. 

Mr.  Fields.  There  is  a  very  great  element  of  cost  there  that  must  be  met  by 
Mr.  Ford  if  he  takes  over  the  proposition  in  order  to  keep  that  plant  in  condi- 
tion for  the  Government. 

Maj.  Burns.  He  undoubtedly  would  bear  the  burden  that  the  Government 
would  otherwise  have  to  bear  or  might  have  to  bear. 

Mr.  Fields.  If  the  Government  should  bear  the  burden  of  maintaining  this 
plant  in  the  condition  that  Mr.  Ford  proposes  to  maintain  it.  for  the  life  of  the 
proposed  Ford  lease,  it  would  necessitate  an  expenditure  of  millions  and  mil- 
lions of  dollars  on  the  part  of  the  Government,  would  it  not? 

Maj.  Burns.  It  probably  would.  I  w^ould  like  to  qualify  that  statement 
in  this  way :  The  Government,  in  my  opinion,  would  only  hold  nitrate  plant 
No.  2  until  the  business  of  nitrogen  fixation  was  developed  in  America  to  such 
an  extent  that  it  could  be  depended  upon.  If  it  was  never  developed  within  100 
years,  that  might  mean  that  the  Government  would  retain  that  plant  for  100 
years.  If,  however,  nitrogen  fixation  were  an  accomplished  fact  on  a  big 
business  basis  in  10  years,  the  Government  would  not  be  justified  in  carrying 
the  plant  any  longer  than  10  years. 


92900—22- 


-16 


240 


MUSCLE  SHOALS  PROPOSITIONS. 


Mr.  Fields.  Your  proposition  hangs  upon  the  possibility  of  tlie  development 
of  nitrogen  fixation  by  private  capital? 

Maj.  Burns.  Yes,  sir. 

Mr.  Fields.  There  is  just  one  other  question  that  has  been  overlooked,  in 
my  judgment,  all  the  way  through  that  I  desire  to  ask  you  about.  What  is 
the  distance  of  the  haul  by  water  of  Chilean  nitrates  from  the  Chilean  mines? 

Maj.  BuBNS.  Roughly,  4,000  miles. 

Mr.  Fields.  That  is,  through  the  canal? 

Maj.  BmNS.  Yes,  sir. 

Mr.  Fields.  In  time  of  stress,  if  the  canal  should  for  any  reason  be  put  out 
of  commission,  then  what  would  be  the  distance? 

Maj.  Burns.  It  might  not  be  so  very  much  greater,  because  in  that  instance 
you  might  take  it  up  to  the  California  coast  and  ship  it  across  the  continent  by 
rail.  If,  however,  you  had  to  go  around  the  Cape,  I  should  imagine  your 
distance  would  be  at  least  doubled. 

Mr.  Fields.  I  just  wanted  to  get  that  in  the  record.    That  is  all. 

Mr.  McKenzie.  Major,  we  are  very  much  obliged  to  you,  and  the  committee 
will  now  take  a  recess  until  2.30  o'clock  p.  m. 


■i 


MUSCLE  SHOALS  PROPOSITIONS. 


Committee  on  Military  Affairs, 

House  of  Representatives. 

Mondoif,  February  13,  192.2. 

after  recess. 

The  committee  met  pursuant  to  reces*;  at  2 :30  o'clock  p.  m. 

STATEMENT  OF  MR.  WILLIAM  B.  MAYO.  CHIEF  ENGINEER  OF  THE 

FORD  MOTOR  CO..  DETROIT,  MICH. 

The  Chairman.  Gentlemen  of  the  committee,  this  is  Mr.  ]^Iayo,  who  rep- 
resents Mr.  Ford  in  th's  proposition.  He  has  come  here  from  Detroit  and  de- 
sires to  be  heard  regarding  the  matter. 

Will  you  kindly  state  your  name  in  full? 

Mr.  Mayo.  William  B.  Mayo. 

The  Chairman.  And  also  explain  the  position  you  occupy? 

Mr.  Mayo.  Ch'ef  engineer  of  the  Ford  Motor  Co. 

The  Chairman.  How  long  have  you  been  with  Mr.  Ford? 

Mr.  Mayo.  About  eight  years. 

The  Chairman.  Are  you  acquainted  with  the  Muscle  Shoals  development? 

Mr.  Mayo.  Fairly  well,  I  think. 

The  Chairman.  To  what  profession  do  >ou  belong?    Are  you  an  engineer? 

Mr.  Mayo.  Yes,  sir. 

The  Chairman.  And  you  have  been  acting  as  an  engineer  for  Mr.  Ford? 

Mr.  Mayo.  Yes,  sir. 

The  Chairman.  Are  you  familiar  with  the  offer  that  Mr.  Ford  made  for  the 
Muscle  Shoals  plant? 

Mr.    Mayo.  Yes,   sir.    __ 

The  Chairman.  It  will  not  be  necessary,  therefore,  to  call  your  attention  to 
the  contract  or  the  proposal  that  he  has  submitted. 

^Ir.   Mayo.  I   think  not. 

The  Chairman.  Of  course,  the  first  proposal  he  submitted  on  July  8,  1921, 
he  has  asked  to  be  superseded  by  a  later  proposal  which  he  signed  January  25. 

Mr.  Mayo.  I'^es,  sir. 

The  Chairman.  And  gave  to  the  Secretary  of  War  on  January  27. 

Mr.  Mayo.     Yes,  sir. 

The  Chairman.  The  committee  has  a  few  matters  about  which  they  have  in- 
sufficient information,  and  they  would  like  you,  if  possible,  to  tell  just  what 
Mr.  Ford  proposes  to  do.  There  is  nothing  said  in  the  proposal  regarding  the 
company  of  which  Mr.  Ford  speaks,  whether  it  is  going  to  have  a  capital  stock 
or  not;  what  the  capital  stock  will  be,  if  they  propose  to  have  capital  stock; 
could  you  inform  the  committee  regarding  that  matter? 

Mr.  Mayo.  Mr.  Ford  has  not  fully  determined  whether  he  will  operate  as  a 
company  or  under  his  own  name. 

The  Chairman.  Or  under  his  name? 

Mr.  Mayo.  He  has  not  fully  determined  which  way  he  will  operate,  yet. 

The   Chairman.  He   has   not? 

Mr.  Mayo.     No,  sir. 

The  Chairman.  If  he  should  operate  as  a  company  do  you  think  he  will  op- 
erate with  a  certain  amount  of  capital  stock? 

Mr.  Mayo.  He  will  have  to  operate  with  sufllcient  capital  to  properly  handle 
the  business,  certainly. 

The  Chairman.  But  you  can  not  give  the  committee  any  idea  of  just  what 
amount  of  capital  that  will  be? 

241 


?J 


» 


242 


MUSCLE  SHOALS   PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


243 


i 

I 

m 


Mr.  Mayo.  Not  other  than  to  say  it  will  be  sufficient  to  properly  conduct  tlie 
business. 

The  Chairman.  Will  Mr.  Foni  be  able  to  tell  the  committee  of  Congress  be- 
fore very  long  how  much  money  he  expects  to  organize  for? 

Mr.  Mayo.  I  think  likely ;  yes.  sir. 

The  Chairman.  It  is  the  desire  of  the  committee  and  the  desire  of  Congress 
to  get  this  thing  through  with  as  early  as  possible.  How  long  do  you  think  it 
would  take  Mr.  Ford  before  he  could  let  this  committee  know  just  how  much 
capital  stock  he  would  organize  for? 

Mr.  Mayo.  I  hardly  think  it  would  be  fair  to  press  him  for  a  definite  sum  at 
this  time,  until  he  has  worked  out  the  nee<ls  of  the  company. 

The  Chairman.  How  long  a  time  do  you  think  he  would  require? 

Mr.  Mayo.  He  is  going  through  the  process  of  working  out  several  schemes 
in  handling  the  plant  as  a  whole,  and  it  is  rather  difficult  to  determine  what 
amount  is  needed  until  he  finally  decides  on  a  definite  course  of  procedure. 

The  Chairman.  That  is  one  of  the  matters  that  the  committee  have  expressed 
a  desire  to  know  about,  and  that  is  why  I  am  asking  you  the  question. 

Mr.  Mayo.  I  understand,  but  I  do  not  quite  get  the  point.  I  do  not  see  how 
the  amount  of  capital  necessarily  enters  into  it. 

The  Chairman.  I  think  one  of  the  witnesses,  or  one  of  the  members  of  the 
committee,  tried  to  show  two  or  three  days  ago  that  there  were  10  gentlemen 
who  organized  the  Air  Nitrates  Corporation,  or  some  organization  of  that  kind, 
and  put  up  $100  apiece  and  organized  for  a  very  large  amount.  While,  of  course, 
Mr.  Ford  does  not  anticipate  anything  of  that  kind,  yet  I  think  the  committee 
would  like  to  know  about  how  much  he  would  want  to  incorporate  for. 

Mr.  Parker.  Mr.  Chairman.  I  think  they  would  want  to  know  the  least 
amount  that  he  would  incorporate  for. 

Mr.  Mayo.  It  goes  without  saying  that  he  could  not  operate  without  placing 
$5,000,000  there. 

The  Chairman.  That  is  the  amount  he  is  willing  to  pay  for  nitrate  plant 
No.  2. 

Mr.  Mayo.  And  having  paid  his  $5.000,tXK),  he  necessarily  must  furnish  the 
necessary  additional  capital  to  operate,  so  that  if  there  could  be  a  minimum 
amount  named,  the  cost  plus  the  operating  capital  to  start  with  would  be  the 
minimum  figure. 

The  Chairman.  You,  at  least,  have  no  definite  knowledge  upon  that  subject? 

Mr.  Mayo.  No ;  that  has  not  been  determined  as  yet. 

The  Chairman.  The  committee  also  expressed  some  desire  to  know  this: 
The  Secretary  of  War  stated  to  the  committee  that  he  had  had  some  interviews 
with  Mr.  Ford,  and  that  on  one  occasion  at  least  Mr.  Ford  told  him  that  if  he 
could  not  make  fertilizers  profitably  he  would  cease  the  work  entirely.  Does 
that  express  Mr.  Ford's  view? 

Mr.  Mayo.  I  think  it  necessarily  follows  that  if  you  operate  continually  at  a 
loss  you  would  soon  go  out  of  business :  that  is  the  natural  sequence.  He  did 
not  try  to  lead  the  Secretary  to  believe  that  he  would  stop  making  fertilizer  and 
manufacture  something  else. 

The  Chairman.  But  I  think  in  his  oflrVr  he  si)eaks  of  nitrate  plant  No.  2. 

iSIr.  Mayo.  Yes,  sir. 

The  Chairman.  He  agrees  to  keep  that  going  for  100  years. 

Mr.  Mayo.  Yes,  sir. 

The  Chairman.  I  think  the  tesrmony  before  the  committee  is  that  that 
plant  makes  a  nitrate  which  can  l>e  use<l  for  making  fertilizers? 

Mr.  Mayo.  Yes,  sir. 

The  Chairman.  Would  yon  stop  operating  the  plant  altogether  if  the  manu- 
facture of  nitrates  shouhl  be  unprofitable? 

Mr.  Mayo.  I  do  not  quite  understand  you. 

The  Chairman.  You  said  that  if  h*^  could  not  manufacture  nitrates  profitably 
to  make  fertilizers,  he  would  havt-  to  go  out  of  business.  Now,  he  makes  a 
positive  otter  on  nitrate  plant  No.  "J. 

Mr.  Mayo.  Yes,  sir. 

The  Chairman.  And  offers  to  turn  it  over  at  a  moment's  notice  for  the  use 
of  the  Cfovernnieut  in  case  the  Government  should  require  him  to  manufacture 
explosives.  Now.  I  understand  from  the  evidence  before  the  committee  that 
they  manufacture  nitrates  at  this  plant? 

Mr.  Mayo.  Yes,  sir. 

The  Chairman.  And  that  the  nitrate  is  used  as  a  component  part  of  the 
fertilizer.    Now.  would  he  stop  making  that  in  case  it  should  be  unprofitable? 


Mr.  Mayo.  If  it  was  unprofitable  he  might  have  to  switch  to  some  other 
process. 

The  Chairman.  That  is  his  idea? 

Mr.  Mayo.  Oh,  yes. 

The  Chairman.  You  do  not  think  he  would  quit  running  the  plant  if  the 
profits  were  not  as  big  as  he  had  anticipated? 

Mr.  Mayo.  He  has  not  that  kind  of  a  record. 

The  Chairman.  I  quite  agree  with  you.  He  speaks  of  the  land  and  flowage 
rights  necessary  for  Dam  No.  3.  I  think  the  te>itimony  before  the  committee 
is  to  the  effect  that  the  amount  recinired  for  the  acquisition  of  those  rights 
will  be  in  the  neighborhood  of  .$4,000,(K)0.  Do  you  think  he  would  be  willing 
to  allow  4  per  cent  to  the  Government  for  anything  that  is  laid  out  for  that 
purpose  ? 

Mr.  Mayo.  I  do  not  think  so.  I  think  the  amount  you  stated,  though,  is 
very  high.  I  notice  the  Government  estimate  is  $2,331,000.  We  had  estimated 
a  maximum  amount  of  not  over  $1.50(>,(k:K)  and  we  are  quite  sure  it  will  not 
run  over  $1,000,000. 

The  Chairman.  For  the  flowage  rights. 

Mr.  Mayo.  Mr.  Ford  had  thought  that  the  necessary  amount  ought  to  be 
charged  to  navigation. 

The  Chairman.  To  what? 

Mr.  Mayo.  To  navigation. 

The  Chairman.  He  does  not  think  he  should  be  called  upon  to  assume  anv 
of  that,  not  even  to  the  extent  of  paying  4  per  cent  interest? 

Mr.  Mayo.  He  has  not  thought  so.  so  far ;  no,  sir. 

The  Chairman.  It  has  been  suggested  that  if  Mr.  Ford  should  acquire  thi<j 
property,  any  power  he  might  sell  from  the  Muscle  Shoals  plant  ought  to  be 
developed  and  he  should  be  required  to  dispose  of  it  on  the  terms  and  condi- 
tions imposed  by  the  Federal  Power  Commission  or  the  public  service  corpora- 
tion commission  of  Alabama.  Do  you  know  whether  Mr.  Ford  has  given  that 
matter  any  thought? 

Mr.  Mayo.  He  has,  and  it  has  always  been  our  impression  that  we  would 
probably  come  under  the  State  of  Alabama  law. 

The  Chairman.  That  is  his  impression  at  this  time? 

Mr.  Mayo.  Yes,  sir. 

The  Chairman.  You  would  be  perfectly  able  and  willing  to  sell  the  power 
in  that  way? 

Mr.  Mayo.  So  far  as  I  know ;  yes,  sir. 

The  Chairman-  In  reference  tr>  the  l(K>-year  agreement,  there  seems  to  be 
a  difference  of  opinion  whether  the  agreement  should  run  for  50  j'ears  or  100 
years. 

Mr.  Mayo.  Yes,  sir. 

The  Chairman.  The  Secretary  of  War  notified  this  committee  that  he  was 
under  the  impression  that  it  ought  to  be  limited  to  50  years  and  that  any  effort 
to  extend  beyond  that  period  would  not  be  good  public  policy. 

Mr.  Mayo.  Yes,  sir. 

The  Chairman.  Have  you  thoroughly  thought  out  that  matter? 

Mr.  Mayo.  Mr.  Ford  has  given  that  a  great  deal  of  thought  and  he  thinks 
that  very  few  really  know  the  magnitude  of  this  project,  and,  as  he  proposes 
to  use  all  this  power  himself,  eventually,  it  will  take  a  very  large  investment 
down  there  and  quite  a  few  years  to  build  up  to  it. 

The  Chairman.  He  proposes  to  use  all  the  power  himself? 

Mr.  Mayo.  He  expects  to. 

The  Chairman.  That  is  a  pretty  big  proposition,  is  it  not? 

Mr.  Mayo.  We  realize  it ;  yes,  sir.  The  point  is  if  the  offer  is  accepted  we 
Will  have  such  a  very  large  investment  at  Muscle  Shoals  in  the  course  of  the 
next  10  or  15  years  that  we  could  not  afford  to  risk  that  much  of  an  investment 
there  and  run  the  risk  of  having  the  power  end  of  it  cut  from  under  your  feet 
at  the  end  of  50  years. 

The  Chairman.  Personally,  I  do  not  think 

Mr.  Mayo  (interposing).  It  is  different  from  a  gi-eat  many  projects,  in  that 
rne  Muscle  Shoals  district  is  more  or  less  of  a  virgin  country,  and  we  have  to 
develop  everything  there. 

The  Chairman.  I  do  not  think  that  is  a  very  serious  complaint.  For  myself, 
1  am  perfectly  willing  to  stand  by  a  100-year  agreement. 

Mr.  Mayo.  In  general,  that  is  his  thought.  Mr.  Ford  has  a  $5,000,000  invest- 
ment to  start  with,  and  to  my  mind  that  is  but  a  drop  in  the  bucket.    That  is 


244 


MUSCLE  SHOALS   PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


245 


why  I  also  think  the  amount  of  capital  is  hardly  worth  talking  about  at  this 
time. 

The  Chairman.  That  is  not  a  very  material  matter,  in  your  opinion? 

Mr.  Mayo.  Not  at  all.  The  investment  will  be  so  very  large  that  there  will 
always  be  plenty  for  the  Government  or  anybody  else  to  hold  in  case  of  trouble. 

The  Chairman.  How  many  years  do  you  think  it  will  take  for  the  invest- 
ment to  be  fully  developed? 

Mr.  Mayo.  Well,  it  is  pretty  hard  to  venture  a  guess;  I  would  say  in  15  or 
18  years,  or  some  such  time. 

The  Chaibman.  The  world  has  not  known  very  much  about  this  matter  of 
the  fixation  of  nitrogen  very  long,  has  it? 

Mr.  Mayo.  No,  sir. 
'    The  Chairman.  And  you  are  willing  to  take  all  this  chance  with  the  limited 
knowledge  that  the  world  has  of  the  i)roposition? 

Mr.  Mayo.  Well,  Mr.  Ford  does  not  think  he  is  taking  much  chance. 

Mr.  McKenzie.  Mr.  Mayo,  one  of  the  propositions  involved  in  the  Ford 
offer,  and  one  which  has  been  giving  us  no  little  concern,  is  what  is  known  as 
the  Gorgas  or  Warrior  River  plant  owueil  and  operated  by  the  Alabama 
Power  Co. 

Mr.  ]Mayo.  I  understand. 

Mr.  McKenzie.  What  is  your  idea  as  to  the  absolute  necessity  of  including 
the  Warrior  River  plant  of  the  Alabama  Power  Co.'s  project  in  Mr.  Ford's 
offer. 

Mr.  Mayo.  The  real  necessity  as  he  looks  at  it  is  to  have  the  steam  power  dur- 
ing the  low-water  period  so  as  to  increase  the  primary  power. 

Mr.  McKenzie.  Does  he  feel  it  is  absolutely  essential,  at  least  for  many, 
many  years  to  come,  to  have  the  additional  power  that  would  be  furnished 
by  this  Warrior  River  power  plant? 

Mr.  Mayo.  It  is  more  essential  now  than  it  will  be  later. 

Mr.  McKenzie.  You  are  perfectly  familiar  with  the  situation  down  there 
at  the  Gorgas  plant,  I  take  it. 

Mr.  Mayo.  I  think  so. 

Mr.  McKenzie.  You  know  how  it  is  constructed? 

]Mr.  Mayo.  Fairly  well.    I  have  never  seen  it. 

Mr.  McKenzie.  Fnnn  a  description  given  here  this  morning  by  an  Army 
officer,  it  is  more  intricately  woven  into  the  property  and  interests  of  tlie 
Alabama  Power  Co.  than  the  League  of  Nations  was  in  the  treaty  of  Ver- 
sailles, and  it  would  be  almost  impossible,  so  it  strikes  me,  as  a  member  of 
this  committee,  to  undertake  to  .separate  the  interests  of  the  Government 
from  the  interests  of  the  Alabama  I*ovver  Co.,  and  that  would  necessitate  pos- 
sibly the  taking  over  of  the  rights  of  the  Alabama  Power  Co. 

Mr.  Mayo.  That  might  be,  but  we  never  thought  so. 

Mr.  McKenzie.  And  this  officer  stated  it  would  be  practically  impossible 
to  unscramble  the  rights  of  the  Government  from  those  of  the  Alabama 
Power  Co.,  and  it  had  been  my  hope,  at  least,  as  one  of  the  members  of  the 
committee,  that  we  might  bring  about  some  acceptance  of  this  offer  without 
this  complication — that  is,  that  some  acceptance  of  the  offer  might  be  arrived 
at  between  Mr.  Ford  and  representatives  of  the  Government  which  would  very 
materially  simplify  the  whole  proposition,  but  you  say  you  have  not  looked 
into  that  matter  very  closely,  as  I  understand  it. 

Mr.  Mayo.  Not  so  veiy,  but  we  have  always  been  of  the  opinion  it  could 
!he  unscrambled  all  right. 

Mr.  McKenzie.  But  in  your  proi>osed  contract  you  put  the  responsibility 
of  the  unscrambling  on  the  Government. 

Mr.  Mayo.  I  know  it. 

:Mr.  McKenzie.  And  that  is  one  of  the  propositions  included  in  your  offer.' 

3Ir.  Mayo.  Yes,  sir. 

Mr.  McKenzie.  And  your  offer  must  either  stand  or  fall  on  the  Government 
delivering  the  property  it  contracts  to  deliver  to  ^Ir.  Ford.  Now,  then,  if  >ve 
should  get  into  litigation  and  it  should  be  held  by  the  courts  that  the  Govern- 
men  could  not  deliver  this  property  to  Mr.  Ford,  then  all  of  our  work  would 
have  been  in  vain. 

Mr.  Mayo.  I  see. 

Mr.  McKenzie.  Because  the  whole  proposition  would  fail. 

Mr.  Mayo.  I  am  sure  Mr.  Ford  does  not  expect  to  ask  the  Government  to  do 
anything  that  is  physically  impossible. 

Mr.  McKenzie.  I  think  that  is  true. 


Mr.  Mayo.  He  thinks  it  can  be  worked  out.    If  it  can  be  shown  him 

Mr.  McKenzie  (interposing).  I  have  wondered  whether  Mr.  Ford  is  thoroughly 
familiar  with  the  existing  condition  of  things  at  that  plant. 

Mr.  Mayo.  I  would  not  say  he  was  thoroughly  familiar  but  quite  familiar,  and 
he  is  of  the  opinion  it  can  be  worked  out. 

Mr.  McKenzie.  As  a  simple  offhand  proposition,  not  knowing  any  of  the  de- 
tails, I  felt  at  first,  when  I  read  the  offer,  "  that  is  all  right ;  that  is  easy  enough  ; 
we  will  just  turn  that  over ;"  but  there  is  more  than  that  to  it,  it  is  the  most  dif- 
ficult proposition,  in  my  judgment,  the  way  the  thing  has  been  constructetl, 
whether  intentionally  or  otherwise,  and  the  Alabama  Power  Co.  have  them- 
selves fortified  in  a  position  that  is  most  lamentable,  in  my  judgment,  in  connec- 
tion with  this  whole  proposition ;  to  be  as  charitable  as  possible,  I  would  say  that. 

Mr.  Mayo.  I  see. 

Mr.  McKenzie.  It  would  probably  cost  the  Government  more  than  Mr.  Ford's 
entire  offer  of  $5,000,000  in  order  to  be  able  to  deliver  to  him  this  one  element  of 
the  contract,  to  say  nothing  of  the  other  property  which  we  would  expect  to  de- 
liver to  him.  Now,  in  speaking  of  the  manufacture  of  this  element  which  can  be 
used  in  the  manufacture  of  fertilizer,  and  without  using  any  of  the  technical  or 
chemical  terms,  I  will  simply  speak  of  it  as  nitrate,  which  can  be  produced  at 
Muscle  Shoals,  and  I  understand  you  to  say  that  as  long  as  it  is  profitable  or  can 
be  produced  without  a  loss  Mr.  Ford  would  be  glad  to  continue  to  produce  that 
product. 

Mr.  Mayo.  Yes,  sir. 

Mr.  McKenzie.  And  I  think  you  stated  it  very  correctly  when  you  said  that  it 
is  a  fair  assumption  that  if  it  was  being  produced  at  a  loss  it  would  only  be  a 
matter  of  time  when  even  Mr.  Ford,  with  all  his  wealth,  would  go  out  of  business, 
and  therefore  the  element  of  profit  or  the  cost  of  manufacture  has  to  be  taken 
into  consideration. 

Mr.  Mayo.  Yes,  sir. 

Mr.  McKenzie.  The  price  of  fertilizer.  I  take  it,  the  same  as  the  price  of  any 
other  product,  is  fixed  ordinarily,  under  the  laws  of  trade,  by  competition. 

Mr,  Mayo.  Yes,  sir. 

Mr.  McKenzie.  And  in  this  country  we  have  certain  manufacturers  of  ferti- 
lizer. That  rule,  however,  can  be  overcome  by  what  is  known  as  combinations  or 
trusts,  and  if  all  the  fertilizer  manufacturers  of  the  country,  including  Mr.  Ford, 
would  enter  into  a  trust,  they  could  fix  the  price  of  fertilizer  in  this  country.  I 
am  not  assuming  that  Mr.  Ford  is  a  believer  in  the  forming  of  trusts  to  put  up  a 
price  of  a  commodity  to  the  people  of  this  country,  but  that  could  be  done,  and 
if  that  is  done,  of  course,  then  the  only  competitor  that  Mr.  Ford  would  have  or 
the  other  manufacturers  of  this  so-called  fertilizer  would  be  the  importations 
from  Chile  and  other  outlying  countries,  is  not  that  true? 

Mr.  Mayo.  Yes,  sir. 

Mr.  McKenzie.  Now,  as  a  matter  of  fact,  knowing  Mr.  Ford  as  you  do,  have 
you  any  fear  in  your  mind  that  with  his  splendid  organization  he  could  not  com- 
pete successfully  with  the  other  manufacturers  in  this  country. 

Mr.  Mayo.  I  am  absolutely  sure  of  it. 

Mr.  McKenzie.  In  the  production  of  that  product. 

Mr.  Mayo.  I  am  absolutely  sure  that  he  could  do  so. 

Mr.  McKenzie.  Then  the  only  thing  he  would  have 
which  might  put  him  out  of  business,  would  be  the 
nitrate. 

Mr.  Mayo.  I  do  not  have  any  fear  of  that. 

Mr.  McKenzie.  I  think  I  agree  with  you  on  that,  but  if  that  should  happen, 
then  the  American  agricultural  people  would  not  hold  Mr.  Ford  responsible 
for  not  selling  fertilizer  to  them  at  a  higher  price,  but  would  be  glad  to  have 
it  imported  from  a  foreign  country  at  even  a  lower  price  than  Mr.  Ford  could 
produce  it 

Mr.  Mayo.  Yes. 

Mr.  McKenzie.  So  there  would  really  be  no  great  harm  done  under  those 
circumstances  if  Mr.  Ford  ceased  to  manufacture  fertilizer;  is  that  true? 

Mr.  Mayo.  That  is  true,  but  I  think  it  goes  without  saying  that  he  could 
find  some  process  wherein  he  could  meet  any  competition.  We  consider  the 
plant  so  situated  naturally,  and  with  the  very  cheap  power,  that  you  have  all 
the  fundamentals  with  which  to  make  a  very  cheap  fertilizer. 

Mr.  McKenzie.  I  think  that  is  true,  and  the  8  per  cent  you  would  consider 
a  fair  measure  of  profit  on  the  expenditures. 

Mr.  Mayo.  We  think  so. 


to  feai",  of  course,  and 
low  price  of  imported 


I 


i 


I        Hi 


t 

t 


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MUSCLE   SHOALS  PROPOSITIONS. 


247 


r '  1 


Mr.  McKenzie.  And  he  is  willing  to  be  limited  to  8  per  cent? 

Mr.  Mayo.  Yes,  sir. 

Mr.  McKenzie.  I  believe  you  have  explained  your  views  on  the  100-year 
lease  or  franchise,  and,  of  course,  it  goes  without  saying  that  if  the  Congress 
should  determine  they  would  not  accept  the  100-year  proposition  but  would 
accept  a  50-year  proposition,  that  would  involve  an  entire  change  of  the  whole 
offer  made  by  Mr.  Ford. 

Mr.  Mayo.  Yes,  sir. 

Mr.  McKenzie.  And  would  materially  increase  the  cost  to  Mr.  Ford  an«i 
accordingly,  in  my  judgment,  depreciate  the  value  of  it  to  the  Government. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Mckenzie.  In  regard  to  the  so-called  guaranty  in  the  proposed  contract, 
and  in  relation  to  the  questions  asked  by  our  chairman  as  to  the  necessity  of 
having  a  capital  stock  named,  I  presume  one  of  the  reasons  why  Mr.  Ford 
put  into  this  contract  that  he  was  binding  his  heirs  and  assigns,  as  well  as 
binding  the  corporation  or  company  that  might  hereafter  be  created,  goes  to 
show  that  he  has  not  at  this  time,  as  you  say,  made  up  his  mind  as  to  whether 
he  vrill  operate  it  as  a  company  or  coi*poration  or  as  an  individual. 

Mr.  Mayo.  Yes,  sir. 

Mr.  McKenzie.  And  you  feel  that  with  the  expenditure  of  money  he  will  be 
immediately  called  upon  to  expend  at  this  plant,  that  that  would  be  a  sufficient 
guaranty,  as  a  matter  of  protection  to  the  taxpayers  of  the  country  and  the 
people  of  the  county,  without  his  putting  up  his  individual  bond  or  a  guaranty 
of  so  much  capital  stock  on  the  part  of  the  company. 

Mr  Mayo.  Yes,  sir.  If  you  forced  him  to  raise  capital  to  an  extent  where 
he  would  have  some  idle  capital  lying  by,  that  would  naturally  increase  the  cost 

of  his  product.  ,  .  .      .    ^. 

Mr.  Mckenzie.  That  explains,  then,  to  some  extent,  that  provision  in  his  pro- 
posal; is  that  the  idea? 

"\Ir    Mayo.  Yes   sir. 

Mr  MoRiN.  Do'  vou  agree  that  the  estimate  of  cost  of  completing  Dam  No. 
2  and  building  Dam  No.  3  is  accurately  estimated  by  the  Army  engineers  at 

$50,000,000?  .       .„ 

Mr  Mayo.  I  think  that  is  considerably  more  than  it  will  cost. 

Mr  MoRiN.  Is  it  vour  judgment  that  the  flowage  rights  which  the  Government 
is  to  acquire  under  the  Ford  offer  can  be  purchased  for  the  $2,331,000  estimated 
by  the  Government  engineers  as  the  cost? 
*  Mr.  Mayo.  I  am  of  the  opinion  they  can  be  secured  for  less. 

Mr.  MoRiN.  How  much  less? 

Mr.  Mayo.  Not  over  $1,500,000  total  cost. 

Mr.  MORIN.  It  would  not  cost  more  than  $1,500,000? 

Mr.  Mayo.  Not  to  exceed  $1,500,000. 

Mr.  MoRiN.  Would  not  this  item  be  nearer  $5,000,000? 

Mr.  Mayo.  I  do  not  think  so.  ,  *  ,     ^ 

Mr  MoRiN.  Or  $10,000,000,  or  even  more,  considering  present  values  of  lana 
and  the  necessity  of  acquiring  lands  for  railway  and  terminal  connections  as 
imposed  by  Mr.  Ford's  offer? 

Mr.  Mayo.  I  do  not  think  so ;  no,  sir. 

Mr  MORIN.  What  are  these  "  railway  and  terminal  connections  "? 

Mr.  Mayo.  The  only  thing  I  call  to  mind  is  the  present  track  connections 
that  now  exist,  with  the  possible  addition  of  two  single  track  lines  to  Dam  No. 
3,  which  need  only  be  temporary,  I  should  say. 

Mr.  MoBiN.  They  are  the  only  connections  you  recall? 

Mr.  Mayo.  Yes,  sir. 

Mr.  MoRiN.  On  its  amount,  whatever  its  cost,  Mr.  Ford  seemingly  would  pay  no 
interest ;  is  that  your  understanding? 

Mr.  Mayo.  I  do  not  follow  you.    You  are  talking  about  this  track  or  ngni 

Mr.  MoRiN.  Yes ;  the  connections  that  would  have  to  be  secured  there  by  the 

Mr.  Mayo.  They  have  already  been  secured ;  all  except  the  rights  of  way  to 

Dam  No.  3.    They  exist  at  present.       „        ,  ,  „,  ,    .^,^  ^his 

Mr  MoBiN.  You  will  note  that  the  Secretary  of  War  recommends  that  this 
sum  be  included  in  the  sum  upon  which  Mr.  Ford  is  to  pay  interest.  His  letter 
of  transmittal  states :  "  The  omission  of  the  cost  of  these  lands  from  this  com- 
putation is  more  serious  than  would  be  the  omission  of  the  provision  tor  a 
sinking  fund,  for  the  annual  interest  at  4  per  cent  on  the  cost  of  such  lanes, 


and  rights  if  used  for  this  purpose  would  amortize  a  sum  much  larger  than  that 
provided  in  paragraph  10  of  Mr.  Ford's  proposal."  What  is  your  opinion  of 
that? 

Mr.  Mayo.  I  think  you  are  confusing  that  with  the  flowage  rights  for  Dam 
No.  3. 

Mr.  MoRiN.  No;  I  do  no  think  so. 

Mr.  Mayo.  That  subject  has  never  been  brought  up,  as  I  remember. 

Mr.  MoEiN.  The  Secretary  of  War  refers  to  it  in  his  statement.  What  about 
the  flowage  rights  for  Dam  No.  3,  then? 

Mr.  Mayo.  We  are  of  the  opinion  that  they  can  be  purchased  at  a  maximum 
sum  of  $1,500,000,  and  the  cost  of  that  should  be  charged  to  navigation.  That 
has  been  Mr.  Ford's  idea. 

Mr.  MoBiN.  Mr.  Ford  agrees  to  pay  4  per  cent  on  the  actual  cost  of  acquiring 
lands  and  flowage  rights,  etc.,  in  the  case  of  Dam  No.  2;  that  is  correct,  is  it? 

Mr.  Mayo.  I  think  it  is. 

Mr.  MoBiN.  Are  not  those  dams  and  flowage  rights  already  paid  for  and 
acquired  at  Dam  No.  2,  and  constitute  a  part  of  the  $17,000,000  already  ex- 
pended at  that  point? 

Mr.  Mayo.  Most  of  them.    I  think  a  few  parcels  are  under  lease. 

Mr.  MoRiN.  Then,  Mr.  Ford  does  not  intend  to  reimburse  the  United  States 
for  any  part  of  the  $17,000,000,  does  he? 

Mr.  Mayo.  Well,  in  our  sinking  fund,  if  the  Government  invests  that  sinking 
fund  on  the  basis  of,  say,  4^  per  cent,  it  would  take  care  of  over  $58,000,000 
of  cost.  If  the  cost  of  the  two  dams,  for  instance,  does  not  exceed  $40,000,000, 
then  it  would  wipe  out  the  entire  $17,000,000  that  have  been  spent,  and  more. 

Mr.  MoRiN.  I  hardly  think  that  is  an  answer  to  my  question.  My  question 
was  whether  :Mr.  Ford  intends  to  reimburse  the  United  States  for  any  part  of 
the  $17,000,000  under  his  proposal? 

Mr.  Mayo.  I  am  of  the  opinion  that  I  was  answering  that.  We  establish  a  sink- 
ing fund  to  wipe  out  the  cost  of  this  work,  and  we  state  the  definite  amount  of 
that  sinking  fund.  If  the  Government  invests  that  on  the  basis  of  4^  per  cent — 
I  did  not  read  the  figures  right  before — it  will  wipe  out  $70,000,000  in  the  100 
years. 

Mr.  MoBiN.  Your  idea  is  that  he  does  propose  t^  reimburse  the  Government? 

Mr.  Mayo.  If  we  are  fortunate  to  keep  the  cost  of  Dams  No.  2  and  No.  3 
as  low  as,  say  $40,000,000,  then  you  will  have  $30,000,000  left  to  wipe  out  the 
original  investment,  which  you  say  is  $17,000,000. 

Mr.  MoRiN.  Mr.  Ford's  offer  contemplates  the  free  and  unencumbered  title 
tx)  all  of  the  property  to  be  transferred  to  him,  so  that  he  contemplates  paying 
no  interest  on  any  sums  to  acquire  such  clear  title,  whether  by  condemnation 
or  otherwise;  is  that  true? 

Mr.  Mayo.  He  pays  interest  on  only  the  cost  of  the  dams. 

Mr.  MoRiN.  This  sum  for  clearing  title  may  aggregate  several  million  dollars, 
may  it  not? 

Mr.  Mayo.  I  do  not  think  so. 

Mr.  MoRiN.  During  the  construction  period  of  several  years,  although  the 
Government  is  supplying  funds  for  construction  aggregating  perhaps  $50,000,- 

000  from  the  very  beginning  of  construction,  Mr.  Ford  pays  a  total  rental  of 
$1,200,000  for  a  6-year  occupancy  of  Dam  No.  2,  at  the  rate  of  $200,000  a  year, 
and  a  total  rental  of  $480,000  for  a  3-year  occupancy  of  Dam  No.  3.  at  the  rate 
of  $160,000  a  year,  which  is,  in  the  case  of  Dam  No.  2,  a  return  of  eight-tenths  of 

1  per  cent  per  annum  on  $25,000,000  of  Government  money  for  a  period  of  six 
years,  and  in  the  case  of  Dam  No.  3  a  return  of  sixty-four  one-hundredths  of 
1  per  cent  on  $25,000,000  of  Government  money  for  three  years,  as  I  figure  it. 
These  figures  ate  substantially  correct,  are  they  not? 

Mr.  Mayo.  I  do  not  know  about  the  totals.  It  is  plainly  stated  in  the  offer 
as  to  when  the  payments  commence  and  the  amounts.  You  could  not  expect 
Mr.  Ford,  I  do  not  think,  to  pay  interest  on  property  until  he  can  occupy  it  and 
until  it  is  ready  to  operate. 

Mr.  MoRiN.  Why  should  Mr.  Ford  not  pay  4  per  cent  during  this  period,  par- 
ticularly as  his  aforesaid  payments  do  not  begin  until  a  year  after  the  plants 
liave  actually  been  in  operation? 

Mr.  Mayo.  We  have  to  build  our  factory  and  develop  our  processes  for  what- 
ever we  intend  to  make  up  before  we  commence  taking  power,  and  it  takes  a  con- 
siderable amount  of  time  for  that.  We  have  tried  to  make  the  estimates  so 
that  he  commences  to  pay  when  he  commences  to  use  the  power. 


it 


248  MUSCLE  SHOALS  PROPOSITIONS. 

Mr.  MoRiN.  Whether  he  should  pay  or  does  not  so  pay  4  per  cent  for  this 
period,  we  have  to  consider  as  capital  to  be  supplied  by  the  United  States  the 
interest  lost  on  the  Government's  money  for  a  period  of  six  years  in  one  case 
and  three  years  in  another,  do  we  not? 

Mr.  Mayo.  Yes,  sir. 

Mr.  MoRiN.  These  figures  are  summarized  by  the  Chief  of  Engineers  under 
date  of  January  30.  1922.     (P.  2  of  Exhibit  E.) 

Funds  required  to  complete  Dam  No.  2 $25, 000,  000 

Interest  during  construction,  one-half  of  three  years,  at  5  per  cent__       1,  875, 000 

Interest  for  first  six  years  subsequent $7,500,000 

Less  six  payments  by  Mr.  Ford 1,  200, 000 

Net  deficiency 6,300,000 

Total  accrued  interest  before  full  payments  begin 8,175,000 

Funds  required  to  complete  Dam  No.  3 25,  000,  000 

Interest  during  construction,  one-half  of  three  yeai's,  at  5  per  cent 1,  875,  000 

Interest  for  first  three  years  subsequent $3,  750,  000 

Less  three  payments  of  $160,000  by  Mr.  Ford 480,  000 

Net  deficiency 3,  270,  000 

Total  accrued  interest  before  full  payments  begin 5, 145, 000 

Loss  to  Government  during  above  periods 13,  320, 000 

Is  this  not  true? 

Mr.  Mayo.  We  can  not  reconcile  those  figures.  We  will,  however,  make  up 
our  figures  as  we  have  figured  it,  for  the  record. 

Government  balance  sheet  of  Muscle  Shoals  during  construction  and  for  first  »ix  year 

under  Ford  proposal. 

Assume:  Dam  No.  2  completed  in  two  years,  or  one  year  after  first  100,000  horsepov  er  is  installed:  Dam 
No.  3  comnleted  in  three  vears,  or  one  vear  after  first  80,000  horsepower  is  installed;  cost  of  Dam  No.  2, 
$23,230,000;  cost  of  Dam  No.  3,  $19,000,000. 


Years 

from 

start  of 

work. 

Years 
of  Mr. 
Ford's 
lease  of 
Dam 
No.  2. 

Ford  payments. 

Government  interest. 

Progress  of  work. 

Account 
Dam 
No.  2. 

Account 
Dam 
No.  3. 

.\ccount 

Dam 

No.  2. 

.Vccount 
Dam 
No.  3. 

Remarks. 

Work  starts  on  both 

dams. 

• 

100,000  horsepower 
ready  at  Dam  No.  2. 

Dam  No.  2  completed; 
80,000  horsepower 
ready  at  Dam  No.  3. 

Dam  No.  3  completed . 

0 

1 
2 

3 
4 
5 
6 
7 

0 
1 

2 
3 
4 
5 
6 

0 

0 
$200,000 

200,000 
200,000 
200,000 
200,(00 
200,000 

0 

0 
0 

$160,000 
160,000 
160,000 
760,000 
760,000 

0 

1  $464,600 
1929,200 

929,200 
929,200 
929,200 
929,200 
929,200 

0 

1  $240,000 
1480,000 

1760,000 
760,000 
760,000 
760,000 
760,000 

Government  does 
not  pay  interest 
in  advance. 

Lease  of  Dam  No.  2 

begins. 
Lease  of  Dam  No.  3 
begins. 

Total 

1,200,000 

2,000,000 

6,039,800 

4,520,000 

Grand  total 

3,200,000 

10,559,800 

, 

Difference 

7.350.800 

Deficit  in  interest 

payments. 

1  Interest  during  construction. 

Note. — This  is  $5,960,200  less  deficiency  in  interest  during  this  preliminary  period  than  is  stated  by  the 
Chief  of  Engineers  in  his  report  of  Jan.  30, 1922.  His  estimate  of  this  deficiency  is  $13,320,000.  This  defi- 
ciency in  interest  is  much  more  than  offset  by  Mr.  Ford's  single  item  of  maintenance  of  nitrate  plant  No.2 
on  which  the  Ordnance  Department  figures  5  per  cent  annual  depreciation  amounting  in  the  6  years  to 
$14,100,000  on  a  plant  valuation  of  only  $47,000,000. 


MUSCLE  SHOALS  PROPOSITIONS. 


249 


Mr.  MoRix.  Considering  now  the  money  required  to  be  invested  by  the  Gov- 
ernment for  flowage  rights,  rights  of  way,  land  for  railway  and  terminal  con- 
nections— estimated  at  $2,000,000  by  the  Army  engineers— is  it  your  judgment 
that  this  sum  is  adequate?    May  it  not,  in  fact,  run  several  times  that  sum? 

Mr.  Mayo.  No. 

Mr.  MoRiN.  Mr.  Ford's  offer  contemplates  a  free  and  unencumbered  title  to 
all  the  property  to  be  transferred  to  him,  so  that  he  contemplates  paying  no 
interest  on  any  sums  required  to  acquire  said  clear  title,  whether  by  costly 
condemnation  proceedings  or  otherwise;  is  this  correctly  stated? 

Mr.  Mayo.  No,  sir;  the  Government  has  to  do  that  anyway  to  clear  its  own 

title. 
Mr.  MoRiN.  This  clearing  up  of  title  may  require  several  million  dollars,  may 

it  not? 

Mr.  Mayo.  I  should  think  not. 

Mr.  MoRiN.  Assuming  that  this  item  is,  say  $5,000,000,  it  appears  that  the 
following  sums  will  be  necessary  to  carry  out  the  Ford  offer : 

For  Dams  N'os.  2  and  3,  $50,000,000 ;  for  flowage  rights,  rights  of  way,  and 
terminals.  .$2,000,000;  for  clearing  title,  $5,000,000;  for  interest  charges  lost. 
$13.320.CK)0 :  a  total  of  $70,320,000.  If  these  totals  are  correct,  and  they  seem 
to  me  to  be,  the  minimum  sum  required  we  find  as  capital  required  an  amount 
aggregating  $70,320,000,  on  only  $50,000,000  of  which  Mr.  Ford  pays  interest. 
This  leaves  a  sum  exceeding  $20,000,000  on  which  the  United  States  must  con- 
tinue to  pay  interest,  if  at  5  per  cent,  as  calculated  by  the  Chief  of  Engineer.s, 
of  over  $1,000,000  annually  for  the  term  of  the  lease;  is  that  correct? 

Mr.  Mayo.  No.  sir.  The  questiim  is  too  long  to  give  a  definite  answer  to, 
but  all  the  figures  are  greatly  in  excess  of  what  they  should  be. 

Mr.  MoRix.  These  figures  are  susceptible  to  your  analysis  as  an  engineer  and 
it  would  be  of  advantage  to  the  record  if  you  will  point  out  any  discrepancies. 

Mr.  Mayo.  All  right,  sir. 

Mr.  MoRiN.  And  will  you  put  them  in  the  record? 

Mr.  Mayo.  Yes,  sir. 

Analysis  of  Mr.  Morin's  statement  of  noninterest-hearing  charges  on  Dam  No.  2. 


Item. 

Mr.  Morin's 
estimate. 

Mr.  Ford's 

engineers' 

estimate. 

Remarks. 

C!ost  of  completing  Dam  No.  2  and 
building  Dam  No.  3. 

Flowage  rights,  rights  of  way,  and 
terminals. 

For  clearing  title 

$50,000,000 

2,000,000 
5,000,000 

13,320,000 

$42,230,000 

1,650,000 
500,000 

7,359,800 

Discrepancy  largely  accounted  for  by 
economies  possible  with  privatie 
rather  than  Government  construc- 
tion. Unit  prices  lower  account 
decreased  market  prices. 

No  disposition  to  hold  reservoir  lands 
for  high  prices  is  evident  locally. 
Nearly  all  rights  of  way  and  term- 
inals nave  been  acquired. 

There  would  be  1,067  acres  for  a  100 

Interest  charges  lost 

foot  right  of  way  88  miles  long;  at  $100 
per  acre  (for  rough  hilly  ground)  it 
would   cost   $106,700.    This   is   the 
principal  part  of  this  item  of  cost. 
See  detailed  statement  above. 

Total 

70,320,000 

20,320,000 

812,800 
2,500,000 

51,739,800 

9,509,800 

380,392 
2,500,000 

Amount  on  which  Mr.  Ford  does 
not  pay  interest. 

Interest  on  same  at  4  per  cent 

Against  which  there  is  an  offset 
because  of  the  fact  that  Mr.  Ford 
carries  the  depreciation  on  nitrate 
plant  No.  2  amounting  annually 
to— 

No  analysis  of  the  Ford  offer  is  fair  or 
complete  which  omits  his  obligations 
regarding  the  nitrate  plant.  The 
single  item  of  depreciation  on  this 

>  plant,  taken  at  a  normal  peace-time 
value  of  $50,000,000.  amounts  to 
$2,500,000  annually  and  will  much 
more  than  offset  Mr.  Morin's  items 
taken  at  his  own  figures. 

Mr.  MoRiN.  What  is  your  estimate  of  the  total  new  money  that  must  be  spent 
by  the  Government  to  carry  out  the  Ford  offer? 

Mr.  Mayo.  I  am  of  the  opinion  it  will  not  exceed  $45,000,000. 

Mr.  MoRiN.  Mr.  Ford's  proposal  covers  a  $35,000  yearly  payment  for  mainte- 
nance of  Dam  No.  2  and  a  $20,000  yearly  payment  for  maintenance  of  Dam 
No.  3.  Is  it  your  opinion  as  an  engineer  that  these  sums  are  adequate  in  view 
of  maintaining  intact  and  In  first-class  condition  masonry  structures,  gates,  and 
hydraulic  equipment  costing  some  $30,000,000  or  more? 

Mr.  Mayo.  I  think  so. 


i 

I 


I J 


I 


* 


250 


MUSCLE  SHOALS  PROPOSITIGNS. 


Mr.  MoRiN.  These  amounts  are  less  than  two-tenths  of  1  per  cent  of  such 
cost.  Is  it  not  customary  of  work  of  such  character  and  hazard  to  figure  bare 
maintenance  cost  at  a  much  higher  figure,  say  1  per  cent  or  more? 

Mr.  Mayo.  I  think  not.  The  amount  does  not  include  the  upkeep  on  the  power 
plant  which  is  taken  care  of  by  Mr.  Ford. 

Mr.  MoRiN.  Would  even  1  iter  cent  be  a  safe  figure  when  the  risk  of  flood 
damage  and  responsibility  for  life  and  property  is  considered,  this  responsibility 
being  entirely  carried  by  the  Government? 

Mr.  Mayo.  We  have  figured  the  amount  we  could  afford  to  pay  for  maintenance 
based  on  what  we  figure  we  can  pay  for  the  cost  of  the  power,  and  that  allows 
us  to  allot  that  much  for  the  maintenance. 

Mr.  MoRiN.  This  responsibility  for  and  maintenance  of  dams  of  this  magni- 
tude and  character  on  a  stream  of  the  type  of  the  Tennessee  where  severe 
flood  conditions  frequently  occur,   is  a   real  hazard  which   engineering   skill 
in  design  and  construction  can  not  completely  remove,  is  it  not? 
Mr.  Mayo.    Yes,  sir. 

Mr.    MoEiN.   There    have   been,    to   your    knowledge,    many   expensive   and 
disastrous  failures  of  such  structures,  have  there  not? 
Mr.  Mayo.    Yes,  sir. 

Mr.  MoRiN.  What  if  the  dams  should  fail  in  whole  or  in  part,  or  foundations 
prove  defective,  would  it  be  the  task  of  the  United  States  under  this  offer  to 
rebuild  the  structure  or  remedy  the  defects? 
Mr.  Mayo.    Yes,  sir. 

It  would  be? 
Yes,  sir. 

And  on  this  further  new  money  would  Mr.  Ford  pay  interest? 
That  has  not  been  contemplated. 
Is  it  possible  for  these  failures  to  occur? 
Almost  anything  is  possible. 

Then  it  is  possible.    And  that  such  failures  might  involve  large 
sums  of  new  money  running  into  the  millions? 
Mr.  Mayo.    It  might. 

Mr.  MoRiN.   And  under  the  Ford  offer  these  risks  are  entirely  borne  by  the 
United   States? 
Mr.  Mayo.    Yes,  sir. 

Mr.  MoRiN.  The  fixation  of  atmospheric  nitrogen  is  a  new  art,  is  it  not? 
Mr.  Mayo.    Quite  new,  relatively  so. 

Mr.   MoBiN.    What  nitrogen  fixing   plants  are   there   in   operation   in   the 
United  States? 
Mr.  Mayo.   The  one  at  Syracuse,  N.  Y. 
Is  that  the  only  oneZ. 
I  think  so. 

What  plants  are  there  abroad  that  you  know  of? 
I  will  put  that  statement  in  the  record.    I  have  not  a  list  of 

World  capacity  of  air  nitrogen  plants. 
[Metric  tons  of  nitrogen  (2,204  pounds  per  ton).] 


Mr. 
Mr. 


MORIN. 

Mayo. 
Mr.  MoEiN. 
Mr.  Mayo. 
Mr.  MoRiN. 
Mr.  Mayo. 
Mr.  MoBiN. 


Mr. 

MOBIN. 

Mr. 

Mayo. 

Mr. 

MORIN. 

Mr. 

Mayo. 

em 

all. 

Germany 

France 

Italy 

Scandinavia... 

Austria 

Switzeriand... 

Japan 

Canada 

United  States. 


Total. 


Haber, 


Cyan- 
amid. 


300,000 


(») 


300,000 


93,000 
40,000 
12,000 
28,000 
22,000 
7,500 
12,000 
12,000 
40,000 


266,500 


Arc. 


1,000 

1,000 

30,000 


32,000 


Total. 


393,000 
41,000 
13,000 
58,000 
22,000 
7,500 
12,000 
12,000 
40,000 


598,500 


1  There  should  be  added  about  3,000  tons  to  cover  the  probaple  output  of  the  modified  Haber  process 
plant  recently  installed  at  Sj^acuse,  N.  Y.  Nitrate  plant  No.  1  at  Muscle  Shoals  was  designed  for  this 
process,  but  being  unworkable  without  extensive  rebuilding,  is  omitted. 

American  Fertilizer  Handbook,  1920,  p.  39. 


MUSCLE   SHOALS  PROPOSITIONS. 


251 


Mr.  MoRTN.  I  wish  you  would.  What  are  the  several  processes  so  far 
developed? 

CONVERSION  OF  ATMOSPHERIC  NITROGEN.* 

The  conversion  of  the  nitrogen  of  the  air  into  compounds  available  for  use 
may  be  accomplished  in  several  ways,  the  principal  ones  of  which  are  : 

1.  The  direct  oxidation  of  nitrogen  and  its  conversion  into  nitric  acid. 

2.  The  combination  of  nitrogen  with  metals  to  form  nitrides,  which  may  be 
treated  to  furnish  ammonia. 

3.  The  formation  of  cyanides  or  cyanogen  compounds  by  combination  of  nitro- 
gen with  metals  and  carbon. 

4.  The  formation  of  a  compound  with  carbide,  producing  cyanamid. 

5.  The  direct  combination  of  nitrogen  and  hydrogen  from  its  elements  for  the 
formation  of  ammonia. 

THE  ARC  PROCESS. 

The  direct  oxidation  of  nitrogen  in  the  electric  arc  to  form  nitric  acid  was 
the  first  of  tlia  processes  to  be  developed  abroad.  Many  forms  of  arcs,  through 
which  air  passes  or  is  blown,  have  been  proposed,  but  the  principle  involved  is 
the  same,  the  union  of  oxygen  and  nitrogen  at  the  temperature  of  the  arc.  The 
only  commercially  successful  plant  is  located  in  Norway,  where  electric  power 
is  cheap.  The  method  itself  is  very  inefficient  as  regards  production  in  relation 
to  power  consumed.  The  low  cost  of  electric  power  in  Norway  makes  the  proc- 
ess workable  there. 

It  is  generally  conceded  that  this  process  would  not  be  adapted,  in  it§  present 
state  of  development,  for  use  in  the  United  States.  Apparently  there  is  not  a 
sufficiently  large  amount  of  cheap  hydroelectric  power  available  in  America 
within  reach  of  points  where  nitric  acid  would  be  used.  The  cost  of  installing 
the  process  is  high,  and  the  product,  nitric  acid,  is  not  economically  transport- 
able. Nitric  acid  is  not  readily  converted  into  materials  that  are  used  for  fer- 
tilizers. Calcium  nitrate  and  ammonium  nitrate  formed  by  neutralizing  nitric 
acid  with  lime  or  ammonia  are  of  some  value  as  fertlizer  material,  but  can  not 
be  used  readily  in  mixed  fertilizers  demanded  by  American  farmers.  In  spite 
of  the  simplicity  of  the  arc  process,  and  the  supply  of  raw  material  without 
cost,  the  disadvantages  are  seemingly  greater  than  the  advantages  for  this 
country. 

NITRIDE  PROCESS. 

The  nitride  process  consists  of  the  combination  of  nitrogen  with  various  ma- 
terials under  the  influence  of  high  heat,  and  the  nitrides  produced  may  be 
treated  subsequently  to  furnish  ammonia.  The  best  developed  of  the  nitride 
process  is  that  of  making  aluminum  nitride  from  alumina,  coke,  and  nitrogen 
heated  to  a  temperature  of  about  1,800  "  C.  in  an  electric  furnace.  The  process 
has  not  been  developed  sufficiently  to  show  what  the  ultimate  power  require- 
ments would  be,  although  they  are  known  to  be  rather  high.  At  present,  how- 
ever, it  is  not  used  on  a  commercial  scale  for  the  production  of  ammonia. 

CYANIDiJi^PROCESS. 

The  cyanide  process  is  one  depending  upon  the  formation  of  cyanides  by  the 
combination  of  nitrogen  with  metals  and  carbon.  There  is  no  difficulty  in  the 
chemical  reaction  involved.  Sodium  carbonate,  ground  coke,  or  carbon  in  some 
other  form  is  brought  into  contact  with  finely  divided  iron  and  heated  to 
redness,  and  nitrogen  or  air  passed  through  the  mass.  The  nitrogen  is  fixed 
as  sodium  cyanide.  The  reactions  take  place  readily,  but  mechanical  difficulties 
of  carrying  them  out  have  not  as  yet  been  entirely  solved.  The  sodium  cyanide 
formed  may  be  readily  converted  into  ammonia,  and  the  sodium  carbonate 
recovered  for  further  use.  The  product  obtained  here,  as  in  the  case  of  the 
nitride  process,  is  ammonia.  This  process,  however,  at  present  is  not  a  com- 
mercial success. 


*  An  extract  from  a  _paper  entitled  "Atmospheric  nitrogen  for  fertilizers,"  bv  R.  O.  E. 
Davis,  scientist,  U.  S.  Bureau  of  Soils. 


252 


MUSCLE   SHOALS  PROPOSITIONS. 
CYANAMID   PROCESS. 


MUSCLE   SHOALS  PROPOSITIONS. 


253 


J^^ 


■Mi. 


The  cyanamid  process  consists  of  the  union  of  nitrogen  with  carbide  at  the 
temperature  of  the  electric  furnace.  Raw  materials  required  in  the  process  are 
lime,  anthracite  coal,  or  coke  for  producing  calcium  carbide  and  nitrogen  ob- 
tained from  liquid  air.  The  process  consists  of  the  production  of  the  carbide 
in  a  large  furnace  by  heating  lime  and  coke  or  anthracite  coal.  The  second 
step  involves  the  fine  grinding  of  the  calcium  carbide  without  contact  with  air 
and  heating  the  ground  mass  to  a  red  heat,  when  nitrogen  is  introduced  and 
is  absorbed  by  the  carbide  to  form  cyanamid.  The  cyanamid  may  be  treated 
with  steam  for  the  production  of  ammonia.  This  is  necessary  where  nitric 
acid  or  nitrates  are  to  be  formed,  but  cyanamid  itself  has  a  value  as  a 
fertilizer  material.  This  process  has  been  worked  commercially  in  Germany, 
producing  about  one-third  of  the  German  requirements  during  the  recent  war. 
It  has  also  been  worked  successfuly  in  other  countries,  and  the  only  commercial 
plant  for  fixation  of  nitrogen  on  the  American  Continent  used  this  process. 
This  plant  at  Niagara  Falls  has  been  in  operation  for  a  number  of  years,  pro- 
ducing cyanamid  daily  for  agricultural  purposes.  The  advantge  of  this  process 
is  that  it  gives  a  product  which  is  salable  as  a  fertilizer  material  or  convertible 
into  materials  which  may  be  used  for  fertilizers.  The  disadvantages  are  that 
it  involves  a  high  consumption  of  power  and  the  cost  of  the  finished  product 
is  comparatively  high.^  In  addition  the  product  is  very  disagreeable  to  handle 
because  of  the  irritation  to  the  mucous  membranes  when  the  dust  is  breathed 
by  animals  or  men  working  with  it. 

HAREB  PBOCESS. 

The  Haber  process  is  based  upon  the  direct  combination  of  nitrogen  and 
hydrogen  in  the  elemental  form  to  produce  ammonia.  The  process  has  to  be 
carried  out  at  a  pressure  of  100  to  200  atmospheres  and  a  comparatively  high 
temperature,  about  550**  Centigrade.  The  process  was  first  developed  in  Ger- 
many, and  during  the  recent  war  it  contributed  at  least  one-third  of  the  fixed 
nitrogen  required  by  that  country.  In  no  other  country  has  this  process  been 
worked  commercially,'  but  a  great  deal  of  work  has  been  done  toward  develop- 
ing it.  It  has  a  number  of  advantages.  The  power  required  is  small,  the 
product — liquid  ammonia — is  readily  available  for  oxidation,  and  the  nitric 
jicid  obtained  is  convertible  into  fertilizer  materials  The  raw  materials — air, 
water,  and  coal — are  available  in  large  quantities.  The  disadvantages  of  the 
method  involve  the  use  of  highly  technical  labor  and  the  mechanical  difficulties 
of  carrying  out  the  operations  at  pressures  of  100  or  more  atmospheres. 

Mr.  Mayo.   I  will  put  that  in  the  record  also. 

Mr.  MoRiN.  What  study  have  you  made  of  processes  for  such  fixation  as 
applicable  to  nitrate  plant  No.  2? 

Mr.  Mayo.    We  have  made  quite  a  number  of  studies. 

Mr.   MoRiN.    Have  they  been   satisfactory? 

Mr.  Mayo.    Quite  so. 

Mr.  MoRiN.  Tklany  people  and  scientists  who  are  working  on  this  very 
problem  are  of  the  opinion  that  Plant  No.  2  can  not  produce  nitrogenous 
compounds  at  a  price  at  which  they  can  compete  with  similar  compounds 
from  other  sources  or  made  by  other  processes;  what  is  your  opinion? 

Mr.  Mayo.  I  will  refer  to  two  statements  made  by  eminent  authorities, 
one  by  Dr.  N.  Caro  and  one  by  Mr.  Frank  Washburn,  president  of  the  American 
Cyanamid  Co.    Dr.  Caro  is  the  originator  of  this  cyanamid  process. 

The  Chairman.   He  is  in  Germany,  is  he  not? 

Mr.  Mayo.  Yes,  sir.  We  will  submit  these  two  authorities.  Dr.  Caro  and 
Mr.  Washburn. 

(The  statements  referred  to  follow:) 

"  Dr.  N.  Caro.  How  far  the  German  nitrogen  industry  will  be  able  to  cope 
with  foreign  competition,  in  view  of  high  wages  and  high  costs  of  combustibles, 
can  not  at  present  be  predicted.  Since  the  cost  of  coal,  which  in  the  future  is 
sure  to  be  one  of  the  most  important  items  of  expense,  can  hardly  decrease,  the 

1  The  cost  depends  to  a  large  extent  upon  the  cost  of  power.     (W.  B.  M.) 

*  Since  the  war  a   small   plant  using  a  modification  of  the   Haber   process  has  been 

operated  at  Syracuse,  N.  Y.     A  large  plant  employing  this  process  recently  blew  up  at 

Oppau,  Germany,  with  great  loss  of  life.     (W.  B.  M.) 


lime-nitrogen  industry,  on  account  of  its  unusually  small  consumption  of  coke, 
will  be  in  a  very  favorable  situation.  This  will  be  particularly  true  when  the 
construction  market  sinks  to  some  halfway  normal  level,  so  that  the  capital  cost 
of  water-power  developments  will  be  more  reasonable.     *     *     * 

"Far  more  dangerous  (than  the  competition  of  Chilean  nitrate)  appears  to 
be  the  possibility  of  competition  with  artificially  fixed  nitrogenous  fertilizers 
produced  in  foreign  countries. 

"The  largest  of  these  (foreign  lime  nitrogen)  plants  is  located  in  the  United 
States,  in  Alabama.    Its  situation  is  most  excellent. 

"  It  is  connected  with  the  ocean  by  means  of  the  Tennessee  Ptiver,  which  has 
been  made  navigable.  It  is  situated  at  a  source  of  almost  constant  water  power, 
amounting  to  400,000  horsepower,  and  is  right  in  the  midst  of  a  locality  where 
all  the  raw  materials  of  the  lime-nitrogen  (cyanamid)  industrv  are  present  in 
the  highest  purity  and  at  the  very  lowest  prices.     ♦     ♦     * 

"Near  by  are  the  inexhaustible  deposits  of  high  per  cent  phosphate  rock. 
The  possibility  therefore  exists  of  *  *  *  producing  cheaply  *  ♦  *  am- 
monium phosphate  containing  roughly  45  per  cent  of  water-soluble  phosphoric 
acid  and  20  per  cent  nitrogen." 

"  Mr.  Washburn.  My  anticipation  is  that  the  establishment  of  the  nitrogen 
industry,  as  it  can  be  estabUshed  with  what  I  believe  and  what  I  believe  would 
appeal  to  those  who  study  the  subject  is  the  proper  and  legitimate  Government 
cooperation,  will  give  the  farmer  his  fertilizer  for  one-half  of  what  he  would 
otherwise  pay  for  it." 

The  Chairman.  Where  can  Dr.  Caro  be  reached  at  this  time? 

Mr.  Mayo.  I  could  not  say.    I  expect  in  Germany. 

The  Chairman.  He  was  identified,  I  recall,  with  a  German  company. 

Mr.  Mayo.  Yes,  sir. 

The  Chairman.  I  think  he  was  at  the  head  of  those  companies. 

Mr.  Mayo.  I  believe  so. 

The  Chairman.  We  would  have  to  go  over  to  Germany  to  get  him. 

Mr.  MoRAN.  From  your  study  and  knowledge,  is  Mr.*  Ftrd  able  to  so  operate 
plant  No.  2  for  the  agreed  period  of  100  years  that  his  produce— ammonium 
nitrate  or  other  fertilizer  compounds— can  successfully  compete  with  these  other 
sources? 

Mr.  Mayo.  I  am  of  the  opinion  he  can. 

Mr.  MoRiN.  Ammonium  nitrate  is,  as  I  understand  it,  only  one  of  the  ingredi- 
ents necessary  to  the  making  of  a  complete  fertilizer  such  as  agriculture  can 
use;  is  this  understanding  correct? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Morin.  In  the  form  produced  at  nitrate  plant  No.  2  it  is  not  fertilizer,  but 
is  a  fertilizer  compound ;  is  not  that  true? 

Mr.  Mayo.  He  intends  to  produce  a  complete  fertilizer. 
He  intends  to  produce  a  complete  fertilizer? 
Yes,  sir. 

Would  it  be  sold  in  this  form  to  the  farmer? 
Yes,  sir. 

Could  the  farmer  use  it  in  this  form  without  the  addition  of  the 
other  essential  ingredients? 

Mr.  Mayo.  He  will  be  able  to  use  the  completed  product  as  it  will  be  furnished 
fiom  that  plant. 

Mr.  MoRiN.  As  it  will  be  furnished  to  him? 

Ur.  Mayo.  Yes,  sir. 

Mr.  Morin.  It  will  not  be  necessary,  then,  for  the  farmer  to  mix  it  with  the 
other  ingredients  in  order  to  market  this  product  through  the  fertilizer  mixers 
now  existing? 

Mr.  Mayo.  Not  further  than  perhaps  mixing  it  with  dry  earth  or  gand  or  some- 
thing he  has  right  at  hand. 

Mr.  Morin.  If  Mr.  Ford  plans  the  making  of  a  complete  fertilizer,  does  Mr. 
1^  ord's  8  per  cent  profit  mean  that  the  farmer  will  get  his  complete  fertilizer 
at  8  per  cent  above  cost? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Morin.  And  his  8  per  cent  is  not  limited  to  the  ingredients  of  ammonium 
nitrate? 

Mr.  :Mayo.  It  is  limited  to  everything  that  goes  into  the  cost  of  production. 
Mr.  Morin.  Complete. 
Mr.  Mayo.  Yes,  sir. 


Mr.  Morin. 
Mr.  Mayo. 
Mr.  Morin. 
Mr.  Mayo. 
Mr.  Morin. 


254 


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MUSCLE   SHOALS  PROPOSITIONS. 


255 


i 


Mr.  MoRix.  If  found  by  Mr.  Ford  after  the  starting  of  operations  that  he  can 
not  produce  ammonium  nitrate  in  competition  with  the  wholesale  marlcet  price 
of  the  same  material  from  other  sources,  do  you  understand  that  his  agreement 
binds  him  to  continue  the  operation  of  the  plant  for  nitrogen  compounds  at  a 
loss? 

Mr.  Mayo.  I  do  not  think  so,  but  of  course  he  would  have  an  opportunity  to 
change  the  process.  He  would  exhaust  every  effort  with  every  process  before 
he  would  quit. 

Mr.  MoRiN.  But  it  would  not  bind  him  to  continue? 

Mr.  Mayo.  I  hardly  think  so.  However,  I  would  consider  he  was  bound  to 
keep  the  plant  there  in  readiness. 

Mr.  MoRiN.  He  has  stated  to  Secretary  Weeks  that  he  would  not  run  the  plant 
at  a  loss. 

Mr.  Mayo.  I  think  he  meant  he  could  not. 

Mr.  Greene.  I  do  not  know  whether  the  last  question  brought  out  just  exactly 
what  I  want  to  know  or  not.  If  this  contract  holds  for  100  years,  of  course,  it 
is  reasonable  to  expect  that  constant  experimentation  and  research  work  will 
develop,  very  likely,  new  discoveries  in  chemistry  and  chemical  combinations 
used  in  fertilizer. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Greene.  And  they  will  bring  with  them,  of  course,  new  processes,  me- 
chanical and  otherwise,  so  that  there  is  always  the  possibility  that  the  present 
idea  of  fixation  of  nitrates  will  be  superseded. 

Mr.  Mayo.  Yes,  sir. 

MV.  Greene.  And  that  this  particular  plant  with  its  present  equipment  may  be 
a  side  issue  within  a  quarter  of  a  century. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Greene.  Does  the  contract  proposed  by  Mr.  Ford  contemplate  his  follow- 
ing all  these  new  experimentations  and  developments  in  the  chemistry  of  fer- 
tilizers, so  that  he  may  continuously  keep  abreast  of  what  is  being  done  in  the 
world? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Greenr  And  he  obligates  himself  to  do  that? 

Mr.  Mayo.  I  would  say  so. 

Mr.  Greene.  If  the  method  and  practice  presently  followed  or  if  other  proc- 
esses or  agencies  or  conditions  or  influences  intervene  to  sidetrack  the  present 
methods  or  some  later  method,  he  will  still  develop  fertilizer  for  the  farmers 
there. 

Mr.  Mayo.  That  is  his  intention. 

Mr.  Greene.  If  it  is  possible  that  the  fixation  of  nitrates — ^because  I  suppose 
the  chemistry  of  the  soil  will  not  change  no  matter  what  man  does  about  his 
agencies — if  the  development  of  the  fixation  of  nitrates  goes  to  such  a  point 
that  it  becomes  a  more  or  less  everyday  neighborhood  affair,  commercially, 
with  no  longer  any  particular  incentive  for  the  Government  or  a  great  industry 
to  concentrate  on  it,  so  that  the  present  objective  of  this  proposition  was  lost, 
would  Mr.  Ford  still  continue  to  manufacture  fertilizers  there? 

Mr.  Mayo.  Not  unless  it  could  be  done  profitably.  I  think  after  he  had  evi- 
denced he  had  exhausted  every  effort  known  to  the  state  of  the  art  to  produce 
it  at  a  profit,  if  it  was  not  in  the  woods,  so  to  speak,  I  do  not  think  he  would  be 
obligated  to  continue. 

Mr.  Greene.  Somebody  outside  may  be  producing  it  at  a  profit. 

Mr.  Mayo.  If  they  could  there  is  every  reason  to  believe  that  he  could. 

Mr.  Greene.  Exactly ;  but  the  question  was  raised  several  times  as  to  whether 
those  conditions  not  within  his  control  and  so  on,  which  are  his  outlets  from 
the  fulfillment  of  this  nitrate  part  of  the  contract,  would  include  such  a  thing 
as  outside  copipetition ;  in  other  words,  if  he  should  be  bested  by  outside  com- 
petition and  in  a  state  where  he  could  not  produce  as  economically  as  other 
people  in  the  business  could,  would  that  be  his  legitimate  and  altogether  valid 
reason  for  discontinuing? 

Mr.  Mayo.  The  only  valid  reason  for  discontinuing  would  be  that  he  had 
proved  by  every  possible  effort  that  it  was  an  absolute  impossibility  to  make  the 
product  there  with  a  profit. 

Mr.  Greene.  That  would  have  to  be  both  a  physical  and  a  moral  proposition. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Greene.  And  yet,  of  course,  the  inducement  in  this  contract,  as  it  has 
been  put  by  some  of  our  brethren,  is  that  Mr.  Ford  will  produce  fertilizer  there 


so  cheaply  that  the  outside  world  will  not  raise  the  nrici*  nf  it     n»  fi.o*  ««« 

^}'l^Vl '?;«  J?.*"^^*  ^^"«'  ""^^^  inducement  IslhSl  for^hf Goveiiment  t^^^^^ 
iirm w^^^  f  the  people.  Mr.  Ford  is  left  with  no  obligatton  to  ^rinufthe 
fertmzer  part  of  the  contract  and  has  got  a  very  generous  water  ^wer  on  hand 

Mr.  Mayo.  He  is  paying  the  lease  price  for  it.  It  is  reasonable  to  suoDose  that 
after  starting  in  the  production  of  fertiliier  for  any  le^  of  tUne  h^^onfd 
not  discontinue  unless  he  had  exhausted  every  effort 

my  o^JS^at^Ia  "^""""^  *"*  """^  '°^°*  ^"^  P'*'*''^  ^"^  anticipated  thoughts  on 
Mr.  Mato.  I  understand. 
Mr.  Greene.  I  am  Just  trying  to  see  how  nearly  our  minds  meet     I  «m  -^ 

LT  »?, """  ^'-  ^"'^  *'"  "«  8»^<*™«'  throughout  as  a  reasonaWe  m«n   and 

that  all  we  can  expect  of  him  Is  to  do  as  reasonable  men  woTld  do     This  Is 

not  necessarily  an  antagonistic  question,  but  the  question  does  come?after  al  ' 

he  farmertTha?e%ZirJi't,'''  ^  ""'=''  ""^  »»*>"  "«•  *«  th^cemlnty  thai 

in"tM  S  "thlTf^ »tr^f ^  *r  abandoning  such  a'comrtr.v^interes't 

in  ufe  ttside'caS'bring  aat'  ab'our'''*  ^'^'  ''^'""^'  '""  '""^^  "  ""^  •*»»"' 

Mr  Mayo.  I  do  not  see  how  there  Is  any  chance  for  him  to  continue  to  carrv 

msTne^Um!^"  '"'  "'  *'  """""='  """  <"«">''"°»e-    He  is  enterlSg'Into 

Mr.  Greene.  I  have  no  doubt  of  it. 

Mr.  Mayo.  And  he  will  not  quit,  because  there  is  more  or  less  of  hardshin  in 
rying  to  meet  competition.    The  only  reason  for  him  to  discontinue  w^^^^^^ 
his  actual  inability  to  manufacture  at  a  profit  s^outmue  wouia  De 

Mr  Greene.  Yes;  and  that  is  the  very  phase,  you  know  that  nmvAa  tu^ 
«rumblingblock  as  to  what  would  be  a  legitimate  e^xcusf  foT' h'f  ina^l  tv  hi 
physical  conditions  attending  the  plant,  or  failure  to  bring  those  physical 'co^^^ 
<]itions  up  to  a  point  where  they  met  outside  competition.  Physical  con 

Mr.  Mayo.  Every  authority  that  knows  anything  about  that  particular  hii«l 
aess  agrees  and  are  a  unit  in  the  opinion  that  that  plant  is  as  fU^rably  situa"^ 
as  any  p  ant  in  the  world  to  make  fertilizers  cheaply.    Now,  if  that  ^s  a  fart 

U  'Z'^l?Zi'lZX'^le''^  '^^^  ^'^  '"'^'^"'^^^  POssWlir  of^iSaS^g 

Mr.  Mayo.  Yes,  sir. 

Mr  GreexNe.  Now,  supposing,  as  I  said,  we  develop  new  processes  it  Is  pt- 
pected  he  will  follow  those  developments  too,  and  insttt^te  hfh^?  p lant  the 
changes  that  are  necessary  in  order  to  follow  them'  ^  ^ 

Mr.  Mayo.  Yes,  sir. 

Mr.  Greene  One  more  question,  if  you  please:  This  8  per  cent  profit  which 
Mr  Ford  limits  himself  to  in  the  terms  of  his  proposed  contract  is  sudik)^  to 

Ah.^  AffYo'  r^'  ^"  '^  ^'X''  ""?  '""'^  ^^^'^  '^  the  indiXaffarme,^'^^  '^ 
i«  oVVk    J  •  It/^s  not  matter,  it  seems  to  me,  where  you  take  it-  whether  it 

ios't  may  be''  "  '^''^'^  "'  '"  '^"  '^''""''  "  *«  «  ^'  cent  on  Ulte'lrthe 

Mr.  Greene   Yes;  and  I  only  asked  that  because  I  thought,  perhaps  that  was 
not  businesslike  form,  and  it  was  brought  out  here  onc^  or  twlT'l  hPill\p 
through  previous  witnesses,  that  possiblfMr.  Ford  might^-e^p  wTthhi  the  /e?te; 

1.  .•    rnt'Tould  th«?"b.''' Uhf  T.^*^/^^^  ""'l  P^«^"^^  '^  '^^^  Sreman  at  8 
M^ mIC  T  IhinJ  ^ /''*S  "  P"^  ^^^"^^  **^  *^^  «P'"t  «^  t^e  contract? 

consuiner^as  pos^ble  "'^""^"  ''  '^  ^^"""^  ''  ^«  ^^^^  ^*^^'">'  *«  ^he 

maft'^r^y^'  ^i^'  ^^^^""^  following  Mr.  Greene's  questions  on  the  8  per  cent 

V,   ;f^  ^^""i^  {J^"*  ^'^"^  ""^  ^^^  turnover  or  8  per  ctnt  on  the  monev  invSted^ 

•ost  plus  sc'heme!'''"      """^  ^^  *""  "'^  turnover,  because  that  would  really  be  a 

Mr'  ntu?"  ^"  *^^.*t""'X*  P^'o^u^'tion  eost  is  the  way  we  put  it. 
thinl*  fi         'n*'''\  ^''*-  H'^y'"'  speaking  of  contract  No.  2,  it  is  apparent    I 

voii«.nf,ii    "1"^^  «"/  radical  changes  in  that  contract.     However    I  nresume 
^^^>n  viould  not  object  to  making  the  contract  more  specific  if  we  thought  U  was 
92900-22 17 


256 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


267 


i 


*     ( 


"SrSf' 


advisable  in  order  to  protect  the  interests  of  the  Government  and  the  people; 
anything  that  would  clear  it  up  would  be  acceptable,  would  it  not? 

Mr.  Mayo.  I  imagine,  if  we  have  not  clearly  stated  our  intent,  the  wording 
may  be  changed  to  clarify  it. 

Mr.  Hull.  Any  reasonable  changes  in  order  to  make  it  clearer. 

Mr.  Mayo.  Yes.  „  , , 

Mr.  Hull.  There  are  some  things  hi  there  which  I  think  naturally  would  sug- 
gest themselves  to  anyone.  I  do  not  care  to  go  into  all  the  details  because 
it  would  take  quite  a  good  deal  of  time. 

Mr  Mayo.  Mr.  Ford  has  indicated  he  did  not  want  to  make  any  further 
changes,  but  if  there  is  some  change  in  the  wording  to  clarify  the  meaning,  he 

would  accept  it.  ,  ,        ..        ^i,  •      ^ 

Mr  Hull.  You  estimate  about  $45,000,000  would  be  about  the  approximate 
sum  the  Government  would  have  to  invest  in  the  proposition  to  make  it  a  going 
concern  for  Mr.  Ford.  In  that  do  you  estimate  the  increased  cost  of  the  flow- 
age  rights  there.  I  imagine,  although  I  may  be  wrong,  that  there  will  be  in- 
creased costs  of  the  flowage  rights  the  minute  you  begin  buying  them  up. 
Have  you  thought  of  that? 
Mr.  Mayo.  I  did  not  quite  get  you.  .  v..       x, 

Mr  Hull.  Have  vou  thought  of  the  increased  cost  of  the  flowage  rights  when 
vou  go  to  buying  them  up.  The  minute  the  Government  goes  to  buying  any- 
thing of  that  kind  up  we  found  through  our  experience  during  the  war  tliat 
immediately  the  real  estate  we  want  increases  in  value  very  materially,  without 
anv  reason  at  all  except  that  it  is  the  Government  that  is  buying  it. 

Mr.  Mayo.  They  did  not  find  that  so  when  they  bought  the  flowage  rights  for 

Dam  No.  2,  did  they?  .  ,  ^  ^     •       ., 

Mr.  Hull.  If  they  did  not,  it  was  about  the  only  case  I  know  of  during  the 

war 

Mr.  Mayo.  My  understanding  is  those  lands  were  bought  at  a  figure  approxi- 
mating tbe  estimates. 

Mr.  Huu^  They  were.  _.  ^^      ^  ^       -kt     n 

Note.— The  estimated  cost  of  the  lands  and  flowage  rights  at  Dam  No.  2  was 
$350,000  In  1916.  (H.  Doc.  1262,  64th  Cong.,  1st  sess.,  p.  35.)  The  actual  co^ 
of  acqtiirii«  6,612.4  acres  out  of  7,212.4  acres  has  been  $383,490  (averaging  $58 
per  aci«)  and  the  War  Department's  estimate  of  the  cost  of  acquiring  the 
remaining  60a  acres  is  $40,000,  making  a  total  amount  for  this  item  at  Dam 
>>.  2  of  $423,490.  (From  record  of  Chief  of  Engineers:  U.  S.  Engineer  Office, 
Florence,  Ala.,  statement  of  July  31,  1921.)  ^       ,^  .  ,  ^        ..,,,„  h,p 

Mr.  Mayo.  Yes.  I  am  led  to  believe  we  can  buy  those  rights  within  the 
estimate  we  have  suggested. 

Mr.  Hull.  You  know  who  the  owners  are? 

Mr.  Mayo.  Many  of  them ;  yes,  sir.  ^     .      ,       ,  k    *t     ,.»hiio 

Mr  Hull  Of  course,  there  is  a  great  deal  of  emphasis  placed  by  the  public 
and  the  press  and  some  of  the  committee  on  the  fertilizer  proposition,  ana 
that  is  very  valuable,  but  to  my  own  mind  this  contract  is  far  more  valuable 
to  the  Government  in  the  fact  that  if  we  accept  it  we  will  always  have  an 
indepen^tent  source  of  ammonium  nitrate. 

Mr.  Mayo.  Yes,  sir.  '  ^         ^  ^^  ^  „«^f 

Mr.  Hxjll.  Without  the  changing  of  the  plant  or  anything  of  that  sorr, 
that  supply  would  always  be  protected,  would  it  not? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Hull.  There  can  be  no  doubt  about  that. 

Mr.  Mayo.  No,  sir.  ,  ,        ^  ^,  i«^  thP 

Mr  Hull.  You  would  not  have  the  right,  although,  apparently,  """•f^^  tne 
*  contract  vou  have  bought  this  property— although  I  might  say  that  I  oe^jfj;^ 
you  have' simply  bought  the  land  of  it  because  you  would  not  have  the  aDsu- 
lute  right  of  ownership  there  because  you  could  not  change  that  plant  anu 
destroy  what  we  now  have  In  plant  No.  2,  and  that  Is,  an  Independent  source 
for  the  production  of  ammonium  nitrate. 

Mr.  Mayo.  Not  unless  we  replaced  it  with  something  equally  as  goort  "i 

Mr.*  Hull.  I  do  not  know  that  I  want  to  correct  an  expert  and  PerhaP« 
mttv  be  wrong,  and  If  I  am  I  was  misinformed,  but  you  said  ammonium  mirai 
^s  the  Ingredient  that  went  Into  fertilizer;  is  it  not  ammonium  sulphate. 
Mr.  Mayo.  Ammonium  nitrate  can  be  used.     It  Is  not  usually  used  m  n" 

form.  ,,^      ^ 

>Ir.  Hull.  It  is  not  a  success  as  a  fertilizer? 
Mr  Mayo.  I  would  not  say  it  could  not  be,  but  it  is  not  now. 


Mr.  Hull.  It  may  be  that  you  may  find  sonje  way  of  doing  that.    As  a  mat- 
ter of  fact,  right  on  that  point,  this  plant  produces  to-day  ammonium  nitrate. 
Mr.  Mayo.  Yes,  sir. 

Mr.  Hull.  To  produce  ammonium  sulphate,  which  you  will  have  to  produce, 
I  think,  if  I  am  correctly  informed,  you  would  have  to  spend  about  one  mil- 
lion, or  two,  or  three  million  dollars;  is  not  that  true? 

Mr.  Mayo.  We  might,  If  we  went  into  ammonium  sulphate. 

Mr.  Hull.  Of  course,  that  money  you  spend  yourself? 

Mr.  Mayo.  Yes,  sir. 

Mr  Hull.  That  is  a  part  of  your  proposition,  and  you  would  keep  the  plant, 
at  all  times,  so  that  in  case  we  needed  it  at  any  time  for  war  purposes  we 
could  convert  it  right  back  into  an  ammonium  nitrate  plant. 

Mr.  Mayo.  Yes,  sir;  or  perhaps  if  the  need  of  the  Government  changed  it 
might  be  changed  to  make  some  substitute. 

Mr.  Hull.  We  understand  that,  and  that  would  be  all  right. 

Mr.  Mayo.  To  all  intents  and  purposes  it  would  be  kept  ready  for  them  as 
the   contract   states. 

Mr.  Hull.  Of  course,  you  will  turn  over  your  personnel  and  all  that. 

Mr.  Mayo.  Certainly. 

.u?^^-^^^'^'  ^^^^  ^^^-  ^^<^Kenzie.  I  am  a  little  in  doubt  as  to  the  purchase  of 
this  Gorgas  plant,  and  I  can  not  see  just  exactly  why  that  is  necessary,  and 
1  imagine  it  is  going  to  be  a  very  hard  nut  for  the  committee  to  crack  As 
I  understand  it,  you  say  you  want  it  to  duplicate  the  power  by  steam.  That 
power  is  practically  duplicated  in  plant  No.  2  and  the  Gorgas  plant  is  some  70 
or  80  miles  away,  and  would  not  be  necessary  to  the  proposition,  so  far  as 
I  can  see. 

Mr.  Mayo.  It  is  more  beneficial,  as  we  look  at  it,  than  the  one  located  at 
plant  No.  2. 
Mr.  Hull.  It  is? 

Mr.  Mayo.  Because  it  is  at  the  coal  mines,  really,  and  it  does  not  necessi- 
tate transportation  of  the  coal. 

Mr  Hull.  There  is  a  new  element  then.  It  Is  so  near  the  coal  mines  that 
therefore  you  think  it  would  be  much  cheaper? 

Mr.  Mayo.  Yes,  sir;  you  can  make  your  power  cheaper  and  it  increases  our 
primary  power  that  much. 

Mr.  Hull.  In  your  8  per  cent  profit  on  wtat  you  sell  the  farmer— and  you 
say  you  are  going  to  sell  it  direct  to  the  farmer  and  not  to  any  middleman  or 
corporation  to  profiteer  on  the  farmer;  is  not  that  true? 

Mr  Mayo.  The  hope  is  to  hand  it  to  the  farm  organizations  and  let  them 
distribute  It  themselves. 

Mr.  Hull.  Now,  how  about  the  salaries  of  these  men  engaged  In  that  work* 
that  would  have  to  be  figured  In?  * 

Mr.  Mayo.  Certainly. 

Mr.  Hull.  Is  there  any  protection  against  excessive  salaries? 
Mr.  Mayo.  Nothing  but  good  faith,  I  guess. 

Mr.  Hull.  Would  it  not  be  a  pretty  good  plan  to  suggest  some  salary  list 
there  ? 

Mr.  Mayo.  I  think  not. 

Mr.  Hull.  You  could  put  in  men  at  $50,000  and  the  farmers  would  have  to 
pay  those  salaries. 

Mr.  Mayo.  That  is  very  true,  but  I  do  not  think  we  would  stand  very  well 
with  the  farmers  if  we  started  that  sort  of  tactics. 

Mr.  Hull.  I  understand  that,  Mr.  Mayo,  and  I  would  not  have  the  slightest 
doubt  if  this  contract  was  to  be  carried  out  by  the  present  personnel  of  the 
i^ord  company;  but  that  is  not  the  proposition.  You  realize  we  are  making  a 
contract  for  100  years,  and  at  the  least  it  will  be  three  years  before  you  start 
and  probably  from  15  to  18  years,  as  you  suggest,  and  in  that  time  many  things 
may  change,  and  It  might  be  over  in  the  hands  of  a  corporation,  and  our  dealings 
With  corporations  are  not  such  as  to  be  as  satisfactory  sometimes  as  when  we 
are  dealing  with  persons. 

Mr.  Mayo.  We  hope  to  start  within  a  year. 

Mr.  Hull.  Producing  fertilizer? 

Mr.  Mayo.  Yes,  sir. 

A^l'  ?^^'  ^  ^^  ^^^^^  ***  ^^^^  ^^^^'    I  <1W  not  know  you  figured  you  could 
«o  that.    You  would  have  to  start,  then,  with  your  steam  power. 
Mr.  Mayo.  Yes,  sir. 


V 


i 


258 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


250 


Pil^ 


v^^ 


Mr.  Hull.  You  hope  to  start  right  away  with  steam  power  mannfacturing 
the  fertilizer  and  selling  it  to  the  farmer? 

|Lf|.  \iayo   Yes  sir. 

Mr!  Hull.  What  do  you  estimate  the  cost  of  ammonium  sulphate  from  this 
plant  would  be  at  the  present  time  under  present  conditions? 

Mr.  Mayo.  We  have  not  attempted  to  find  out  what  the  cost  would.be  under 
present  conditions. 

Mr.  Hull.  You  have  not? 

Mr.  Mayo.  No,  sir ;  we  have  several  processes  that  we  have  been  at  work  on 
for  the  last  six  months,  and  we  still  do  not  know  which  one  we  will  finally 
adopt. 

Mr.  Hull.  Under  this  contract  you  also  take  plant  No.  1. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Hull.  What  do  you  Intend  to  do  with  that? 

Mr.  Mayo.  Use  It  for  manufacturing  purposes. 

Mr.  Hull.  For  manufacturing  fertilizer? 

Mr.  Mayo.  No,  sir. 

Mr.  Hull.  For  manufacturing  nitrates? 

Mr.  Mayo.  No,  sir ;  manufacturing  parts  for  our  automobile  business. 

Mr.  Hull.  You  intend  to  manufacture  parts  for  the  automobile  over  there? 

Mr.  Mayo.  Yes,  sir;  raw  materials. 

Mr.  Hull.  That  would,  of  course,  contemplate  changing  that  plant  entirely 

from  a  nitrate  plant. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Hull.  You  do  not  contemplate,  however,  changing  No.  2  In  that  way. 

I^Ir   Mayo.  No   sir. 

Mr!  Hull.  You  have  not  any  doubt  but  what  you  can  manufacture  a  cheap 
fertilizer  at  plant  No.  2  at  the  present  time? 

Mr.  Mayo.  We  have  no  doubt  at  all ;  no,  sir. 

Mr.  Hull.  How  Is  the  Government  to  be  protected  against  destruction  by 
fire  or  by  an  explosion  of  plant  No.  2?    You  would  expect  to  insure  against 

that? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Hull.  Who  would  have  to  pay  for  that  Insurance? 

Mr.  Mayo.  Mr.  Ford  would.        . 

Mr.  Hull.  That  would  be  charged  against  the  operation  and  against  the 

project? 

Mr.  Mayo.  Yes,  sir.  ,,     „     ,  ,  ,     ..i 

Mr.  James.  Mr.  Mayo,  the  last  proposition  of  Mr.  Ford  was  drawn  In  tiie 
ofltee  of  the  Judge  Advocate  General  of  the  War  Department,  was  It  not? 

Mr.  Mayo.  Yes,  sir. 

Mr.  James.  Were  you  present? 

Mr.  Mayo.  Yes,  sir.  ^  ^       ^^  ,.i.      «... 

Mr  James.  When  the  Judge  Advocate  General  was  before  the  committee  the 
other  day  the  matter  concerning  the  cost  of  the  flowage  rights  came  up,  and 
he  stated  that  Mr.  Foril  believed  the  Government  could  acquire  those  cheai^er 
than  anybody  else,  and  there  was  not  any  doubt  in  his  mind  but  that  Mr.  Ford 
intended  to  reimburse  the  Government  for  those  expenditures,  and  that  when 
jou  appeared  before  the  committee  you  would  agree  with  his  view  concerning 
that  matter.    What  have  you  to  say  about  that?        , ,  .    ,,      r.    ^  *  *      if.. 

Mr.  Mayo.  I  differ  from  his  opinion:  I  do  not  think  Mr.  Ford  Intends  to 
liave  that  charged  up  against  the  project  at  all.  .     ,   .,,      ,^  u^^ 

Mr  James.  It  makes  quite  a  difference  to  the  Government  whether  It  has 
to  pav  for  them  or  whether  Mr.  Ford  Is  going  to  pay  for  them. 

Mr!  Mayo.  I  have  stated  before  that  Mr.  Ford  thought  that  the  cost  of  those 
flowage  rights  should  be  charged  up  to  navigation. 

Mr.  James.  What  plan  has  Mr.  Ford  for  giving  the  fertilizer  to  the  farmer? 

Mr  Mayo.  No  definite  plan  has  been  worked  out. 

Mr.  James.  You  think  he  Intends  to  work  It  out  through  some  agricultural 

.society  ? 

Mr.  Mayo.  That  Is  the  intention ;  yes,  sir.  „  .      .».        .    .n« 

Mr.  James.  If  that  plan  falls  through,  and  he  has  to  sell  to  others  to  dis- 
tribute and  thev  In  turn  distribute  to  the  retailers,  would  that  8  per  cent  prom 
Include  all  the  'different  turnovers,  or  would  Mr.  Ford's  profit  be  8  per  cent, 
and  the  distributors  and  the  retailers  get  a  percentage?  .^„„„n.pr  be 

Mr.  MAYO.  If  It  passes  out  of  his  hands  before  It  reaches  the  <?onsumer  be 
would  do  everything  he  could  to  hold  the  price  within  reasonable  limits,     ine 


object  has  always  been,  however,  to  get  the  fertllzer  delivered  direct  to  the 
farmer  without  passing  through  the  hands  of  third  parties. 

Mr.  James.  How  much  capital  do  you  think  would  be  sufficient — that  is,  the 
lowest  amount  Mr.  Ford  would  have  to  put  into  the  company  to  buy  that  prop- 
erty from  the  Government  and  to  carry  out  the  different  propositions  he  intends 
to  carry  on? 

Mr.  Mayo.  My  imj)ression  is  that  within  a  few  years  he  will  probably  Invest 
twenty-five  or  thirty  million  dollars. 

Mr.  Keakns.  Following  the  line  of  questions  that  Mr.  Hull  asked  you,  the  last 
question  he  asked  you  was  In  reference  to  the  matter  as  to  whether  Mr.  Ford 
would  pay  the  cost  of  Insurance  against  fire  and  explosions.  Under  this  con- 
tract you  say  he  agrees  to  pay  all  the  expenses  of  the  upkeep  of  the  machinery 
and  plant.  As  I  remember  it,  there  was  nothing  stated  about  that  in  the  con- 
tract. Does  Mr.  Ford  agree  to  pay  all  the  expense  of  the  upkeep  of  the  machinery 
and  plant? 

Mr.  Mayo.  According  to  the  contract,  the  property  is  sold  to  Mr.  Ford,  and  It 
is  up  to  him  to  keep  it  intact,  in  working  order  at  all  times. 

Mr.  Kearns.  It  is  leased  to  him,  and  not  sold  to  him ;  is  it  not? 

Mr.  Mayo.  Oh,  no ;  it  Is  sold. 

^Ir.  Kearns.  Do  you  know  how  much  nitrate  is  used  in  the  manufacture  of 
fertilizer  in  the  United  States  to-day? 

Mr.  :Mayo.  Somewhere  around  200,000  tons  of  nitrogen. 

Mr.  Kearns.  Then  Mr.  Ford  agrees  to  manufacture  110,000  tons — that  is,  to 
nijinufactuiv  more  than  half  of  what  is  used  in  the  United  States? 

Mr.  Mayo.  No,  sir ;  there  are  200,000  tons  of  nitrogen  used. 

IVIr.  Kearns.  He  agrees  to  produce  110,000  tons  of  ammonium  nitrate.  How 
much  of  that  is  used  in  the  fertilizer  which  is  used  in  the  United  Stiites  to-day? 

Mr.  Mayo.  I  do  not  know  of  any  ammonium  nitrates  used  in  fertilizers  now. 

]Mr.  Kearns.  What  do  you  mean  in  the  contract  when  you  say  you  will  run 
to  the  full  capacity,  and  that  the  capacity  now  is  equal  to  llO.obo*  tons  of  am- 
monium nitrate  per  annum? 

Mr.  Mayo.  Run  it  at  a  capacity  the  equivalent  of  110,000  tons  of  ammonium 
nitrate. 

Mr.  Kearns.  That  is  used  in  the  manufacture  of  fertilizers,  is  it  not? 

Mr.  Mayo.  They  have  not  up  to  date  used  ammonium  nitrates  in  fertilizers. 

Mr.  Kearns.  Do  they  not  convert  it  into  some  other  product? 

Mr.  Mayo.  They  can  make  it  into  sulphate  of  ammonia.  So  far  as  the  capac- 
ity of  the  plant  is  concerned,  it  was  built  to  make  ammonium  nitrate,  so  that 
the  capacity  at  which  we  agreed  to  run  it  is  the  capacity  stated,  as  110,000  tons 
annually. 

Mr.  Kearns.  I  think  you  have  stated  you  intend  to  manufacture  the  finished 
fertilizer,  the  finished  product? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Kearns.  Ready  for  the  farmer  to  use  on  his  crops? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Kearns.  What  percentage  of  the  fertilizer  us^  In  the  United  States 
would  you  propose  to  manufacture? 

Mr.  Mayo.  That  is  difficult  to  say,  but  I  imagine  it  will  be  about  20  per  cent. 

Mr.  Kearns.  Would  the  production  of  the  20  per  cent  of  the  fertilizer  pro- 
duced in  the  United  States  enable  you  to  control  the  price  of  the  fertilizer? 

Mr.  Mayo.  We  would  only  be  able  to  control  what  we  made  ourselves. 

Mr.  Keabns.  What  effect  would  that  have  on  the  other  80  per  cent? 

Mr.  Mayo.  It  would  have  its  influence  on  the  80  per  cent,  surely. 

Mr.  Kearns.  Would  Mr.  Ford  have  any  objection  to  clarifying  this  contract 
to  make  it  appear  clear  that  he  Is  going  to  manufacture  fertilizer,  and  not  only 
one  of  the  comi)onent  parts? 

Mr.  Mayo.  I  do  not  know  that  he  would  object. 

Mr.  Miller.  Mr.  Mayo,  you  are  the  personal  representative  of  Mr.  Henry 
Ford,  are  you? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  As  I  understand  It,  it  is  a  principle  of  law  that  when  there  are 
any  ambiguous  terms  in  connection  with  a  contract  oral  testimony  may  be 
received  by  the  court  in  the  interpretation  of  the  ambiguous  terms.  As  I 
understand  It,  you  are  giving  your  testimony  with  a  view  of  being  so  bound? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  Now,  I  have  before  me  the  offer  of  Mr.  Ford.  I  anticipate  that 
it  is  your  idea  if  this  proposition  is  accepted  by  the  Congress  of  the  United 


■,It-J 


260 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


261 


states  that  then  Mr.  Ford's  personal  identity  with  this  enterprise  ceases  and 
the  company  to  be  organized  will  continue. 

Mr.  Mayo.  Mr.  Ford  has  not  definitely  determined  whether  he  will  run  it 
individually  or  as  a  company — it  would  be  a  corporate  organization  in  either 
case,  controlled,  under  the  contract,  by  Mr.  Ford  or  his  estate. 

Mr.  Miller.  I  read  this  language  in  the  oflfer,  ''For  the  purpose  of  carrying 
out  the  terms  of  this  agreement  the  undersigned  will  form  a  corporation 
(hereinafter  referred  to  as  the  company),  to  be  controlled  by  the  undersigned, 
which  company  will  immediately  enter  into  and  execute  all  necessary  or 
appropriate  instruments  of  contracts  to  effectuate  this  agreement."  That  is 
in  the  first  paragraph  of  the  agreement.  He  then  binds  himself  to  organize 
this  company,  as  I  understand  his  oflfer.  Am  I  right  about  that? 
Mr.  Mayo.  I  think  you  are  right ;  yes,  sir. 

Mr.  MiLLEB.  Then  we  lose  Mr.  Ford*s  personal  identity  and  we  are  dealing 
with  the  company  specified  in  his  oflfer,  or  the  corporation  as  he  used  the  word. 
It  says,  "the  undersigned  will  form  a  corporation."  He  will  organize  this 
corporation,  and  thereafter  Mr.  Ford's  personal  identity  will  be  lost,  and  the 
United  States  Go^-ernment  will  deal  with  this  corporate  body.  Now,  is  it 
your  idea  to  organize  this  corporation  under  the  laws  of  the  State  of  Alabama? 
Mr.  Mayo.  I  do  not  know,  sir. 

Mr.  Miller.  Do  you  know  that  in  all  States  of  the  American  Union  there  is  a 
certain  limitation  to  the  life  of  a  corporation? 
Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  That  in  some  States  It  is  25  years,  in  some  States  50  years ;  there 
are  various  periods.  Say  that  the  life  of  a  corporation  in  a  State  where  it  was 
organized  is  50  years.  Let  us  assume  that.  At  the  end  of  that  period  your  cor- 
porate rights  will  expire  by  operation  of  law.  That  will  happen  as  a  matter  of 
law.  Then  the  remainder  of  your  lease  will  have  to  be  carried  out  by  some  cor- 
poration not  in  being  at  the  present  time. 
Mr.  Mayo.  I  suppose  it  could  be  renewed. 

Mr.  Miller.  I  know  of  no  State,  I  will  say  by  way  of  information,  where  there 
is  any  provision  for  the  renewal  of  the  life  of  a  corporation.  The  rights  of  a 
corporation  expire  by  operation  of  law  at  the  end  of  the  limitation.  Then  a  new 
corporation  may  be  formed  to  take  over  the  properties  and  assets  and  liabilities 
of  the  old  corporation ;  but  I  know  of  no  State  in  the  American  Union  that  pro- 
vides for  the  perpetuation  of  the  identical  corporate  rights.  As  a  matter  of  fact, 
Mr.  Ford  is  binding  himself  for  the  period  of  the  life  of  a  corporation  and  a 
period  of  50  years  beyond.    That  is  what  I  understand  from  this  offer. 

Mr.  Mayo.  Apparently,  but  this  agreement  also  binds  the  successors  or 
assigns  of  the  company.     (See  sec.  19.) 

Mr.  Miller.  That  becomes  a  matter  of  law,  whether  that  can  be  legally  done. 
I  want  to  refer  to  another  angle  of  your  contract,  or  the  proposal  of  Mr.  Ford. 
By  the  way,  I  see  Mr.  Ford  has  signed  this  at  Dearborn,  Mich. 
Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  He  is  a  citizen  of  the  State  of  Michigan,  I  believe. 
Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  He  binds  his  estate,  I  notice  in  the  closing  clause  of  this  agree- 
ment, and  at  the  end  of  one  year  after  Mr.  Ford's  death  all  claims  against  the 
estate  will  have  to  be  audited  and  presented  to  his  administrator  or  executor 
under  the  laws  of  the  State  of  Michigan.    I  believe  that  is  right,  is  it  not? 
Mr.  Mayo.  I  imagine  so.  ,      ^. 

Mr.  Miller.  So  far  as  any  liability  of  the  estate  after  one  year  foUovilng  his 
death  is  concerned  the  estate  can  not  be  bound  in  any  way? 
Mr.  Mayo.  I  am  not  prepared  to  stiy  anything  about  that. 
Mr  Miller.  I  was  asking  if  those  things  were  taken  into  consideration,  from 
the  legal  aspect  of  jeopardizing  the  estate  of  Mr.  Ford.    I  had  supposed  they  were. 
Mr.  Mayo.  I  think  so. 

Mr.  Miller.  I  will  ask  you  to  take  the  tender  of  Mr.  Ford,  dated  at  Dearborn. 
Mich.,  on  the  25th  day  of  .January,  1922,  and  point  out  the  section  in  there  where 
Mr  Ford  agrees  to  make  a  commercial  fertilizer  and  place  the  same  on  the  mar- 
ket and  keep  it  on  the  market  at  8  per  cent  profit  for  the  next  hundred  years. 
As  near  as  I  can  get  at  it,  that  is  in  section  15. 
Mr.  Mayo.  In  section  14,  I  would  say. 

Mr.  Miller.  Let  us  analyze  that  very  briefly :  "  The  company  agrees  to  oper- 
ate nitrate  plant  No.  2  at  the  approximate  present  annual  capacity  of  its  ma- 
chinery and  equipment  in  the  production  of  nitrogen  and  other  fertilizer  com- 
pounds—said capacitv  be'ng  equal  to  approximately  100,000  tons  of  ammo- 


nium nitrate  per  annum — throughout  the  lease  period,  except  as  it  may  be  pre- 
vented by  strikes,  accidents,  fires,  or  other  causes  beyond  its  control.  And  it 
further  agrees  to  continue  the  work  of  research.  He  agrees  to  manufacture 
ammonium  nitrate  for  100  years.  I  am  inquiring  in  what  other  place  in  Mr. 
Ford's  tender  he  agrees  to  manufacture  a  commercial  fertilizer.  He  agrees  by 
the  provisions  of  that  section  to  manufacture  one  of  the  ingredients  of  the 
fertilizer. 

Mr.  Mayo.  He  says,  "  In  the  production  of  nitrogen  and  other  fertilizer  com- 
pounds." 

Mr.  Miller.  I  am  wondering  if  Mr.  Ford  would  have  any  objection  to  writ- 
ing language  in  there  something  like  this,  "In  order  that  a  commercial  fer- 
tilizer may  be  produced  throughout  the  lifetime  of  this  lease,  Mr.  Ford  and 
his  heirs  and  assigns  and  the  company  mentioned  in  the  agreement  hereby 
agree  to  manufacture  and  place  upon  the  market  a  commercial  fertilizer  at  8 
per  cent  profit  throughout  the  lifetime  of  this  lease." 

Mr.  Mayo.  I  could  not  answer  that. 

Mr.  Miller.  That  is  what  I  am  interested  in.  There  are  two  angles  to  the 
tender,  the  fertilizer  angle  and  the  hydroelectric-power  angle.  Let  us  take  the 
fertilizer  angle.  I  am  in  sympathy  with  that,  but  I  want  to  know  where  Mr. 
Ford  agrees  during  the  lifetime  of  this  lease  to  supply  the  country  with  a  com- 
plete fertilizer. 

Mr.  Mayo.  That  has  always  been  his  intention. 

Mr.  Miller.  That  may  be ;  but  all  this  proposition  is  reduced  to  this  written 
oflfer,  and  if  the  Government  or  the  people  are  to  rely  upon  anything,  it  must 
be  upon  this  oflfer  I  hold  in  my  hand.  I  am  asking  you  if  Mr.  Ford  would 
have  any  objection  to  putting  a  clause  into  this  tender  by  which  he  agrees 
upon  the  death  of  himself,  his  heirs,  and  assigns,  that  the  company  which  he 
shall  organize  and  its  successors  shall  manufacture  and  place  upon  the  market 
during  the  lifetime  of  this  lease  a  commercial  fertilizer  at  not  more  than  8 

per  cent  profit?  .^  .^, 

Mr.  Mayo.  I  do  not  know  that  I  could  say  that  without  talking  it  over  with 

Mr.  Ford.  ,  «  .^  ^        ^  ^ 

Mr.  Miller.  Then  the  commercial-fertilizer  angle  is  indefinite  as  to  what 
Mr.  Ford  or  his  company  is  going  to  do  in  the  production  of  fertilizer. 

Mr.  Mayo.  It  states  pretty  plainly  that  the  company  agi-ees  to  operate  the 
nitrate  plant  in  the  production  of  fertilizer  compounds  to  the  capacity  of 
110,000  tons  of  ammonium  nitrate  per  annum. 

Mr.  Miller.  There  is  no  place  where  I  can  find  that  he  agrees  to  furnish  the 
other  ingredients  of  the  fertilizer  and  put  it  upon  the  market. 

Mr.  Mayo.  That  is  not  stated  clearly. 

Mr.  Miller.  Let  us  get  at  the  principal  thing  you  are  after.  To  be  perfectly 
frank  about  it,  that  is  the  hydroelectric  power,  is  it  not? 

Mr.  Mayo.  I  have  not  said  so. 

Mr.  Miller.  That  is  the  principle  value  of  your  contract,  is  it  not? 

Mr.  Mayo.  I  do  not  think  it  is. 

Mr.  Miller.  What  horsepower  will  be  generated  at  Dam  No.  2?  There  will 
be  a  primary  horsepower  of  about  100,000,  will  there  not? 

Mr.  Mayo.  About  100,000  primary  horsepower. 

Mr.  Miller.  And  how  much  secondary  power? 

Mr.  Mayo.  Around  450,000  secondary  horsepower. 

Mr.  Miller.  At  Dam  No.  2,  or  both  dams? 

Mr.  Mayo.  Dam  No.  2.  ^         x, 

Mr.  Miller.  That  would  be  100,000  primary  and  450,000  secondary  horse- 
power?   At  Dam  No.  3  you  would  produce  probably  80,000  primary  horsepower? 

Mr.  Mayo.  About  40,000.  ^    .       ^ 

Mr.  Miller.  Then,  we  have  140,000  primary  hosepower  on  the  two  dams? 

Mr.  Mayo.  Yes,  sir;  from  the  run  of  the  river.  .b,^,^^     xxtv.  4. 

Mr.  Miller.  Now,  the  secondary  horsepower  at  Dam  No.  2  is  450,000.  wnat 
will  it  be  at  Dam  No.  3? 

Mr.  Mayo.  Two  hundred  thousand.  /jk/^aaa 

Mr.  Miller.  Then,  we  have  140,000  primary  horsepower  and  we  have  boO,000 

secondary  horsepower? 

^^r   IMayo   Yes    sir.  

Mr!  Miller.  What  is  the  value  of  horsepower  in  that  locality?    What  have 

you  figured  it  in  making  this  oflfer?  ^      ^  ^  ,      ..^ 

Mr.  Mayo.  I  do  not  know  what  the  fair  value  of  it  is  in  that  locality. 


262 


MUSCLE   SHOALS  PROPOSITIONS. 


11 


f^  l^'  ^i\^^^i     ^^  ^^^  ^*^"*  *^  appear  antagonistic;  I  am  trying  to  get  the 
facts.    \\  hat  have  you  used  as  a  basis  in  malting  this  olTer?    What  do  you  base 

in  umkh! '^his'^offerr'*^'  horsepower  generated  at  this  hydroelectric  plant  on, 
Mr.  Mayo.  It  all  depends  upon  the  success  of  the  working  out  of  the  project 

A^'  ^ul^^-  7^^  ^^^'®  ^^^^^^  ^t  ^^  an  enormous  income  from  that,  have  you 
not?    That  is,  from  the  hydroelectric  energy  that  would  be  produced  there' 

Mr  Mayo.  This  is  to  be  taken  as  a  whole,  together  with  the  nitrate  plants 
and  the  other  manufactures. 

Mr.  Miller.  Let  us  follow  this  a  little  further.  There  will  be  140  000  pri- 
mary horser^ower  produced  at  the  two  dams. 

Mr.  Mayo.  Yes,  sir. 

Mr.  MiLLEE.  The  Warrior  plant  produces  approximately  30,000? 

Mr.  Mayo.  Yes,  sir. 

Mr.  MiTXER.  That  is,  30,000  kilowatts? 

Mr.  Mayo.  Yes. 

Mr.  Miller.  A  kilowatt  is  more  than  a  horsepower? 

^Ir.  Mayo.  Yes. 

Mr.  Miller.  About  one-eighth  more? 

Mr.  Mayo.  About  one-third  more ;  a  kilowatt  is  equal  to  about  one  and  one- 
third  horsepower. 

Mr.  Miijj:r.  Then,  you  will  produce  over  30,000  horsepower  at  the  Warrior 
plant? 

Mr.  Mayo.  Yes. 

Mr.  Miller.  Then,  the  steam  plant  at  nitrate  plant  No.  2  is  capable  of  pro- 
ducing 60,000  kilowatts? 

Mr.  Mayo.  Yes. 

Mr.  Miller.  That  would  be  in  excess  of  60,000  horsepower? 

Mr.  Mayo.  Yes. 

Mr.  Miller.  As  I  figure  it  up  here,  there  would  be  about  230,000  primary 
horsepower  in  all  those  units  which  you  are  proposing  to  purchase  or  lease? 

Mr.  Mayo.  Yes,  sir;  at  least  that  much. 

Mr.  Miller.  Suppose  you  would  sell  it  at  $18  a  year  per  horsepower.  That 
is  a  very  cheap  rate.  If  you  did  that  your  income  from  that  would  be  approxi- 
mately $2,160,000  a  year  from  the  primary  horsepower.  That  Is  at  the  cheap 
rate  of  $18  per  year  per  horsepower.  I  have  also  calculated  on  your  secondary 
horsepower.  According  to  your  figures,  you  would  have  650,000  horsepower. 
I  had  calculated  on  400.000.  If  you  were  to  sell  that  for  $8  per  horsepower 
per  year,  which  is  a  small  rate,  your  income  would  be  $3,200,000,  according  to 
my  calculation.  So  that  if  you  sell  your  primary  horsepower  at  $18  per  horse- 
power per  year,  and  sell  your  secondary  horsepower  at  $8  per  horsepower 
per  year,  your  income  would  be  approximately  $8,160,000  from  the  sale  of  your 
horsepower  each  year.  So,  it  occurs  to  me  that  the  horsepower  is  what  you  are 
after. 

Mr.  Mayo.  We  are  after  cheap  power,  certainly. 

Mr.  Miller.  You  are  generating  there  230,000  primary  horsepower,  and 
650,000  secondary  horsepower,  which  is  an  enormous  water  power,  is  it  not? 

Mr.  Mayo.  Yes,  sir. 

Mr.  MnxEB.  If  you  sell  your  primary  horsepower  at  $18  and  your  secondary 
horsepower  at  $8,  the  company  will  have  an  income  of  over  $8,000,000  a  year. 

Mr.  Mayo.  I  have  not  checked  up  your  figures,  but  you  are  evidently  wrong. 

Mr.  Miller.  I  understand  you  have  based  this  offer  of  Mr.  Ford's  on  certain 
calculations.    How  far  am  I  away  from  those  calculations? 

Mr.  Mayo.  Mr.  Ford  intends  to  use  that  power  himself.  It  is  not  a  question 
of  selling  the  power. 

Mr.  MnxER.  If  he  uses  the  power  himself  it  will  certainly  yield  him  that 
much  money,  will  it  not? 

Mr.  Mayo.  No  :  you  have  assumed  a  100  per  cent  load  factor. 

Mr.  Miller.  Would  he  use  the  power  himself  at  a  less  rate  than  he  can 
seU  it  for? 

Mr.  Mayo.  CJertainly;  but  he  could  not  use  every  kilowatt-hour  that  he 
generates. 

Mr.  MnxER.  You  mean  Mr.  Ford  is  undertaking  to  supply  himself  with  horse- 
power at  less  than  the  commercial  rate — is  that  the  idea  ? 

Mr.  Mayo.  I  do  not  quite  get  your  question. 

Mr.  Miller.  If  he  is  planning  to  purchase  electric  energy  himself  at  less 
than  the  commercial  rates ;  that  is  the  question  ? 

Mr.  Mayo.  CJertainly. 


MUSCLE   SHOALS  PROPOSITIONS. 


263 


Mr.  Miller.  That  would  give  him  an  extraordinary  advantage  in  this  line, 
would  it  not? 

Mr.  Mayo.  We  hope  so ;  there  could  be  no  promise  of  cheap  fertilizer  other- 
wise. 

Mr.  Miller.  The  Government  in  advancing  $50,000,000  to  complete  these  twa 
dams  would  have  to  pay  certain  interest  on  that  amount.  Let  us  start  on  that 
proposition  and  see  where  the  Government  is  coming  out.  Suppose  we  pay 
a  rate  of  interest  equal  to  what  we  are  paying  on  our  present  Libertv  loans, 
4i  per  cent.  On  the  $50,000,000  at  4i  per  cent  interest,  the  amount  of  interest 
the  Government  would  have  to  pay  would  be  $2,225,000  a  year  to  supply  the 
$50,000,000  to  complete  the  dams.    That  is  right,  is  it  not? 

Mr.  Mayo.  I  take  it  for  granted  that  you  are  correct. 

Mr.  Miller.  Taking  it  on  the  basis  of  $45,000,000,  for  which  you  say  the  dams 
can  be  completed,  suppose  the  Government  issues  bonds  bearing  the  same  rate 
of  interest  that  our  Liberty  loan  bonds  bear,  the  Government's  annual  interest 
charge  would  be  $1,912,500.  That  is  the  amount  we  would  have  to  pay  every 
year  of  the  world  for  100  years,  until  your  plant  amortizes  itself.  That  is  right, 
is  it  not? 

Mr.  Mayo.  I  think  so,  if  your  figures  are  correct. 

Mr.  Miller.  During  that  period  you  pay  for  the  first  six  years  $200,000  on 
Dam  No.  2. 

Mr.  Mayo.  Yes;  $200,000  per  year. 

Mr.  Miller.  And  you  pay  $160,000  a  year  for  three  years  on  Dam  No.  3? 

]Mr.  Mayo.  Yes;  I  believe  that  is  correct. 

Mr.  Miller.  That  makes  $360,000  a  year  you  pay  because,  the  interest  on  your 
investment  has  not  yet  commenced.  That  will  be  an  income  to  the  Government 
of  $360,000  a  year,  plus  this  $55,000  a  year  you  pay  for  the  maintenance  of  the 
dams.  Does  that  commence  on  the  signing  of  the  contract  or  does  it  com- 
mence when  the  dams  are  in  a  position  to  generate  power?  I  see  that  the  agree- 
ment provides  for  the  payment  of  $35,000  to  maintain  Dam  No.  2? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  And  $20,000  a  year  to  maintain  Dam  No.  3? 

Mr.  Mayo.  Yes. 

Mr.  Miller.  Do  those  payments  commence  coincident  with  the  signing  of  the 
contract,  or  do  they  commence  when  the  dams  are  completed? 

Mr.  Mayo.  When  the  dams  are  completed. 

Mr.  Miller.  The  contract  is  silent  on  that. 

Mr.  Mayo.  You  can  not  expect  us  to  pay  for  maintenance  when  the  dams  are 
not  completed. 

Mr.  Miller.  On  Dam  No.  2,  and  for  the  first  three  years  on  Dam  No.  3,  you 
will  have  to  pay  $55,000  a  year;  is  that  right? 

Mr.  Mayo.  There  will  be  no  maintenance  on  the  dams  till  they  are  completed. 

Mr.  Miller.  If  there  is  no  maintenance  on  the  dams  all  your  company  would 
have  to  pay  would  be  $200,000  a  year  for  six  years  on  Dam  No.  2  and  $160,000 
a  year  for  three  years  on  Dam  No.  3,  which  makes  a  total  of  $360,000  a  year. 

Mr.  Mayo.  That  is  correct. 

Mr.  Miller.  As  against  that  the  Government  has  to  pay  out  $2,225,000  a  year 
In  interest,  figuring  on  the  rate  of  interest  at  4^  per  cent. 

Mr.  MAYa  I  think  you  are  correct.    I  am  not  sure. 

Mr.  Miller.  Let  us  take  that  from  the  Government  angle.  It  is  our  duty,  I 
take  it,  to  watch  out  to  see  where  the  Government  is  coming  out.  Every  year 
for  100  years  the  Government  will  have  to  pay  an  annual  interest  charge  of 
$2,225,000,  provided  it  can  borrow  this  money  at  4J  per  cent.  That  would  be  the 
interest  on  our  bonds. 

Mr.  Mayo.  We  think  you  can  borrow  it  for  less. 

Mr.  Miller.  How  much? 

]Mr.  Mayo.  At  4  per  cent. 

]Mr.  Miller.  We  pay  4i  per  cent  on  our  Liberty  bonds,  and  we  have  had 
great  difliculty  in  getting  those  to  par.  As  I  figure  it,  the  Government  can  not 
get  out  on  anything  short  of  $2,225,000  for  the  annual  interest  charge  for  100 
years.  At  the  end  of  that  100  years  you  are  paying  into  an  amortization  fund 
$5,505  semiannually  on  dam  No.  3,  and  $19,760  on  dam  No.  2,  which,  placed 
at  4  per  cent  interest,  you  figure  will  aggregate  $49,000,000  at  the  end  of  your 
lease  period.    Those  are  your  figures,  are  they  not? 

Mr.  Mayo.  I  think  so.  approximately. 


Kt^-^l 


264 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


265 


I 


Mr.  Miller.  Your  annual  outlay  there,  as  far  as  the  company  is  concerned, 
is  $49,000  a  year  in  your  amortization  fund.  That  is  what  you  pay  into  the 
Government? 

Mr.  Mayo.  That  is  about  right,  $46,746  to  be  exact. 

Mr.  Miller.  You  will  pay  to  the  Government  in  addition  $55,000  after  the 
locks  are  completed,  for  the  maintenance  of  the  locks  at  the  two  dams,  $35,000 
at  dam  No.  2,  and  $20,000  at  dam  No.  3.    That  is  right,  is  it  not? 

Mr.  Mayo.  For  the  maintenance  of  the  locks  and  dams ;  yes,  sir. 

Mr.  Miller.  You  will  be  paying  to  the  Government  on  the  amortization  fund 
$49,000,  plus  $55,000  for  the  care  of  your  locks,  and  that  is  what  the  Govern- 
ment will  get  in  order  to  offset  its  interest  charge  of  $2,225,000  per  annum. 
And  to  that  must  be  added  the  rental  you  will  pay? 

Mr.  Mayo.  Yes,  sir ;  and  the  income  from  the  amortization  fund. 

Mr.  MnxER.  If  you  pay  4  per  cent  on  the  actual  cost  of  building  that  dam, 
and  we  figure  on  a  basis  of  $50,000,000  as  the  cost  of  building  the  dams,  the 
interest  paid  to  the  United  States  Government  after  the  end  of  the  6-year 
period  on  dam  No.  2  and  the  end  of  the  3-year  period  on  dam  No.  3  will  be 
$2,000,000  a  year. 

Mr.  Mayo.  I  do  not  think  your  premises  are  correct. 

Mr.  Miller.  Figuring  on  a  basis  of  $50,000,000  to  build  the  dams? 

Mr.  Mayo.  We  do  not  think  it  will  cost  that  much. 

Mr.  Miller.  How  much? 

Mr.  Mayo.  $40,000,000  or  less. 

Mr.  Miller.  That  would  mean  $1,600,000  a  year,  which  is  the  interest  your 
company  would  pay? 

Mr.  Mayo.  Yes. 

Mr.  Miller.  And  your  company  is  charged  with  paying  to  the  United  States 
Government  $1,600,000,  which  you  estimate  is  the  rental? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  You  will  pay  $55,000  for  the  maintenance  of  the  locks  on  the 
dams.  It  is  also  to  pay  into  the  amortization  fund  $49,000  a  year.  Those  are 
all  the  charges,  are  they  not? 

Mr.  Mayo.  I  think  so. 

Mr.  Miller.  What  will  that  total  be? 

Mr.  Mayo.  It  is  $1,704,000,  on  the  basis  you  have  taken. 

Mr.  Miller.  That  is  what  it  will  cost  you  folks  to  operate  your  company. 
That  is  what  your  expenses  will  be.  Figuring  on  the  water  power  you  will  gen- 
erate at  the  prices  I  have  given,  $18  a  year  per  horsepower  on  primary  horse- 
power and  $8  a  year  on  secondary  horsepower,  and  figuring  on  the  basis  of  the 
capacity  of  these  generating  plants,  the  Warrior  plant,  the  nitrate  steam  plant, 
nitrate  plant  No.  2,  and  the  two  dams,  they  will  generate  collectively  270,000 
horsepower,  on  which  the  income  of  your  company  will  be  $8,760,000,  approxi- 
mately, and  your  expenses  will  be  $1,704,000.  These  are  the  figures  as  I  make 
them  out  in  connection  with  this  hydroelectric  power  proposition. 

Mr.  Mayo.  I  think  your  premises  are  all  wrong.  The  cost  of  both  the  water- 
power  and  the  steam  power  will  go  into  the  cost  of  the  product,  with  such  a 
combination. 

Mr.  Miller.  You  will  certainly  add  some  sum  for  the  waterpower  product, 
will  you  not? 

Mr.  Mayo.  Not  much. 

Mr.  Miller.  You  do  not  mean  that  you  are  going  to  generate  power  dowii 
there  without  keeping  track  of  how  much  power  you  generate  and  where  it  is 
going  and  what  it  is  going  to  cost  for  its  distribution? 

Mr.  Mayo.  Certainly,  we  will  keep  the  cost. 

Mr.  Miller.  And  does  not  Mr.  Ford  keep  accurate  accounts  in  his  factory? 

Mr.  Mayo.  Certainly. 

Mr.  Miller.  I  am  sure  he  does,  and  I  am  therefore  surprised  to  find  that  on 
this  gigantic  enterprise  he  will  run  it  on  a  different  principle  from  the  principle 
on  which  he  runs  his  other  very  successful  enterprises. 

Mr.  Mayo.  He  will  not  be  running  it  on  a  difiEerent  principle.  He  will  figure 
what  the  power  is  costing  him  into  the  cost  of  his  product  on  the  basis  of  the 
actual  cost.  But  you  are  figuring  on  what  the  power  is  costing  on  the  basis  of 
what  the  horsepower  sold  by  a  utility  company  would  be,  and  that  is  not  the 
way  he  figures  it  in  his  cost. 

Mr.  Miller.  Suppose  Mr.  Ford  did  not  turn  a  wheel  at  his  own  enterprise 
down  there  and  sold  his  horsepower  output  in  all  these  four  plants,  and  sold  it 
at  the  price  I  have  indicated,  which  I  have  said  is  a  low  price.    On  that  basis 


I  find,  by  my  computation,  that  your  company  would  have  a  profit  of  $4,370,000 
a  year,  and  not  put  in  a  dollar  except  the  $5,000,000. 

Mr.  Mayo.  I  am  coming  back  at  you  with  your  statement,  and  I  say  that 
your  premises  and  your  calculations  are  all  wrong.  He  wants  to  make  his 
power  cheap.    He  is  not  at  all  interested  in  "  what  the  traffic  will  bear." 

Mr.  Miller.  I  would  like  to  get  that  right.  I  take  your  word  for  the  primary 
horsepower. 

Mr.  Mayo.  The  quantities  are  correct. 

Mr.  Miller.  I  have  taken  the  price  at  my  estimates,  and  I  am  inquiring 
where  my  premise  is  wrong. 

Mr.  Mayo.  It  is  wrong  in  that  he  will  take  the  horsepower  at  its  cost.  Your 
estimate  of  cost  is  wrong  and  your  estimate  of  selling  price  is  wrong. 

Mr.  Miller.  Then  I  revert  to  the  question  I  asked  you  before.  He  is  sup- 
plying his  industries  at  a  horsepower  cost  entirely  below  the  salable  value  of 
horsepower? 

Mr.  Mayo.  We  hope  it  will  be ;  yes,  sir. 

Mr.  Miller.  Then  the  margin,  of  course,  will  be  governed,  so  far  as  the  sale 
is  concerned,  by  the  neighborhood  price;  is  that  not  true? 

^Ir.  Mayo.  No,  sir ;  the  neighborhood  price  has  nothing  to  do  with  our  figures. 

Mr.  MILI.ER.  That  is  an  angle  of  it  that  I  had  not  thought  of.  There  are  very 
substantial  enterprises  in  northern  Alabama,  with  considerable  investments  in 
water  power,  are  there  not? 

Mr.  Mayo.  There  is  no  great  waterpower  in  that  vicinity. 

Mr.  Miller.  The  Alabama  Power  Co.  have  some  hydroelectric  power  plants? 

Mr.  Mayo.  Yes,  sir ;  in  central  Alabama. 

Mr.  Miller.  They  have  quite  a  substantial  investment  there? 

Mr.  Mayo.  I  believe  so. 

Mr.  Miller.  If  Mr.  Ford  can  develop  power  at  much  less  than  the  Alabama 
Power  Co.  can  do  it.  the  company  owning  its  own  land,  you  would  drive  those 
people  out  of  business,  would  you  not? 

Mr.  Mayo.  No,  sir. 

Mr.  Miller.  Have  you  any  idea  of  an  amalgamation  of  these  two  companies? 

Mr.  Mayo.  No,  sir. 

Mr.  Miller.  I  wish  you  would  explain  how  that  can  be  done. 

Mr.  Mayo.  I  am  trying  to  explain  that  your  premises  are  all  wrong.  You 
seem  to  be  analyzing  this  subject  from  a  public  utility  point  of  view,  but  that 
is  not  Mr.  Ford's  intention,  to  start  a  power  company  for  the  sale  of  power ; 
that  is  not  his  intention  at  all. 

Mr.  Miller.  Then  the  proposition  is  that  he  will  use  this  270,000  horsepower 
all  himself? 

Mr.  Mayo.  That  is  his  intention. 

Mr.  Miller.  Then  he  its  supplying  himself  with  a  very  cheap  source  of 
power. 

Mr.  Mayo.  That  is  the  hope. 

Mr.  Millar.  And  the  Government  in  order  to  supply  him  with  that  cheap 
source  of  power  is  doing  it  at  an  expense  of  over  a  million  and  three-quarters 
of  dollars  a  year? 

Mr.  Mayo.  I  do  not  agree  with  you. 

Mr.  Miller.  Where  am  I  WTong? 

Mr.  Mayo.  You  have  taken  the  cost  at  $50,000,000. 

Mr.  Miller.  I  take  it  at  $45,000,000,  your  figures,  and  I  will  take  the  rate 
of  interest  on  our  Liberty  bonds,  4i  per  cent. 

Mr.  Mayo.  We  think  you  C^n  place  it  at  4  per  cent. 

Mr.  Miller.  That  makes  a  very  small  difllerence,  about  $125,000.  Where  am 
I  Wrong? 

Mr.  Mayo.  You  are  wrong  in  regard  to  the  cost. 

Mr.  Miller.  Then  I  go  back  to  my  first  question,  that  the  hydroelectric 
power  is  what  Mr.  Ford  is  after  there,  and  not  the  fertilizer  end  of  it  at  all. 

Mr.  Mayo.  I  will  be  glad  t0|  put  a  statement  in  the  record  in  regard  to  that 
particular  point. 

WHAT   MR.    FORD   PAYS   FOR   POWER. 

[On  the  basis  of  the  estimate  of  the  Chief  of  Engineers,  U.  S.  Army.] 

The  Chief  of  Engineers'  estimate  of  the  absolute  primary  power  at  Dam  No.  2 
is  *  435,000,000  kilowatt  hours,  and  at  Dam  No.  3  is  173,000,000  kilowatt  hours, 

^ __ — _ ■ 

^  Letter  of  Gen.  Beach,  Aug.  15,  1921. 


I 


266 


MUSCLE  SHOALS  PROPOSITIONS. 


} 

ii 


of  *flow  ^'  ^^'^^»<^  kilowatt  hours  annually,  based  upon  the  21-year  reeonl 

*'Rf78?7^'«nn'!f«'^i'f  P^^"^^"^  to  the  Government  for  power   purposes   total 

$1,781,746  annually,  he  pays  as  rental  for  this  primary  power    on  the  fo  p 

gomg  basis   2.9  mills  per  kilowatt  hour,  or  $18.95  i^er  hor'^Z'er  year  on    i" 

KK)  per  cent  load  factor  basis.  p"*>^i  .veui  on  a 

This  is  more  than  twice  the  amount  which  the  Aluminum  Co.  of  America 
IS  said  to  pay  for  primary  power  at  Niagara  Falls.  It  is  nearly  twice  tlm 
anumnt  which  the  American  Cyanamid  Co.  pays,  as  testified  ?o  byMi'  Wast 
burn ,  It  is  about  <5  per  cent  of  the  minimum  price  at  which  power  is  retailed 
ID  the  city  of  Chattanooga.  For  example,  the  Southern  Ferro  Alloys  Co  uavs 
a  minimum  of  4  mills  per  kilowatt  hour,  or  about  $26  per  horsepower  year  for 
the  power  they  use.  .   "i  lui 

Mr.  B^ord  pays  for  the  power  whether  he  uses  it  or  not.  No  one  has  evt^r 
attained  a  KX)  per  cent  load  factor  in  the  practical  operation  of  any  industrial 

If  Mr.  Ford  does  as  well  as  the  consumers  of  the  power  from  the  Keokuk 
Dam,  Ihi  will  liave  an  average  load  factor  of  about  54  per  cent,*  and  hi»  abso- 
lute primary  power  on  the  above  basis  will  cost  him  about  5.3  mills  per  kilo- 
watt hour,  or  $34.61  per  horsepower  year  for  the  primary  power  which  he  is 
able  to  use. 

As  for  the  secondary  power,  the  southeastern  power  companies  have  declared 
that  It  has  no  commemal  value.  Be  that  as  it  may  in  their  cases  the  fact 
remains  that  the  only  reason  that  Mr.  Ford  has  been  able  to  make  his  offer 
is  because  he  can  use  much  of  the  secondary  power  and  because  he  can  find 
in  the  upi)er  tributaries  of  the  Tennessee  Kiver  and  elsewhere  the  storaj^e 
that  enables  him  at  large  expense  to  convert  a  large  part  of  this  secondary 
power  into  primary  power. 

Mr.  Miller.  I  want  to  learn  all  I  can  about  this,  Mr.  Mavo.  It  strikes  me 
this  way :  Is  there  anything  in  the  taxation  laws  of  Alabama  bv  which  a  leasehold 
interest  is  taxed  at  a  less  rate  than  a  title  in  fee? 

Mr.  Mayo.  I  do  not  know  about  that. 

Mr.  Miller.  Have  you  investigated  the  laws  of  Alabama  in  that  regard' 

Mr.  Mayo.  No. 

Mr.  Miller.  I  am  frank  to  say  I  do  not  know  what  the  law  is  on  that,  and 
I  have  a  letter  on  the  way  to  the  attorney  general  of  Alabama  to  get  a  state- 
ment of  the  taxation  laws  that  will  be  applied  to  Mr.  Ford's  enterprise.  It 
occurs  to  me  that  that  will  be  quite  an  item.  How  would  this  proposition  strike 
you?  Suppose  the  United  States  Government  would  allow  Mr.  Henry  Fords 
company  to  have  nitrate  plant  No.  2  as  a  free  occupying  tenant  during  the 
lifetime  of  the  lease  for  100  years,  not  pay  a  cent  for  it,  the  onlv  limita- 
tion upon  it  being  that  he  will  keep  it  in  readiness  for  the  production  of  am- 
monium nitrate  as  a  matter  of  nitrate  preparedness,  the  fee  to  remain  in  the 
Government,  and  he  to  obligate  himself  to  occupy  nitrate  plant  No.  2  in  the 
production  of  fertilizer.  Do  you  suppose  that  proposition  would  be  entertained 
by  Mr.   Ford? 

Mr.  Mayo.  No,  sir ;  that  would  prevent  him  from  changing  nitrate  plant  No.  2. 
Mr.  MuxER.  It  would  prevent  him  from  changing  to  a  different  process? 
Mr.  Mayo.  Yes. 

Mr.  MiLijcR.  Suppose  there  should  be  a  provision  in  the  lease  for  the  manu- 
facture of  ammonium  nitrate  by  the  cyanamid  process  at  plant  No.  2,  or  anv 
process  of  manufacture  they  discover  to  be  less  expensive. 

Mr.  Mayo.  He  might  want  to  make  large  investments  of  his  own  monev  in 
additions  to  the  present  plant. 

Mr.  Miller.  We  would  provide  for  that  in  the  contract.  He  could  invest 
whatever  money  he  pleased. 

Mr.  Mayo.  He  would  not  want  to  invest  it  on  the  Government's  property. 

Mr.  Miller.  What  I  am  getting  after  is  the  maintenance  of  nitrate  plant  No. 
2,  in  readiness  to  instantly  meet  a  war  necessity  in  connection  with  ammonium 
nitrate. 


MUSCLE   SHOALS  PROPOSITIONS. 


267 


*.,'J*''i^?*S'?«P*y*.®°'^"*"y  *  J"*^^^^**  $1,680,000  (on  a  cost  of  $40,000,000)  ;  retiremeut 
fund,  $46,746 ;  maintenance,  $55,000 ;  total,  $1,781,746. 

«  Hearings  before  House  Committee  on  Agriculture,  64th  Cong.,  1st  sees.,  on  Agricul- 
tural appropriation  bill,  Feb.  9,  1916,  p.  28.  * '  '  ^ 

*  Supplement  to  Hearings  before  Subcommittee  of  House  Committee  on  ADnroDriations 
?^A'^,?''y  ci^l  appropriation  bill  for  1922,  66th  Cong.,  3d  sess.,  Fpb.  14,  1921.  Table 
L<XII,  line  18,  p.  56.  '     r 


Mr.  Mayo.  You  will  guard  yourself  as  ^ell  by  selling  it  to  him 

Mr.  Miller.  Suppose  we  do  not  want  to  sell  it,  but  want  to  keep  the  title  to 
it  and  let  him  use  it  free  of  charge? 

Mr.  Mayo.  I  do  not  think  he  could  afford  to  use  it  on  that  basis. 

(Thereupon,  at  4.30  o'clock,  the  committee  adjourned,  to  meet  to-morrow. 
Tuesday,  February  14,  1922,  at  10  o'clock  a.  m.) 


Committee  ON  Military  Affairs, 

House  of  Representatives, 

Tuesday,  February  JJ,,  1922. 

The  committee  met  at  10  o'clock  a.  m..  Hon.  Julius  Kahn  (chairman)  pre- 
siding. 

STATEMENT  OF  MR.  WILLIAM  B.  MAYO,  CHIEF  ENGINEER  OF  THE 
FORD  MOTOR  CO.,  DETROIT,  MICH.— Resumed. 

Mr.  Miller.  Mr.  Mayo,  I  recasted  my  figures  last  night  and  I  will  ask  you 
It  you  recasted  yours  and  found  wherein  my  figures  were  wrong  yesterday? 

Mr.  Mayo.  You  speak  with  reference  to  the  figures  made  as  to  the  cost  to 
the  Government  during  the  first  few  years? 

Mr.  Miller.  Yes. 

Mr.  Mayo.  We  have  made  up  a  little  statement  of  the  cost  to  the  Govern- 
ment during  the  first  six-year  period,  as  we  see  it. 

.^ir\^^""^^*  ^**"  ^'^**  ^^^^^  *'^**  °^y  figures  yesterday  were  based  on  a  cost 
ot  $50,000,000  for  the  dams  and  interest  at  the  rate  of  41  per  cent. 
Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  The  same  rate  that  most  of  our  Liberty  loan  bonds  bear. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  Let  me  take  your  own  figures,  on  the  basis  of  $40,000,000  as  the 
cost  of  the  two  dams,  the  completion  of  Dam  No.  2  and  the  entire  construction 
of  Dam  No.  3,  with  the  money  at  4  per  cent. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  That  is  the  basis  on  which  you  are  figuring  on  financing  the 
proposition. 

Mr.  Mayo.  We  based  our  figures  on  $42,000,000;  in  fact,  on  $42,230,000. 

Mr.  Miller.  Your  figures  yesterday  were  $40,000,000. 

Mr.  Mayo.  Yes,  sir ;  with  an  outside  estimate  of  $45,000,000. 

Mr.  Miller.  Now  you  have  gone  up  $2,000,000. 

Mr.  Mayo.  I  am  not  going  up.  Our  estimates  which  we  handed  in.  as  to 
what  we  thought  the  cost  might  be.  are  the  exact  figures,  $42,230,000. 

Mr.  Miller.  $42,230,000? 

Mr.  Mayo.  Yes ;  although  we  are  of  the  opinion  it  can  be  done  for  still  less, 
hut  inasmuch  as  we  put  in  that  figure  we  made  up  our  statement  here  on  that 
basis. 

Mr.  Miller.  My  understanding  yesterday  was  that  you  had  based  the  cost 
of  these  two  dams  at  $40,000,000. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  So  that  I  prepartnl  my  figures  which  I  will  go  over  with  you 
on  the  basis  of  $40,000,000  for  the  dams. 

Mr.  Mayo.  Yes. 

Air.  Miller.  And  my  inquiry  is  to  ascertain  where  the  Government  is  get- 
ting olf.  Now,  there  are  two  dams — Dam  No.  2  and  Dam  No.  3 — and  Dam 
No.  2  is  partially  constructed  and  Dam  No.  3  is  entirely  to  be  constructed. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  We  will  take  up  first  Dam  No.  2  and  on  the  basis  of  $20,000,000 
the  annual  charge  for  interest  at  4  per  cent  would  be  $800,000  a  vear ;  is  that 
correct? 

Mr.  Mayo.   That  is  right ;  yes,  sir. 

Air.  Miller.  For  the  2-year  period,  which  it  will  take  to  construct  the  dam, 
the  Government  is  out  two  years'  interest  at  8  per  cent  which  is  $1,600,000. 

Mr.  Mayo,    It  is  out  half  of  that. 

Mr.  MiLLEB.    Half  of  it? 

Mr.  Mayo.    Yes,  sir. 


268 


MUSCLE  SHOALS  PROPOSITIONS. 


Mr.  MiLLKBi  Well,  we  will  figure  on  half  of  it,  do  you  think  both  of  these 
dams  can  be  constructed  in  a  year. 

Mr.  Mayo.   No,  sir. 

Mr.  MiLLEB.   I  did  not  think  so  either,  but  you  said  to  cut  that  in  half. 

Mr.  Mayo.  I  meant  that.  We  would  only  take  our  money  as  we  needed  it 
for  construction,  which  would  require  one-half  of  the  amount  of  interest  you 
mention. 

Mr.  MnxEB.  I  am  not  talking  about  your  side  of  it,  I  am  talking  about 
the  Government's  angle. 

Mr.  Mayo.   I  am  too. 

Mr.  Milleb.  The  Government  will  have  to  have  $40,000,000  ready  in  order 
to  finance  your  scheme. 

Mr.  Mayo.  No,  sir ;  I  do  not  think  so. 

Mr.  Miller.  If  you  can  figure  out  any  other  way  of  selling  the  bonds  in 
serial  form  and  getting  me  the  money  as  it  is  needed  at  an  interest  rate  of 
4  i)er  cent,  I  will  say  that  such  a  thing  as  that  was  never  known  in  the  history 
of  finances  in  this  country,  Mr.  Mayo. 

Mr.  Mayo.   Qen.  Beach,  the  Chief  of  Engineers,  figures  it  on  the  same  basis. 

Mr.  Milleb.   At  5  per  cent 

Mr.  Mayo.    I  mean  in  the  same  manner  we  are  talking  about. 

Mr.  Milleb.  But  he  figures  on  a  5  per  cent  basis  and  your  figures  are  on  a 
4  per  cent  basis. 

Mr.  Mayo.  I  understand,  but  I  mean  he  figured  it  in  the  same  manner. 

Mr.  Milleb.  He  figured  it  on  a  partial  payment  scheme  with  the  money 
going  in  on  a  5  per  cent  basis? 

Mr.  Mayo.    Yes,  sir. 

Mr.  Milleb.  Now,  you  are  figuring  on  partial  payments  and  the  money 
going  in  on  a  4  per  cent  rate  which  is  one-fourth  of  1  per  cent  below  the 
interest  rate  on  Liberty  bonds,  and  you  are  figuring  on  the  delivery  of  those 
bonds  as  the  money  is  needed.  I  will  ask  you  if  you  have  made  any  investi- 
gations of  the  money  market  of  this  country  in  order  to  get  money  on  those 
terms? 

Mr.  Mayo.  We  have  been  led  to  believe  it  can  be  gotten  at  4  per  cent;  yes, 
sir. 

Mr.  Milleb.  Without  betraying  any  secrets,  is  there  any  offer  to  give 
money  at  that  price? 

Mr.  Mayo.  We  have  not  asked  for  it.  Mr.  Ford  was  invited  by  the  Gov- 
ernment to  make  this  offer  and  he  has  made  what  he  considers  the  best  offer 
he  cares  to  make. 

Mr.  Milleb.  Your  offer  is  at  4  per  cent  to  finance  this  thing  by  the  Gov- 
ernment lending  its  credit. 

Mr.  Mayo.  Our  offer  simply  states  what  Mr.  Ford  is  willing  to  give. 

Mr.  MiLiJiR.  And  you  are  figuring  on  the  Government  lending  its  credit 
to  this  enterprise  at  4  per  cent. 

Mr.  Mayo.    Yes,  sir. 

Mr.  Milleb.   That  is  the  basis  of  your  financing? 

Mr  Mayo.  Yes  sir. 

Mr!  Milleb.  Now,  we  will  take  up  this  dam,  the  cost  of  which  is  $20,000,000, 
the  annual  interest  at  4  per  cent  would  be  $800,000  a  year. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Milleb.  Now,  I  take  it  you  do  not  intend  to  commence  the  construction 
of  Dam  No.  3  until  you  have  completed  Dam  No.  2? 

Mr.  Mayo.  Not  necessarily. 

Mr.  Milleb.  Now  turn  to  clause  6  of  your  contract,  and  while  I  understand 
you  do  not  intend  necessarily  to  do  that,  yet  you  have  provided  for  that  in 
clause  6,  which  reads  as  follows : 

"As  soon  as  the  release  of  suitable  construction  equipment  and  labor  force? 
at  Dam  No.  2  will  permit,  or  at  an  earlier  date  if  desired  by  the  company,  the 
company  shall  construct  and  complete  for  the  United  States  Dam  No.  3,  its 
lock,  powerhouse,"  etc.  You  do  not  mean  to  construct  both  of  these  dams 
simultaneously,  do  you? 
Mr.  Mayo.  We  might;  yes,  sir. 

Mr.  Milij:b.  Is  there  not  very  valuable  machinery  and  hoisting  apparatus 
and  concrete  mixers,  etc.,  that  you  would  have  to  duplicate  if  you  intended  to 
carry  on  the  construction  of  both  of  these  dams  at  the  same  time? 

Mr.  Mayo.  Yes;  but  as  you  get  along  with  the  work  on  one  dam  you  can 
commence  to  take  away  apparatus  and  put  it  on  the  other. 


MUSCLE  SHOALS  PROPOSITIONS. 


269 


Mr.  MnxEE.  Yes;  but  your  apparatus  will  have  to  remain  on  Dam  No.  2 
until  Dam  No.  2  is  completed ;  that  is  a  portion  of  the  apparatus. 

Mr.  Mayo.  Yes ;  a  portion  of  the  apparatus. 

Mr.  Milleb.  The  concrete  mixers,  for  instance,  which  are  the  principal 
things. 

Mr.  Mayo.  They  would  all  be  built  over  for  the  other  dam  anyway. 

Mr,  Milleb.  Of  course,  your  compressors  and  things  of  that  sort  may  be  taken 
out.  Now,  we  will  figure  that  annual  charge  at  4  per  cent,  $800,000  a  year,  and 
we  will  figure  on  the  two  years  period  of  construction.  You  say  it  can  be  done 
in  one? 

Mr.  Mayo.  I  did  not  say  so. 

Mr.  MnxEB.  It  could  be  done  in  two  years? 

Mr.  Mayo.  I  think  that  is  the  maximum  needed  time. 

Mr.  Miller.  The  Government,  then,  will  be  out  $1,600,000  on  its  interest 
fund  in  the  two  years.  Now,  you  have  a  six-year  period  of  fiat  payments  of 
interest  after  the  dam  is  completed  or  after  100,000  horsepower  is  generated. 
In  other  words,  your  lease  period  begins  when  dam  No.  2  is  capable  of  gen- 
erating 100.000  horsepower. 

Mr.  Mayo.  Yes,  sir. 

Mr.  MnxEB.  It  is  practically  completed  then? 

Mr.  Mayo.  Yes,  sir ;  all  but  the  power  house. 

Mr.  Milleb.  That  is  a  six-year  period  at  a  flat  rate  of  interest  of  $200,000 
a  year. 

Mr.  Mayo.  That  is  right ;  yes. 

Mr.  Milleb.  In  the  six-year  period  you  will  be  paying  in  $200,000  a  year  on 
your  flat  interest  payment  and  the  Government  will  be  paying  out  $800,000  a 
year  in  interest ;  or,  in  other  words,  the  Government  will  be  losing  $600,000  a 
year ;  that  is  right,  is  it  not? 

Mr.  Mayo.  I  think  not.  The  Government  will  pay  out  the  amount  you  state, 
but  the  credits  will  offset  more  than  the  Government  pays  out. 

Mr.  Miller.  Then  in  six  years  it  will  be  six  times  $600,000,  or  $3,600,000,  that 
the  Government  will  lose. 

Mr.  Mayo.  We  do  not  figure  the  Government  will  lose  it ;  no. 

Mr.  Miller.  That  is  what  the  Government  will  be  out  on  these  bonds,  is  it  not? 

Mr.  Mayo.  We  do  not  think  so. 

Mr.  Miller.  Why  not? 

Mr.  Mayo.  We  have  prepared  a  statement  that  shows  a  credit  in  favor  of  the 
Government  at  the  end  of  six  years. 

^tq^j, — rpjjg  statement  referred  to  will  be  found  on  page  301. 

Mr.  Miller.  I  do  not  care  anything  about  your  statement,  I  want  you  to  follow 
my  figures,  Mr.  Mayo,  because  this  matter  has  got  to  be  explained  on  the  fioor 
of  the  House  to  our  colleagues,  and  I  want  to  be  sure  to  get  it  right,  and  that 
is  the  reason  I  was  so  earnest  yesterday.  The  members  of  this  committee  have 
got  to  explain  to  our  colleagues  this  whole  matter  on  the  floor  of  the  House. 
During  the  six-year  period,  after  the  completion  of  the  dam,  which  is  the  period 
of  your  flat  payment  of  interest,  you  will  pay  in  twice  $600,000,  or  $1,200,000  in 

the  six  years. 

Mr.  Mayo.  Yes,  sir;  six  times  $200,000  is  $1,200,000. 

Mr.  Miller.  The  Government's  interest  will  be  at  the  rate  of  $800,000  a  year 
for  the  six-year  period  or  $4,800,000. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  In  other  words,  the  Government  is  out  $600,000  a  year  in  the  in- 
terest it  will  have  to  pay  out  more  than  you  pay  the  Government  under  your  flat 

payment  of  interest  ^     ,  ^  , 

Mr.  Mayo.  But  there  are  a  number  of  offsets  which  make  the  final  figure  In 

favor  of  the  Government. 

Mr.  Miller.  We  will  get  to  those  offsets  later.  The  Government  is  out  $600,000 
a  vear  during  that  six-year  period,  is  it  not? 

Mr.  Mayo.  I  do  not  think  they  are  out  that ;  no,  sir. 

Mr.  Miller.  That  is  the  amount  of  interest  the  Government  will  have  to  pay 
on  its  issue  of  $20,000,000  worth  of  bonds  for  that  dam. 

Mr  Mayo   Yes  sir 

Mr!  Milleb..  The  Government  will  have  to  pay  that  $800,000  a  year ;  and  you 
pay  the  Govi^BMnt,  or  your  company,  rather,  pays  the  Government  your  fiat 
rate  of  $200,000 «  year  for  the  six  years. 

Mr.  MAto.  lEeSf  sir. 


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MUSCLE  SHOALS  PROPOSITIONS. 


271 


Mr.  Miller.  And  you  do  not  commence  to  pay  any  interest  until  the  end  of 
tlie  tliird  year,  do  you? 

Mr.  Mayo.  No,  sir. 

Jir.  Millbb.  Tlifin  there  are  three  years  when  the  Government  will  have  to 
pay  Interest  at  the  rate  of  4  per  cent  per  annum  and  get  nothing  from  you  be- 
•cause  you  do  not  pay  any  interest  until  the  dams  are  completed,  do  you? 

Mr.  Mayo.  We  do  not  get  anything  to  pay  a  rental  for  until  the  dams  are 
•completed. 

Mr.  Miller.  You  get  100,000  horsepower  ready  to  be  delivered  to-morrow  from 
.the  two  steam  plants,  do  you  not? 

Mr.  Mayo.  Yes ;  but  that  is  an  entirely  different  matter. 

Mr.  Miller.  Just  answer  my  question,  please.  You  get  100,000  horsepower 
>ready  for  delivery  to-morrow  from  the  two  steam  plants? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  With  a  title  in  fee.  Then  during  all  of  this  period  when  the 
•Government  is  paying  8  per  cent  Interest,  and  you  are  paying  a  flat  rate  of 
:$200,000,  you  have  in  addition  to  that  the  use  of  100,000  horsepower  from  the 
rtwo  steam  plants? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  Now,  taking  the  2-year  period  of  construction,  the  Government 
-will  be  out  $1,600,000  of  interest,  and  on  the  6-year  period  that  you  pay  a 
flat  rate  of  interest,  the  Government  is  out  $4,800,000  in  interest,  and  you  will 
pay  the  Government  $1,200,000  in  interest  on  the  flat  rate,  and  at  the  end 
of  the  8-year  period,  the  6-year  period  of  the  flat  payment  of  interest  and  the 
2-year  period  of  construction,  the  Government  will  have  paid  out  $5,200,000 
jnore  than  you  have  paid  the  Government.    Is  that  right? 

Mr.  Mayo.  I  do  not  think  so. 

Mr.  Miller.  Now,  just  tell  me  wherein  I  am  wrong. 

Mr.  Mayo.  As  I  say,  there  are  a  number  of  offsets. 

Mr.  Miller.  I  am  basing  it  on  this  interest  period.  We  will  get  to  those 
-offsets  later. 

Mr.  Mayo.  The  Government  will  pay  out  that  much  money  in  interest ;  yes,  sir. 

Mr.  Miller.  We  will  be  out  then  in  eight  years  when  you  commence  to  pay 
interest  on  the  flat  rate  which  will  be  eight  years  from  now? 

Mr.  Mayo.  Six  years. 

Mr.  MnxER.  On  dam  No.  2. 

Mr.  Mayo.  Six  years,  I  think. 

Mr.  Miller.  Six  years  after  the  dam  is  completed? 

Mr.  Mayo.  Yes;  but  your  money  is  not  all  invested  until  it  is  completed. 

Mr.  Miller.  Yes;  it  is  invested  in  two  years  when  the  dams  will  be  com- 
pleted ;  every  dollar  that  the  Government  has  put  in  that  dam  will  be  Invested 
in  two  years,  and  after  the  Government  has  invested  every  dollar  that  goes  into 
the  dam,  then  there  is  a  period  of  six  years  that  you  pay  a  flat  rate  of  interest. 

Mr.  Mayo.  That  is  only  partly  correct. 

Mr.  Miller.  Then,  up  to  the  time  you  begin  to  pay  interest  at  the  flat  rate 
4)t  4  per  cent  on  the  investment,  the  Government  will  have  paid  out  in  inter- 
-est  $5,200,000  more  than  you  have  paid  the  Government. 

Mr.  Mayo.  I  think  you  are  wrong. 

Mr.  Miller.  The  Government  excess  on  Dam  No.  2  is  $5,200,000.  That  is 
what  the  Government  is  out  over  and  above  what  it  has  received  from  your 
-company. 

Now  we  will  take  Dam  No.  3— the  same  cost,  $20,000,000;  the  same  rate  of 
interest,  4  per  cent;  the  same  interest  charge  per  year  of  $800,000— and  take 
the  two-year  period  of  construction ;  and  by  the  way,  if  you  do  not  commence 
Dam  No.  3  until  you  ha\  e  completed  Dam  No.  2,  it  will  be  a  three-year  period 
of  construction,  and  $800,000  more;  but.  provided  you  can  complete  Dam  No. 
3  also  within  the  tw^o-year  period,  we  are  out  $1,600,000  interest  on  that  at 
the  rate  of  4  per  cent  on  the  cost  of  the  dam  during  that  two-year  period  of 
construction.  Now,  at  the  end  of  two  years  the  Government  has  got  every 
dollar  in  that  dam  it  will  put  in,  and  the  dam  is  completed,  capable  of  generat- 
ing 80,000  horsepower;  that  is  the  rate,  is  it  not? 

Mr.  Mayo.  Yes. 

Mr.  Miller.  Now,  you  have  a  three-year  flat  rate  of  interest  on  Dam  No.  3. 
instead  of  six  years  on  Dam  No.  2?  -     ,^^T   -    ^v/-  *?» 

Mr.  Mayo.  Yes,  sir.  -•"■     V    -'•>    ^/ 

Mr.  Miller.  Take,  then,  the  two-year  period  of  construction  and  your  three 
years  of  flat  rate  of  interest,  and  again  you  do  not  pay  anything  until  the  end 


of  the  third  year  or  you  do  not  pay  anything  until  one  year  after  Dam  No.  3 
is  completed;  that  is  right,  is  it  not? 

Mr.  Mayo.  Practically  so. 

Mr.  Miller.  It  is  actually  right,  is  it  not?  That  is  the  wording  of  the  con- 
tract. 

Mr.  Mayo.  The  contract  states  one  year  from  the  date  when  80,000  horse- 
power is  installed. 

Mr.  MnxER.  That  Is,  one  year  after  the  dam  is  completed,  because  you  say 
when  80,000  horsepower  is  generated  the  dam  is  completed,  practically. 

Mr.  Mayo.  Practically. 

Mr.  Miller.  And  you  do  not  pay  even  the  flat  rate  of  interest  until  a  year 
after  that  time. 

Mr.  Mayo.  The  entire  amount  of  money  is  not  in  the  dam  at  that  time. 

Mr.  Miller.  The  dam  ia  completed. 

Mr.  Mayo.  But  all  the  apparatus  that  goes  into  the  power  house  is  not. 

Mr.  Miller.  I  am  not  talking  about  the  apparatus. 

Mr.  Mayo.  Or  the  power  house. 

Mr.  Miller.  But  the  dam  is  completed  and,  of  course,  during  the  period  of 
construction  of  the  dam  you  will  be  working  on  installing  this  machinery,  will 
you  not? 

Mr.  Mayo.  The  power  house  and  machinery  is  the  most  expensive  portion  of 
the  dam. 

Mr.  Miller.  It  is  very  expensive,  I  will  admit  that ;  but  I  would  not  say  the 
most  expensive.    Do  you  think  it  is  the  most  expensive? 

Mr.  Mayo.  Exactly  so,  sir. 

Mr.  Miller.  Well,  it  is  a  very  expensive  proposition,  but  when  the  power 
house  is  completed  you  will  have,  your  machinery  ready  to  install,  of  course, 
on  the  ground. 

Mr.  Mayo.  We  hope  to. 

Mr.  Miller.  So  there  will  be  practically  no  interval,  and  will  not  take  you 
very  long — not  over  three  months. 

Mr.  Mayo.  It  may  be  a  year  or  more. 

Mr.  Miller.  If  it  is.  a  year  you  have  given  yourself  that  year  when  you  do 
not  pay  any  interest  at  all.    That  is  the  basis  on  which  you  are  financing  it? 

Mr.  Mayo.  We  have  got  to  build  up  our  load  for  it  to  get  any  return  out  of  it. 

Mr.  Miller.  I  am  not  talking  about  that.  I  am  saying  that  within  a  year 
after  your  dam  is  completed  and  the  Government  has  its  investment  there,  you 
do  not  pay  even  the  flat  rate  of  interest,  because  your  flat  rate  of  interest  does 
not  commence  until  one  year  after  the  dam  is  capable  of  generating  80,000 
horsepower. 

Mr.  Mayo.  That  is  not  correct.  The  first  interest  payment  is  made  one  year 
after  80,000  horsepower  of  equipment  is  installed,  but  that  payment  covers  the 
preceding  and  not  the  following  year.  We  pay  interest  from  the  date  the  80,000 
horsepower  is  ready. 

Mr.  Miller.  Now,  we  will  follow  that  through.  Take  the  two-year  period  of 
construction,  the  same  as  we  did  before ;  the  Government  is  again  out  on  Dam 
No.  3,  $1,600,000.  Now,  we  will  take  your  three-year  flat  rate  of  interest,  and 
you  pay  $160,000  on  Dam  No.  3. 

Mr.  Mayo.  Yes,  sir ;  $160,000  per  year  for  three  years. 

Mr.  MnxER.  The  interest  the  Government  will  have  to  pay  will  be  three  years 
at  the  rate  of  $800,000  a  year,  or  .$2,400,000,  will  it  not? 

Mr.  Mayo.  You  are  making  the  same  mistake  as  before. 

Mr.  Miller.  Plus  the  two  years  of  the  construction  period,  which  will  amount 
to  just  $4,000,000  exactly.  No^,  during  that  three  years  you  have  paid  a  flat 
rate  of  interest  of  $160,000  a  year,  or  $480,000.  That  is  right,  is  it  not?  That 
is  your  flat  rate  period  on  Dam  No.  3? 

Mr.  Mayo.  Yes,  sir ;  that  is  our  flat-rate  period. 

Mr.  Miller.  Now,  deducting  your  $480,000  from  what  the  Government  has 
paid  in  interest  on  its  bonds  there  on  the  $20,000,000  investment  leaves  a  deficit 
on  Dam  No.  3  of  $3,520,000  that  the  Government  has  paid  out  in  interest  more 
than  you  have  paid  the  Government  under  your  contract. 

Mr.  Mayo.  I  think  you  have  your  interest  too  high  during  the  construction 
period. 

Mr.  Miller.  I  have  figured  on  4  per  cent. 

Mr.  Mayo.  I  do  not  mean  the  percentage. 

Mr.  Miller.  You  mean  the  period  is  too  long? 

Mr.  Mayo.  Yes,  sir 

92900—22 ^18 


272 


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MUSCLE   SHOALS  PROPOSITIONS. 


273 


w 


Mr.  MiLLEB.  You  have  said  in  article  6  of  your  contract  tliat  you  reserve 
the  option  to  build  Dam  No.  3  after  you  have  completed  Dam  No.  2,  and  if  it 
talces  one  year,  taking  the  shortest  i^riod,  to  build  Dam  No.  2  how  can  you 
build  Dam  No.  3  under  a  three-year  period.    You  can  not  do  it,  can  you? 

Mr.  MxVYo.  No,  sir. 

Mr.  Miller.  Then  the  construction  period  on  Dam  No.  3  can  in  nowise  be 
less  than  two  years.     Is  not  that  right? 

Mr.  Mayo.  I  agree  to  that.  ' 

Mr.  Miller.  Then  on  Dam  No.  3  the  Government  will  have  paid  out  $3,520,000 
more  than  you  have  paid  in. 

Mr.  Mayo.  I  do  not  think  so. 

Mr.  Miller.  Then  I  would  like  to  know  wherein  that  is  wrong.  You  have 
agreed  with  me  all  the  way  down  to  the  total. 

Mr.  Mayo.  Will  you  repeat,  please,  in  regard  to  the  time? 

Mr.  Miller.  Two,  years  for  the  construction  period  for  Dam  No.  3,  wherein 
the  Government  is  bearing  an  interest  charge  of  4  per  cent  on  $20,000,000,  or 
$800,000  a  year. 

Mr.  Mayo.  Are  you  not  taking  the  interest  for  the  whole  3-year  period  on 

Dam  No.  3? 

Mr.  Miller.  No;  I  am  taking  the  interest  for  two  years  on  Dam  No.  3. 

Mr.  Mayo.  We  do  not  need  all  the  money  until  we  finish. 

Mr.  :Miller.  But  the  Government  will  have  to  have  this  money  to  pay  you 
because  vou  are  going  to  rush  this  work  down  there. 

Mr.  Mayo.  I  do  not  see  the  necessity  of  issuing  the  bonds  only  as  we  need 

the  money. 

Mr.  Miller.  If  you  can  find  any  living  man  on  earth  that  will  take  a  bond 
issue  and  deliver  it  in  serial  form  at  4  per  cent  interest,  you  will  discover 
something  in  finance  that  the  rest  of  us  have  never  heard  of. 

Mr.  Mayo.  I  do  not  think  so. 

Mr.  Miller.  With  an  interest  rate  less  than  the  rate  on  Liberty  bonds.  Any 
man  in  the  world  would  put  his  money  in  Liberty  bonds,  because  he  would  get 
one-fourth  of  1  per  cent  more  than  he  would  get  from  these  bonds,  even  paying 
par  for  Liberty  bonds.  I  do  not  see  how  you  are  going  to  do  that,  and  what 
I  am  trying  to  get  at  is  the  propos'tion  from  the  Government's  angle. 

Mr.  Mayo.  We  think  it  can  be  done. 

Mr.  Miller.  I  am  figuring  on  a  rate  of  4  per  cent  and  on  the  cost  of  Dam 
No.  3  at  $20,000,000. 

Mr.  Mayo.  I  think  you  should  cut  the  construction  period  charge  in  two. 

Mr.  Miller.  If  you  can  show  me  or  show  anybody  how  you  can  complete 
Dam  No.  3  under  two  years  I  would  like  to  hear  it. 

Mr.  Mayo.  No  ;  but  if  we  take  the  money  as  we  use  it,  that  interest  rate  will 
only  amount  to  about  one-half. 

Mr.  Miller.  You  understand  that  the  Government  will  have  to  finance  this 
thing  from  a  bond  issue,  becauee  we  can  not  go  out  and  get  any  more  money 
for  this  from  the  taxpayers,  and  we  are  figuring  on  its  costing  $50,000,000. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  And  it  would  not  be  good  propaganda  for  this  company  to  no 

that. 

Mr.  Mayo.  But  it  can  be  issued  in  blocks. 

Mr  Miller.  That  is  what  I  have  said.  I  do  not  believe  you  can  find  anybody 
that  will  take  a  bond  issue  in  blocks  and  make  partial  deliveries  at  4  per  cent 

interest. 

Mr   Mayo.  I  do  not  think  that  is  anything  neyv. 

Mr  Miller.  It  would  be  less  than  Liberty  bonds  pay,  and  any  company  would 
rather  put  its  monev  in  Liberty  bonds,  because  they  would  get  from  one-fourth 
to  one-half  per  cent  more  than  the  Government  would  be  paying  on  these 
bonds,  even  if  they  paid  par  for  Liberty  bonds. 

Mr   Mayo.  I  am  not  a  financier. 

Mr  Miller.  I  am  not  either ;  but  I  know  a  little  something  about  the  money 
market  but  not  very  much.  I  wish  I  knew  more.  Figuring  on  the  basis  i 
have  figured,  the  Government  will  have  paid  out  in  interest  $3,520,000  more 
than  you  have  paid  them,  and  the  only  discrepancy  you  can  find  in  that  state- 
ment ^is  that  the  construction  period  is  a  little  too  long. 

Mr  Mayo.  The  interest  during  construction  is  about  double  what  it  shouwne. 

Mr'.  Miller.  Suppose  we  take  that  ofe;  that  will  only  decrease  it  $400,000  a 
year,  or  $800,000. 

Mr.  Mayo.  That  is  about  correct ;  yes,  sir. 


Mr.  Miller.  That  will  be  $3,500,000 ;  and  deduct  from  that  $800,000,  assum- 
ing you  can  complete  Dam  No.  3  in  one  year,  the  Government  in  that  case 
would  be  out  $2,720,000. 

Mr.  Mayo.  All  rght,  sir. 

Mr.  Miller.  Now,  add  that  to  the  $5,200,000  that  we  are  out  on  Dam  No.  2, 
and  that  would  make  a  total  of  approximately  $8,000,000  that  the  Government 
would  be  out  before  you  reach  that  period  under  your  contract  when  you  begin 
to  pay  the  flat  rate  of  4  per  cent. 

Mr.  Mayo.  The  Government  is  going  to  spend  that  much,  but  they  will  not  be 
out  that  amount. 

Mr.  Miller.  The  Government  will  have  paid  that  in  interest  on  its  bonds, 
will  it  not? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  It  will  have  paid  $8,000,000  interest  on  its  bonds  over  and  above 
what  your  company  will  have  paid  the  Government ;  that  is  money  out  of  the 
United  States  Treasury,  and  that  is  the  way  I  analyze  your  contract. 

Mr.  Mayo.  Yes,  sir. 

Mr.  ]MiLLER.  Now,  at  the  end  of  the  six-year  period  on  Dam  No.  2  and  at  the 
end  of  the  three-year  period  on  Dam  No.  3  you  begin  to  pay  the  flat  rate  of 
4  per  cent  on  the  cost  of  construction ;  that  is  right,  is  it  not? 

Mr.  Mayo.  Yes,  sir ;  on  the  cost  of  the  work  we  have  constructetl. 

Mr.  Miller.  And  you  do  not  begin  to  amortize  the  plant  until* three  years  after 
the  plant  is  completed.  You  are  not  even  doing  anything  on  the  amortization 
of  the  plant. 

Mr.  Mayo.  That  is  right ;  yes,  sir. 

Mr.  MiLiJCR.  Then  up  until  three  years  after  the  dam  is  completed,  you  pay 
nothing  on  your  amortization  account  and  up  until  six  years  after  the  dam  is 
completed,  you  i)ay  a  flat  rate  of  interest  of  .$200,000  on  Dam  No.  2,  and  for  a 
three-year  period  on  Dam  No.  3  you  pay  $160,000.  Then  you  pay  nothing  in 
the  world,  under  the  terms  of  your  contract,  so  far  as  these  dams  are  concerned, 
until  at  least  one  year  after  both  dams  are  completeil,  and  then  the  flat  rate 
unly,  because  your  flat  rate  does  not  commence  until  a  year  after  the  dam  is 
wnipleted;  that  is  right,  is  it  not? 

Mr.  Mayo.  We  begin  to  pay  interest  when  the  amount  of  power  is  ready  to 
serve,  as  stated  here. 

Mr.  Miller.  You  have  fixed  that  at  one  year  after  the  dam  is  completed  be- 
fore you  pay  anything? 

Mr,  Mayo.  No;  they  are  not  wholly  completed. 

Mr.  Miller.  I  thought  you  said  you  were  going  to  complete  the  dams  in  a  year 
and  you  objected  to  my  construction  period  being  too  long. 

Mr.  Mayo.  Well,  I  did  not  say  that.  The  dam  itself  will  be  completed,  but 
the  power  house  and  its  apparatus  will  not  be. 

Mr.  Miller.  Anyway,  your  contract  does  not  commence  until  the  dam  is  com- 
pleted, capable  of  generating  100,000  horsepower  at  Dam  No.  2  and  80,000  horse- 
power at  Dam  No.  3. 

Mr.  Mayo.  That  is  correct ;  and  even  then  it  is  far  from  being  finished. 

Mr.  Miller.  It  may  be  far  from  being  finished,  but  I  understood  you  to  say 
a  moment  ago  that  when  80,000  horsepower  is  generated  at  Dam  No.  3  and 
100,000  horsepower  is  generated  at  Dam  No.  2,  that  the  dams  are  practically 
completed. 

Mr.  Mayo.  No,  sir. 

Mr.  Miller.  I  understood  you  to  say  so  a  little  while  ago,  Mr.  Mayo. 

Mr.  Mayo.  I  was  mistaken  if  I  did.  The  power-house  machinery  is  a  very 
expensive  end  of  it. 

Mr.  Miller.  The  Government  has  to  buy  that  machinery,  does  it  not? 

Mr.  Mayo.  Exactly,  but 

Mr.  Miller  (interposing).  And  it  has  to  place  all  that  machinery  in  position? 

Mr.  Mayo.  But  they  do  not  have  to  pay  for  it  until  it  is  completed. 

Mr.  Miller.  That  is  all  right.  The  Government  will  have  to  pay  for  its 
niachinery  probably  the  same  as  any  other  company  would  have  to  pay  for  it. 
A'he  Government  has  to  build  these  dams ;  it  has  to  buy  and  install  all  of  this 
piachinery,  turn  it  over  ready  for  use ;  and  even  then,  during  the  100-year  period, 
it  has  got  to  keep  the  dams  in  repair. 

Mr.  Mayo.  I  do  not  agree  with  you. 

Mr.  Miller.  Let  us  see  about  that. 

Mr.  Mayo.  We  pay  a  maintenance  fund  for  them  to  keep  it  in  repair. 
^  Mr.  Miller.  You  pay  $35,000  a  year  on  Dam  No.  2  and  $20,000  a  year  on  Dam 
No.  3. 


274 


MUSCLE  SHOALS  PROPOSITIONS. 


Mr.  Mayo.  Yes,  sir. 

Mr.  MnxEE.  And  furnishing  300  liorsepower  to  operate  the  gates. 

Mr.  Mayo.  That  is  correct,  300  horsepower. 

Mr.  MnxEB.  Now,  let  us  see  if  the  Government  is  not  to  maintain  these  dams. 
Listen  to  this,  Mr.  Mayo,  referring  now  to  paragraph  No.  4 : 

"  The  company  will  further  pay  to  the  United  States,  during  the  period  of  the 
lease  of  Dam  No.  2,  $35,000  annually,  in  installments  quarterly,  in  advance, 
for  repairs,  maintenance,  and  operation  of  Dam  No.  2,  its  gates  and  locks,  it 
being  understood  that  all  necessary  repairs,  maintenance,  and  operation  thereof 
shall  be  under  the  direction,  care,  and  responsibility  of  the  United  States  during 
the  said  100-year  lease  period ;  and  the  company,  at  its  own  expense,  will  make 
all  necessary  renewals  and  repairs  incident  to  efficient  maintenance  of  the 
power  house,  substructures,  superstructures,  machinery,  and  appliances  appurte- 
nant to  said  power  house,  and  will  maintain  the  same  in  efficient  operating 
condition." 

You  maintain  the  power  house ;  now,  let  us  see  about  the  dams.  I  had  that 
here  a  moment  ago.   Can  you  point  me  to  that  paragraph,  Mr.  Mayo? 

Mr,  Mayo.  The  paragraph  which  you  read,  No.  4,  explains  it  fully,  and  is 
repeated  again  in  paragraph  8  in  reference  to  the  other  dam.  The  wording  of 
both,  however,  is  identical. 

Mr.  Miller.  Let  us  look  at  paragraph  8,  which  is  the  one  that  provides  for 
the  locks,  etc.,  at*  Dam  No.  3. 

Mr.  Mayo.  No.  8  is  identical  with  No.  4,  with  the  exception  that  it  applies  to 
Dam  No.  3. 

Mr.  WuEZBACH.  Look  at  the  latter  part  of  section  8. 

Mr.  Miller.  The  latter  part  of  section  8  refers  to  the  power  house  of  Dam 
No.  3.    It  is  here  some  place. 

Mr.  WuRZBACH.  Is  this  what  you  refer  to,  "it  being  understood  that  all 
necessary  repairs,  maintenance,  and  operation  thereof  shall  be  under  the  direc- 
tion, care,  and  responsibility  of  the  United  States  "? 

Mr.  Milleb.  Where  are  you  reading? 

Mr.  WuRZBACH.  From  paragraph  8. 

Mr.  Miller.  "  It  being  understood  that  all  necessary  repairs,  maintenance,  and 
operation  thereof  shall  be  under  the  direction,  care,  and  responsibility  of  the 
United  States  during  the  said  100-year  period."  That  means  we  are  maintain- 
ing these  dams  for  100  years,  Mr.  Mayo. 

Mr.  Mayo.  Maintaining  it  with  our  money. 

Mr.  Miller.  Maintaining  it  with  your  money? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  How  so?    You  pay  $35,000  a  year,  do  you  not? 

Mr.  Mayo.  Yes,  sir. 

Mr.  IMiLLER.  You  allot  $35,000  a  year  for  the  operation  of  the  locks  and  main- 
tenance of  the  dam. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  Then  the  dam  is  to  be  maintained  by  the  United  States,  and  if 
maintained  by  the  United  States  for  $35,000  a  year  plus  the  operation  of  the 
locks,  we  are  even. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  If  the  maintenance  of  the  dam  is  over  .$35,000  a  year,  together 
with  the  operation  of  the  locks,  the  Government  is  out,  is  it  not? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  Then  the  Government  maintains  the  locks  and  operates  them, 
maintains  the  dam  during  the  100-year  period,  and  all  you  are  bound  to  pay  is 
$35,000  a  year  and  furnish  200  horsepower. 

Mr.  Mayo.  We  are  bound  to  the  amounts  we  have  stated  on  both  dams  an<l 
also  the  necessary  amount  to  keep  the  power  house  and  its  apparatus  properly 
maintained. 

Mr.  Miller.  During  this  construction  period,  when  you  do  not  pay  anythini?, 
and  during  the  six-year  period  of  the  flat  payment  of  interest  on  Dam  No.  2  and 
during  the  three-year  period  when  you  pay  the  flat  rate  of  interest  on  Dam  No.  3, 
all  of  this  time  you  are  getting  100,000  horsepower  from  the  steam  plant,  are  yon 
not? 

Mr.  Mayo.  It  is  there  to  get  if  we  choose  to  use  it. 

Mr.  MnxER.  Yes. 

Mr.  Mayo.  But  it  is  a  great  deal  more  expensive  power  than  the  water  power 
would  be. 


MUSCLE  SHOALS  PROPOSITIONS. 


275 


Mr.  MiLLEa^  That  is  the  reason  I  was  somewhat  surprised  yesterday  wheh  I 
asked  you  if  the  hydraulic  electric  energy  at  these  dams  was  not  the  principal 
factor  m  your  bid  or  the  principal  value  of  your  contract  with  the  Government 

Mr.  Mayo.  It  is  one  of  the  principal  factors. 

Mr.  Miller.  I  can  not  see  but  what  it  is  90  and  9  per  cent  of  the  factors 

Mr.  Mayo.  That  is  your  point  of  view. 

Mr.  Miller.  Now,  let  us  take  that  angle  for  a  moment.  I  do  not  want  to  tire 
you,  Mr.  Chairman. 

The  Chairman.  You  are  not  tiring  me. 

Mr.  Miller.  Let  us  take  up  that  angle  a  moment. 

Mr.  Mayo.  You  are  not  tiring  me  in  the  least,  either. 

Mr.  Miller.  I  am  not  tired,  so  we  are  all  all  right.  Now,  we  will  take  up  the 
hydroelectric  power  and  let  us  analyze  that  a  moment.  You  are  getting  600000 
horsepower  at  Dam  No.  2.  .  »         &        .^'^^ 

Mr.  Mayo.  When? 

Mr.  Miller.  When  the  dam  is  completed. 

Mr.  Mayo.  When  it  is  wholly  completed ;  yes,  sir. 

Mr.  Miller.  You  get  250,000  horsepower  at  Dam  No.  3. 

Mr.  Mayo.  When  it  is  wholly  completed,  we  hope. 

Mr  Miller.  You  are  getting  30,000  kilowatts  from  the  Warrior  steam  plant 
which  is  approximately  34,000  horsepower. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  You  are  getting  60,000  kilowatts  at  the  steam  plant  at  nitrate 
plant  No.  2. 

Mr.  Mayo.  When  we  operate  it. 

Mr.  Miller.  From  my  figuring  that  makes  a  total  of  940,000  horsepower  that 
those  units  will  generate— that  is  simply  a  matter  of  calculation— when  they 
are  all  running  at  maximum  capacity,  940,000  horsepower  or  approximately 
1,000,000  horsepower,  the  largest  hydroelectric  plant  in  the  world,  is  it  not' 

Mr.  Mayo.  You  are  talking  about  a  mixed  plant  of  steam  and  water  power 

Mr.  Miller.  One  hundred  thousand  of  it  is  steam  power,  and  the  rest  of  it* 
840,000  horsepower,  or  whatever  it  is,  is  from  the  hydraulic  plant.  * 

Mr.  Mayo.  And  then  the  bulk  of  that  is  secondary  power. 

Mr.  Miller.  We  will  come  to  that  in  a  moment.  That  is  the  capacity  of  vour 
dams,  according  to  your  own  contract,  600,000  horsepower. 

Mr.  Mayo.  That  is  the  maximum  capacity. 

Mr.  Millebl  Six  hundred  thousand  horsepower  at  Dam  No.  2,  250,000  horse- 
power at  Dam  No.  3,  or  850,000  horsepower  at  the  two  dams. 

Mr.  Mayo.  That  is  the  maximum. 

Mr.  Miller.  And  as  I  say,  that  is  the  largest  hydroelectric  plant  in  the  world 

Mr.  Mayo.  One  of  them. 

Mr.  Miller.  Is  it  not  larger  than  anything  in  the  world  at  the  present  time. 

Mr.  Mayo.  It  is  about  the  same  as  certain  Niagara  Falls  plants  I  believe 

Mr.  Miller.  That  is,  the  aggregate  of  everything  at  Niagara  Falls? 

Mr.  Mayo.  No,  sir ;  not  the  aggregate  of  everything. 

Mr.  Miller.  We  have  figured  out  850,000  horsepower  in  your  hydroelectric 
plant,  100,000  horsepower  in  your  two  steam  plants,  which  will  make  950,000 
horsepower  when  all  the  units  are  running  to  maximum  capacity.  Now,  out  of 
your  600,000  horsepower  at  Dam  No.  2  you  are  getting  100,000  primary  power, 
are  you  not? 

Mr.  Mayo.  Yes,  sir. 

Mr.  MnxEE.  And  you  are  getting  500,000  secondary  power. 

Mr.  Mayo.  Yes,  sir ;  at  times  we  are,  but  not  all  the  time. 

Mr.  Miller.  But  you  are  figuring  on  100,000  primary  horsepower. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  Then  there  must  be  500,000  secondary  horsepower. 

Mr.  Mayo.  Certainly,  which  is  only  a  small  part  of  the  time. 

Mr.  Miller.  You  are  also  figuring  on  40,000  primary  horsepower  at  Dam 
No.  3? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  And  you  are  figuring,  of  course,  on  30,000  primary  horsepower  at 
your  Warrior  steam  plant. 

Mr.  Mayo.  Yes,  sir. 

Mr.  MnxEB.  And  you  are  figuring  on  at  least  60,000  horsepower  from  the 
steam  plant  at  nitrate  plant  No.  2. 

Mr.  Mayo.  Yes,  sir. 


276 


MUSCLE  SHOALS  PROPOSITIONS. 


i 


Mr.  MiLLEB.  When  running  to  capacity,  that  makes  a  total  of  230,000  primary 
horsepower  that  you  have  available. 

Mr.  Mayo.  Yes,  sir;  at  least  that. 

Mr.  MiLLEB.  One  hundred  thousand  of  which  is  available  all  during  this 
period  of  construction  of  the  dams,  and  all  during  the  period  of  the  six-year 
flat  payment  of  interest  period  on  Dam  No.  2  and  the  three-year  period  of  flat 
rate  of  interest  on  Dam  No.  3. 

Mr.  Mayo.  But  it  is  not  of  any  particular  value  during  that  period. 

Mr.  MiLLEB.  But  it  is  available  if  you  want  It? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  Now,  that  will  leave  a  surplus  of  210.000  horsepower  at  Dam 
No.  3,  will  it  not? 

Mr.  Mayo.  I  do  not  follow  you. 

Mr.  Miller.  If  Dam  No.  3  will  generate  250,000  horsepower  and  40,000  of  it 
is  primary,  there  must  be  210,000  of  it  secondary? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  Adding  the  secondary  power  of  Dam  No.  2  to  Dam  No.  3,  you 
have  710,000  secondary  horsepower? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  And  you  have  got  230,000  primary  horsepower.  \Ye  will  figure 
on  that  as  a  basis  for  a  moment.  Eighteen  dollars  per  horsepower  for  primary 
power  would  be  a  cheap  rate,  would  it  not? 

Mr.  Mayo.  Eighteen  dollars  a  horsepower? 

Mr.  Miller.  Per  annum. 

Mr.  Mayo.  For  the  primary  power? 

Mr.  Miller.  Yes. 

Mr.  Mayo.  It  would  be  a  reasonable  rate. 

Mr.  Miller.  Would  it  not  be  a  very  low  rate? 

Mr.  Mayo.  Not  a  very  low  rate. 

Mr.  Miller.  What  rate  does  the  Alabama  Power  Co.  get  for  primary  horse- 
power? 

Mr.  Mayo.  I  do  not  know. 

Mr.  Miller.  You  have  not  made  any  inquiry? 

Mr.  Mayo.  No. 

Mr.  Miller.  What  rate  have  you  figured  on  primary  power  in  financing  this 
plant? 

Mr.  Mayo.  I  do  not  remember. 

Mr.  Miller.  You  have  figured  it  on  a  very  low  rate,  have  you  not? 

Mr.  Mayo.  Quite  a  low  rate ;  yes,  sir. 

Mr.  Miller.  And  you  say  $18  Is  a  very  low  rate  for  primary  horsepower? 

Mr.  Mayo.  I  do  not  say  it  is  a  very  low  rate.    I  say  it  is  a  reasonable  rate. 

Mr.  MiLLEB.  Then  230,000  horsepower  at  $18  per  annum  per  horsepower 
would  amount  to  $4,140,000  a  year.  That  would  be  your  income  from  your 
primary  power  based  upon  $18  per  horsepower  per  annum,  less  your  overhead 
for  maintaining  the  power? 

Mr.  Mayo.  For  what  period? 

Mr.  Miller.  For  one  year. 

Mr.  Mayo.  You  mean  when  we  first  start  up? 

Mr.  Miller.  I  mean  when  you  get  230,000  horsepower,  which  we  have  seen 
is  your  primary  power,  and  when  all  these  units  are  in  operation.  That  power 
is  worth  $18  per  horsepower  per  year,  and  your  income  therefore  from  your 
primary  power  will  be  $4,140,000  a  year.-  It  is  simply  a  matter  of  mathe- 
matical computation. 

Mr.  Mayo.  It  is  much  more  involved  than  mere  multiplication.  You  can  not 
take  it  on  the  basis  of  what  we  might  sell  it  for.  It  is  simply  a  part  of  our 
cost  in  whatever  we  manufacture. 

Mr.  Miller.  Yes;  it  is  a  part  of  your  cost,  and  $18  per  horsepower  is  a 
reasonable  price  for  it,  you  said. 

Mr.  Mayo.  It  is  a  reasonable  rate  to  sell  power  about  the  country  where  there 
is  a  market  for  it ;  yes. 

Mr.  Miller.  I  believe  there  was  some  evidence  introduced  here  that  the  rat<' 
of  the  Alabama  Power  Co.  down  there  was  3  mills  per  kilowatt-hour. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  Three  mills  per  kilowatt  hour,  running  24  hours  a  day  woulo  ne 
at  the  rate  of  over  $21  per  annum  per  horsepower,  would  it  not? 

Mr.  Mayo.  It  is  a  little  under  $20. 

Mr.  Miller.  A  little  under  $20. 

Mr.  Mayo.  I  think  so. 


MUSCLE   SHOALS  PROPOSITIONS. 


277 


Mr.  Miller.  Three  mills  for  24  hours  a  day  would  be  72  mills  per  day.  figure 
that  for  300  days  in. a  year,  and  see  what  you  get. 

Mr.  Mayo.  Nineteen  dollars  and  sixty-one  cents. 

Mr.  Miller.  Well,  that  is  higher  than  I  have  put  it.  Now,  take  your  710,000 
secondary  power. 

Mr.  Mayo.  But  you  are  predicating  all  your  statements  on  the  basis  of  our 
selling  this  power,  which  is  not  the  fact. 

Mr.  Miller.  I  am  basing  this  upon  your  utilizing  the  capacity  of  your  plant 
there  for  yourself  or  selling  it ;  that  is,  using  it,  what  you  want,  and  selling 
the  balance,  and  I  am  putting  it  at  a  very  low  rate  both  for  consumption  and 
for  sale,  lower  than  the  Alabama  Power  Co.  is  getting  to-day,  because  3  mills, 
according  to  your  figures,  amount  to  $19.61  per  horsepower  per  annum. 

Now,  we  will  take  up  the  secondary  power.  Suppose  you  only  get  $6  per 
year  per  horsepower,  you  have  an  income  from  that  of  $4,260,000,  and  adding 
your  primary  and  secondary  power 

Mr.  Mayo  (interposing).  An  income  from  where? 

Mr.  Miller.  From  your  secondary  power,  Mr.  Mayo,  which  amounts  to, 
710,000  horsepower,  according  to  what  you  told  me  a  moment  ago. 

Mr.  Mayo.  There  is  no  market  for  that  there  at  present. 

Mr.  Miller.  Do  you  not  intend  to  use  your  secondary  power? 

Mr.  Mayo.  As  soon  as  we  can  build  up  to  it. 

Mr.  Miller.  Absolutely,  you  are  going  to  use  it. 

Mr.  Mayo.  It  is  going  to  take  a  great  length  of  time  to  do  it. 

Mr.  Miller.  And  you  will  charge  your  various  enterprises  which  you  establish 
with  power  at  a  certain  price,  will  you  not? 

Mr.  Mayo.  At  a  certain  price;  yes,  sir. 

Mr.  Miller.  You  will  have  to  do  that  in  order  to  ascertain  the  cost  of  your 
fertilizer. 

Mr.  Mayo.  Exactly. 

Mr.  Miller.  And  you  will  therefore  use  your  secondary  power,  all  that  you 
can  use,  and  what  you  can  not  use  you  will  sell,  of  course ;  and  you  are  capable 
of  generating  710,000  horsepower. 

Mr.  Mayo.  Yes,  sir;  but  not  710,000  salable  horsepower. 

Mr.  Miller.  Now,  suppose  we  put  that  at  a  rate  of  $6  per  horsepower  per 
year ;  the  way  I  figure  it  you  get  a  revenue  of  $4,260,000  a  year,  which  added 
to  the  revenue  from  your  primary  power  will  make  a  total  of  $8,400,000  a  year 
from  the  total  horsepower,  less  your  overhead. 

Mr.  Mayo.  What  period  are  you  figuring  on?  • 

Mr.  Miller.  A  year. 

Mr.  Mayo.  But  we  do  not  get  it  all  the  year. 
in  accordance  with  the  flow. 

Mr.  Miller.  Of  course,  it  varies;  otherwise  it  would  be  primary  power. 

Mr.  Mayo.  Exactly. 

Mr.  ;Miller.  So  I  am  putting  it  down  at  just  one-third  of  what  you  get  for 
your  primary  power. 

Mr.  Mayo.  While  that  may  be  true,  you  are  not  reducing  the  quantity. 
You  do  not  get  that  total  quantity  the  year  round. 

Mr.  Miller.  No  ;  because  if  you  did  it  would  be  primary  power  and  would  be 
three  times  as  high.  I  am  putting  it  at  one-third  of  what  you  get  for  your 
primary  power. 

Mr.  Mayo.  It  should  not  only  be  at  a  much  lower  rate,  but  on  a  much  less 
quantity  . 

Mr.  Miller.  And  I  am  putting  it  at  one-third  of  what  your  primary  power  is 
worth. 

Mr.  Mayo.  I  do  not  think  it  should  be  over  one-third. 

Mr.  Miller.  I  do  not,  either,  and  I  am  putting  it  at  one-third. 

Mr.  Mayo.  But  even  at  that  you  are  wrong  as  to  the  quantity. 

Mr.  Miller.  Seven  hundred  and  ten  thousand  horsepower? 

Mr.  Mayo.  Yes;  but  it  is  not  constant.    It  varies  all  the  while. 

Mr.  Miller.  I  understand  that.  If  it  was  constant  it  would  be  primary 
power. 


The  secondary  power  varies 


Mr.  Mayo.  If  you  would  switch  around  and  say 
$6— — 

Mr.   Miller    (interposing).  I   am   putting   down 
about  one-third  the  price  of  your  primary  power. 
Mr.  Mayo.  Per  unit  cost. 
Mr.  Miller.  Yes. 


one-third  of  the  power  at 
your  secondary  power  at 


278 


MTJSCLE  SHOALS  PROPOSITIONS. 


I 


Mr.  Mayo.  Then  we  do  not  get  the  quantity. 
Mr.  Miller.  You  get  710,000  secondary  power. 

Mr.  Mayo.  Only  for  a  very  short  period.  The  maximum  power  might  be  a 
month's  duration. 

Mr.  Millee.  You  may  get  your  primary  power  to  full  capacity  for  certain 
months  in  the  year. 

Mr.  Mayo.  It  may  be  for  a  month. 

Mr.  Miller.  You  may  get  850,000  horsepower  out  of  those  two  dams  for  two 
or  three  or  four  months  in  the  year;  that  is  right,  is  it  not? 

Mr.  Mayo.  But  you  are  basing  your  argument  on  the  whole  year,  are  you 

Mr.  MuxEE.  I  am  basing  my  argument  on  exactly  the  definition  of  secondary 
^^^^^^  primary  power  that  you  have  given.  If  dam  No.  3  will  produce 
250,000  horsepower  and  40,000  of  that  is  primary  power,  there  must  be  210.000 
of  It  secondary  power;  that  is  right,  is  it  not? 

Mr.  Mayo.  It  seems  to  me  you  are  mixed  all  the  while  in  the  Quantity  of 
your  secondary  power. 

Mr.  Miller.  I  would  like  to  have  you  unravel  it,  if  I  am  wrong  about  it. 

Mr.  Mayo.  You  are  taking  the  maximum  amount  of  secondary  power  and 
you  are  figuring  that  on  a  full  year's  basis. 

Mr.  Miller.  I  am  taking  your  maximum  secondary  power  and  figuring  it  at 
one-third  of  your  primary  power. 

Mr.  Mayo.  But  you  are  figuring  it  on  the  basis  of  that  many  horsepower- 
years. 

Mr.  Miller.  Yes. 

Mr.  Mayo.  Which  is  wrong. 

Mr.  Miller.  You  use  your  primary  power  at  certain  seasons  of  the  year. 

Mr.  Mayo.  All  the  year. 

Mr.  Miller.  I  mean  you  use  your  secondary  power  at  certain  seasons  of  the 
year. 

Mr.  Mayo.  Yes,  sir;  when  we  can. 

Mr.  Miller.  Now,  there  are  certain  seasons  of  the  year  in  which  you  will 
have  a  large  amount  of  secondary  power,  depending  upon  the  flow  of  the  water. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  At  certain  seasons  of  the  year  you  will  have  the  full  capacity 
of  850,000  horsepower. 

Mr.  Mayo.  Yes,  sir;  but  you  are  basing  your  figures  at  $6  per  horsepower- 
year  on  the  total  maximum  amount  for  the  entire  year. 

Mr.  Miller.  On  the  secondary  power. 

Mr.  Mayo.  Exactly ;  but  your  figures  are  on  the  horsepower-yearly  basis. 

Mr.  Miller.  How  would  you  figure  it?  You  say  I  am  wrong;  I  would  like 
to  know  how  you  figure  the  value  of  your  secondary  power. 

Mr.  Mayo.  I  would  divide  the  maximum  quantity  in  thirds,  approximately, 
and  then  take  the  price  of  about  one-third  of  that. 

Mr.  Miller.  Well,  taking  710,000  horsepower,  which  is  the  amount  of 
secondary  power,  one-third  of  that  would  be  240,000  horsepower. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  What  price  do  you  sell  that  secondary. power  for? 

Mr.  Mayo.  We  are  not  selling  it. 

Mr.  Miller.  What  price  will  you  charge  your  various  enterprises? 

Mr.  Mayo.  Probably  the  cost. 

Mr.  Miller.  What  will  it  cost?  You  have  certainly  figured  this  out  in  mak- 
ing the  proposition. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  How  have  you  figured  It? 

Mr.  Mayo.  I  do  not  remember  Just  what  our  figures  are. 

Mr.  Miller.  Well,  what  would  you  figure  it  to  be  worth— $6? 

Mr.  Mayo.  The  $6  would  be  a  reasonable  price. 

Mr.  Miller.  Now,  we  are  putting  that,  according  to  the  lowest  possible 
thing  we  can  make  it,  at  one-third,  and  figuring  it  at  $6,  that  makes  an  in- 
come of  $1,440,000  a  year  from  your  secondary  power  and  you  are  paying 
$1,200,000  a  year  to  the  Government.  You  will  get  $200,000  more  out  of  your 
secondary  power  than  you  pay  In  interest  to  the  United  States  Government 
during  the  100  years  of  your  lease. 

Mr.  Mayo.  I  do  not  agree  with  you. 

Mr.  Miller.  Wherein  am  I  wrong? 

Mr.  Mayo.  If  we  charge  the  power  in  as  a  part  of  the  cost  of  our  material 
the  amount  we  get  for  the  power  is  what  it  costs. 


MUSCLE  SHOALS  PROPOSITIONS. 


279 


Mr.  Miller.  You  will  certainly  do  that,  will  you  not,  Mr.  Mayo? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  You  certainly  will.  Mr.  Ford  does  that  in  his  present  plant ;  that 
IS,  charges  up  every  dollar's  worth  of  the  maintenance  of  the  power  plant  as 
a  part  of  the  overhead  of  the  production. 

Mr.  Mayo.  Exactly ;  but  that  goes  in  as  its  cost,  not  at  what  he  could  sell  it 
for. 

Mr.  Miller.  And  we  are  figuring  according  to  your  own  figures,  $6  and  one 
third  of  the  output. 

Mr.  Mayo.  They  are  not  my  own  figures.  It  is  only  what  I  stated  was  a 
reasonable  figure. 

Mr.  Miller.  Well,  I  am  taking  your  reasonable  figure,  and  you  will  sell 
$1,440,000  worth  of  secondary  horsepower,  which,  added  to  your  $4,140000 
for  your  primary  horsepower,  makes  $5,580,000  worth  of  hydraulic  power  that 
will  be  produced  annually,  and  the  only  thing  to  be  taken  out  of  that  is  the 
overhead,  the  cost  of  the  production,  which  will  be  considerable  in  your  two 
steam  plants,  but  very,  very  little  in  your  two  hydraulic  plants. 

Mr.  Mayo.  One  of  the  prime  reasons  for  being  able  to  make  cheap  fertilizer 
is  to  get  cheap  power  that  you  can  put  into  it  at  practically  cost. 

Mr.  Miller,  Incidentally,  when  you  get  cheap  power  for  making  fertilizer, 
you  get  cheap  power  for  all  the  enterprises  the  company  intends  to  establish 
there. 

Mr.  Mayo.  We  get  the  same  benefit. 

Mr.  Miller.  And  that  is  the  reason  I  am  still  surprised  that  you  do  not  say 
the  power  generated  there  is  the  great  inducement  for  you  to  make  this  offer. 

Mr.  Mayo.  That  depends  on  the  load  factor  that  we  can  build  up. 

Mr.  Miller.  I  believe  that  is  all,  and  I  perhaps  should  apologize,  but  I  un- 
derstand every  angle  of  this  contract,  I  believe,  now,  and  I  know  you  do,  and 
that  is  the  reason  I  asked  you  from  time  to  time  wherein  I  was  wrong,  if  I  was 
wrong. 

Mr.  Mayo.  The  Government  invited  Mr.  Ford  to  make  this  offer  and  he  has 
made  the  best  offer  he  figures  he  cares  to  make.  He  has  tried  to  make  it  as 
tair  as  he  knows  how,  and  you  will  have  to  take  it  or  leave  it,  at  its  face  value. 

Mr.  Miller.  But  this  is  the  way  the  thing  comes  to  us :  Mr.  Ford  has  made 
this  offer.  It  is  now  up  to  the  United  States  Government  to  accept  it  or  to  re- 
ject it. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  And  in  order  for  Congress  to  have  an  intelligent  opinion  of  this 
thing,  and  to  intelligently  pass  upon  it,  this  detailed  information  about  which 
I  have  asked  you  will  have  to  be  laid  before  the  House. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  And  I  want  to  lay  it  before  the  House  exactly  as  I  understand 
it,  and  as  I  have  said,  I  believe  I  understand  now  every  angle  of  the  contract 
and  I  know  you  do. 

Mr.  Mayo.  We  are  here  to  offer  any  explanation  we  can  on  our  part. 

Mr.  Parker.  Mr.  Mayo,  you  say  that  that  power  was  reckoned  when  you 
were  making  up  the  basis  for  this  offer  at  some  figure,  but  you  do  not  remember 
exactly  what  it  was? 

Mr.  Mayo.  No,  sir. 

Mr.  Parker.  Can  you  not  remember  something  about  what  it  was,  whether 
it  was  over  one  price  or  over  another? 

Mr.  Mayo.  We  figured  this  proposition  out  as  a  whole,  a  combination  of  the 
dam  project  and  the  nitrate  plant — the  whole  property. 

Mr.  Parker.  As  to  the  power,  you  say  Mr.  Ford  also  charges  power  to  his 
various  plants;  at  what  rate  does  he  charge  power? 

Mr.  Mayo.  At  cost. 

Mr.  Parker.  How  much? 

Mr.  Mayo.  Whatever  the  cost  may  be. 

Mr.  Parker.  What  is  it,  generally? 

Mr.  Mayo.  I  have  not  figured  the  yearly  rate. 

Mr.  Parker.  I  do  not  want  you  to  figure  the  yearly  rate;  I  want  vou  to  tell 
me  what  you  recall  was  the  cost  of  power  that  he  charged,  about.  Have  you 
seen  his  books? 

Mr.  Mayo.  He  does  not  charge  the  horsepower  up  as  such,  but  all  the  ele- 
ments that  go  into  making  it  are  charged  into  the  cost  of  his  product. 

Mr.  Parker.  And  at  about  what  rate  is  it  charged? 

Mr.  Mayo.  There  is  no  rate  charged  at  all. 


280 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


281 


.^Wl 


1. 

Mr.  Parker.  What  rate  would  the  charges  make?     You  have  figured  that  up 

Mr.  Mayo.  I  beg  your  pardon. 

Mr.  Parker.  What  rate  would  the  various  charges  that  are  made  mnke;  what 
rate  per  year  per  horsei)ower? 

Mr.  Mayo.  I  presume  tliey  would  run  around  $20. 

Mr.  Parker.  In  figuring  secondary  horsepower  you  said  $6  would  be  n 
reasonable  rate  for  one-third  of  it. 

Mr.  Mayo.  Y^s. 

Mr.  Parker.  Yes;  I  think  it  would  be.  How  much  did  you  figure  it  out 
-when  you  were  figuring  up  this  contract? 

Mr.  Mayo.  I  do  not  remember,  sir. 

Mr.  Parker.  You  do  not  remember?    Was  it  more  than  $6? 

Mr.  Mayo.  I  do  not  know. 

Mr.  Parker.  Would  $8  be  a  reasonable  rate? 

Mr.  Mayo.  I  have  stated  before  that  $6  was  a  reasonable  rate. 

Mr.  Parker.  Would  $8  be  a  reasonable  rate? 

Mr.  Mayo.  I  think  so. 

Mr.  Parker.  Would  $10  be  a  reasonable  rate? 

Mr.  Mayo.  Xo.  sir;  I  would  not  think  so. 

Mr.  Parker.  Would  $9  be  a  reasonable  rate? 

Mr.  Mayo.  Fairly  so. 

Mr.  Parker.  Some  of  this  secondary  power  runs  for  eight  months  in  the 
jear;  a  good  part  of  it? 

Mr.  Mayo.  Not  a  good  part  of  it,  I  would  say. 

Mr,  Parker  Half  of  it? 

Mr.  Mayo.  No,  sir ;  maybe  one-third  of  it,  or  less. 

Mr.  Parker.  For  the  one-third  running  eight  months  in  the  year,  what  is  n 
reasonable  rate  for  that  power? 

Mr.  Mayo.  I  would  say  $6  or  $7. 

Mr.  Parker.  For  the  whole  of  it  or  for  a  part  of  it. 

Mr.  Mayo.  For  that  one-third  for  the  eight-month  period. 

Mr.  Parker.  For  the  one-third  that  runs  for  eight  months,  vou  would  reckon 
|6  or  $7. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Parker.  Does  another  one-third  run  of  six  months? 

Mr.  Mayo.  I  would  not  think  so ;  maybe  for  four  months. 

Mr.  Parker.  One-third  more  would  run  for  four  months,  and  what  rate  would 
you  charge  on  that  or  allow  on  that  for  the  time  it  ran  ? 

Mr.  Mayo.  That  leads  into  a  rather  complicated  question.  You  must  have 
a  lot  of  spare  apparatus  in  order  to  use  your  maximum  power  when  it  is  avail- 
able. The  amount  of  power  you  can  deliver  is  not  the  amount  you  could 
generate. 

Mr.  Parker.  That  is  not  an  answer  to  my  question,  but  I  will  not  ask  it 
any  more  if  you  do  not  want  to  answer  4t.  Mr.  Mayo,  I  understand  that  n 
kilowatt  is  reduced  to  horaepower  by  dividing  by  seven-tenths. 

Mr.  Mayo.  By  0.746. 

Mr.  Parker.  If  you  divide  90,000  kilowatts  by  0.746  how  many  horsepower 
do  you  get? 

Mr.  Mayo.  Approximately  one-third  more. 

Mr.  Parker.  So  that  the  90,000  kilowatts  w^ould  become  120,000  horsepower. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Parker.  And  not  100,000,  as  Mr.  Miller  reckoned,  but  120,000  horsepower, 

Mr.  Mayo.  Yes,  sir. 

Mr.  Parker.  I  would  now  like  to  ask  you  about  another  matter.  A  good  part 
of  this  property  Mr.  Ford  insists  upon  taking  in  fee. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Parker.  For  what  reason? 

Mr.  Mayo.  Because  he  wants  to  own  it  outright. 

Mr,  Parker.  For  what  purpose? 

Mr.  Mayo.  For  manufacturing  purposes. 

Mr.  Parker.  Does  he  mean  to  mortgage  it? 

Mr.  Mayo.  I  do  not  know. 

Mr.  Parker.  He  could  mortgage  it,  could  he  not? 

Mr.  Mayo.  I  presume  he  could. 

Mr.  Parker.  To  use  for  manufacturing  purposes  a  lease  would  be  just  as  good 
as  a  deed,  would  it  not,  as  far  as  the  use  is  concerned? 

Mr.  Mayo.  I  think  not. 

Mr.  Parker.  Why  not? 


Mr.  Mayo.  Because  you  would  not  want  to  make  a  large  investment  on  leased 
iproperty. 

Mr.  Parker.  Even  if  it  was  leased  for  100  years,  and  although  manufacturing 
property  does  not  last  over  20  or  30  years  as  a  ruld,  and  has  to  be  renewe«i 
every  30  years. 
Mr.  Mayo.  It  is  not  all  renewed,  but  is  generally  greatly  changed. 
Mr.  Parker.  What  security  does  the  United  States  have  on  plant  No.  2  mit- 
:side  of  Mr.  Ford's  personal  agreement? 

Mr.  Mayo.  They  have  the  value  of  the  plant.    That  is  always  there. 

Mr.  Parker.  The  value  of  the  plant  belongs  to  Mr.  Ford  after  it  is  deeded  to 
him. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Parker.  He  has  it  all. 

Mr.  May'o.  Yes,  sir. 

Mr.  Parker.  He  could  convey  it  to  somebody  else. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Parker.  There  is  nothing  in  the  contract  to  prevent  him  conveying  it  to 
somebody  else? 

^Ir.  Mayo.  I  think  he  can  only  do  it  in  accordance  with  the  conditions  of 
.this  offer. 

Mr.  Parker.  But  he  is  given  a  full  title. 

Mr.  Mayo.  Yes,  sir, 

Mr.  PARKER.  What  is  to  prevent  his  mortgaging? 

Mr.  May'o.  There  are  some  restrictions  on  the  title. 

Mr.  Parker.  Is  there  any  restriction  on  his  mortgaging? 

Mr.  Mayo.  I  do  not  think  so. 

Mr.  Parker.  And  the  mortgagee  w^ould  take  the  property,  if  there  was  a  sale, 
leaving  the  Government  only  the  company's  responsibility,  whatever  it  might  be, 
if  this  was  after  Mr,  Ford's  death,  say  50  years  from  now, 

Mr,  Mayo.  I  think  that  is  possible. 

Mr.  Parker.  That  is  to  say,  if  in  50  years  from  now  the  company  had  mort- 
gagetl  and  failed  and  had  been  foreclosed,  all  the  Government's  plants  would 
be  gone  and  nobody  would  be  manufacturing,  and  the  Government  would  have 
no  security  whatever? 

Mr.  Mayo.  Well,  I  am  not  a  lawyer,  but  I  am  of  the  opinion  that  if  there 
was  a  mortgage  placed  on  that  property  it  would  be  placed  with  all  the  condi- 
tions of  this  offer  attached. 

Mr.  Parker,  Will  you  be  ready  to  put  that  in  the  contract,  that  the  deed  to 
plant  No.  2  and  to  this  property  should  be  subject  to  the  conditions  of  this 
contract? 

Mr.  Mayo.  I  think  that  would  follow  whether  we  said  so  or  not. 

Mr.  Parker.  Would  you  be  willing  to  put  that  in  the  contract  expressly, 
because  I  do  not  think,  as  a  lawyer,  it  does  follow? 

Mr.  Mayo.  I  do  not  know. 

Mr.  Parker.  I  want  to  make  it  plain,  and  I  say,  as  a  lawyer,  that  I  doubt 
that  very  much,  and  I  wanted  to  know  whether  you  were  willing  to  have  the 
deed  made  subject  to  the  conditions  of  this  contract? 

Mr.  Mayo.  I  could  not  say  definitely,  but  I  am  of  the  opinion  Mr.  Ford 
would  be  willing  to  do  anything  to  properly  protect  the  Government. 

Mr.  Barker.  Do  you  think  he  would  be  willing  to  do  that? 

Mr,  Mayo,  I  think  so^ 

Mr.  Parker.  So  if  we  insisted  that  that  should  be  done  you  think  he  would 
not  object? 

Mr.  Mayo.  I  do  not  think  he  would. 

Mr.  Parker.  What  are  the  other  ingredients  of  fertilizer,  except  the  am- 
monium sulphate?    You  have  studied  this  matter  out. 

IMr.  Mayo.  Phosphates  and  potashes. 

Mr.  Parker.  Where  w6uld  you  get  the  phosphates  and  potashes? 

Mr.  Mayo.  The  pho.sphate  in  the  lmme<liate  neighborhood  there. 

Mr.  Parker.  The  phosphates  are  near  there? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Parker.  Where  are  they? 

Mr.  Mayo.  Within  a  radius  of  100  miles. 

Mr.  Parker.  Where? 

Mr.  Mayo.  Well,  one  place  is  near  Columbia,  Tenn. 

Mr.  Parker.  Are  they  mineral  phosphates? 

Mr.  Mayo.  Yes,  sir;  rock  phosphates. 


I 


282 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


283 


Mr.  Paskeb.    What  are  the  other  things  that  go  into  It? 

Mr.  Mayo.  Potashes. 

Mr.  Pabker.  Where  would  the  potash  come  from? 

Mr.  Mayo.  I  could  not  say  at  present 

Mr.  Park^.  What  do  you  mean  by  "  could  not  say  " ;  has  not  potash  been 
a  very  troublesome  thing  to  get? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Pabkeb.  It  comes  mainly  from  Germany,  does  it  not? 

Mr.  Mayo.  A  great  deal ;  yes  sir.  We  have  a  number  of  processes  from  which 
we  think  we  can  get  a  reasonable  amount. 

Mr.  Parker.  And  factories  located  near  New  York  or  along  the  shore  have 
an  advantage  in  freight  rates  in  importing  German  potash,  have  they  nof 

Mr.  Mayo.  Potash  could  be  brought  there  by  water. 

Mr.  Parker.  Could  be  brought  where? 

Mr.  Mayo.  Could  be  brought  to  Muscle  Shoals  by  water. 

Mr.  Parker.  I  understand  that,  but  is  that  a  cheap  way  of  getting  it,  com- 
ing up  the  Mississippi  and  the  Ohio  and  the  Tennessee? 

Mr.  Mayo.  I  think  it  would  be  the  cheapest  way. 

Mr.  Parker.  But  is  it  as  cheap  as  bringing  it  direct  to  the  shore? 

Mr.  Mayo.  It  would  not  be  as  cheap  as  landing  it  at  New  Orleans. 

Mr.  Parker.  But  is  there  not  a  great  deal  of  difference  in  the  freight  in  get- 
ting potash  from  Germany  to  this  place  and  getting  it,  say,  at  New  York  or  at 
same  place  near  New  York? 

Mr.  Mayo.  There  would  be  some  difference ;  I  do  not  know  just  what. 

Mr.  Parker.  Do  you  know  how  much  it  would  be? 

Mr.  Mayo.  No,  sir.    It  does  not  necessarily  have  to  come  from  Germany. 

Mr.  WuRZBACH.  Mr.  Mayo,  is  there  any  present  demand  for  as  much  as'sioO- 
000  horsepower  at  Muscle  Shoals? 

Mr.  Mayo.  No,  sir. 

Mr.  WuBZBACH.  The  value  of  power  would  depend  upon  the  demand  for  it? 

Mr.  Mayo.  To  a  great  extent;  yes,  sir, 

Mr.  WURZBACH.  What  would  you  say  would  be  the  present  value  of  primary 
horsepower  at  this  present  dam ;  I  mean  at  Muscle  Shoals ;  would  it  have  any 
value  at  all? 

Mr.  Mayo.  It  would  not  have  any  value  until  you  had  built  distributing  lines 
to  take  it  to  where  it  could  be  used. 

Mr.  WuBZBACH.  What  demand  is  there  within  200  miles  of  Muscle  Shoals  at 
the  present  time? 

Mr.  Mayo.  As  a  whole,  I  do  not  imagine  there  is  a  demand  for  possibly  over 
one-third  of  it. 

Mr.  WuBZBACH.  What  is  necessary  to  be  done  in  order  to  give  the  horse- 
power any  value — that  is,  the  value  stated  here  at  these  hearings  of  $18  for 
primary  horsepower  and  $6  for  secondary  horsepower? 

Mr.  Mayo.  You  would  have  to  make  a  very  large  investment  in  a  manufac- 
turing plant  there  to  use  all  the  power,  and  then  get  a  sufficient  price  for  your 
product 

Mr.  WUBZBACH.  It  would  depend  upon  a  considerable  investment  in  that 
neighborhood,  would  it  not? 

Mr.  Mayo.  Yes,  sir. 

Mr.  WuBZBACH.  About  what  investment  would  be  necessary,  do  you  think,  to 
utilize  the  full  900,000  horsepower,  which  includes  the  primary  and  the  second- 
ary power? 

Mr.  Mayo.  In  a  manufacturing  plant? 

Mr.  WUBZBACH.  Yes. 

Mr.  Mayo.  I  am  of  the  opinion  it  will  take  in  excess  of  $50,000,000. 

Mr.  WUBZBACH.  In  excess  of  $50,000,000? 

Mr.  Mayo.  Yes,  sir. 

Mr.  WUBZBACH.  And  I  understand  that  that  is  what  Mr.  Ford  proposes  to  do. 

Mr.  Mayo.  That  is  Mr.  Ford's  intention ;  yes,  sir. 

Mr.  WuBZBACH.  To  expend  about  $50,000,000  in  that  neighborhood  for  the 
purpose  of  utilizing  the  water  power  that  is  available  by  these  two  dams. 

Mr.  Mayo.  It  is  his  intention  to  spend  what  is  necessary  to  develop  that  plant 
as  quickly  as  possible  to  use  all  the  power. 

Mr.  WuBZBACH.  At  the  present  time  it  has  merely  a  potential  value  and  has 
no  actual  value. 

Mr.  Mayo.  I  would  say  not  until  it  is  developed. 

Mr.  Fields.  Mr.  Mayo,  I  do  not  know  anything  about  the  production  of 
power  or  its  cost  and  shall  not  attempt  to  question  you  upon  that  point  except 


to  try  to  get  clear  in  my  own  mind  Mr.  Miller's  figures.  He  figures  primary 
horsepower  at  a  value  of  $18  and  secondary  horsepower  at  the  value  of  $6,  I 
believe.  Upon  that  value  he  calculates  the  total  income  to  the  proposed  Ford 
company.  It  seems  to  me,  however,  he  has  overlooked  the  cost  of  the  produc- 
tion of  that  power.  If  this  primary  horsepower  is  worth  $18  per  horsepower 
per  annum,  as  he  figures,  and  it  cost  66f  per  cent  of  that  to  produce  it  for 
overhead  and  operation,  that  amount  reduces  the  total  income  to  the  company 
to  one-third  of  the  $18,  does  it  not,  using  those  figures  as  an  illustration? 

Mr.  Mayo.  Yes.  I  think  Mr.  Miller  was  just  getting  at  the  amount  of  the 
gross  income. 

Mr.  Fields.  But  was  making  no  allowance — and  up  to  this  time  no  allowance 
has  been  mad^— for  the  cost  of  production  of  that  horsepower,  which  might  be 
misleading  to  some  people  not  familiar  with  the  subject 

Mr.  Mayo.  Yes,  sir. 

Mr.  Fields.  Therefore  the  amount  derived  from  the  sale  of  this  power,  which 
he  has  figured  out,  will  not  all  be  clear  profit  to  the  Ford  company  if  it  should 
be  sold  at  that  figure? 

Mr.  Mayo.  Certainly  not;  and  it  would  all  be  dependent  on  our  success  in 
making  it  at  a  cost  which  would  allow  us  to  sell  the  product  at  a  profit. 

Mr.  Fields.  It  seems  to  me  he  was  basing  his  figures,  too,  upon  a  100  per 
cent  load  factor.  Is  it  not  a  fact  that  about  the  average  load  factor  throughout 
the  country  is  about  51  per  cent? 

Mr.  Mayo.  About  that;  yes,  sir.,  That,  according  to  the  record,  is  the  ap- 
proximate load  factor  of  the  Alabama  Power  Co. 

Mr.  Fields.  That  would  decrease  the  value  to  the  company,  or  the  return  to 
the  company,  upon  his  figures  very  materially? 

Mr.  Mayo.  It  would  cut  it  in  two. 

Mr.  Fields.  Is  it  your  plan  to  charge  the  various  industries  to  be  supplied  by 
this  power  with  power  at  actual  cost?  I  believe  you  stated  that  was  Mr.  Ford's 
plan,  generally  speaking. 

Mr.  Mayo.  I  think  that  would  be  the  plan— that  on  all  of  the  power  that  w^ould 
go  into  the  fertilizer  we  could  not  charge  more  than  8  per  cent  profit. 

Mr.  Fields.  I  want  to  refer  now  to  the  fertilizer.  A  good  many  questions  were 
asked  yesterday  as  to  whether  or  not  the  Government  has  any  assurance  that 
Mr.  Ford  would  continue  the  production  of  fertilizer.  The  first  assurance  is 
his  agreement  in  his  contract  to  do  so,  and  the  second  assurance  is  the  agreement 
to  produce  at  least  110,000  tons  of  ammonium  nitrate,  for  which  he  must  find  a 
market. 

Mr.  IMayo.  Yes. 

Mr.  Fields.  Where  could  he  market  that  or  how  could  he  market  it  other 
than  as  a  fertilizer  product? 

Mr.  Mayo.  His  object  is  to  make  a  complete  fertilizer.  The  plant  was  built  to 
make  ammonium  nitrate,  which  is  not  used  usually  as  a  fertilizer  ingredient. 
It  would  have  to  be  changed  over  to  make  ammonium  sulphate,  or  something 
else. 

Mr.  Fields.  In  the  production  of  these  products  he  binds  himself,  and  he  must 
find  a  market  for  them. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Fields.  He  is  not  going  to  produce  that  product  and  throw  it  into  the  river, 
or  do  anything  like  that? 

Mr.  Mayo.  No,  sir. 

Mr.  Fields.  I  believe  there  are  three  elements  which  contain  plant  food  in  the 
composition  of  the  fertilizer. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Fields.  By  producing  nitrate  at  Dam  No.  2,  and  by  getting  the  phosphoric 
acid  from  the  mineral  deposits  within  100  miles  of  the  plant,  you  get  two  of  the 
fertilizer  ingredients  at  the  plant  or  at  a  point  in  close  proximity  to  the  plant. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Fields.  Leaving  only  the  third  ingredient  to  be  acquired  at  other  places? 

Mr.  Mayo.  We  are  working  at  several  processes  which  look  as  though  we 
would  be  able  to  make  some  potash  on  the  ground. 

Mr.  Fields.  So  there  is  the  possibility  that  you  will  be  able  to  get  two  of 
those  ingredients  on  the  ground? 

Mr.  Mayo.  Yes,  sir ;  we  may  be  able  to  produce  all  three  of  them  there. 

Mr.  Fields.  If  you  are  not  able  to  do  that,  potash  is  the  only  ingredient  that 
you  will  have 'to  get  somewhere  else? 

Mr.  Mayo.  Yes,  sir. 


284 


MUSCLE  SHOALS  PROPOSITIONS. 


Mr.  FiKLDH.  I  know  there  are  many  formulae  for  the  making  of  fertilizer,  but 
taking  the  average  standard,  about  what  per  cent  of  that  is  potash? 

Mr.  Mayo.  About  2  i)er  cent. 

Mr.  Fields.  Therefore,  the  great  bulk  of  it  will  be  gotten  at  the  plant,  or  in 
the  phosi)horous  tields  of  that  region? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Fields.  With  this  condition  do  you  have  any  fear  that  Mr.  Ford  may  not 
be  able  to  produce  fertilizer  as  cheaply  as  it  is  produced  by  any  other  concern 
in  the  country? 

Mr.  Mayo.  My  opinion  is  that  it  will  not  cost  more  than  half. 

Mr.  Fields.  So  long  as  he  is  not  producing  it  as  cheaply  as  it  can  be 
produced  by  any  other  tirm  in  the  country  he  can,  of  course,  pro<luce  it  at  a 
profit,  and  could  not  get  away  from  his  contract  to  produce  fertilizer? 

Mr.  Mayo.  Xo,  sir. 

Mr.  Fields.  If  he  produces  it  at  one-half  the  cost  at  which  it  can  be  produced 
by  other  concerns,  that  is  so  much  better  for  the  consumer  of  the  fertilizer,  is 
it  not? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Fields.  In  the  average  fertilizer  compound,  about  what  per  ceot  of  it 
is  plant  fooils  and  what  per  cent  is  filler? 

Mr.  Mayo.  About  12  or  14  per  cent  is  plant  food. 

Mr.  P^iELDs.  Then  in  transporting  this  fertilizer  over  the  country  on  long 
hauls  the  large  per  cent  of  the  transportatioji  charges  are  for  filler? 

Mr.  Mayo.  Yes,  sir ;  86  to  88  per  cent  is  tiller. 

Mr.  Fields.  Have  you  considered  the  possibility  of  constructing  mixing  plants 
at  various  distributing  centers  and  shipping  to  those  mixing  plants  the  plant 
foo4ls  that  go  into  the  fertilizer  and  securing  the  tiller,  the  heavier  part  of  it, 
at  or  near  the  distributing  plants  to  save  the  freight  charges  on  the  long  hauls 
of  that  very  heavy  part  of  the  product? 

Mr.  Mayo.  Our  hope  is  to  make  it  with  little  or  no  filler  at  all  and  deliver 
it  dire<t  to  the  farmer,  lie  to  mix  it  himself  with  his  own  filler. 

Mr.  FiEiJ)s.  That  would  result  in  a  very  material  saving  to  the  farmer,  would 
it  not? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Fields.  If  this  pers<jnal  reference  may  be  pardoned,  I  have  one  character 
of  soil  that  reciuires  only  phosphoric  acid,  and  I  purchased  last  year  fertilizer 
containing  16  i)er  cent  of  phosphoric  acid  and  84  per  cent  of  filler,  which 
apr)eared  to  be  white  sand  or  something  of  that  kind,  for  which  I  paid  $52  a 
ton,  and  I  thought  when  purchasing  that  that  if  there  were  a  workable  plan  by 
the  use  of  which  I  would  only  have  to  pay  the  long  freight  charges  on  the 
16  per  cent  of  phosphoric  acid  and  get  this  sand  in  my  own  country,  of  which 
I  had  plenty  myself,  that  that  would  be  quite  a  big  saving  to  me. 

Mr.  Mayo.  Mr.  Ford  hopes  to  make  a  great  economic  saving  in  that  wa.v. 

Mr.  Fields.  In  the  production  of  the  fertilizer  contemplated  by  Mr.  Ford  is  it 
possible  that  any  by-product  would  come  from  it? 

Mr.  Mayo.  From  the  making  of  the  fertilizer? 

Mr.  FiEiJ)s.  Yes.  sir. 

Mr.  Mayo.  We  hope  so;  yes,  sir. 

Mr.  Fields.  Would  the  value  of  those  by-products  have  any  bearing  upon  the 
cost  of  the  fertilizer? 

Mr.  Mayo.  They  would  surely  be  credited  to  the  fertilizer;  yes,  sir. 

Mr.  FiEiJ)S.  Adding  that  much  more  to  the  cheapening  of  the  product? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Fields.  Mr.  Mayo,  what  agricultural  implements  are  now  manufactured 
by  Mr.  Ford? 

Mr.  Mayo.  Only  the  farm  tractor,  unless  the  automobile  may  be  considered  as 
a  farming  Implement. 

Mr.  Fields.  And  the  truck  is  used  by  the' farmer  very  extensively  now  as 
a  cheaper  means  of  transportation? 
Mr.  Mayo.  Yes. 

Mr.  Fields.  Would  the  cheaper  power,  such  as  you  hope  to  get  at  Muscle 
Shoals,  enter  into  the  cost  of  the  production  of  these  implements,  should  they  be 
manufactured  there,  or  the  parts  of  which  they  are  constructed  be  manufac- 
tured there? 
Mr.  Mayo.  Yes ;  or  the  raw  materials  of  which  the  parts  are  made. 
Mr.  FmuDB.  Would  you  feel  disposed  to  make  any  statement  as'  to  Mr.  Ford's 
intention  or  desire  in  reference  to  meeting  the  needs  of  the  agricultural  Interests 


m\ 


MUSCLE   SHOALS  PROPOSITIONS. 


285 


of  the  country  in  the  production  of  fertilizer  and  the  manufacture  of  farm 
Implements,  including  trucks,  etc.? 

Mr.  Mayo.  Well,  of  course,  it  is  Mr.  Ford's  dream,  in  regard  to  this  fertilizer 
product,  to  make  the  price  of  it  so  low  that  everybody  can  use  it  in  any  quan- 
tity they  wish  to ;  that  the  expense  would  not  prevent  them  from  using  all  they 
should  use.  He  also  hopes  that  ultimately  he  can  make  his  raw  materials  for 
his  automobile  trucks  and  tractors  at  a  lower  price  and  in  that  way  help  reduce 
the  price  of  that  commodity.  It  has  been  his  dream  for  a  long  time  to  make  the 
final  combmed  price  for  the  automobile,  the  truck,  and  the  tractor  at  $1 000 
At  present  the  price  runs  about  $1,200,  so  he  is  at  the  present  time  quite  near 
his  goal. 

Mr.  Fields.  WMth  regard  to  the  tenure  of  the  franchise,  I  believe  the  American 
Aluminum  Co.  has  power  plants  in  the  upper  Tennessee  River,  above  Muscle 
Shoals,  and  that  their  franchise  is  in  perpetuity. 

Mr.  Mayo.  So  I  understand. 

Mr.  Fields.  That  is  my  understanding.  Do  you  know  of  any  good  reason  why 
the  water-power  right  should  be  perpetual  at  the  dams  of  that  company  and 
only  be  for  50  years  at  the  proposed  Ford  Dam? 

Mr.  Mayo.  I  see  no  reason  for  that. 

Mr.  Fields.  Do  you  care  to  express  a  positive  opinion,  Mr.  Mayo,  as  to 
whether  Mr.  Ford  would  consider  the  Muscle  Shoals  proposition  under  a  .50-vear 
franchise? 

Mr.  Mayo.  No,  sir ;  Mr.  Ford  would  not  consider  it. 

Mr.  Hill.  Mr.  Mayo,  this  question  depends  particularly  on  the  duration  of 
this  franchise.  Will  you  please  turn  to  paragraph  17  of  Mr.  Ford's  amended 
offer,  at  the  top  of  page  18?   That  paragraph  reads  as  follows : 

"  In  order  that  said  company  may  be  supplied  with  electric  power  and  the 
farmers  with  fertilizers  after  the  termination  of  the  said  100-year  leases 
should  the  United  States  elect  not  to  operate  said  power  plants  but  determine  to 
lease  or  dispose  of  same,  the  company  shall  have  the  preferred  right  to  negotiate 
with  the  United  States  for  such  lease  or  purchase  and  upon  such  terms  as  may 
then  be  agreed  upon." 

As  I  understand  it,  that  means  at  the  end  of  the  100-year  period' 

Mr.  Mayo.  Yes,  sir. 

Mr.  Hill.  And  it  is  your  opinion  that  Mr.  Ford  w^ould  not  make  this  propo- 
sition except  on  a  100-year  period  basis? 

Mr.  Mayo.  Yes.  sir;  that  is  correct. 

Mr.  Hill.  Paragraph  17  continues: 

"If  the  said  leases  are  not  renewed  or  the  property  covered  thereby  is  not 
sold  to  said  comi)any,  its  successors  or  assigns,  any  operation  or  disposal'  thereof 
shall  not  deprive  the  company,  its  successors  or  assigns,  of  the  right  to  be  sup- 
plied with  electric  power  at  reasonable  rates  and  in  amount  equal  to  its  needs 
but  not  in  excess  of  the  average  amount  used  by  it  annuallv  during  the  pre- 
vious 10  years."  * 

As  I  read  that,  it  looks  to  me  as  if  after  the  100-vear  period,  should  this 
proposition  be  accepted,  there  is  a  perpetual  right  on  the  part  of  the  company 
or  Its  successors  or  assigns  to  be  provided  with  an  amount  of  power  equal  to 
Its  needs,  not  in  excess  of  the  average  amount  used  by  it  annually  during  the 
previous  10  years.  My  construction  is  that  beyond  the  100-year  period  there 
18  an  absolutely  perpetual,  prior  claim  by  this  companv  on  the  United  States 
(government  to  be  furnished  with  that  amount  of  power.  What  is  your  view 
on  that? 

Mr.  Mayo.  The  thought  in  framing  that  paragraph  was  that  we  would  have 
a  very  large  investment  built  up  around  the  dams,  and  it  would  not  be  fair 
to  the  company  to  take  the  power  from  under  their  feet  and  give  it  to  aome 
one  else ;  that  they  should  have  a  preferred  claim,  everything  else  being  equal. 

Mr.  Hill.  Now,  then,  that  paragraph,  according  to  Mr.  Ford's  intention, 
means  that  after  the  100-year  period,  if  it  is  not  arranged  that  his  interests 
or  the  successors  of  his  company  shall  buy  the  property,  he  will  have  a  per- 
petual right  to  get  indefinitely  and  have  a  first  lien  on  the  power  that  is  pro- 
duced there,  not  to  exceed  the  average  amount  used  annually  in  the  previous 
10  years. 

Mr.  Mayo.  He  thought  he  ought  to  have  it,  everything  else  being  equal. 

Mr.  Hill.  That  is  a  very  unusual  arrangement;  it  is  one  I  had  not  noticed 
before.  Here  is  the  proposition  w^hich  he  puts  up,  as  I  understand  it :  It  does 
not  make  any  difference  what  the  ultimate  disposition  is,  his  company  has  a 
Pt'ipetual  first  claim  on  the  plant  after  the  100-year  period;  is  that  not  right? 


M 


286 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


287 


Mr.  Mato."  Yes,  sir. 

Mr.  Hiix.  Do  you  think  it  is  a  proper  thing  for  the  United  States  Govern- 
ment to  tie  itself  up  in  reference  to  this  plant  forever? 

Mr.  Mayo.  I  think  so.  I  do  not  see  that  they  can  lose  anything  by  doing  so. 
They  can  always  exact  of  him  whatever  they  could  get  from  anybody  else. 

Mr.  Hill.  Does  Mr.  Ford  put  very  much  stress  on  this  clause  relating  to 
after  the  100-year  period? 

Mr.  Mayo.  I  think  so.  He  will  have  built  up  a  plant  to  absorb  all  the  power, 
and  if  you  took  the  power  away  from  him  the  plants  would  have  no  value. 

Mr.  Hill.  As  I  understand  this  proposition,  if  at  the  end  of  100  years  Mr. 
Ford^s  company  is  not  allowed  to  purchase  this  plant  they  have  still  in  per- 
petuum  a  prior  lien  on  the  output  of  this  plant  up  to  its  full  capacity,  not  in 
excess  of  the  average  annual  amount  which  he  has  taken  for  the  previous  10 
years. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Hill.  In  other  words,  it  is  indefinite,  forever. 

Mr.  Mayo.  Yes ;  but  the  terms  are  to  be  agreed  upon. 

Mr.  Hill.  This  clause  does  not  say  so. 

Mr.  Mayo.  I  thought  it  did.  It  says  "  upon  such  terms  as  may  then  be  agreed 
upon." 

Mr.  Hill.  No,  it  says 

Mr.  Mayo  (interposing).  The  thought  was  that  he  should  get  the  power  at  the 
going  rate,  which  anybody  else  would  pay  for  it  at  that  time. 

Mr.  Hill.  But  it  gives  him  a  prior  lien. 

Mr.  Mayo.  As  I  read  it,  it  only  gives  him  a  preference,  at  a  rate  to  be  agreed 
upon. 

Mr.  Hill.  My  thought  was  that  Mr.  Ford  did  not  intend  to  tie  the  United 
States  Government  up  forever. 

Mr.  Mayo.  It  was  not  meant  to  tie  them  up.  He  figured  he  had  a  very  large 
investment  there  and  that  he  ought  to  have  a  preference  at  an  equal  rate. 

Mr.  Hill.  Let  me  read  this  clause  to  you :  "  If  the  said  leases  are  not  renewed 
or  the  property  covered  thereby  is  not  sold  to  such  company,  its  successors  or 
assigns,  any  operation  or  disposal  thereof  shall  not  deprive  the  cmpany,  its  suc- 
cessors or  assigns,  of  the  right  to  be  supplied  with  electric  power  at  reasonable 
rates  and  in  amount  equal  to  its  needs,  but  not  in  excess  of  the  average  amount 
used  by  it  annually  during  the  previous  10  years." 

Suppose  in  the  previous  10  years  the  company  used  every  ounce  of  power,  and 
then  suppose  that  the  100-year  lease  terminates,  and  suppose  the  United  States 
wants  to  use  this  plant  for  its  own  purposes.  As  I  read  that  provision  of  the  lease 
the  United  States  is  bound  forever  to  continue  to  give  to  this  company  this  prior 
right  on  that  amount,  so  that  the  United  States  could  not  use  it  for  any  other 
purpose;  is  that  not  your  understanding? 

Mr.  Mayo.  On  the  basis  of  reasonable  terms. 

Mr.  Hill.  I  am  not  talking  about  the  terms ;  I  am  talking  about  the  amount. 
There  is  no  option  as  to  the  amount. 

Mr.  Mayo.  I  understand  exactly  what  you  mean.  That  paragraph  was  put  in 
there  in  fairness  only.  If  we  were  using  100  per  cent  of  the  power  when  the 
100-year  period  lapsed,  although  we  had  used  only  75  per  cent  during  the 
prior  10  years,  we  would  have  the  right  to  ask  for  only  75  per  cent  of  it 

Mr.  Hill.  It  seems  to  me  this  is  rather  important,  and  I  would  like  to  get  it 
dear.  If,  say,  in  the  previous  10  years  of  the  contract,  from  the  ninetieth  to  the 
one  hundredth  year,  this  company  or  its  successors  or  assigns  uses  every  kilo- 
watt of  power,  and  then,  after  that,  if  the  United  States  decides  not  to  sell  to 
them,  then  that  company  or  its  successors  or  assigns  has  a  prior  claim  on  the  out- 
put of  the  plant;  is  that  not  right? 

Mr.  Mayo.  It  says  "  reasonable  rates  "  to  be  made  at  that  time. 

Mr.  Hill.  Subject  to  rates,  but  not  as  to  amount. 

Mr.  Mayo.  It  would  cover  the  whole  amount,  if  we  had  used  the  whole 
amount  the  last  10  years. 

Mr.  Hill.  Is  not  that  then  a  virtual  disposition,  in  perpetuity  of  this  property 
to  that  company? 

Mr.  Mayo.  At  reasonable  rates ;  yes,  sir. 

Mr.  Hnx.  Forever? 

Mr.  Mayo.  At  reasonable  rates. 

Mr.  Hill.  Leave  the  rates  out. 

Mr.  Mayo.  Oh,  but  the  rates  come  in. 

Mr.  Hill.  No;  they  do  not. 


Mr.  Mayo.  I  think  they  do. 

Mr.  Hill.  Does  this  not  contemplate  an  agreement  that  whether  at  the  end  of 
the  100  years  or  not  the  United  States  decides  not  to  sell  to  this  company,  that 
company  under  certain  conditions  shall  be  entitled  to  all  the  output  forever,  irre- 
spective of  anything  except  the  fixing  of  rates?  Is  that  clear?  My  own  tliought 
was  that  this  particular  paragraph  did  not  mean  what  it  appears  to  mean,  be- 
cause that  had  not  been  raised  befbre. 

Mr.  Mayo.  The  intent  is  that  after  the  100-year  period  has  lapsed  the  company 
has  the  right  to  get  the  same  amount  of  power  that  they  have  been  using  the 
last  preceding  10  years,  at  a  reasonable  rate. 

Mr.  Hill.  Forever? 

Mr.  Mayo.  Yes;  subject  to  agreement. 

Mr.  Hill.  I  do  not  see  anything  like  that  here ;  I  see  the  absolute  grant  of  a 
lierpetual  first  lien  on  the  purchase  of  this  company,  and  I  want  to  ask  if  that  is 
the  intention  of  this  offer? 

Mr.  Mayo.  In  the  third  line  of  the  paragraph  it  says  "  the  preferred  right  to 
negotiate." 

Mr.  Hill.  Yes ;  I  see  that.  Paragraph  17  is  made  up  of  two  parts,  and  the  first 
part  takes  up  the  possible  sale  to  this  company. 

Mr.  Mayo.  And  upon  such  terms  as  may  then  be  agreed  upon. 

Mr.  Hill.  That  is  the  sale. 

Mr  Mayo.  It  says  "  for  the  lease  or  purchase." 

Mr.  Hill.  That  ends  with  the  word  "  upon."  I  invite  your  attention  to  the 
following  words :  "  If  the  said  leases  are  not  renewed  or  the  property  covered 
thereby  is  not  sold  to  said  company,  its  successors  or  assigns,  any  operation  or 
disposal  thereof  shall  not  deprive  the  company,  its  successors  or  assigns,  of  the 
right  to  be  supplied  with  electric  power  at  reasonable  rates  and  in  amount  equal 
to  its  needs,  but  not  in  excess  of  the  average  amount  used  by  It  annually  during 
the  previous  10  years." 

The  point  I  have  especially  in  mind  in  connection  with  that  is  this:  Suppose 
at  the  end  of  this  100-year  period  it  has  become  obvious  to  the  people  of  the 
United  States  that  the  United  States  should  own  all  its  great  water  powers  and 
control  them  itself,  and  dispose  of  them  itself,  in  its  own  way,  dispose  of  the 
products  of  them.    That  is  not  an  inconceivable  thing? 

Mr.  Mayo.  No,  sir. 

Mr.  Hill.  As  I  read  the  second  part  of  paragraph  17  there  is  conveyed  there 
an  absolute  right,  the  taking  away  of  which  would  be  a  violation  of  the  guar- 
anties of  the  Constitution,  which  gives  this  company  a  prior  claim  on  the  output 
of  this  particular  project.  I  want  to  ask  if  that  is  the  intention?  It  seems  to 
me  it  is. 

Mr.  Mayo.  The  Government  is  the  owner  of  this  dam  for  the  100  years,  is 
it  not? 

Mr.  Hill.  The  Government  would  be  the  owner  after  the  100  years? 

Mr.  Mayo.  No,  sir ;  they  are  always  the  owner. 

Mr.  Hill.  Oh,  yes;  but  there  is  a  lease  up  to  the  100-year  period? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Hill.  What  I  mean  to  say  is  that  although  this  appears  to  be  only  a 
lease  up  to  100  years,  it  is  practically  a  grant  in  perpetuity,  absolutely, 
without  the  100-year  period? 

Mr.  Mayo.  But  in  that  time,  if  it  should  be  decided  that  the  Government 
should  own  its  water  powers,  it  already  owns  this  one,  and  it  seems  to  me  this 
would  be  subject  to  the  same  rules  and  r^ulations  under  which  they  would 
sell  their  power  from  other  dams. 

Mr.  Hill.  But  you  would  have  a  preferred  claim  on  the  output? 

Mr.  Mayo.  We  think  we  should  have. 

Mr.  Hill.  You  think  that  under  this  contract  this  company  which  Mr.  Ford 
proposes  to  create  should  have  forever  a  preferred  claim  on  all  the  output 
of  this  plant;  is  that  right? 

Mr.  Mayo.  Oh,  yes,  sir;  at  reasonable  terms.  If  the  Government  is  selling 
all  of  its  own  power,  controlling  all  of  its  own  power,  we  should  get  it  at  the 
going  rate. 

Mr.  Hill.  On  reasonable  terms,  as  to  terms,  but  not  as  to  output.  You  would 
acquire  a  perpetual  exclusive  right  to  use  the  output ;  is  that  not  right? 

Mr.  Mayo.  Not  all  the  output,  but  the  average  amount  we  had  used  for  the 
last  10  years.  It  was  taken  for  granted  that  in  that  time  the  thing  would 
become  stabilized,  and  we  would  be  using  a  certain  amount  of  power  and  that 
we  would  have  the  right  to  use  that  power.     There  are  indefinite  grants  of 


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288 


MUSCLE  SHOALS  PKOPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


289 


power  rights,  on  navigable  streams.  The  Mississippi  River  Power  Co.  has 
one  at  Keokuk,  Iowa ;  the  Alabama  Power  Co.  has  one  at  Lock  12  on  the  Coosa 
River.    There  are  a  number  of  others.    The  idea  is  nothing  new. 

Mr.  Hill.  If  you  had  used  all  the  power  you  would  have  the  right  to  all  of 
the  output? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Hill.  In  other  words,  paragraph  17  proposes*  to  the  Government  that  the 
Government  shall  become  a  partner  with  this  company  in  the  creation  of  this 
great  project;  is  that  not  right? 

Mr.  Mayo.  Well,  only  in  so  far  as  a  landlord  would  be  a  partner. 

Mr.  Hill.  Under  the  contract,  what  is  the  maximum  amount  of  money  that 
the  United  States  Government  would  be  called  upon  to  advance  for  the  con- 
struction of  Dams  No.  1  and  No.  2?  As  I  see  it,  the  contract  is  utterly  silent 
on  that.  The  contract,  in  paragraphs  2  and  6,  provides  that  the  company  shall 
complete,  without  profit.  Dams  Nos.  2  and  3  at  actual  cost,  but  the  United 
States  shall  put  that  money  up. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Hill.  The  Secretaryof  War,  on  page  4,  says  this :  "  The  present  estimates 
of  the  Engineer  Department  for  the  completion  of  both  Dam  No.  2  and  Dam  No. 
3  is  $50,000,000.  Engineers  for  Mr.  Ford  have  presented  a  lower  estimate,  but 
Mr.  Ford  has  not  seen  fit  to  guarantee  the  construction  for  this  lower  figure." 

Mr.  Mayo.  Yes,  sir;  that  is  correct. 

Mr.  Hill.  In  your  contract,  as  I  understand  it,  you  do  not  set  any  figure 
as  a  maximum  for  the  amount  to  be  advanced  by  the  United  States;  is  that 
correct? 

Mr.  Mayo.  That  is  correct,  but  he  pays  interest  on  whatever  it  may  cost 

Mr.  Hill.  But  he  pays  interest  at  4  per  cent? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Hill.  It  is  quite  conceivable  that  the  cost  might  be  $50,000,000,  is  it  not? 

Mr.  Mayo.  We  do  not  think  so. 

Mr.  Hill.  The  Army  Engineers  estimate  the  cost  at  $50,000,000. 

Mr.  Mayo.  They  did,  but  they  think  our  estimate  was  also  a  fair  one. 

Mr.  Hill.  You  do  not  guarantee  that  it  will  not  cost  $50,000,000,  do  you? 

Mr.  Mayo.  Neither  do  they. 

Mr.  Hill.  They  are  not  building  it,  but  you  are. 

Mr.  Mayo.  We  hope  to, 

Mr.  Hill.  We  will  assume  for  the  purpose  of  this  inquiry  that  you  are.  As- 
suming for  the  purpose  of  our  discussion  here  that  you  are  building  this  propo- 
sition.   The  Army  Engineers  have  estimated  it  would  cost  $50,000,000. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Hill.  Of  course,  we  are  looking  at  it  from  a  good  many  angles.  Person- 
ally, I  am  much  interested  in  the  fertilizer  end  of  it,  and  I  am  also  interested 
personally,  very  much,  in  the  national  defense  end  of  it.  But  this  is  a  very 
novel  proposition  for  the  United  States  Government.  It  has  never  signed  a 
contract  like  this  in  its  history. 

Mr.  Mayo.  I  do  not  think  any  individual  ever  made  one  either. 

Mr.  Hill.  I  do  not  think  he  did.  Therefore,  for  the  purpose  of  testing  it 
we  are  asking  these  questions.  The  United  States  is  called  upon  to  advance 
a  certain  number  of  millions  of  dollars  for  the  actual  cost  of  No.  2  and  No.  3 
dams. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Hill.  Am  I  right  in  supposing  that  the  contract  does  not  limit  that 
amount;  it  is  the  actual  cost? 

Mr.  Mayo.  That  is  right. 

Mr.  Hill.  If  engineering  difficulties  should  suddenly  develop  the  cost  would 
be  greater,  would  it  not? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Hill.  If  an  earthquake  or  an  extraordinary  flood  should  destroy  those 
dams,  what  would  happen  then?  The  United  States  is  bound  to  keep  on  ad- 
vancing money;  that  is,  the  necessary  amount,  is  it  not? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Hill.  Because  those  are  what  are  known  as  acts  of  God,  and  are  not 
included  in  the  contract. 

Mr.  Mayo.  That  is  correct. 

Mr.  Hill.  Therefore,  the  United  States  is  obliged  to  advance  an  indefinite 
sum  at  4  per  cent? 

Mr.  Mayo.  Yes,  sir. 


Mr.  Hill.  And  the  money  tluit  they  so  ndvnnced  makes  a  project  on  which  the 
proposed  compnny  has  a  prior  perpetual  lien  on  all  the  output;  is  that  not 
rijrht? 

Mr.  Mayo.  Yes,  sir ;  within  the  limitations  stated. 

Mr.  QuiN.  Mr.  Mayo,  every  kind  of  assumption  has  been  indulged  in  since 
this  proposition  has  been  submitted,  except  the  second  coming  of  the  Savior  at 
the  end  of  the  world.  If  Mr.  Ford,  through  this  generous  offer  to  the  people 
of  the  United  States,  can  bring  forth  all  of  these  violent  assumptions  I  have 
jin  idea  that  these  gentlemen  think  he  can  bring  down  the  cost  of  fertilizer  to 
the  farmers  of  the  country. 

Are  you  familiar  with  the  debates  that  occurred  in  this  committee  and  on 
the  floor  of  the  House  and  the  Senate  when  the  proposition  w;is  made  to  es- 
tablish the  dams  and  the  nitrate  plants  at  Muscle  Shoals? 

Mr.  Mayo.  I  am  not  very  familiar  with  them ;  no,  sir. 

Mr.  QuiN.  There  were  two  propositions  set  rorth  at  that  time,  the  primary 
idea  being  that  there  should  be  a  nitrate  plant  there  to  make  powder  for  use 
by  the  United  States  Army  in  time  of  war,  and  that  in  peace  times  fertilizer 
should  be  made  there.    I  was  an  ardent  advocate  of  both  of  those  propositions. 

After  the  war  terminated,  Congress,  after  a  violent  debate,  failed  to  provide 
for  the  completion  of  that  dam.  Now,  the  Ford  proposition  calls  for  the  com- 
pletion of  the  dams  and  the  carrying  out  of  both  purposes  for  which  the  original 
plant  was  started,  does  it  not? 

Mr.  Mayo.  Yes,  sir. 

Mr.  QuiN.  Mr.  Hill  wasted  a  lot  of  time  in  asking  questions  and  endeavoring 
to  read  out  of  Mr.  Ford's  proposition  what  is  plainly  written  in  it.  Listen  to 
what  it  says  on  page  18,  section  17,  of  the  report  of  the  Secretary  of  War.  This 
is  the  language:  "In  order  that  said  company  may  be  supplied  with  electric 
power,  and  the  farmers  with  fertilizers,  after  the  termination  of  the  said  100- 
year  leases,  should  the  United  States  elect  not  to  operate  said  power  plants  but 
determine  to  lease  or  dispose  of  them."  Mr.  Ford  puts  it  in  his  proposition,  does 
he  not? 

Mr.  Mayo.  Yes,  sir. 

Mr.  QuiN.  Then  all  of  that  questioning  was  just  muddying  the  waters  and 
scuttlefishing  around. 

Mr.  Mayo,  one  of  the  chief  elements  in  the  cost  of  fertilizer,  put  up  by  the 
fertilizer  factories,  is  in  the  handling  and  sacking  and  mixing  of  this  dirt  with 
the  real  fertilizer,  the  ammonium  nitrate,  and  the  potash;  is  that  not  true? 

Mr.  Mayo.  Yes. 

Mr.  QuiN.  As  I  understand  it,  Mr.  Ford  proposes,  by  utilizing  the  sagacity  of 
the  men  he  has  around  him,  to  manufacture  all  the  necessary  ingredients  and 
compounds  of  fertilizer  in  their  concentrated  form? 

Mr.  Mayo.  As  far  as  possible ;  yes,  sir. 

Mr.  QuiN.  He  proposes,  as  he  has  done  In  the  past,  to  get  the  best  technical 
ability  anywhere  he  can  in  the  country  or  out  of  the  country  for  that  purpose? 

Mr.  Mayo.  Yes,  sir. 

Mr.  QuiN.  It  is  your  judgment  that  these  compounds  can  be  prepared  and 
distributed  in  their  concentrated  form  directly  to  the  farmers  of  the  United 
States? 

Mr.  Mayo.  Yes,  sir. 

Mr.  QuiN.  And  tJiat  the  farmer,  or  even  the  free  nigger,  who  needs  no  intelli- 
gence, can  gather  the  earth  out  of  his  fence  corners  and  out  of  the  woods,  and 
under  the  plain  directions  that  these  technical  men  will  write  as  to  how  to  mix 
the  four  or  five  parts  of  earth  and  dirt  with  concentrated  fertilizer,  they  can  fix 
their  own  fertilizer? 

Mr.  Mayo.  That  is  the  plan. 

Mr.  QuiN.  In  other  words,  it  is  just  like  the  druggist  mixing  his  medicine 
in  the  bottle  and  writing  on  there  directions  that  it  shall  be  mixed  with  so 
much  water? 

Mr.  Mayo.  Yes,  sir. 

Mr.  QuiN.  The  farmer  goes  to  a  spring  and  gets  his  water  and  puts  three 
tablespoonfuls  of  water  with  one  spoonful  of  the  medicine,  following  the 
directions  of  the  druggist. 

Mr.  Mayo.  Yes,  sir. 

Mr.  QuiN.  Is  it  not  presumable  that  the  farmers  of  the  United  States  can 
follow  the  directions  of  Mr.  Ford's  experts  in  mixing  this  concentrated  ferti- 


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290 


MUSCLE   SHOALS  PROPOSITIONS. 


I 


lizer  with  the  earth  that  they  get  from  their  own  farms,  just  like  they  can 
mix  medicine  by  following  the  directions  they  get  at  the  drug  store? 

Mr.  Mayo.  We  think  so. 

Mr.  Quix.  I  know  it  is  so;  I  have  been  doing  it.  Is  it  not  possible  in  that 
way  to  save  one  of  the  main  factors  that  enters  into  the  cost  of  this  fertilizer 
because  of  the  high  freight  rates  that  the  railroads  are  charging  now? 

Mr.  iNlAYo.  Yes,  sir. 

Mr.  QuiN.  They  have  in  most  of  the  counties  in  the  United  States  where 
they  use  fertilizer  what  they  call  farm-demonstration  agents.  Are  you  familiar 
with  their  work? 

Mr.  Mayo.  Not  very  familiar. 

Mr.  QriN.  Those  farm-demonstration  agents  are  employed  by  the  counties, 
and  they  instruct  the  farmers  and  analyze  the  soil  and  suggest  what  that  soil 
neetls.  Those  same  men — and  the  farmers  are  not  so  ignorant  as  some  gentle- 
men think  they  are — are  intelligent  enough  to  know  how  to  mix  the  fertilizer 
which  those  farm-demonstration  agents  would  show  them  how  to  mix.  They 
could  do  that,  could  they  not? 

Mr.  Mayo.  Certainly. 

Mr.  QuiN.  If  I  remember  correctly,  Brother  Miller,  the  other  day  before  you 
came  here,  suggested  that  there  was  nothing  in  this  contract  by  which  Mr. 
Ford  agreed  to  make  fertilizer.  I  think  it  has  been  demonstrated  that  it  is 
here.  Then  he  suggested  that  Mr.  Ford  was  to  get  8  per  cent  just  for  the 
manufacture  of  the  fertilizer,  and  then  that  some  agent  of  the  trusts  would 
come  along  and  buy  that  and  sell  it  to  the  farmers,  and  rob  the  farmers. 
There  is  no  such  thing  as  that  which  could  be  contemplated  under  the  terms 
of  this  contract,  or  according  to  the  intentions  of  Mr.  Ford,  is  there? 

Mr.  Mayo.  I  certainly  do  not  think  so. 

Mr.  QuiN.  Your  intention  is  that  this  fertilizer  shall  be  distributed,  because 
it  says  in  the  agreement  that  it  shall  be  distributed  by  a  territorial  distribution, 
which  shall  be  directed  by  this  board,  which  is  provided  for. 

Mr.  Mayo.  By  the  farmers'  board. 

Mr.  QuiN.  Directly  to  the  farmers. 

Mr.  Mayo.  It  does  not  definitely  say  so,  but  that  is  the  Intent. 

Mr.  QuiN.  This  board  is  to  be  a  board  of  nine  men,  seven  of  whom  are  named 
by  the  leading  farm  organizations  of  the  United  States,  or  their  successors? 

Mr.  May'o.  Y'es,  sir. 

Mr.  QuiN.  And  their  names  arc-  sent  by  the  President  to  the  Senate  of  the 
United  States  and  confirmed  by  the  Senate.  Then  the  Ford  organization  or 
company  is  to  elect  or  name  two  of  the  members  of  that  board? 

Mr.  Mayo.  Yes,  sir. 

Mr.  QuiN.  That  particular  board  is  to  have  the  right  to  look  over  the  books 
and  see  that  the  cost  and  the  selling  price  does  not  allow  over  8  per  cent  profit  to 
Mr.  Ford.  Then  this  board  is  further  to  see  that  this  fertilizer  is  properly 
distributed  territorially  ? 

Mr.  Mayo.  Yes,  sir. 

Mr.  QuiN.  Then  seven  of  the  nine  members  of  that  board  created  and  estab- 
lished for  that  pui-pose  are  directly  representing  the  dirt  farmers  who  will 
use  the  fertilizers? 

Mr.  Mayo.  Yes,  sir. 

Mr.  QuiN.  Then  there  is  a  direct  connection  between  the  farmers  and  this 
Ford  company? 

Mr.  Mayo.  We  think  so. 

Mr.  QuiN,  We  have  great  respect  for  Mr.  Ford  in  my  country ;  the  farmers 
call  him  Uncle  Henry.  He  gets  us  the  cheapest  cars,  and  cars  that  poor  men 
like  me  can  ride  in  now,  and  I  believe  he  is  going  to  give  us  cheap  fertilizer. 

Mr.  Mayo.  Competition  did  not  force  him  to  the  price  of  his  car;  did  It? 

Mr.  QuiN.  No,  sir;  it  brought  the  rest  of  them  down.  And  he  is  going  to 
bring  the  prices  of  these  fertilizer  men  down. 

Mr.  Mayo.  If  you  give  him  a  chance. 

Mr.  QuiN.  Under  the  plan,  as  I  see  it,  the  Government  building  Dam  No.  2 
and  Dam  No.  3,  and  Mr.  Ford  taking  all  of  that  power  under  his  control,  he 
can  establish  not  only  this  splendid  fertilizer  factory,  but  other  factories  for 
the  benefit  of  the  farmers  and  the  masses  of  the  people  of  this  country? 

Mr.  Mayo.  Yes,  sir. 

Mr.  QuiN.  Does  he  not  contemplate  doing  that  very  thing? 

Mr.  Mayo.  I  think  so. 


MUSCLE  SHOALS  PROPOSITIONS. 


291 


Mr.  Qum.  Instead  of  Mr.  Ford  going  into  competition  with  the,  Alabama 
Power  Co.  or  anybody  else  in  the  sale  of  power,  he  proposes  to  use  this  cheap 
power  for  the  purpose  of  making  the  necessary  things  for  the  masses  of  the 
folks  and  the  farmers  to  use  at  the  cheapest  possible  cost  of  production;  is 
that  not  true? 
Mr.  Mayo.  That  is  his  intention ;  yes,  sir. 

Mr.  QuiN.  Is  it  not  the  idea  of  Mr.  Ford,  after  he  gets  started,  to  go  above 
these  dams  which  the  Government  completes,  and  utilize  the  power  in  the  river 
by  the  construction  of  dams  at  different  places  to  make  more  water  power' 

Mr.  Mayo.  He  has  said  that  it  is  his  intention ;  yes,  sir. 

Mr.  QuiN.  The  possibilities  of  water  power  outside  of  these  two  dams  are 
very  great,  are  they  not? 

Mr.  Mayo.  Yes,  sir. 

Mr.  QuiN.  The  potential,  inert  water  power  is  there  now? 

Mr.  Mayo.  Yes,  sir. 

Mr.  QuiN.  My  friend,  Mr.  Miller,  went  at  length  into  the  details  as  to  how 
many  horsepower  would  be  developed  there  and  what  Mr.  Ford  is  being  paid. 
That  river  has  been  there  ever  since  the  earth  of  the  United  States  has  been 
standing  and  been  washed  by  the  oceans,  has   t  not? 

Mr.  Mayo.  I  expect  so. 

Mr.  QuiN.  Has  anybody  up  to  this  good  hour  ever  built  those  dams  to  utilize 
that  water  power  which  Mr.  Miller  thinks  Mr.  Ford  is  going  to  get  for  nothing' 

Mr.  Mayo.  No,  sir. 

Mr.  Qum.  The  Chief  Engineer  of  the  Unted  States  Army,  Gen.  Beach,  for 
whom  we  have  great  respect,  stated  that  that  is  the  finest  water-power  stream 
in  the  United  States.  He  did  say  that  the  St.  Lawrence  River  might  poss  bly 
have  a  little  more  power,  but  a  part  of  that  is  in  Canada.  Now,  with  the  ambi- 
fon  of  Mr.  Ford,  and  with  the  money  behind  him,  I  do  not  believe  he  wants 
this  proposition  for  the  purpose  of  making  money  out  of  it ;  I  know  he  has  more 
money  than  he  can  ever  spend. 

Mr.  Mayo.  Yes. 

Mr.  QuiN.  Is  it  not  possible  that  instead  of  those  woods  and  the  tall  trees  with 
the  wind  whistling  through  them  there  will  be  there  humming  factory  wheels 
w'th  hundreds  of  thousands  or  even  millions  of  men  employed  in  industries 
which  are  run  for  the  benefit  of  the  masses  of  the  American  people? 

Mr.  Mayo.  We  hope  so. 

Mr.  QuiN.  As  I  understand  it,  the  rich  need  no  help  along  this  line ;  it  is  the 
poor  people  in  the  United  States  that  need  the  help  of  Mr.  Ford  and  men  like 
him  to  develop  enterprises  of  th's  kind. 

Mr.  Mayo.  We  think  so. 

Mr.  QuiN.  His  ultimate  ambition  is  to  lend  his  life  and  his  great  wealth 
and  his  ability  and  the  br^ns  he  can  employ  to  help  the  poor  men  like  me  and 
the  rest  of  us. 

Mr.  Mayo.  Yes,  sir. 

Mr.  QuiN.  Then  if  Mr.  Ford  does  happen  to  get  this  secondary  water  power 
for  $6  a  horsepower  per  year  and  this  primary  water  power  for'$18  per  horse- 
power per  year,  which  the  Government  is  throwing  away  now,  would  it  not  be 
to  the  paramount  nterest  of  the  United  States  to  accept  the  Ford  proposition 
and  let  him  take  it  on  those  terms,  or  even  give  it  to  him? 

Mr.  Mayo.  We  think  so. 

Mr.  QuiN.  With  all  of  the  posibilities  in  view  for  makng  by-products,  is  it 
not  reasonable  to  conclude  that  Mr.  Ford  can  make  the  fertilizer  compound 
almost  as  a  waste,  at  a  very  low  cost,  because  of  the  valuable  products  he  can 
get  in  the  metallic  line? 

Mr.  Mayo.  That  is  one  of  the  poss  bilities ;  yes,  sir. 

IMr.  QuiN.  The  electro  furnace  can  do  much  in  that  regard,  can  it  not? 

Mr.  INIayo.  a  very  great  deal. 

Mr.  QuiN.  Is  it  not  possible  that  through  the  scientific  endeavor  of  the 
brains  he  can  get  in  the  United  States  or  across  the  water,  that  many  valuable 
metals  can  be  gotten  out  of  this  enterprise  and  fertil  zer  will  be  almost  a  mere 
waste,  and  he  can  make  it  so  cheaply  that  he  can  almost  j,'ive  it  to  the  farmers 
of  the  United  States. 

Mr.  Mayo.  That  is  onC  of  the  possibilities. 

Mr.  QuiN.  I  believe  that.  If  Dam  No.  2  is  completed  in  the  time  spec'fied, 
will  Mr.  Ford  be  making  fertilizer  at  that  time? 

Mr.  Mayo.  His  intention  was  to  start  making  it  with-n  a  year. 

Mr.  QuiN.  Maj.  Burns,  of  the  Ordnance  Department  of  the  Army,  stated  the 
other  day  that  one-half  of  the  nitrogen  element  of  the  fertilizer  in  the  United 


292 


MUSCLE   SHOALS  PROPOSITIONS. 


States  can  be  produced  there  out  of  this  110,000  tons  of  ammonium  nitrate  per 
year.     Is  that  correct?    I  believe  you  stated  about  one-fifth,  or  20  per  cent. 

Mr.  Mayo.  I  think  I  am  nearer  correct  than  he,  as  to  percentage  of  total 
nitrogen. 

Mr.  QuiN.  Gen.  Williams  stated  the  other  day  that  although  he  did  not 
doubt  that  could  be  done  in  the  long  run,  he  put  the  total  at  8.000,000  tons.  I 
think  he  was  in  error,  and  I  think  Maj.  Burns  was  more  nearly  correct. 

Mr.  Mayo.  Seven  or  eight  million  tons 

Mr.  QuiN  (interposing).  The  maximum  was  8,000,000  tons;  but  they  never 
have  used  quite  that  much.  But  we  are  going  to  use  a  great  deal  more 
fertilizer  when  we  get  it  cheaper.  You  do  not  know  what  the  exact  figure  is, 
do  you? 

Mr.  Mayo.  I  do  not  know  the  exact  figure  of  total  fertilizer  tonnage  of  all 
kinds. 

Mr.  QuiN.  I  wish  you  would  get  that,  if  you  please,  and  put  it  in  the  record. 

Consumption  of  fertilizers  in  the  United  States,  fiscal  years  ending  1913  to  1920. 
[From  the  American  Fertilizer  Handbook  for  1921,  p.  20.] 


Tons. 

1917 6,  206,  543 

1918 6,  756, 743 

1919 6,  891,  322 

1920 7,  654,  239 


Tons. 

1913 6,  544,  345 

1914 7, 340,  528 

1915 5,  563,  212 

1916 5,  390,  549 

Mr.  Mayo.  I  shall  be  glad  to  do  that  for  you. 

Mr.  QuiN.  Then  my  friend,  Brother  Miller,  stated  at  the  outset  that  this 
plant  could  not  produce  more  than  one-thirtieth  or  one-fortieth  of  all  the 
fertilizer  in  the  United  States.    That  can  not  be  true,  can  it? 

Mr.  Mayo.  I  think  he  is  mistaken  in  the  way  he  figures  it. 

Mr.  QuiN.  And  that  the  output  at  this  plant  would  not  materially  affect  the 
price? 

Mr.  Mayo.  We  think  it  will  have  a  great  bearing  on  the  price. 

Mr.  QuiN.  Undoubtedly  it  will.  If  these  fertilizer  people  did  not  think  so 
they  would  not  be  objecting  to  this  proposition,  would  they? 

Mr.  Mayo.  No  ;  I  do  not  believe  they  would. 

Mr.  QuiN.  They  have  never  objected  to  me  going  into  any  business  I  wanted 
to  because  they  know  I  could  not  hurt  them.  The  real  fight  here  has  been 
around  this  Alabama  Power  Co.  plant,  the  company  claiming  to  have  a  certain 
contract  with  the  Government.    Have  you  a  copy  of  that  contract  with  you? 

Mr.  Mayo.  No,  sir ;  I  have  not. 

Mr.  QuiN.  They  claim  that  this  Warrior  plant,  which  is  88  miles  away  from 
the  nitrate  plant  No.  2,  is  theirs.  Is  it  really  necessary  for  Mr.  Ford  to  have 
that  Warrior  plant  and  the  transmission  line  that  is  involved  in  that? 

Mr.  Mayo.  It  is  the  cheapest  source  of  steam  power  he  could  get.  It  is 
much  cheaper  than  the  steam  plant  at  No.  2  nitrate  plant,  due  to  the  fact  that 
you  do  not  have  to  transport  your  coal  there. 

Mr.  QiHN.  The  coal  is  already  close  at  hand? 

Mr.  Mayo.  The  coal  is  near  the  power  house  at  Gorgas. 

Mr.  QuiN.  That  territory  in  Alabama  adjacent  to  and  within  reasonable 
transportation  distance  from  the  Muscle  Shoals  dam  has  iron,  coke,  coal,  lime- 
stone, and  phosphorus,  has  it  not? 

Mr.  Mayo.  It  has  all  but  the  coke. 

Mr.  QuiN.  They  have  not  any  coke  down  there? 

Mr.  Mayo.  No,  sir. 

Mr.  QuiN.  Mr.  Ford  can  make  the  coke,  can  he  not? 

Mr.  Mayo.  I  think  so. 

Mr.  QuiN.  If  he  can  make  anything  else,  he  can  make  the  coke.  Then  they 
have  everything  in  that  territory  that  is  necessary  to  successfully  operate  a 
fertilizer  factory? 

Mr.  Mayo.  Practically  so;  yes,  sir. 

Mr.  QuiN.  How  much  nitrogen  is  there  over  every  square  yard  of  ground? 

Mr.  Mayo.  About  7  tons.  « 

Mr.  QuiN.  Some  of  these  folks  must  have  a  fear  that  taking  nitrogen  out  of 
fhe  air  is  going  to  hurt  the  health  of  the  people.  There  is  no  danger  in  that, 
is  there? 

Mr.  Mayo.  No,  sir. 

Mr.  QuiN.  Mr.  Crowther  suggested  the  other  day  that  all  of  us  farmers  seem 
to  believe  we  are  going  to  have  big  funnels  through  which  we  will  bring  the 


MUSCLE   SHOALS  PROPOSITIONS. 


293 


nitrogen  out  of  the  air.  Then  he  seemed  to  think  that  we  thought  we  would 
get  it  out  of  the  air  and  have  it  come  down  through  the  funnel,  and  get  it  in 
that  way.  But  it  has  not  hurt  the  air  so  far,  has  it,  to  take  the  nitrogen  out  of 
the  air?  It  has  not  affected  the  health  of  the  people,  and  it  has  had  no  deleteri- 
ous effect  on  the  agricultural  plants  of  the  farmers  in  that  territorv  has  if? 
Mr.  Mayo.  No,  sir. 

Mr.  QuiN.  That  is  one  of  the  things  I  have  been  expecting  them  to  jump  at. 
Mr.  Mayo,  did  you  notice  the  vote  of  Congress  by  which  it  was  decided  not  to 
complete  this  dam  at  the  time  we  failed  to  provide  for  its  completion,  after  the 
war  was  over? 

Mr.  MAYa  No;  I  did  not. 

Mr.  QuiN.  Some  able  gentleman  stated  that  the  reason  the  Government  could 
not  complete  this  project  was  because  it  cost  them  too  much  money  down  there, 
with  the  use  of  this  fine  water  power,  to  make  this  nitrogen.  Some  of  them  ob- 
jected to  this,  and  the  Secretary  of  War  said  that  if  Mr.  Ford  could  make  this 
fertilizer  cheap  enough,  and  they  could  get  a  50-year  lease,  he  would  not  oppose 
it.  That  is  the  substance  of  what  he  said.  You  believe  that  through  the 
processes  that  would  be  put  into  operation  Mr.  Ford  can  make  this  fertilizer 
cheap  enough,  do  you  not? 

Mr.  Mayo.  I  am  sure  of  it. 

Mr.  QxHN.  And  not  only  would  make  that  plant  a  success,  but  would  force 
down  the  price  of  the  fertilizer  throughout  the  United  States? 

Mr.  Mayo.  We  hope  so. 

Mr.  QuiN.  Competition  will  always  do  that? 

Mr.  Mayo.  Yes,  sir. 

Mr.  QuiN.  Some  gentleman  suggested  that  these  foreign  imports  might  get 
the  price  of  fertilizer  so  low  that  Mr.  Ford  could  not  afford  to  operate  down 
there.    They  never  have  done  that ;  there  is  no  danger  of  that,  is  there? 

Mr.  Mayo.  We  do  not  think  so. 

Mr.  QuiN.  If  it  did  it,  would  it  not  be  a  great  boon  and  blessing  to  the  farmers 
of  the  United  States  if  they  could  get  the  foreigners  to  put  it  in  here  cheaper 
even  than  Mr.  Ford  is  going  to  make  it? 

Mr.  Mayo.  Yes,  sir. 

(Thereupon,  a  recess  was  taken  until  2  o'clock  p.  m.) 

AFTER  BECESS. 

The  committee  met  pursuant  to  recess  at  2  o'clock  p.  m. 

STATEMENT  OF  MR.   WILMAM  B.   MAYO— Resumed. 

The  Chairman.  Mr.  Mayo,  when  we  took  a  recess  Mr.  Quin  w^as  proceeding 
with  his  questioning  of  you.    He  will  now  continue. 

Mr.  Quin.  Mr.  Mayo,  then  there  is  no  doubt  but  what  the  cost  of  fertilizer 
to  the  ultimate  consumer  will  be  greatly  decreased  in  price? 

Mr.  Mayo.  No  doubt  in  my  opinion,  sir. 

Mr.  Quin.  After  the  completion  of  Dam  No.  2  and  Dam  No.  3  there  will  be 
a  natural  increase  in  the  navigation  of  the  streams,  will  there  not? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Quin.  Then,  if  Mr.  Ford  puts  in  other  dams,  that  would  still  increase 
the  navigation  of  those  streams? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Quin.  And  that  would  make  an  outlet  from  the  remotest  part  that  would 
be  navigable  into  the  Ohio  River,  would  it  not? 

Mr.  Mayo.  I  think  so. 

Mr.  Quin.  Steamboats  and  barges  could  carry  the  product  from  Muscle 
Shoals  into  the  Ohio  River,  thence  into  the  Mississippi,  clear  to  the  Gulf  of 
Mexico,  and  then  up  above  as  far  as  navigation  would  permit? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Quin.  It  would  increase,  then,  the  amount  of  navigation  sufficiently  to 
justify  the  Government,  from  the  standpoint  of  navigation  alone,  in  complet- 
ing those  dams,  would  it  not? 

Mr.  Mayo.  I  think  so,  but  I  do  not  want  to  go  into  tonnage  figures. 

Mr.  Quin.  Gen.  Beach,  the  Chief  of  Engineers  of  the  War  Department,  tes- 
tified it  would  cost  eight  or  ten  million  dollars  to  clean  out  the  Muscle  Shoals 
stretch,  not  considering  the  dams. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Quin.  Then,  the  construction  of  these  dams  will  add  about  850,000  horse- 
power, both  primary  and  secondary  combined,  would  it  not? 

Mr.  Mayo.  Yes. 


294 


MUSCLE  SHOALS  PROPOSITIONS. 


Mr. 
Mr. 
Mr. 
Mr. 


Mr.  QuiN.  And  the  other  dams  contemplated  by  Mr.  Ford,  if  he  succeeds  in 
this  industry,  will  create  a  large  amount  of  horsepower  at  those  points,  will 
they  not? 

Mr.  Mayo.  Yes,  gir. 

Mr.  QuiN.  It  is  fair  to  assume  that  with  the  cheap  water  power  at  thosei 
points  the  cost  of  manufacture  of  farm  implements  could  be  greatly  reduced, 
could  it  not? 

Mr.  Mayo.  I  would  say  so. 

Mr.  QuiN.  All  kinds  of  plows,  harrows,  binders,  reai)er9,  mowers,  and  every- 
thing, in  fact,  that  it  takes  to  till  the  soil? 

Mr.  Mayo.  Yes,  sir. 

Mr.  QuiN.  Then,  that  point  could  be  made,  and  no  doubt  will  be  made,  under 
Mr.  Ford's  direction  the  great  creative  point  for  the  fertilizer  for  the  soil  and 
for  the  implements  to  cultivate  the  soil  with. 

Mr.   Mayo.  We   hope   so. 

QuiN.  He  has.  already  created  for  the  fanner  the  tractor,  has  he  not? 
Mayo.  Yes,  sir. 

QiTiN.  At  a  very  moderate  cost  to  the  farmer. 

Greene.  Mr.  Quin,  will  you  pardon  me  for  asking  you  a  question?  Do 
you  mean  to  say  he  is  going  to  manufacture  all  these  farming  implements  down 
there;  is  that  your  idea? 

Mr.  Quin.  I  think  that  he  is  going  to  follow  in  the  course  of  time  when  he 
gets  it;  either  Mr.  Ford  or  somebody  else. 

Mr.  Greene.  I  was  somewhat  late  and  I  just  wanted  to  know  whether  that 
was  the  line  along  which  you  are  questioning  the  witness. 

Mr.  Quin.  Yes.  There  will  be  these  incidental  factories  in  connection  with 
this  horsepower  that  the  Government  has  down  there  now. 

The  Chairman.  The  witness  testified  yesterday  that  he  was  going  to  take 
plant  No.  1  and  use  it  in  conjunction  with  the  manufacture  of  automobiles. 

Mr.  Quin.  Well,  that  is  a  good  thing.  We  have  the  five-passenger  Ford  tour- 
ing car  now  selling  f.  o.  b.  factory  at  $345,  have  we  not? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Quin.  Would  not  the  farmer  be  able  to  take  that  automobile  and  put  a 
trailer  on  it  and  haul  this  fertilizer  out  to  his  farm  at  a  small  cost? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Quin.  And  he  could  haul  the  products  of  his  farm  back  to  the  local  ship- 
ping point  at  a  small  cost? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Quin.  Then  if  he  gets  his  farm  implements  at  a  cost  in  proportion  to  the 
cost  of  the  Ford  touring  car  and  the  Ford  tractor,  it  will  mean  the  saving  of 
many  millions  of  dollars  a  year  to  the  farmers  of  the  United  States,  will  it  not? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Quin.  Mr.  Miller  in  discussing  the  unit  value  of  this  horsepower  over- 
looked the  point  of  navigation  that  the  Government  gets  out  of  it ;  he  further 
overlooked  the  saving  to  the  people  of  the  United  States  in  fertilizer  alone ;  he 
further  overlooked  the  contemplated  features  that  may  come  to  the  farmers 
and  other  masses  of  the  American  people.  If  8,000,000  tons  of  fertilizer  are 
used  a  year,  and  its  cost  to  the  farmer  is  reduced  about  one-half  of  the  cost  at 
which  they  are  getting  it  now,  will  not  that  be  equal  to  all  this  supposed  horse- 
power that  Mr.  Miller  is  valuing  against  this  proposition? 

Mr.  Mayo.  I  do  not  know  how  it  would  balance  up,  but  it  would  surely  make 
a  great  saving. 

Mr.  Quin.  This  Warrior  plant  that  was  constructeil  by  the  Alabama  Power 
Co.  is  what  type  of  industry?    What  is  it,  just  a  power  plant  of  steam  or  water? 

Mr.  Mayo.  Steam. 

Quin.  A  steam  power  plant? 
Mayo.  Yes,  sir. 

Quin.  Under  their  contract  with  the  Government  they  were  to  charge  6* 
mills  per  kilowatt,  I  believe. 

Mr.  Mayo.  I  think  it  is  6i. 

Mr.  Quin.  The  Alabama  Power  Co.  is  owned  by  the  Alubania  Traction,  Light 
&  Power  Co.  ( Ltd. ) ,  of  the  Dominion  of  Canada ;  in  other  words,  controlled 
by  an  alien  corporation,  citizens  of  Great  Britain. 

The  Chairman.  Did  the  witness  answer  that? 

Mr.  Mayo.  No,  sir ;  I  did  not  answer  it.    I  do  not  know. 

Mr.  Quin.  That  is  a  matter  of  record.  Congress  knows  that  and  it  is  re- 
ported in  the  reports  that  the  War  Expenditures  Committee  made  upon  in- 
vestigating that  question. 


Mr. 
Mr. 
Mr. 


MUSCLE  SHOALS  PROPOSITIONS. 


295 


Mr.  Crowthek.  Can  we  not  have  that  printed?  Do  you  know  where  that 
appears? 

Mr.  Quin.  I  am  putting  it  in  the  record  now.  I  would  be  glad  to  put  in 
the  report  of  Mr.  Graham  and  his  examination,  and  Mr.  Garrett's  examination, 
if  you  want  it. 

This  Alabama  Power  Co.,  owned  and  controlled  by 'the  citizens  of  Great 
Britain  and  that  being  an  alien  corporation  that  directly  controls  the  Alabama 
Power  Co.,  under  the  purp<n"ted  contract  I  asked  you  about  before  noon,  would 
have  control  of  this  innnense  water  power  and  also  the  Government's  nitnitt 
plant  No.  2  at  Muscle  Shoals,  would  it  not? 

Mr.  Mayo.  I  do  not  quite  follow  you.     You  mean  if  they  kept  their  plant? 

Mr.  Quin.  Yes;  if  the  Government  was  forced  to  keep  this  alleged  contract 
with  that  corporation. 

Mr.  Mayo.  No ;  as  I  look  at  it,  they  would  simply  have  a  source  of  power  to 
the  extent  of  30,000  kilowatts. 

Mr.  Quin.  Mr.  Ford's  proposition  proposes  to  keep  and  will  keep  the  nitrate 
plant  for  the  purpose  of  making  nitrates  for  the  Government  in  time  of  emer- 
gency or  in  time  of  war,  ready  at  all  times. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Quin.  The  maximum  capacity  of  that  plant  now  is  110,000  tons  i)er 
annum. 

Mr.  Mayo.  Yes,  sir ;  of  ammonium  nitrate. 

Mr.  QiHN.  Mr.  Ford's  proposition  includes  the  transmission  line  and  the 
Warrior  plant? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Quin.  Then  he  expects  the  United  States  Government  to  nullify  that  ex- 
isting, alleged  contract,  and  proceed  by  condemnation  proceedings  or  otherwise 
to  give  title  to  Mr.  Ford? 

Mr.  Mayo.  He  simply  asks  the  title  of  it. 

Mr.  Quin.  Some  gentlemen  seem  to  think  that  would  be  a  very  hard  thing 
to  do,  but  I  do  not. 

Mr.  Mayo.  We  do  not  think  so. 

Mr.  Quin.  I  believe  the  circumstances  surrounding  the  contract  made  with 
this  corporation,  controlled  and  directed  by  a  corporation  of  the  Dominion  of 
Canada  would  not  be  held  by  any  respectable  court  in  this  country  to  be  bind- 
ing on  the  United  States.  The  fact  of  it  is  that  when  I  think  of  the  terms 
and  conditions  and  the  circumstances  under  which  they  were  imposed  on  this 
Government,  a  bad  polecatty  odor  passes  by  my  nostrils. 

Mr.  Mayo,  how  far,  if  you  have  estimated  it,  would  navigation  be  increased 
by  the  proposed  dams? 

Mr.  Mayo.  About  90  miles. 

The  Chairman.  That  is  the  evidence  before  the  committee,  about  90  miles. 

Mr.  Fisher.  Is  it  your  judgment  that  the  operation  of  nitrate  plant  No.  2 
by  Mr.  Ford  under  the  terms  of  the  contract  would  bring  about  a  material 
reduction  in  the  cost  of  fertilizer  to  the  farmers  of  this  country. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Fisher.  Just  what  is  the  exact  figure,  as  estimated,  if  you  have  it  before 
you,  as  to  the  value  to  the  Federal  Government  of  a  plant,  just  as  nitrate  plant 
No.  2  would  be,  when  operat(^d  according  to  secti<m  16  of  the  contract ;  ctmhl 
.you   give   some   estimate   of   what   the   value   would   be   to   the   Government? 

Mr.  Mayo.  Mr.  Williams's  report  states  the  amount  as  $11,000,000,  which 
appears  reasonable. 

Mr.  FisHKR.  Have  you  made  the  in^  estigations  relative  to  the  manufacture  of 
ft  rt  lizer  recently,  within  the  last  three  or  four  months? 

Mr.  ]Mayo.  We  are  making  investigations  right  along  and  have  been  ever  since 
we  made  the  first  offer  seven  months  ago. 

Mr.  Wright.  Mr.  Mayo,  first  of  all,  I  want  to  ask  you  some  questions  with 
reference  to  the  figures  suggested  by  Mr.  Miller.  I  will  get  you  to  first  explain  to 
the  committee  the  difference  between  primary  and  secondary  horsepower. 

Mr.  Mayo.  Primary  horsepower  is  that  amount  of  power  which  you  can  get 
3Go  days  in  the  yeai*. 

Mr.  Wright.  Right  in  that  connection,  is  not  that  the  real  power  that  any 
water-power  company  figures  on? 

Mr.  Mayo.  Tliat  is  the  power  that  all  water  powers  are  based  upon. 

Mr.  Wright.  That  is  the  substantial,  normal,  continuous  power  which  they 
get  the  year  around? 

Mr.  IMayo.  Yes,  sir. 


296 


MUSCLE  SHOALS  PROPOSITIONS. 


Mr.  Wright.  And  it  is  the  only  kind  that  most  manufacturers  or  industrial 
companies  would  want  to  buy,  because  they  want  it  every  day  in  the  year  except 
Sunday? 

Mr.  Mayo.  They  must  have  it  regularly. 

Mr.  Wright.  What  is  secondary  power? 

Mr.  Mayo.  Secondary  power  is  that  power  which  is  in  excess  of  the  primary 
power,  which  goes  and  comes  due  to  the  flow  of  the  river ;  that  is,  which  changes 
with  the  change  in  the  flow. 

Mr.  Wright.  Mr.  Miller  asked  you  about  the  maximum  secondary  power,  did 
he  not? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Wright.  That  these  plants  were  capable  of  producing? 

Mr.  Mayo.  Yes,  sir. 

Mr.  W^RiGHT.  Do  you  understand  that  that  means  that  365  days  in  the  year 
there  will  be  that  much  secondary  horsepower  available? 

Mr.  Mayo.  It  may  only  be  30  days. 

Mr.  Wright.  It  may  be  only  30  days  in  the  entire  year? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Wright.  So  that  it  is  extremely  difficult  to  dispose  of  that  secondary 
power,  is  it  not? 

Mr.  Mayo.  Practically  impossible. 

Mr.  Wright.  He  estimated  that  would  be  worth  $6  a  horsepower? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Wright.  His  figures  contemplated  it  would  bring  that  the  year  around? 

Mr.  Mayo.  Yes,  sir;  I  so  understood  it. 

Mr.  Wright,  As  a  matter  of  fact,  the  secondary  horsepower  would  be  figured 
liberally  if  you  estimated  it  at  one-third  of  the  price  of  the  primary  power, 
would  it  not? 

Mr.  Mayo.  I  would  say  so. 

Mr.  Wright.  And  then,  would  it  not  be  sound,  conservative  business  judgment 
to  again  divide  that  by  three  as  what  you  might  ultimately  get  out  of  the 
secondary  power? 

Mr.  Mayo.  That  is  my  opinion. 

Mr.  Wright.  So  that  it  all  depends  on  the  figures  presented  as  to  what  the 
ultimate  result  is. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Wright.  In  other  words,  you  have  heard  of  the  man  who  figured  on  a 
little  sawmill.  He  figured  that  he  could  produce  10,000  square  feet  of  lumber  a 
day,  which  would  bring  him  on  the  market  $1,000,  and  that  he  could  buy  that 
timber  standing  for  $50,  and  he  figured  he  would  have  a  net  profit  of  $950, 
failing  to  take  into  account  the  overhead,  the  expense  of  logging  to  the  mill,  the 
expense  of  maintenance,  and  the  expense  of  labor. 

Mr.  Mayo.  And  whether  he  could  get  it  all  to  the  mill  or  not,  and  then  sell  it. 

Mr.  Wright.  Yes.  Mr.  Miller  further  figures  against  the  interest  charges 
that  the  Government  would  receive  from  Mr.  li'ord  or  his  company  and  the 
amounts  for  maintenance  of  the  dams,  etc.,  this  approximated  value  that  Mr. 
Ford  would  get  for  the  primary  and  secondary  power,  does  he  not? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Wright.  Without  taking  into  account  what  it  would  cost  to  produce  that 
power? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Wright.  Or  whether  there  would  be  a  market  for  it  or  not.  There  are 
various  contingencies  attending  any  enterprise,  are  there  not,  Mr.  Mayo? 

Mr.  Mayo.  We  have  found  it  so. 

Mr.  Wright.  You  know  how  that  gentleman  came  out  who  made  the  calcula- 
tion on  the  sawmill.  He  said  that  he  broke  so  badly  that  he  could  not  have  pai(T 
his  debts  if  he  had  had  the  money. 

Now,  Mr.  Mayo,  would  you  object  to  giving  to  the  committee  your  view  of 
the  advantages  of  a  100-year  lease  rather  than  a  50-year  lease,  and  why  a  long 
lease  would  be  necessary  at  this  particular  plant? 

Mr.  Mayo.  Well,  on  account  of  the  size  of  the  project  and  the  immense  amount 
of  capital  necessary  to  develop  it  to  such  an  extent  that  we  can  use  all  the 
power,  Mr.  Ford  felt  that  in  50  years  he  would  perhaps  only  have  made  a  good 
start. 

Mr.  Wright.  First  of  all,  you  would  have  to  take  into  account  the  time  that 
would  be  required  to  equip  these  plants,  complete  the  dams,  and  install  the  power 
houses  and  the  apparatus? 

Mr.  Mayo.  Yes,  sir. 


MUSCLE   SHOALS  PROPOSITIONS. 


297 


Mr.  Wright.  What  would  be  the  next  element  of  delay  in  using  the  power — 
would  you  not  have  to  develop  industries? 

Mr.  Mayo.  We  would  have  to  develop  industries  to  consume  it ;  yes,  sir. 

Mr.  Wright.  And  you  figured  15  to  20  years  would  be  required  in  doing  that? 

Mr.  Mayo.  Probably. 

Mr.  Wright.  Are  there  any  other  elements  that  would  argue  in  favor  of  a  long 
lease,  from  Mr.  Ford's  standpoint? 

Mr.  Mayo.  It  would  give  him  a  good  chance  to  make  part  of  the  secondary 
power  primary. 

Mr.  WftiGHT.  In  other  words,  if  he  had  some  industry  right  there  on  the  ground 
that  might  stand  idle  part  of  the  time  and  be  run  part  of  the  time  with  some 
profit,  he  could  utilize  at  least  some  of  this  secondary  power. 

Mr.  Mayo.  Yes ;  and  it  would  give  him  time  to  develop  other  dams  up  the  river 
and  increase  the  primary  or  secondary  power. 

Mr.  Wright.  That  would  inevitably  result  in  an  increase  in  primary  power — 
the  construction  of  other  dams  above  there? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Wright.  Tell  the  committee  why  that  would  be  true? 

Mr.  Mayo.  It  increases  the  pondage  and  storage  capacity  available  for  regu- 
lating the  flow  of  the  river. 

Mr.  Wright.  The  storage  of  the  water? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Wright.  And  instead  of  its  going  to  waste,  it  is  stored  or  impounded. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Wright.  Speaking  about  interest,  if  it  is  true  that  the  Government  has 
already  expended  on  these  projects,  in  round  numbers  $105,000,000,  is  not  that 
amount  lying  there  idle  today,  except  for  the  small  amount  the  Government  may 
be  receiving  from  the  Alabama  Power  Co.  for  some  of  this  power? 

Mr.  Mayo.  That  is  as  I  understand  it ;  yes,  sir. 

Mr.  Wright.  What  would  be  the  annual  interest  at  4  per  cent  on  $105,000,000? 
Of  course  that  is  a  matter  of  calculation,  and  it  would  be  $4,200,000,  would  it  not? 

Mr.  May'o.  Yes,  sir. 

Mr.  Wright.  Is  not  the  Government  losing  that? 

Mr.  Mayo.  It  strikes  me  so. 

Mr.  Wright.  In  addition  to  that,  is  there  not  necessarily  a  heavy  charge  in 
maintaining  or  watching  this  property  and  keeping  guard  over  it? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Wright.  That  would  amount  to  several  hundred  thousand  dollars  a  year, 

Mr.  Mayo.  Around  $750,000  a  year. 

Mr.  Wright.  Then  in  addition  to  that,  Mr.  Mayo,  is  it  not  true  that  any  plant, 
especially  this  nitrate  plant  No.  2,  which  is  kept  in  a  standby  or  idle  condition, 
will  deteriorate  very  rapidly. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Wright.  And  finally  rust  out? 

Mr.  Mayo.  The  Ordnance  Department  has  figured  it  on  a  5  per  cent  annual 
depreciation  basis. 

Mr.  Wright.  So  that  all  of  those  elements  would  enter  into  the  amount  the 
Government  is  now  losing. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Wright.  Mr.  Mayo,  on  yesterday  this  clause  in  the  proposal  of  Mr.  Ford 
was  touched  upon.  It  is  the  clause  which  obligates  Mr.  Ford  to  maintain  and 
operate  nitrate  plant  No.  2  during  the  life  of  this  proposed  contract. 

Mr.   Mayo.  Yes,   sir. 

Mr.  Wright.  Can  you  turn  to  that  section — section  14,  is  it  not? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Wright.  I  want  to  call  your  attention  to  the  language  employed  there : 

"  The  company  agrees  to  operate  nitrate  plant  No.  2  at  the  approximate 
present  annual  capacity  of  its  machinery  and  equipment  in  the  production  of 
nitrogen  and  other  fertilizer  compounds  (said  capacity  being  equal  to  approxi- 
mately 110,000  tons  of  ammonium  nitrate  per  annum)  throughout  the  lease 
period,  except  as  it  may  be  prevented  by  strikes,  accidents,  fires,  or  other  causes 
beyond  its  control,"  etc. 

Now,  do  you  not  understand  from  that  provision  that  Mr.  Ford  would  be 
bound  during  the  entire  100-year  period  to  produce  something  which  was 
equivalent  to  110,000  tons  of  ammonium  nitrate  per  annum. 

Mr.  Mayo.  I  do. 

Mr.  Wright.  Something  which  would  contain  that  much  fertilizer  properties? 

Mr.  Mayo.  Yes,  sir. 


298 


MUSCLE  SHOALS  PROPOSITIONS. 


Mr.  Wright.  At  this  nitrate  plant  No.  2? 

Mr.  Mayo.  That  is  the  intent. 

Mr.  Wright.  Although  the  form  of  producing  might  dumge  or  the  method 
might  change? 

Mr.  :Mayo.  We  expect  it  would. 

Mr.  WKKiHT.  He  would  be  bound  to  employ  S(»mething  there  that  would 
produce  the  equivalent  of  this  110,000  tons. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Wright.  You  were  asked,  if  that  could  not  be  done  at  a  profit,  whether 
Mr.  Ford  would  be  bound  to  continue  under  the  provisions  of  section  14  to 
manufacture  this  ingredient. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Wright.  Do  you  understand  that  would  have  anything  to  do  with  his 
obligation  to  comply  with  this  provision,  even  if  he  did  have  to  sustain  a  little 

10.SS? 

Mr.  Mayo.  I  think  if  he  were  forced  to  make  it  at  a  serious  loss  that  prob- 
ably the  Government  would  not  require  him  to  do  it;  no. 

Mr.  Wright.  Or  he  would  adopt  some  other  method. 

Mr.  Mayo.  I  expect  that  after  he  had  tried  every  other  method,  if  he 
still  continued  to  manufacture  at  a  loss  and  there  was  no  chance,  or  it  would 
seem  to  be  beyond  human  possibility,  then  he  would  be  relieved  of  th&t  duty. 

]Mr.  Wright.  Do  you  contemplate  any  such  situation  arising? 

Mr.  Mayo.  Certainly  not. 

Mr.  Wright.  Now,  I  want  to  ask  you  about  the  provision  here  in  section  17 
of  the  contract,  about  which  Mr.  Hill  asked  you.  Does  not  that  simply  mean 
that  at  the  expiration  of  the  100-year  lease,  if  the  Government  does  not  actually 
desire  to  own  and  operate  this  plant,  but  desires  to  sell  it  or  lease  it,  that  the 
Ford  company  will  be  given  the  option  or  the  privilege,  first,  to  negotiate  with 
the  Government  to  secure  as  nmch  power  as  it  may  need. 

Mr.  Mayo.  That  is  the  way  I  take  it. 

Mr.  Wright.  And  the  very  words  of  that  provision  indicate  that  the  terms 
will  have  to  be  agreed  upon. 

iMr.  Mayo.  I'^es,  sir. 

Mr.  Wright.  Not  only  the  price  but  the  length  of  time  the  company  might 
be  permitted  to  use  the  power. 

Mr.  Mayo.  I  would  say  so;  yes,  sir. 

Mr.  Wright.  So  that  is  simply  an  open  question,  the  only  thing  being  that 
Mr.  Ford  would  have  the  preference,  all  other  things  being  equal? 

Mr.  Mayo.  Yes,  sir. 

^Ir.  Wright.  You  were  asked  by  Mr.  Parker  about  the  right  of  Mr.  Ford 
to  mortgage  or  alienate  or  encumber  these  properties  to  which  he  is  to  receive 
title.  Of  course,  we  understand  he  does  not  get  title  to  Dam  No.  2  and  Dam 
No.  3? 

Mr.  Mayo.  No. 

Mr.  Wright.  But  the  Government  is  to  convey  to  him  all  the  other  prop- 
erties? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Wright.  But  it  is  conveyed  in  accordance  with  the  terms  of  th!s  pro- 
posal? 

^Ir.  Mayo.  That  is  my  understanding. 

Mr.  Wright.  This  being  a  matter  of  public  record  that  will  go  into  an  act 
of  Congress,  would  not  the  whole  world  be  charged  with  notice  of  the  manner  in 
which  Mr.  For<l  held  that  property? 

Mr.  ]Mayo.  I  would  say  so. 

Mr.  Wright.  And  whether  it  was  put  in  the  deed,  in  the  first  instance,  and 
then  in  the  mortgage,  would  not  whoever  dealt  with  Mr.  Ford  in  reference  to 
these  properties  deal  with  him  in  reference  to  the  provisions  in  this  contract? 

Mr.  Mayo.  I  should  certainly  say  so. 

Mr.  Wright.  In  other  words,  he  could  not  convey  any  greater  title  than  he 
had  acquired  from  the  Government? 

Mr.  Mayo.  No,  sir. 

Mr.  Wright.  And  if  he  undertook  to  mortgage  or  encumber  the  property  in 
any  other  way  these  same  provisions  would  attach  to  it? 

Mr.  Mayo.  I  would  say  so. 

Mr.  Wright.  I  would  say  so. 

Mr.  Stoll.  Mr.  Mayo,  under  Mr.  Ford's  offer  relative  now  solely  to  dams  2 
and  3,  as  I  understand  it,  he  requires  of  the  Government  three  things ;  the  first 


MUSCLE   SHOALS  PROPOSITIONS. 


299 


IS  to  acquire  the  necessiu-y  lauds  and  flowage  rights,  including  land  for  rail- 
roads and   terminal   connections? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Stoll.  Have  you  estimated  wliat  that  would  cost? 

^^^^^'^*  ^^^  flowage  rights  for  Dam  No.  3  were  estimated  at  a  maximum  of 
$1,500,000.  The  fiowage  rights  and  practically  all  of  the  railroad  rights  of  way 
for  Dam  2  have  already  been  secured.    They  go  with  Dam  No.  2. 

Mr.  Stoll.  So  that  there  would  be  under  that  item  about  $1,500,000  required *> 

Mr.  Mayo.  There  might  be  a  half  million  dollars  more,  possiblv.  There  are 
some  leased  properties  at  Dam  No.  2  which  were  never  purchased.* 

Mr.  Stoll.  The  second  requirement  of  the  offer  on  the  Government  is  to 
repair,  operate,  and  maintain  the  dams,  locks,  and  gates.  For  this  Mr.  Ford 
ofters  to  pay  $35,000  and  $20,000,  respectively,  for  dams  2  and  3.  Will  that  be 
.sufficient  to  operate,  repair,  and  maintain  the  dams,  h>cks,  and  gates? 

Mr.  Mayo.  We  think  it  will.  That  is  not  includng  the  power  houses  and  its 
apparatus.    That  is  taken  care  of  under  a  separate  fund. 

Mr.  Stoll.  Tlie  third  requirement  is  to  furnish  the  necessary  money  to  com- 
plete Dam  No.  2  and  install  the  machinery  and  to  build  Dam  No.  3  and  install 
the  necessary  maehinerj'.  You  estimated  that,  I  believe,  to  cost  about 
•Jj>40,000,00i). 

Mr.  Mayo.  Yes,  sir. 

Mr.  Stoll.  Under  Mr.  Ford's  offer  the  United  States  gets  very  little  in  return 
on  its  investment  for  the  first  three  years,  as  was  brought  out  by  Mr  Milh»r's 
questions. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Stoll.  To  look  at  that  properly,  is  it  not  really  a  problem  in  arithmetical 
I.iogression,  does  not  the  Government  as  the  years  go  by  get  more  by  the  crea- 
tion of  this  sinking  fund  that  Mr.  Ford  proposes  to  establish? 

Mr.  Mayo.  The  sinking  fund  finally  wipes  out  the  entire  cost. 

Mr.  Stoll.  That  is  what  I  know,  and  so  I  say  that  as  the  years  go  by  the 
<Jovernment  has  a  smaller  amount  invested.  For  instance,  at  the  end  of  20 
years,  with  the  sinking  fund  going  to  the  Government,  it  would  be  a  smaller- 
investment  than  the  Government  had  at  first. 

Mr.  Mayo.  Yes,  sir;  that  is  correct. 

Mr.  Stoll.  And  in  50  years  it  would  still  be  less,  and  so  on  until  it  is  finallv 
wiped  out. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Stoll.  Would  it  be  possible  for  you  to  have  a  table  made  showing  th«> 
way  that  decreases?     It  may  be  impractical)le  to  do  that;  I  do  not  know. 

Mr.  Mayo.  I  think  that  can  l)e  very  n^adily  done;  yes. 

Mr.  Sroi,L.  I  wish  you  would  have  that  statement  put  in  the  record. 

Mr.  Mayo.  All  right,  sir. 

Table  illiLstrating  decrease  in  net  investment  of  Government  due  to  operation  of  a  sinking 

fund. 

Assume:  Payments  into  sinking  fund  total  $46,746  annually,  sinking-fund  investments  to  bear  4  per  cent 
interest,  payable  annually.    Government  investment  taken  at  $48,000,000. 


Life  of  fund. 


25  years.. 
50  years.. 
75  years.. 
^  years.. 
100  years. 


Total  amount 

in  sinking 

fimd. 


$2,024,569 
7, 421, 862 
21, 809, 346 
40,250,643 
60, 163, 271 


Striking  a 
balance  at  the 
end  of  each 
period  the 
Government's 
net  invest- 
ment is— 


$45,975,431 

40, 578, 138 

26,190,654 

7,749,357 


t»,!?^^"~'^',*^®,^^^'^^S-fund  investments  bore  interest  at  4  per  cent  payable  semiannually,  the  amount  in 
ine  smkmg  fund  at  the  end  of  100  years  would  be  $61,973,977.  In  Mr.  Ford's  offer  the  sinking  fund  for  Dam 
trat-  '^lu  y®^"^^  *^^  ^^^^  ^°^  ^^^  No.  3  nms  97  years.  The  above  table  is  intended  simply  as  an  illus- 
Anri,?^  °^  ^^^  amortizing  effect  of  a  4  per  cent  sinkmg  fund  over  several  periods  of  years,  maintained  by 
annual  payments  equal  to  the  payments  offered  by  Mr.  Ford.  »    ««  uy 


300 


MUSCLE  SHOALS  PROPOSITIONS. 


Mr.  StolL  Because  the  figures  as  Mr.  Miller  presented  them  I  do  not  think 
carry  the  correct  idea  as  to  the  expense  the  Government  is  put  to  in  this. 
I)ro.iect  under  Mr.  Ford's  offer. 

Mr.  Mayo.  The  offsets  to  the  expenses,  as  I  brought  up  before,  are  very  great 
during  the  first  few  years. 

Mr.  Stoll.  Yes;  I  understand  that;  but  to  my  mind,  as  the  years  go  by, 
this  decreases. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Stoll.  The  Government  gets  more  return  and  has  less  money  invested. 

Mr.  Mayo.  The  Government's  net  investment  is  steadily  decreasing. 

Mr.  Stoll.  Do  you  know  how  many  tons  of  sulphate  of  ammonium  can  be 
I)roduced  under  your  plan  annually? 

Mr.  Mayo.  It  all  depends.  We  would  have  to  put  in  a  sulphate  plant  to  make 
any  sulphate  of  ammonia.  We  would  have  to  put  in  a  sulphuric  acid  plant  to 
start  with.  If  we  use  the  same  amount  of  nitrogen  that  the  plant  is  now 
equipped  for,  it  runs  to  190,000  tons  annually. 

Mr.  Stoll.  Under  section  19  of  Mr.  Ford's  offer  he  agrees  to  enter  into  a 
contract  to  effectuate  the  purposes  of  his  agreement.  Do  you  understand  that 
to  mean  he  will  put  in  the  necessary  guaranties  that  are  usually  required  in 
business  contracts,  to  do  what  he  promises  to  do? 

Mr.  Mayo.  What  would  you  term  as  a  guaranty? 

Mr.  Stoll.  First,  be  binds  himself 

Mr.  Mayo  (interposing).  He  pays  the  money.  He  does  not  receive  title  until 
he  pays  the  purchase  price.  That  would,  of  course,  guarantee  the  purchase. 
After  that  he  would  have  jo  put  in  the  ne<'essary  amount  of  working  capital  to 
make  it  operative. 

]Mr.  Stou-.  I  understand,  but  here  is  what  he  says : 

"  Upon  acceptance,  the  promises,  undertakings,  and  obligations  shall  be 
binding  upon  the  United  States,  and  jointly  and  severally  upon  the  undersigned, 
his  he'rs,  representatives,  and  assigns,  and  the  company,  its  successors,  and 
ass'gns;  and  all  the  necessary  contracts,  leases,  deeds,  and  other  instruments 
necessary  or  appropriate  to  effectuate  the  purposes  of  this  proposal  shall  be  duly 
executed,"  and  so  on. 

He  promises  to  do  certain  th'ngs.  Is  any  guaranty  contemplated  in  the  con- 
tract?   What  do  you  mean  by  "effectuate"? 

Mr.  Mayo.  The  passage  of  the  proper  papers  and  deeds  and  everything  that 
go  with  settling  the  titles.  Did  you  have  in  mind  a  bond  or  something  of  that 
sort? 

Mr.  Stoll.  I  did  not  know  a  bond  or  paid-up  capital  or  something  that  would 
make  it  a  real  business  contract. 

Mr.  Mayo.  The  amount  of  the  purchase  price,  the  amount  of  money  that 
has  to  be  put  in  as  working  capital  to  start  with,  I  think  is  a  sufficient  guaranty. 

Mr.  Stoll.  But  this  is  silent  as  to  what  that  would  be. 

Mr.  May'o.  It  is  silent  because  it  is  problematical  how  much  it  will  take. 

Mr.  Stoll.  I  understand.  I  am  not  complaining  about  the  offer  as  it  stands, 
but  I  am  speaking  of  how  it  will  be  consummated.  Do  you  not  think  something 
ought  to  be  in  there  more  definite  than  that. 

Mr.  Mayo.  I  do  not  think  so. 

Mr.  Stoll.  You  think  that  is  sufficient. 

Mr.  May'o.  He  has  to  carry  out  the  terms  of  that  contract,  and  when  he  does 
he  at  least  has  to  operate  the  nitrate  plant  No.  2  at  full  capacity,  which  will 
require  sufficient  added  capital  to  have  plenty  to  reimburse  the  Government  for 
any  breach  of  contract. 

Mr.  Stoll.  Do  you  think  it  probable  that  Mr.  Ford  will  increase  the  produc- 
tion of  fertilizer  over  the  present  capacity  of  plant  No.  2. 

Mr.  Mayo.  I  think  it  is  very  probable. 

Mr.  Stoll.  And  it  is  his  intention,  of  course,  to  give  the  consumers  the  benefit 
of  the  cheap  power. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Stoll.  What  will  be  saved  by  the  Government  in  constructing  Dams  Nos. 
2  and  3  if  the  work  is  done  by  Mr.  Ford  without  any  profit  to  himself  rather  than 
if  they  follow  the  usuaJ  plan. 

Mr.  Mayo.  We  were  of  the  opinion  it  could  be  done  nmch  quicker  on  account 
of  not  being  bound  tip  with  the  ordinary  governmental  red  tape,  and)  he  could 
also  handle  the  contracts  to  much  better  advantage  as  a  private  party  instead  of 
as  the  Government. 


MUSCLE   SHOALS  PROPOSITIONS. 


301 


Mr.  Stoll.  And  there  would  be  considerable  saving  in  money' 

Mr.  Mayo.  Yes,  sir ;  both  money  and  time. 

Mr.  Stoll.  Do  you  have  any  idea  of  how  much  that  would  amount  to,  unless 
that  IS  shown  by  the  estimates  made  by  the  Engineers  and  by  vou?  Is  that  a 
fair  estimate  of  what  the  saving  will  be? 

$16000 WO '^'  "^^^^  '^  ^  ^^''"  ^®*"''^*^-    '^**^*  ^^  ^  difference  of  approximately 

Mr   Stoll.  Is  there  any  way  you  could  use  or  sell  the  maximum  horsepower 
for  the  first  few  years  of  operation  at  Muscle  Shoals? 
Mr.  Mayo.  No,  sir ;  no  possible  way. 

Mr.  Stoll.  You  would  have  to  develop  the  business  to  use  it? 
Mr.  Mayo.  Yes,  sir. 

Mr.  Stoll.  Following  Mr.  Miller's  questions  asked  you  on  yesterday,  did  vou 
prepare  any  figures?  ^ »         . 

Mr.  Mayo.  We  prepared  a  sheet  of  figures ;  yes,  sir. 
Mr.  Stoll.  Relative  to  what? 

Mr.  Mayo.  Relative  to  the  cost  to  the  Government  and  the  credits  during  the 
first  six  years. 

Mr.  Stoll.  I  would  like  to  have  that  put  in  the  record. 

Mr.  Mayo.  All  right,  sir. 

Mr.  Stoll.  Would  you  mind  reading  it? 

The  Chaibman.  I  was  just  going  to  say  that  probably  it  is  short  and  could 
be  read. 

Mr.  Mayo.  It  is  not  very  long. 

(The  statement  which  Mr.  Mayo  read  is  as  follows :) 

Government  balance  sheet  at  Muscle  Shoals  during  first  6  years  of  Ford  lease  of  Dam  No.  2. 

[Assume,  as  stated  by  Secretary  Weeks,  that  the  net  revenue  from  leases  of  steam  plants  pays  the  cost  of 

maintenance  of  nitrate  properties.] 


Items.i 


Interest  during  construction: 

Account  Dam  No.  2 $1,393,800 

Account  Dam  No.  3 1,480  000 

Interest  on  Government  investment  during  first  6  years  of  Ford 
lease  of  Dam  No.  2: 

Account  Dam  No.  2 4L  646  000 

Account  Dam  No.  3 3,040,000 


Debit. 


Payments  by  Mr.  Ford,  first  6  years  of  Ford  lease  of  Dam  No.  2: 

Account  Dam  No.  2, 6 pajrments at  $200,000 1,200.000 

Account  Dam  No.  3— 

3  payments  at  $160,000 $480,000 

2  payments  at  $760,000 1,520,000 

2,000,000 


Depreciation  on  nitrate  plant  No.  2  for  7  years  2  at  $2,350,000  (see  letter  of  Mai. 
J.  H.  Bums  to  Congressman  Fields,  Feb.  6, 1922) .7.. 


Total. 


Credit. 


$2,873,800 


7,686,000 


10,559,800 


$3,200,000 
16,450,000 


19,650,000 


1  For  details  regarding  interest  figures  see  p.  248. 

»  Since  the  Ford  lease  of  Dam  No.  2  begins  when  the  first  100,000  horsepower  is  instaUed,  and  since  it  is 
estimated  that  there  will  be  one  year  construction  period  prior  to  the  installation  of  100,000  horsepower 
ai  Dam  No.  2,  there  will  be  a  7-year  period  of  depreciation  of  nitrate  plant  No.  2,  which  is  assumed  by  Mr. 
*  ord  and  must  be  carried  by  him  prior  to  the  expiration  of  the  first  6  years  of  the  Ford  lease  of  Dam  No.  2. 

Note.— Ordnance  Department  figures  depreciation  on  nitrate  plant  No.  2,  5  per  cent. 

Mr.  Stoll.  Mr.  Mayo,  have  you  ever  seen  the  Gorgas  steam  plant? 

Mr.  Mayo.   I  have  not;  no,  sir. 

Mr.  Garrett.  Mr.  Mayo,  I  want  to  get  a  little  more  specific  information 
in  regard  to  this  fertilizer.  In  this  contract  you  agree  to  operate  nitrate 
plant  No.  2  at  the  approximate  present  annual  capacity  of  its  machinery  and 
equipment  in  the  production  of  nitrogen  and  other  fertilizer  compounds  (said 
capacity  being  equal  to  approximately  110,000  tons  of  ammonium  nitrate  per 
annum)  throughout  the  lease  period,  except  as  it  may  be  prevented  by  strikes, 
accidents,  fires,  or  other  causes  beyond  its  control.    I  want  to  get  in  figures 


Hi 


502 


MUSCLE  SHOALS  PROPOSITIOXS. 


MUSCLE   SHOALS  PROPOSITIONS. 


303 


now  the  number  of  finished  tons  of  fertilizer  ready  for  use  by  the  farmer  that 
tluit  would  be  equivalent  to  per  annum. 

Mr.  Mayo.  That  depends,  of  course,  upon  the  process  you  use,  the  kind  of 
fertilizer  you  are  making,  and  the  pei'centage  of  plant  food. 

Mr.  Garrett.  Well,  we  will  say  you  are  making  a  tobacco  grower ;  how  many 
tons  of  average  tobacco  grower,  about  a  2-4-8  compound  or  something  like 
that? 

Mr.  Mayo.  You  are  getting  me  kind  of  astray,  because  I  do  not  know  much 
about  tobacco  growing.  I  know  a  little  about  smoking.  What  percentage  of 
nitrogen  would  you  want? 

Mr.  Garrett.  I  would  want  2  per  cent  of  nitrogen  and  the  other  ingredients 
in  the  usual  proportions  in  such  compounds,  4  per  cent  and  8  per  cent. 

Mr.  Mayo.   It  would  run  almost  2,000,000  tons  with  2  per  cent  nitrogen. 

Mr.  Garrett.  The  2,000,000  tons  of  average  tobacco  grower  is  distributed 
over  the  country  by  the  other  companies.  That  would  be  about  2,000,000  tons 
l)er  annum? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Garrett.  There  has  been  a  good  deal  said  here  about  whether  or  not 
Mr.  Ford  or  his  company  would  continue  to  manufacture  this  fertilizer  in  the 
-event  he  could  not  do  so  profitably.  There  is  nothing  in  this  contract  about 
excusing  Mr.  Ford  from  making  fertilizer  whether  he  is  making  it  profitably 
or  unprofitably.  The  only  limit  in  here  that  I  find  is  that  he  agrees  to  make  it 
And  not  charge  more  than  8  per  cent  profit. 

Mr  Mayo    Yes  sir. 

Mr!  Garrett.  Where  does  the  idea  spring  that  Mr.  Ford,  with  the  single 
exceptions  pointed  out  here,  that  is  being  prevented  by  strikes,  fires,  accidents, 
or  other  causes  beyond  his  control,  etc.,  that  there  is  anything  in  there  that 
would  relieve  Mr.  Ford  from  making  fertilizer  at  the  rate  of  2,000,000  tons  per 
year  of  the  finished  product,  if  he  was  not  making  it  at  a  profit,  but  simply 
making  it  for  cost  or  below  cost? 

Mr.  Mayo.    Oh,  I  think  if  he  was  only  making  it  at  cost,  he  would  have  to 

continue. 

Mr.  Garrett.    Where  is  he  excused  from  this  condition,  if  it  is  below  cost, 

according  to  this  contract? 

Mr.  Mayo.  You  can  not  do  the  impossible. 

Mr.  Garrett.  Suppose  he  should  not  make  a  profit  for  one  year,  the  conditions 
miglit  change  in  another  year,  do  you  not  think  there  should  be  some  con- 
.«»truction  of  that  contract  as  to  just  what  it  means.  If  he  should  operate  at  a 
loss  for  one  year,  could  he  discontinue  the  manufacture  of  fertilizer? 

Mr.  Mayo.  I  do  not  think  he  could,  sir. 

Mr.  Garrett.  That  is  a  very  essential  thing  in  this  investigation,  Mr.  Mayo. 

Mr.  Mayo.  I  realize  that. 

Mr.  Garrett.  You  have  developed  about  the  power  and  what  that  means 
And  what  it  means  to  the  Government  to  have  plant  No.  2  maintained  there  for 
military  purposes.  All  that  has  been  gone  into,  but  you  have  not  got  the  facts 
In  the  record  just  like  I  would  like  to  see  them  in  the  record  on  this  fertdizer 

.question.  ,  ,       ^.,  ,     i  „.i 

Mr.  Mayo.  As  we  look  at  it,  Mr.  Ford  would  not  be  excused  until  he  had 

exhausted  every  known  effort  to  make  cheap  fertilizer,  using  any  reasonably 

good  process.  . . 

Mr  Garrett.  You  stated  in  answer  to  a  question  by  some  gentleman  here  tnis 
morning  that  you  thought  he  could  make  fertilizer  50  per  cent  cheaper  than  it 
is  being  made  to-day. 

Mr.  Mayo.  We  think  so ;  yes,  sir. 

Mr.  Garrett.  On  what  do  you  base  that  statement. 

Mr.  Mayo.  Well,  we  base  that  on  a  number  of  processes,  any  one  of  which  we 

Mr.  Garrett.  You  mean  that  you  have  in  mind  processes  for  the  manufacture 
of  fertilizer  that  have  not  yet  been  developed  by  any  of  the  other  companies? 

Mr.  Mayo.  Yes,  sir ;  or  partly  developed  by  some  of  them. 

Mr.  Garrett.  What  I  want  to  get  at  is  this:  Regardless  of  that,  because  that 
is  something  we  do  not  know  about  now,  but  we  do  know  that  fertilizer  is  bein,, 
made,  and  how  it  is  being  made,  and  how  it  is  being  distributed  now. 

Mr.  Mayo.  Yes,  sir.  «^  ««n 

Mr.  Garett.  And  what  I  want  to  get  in  the  record  is  how  much  cheaper  can 
Mr.  Ford,  in  your  opinion,  make  the  fertilizer  at  this  plant, -if  the  Governniem 


accepts  his  offer,  at  the  rate  of  about  2,000,000  tons  per  year  than  it  is  now 
being  made  generally  throughout  the  country!  ^  ^^ 

Mr.  Mayo.  Of  course,  we  are  green  at  the  fertilizer  business,  and  I  could 
not  exactly  say,  but  Mr.  Washburn,  in  his  statement,  said  he  thought  it  cou  d 
be  made  there  at  about  one-half  the  price.  tnou^uc  it  couia 

Mr.  Garrett.  Do  you  think  you  would  be  safe  in  saying  to  the  committee  as 
the  spokesman  of  Mr.  Ford,  that  it  would  be  made  33^  per  lent  cheape™n  U 
being  made  and  distributed  to  the  farmer  nowv  ^neaper  man  it  is 

Mr.  Mayo.  Yes,  sir. 

Mr.  Garrett.  And  of  equally  good  quality? 

Mr.  Mayo.  I  think  it  is  perfectly  safe  to  figure  on  that. 

Mr.  Garrett.  If  your  plant  makes  about  2,000,000  tons  of  finished  fertilizer 
speaking  m  round  numbers,  and  there  is  only  about  seven  arid  a  half  or  eight 
Jfni  fh^J''''^  consumed  m  the  country,  you  would  control  at  that  plant  about 

Mr.  Mayo.  If  the  rest  of  the  country  stood  still,  we  would ;  yes,  sir 
Mr.  Garrett  And  if  the  rest  of  the  country  moves  on,  you  would  move  at 
the  same  pace  that  they  did ;  so  that  your  proposition  now,  as  I  understand  ?t 
on  the  fertilizer  quest  on,  is  that  you  will  make  as  much  finished  fertilizer  as 
^;L«^  n^H%V^^.  s.)methmg  like  one-fourth  of  the  present  output  in  the  Un'ted 
btates,  and  that  you  believe  you  can  represent  to  this  committee  that  you  will 
make  It  33J  per  cent  cheaper  and  get  it  to  the  farmer  33i  per  cent  cheaper 
than  It  IS  now  being  gotten  to  the  farmers  in  this  country  cneaper 

Mr.  Mayo.  Yes,  sir. 

Mr  Hull.  Mr  Mayo,  as  I  stated  to  you  before,  the  big,  compelling  thing 
m  this  contract  is  in  section  14 :  &.         f        s  tums 

"(&).  To  maintain  nitrate  plant  No.  2  in  its  present  state  of  readiness,  or 
Its  equivalent,  for  immediate  operation  in  the  manufacture  of  materials  nw?es- 
sary  m  time  of  war  for  the  production  of  explosi\es." 

\  ?i"^Au^  ?  lawyer  and  I  may  be  wrong,  but  I  think  that  the  lawyers  would 
say  that  that  would  be  a  condition  that  would  have  to  go  in  the  deed  in  order  to 
make  it  binding  on  the  company  in  the  future.  If  the  lawyers  said  that  it  was 
necessary,  would  there  be  any  objection  on  your  part  or  on  the  part  of  vour 
company  to  placing  that  in  the  deed  as  a  condition  of  the  deed' 

Mr.  Mayo.  I  do  not  think  there  would  be  any  objection. 

Mr.  Greene.  Following  the  replies  you  gave*  to  Mr.  Garrett,  of  course,  as  a 
business  man  you  would  not  hold  that  your  present  statement  as  to  the  pro- 
portion of  fertilizer  that  you  could  furnish  would  be  likely  to  hold  good  through 
a  century  of  development  in  this  country? 

Mr.  Mayo.  No,  sir;  you  can  not  tell  how  the  quantity  would  change  It 
would  change  with  the  processes. 

Mr.  Greene.  In  other  words,  you  may  furnish  20  per  cent  of  the  total  pro- 
duction of  the  country  with  the  maximum  output  of  this  plant  to-day  if  the 
base  holds  at  the  same  figure  of  total  production  for  the  country,  but  if,  as  is 
quite  probable,  the  country  resorts  more  and  more  to  intense  fertilization  as 
the  century  goes  on,  it  would  be  more  diflicult  for  you  to  keep  up  the  same  rela- 
tive proportion  of  fertilizer  to  the  total,  would  it  not? 

Mr.  Mayo.  I  do  not  think  so;  no. 

Mr.  Greene.  You  think  you  can  bring  the  capacity  of  that  plant  up  to  that 
proportion  and  maintain  it? 

Mr.  Mayo.  I  am  of  the  opinion  that  if  the  demand  would  require  it  Mr.  Ford 
luight  possibly  double  up  the  plant. 

Mr.  Greene.  With  the  same  power? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Greene.  You  think,  then,  that  there  is  a  reasonable  expectation  that  you 
could  hold  to  about  the  same  relative  production  as  compared  with  the  total 
now? 

Mr.  Mayo.  My  opinion  is  that  Mr.  Ford  has  only  stated  his  minimum  amounts 
here. 

Mr.  Greene.  This  morning  Mr.  Hill  was  inquiring  about  your  interpretation 
'•f  section  15,  as  to  the  right  you  had  to  the  use  of  power  after  the  expiration 
of  the  100-year  lease. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Greene.  Mr.  Hill  suggested  that  in  the  century  to  come  it  was  possible 
that  the  public  policy  of  the  United  States  might  change  with  regard  to  the 
ownership  of  these  natural  resources  and  public  utilities  and  things  of  that 

92900—22 20 


J 


k 


304 


MUSCLE  SHOALS  PROPOSITIONS. 


kind  and  tliat  we  might  adopt  the  policy  of  either  owning  or  controlling  all 
the  water  powers.  In  that  case,  what  would  you  say  of  such  a  public  policy 
that  had  already  mortgaged  the  Government  to  give  away  certain  power  to 
one  certain  concern,  no  matter  what  the  other  demands  of  the  other  people 
and  the  other  agencies  throughout  the  country  might  be ;  the  Government  was 
held  in  perpetuity  to  give  one  certain  concern,  one  certain  power.  Do  you 
regard  that  as  very  good  public  policy? 

Mr.  Mayo.  I  do.  I  think  it  would  be  entirely  unfair  to  Mr.  Ford  to  have  very 
extensive  operations  all  built  up  to  consume  this  power  and  then  have  it  taken 
away  from  him. 

Mr.  Greene.  Mr.  Ford  is  presumed,  of  course,  in  his  own  interests,  to  have  so 
provided  in  this  contract  that  he  gets  back  what  he  puts  in  in  the  course  of 
the  century,  but  the  Government  is  entirely  a  different  proposition  from  an 
individual  investor,  because  the  Government  is  the  guardian  of  the  interests 
of  the  Nation  as  a  whole  for  all  time.  I  appreciate  that  this  proposition 
is  a  matter  somewhat  close  to  your  professional  interets,  and  I  do  not  want 
to  ask  any  improper  questions,  but  would  you  think,  as  a  matter  of  public 
policy,  this  Nation,  through  its  Government,  should  bind  itself  for  all  time, 
no  matter  what  the  future  might  develop  as  the  necessary  changes  in  public 
policy,  so  that  one  specific  water  power  should  always  go  to  a  certain  identified 
concern  ? 

Mr.  Mayo.  I  think  so,  when  that  one  concern  was  the  means  of  building  it  up 
md  bringing  it  into  the  condition  it  was  or  might  be  in  at  that  time. 

Mr.  Gbeene.  Would  that,  then,  justify  the  people  who  opened  and  owned  and 
developed  the  coal  mines  to  have  a  perpetual  right  to  their  use  and  their 
product  even  though  the  Government  a  century  from  now  took  over  the 
operation  of  such  public  utilities? 

Mr.  Mayo.  If  the  Government  took  over  the  Ford  plant  as  well  as  the  water 
power  it  would  be  quite  another  thing. 

Mr.  Greene.  I  am  simply  suggesting,  as  I  did  yesterday,  in  questioning  you, 
the  possibility  of  tremendous  revolutionary  changes  in  public  policy  within 
the  century.  I  dare  say  nobody  here  at  this  table  or  in  this  room  now  approves 
of  the  idea  of  public  ownership  and  control  of  these  natural  resources,  but 
we  do  know  that  it  is  quite  within  the  possibilities,  and  it  is  already  being 
urged  and  has  been  for  a  good  many  generations,^  for  that  matter,  and  a  century 
might  see  a  complete  change.  We  are  custodians  of  the  property  of  the  people 
of  the  United  States,  and  to  that  extent  the  custodians  of  their  future.  Would 
we  be  justified  in  so  tying  up  the  future  that  our  children's  children  back  into 
several  further  degrees  might  not  dispose  of  their  own  property  because  a  dead 
hand  had  tied  it  up  for  them? 

Mr.  Mayo.  I  think  the  Government  has  every  right  to  dispose  of  it  as  though 
this  contract  did  not  exist,  in  so  far  as  price  goes. 

Mr.  Greene.  I  am  not  talking  about  price;  I  am  talking  about  the  actual 
control  of  the  administration  of  the  power.    The  price  is  immaterial  to  that. 

Mr.  Mayo.  It  plainly  says,  "  Terms  that  may  then  be  agreed  upon." 

Mr.  Gbeene.  When  people  who  are  lawyers,  and  probably  it  is  not  necessary 
for  me  to  say  that  I  am  not  a  lawyer r  * 

Mr.  Mayo.  I  am  not,  either. 

Mr.  Greene.  I  am  a  layman  and  read  this  only  as  the  English  language 
would  suggest  and  not  as  a  lawyer  would  read  it.  It  seems  to  me,  as  it  did 
to  my  friend,  Mr.  Hill,  this  morning,  that  there  are  two  statements  in  this 
paragraph  which  may  be  taken  up  separately  and  considered,  and  if  the  Eng- 
lish language  means  what  has  been  written  4,own  here,  it  does  seem  to  me  that 
upon  the  failure  of  a  lease  or  a  sale,  Mr.  Ford  has  the  first  right  to  the  power 
that  is  developed  there.  The  question  of  your  coming  to  terms  might  be  en- 
forced by  whatever  court  should  decide  the  case,  but  he  has  a  prescriptive 
right  on  that  power. 

Mr.  Mayo.  I  think  he  should  have  all  that  he  has  asked  for.  I  think  a  man 
who  has  the  courage  he  has  to  make  this  offer,  if  he  can  make  a  successful  run 
of  this  plant  for  100  years  and  at  that  time  hand  th's  project  back  to  the  Gov- 
ernment, cost  free,  practically,  he  should  at  least  have  a  preferential  right  to 
get  the  power  at  the  same  going  price  that  anybody  else  would  get  it. 

Mr.  Greene.  Now%  Mr.  Mayo,  this  question  is  suggested  merely  in  our  com- 
mon interests  as  citizens. 

Mr.  Mayo.  Yes;  that  :s  my  personal  opinion. 

Mr.  Greene.  And  we  are  approaching  it  from  that  point  of  view.  Mr.  For(l 
and  the  public  to-day  may  be  well  disposed  toward  one  another,  as  doubtless 


MUSCLE  SHOALS  PROPOSITIONS. 


305 


they  are,  and  there  may  be  great  and  immediate  practical  benefits  to  all  the 
country  in  the  Government  accepting  Mr.  Ford's  offer  under  present-day  con- 
ditions. Those  condit'ons  may  more  or  less  continue  throughout  the  genera- 
tion and  possibly  the  generation  to  follow,  and  yet  Mr.  Ford  will  be  gone  and 
all  of  these  people  who  consent  with  us  to-day  to  this  contract  are  all  gone 
and  an  entirely  new  economic  and  sociological  situation  confront  their  grand- 
children, all  within  the  century,  because  we  are  still  a  pioneering  civilizat  on 
in  a  continent  which  even  physically  is  still  being  pioneered. 

Now,  all  at  once,  those  people  are  confronted  w  th  new  economic  conditions 
and  with  entirely  new  social  relationships  which  perhaps  we  can  not  conceive, 
but  we  know  that  what  we  live  in  now  is  a  tremendous  advance  over  what  our 
own  grandfathers  had  on  this  very  soil.  Those  people  suddenly  find  that  the 
policy  of  the  Government  is  to  admnister  these  natural  resources  and  these 
public  utilities  in  its  own  hands,  and  it  may  do  so  with  respect  to  all  the  water 
power  in  the  land  except  one,  and  that  one  is  bound  up  in  the  hands  of  this 
company. 

Mr.  Mayo.  I  do  not  agree  wth  you  on  that,  because  there  are  a  number  of 
other  water  powers  with  perpetual  rights. 
Mr.  Greene.  But  they  are  now  in  private  ownership. 
Mr.  Mayo.  Yes. 

Mr.  Greene.  I  am  speaking  >about  the  water  powers  that  Uncle  Sam  owns 
and  controls. 
Mr.  Mayo.  Yes. 

Mr.  Greene.  Would  you  think,  as  a  matter  of  public  policy,  it  was  desirable 
notwithstanding  the  immed'ate  benefits  to  be  gained  by  this  arrangement, 
which  I  am  not  arguing  at  all,  or  the  benefits  perhaps  for  a  generation  or  two, 
still,  as  a  matter  of  public  policy,  do  you  think  we  should  commit  the  Gov- 
ernment beyond  the  lifetime  of  three  generations  and  beyond  a  century — in 
perpetuity? 

Mr.  Mayo.  Well,  I  will  come  back  to  my  former  statement  and  say  that  if 
the  development  is  such  at  the  expiration  of  100  years  the  company  is  consuming 
all  the  power  (and,  of  course,  it  only  has  a  chance  to  get  what  it  does  consume 
on  an  average  during  the  last  10  years),  and  if  the  conditions  are  such,  for  the 
sake  of  the  argument,  that  a  vast  investment  had  been  made,  nothing  should 
happen  to  take  that  power  away  from  the  plants  and  wreck  that  big  de- 
velopment. 

Mr.  Greene.  I  think  I  will  not  prolong  the  discussion  of  the  matter,  because 
it  is  simply  a  question,  you  realize,  that  will  be  dwelt  upon  from  the  very  nature 
of  things  by  and  by,  and  I  think  the  people  w^ill  be  more  likely,  if  you  will 
permit  me,  Mr.  Mayo,  to  regard  it  as  a  matter  of  principle  rather  than  a  con- 
fusion of  identities  and  property  interests.  It  does  not  make  any  difference 
who  did  own  it  or  the  antecedents  of  the  owner,  the  presumption  is  that  if  this 
is  a  reasonably  successful  business  speculation  or  investment,  it  will  have  re- 
paid for  itself  several  times,  so  that  the  people  who  may  own  this  power  100 
years  from  now  will  have  made  no  original  outlay  from  their  own  pockets  and 
will  have  nothing  to  recoup  themselves  for  on  account  of  the  original  invest- 
ment because  that  wiU  have  been  paid  back  long,  long  before. 

Mr.  Mayo.  Ye*?,  that  may  all  be  true,  yet  it  might  be  that  at  that  very  period 
when  there  might  be  a  new  set  of  owners  who  have  had  their  money  invested 
only  a  few  years. 

Mr.  Greene.  Exactly;  and  the  people  who  conceived  this  thing,  assuming 
that  Mr.  Ford  should  carry  out  his  original  intention,  would  be  gathered  to 
their  fathers  many,  many  decades,  and  the  people  who  come  on  later  do  not 
partake  of  the  original,  personal  element  engaged  in  this  thing  at  all,  but  are 
mere  automatic  heirs  in  some  way,  either  by  law  or  by  birth  and  descent,  of 
certain  property,  which  they  never  had  a  part  in  forming,  and  they  find  that 
they  can  stand  out  against  the  whole  Government  of  the  United  States  with  a 
prescriptive  right  that  no  power  on  earth  can  take  away  from  them  in  the 
use  of  certain  water  power ;  is  that  your  interpretation? 

Mr.  Mayo.  I  think  you  put  it  in  more  or  less  of  an  arbitrary  light.  A  great 
deal  of  thought  was  given  in  drawing  that  particular  paragraph,  and  it  was 
tried  to  be  drawn  in  a  fair  form.  The  line  of  thought  that  was  used  was  that 
this  project  can  not  continue  without  being  successful,  and  if  so,  it  should  be  a 
eontinually  growing  one,  and  if  so,  it  should  finally  absorb  all  the  power,  and  a 
contract  should  never  be  so  drawn  that  some  day,  no  matter  when,  somebody 
should  be  able  to  cut  its  feet  right  out  from  under  it  by  robbing  it  of  all  its 


'  t 


306 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


307 


power.  It  should  at  least  have  the  right  to  continue  taking  this  power  at  a 
reasonable  rate  or  the  going  rate.  That  was  the  line  of  thought  it  was  built 
upon. 

Mr.  Greene.  I  would  suggest  that  it  may  be  worth  inquiring  into  as  to 
whether  Mr.  Ford  would  insist  upon  that.  I  think  the  people  themselves,  and 
even  those  who  expect  an  immediate  interest  in  the  thing,  and  properly  so, 
may  well  take  second  thought  as  to  the  great  principle  of  public  policy  involved 
there,  whether  when  the  time  comes,  properly,  when  the  Government  wants 
to  operate  its  own  properties  or  dispose  of  them  as  it  may,  its  hands  are  not' 
tied  by  another  ghastly  hand  from  the  grave,  a  century  back. 

Mr.  Mayo.*  Are  they  tied  ?  Does  not  this  say,  "  If  the  Government  does  not 
dispose " 

Mr.  Greene.  I  think  the  conditions  there  all  run  in  the  interest  of  Mr.  Ford 
and  not  one  of  them  in  the  interest  of  the  Government. 

Mr.  Stoll.  Mr.  Greene,  may  I  ask  you  a  question? 

Mr.  Greene.  Certainly. 

Mr.  Stoll.  It  says  here.  Mr.  Greene,  that  should  the  United  States  elect  not 
to  operate  said  plant 

Mr.  Hill.  That  is  not  the  section. 

Mr.  Stoll.  That  gives  them  the  power  at  the  end  of  100  years  to  operate  the 
plant. 

Mr.  Greene.  Oh,  certainly;  we  always  have  that  power. 

Mr.  Stoll.  In  case  they  decided  not  to  operate  but  determined  to  lease  or  to 
dispose  of  same,  the  only  two  things  they  could  do,  if  they  do  not  operate  it, 
would  be  to  lease  or  dispose  of  it.  Then  thjB  Ford  company  shall  have  a  pre- 
ferred right  to  do  what?  Not  to  take  it,  but  merely  to  negotiate  with  the  Un-ted 
States  for  lease  or  purchase,  and  upon  such  terms  as  may  then  be  agreed  upon. 

Mr.   Greene.  Yes. 

Mr.  Stoll.  If  they  do  not  agree  or  if  the  Ford  olfer  is  not  satisfactory  to  the 
Government,  they  do  not  have  to  take  it. 

Mr.  Greene.  If  you  will  go  to  the  next  sentence,  I  think  Mr.  Hill  made  that 
plain    this   morning : 

"  If  the  said  leases  are  not  renewed  or  the  property  covered  thereby  is  not 
sold  to  said  company,  its  successors  or  assigns,  any  operations  or  disposal 
thereof  shall  not  deprive  the  company,  its  successors,  or  assigns  of  the  right 
to  be  supplied  with  electric  power  at  reasonable  rates  and  in  amount  equal  to 
its  needs,"  and  so  on. 

Mr.  Stoll.  That  gives  them  a  right  to  purchase  the  power. 

Mr.  Greene.  Exactly,  and  that  is  what  I  am  referring  to. 

Mr.  Stoll.  I  did  not  understand  just  what  you  had  in  mind. 

Mr.  Greene,  That  is  exactly  what  I  was  referring  to,  Mr,  Stoll,  whether 
the  Government,  in  other  words,  should  not  always  be  at  liberty  to  choose  its 
own  customers  and  whether  any  man,  100  years  in  advance,  may  so  tie  the  Gov- 
ernment's hands  that  when  that  period  arrives  the  Government  may  not  be 
able  to  choose  its  own  customers. 

Mr.  Stoll.  May  I  ask  one  question?  Can  you  conceive  of  a  person  who  would 
have  more  right  to  be  supplied  with  the  current  at  a  reasonable  rate  than  the 
Ford  company  who  had  developed  it  for  100  years? 

Mr.  Greene.  I  do  not  venture  to  make  any  speculation  on  what  may  be  the 
relation  or  rights  of  any  person  to  this  Government  100  years  from  now. 

Mr.  Stoll.  But  as  I  say,  can  you  conceive  of  a  person  who  would  have  more 
right  to  it? 

Mr.  Greene.  Not  on  the  immediate,  present  basis  of  economic  reasoning,  but 
that  may  not  be  the  basis  100  years  from  now,  just  as  our  present  basis  is  not 
that  of  100  years  back. 

Mr.  Hill.  Will  the  chairman  permit  me  to  interject  a  question  there  to  Mr. 
Stoll?  Under  that  section,  which  is  as  follows:  "  If  the  said  leases  are  not  re- 
newed or  the  property  covered  thereby  is  not  sold  to  said  company,"  etc.,  under 
that  section,  if  the  Government  wanted  to  use  the  property  itself  for  its  own  pur- 
poses at  the  end  of  the  100  years,  and  the  Ford  company  desired  the  power  it- 
self, the  Government  could  not  use  its  own  property. 

Mr.  Stoll.  Oh,  yes ;  because  you  could  not  take  it  from  the  Government.  If 
the  Ford  company  bought  it  the  Government  could  take  it  back. 

Mr.  Hill.  But  just  read  that  second  clause. 

Mr.  Stoll.  I  understand  that,  but  we  could  not,  by  any  agreement  we  could 
draw,  deprive  the  Government  of  the  right  to  take  any  property. 

Mr.  Hill.  But  this  section  does  so. 


Mr.  Stoll.  Oh,  no ;  it  is  not  meant  to  be  taken  in  that  sense. 

The  Chairman.  Gentlemen,  we  are  getting  into  a  discussion  that  we  had  better 
carry  on  m  executive  session. 

n/^^,;  CJREENE.  I  just  wanted  to  be  quite  certain  that  I  understood  lust  what 
Mr.  Fords  interpretation  of  that  clause  is,  and  you  do  not  th^nk  it  is  against 
good  public  policy?  " 

Mr.  Mayo.  Do  you  think  you  understand  his  intention? 

Mr.  Greene.  I  think  I  have  gathered  your  impression.  If  it  is  not  an  im- 
proper question,  may  that  question  be  reopened  if  in  the  course  of  this  hearing 
and  Its  results  there  is  some  understanding  that  a  redraft  nuiv  be  made  of  the 
proposal  of  Mr.  Ford,  with  his  consent,  of  course;  is  it  possible' that  that  mav  be 
reconsidered? 

Mr.  Mayo.  I  have  stated  before  that  I  believe  he  wants  this  offer  to  stand  as 
It  IS.    \\  e  are  willing  at  any  time  to  change  the  verbiage  to  clarifv  the  meaning 

Mr.  Greene.  Let  me  finally  put  this  question  then :  You  think  it  is  advisable 
apart  from  any  relations  of  Mr.  Ford  or  our  present-dav  conditions,  that  the 
Government  shall  be  tied  hand  and  foot  to  one  customer  for  that  particular 
water  power  as  against  the  usual  prerogative  of  the  Government  to  deal  with 
each  case  as  it  comes  up  on  its  own  merits  at  the  time,  no  matter  what  the 
idenity  of  the  people  may  be? 

Mr.  Mayo.  I  think  it  goes  without  saying  that  the  Government  could  take  it 
itself  at  the  end  of  the  period. 

Mr.  Greene.  I  do  not  question  the  Government's  right  to  come  in  nor  do  vou 
as  I  understand  it.  "^     ' 

Mr.  Mayo.  No,  sir. 

Mr.  Greene.  But  the  question  is,  Even  though  the  Government  assumes  or 
reassumes  the  management  of  the  proi)erty,  it  does  so  only  subject  to  this  right 
of  Mr.  Ford's  company  and  its  successors  to  take  the  property? 

Mi\Mayo.  I  think  that  if  the  company  has  handled  this  property  successfully 
for  100  years  and  has  handed  in  a  retirement  fund  that  wipes  out  the  first  cost 
It  should  at  least  have  the  preference  of  purchasing  the  power  that  is  to  be  sold' 

Mr.  Greene.  Then  I  will  simply  call  your  attention,  Mr.  Mavo,  to  the  fact  that 
you  are  holding  that  individual  rights  may  run  against  the  Government,  no 
niatter  what  the  future  may  develop.  I  think  that  would  be  a  fair  statement 
of  it. 

Mr.  Crowther.  Somebody  previously  testified,  Mr.  Mayo,  as  to  the  author- 
ship of  article  15  here,  and  I  do  not  just  remember  the  answer  as  to  who 
prepared  it.  I  would  like  to  know  who  prepared  that  paragraph.  It  was  sug- 
gested at  the  time  that  some  farm  organization  prepared  article  15,  and  that  you 
adopted  it  in  the  preparation  of  this  proposal,  commencing  with  this  language 
"  In  order  that  the  farmers  may  be  supplied  with  fertilizers  at  fair  prices." 

Is  not  that  unusual  language  to  appear  in  a  semilegal  document? 

Mr.  Mayo.  We  think  so. 

The  Chairman.  I  think  Col.  Hull,  of  the  Judge  Advocate  General's  Depart- 
ment, made  that  statement. 

Mr.  Cbowthee.  By  whom  was  it  prepared? 

Mr.  Mayo.  By  representatives  of  these  farm  organizations. 

Mr.  Crowther.  Those  that  are  mentioned  here? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Crowther.  Then,  following  that  language,  did  they  have  anything  to 
do  with  the  preparation  of  this  paragraph  17,  because  the  same  language  appears 
m  the  first  three  lines  of  that  paragraph  which  we  have  just  been  discussing? 

Mr.  Mayo.  No,  sir ;  they  had  nothing  to  do  with  that. 

Mr.  Crowther.  How  did  that  language  creep  in  there? 

Mr.  Mayo.  I  do  not  know. 

Mr.  Crowther.  What  is  the  necessity  for  the  language  "  and  the  farmers  with 
fertilizers    ? 
Ur.  Mayo.  That  was  put  in  to  show  the  purpose. 
Mr.  Crowther.  That  was  for  advertising  purposes  largely? 
Mr.  Mayo.  I  would  not  say  so. 

Mr.^  Crowther.  It  is  a  method  of  propaganda  to  convey  the  idea  that  this  Is 
?^"*^,^"^  ^  fertilizer  proposition ;  that  is,  that  is  the  plan  being  discussed  now? 
Mr.  Mayo.  No,  sir ;  not  propaganda. 
Mr.  Crowther.  You  do  not  think  so? 
Mr.  Mayo.  No,  sir. 

Mr.  Crowther.  Can  you  suggest  any  other  idea  for  the  interpolation  of  that 
language  at  that  place? 


I 


308 


MUSCLE   SHOALS  PROPOSITIONS. 


Mr  Mayo.  It  is  to  show  the  intent  of  what  we  are  trying  to  do. 

Mr  Fields.  This  article  17  that  has  been  discussed  was  prepared  by  or  sub- 
mitted to  you  bv  the  Judge  Advocate  General's  Department,  was  it  not?  It 
was  prepared  by'  the  Judge  Advocate  General's  Department  and  the  representa- 
tives of  Mr.  Ford? 

Mr.  Mayo.  Yes,  sir ;  that  is,  they  took  our  offer  and  revised  it. 

Mr.  Fields.  And  this  is  the  revised  form  as  it  came  from  the  Judge  Advocate 
General's  Department? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Fields.  Returning  to  the  question  of  the  probability  or  the  possibility  of 
Mr  Ford  discontinuing  the  manufacture  of  fertiizer  if  he  should  find  it  was 
unprofitable— he  could  not  discontinue  the  production  of  fertilizer  by  just  locking 
up  the  shop  and  quitting,  could  he? 

Mr.  Mayo.  No,  sir.  .,      .^. 

Mr.  Fields.  Would  he  not  have  to  make  a  showing  to  the  proper  authorities 

and  get  the  necessary  relief? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Fields.  That  is  your  understanding? 

l^Ir.  Mayo.  Yes,  sir ;  that  is  my  undertsanding. 

Mr  Fields.  I  desire  to  ask  you,  Mr.  Mayo,  if  Mr.  Ford  or  his  representa- 
tives, or  both,  discussed  this  contract  as  now  before  us  with  Mr.  Weeks,  the  Sec- 
retary of  W^ar? 

Mr.  Mayo.  Several  times ;  yes,  sir.  ^     .     .    ^     ^    .  ^    t.c 

Mr.  Fields.  Is  it  your  opinion  that  Mr.  Ford  emphasized  the  fact  to  Mr. 
Weeks  that  this  is  his  proposition  or  was  as  far  as  he  could  go  toward  meeting 
his  demands. 

Mr.  Mayo.  Yes,  sir.  ,,     ^    ^      .„       . 

Mr.  James.  Mr.  Mayo,  how  much  money  do  you  expect  Mr.  Ford  will  put 

into  this  fertilizer  plant?  ^  .... 

Mr.  Mayo.  My  opinion  is  it  will  keep  increasing  from  time  to  time. 

Mr.  James.  About  how  much? 

Mr.  Mayo.  To  start  with? 

Mr.  James.  Yes ;  to  start  with.  *^  .w^  /wx 

Mr  Mayo.  My  guess  is  that  it  would  amount  to  some  $5,000,000. 

Mr.  James.  How  many  tons  of  fertilizer  per  annum  do  you  think  Mr.  Ford 

will  distribute  to  the  farmers?  ,     .    ^    .    ^^i,      v.»«h 

Mr.  Mayo.  It  depends  on  the  kind  of  fertilizer  you  make  to  start  with,  wnicn, 
of  course,  controls  the  capacity  of  the  plant. 

Mr.  James.  Well,  about  how  much?  ^  ^^^..nn.  *^«o 

Mr.  Mayo.  I  can  only  answer  that  by  saying  the  equivalent  of  110,000  tons 

of  ammonium  nitrate.  .„  ^,    ^        ,    « 

Mr   James.  About  how  many  tons  approximately  will  that  make? 

Mr.  Mayo.  As  we  said  before,  almost  2,000,000  tons  of  complete  fertilizer- 
say  a  2-8-2  mixture.  ,       ,    ^,     i      4. 

Mr  James.  Under  the  proposition  submitted  by  Mr.  Ford,  what  is  the  least 
amount  in  number  of  tons  of  fertilizer  that  Mr.  Ford  is  bound  to  manufacture/ 

Mr.  Mayo.  What  is  the  least  number  of  tons? 

TWr    Tames    Yes 

Mr!  Mayo.  That  would  be  the  amount,  if  it  was  made  as  it  is  made  at  present 
by  other  fertilizer  manufacturers. 

Mr.  James.  About  how  many  tons  under  this  contract? 

Mr.  Mayo.  Approximately  2,000,000  tons.  ^        .^  .    . 

Mr.  James.  Mr.  Ford  binds  himself  under  this  contract  to  produce  the  equi>a- 
lent  of  2,000,000  tons  of  fertilizer  per  year? 

Mr.  Mayo.  No,  sir.  .       „       ^      ,.,  *      4.9 

Mr   James.  How  many  tons  does  he  bind  himself  under  his  contract/ 
Mr.*  Mayo.  That  all  depends  on  the  mixture  and  whether  you  carry  a  nner 

or  not. 

Mr.  James.  About  how  many ;  the  least  number  of  tons?  oaaooo 

Mr  Mayo  In  my  judgment  it  would  run  from  a  minimum  of  possibly  200,Uii^ 
tons  up  to  a  maximum  of  about  2,000,000  tons,  depending  upon  the  class  of  ferti- 
lizer, whether  it  carried  a  filler  or  not,  and  the  proportion  it  did  carry,  if  any. 

Mr.  James.  You  consider  that  under  the  contract  the  least  number  of  tons 
that  Mr.  Ford  would  manufacture  would  be  200,000  tons? 

Mr.  Mayo.  I  think  so;  yes,  sir;  that  is,  of  sulphate. 

Mr.  James.  What  section  of  the  contract  is  that  in?    Where  you  bind  youi 
selves  to  produce  at  least  a  minimum  of  at  least  200,000  tons. 

Mr.  Mayo.  It  is  in  section  14. 


MUSCLE   SHOALS  PROPOSITIONS. 


309 


I 


Mr.  James.  What  is  the  language? 

Mr.  Mayo.  That  is  the  equivalent  of  110,000  tons  of  ammonium  nitrnte  an- 
nually, said  capacity  being  equal  to  approximately  110,000  tons  of  ammonium 
nitrate  per  annum." 

Mr.  James.  That  would  not  bind  him  to  produce  fertilizer ;  that  is  the  equiva- 
lent to  be  used  for  that  purpose. 

Mr.  Mayo.  Fertilizer  equivalent  to  that  amount.  That  is  expressed  in  that 
manner  because  the  plant  was  built  originally  to  make  ammonium  nitrate,  and 
thnt  IS  based  on  the  amount  of  nitrogen  the  plant  would  produce. 

Mr.  James.  Is  there  any  objection  to  our  making  an  amendment  in  the  offer 
providing,  in  effect,  that  Mr.  Ford  guarantees  to  produce  at  least  200,000  tons  a 
year? 

Mr.  Mayo.  I  think  he  does  guarantee  that.  I  think  the  present  form  of  guar- 
anty is  the  best  form  you  can  get  in  there. 

Mr.  James.  Will  he  object  to  our  rewriting  that  so  that  it  will  be  positive  that 
there  is  a  guaranty? 

Mr  Mayo.  I  do  not  think  there  would  be  any  objection  if  it  carried  out  the 
intent  of  that  paragraph. 

Mr.  James.  It  is  the  intent  of  Mr.  Ford  to  produce  fertilizer  itself?  Under  the 
terms  of  the  contract  there  is  not  any  guaranty  that  general  fertilizer  will  be 
manufactured. 

Mr.  Mayo.  Oh,  yes. 

Mr.  James.  What  is  the  language? 

Mr.  Mayo.  In  the  production  of  nitrogen  and  other  fertilizer  compounds 

Mr.  James.  That  is  not  fertilizer,  is  it? 

Mr.  Mayo.  You  do  not  mean  to  say  it  is  not  a  fertilizer ;  it  is  not  complete  ferti 
lizer. 

Mr.  James  Mr.  Ford's  proposition,  you  have  said,  is  that  he  expects  to  dis- 
tribute this  fertilizer  himself  to  the  farmers  through  an  agency  he  will  create 
having  the  fertilizer  ready  for  use? 

Mr.  Mayo.  Yes ;  I  do  not  think  he  would  have  any  objection  to  clarifying  the 
language  so  that  it  >vould  mean  complete  fertilizer. 

Mr.  Miller.  Mr.  Mayo,  are  we  to  understand  from  you  that  we  are  to  assure 
our  colleagues  on  the  floor  of  the  House  that  Mr.  Ford  agrees  to  make  a  com- 
mercial fertilizer,  irrespective  of  the  cost,  through  the  life  of  the  lease,  or  are  we 
to  impart  to  our  colleagues  on  the  floor  of  the  House  the  information  that  he  is 
only  to  produce  it  if  he  can  produce  it  profitably? 

Mr.  Mayo.  The  only  provision  that  would  let  him  out  of  having  to  make  it 
would  be  the  exhausting  of  every  known  effort. 

Mr.  Miller.  Your  proposition  has  this  absolutely  binding  language,  without 
any  exceptions  or  qualifications:  "That  company  agrees  to  operate  nitrate  plant 
No.  2  at  the  approximate  present  annual  capacity  of  its  machinery  and  equip- 
ment m  the  production  of  nitrogen  and  other  fertilizer  compounds  (said 
capacity  being  equal  to  approximately  110,000  tons  of  ammonium  nitrate  per 
annum)  throughout  the  lease  period,  except  as  it  may  be  prevented  by  strikes 
accidents,  fires,  or  other  causes  beyond  its  control."  Now.  we  are  getting  in 
there  a  very  important  exception,  providing  he  can  make  it  at  a  profit. 

Mr.  Mayo.  That  paragraph  is  there,  and  it  can  stand. 

Mr.  Miller.  Then  if  that  paragraph  means  what  it  says  it  is  unequivocablv 
without  any  condition  whatever,  providing  that  Mr.  Ford  is  to  operate  nitrate 
plant  No.  2  and  put  out  110,000  tons  of  ammonium  nitrate,  which  is  a  fer- 
tilizer element,  during  every  year  of  the  lease  period  of  the  100  years 

Mr.  Mayo.  He  is  willing  to  stand  by  the  paragraph  that  is  there 

Mr  Miller.  Then  it  is  without  any  equivocation,  condition,  or  exception  as 
to  whether  it  would  be  a  paying  proposition  or  not. 

Mr.  Mayo.  I  do  not  think  so. 

Mr.  MnxER.  What  does  that  mean,  that  he  does  not  have  to  do  it' 

Mr.  Mayo.  In  my  opinion,  he  would  not  have  to  do  it,  as  I  have  said  before. 
If  he  exhausted  every  known  effort,  and  still  could  not  make  it  except  at  a 
great  loss.  t^    «u  « 

Mr.  Miller.  He  can  make  it  whether  he  makes  it  at  a  loss  or  not,  can  he 

Mr.  Mayo.  I  do  not  think  he  could  do  it  very  long. 

Mr.  Miller.  That  is  like  the  story  of  the  old  clothier  who  sold  goods  at  a 
low  cost  because  he  sold  so  many  of  them.  You  can  make,  this  fertilizer  just 
as  well  If  you  make  money  out  of  the  proposition,  or  if  you  can  not,  so  far 
«s  the  physical  manufacture  is  concerned,  but  when  vou  approach  it  from  a 


r- 


310 


MUSCLE  SHOALS  PROPOSITIONS. 


financial  angrle,  it  is  not  wholly  impossible  even  from  that  angle.  What  we  are 
after  is  to  assure  our  colleagues  on  the  floor  of  the  House  that  Mr  Ford's 
company  agrees  unequivocally  and  without  condition  throughout  the  time  of 
the  lease  to  produce  yearly  at  that  plant  110,000  tons  of  ammonium  nitrate 

Mr.  Mayo.  It  does  not  seem  to  me  it  would  be  good  judgment  to  try  to  pass 
that  sort  of  an  idea  along.  You  can  not  expect  the  impossible  of  him.  I  can 
best  answer  the  question  by  saying  that  he  is  willing  to  let  the  paragraph  stand 
as  it  is. 

Mr.  Miller.  Without  any  condition  attached  to  it.  I  observed  the  statement 
you  tiled  when  Mr.  Stoll  asked  you  a  question.  Did  you  prepare  that  state- 
ment? 

Mr.  Mayo.  Yes;  Mr.  Waldo  and  myself  together  prepared  it. 

Mr.  MiLLEB.  I  would  like  to  analyze  it  because  I  heard  it  and  I  am  much 
interested  in  it. 

Mr.  Mayo.  That  is  what  it  was  made  for. 

Mr.  Miller.  Mr.  Mayo,  how  much  will  be  the  aggregate  amount  you  will 
pay  in  on  your  amortization  fund  during  the  lifetime  of  your  lease?  You 
pay  $46,746  a  year,  do  you  not?  You  pay  $19,868  on  Dam  No.  2,  semiannuallv 
and  you  pay  $3,505  on  Dam  No.  3,  semiannually. 

Mr.  Mayo.  I  think  that  is  right ;  yes,  sir. 

Mr.  Miller.  So  you  pay  $46,746  per  year.  The  period  of  your  lease  is  100 
years. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  If  you  multiply  that  amount  by  100  you  will  get  how  much? 

Mr.  Mayo.  It  is  approximately  four  and  a  half  million  dollars. 

Mr.  Miller.  All  you  pay  for  your  amortization  fund  for  the  100  years  is 
$4,670,600,  is  it  not?  You  were  speaking  of  the  Investment  of  the  Government 
gradually  being  decreased. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  In  your  statement  you  referred  to  that.  It  will  be  decreased 
$46,746  a  year  on  a  $42,000,000  investment? 

Mr.  Mayo.  Plus  the  interest? 

Mr.  Miller.  Plus  what  interest? 

Mr.  Mayo.  Plus  the  interest  it  makes. 

Mr.  Miller.  Do  not  compound  against  the  Government.  You  are  compound- 
ing against  the  Government. 

Mr.  Mayo.  I  think  not;  no,  sir. 

Mr.  Miller.  The  straight  interest  you  will  pay  is  $46,746  a  year  for  that 
period  ? 

Mr.  Mayo.  That  Is  not  interest ;  that  is  the  retirement  fund. 

Mr.  Miller.  Or  the  amortization  fund.    That  is  what  I  am  speaking  about. 

Mr.  Mayo.  To  be  put  out  at  interest. 

Mr.  Miller.  Yes;  but  you  said  it  would  decrease  the  amount  so  much. 

Mr.  Mayo.  I  aay  so  again. 

Mr.  Miller.  It  will  decrease  it  $46,746  a  year,  will  it  not? 

Mr.  Mayo.  And  plus  the  interest. 

Mr.  M1I4LER.  If  you  place  that  out  at  compound  interest  and  compound  it 
against  the  Government,  it  will  amount  to  $49,000,000  at  the  expiration  of  your 
lease,  will  it  not? 

Mr.  Mayo.  I  do  not  understand  the  language  you  use  when  you  say  "against 
the  Government." 

Mr.  Miller.  You  are  getting  the  benefit  of  that  compound  interest  if  you 
amortize  this  proposition. 

Mr.  Mayo.  Certainly. 

Mr.  Miller.  And  the  compounding  is  against  the  Government. 

Mr.  Mayo.  I  do  not  so  understand  it. 

Mr.  Mlller.  It  is  not  against  you,  is  it?  You  are  getting  the  benefit  of  it, 
are  you  not? 

Mr.  Mayo.  But  the  Government  gets  the  money. 

Mr.  Miller.  You  are  getting  the  benefit  of  the  compound  interest  in  figuring 
your  amortization  fund,  are  you  not? 

Mr.  Mayo.  So  is  the  Government. 

Mr.  Miller.  I  say  you  are  getting  the  benefit  of  that? 

Mr.  Mayo.  I  am  saying  so  is  the  Government. 

Mr.  Miller.  Then,  if  the  Government  has  that  amortization  fund  equal  to 
the  cost  of  the  dam,  it  is  compounding  it  against  itself;  there  can  not  be  any 
other  interpretation  to  It. 


MUSCLE   SHOALS  PROPOSITIONS. 


311 


Mr.  Mayo.  I  can  not  see  it ;  I  may  be  dense. 

Mr.  QuiN.  Mr.  Mayo,  the  Government  is  in  this  business  of  loaning  money 
to  the  farmers  through  the  Farm  Loan  Board,  is  it  not? 

Mr.  Mayo.  So  I  understand. 

Mr.  QuiN.  Then,  this  money  you  pay  this  Government  as  a  rental  or  for 
amortization  could  ordinarily  be  loaned  to  the  farmers  at  5  per  cent,  could  it 
not? 

Mr.  Mayo.  I  expect  so. 

Mr.  QuiN.  They  are  now  crying  for  money,  and  the  banks  can  not  let  them 
have  it.  There  would  be  no  trouble  about  investing  the  funds,  would  there, 
after  it  was  paid  in? 

Mr.  Mayo.  I  do  not  think  so. 

Mr.  Parker.  Mr.  Mayo,  referring  again  to  this  question  of  being  unable  to 
manufacture  profitably,  no  matter  how  hard  you  might  try,  I  find  that  section 
14  says  that  the  company  shall  operate  "  except  as  it  may  be  prevented  by 
strikes,  accidents,  fires,  or  other  causes  l)eyond  its  control."  Do  you  mean  to 
.say  you  consider  its  inability  to  manufacture  profitably  a  cause  beyond  it? 
control  ? 

Mr.  Mayo.  I  am  not  a  lawyer,  but  that  ivS  a  usual  phrase  in  usual  commercial 
contracts.  Mr.  Ford  stands  by  that  paragraph  and  is  willing  to  take  the  con- 
sequences. 

Mr.  Parker.  I  again  ask  the  question:  Do  you  consider  the  inability  to 
manufacture  profitably  a  cause  beyond  the  coniipany's  control,  under  that 
clause? 

Mr.  Mayo.  I  can  not  definitely  say. 

Mr.  Parker.  It  is  a  very  common  thing,  I  believe,  to  have  construction  con- 
tracts on  which  money  is  paid  out  from  time  to  time  to  the  contractors  and 
the  whole  thing  is  funded  when  the  construction  is  done. 

Mr.  Mayo.  Yes. 

Mr.  Parker.  Is  it  not  universal  that  interest  is  allowed  on  the  moneys  paid 
out  in  construction  when  the  funding  is  done  and  included  in  the  funding? 

Mr.  Mayo.  It  all  depends  on  the  arrangement. 

Mr.  Parker.  Is  not  that  the  ordinary  arrangement? 

Mr.  Mayo.  Well 

Mr.  Parker  (interposing).  It  is  to  be  paid  out  of  a  fund  in  the  end? 

Mr.  Mayo.  It  is  to  be  paid  out  of  something. 

Mr.  Parker.  Under  those  circumstances,  interest  has  to  be  added  upon  the 
amounts  paid  upon  the  initial  construction? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Parker.  Have  you  built  dams  in  a  limestone  country? 

Mr.  Mayo.  We  have  built  small  dams  in  our  country,  which  is  a  limestone 
country. 

Mr.  Parker.  You  know  the  dangers  of  a  dam  being  undermined?  Especially 
In  a  limestone  country,  with  hidden  channels  forming  under  the  limestone. 

Mr.  Mayo.  I  think  that  trouble  is  liable  to  occur  at  the  start,  if  at  all. 

Mr.  Parker.  You  do  not  think  it  is  liable  to  occur  during  the  hundred  years? 

Mr.  Mayo.  I  do  not  think  so. 

Mr.  Parker.  If  during  the  hundred  years  floods  or  an  earthquake  should 
destroy  that  dam  the  Government  would  have  to  replace  the  dam  without  get- 
ting a  thing  for  that  security? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Hill.  I  have  just  one  question  I  want  to  ask  you,  Mr.  Mayo,  in  refer- 
ence to  paragraph  14.  If  Mr.  Ford's  company  should  produce  annually  110,000 
tons  of  ammonium  nitrate,  that  would  be  in  full  compliance  with  the  contract, 
would  it  not? 

Mr.  Mayo.  It  is  not  proposed  to  make  ammonium  nitrate  at  all,  as  such. 
That  is  not  a  fertilizer  ingredient. 

Mr.  Hill.  Let  us  put  it  in  another  way.  If  Mr.  Ford's  plant  should  produce 
annually  nitrogen  or  other  fertilizer  compounds  equivalent  to  110,000  tons  of 
ammonium  nitrate  per  annum,  that  would  be  in  full  compliance  with  the  con- 
tract, would  it  not? 

Mr.  Mayo.  I  would  say  so. 

The  Chairman.  We  are  very  much  obliged  to  you,  Mr.  Mayo.  You  have 
given  us  a  great  deal  of  very  enlightening  information. 


■^^m 


MUSCLE  SHOALS  PROPOSITIONS. 


Committee  on  Military  Affairs, 

House  of  Representatives, 
Tuesday,  February  IJ^,  1922. 

STATEMENT  OF  DB.  RICHARD  C.  TOLMAN,  DIRECTOR  FIXED 
NITROGEN  RESEARCH  LABORATORY,  DEPARTMENT  OF  AGRI- 
CULTURE. 

Dr.  ToLMAN.  Mr.  Chairman,  I  represent  the  fixed  nitrogen  research  labora- 
tory of  the  Department  of  Agriculture.  We  have  carried  out  a  large  number 
of  investigations  as  to  the  best  metliods  of  utilizing  the  Muscle  Shoals  plant 
for  the  manufacture  of  fertilizer,  and  I  shall  be  glad  to  make  a  statement,  if 
you  desire,  concerning  the  kinds  of  material  that  can  now  be  manufactured 
at  that  plant,  the  kinds  of  material  that  could  be  manufactured  in  the  future 
or  might  be  manufactured  in  the  future ;  then  I  would  like  to  make  a  tentative 
statement  as  to  the  commercial  possibilities;  and  then  I  have  an  authorized 
statement  from  the  Secretary  of  Agriculture  as  to  the  attitude  of  the  Depart- 
ment of  Agriculture  toward  the  Ford  proposition. 

The  Chairman.  You  may  proceed  in  your  own  way  to  discuss  these  questions. 

Dr.  ToLMAN.  The  Muscle  Shoals  plant  is  now  designed  to  produce  two  mate- 
rials, it  is  designed  to  produce  220,000  tons  of  cyanamid  per  annum,  which  is 
later  transformed  into  ammonium  nitrate,  amounting  to  110.000  tons,  as  the 
final  product  of  the  plant.  I  have  here  a  chart  which  shows  the  stages  by 
which  this  transformation  of  nitrogen  is  carried  out.  This  particular  line 
[indicating  on  chart]  represent*^  the  raw  materials  which  come  into  the  process, 
air,  limestone,  coke,  and  a  certain  amount  of  coal  for  drying  and  heating  pur- 
poses, and  power,  which  might  come  either  from  the  Wilson  Dam  or  from  the 
steam  power  plant.  The  final  product  which  the  plant  now  makes  is  ammonium 
nitrate,  which  was  to  be  used,  mixed  with  T.  N.  T.,  in  explosives,  and  that  is 
represented  by  this  pile  of  material  here.  The  size  of  the  pile  represents  the 
approximate  daily  tonnage. 

Besides  this  final  product,  ammonium  nitrate,  which  is  now  the  product  that 
the  plant  is  designed  to  make,  it  can  make  a  variety  of  other  products.  If  the 
committee  desires,  I  can  tell  you  briefiy  about  the  different  possibilities  as  to 
what  the  plant  might  make  as  well  as  ammonium  nitrate. 

The  first  material  is  ammonium  sulphate,  and  that  would  be  made  from  the 
ammonia  by  setting  up  sulphuric  acid  units  which  were  shipped  from  the  Old 
Hickory  plant  to  make  that  material.  Another  product,  in  the  making  of 
which  we  would  employ  phosphoric  acid,  would  be  ammonium  phosphate. 
Another  product  which  could  be  made  there  by  a  method  which  we  have  worked 
out  at  the  fixed  nitrogen  research  laboratory  is  urea.  Then  we  have  ammonium 
nitrate,  which  might  well  be  made  in  certain  quantities  even  during  peace  time, 
because  it  is  used  in  peace  time  in  permissible  explosives  and  might  work  to 
some  extent  into  fertilizer  products. 

The  Chairman.  What  is  urea  used  for? 

Dr.  ToLMAN.  That  material  is  manufactured  at  the  present  time  in  Germany 
and  has  been  manufactured  to  some  extent  in  this  country.  It  is  used  at  the 
present  time,  in  the  largest  quantities,  as  a  stabilizer  for  celluloid,  and  because 
of  the  size  of  the  moving  picture  inViustry  considerable  quantities  of  urea  are 
used  for  that  purpose.  It  is  our  belief  that  this  material  is  being  imported 
from  Germany.  We  have  tried  to  work  out  at  our  laboratory  a  process  for 
this  material  which  we  believe  is  somewhat  similar  to  the  process  used  in 
Germany,  although  we  believe  we  have  some  improvements  over  the  proceiM^ 
used  by  the  Germans. 

I  have  here  a  number  of  small  bottles  containing  some  samples  of  these 
chemicals  which  the  members  of  the  committee  may  examine  at  their  leisure. 

313 


314 


MUSCLE  SHOALS  PROPOSITIONS.  • 


The  main  problem  with  ammonium  nitrate  as  a  fertilized  compound  is  that 
although  it  is  an  excellent  plant  food,  nevertheless  it  is  a  very  deliquescent 
substance,  in  other  words,  it  picks  up  water.     We  have  made*  a  number  of 
experiments  in  regard  to  the  various  possibilities  of  ammonium  nitrate  as  a 
useful   component   of  fertilizer  products.     We   have   gotten    up   methods   for 
graining  and  oil  coating  the  ammonium  nitrate,  and  you  might  sell  it  in  that 
form.     We  have  also  experimented  with  a  compound  of  ammonium  sulphate 
and  amomnium  nitrate,  which  is  a  double  salt.    This  doublt  salt  is  less  deli- 
quescent  than   the  ammonium  nitrate,   although   not   perhaps   entirely   satis- 
factory.   Another  method  is  to  take  potassium  chloride  and  mix  it  with  am- 
monium nitrate.     The  two  salts  react  together  to  form  a  mixture  which  is 
nondeliquescent,  and  that  material  contains  two  substances  which  are  useful 
in  fertilizer,  and  which  are  used  in  fertilizer  practice.     Still  another  method 
is  to  mix  ammonium  nitrate  and  potassium  sulphate  together. 
Mr.  QuiN.  I  would  like  to  know  the  meaning  of  that  term,  nondeliquescent. 
Dr.  ToLMAN.  A  deliquescent  salt  or  material,  is  a  material  which,  when  ex- 
posed to  the  air  will  pick  up  water  and  become  so  moist  that  you  can  not 
use  it  in  a  fertilizer  because  it  makes  the  fertilizer  cake.    I  have  here  a  sample 
of  ammonium  nitrate  and  if  you  expose  that  material  it  will  take  up  moisture. 
This  pile  on  the  chart  represents  a  certain  daily  production  of  cyanamid 
fertilizer.     That  is  made   from  the  first  product  that  is  produced,   namelv. 
cyanamid,  by  hydrating  and  oil  coating  it.     It  is  a  material  which  is  already 
used   to  some  extent  in   fertilizer  practice.     The  capacity  of   the  Americaii 
Cynamid  Co.  at  Niagara  Falls  is  believed  to  be  64,000  tons  per  annum,  and 
it  is  believed  that  the  largest  quantity  of  cyanamid  used  in  a  single  year  in 
America  was  in  the  neighborhood  of  40,000  tons. 
The  Chairman.  When  was  that? 

Dr.  ToLMAN.  That  was  before  the  war;  the  exact  year  I  do  not  remember. 
The  figures  were  stated  by  the  company. 

Since  the  total  capacity  of  this  plant  in  the  form  of  cyanamid,  which  is  th*^ 
cheapest  form  of  nitrogen,  which  it  produces,  would  be  220,000  tons,  it  is  not 
believed  that  ^ny  large  proportion  of  the  product  of  the  plant  could  be  sold  as 
cyanamid  .  The  material  can  not  be  used  in  mixed  fertilizers  in  large  amounts, 
for  the  following  reasons:  If  used  in  large  amounts  it  reacts  with  the  acid 
phosphate  to  destroy  its  availability  and  it  is  also  liable  to  produce  dicyanodia- 
mide,  which  is  a  poisonous  substance  to  plant  life.  It  can,  however,  be  used  in 
quantities  of  about  50  pounds  to  the  ton  of  mixed  fertilizer,  but  that  would 
not  absorb  anywhere  near  the  whole  production. 

We  have  made  experiments  which  show  that  it  can  be  more  successfully 
mixed  with  basic  phosphate,  a  material  now  produced  by  the  Tennessee  Coal  & 
Iron  Railroad  Co.  in  Birmingham,  and  that  it  can  be  mixed  with  Thomas  slag. 
a  material  which  has  been  imported  from  Europe,  and  that  it  can  be  mixed 
with  calcined  phosphate,  a  new  material  which  is  not  yet  on  the  market. 

This  small  building  with  the  string  of  bottles  is  a  plant  where  we  think 
special  chemicals  should  be  manufactured.  Nitrogen,  when  mixed  in  the  form 
of  cyanamid,  is  combined  directly  with  the  carbon  atom,  and  that  leads  to 
the  possibility  of  the  production  of  a  variety  of  chemicals  which  could  not  be 
produced  by  other  methods  of  nitrogen  fixation,  and  we  believe  the  plant  could 
produce  quite  a  variety  of  organic  chemicals. 

The  Chaibman.  That  is  what  is  being  produced  at  the  present  time? 
Dr.  ToLMAN.  The  plant  at  the  present  time  is  shut  down. 
The  Chairman.  Or  it  could  be  produced  at  the  plant  if  it  were  put  into 
operation? 

Dr.  ToLMAN.  The  plant  as  it  now  stands  is  a  real  plant.  One  year  after  they 
started  breaking  ground  their  first  product  came  through,  but  the  plant  as  it 
stands  will  only  manufacture  as  its  final  product,  ammonium  nitrate. 

Additions  to  the  plant  would  have  to  be  made  in  varying  amounts  to  manu- 
facture this  variety  of  products.  Some  of  the  additions  would  be  relatively 
unimportant,  such  as  putting  in  hydrating  and  oiling  equipment  for  treating 
the  cyanamid.  To  put  in  phosphoric-acid  furnaces  to  make  the  ammonium 
phosphate  would  be  more  expensive.  Those  are  some  of  the  possibilities  for 
the  future. 

I  have  a  set  of  samples  showing  the  different  stages  in  the  process,  a  set 
showing  the  various  fertilizer  materials  which  could  be  manufactured,  and  a 
set  of  samples  of  the  special  chemicals.  I  will  not  stop  to  explain  these  un- 
less the  committee  desires  me  to  do  so. 


MUSCLE   SHOALS  PROPOSITIONS. 


315 


The  Chairman.  You  might  explain  that. 

Dr.  Tolman.  This  first  case  shows  the  stages  of  the  process  as  now  de- 
signed to  be  used  at  Muscle  Shoals.  You  start  with  limestone,  and  coke,  and 
nitrogen  as  your  raw  materials.  You  burn  the  limestone  to  form  burnt  lime 
and  mix  it  with  the  coke  and  make  calcium  carbide.  That  is  then  ground  up 
and  put  into  a  furnace  through  which  nitrogen  is  passed,  and  you  get  your 
material  which  is  called  lime-nitrogen  pig.  Your  other  steps  continue  until  you 
get  the  present  product  now  made  there,  which  is  ammonium  nitrate.  If  in- 
stead of  treating  your  ammonia  with  nitric  acid  you  treated  it  with  sulphuric 
acid  you  will  get  ammonium  sulphate. 

Then  I  have  here  another  case  which  shows  a  considerable  variety  of  fer- 
tilizer materials  which  could  be  made  with  various  additions  to  the  plant. 
These  are  the  varieties  of  the  materials  which  could  be  made  and  I  will 
leave  these  here  with  the  committee.  Here,  for  instance,  is  cyanamid  mixed 
with  calcined  phosphate.  That  is  a  form  of  phosphate  which  could  be  suc- 
cessfully mixed  with  cyanamid,  and  here  is  the  mixed  salt  that  could  be 
made  from  annnonium  nitrate  and  potassium  chloride.  That  would  be  a 
satisfactory  material. 

This  case  shows  you  some  special  chemicals  which  can  be  made  with  the 
lielp  of  nitrogen  in  the  cyanamid  form.  There  are  only  two  substances  which 
I  would  like  to  call  special  attention  to. 

One  is  nitroguanidine,  which  is  a  substance  that  the  Ordnance  Department 
is  now  experimenting  with  as  a  constituent  of  smokeless  powder.  Nitroguani- 
dine can  only  be  obtained  from  nitrogen  in  the  cyanamid  form.  It  is  believed 
that  there  is  a  considerable  possibility  that  nitroguanidine  will  be  an  impor- 
tant constituent  of  smokeless  powder  in  the  future.  It  was  used  by  the  Ger- 
mans to  some  extent  during  the  war.  At  the  present  time  the  only  place  on 
this  continent  where  you  can  get  the  material  to  make  nitroguanidine  is  the 
plant  of  the  American  Cyanamid  Co.  at  Niagara  Falls,  Canada.  If  the  smoke- 
less powder  used  in  the  future  should  contain  50  per  cent  of  nitroguanidine, 
which  is  perhaps  an  upper  limit,  the  amount  necessary  to  keep  100  divisions  in 
the  field  per  annum  would  be  far  larger  than  the  total  output  possible  at  the 
Muscle  Shoals  plant.  The  reason  why  this  material  is  a  desirable  substance 
for  smokeless  powder  is  because  it  has  a  high  explosive  force,  and  yet  ex- 
l)lodes  with  a  very  low  temperature  rise,  is  a  pure  chemical  substance  and  is 
nondeliquescent.  In  smokeless  powder  made  out  of  nitrocellulose  the  charac- 
ter of  the  smokeless  powder  will  depend  to  some  extent  on  the  character  of  the 
cotton.  Nitrocellulose  is  not  nondeliquescent  and  is  not  as  dependable  a  sub- 
stance as  a  pure  chemical. 

Another  substance  is  veronal,  a  material  used  in  sleeping  tablets  and  that 
IS  also  manufactured  by  using  cyanamid. 

Turning  now  to  the  value  of  the  fertilizer  compounds  which  could  be  made  at 
Muscle  Shoals,  these  are  merely  samples  showing  experiments  which  have  been 
made.  I  have  quite  a  number  here.  For  instance,  this  photograph  [indicating 
photograph]  shows  the  yield  of  corn  without  any  fertilizer  being  used,  and  this 
photograph  [indicating  photograph]  shows  the  yield  of  corn  when  there  were 
80  pounds  of  phosphoric  acid  and  40  pounds  of  potash  used  to  the  acre.  The 
yield  has  gone  up.  In  this  case  [indicating  photograph]  nitrogen  was  used  as 
well  as  phosphate  and  potash.  Here  [indicating  photograph]  40  pounds  of  am- 
monia were  supplied  in  the  form  of  cyanamid. 

The  Chairman.  Let  me  ask  you  a  question  right  there.  In  the  first  basket, 
which  is  overfiowing,  was  there  no  fertilizer  used? 

Dr.  Tolman.  No  fertilizer  was  applied. 

Mr.  Garrett.  What  was  the  percentage  of  increase  there? 

Dr.  Tolman.  This  yield  was  33.6  bushels  of  corn  per  acre  without  fertilizer, 
ihis  one  was  40.4  bushels,  obtained  by  the  use  of  phosphate  and  potash,  and  this 
one  was  48.6  bushels,  obtained  by  the  use  of  phosphate,  potash,  and  40  pounds  of 
ammonia  to  the  acre  in  the  form  of  cyanamid  [indicating  respective  photo- 
graphs].   These  were  experiments  which  we  carried  out  at  Muscle  Shoals. 

(At  this  point  the  witness  exhibited  a  number  of  other  photographs  showing 
the  increased  yield  of  corn  and  cotton  obtained  by  the  use  of  nitrogen. ) 

Dr.  Tolman.  Mr.  Chairman,  I  would  like  to  try  to  make  a  tentative  statement 
as  to  the  possibilities  of  commercial  success  in  the  operation  of  the  Muscle  Shoals 
plant  for  the  production  of  commercial  fertilizer.  You  realize  this  is  a  difl[icult 
field  because  it  is  trying  to  make  predicitions  with  regard  to  the  future.  This 
IS  the  way  that  the  fixed  nitrogen  research  laboratory  feels  about  the  possibili- 
ties there. 


i 


316 


MUSCLE   SHOALS  PROPOSITIONS. 


With  nmmoniiini  sulphate  at  its  present  market  price,  in  tlie  neighborhood  of 
$50  a  ton,  if  the  Muscle  Shoals  plant  is  to  be  run  connnercially  to  produce  am- 
monium sulphate  as  its  main  product,  the  plant  can  not  be  run  and  made  to  pay 
expenses. 

If  you  regard  the  Muscle  Shoals  plant  as  mainly  producing  ammonium 
ulphate,  then  with  the  price  of  aniuionium  sulphate  at  .$65  a  ton,  the  fixed 
nitrogen  research  laboratory  feels  that  the  plant  can  just  about  pay  expenses, 
and  perhaps  make  a  little  profit,  provided  whoever  runs  the  plant  charges  himself 
with  a  low  enough  figure  for  the  water  power  which  he  uses,  and  does  not  make 
his  capital  charges  too  high.  You  might  about  break  even,  with  ammonium 
sulphate  selling  at  $65  a  ton,  if  you  charge  yourself  for  power  about  three- 
quarters  of  a  mill  per  kilowatt  hour  and  do  not  take  your  capital  charges  on 
a  sum  larger  than  five  or  ten  million  dollars.  I  have  to  say  these  are  our 
best  guesses,  because  you  can  not  make  precise  predictions  in  a  field  of  this 
kind. 

I  w^ould  also  like  to  make  a  statement  as  to  the  possibilities  of  the  Muscle 
Shoals  plant  if  you  do  not  make  anunonium  sulphate  your  main  product.  If 
you  go  ahead  and  develop  a  plant  for  a  variety  of  materials,  including  am- 
monium nitrate,  ammonium  phosphate,  urea  and  special  chemicals  of  various 
kinds,  under  these  circumstances,  I  think  the  plant  can  be  made  a  commercial 
success,  provided  the  man  who  obtains  the  plant  surrounds  himself  with  the 
proper  chemical  and  scientific  talent. 

The  Chairman.  You  spoke  about  having  an  authorized  statement  from  the 
Secretary  of  Agriculture. 

Dr.  ToLMAN.  Yes,  sir. 

The  Chairman.  Are  you  ready  to  give  that  to  us? 

Dr.  ToLMAN.  Yes,  sir;  I  have  just  reached  that  point.  I  have  the  authority 
of  the  Secretary  of  Agriculture  to  present  the  following  statement : 

"  The  Department  of  Agriculture  believes  that  the  farmers  of  the  United 
States  would  be  benefited  by  the  operation  of  the  IMuscle  Shoals  plant  to 
produce  fixed  nitrogen  for  use  in  fertilizers. 

"  The  department  understands  that  Congress  has  already  decided  against  the 
operation  of  this  plant  by  a  Government-owned  corporation,  and  that  operation 
must  be  by  a  private  individual  or  corporation. 

"  The  department  has  collected  a  great  deal  of  information  as  to  the  utiliza- 
tion of  the  plant  and  as  to  the  possibilities  for  its  future  development,  and  stands 
ready  to  cooperate  to  the  fullest  extent  possible  with  any  agency  which  may 
secure  the  plant. 

"  Concerning  the  Ford  proposal,  if  its  terms  are  sufticiently  definite  and 
binding  to  make  sure  that  the  plant  will  be  operated  continuously  for  the 
manufacture  of  fertilizer,  the  department  looks  with  favor  upon  its  acceptance, 
believing  that  it  will  result  in  making  available  a  considerably  increased  supply 
of  fertilizer  in  time  of  peace  and  give  us  assurance  of  adequate  supplies  of 
explosives  in  case  of  need.  The  department  does  not  undertake  to  pass  upon  the 
terms  of  the  contract,  or  venture  an  opinion  as  to  whether  they  are  sufficiently 
definite  and  enforcible  to  guarantee  the  continuous  manufacture  of  fertilizer." 

Mr.  Crowther.  I  would  like  to  ask  one  question.  Is  there  any  opportunity 
for  the  production  of  nitrates  at  plant  No.  1  which  proved  a  failure? 

Dr.  ToLMAN.  Yes.  sir. 

Mr.  Crowther.  That  is  a  possibility? 

Dr.  ToLMAN.  Do  you  mean  the  plant  or  the  i»rocess? 

Mr.  Crowther.  The  process. 

Dr.  Toi.?.rAN.  The  Haber  i)rocess.  I  should  like  to  say  that  I  believe  the 
Haber  process  is  a  very  important  one. 

Mr.  Crowther.  There  is  quite  a  plant  there,  is  there  not,  that  cost  about 
$13,000,000? 

Dr.  ToLMAN.  Quite  a  plant,  but  it  is  not  at  all  on  the  same  scale  that  plant 
No.  2  is  on,  and  is  not  yet  successfully  developed. 

Mr.  Crowther.  Do  you  think  that  would  be  the  plant  that  Mr.  Ford  refers 
to  in  connection  with  experimentation  and  further  production?     , 

Dr.  ToT/MAN.  I  believe  it  would  be  vei-y  important  to  carry  out  further  ex- 
perimentation on  the  method  of  fixing  nitrogen  by  the  Haber  process.  In 
fact,  there  are  many  people  who  believe  the  Haber  process  will  replace  the 
cyanamid  process.  There  is  already  more  capacity  for  nitrogen  fixation  in 
Germany  by  the  Haber  process  than  by  the  cyanamid  process. 

Mr.  Crowther.  I  do  not  understand  that  this  contract  binds  Mr.  Ford  to 
undertake  that  in  plant  No.  1 ;  his  specification  is  confined  to  plant  No.  - 
entirely. 


MUSCLE   SHOALS  PROPOSITIONS. 


317 


Dr.  ToLMAN.  Yes,  sir. 

We  have  carried  out  a  considerable  number  of  investigations  at  our  laboratory 
on  the  Haber  process.  The  main  step  of  that  process  is  to  obtain  a  catalyst 
which  will  cause  the  union  of  the  nitrogen  and  hydrogen  to  form  anunonia.  This 
is  a  sample  of  our  catalyst,  which  we  know  is  superior  to  any  catalyst  in 
America,  and  we  believe  it  is  superior  to  any  in  the  world.  It  produces  36  per 
cont  anui'onia  at  100  atmospheres,  while  the  Germans  were  getting  in  their 
plant  about  5  per  cent  ammonia  at  the  time  of  the  armistice. 

The  Chairman.  There  was  an  explosion  in  the  German  plant  about  a  year 
ago. 

Dr.  ToT.^rAN.  There  was  an  explosion  at  one  of  the  two  German  plants  that 
use  tho  Haber  process,  the  smaller  of  the  two  that  use  that  process. 

The  ('HAHUfAN.  The  loss  of  life  in  that  explosion  was  something  terrific. 

Dr.  ToLMAN.  I  believe  so. 

The  Chairman.  I  think  our  newspapers  went  on  to  say  there  were  about 
6,000  people  injured  and  killed  in  that  explosion.  Would  you  consider  that  a 
safe  process? 

Dr.  ToLMAN.  We  do  not  know  what  it  was  that  exploded  at  the  plant.  A 
committee  has  just  been  formed  in  this  country  at  the  call  of  the  president 
of  the  National  Academy  to  undertake  an  investigation  of  the  explosibility  of 
the  substances  involved  at  that  plant,  and  we  have  not  yet  received  sufficient 
information  to  tell  what  the  causes  of  the  explosion  were.  Until  we  get  that 
information  I  think  in  any  case  it  would  not  be  wise  to  condemn  the  Haber 
process.    I  feel  sure  it  can  be  operated  with  reasonable  safety. 

The  Chairman.  There  is  one  other  company  that  is  using  that  proce.ss  at 
the  present  time  in  Germany,  but  it  is  a  comparatively  small  company,  is  it 
not? 

Dr.  ToLMAN.  No ;  it  is  my  understanding  that  both  plants  are  owned  by 
the  same  company  and  the  one  which  did  not  explode  at  Merseburg  is  much 
the  larger  of  the  two.  The  Oppau  plant  was  the  smaller  of  the  two.  It  was 
nearer  the  allied  lines,  and  is  within  the  territory  taken  at  the  time  of  the 
armistice. 

The  Chairman.  I  was  of  the  impression  that  the  plant  which  did  not  ex- 
plode was  the  smaller  of  the  two. 

Dr.  Tolman.  I  think  it  is  the  other  way  around. 

Mr.  Pabkeb.  The  Haber  process  is  used  by  the  Syracuse  plant? 

Dr.  Tolman.  At  Syracuse,  I  believe,  they  are  making  about  12  tons  of  am- 
monia a  day  by  the  Haber  process. 

Mr.  Greene.  Speaking  of  processes.  Dr.  Tolman,  these  questions  which  fol- 
low will  be  those  of  a  layman.  I  do  not  understand  the  chemistry  of  this 
business,  but  I  would  like  to  get  a  little  information  in  regard  to  the  general 
principles.  It  is  reasonable  to  assume  that  you  chemists  of  agriculture  have 
pretty  well  established  what  might  be  regarded  as  standard  definite  formula 
for  the  future  regarding  the  necessities  of  the  soil  in  the  way  of  fertilizer. 

Dr.  Tolman.  Prof.  Whitney,  of  the  Bureau  of  Soils,  is  here  to  testify  and 
he  is  qualified  to  speak  on  subjects  of  that  kind.  I  am  a  chemist  and  not  an 
agronomist  or  a  water  power  expert  and  I  can  not  answer  that  question,  or 
questions  in  regard  to  the  agricultural  use  of  fertilizers  in  general,  or  ques- 
tions in  regard  to  water  power. 

Mr.  Greene.  You  have  made  some  reference  to  a  term  which  is  comparatively 
new  to  most  of  us ;  that  is  to  say,  urea.  W^hat  is  the  percentage  of  nitrate  in 
that? 

Dr.  ToL^rAN.  Forty-six  and  six-tenths  per  cent  nitrogen. 

Mr.  Greene.  How  does  that  compare  with  the  ingredients  now  commercially 
employed? 

Dr.  Tolman.  It  is  very  much  higher.  It  has  a  very  much  higher  content 
of  nitrogen  than  any  in  the  substances  now  used  in  fertilizer  practice. 

Mr.  Greene.  Approximately,  what  will  be  the  difference  in  the  percentage? 

Dr.  Tolman.  In  ammonium  sulphate  the  percentage  is  21.2.  In  the  Chile 
nitrate  the  percentage  of  nitrogen  is  15.7 ;  that  is,  95  per  cent  pure  Chilean 
nitrate. 

Mr.  Greene.  Then  it  is  the  recommendation  of  you  people  who  have  made 
experiments  with  these  things  that  any  process  or  formula  that  makes  for  the 
development  of  this  more  highly  concentrated  form  like  urea  is  an  advantage? 

Dr.  Tolman.  I  would  say  they  have  certain  advantages,  but  I  would  not  like  to 
see  anything  done  which  would  crowd  out  of  the  fertilizer  market  certain  low- 


318 


MUSCLE  SHOALS  PROPOSITIONS. 


I 


grade  materials  which  have  a  detinite  economic  place  in  the  market  at  the  pres- 
ent time. 

Mr.  Greene.  That  would  have  its  peculiar  trade  advantages? 

Dr.  ToLMAN.  It  would  have  advantages  in  the  case  of  shipping  from  place  to 
place. 

Mr.  Stoll.  How  many  tons  of  annnonium  sulphate  can  be  gotten  from  the 
110,000  tons  of  the  nitrate  you  would  produce  at  Muscle  Shoals? 

Dr.  ToLMAN.  If  we  were  going  to  make  ammonium  sulphate  there  we  would 
not  make  ammonium  nitrate.  The  total  capacity  of  that  plant  for  making  am- 
monium sulphate  would  be  in  the  neighborhood  of  190,000  tons. 

Mr.  Stoll.  That  is  in  the  shape  of  a  fertilizer  ingredient. 

Dr.  ToLMAN.  Ammonium  sulphate  is  a  material  which  is  now  used  in  standard 
fertilizer  practice. 

Mr.  Stoll.  In  what  other  forms  do  you  use  ammonia  in  the  sulphate? 

Dr.  Tolman.  Nitrate  of  ammonia 

Mr.  Stoll  (interposing).  Ammonia  for  fertilizer? 

Dr.  Tolman.  We  consider  fertilizer  nitrogen  as  so  much  ammonia,  even 
though  the  nitrogen  is  not  contained  in  the  exact  form  of  ammonia.  We  speak  of 
the  organic  ammoniates,  such  as  dried  blood,  fish  scrap,  and  garbage  tankage, 
etc.    We  speak  of  it  as  containing  so  much  ammonia. 

Mr.  Stoll.  Is  ammonia  a  scarce  element,  hard  to  get? 

Dr.  Tolman.  There  are  at  the  present  time  two  main  sources  of  ammonia — 
from  coke-oven  by-product  recovery  and  from  city  gas  manufacture.  The  coke- 
oven  by-product  recovery  is  much  the  larger  of  the  two; 

Mr.  Stoll.  Those  are  the  only  sources  we  have  now? 

Dr.  Tolman.  Except  the  Muscle  Shoals  plant  and  other  nitrogen-fixation 
plants. 

Mr.  Stoll.  Through  the  air  or  from  the  coke  ovens? 

Dr.  Tolman.  Either  through  the  air  or  from  the  coke  ovens,  and  a  small 
amount  from  gas  manufacture  for  city  gas. 

Mr.  Stoll.  Do  you  know  the  amount  that  is  being  made  from  coke  ovens  and 
from  gas? 

Dr.  Tolman.  Prof.  Whitney  can  tell  you  about  that. 

Mr.  Hull.  Doctor,  I  judge  from  your  answer  to  a  question  asked  you  some 
time  ago  that  you  think  we  should  have  something  specific  in  the  contract  we 
make  with  Mr.  Ford  in  order  to  protect  the  people  in  regard  to  overcapitalization 
on  increased  overhead  in  this  proposition,  in  order  to  make  a  success  of  the  com- 
mercial production  of  fertilizer;  is  that  true? 

Dr.  Tolman.  I  do  not  think  that  is  quite  what  I  said. 

Mr.  Hull.  I  know  you  did  not  say  it,  but  you  suggested  it. 

Dr.  Tolman.  I  think  what  I  said  was  that  you  could  not  manufacture  sul- 
phate there  at  a  profit  if  you  charged  yourself  too  large  a  quantity  for  the 
water  power  and  too  much  for  the  working  capital  which  you  put  into  the  busi- 
ness. With  regard  to  the  form  of  the  contract  which  the  Congress  should  require 
I  have  no  suggestions  to  make,  because  that  is  entirely  outside  of  my  field. 

Mr.  Hull.  You  spoke  of  the  Government  having  decided  not  to  develop  it  as  a 
Government  proposition.  You  would  not  recommend  that,  would  you?  You  are 
acquainted  with  the  difl^culties  we  w  ould  confront  if  we  undertook  to  do  that? 

Dr.  Tolman.  I  think  it  would  be  very  difficult  to  operate  the  plant  by  a 
Government  department.  That  is  somewhat  different  from  operating  it  by  a 
Government-owned  corporation.  But  so  far  as  my  ideas  on  either  of  thoso 
subjects  are  concerned,  I  have  not  had  enough  experience  to  make  any  sug- 
gestions to  you. 

Mr.  Hill.  Doctor,  I  understood  you  to  say  this  plant  had  a  capacity  of  about 
190,000  tons  of  ammonium  sulphate. 

Dr.  Tolman.  If  you  should  turn  the  fixed  nitrogen  into  ammonium  sulphate. 

Mr.  Hill.  Has  ammonium  sulphate  any  place  in  explosives  at  all? 

Dr.  Tolman.  No. 

Mr.  Hill.  I  think  I  also  understood  you  to  say  that  to  make  ammonium  sul- 
phate you  do  not  first  create  ammonium  nitrate.     Is  that  correct? 

Dr.  Tolman.  That  is  correct. 

Mr.  Hill.  The  ammonium  sulphate  is  an  ingredient  essential  to  certain  types 
of  fertilizer? 

Dr.  Tolman.  It  is  used  in  mixed  fertilizers. 

Mr.  Hill.  If  this  plant  were  run  at  its  maximum  capacity  for  fertilizer, 
which  would  be  190,000  tons  of  ammonium  sulphate,  it  would  not  have  at  tlu* 
same  time  any  capacity  for  the  production  of  nitrate,  would  it? 


MUSCLE   SHOALS  PROPOSITIONS. 


319 


Dr.  Tolman.  If  the  units  for  making  ammonium  nitrate  were  left  there,  it 
would  have. 

Mr.  Hill.  Then  you  could  not  get  190,000  tons  of  ammonium  sulphate? 

Dr.  Tolman.  Yes.  sir;  if  you  did  not  operate  the  ammonium  nitrate  units. 

Mr.  Hill.  If  you  had  the  two  separate  units,  it  would  be  a  question  of  where 
you  turned  the  power  in;  is  that  right? 

Dr.  Tolman.  If  you  are  going  to  make  ammonium  sulphate  or  ammonium 
nitrate,  down  to  this  part  of  your  process  here  [indicating],  taking  in  this 
general  range,  your  process  is  the  same.  Then  when  you  get  ammonia  gas  you 
can  run  it  into  sulphuric  acid  to  make  ammonium  sulphate,  or  you  can  take 
a  part  of  the  gas  and  run  it  into  nitric  acid  and  make  ammonium  nitrate. 
If  you  are  going  to  make  ammonium  sulphate  and  have  to  keep  the  capacity 
of  the  plant  for  making  ammonium  nitrate  you  could  cease  to  operate  a  part 
of  the  plant. 

Mr.  Hill.  Then  it  w^ould  be  a  comparatively  simple  matter  to  make  ammo- 
nium nitrate  if  it  were  necessary? 

Dr.  Tolman.  Yes,  sir. 

Mr.  Hill.  In  the  meantime  the  plant  could  be  producing  ammonium  sul- 
phate? 

Dr.  Tolman.  Yes,  sir. 

Mr.  Miller.  It  is  very  desirable,  is  it  not.  Doctor,  from  an  agricultural 
point  of  view,  that  the  production  of  ammonium  nitrate  be  encouraged  in  this 
country? 

Dr.  Tolman.  Ammonium  nitrate  or  ammonium  sulphate. 

Mr.  Miller.  Those  things  that  go  into  the  fertilizer. 

Dr.  Tolman.  You  say  is  it  desirable? 

Mr.  Miller.  I  say  it  is  desirable  that  there  should  be  encouragement  given 
to  the  manufacture  of  those  substances. 

Dr.  Tolman.  That  is  a  question? 

Mr.  Miller.  Yes. 

Dr.  Tolman.  That  is  my  belief.  Prof.  Whitney  will  testify  as  to  the  need 
of  nitrogen ;  but  that  is  my  belief ;  yes. 

(Thereupon,  at  4.25  p.  m.,  the  committee  adjourned  to  meet  to-morrow, 
Wednesday,  February  15,  1922,  at  10.30  o'clock  a.  m.) 


COAIMITTEE   ON   MILITARY   AFFAIRS, 

House  of  Representatives, 
Wednesday,  Fehruary  15,  1922. 

The  committee  met  at  10.20  o'clock  a.  m.,  Hon.  Julius  Kahn  (chairman) 
presiding. 

The  Chairman.  Gentlemen,  I  expected  this  morning  to  begin  with  the  other 
representative  of  Mr.  Ford,  but  he  has  sent  me  word  that  he  is  ill  this  morn- 
ing and  will  not  be  able  to  come  down  until  to-morrow  morning.  Dr.  Whitney, 
of  the  Department  of  Agriculture,  will  be  here  in  a  very  short  while.  The 
governor  of  Tennessee  is  here  to  testify  before  the  committee  to-day,  and  I  will 
ask  Mr.  Taylor  to  say  a  few  words  in  presenting  the  governor. 

STATEMENT  OF  HON.  J.   WILL  TAYLOB,  A  REPRESENTATIVE  IN 
CONGRESS  FROM  THE  STATE  OF  TENNESSEE. 

Mr.  Taylor.  Mr.  Chairman  and  gentlemen  of  the  Military  Affairs  Committee, 
it  certainly  affords  me  a  very  distinct  and  peculiar  pleasure  to  present  to  the 
committee  this  morning  Hon.  A.  A.  Taylor,  governor  of  Tennessee.  Perhaps 
some  of  the  members  of  this  committee  who  have  been  in  congressional  service 
a  number  of  years  remember  Alf  Taylor,  as  he  served  here  as  a  Member  of 
Congress  for  three  terms  from  the  first  congressional  district  of  Tennessee.  As 
I  said  in  the  opening,  it  is  a  very  great  pleasure  to  me  to  present  him  to  the 
committee  this  morning. 

STATEMENT  OF  HON.  A.   A.   TAYLOR,   GOVERNOR  OF  THE  STATE 

OF  TENNESSEE. 

The  Cuairman.  Gentlemen,  Gov.  Taylor,  of  Tennessee,  will  give  his  views 
on  this  Muscle  Shoals  proposition  to  the  committee.  We  will  be  very  glad 
to  hear  from  you,  Governor,  in  your  own  way. 

929#0— 22 21 


320 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


321 


Mr.  Taylor.  Mr.  Chairman  and  gentlemen  of  the  committee,  before  proceed- 
ing I  wish  to  thank  the  chairman  and  tliis  committee  on  behalf  of  my  State 
for  the  great  courtesy  that  has  been  extended  to  us  by  your  granting  us  the 
privilege  of  appearing  before  the  committee  at  this  hearing.  I  have  a  state- 
ment that  I  wish  to  read,  and  I  hope  you  will  pardon  me  for  reading  it, 
because  I  did  not  want  to  make  any  mistake,  and  I  have  therefore  reduced  the 
statement  to  writing. 

I  must  tell  the  committee  that  I  feel  a  sorrow  to  find  upon  arrival  here  that 
a  power  company  in  my  sister  State  of  Alabama,  known  as  the  Alabama 
Power  Co.,  is  perhaps  delaying  and  disturbing  this  committee's  approval  of 
Mr.  Ford's  offer  for  Muscle  Shoals.  I  am  sorry  that  my  brother  governor 
of  Alabama,  Mr.  Kilby,  is  not  here,  for  I  believe  he  would  agree  with  me  that 
the  Alabama  Power  Co.  ought  to  withdraw  its  contentions,  however  righteous 
they  are,  or  the  Alabama  Power  Co.  ought  to  change  its  name.  No  corporation 
should  bear  the  name  of  Tennessee  and  Alabama  which  oppose  the  immediate 
acceptance  of  the  Ford  offer  by  this  committee,  and  while  I  always  will  and 
shall  hope  not  to  strain  Tennessee's  hospitality  to  any  corporation  desiring 
to  build  up  the  State  of  Tennessee,  yet  I  must  say  that  no  corporation  or  indi- 
vidual is  welcome  in  Tennessee  which  opposes  the  immediate  adoption  by  Con- 
gress of  the  Ford  offer.  I  am  further  informed  that  the  street  railway  troubles 
in  two  cities  of  my  State,  Memphis  and  Knoxville,  are  being  adjusted  and  re- 
financed by  interests  in  New  York  which  are  identified  with  and  may  be  in 
control  of  the  Alabama  Power  Co.,  and  while  I  welcome  their  afforts  to  estab- 
lish the  street  railway  transportation  of  Memphis  and  Knoxville  on  a  sound 
financial  basis,  I  must  tell  them  that  if  they  are  opposed  to  the  Ford  offer  I 
hope  they  will  excuse  me  for  saying  that  they  are  not  welcome  in  Memphis  or 
Knoxville— not  welcome  in  Tennessee.  No  man,  no  interest,  no  corporation 
can  oppose  the  Ford  offer  and  be  a  friend  to  Tennessee  and  Alabama  and  their 
people  and  the  people  of  the  South. 

We  who  are  here  from  Tennessee  to-day  are  deeply  interested,  and  this  is  our 
reason  for  seeking  to  appear  before  this  committee. 

The  Tennessee  River  is  obstructed  by  the  dam  that  has  been  built.  We  used 
to  carry  our  products  down  the  river  into  the  Ohio  River  to  market,  but  all 
navigation  is  done  away  with  by  reason  of  this  obstruction. 

It  is  doubtless  true  that  the  original  intention  of  the  project  was  to  generate 
power  to  operate  machinery  to  manufacture  the  munitions  of  war,  but  now  that 
the  war  is  over,  it  is  easy  to  convert  it  into  a  plant  for  the  manufacture  of  the 
implements  of  peace. 

It  is  located  in  the  heart  of  a  great  agricultural  country ;  in  the  heart  of  a 
great  mineral  country  and  timber  section;  perhaps  the  only  virgin  hardwood 
forests  left  in  the  United  States.  The  only  reason  these  vast  resources  have  not 
been  developed  fully  has  been  the  lack  of  machinery  and  cheap  power  to  oper- 
ate it. 

The  Muscle  Shoals  project  is,  as  you  all  understand  by  this  time,  unfinished. 
The  Government  has  expended  a  great  deal  of  money,  which  will  be  lost,  lost 
forever,  if  the  project  remains  unfinished.  In  the  nick  of  time  there  steps  for- 
ward a  man  who  proposes  to  lease  it  and  operate  it  if  the  Government  will  fin- 
ish it. 

It  is  my  privilege  to  be  acquainted  with  that  gentleman,  and  my  conduct  with 
him  has  given  me  confidence  in  him  as  a  very  superior  man.  If  I  needed  nn  in- 
dorsement of  him  to  increase  my  confidence  in  him,  the  indorsement  of  one  man 
would  be  suflicient  for  me.  Mr.  Edison  said  in  my  presence  that  the  immensity 
of  the  power  to  be  generated  by  that  plant  when  completed  was  impossible  to 
conceive  of,  and  the  results,  industrially,  to  the  United  States,  of  the  completion 
and  operation  of  that  plant,  were  inconceivable  also.  At  the  same  time  he  said 
that  Mr.  Ford  is  the  man  to  take  hold  of  iti  and  operate  it.  He  is  the  man  be- 
cause of  his  ability,  because  of  his  business  sound  judgment,  and  because  he  has 
the  money. 

Now,  this  is  the  indorsement  of  Thomas  A.  Edison,  whom  I  regard  as  the 
est  man  alive  to-day.  If  invention  is  the  chief  civilizer  of  mankind.  Thomas  A. 
Edison  has  done  more  to  advance  civilization  than  any  living  man,  for  he  is  un- 
questionably the  greatest  inventive  genius  of  the  age. 

The  completion,  gentlemen  of  the  committee,  of  this  dam  means  a  great  deal 
to  the  United  States  and  to  us;  in  fact,  it  means  almost  everything.  We  are 
down  in  the  dumps.    We  are  depressed.    We  want  this  Congress  to  start  some- 

I  doubt  if  you  have — I  know  that  this  committee  has  not 


great- 


( 


thing 


to  give  us  hope. 


had  before  it  a  question  of  so  great  and  of  such  far-reaching  importance  as  the 
question  now  before  you  since  this  committee  had  under  consideration  the 
proposition  to  provide  an  American  army  to  participate  in  the  AVorld  W^ar. 

Why,  the  completion  and  operation  of  the  Muscle  Shoals  project,  gentlemen, 
means  new  enterprises.  It  means  new  fields  for  the  employment  of  labor.  It 
means  the  creation  of  new  wealth.  It  means  the  enlargement  of  the  basis  of 
taxation.    It  means  new  life,'  new  hope. 

One  of  my  brothers  remarked  that  it  was  in  the  South  and  "  what  do  we  care 
for  the  South ;  we  are  taking  care  of  our  own  section." 

Now,  gentlemen,  we  are  here  not  to  try  to  champion  the  cause  of  any  particular 
State  or  any  particular  section.  We  are  Americans  and  we  believe  that  whatever 
is  good  for  one  section  is  good  for  all.  When  the  Government  of  the  Unitetl 
States  was  expending  $116,000,000  in  the  interests  of  irrigation  in  the  different 
sections  of  the  West,  we  of  the  South  rejoiced.  We  said  amen !  We  did  not 
object  to  the  building  of  the  Roosevelt  Dam,  which  cost  so  many  millions.  We 
did  not  object  to  the  Government  of  the  United  States  donating  about  120,000,000 
acres  of  the  public  domain  to  induce  the  building  of  railroads  into  those  unde- 
veloped sections,  to  secure  to  them  transportation.  We  said  amen!  What  is 
good  for  the  great  West  is  good  for  the  South.  What  is  good  for  New  England 
is  good  for  the  whole  country. 

We  ought  not  to  allow  these  local  prejudices  to  have  anv  weight,  and,  of 
course,  they  will  not  before  this  patriotic,  intelligent  committee. 

We  were  divided  once.  Thank  God,  we  are  all  together  now.  There  have 
be^n  two  periods  in  this  country  since  we  were  divided  and  hostile  when  we 
were  absolutely  a  unit.  We  were  united  in  sentiment  and  in  purpose.  North 
South,  East,  and  West,  in  the  Spanish-American  War,  when  the  first  blo<xi 
spilled  in  that  war  was  the  blood  of  a  son  of  the  South.  We  were  absolutely 
a  unit  in  the  recent  World  War  when  the  sons  of  the  West,  and  of  the  South 
and  of  the  North,  and  of  the  East  marched  shoulder  to  shoulder  to  the  front' 
and  turned  the  tide  of  battle ;  and  I  do  not  mean  any  reflection  upon  any  other 
military  aggregation  in  that  great  army,  because  any  division  of  the  Ameri- 
can Army  could  have  done  the  same  thing,  but  it  so  happened  that  the  Thirtieth 
Division,  composed  of  South  Carolinians,  Georgians,  and  Tennesseeans  were 
first  to  cross  the  Hindenberg  line.  * 

Now,  gentlemen,  pass  this  measure,  start  the  wheels  of  industrv  to  work 
create  this  new  wealth,  broaden  this  basis  of  taxation,  National,  'state  and 
county;  do  this  thing,  accept  this  Ford  proposition,  and  I  guarantee  to  vou 
that  every  vestige  of  any  lingering  sectional  prejudice  that  mav  exist  will  be 
obliterated  forever. 

I  have  detained  you  long  enough.    There  are  other  gentlemen  here  with  me 
who  are  better  able  to  impart  information  than  I  am.    I  want  to  again  thank 
you  for  this  great  privilege  you  have  granted  this  delegation  from  Tennessee 
,v.  .      Chairman.   Governor,   would   you   object   to   answering  any  questions 
that  members  of  the  committee  desire  to  ask?  questions 

Mr.  Taylor  If  I  can  not  answer  them,  I  have  gentlemen  with  me  who  can 
nn^o^-  V^'  ^^^'^"^<>^:  ^o<^  to  embarrass  you  at  all,  I  would  like  to  ask  one 
question  for  my  own  information.  I  have  not  been  to  Muscle  Shoals  but  I 
have  read  some  articles  about  Muscle  Shoals  and  have  tried  to  inform  mvself 
My  information  is  that  the  shoals  at  the  present  time  and  in  the  present  'state 
of  the  development  prevented  any  navigation,  commercially,  up  the  Tennessee 

tCuX'^h^  shoal^^^'*    ^  '"'^^'  ^'''™  ^''"'  '^'''^'^'  ^^^^  thereNvas  navigatio^ 

Mr.  Taylor.  Yes,  sir. 
thpt^wJ''-'  ^^,^^^*^  ^^l^""}  was  there  commercial  navigation?    I  understand 
100  feet      '^         ''''^''  ^^^^^"^  "^""^  "'^*  '*  '^  ^  ^^^^  ^^P^*^  ^^*1  «^  some 

a  ]lffJi^^\^^^i  'f  *''"^'  ^""^  ^^  '"^^  ^^^^  ^'^^  ^a^se  boats  we  have  to  wait 
a  little  for  a  tide,  but  we  got  along  pretty  well.    I  remember  that  my  father 

bv  ^r^  l^?^  ^^^^.  flatboats  down  the  river  loaded  with  iron  to  the  Ohio  River 
f>J  way  of  the  Muscle  Shoals. 

ti ..f!!'  ?^.^^'  ^t^'    ^^®  "^^  *^  navigate  on  the  Mississippi  when  we  had  low 
h.  nf^    "*  we  have  found  recently  that  unless  you  keep  over  2  feet  of  wateT 

l^i:^Tn  Z  Snessee?"  ''^'  ''^^^  ^^  "^  ^^""^^^'^-^^^  ^^^^^^"^  -  -^ 
-It^iro^do^^n'^^^^^^^^^^^  ov^r^tle'shoa^s.^'^^^^  ^^^'^'  ''^''''  ''^''^  ^"^  ^'^^^'^ 


km 


322 


MUSCLE   SHOALS  PROPOSITIONS. 


Mr.  Hull.  I  understand  that,  but  was  there  any  real  navigation?  I  am  try- 
ing to  be  informed  on  this  matter.  Were  there  any  commercial  companies 
transporting  grain  down  the  Tennessee  River  and  transporting  other  things  up 
the  river  through  these  shoals? 

Mr.  Taylor.  There  was  a  canal,  sir,  5  feet  deep.  It  was  not  large  enough 
for  a  very  large  boat,  of  course. 

The  Chairman.  Is  not  your  condition  down  there  somewhat  like  the  condi- 
tion over  in  Canada,  where  they  have  boats  especially  to  go  through  the  rapids? 

Mr.  Taylor.  Yes    sir. 

The  Chairman.  And  so  you  could  always  get  through  with  a  man  who  un- 
derstood where  the  rapids  were  and  so  on? 

Mr.  Taylor.  Yes,  sir. 

Mr.  Garrett.  Governor,  unfortunately,  I  did  not  get  here  until  after  you 
had  started  your  statement.  As  I  understand  it,  you  indorse  this  proposition 
made  by  Mr.  Ford,  in  its  entirety,  regardless  of  any  other  criticism. 

Mr.  Taylor.  I  certainly  do ;  yes,  sir,  and  I  speak  the  sentiments  of  every  man, 
woman,  and  child  in  my  State. 

The  Chairman.  Gentlemen,  this  morning  I  expected  to  be  able  to  call  Mr. 
Worthington,  of  the  Ford  forqes,  but  Mr.  Worthington  this  morning  sent  me 
word  that  he  was  ill  and  in  bed  and  was  not  able  to  be  out.  Therefore,  Dr. 
Whitney,  of  the  Department  of  Agriculture,  has  kindly  consented  to  tell  his 
story  regarding  the  Muscle  Shoals  matter. 

Dr.  Whitney,  the  committee  will  be  very  glad  to  hear  you,  and  you  may  pro- 
ceed in  your  own  way,  stating  for  the  benefit  of  the  record  your  name  and  the 
position  you  occupy. 

STATEMENT  OF  DR.  MILTON  WHITNEY,  CHIEF  OF  THE  BUREAU 
OF  SOILS,  UNITED  STATES  DEPARTMENT  OF  AGRICULTURE. 

Dr.  W^hitney.  Mr.  Chairman,  as  Chief  of  the  Bureau  of  Soils,  which  has  the 
consideration  of  the  fertilizer  material  problem,  we  have  for  a  long  while 
studied  the  materials  available  for  use  on  the  soil  in  increasing  crop  production. 

Some  20  years  ago  Sir  William  Crooks  in  addressing  the  British  association 
made  the  announcement  that  if  we  did  not  work  out  methods  of  supplying  our- 
selves with  fixed  nitrogen  the  limit  of  the  production  of  wheat  would  soon  be 
reached.  This  put  the  world  on  record,  gave  them  notice  that  there  was  one 
very  material  step  to  be  taken  to  find  some  way  to  get  an  independent  supply  of 
nitrogen,  additional  to  anything  that  we  now  have,  in  order  to  keep  pace  in 
our  crop  production  with  the  needs  of  the  world. 

When  the  European  war  first  started,  before  we  got  into  it,  we  recognized 
the  importance  in  this  country  of  finding  a  method  of  fixing  nitrogen  for  the 
use  of  our  farmers.  We  knew  that  a  great  amount  of  the  nitrogen  that  was 
available  would  be  diverted  to  war  purposes.  We  therefore  constructed  in  the 
Bureau  of  Soils  at  the  Arlington  farm  one  of  the  first,  if  not  the  first,  unit  of 
the  Haber  process  of  fixing  nitrogen.  We  investigated  other  proposed  methods^ 
but  decided  that  this  was  the  best.  When  this  country  went  into  war  we  hatl 
the  unit  in  operation  as  a  testing  plant,  as  a  small  unit,  and  the  War  Depart- 
ment took  that  over,  enlarged  it  somewhat,  and  after  the  signing  of  the  armis- 
tice moved  it  from  the  Arlington  farm  to  the  American  University,  where  we 
have  continued  to  cooperate  in  the  perfection  of  this  exceedingly  difficult  method. 

Regardless  of  what  any  interests  say,  it  is  the  deliberate  feeling  of  thP 
scientific  men  of  the  world  that  the  time  has  come  when  it  is  essential  for  agri- 
culture that  v.e  have  an  independent  source  of  supply  of  fixed  nitrogen. 

The  fertilizer  industry,  as  you  all  know,  is  a  comparatively  new  industry. 
We  discovered  our  first  phosphate-rock  deposits  in  18G5,  and  others  shortly 
afterwards;  and  the  potash  deposits  of  Germany  in  about  the  same  tinie^ 
Nitrates  and  nitrogen  were  not  used  for  agriculture  until  the  early  part  ot 

the  last  centurv* 

The  first  shipload  of  nitrate  of  soda  sent  over  to  London  at  the  Instigation 
of  Humboldt,  or  as  a  result  of  his  travels,  lay  In  the  vessel  until  it  waff  dnmpea 
overboard.    No  one  would  venture  to  try  this  new  fertilizer  for  crops. 

In  1830  a  second  shipment  was  sent  over,  which  was  sold,  distributed,  an^ 
used.  Gentlemen,  after  all  the  years  of  civilization,  the  use  of  nitrate  of  soda  ^ 
that  is,  the  use  of  something  that  comes  from  outside  the  farm,  from  outsuit 
the  country — was  stiirted  in  1830.  - 

The  fertilizer  industry  was  started  a  little  bit  earlier  by  the  digesting  <'i 
bones  in  sulphuric  acid.'    They  were  mainly  the  bones  of  the  farm  that  were 


MUSCLE  SHOALS  PBOPOSITIONS. 


323 


cracked  up  and  treated  with  sulphuric  acid.  This  was  started,  I  tJiink,  by 
some  person  in  Scotland  about  1780.  Now,  you  have  the  beginning  of  the  ferti- 
lizer industry. 

You  can  see  that  it  is  not  a  very  old  industry.  The  fertilizer  industry  has 
grown  up  as  a  scavenger  industry.  They  have  collected  old  bones ;  they  have 
searclied  the  plains  for  bulfalo  bones;  they  have  gathered  up  all  of  the  bones 
from  domestic  slaughterhouses.  Those  were  the  first  things  that  were  com- 
monly used.  The  industry  has  now  attained  very  large  proportions,  but  it  has 
never  been  put  on  a  real  chemical  basis. 

This  material  that  is  gathered  up  from  the  cities  and  as  waste  materials 
from  the  factories  and  either  used  as  it  is  or  processed  has  been  the  chief 
source  of  our  supplies. 

The  time  has  come,  however,  gentlemen,  when  we  must  look  to  large  and 
more  independent  sources.  We  can  not  depend  upon  the  waste  products.  Let 
me  tell  you  what  we  are  depending  upon  now,  and  which  is  only  sufficient  to 
fertilize  the  crops  of  the  Eastern  States.  Our  great  commercial  crops  of  corn 
and  wheat  are  not  fertilized  at  the  present  time.  They  have  got  to  be,  if  we 
keep  pace  with  the  needs  of  tlie  world. 

In  ammonia  we  have  nitrate  of  soda,  which  comes  from  Chile  and  for  which 
we  dei)end  upon  a  foreign  source.  That  is  the  only  source  of  nitric  acid  also, 
and  that  supply,  which  is  scraped  up  off  of  the  arid  plains  and  crystallized  out, 
is  the  only  source  of  nitric  acid  for  the  entire  world.  All  the  world  is  bidding 
for  that. 

Then  we  have  sulphate  of  ammonia  which  is  produced  in  our  coke  ovens,  but 
the  supply  of  sulphate  of  ammonia  is  limited  by  the  amount  of  iron  civilization 
needs.  No  one  would  think  of  coking  coal  for  the  value  of  the  ammonia.  It 
is  a  mere  by-product,  and  the  amount  that  we  get  is  strictly  limited  by  the 
amount  of  coal  that  is  coked  for  use  in  the  iron  industry.  Then  we  have 
cottonseed  meal  which  is  a  very  low  carrier  of  ammonia.  It  has  about  7  per 
cent  of  nitrogen,  or  a  little  over  8  per  cent  of  ammonia.  The  amount  of  that 
is  limited  by  the  amount  of  cotton  we  need  for  our  clothing.  We  would  never 
think  of  growing  cotton  for  the  cottonseed  meal. 

Furthermore,  while  the  amunt  of  nitrogen  is  low  as  compared  with  other 
materials  that  we  use  for  fertilizers,  the  protein  content  of  the  cottonseed 
meal  is  quite  high.  It  is  35  to  40  per  cent  of  protein  which  we  need  for  stock- 
feeding  purposes.  So  that  as  a  feeding  material  cottonseed  meal  is  one  of 
the  high-grade  materials  that  we  are  using  more  and  more  for  feeding  pur- 
poses. 

Now,  we  in  the  Department  of  Agriculture  recognize  that  cottonseed  meal  is 
an  admirable  fertilizer,  but  if  it  can  be  used  for  feed  and  the  material  is  fed 
directly  to  the  animals,  you  do  not  have  the  uncertainties  of  the  climate  that 
we  have  when  we  apply  cottonseed  meal  to  the  soil  in  the  hope  and  expecta- 
tion that  we  will  raise  a  larger  crop.  We  have  the  feeding  value  in  itself, 
and  it  is  better  to  use  it  as  feed  than  as  fertilizer.  The  same  thing  is  true  of 
animal  tankage  or  dried  blood  which  we  get  from  our  slaughterhouses.  The 
amount  of  nitrogen  that  we  draw  from  that  source  is  limited  by  the  amount 
of  cattle  we  slaughter.  We  will  never  rai^e  cattle  and  slaughter  them  for 
fertilizer  uses. 

Now,  it  happens  that  the  animal  tankage  and  the  dried  blood,  while  they 
have  a  larger  nitrogen  content  than  cottonseed  meal,  are  also  valuable  as 
feedstuflfs,  and  the  tendency  now  is.  and  the  desire  of  the  department  is,  to 
favor  the  use  of  tankage  and  of  dried  blood  for  feeding  purposes  rather  than 
for  fertilizers. 

During  the  war  the  question  was  debated  in  the  department  whether  we 
should  issue  an  order  that  no  cottonseed  meal  and  that  none  of  the  organic 
materials  that  we  use  for  fertilizers  now  that  are  fit  for  feeding  cattle — that 
they  all  should  be  debarred  from  use  for  fertilizers,  and  the  question  was  put 
up  to  me.  I  said  it  would  be  a  very  desirable  thing,  "  but  you  have  got  to  give 
the  farmers  a  source  of  nitrogen  supply  to  take  the  place  of  what  you  propose 
to  withdraw  from  them." 

This  gives  you  an  idea,  gentlemen,  of  the  limitations  on  the  nitrogen  supply 
for  the  farmers  now,  and  upon  the  need  that  we  can  make  of  those  things  if 
we  apply  them  to  other  things,  provided  we  can  get  a  fixed  supply  of  nitrogen 
from  some  other  source. 

I  think  you  will  find — I  know  you  will  find  that  it  is  the  sentiment  of  the 
scientific  men  of  the  world  and  of  all  those  who  have  looked  into  these  matters 


-> 


324 


MUSCLE  SHOALS  PROPOSITIONS. 


that  the  world  now  needs  an  independent  supply  of  fixed  nitrogen  for  fertil- 
izers to  maintain  the  yield  of  crops. 

Now,  at  the  same  time  that  we  were  considering  the  nitrogen  supply,  we 
looked  into  the  phosphoric-acid  supply  at  the  Bureau  of  Soils.  We  found  that 
the  methods  of  mining  and  of  treating  the  phosphate  rock  were  exceedingly 
crude  and  very  wasteful.  I  think  you  will  find  in  some  instances  that  some- 
thing like  68  or  70  per  cent  of  the  rock  that  was  mined  of  this  valuable  deposit 
upon  which  the  world  is  dependmit  for  all  time,  that  68  or  70  per  cent*  of  the 
rock  was  thrown  on  the  dumps  because  it  was  not  suitable  for  the  manufacture 
of  acid  phosphate  by  the  sulphuric-acid  method. 

Furthermore,  when  you  have  a  phosphate  rock  that  carries  68  per  cent  of 
tricalcium  phosphate  and  32  per  cent  of  phosphoric  acid,  the  commercial  method 
is  to  mix  it  in  about  equal  weights  with  sulphuric  acid  of  a  certain  concentration. 
One  part  of  rock,  one  part  of  acid  brought  together,  a  chemical  reaction  sets  in, 
and  you  have  the  ordinary  16  per  cent  acid  phosphate  made  out  of  a  32  per  cent 
rock.  So  that  you  have  diluted  it,  you  have  added  something  to  it.  You  have 
increased  its  weight  twice  in  order  to  distribute  the  material  that  you  want. 
This  is  uneconomical. 

.  Now,  the  method  we  used  for  treating  this  rock,  which  I  think  I  may  say 
is  the  beginning  of  this  talk  about  concentrated  fertilizer,  was  to  take  the 
phosphate  rock  and  add  to  it  some  connnon  sand,  and  add  to  that  some  powdered 
coke.  There  is  another  advantage  in  this.  If  we  take  the  high-grade  rock 
which  is  selected  for  treatment  with  sulphuric  acid,  we  have  to  add  sand.  If  we 
take  the  run  of  mine  rock,  part  of  which  is  rejected  because  of  its  impurities, 
we  do  not  have  to  add  the  sand,  except  possibly  just  to  finish  off  the  proper 
proportions.  So  that  we  can  often  take  rock  that  has  been  rejected  by  the 
miners  and  mix  it  with  coke  and  heat  it  in  an  electric  furnace,  using  the 
Cottrell  precipitator,  which  we  were  the  first  ones  to  try,  and  we  can  get  a 
phosphoric  acid  that  looks  very  much  like  the  sulphuric  acid,  but  which  has 
different  properties.  This  is  brought  down  in  a  form  more  or  less  concentrated. 
This  [indicating]  is  76  per  cent  of  phosphoric  acid,  and  the  rest  is  water.  If 
we  get  the  phosphoric  acid  out  at  a  proper  concentration  and  cool  it.  we  get  the 
crystallized  phosphoric  acid  which  is  100  per  cent  pure.  All  of  the  impurities 
have  l)een  left  behind  in  the  slag,  and  we  have  this  beautiful  crystallized  phos- 
phoric acid.  I  think  the  committee  would  like  to  see  this.  I  doubt  if  they 
have  ever  seen  it  because  I  had  never  seen  it  until  we  had  prepared  it. 

An  interesting  thing  in  this  connection  is  the  fact  that  this  phosphate  rock 
is  treated  commercially  with  sulphuric  acid,  and  the  rock  has  to  be  pure, 
otherwise  it  will  use  up  so  much  sulphuric  acid  that  its  manufacture  will  be 
unprofitable. 

In  the  treatment  of  the  phosphate  rock  with  sand,  we  have  another  acid 
here,  ordinary  sand  silica,  and  that,  when  liquid— and  it  liquefies  at  a  tempera- 
ture of  about  1,500  or  1.600  degrees,  has  the  same  acid  properties  that  the 
sulphuric  acid  has  at  ordinary  temperatures.  So  that  by  using  this  in  a  liquid 
form,  it  acts  on  the  phosphate  rock.  It  combines  with  the  lime  and  sets  free 
the  phosphorus  or  phosphoric  acid,  and  we  get  a  complete  recovery  of  the 
r»hosphorus,  and  a  complete  separation  of  all  the  impurities  which  we  do  not 
get  with  the  sulphuric  acid. 

Now,  Mr.  Chairman,  we  have  then  a  phosphoric  acid  which  in  its  present 
form  is  not  adapted  to  plants  at  all;  plants  would  be  entirely  unable  to  live 
in  this  solution  as  it  is  now. 

From  the  Haber  process  or  from  the  cyanamid  process  we  get  annnonia 
gas  which  is  perfectly  colorless.  You  would  not  think  there  was  anything  there 
until  you  removed  the  stopper,  and  then  you  have  a  very,  very  pungent  odor, 
similar  to  the  ammonia  of  commerce.  This  also,  in  its  present  form,  is  not 
adapted  for  use,  but  if  this  ammonia  gas  is  led  into  this  liquid  phosphoric  acid, 
then  you  get  a  salt,  an  ammonium  phosphate  which  has  12  per  cent  of  nitrogen, 
and  61  per  cent  of  phosphoric  acid.  Eliminating  all  impurities,  you  just  have  a 
salt,  all  of  which  will  pay  its  freight. 

The  ordinary  method  of  taking  care  of  this  anmionia  gas  is  to  lead  it  into 
sulphuric  acid,  and  if  you  pass  this  gas  into  sulphuric  acid,  you  get  ammonium 
sulphate;  you  get  crystals  of  ammonium  sulphate.  This  is  what  you  use  on 
your  crops.    This  is  something  with  which  you  are  all  familiar  [indicating]. 

Now,  let  me  call  your  attention  to  the  wasteful  method  of  the  manufacturer. 
To  make  this  sulphuric  acid  he  has  to  bring  pyrites  from  Spain  or  sulphur 
from  Louisiana,  burn  it,  and  in  the  burning  has  to  use  a  considerable  amount 
of  nitrate  of  soda  and  other  things  to  get  sulphuric  acid.     He  has  this  very 


MUSCLE  SHOALS  PROPOSITIONS. 


325 


corrosive  un'xture.  sulphuric  acid,  which  will  destroy  this  table  or  anything 
with  which  ir  conies  in  contact ;  but  he  does  get  ammonium  sulphate,  but  the 
sulphuric  acid  i§  simply  a  fixer,  is  simply  a  carrier,  is  simply  something  that 
puts  it  in  cimdition  under  which  plants  will  take  it  up.  They  will  not  take  it 
up  in  this  form. 

Now,  instead  of  using  sulphuric  acid,  which  is  merely  a  carrier,  which  has 
no  value  in  itself,  which  pays  no  freight,  and  which  adds  an  impurity,  gypsum, 
to  the  prosphate  rock,  if  that  ammonia  gas  is  led  into  phosphoric  acid,  which 
also  can  not  be  used  by  itself,  then  you  get  this  concentrated  fvmmonium 
phosphate  which  can  be  used  and  which  is  more  valuable,  pound  for  pound, 
than  ammonium  sulphate,  because  it  has  the  nitrogen  and  it  has  the  phosphoric 
acid,  while  the  ammonium  sulphate  has  only  the  ammonia  and  the  sulphuric 
acid,  which  has  no  value  at  all. 

Now,  Mr.  Chairman,  in  considering  the  fertilizer  industry  and  in  consider- 
ing the  possible  changes  in  the  methods  of  the  fertilizer  manufacturers,  many 
of  which  are  exceedingly  wasteful,  for  example,  in  order  to  make  up  their 
particular  brands  of  2-8-2,  or  4-8-4,  they  have  to  get  materials  that  they  can 
mix  together ;  that  is,  with  no  chemical  change  and  no  loss  from  mixing.  They 
also  have  to  get  low-grade  materials  because  they  can  not  make  out  of  high- 
grade  fertilizer  materials  low-grade  mixtures  without  adding  fillers.  The 
fertilizer  manufacturers  are  very  sensitive  about  this  question  of  adding  filler, 
but  what  they  do  is  to  import  kainite  from  Germany.  Kainite  has  12  per  cent 
of  potash. 

The   Chairman.  What   is   that? 

Dr.  Whitney.  Kainite.  They  import  kainite  which  has  12  per  cent  of  potash 
and  88  per  cent  of  worthless  material.  They  pay  the  freight  on  it  and  they 
use  it  in  their  low-grade  mixtures.  They  could  just  as  well  import  muriate 
of  potash  which  carries  50  per  cent  of  potash  and  50  per  cent  of  impurities, 
but  if  they  use  muriate  of  potash  in  their  low-grade  fertilizers,  they  have  got 
to  add  that  88  per  cent  of  filler  that  was  left  over  on  the  German  soil.  If 
they  bring  that  high-grade  potash  and  do  not  bring  the  low-grade,  then  they 
would  be  compelled  to  use  a  filler;  that  is,  sand  or  peat  or  anything  that 
would  dilute  it  up,  so  that  they  could  conform  to  their  formula  of  2-^2  and 
have  so  much  in  a  ton  of  2,000  pounds. 

The  Chairman.  What  does  that  formula  mean,  two  parts  of  what? 

Dr.  Whitney.  Two  parts  of  ammonia,  8  per  cent  of  phosphoric  acid,  and  2 
per  cent  of  potash. 

The  Chairman.  Does  that  simplify  the  matter  so  that  the  scientific  men  who 
are  working  on  this  thing  can  understand  it  better? 

Dr.  Whitney.  Yes,  it  is  intelligible  to  them,  and  it  is,  I  think,  to  the  farmers, 
because  they  have  come  to  speak  in  those  same  terms. 

The  Chairman.  Would  it  not  be  better  if  you  could  speak  of  the  products 
themselves  without  referring  to  the  component  parts. 

Dr.  Whitney.  Possibly  so.  I  may  have  to  do  both,  and  I  will  be  sure  to 
do  both  if  I  use  the  one. 

Mr.  Greene.  Doctor,  very  likely  some  of  us  who  do  not  understand  about 
fertilizers  and  are  profiting  greatly  by  your  instruction,  would  like  to  know 
why  this  vehicle  containing  the  fertilizer  compound  is  necessary;  in  other 
words,  why  add  this  great  bulk  of  useless  matter  to  it?  Why  is  it  not  dis- 
tributed upon  the  ground  in  its  pure  form? 

Dr.  Whitney.  That  is  the  point  I  am  coming  to. 

Mr.  Greene.  All  right. 

Dr.  Whitney.  The  possibilities  of  that  have  not  been  realized  until  the  re- 
searches of  the  Bureau  of  Soils  have  shown  the  possibilities. 

I  am  going  to  propose  to  you  now  a  formula  here,  a  complete  fertilizer,  that 
can  be  made  from  fixed  nitrogen  and  from  phosphoric  acid,  and  from  potash 
in  one  and  the  same  plant. 

It  is  possible  to  get  the  ammonia  from  the  Haber  process  or  from  the  cyana- 
mid process.  That  is  admitted.  Then  it  is  also  admitted  that  that  ammonia  can 
be  oxidized  to  nitric  acid  so  that  we  can  make  both  ammonia  and  nitric  acid 
in  the  same  process  in  the  same  factory.  If  ammonia  and  nitric  acid  are  com- 
bined, you  get  ammonium  nitrate.  Now,  this  can  be  made  in  the  same  process. 
It  can  be  made  at  Muscle  Shoals. 

Ammonium  nitrate  has  a  nitrogen  content  of  35  per  cent,  exceeilingly  con- 
centrated; 35  per  cent  against  7  per  cent  for  cottonseed  meal.  It  also  has 
nitrogen  present,  in  both  the  ammonia  form  and  in  the  nitric  acid  form,  which 
is  considered  of  importance  by  the  farmers.     Now,  if  we  have  ammonium 


t 


i. 


i 


326 


MUSCLE  SHOALS  PROPOSITIONS. 


nitrate  and  if  we  have  ammonium  phosphate,  Which  I  have  already  shown 
you  that  you  get  by  leading  ammonia  gas  into  phosphoric  acid  prepared  by 
the  furnace  method,  then  you  can  get  potassium  phosphate  into  this  mixture. 
The  potassium  phosphate  can  be  made  in  several  ways.  One  of  the  proposed 
ways — and  I  am  not  sure  that  it  will  be  successful  because  we  have  not 
finished  our  investigations — is  instead  of  using  sand  in  our  mixture  of  phos- 
phate rock  andi  coke,  to  use  the  potash  shales  that  carry  about  8  per  cent  of 
potash;  just  dump  that  in  with  the  phosphate  rock  and  the  coke  in  proper 
proportions,  and  the  theory  is  that  we  will  obtain  potassium  phosphate  in  that 
way,  in  one  and  the  same  operation. 

Mr.  QxjiN.  Could  you  answer  this  question?  Is  there  a  relationship  between 
potash  and  this  potassium  phosphate? 

Dr.  Whitney.  Yes;  the  potash  goes  into  combination  with  the  phosphoric 
acid  and  gives  a  potassium  phosphate.  Here  is  the  salt  [indicating].  It  is 
proposed  to  manufacture  that,  but  the  details  of  manufacture  have  not  yet 
been  worked  out  as  well  as  these  others. 

Now,  if  we  take  a  mixture,  therefore,  of  ammonium  nitrate,  of  ammonium 
phosphate,  and  of  potassium  phosphate,  which  can  be  mixed  in  any  proportion, 
and  I  have  mixed  them  here  in  this  bottle,  so  that  in  this  sample  of  fertilizer 
there  is  12.29  per  cent  of  nitrogen,  49.17  per  cent  of  phosphoric  acid  and  12.29 
per  cent  of  potash. 

You  now  have  a  mixture  which  has  the  fertilizer  materials  in  the  proportion 
of  2-8-2;  that  is,  2  per  cent  of  nitrogen,  8  per  cent  of  phosphoric  acid,  and 
2  per  cent  of  potash ;  but  if  you  wanted  to  dilute  this  in  accordance  with  the 
custom  in  the  fertilizer  factories,  you  would  have  to  add  83.73  per  cent  of  a 
filler,  and  you  would  have  to  pay  the  freight  and  the  tonnage  on  84  per  cent 
of  material  that  is  of  no  value  to  anyone  except  possibly  to  enable  them  to 
spread  it  more  uniformly  on  the  ground.  There  are  not  any  impurities  in  this 
material,  there  is  no  filler  necessary,  and  every  part  of  this  mixture  carries 
its  own  freight,  and  none  of  it  occupies  useless  space  in  the  freight  car. 

The  Chairman.  Let  me  understand  you.  Can  you  simply  use  the  product  and 
spread  it  over  the  soil  without  any  filler  or  anything  added  to  it?  If  so,  will  it 
then  act  just  as  well  as  a  fertilizer? 

Dr.  Whitney.  Oh,  yes.  This  has  all  the  necessary  properties.  The  filler  you 
may  put  in  if  you  want  to.  Now,  that  brings  up  a  question  which  the  fertilizer 
men  have  asked 

The  Chaibman  (interposing).  Could  you  tell  us  why  they  put  the  filler  in? 

Dr.  Whitney.  They  put  it  in  because  it  has  become  a  custom,  because  they 
have  sold  these  brands  which,  as  I  have  told  you.  have  generally  been  made  of 
scavenger  material.  They  have  put  this  up  in  this  form  and  have  gotten  the 
farmers  used  to  it.  The  farmer  is  now  beginning  to  get  away  from  that  practice. 
He  is  himself  buying  nitrate  of  soda.  He  knows  how,  and  he  is  capable  of  using 
the  concentrated  form  of  nitrate  of  soda,  which  has  19  per  cent  of  ammonia. 
He  can  be  trusted  to  apply  that.  He  is  also  using  acid  phosphate — 16  per  cent 
acid  phosphate.  This  formula  I  suggest  has  doubled  that  amount  of  phosphoric 
acid.    I  think  if  he  can  use  it  in  the  one  strength  he  can  use  it  in  the  other. 

The  Chairman.  Suppose  he  were  to  use  it  in  excess  of  the  strength  that  you 
give? 

Dr.  Whitney.  We  have  these  different  mixtures. 

The  Chairman.  What  I  mean  is  this:  You  say  he  can  use  it  without  the  filler? 

Dr.  WhTtney.  Yes,  sir. 

The  Chairman.  Suppose  in  spreading  that  over  the  soil  he  gets  too  much  of 
the  concentrated  stuff  in  any  particular  portion  of  his  farm ;  what  would  happen? 

Dr.  Whitney.  He  will  very  likely  injure  his  crops,  just  as  he  injures  his  crop 
now  if  he  puts  on  too  much  acid  phosphate  or  lets  the  seed  get  too  close  to  the 
acid  phosphate,  or  if  he  puts  on  too  much  of  the  nitrate  of  soda. 

The  Chairman.  Then  it  would  be  necessary  for  him  to  study  this  proposition 
very  carefully  so  that  it  would  work  out  properly  on  his  farm? 

Dr.  Whitney.      O,  yes ;  he  has  had  to  do  that. 

Mr.  Fields.  The  farmer  can  do  the  same  thing  by  using  it  with  filler,  by  ap- 
plying too  much  of  it,  can  he  not?  I  have  seen  farmers  burn  up  their  crops  in 
that  way. 

Dr.  Whitney.  Yes. 

Mr.  Garrett.  As  I  understood  the  inquiry  of  the  chairman  it  was  this:  Ac- 
cording to  your  formula,  out  of  a  ton  of  so-called  fertilizer  as  now  distributed  by 
the  manufacturers,  you  would  have  320  pounds  of  that  mixture  in  a  ton,  and  1,680 
pounds  of  filler? 


MUSCLE  SHOALS  PROPOSITIONS. 


327 


Dr.  Whitney.  Yes. 

Mr.  Garrett.  The  process  of  distribution  by  the  farmers  now  is  by  machinery 
that  has  been  adapted  to  that  work,  so  that  he  can  so  drill  and  arrange  his  ma- 
chinery as  to  distribute  any  number  of  pounds  he  wishes  over  an  acre  of 
ground.  Now,  then,  I  understood  from  the  chairman's  inquiry  it  was  whether 
by  the  use  of  machinery  it  would  be  possible  for  the  farmer  now  to  readjust  him- 
self and  distribute  320  pounds  of  concentrated  fertilizer  where  he  had  heretofore 
to  distribute  2,000  pounds? 

Dr.  Whitney.  That  is  a  very  fair  question.  It  has  to  be  met  in  one  of  two 
ways.  Our  fertilizer  distributors  are  not  very  satisfactory  as  we  have  them 
now.  The  makers  of  farm  machinery  have  got  to  devise  better  machines  for 
applying  fertilizers.  You  all  know  that  those  we  have  are  none  too  satisfac- 
tory. If  it  is  desired  to  mix  a  filler  with  this  so  as  to  get  it  more  dilute, 
this  can  be  mixed  with  sand  or  with  peat,  or  any  material  you  want.  It  can 
be  mixed  on  the  farm,  it  can  be  mixed  at  the  distributing  point,  by  the  dealer, 
or  it  can  be  mixed  by  the  farmer. 

The  Chairman.  That  explains  my  point  of  inquiry.  If  you  will  kindly  pro- 
ceed, we  will  be  obliged  to  you.    I  am  very  sorry  to  have  interrupted  you. 

Dr.  Whitney.  There  have  to  be  adjustments.  This  is  not  going  to  take 
place  all  at  once.  This  is  looking  to  the  future;  this  is  looking  to  the  time 
when,  instead  of  8,000,000  tons  of  fertilizer  we  may  have  to  produce  16,000,000 
tons,  or  even  more  than  that.  It  is  a  question  of  providing  the  material  and 
putting  it  in  concentrated  form,  and  the  question  of  how  it  is  to  be  applied 
has  to  be  worked  out  by  the  farm  machinery  men  or  by  the  manufacturers, 
or  the  farmers  themselves. 

Mr.  Fields.  The  farmer,  in  applying  this  concentrated  fertilizer  to  the  soil, 
will  have  to  follow  the  instructions,  just  as  he  follows  the  instructions  now  in 
applying  the  fertilizer  which  he  gets  from  the  dealer. 

Dr.  Whitney.  Yes ;  he  has  to  take  care. 

Mr.  Fields.  He  has  to  be  careful  to  follow  instructions  under  the  present 
system? 

Dr.  Whitney.  Yes.  Of  course,  in  getting  a  ton  of  fertilizer  now  you  pay 
all  the  freight  on  2,000  pounds.  You  get  an  equivalent  amount  of  fertilizer 
material  and  pay  the  freight  on  320  pounds  by  this  other  method. 

Mr.  Garrett.  That  is  what  I  wished  to  develop  there  in  connection  with  the 
process  of  mixing  after  it  gets  to  the  farmer.  He  would  have  to  pay  freight 
on  1,680  pounds  of  filler  in  each  ton  of  fertilizer. 

Dr.  Whitney.  That  is  what  I  mean  now  in  reference  to  concentrated  fer- 
tilizers. Of  course,  there  are  intermediate  grades.  For  instance,  when  you 
take  this  rock  phosphate  and  treat  it  with  phosphoric  acid  you  can  get  a  double 
or  a  triple  superphosphate  that  carries  45  to  50  per  cent  of  phosphoric  acid. 
That  is  a  great  advance  over  what  we  have  been  doing  over  the  method  we 
have  been  pursuing.  But,  strange  to  say,  that  concentrated  phosphate  is  in 
very  little  demand.  If  we  leave  more  of  the  filler  in  Florida  or  in  Tennessee 
and  deliver  to  Baltimore  a  concentrated  acid  phosphate  that  contains  45  or  50 
per  cent  of  phosphoric  acid,  the  manufacturer  in  using  it  in  his  mixtures  is 
obliged  to  restore  to  it,  in  order  to  get  his  formula,  the  impurities  that  equal 
those  that  have  been  left  in  Florida  or  Tennessee. 

I  have  spoken  of  the  formula  2-8-2.  I  have  here  also  mixtures  of  other 
kinds.  Here  is  one  of  10  per  cent  nitrogen,  8  per  cent  of  phosphoric  acid,  and 
4  per  cent  of  potash.    That  is  equally  satisfactory  as  a  mixture. 

The  Chairman.  Is  that  referred  to  as  10-8-4? 

Dr.  Whitney.  That  would  be  10-8-4,  and  it  is  a  highly  nitrogenous  fertilizer. 
Here  is  one  which  is  called  4-8-10,  which  contains  4  per  cent  of  ammonia, 
8  per  cent  of  phosphoric  acid,  and  10  per  cent  of  potash,  which  would  be  some- 
thing like  what  they  use  in  the  potato  fields  of  Maine.  And  they  can  be 
mixed  in  all  proportions. 

^  Mr.  Fields.  The  character  of  the  mixture,  or  the  proportion  of  the  mixture, 
IS  determined  by  the  character  of  the  soil  to  which  it  is  to  be  applied? 

Dr.  Whitney.  Yes. 

Mr.  Fields.  And  the  crop  to  be  grown? 

Dr.  Whitney.  Yes.  Mr.  Chairman,  there  is  a  situation  in  the  fertilizer  in- 
dustry now  that  is  difficult  to  explain  and  difficult  to  understand. 

When  the  war  came  on  we  knew  that  potash  would  be  denied  us  by  an 
embargo  on  the  German  potash  salts.  Congress  authorized  investigations 
to  find  possible  sources  of  potash  in  this  country.    We  found  that  we  have  an 


328 


MUSCLE  SHOALS  PROPOSITIONS. 


ample  supply  of  potash  in  this  country  for  our  needs.     It  is  a  question  of 
manufacturing   costs. 

The  Bureau  of  Soils  feels  that  we  will  eventually  be  able  to  supply  our  needs, 
but  that  is  a  prediction  that  I  want  you  to  take  with  caution,  because  it  is  tied 
up  with  manufacturing  enterprises,  and  the  potash  is  generally  a  by-product. 
So  that  while  we  know  we  can  get  the  potash  under  stress,  the  question  of 
how  much  we  can  produce  in  competition  with  the  foreign  supply  is  one  that 

we  can  not  answer. 

At  the  present  time,  or  in  1920,  the  fertilizer  numufacturers  estimated  a 
tonnage  for  1921  of  around  8,000,000  tons.  As  you  will  remember,  the  break 
in  the  business  markets  of  the  world,  in  the  farmers'  prices  which  they  were 
able  to  get  for  their  products,  and  the  manufacturers'  prices  for  their  products 
began  to  appear  in  Washington  about  February.  1920.  The  indications  were 
not  sure,  but  we  rather  looked  for  a  break  to  come. 

In  March,  the  manufacturers  contracted  for  their  ammonium  sulphate  at 
prices  then  prevailing.  They  contracted  for  their  ammonium  sulphate  in 
March  of  1920  for  the  season  of  1921.  Now,  by  May  and  June,  the  break  was 
very  pronounced.  The  farmers  had  experienced  their  losses  of  revenue,  and 
by  the  time  the  fertilizer  men  decided,  or  were  deciding  on  their  prices,  from 
November  to  December,  1920,  the  market  in  fertilizer  materials  had  broken  and 
had  gone  to  pieces,  and  by  the  time  the  farmers  began  to  buy  in  the  spring  of 
1921,  the  market  was  completely  demoralized.  The  actual  sales  of  fertilizer 
materials  which  it  was  anticipated  would  be  about  8,000.000  tons  in  1921,  was 
approximately  4,500,000  tons,  due  to  lack  of  buying  power.  That  left  the 
manufacturers  with  a  large  amount  of  material,  of  high-priced  material,  to 
carry  over  in  1922.  Now,  the  difficulty  of  bringing  down  prices  where  mate- 
rial has  been  carried  over  for  two  years  is  very  great.  But  it  happens  If  their 
anticipations  are  correct,  that  the  market  for  1922  will  not  be  much  larger 
than  the  market  for  1921,  then  they  have  a  large  part  of  their  material  that 
they  will  need  in  1923,  which  was  actually  bought  under  contract  prices  of 
the  spring  of  1920. 

Now,  there  is  no  price  for  fertilizers.  There  is  no  price  for  fertilizer  mate- 
rials. It  is  a  buyer's  market;  you  can  get  the  material  for  what  you  are 
willing  to  give.  At  the  present  time  there  is  a  large  excess  of  nitrate  of  soda 
in  this  country;  there  is  a  large  excess  of  ammonium  sulphate,  although  the 
dealers  will  tell  you  there  is  a  great  activity.  But  there  is  an  excess  of  am- 
monium sulphate,  although  it  is  less  than  it  Would  have  been  if  there  had  not 
been  a  shut  down  of  the  iron  and  coke  ovens.  There  is  a  large  excess  of  potash 
salts  in  this  country,  imported.  They  imported  last  year  about  the  i^anie 
amount  as  they  imported  in  1913,  but  the  purchasing  power  was  gone  and  the 
price  now  is  down  below  the  1913  price.  To  make  any  statement,  to  make  any 
prediction  of  the  amount  of  material  that  will  be  needed  right  now  is  very 
difficult.  We  have  these  surplus  conditions  in  all  lines  of  business;  it  is  ad- 
mittedly abnormal.  What  we  must  look  at  here  is  not  what  the  conditions  are 
to-day,  but  what  they  will  be  when  we  return  to  a  normal  situation.  They 
anticipated  8,000,000  tons  of  fertilizers  to  be  called  for  last  year.  If  it  had 
not  been  for  the  intervention  of  the  war  and  the  fact  that  during  the  war 
period  we  saw  no  increase  in  fertilizer  production,  instead  of  having  8,000,000 
tons  we  should  have  expected  a  market  of  about  10,000,000  tons,  because  there  is 
a  pretty  steady  increase  of  about  7^  per  cent  per  annum  in  the  consumption 
of  fertilizers.  That  is  as  close  an  estimate  as  can  be  made,  so  that  we  should 
be  looking  for  10,000.000  tons  of  fertilizers  before  very  long,  and  we  would 
have  had  them  if  it  had  not  been  for  the  war.  When  the  demand  is  increasing 
at  that  rate  it  is  becoming  more  and  more  difficult  to  get  adequate  supplies  of 
ammonia,  and  that  is  the  limiting  condition.  We  have  plenty  of  phosphoric 
acid,  and  we  are  searching  very  diligently  for  potash.  We  can  get  it  anyway 
from  European  sources.    But  the  nitrogen  is  the  limiting  condition. 

If  we  have  the  fixed  nitrogen  products  we  have  got  to  change  our  fertilizer 
system  in  order  to  use  those  fixed  nitrogen  products  to  the  best  advantage,  an<l 
now  is  the  time,  in  the  United  States,  to  change  the  whole  system  and  adopt  a 
new  standard. 

The  Chairman.  Doctor,  the  members  of  the  committee  wMU  probably  like  to 
ask  some  questions  in  reference  to  the  statement  you  have  "made.  Is  it  your 
opinion  that  the  Muscle  Shoals  nitrate  plant  No.  2  would,  therefore,  be  of  essen- 
tial value  in  the  fertilizer  business  in  the  United  States,  if  it  is  carried  on  con- 
stantly? 


MUSCLE   SHOALS  PROPOSITIONS. 


329 


Dr.  Whitney.  Mr.  Chairman,  I  would  rather  not  answer  that  question  for  the 
reason  that  I  have  had  nothing  to  do  with  the  Muscle  Shoals  project,  except  in 
an  advisory  capacity  in  regard  to  what  might  be  made  there.  I  know  nothing 
of  the  plans  of  operating  it.  I  can  only  say  that  the  fixed  nitrogen  products  that 
we  obtain  from  either  the  Haber  process  or  the  cyanamid  process  we  consider 
essential  to  the  future  welfare  of  this  country.  Those  things  are  made  there 
"but  whether  the  Muscle  Shoals  plant  should  be  continued  under  Government 
ownership  or  private  ownership  I  would  not  like  to  pass  an  opinion  on. 

T^e  Chairman.  The  testimony  before  the  committee  is  to  this  effect  as  I 
recall  it.  Mr.  Ford  is  willing  to  buy  nitrate  plant  No.  2  and  also  nitrate  plant 
No.  1,  the  Waco  quarry,  the  transmission  line,  which  is  about  88  miles  long,  and 
one  or  two  other  things ;  but  his  representative  stated  yesterday  before  the  com- 
mittee that  he  proposed  to  use  nitrate  plant  No.  1,  not  for  the  manufacture  of 
fertilizers  but  for  the  manufacture  of  automobiles.  Nitrate  plant  No.  2,  which 
uses  the  cyanamid  process,  Mr.  Ford  is  willing  to  use  for  the  manufacture  of 
that  material  which  is  necessary  in  fertilizers.  So  that  Mr.  Ford's  offer  is  not 
really  for  continuing  both  plants  for  the  manufacture  of  nitrates.  He  wants  to 
use  only  the  one  plant  for  that  purpose.  That  is  the  testimony  before  the  com- 
mittee at  the  present  time,  as  I  recall. 

Dr.  Whitney.  Mr.  Chairman,  knowing  nothing  about  the  plans  of  Mr.  Ford 
and  knowing  nothing  about  the  Muscle  Shoals  outfit,  I  can  only  say  that  froni 
the  agricultural  point  of  view  there  is  all  the  appearance  of  fitness  for  the 
nianufacture  of  concentrated  fertilizers,  and  any  plans  that  will  make  possible 
the  manufacture  of  nitrogen  fixed  products  and  the  concentrated  fertilizer  vou 
can  get  by  that  would  be  a  great  thing  for  the  American  people.  If  we  do 
not  get  It  at  Muscle  Shoals,  we  will  have  to  get  it  somewhere  else.  As  the 
building  IS  erected  and  as  the  factory  is  completed,  it  would  seem  to  me  if 

atThaT^ohif  ^^^  ^^  "'^^^  *^^^  ^^^"^^  ^®  ^^^^  ^^  encourage  the  production 

Mr.  Greene.  Doctor,  I  suppose  the  basis  of  all  farm  fertilization  now,  in  the 
light  of  modern  science,  must  be  soil  analysis? 

Dr.  Whitney.  No;  it  is  the  results  obtained  from  the  trying  of  fertilizer 
.^K  ?^^Ti-.  ^^"  analysis  has  failed  us  completely  as  a  method  of  determining 
what  fertilizer  is  required. 

exJilrimenTrthinf^  "'^^  ^^  '^  determined  simply  by  localized  and  specialized 

Dr.  Whitney.    Yes,  sir. 

"  ^K^^'-.^^^^i"'^'   ^?^  ^^^^'^  ^^^"^'  ^^^^^  ^«™^  experience,  demonstrates  the  result 
that  It  needs  certain  kinds  of  fertilizer. 

Dr.  Whitney.  It  is  one  man's  farm  extended  over  a  similar  tvpe  of  soil 
\\e  would  go  as  far  as  that,  and  in  the  soil  surveys  we  are  making  we  antici- 
plate  that  there  will  be  certain  fertilizer  treatments  for  certain  types  of  soils 
But  provided  always  that  the  farm  has  been  handled  in  a  thorough-going  up-to- 
Hate  manner.  Gentlemen,  regardless  of  your  farm,  regardless  of  your  soil  vou 
must  remember  that  the  market  needs  a  product  of  the  joint  effort  of  a  man 
and  of  a  soil.  The  man  is  the  intelligent  and  directing  head  of  that  partnership, 
and  he  is  responsible  for  the  maintenance  of  conditions  in  the  soil  just  the 
«ame  as  you  say  he  is  responsible  for  maintaining  your  animal  in  a  good  condi- 

Mr  Greene.  What  I  wanted  to  get  at  was  whether  you  have  some  more  or 
iess  fundamental  basis  upon  which  every  man  fertilizes  his  farm-  that  is  to 
say  that  there  are  certain  recognized  principles  which  vary  with  localities  and 
Character  of  soil,  and  start  right  in  on  the  use  of  fertilizers,  with  his  knowledge 
of  the  local  conditions.  ^ 

Dr.  Whitney.  It  is  based  upon  empirical  information  at  the  present  time 
and  It  has  been  based  upon  empirical  information,  no  matter  what  the  claims 
ot  the  scientists  may  be.    It  has  been  based  upon  trials  made  here  and  there 

Mr.  Greene.  We  will  assume  that  after  such  experimentation  the  farmer 
arrives  at  what  may  be  regarded  as  a  safe  standard  for  the  fertilization  of 
ms  soil.  Does  he  experience  any  change  in  that  standard  through  the  accumu- 
iated  use  of  fertilizers  that  have  this  large  content  which  is  merely  a  vehicle 
lor  the  introduction  of  new  soil  and  new  elements? 

Dr.  Whitney.  Mr.  Chairman,  the  experiences  of  the  scientists  of  the  world 
m  respect  to  the  fertilizer  trials  on  land  has  been  very  peculiar,  and  it  is  very 
interesting  It  forms  a  very  interesting  chapter  in  the  narrowness  of  view 
with  which  we  start  out.  Seventy  years  ago  Sir  John  Laws,  who  was  then 
interested  in  making  superphosphates  of  lime  by  sulphuric  acid  treatment  of 


9 

I 


330 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


331 


bones,  in  association  with  Liebig,  and  in  controversy  with  Liebig  as  to  the 
value  of  things,  started  a  series  of  experiments  with  a  large  number  of  fer- 
tilizer materials.  Those  have  been  running  continuously  for  over  70  years. 
Now  that  we  are  looking  at  this  intently,  the  fertilizer  men  or  soil  men  are 
studying  things  as  they  never  have  studied  them  before.  This  is  what  we  find, 
that  the  Rothamsted  station  has  shown:  The  wheat  in  the  unfertilized  plot 
has  decreased  rather  steadily  from  about  18  bushels  per  acre  to  about  9  bushels 
per  acre.  On  the  plots  where  complete  fertilizers  have  been  used  for  each  one 
of  these  70  years  the  yield  shows  an  increase  over  the  check  plot,  a  continuing 
increase  for  about  10  years,  and  then  there  is  a  sudden  break,  and  the  yield 
follows  the  check  plot;  that  is,  tlie  increase  is  maintained,  but  as  the  check 
plot  is  decreasing  so  are  the  fertilized  plots  decreasing  after  the  first  10  years 
in  proportion  to  the  decreasing  yield  of  the  unfertilized  plot. 

This  matter  has  recently  come  out.  It  has  not  been  recognized.  Very  re- 
cently a  gentleman  was  here  from  the  Rothamsted  station  to  confer  with  us 
about  these  and  other  matters,  and  I  said,  "  You,  in  your  wisdom,  thought  you 
could  establish  a  method  or  could  find  out  a  method  70  years  ago,  a  treat- 
ment which,  if  projected,  would  continue  to  serve  you  throughout  all  time. 
You  find  now  that  over  a  paltry  10  years  you  obtained  an  increase,  but  that 
since  that  time  your  soils  have  been  going  down."  Now,  as  I  said,  the  English 
gardener  has  met  that  situation  by  a  change  of  method  of  handling  his  soil. 
The  English  gardener  started,  or  the  English  farmer,  300  years  ago,  with  an 
average  yield  of  12  bushels  of  wheat  per  acre.  If  he  had  adopted  the  Rotham- 
sted scheme  at  that  time  he  would  have  gone  up  to  a  certain  amount  and  then 
he  would  have  gone  down.  Now,  instead  of  that,  he  has  continued  to  go  up; 
he  has  not  been  satisfied  with  the  methods  that  he  was  using  300  years  ago, 
but  he  has  changed  his  methods  so  the  yield  on  the  English  farm  as  increased 
from  12  busels,  300  years  ago,  to  32  bushels  at  the  present  time,  and  they  have 
done  better  than  they  have  done  at  the  Rothamsted  experiment  station,  by 
meeting  the  conditions. 

Now,  I  said  to  this  gentleman,  "What  are  your  experiences  during  the  70 
years?  Look  back  and  tell  me  what  it  is  you  have  noted?  "  He  said  there  have 
been  great  changes  in  the  appearance  of  the  soil ;  there  have  been  changes  in 
the  character  of  the  weeds,  of  native  vegetation.  Some  of  them  have  become 
so  foul  with  weeds  that  we  can  not  handle  them.  We  have  to  get  laborers 
to  pick  the  weeds  out  by  hand,  and  some  of  the  soils  have  run  together  where 
nitrate  of  soda  has  been  used,  and  where  the  soils  have  run  together  during 
these  70  years  they  are  less  easily  worked.  I  said,  "  Now,  an  English  gardener 
would  have  seen  those  changes  as  they  came  up ;  he  would  not  have  waited  70 
years;  he  would  have  met  the  situation,  he  would  have  seen  those  indications 
of  change  and  would  have  remedied  it."    That  is  the  difference. 

Mr.  Greene.  What  I  wanted  principally  to  get  at  was  whether  you  people 
are  now  satisfied  yourselves,  by  such  experience  as  has  been  had,  that  with  the 
constant  fertilization  and  refertilization  of  a  given  plot  of  ground  under  the 
old  method  in  which  the  real  fertilizer  compound  is  a  comparatively  small 
percentage  and  the  rest  is  a  great  vehicle  to  convey  it,  the  addition  of  that  useless 
matter  from  other  soils  from  other  places,  such  as  sand,  eventually  accumulates 
in  such  proportion  on  the  soil  that  it  changes  the  character  of  the  soil  and 
therefore  ought  to  lead  to  new  kinds  of  fertilization  of  it. 

Dr.  Whitney.  I  would  not  say  that ;  we  have  no  reason  to  say  that. 

Mr.  Greene.  Then  are  we  as  laymen  to  be  satisfied  that  so  far  as  the  present 
knowledge  runs  in  the  chemistry  of  the  earth,  the  great  laboratory  that  the 
farmer  employs  has  arrived  at  an  approximate  safe  standard  so  far  as  we  can 
see,  as  to  the  use  of  certain  elemental  chemical  compounds? 

Dr.  Whitney.  Yes. 

Mr.  Greene.  And  is  not  likely  to  vary  from  them? 

Dr.  Whitney.  There  will  be  some  variation,  but  we  think,  after  our  ex- 
perience in  all  these  years,  that  this  is  a  safe  thing.  We  may  improve  them; 
I  have  no  doubt  in  the  world  that  we  will  improve  them.  This  is  just  the 
first  step  in  our  knowledge  of  the  soils.  We  know  that  these  fertilizers  increase 
the  yield,  but  we  do  not  know  how  they  increase  it.  That  is  a  very  important 
study,  the  question  of  how  the  fertilizers  get  on  the  soils.  That  is  a  very 
important  subject  that  we  have  got  to  understand. 

Mr.  Greene.  That  leads  to  the  only  question  that  I  could  propose  to  you, 
with  my  limited  information,  that  might  give  me  light  on  the  present  problem. 
Have  we  reason  to  expect  that  for  the  century  ahead  of  us  we  shall  depend 
upon  nitrates? 


Dr.  Whitney.  Yes;  we  have. 

Mr.  Greene.  That  at  least  is  an  elementary  proposition? 
Dr.  Whitney.  Yes.    We  will  depend  on  nitrates  or  phosphoric  acid,  and  on 
potash. 

Mr.  Greene.  And  the  changes  are  likely  to  be  such  derivatives  of  certain 
chemicals  of  that  character,  or  a  form  of  adaptaJ;ion  and  mixture,  or  their 
application? 

Dr.  Whitney.  Yes;  those  are  the  changes. 

Mr.  Greene.  The  basic  will  possibly  be  the  same? 

Dr.  Whitney.  That  is  what  we  believe. 

Mr.  Greene.  So  that  this  present  contract,  which  appears  very  attractive  for 
the  manufacture  of  nitrates,  is  not  likely  to  become  depreciated  in  the  course  of 
time  by  some  subsequent  discovery  of  science  as  will  beyond  question  put  that 
product  out  of  further  use? 

Mr.  Whitney.  No  ;  we  do  not  see  any  signs  of  it. 

Mr.  Greene.  I  believe  you  said  you  were  not  familiar  with  the  mechanical 
side  of  the  proposition  down  there  and  as  to  whether  Mr.  Ford  would  probably 
be  able  to  follow  up  those  changes,  you  do  not  feel  qualified  to  speak? 

Dr.  Whitney.  No  ;  I  know  nothing  about  his  plans. 

Mr.  Parker.  Dr.  Whitney,  you  spoke  of  the  good  experience  of  the  English 
farmer.  I  have  always  understood  that  the  English  farmer  got  nitrogen  by 
rotation  of  crops  and  stall  feeding  of  cattle.    Does  he? 

Dr.  Whitney.  Yes ;  he  gets  part  of  it  in  that  way. 

Mr.  Parker.  He  uses  that  much  more  than  our  farmers  do,  does  he  not? 

Dr.  Whitney.  He  uses  it  more  intelligently. 

Mr.  Parker.  Our  farmers  neglect  rotation  of  crops  very  much,  do  they  not? 

Dr.  Whitney.  Yes.  Our  farmers  have  been  on  their  farms  but  a  short  time, 
too  short  a  time  to  really  become  acquainted  with  their  soil  type.  The  English 
farmer  has  been  on  his  farm  through  generations.  They  have  come  down  on 
the  same  type  of  soil.  Still  more  striking  is  the  situation  in  the  case  of  the 
Japanese  farmer.  The  Japanese  farmer  values  his  oldest  soils,  and  I  aske<l 
one  of  them  what  he  meant  by  old.  I  asked  that  question  of  a  professor  of 
the  University  of  Tokyo,  and  he  said,  "  Our  history  goes  back  to  6,000  years 
ago."  They  value  the  older  soils  more  than  they  do  the  new  ones,  because 
they  have  a  knowledge;  they  have  that  under  control,  and  it  is  safer.  The 
last  census — that  is,  the  census  of  1910 — showed  that  54  per  cent  of  our 
farmers  had  not  been  on  their  farms  five  years.  See  what  a  contrast  that  is. 
Less  than  five  years  on  their  farms!  They  can  not  have  acquired  that  knowl- 
edge, that  skill,  that  intuition,  that  control  over  their  soil  that  is  necessary 
in  that  time.    Does  that  answer  your  question? 

Mr.  Parker.  It  does;  but  yet  it  does  not  get  to  the  point  I  would  like  to 
bring  out.  What  are  the  methods  they  use;  that  is,  the  Japanese  and  the 
English?    They  are  perfectly  open,  are  they  not? 

Dr.  Whitney.  Oh,  yes. 

Mr.  Parker.  Those  methods  have  been  successful,  continuously,  while  the 
application  of  chemicals  failed  after  10  years? 

Dr.  Whitney.  Yes. 

Mr.  Parker.  What  are  those  methods? 

Dr.  Whitney.  Those  methods  are  the  result  of  experience. 

Mr.  Parker.  What  are  they? 

Dr.  Whitney.  It  is  intuition. 

Mr.  Parker.  What  particular  means  do  they  use? 

Dr.  Whitney.  No  one  can  tell.  It  is  like  the  care  of  an  animal.  A  gentle- 
man came  to  me  not  long  ago  with  a  sad  tale  about  a  Holstein  cow  from 
which  he  had  been  deriving  seven  gallons  of  milk  a  day,  which  was  more  than 
his  family  needed.  It  had  gone  down  to  less  than  a  gallon  a  day.  I  aske<l 
him  if  his  cow  was  sick  or  showed  any  signs  of  distress.  He  said  no ;  that  the 
cow  was  feeding  all  right.  I  said,  "Have  you  changed  your  man?"  "Yes," 
he  said ;  "  I  remember  about  six  months  ago  I  changed."  "  Now,"  I  said,  "  you 
had  better  get  rid  of  the  man  you  have  and  get  back  the  man  who  understands 
the  nature  of  that  cow."  It  is  a  matter  of  experience.  You  can  not  lay  down 
a  line  of  development. 

Mr.  Parker.  I  can  ask  you  as  to  some  of  the  methods  I  have  heard  of.  What 
is  the  effect  of  the  use  of  turnips  and  rutabagas  on  the  soil? 

Dr.  Whitney.  It  changes  the  style  of  cultivation. 

Mr.  Parker.  Does  it  add  either  nitrogen  or  phosphorus  or  potash? 

Dr.  Whitney.  No. 


iB' 


4;|li 


1- 


332 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


333 


Mr.  Parker.*  As  to  the  use  of  beans  and  peas;  they  add  nitrogen,  do  they  not? 
Dr.  Whitney.  Yes ;  they  are  the  leguminous  crops. 
Mr.  Parker.  And  add  nitrogen  in  quite  large  quantities? 
Dr.  Whitney.  Yes;  in  considerable  quantities. 

Mr.  Parker.  Do  they  cost  as  much  to  use  as  the  chemicals  we  buy? 
Dr.  Whitney.  That  is  rather  difficult  to  answer.  If  they  can  be  raised^ 
and  if  they  are  of  value  in  "themselves,  it  is  all  right.  But  when  they  are  used 
as  a  seasonal  crop  and  have  in  themselves  no  particular  value,  no  market 
value,  they  do.  For  instance,  if  you  grow  cowpeas  and  give  up  the  use  of  the 
land  for  an  entire  season  to  grow  cowpeas,  it  would  be  cheaper  to  buy  chemicals. 
Mr.  Parker.  Does  not  the  English  farmer  always  insist  upon  the  rotation 
of  crops? 

Dr.  Whitney.  Oh,  yes ;  but  they  have  different  ones  for  different  types  of  soil. 

Mr.  Parker.  They  have  rotation  of  crops  lasting  through  four  or  five  years> 
have  they  not? 

Dr.  Whitney.  Oftentimes  they  do. 

Mr.  Parker.  What  about  the  Japanese? 

Dr.  Whitney.  They  also  rotate  their  crops.  They  have  a  much  more  intense 
system  of  rotation.    They  often  raise  four  crops  on  the  same  soil  in  a  year. 

Mr.  Parker.  All  different  crops? 

Dr.  Whitney.  Yes ;  different  crops. 

Mr.  Parker.  Those  methods  do  add  nitrogen,  do  they  not ;  that  is,  the  use  of 
cowpeas,  etc. 

Dr.  Whitney.  Yes. 

Mr.  Parker.  As  to  the  stall  feeding  of  cattle,  that  adds  the  nitrogen — that  is, 
the  use  of  manure? 

Dr.  Whitney.  Just  a  moment.  It  is  a  question  as  to  just  what  you  mean. 
The  stall  feeding  of  cattle  does  not  necessarily  mean  the  adding  of  nitrogen 
from  a  source  outside  of  the  farm. 

Mr.  Parker.  I  see  that  perfectly;  but  they  add  the  nitrogen  that  goes  into 
the  crops  that  they  eat? 

Dr.  Whitney.  Yes. 

Mr.  Parker.  And  some  of  that  comes  out  of  the  air,  does  it  not? 

Dr.  Whitney.  If  you  have  the  leguminous  crops,  but  if  you  take  the  ordinary 
pasture  grasses  and  the  grains  grown  on  a  farm  and  feed  the  animals  with 
that  you  would  get  very  little  nitrogen. 

Mr.  Parker.  You  save  it?  J 

Dr.  Whitney.  You  save  it,  and  you  return  it  in  a  condition  in  which  it  is 
quite  active. 

Mr.  Parker.  How  about  the  phosphorus?  Is  there  any  phosphorus  saved  by 
stall  feeding? 

Dr.  Whitney.  Yes;  you  save  all  of  the  phosphorus  taken  up  by  the  crop 
from  the  soil. 

Mr.  Parker.  How  about  potash? 

Dr.  Whitney.  The  same  thing  would  apply;  but  you  add  nothing  that  comes 
from  outside  the  farm  unless  you  deliberately  buy  something  and  bring  it  in. 

Mr.  Parker.  I  am  speaking  of  the  things  not  bought  and  brought  in.  They 
do  add  the  nitrogen  that  comes  from  the  leguminous  crops? 

Dr.  Whitney.  Yes. 

Mr.  Parker.  Do  these  English  farmers  who  have  had  such  a  successful  ex- 
perience use  much  outside  fertilizer,  or  do  all  of  them  go  without  it? 

Dr.  Whitney.  They  use  fertilizers  very  freely. 

:Mr.  Parker.  What  about  the  Japanese? 

Dr.  Whitney.  They  are  using  fertilizers  now. 

Mr.  Parker.  I  mean  in  their  olden  days. 

Dr.  Whitney.  No  ;  there  were  no  fertilizers  at  that  time ;  that  is,  there  were 
no  fertilizers  in  the  sense  in  which  we  understand  them. 

^ir.  Parker.  I  mean  chemical  fertilizers. 

Dr.  Whitney.  No  ;  there  were  not  any. 

Mr.  Parker.  During  the  period  of  growth  of  the  English  production  from  12 
bushels  to  32  bushels  an  acre  did  the  English  farmer  use  much  fertilizer? 

Dr.  Whitney.  He  did  not  have  it. 

Mr.  Parker.  And  yet  he  made  his  crop  grow  from  a  yield  of  12  bushels  to  a 
yield  of  .82  bushels  an  acre? 

Dr.  Whitney.  Yes;  the  fertilizers  that  have  come  up  in  modem  times  have 
given  us  another  and  an  additional  method  to  use  in  increasing  crops. 


Mr.  Parker.  I  am  speaking  of  the  men  who  make  the  real  progress,  the 
English  and  Japanese  farmers.  The  English  farmer,  when  he  was  bringing 
up  his  production,  did  not  use  outside  fertilizers,  and  the  Japanese,  when  he 
was  maintaining  his  production,  did  not  use  outside  fertilizers? 

Dr.  Whitney.  No. 

Mr.  Parker.  Are  you  familiar  with  the  Haber  process  and  the  cynamid  pro- 
cess, so  far  as  the  cost  of  material  is  concerned? 

Dr.  Whitney.  No  ;  not  on  a  commercial  scale. 

Mr.  Parker.  You  do  not  speak,  therefore,  on  the  question  as  to  whether 
nitrates  can  be  made  here  so  as  to  compete  with  the  Chilean  nitrates? 

Dr.  Whitney.  No. 

Mr.  Paekee.  Nor  whether,  by  mechanical  processes  we  can  make  potash  to 
compete  with  the  German  potash? 

Dr.  Whitney.  In  a  general  way  only. 

Mr.  Parker.  You  can  not  speak  as  to  the  costs? 

Dr.  Whitney.  No. 

Mr.  Parker.  The  electrical  furnace  has  to  be  used  in  some  of  these  processes? 

Dr.  Whitney.  Yes. 

Mr.  Parker.  Is  it  a  cheap  or  expensive  way  of  getting  heat? 

Dr.  Whitney.  It  would  depend  largely  on  the  cost  of  the  power.  We  have 
operated  an  electrical  furnace,  and  we  are  now  operating  a  fuel  furnace,  and 
we  have  been  studying  the  cost  of  production,  but  the  cost  of  production  in 
our  laboratory  experiments,  of  course,  can  not  be  applied  to  the  commercial 
plant.  « 

Mr.  Parker.  In  your  laboratory  experiments,  how  did  the  cost  of  the  fuel 
compare  with  the  cost  of  the  electricity? 

Dr.  Whitney.  The  fuel  is  generally  cheaper  than  electricity. 

Mr.  Parker.  How  much? 

Dr.  Whitney.  It  is  generally  considered  about  half  as  much.  But  that  all 
depends  entirely  upon  what  you  pay  for  your  power. 

Mr.  Parker.  But  I  am  talking  generally. 

Dr.  Whitney.  In  Hoboken,  where  we  carried  on  some  of  our  experiments, 
we  were  paying  $25  per  horsepower,  and  with  that  cost  of  power  we  considered 
that  we  could  cut  the  cost  of  producing  phosphoric  acid  something  like  half, 
and  cut  the  cost  of  power  something  like  half,  if  we  used  the  fuel  furnace. 

Mr.  Parker.  In  producing  phosphoric  acid  the  fuel  costs  half  as  much  as 
the  other  power? 

Dr.  Whitney.  At  those  rates;  yes. 

Mr.  Parker.  Do  you  know  enough  about  the  cost  of  making  these  materials 
you  have  mentioned  to  know  whether  they  can  be  made  so  as  to  compete  with 
the  phosphate  rock  and  the  German  potash? 

Dr.  Whitney.  We  believe  they  can. 

Mr.  Parker.  Have  you  any  warrant,  on  a  commercial  scale,  for  saying  that 
you  can? 

Dr.  Whitney.  I  think  we  have. 

Mr.  Parker.  You  have  not  mentioned  that. 

Dr.  Whitney.  I  would  rather  not  speak  of  that  because  I  am  not  an  au- 
thority. 

Mr.  Parker.  Who  would  be  able  to  speak  on  that? 

Dr.  Whitney.  Dr.  Tolman  has  been  in  direct  contact  with  that. 

Mr.  Parker.  He  said  yesterday,  as  I  recall,  that  as  far  as  he  can  understand, 
sulphate  of  ammonia  could  not  be  made  at  present  at  Muscle.  Shoals  and  compete 
with  the  sulphate  of  ammonia  sold  in  the  market. 

Dr.  AVhitney.  I  do  not  believe  we  want  sulphate  of  ammonia. 

Mr.  Parker.  He  spoke  of  that  as  the  simplest  thing  that  could  be  made. 
These  mixtures  you  have  spoken  of  here  have  not  been  used  in  commerce, 
have  they?    They  have  not  been  used  except  in  laboratory  experiments? 

Dr.  Whitney.  They  have  been  used  in  field  experiments,  but  they  have 
*iever  been  available  for  use  in  commercial  work. 

Mr.  Parker.  These  are  propositions  you  think  might  come  in? 

Dr.  Whitney.  Yes. 

Mr.  Parker.  That  is  all  you  can  say  about  them? 
Dr.  Whitney.  I'es. 

^Ir.  Crowther.  Doctor,  there  is  some  little  difference,  it  seems  to  me,  be- 
tween the  statement  you  made  to-day  and  the  statement  made  by  Dr.  Tolman 
yesterday,  and  by  some  of  the  other  witnesses,  in  regard  to  the  fact  as  to 
whether  this  plant  at  :Muscle  Shoals  is  presumed  to  make  and  was  originally 


334 


MUSCLE  SHOALS  PROPOSITIONS. 


constructed  to  make  ammonium  nitrate.  The  question  has  been  asked  several 
times,  how  much  ammonium  sulphate,  which  they  say  is  a  component  part  of 
fertilizer,  can  be  produced  there.  You  say  you  do  not  think  we  want  any 
ammonium  sulphate,  that  the  advantage  is  in  the  more  highly  concentrated 
nitrogen  product. 

Dr.  Whitney.  Yes. 

Mr.  Cbowthee.  Then  we  do  not  need  them? 

Dr.  Whitney.  I  should  not  think  so. 

Mr.  Crowther.  It  has  been  said  that  this  plant  has  a  capacity  of  110,000  tons 
of  ammonium  nitrate,  which  was  to  be  treated  by  sulphuric  acid  and  developed 
into  ammonium  sulphate  for  fertilizer  purposes. 

Dr.  Whitney.  That  is  one  way;  that  is  the  easiest  way;  it  is  the  best 
known   way. 

Mr.  Crowther.  As  I  understand  you,  you  said  it  was  rather  a  wasteful 
procedure? 

Dr.  Whitney.  That  is  my  opinion. 

Mr.  Crowther.  What  is  the  use  of  starting  in  on  what  is  acknowledged  by 
authorities  to  be  a  very  wasteful  proposition? 

Dr.  Whitney.  I  think  in  working  out  their  plans  it  will  be  a  long  while 
before  they  can  get  that  into  operation. 

Mr.  Crowther.  I  realize  that. 

Dr.  Whitney.  I  have  been  working  on  these  matters  quite  a  little  while.  I 
made  a  statement  before  the  Graham  committee  on  war  expenditures  of  the 
House  (hearing  before  subcommittee  No.  5  (Ordnance),  66th  Cong.,  2d  sess., 
serial  6,  pt.  50,  p.  2878),  and  also  made  a  statement  before  the  Senate  Committee 
on  Agriculture  and  Forestry  in  hearings  on  the  production  of  atmospheric  nitro- 
gen. This  matter  hits  been  available,  and  all  of  us  are  thinking  along  these 
lines.  I  could  not  tell  you  what  should  be  done  without  considering  the  whole 
thing.  The  methods  available  down  there  and  the  materials  available  down 
there  and  the  fertilizer  need,  marketing  possibilities  and  things  of  that  kind  are 
matters  to  be  taken  into  consideration.  I  have  only  sketched  before  committees 
of  Congress  just  the'idea  that  the  concentrated  fertilizer  has  got  to  be  adopted 
to  dispose  in  the  most  ready  way  and  the  most  efficient  way  of  fixed  nitrogen 
products.  The  ammonium  nitrate  is  not  a  good  fertilizer  itself ;  it  is  not  a  sat- 
isfactory fertilizer.  It  will  not  mix  in  large  proportion  with  our  acid  phosphate 
as  we  have  it  to-day.  Cyanamid,  as  Dr.  Tolman  told  you  yesterday,  is  not  a 
satisfactory  fertilizer ;  because  it  will  not  mix  with  our  fertilizer  materials. 

Mr.  Crowther.  Are  these  materials  soluble;  could  they  be  used  with  a 
sprinkler? 

Dr.  Whitney.  These  concentrated  fertilizers  are. 

Mr.  Crowther.  Then  they  could  be  used  with  sprayers,  just  as  we  use  sprayers 
in  orchards? 

Dr.  Whitney.  Yes. 

The  Chairman.  Will  you  kindly  cite  the  title  of  the  volume  you  referred  to 
a  moment  ago,  so  it  will  be  in  the  record? 

Dr.  Whitney.  This  is  a  copy  of  a  hearing  on  the  production  of  atmospheric 
nitrogen.  The  hearing  was  held  before  the  Senate  Committee  on  Agriculture 
and  Forestry  in  the  second  session  of  the  Sixty-sixth  Congress,  and  this  is  in 
part  2  of  that  hearing,  beginning  April  8,  1920. 

Mr.  Fields.  Doctor,  what  is  the  extent  of  our  deposits  of  phosphate  rock  in 
the  United  States? 

Dr.  Whitney.  Very  great.  The  first  deposit  was  developed  in  South  Caro- 
lina. That  was  a  small  deposit,  a  river  deposit.  That  has  been  practically 
used  up;  at  least,  they  are  not  working  it  now  very  much.  The  Florida  phos- 
phate was  next  discovered.  Those  deposits  are  very  large.  The  Tennessee  de- 
posits are  also  large,  although  not  quite  as  available  to  the  fertilizer-using 
country.  Then  there  are  the  western  phosphates,  which  are  enormous.  Nobody 
knows  the  extent  of  those.    They  are  tremendous. 

Mr.  Fields.  Have  we  large  quantities  of  the  potash  shale  you  referred  to  in 
the  United  States? 

Dr.  Whitney.  Yes;  we  have  a  great  deal  of  the  insoluble  potash  rock;  not 
so  much  of  the  potash  shale,  perhaps,  but  we  have  a  great  amount  of  potash 
material  that  could  be  used.  The  difficulty  has  been  the  cost  of  handling  it.  It 
is  low-grade  material  and  is  not  worth  working  over  by  itself. 

Mr.  Fields    In  what  section  of  the  country  is  that  found? 

Dr.  Whitney.  You  mean  the  potash  shale? 


'  MUSCLE   SHOALS  PROPOSITIONS. 


335 


Mr.  Fields.  Yes. 

Dr.  Whitney.  It  has  never  been  mapped,  particularlv.  There  are  known 
<leposits  in  Alabama  and  Georgia,  and  there  are  deposits  of  shale  near  the 
Muscle  Shoals  that  carry,  as  I  understand  it,  about  8  per  cent  of  potash  Thev 
have  been  called  to  our  attention  by  the  War  Department.  Then  there  are  de- 
posits in  Illinois  and  throughout  the  country.  Then  there  are  the  green  sands 
of  New  Jersey,  which  carry  about  7  per  cent  of  potash.  They  were  used  as 
fertilizer  m  New  Jersey  before  potash  became  so  common  and  so  cheap  These 
green  sand  marls  were  used,  but  they  are  so  relatively  insoluble  that  thev  can 
not  carry  the  cost  of  transportation. 

Mr.  Fields.  I  know  there  are  great  quantities  of  shale  in  my  own  State  of 
Kentucky,  and  I  am  wondering  if  this  product  is  contained  in  all  shales  or 
only  in  certain  kinds. 

Dr.  Whitney.  No;  the  composition  of  shale  varies  considerably.  It  is  the 
high-grade  potash  shale  that  we  want  to  get. 

Mr.  Fields.  I  have  read  that  it  is  possible  to  produce  gasoline  from  shale. 
If  the  process  is  perfected,  this  would  probably  be  a  by-product  of  the  potash, 
would  it  not? 

Dr.  Whitney.  That  would  depend  The  oil-bearing  shales  are  in  differ- 
ent localities.    They  are  also  a  class  by  themselves. 

Mr.  Fields.  At  any  rate,  we  have  advanced  far  enough  with  this  subject  to 
know  that  we  have  all  the  fertilizer  compounds  within  the  United  States  if  we 
will  but  develop  them. 

Dr.  Whitney.  Yes,  sir. 

Mr.  Fields.  And  in  the  fertilization  of  the  soil  we  are  not  dependent  upon 
the  products  of  foreign  countries? 

Dr.  Whitney.  No;  we  have  the  products  here;  but  there  is  an  exchange 
value.  It  is  at  present  cheaper  for  us  to  get  nitric  acid  from  Chile  and  muriate 
of  potash  from  Germany,  because  we  have  not  developed  our  own  processes  here 

Mr.  Fields.  The  process  of  development  is  what  I  am  talking  about  It  is 
possible  for  us  to  develop  it  within  the  United  States? 

Dr.  Whitney.  Yes. 

Mr.  Fields.  What  is  the  annual  increase  in  the  demand  for  fertilizer  Doctor' 

Dr.  Whitney.  It  is  rather  difficult  to  say.  The  best  figures  we  have  show 
that  it  is  about  7i  per  cent  per  annum. 

Mr.  Fields.  Have  you  made  an  estimate  of  the  annual  percentage  of  the  de- 
preciation of  the  soil  tiiat  is  under  cultivation— that  is,  without  the  use  of  fer- 
tilizer,  I  mean? 

Dr.  Whitney.  No;  we  have  not.  We  have  made  a  few  experiments  that 
show  that  on  certain  soils  of  the  United  States  the  yields  of  our  principal  croDS 
nre  increasing. 

Mr.  Fields.  Yes;  and  I  understand  from  my  study  of  the  subject  that  it  is 
possible  to  increase  the  production  of  the  soil  by  rotation  of  proper  kinds  of 
crops,  proper  plowing  of  the  soil,  etc. 

Dr.  Whitney.  Yes;  and  better  methods.  That  has  counted  for  more  in  the 
present  improved  state  of  agriculture  in  England  than  anything  else  It  is 
better  methods,  including  tillage,  drainage,  rotation,  selection  of  seed,  keepin*' 
lip  live  stock,  and  things  of  that  kind,  that  have  increased  production 

Mr.  Fields.  It  is  possible  that  our  failure  to  realize  earlier  the  necessitv 
of  the  fertilization  of  the  soil  has  been  due  to  the  fact  the  soil  was  new  and 
the  farmers  had  a  virgin  soil  to  cultivate  and  did  not  realize  that  it  was  then 
or  would  become  necessary  in  the  future  to  employ  fertilizer  so  as  to  keen 
up  their  production.  *■ 

Dr.  Whitney.  The  farmer  has  felt  the  pinch  of  necessity.  The  great  thin"- 
that  stirred  up  the  English  agricultural  interests  was  the  pinch  of  necessitv" 
When  they  were  growing  12  bushels  of  wheat  it  was  during  the  Baronial* 
period,  when  the  country  was  not  so  thickly  settled  as  this  countrv  is  or  was 
10  years  ago.  They  had  about  3,000,000  people  in  England.  But  at  the  close 
of  the  Baronial  period,  when  they  began  to  acquire  ownership  of  the  land  then 
they  were  unable  to  move  as  they  had  been  doing  before,  because,  from  all  ac- 
counts, during  the  Baronial  period  the  peasants  moved,  constantly  shifting 
their  homes,  and  their  lands  would  get  foul  with  weeds,  and  their  vields  would 
go  down,  and  they  would  move  tlieir  garden  or  their  fields  to*  some  other 
locality. 

But  with  the  desire  for  settlement  and  the  acquiring  of  title  to  their  lands 
they  began  to  feel  the  pinch  of  necessity,  and  they  had  to  produce  more  per 
acre  because  they  did  not  have  the  increased  acreage  to  take  up. 

92900—22 22 


336 


MUSCLE  SHOALS  PROPOSITIONS. 


:Mr.  FiEiis.  Is  it  not  a  fact  that  practically  every  State  of  the  Union  now 
is  feeling,  as  you  say,  the  pinch  of  necessity  for  fertilizer  to  the  same  extent? 

Dr.  Whitney.  Yes ;  we  are  feeling  that,  but  it  is  not  so  very  stringent  yet. 

Mr.  FIELD&.  But  with  an  increase  of  7i  per  cent  per  annum  it  will  be  felt 
more  and  more  each  year? 

Dr.  Whitney.  Yes.  In  the  Congressional  Record  of  January  7,  1921,  Senator 
Smith  of  South  Carolina  published  a  letter  that  I  had  sent  out  to  the  commis- 
sioners of  agriculture  and  the  directors  of  the  experiment  stations  in  regard 
to  what  they  thought  of  the  necessity  for  fixed  nitrogen  compounds,  especially 
those  that  could  bo  obtained  through  the  Muscle  Shoals  method.  It  might  in- 
terest you,  Mr.  Chairman,  to  have  that  information  in  your  record. 

Mr.  Fields.  I  will  ask,  Mr.  Chairman,  that  that  be  put  in  the  record  at  this 
point,  so  that  we  may  have  the  benefit  of  it  in  considering  this  question. 

The  Chairman.  Without  objection,  the  letter  will  be  inserted  in  the  record. 

Dr.  Whitney.  In  this  connection  I  estimated  at  the  time  that  we  were  using 
227,888  tons  of  ammonia.  I  estimated  that  if  the  country  as  a  whole  used  ferti- 
lizers in  proportion  to  the  use  in  Georgia  we  would  require  751,945  additional 
tons  of  ammonia.  The  use  in  Georgia,  the  intensity  of  the  use  of  commercial 
fertilizers  I  show  in  this  letter  to  be  160  pounds  of  fertilizer  per  acre  of  land 
in  crops. 

Now,  the  intensity  of  the  use  of  fertilizer  in  Germany  at  that  time  was  180 
pounds  of  fertilizer  per  acre  of  land  in  crops ;  in  England  it  was  about  160  per 
acre  of  land  in  crops.  So  that  the  intensity  of  use  in  Georgia  was  about  the 
same  as  English  practice. 

I  show  furthermore  that  there  were  seven  States  that  were  using  fertilizer 
more  intensively  than  Georgia,  including  Maine,  and  quite  a  number  of  other 
States  mentioned  in  the  letter.  Based  on  those  figures,  which  I  thought  were 
fair  because  according  to  our  own  methods  of  use  it  was  not  thought  excessive 
compared  with  the  French,  German,  and  English  pounds  used.  If  we  should  ex- 
tend tlie  use  of  fertilizer  over  the  remaining  acres  of  laud  in  crops  it  would 
require  751,000  tons  increase  over  the  227,000  tons  we  are  now  using.  I  think 
that  is  a  conservative  figure,  and  yet  it  is  looking  long  into  the  distance. 

(The  letter  above  referred  to  is  as  follows:) 

United  States  Department  of  Agriculture, 

Bureau  of  Soils, 
Washington,  August  14,  1920. 

Dear  Sib:  The  Bureau  of  Soils  would  like  to  have  your  opinion  on  certain 
important  problems  connected  with  the  fertilizer  industry  of  the  country,  and 
I  am  inclosing  a  list  of  questions  which  I  should  be  very  glad  to  have  you, 
after  careful  consideration,  answer  and  return. 

The  application  to  the  soil  of  the  modern  fertilizer  materials,  which  started 
about  60  years  ago,  has  been  one  of  the  important  means  of  increasing  the 
acre  yields  of  crops.  It  has  grown  to  large  proportions,  especially  in  Europe 
and  in  the  United  States. 

In  this  counti*y  the  supplies  of  potash  have  been  obtained  mainly  from  Ger- 
many, phosphate  rock  mainly  from  Florida  and  Tennessee,  and  ammonia,  the 
most  costly  ingredient,  has  been  derived  in  part  from  nitrate  of  soda  imported 
from  Chile,  from  sulphate  of  ammonia  obtained  from  the  by-product  of  coke 
ovens  and  from  city  gas  works,  and  by  the  use  of  castor  pomace,  cottonseed 
meal,  animal  tankage,  dried  blood,  and  fish  scrap.  Garbage  tankage  is  also  a 
small  but  rather  important  source;  and  factory  wastes,  such  as  leather  scrap, 
horn  shavings,  etc.,  have  been  processed  so  that  their  nitrogen  has  been  made 
available.  The  organic  ammoniates  have  been  valued  not  only  for  their  nitrogen 
supply  but  also  as  containers  for  the  minerals  that  have  been  used. 

Some  20  years  ago  the  world  was  startled  by  a  statement  made  by  Sir  William 
Crooks  before  the  Royal  Society  of  England  that  the  future  of  agriculture  and 
food  supply  of  the  world  was  threatened  by  the  relatively  decreasing  supply  of 
anmioniates.  Since  then  the  scientists  of  the  world  have  been  actively  studying 
methods  for  the  fixation  of  atmospheric  nitrogen  for  an  independent  source  of 
nitrogen  supply  for  fertilizers. 

It  has  been  foreseen  by  many  that  if  we  are  to  increase  the  food  supply  with 
the  increasing  demand  for  food  the  fertilizer  industry  must  eventually  be  put 
on  a  chemical  basis ;  that  is,  while  use  will  always  be  made  of  wastes  and  by- 
products for  fertilizer,  the  industry  must  be  able  to  look  for  a  dependable 
supply  to  chemical  plants  manufacturing  fertilizer  materials  as  their  primary 
product.    The  European  war  has  sharply  emphasized  the  importance  of  this 


MUSCLE   SHOALS  PKOPOSITIONS. 


337 


im 


subject  and  has  tended  to  bring  about  changes  in  the  fertilizer  industry  nuieh 
quicker  than  they  would  otherwise  have  developed.  The  increasing  demand 
for  meat  and  animal  products  has  resulted  in  the  increasing  use  of  the  organic 
ammoniates  for  direct  feeding  purposes,  with  the  result  that  the  organic 
anunoniates  to-day  are  hard  to  obtain  for  fertilizers,  as  they  bring  higher 
prices  for  feeding  stuffs  and  their  direct  use  for  feeding  purposes  is  saner 
than  their  indirect  use  as  fertilizers.  The  war  has  also  stimulated  the  produc- 
tion of  fixed-nitrogen  products,  so  that  the  world  is  equipped  to-day  to  fix 
the  nitrogen  of  the  air  and  make  it  available  for  fertilizer  material. 

Under  the  stress  of  war  conditions  the  War  Department  has  erected  a  great 
nitrogen  fixation  plant  at  Muscle  Shoals,  Ala.  The  primary  product  made  at  the 
Muscle  Shoals  plant  is  calcium  cyanamide.  This  is  a  basic  nitrogenous  product, 
which  is  capable  of  being  transformed  into  the  commercial  fertilizer  material 
bearing  the  trade  name  of  "  cyanamid."  The  latter  is  a  product  in  whose  use 
difficulties  have  been  encountered,  and  whose  action  under  certain  conditions  is 
deleterious.  Cyanamide  is  not  an  ideal  substance  to  use  in  mixed  fertilizers,  as 
it  can  only  be  mixed  in  small  proportions  with  the  ordinary  form  of  acid  phos- 
phate. The  Muscle  Shoals  plant  is  equipped  to  convert  the  nitrogen  of  the  crude 
calcium  cyanamide  into  ammonia  and  to  oxidize  part  of  the  ammonia  into  nitric 
acid,  from  which  ammonium  nitrate  may  be  obtained,  a  very  important  material 
for  explosives.  Ammonium  nitrate  gives  good  results  when  used  as  a  fertilizer. 
It  is  rather  deliquescent  and  therefore  somewhat  objectionable  for  this  reason 
as  an  article  of  commerce.  It  is  likewise  not  adapted  for  use  except  in  small 
proportions  in  mixed  fertilizers,  as  it  reacts  with  the  acid  phosphate  and  readily 
decomposes.  One  cau  convert  the  nitrogen  of  crude  calcium  cyanamide  into 
ammonia  and  absorb  it  in  sulphuric  acid,  making  ammonium  sulphate,  and  this 
is  the  plan,  in  case  Congress  authorizes  the  operation  of  the  plant  in  peace  times 
for  the  manufacture  of  fertilizer  material.  How  it  shall  dispose  of  this  product 
and  the  price  to  be  charged  with  reference  to  the  commercial  prices  is  a  matter 
which  need  not  be  discussed  here. 

The  Bureau  of  Soils  has  been  working  for  a  number  of  years  on  the  problem 
of  fixing  atmospheric  nitrogen  and  also  on  the  conservation  of  our  phosphate 
deposits.  Ordinarily  the  phosphate  rock  is  treated  with  about  an  equal  weight 
of  sulphuric  acid  to  convert  the  insoluble  calcium  phosphate  into  a  soluble  form 
of  calcium  phosphate  and  a  considerable  amount  of  gypsum.  This  product  (acid 
phosphate)  is  being  sold  to  the  farmers  usually  in  a  form  which  contains  16  per 
cent  of  available  phosphoric  acid  (PsOb).  The  sulphuric-acid  treatment  requires 
a  rock  of  rather  high  purity  and  low  in  iron,  alumina,  and  carbonate  of  lime. 
In  getting  out  rock  of  sufficient  purity  for  the  acid-phosphate  manufacturers 
about  two-thirds  of  the  rock  that  is  mined  is  thrown  on  the  dump  as  waste  ma- 
terial. 

The  Bureau  of  Soils  has  been  working  for  several  years  to  conserve  and  ui«e 
this  wasted  phosphate  material.  If  cheap  water  power  were  available,  the 
wasted  phosphate  rock  could  be  smelted  in  an  electric  furnace  and  collected  as 
a  liquid  and  the  phosphate  extracted,  resulting  in  the  saving  of  most  of  the  rock 
now  mined  and  at  present  thrown  away.  In  the  absence  of  cheap  water  power 
the  bureau  is  experimenting  with  a  furnace  using  oil  as  a  fuel,  and  we  think 
that  the  cost  of  production  can  be  brought  down  to  a  point  where  the  phosphoric 
acid  can  be  produced  in  competition  with  the  sulphuric-acid  treatment. 

This  phosphoric  acid,  like  the  ammonia  gas  from  the  Muscle  Shoals  plant,  is 
in  itself  not  adapted  to  fertilizers  and  is  not,  strictly  speaking,  a  fertilizer  mate- 
rial, as  neither  of  them  can  be  used  in  this  form.  The  ammonia  gas  has  to  be 
fixed  by  absorption  in  an  acid,  and  the  phosphoric  acid  has  to  be  fixed  by  neutral- 
izing it  with  a  base.  The  obvious  thing  to  do  with  the  phosphoric  acid  is  to  fix 
it  by  passing  in  ammonia  gas  and  form  ammonium  phosphate,  which  is  a  con- 
centrated and  valuable  fertilizer  material.  Here  the  proposals  of  the  War  De- 
partment and  of  the  Bureau  of  Soils  come  together.  The  ammonia  to  be  pro- 
duced at  Muscle  Shoals  will  need  to  be  fixed,  and  phosphoric  acid  will  be  more 
valuable  for  this  purpose  than  sulphuric  acid,  while  such  phosphoric  acid  as  may 
be  produced  in  plants  adopting  the  furnace  method,  which  the  Bureau  of  Soils 
has  been  developing,  will  need  to  be  fixed,  and  the  Muscle  Shoals  ammonia  will 
be  most  suitable  for  this  purpose. 

Ammonium  nitrate  can  probably  be  mixed  in  all  proportions  with  ammonium 
phosphate.  Furthermore,  it  seems  likely  that  potash  can  be  put  into  the  mix- 
ture in  the  form  of  potassium  phosphate  which,  it  is  believed,  could  also  be 
nai,xed  in  any  proportion  with  ammonium  nitrate  and  with  ammonium  phos- 


338 


MUSCLE  SHOALS  PROPOSITIONS. 


phate.  This  would  give  the  most  concentrated  fertilizer  that  it  is  possible 
to  make. 

There  are  two  important  questions  to  solve  before  such  investigative  work 
can  be  applied  on  a  commercial  scale.  If  concentrated  fertilizers  are  made  on 
a  commercial  scale,  will  the  farmers  be  willing  to  use  them,  and  can  the  coun- 
try absorb  the  amount  of  ammonia  that  can  be  produced  by  the  Muscle  Shoals 
plant  without  disorganizing  existing  commercial  sources? 

The  farmers  have  always  been  inclined  to  criticize  the  fertilizer  manufac- 
turers for  selling  fertilizers  that  contain  a  considerable  amount  of  valueless 
material  which  they  class  as  filler.  When  they  buy  acid  phosphate  they  only 
get  16  per  cent  phosphoric  acid  figured  as  P2OB.  The  rest  is  inert  and  more  or 
less  valueless  material.  When  they  purchase  ammonium  sulphate,  the  am- 
monia equivalent  is  not  over  25  per  cent;  in  nitrate  of  soda,  the  ammonia 
equivalent  is  not  over  20  per  cent;  in  muriate  of  potash,  the  actual  potash 
equivalent  is  not  over  50  per  cent ;  and  in  cottonseed  meal,  the  ammonia  equiva- 
lent is  about  8  per  cent.  If  there  was  put  on  the  market  a  concentrated  fer- 
tilizer made  of  the  materials  above  described  a  standard  formula  containing 
2  per  cent  of  nitrogen,  8  per  cent  of  phosphoric  acid,  and  2  per  cent  potash 
would  contain  in  the  concentrated  form  and.  without  filler,  about  12  per  cent 
of  nitrogen,  49  per  cent  of  phosphoric  acid,  and  12  per  cent  of  potash.  If  this 
were  diluted  to  correspond  with  the  formulas  the  farmer  has  been  accustomed 
to  buy,  it  would  require  nearly  84  per  cent  of  filler.  A  fertilizer  containing 
10  per  cent  of  nitrogen,  8  per  cent  of  phosphoric  acid,  and  4  per  cent  of  potash 
in  concentrated  form  would  carry  24  per  cent  nitrogen,  19  per  cent  of  phos- 
phoric acid,  and  about  10  per  cent  of  potash.  It  would  require  to  dilute  it  to 
the  present  concentration  59  per  cent  of  filler. 

In  applying  concentrated  fertilizers  considerably  more  care  has  to  be  exer- 
cised than  in  applying  the  ordinary  commercial  fertilizers  of  commerce.  The 
farmer  would  save  freight  on  the  filler  unless  he  desired  to  have  the  fertilizer 
manufacturer  put  in  the  filler  at  the  factory.  The  railroads  would  save  car 
space  if  concentrated  materials  were  shipped.  If  the  farmer  purchased  a  con- 
centrated fertilizer  he  could  apply  it  as  such,  but  he  would  have  to  use  more 
care  and  not  let  it  come  in  direct  contact  with  the  seed,  at  least  if  it  were 
applied  in  the  drill.  He  could  dilute  the  concentrated  fertilizer  by  adding  dry 
sand  or  finely  divided  and  dried  peat  or  soil  of  any  kind,  or  he  could  dilute  it 
with  water,  if  he  had  conveniences  to  apply  the  fertilizer  in  a  spray.  The 
question  is  whether  the  farmer  would  adapt  himself  to  concentrated  fertilizers 
and  whether  there  would  be  a  market  for  such  material. 

I  have  asked  you  to  express  an  opinion  as  to  whether  the  country  could  ab- 
sorb the  ammonia  that  could  be  produced  at  the  Muscle  Shoals  plant  without 
seriously  disturbing  the  present  commercial  production  of  ammonia  in  its 
different  forms.  In  order  that  you  may  judge  this  question  intelligently  let 
me  say  a  few  words  about  the  present  supplies  and  present  markets  for 
fertilizers. 

The  rated  capacity  of  the  Muscle  Shoals  plant  is  56,716  tons  of  ammonia 
(NH3)  per  annum.  It  is  not  contemplated  for  the  present,  however,  to  run 
the  plant  at  full  capacity,  as  only  8  of  the  10  units  will  be  run  at  any  one  time. 
This  would  mean  a  capacity  of  44,440  tons  per  annum  of  ammonia,  equivalent 
to  168,000  tons  of  ammonium  sulphate.  If  this  ammonia,  instead  of  being  made 
into  ammonium  sulphate,  were  made  into  concentrated  fertilizers,  the  output 
would  be  equivalent  to  some  2,000,000  tons  of  mixed  fertilizer  of  average 
grade,  but  it  would,  of  course,  be  far  less  in  actual  weight,  though  quite  the 
equivalent  in  crop-growing  value,  as  they  would  contain  no  inert  material. 

In  1909  the  production  of  ammonium  sulphate  was  about  106,000  tons,  while 
ill  1904  the  production  was  something  less  than  55,000  tons.  The  present  rated 
capacity  of  the  by-product  coke  ovens  and  city  gas  plants  is  probably  between 
.'»00.000  and  600,000  tons  of  ammonium  sulphate  i)er  annum.  The  actual  pro- 
duction in  1919  was  only  about  423.000  tons,  of  which  about  140,000  tons  were 
exported.  On  account  of  the  coal  strike,  the  railroad  strike,  and  the  car  short- 
age the  supply  has  been  inadequate,  and  would  have  been  inadequate  if  the 
140,000  had  not  been  exported.  It  is  believed  that  the  maximum  recovery  of 
ammonium  sulphate  from  coke  ovens  may  in  the  course  of  a  few  years  be 
increased  to  700.000  tons  per  annum,  but  that  this  is  the  limit  of  capacity 
unless  the  demand  for  pig  iron  is  constantly  and  largely  increased.  The  in- 
creased production  of  ammonium  sulphate  has  been  used  to  a  considerable 


MUSCLE  SHOALS  PROPOSITIONS. 


339 


^ 


extent  in  replacing  the  ammonia  from  the  organic  ammoniates  which  have  been 
rapidly  absorbed  as  feed. 

From  a  thorough  survey  of  the  fertilizer  industry  made  by  this  department 
in  1917  and  1918  it  appears  that  of  all  the  materials  sold  bv  the  fertilizer 
manufacturers  in  1917,  3.3  per  cent  was  ammonia.  This  figure  has  been  used 
in  the  preparation  of  the  table  which  follows. 

It  has  been  estimated  by  the  War  Department  that  for  15  years  (1899^1914) 
the  annual  rate  of  increase  of  fertilizer  production  was  7i  per  cent  compounded 
annually ;  that  is  to  say,  that  each  year  the  production  of  fertilizers  was  ap- 
proximately 7*  per  cent  larger  than  for  the  year  before.  The  capacity  of  the 
coke  ovens  has  nearly  reached  its  maximum.  The  proportion  of  the  organio 
ammoniates  available  for  fertilizers  is  rapidly  decreasing.  The  importation  of 
nitrate  of  soda  is  limited  by  the  shipping  facilities,  so  that  the  time  must  soon 
come,  if  in  fact  it  has  not  already  arrived,  when  the  country  must  turn  to 
the  use  of  fixed-nitrogen  products  to  supply  the  ammonia  for  the  increasing 
amounts  of  fertilizers  that  will  be  needed. 

The  situation  may  be  presented  from  another  point  of  view.  The  war  inter- 
fered with  the  fertilizer  trade  as  it  lias  witli  many  other  industries.  If  the 
normal  increase  of  7^  per  cent  yearly  in  the  fertilizer  output  had  continue<l 
from  1914,  the  production  of  fertilizer  in  1919  would  have  been  about  10,500,0(K) 
tons.  In  1914  the  production  is  given  as  7.367,.528  tons,  in  1915  it  was  5,586,212, 
in  1916  it  reached  its  low  point  of  5,407.549  tons.  From  then  it  began  to  rise. 
In  1917  it  was  6,224,543  tons,  in  1918  it  was  0,779,743  tons,  in  1919  it  was 
6,927,322  tons,  or  some^^'lult  less  than  1914.  It  would  appear,  therefore,  that 
the  production  in  1919  was  less  than  it  would  have  been  on  the  basis  of  the 
normal  increase  by  some  3,649,717  tons. 

This  decrease  of  fertilizer  production  during  the  war  period  was  not  due  to 
lessening  demand,  but  was  due  to  the  inability  to  obtain  material.  The  foreign 
potash  supply  was  cut  off,  the  phosphate  rock  could  not  be  mined  or  transporte<l, 
the  sodium  nitrate  and  ammonium  sulphate  were  diverted  in  large  part  to  muni- 
tions, and  the  organic  ammoniates  were  used  to  a  large  extent  for  feeding  pur- 
poses. In  1919  the  potash  situation  had  not  recovered  its  normal  volume.  The 
strikes  in  the  Florida  phosphate  fields  and  the  car  shortage  made  acid  phosphate 
hard  to  obtain,  and  it  was  found  that  the  organic  ammoniatets  had  not  been  re- 
leased by  the  feeders.  If  the  fertilizer  manufacturers  had  been  required  to  pro- 
duce 3,500,000  tons  more  fertilizer  in  1919  than  was  actually  prodii^ed,  it  is  not 
apparent  where  the  ammonia  supply  would  have  been  drawn  from.  The  phos- 
phate rock  that  was  not  used  for  fertilizers  is  still  in  the  ground,  the  potash  that 
was  not  used  is  still  in  the  mines,  but  the  organic  ammoniates  have  been  com- 
pletely used  up,  either  as  fertilizers  or  as  feeds.  It  seems  apparent,  therefore, 
that  the  country  has  been  short  of  fertilizer  material  for  the  past  five  years,  and' 
if  this  shortage  is  to  be  made  up  and  provision  made  for  a  resumption  of  even 
the  normal  annual  increase  additional  sources  of  ammonia  must  be  found.  The 
only  place  to  look  for  this  increased  supply  of  ammonia  is  in  fixed-nitrogen 
products. 

The  latest  comparable  figures  showing  the  intensit*y  of  use  of  commercial  fer- 
tilizers in  European  countries  and  in  the  United  States  pertain  in  1912.  From 
the  figures  obtainable  for  that  period  it  appears  that  Germany  was  using  188 
pounds  per  acre  of  land  in  crops ;  Great  Britain,  162  pounds  of  fertilizer  per  acre 
of  land  in  crops:  France  79  pounds;  Italy,  77  pounds;  the  United  States,  40 
pounds ;  Spain,  31  pounds ;  and  Russia  in  Europe,  6  pounds  per  acre. 

The  following  table  shows  the  acres  in  crops  as  determined  bv  the  Bureau  of 
Crop  Estimates  (Crop  Reporter  for  March,  1920),  the  tonnage  of  fertilizers  s<>ld 
in  each  State  (the  American  Fertilizer  Handbook,  1920),  the  estimated  amount 
of  ammonia  contained  therein  (estimate,  3.3  per  cent),  and  the  additional  amount 
of  nitrogen  that  would  be  required  to  bring  the  practice  in  the  several  States  at 
least  up  to  the  present  rate  of  use  in  Georgia.  There  are  nine  States  that  use 
more  fertilizers  per  acre  of  land  in  crops  than  Georgia.  Georgia  was  selected 
as  a  basis  of  comparison,  because  the  intensity  of  use  is  nearly  the  same  as  in 
the  United  Kingdom,  and  is  less  than  the  practice  in  Germany  in  1913.  and  he- 
<-anse  of  the  general  agriculture  practiced  as  against  the  spec?ialized 
Florida  and  in  some  of  the  other  coast  States. 


use  in 


i 


H 


340 


MUSCLE  SHOALS  PROPOSITIONS. 


Total  acreage  in  crops  in  1919,  the  tonnage  of  fertilizers  sold  in  each  State,  and 
the  additional  amount  of  ammonia  required  to  bring  the  intensity  of  use  at 
least  up  to  the  present  practice  in  Georgia. 


state. 


New  England: 

Maine 

New  Hampshire 

Vermont , 

Massachusetts. . , 

Rhode  Island 

Connecticut...., 

Total 

Middle  Atlantic: 

New  York 

New  Jersey 

Peimsylvania 

Total , 

East  North  Central: 

Ohio , 

Indiana 

IllLnois 

Michigan , 

Wisconsin 

Total , 

West  North  Central: 

Minnesota , 

Iowa 

Missouri , 

North  Dakota.., 
South  Dakota. . . 
Nebraska. ..—.., 
Kansas 

Total , 

South  Atlantic: 

Delaware , 

Maryland 

Virginia , 

West  Virginia. . . 
North  Carolina. . 
South  Carolina. , 

Georgia , 

Florida , 

Total , 

East  South  Central: 

Kentucky 

Tennessee 

Alabama 

Mississippi 

Total 

West  South  Central: 

Arkansas 

Louisiana 

Oklahoma 

Texas 

Total 

Mountain: 

Montana 

Idaho 

Wyoming 

Colorado 

New  Mexico 

Arizona 

Utah 

Nevada 

Total 


In  crops. 


Acres. 
1,516,000 

570,000 
1,206,000 

616,000 
84,000 

528,000 


4,520,000 


8,382,000 
1,168,000 
8,344.000 


17,894,000 


11,731,000 

12,661,000 

21,249,000 

9,178,000 

9,529,000 


64,348,000 


16,093,000 
21,732,000 
15,190,000 
17,648,000 
15,284,000 
19,021,000 
23,436,000 


128,404,000 


539,000 
2,812,000 
4,903,000 
2,373,000 
7,889,000 
6,989,000 
12,386,000 
1,452,000 


38,843,000 


6,891,000 
7,092,000 
9,742,000 
8,063,000 


31,788,000 


7,276,000 

4, 950, 000 

14,342,000 

25,902,000 


52,470,000 


4,820,000 
2,259,000 
1, 669, 000 
5, 027, 000 
1,922,000 

544,000 
1,053,000 

436,000 


17,736,000 


Fertilizer  used  in  1919, 


Total. 


Tons. 

156,000 
14,000 
18,000 
61,000 
9,000 
65,000 


323,000 


Per  acre 
in  crops. 


Poutids. 
205 

49 

30 
198 
214 
246 


143 


410,000 
149,485 
340,000 


899,485 


98 

256 

81 


100 


305,236 
241,000 

45,000 
103,264 

10,000 


704,500 


5,000 
5,000 

91,000 

1,000 

3,000 

500 

16,937 


122,437 


30,398 
174,500 
421,484 
63,000 
961,238 
1,033,887 
990,919 
250,613 


3,926,039 


52 
38 

4 
22 

2 


22 


12 


.6 
.6 

.1 
.3 

.08 


115 
150 
172 
53 
244 
295 
160 
345 


202 


193,000 
109.366 
297,903 
110,000 


620,269 


64,427 
97,724 
40,000 
46,000 


248, 151 


1,000 

500 

500 

1,000 

1,500 

500 

1,000 

1,000 


7,000 


30 
31 
61 
28 


39 


17 

39 

6 

4 


9 


2 
2 
2 

5 


.04 
.5 

.6 

.4 


Ammonia 
used. 


Tons. 

5,148 
462 
594 

2,013 
297 

2,145 


10,659 


13,530 

4,933 

11,220 


29,683 


10,073 

7,953 

1,485 

3,408 

330 


23,2)49 


165 

165 

3,003 

33 

99 

17 

559 


4,041 


1,003 

5,758 
13,909 

2,079 
31,721 
34,118 
32,700 

8,270 


129,558 


3,399 
3,609 
9,831 
3,630 


20,409 


2,126 
3,22.5 
1,320 
1.518 


8.189 


33 
17 
17 
33 
50 
17 
33 
33 


233 


Additional 
required. 


TVM. 


1,043 

2,589 


3,632 


8,598 


10,808 


19,406 


20,897 
25,472 
54,612 
20,822 
24,827 


146,630 


42,321 
57,207 
37,099 
46,558 
40,251 
60,198 
51,312 


324,946 


420 
346 


4,186 


4,952 


14,793 
15,114 

15,888 
17,650 


63,451 


17,083 

9,843 

36,543 

0(),803 


130,332 


12,70P- 
5,947 
4,389 

13,238 
5,024 
1419 
2  747 
1  118 


46,590 


MUSCLE  SHOALS  PROPOSITIONS. 


Total  acreage  in  crops  in  1919,  etc. — Continued. 


341 


In  crops. 

Fertilizer  used  in  1919. 

Ammonia 
used. 

Additional 
required. 

state. 

Total. 

Per  acre 
in  crops. 

Pacific: 

Washington 

Acres. 
3,891,000 
2,850,000 
6,065,000 

Tom. 
4,000 
7,500 
43,126 

Pounds. 

3 

5 

14 

Tons. 
.132 
247 
1,423 

Tom. 
10,140 

Oregon 

7,277 

Caliiomia 

14,589 

Total 

12,806,000  !         54,626 

8 

1,802 

32,006 

Grand  total 

368,800,000 

6,905,507 

40 

227,883 

771,945 

We  have  always  thought  of  the  agriculture  at  least  of  northern  Europe  as 
being  of  the  most  intensive  kind  with  the  use  of  a  relatively  large  amount  of 
fertilizers.  It  appears  from  this  table,  however,  that  already  in  10  of  the  States 
of  this  countrj^  the  use  of  fertilizers  is  more  intensive  than  in  the  European 
countries. 

The  following  table  shows  the  fertilizer  tonnage  in  1913  and  in  1919  as  taken 
from  the  American  Fertilizer  Handbook,  together  with  the  increase  or  decrease 
in  1919  based  upon  the  1913  figures : 


State. 

Fertilizer  tonnage. 

Per  cent. 

State. 

Fertilizer  toimage. 

Per  cent. 

1913 

1919 

1913 

1919 

New  England: 

Maine 

New  Hampshire 

Vermont 

Massachuestts. . 

160,000 
18,000 
14,500 
51,000 
9,000 
62,000 

156,000 
14,000 
18,000 
61,000 
9,000 
65,000 

-  2 
-22 

24 
■20 

South     Atlantic- 
Continued. 
South  C&rolina. 

Georgia 

Florida 

918,336 

1,120,693 

213,728 

1, 033, 887 
990,919 
250,613 

12 

-11 

17 

TMioflfi  Island 

Total 

Connecticut 

4 

3,756,490 

3,926,039 

4 

East  South  Central; 

Kentucky 

Tennessee 

Alabama 

Mississippi 

Total 

Total 

314,500 

323,000 

3 

75,000 

84,060 

474, 7:30 

128,050 

ia3,ooo 

109,:i66 
297, 903 
110,000 

37 

30 

-.37 

-14 

Middle  Atlantic: 

New  York 

New  Jersey 

Pennsylvania.. 

380,000 
156,661 
340,000 

410,000 
149,485 
340,000 

8 
-  4 

761,840 

620,  269 

-18 

Tntftl 

876,661 

899,485 

2 

West  South  Central: 

Arkansas 

Louisiana 

Oklahoma 

Texas 

52,000 

98, 778 
18,000 
75,500 

64,427 
97, 724 
40,000 
46,000 

East  North  Central: 
Ohio 

183,476 

193,899 

30,000 

57,985 

4,000 

305,236 
241,000 

45,000 
103, 264 

10,000 

66 
24 
50 
78 
150 

23 
—I 

Indiana 

Illinois 

122 
—39 

Michigan 

Wisconsin 

Total 

244,278 

248, 151 

1 

Mountain: 

Montana 

Idaho 

Total 

469,360 

704,500 

50 

800 
200 
200 
500 
200 
600 
1,000 
800 

1,000 

500 

500 

1,000 

1,500 

500 

1,000 

1,000 

25 

West  North  Central: 

Minnesota 

Iowa 

3,500 

3,500 

60,000 

500 

700 

500 

7,380 

5,000 
5,000 

91,000 

1,000 

3,000 

500 

16,937 

42 

42 

51 

100 

328 

150 

Wvoming 

Colorado 

New  Mexico.... 

Arizona 

Utah 

150 
100 

Missouri 

North  Dakota.. 
South  Dakota. . 
Nebraska 

650 
-16 

Nevada 

Total 

25 

Kansas 

i29 

4,300 

7,000                 63 

Total 

76,080 

122,437 

61 

Pacific: 

Washington 

Oregon 

1,500 

4,500 

36,000 

4,000               166 
7,500                 66 

South  Atlantic: 

50,000 
169,000 
412,434 

31,852 
840,447 

30,398 
174,500 
421, 484 

63,000 
961,238 

-39 

3 

2 

97 

14 

Delaware 

Maryland 

Virginia 

California 

Total 

43,000                 19 

42,000 

54,500                 30 

West  Virginia. . 
North  Carolina. 

Grand  total  I.! 

1 

6,541,164 

6,905,507  i                6 

*  Exclusive  of  Porto  Rico. 

Note.— Increase  or  decrease  (-)  in  1919,  compared  with  1913. 


i 


f 


k 


342 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


343 


f.ZH      ^      T   ^''^}^  showing  the   intensity   of   use   and   fronp  the   second 

tSp  L  ^oiVii'^/ l-r'''^^*"Sl  ^""^^v,  *^  '''""^'^  ^PP^^^"  tl»at  the  intensity  of  use  in 
the  so-called  fertilizer  States  has  already  reached  the  maxinuim  application 
It  has  long  appeared  to  students  of  agriculture  that  the  future  development  in 
the  fertilizer 'industry  would  be  in  its  extension  westward  into  the  so-called 
corn  and  wheiit  States  and  the  Central  and  Southwestern  States.  The  increase 
shown  both  by  tonnage  and  by  percentage  in  the  East  North  Central  States 

Atlantic  States  is  signittcant  and  appears  to  show  the  westward  trend  in  the 
use  of  fertilizers  while  individual  States,  such  as  Oklahoma,  Arkansas,  Ken- 
«'?:u  ,  V*®^^*"^'  ^^^^  Missouri,  appear  to  emphasize  the  same  fact 
^^lth  this  data  before  you  and  the  knowledge  of  local  conditions,  I  should 
be  very  glad  to  have  you  give  me  your  best  judgment  in  answering  the  ques- 
tions on  the  inclosed  questionnaire.  The  questions  which  the  bureau  has  to 
answer  and  which  we  hope  to  be  able  more  intelligently  to  answer  from  your 
questionnaire  are  as  follows:  t,       ^        «        ci  nuiu  yuur 

(1)  If  the  Muscle  Shoals  plant  operated  by  the  Government  or  by  private 

m,Z  1'S^^"i''''^^*",^P7^^^.^  ^^'^?  y^^^«  ^^  Prev^rea  to  produce  an- 
iiuallj   168,000  tons  of  sulphate  of  ammonium,  could  this  countrv  absorb  this 
either  for  straight   application   to  the  soil   or  in   mixed   fertilizers,   without 
seriously  interfering  with  production  by  private  capital?  ^vimour 

(2)  If  the  Muscle  Shoals  plant  instead  of  producing  sulphate  of  ammonium 
produced  concentrated  fertilizer  materials  such  as  ammonium  nitrate  am- 
monium phosphate,  and  potassium  phosphate,  which  could  be  mixed  in  many 
proportions  by  the  farnri^rs  themselves  or  at  Muscle  Shoals  or  by  fertilizer 
mauufacturers  would  the  farmers  be  willing  to  use  such  concentrated  materials 
either  m  mixed  fertilizers  or  in  straight  application  just  as  he  emplovs  nitrate 
of  soda,  ammonium  phosphate,  acid  phosphate,  and  would  he  take  \he  pains 
which  he  must  now  take  with  nitrate  of  soda  to  use  it  so  that  it  will  not 
pfautkig  time^^        coming  undiluted  into  intimat-  contact  with  the  seed  at 

(3)  If  the  farmers  would  accept  the  concentrated  form  of  fertilizers,  could 
the  coiintry  absorb  the  equivalent  of  2,000,000  tons  of  fertilizers  carrying  44  440 
tons  of  anraionia  in  addition  to  what  is  now  produced •>  ' 
ni  .wl^  purposely  refrained  from  discussing  prices  as  these  are  relative  and 
firt ^h  «^"^^ '"^J"  '"''°-''  conditions  in  the  business  world.  It  must  be  assumed 
that  the  fixed  nitrogen  products  will  have  a  relative  value  comparable  with 
the  ammonia  derived  from  other  natural  sources                       ^i^mparauie  wiin 

Very  truly,  yours, 

•  Milton  Whitney, 

Chief  of  Bureau. 

QUESTION  N  AIRE. 

is  k  vonr  TtJa^^'TfT^^S?^^  ^""^  ''''^  '''^"^  knowledge  of  local  conditions, 
nrodnctf  in^i«To  ""^  'i  fertilizer  material,  e.specially  the  ammoniates,  were 
?W  x.^n  S  ^«/f  .^"'^""ts,  through  the  operation  of  the  Muscle  Shoals  plant, 

lf«TonH  '?  ^  ""  ^""^^y  '"^''^^^  '"^  '"^"^  State  for  fertilizers  or  fertilizer  mate^ 
rial,  and  if  so,  approximately  how  much  greater  than  in  1919 *> 

Increase,  per  cent,  . 

Decrease,  per  cent, . 

fern-lifer^' n?AT,^«nfo''^f  ""?"  ^^  developed  for  the  manufacture  of  concentrated 
^nlnhntP  nr  nf^^^^^^^^^  •''*'"  ^^''^"  the  manufacture  of  ammonium 

Immoniifm  sul^^^^^^^^^^^  fertd.zers,  or  of  fertilizer  materials  at  that  point? 


Concentrated  fertilizers. 


nr^iniri  Jnl  I  ^^f^J'  Pv''*'  '"^^^''^  ^^  producing  sulphate  of  ammonium, 
pioduced   concentrated   fertilizer   materials,   such   as   ammonium    nitrate,  am- 

Sn'^Ji^^K'^fP  f  ^'  «n^  Potassium  phosphate,  which  could  be  mixed  in  any  pro- 
fu^is  woni^fho  T"^""  himself  or  at  Muscle  Shoals,  or  by  fertilizer  manufac- 
mfvprwlrH  viL^  farmer  be  Willing  to  use  such  concentrated  material  either  in 
mixed  fertilizers  or  as  straight  applications  just  as  he  now  emplovs  the  com- 
mercial grades  of  nitrate  of  soda,  ammonium  sulphates  acid  Xsrhates  or 
other  readily  soluble  fertilizer  salts  in  straight  appliatfons,  ami  ^3  he  ^^^^^^ 
the  pains  to  use  it  so  that  it  will  not  dnmage  the  crop  by  coming  undiluted  into 
intimate  contact  with  the  seed  at  planting  time?  unaiiutea  inio 

Answer  yes  or  no. 


Please  write  on  a  separate  sheet  other  information  or  discussion  you  desire 
to  give  and  inclose  in  the  penalty  envelope  without  postage  and  return  to  the 
Bureau  of  Soils. 

Name:  . 

Title:  . 

Post  ofl5ce:  . 

State : 


Please  return  to  the  Bureau  of  Soils,  United  States  Department  of  Agricul- 
ture, Washington,  D.  C. 

Following  is  the  Ust  of  States,  showing  the  consumption  of  fertilizers  for  the 
fiscal  years  ending  in  1912,  1913,  1914,  1915,  1916,  1917,  1918,  and  1919,  com- 
piled from  the  most  reliable  statistics  that  are  obtainable.  In  some  of  the 
States  there  are  absolutely  no  accurate  figures  available.  For  the  States  in- 
dicated by  an  *,  estimates  have  been  made  based  on  information  obtained  from 
State  officials  and  fertilizer  manufacturers. 

Fertiliser  tonnage  by  States. 


state. 


Fiscal 

year 

ending- 


Alabama  

Arizona  * , 

Arkansas , 

California 

Colorado* 

Connecticut* 

Delaware* 

Florida 

Goorgia 

Idaho* 

Illinois* 

Indiana 

Iowa* 

Kansas 

Kentucky* 

Louisiana 

Maine* 

Maryland 

Massachusetts* 

Michigan  * 

Minnesota* 

Mississippi 

Missouri  * 

Montana* 

Mebraska* 

Nevada  * 

New  Hampshire  *. 

New  Jersey 

New  Mexico* 

New  York* 

North  Carolina 

North  Dakota*.... 

Ohio 

Oklahoma* 

Oregon* 

Pennsylvania 

Porto  Rico* 

Rhode  Island*.... 

South  Carolina 

South  Dakota*.... 

Tennessee 

Texas 

Utah* .'■.*■ 

Vermont*....!!* 

^;Fginia 

vVashington* 

West  Virginia 

Wisconsin* 

Wyoming* , 


1 

30 
31 
30 
31 


1 
30 
31 
30 
30 
31 
31 
31 


„       Total. 
Hawaii 


Oct. 

June 

Dec. 

June 

Deo. 

...do. 

...do. 

..do. 

...do. 

July 

Apr. 

Dec. 

Apr. 

Jime 

Dec. 

Aug. 

Dec. 

...do 

Nov.  30 

Dec.  31 

...do — 

Oct.     1 

Dec.  31 

No  law., 

No  law.. 

No  law.. 

Apr.  30 

Oct.  31 

No  law.. 

Dec.  31 

Dec. 

Dec. 

...do 

Apr. 

Aug. 

Dec. 

June 

Mar. 

June 

July 

Dec. 

Sept. 

Dec. 

Jtme 

Dec. 

Mar. 

Dec. 

..do 

No  law. 


1912 


Tons. 
452,215 
500 
50,000 
50,000 
500 
48,000 
30,000 
187,927 
1,103,864 


1913 


1914 


1 
31 

"m 

30 
31 
30 
31 
30 

1 
31 

1 
31 
30 
31 
31 
31 


25,000 
143,678 
2,500 
5,000 
65,000 
75,555 
150,000 
160,000 
48,000 
51,000 
2,''.00 
1^9,710 
38,359 
700 
500 
600 
15,000 
140,000 
200 
376,000 
695,705 
500 
151,784 
10,000 
3,500 
318,716 
20,000 
8,000 
886,222 
300 
77,473 
45,000 
700 
12,000 
372, 108 
1,400 
31, 750 
3,500 
150 


June  30 


5,981,016 
70,000 


Tons 
474,730 
600 
52,000 
36,000 
500 
62,000 
.50,000 
213,738 
1,120,693 
200 
30,000 
193,899 
3,500 
7,389 
75,000 
98,778 
160,000 
169,000 
51,000 
57,985 
3,500 
128,050 
60,000 
800 
500 
800 
18,000 
156,661 
200 
380,000 
840,447 
500 
183,476 
18,000 
4,500 
340,000 
18,836 
9,000 
918,336 
700 
84,060 
75,500 
1,000 
14,500 
412,434 
1,500 
31,852 
4,000 
200 


6,560,345 
67,000 


Tons. 
592,200 
650 
81,850 
39,471 
500 
74,000 
55,000 
240,812 
1,282,088 
500 
40,000 
219,000 
4,200 
9,460 
83,000 
90,588 
168,000 
183,350 
54,000 
60,000 
3,800 
127,400 
65,000 
900 
500 
950 
20,000 
155,414 
200 
420,000 
872,820 
550 
203,000 
29,000 
6,300 
381,900 
18,164 
12,500 
,095,728 
1,000 
93,550 
77,400 
1,200 
18,000 
437,808 
2,400 
35,475 
4,500 
400 


1915 


1916 


1917 


7,367,628 
80,000 


Tons. 
302,350 
650 
26,396 
31,540 
600 
80,000 
45,000 
208,782 
872,979 
500 
35,000 
156,152 
5,100 
10,060 
85,000 
72,420 
150,000 
168,000 
56,000 
65,000 
4,000 
85,414 
57,000 
1,000 
500 
1,000 
16,000 
153,075 
500 
400,000 
647, 188 
600 
225,000 
25,000 
6,500j 
316,3191 
20,000 
11,000 
670,610 
1,500 
77,390 
17,500 
1,5001 
13,500 
406,077 
3,000! 
46,010 
5,000 
500 


Tons. 
206,000 
600 
65,600 
29,415 
1,000 
73,000 
45,000 
212,250 
741,347 
500 
42,000 
132, 159 
5,000 
7,940 
62,000 
96,426 
155,000 
154,000 
53,000 
70,000 
4,500 
75,667 
41,000 
1,000 
500 
1,000 
18,000 
129,800 
500 
400,000 
650,000 
700 
187,848 
20,000 
6,500 
268,455 
37,725 
12,000 
833,624 
1,500 
91, 128 
39,845 
1,000 
15,000 
369,520 
3,000 
40,000 
5,000 
500 


Tons. 
210,000 
500 
58,500 
43,964 
1,000 
78,000 
50,000 
214,088 
895,897 
500 
45,000 
156,000 
5,000 
7,600 
93,000 
98,264 
160,923 
191.900 
64,000 
91,455 
4,500 
76,717 
65,000 
1,000 
500 
1,000 
20,000 
176,483 
500 
420,000 
849, 728 
1,000 
165,857 
21,000 
7,000 
334,309 
45,767 
11,500 
850,790 
2,500 
99,584 
40,5001 
1,000 
14,500 
496,2171 
4, 0001 
41,000i 
6,500 
500 


1918 


1, 


Tons. 
289,990 
500 
88,500 
32,036 
1,000 
80,000 
54,000 
197, 954 
923,030 
500 
45,000 
244,340 
5,000 
8,000 
128,000 
81,025 
155,000 
173,000 
68,000 
78,000 
5,000 
104,700 
90,000 
1,000 
500 
1,000 
18,000 
153,198 
500 
430,000 
921,962 
1,000 
219,328 
25,000 
6,000 
340,898 
40,811 
10,000 
064,886 
2,500 
113,000: 
58,000, 
1,000; 
16,000! 
430,549 
4,010: 
59,036 
7,500j 
500! 


1919 


1, 


Tons. 
297,903 
.500 

64,427 

43,126 
1,000 

65,000 

30,398 

250,613 

990,919 

500 

45,000 

241,000 

5,000 

16,937 
103,000 

97,724 
156,000 
174,500 

61,000 
103,264 

5,000 
110,000 

91,000 

1,000 
500 

1,000 

14,000 
149,485 

1,500 
410,000 
961,238 

1,000 

305,236 

40,000 

7,500 

340,000 

21,815 

9,000 
033,887 

3,000 

109,366 

46,000 

1,000 

18,000 

421,484 

4,000 

63,000 

10,000 

500 


5,586,212:5,407,5496, 
70,000   65,000, 


224, 54316, 778, 743:6, 927, 322 
80,000i   64,000   71,000 


11 


344 


MUSCLE  SHOALS  PROPOSITIONS. 


^  ,    ,   „   „  September  27,  1920. 

Col.  J.  H.  Burns, 

Nitrate  Division,  Ordnance  Department,   Washington,  D.  C. 

Dear  Col.  Burns  :  In  line  with  the  cooperative  work  we  have  been  carrying 
on  concerning  the  operation  of  the  Muscle  Shoals  plant,  as  well  as  the  Haber 
process,  and  after  consultation  with  you.  I  addressed  a  letter  on  August  14, 
1920,  to  the  commissioners  of  agriculture  and  directors  of  the  experiment 
stations  of  the  several  States  to  obtain  their  opinions  on  certain  phases  of  the 
problem.  It  seemed  to  me  that  they  were  in  a  position  to  advise  in  regard 
to  fertilizer  problems,  as  they  either  have  charge  of  the  administration  of  the 
fertilizer  laws  of  the  respective  States  or  have  been  vitally  interested  through 
their  investigational  work  in  the  general  fertilizer  problem. 

In  this  letter  I  laid  before  them  in  some  detail  the  present  status  of  the 
fertilizer  industry  and  the  relative  intensity  of  use  in  the  several  States,  asking 
them  to  give  their  judgment,  so  far  as  their  State  is  concerned,  as  to  whether 
and  approximately  how  much,  additional  fertilizers  would  be  used  in  their 
States  in  the  event  that  a  larger  supply  of  fertilizer  material,  especially 
nitrogenous  material,  were  made  available  through  the  operation  of  the 
Government  plant,  in  order  that  I  might  determine  whether  the  production  of 
168,000  tons  of  ammonium  sulphate  could  be  absorbed  bv  the  country  without 
seriously  upsetting  the  present  industrial  relations. 

I  sent  these  letters  to  representatives  in  48  States.  I  have  received  up  to  date 
replies  from  37  States.  These  37  States  represent  89  per  cent  of  the  tonnage 
of  fertilizers  in  1919.    I  sent  out  85  letters  and  have  received  to  date  46  replies. 

Three  States  did  not  express  an  opinion  as  to  whether  or  not  there  would 
be  an  increase  in  fertilizers  used  in  these  States  if  larger  amounts  of  nitrogenous 
material  were  supplied.  These  States  in  1919  had  a  total  consumption  of 
22,937  tons  out  of  a  total  of  6,927,322  tons  used  in  all  States  in  1919.  Three 
States  which  consumed  29,000  tons  looked  for  no  increase  in  use  in  their 
States.  Eight  States  which  consumed  1,053,102  tons  in  1919  expressed  the 
opinion  that  there  would  be  an  increased  use,  but  did  not  state  how  much. 
Twenty-three  States  which  consumed  5,070,744  tons  gave  the  probable  per  cent 
of  increase.  The  average  weighted  increase  to  be  expected,  according  to  the 
judgment  of  the  officials  of  these  23  States,  is  about  17.2  per  cent.  This, 
applied  to  the  total  tonnage  of  1919,  would  indicate  that  1,191,499  additional 
tons  of  fertilizers  could  have  been  consumed  if  the  fertilizer  material  had  been 
available.  If  we  use  the  factor  3.3  per  cent  for  the  ammonia  content,  it  would  be 
equivalent  to  157,276  tons  of  ammonium  sulphate.  This  is  close  to  the  estimated 
capacity  of  the  Muscle  Shoals  plant  In  no  case  was  any  doubt  expressed  bv 
the  officials  that  the  product  of  the  Muscle  Shoals  plant  could  be  absorbed 
without  serious  disturbance  to  commercial  production. 

My  opinion,  previously  expressed  to  you,  that  the  production  of  168,000  tons 
of  ammonium  sulphate  could  be  absorbed  into  the  fertilizer  industry  of  this 
country  is  thus  confirmed,  as,  if  I  had  taken  their  maximum  estimates,  the 
amount  stated  by  them  which  could  be  used  would  considerably  exceed  this 
figure. 

The  general  opinion  of  the  correspondents  is  that  there  is  at  present  and  has 
been  for  a  long  time  a  serious  shortage  of  fertilizer  materials,  especially  of  the 
nitrogenous  materials,  and  they  seemed  to  feel  very  strongly  that  the  operation 
of  the  Muscle  Shoals  plant,  with  the  production  of  fixed-nitrogen  compounds, 
would  be  of  great  benefit  to  agriculture. 

I  called  the  attention  of  the  State  officials  to  some  of  the  difficulties  in  the 
use  of  fixed-nitrogen  products,  such  as  cyanamid  and  ammonium  nitrate,  in 
the  system  that  has  always  prevailed  in  this  country  of  depending  largely  upon 
mixed  fertilizers.  I  also  called  attention  to  the  waste  of  phosphate-rock  mate- 
rial in  the  present  system  of  acidulating  with  sulphuric  acid.  I  suggested  that 
this  waste  could  be  eliminated  by  the  preparation  of  liquid  phosphoric  acid 
from  mine-run  material  and  from  low-grade  rock,  which  could  then  be  fixed  by 
introducing  potash  or  ammonia,  with  the  formation  of  potassium  phosphate  or 
ammonium  phosphate,  to  which  ammonium  nitrate  could  be  added  without 
chemical  change  taking  place.  I  told  them  that  in  my  judgment  the  time  had 
come  to  put  the  fertilizer  industry  on  a  real  chemical  basis. 

After  laying  before  them  such  details  and  such  opinions  of  my  own.  I  asked 
them  whether,  in  their  judgment,  the  Muscle  Shoals  plant  should  produce  am- 
monium sulphate  or  should  produce  concentrated  fertilizer  material  of  the 
above  kinds.  Four  States,  which  used  in  1919  a  total  of  17,000  tons,  expressed 
no  opinion  on  this  point.    Two  States,  which  used  46,500  tons,  advised  that 


MUSCLE  SHOALS  PROPOSITIONS. 


345 


ammonium  sulphate  be  produced.  Thirty-one  States  advised  the  manufacture 
of  concentratea  fertilizer  materials.  These  31  States  represent  practically  99 
per  cent  of  the  tonnage  of  1919  from  those  States  reporting  and  about  87  per 
€ent  of  the  total  tonnage  of  all  States  in  1919. 

I  further  asked  my  correspondents  if  in  their  judgment,  if  concentrated  fer- 
tilizers are  produced,  the  farmers  would  take  pains  to  apply  them  with  the 
same  care  that  they  now  have  to  exercise  in  applying  straight  nitrate  of  soda 
or  acid  phosphate  so  that  they  will  not  come  into  direct  contact  with  the  seed 
at  planting  time.  All  of  the  correspondents  who  favored  the  production  of 
concentrated  fertilizers  expressed  the  opinion  that  with  suitable  warning  and 
a  campaign  of  education  the  farmers  could  and  would  use  concentrated  fertil- 
izer materials  safely. 

I  trust  this  information  will  be  of  interest  and  value  to  you. 
Very  truly,  yours, 

Milton  Whitney, 

Chief  of  Bureau, 

Mr.  Fields.  Doctor,  from  your  study  of  the  subject,  what  has  been  the  average 
mcrease  in  the  production  of  corn  by  the  use  of  fertilizer?  If  you  will  put  in  the 
hearing  a  table  showing  the  average  increase  in  the  yield  of  the  staple  crops 
of  the  country  by  the  use  of  fertilizer  it  will  be  of  great  assistance  to  the  com- 
mittee. 

Dr.  Whitney.  I  think  it  will  be  very  difficult  to  state  that  in  any  fair  way. 
We  have  not  the  information  in  regard  to  general  use.  We  have  the  information 
in  regard  to  some  of  the  fertilizer  experiments  that  have  been  carried  on  in 
this  country,  but  it  is  hardly  fair  to  apply  those  to  general  use. 

Mr.  Fields.  Any  figures  you  could  give  us  to  show  the  benefit  of  fertilizer  ap- 
plied to  the  soil  in  the  production  of  crops  would  help  us. 

Dr.  Whitney.  I  will  try  to  get  up  some  data  that  will  be  satisfactory. 

Average  increase  per  acre  of  all  fertilizer  experiments  in  the  United  States 
published  up  to  1910,  with  the  number  of  experiments  reported  up  to  that 
time. 


Corn. 


Fertilizer. 


Mineralfertilizers: 

Single  fertilizer  materials  contain- 
ing   ammonia,    from  mineral 
sources,    acid   phosphate,    or 
potash 

Minerals  in  combination  of  two  of 
the  above  elements 

Complete  mineral  fertilizer  con- 
taining all  three  of  the  above 

elements 

Organic  fertilizers: 

Single  organic  fertilizer  material. . 

Organicfertilizer  material  in  com- 
bination with  a(Md  phosphate 
or  potash 

Complete  fertilizer  containing 
ammonia  in  organic  form,  acid 
phosphate,  and  potash 


Num- 
ber of 
experi- 
ments 


1,622 
1,036 

1,233 
302 

364 

1,037 


Aver- 
age in- 
crease 
in  bush- 
els. 


Wheat. 


3.7 
11.0 

14.5 
4.6 

7.2 

10.8 


Num- 
ber of 
experi- 
ments. 


Aver- 
age in- 
I  crease 
in  bush- 
els. 


Potatoes. 


799 
378 

534 
151 

161 

377 


2.0 
4.6 

8.9 
2.2 

3.7 

7.5 


Num- 
ber of 

experi- 
ments. 


295 
254 

226 
60 

128 

269 


Aver- 
age in- 
crease 
in  bush- 
els. 


Cotton. 


10.5 
29.6 

48.5 
23.7 

49.3 

53.5 


Num- 
ber of 
experi- 
ments. 


Aver- 
ages in- 
crease 

in 
pounds. 


559 
280 

311 

209 

469 
730 


54.0 
82.5 

160.4 
72.0 

109.4 

130.3 


These  summaries  include  all  published  records  regardless  of  the  character  of  the  soil,  the  climatic  con- 
aitions,  or  the  length  of  time  fertilizers  have  been  applied,  or  the  previous  treatment  of  the  soil.  Thev 
are,  however,  the  best  summaries  that  can  be  presented  at  this  time. 

Mr.  Chairman,  there  is  a  great  deal  of  information  regarding  that  matter. 
The  Bureau  of  Soils  compiled  all  the  results  from  all  the  experiments  that  had 
been  made  with  fertilizers  about  10  years  ago  and  has  published  a  bulletin 
analyzing  the  whole  question.  But  it  is  very  hard  to  draw  a  general  comparison 
because  we  do  not  know  the  soils  that  they  were  used  on,  and  we  know  nothing 
except  the  figures.    We  have  to  accept  those  as  they  come. 


346 


MUSCLE  SHOALS  PROPOSITIONS. 


Mr.  Fields.  'I  want  to  get  back  to  the  subject  of  the  filler  used  in  the  fertilizers. 
Did  I  understand  you  to  say  early  in  the  hearings  that  much  of  the  filler  used  la 
fertilizer  was  contained  in  the  product  shipped  from  Germany? 

Dr.  Whitney.  It  is  used  in  products  from  our  own  country.  For  example, 
we  use  acid  phosphate  that  carries  only  16  per  cent  of  phosphoric  acid.  The 
rest  of  it  is  filler.  In  our  ammonium  sulphate  we  absorb  our  ammonia  in 
sulphuric  acid. 

Mr.  Fields.  Do  we  get  potash  from  Germany  in  concentrated  form? 

Dr.  Whitney.  Yes ;  potash  comes  to  us  in  two  forms — as  muriate  of  potash 
and  sulphate  of  potash,  each  having  50  per  cent  of  K2O.  That  is  as  concentrated 
as  we  can  get  it  unless  in  making  these  concentrated  fertilizers  we  get  the  potash 
in  the  form  of  phosphate  of  potash,  potassium  phosphate.  Then  it  would  not  be 
a  filler,  but  it  would  be  a  valuable  constituent.  Now,  the  sulphate  and  the 
chloride  in  w^hich  we  get  it  from  Germany  are  unnecessary,  but  they  are  the 
most  concentrated  forms  we  have  unless  w^e  can  make  them  in  this  country. 

Mr.  Fields.  At  any  rate,  if  a  farmer  buys  2  tons  of  fertilizer  of  16  per  cent 
phosphoric  acid,  he  is  getting  640  pounds  of  fertilizer  and  3,360  pounds  of  filler. 
In  addition  to  the  freight  charges,  he  must  pay  for  the  handling  of  all  this  bulk. 

Dr.  Whitney.  Yes ;  and  also  for  the  sacks. 

Mr.  Fields.  And  also  the  drayage,  the  expert  men  and  the  labor  in  handling 
it,  which  is  a  very  large  item  in  this  type  of  fertilizer. 

Dr.  Whitney.  Yes. 

Mr.  Fields.  I  believe  you  have  referred  to  two  or  three  methods  for  the  ap- 
plication of  this  highly  concentrated  fertilizer  that  you  have  showed  us  here. 

Dr.  Whitney.  Yes. 

Mr.  Fields.  It  could  possibly  be  mixed  with  sand,  as  the  phosphoric  acid 
seems  to  be,  and  put  on  the  soil  by  the  farmer  under  instructions  given,  just  as 
he  must  follow  the  instructions  given  in  connection  with  the  fertilizer  he  now 
buys? 

Dr.  Whitney.  Yes ;  or  it  could  be  put  on  in  its  concentrated  form.  Or  where 
large  quantities  are  used,  as  on  the  truck  soils  and  the  citrus-fruit  soils,  it 
could  be  put  on  by  sprays. 

Mr.  Fields.  Judge  Parker  questioned  you  about  the  fertilization  of  the  soil 
by  stall  feeding  of  cattle.  My  experience  has  taught  me  that  that  is  a  splendid 
way,  but  it  does  not  supply  enough  fertilizer  to  meet  the  requirements  of  the 
farmer. 

Dr.  Whitney.  No;  the  amount  is  insufficient,  and  besides  that  the  difficulty 
and  the  expense  of  transporting  such  a  bulky  material  as  manure  is  very  great. 
It  is  not  practicable,  except  for  intensive  agriculture  in  the  market  gardens. 

Mr,  Fields.  Take,  for  instance,  the  fertilizer  from  a  40-acre  field  of  corn. 
If  it  is  handled  with  the  greatest  care  it  would  not  fertilize  that  same  number 
of  acres.    It  would  only  fertilize  a  small  part  of  that. 

Dr.  Whitney.  Yes. 

Mr.  Fields.  Put  on  by  the  most  scientific  methods,  and,  we  will  say,  by  the 
best  manure  spreader  that  could  be  had. 

Dr.  Whitney.  Yes. 

Mr.  Fields.  It  probably  would  not  fertilize  one-fifth  of  that  area.  Judge 
Parker  also  referred  to  the  fertilization  of  the  soil  by  the  growing  of  cowpeas, 
which  is  another  splendid  method,  if  you  need  to  produce  cowpeas  as  an  agri- 
cultural product. 

Dr.  Whitney.  I'^es. 

Mr.  Fields.  But  it  is  a  very  expensive  method  if  you  are  producing  that  for 
the  fertilization  of  the  soil  alone. 

Dr.  Whitney.  Yes. 

Mr.  Fieij)S.  In  countries  which  are  not  adapted  to  the  production  of  cowpeas, 
where  it  is  difficult  to  save  the  seed,  the  farmer  must  buy  his  seed  as  is  the  case 
in  my  country  largely.  My  experience  has  been  that  if  he  buys  the  seed,  then 
the  cowpea  seed  will  cost  more  than  the  fertilizer,  and  in  addition  to  that  there 
is  the  cost  of  plowing  the  land  and  planting  the  crop. 

Dr.  Whitney.  And  losing  the  use  of  the  land  for  other  purposes. 
Mr.  Fields.  For  one  year. 
Dr.  Whitney.  Yes. 

Mr.  Stoll.  The  main  object  of  plants  like  plant  No.  2  at  Muscle  Shoals,  I  be- 
lieve you  stated,  was  to  make  fixed  nitrogen.  What  do  you  mean  by  fixed  nitro- 
gen? 


MUSCLE   SHOALS  PROPOSITIONS. 


347 


Dr.  Whitney.  It  is  really  the  free  nitrogen  of  the  air,  which  is  very  inert  and 
Tery  difficult  to  react,  to  fix  that  in  some  form  in  which  it  will  be  active  and 
beneficial  to  the  crops. 

Mr.  Stoll.  What  form  must  it  be  in  to  be  beneficial  to  the  crops?  What  do 
you  call  it  when  it  is  in  the  shape  that  will  be  beneficial  to  crops? 

Dr.  Whitney.  In  a  general  way  we  speak  of  it  as  ammonia,  because  that  is 
the  simplest  form. 

Mr.  Stoll.  That  is  what  I  thought. 

Dr.  Whitney.  But  it  may  be  put  into  the  form  of  cyanamid,  or  urea,  or  nitrate 
of  soda,  or  ammonium  sulphate,  but  we  fix  it  in  a  way  so  that  we  designate  it 
as  a  fixed  nitrogen  product. 

Mr.  Stoll.  The  farmer  understands  it  as  ammonia. 

Dr.  Whitney.  He  would  value  it  as  ammonia. 

Mr.  Stoll.  In  what  form  is  ammonia  used  for  fertilizer?    Is  it  in  the  sulphate? 

Dr.  Whitney.  It  is  used  in  the  form  of  ammonium  sulphate ;  but  it  is  referred 
to  as  ammonia,  even  when  it  is  present  as  nitric  acid  in  sodium  nitrate,  or  as  in 
organic  forms  of  nitrogen  in  cottonseed  meal  or  tankage. 

Mr.  Stoll.  What  I  am  after  is  to  find  what  you  get  out  of  the  air.  It  would 
be  sulphate  of  ammonia  you  would  get  out  of  the  air,  would  it  not? 

Dr.  Whitney.  No  ;  in  the  case  of  the  Haber  process,  it  would  be  straight 
anmionia  gas.  In  the  case  of  the  cyanamid  process,  it  would  be,  as  Dr.  Tolman 
told  you  yesterday,  cyanamid  from  which  ammonia  can  be  made  by  heating  it 
under  pressure  by  steam. 

Mr.  Stoll.  Dr.  Tolman,  who  testified  yesterday  stated,  I  believe,  that 
nitrate  plant  No.  2,  if  it  makes  110,000  tons  of  nitrate  would  yield  about  190,000 
tons  of  sulphate  of  ammonia. 

Dr.  Whitney.  No ;  It  will  make  either.  It  will  not  make  both.  You  can  get 
your  ammonia  out  from  your  cyanamid  and  you  can  convert  part  of  it  into 
nitric  acid  and  dissolve  the  rest  of  the  ammonia  gas  into  nitric  acid  and  make 
ammonium  nitrate,  or  you  can  dissolve  some  of  the  ammonia  gas  into  sulphuric 
gas  and  make  ammonium  sulphate. 

Mr.  Stoll.  But  what  I  am  especially  after  now  is  the  statistics.  If  we  get 
190,000  tons  of  sulphate  of  ammonia,  that  would  be  in  form  to  be  used  as 
fertilizer. 

Dr.  Whitney.   Yes. 

Mr.  Stoll.   What  per  cent  of  fertilizer  now  used  is  sulphate  of  ammonia? 

Dr.  Whitney.  That  is  very  difficult  to  tell ;  very  difficult.  In  1917  and  1918 
the  proportion  of  ammonia  used  in  fertilizers  that  was  derived  from  ammonium 
sulphate  was  between  16  and  17  per  cent. 

Mr.  Stoll.  Perhaps  I  can  get  at  what  I  want  in  this  way,  what  other 
sources  of  ammonia  have  we? 

Dr.  Whitney.  We  have  nitrate  of  soda,  and  about  29  per  cent  of  all  the 
nitrogen  in  our  fertilizers  in  those  years  was  derived  from  sodium  nitrate. 
Then  we  come  down  to  the  animal  tankage  which  is  one  of  the  organic  forms 
or  nitrogen  or  ammonia,  and  there  was  about  15  per  cent  derived  from  animal 
tankage.  There  was  about  2  per  cent  derived  from  garbage  tankage.  There 
was  about  2^  per  cent  from  dried  blood  and  about  14  to  15  per  cent  from  cotton- 
seed meal.  There  was  about  2  per  cent  from  fish  scrap  and  the  rest  was  from 
small  sources,  waste  materials. 

Mr.  Stoll.  Can  you  state  how  many  tons  that  would  be  in  the  shape  of 
fertilizer  or  ammonium  sulphate. 

Dr.  Whitney.  Yes,  knowing  the  number  of  tons  that  were  produced  that 
year,  we  could,  of  course,  arrive  at  that. 

Mr.  Stoll.  I  wish  you  would  put  in  the  record  the  number  of  tons  of 
ammonia  we  now  use.    Have  w^e  got  a  sufficient  supply  of  it? 

Dr.  Whitney.  As  I  tried  to  show  a  while  ago,  we  have  a  sufficient  supply. 
We  have  an  overabundant  supply  just  now  of  nitrogen,  in  all  its  forms,  because 
the  farmers  did  not  purchase  last  year. 

Mr.  Stoll.  I  understand  that,  but  I  mean  under  normal  conditions  have  we 
enough. 

Dr.  Whitney.  Under  normal  conditions,  of  course,  we  have  been  keeping 
up  with  the  demand  for  fertilizers,  but  there  has  been  an  impossibility  of  get- 
tmg  nitrogenous  material  in  suflficient  amount  for  any  great  expansion  of  the 
use  of  fertilizers.  I  have  had  this  matter  up  with  the  fertilizer  manufacturers. 
If  they  were  successful  in  getting  a  demand  of  2,000,000  tons  of  fertilizers  in 
the  wheat  and  corn  States,  we  then  could  not  get  the  nitrogen  to  supply  it. 


It 


348 


MUSCLE  SHOALS  PROPOSITIONS. 


^o\\^  one  of  the  reasons  that  the  use  of  fertilizers  has  not  been  pnslied  more 
rapidly  is  that  the  supply,  particularly  of  nitrogen,  has  been  insufficient  to 
meet  any  rapid  increase  or  drastic  increase  in  the  amount  of  fertilizers  that 
would  be  required.  Just  now  we  have  a  surplus  of  fertilizer  material,  but.  under 
normal  conditions  we  would  expect  about  8,000,000  tons.  If  it  had  not  beea 
SJi  -.n^jJJIl'^^  ^^^  expectation  would  have  been  at  this  time  about  9,000,- 
000  or  10,000,000  tons.  The  limitations  on  the  amount  of  nitrogen  by  the  in- 
crease in  the  use  of  fertilizers,  and  particularly  by  the  increase  in  the  amount 
that  IS  fed  to  cattle,  would  make  it  very  difficult  for  us  to  manufacture  nor- 
mally now  10,000,000  tons  of  fertilizers. 

^  Mr.  Stoll.  In  the  formula  of  8-3-^,  which  is  the  one  most  commonly  used 
m  my  Stiiti' — South  Carolina— how  much  ammonia  is  in  that  formula' 

Dr.  Whitney.  There  are  three  units  of  ammonia  and  a  unit  is  20  pounds,  so 
there  is  60  pounds  of  ammonia  in  a  ton  of  fertilizer. 

nJl^!L?l^^^-  ^  "^^^^  ^^  ^  pounds  of  ammonia  in  a  ton  of  8-3-3,  and  about 
J00,000  tons  of  ammonia  can  be  manufactured  at  nitrate  plant  No.  2  that 
would  furnish  almost  all  the  ammonia  needed  in  the  formula  of  8-3-3,  would 

Dr.  Whitney.  For  the  country  or  for  8,000,000  tons? 

Mr.  Stoll.  Yes. 

Dr.  Whitney.  No  ;  I  showed  a  while  ago 

Mr.  Stoll.  That  would  make  around  8,000,000  tons  of  fertilizer,  would  it  not' 

Dr.  Whitney.  I  showed  a  while  ago  in  my  letter  that  is  quoted  by  Senator 
Smith  in  the  Congressional  Record  of  January  7,  1921,  that  we  were  using  at 
that  time  227,833  tons  of  nitrogen.  Now,  I  understand  the  capacity  of  the 
Muscle  Shoals  plant  to  be  about  40,000  tons  of  nitrogen. 

Mr.  Stoll.  No,  sir ;  Gen.  Williams  said  it  would  produce  about  200,000  tons 
of  sulphate  of  ammonia. 

Dr.  Whitney.  Two  hundred  thousand  tons  of  sulphate  of  ammonia 

Mr.  Stoll.  And  I  think  Dr.  Tolman  said  about  190,000  tons. 

Dr.  Whitney.  And  110.000  tons  of  ammonium  nitrate,  but  the  production 
of  nitrogen  is  about  40,000  tons. 

Dr.  Tolman.  One  hundred  and  ninety  thousand  tons  of  ammonium  sulphate 
contains  about  40,000  tons  of  nitrogen. 

Dr.  Whitney.  And  we  are  using  227,000  tons  of  nitrogen. 

Mr.  Stoll.  I  thought  it  would  produce  190,000  tons  or  200,000  tons  of  ferti- 
lizer material.    That  is  where  the  mistake  comes  in. 

Dr.  Whitney.  Yes ;  of  course,  you  know,  in  figuring  these  things,  40,000  tons 
of  nitjogen  to  be  converted  into  ammonium  nitrate  has  to  be  converted  first  into 
ammonia  and  then  into  nitric  acid,  so  that  by  the  time  you  have  oxidized  and 
added  to  it  you  get  out  of  your  40,000  tons  of  nitrogen  110,000  tons  of  am- 
monium nitrate  or  190,000  tons  of  ammonium  sulphate. 

Mr.  Stoll.  I  notice  from  the  statement  that  has  been  submitted  here  that 
my  State  uses  about  one-sixth  of  the  fertilizer  used  in  the  entire  United  States, 
and  using  more  than  any  other  State  I  thought  that  if  this  would  make  all  the 
ammonia  needed  it  would  be  a  very  important  item. 

Dr.  Whitney.  No  ;  it  is  only  a  part.    It  is  40,000  tons  as  against  227,000  tons. 

Mr.  Parker.  Doctor,  I  am  somewhat  puzzled  by  your  formula  of  8-3-3  You 
said  "3"  was  the  ammonia  in  the  other  figures,  and  I  thought  the  first  one 
represented  ammonia,  the  second  one  phosphorous,  and  the  third  potash,  but 
in  the  8-3-3  you  made  the  ammonia  "  3." 

Dr.  Whitney.  Let  me  tell  you  about  that.  That  is  a  difference  in  practice 
between  the  North  and  the  South.  In  the  Northern  States  the  ammonia  is 
always  given  first,  and  that  would  be  3-8-3.  In  the  Southern  States  the  phos- 
phoric acid  is  invariably  given  first,  and  the  same  formula  would  be  written 
o— o— 3. 

Mr.  Parker.  That  is  to  say,  in  each  case  it  means  8  of  phosphoric  acid. 

Dr.  Whitney.  Eight  of  phosphoric  acid. 
Mr.  Parker.  Three  of  potash. 

Dr.  Whitney.  Three  of  potash. 
Mr.  Parker.  And  3  of  ammonia. 
Dr.  Whitney.  Yes,  sir. 

Mr.  Parker.  That  makes  it  plain.    I  now  want  to  ask  you  one  other  ques- 
tion.   Something  has  been  said  about  cowpeas;  all  beans' and  peas  take  am- 
monia from  the  air,  do  they  not? 
Dr.  Whitney.  Yes ;  all  leguminous  plants. 


MUSCLE   SHOALS  PKOtOSITIONS. 


349 


Mr.  R\rker.  And  some  of  them  will  ripen  in  any  climate,  for  instance. 
Dr.  Whitney.  Yes. 

Mr.  Parker.  If  you  take  any  soil  on  a  farm,  all  the  nitrogen  that  is  in  it 
has  been  Brought  there  from  the  air  by  plants,  if  it  has  not  been  fertilized? 

Dr  Whitney.  Well,  we  are  uncertain  about  that.  We  would  not  say  that. 
We  do  not  know.  '' 

Mr.  Parker.  On  the  ordinary  farm  there  are  no  nitrates'? 
Dr.  Whitney.  Oh,  yes. 

Mr.  Parker.  As  to  the  potash ;  that  comes  out  of  almost  every  pebble,  espe- 
cially if  they  come  from  granite  rock. 
Dr.  Whitney.  Yes,  sir. 

Mr.  Parker.  And  as  those  pebbles  break  into  smaller  pieces  more  potash  is 
formed. 

Dr.  Whitney.  Yes,  sir. 

Mr.  Parker.  As  to  the  phosphorus,  that  is  about  the  same,  too.  It  does  not 
come  from  the  air,  but  certain  parts  of  the  mineral  on  every  farm  contain 
some  phosphorus,  or  ought  to. 

Dr.  Whitney.  Yes. 

Mr.  Parker.  But  very  little. 

Dr.  Whitney.  It  is  a  small  amount ;  yes. 

Mr.  Parker.  And  there  is  quite  a  quantity  of  potash,  if  it  can  only  be  put 
m  usable  form  on  almost  every  farm? 

Dr.  Whitney.  Yes,  sir. 

Mr.  Crowther.  I  have  just  one  question,  Doctor.  You  exhibited  this  morn- 
ing two  specimens  of  fertilizer  with  different  formulas  and  you  read  the  formu- 
las. Did  either  of  them  contain  nitrogen  in  the  sulphate  form  or  ammonium 
sulphate? 

Dr.  Whitney.  No.  sir. 

Mr.  Crowther.  They  were  not  present  in  either  of  those  formulas  that  you 
exhibited  this  morning? 

Dr.  Whitney.  No,  sir. 

The  Chairman.  Doctor,  we  are  very  much  obliged  to  you  and  thank  you 
exceedingly  for  your  patience  and  kindness. 

Dr.  Whitney.  I  have  been  very  glad  to  be  with  you. 

(The  committee  thereupon  adjourned  until  Thursday,  February  16,  3922,  at 
10.30  o'clock.) 


f 


MUSCLE  SHOALS  PROPOSITIONS. 


Committee  on  Military  Affaies, 

House  of  Representatives, 
Thursday,  Febniary  16,  1921. 
The  committee  met  at  10.30  o'clock  a.  m.,  Hon.  Julius  Kahn  (chairman)  pre- 

The  Chairman.  Gentlemen,  Mr.  Worthington,  who  was  not  feeling  very  well 
yesterday,  and  who  is  not  feeling  particularly  strong  this  morning,  is  here  to 
make  his  statement  and  to  answer  such  questions  as  the  committee  mav  desire 
to  ask. 

STATEMENT  OF  MR.  J.  W.  WORTHINGTON,  CHAIRMAN  OF  THE 
EXECUTIVE  COMMITTEE  OF  THE  TENNESSEE  RIVER  IMPROVE- 
MENT ASSOCIATION. 

The  Chairman.  Mr.  Worthington,  will  you  kindly  proceed  in  your  own  way 
and  tell  us  what  you  have  to  say  in  reference  to  the  offer  of  Mr  Ford  re- 
garding the  Muscle  Shoals  propertv? 

Uv.  Worthington.  Well,  Mr.  Chairman,  I  hardly  know  what  to  say  to  you 
unless  I  knew  what  you  desired  to  be  told  to  you. 

The  Chairman.  Have  you  been  following  the  hearings' 

Mr.  Worthington.  I  have  read  the  hearings. 

The  Chairman.  Is  there  anything  you  desire  to  add  to  what  Mr.  Mavo  told  us 
the  other  day? 

Mr.  Worthington.  Well,  perhaps,  not  on  the  line  of  his  statement  and  not  so 
much  as  speaking  for  Mr.  Ford,  I  think  I  would  like  to  make  a  statement 
somewhat  on  my  own  account,  and  I  make  that  explanation  because  I  think 
that  Mr.  Ford  would  be  displeased  w'th  me  if  I  was  to  say  anything  that  was 
in  the  nature  of  an  appeal  to  this  committee  that  they  accept  his  offer.  He  has 
expressed  himself  to  me  as  very  much  opposed  to  anything  of  that  sort 

However,  there  are  some  phases  of  the  case  I  would  like  to  get  in  the  record 

The  Chairman.  Would  you  kindly  state  those  phases? 

Mr.  Worthington.  There  is  a  phase  of  this  case  that  seems  to  me,  according 
to  my  view,  very  much  misunderstood.  Take  the  case  of  the  Warrior  River 
steam  plant,  and  I  am  sure  that  any  one  who  looked  into  the  question  would 
understand  why  Mr.  Ford  included  it  in  his  offer.  The  steam  plant  at  nitrate 
plant  No.  2  when  running  at  capacity  will  require,  perhaps,  1,500  tons  of  coal 
uaily. 

The  Chairman.  1,500  tons  daily? 

Mr.  Worthington.  Daily;  and* nobody  who  knows  Henrv  Ford  would  ever 
think  he  would  pay  a  railroad  $1,500  or  more  a  day  to  haul  that  coal  up  there 
If  he  used  that  plant,  and  so  it  was  most  natural  for  him  to  have  included  the 
steam  plant  in  his  proposition.  Not  only  so,  but  at  nitrate  plant  No.  1  vou  have 
a  steam-power  development  of  5,000  kilowatts;  but,  of  course,  if  this  offer  of 
Mr.  Ford  is  accepted,  you  can  see  at  once  that  he  would  move  that  down 
to  the  coal  instead  of  hauling  coal  up  to  it.  So  his  offer  for  the  Warrior  River 
steam  plant  was  in  keeping  with  his  intention  and  purpose  all  through  his 
proposal;  that  is,  economy.  s        »» 

I  wanted  to  clear  that  up.  There  was  an  economical,  sound  reason  for  the 
proposal.  In  addition  to  that,  while  this  committee,  of  course,  will  make  its 
own  decision,  that  power  down  there  is  needed  to  supplement  the  secondary 
power  at  the  dam  of  the  United  States,  and  that  is  so  plain  from  the  record  as 
not  to  require  any  discussion  whatever. 

There  are  some  other  phases  of  this  case  which  I  think  are  not  understood 
As  I  read  the  report  of  the  Secretary  of  War  and  his  statement  and  some  of  the 
other  statements  made  before  this  committee,  I  am  quite  certain  they  do  not 
understand  Mr.  Ford,  and  I  will  confess  to  this  committee  that  it  took  me  a  good 


92900—22 ^23 


351 


352 


MUSCLE  SHOALS  PROPOSITIONS. 


long  time  to' get  such  little  iimlerstanding  as  I  have  of  him.  And  I  mean  by 
that  statement  that  in  my  earlier  negotiations  with  him  I  supposed  he  was  like 
other  business  men  I  had  met,  that  they  wanted  to  make  money,  but  he  called 
me  on  that  proposition  more  than  once  and  said  that  that  was  not  his  purpose 
at  all,  and  I  have  become  firmly  convinced  that  that  is  true.  So  you  will  see, 
Mr.  Chairman,  that  he  was  a  little  different  in  that  respect  from  most  men,  if 
that  is  true. 

Perhaps  you  know  that  as  it  turned  out.  I  carried  this  Muscle  Shoals  case  to  him 
at  the  request  of  the  Chief  of  Engineers.  I  noted  in  reading  the  Secretary  of  War's 
testimony^and  please  do  not  understand  that  this  is  a  criticism ;  far  from  it — 
that  Mr.  Ford  seemed  to  be  groping  around  in  the  dark  about  his  enterprises. 
I  think  that  is  about  the  most  inaccurate  statement  that  could  be  made  about 
Henry  Ford,  and  I  would  like  to  relate  to  the  committee  a  little  incident  that 
happened.  Instead  of  his  being  a  groper  around  in  the  dark,  he  is  the  most 
definite  and  direct-acting  rapid-firing  human  motor  that  I  ever  met.  I  will  give 
you  an  illustration.  On  .Tune  6  this  Muscle  Shoals  matter  was  presented  to 
iiim  and  in  the  afternocm  he  looked  over  some  of  the  maps  with  his  chief  engi- 
neer. Mr.  Mayo,  and  after  two  hours'  consideration,  he  jumped  up  and  said, 
"  Let  us  go  to  Muscle  Shoals,"  and  Mr.  Mayo  asked  him  when,  and  he  said  "At 
8  o'clock  this  evening."  I  just  offer  that  as  a  suggestion  that  he  is  not  much 
of  a  groper.  He  is  the  most  direct,  rapid-firing  institution  that  I  ever  ran 
against.  , 

But  I  do  not  think  it  is  a  thing  to  be  wondered  at  at  all  that  the  Secretary 
of  War  said  that,  because  in  my  little  way,  in  the  last  10  years  here  in  Wash- 
ington, I  have  found  it  the  most  difficult  thing  in  the  world  to  get  with  you 
gentlemen  any  engineering  contact,  and  if  you  will  take  the  history  of  your 
power  legislation,  you  seem  to  have  listened  to  everybody  except  the  engineers 
who  knew  about  it.  So  it  is  not  a  surprising  thing  that  the  Secretary  of 
War  would  make  that  comment,  and  it  is  not  new  to  me,  Mr.  Chairman,  that 
statesmen  do  not  understand  the  man  of  genius  in  certain  lines,  because  you 
gentlemen  remember,  no  doubt,  that  Mr.  Gladstone  was  aked  to  go  to  meet^ 
right  at  the  peak  of  his  career,  some  of  England's  scientists.  He  was  carried 
to  Mr.  Darwin,  and  it  is  said  that  Mr.  Darwin  understood  just  about  as  little 
of  what  Mr.  Gladstone  said  to  him  as  Mr.  Gladstone  understood  about  what 
Mr.  Danvin  said,  and  then  they  carried  Mr.  Gladstone  to  meet  Faraday,  and 
Faraday  showed  him  the  motor.  Mr.  Gladstone  asked  him,  "  Why,  what  is 
the  use  of  it?"  It  stumped  Faraday,  but  he  arose  to  the  occasion  and  said, 
"  Tax  it,"  and  that  is  the  way  with  this  whole  proposition  of  waterpower  here 
in  Washington.  Everybody  wants  to  tax  it,  which  is  not  in  the  interest  of  the 
consumer. 

On  that  side  of  taxation  and  the  creation  of  taxable  wealth,  there  is  one 
phase  of  the  case  at  Muscle  Shoals  that,  as  far  as  I  have  seen,  you  have  not  con- 
sidered. You  take  the  internal-revenue  receipts  for  the  fiscal  year  1920  and 
you  will  find  a  very  interesting  thing.  The  State  of  North  Carolina,  after  the 
Civil  War,  was  the  poorest  State,  perhaps,  among  all  southern  States.  They 
had  no  coal,  no  iron,  and  were  strictly  an  agricultural  State.  Their  cotton  interest 
and  production  were  ruined  by  the  Civil  War,  but,  Mr.  Chairman,  did  you  know 
that  North  Carolina,  in  the  year  1920,  paid  more  Federal  taxes  than  any  State  in 
the  South,  not  excepting  Texas ;  more  taxes  than  any  New  England  State,  with 
the  exception  of  Massachusetts ;  more  taxes  than  Indiana,  with  Gary  in  it,  and 
more  taxes  than  Missouri  and  more  taxes  than  West  Virginia. 

There  is  an  explanation  for  that,  and  when  that  explanation  is  sought  and 
truly  found  you  will  find  that  it  is  the  development  of  water  power  in  North 
Carolina,  and,  Mr.  Chairman,  I  need  not  consume  the  time  of  the  committee  by 
making  a  similar  and  greater  example  of  your  own  State  of  California. 

So.  suppose  all  of  these  claims  about  these  hardships  that  the  United  >States 
Treasury  i<?  going  to  suffer  down  there  are  true,  is  it  a  good  investment?  It  is 
a  business  proposition  that  you  can  determine  the  facts  about.  If  you  want 
to  lift  the  burden  of  taxation  in  this  country,  if  you  want  to  lift  taxation, 
develop  these  water  powers  and  put  them  to  work  creating  the  wealth  to  pay 
the  taxes,  and  if  you  will  investigate  the  subject  right  seriously  and  thoroughly 
(and,  of  course,  you  may  say  that  I  ought  not  to  say  that  because  you  have 
done  it:  but  I  think  you  might  look  into  it  again),  you  will  find  some  very  re- 
markable things  on  the  subject  that  have  not  yet  been  disclosed,  so  far  as  I 
know. 

Suppose  we  take  another  viewpoint.  You  take  the  water  power  that  is 
possible  of  development  in  the  Pacific  Coast  States.     You  have  a  group  of 


MUSCLE  SHOALS  PROPOSITIONS. 


353 


States  out  there  that  have  perhaps  40  per  cent  of  all  the  power  that  could  be 
developed  m  this  country.  Bear  in  mind,  now,  that  it  is  onlv  in  the  last  few 
days,  and  I  am  not  criticizing  them  at  all,  but  it  is  only  in  the" last  two  or  three 
days  that  we  Fee  that  the  coal-mine  labor  and  the  rail  labor  are  going  to  "'et 
together,  and  I  do  not  expect  that  any  member  of  this  connnittee  hopes  to  see 
very  much  re<luction  in  the  rates  paid  coal-mine  labor  and  rail  labor 

Mr.  Chairman  and  gentlemen  of  the  committee,  there  is  a  direct  relation  be- 
tween the  amount  of  power  used  per  wage  earner  and  the  value  of  the  product 
which  It  produces.  In  1899  we  were  using  2.1  horsepower  per  wage  earner, 
with  a  resulting  value  of  products  of  $2,400.  By  1914  we  had  increased  the 
amount  of  machine  power,  supplementing  our  man  power,  to  3.2  horsepower 
r\^l^^  earner,  and  the  value  of  the  products  had  correspondingly  increased 

,,  \^"  ^^"  ^^' J  *^^"^^'  ^^^™  ^*^^^'  '^  •^^'^"  ^^^  "ot  deny  the  statement  as  a  fact 
that  If  we  are  to  progress  and  if  we  are  to  share  the  world's  market  we  have 
got  to  place  ourselves  in  the  position  of  being  able  to  compete  with  European 
labor  by  mcreasmg  the  amount  of  power  that  we  give  each  wage  earner  to 
supplement  his  own  efforts,  and  we  must  not  stop  at  anv  figure  of  3  horsepower 
or  4  horsepower,  but  must  carry  it  high  enough  to  wipe  out  the  differeiice  in 
the  labor  wage  paid  here  and  abroad,  and  you  can  wipe  it  out  with  water 
power  If  you  will  develop  it.    But  we  satisfy  ourselves  in  the  United  States 
.vou  know  very  well  yourselves-I  suppose  we  can  talk  among  ourselves  as 
American  cit.zens-we  satisfy  ourselves  about  a  great  many  things  by  just 
simply  boastmg  about  it,  and  we  boasted  that  we  have  got  more  water  nowS 
than  any  nation   (and  it  need  not  be  said  to  tliis  committee,  Mr.  Chairimn 
1  at  there  has  been  a  good  deal  said  about  water  power  in  Congress  of  about 
10  years),  but  what  have  we  developed? 
We,  in  this  country,  have  not  built  a  dam  in  10  years  in  a  single  navieable 

Trr^"A«^^^^^^.vJ\^^^^'  ^^^  ^^^^  horsepower  under  construction    ^ 
The  Chairman.  What  country  is  that? 

Mr.  WoRTHiNGTON.  Canada. 

The  Chairman.  Our  neighbor  on' the  north 

fhn!'*;i^^^'^^'''''f''^T.-  ^'^^'^  ^'^'"''^^  *^^  1^"^'  »"<^  I  ^^^  say  to  this  committee 
w,^^^-I  T  ^"^i"5^  "P  ^^^*^  '^^^^^'^^  at  "S'  and  I  do  not  blame  them  We 
desen^e  to  be  laughed  at  about  it,  because  this  water-power  proposition  wo , Id 
he  the  biggest  joke  that  ever  was  in  this  country,  except  that  it  is  so  serim,? 
of'^mo^^^Uf '  Canada,  the  Chippewa  development  is  justXA  to  be  AnS' 
of  ,m,000  horsepower  and  an  installation  is  being  made  of  150  000  horCower* 

service.  ''''''  ^^"  '""  ^''^"^'  '^"^'^•^  ^^^^  ^^'^  horsepml^  wasTilin 
xNow,  the  Secretary  of  War  suggests  to  you,  and  I  understand  a  -reit  nmnr 
people  insist  upon  it  that  Mr.  Ford  ought  not  to  have  pissed ''rVu^e 
Soals  unless  he  had  been  willing  to  come  under  vour  power  act  We  1  we 
w  11  not  consume  the  time  at  present,  but  if  you  wish  it,  I  wHl  hand  tWs  com 

iT.f.'*-^'^'^"^^  ^^  ''^''^  ^^''  ^^^'^^  P^*^P««^«  to  do  and  what  th^^ter  power 
act  requires,  and  you  will  see  that  only  perhaps  in  the  period  of  100  vears  d^! 
he  m  any  essential  way.  depart  from  vour  power  act  *  "^  ^^  J^ais  .loe* 

It  IS  a  matter  of  choice,  I  suppose,  but  Mr.  Ford  is  one  of  those  mon  wh/> 
s  very  definitely  opposed  to  a  great  many  details,  an^L  Lids  ex^ausdve 
C^^T""  ^"""^  accounting  not  in  very  high  esteem,  anfif  anvb^^feom^^^ 
?!f.hrH  "^'^  ^Ti''  P^'''^''  '^'^t,  and  complies  with  it,  he  must  open  a  SkeS 
establishment  here  in  Washington.    There  is  no  doubt  about  it        ''''''^^^^^'''S 

nZ;.^^^  iVliV^'/i^'ld  ?.- --  there  has  been  a  great  mLsunder- 


n^^  ^-  f  y--/  What  h;:^  ha;;e;;ent  H^^^^  \TLifi:'u  Si^: 

f  at,  and  what  has  happened  at  Lock  12  on  the  Coosa  River-  and  if  noth?n^    n! 

sSSm  5"r  ■"«.-'- ">--"^  aJ'HSss 

the  State  of  Alabama  charged  with  the  duty  to  do  it;  and  I  would  just  lYte 


I 


354 


MUSCLE  SHOALS  PROPOSITIONS. 


to  ask  yon  gentlemen,  if  you  were  renting  a  great  big  skyscraper  and  you  were 
l^rniitted  to  make  the  rates,  just  why  would  you  want  to  reduce  the  time ;  and 
I  suggest  to  you  that  I  would  not  want  to  own  anybody's  skyscrai)er  if  I 
could  make  the  rates,  and  that  is  just  the  way  this  proix>sition  is  about  the 
making  of  rates  for  power. 

The  period  has  nothing  to  do  with  it.  as  I  am  sure  a  moment's  reflection 
will  cause  this  committee  to  decide,  and  if  the  United  States  or  C!ongress  ever 
decides  that  it  nuist  take  over  a  water  power,  do  you  suppose  they  would 
wait  50  years  if  they  found  it  necessary  to  do  it?    Why.  of  course  not. 

Now,  how  did  the  50-year  limitation  ever  get  in  there?  It  was  a  compromise 
and  ever>'  one  of  you  gentlemen  who  was  a  Member  of  Congress  during  that 
discussion  knows  it.  It  has  nothing  sacred  about  it.  Why  was  it  not  40  years 
or  why  was  it  not  60  years? 

Now,  tinaJiy,  at  Muscle  Shoals,  it  is  too  bi^  for  50  years.  It  takes  too  nuich 
capital  to  ever  work  it  out  in  50  years,  and  not  only  that,  the  secondary 
power  at  Muscle  Shoals  is  such  a  large  percentage  of  the  iwwer  that  it  wiil 
take  years  and  years  to  make  it  primary,  and  the  most  important  single  state- 
ment that  Mr.  Ford  has  made  to  me  in  the  last  two  months,  and  on  his  own 
motion  and  without  any  coaching  on  my  part,  was  when  he  said,  "  Well,  if 
we  get  Muscle  Shoals  we  will  go  up  the  Tennessee  and  build  the  dams  on  the 
main  stream  and  tributaries  and  develop  that  i)ower  and  improve  the  naviga- 
tion, and  we  will  not  ask  the  United  States  for  a  single  cent." 

This  Tennessee  River  program,  gentlemen,  is  out  of  the  usual  class  and  clear 
out  of  any  50-year  period.  Now,  you  may  find  that  there  are  those  wlio  will 
offer  to  take  it  on  50  years,  but  the.v  have  no  such  program  as  Henry  Ford: 
not  at  all;  and  before  I  leave  this  100-years  question,  I  would  like  to  cite  thi.s 
committee  to  what  Germany  is  doing,  and  I  am  going  to  ask  the  indulgence 
of  the  committee  to  let  Mr.  W.  G.  Waldo,  the  consulting  engineer  of  the  Tennes- 
see River  Improvecent  Association,  read  for  me,  l)ecause  I  am  not  just  fit 
to-day,  if  you  have  no  objection  to  that. 

The  Chairman.  There  is  no  objection  and  we  will  be  very  glad  to  have  the 
engineer  read  it. 

Mr.  Waldo.  In  the  issue  of  July  26,  1921,  of  the  magazine  called  "  Power." 
there  is  an  article  entitled  "  Germany  Developing  Water  Power."  describing 
the  project  on  the  Neckar  River  which  is  a  link  of  the  Danube.  The  proposal 
is  to  build  from  25  to  28  dams,  and  the  ultimate  development  is  only  70.0<X) 
horsepower.     The  quotation  is  as  follows: 

"  W^hile  the  ultimate  object  of  the  whole  enterprise  is  the  canalization  of 
the  Neckar  and  the  linking  of  that  river  with  the  Danube,  its  immediate  pur- 
pose should  be  seen  in  the  harnessing  of  the  Neckar  and  the  generating  of 
hydro-electric  energy  with  a  calculated  output  of  70,000  horsepower,  equal  to 
300,000,000  to  400,000,000  kilowatt-hours.  The  whole  scheme  represents  a  bold 
attempt  to  render  large  industrial  districts  in  the  south  of  Germany  less  de- 
pendent on  outside  coal  supplies  and  its  success  from  a  revenue-paying  point 
of  view  will,  in  a  measure,  be  linked  with  the  future  development  of  the  south 
German  coal  market,  and,  above  all,  with  inland  coal  prices  and  coal  taxes. 

"  The  entire  project,  cov  ering  the  section  ot  the  Neckar  from  Mannheim 
to  Plochingen — a  distance  of  about  210  kilometers  (130  miles) — provides  for  2-'^ 
to  2S  dams.  It  is  intended  to  start  building  operations  at  the  five  best-suited 
barrages  without  further  loss  of  time  and  the  first  700,000,000  marks'  worth  of 
obligations  will  shortly  be  issued.  Completion  of  the  scheme  in  its  present  form 
will  take  from  10  to  13  years.  Concessions  have  been  granted  for  a  period  of 
100  years." 

Mr.  WoRTHiNCTON.  There  you  find  in  Germany  a  case  where  there  is  only 
70.000  horsepower  against  your  750,000  here,  and  how  manv  dams  are  there V 

Mr.  Waldo.  From  25  to  28. 

Mr.  WoBTHiNGTON.  There  are  25  to  28  dams  for  100  years,  and  you  have 
two  dams  of  750,000  horsepower  and  you  want  to  cut  the  time  down  to  30 
years. 

I  would  be  very  glad  if  any  member  of  the  committee  would  like  to  ask 
any  questions  on  this  100-years  business  that  I  could  answer,  because  I  do 
not  think  there  is  but  one  side  to  it  and  I  am  very  honest  in  that. 

The  Chairman.  Would  you  like  to  complete  your  statement  and  then  have 
the  committee  ask  you  questions? 

Mr.  WoBTHiNGTON.  I  would  be  very  glad  to.  There  is  a  phase  of  this  case 
at  Muscle  Shoals  to  which  I  would  like  to  especially  call  the  attention  of  tlie 
committee.    The  biggest  man  that  has  ever  come  to  my  State  of  Alabama  was 


MUSCLE  SHOALS  PROPOSITIONS. 


355 


Mr.  M.  H.  Smith,  president  of  the  Louisville  &  Nashville  Railroad ;  he  was  our 
J.  J.  Hill.  He  was  the  only  big  man  at  the  head  of  any  big  corporation  that 
I  ever  met,  in  the  earlier  discussions  of  this  Muscle  Shoals  case,  who  w^as  will- 
ing to  get  behind  it.  He  is  now  dead,  but  has  a  very  worthy  successor  in  Mr. 
W.  L.  Mapother.  In  an  address  before  the  Chamber  of  Commerce  at  Bir- 
mingham a  few  days  ago  Mr.  Mar>other  particularly  dwelt  upon  the  Muscle- 
Shoals-Ford  case,  and  announced  his  indorsement  of  it,  and  he  made  this 
significant  statement,  Mr.  Chairman.  He  said  that  if  Mr.  Ford  developed  this 
power  and  would  let  the  L.  &  N.  have  it,  he  would  electrify  one  of  the  divisions 
of  the  Louisville  &  Nashville  Railroad ;  the  one  running  into  Muscle  Shoals. 

I  would  like,  in  making  these  connnents  on  electrification,  for  the  gentlemen 
from  Washington,  Oregon,  and  California  to  take  particular  notice. 

The  Chicago,  Milwaukee  &  St.  Paul  Railway  is  operating  a  total  of  646  miles 
electricall.v,  and  these  figures  are  taken  from  a  signed  statement  of  the  president 
of  the  road.  They  estimate  that  their  electric  oi)erations  save  annually  about 
260.000  tons  of  coal  and  about  32,0(H),000  gallons.of  oil.  The  saving  in  avoiding 
the  use  of  this  fuel  is  not  only  the  value  of  the  fuel  itself,  but  eliminates  the 
hauling  (►f  nonrevenue-compaiiy  fuel  amounting  to  nearly  one-quarter  of  the 
total  revenue  freight  business.  The  44  electric  locomotives  have  replaced  120 
steam  h^comotives,  and  it  would  have  required  210  cars  moving  continuously 
to  handle  the  coal  for  those  steam  locomotives  on  one  division  alone.  If  this 
power  is  generated  even  by  steam  in  a  central  station,  100  pounds  of  coal  will 
do  the  work  of  290  pounds  burned  under  the  boiler  of  a  locomotive,  and  if  this 
power  was  supplied  from  water  power  on  all  the  railroads  of  the  United  States 
the  saving  would  total  the  enormous  sum  of  122.500,000  tons  of  coal,  which  is 
about  25  per  cent  of  the  total  maximum  output  of  the  bituminous  mines  of  the 
Unitetl  States. 

Electrification  of  railways  doubles  the  capacity  of  their  track  and  ix)stpones 
by  a  long  term  of  years  the  time  when  double  tracking  will  be  necessary. 

Now,  I  insist  that  if  nothing  came  out  of  this  proposition  at  Muscle  Shoals, 
if  you  accept  Mr.  Ford's  offer,  except  the  electrification  of  the  railroads,  it 
would  be  an  example  and  a  les.^on  that  would  be  beyond  anything  that  we  can 
calculate  to  the  interests  of  the  United  States,  and  I  would  like  to  speak  particu- 
larly to  the  gentlemen  who  are  from  the  Pacific  Coast  States,  where  you  have 
nearly  40  per  cent  of  tlie  power.  What  effect  will  it  have  on  you  if  the  rail 
latMu*  of  the  coimtry  and  the  coal  labor  ever  get  together  and  there  is  a  strike, 
if  your  roads  are  electrified?  You  will  not  have  to  w^orry.  Now,  there  is  no 
doubting  of  that.    That  is  not  a  matter  of  opinion. 

Somebody  may  raise  the  question,  "  Well,  will  Mr.  Ford  let  the  L.  &  N. 
the  power?"     Nobody  who  knows  Henry  Ford  will  doubt  it  a  minute. 

Now,  it  has  been  said  that  Mr.  Ford  does  not  pay  enough  interest ; 
ought  to  pay  more  than  4  per  cent.  Now,  that  is  right  where  Henry 
niis\mderstood,  and  I  may  say  to  you  that  he  says  that  the  money  changers, 
some  of  them,  have  got  to  get  out  of  the  water-power  temple,  and  this  is  what 
he  means : 

If  you  take  a  hydroelectric  development  with  an  investment  of  $200  per 
horsepower  and  your  money  costs  2  per  cent,  you  have  got  an  interest  charge 
of  .$4  per  horsepower  per  year.  If  the  money  costs  you  3  per  cent,  you  have 
$6:  if  it  costs  you  4  per  cent,  it  is  $8;  if  it  costs  you  6  per  cent  it  is  .$12;  if 
it  costs  7  per  cent,  it  is  $14 ;  and  if  it  costs  8  per  cent,  it  is  $16 ;  and  if  it  costs 
0  i»er  cent  it  is  $18  rand  if  10  per  cent  it  is  $20. 

Now,  that  is  a  charge  that  the  consumer  has  to  pay.  His  idea  is  that  some 
way  or  somehow  there  ought  to  be  a  plan  devised,  a  policy  set  up  in  this  coun- 
try to  develop  these  powers  without  these  shocking  interest  charges. 

You  may  say  that  it  makes  no  difference,  but  it  does  make  a  difference.  It 
is  the  difference  between  cheap  power  and  expensive  power,  because  in  the 
case  of  water  power  75  or  80  per  cent  of  the  annual  cost  of  the  power  is  the 
cfjst  of  the  money  investe<l. 

You  can  assume  that  a  given  development  has  an  annual  operating  expense 
of,  say,  $3  per  horsepower;  the  overhead  (or  interest  and  retirement  fund  cost) 
is  68  per  cent  of  the  total  annual  cost  per  horsepower,  with  a  2  per  cent  rate 
for  money ;  it  is  75  per  cent  with  a  3  per  cent  rate ;  it  is  80  \)er  cent  with  a 
4  per  cent  rate ;  it  is  83  per  cent  on  a  5  per  cent  rate ;  and  85  per  cent  on  a  6 
Ver  cent  rate ;  87  per  cent  on  a  7  per  cent  rate ;  88  per  cent  on  an  8  per  cent  rate ; 
89  per  cent  on  a  9  per  cent  rate,  and  90  per  cent  on  a  10  per  cent  rate. 


have 


that  he 
Ford  is 


356 


MUSCLE  SHOALS  PROPOSITIONS. 


Now,  whiit  does  money  cost  for  this  power?  Suppose  Mr.  Ford  had  said— 
and  Henry  Ford  is  able  to  pay  it—"  I  will  pay  you  6  per  cent."  Who  would 
foot  the  bill?    The  customer. 

I  think,  or  I  hope,  that  that  answers  that  side  of  it,  because  his  unalterable 
intention  and  objective  is  to  reduce  the  cost  of  power  to  the  consumer  and  to  the 
user.    Nobody  need  doubt  that. 

In  a  recent  publication  of  the  "Electrical  World  you  will  find  a  statement  that 
shows  the  rate  of  interest  on  power  securities,  mortgage  bonds,  debentures,  pre- 
ferred stock,  cumulative,  and  preferred  stock,  noncunmlative,  and,  Mr.  Chair- 
man, without  consuming  the  time  of  the  committee,  I  suggest  if  you  are  inter- 
ested in  this  subject  of  reducing  the  cost  of  transportation  by  rail  by  serving 
railroads  with  water  power  to  operate  them,  that  these  figures  will  interest  vou. 

The  Chairman.  May  I  suggest  that  you  put  that  statement  in  the  hearing? 

Mr.  WoRTHiNGTON.  All  right ;  we  will  be  very  glad  to. 

(The  statement  referred  to  follows:) 

Electric  Uyht  afid  power  security  issues  in  1921} 

Mortgage  Bonds  (average  yield  7.35  per  cent)  : 

6  issues  at  5  per  cent $.^,  oeo,  000 

27  issues  at  6  per  cent 104, 154,000 

2  issues  at  6^  per  cent 30  .572  000 

27  issues  at  7  per  cent 98;  314]  000 

1(  issues  at  7^  per  cent 50, 937,  000 

12  issues  at  8  per  cent 17^  15^,  ooq 

91   issues 306, 193,000 

Debentures  (average  yield  7.99  per  cent)  : 

2  issues  at  7  per  cent 8,600,000 

2  issues  at  7^  per  cent 12, 000, 000 

1  issue  at  9  per  c*ent 436  qoq 

5   issues . 21,  036, 000 

Notes  (average  yield  7.44  per  cent)  : 

1  issue  at  5  per  cent 1  750  qqo 

1  issue  at  6  per  cent '600*000 

1  Is.sue  at  6§  per  cent ~"  2. 000000 

8  issues  at  7  per  cent : 41  7(X)' 000 

2  issues  at  7^  per  cent l' 869*  000 

10  issues  at  8  per  cent '___'__     15;700,'000 

23   issues 63,  619, 000 

Preferred  stock   (cunuilative)  —  (average  yield  7.94  per  cent)  : 

9  issues  at  8  per  cent *_ _'____    25,  313, 0(X) 

3  issues  at  6  ytev  cent 7  ogo  275 

1  issue  at  7  per  cent ~_      i^oOO^OOO 

13   issues : 33  393  275 

Preferred  stock  (non-cumulative) — (average  yield  7.76  per  cent)  : 

2  issues  at  8  per  cent I __^  9  qoO  000 

1  issue  at  7  per  cent I *  '   §8,200 

1  issue  at  6  per  cent 1 ~_  _~_  1  200000 

1  issue _ 547^  863 

5  issues 10, 836, 063 

Common  stock,  10  issues 21  837  605 

Total  of  all  issues  of  year 456,914,943 

*  Electrical  World,  Jan.  21,  1922,  p.  133. 


MUSCLE  SHOALS  PROPOSITIONS. 


357 


Mr.  WoRTHiNGTON.  Let  us  go  back  to  the  Pacific  coast  again  which,  by  the 
way,  is  the  most  interesting  section  of  the  United  States  as  far  as  water  power 
is  concerned.  It  is  said  that  you  have  in  that  group  of  States  out  there 
40,000,000  horsepower.  Just  suppose  it  cost  $100  of  horsepower  to  develop  that 
power,  the  annual  reduction  in  cost  of  that  total  power  development,  if  you  got 
your  money  at  5  per  cent  instead  of  8,  would  save  you  $120,000,000  a  year.  If 
you  got  money  at  4  per  cent  instead  of  9  per  cent,  it  would  save  you  $200,000,000 
a  year.  Therefore  the  saving  per  million  of  horsei>ower  developed  at  5  per  cent 
instead  of  8  per  cent  is  $3,000,000  annually,  and  the  saving  per  million  of  horse- 
power developed  at  4  per  cent  instead  of  9  per  cent  is  $5,000,(XX);  mind  you,  i)er 
million  of  horsepower  developed. 

Now,  I  mean  no  disrespect  to  anybody  at  all,  but  I  say  to  this  committee,  in 
the  light  of  some  years  of  study  of  the  case  and  being  around  Washington 
and  watching  water-power  legislation,  that  you  have  no  water-power  policy. 
No  member  of  the  conmiittee  takes  up  the  gantlet  on  that  proposition.  The 
results  of  your  power  legislation  answer  and  sustain  what  I  have  stated.  I  be- 
lieve this  water-power  law  was  passed  in  1920,  I  am  not  sure ;  am  I  right  about 
that? 

The  Chairaian.  I  think  it  was. 

Mr.  WoRTHiNGTON.  Well,  what  has  been  done?  Now,  what  have  you  done? 
The  very  latest  interesting  thing  about  the  whole  case  is  that  the  representa- 
tives of  the  power  companies  were  before  the  powder  commission  on  November 
21,  and  one  of  the  leading  authorities  on  the  subject  of  power,  Mr.  M.  R.  Bump, 
the  president  of  the  National  Electric  Light  Association,  outlining  the  reasons 
for  asking  a  hearing  before  the  commission,  in  part,  said: 

"  We  understand  that  applications  for  permits  have  been  filed  before  your 
commission  for  over  16,0()0,000  horsepower.  This  shows  the  public  interest 
which  indicates  the  national  importance  of  the  act.  We  wish  to  point  out,  how- 
ever, that  the  mere  filing  of  these  applications  does  not  at  all  signify  develop- 
ment." 

And  right  there  I  would  like  to  ask  this  committee  to  contrast  what  is  going 
on  in  Canada  with  your  filings  here. 

"  It  is  exactly  similar  in  nature  to  the  filing  of  myriads  of  mining  or  oil 
claims.  The  filings,  which  cost  practically  nothing,  are  in  some  cases  dupfica- 
tions;  they  do  not  indicate  any  ability  on  the  part  of  those  who  file  to  carry 
out  the  development,  and  in  many  cases  they  merely  represent  the  dreams 
and  the  hopes  of  speculators.  Many  of  these  filings,  however,  we  know  have 
been  made  by  men  or  companies  of  means  solely  with  the  hope  that  they  will 
be  able  to  develop  independent  water-power  properties  as  soon  as  the  present 
rules  and  regulations  are  made  workable,  as  they  feel  confident  must  be  done. 
The  acid  test  as  to  the  present  rules  and  regulations  is  not  at  all  the  spectacu- 
lar and  very  misleading  applications  for  permits,  but  the  amount  of  actual, 
bona  fide  construction  now  in  actual  progress.  An  investigation  will  show  that 
there  has  been  practically  no  financing  of  independent  water-power  projects 
of  consequence  under  the  present  rules  and  regulations,  but  that,  on  the  con- 
trary, substantially  all  the  material  development  where  the  Ignited  States 
Government  is  involved  is  by  and  on  the  credit  of  the  large  property  holdings 
of  the  older  companies  not  on  Government  land  and  based  on  the  credit  of 
their  woU-etsablished  business,  antedating  even  the  passage  of  the  act  itself." 

Now,  is  it  a  reasonable  thing  for  Mr.  Ford  to  want  to  stay  from  under  an  un- 
workable law?  That  is  the  case  on  that  side  of  it.  and  I  want  to  say  to  the  com- 
mittee that  I  know  if  it  can  be  shown  to  Mr.  Ford  that  he  is  avoiding  anything 
that  will  contribute  to  the  cheapening  of  power  and  to  the  service  of  power  in 
an  economical  way,  that  he  will  subscribe  to  whatever  that  is ;  but  this  thing  of 
attacking  him  about  it  and  not  offering  a  gocKl  reason  for  it  is  all  aside  from  the 
question,  because  this  is  a  big  business  matter  you  are  dealing  with. 

There  has  been  a  great  deal  said,  I  fear  rather  thoughtlessly,  about  the  pro- 
duction of  fertilizer  at  Muscle  Shoals.  I  am  not  going  to  engage  the  attention 
of  the  committee  on  that  subject  at  length.  I  will  suggest,  however,  that  we 
ought  not  to  boast  so  much  in  this  country  if  we  can  not  do  what  Germany  is 
doing.  Germany  has  freed  herself  from  her  dependence  on  Chile  for  nitrogen, 
and  I  believe  if  Henry  Ford  goes  to  Muscle  Shoals  he  will  free  the  United  States 
from  dependence  upon  Chile;  at  least,  he  will  do  as  well  as  Germany.  I  will 
not  agree  that  he  will  fail  in  that. 


'A 


i 


II 


I 


358 


MUSCLE  SHOALS  PROPOSITIONS. 


Now.  you  have  directed  your  attention,  I  think,  too  much  perhaps  to  the 
subject  of  nitrates,  and  I  see  in  the  paper  that  a  gentleman  is  going  to  appear 
before  this  committee,  and  you  will  learn  from  him  that  the  country  is  so  fortu- 
nate in  that  there  is  something  else  at  Muscle  Shoals  except  nitrates  for  the 
farmer,  and  that  gentleman  is  Mr.  Swann,  w^ho  deserves  more  credit,  according 
to  my  view,  than  any  man  in  the  United  States  to-day  for  what  he  has  done  at 
Anniston,  Ala. 

This  subject  can  be  discussed,  as  has  been  demonstrated  for  the  last  15  vears 
at  length.  ^        * 

Mr.  Chairman,  it  was  stated  by  Mr.  Mayo  that  Mr.  Ford  would  use  all  the 
power  himself  in  connection  with  his  proi)osed  industrial  operations  at  Muscle 
Shoals,  and  the  committee  might  raise  the  question  with  me  about  bringing  up 
this  electrification  of  a  portion  of  the  Louisville  &  Nashville  Railroad  There 
w^ould  not  be  any  trouble  about  what  Mr.  Ford  would  do,  because  cheap  trans- 
portation assures  cheap  rates  on  what  he  manufactures  there,  and  he  would 
be  as  much  interested  in  getting  those  rates  cheap  as  any  other  job  that  he 
undertakes  to  do.    That  is  a  plain  case  of  ordinary  business  economy. 

I  want  to  go  back,  if  the  committee  will  indulge  me,  to  this  100  years'  business 
I  am  not  critical,  but  I  want  to  show  this  committee  how  utterly  absurd  the 
whole  thing  is. 

Here  is  a  map  of  the  Little  Tennessee  River,  and  it  is  one  of  the  most  w^on- 
derful  power  rivers  in  all  the  Southeast.  It  is  very  little  known,  and  yet  the 
Aluminum  Co.  of  America— and  that  company  knows  a  good  water  power— has 
practically  controlled  the  power  development  on  that  stream.  The  Little  Ten- 
nessee flows  into  the  Tennessee  down  here  at  Lenoir  City.  As  a  matter  of  fact 
this  development  of  the  Aluminum  Co.  of  America  is  in  North  Carolina  just 
over  the  Tennessee  line.  Their  plan  is  seven  dams,  and  No.  2  dam  is  alreadv 
completed,  with  a  capacity  of  75,000  horsepower,  and  the  power  is  being  used 
at  Alcoa,  where  the  Aluminum  Co.  of  America  has  an  aluminum  plant 

Now.  gentlemen,  the  period  that  the  American  Aluminum  Co.  of  America 
wntrols  this  river  is  perpetual.  Just  what  is  the  common  sense  in  saying  that 
when  the  water  of  the  Little  Tennessee  River  serves  the  Aluminum  Co  of 
America  at  Alcoa  in  the  production  of  aluminum,  it  is  without  limit  and  when 
the  same  water  gets  into  the  Tennessee  River  and  runs  down  the  Tennessee  and 
gets  to  Hales  Bar,  27  miles  below  Chattanooga  it  there  becomes  99-year  water- 
and  then  when  it  gets  to  Muscle  Shoals  it  is  50-vear  water?  If  there  had  been 
any  other  falls  lower  down  toward  the  Ohio,  I  suppose  it  wouhl  have  gone  to 
the  vanishing  point.  I  submit  to  you  in  all  common  sense  that  that  absolutely 
blows  up  that  whole  contention.  Do  not  understand  that  I  suggest  that  you 
interfere  with  the  Aluminum  Co.  of  America  in  their  location.  I  do  not  suggest 
it  to  you  at  all,  but  I  do  suggest  most  respectfully  to  you,  not  as  a  threat  either 
that  if  it  is  attempted  the  Tennessee  River  Improvement  Association  will  come 
here  to  Washington  and  fight  it.  There  is  no  reason  why  that  company  should 
not  go  on  making  aluminum  for  50  years,  or  for  100  years,  or  for  150  vears 
Of  course,  as  to  the  rates,  that  is  another  matter  which  I  do  not  need  to  dis- 
cuss. But  you  will  not  control  the  price  of  aluminum  by  limiting  the  period  of 
water  service.  You  had  just  as  well  say  that  in  regulating  railroad  rates  the 
Interstate  Commerce  Commission  will  be  controlled  bv  the  duration  of  a  rail- 
road's charter.  It  is  all  absurd.  It  just  blows  up  itself,  and  there  never  was 
anything  in  it. 

It  ought  to  be  changed.    I  do  not  suppose  it  ever  will  be. 

-.rJ^"  ^"'"  ^^^^  **^^^  "**^^  ^^^'^^*  ^^^^'^  ^*^  ^^'^  ^^''^^^-  ^^t  "s  see  if  we  can  make  this 
100-year  proposition,  or  50-year  proposition  a  little  more  ridiculous.  These  are 
the  transmission  lines  of  the  southeastern  power  development.  There  are  750  000 
horsepower  developed  in  the  Carolinas,  Georgia.  Alabama,  and  Tennessee. 
Those  powers  happen  to  be  developed  on  streams  that  are  said  to  be  nonnavi- 
gable.  But  whenever  the  water  gets  into  a  stream  where  on  the  map  the  United 
States  engineers  have  taken  their  brushes  and  colored  it,  it  immediately  becomes 
50-year  water.    That  is  a  fact ;  you  know  it  is,  Mr.  Chairman,  yourself 

I  have  not  the  strength  to-day-and  I  have  not  the  ability  either,  but  I  do  know 
a  man  who  is  strong,  and  he  has  the  ability,  whom  I  suggest  vou  have  before  you 
before  concluding  these  hearings.  You  ask  him  to  describe  to  you  his  studies 
conducted  under  the  War  Industries  Board  with  regard  to  powder  during  the  war 
in  connection  with  this  whole  southeastern  situation,  and  you  will  find  that  he 
vaiU  make  statements  that  are  most  interesting  to  this  committee  with  respect 


MUSCLE   SHOALS  PROPOSITIONS. 


359 


to  the  coordination  of  these  power  developments.  Now,  I  would  like  to  know 
how  ycm  could  coordinate  50  years  with  100  years.  You  must  take  some  basis. 
Then  what  would  you  do  with  this  perpetual  case,  if  .vou  try  to  coordinate  and 
tie  in  with  that?    The  gentleman  I  referred  to  is  Mr.  Frederick  Darlington. 

The  Chairman.  Where  can  he  be  found? 

Mr.  WoRTHiNGTON.  He  can  be  found  at  the  Westinghouse  Co.  in  New  York. 
In  that  connection,  Mr.  Chairman,  you  will  remember  his  report,  or  the  report 
made  by  his  staff,  which  was  printed  and  submitted  by  the  United  States 
engineers,  I  think  signed  by  Col.  Keller.  If  you  are  interested  in  the  w^ar 
preparedness  side  of  this  case.  Col.  Keller  knows  this  waterpower  question 
as  related  to  that  matter. 

Our  association  is  too  poor  to  make  exhaustive  surveys,  but  vou  will  remem- 
ber you  appropriated  $125,000  to  make  this  supersurvey  fron/here  to  Boston, 
and  you  will  find  some  most  interesting  statements  on  the  subject  of  electri- 
fication. 

But  as  poor  as  we  are,  we  made  a  little  study.  It  is  no  more  than  a  sug- 
gestion, but  it  shows  how  the  super-power  program  might  be  worked  out  for 
Muscle  Shoals,  around  to  Birmingham,  Atlanta,  through  the  Tallulah  Falls, 
and  around  through  Roanoke,  Charleston,  Huntington,  Cincinnati,  Louisville, 
and  Nashville.  Of  course,  that  does  not  mean  the  Tennessee  River  alone,  be- 
cause the  Cumberland  River  has  valuable  powers,  if  you  ever  decide  to  survey 
them  and  find  out  what  they  are.  The  powers  on  the  upper  Tennessee  have 
never  been  surveyed,  and  it  is  not  known  wiiat  they  are.  But  they  are  con- 
trolled by  the  United  States.    That  is  just  a  little  study  we  made. 

If  we  had  had  $125,000  we  would  have  carried  it  out  much  further,  but  we 
did  not  have  the  money. 

Now%  Mr.  Chairman,  in  respect  to  the  fertilizer  side  of  it.  just  a  practical 
example:  I  suppose  the  members  of  the  committee  know  that  the  cottonseed 
production  in  1914  is  reportefl  at  1.901.467  tons.  Of  that  tonnage,  881,000  tons 
went  into  fertilizer— food  into  the  ground.  Cottonseed  meal  has  only  6  or  7 
I>er  cent  of  nitrogen.  It  is  a  crime  to  do  that,  because  this  nitrogen  compound 
that  the  farmer  uses  is  only  6  per  cent  nitrogen,  which  is  about  30  cents  a 
pound,  with  cotton  seed  at  only  $40  a  ton.  We  ought  to  get  the  nitrogen  out 
of  the  atmosphere,  ought  we  not,  and  stop  boasting,  so  that  the  cottonseed 
meal  can  go  to  California,  Illinois,  and  Washington  to  feed  cattle,  and  so  that 
it  can  go  to  Vennont  and  to  Massachusetts.  And  then  if  there  is  any  surplus 
it  ought  to  go  to  Norway,  Sweden,  Holland,  and  other  European  countries. 
But  now,  what  does  the  southern  farmer  use  it  for?  He  has  not  got  anything 
else ;  nobody  has  ever  taught  him  how  to  use  anything  else  or  where  to  get 
anything  else.  How  in  the  world  can  that  poor  negro  tenant  in  the  South  work 
that  problem  out? 

You  may  think  that  on  this  proposition  I  am  talking  through  my  hat,  but  if 
Henry  Ford  goes  to  Muscle  Shoals  he  will  work  it  out. 

I  suppose  you  gentlemen  know  that  it  is  stated  by  those  who  are  best  in- 
fonned  that  we  in  this  country  passed  the  peak  of  food  production  per  capita 
in  1898,  and  that  importations  are  expected  in  20  years,  the  way  we  are  pro- 
ceeding. What  is  the  remedy?  Make  the  soil  more  fertile,  restore  it.  and 
increase  production. 

I  do  not  think  I  should  consume  the  time  of  the  committee  any  further 
1  suppose  the  committee  is  informed  about  the  increase  in  electric-furnace  op- 
erations in  this  country.  It  is  an  industry  by  itself,  new,  and  described  very 
uniquely  by  a  writer  on  the  subject  as  silent  and  a  secret. 

Mr.  Ford  stated  to  me  in  these  discussions  that  we  will  not  have  any  secrets 
at  Muscle  Shoals.  You  will  not  find  an  industrialist  in  this  country  who  will 
make  that  statement  except  Henry  Ford. 

The  Chairman.  Mr.  Worthington,  I  believe  you  stated  vou  carried  to  Mr 
ford  the  proposition  that  was  drawn  up  by  the  law  officers  of  the  War  De- 
partment of  this  Government? 

Mr.  WoKTHiNGTON.  Mr.  Chairman,  I  suggested  at  the  time  the  Chief  of  En- 
J^'ineers  sent  out  invitations  to  power  companies  and  a  great  number  of  other 
companies  that  might  be  interested,  that  he  send  Mr.  Ford  an  invitation  just 
tlie  same  as  the  others,  and  the  Chief  of  Engineers  was  a  little  surprised  at  it. 
But  I  told  him  certain  things  Mr.  Ford  was  doing,  some  in  connection  with 


360 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


361 


power  development.    He  sent  the  invitation,  and  within  48  hours,  perhaps,  the 
Chief  of  Engineers  got  a  telephone  message  from  Mr.  Ford's  office  asking  him  to 
come  up  there.    But  he  could  not  go,  and  he  asked  me  if  I  would  go  and  gave 
me  a  letter,  or  a  copy  of  th<^  letter  he  wrote  to  Mr.  Ford,  saying  that  he  asked 
me  to  come.     I  got  anotlier  letter  of  introduction  from  Senator  Underwood 
and  with  those  I  went  there  on  June  6.    Mr.  Ford  went  to  Muscle  Shoals  on 
June  14,  and  he  asked  me  to  go  to  Detroit  with  him.    He  and  Mr.  Mayo  went 
and  he  said  he  was  interested.     He  said  he  had  nothing  to  conceal  about  it 
He  said  he  wished  I  would  spend  some  days  with.  Mr.  Mayo  assisting  Mr.  Mayo 
with    such    information    as    we    had    collected    through    all    these    years 

I  did  that,  and  it  required  only  until  July  8,  when  he  signed  the  offer,  and 
this  thing  about  his  groping  ground  sort  of  sticks  in  my  craw.  I  called  the 
Government's  attention  to  the  fact  that  he  got  this  offer  down  here  between 
June  6  and  July  8,  and  the  Government  has  been  at  Muscle  Shoals  working 
with  it  nearly  100  years.  I  do  not  refer  to  that  same  100  years,  either.  That 
is  how  quickly  he  acted ;  and  the  offer  has  been  coming  to  you  for  six  or  seven 
months.  That  is  the  history  of  it.  I  want  to  make  it  very  clear  to  the 
committee  that  I  am  not  a  paid  employ<'e  of  Mr.  Ford.  I  do  not  know  that 
that  information  would  be  of  any  interest  to  the  committee,  but  I  want  it 
understood. 

He  stated  on  the  first  day  I  was  with  him.  on  June  6,  that  he  wanted  to  know 
what  my  relations  to  it  were,  and  I  explained  them  briefly.  The  next  morn- 
ing, June  7,  Mr.  Mayo  said  Mr.  Ford  was  not  satisfied  with  that  statement. 
It  b<^came  clear  that  they  wanted  to  know  what  I  was  going  to  charge  them, 
and  I  made  it  very  clear  that  I  did  not  have  anything  to  sell ;  that  this  prop- 
erty belonged  to  the  United  States;  and  that  I  had  not  brought  myself  into 
the  present  situation  or  status,  but  civic  organizations,  farmers'  organiza- 
tions, etc.,  had  done  it,  and  I  had  no  right  to  sell  their  influence'.  He  could 
not  buy  it  if  he  were  to  try.  So  I  have  merely  furnished  him  such  information 
as  we  had. 

If  the  committee  would  like  to  see  at  any  time  what  we  have  down  there, 
or  if  any  member  of  the  committee  is  interested  in  that,  we  would  be  de- 
lighted to  have  you  come  down  to  our  headquarters  on  Pennsylvania  Avenue, 
and  we  will  show  you  a  motion  picture  of  this  plant  from  the  time  they  broke 
the  dirt  until  it  turned  out  ammonium  nitrate,  and  you  can  learn  more  there 
in  40  minutes  than  you  can  learn  by  reading  books,  because  it  is  plain  to  the 
eye,  and  you  can  see  the  whole  proposition.  That  is  an  answer  in  reference 
to  my  relations  with  Mr.  Ford,  is  it? 

The  Chairman.  Yes. 

Mr.  WoRTHiNGTON.  That  is  what  you  wished? 

The  Chairman.  Yes.  What  company  are  you  connected  with  at  the  present 
time? 

Mr.  WoRTHiNGTON.  N<me  at  all. 

The  Chairman.  What  company  have  you  been  engaged  with? 

Mr.  WORTHINGTON.  In  the  past  I  have  been  connected  with  the  Sheffield  Co., 
and  I  was  president  of  the  Muscle  Shoals  Hydroelectric  Co.  I  was  at  one  time 
vice  president  of  the  Alabama  Power  Co. 

The  Chairman.  You  were  vice  president  of  the  Alabama  Power  Co.? 

Mr.  WORTHINGTON.  Yes,  sir;  beginning  in  1913. 

The  Chairman.  That  is  the  company  that  is  mentioned  in  connection  with  the 
contract  for  the  development  of  the  nitrate  plant  No.  2? 

Mr.  WORTHINGTON.  That  is  the  same. 

The  Chairman.  When  did  you  cease  your  connection  with  that  companv? 

Mr.  WORTHINGTON.  I  think  it  was  in  October,  1915 ;  I  think  it  was  in  1915— 
yes;  it  was  in  October,  1915. 

The  Chairman.  That  was  before  the  United  States  got  into  the  war? 

Mr.  WORTHINGTON.  Oh,  yes. 

The  Chairman.  We  were  still  at  peace? 

Mr.  WORTHINGTON.  Yes. 

The  Chairman.  How  did  you  come  to  break  your  connection  with  the  com- 
pany, or  do  you  desire  to  go  into  that? 

Mr.  WORTHINGTON.  That  is  a  little  bit  embarrassing.    I  got  fired. 


The  Chairman.  Do  you  want  to  state  the  circumstances,  or  would  vou  pre- 
fer not  to  do  so? 

M^-.  WORTHINGTON.  Oh,  I  do  uot  kuow,  Mr.  Chairman.  But  if  you  ask  it  I 
wilf  answer.    It  is  not  any  pleasure  to  me  to  answer  it. 

The  Chairman.  I  am  sure  the  committee  would  like  to  know. 

Mr.  WORTHINGTON.  At  a  meeting  of  the  directors  in  New  Yoi-k— I  was  a 
director  of  the  company— Mr.  Mitchell,  whose  memory  I  cherish  very  much 
and  who  was  one  of  three  men  in  my  State  who  are  entitled  to  be  regarded 
as  of  the  first  industrial  magnitude — he  is  dead  now — stated  tliat  he  thought 
my  activities  about  Muscle  Shoals  at  Washington  were  not  in  harmony  with 
the  interests  of  the  Alabama  Power  Co.  I  thought  we  had  l)een  some  time 
approaching  that  statement,  and  I  told  him  I  thought  he  was  right  about  it  and 
that  I  ought  to  resign,  and  I  left  the  company  on  account  of  mv  insistence  that 
I  could  not  be  diverted  from  this  Muscle  Shoals  proposition.  The  only  reason 
in  the  world  why  I  felt  that  way  was  this :  All  this  Muscle  Shoals  talk  can 
be  narrowed  down  to  one  thing — capital.  While  perhaps  it  may  now  be  true 
that  the  Alabama  Power  Co.  or  other  companies  would  come  forward  and 
take  it  where  you  brought  it,  there  are  a  good  many  reasons  why  people  have 
been  speeded  up  in  the  last  few  months.  Before  and  since  1915  I  have  continued 
my  interest.  I  started  very  foolishly  to  give  my  time  and  attention  to  it  in 
1901,  and  if  you  find  anybody  around  here  who  wants  to  tackle  anything  of 
that  kind,  let  them  talk  to  me  a  little  bit,  and  I  will  save  them  some  trouble. 

The  work  we  have  done  has  been  done  through  the  Tennessee  River  Imjirove- 
ment  Association.  It  has  been  expensive  work,  but  we  never  bought  anvthing 
except  facts;  and  Mr.  Graham,  when  he  was  investigating  the  Muscle  Shoals 
case,  gave  us  a  clear  sheet.  We  have  no  apologies  to  make  to  anvbodv  about 
what  we  have  done. 

The  Chairman.  While  you  were  connected  with  the  Alabama  Power  Co.  this 
matter  occurred  of  doing  something  for  the  Government  and  mixing  it  up  so 
with  the  Government's  affairs  that,  as  one  of  the  witnesses  said  the  other  day, 
*'  the  eggs  could  not  be  unscrambled." 

Mr.  WORTHINGTON.  You  are  talking  about  the  Warrior  River  plant? 

The  Chairman.  Yes. 

Mr.  WORTHINGTON.  Whoever  said  that  was  rather  mistaken  about  the  situa- 
tion. The  Government  did  not  build  any  egg  plant  down  there.  That  is  a 
steam  electric  station,  and  they  do  not  lay  eggs ;  they  produce  kilowatts ;  and 
you  can  unscramble  kilowatts  all  right,  if  you  try.  There  is  a  big  station  down 
here  somewhere  in  Ohio — I  can  get  the  name  of  it  if  you  want  it — where  there 
are  two  big  companies,  with  the  installation  of  one  in  one  end  of  the  station 
and  the  installation  of  the  other  in  the  other  end  of  the  statioy,  and  there  is 
a  property  line  running  right  through  it.  Such  things  as  that.  Mr.  Chair- 
man, remind  me  of  a  little  story.  A  friend  of  mine  in  Alabama  at  one  time  told 
me  he  was  taking  a  long  walk  one  Sunday  out  in  the  country,  and  he  came  by 
a  little  Negro  hut.  with  a  little  lot,  and  he  looked  over  there,  and  there  was  a 
poor  old  horse,  and  the  Negro  was  drenching  him,  pouring  some  mixture  down  the 
throat  of  the  horse,  which  was  sick.  This  gentleman  walked  along,  and  the 
Negro  said  to  him,  "Boss,  is  you  a  horse  doctor?"  My  friend  said,  "No;  I 
never  doctored  any  horse. "^  The  Negro  said,  "  I  wish  you  would  come  over  here 
and  see  if  you  could  do  something  for  my  horse,  because  if  I  lose  my  horse  I 
might  lose  my  crop."  So  this  gentleman  went  over  and  looked  at  the  horse. 
It  was  a  very  poor  horse,  lean  and  bony.  He  said  to  the  Negro,  "  Look  here, 
old  man,  suppose  you  try  a  little  corn."  I  suggest  that  in  connection  with  the 
Warrior  River  plant  we  use  a  little  common  sense. 

The  Chairman.  The  point  was  made  that  the  act  of  June  3, 1916,  under  which 
the  Muscle  Shoals  plant  was  begun  by  the  Government,  contains  an  express 
provision  that  the  Government  alone  should  operate  this  plant,  and  should  not 
make  any  agreement  with  any  private  corporation  or  companv  or  individual 
that  was  inclined  to  make  some  contract  with  the  Government.  It  was  intended 
that  the  Government  alone  should  do  this  work.  But  as  the  war  progi-essed  the 
officers  of  the  Army  found  that  in  order  to  produce  the  nitrates  verv  pi-omptly 
It  was  advisable  to  make  some  arrangement  with  the  Alabama  Power  Co.  to 
f®J  the  use  of  their  plant.  So  the  arrangement  was  made— I  think  it  was  in 
1918,  or  possibly  toward  the  end  of  1917— whereby  our  engineers  did  make  an 
agreement  with  the  Alabama  Power  Co.;  and  this  committee  has  heard  that 


M 


362 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


363 


if  we  want  to*  accept  the  Ford  offer  we  shall  have  to  do  something  to  get  rid 
of  our  contract  witli  the  Alabama  Power  Co.  Have  you  given  that  any  study 
at  all? 

Mr.  WoRTHiNGTON.  Oh,  yes ;  I  have,  of  course.  I  do  not  think  I  would  \ike 
to  discuss  that.  Te  committee  will  tind  its  way  out,  I  suppose.  But  these 
Alabama  Power  Co.  people  are  from  my  State,  and  I  do  not  want  to  get  into 
any  criticism.  It  is  no  time  for  people  in  Alabama  to  be  fussing  with  each 
other.    That  is  my  idea  about  it,  and  I  am  not  going  to  be  a  part  of  the  fuss. 

The  Chairman.  Mr.  Quin,  the  other  day,  in  speaking  of  that  company  said  it 
was  a  foreign  corporation,  with  its  habitat  in  Canada,  as  I  now  recall.  Do  you 
know  anything  about  that? 

Mr.  WoBTHiNGTON.  I  do  uot  think  the  Alabama  Power  Co.  is  a  foreign  cor- 
poration ;  it  is  an  Alabama  company.  But  I  think  it  is  probably  controlled  by 
the  Canadian  company,  or  was;  I  do  not  know  whether  it  is  now  or  not.  It 
was  when  I  was  associated  with  the  company. 

Mr.  Quin.  Mr.  Chairman,  you  did  not  get  my  question  right.  I  said  that  the 
Alabama  Power  Co.  is  owned  by  the  Ahdiama  Traction,  Light  &  Power  Co. 
(Ltd.),  which  is  a  corporation  of  the  Dominion  of  Canada. 

Mr.  WORTHINGTON.  And  I  said,  Mr.  Quin,  in  answer  to  the  question  as  to 
what  that  company  was,  that  it  was  probably  controlled  by  a  foreign  company, 
and  that  the  foreign  company  was  a  Canadian  company.  But  I  think  it  is  true 
that  the  Alabama  Power  Co.  is  an  Alabama  company,  organized  under  the  laws 
of  Alabama.  In  1915,  I  think,  the  situation  was  that  the  Alabama  Power  Co. 
was  controlled  by  the  Canadian  company. 

Mr.  Hull.  You  spoke  of  the  Warrior  River  plant.  I  suppose  that  is  what 
is  called  the  Gorgas  plant? 

Mr.  WoRTHiNGTON.  Yes,  sir. 

Mr.  Hull.  It  is  the  same  thing? 

Mr.  WORTHINGTON.  Yes. 

Mr.  Hull.  In  the  Ford  contract  we  are  to  turn  that  over  to  Henry  Ford,  as 
I  understand  it.  Is  it  your  idea  that  the  amount  it  costs  us  is  to  be  amortized 
the  same  as  the  other  expenses,  or  is  the  Government  to  pay  for  it  and  turn  it 
over? 

Mr.  WORTHINGTON.  Of  course,  it  means  that  you  would  convey  whatever 
property  you  convey  to  Mr.  Ford  free  of  any  incumbrances. 

Mr.  Hull.  I  understand,  but  is  the  money  to  be  charged  into  the  river  im- 
provement, or  is  it  to  be  turned  over,  the  same  as  in  the  case  of  plant  No.  2? 

Mr.  WORTHINGTON.  Well,  that  is  on  all  fours  with  plant  No.  2  and  the  steam 
plant  at  No.  1,  and  the  nitrate  plant  at  No.  1. 

Mr.  Hull.  What  is  hydroelectric  power  worth  in  Alabama;  what  are  the 
rates? 

Mr.  W^ORTHiNGTON.  I  do  not  know.  The  rates  vary,  and  I  have  been  away 
from  the  State  for  three  years.  I  really  do  not  know  what  the  current  rates 
are. 

Mr.  Hull.  You  say  they  are  regulated  by  law? 

Mr.  WORTHINGTON.  Ycs ;  but  I  have  not  been  down  there  recently. 

Mr.  Hull.  Is  that  power  worth  $20,  or  $30.  or  $50? 

Mr.  WORTHINGTON.  I  do  uot  think  there  is  any  power  sold,  although  there  may 
be  some,  as  low  as  $20.  There  may  be  some  secondary  contracts  that  low. 
You  can  find  that  out  from  the  Alabama  Power  Co. 

Mr.  Hull.  We  could  find  it  out  if  we  had  the  law  of  Alabama. 

Mr.  WORTHINGTON.  I  shall  be  glad  to  assist  you  in  getting  that. 

Mr.  Hull.  Could  you  get  that  and  put  it  in  the  record?  I  think  it  would 
be  interesting  to  some  of  us  who  are  trying  to  get  at  the  actual  facts  in  con- 
nection with  this  rather  conflicting  case. 

Mr.  WoRTHiN'GTON.  I  wiU  be  glad  to  get  any  information  I  can  and  give  it 
to  you. 


Alabama  Power  Co.  rates  for  electric  current  at  Huntsville,  Ala.,  in  effect  Jan.  1,  1922.^ 

Cents  per 
Textile  power  rate  (primary),  not  less  than  100  kilowatts:  *  kilowatt  hour. 

First  35,000  kilowatt  hours,  per  month 1.1 

Next  35,000  kilowatt  hours,  per  month 1. 05 

Next  30,000  kilowatt  hours,  per  month 1 

Next  100,000  kilowatt  hours,  per  month 9 

All  over  200,000  kilowatt  hours,  per  month 85 

Wholesale  primary  power  rate,  not  less  than  100  kilowatts: 
Demand  charge  ^ — 

Per  kilowatt  per  month  for  first  100  kilowatts $1.  50 

Per  kilowatt  per  month  for  next  4,900  kilowatts 1.  25 

Per  kilowatt  per  month  for  all  over  5,000  kilowatts 1. 00 

Cents  per 
Energy  charge —  kilowatt  hour. 

First  1,(X)0  kilowatt  hours,  per  month. 3 

Next  4,000  kilowatt  hours,  per  month. 2 

Next  15,000  kilowatt  hours,  per  month.*. 1 

Next  30,000  kilowatt  hours,  per  month 9 

Next  50,000  kilowatt  hours,  per  month 1 8 

Next  100,000  kilowatt  hours,  per  month. 7 

Next  100,000  kilowatt  hours,  per  month 6 

All  over  300,000  kilowatt  hours,  per  month .5 

Retail  power  rate,  not  more  than  100  kilowatts: 

Demand  charge  per  kilowatt,  per  month $1.50 

Cents  per 
Ener^  charge —  kilowatt  hour* 

First  1,000  kilowatt  hours,  per  month 3 

Next  2,000  kilowatt  hours,  per  month 2 

Next  15,000  kilowatt  hours,  per  month 1 

Next  30,000  kilowatt  hours,  per  month 9 

Retail  lighting  rate,  minimum  monthly  charge  per  meter,  $1: 

First  200  kilowatt  hours,  per  month 10 

Next  300  kilowatt  hours,  per  month > 7. 5 

Next  500  kilowatt  hours,  per  month 5. 5 

All  over  1,000  kilowatt  hours,  per  month 5 

Mr.  Hull.  There  is  one  thing  I  am  a  little  bit  concerned  about.  In  the  first 
place,  as  I  have  stated  before,  it  seems  to  me  that  plant  No.  2  is  the  one  im- 
portant thing  in  this  whole  proi^osition,  in  keeping  plant  No.  2  in  such  condi- 
tion so  that  we  can  use  it  at  any  time  in  case  of  war.  That,  to  my  mind,  is 
the  greatest  object  we  have  in  making  this  contract,  if  we  make  it.  But  I  am 
a  little  concerned  about  plant  No.  1,  known  as  the  Haber  process  plant.  If 
I  understood  correctly,  it  is  the  intention  of  Henry  Ford  to  convert  this  plant 
from  a  plant  for  the  utilization  of  the  Haber  process  to  an  automobile  plant. 
It  seems  to  me  that  is  rather  questionable,  in  view  of  the  fact  that  there  will 
always  be  a  demand  for  nitrates,  and  they  say  there  is  no  doubt  but  that  this 
plant  No.  1  could  be  made  into  a  successful  plant  and  probably  provide  nitrates 
cheaper  than  the  No.  2  plant.  Have  you  anything  you  could  suggest  to  the 
committee  in  regard  to  that? 

Mr.  WORTHINGTON.  I  could  uot  speak  technically  on  the  subject  to  the  extent 
that  others  whom  you  can  bring  before  this  committee  can,  but  I  will  give  yoii 
my  opinion  if  you  care  for  it. 

Mr.  Hull.  I  should  like  to  have  your  opinion. 

Mr.  WORTHINGTON.  In  the  first  place,  it  seems  to  me  that  the  committee  can 
accept  it  as  positively  certain  that  Mr.  Ford  will  never  do  it,  because  nobody 
who  would  want  to  be  prudent  would  use  that  process  in  view  of  what  happened 
in  Germany  a  few  months  ago,  where  the  Oppau  plant  blew  up.  That  is  one 
thing.  Mr.  Hull,  I  understood  you  to  say  you  felt  that  perhaps  nitrogen  or 
fertilizer  compounds  could  be  produced  at  nitrate  plant  No.  1  cheaper  than  at 
plant  No.  2? 

^  Bills  in  excess  of  minimum  subject  to  10  per  cent  discount  if  paid  on  or  before  10th. 
'  Minimum  annual  charge  $18  per  kilowatt  of  maximum  integrated  15-minuteload. 
'  Based  on  maximum  integrated  15  minute  load. 


364 


MUSCLE  SHOAI.S  PROPOSITIONS. 


11 


Mr.  Hull.  I  have  understood  so ;  I  do  not  know. 

Mr.  WoKTHiNGTON.  I  think  if  you  will  see  those  who  perhaps  caused  you  to 
understjunl  it  that  way  and  talk  to  them  pretty  closelv  vou  will  find  that  per- 
haps you  are  mistaken,  because  it  is  rather  singular  that  if  that  can  be  made 
a  success,  and  admittedly  it  never  has  been— and  that,  I  think,  is  known  to  the 
connnittee— It  always  did  seem  very  strange  to  me  that  if  it  was  a  plant  that 
would  pi-ove  a  great  success,  that  the  General  Chemical  Co.  who  designed  it 
and  who  let  the  Government  have  the  process,  refused  Mr.  Glasgow's  offer  for 
It  to  take  the  plant  for  three  years,  and  that  the  United  States  would  not 
charge  a  penny  for  its  investment  or  the  use  of  the  i^ant,  if  only  the  General 
Chemifal  Co.  would  agree  to  siiend  JK.llKXOOO  in  further  development  investiga- 
tion, research,  and  oi)eration.  ' 

Mr.  Hull.  It  is  not  true  that  it  is  not  a  success,  because  there  is  a  plant  at 
Syracuse,  N.  Y. 

Mr.  WoRTHiNGTON  ( intcrposiug) .  If  you  please,  Mr.  Hull,  it  stands  to-dav 
as  a  failuie. 

Mr.  Hull.  But  the  same  process,  if  we  have  the  correct  information,  is  beinir 
used  at  Syracuse.  N.  Y.,  and  is  a  success. 

Mr.  WoRTHiNGTON.  But  they  have  by-product  hydrogen  there,  and  the  process 
IS  not  the  same.  Nitrate  plant,  S'o.  1  would  have  to  be  rebuilt.  That  plant  at 
Syracuse  is  so  located  because  of  the  coke-oven  plant,  I  think.  But  I  hope  vou 
will  feel  sure.  Mr.  Hull,  that  it  would  be  impossible  for  Mr.  Ford  to  consider— I 
would  say  for  Mr.  Ford  as  a  duty  to  him,  if  you  required  it,  that  he  had  better 
ask  you  to  let  him  withdraw  this  offer. 

:Mr.  Hull.  We  are  not  saying  what  we  believe ;  we  are  trving  to  get  at  the 
facts. 

Mr.  AVoRTHixr.TON.  And  I  am  respectfully  trying  to  state  what  they  are.  but 
on  this  side  of  the  case. 

Mr.  Ht  LL.  Is  there  any  reason  why  plant  No.  1  should  not  be  utilized  in 
the  manufacture  of  nitrates 

Mr.  WoRTHiNGTox  (inteiTosing) .  There  is  this  to  be  considered.  Suppose  it 
was  a  success  and  had  proved  to  be  a  success.  It  would  not  be  operated  bv 
Mr.  Ford  where  it  is.  He  would  double  it  up  with  No.  2.  We  will  assume 
instead  of  your  having  the  modified  Haber  process  there  (Dejohn's  process)' 
that  both  of  your  plants  had  been  cyanamid  plants  as  No  2  Then  Mr' 
Fonl  would  not  continue  No.  1,  because  that  would  be  in  the  face  of  ex- 
pensive production  as  against  economical  production. 

Mr.   Hull.  Of  course,   one  of  the  objects  of   making  this   contract  is  the 
production  of  nitrates.    That  is  one  of  those  things  that  induces  us  to  be  in 
favor  of  something  being  done  down  there,  and  of  course  we  want,  if  we  can 
to  have  it  so  that  they  will  produce  as  much  of  the  nitrate  as  is  possible 

Mr.  AVoRTHiXGTON.  While  I  had  not  intended  to  enter  that  field  unless  the 
committee  required  it.  I  will  say  this :  Mr.  Ford  has  absolutelv  convinced  me 
that  whatever  is  possible  at  nitrate  plant  No.  2  now.  he  will  do*;  that  whatever 
this  new  world  of  electrical  soil  food  production  will  do,  he  will  do  it  It  is  a 
question  that  has  not  been  solved.  The  fixation  of  nitrogen  from  the  atmosphere 
IS  still  at  the  threshold.  But  I  was  going  to  sav  that  personallv  after  all 
these  years  of  association  with  it,  and  the  last  eight  months'  association  with 
Mr.  Ford  and  Mr.  Mayo.  I  have  no  earthly  doubt  about  it.  There  are  a  great 
many  other  things  in  this  country  that  I  doubt  more  than  that 

K     o-)^^^^"  ^'^"  ^^^'®  "^  ^^"^^  '^"^  ^^^^  ^^^^y  ^*^"  produce  nitrates  at  plant 

Mr.  WoRTHiNGTON.  I  have  no  doubt  in  the  world ;  they  would  not  be  confined 
to  the  present  method  entirely,  however ;  oh,  no. 

Mr.  Hull.  Hiive  you  studied  the  question  so  that  you  could  tell  us  how 
cheaply  it  can  be  done? 

Mr.  WoRTHiNGTON.  t  think  only  time  can  determine  that.  But  I  have  lone  felt 
very  sure  that,  as  this  committee  was  advised  in  1916— and  since  then  there 
Mn^^rSh/'trr^^'l  evidence  of  it-complete  fertilizers  can  be  produced  at 
th  n  th.  1  '^"i  ^""^i  ^^  Vevhav^  one-half,  or,  I  feel  sure,  at  one-third  less 
than  the  farmers  have  been  paying  for  it  in  normal  times 

time"?  '^'  '^""^  «»^-^»^^  ^^  one-third  less  than  they  are  paying  at  the  present 

T  dn''\inT''wr^;T-  ^^^'^  *^fJ  Pf '^  ''^^^^^  ^^^  ^^^'  i»  »«^n^al  times.    While 
I  do  not  ha\e  it  here,  I  would  like  to  show  the  committee  the  report  of  an 
Lnglish  commission  which  arrived  at  the  same  conclusion 
Mr.  Hull.  How  long  is  that  report? 


MUSCLE   SHOALS  PROPOSITIONS. 


365 


Mr.  WoRTHiNGTON.  It  is  one  of  the  most  voluminous  documents  on  the 
subject.  There  were  15  or  20  members  of  that  commission,  including  engineers 
and  scientists. 

The  Chairman.  What  is  the  name  of  the  report? 

Mr.  Worthington.  It  is  the  report  of  the  British  Nitrogen  Products  Commis- 
sion. We  will  bring  you  a  copy  so  that  you  can  see  it.  There  are  only  a  few 
copies  of  it  in  this  country. 

Mr.  Hull.  Your  relations  with  the  improvement  of  the  Tennessee  River  at 
Muscle  Shoals  have  brought  you  in  some  contact  with  the  fertilizer  people, 
have  they  not? 

Mr.  W^ortiiington.  Oh,  yes;  at  times. 

Mr.  Hull.  Have  they  encouraged  you  at  all  in  trying  to  develop  the  Muscle 
Shoals  proposition  V 

Mr.  Worthington.  All  of  the  farmers'  organizations,  that  I  ever  discussed 
the  subject  with,  beginning  in  1915,  have,  without  exception,  indorsed  it.  Some 
of  them  were  reluctant  and  slow  and  others  investigated  it  on  their  own  ac- 
count but  without  an  exception  they  have  indorsed  it  and  we  have  cooperated 
with  them.  We  have  furnished  them  information  just  as  we  have  furnished 
other  people  iftformation — such  as  we  have. 

Mr.  Hull.  How  about  the  manufacturers  of  the  finished  fertilizers ;  do  they 
encourage  you  at  all. 

Mr.  WoRTHiNGTOBi.  Not  uulcss  they  do  it  in  my  sfeep. 

Mr.  Hull.  Have  they  ever  interviewed  you? 

Mr.  Worthington.  What  was  the  question;  have  they  ever  interviewed  me? 

Mr.  Hull.  Yes;  on  this  proposition? 

Mr.  Worthington.  Yes ;  I  have  been  interviewed  but  it  would  not  add  any- 
tliing  to  your  information  to  press  me  for  an  answer. 

Mr.  James.  Were  you  present  in  the  Judge  Advocate  General's  office  when 
this  proposition  was  being  drawn  up? 

Mr.  Worthington.  No,  sir ;  not  all  the  time.  The  Judge  Advocate  General's 
(»ffice  requested,  in  keeping  with  the  Secretary  of  War's  directions  that  they 
draft  the  offer  in  the  legal  form,  that  they  get  in  touch  with  ^Ir.  Ford's  repre- 
sentatives, and  they  called  me  in  and  a  few  days  later  Mr.  ]Mayo  came  here 
and  conferred  with  them. 

Mr.  James.  Were  you  present  there  at  the  time? 

Mr.  Worthington.  I  was  present  when  they  sent  for  me. 

Mr.  James.  The  Acting  Judge  Advocate  General  stated  to  the  committee 
the  other  day  that  he  understood  the  flowage  rights  were  to  be  secured  by 
the  Government  and  to  be  paid  for  by  Mr.  Ford.  What  is  your  understanding 
of  that? 

Mr.  Worthington.  I  have  not  seen  Mr.  Ford  since  he  signed  this  final  paper. 
I  am  advised,  however,  that  he  did  not  want  to  have  anything  to  do  with  that. 
I  will  suggest,  however,  to  this  committee — and  I  do  that  on  my  own  account 
and  ask  to  be  excused  by  Mr.  Mayo — but  speaking  for  myself,  there  is  nothing 
in  his  proposition  that  he  says  he  will  not  do  it. 

Mr.  James.  In  your  conversations  with  Mr.  Ford  it  was  understood  that 
nitrate  plant  No.  2  would  be  used  for  the  production  of  nitrogen  and  other 
fertilizer  compounds,  was  it  not? 

Mr.  Worthington.  All  the  time?  Might  I,  if  you  will  allow  me,  state  this, 
that  Mr.  Ford,  when  he  went  to  Muscle  Shoals,  never  thought  of  nor  did  I 
suggest  in  our  discussions  on  June  6  and  7  that  he  take  the  nitrate  plants. 
But,  when  Mr.  Ford  and  Mr.  Mayo  had  examined  them  and  spent  a  full  day- 
there  on  June  14,  Mr.  Ford  said  that  nobody  could  ask  the  United  States  for 
that  power  without  being  willing  to  get  under  the  fertilizer  proposition  and  he 
repeatedly  said  he  did  not  want  to  get  into  the  nitrate  business,  but  that  the 
investment  there  was  so  great  and  when  it  had  been  explained  to  him  how  he 
possibly  could  contribute  to  the  agricultural  welfare  of  the  country,  he  said: 
"  Well,  I  will  undertake  it  as  a  public  service."  And  his  proposition  indicates 
that,  I  am  sure. 

Mr.  James.  The  compounds  that  are  to  be  manufactured  at  nitrate  plant  No.  2 
could  be  used  for  other  purposes  than  in  the  manufacture  of  fertilizer,  coulil 
they  not? 

^Ir.  Worthington.  May  I  ask  you  to  repeat  that  question? 

Mr.  James.  I  say  the  compounds  that  are  to  be  manufactured  at  nitrate 
plant  No.  2  could  be  used  for  other  things  than  the  manufacture  of  the  finished 
fertilizer? 


^||^ 

^t9 


366 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


367 


• 


Mr.  WoBiHiNGTox.  I  do  not  exactly  catch  the  meaning  of  your  question.  Do 
you  refer  to  plant  No.  2? 

Mr.  James.  Nitrate  plant  No.  2  and  the  provisions  contained  in  article  14  of 
the  Ford  offer. 

Mr.  WoKTHixGTOx.  So  far  as  I  know,  it  could  not  go  into  anything  else.  I 
can  readily  see  how,  with  the  possible  changes  that  will  be  made  there,  de- 
pending upon  the  process  adopted,  you  might  have  some  results,  you  might 
get  some  compounds  that  would  not  be  fertilizer  compounds  at  all,  but  might 
be  something  else.  But  the  primary  product  produced  in  volume  would  be 
fertilizer  compounds.  In  coke  making  in  retort  ovens  the  primary  product  is 
coke— but  they  get  ammonium  sulphate  as  a  by-product.  Here  the  primary 
product  sought  is  fertilizer.  Congressman  Bjinkhead  says  I  did  not  quit  under- 
stand your  question,  that  the  present  possible  production  of  fertilizer  com- 
pounds, as  I  get  it,  you  think  might  possibly  be  used  for  some  other  purpose? 

Mr.  James.  I  asked  you  this  question:  Mr.  Ford  is  going  to  manufacture 
nitrates  and  other  fertilizer  compounds  at  nitrate  plant  No.  2;  does  Mr  Ford 
intend  to  use  that  for  fertilizer  alone? 

Mr.  WoRTHiNOTON.  That  would  be  the  primary  purpose. 

Mr.  James.  Some  of  these  things  could  be  used  for  otlier  pui-poses  than  the 
manufacture  of  fertilizer? 

Mr.  WoRTHiNGTON.  S.)me  of  these  things— tlo  you  mean  some  of  the  plants  or 
some  of  the  things  produced? 

Mr.  James.  Some  of  the  things  he  intends  to  produce.  Paragraph  14  of  the 
offer  says: 

"  In  the  production  of  nitrogen  and  other  fertilizer  compounds  (said  capacity 
l>eing  equal  to  approximately  110,000  tons  of  ammonium  nitrate  per  annum) 
throughout  the  lease  period." 

Mr.  WoRTHiNGTON.  That  is,  with  some  conditions  and  changes  and  processes 
that  can  be  employed.    There  would  be.  for  instance,  phosphoric  acid. 

Mr.  James.  There  is  nothing  in  this  article  which  says  that  Mr.  Ford  shall 
use  the  entire  production  of  nitrogen  and  other  fertilizer  compounds  for  the 
manufacture  of  fertilizer  alone,  is  there? 

Mr.  WoRTHixGTON.  But  you  can  not  use  those  compounds  vou  mentioned  for 
any  other  purjwse  in  that  volume ;  you  might  in  a  very  small  way. 

Mr.  James.  Then  there  ought  to  be  no  objection  on  the  part  of  Mr.  Ford  to 
stating  in  the  offer  that  everything  manufactured  at  nitrate  plant  No.  2  is  to 
be  used  for  the  manufacture  of  fertilizer,  and  for  no  other  purpose? 

Mr.  WoRTHiNGTON.  It  would  be  impossible,  because  there  may  be  other  proc- 
esses in  existence  that  will,  in  spite  of  anything  or  any  intention  on  his  part, 
make  something  else. 

Mr.  James.  I  wi.sh  you  would  show  me  where  there  is  any  guaranty  in  this 
contract  that  the  company  Mr.  Ford  is  to  organize  is  to  manufacture  anv  particu- 
lar amount  of  fertilizer.     If  it  is  not  contained  in  paragraph  14,  where  is  it? 

Mr.  WoRTHiNGTox.  I  have  to  acknowledge  that  if  that  is  not  clear,  we  can 
not  make  it  clear. 

Mr.  James.  Do  you  think  Mr.  Ford  would  have  any  objection  to  stating 
that  products  of  that  kind  would  be  used  for  fertilizer  alone? 

Mr.  WoRTHiNGTON.  I  think  he  would  be  absolutely  prohibited  from  stating 
it ;  he  could  not  comply  with  any  such  terms. 

Mr.  Ja^ies.  How  many  tons  of  fertilizer  do  you  suppose  Mr.  Ford  would 
agree  to  guarantee  per  annum? 

Mr.  WORTHIXGTON.  The  equivalent  of  110,000  tons  of  ammonium  nitrate, 
as  he  says. 

Mr.  James.  How  many  tons  of  fertilizer  do  you  figure  that  would  make? 

Mr.  WoRTHixGTox.  With  a  mixture  which  is  very  common,  2-8-2,  it  would 
be  about  2,000,000  tons. 

Mr.  James.  Do  you  think  Mr.  Ford  would  guarantee  to  produce  a  minimum 
of  2,000,000  tons  of  fertilizer? 

Mr.  WoBTHiNGTON.  That  answer  which  I  made  is  the  interpretation  of  sec- 
tion 14  of  the  contract. 

Mr.  James.  If  that  is  the  correct  interpretation,  why  not  put  it  in  the 
agreement. 

Mr.  WoRTHixGTON.  You  take  the  question  of  the  production  of  fertilizer  at 
nitrate  plant  No.  2  and  the  possible  processes  to  increase  the  percentage  of  the 
soil  food  in  the  compounds  that  would  be  used  to  compose  a  complete  fertilizer, 
and  as  the  quality  goes  up  the  tonnage  required  would  be  less.  As  I  do  not 
seem  to  get  along  fery  well  in  straightening  this  thing  out,  I  would  suggest 
that  you  let  Mr.  Waldo  try  his  hand  at  it. 


Mr.  James.  Mr.  Ford  intends  to  guarantee  a  certain  amount  of  fertilizer' 

Mr.  WoRTHiNGTON.  It  is  stated  here. 

Mr.  James.  What  is  the  number  of  tons— you  say  it  would  be  2,000000' 

•.J'';.  T7'''''?i'1-  '^o^Jl^''"^^  ^^  expressed  in  its  production  of  ammonium 
nitrate.  It  would  be  38,500  tons  of  nitrogen.  That  can  be  put  in  another 
form  I  take  the  liberty,  without  consulting  Mr.  Mayo— of  course,  he  is  speak- 
ing for  Mr.  Ford-I  take  the  liberty  of  saying  that  this  plant  will  not  be 
confined  to  nitrogen  compounds  alone,  but  with  those  phosphates  and  other 
deposits  there  within  40  miles.  Of  course,  I  think  in  the  course  of  your  hear- 
ing you  will  understand  that  with  perfect  clarity. 

Mr.  James..  Evidently  you  do  not  want  to  answer  the  question. 

Mr.  WORTHIXGTON.  Congressman,  I  assure  you  I  do.    I  may  have  failed  to 
do  it,  but  I  do  really  want  to  answer  your  question. 

Mr.  James.  You  intended  to  answer  it  until  Mr.  Mavo  whispered  to  vou 

Mr.  UoRTHiNGTON.  That  is  very  unjust  to  Mr.  Mayo  and  unjust  to 'me  I 
positively  assure  you,  upon  my  word  of  honor,  that  he  did  not  color  my  replv 
at  all.  I  want  you  to  know  I  am  of  a  friendly  disposition  and  with  friendly 
intentions,  and  I  want  to  try  to  answer  your  questions.  I  might  have  failed 
but  it  is  very  diflScult  to  answer  what  you  are  asking,  I  assure  you.  because 
it  involves  so  much. 

Mr.  James.  I  am  in  favor  of  the  proposition,  but  it  appears  to  me  some 
of  the  witnesses  are  holding  back  some  of  the  information  they  really  know- 
Mr.  WORTHINGTON.  I  am  uot  holding  back  anything,  I  can  state  to  you  I 
am  sure  I  can  say  with  a  good  deal  of  confidence  that  it  is  true  that  I  never 
held  any  information  back  on  this  subject  that  I  ever  had,  because  it  would 
do  me  no  good  in  the  world  to  do  it.  I  have  not  any  interest  in  it.  I  am 
very  frank  to  tell  you  all  I  know  about  it  and  also  that  I  have  a  lot  to  learn 
about  the  chemistry  of  fertilizer  production.  The  more  I  study  it  the  less  I 
think  I  know  about  it. 

(Thereupon,  the  committee  took  a  recess  until  2  o'clock.) 

AFTER     RECESS. 

The  committee  met  pursuant  to  recess  at  2  o'clock  p.  m. 

STATEMENT  OF  MR.  J.   W.   WORTHINGTON— Resumed. 

The  Chairman.  Mr.  Worthington,  Mr.  James,  I  believe,  would  like  to  ask 
you  some  further  questions. 

Mr.  James.  Pursuant  to  our  conversation  this  morning,  will  j-ou  put  in  the 
record  to-morrow  the  total  number  of  tons  of  fertilizer  vou  'figure  will  be 
made? 

Mr.  WORTHINGTON.  I  wiU  be  glad  to  prepare  a  very  full  statement  in  regard 
to  that. 

Mr.  James.  Showing  the  number  of  tons  of  fertilizer  Mr.  Ford  agrees  to 
make  under  the  proposition. 

Mr.  WORTHINGTON.  Yes. 

Note.— Mr.  Ford  agrees  in  his  offer  "  to  operate  nitrate  plant  No.  2  at  the 
approximate  present  annual  capacity  of  its  machinery  and  equipment  in  the 
production  of  nitrogen  and  other  commercial  fertilizers   (said  capacity  being 
equal    to    approximatetly    110,000    tons    of    ammonium    nitrate    per    annum) 
throughout  the  lease  period,"  etc. 

He  therefore  agrees  to  make  nitrogen  commercial  fertilizers  and  other  kinds 
ot  commercial  fertilizers  requiring  for  their  nitogen  content  an  amount  of 
uiti-ogen  equal  to  the  amount  of  nitrogen  contained  in  110,000  tons  of  ammonium 
nitrate. 

Since  ammonium  nitrate  is  35  per  cent  nitrogen,  110.000  tons  of  ammonium 
nitrate  c(mtains  38,500  tons  of  nitrogen.    This  is  sufticient  nitrogen  to  make— 

.  Tons. 

Ammonium  sulphate  (24  per  cent  nitrogen) I 1(50  000 

Sodium  (Chilean)  nitrate  (16  percent  nitrogen) I_      *>4o'oOO 

^-8-2  commercial  fertilizer   (2  per  cent  nitrogen) 1,925^000 

It  should  not  be  understood,  however,  that  Mr.  Ford  intends  to  make  any  of 
niese,  for  it  is  his  expressed  purpose  to  produce  a  more  concentrated  plant  food 
than  any  of  the  above  forms. 

92900—22 24 


368 


MUSCLE  SHOALS  PROPOSITIONS. 


■I 


Mr.  MiLLEB.  Mr.  WorthingtoD,  we  all  were  Interested  in  your  very  thorough 
analysis  of  the  desirability  of  water  power,  and  along  with  it,  it  really  seems 
*x?.,  Til^  ^^^^  ^^^^  ^^^^  ^^^^^  energy-  has  gone  to  waste  for  so  many  years 
while  the  world  has  been  industriously  working  out  its  supply  of  fuel  in  the 
shape  of  coal.  I  may  say,  Mr.  Worthington,  that  some  of  my  colleagues  on 
the  committee  and  some  of  my  brethren  in  the  House  agree  that  we  are  now 
engaged  in  these  hearings  for  the  purpose  of  determining  a  way  of  salvaging 
this  war  necessity  at  Muscle  Shoals.  I  may  say  for  my  part  that  I  disagree 
with  many  of  my  colleagues. 

We  are  not  engaged  in  undertaking  to  salvage  a  war  necessity,  because 
this  was  one  of  the  enterprises  of  the  American  Government  initiated  before 
we  were  in  any  war,  and  was  initiated  simply  and  solely  for  the  purpose  of 
what  we  might  call  nitrate  preparedness  of  this  Government,  and  this  is  one 
of  the  enterprises,  and,  perkaps,  the  only  one  that  never  was  intended  to  be 
salvaged.  It  was  to  be  one  of  the  standby,  permanent  adjuncts  of  the  War 
Department,  and  was  not  to  cease,  and  never  was  a  war  emergency  but 
the  legislation  that  created  this  enterprise  at  Muscle  Shoals  was  of  a  hybrid 
character,  the  production  of  ammonium  nitrate  for  war  purposes  in  time  of 
war  and  in  time  of  necessity,  and  during  times  of  peace  the  production  of 
some  substance  that  could  be  used  to  advantage  in  times  of  peace,  and  it 
never  was  intended  as  a  war  measure. 

Now,  you  are  very  familiar  with  the  electric  power  contained  in  the  Tennes- 
see River.     You  have  made  that  a  special  study,   as  I  understand  it.  Mr 
Worthington. 

Mr.  Worthington.  Somewhat. 

Mr.  Miller.  And,  notwithstanding  the  great  advantages  of  water  power 
over  steam  power,  there  has  been,  up  to  this  good  hour,  no  private  company 
that  has  been  willing  to  take  hold  of  the  Muscle  Shoals  proposition  and  develop 
it  with  the  purpose  in  view  of  generating  hydroelectric  power ;  that  is  a  fact. 
is  it  not? 

Mr.  Worthington.  Except  Mr.  Ford's  offer. 

Mr.  Miller.  I  say  up  to  this  hour  there  has  been  no  person  willing  to  take 
it  over  before  this  tentative  offer  of  Mr.  Ford.  All  the  years  \  efore  the  Gov- 
ernment went  down  there  in  1916,  no  private  company  in  the  w^rld  was  willing 
to  embark  upon  the  enterprise  of  developing  the  hydroelectric  energy  at  Muscle 
Shoals? 

Mr.  Worthington.  Oh.  yes;  there  was  a  company.  Th«  Alabama  Power 
Co.  was  quite  willing  and  made  an  offer  on  it  to  the  United  States. 

Mr.  Miller.  How  long  has  the  Alabama  Power  Co.  been  in  the  business  of 
producing  hydro-electric  power  in  northern  Alabama. 

Mr.  Worthington.  It  has  not  been  in  that  business  in  northern  Alabama  at 
all,  but  the  Alabama  Power  Co.  owned  the  dam  site  upon  which  and  at  which 
you  have  built  Dam  No.  2. 

Mr.  Miller.   Well,  it  never  did  anything  to  develop  power  there,  did  it? 

Mr.  Worthington.  Nothing  except  to  make  the  most  exhaustive  studies  of 
it  and  made  a  proposition  to  the  United  States  which  the  United  States  engi- 
neers recommended  to  Congress  that  it  accept,  but  it  never  got  any  further 
than  the  Rivers  and  Harbors  Committee.    It  never  was  reported  at  all. 

Mr.  Miller.  Well,  there  are  a  large  number  of  those  cases  throughout  the 
United  States  where  companies  sursey  the  possibilities  of  water  power  but 
never  do  anything. 

Mr.  Worthington.    Yes. 

Mr.  Miller.  And  there  are  a  multitude  of  applications  down  here  on  file 
now.  The  trouble  seems  to  be,  Mr.  Worthington,  the  reluctance  of  the  financial 
world  to  invest  in  hydro-electric  plants.  In  other  words,  a  financial  institu- 
tion may  lend  $20,<X)0,000  on  an  industrial  plant  that  is  engaged  in  the  produc- 
tion, say,  of  farm  machinery,  and  their  security  may  become  jeopardized  and 
they  may  have  to  take  it  over,  because  the  production  of  farm  machinery  has 
b^en  at  a  loss,  but  that  plant  can  be  converted  for  the  production  of  some 
other  necessity  that  may  be  a  financial  success,  whereas  if  you  put  your  money 
into  a  hydro-electric  plant,  you  are  limited  to  one  output,  and  you  can  never 
convert  it  into  anything  else.  We  are  experiencing  in  this  country  and  have 
been  from  the  beginning  of  the  development  of  our  hydro-electric  plants 
what  you  might  call  the  hestitation  of  financial  people  to  invest  enormous 
sums  of  money  in  them,  and  this  particular  development  at  Muscle  Shoals  is 
one  that  takes  an  enormous  amount  of  capital. 

Mr.  AVorthington.    Yes. 


MUSCLE  SHOALS  PROPOSITIONS. 


369 


Mr.  Miller.  And  probably  that  accounts  for  its  not  having  been  developed 
some  years  ago. 

Mr.  Worthington.    It  does. 

Mr.  Miller.  Your  remarks  this  morning  were  very  interesting  and  I  am 
pleased  with  them,  Mr.  Worthington,  because  I  come  from  a  water  i>ower  State. 

Mr.  Worthington.    You  certainly  do. 

Mr.  Miller.  A  State  that  probably  has  more  water  power  than  any  State 
in  the  Union  per  square  mile,  and  roughly  estimat(id  at  one-seventh  of  the  un- 
developed water  power. 

Mr.  Worthington.  One  hundred  and  twenty-five  horsepower  per  square  mile. 

Mr.  Miller.  The  great  factor  in  that  is  the  Columbia  River  of  our  country, 
probably  only  exceeded  by  Muscle  Shoals  or  rather,  we  are  the  only  one  that 
exceeds  Muscle  Shoals  in  potential  energy.  The  water  power  development  is 
what  will  mean  increased  activity  and  produce  the  substantial  things  of  value 
connected  with  the  Ford  enterprise,  and  it  is  the  water  power  end  of  it  that 
constitutes  the  major  value  of  the  enterprise. 

Mr.  Worthington.  I  do  not  know  that  I  exactly  grasp  or  comprehend  your 
question,  but  that  is  primary  to  everything  that  is  to  happen  there  that*  Mr. 
Ford  can  do. 

Mr.  Miller.  You  related  to  the  committee  this  morning  that  in  one  of  your 
interviews  with  Mr.  Ford,  if  not  the  first  one  of  your  interviews,  you  men- 
tionetl  the  production  of  fertilizer,  about  which  he  hesitated  at  first  and  then 
afterwards  agreed  to  take  up  that  angle  of  it. 

Mr.  Worthington.  Yes,  sir. 

Mr.  Miller.  So,  then,  it  must  have  been  the  water  power 

Mr.  Worthington  (interposing).  Oh,  certainly.  He  went  to  Muscle  Shoals 
to  see  the  water  power  primarily. 

Mr.  Miller.  That  is  what  I  have  been  trying  to  satisfy  myself  about  in  my 
own  mind. 

Mr.  Worthington.  You  may  be  satisfied  of  that,  because  he  would  not  have 
gone  there  to  look  at  the  nitrate  plants. 

Mr.  Miller.  No;  or  anyone  else. 

Mr.  Worthington.  That  is  right. 

Mr.  Miller.  Nobody  in  the  world  would  go  there  to  look  at  the  nitrate  plant. 
It  is  the  water  power  that  is  of  value. 

Mr.  Worthington.  Yes ;  but  he  would  be  interested  in  the  nitrate  plant  after 
he  saw  the  water  power. 

Mr.  Miller.  Oh,  yes;  but,  after  all,  it  only  takes  in  the  vicinity  of  100,000 
horsepower  to  drive  nitrate  plant  No.  2  to  its  full  capacity. 

Mr.  Worthington.  Yes. 

Mr.  Miller.  And  we  are  developing,  according  to  Mr.  Ford's  proposition  here, 
nearly  1.000,000  horsepower,  of  which  850,000  is  to  be  hydroelectric,  110,000 
of  it,  approximately,  steam  power,  and  out  of  the  850,000  hydraulic  power  some 
230,000  of  it  will  be  primary  power. 

Mr.  Worthington.  With  the  steam  power  included. 

Mr.  Miller.  Yes ;  with  the  steam  plant  of  approximately  110,000  horsepower. 
Now,  taking  in  view  the  proposition  that  this  nitrate  enterprise  at  Muscle 
Shoals  was  designed  and  constructed  as  a  permanent  proposition ;  that  it  was 
never  intended  to  be  salvaged  and  sold  and  disposed  of  by  the  Uniteil  States, 
and  at  best  that  it  was  intended  to  be  kept  in  a  standby  condition  for  the 
purpose  of  producing  this  war  necessity  and  the  production  of  other  things 
m  time  of  peace.  Now,  according  to  Mr.  Ford's  offer  we  are  parting  with 
that  which  we  never  intended  to  part  with.  That  is  the  basis  of  it.  We  are 
to  part  with  our  title  to  these  two  vast  nitrate  plants  which  the  Government 
has  always  intended  it  should  cling  to;  but,  in  return  for  that,  while  we  do 
part  with  them,  Mr.  Ford's  proposition  is  that  during  the  lifetime  of  his  lease 
this  plant  shall  be  kept  intact,  available  to  the  Government  for  the  very 
purpose  it  was  constructed  for.  So  that  as  I  look  at  it,  it  amounts  to  little 
m  whom  the  title  may  be  vested.  What  we  are  after  is  the  stand  by  of  that 
great  plant,  which  we  can  take  advantage  of  in  case  of  necessity. 

Mr.  Worthington.  Yes. 

Mr.  Miller.  Now,  there  is  another  angle  to  that,  and  that  is  if  the  Govern- 
ment remains  the  owner  of  this  property  and  the  title  in  fee  continues  in  the 
Government,  in  case  of  an  emergency  the  Government  would  be  using  its  own 
property,  whereas  with  a  lease  we  would  be  using  another  man's  property  and 


■• 


j    'Bill 


370 


MUSCLE  SHOALS  PROPOSITIONS. 


be  paying  correspondingly  for  it.  Tliat  is  tlie  way  I  view  it,  and  tliat  is  your 
analysis  of  the  situation,  is  it  not? 

Mr.  WoRTHiNGTON.  I  think  you  have  analyzed  it,  but  do  you  not  think,  Mr. 
Miller,  you  have  omitted  there  to  include  in  your  statement  the  important  fact 
that  he  does  maintain  it  and  keep  it  ready,  whereas,  if  I  understand  you,  if 
the  Government  sliould  keep  it  it  would  only  continue  it  idle,  maintain  and 
watch  it,  and  keep  it  ready.     Do  I  catch  that  as  your  point? 

Mr.  Miller.  No  ;  I  do  not  think  we  quite  >meet. 

Mr.  WoRTHiNGTON.  I  was  not  sure  on  that  point. 

Mr.  Miller.  The  purpose  of  the  legislation  by  which  this  entA'rprise  was  first 
started,  under  the  national  defense  act  and  the  initial  appropriation  of  $20,000,- 
000,  the  Congress  had  just  as  much  in  view  in  the  industrial  future  of  this 
plant  as  it  had  the  military  future  of  it.  So  that  it  is  of  that  particular  char- 
acter, the  two  utilities  blended,  and  I  might  say  that  the  way  the  Militar> 
Affaii-s  Committee  has  jurisdiction  of  this  hearing  is  because  we  are  dealing 
with  a  piece  of  property  that  was  constructed  under  the  national  defense  act 
and  has  always  been  operated  by  the  War  Department. 

Mr.  WoRTHiNGTON.  Yes. 

Mr.  Miller.  Let  me  ask  you,  INIr.  Worthington — I  have  never  been  at  Muscle 
Shoals,  much  to  my  regret- 
Mr.  Worthington.  I  hope  you  will  come,  and  I  invite  you  to  come  there. 

Mr.  Miller,  Thank  you,  very  kindly.  What  facilities  are  there  now  at 
Muscle  Shoals  in  aid  of  navigation? 

1SU\  Worthington.  Well,  really,  none. 

Mr.  Miller.  No  steamers  drawing  any  draft  of  water 

Mr.  Worthington  (interiwsing).  No;  not  at  all.  This  dam  has  progressed 
in  its  construction  to  the  point  that  the  navigation  that  we  had  had  previous  to 
this  dam's  partial  construction  has  been  cut  off. 

IVIr.  ]MiLLER.  It  is  a  complete  barrier  to  present  navigation? 

Mr.  Worthington.  It  is  to-day. 

Mr,  Miller.  Now,  before  this  dam  was  constructed 

Mr.  Worthington  (inteiposing).  We  have  a  canal  beginning  at  LfX'k  9.  so 
called,  ,3  miles  up  the  river  from  this  dam,  and  that  portion  of  the  .stream  be- 
tween Dam  No.  2  and  Lock  9  of  this  canal  is  a  shoaly,  unimproved  stretch  of 
the  river  and  can  be  used  by  boats  only  in  the  wet  season ;  that  is  to  say,  some- 
times three  or  four  or  more  months  in  the  year,  and  almost  always  for  a 
month  or  two  you  could  not  have  any  river  traffic  over  it.  This  canal,  there- 
fore, was  really  isolatetd.  It  has  nine  locks  on  the  north  bank  of  the  river  and 
two  locks  on  the  south  bank,  but  between  the  eastern  en«l  of  the  locks  on  the 
north  bank  and  the  western  end  of  the  locks  on  the  south  bank  is  another  very 
shoaly  and  unimi>roved  stretch. 

I  may  say  to  you  that  a  practical  answer  is  that  the  navigation  was  unre- 
liable, expensive,  and  that  as  it  stood  the  cost  of  those  locks  and  that  canal,  Mr. 
^Miller,  was  an  absolute  waste.    There  is  no  denying  it 

The  Chairman.  This  morning  you  stated  to  the  committee  that  if  the  mem- 
bers desired  to  see  a  moving  picture  of  Muscle  Shoals  we  could  go  Uj  s«»me  place 
down  here  on  Pennsylvania  Avenue, 

Mr.  Worthington.  Yes;  just  two  blocks  away. 

The  Chairman.  We  have  here  in  this  building  the  caucus  room,  which  is 
quit^  large  and  which  has  its  own  machine. 

Mr.  Worthington.  Then,  we  will  bring  the  films  and  exhibit  them  to  you  at 
an.v  hour  that  you  select. 

The  Chairman.  I  was  going  to  ask  if  there  would  be  any  objection  to  having 
this  connnittee  and  such  other  Members  of  the  House  as  may  desire  to  be 
present  see  the  whole  thing? 

Mr.  Worthington.  Absolutely  none.  We  shall  be  glad  to  exhibit  them  at 
any  time  you  may  select. 

Mr,  Miller.  How  far  is  the  Tennessee  River  navigable  upstream  from  Muscle 
Shoals? 

Mr.  Worthington.  The  navigation  sti-etches  are  interrupted  by  nonnavigable 
stretches.    After  you  get  to  Decatur,  Ala. , 

Mr.  :Mim:R  (interposing).  How  many  miles  is  that  from  Mu.scle  Shoals? 

Mr.  Worthington.  That  is  about  35  miles  from  the  canal;  that  is,  from 
Lock  A,  which  is  located  at  the  upstream  or  eastern  end  of  the  canal.  Then. 
if  I  may  continue,  please,  there  is  a  stretch  of  the  river  that  is  navigable  nearly 
all  the  year  around,  but  at  very  low  stages  the  navigation  is  interrupted.    After 


II 


MUSCLE  SHOALS  PROPOSITIONS. 


371 


you  get  upstream  farther  east  or  northeast  there  is  a  stretch  of  some  40  or  50 
miles  that  needs  improvement.  There  is  an  improvement  now  authorized  on 
which  work  is  suspended  at  the  present  time  on  account  of  funds,  which  im- 
provement is  being  made  srmthwest  of  Hales  Bar,  and  Hales  Bar  is  the  power- 
navigation  dam  that  is  27  miles,  I  believe,  south  of  Chattanooga.  That  was  built 
by  private  interests  under  a  99-year  grant  by  Congress.  That  is  a  slack-water 
pool,  providing  about  3.S  to  35  miles  of  very  perfect  navigation,  of  course,  and 
then  after  that  the  navigation  is  interrupted  very  frequently.  I  would  like  to 
ask  you,  if  you  can  possibly  find  the  time,  to  come  and  look  at  these  maps,  which 
answer  better  than  I  can  possibly  put  into  words,  the  questions  you  ask  about 
the  navigation. 

Mr.  Miller.  That  would  be  very  desirable  and  is  very  kind  of  you. 

Mr.  Worthington.  It  would  give  a  complete  answer,  and  vou  will  find  some 
very  interesting  facts  about  it ;  and  you  will  also  find  there  has  been  a  great 
deal  of  money  wasted.    I  do  not  criticize  anybody,    I  am  just  stating  the  facts. 

Mr.  Miller.  We  can  not  get  maps  into  the  hearings,  however. 

Mr.  Worthington.  It  is  a  pity  you  can  not. 

The  Chairman.  The  chairman  will  ask  the  Speaker  of  the  House  to  allow 
those  maps  to  be  put  into  the  hearings.  The  Speaker  can  authorize  that,  and 
I  will  take  the  first  opportunity  to  present  that  matter  to  him. 

Mr.  Worthington.  I  am  going  to  ask  you,  Mr.  Miller,  to  go  around  some 
evening  with  me  and  take  a  brief  look  at  them.  It  will  not  take  you  more  than 
30  minutes. 

Mr.  Miller.  Now,  the  distance  following  the  river  channel  upstream  from 
Muscle  Shoals  to  Chattanooga  is  approximately  how  many  miles? 

Mr.  W^orthington.  About  188  or  190  miles. 

Mr.  Miller,  Following  down  the  stream  from  Muscle  Shoals  to  the  mouth  of 
the  Tennessee,  where  it  flows  into  the  Ohio 

Mr.  Worthington.  Two  hundred  and  fifty-nine  miles. 

Mr.  Miller,  Then,  you  are  approximately  in  the  middle,  between  Chattanooga 
and  the  mouth  of  the  river. 

Mr.  Worthington.  Yes;  and  you  have  hit  the  nail  on  the  head  about  the 
whole  thing.  During  all  these  years  the  trouble  was  that  this  vei-y  serious 
obstruction  at  Aluscle  Shoals  of  some  37  miles  blocked  the  navigation  and  pre- 
vented—well, really,  it  was  practically  impossible  for  traflfic  from  the  upper 
river  to  get  through. 

Mr.  Miller.  It  was  blocked  in  the  middle  of  that  stretch. 

Mr.  Worthington.  Yes,  sir:  that  was  exactly  the  situation,  and  it  was  the 
expense,  as  you  have  suggested,  at  Muscle  Shoals  that  made  it  look  for  a  long 
time  utterly  impossible. 

Mr.  Miller.  Are  there  any  obstructions  down  the  river. 

Mr.  Worthington.  The  navigation  improvement  of  the  Tennessee  River  from 
the  foot  of  Muscle  Shoals,  and  practically  at  this  dam,  is  completed  to  the  Ohio 
River  at  Paducah. 

Mr,  :Miller.  How  far  is  it  from  the  confluence  of  the  Ohio  and  the  Tennessee' 

Mr.  Worthington.  Forty  miles  to  the  ^lississippi. 

Mr.  Miller.  Then  in  the  event  this  enterprise  goes  through,  vou  have  an  un- 
obstructed channel  by  water  from  ]Muscle  Shoals  to  the  very  heart  of  the 
country, 

Mr.  Worthington.  That  is  exactly  it. 

Mr.  Miller.  You  can  go  up  the  Ohio  and  up  the  Mississippi 

Mr.  Worthington.  Yes,  and  down  the  Mississippi  to  New  Orleans. 

Mr,  Miller.  Yes;  down  to  New  Orleans  and  down  and  up  the  Missouri  River 

Mr.  Worthington.  Exactly. 

Mr.  IMiller.  And  then  you  will  be  connected  with  the  very  heart  of  the  country 
which,  of  course,  is  the  Mississippi  Basin. 
♦Mr,  Worthington.  Yes,  sir. 

Mr,  Miller,  You  have,  of  course,  exafnined  the  offer  of  ^Ir,  Ford,  and  if  I 
understood  you  in  answer  to  Mr.  .lames,  you  stated  that  vou  were  present  part 
of  the  time  when  tt  was  being  drafted  in  the  Judge  Advocate  General's  office? 

Mr.  Worthington.  Yes,  sir. 

Mr.  ]MiLLER.  I  suppose  that  was  on  account  of  your  interest  to  get  something 
established  in  the  valley  of  the  Tennessee  River;  that  was  your  primarv  Dur- 
pose?  ^ 

^Ir.  Worthington.  That,  and  my  agreement  with  Mr.  Ford  that  I  would  con- 
tmue,  since  he  signed  this,  to  furnish  such  information  and  assistance  as  I 
could. 


372 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIOJSTS. 


373 


Mr.  Miller.  And  the  assistance  you  have  rendered  is  wholly  in  a  disinter- 
ested way? 

Mr.  WoRTHiNGTON.  Absolutely ;  almost  to  the  point  of  being  foolish. 

Mr.  Miller.  And  up  to  the  present  time  Mr.  Ford  is  the  only  man  in  the  coun- 
try of  sufficient  enterprise  and  wealth  to  make  any  coherent  proposition  to  the 
Government  for  this  enormous  expenditure  we  have  made. 

Mr.  WoRTHiNGTON.  Let  me  answer  that,  if  I  may  be  permitted  to,  in  this  way : 
He  is  the  only  man  that  has  done  so. 

Mr.  Miller.  Of  course,  in  this  agreement  the  identity  of  Mr.  Ford  is  destroyed, 
his  personal  identity  with  this  concern,  because  the  second  paragraph  of  the 
provision  provides  that  he  creates  or  organizes  a  company  and  thereby  the  per- 
sonal relation  of  Mr.  Ford  to  the  Government  will  be  nil,  and  the  arrangements 
and  the  intercourse  will  all  be  between  a  corporation  and  the  United  States 
Government.  That  is  to  be  the  future,  as  marked  out  by  this  offer  of  Mr,  Ford, 
except  Mr.  Ford  agrees  and  covenants  to  control  the  corporation. 

Mr.  WoRTHiNGTON.  Ycs ;  I  was  .iust  going  to  say  that  I  feel  very  confident 
he  will  absolutely  control  and  dominate  it  as  long  as  he  lives.  Of  course,  I 
could  not  say  beyond  that  point,  but  the  proposal  as  signed  by  him  binds  his 
€'state. 

Mr.  Miller.  Of  course,  we  do  not  look  upon  that  as  any  serious  factor  in 
the  matter,  because  under  the  law  of  the  State  of  Michigan,  in  common  with 
the  law  of  nearly  ever  State  of  the  Union,  any  claim  against  an  estate  has  to 
be  filetl  within  one  year  after  the  death  of  the  party. 

Mr.  WORTHINGTON.  That  is  true;  but,  Mr.  Miller,  I  do  not  believe  you  will 
ever  get  Muscle  Shoals  developed  unless  there  is  some  confidence  in  somebody. 

Mr.  INIiLLER.  No  one  disputes  that  ,  Mr.  Worthington,  and  I  believe  that  every 
member  of  this  committee  is  looking  for  something  in  the  way  of  this  offer. 

Mr.  WORTHINGTON.  Yes. 

Mr.  Miller.  And  while  some  of  us  may  probably  on  the  spur  of  the  moment 
appear  hostile  to  this  enterprise,  we  are  searching  for  the  relations  between 
the  Government  and  this  company  and  where  the  Government  is  coming  out 
financially  on  this  enterprise. 

Mr.  WORTHINGTON.  Yes. 

Mr.  Miller.  Is  there  a  public-service  commission  in  the  State  of  Alabama? 

Mr.  WORTHINGTON.  Oh,  yes. 

Mr.  Miller.  That  puts  the  price  upon  electric  energj-? 

Mr.  WORTHINGTON.  Oh,  yes. 

Mr.  IMiLLER.  It  controls  the  prices? 

Mr.  WORTHINGTON.  Yes ;  they  fix  prices. 

Mr.  Miller.  We  are  dealing,  then,  with  one  of  those  institutions  where  the 
Government  owns  the  origin  of  power,  the  raw  product. 

Mr.  WORTHINGTON.  Yes. 

Mr.  Miller.  And  the  State  controls  the  output  and  the  price  of  it. 

Mr.  WORTHINGTON.  Yes. 

Mr.  Miller.  We  are  dealing  with  that  kind  of  an  enterprise.  * 

Mr.  WORTHINGTON.  Yes. 

Mr.  Miller.  The  probable  future  of  this  thing,  should  this  offer  be  accepted, 
will  be  of  inestimable  value  to  the  people  of  that  locality  and  surrounding 
territory  for  hundreds  of  miles,  in  two  particular  channels,  one  of  which  is 
the  industrial  development  of  the  community  and  the  second  is  the  navigation 
of  the  Tennessee  River. 

]Mr.  WORTHINGTON.  Yes, 

Mr,  Miller,  And  it  is  from  those  two  angles  that  the  people  of  that  entire 
geographical  locality  are  intensely  interested  in  the  future  of  Muscle  Shoals. 

Mr.  WORTHINGTON.  Yes ;  and  I  hope  you  would  be  willing  to  add  the  elec- 
trification or  the  improvement  of  rail  transportation. 

Mr.  Miller,  Oh,  yes;  I  would  include  that  as  a  part  of  the  industrial  end 
of  it. 

Mr.  WORTHINGTON.  Yes. 

Mr.  ]VIiLLER.  Now,  according  to  this  offer,  Mr.  Worthington,  a  sum  of  money 
variouslv  estimated  is  required  to  complete  these  two  dams.  I  believe  that 
is  estimated  by  Mr.  Mayo  at  $42,230,000;  is  that  correct? 

Mr.  WORTHINGTON.  I  did  not  have  the  opportunity  to  hear  Mr.  Mayo  testify. 

Mr.  Miller.  I  think  that  was  the  aum,  was  it  not,  Mr.  Mayo? 

Mr.  Mayo,  That  is  right. 

Mr.  Miller.  The  Engineers  place  it  at  $50,000,000.  Now,  probably,  there 
are  only  two  ways  of  raising  that  money ;  one  is  by  increasing  taxes  through- 


out the  country  and  the  other  is  by  a  bond  issue,  by  which  the  interest  that 
Mr.  Ford  would  pay  and  agrees  to  pay  under  his  contract  would  be  sufficient 
to  meet  the  expenses  of  the  Government  to  pay  the  interest  on  the  bonds,  pro- 
vided, of  course,  that  the  Government  can  negotiate  the  bonds  at  par  at  4  ner 
cent.  That  is  the  limit  of  Mr.  Ford's  offer  in  all  this  thing— 4  per  cent.  Now 
practically,  I  dare  say,  in  your  search  for  improvements  of  the  Tennessee  River 
and  the  installation  of  industrial  concerns  there,  utilizing  the  splendid  water 
power  of  the  Tennessee  River,  you  have  been  unable  to  attract  4  per  cent  money 
to  these  enterprises. 

Mr.  WORTHINGTON.  That  is  quite  true;  you  could  not  do  that. 

Mr.  Miller.  Then,  it  is  quite  clear  that  the  excess  between  what  these  bonds 
can  be  sold  for  and  the  4  per  cent  Mr.  Ford  pays  will  have  to  be  met  out  of 
the  public  Treasury ;  and  I  think  you  will  also  agree  with  me  that  the  net  propo- 
sition of  Mr.  Ford  is  that  the  Government  will  finance  this  proposition  at 
4  per  cent.    That  is  the  proposition,  is  it  not? 

Mr.  WORTHINGTON.  I'es. 

Mr.  Miller.  In  other  words,  the  Government  is  lending  its  credit  to  Mr.  Ford, 
which  credit  is  not  to  exceed  4  per  cent. 

Mr.  WORTHINGTON.  Ycs ;  but  the  Government,  if  we  accept  the  statement— 
and  I  am  prepared  to  accept  it  if  you  wish  as  you  have  jnst  announced  it— but 
the  Government  itself,  however,  is  financing  its  own  propertv. 

Mr.  Miller.  That  is  quite  true,  Mr.  Worthington. 

Mr.  WORTHINGTON.  And  it  is  doing  no  more,  if  I  may  be  permitted  to  call 
the  attention  of  the  committee  to  the  facts,  it  is  doing  no  more  than  it  is  do- 
ing on  other  rivers.  It  is  doing  that  on  the  Ohio,  which  I  think  it  ought  to  do, 
onl,v  it  does  not  do  enough  and  does  not  improve  the  navigation  enough. 
In  this  particular  case  I  hope  you  will  remember  that  you  get  on  your  invest- 
ment 4  per  cent  and  that  you  get  the  return  of  the  principal  at  the  end  of  the 
lease  period,  whereas  on  the  Ohio  River— and  let  me.  if  I  may,  impress  the 
committee  with  this  fact — you  never  do  get  a  single  cent's  interest'and  you  never 
do  get  a  single  penny  of  the  principal  returned ;  and  I  may  go  further.  Out 
in  your  State — I  do  not  know  for  how  many  projects  nor  to  what  extent  the 
capital  has  been  invested — but  I  think  you  have  in  your  own  State  .some  of  the 
irrigation  projects  of  the  country.  I  think  in  that  policy  e.verybody  agrees  to  the 
wisdom  of  it,  but  it  is  a  fact,  also — and  drawing  a  friendly  contrast — the  invest- 
ment stands  to-day  at  a  net  total,  in  your  Reclamation  Service,  of  $125,870,830, 
which  you  invest  to  make  arid  lands  productive.  Now,  you  do  not  get  a  penny's 
interest,  and  you  get  the  principal  returned  very  slowly ;  and  I  must  ask  you  to 
let  me  hold  to  one  thing,  that  in  respect  to  the  reclamation  policy  of  this 
Government,  there  is  no  difference  in  policy  at  Muscle  Shoals,  because  while 
you  to-day  may  not  have  the  confidence  and  feeling  of  certainty  that  others 
have  and  that  I  have,  in  time  you  will  see  demonstrated  there  that  you  can 
do  as  much  with  water  for  Agriculture  east  of  the  Mississippi  as  you  can  do 
with  water  for  agriculture  in  the  State  of  Washington  and  in  other  reclamation 
States. 

Mr.  Mller.  Except  you  do  it  through  a  different  medium. 

Mr.  WORTHINGTON.  Exactly.  In  one  case,  you  use  the  water  to  get  the 
fertilizer  and  carry  it  to  the  land,  but  out  there  you  put  the  water  on  the  land. 

Mr.  Miller.  I  am  aware,  Mr.  Worthington,  that  the  Government  lends  money 
to  the  reclamation  fund  without  any  interest. 

Mr.   WORTHINGTON.    YcS. 

Mr.  Miller.  And  the  fund  is  amortized  through  a  certain  system  that  they 
work  out.    Now,  under  Mr.  Ford's  offer,  there  is  also  a  plan  of  amortization. 

Mr.  WORTHINGTON.  Yes. 

Mr.  Miller.  He  pays  semiannually  $19,868  on  Dam  No.  2,  and  semiannually 
$3,505  on  Dam.  No.  3,  which  amounts  to  something  like  $47,000  a  year. 

Mr.  WORTHINGTON.  $46,746. 

Mr.  Miller.  And  that  is  put  in  there  for  the  purpose  of  amortizing  the  cost  of 
those  dams,  and  it  is  figured  that  it  will  amortize  them  if  placed  at  interest  com- 
pounded semiannually  at  4  per  cent. 

Mr.  Worthington.  The  offer  does  not  mention  the  rate,  but  4  per  cent,  if 
secured,  Mr.  Miller,  will  do  it. 

Mr.  Miller.  If  that  sum  of  money  with  payments  semiannually  in  those 
amounts  can  be  put  at  interest  at  4  per  cent  compounded  semi-annually,  the 
figures  are,,  I  believe,  that  it  would  amount  to  something  like  $49,000,000  at  the 
expiration  of  this  leasehold  interest. 

Mr.  Worthington.  That  is  right. 


374 


MUSCLE   SHOALS  PROPOSITIONS. 


'iil|i 


Mr.  MiLLEK.  And,  of  course,  that  would  be  a  very  difficult  thing,  practically 
to  do.  In  the  first  place,  we  are  confronted  with  the  same  proposition  that 
financial  institutions  were  in  financing  this  thing.  It  is  not  attractive  for  that 
kind  of  investment.  I  know  of  no  concern  in  the  United  States  of  sufficient 
stability  where  this  fund  could  be  deposited  for  100  years  that  would  take  any 
deposit  on  any  such  terms  as  that. 

Mr.  WoRTHiNGTON.  Of  coursc,  I  am  not  prepared  to  resist  your  fear,  but 
I  do  feel  that  in  view  of  your  very  large  investment  down  there,  whether  fortu- 
nately or  unfortunately  made,  it  is  made,  and  I  do  feel  there  ought  to  be  some 
way  for  the  Federal  Reserve  Board  to  take  care  of  this,  and  I  believe  if  vou 
provided  for  it,  that  they  can  and  will. 

Mr.  Miller.  In  other  words,  it  is  a  financial  enterprise  that  no  one  but  the 
Government  could  be  the  banker  in. 

Mr.  WoRTHiNGTON.  Now,  if  I  may,  I  would  like  to  right  now  settle  one  thing 
Muscle  Shoals  has  always  been,  is  now,  and  always  will  be  too  big  for  any 
private  enterprise.    We  might  just  as  well  face  the  facts.    They  are  not  new. 

Mr.  Miller.  That  is  the  reason  I  say  that  no  enterprise  has  gone  in  there  tliat 
was  willing  to  take  it. 

Mr.  WoRTHiNGTox.  Yes ;  and,  moreover,  long  ago  I  came  to  the  conclusion 
that  they  did  not  have  any  business  there. 

Mr.  Miller.  Now,  here  is  what  the  Ford  offer  gets  down  to.  Financ'ng  it 
with  4  per  cent  money,  which  no  private  enterprise  could  do,  paying  it  back  in 
an  amortization  fund,  compounding  it  semiannually  at  4  per  cent,  \\'lich  no 
private  enterprise  could  do.  Now,  there  is  the  Government's  angle  to  this  thing, 
so  far  as  the  dams  are  concerned.  Coupled  with  that  is  Mr.  Ford's  purchasing 
the  fee  of  an  investment  of  between  $105,000,000  and  $106,000,000  less 
$17,000,000,  that  has  gone  into  the  dam,  or  approximately  eighty-eight  or  ninety 
million  dollars. 

Mr.  WoRTHiNGTON.  Yes ;  though  I  do  not  agree  that  It  is  impossible  for  a 
private  concern  to  invest  money  at  4  per  cent,  compounded  semiannuallv. 
Thousands  of  banks  do  that  for  their  savings  depositors  every  year. 

Mr.  Miller.  In  an  enterprise  that  the  Government  never  intended  to  part 
with,  and  Mr.  Ford  is  buying  it  at  4  cents  on  the  dollar,  or  at  practically  4 
cents  on  the  dollar. 

Mr.  WoRTHiNGTON.  Well,  may  I  suggest  that  the  intention,  I  think,  is  not  the 
controlling  pont.  What  you  intended  or  did  not  intend  during  the  war  was 
n-ever  thought  of.  It  is  a  fact,  whatever  your  intention  was,  that  you  built  the 
biggest  smokeless-powder  plant  on  the  face  of  the  earth  and  you  sold  it  out  for 
3  cents  on  the  dollar ;  and,  moreover,  you  parted  title  and  it  is  gone,  and  you 
will  not  find  it  there  as  Mr.  Ford  offers  to  let  you  find  the  nitrate  plant  if  vou 
ever  get  into  trouble ;  and  I  can  go  down  the  line  with  the  sales  of  your  wooden 
ships  and  if  I  might  wish  to  I  could  bring  a  sad  story  here  about  cantonments, 
and  they  are  all  gone ;  and  while  I  expect  Mr.  Ford  will  give  me  a  rap  over  the 
knuckles  for  defending  this  thing  because  he  does  not  want  it  done  in  that  way, 
at  the  same  time  I  can  not  remain  slent  when  there  are  such  horrible  examples 
that  offset  this  horrible  example  you  set  up  at  Muscle  Shoals. 

Mr.  Miller.  Your  analogy-,  Mr.  Worthington,  is  something  I  do  not  intend  to 
get  into  an  argument  about,  as  to  the  enterprise  at  Nitro,  W.  Va.,  or  any  of  the 
others,  but  this  is  a  dist  nctive  enterprise  that  did  not  grow  out  of  theVar. 

Mr.  Worthington.  That  is  true. 

Mr.  Miller.  Keep  that  plainly  in  mind,  Mr.  Worthington. 

Mr.  Worthington.  That  is  true:  I  gi*ant  it. 

Mr.  Miller.  The  Government  embarked  upon  this  enterprise  before  we  had 
any  war. 

Mr.  Worthington.  Yes. 

Mr.  Miller.  Possibly  with  a  .war  imminent,  which  some  people  refused  to 
heed,  but  the  Congress  scented  what  was  in  the  future  before  we  entered  into 
the  war — embarked  on  this  one  enterprise  for  nitrate  preparedness,  so  you  can 
not  place  it  alongside  one  of  those  enterprises  which  was  a  direct  outgrowth  of 
the  war  and  which  we  constructed  after  we  got  into  the  war.  Th's  was  some- 
thing that  was  provided  for  prior  to  the  war,  and  the  whole  philosophy  of  the 
legislation  was  in  the  absence  of  war  between  this  country  and  any  other  coun- 
try in  the  world ;  and  therefore  I  say  it  was  one  of  the  enterprises  and  the  only 
one,  I  dare  say,  that  the  Government  embarked  upon  as  a  permanent  enter- 
prise that  would  endure  throughout  the  future.  Now,  we  are  takng  that  plant, 
so  constructed,  and  instead  of  following  out  the  legislation  as  it  was  intended, 
that  that  should  be  a  permanent  proposition  for  the  manufacture  of  munitions 


MUSCLE   SHOALS  PROPOSITIONS. 


375 


to  be  used  in  case  of  war  and  the  manufacture  of  substances  useful  in  times  of 
peace,  Ike  fertilizer,  the  proposition  now  pending  before  us  is  that  we  shall 
part  with  it. 

Mr.  Worthington.  Well,  you  will,  I  am  sure,  be  indulgent  enough  with  me 
to  grant  that  the  only  thing  left  for  me  to  say  respectfully  to  vou  is  that  that 
is  what  you  have  got  before  you  in  the  Ford  offer  for  your  respectful  decision. 

Mr.  Miller.  Yes.  Then  the  proposition  pending  before  us  is  exactly  the  an- 
tithesis of  what  the  Congress  intended  in  establishing  this  plant.  They  in- 
tended it  should  be  a  permanent  enterprise.  Now,  the  proposition  of  Mr  Ford 
IS  to  buy  it  and  the  Government  is  to  part  title  with  it  at  4  cents  on  the  dollar 

Mr.  Worthington.  Well,  I  can  not  help,  Mr.  Miller,  from  asking  vou,  I  just 
can  not  help  it,  if  you  do  not  intend  to  do  it  by  means  of  this  antithesis  or  some 
other  *'  ant- way,"  what  are  you  going  to  do  with  it?  If  the  Ford  offer  does  not 
solve  it  and  is  not  acceptable,  you  will  pardon  a  poor  fellow  who  has  been  in 
this  Muscle  Shoals  game  for  apout  15  or  16  or  20  years  for  being  interested 
enough  to  inquire,  what  are  you  going  to  do  with  it? 

Mr  Miller.  That  is  exactly  what  I  want  to  suggest  to  you.  The  punwse  of 
this  legislation  was  that  the  Muscle  Shoals  proposition  would  be  good  for  two 
purposes,  one  in  time  of  war  and  one  in  time  of  peace,  and  now  we  are  inves- 
tigating what  shall  be  done  with  it  in  time  of  peace,  and  we  have  before  us  the 
com»rete  offer  of  Mr.  Ford  who,  up  to  this  good  hour,  is  the  onlv  gentlemen  of 
sufficient  enterprise  and  wealth  to  make  a  concrete  proposition.  ' 

Mr.  Worthington.  Which  offer  makes  it  permanent  for  100  vears. 

Mr.  Miller.  Now,  there  may  be  this  angle  to  it:  That  before  the  expiration 
of  this  leasehold  interest  of  100  years,  industrial  chemistrv,  applied  chem- 
istry, or  economic  chemistry  and  its  relation  to  economics,  may  discover  an  en-  • 
tirely  new  method  of  generating  ammonium  nitrate,  as  you  suggested  this 
morning,  but  the  cyanamid  process,  together  with  the  Haber  method  are  the 
two  best  ways  of  producing  it  in  sight  now,  outside  of  the  coke-oven  method 

Mr.  Worthington.  I  believe  there  are  witnesses  to  follow  me  who,  as  far  as 
the  field  of  commercial  chemistry  is  concerned,  could  be  more  instructive  than 
I  can.  However,  I  want  to  grant  one  suggestion  that  I  understand  you  make, 
that  the  great  possibilities  of  the  future,  say,  in  just  the  one  field  of'soil  foods 
produced  by  electric-furnace  methods,  are  so  inviting  and  promise  so  much  that 
I  do  not  think  anybody  in  the  world  can  tell  now  what  will  happen ;  but  I  do 
not  think  that  because  we  can  not  tell  we  should  not  try  to  find  out 

Mr  Miller.  It  would  be  the  very  goal  of  shortsightedness  not  to  tA-  to  find 
out  the.se  things  and  to  keep  abreast  of  the  world. 

Mr.  Worthington.  Y"es;  and  without  speaking  to  the  comnv'ttee  with  exces- 
sive partiality  for  Mr.  Ford,  I  must  ask  you  to  remember  that  he  is  the  onlv 
one  that  has  had  the  courage  to  say  he  would  try  to  do  it. 

Mr.  Miller.  There  is  embodied,  then,  in  this  proposition,  several  elements 
all  of  which  are  of  value,  enormous  value,  some  directly  flowing  to  the  Govern- 
ment, others  flowing  to  your  State ;  some  indirectly  to  your  State  and  some  in- 
directly to  the  Government.  We  have  the  retention  of  this  Nitrate  Plant  No 
-,  available  throughout  the  leasehold  interest  for  the  verv  purpose  for  which 
It  was  constructed,  the  manufacture  of  nitrate  for  war  purposes 

Mr.  Worthington.  Yes. 

Mr.  Miller.  We  have,  second,  in  times  of  peace,  the  availability  of  that  en- 
terprise for  the  manufacture  of  commercial  fertilizers,  another  one  of  the 
purposes  for  which  the  plant  was  constructed.  Therefore,  we  have  complied 
with  the  legislative  intent  in  those  two  particulars  fullv.  We  have  following 
that  a  large  surplus  of  hydroelectric  energy  for  distribution  throughout  the 
^outh  generally,  or  at  least  throughout  that  zone  of  the  South  surrounding 
Muscle  Shoals,  which  we  are  told  is  impregnated  with  large  mineral  deposits, 
and  only  awaits  the  hand  of  man  and  economical  power.  We  have  another 
element,  the  navigation  of  the  Tennessee  River,  which  is  clearly  distinct  from 
the  province  of  our  committee  to  inquire  into,  that  coming  before  another 
committee  of  the  Congress.  We  have,  then,  bv  the  installation  of  large  com- 
mercial enterprises  in  the  South,  the  upbuilding  of  that  community  which  wiU 
be  reflected  throughout  every  corner  of  it,  and  a  Nation  to  be  great  must  be 
great  in  all  of  its  parts,  leading  thereby  to  increased  taxable  wealth  of  vour 
^tate  and  the  surrounding  States  where  this  enterprise  will  be  reflected  ;*  but 
one  of  the  obstacles  to  my  mind  is  how  the  Government  is  coining  out  on  this 
hnancially,  and,  in  the  second  place,  we  are  doing  something  in  disposing  of  this 
property  that  Congress  never  intended  we  should  do,  because  it  was  the  con- 
gressional intent  that  that  property  should  remain  an  abiding  part  of  our 


376 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


377 


ill. 


national  preparedness  from  the  nitrate  point  of  view.  Now,  we  may  be  getting 
indirectly  all  that  we  would  accomplish  by  directly  holding  the'  plant,  and 
that  may  be  overcome  in  some  measure  by  the  better  manipulation  of  the  plant 
and  by  putting  it  to  more  useful  purposes  in  times  of  peace,  which  this  enter- 
prise  contemplates. 

Mr.  WoBTHiNGTON.  I  would  like  to  be  permitted  to  add  this  much  to  what 
you  have  said,  and  that  is,  that  one  of  the  most  valuable  considerations  about 
the  Ford  offer,  unless  you  can  get  a  better  one,  is  that  that  plant  will  keep 
pace  with  the  art,  not  only  of  air-nitrogen  lixation  but  it  will  keep  pace  with 
the  whole  field  of  opportunity  to  improve  agriculture  through  electrochemistry 

Mr.  Miller.  Now,  you  have  opened  up  a  suggestion  there  that  I  want  to  ask 
you  a  question  about.  It  matters  not  to  your  people  or  to  your  concern ;  that  is 
the  Tennessee  River  Improvement  Association,  or  whatever  its  name  is,  whose 
money  goes  into  this  thing,  whether  it  is  Mr.  Ford's  or  anvbodvs  else,  so  Ion*' 
as  you  get  results. 

Mr.  WoRTHiNGTON.  Oh,  but  that  is  true  in  one  sense,  and  then  there  is  another 
sense,  if  you  please,  that  I  can  not  agree  with  you.  We  are  interested,  and  in 
this  way:  As  far  as  we  know  there  is  nobody  that  has  the  intention  and 
the  money  at  the  same  time  to  do  what  Mr.  Ford  savs  he  will  do.  Nobody 
has  ever  suggested  to  the  Tennessee  River  Improvement  Association,  as  far 
as  I  am  advise<l,  that  he  intends,  if  he  can  get  there,  to  make  aluminum  and 
other  light  metals,  electric  steel,  perhaps,  and  other  various  things  that  take 
immense  capital;  and  more  important  than  all  that  to  the  Tennessee  River 
Improvement  Association,  nobody  has  ever  intimated  that  with  his  own  money 
and  at  his  own  expense  he  would  build  dams  on  the  upper  Tennessee  and  its 
tributaries.  So.  please,  let  us  draw  a  very  marked  distinction  between  Mr. 
Ford  and  his  money  and  intentions  and  other  possible  interested  parties. 

Mr.  Miller.  Now,  3Ir.  Worthington,  just  a  moment  on  that  line.  Here  is  the 
document  and  this  is  all  we  have  of  record  as  to  Mr.  Ford's  intentions. 

Mr.  Worthington.  That  is  true. 

Mr.  Miller.  His  only  intentions  are  marked  in  this  document. 

Mr.  Worthington.  That  is  true,  but  could  not 

Mr.  Miller  (interposing).  Anything  else  we  have  is  a  matter  of  pure  specula- 
tion. 

Mr.  Worthington.  Well,  Mr.  Miller,  could  I  not  put  it  in  this  wav.  You  will 
grant,  will  you  not,  that  the  large  volume  of  secondary  power  ought  to  be 
converted  into  primary  power,  if  possible? 

Mr.  Miller.  It  will  be  if  there  are  enough  dams  built  on  the  Tennessee  River. 

Mr.  Worthington.  Yes;  or  some  other  river. 

Mr.  Miller.  It  would  all  be  primary. 

Mr.  Worthington.  It  ought  to  be  "but  there  is  a  little  more  than  the  mere 
letter  of  the  agreement  that  you  could  draw  conclusions  from. 

Mr.  Miller.  We  do  not  want  to  let  our  enthusiasm  get  the  better  of  us  here, 
Mr.  Worthington,  because  the  beautiful  picture  that  has  been  drawn  may  be 
dimmed  somewhat. 

Mr.  Worthington.  You  do  not  alarm  me  by  that  suggestion. 

Mr.  Miller.  Up  to  the  present  hour,  how  many  dams  are  there  on  the 
Tennessee  River  between  Chattanooga  and  its  mouth? 

Mr.  Worthington.  Only  one. 

Mr.  Miller.  In  all  the  centuries  that  have  gone  by,  there  has  been  built  only 
one  dam,  and  how  much  does  that  generate? 

Mr.  Worthington.  The  installation  is  54,000  horsepower  and  the  lowest  mini- 
mum in  the  driest  season,  I  believe,  is  14.000. 

Mr.  Miller.  It  has  been  my  real  observation  here  and  mv  caution  not  to  get 
too  rosy  a  picture  of  this  thing  because  the  power  that  Mr.' Ford  or  Mr.  Ford's 
company  is  going  to  turn  out  at  this  point  can  not  be  disposed  of  under  such 
terms  as  Mr.  Ford  wants  it  to  be  disposed  of. 

Mr.  Worthington.  No. 

Mr.  Miller.  It  will  be  controlled  by  your  public  utility  commission  of  Alabama. 

]Mr.  Worthington.  That  is  absolutely  so. 

Mr.  MiLijiR.  And  from  that  angle  it  is  entirely  impersonal  whether  the  dam 
Is  under  Mr.  Ford's  company  or  under  the  John  Doe  company. 

^Ir.  Worthington.  That  is  true. 

Mr.  Miller.  You  are  interested  in  the  generation  of  that  power  and  Its 
availability  for  industrial  purposes,  but  the  price  at  which  it  is  to  be  sold  to 
the  consumer  Is  controlled  by  your  commission  down  there. 

Mr.  Worthington.  Yes. 


Mr.  Miller.  If  this  enterprise  should  terminate  in  a  glowing  financial  suc- 
cess there  would  probably  be  other  like  establishments  on  the  Tennessee  River 
in  the  nature  of  hydroelectric  plants  until  your  entire  river  would  be  developed, 
and  it  is  not  beyond  reason  to  picture  that  some  day,  but  up  to  this  good 
hour  there  has  been  only  one  plant  that  has  gone  in  there  out  of  all  this 
glowing  territory  with  all  these  beautiful  prospects,  and  we  have  behind  us 
the  good  old  admonition  that  man  has  overlooked  it  all  and  probably  he  is  the 
only  one  who  is  vile.  But  Mr.  Ford  will  have  this  advantage,  the  Government 
is  financing  him  at  4  per  cent  and  he  is  amortizing  the  plant,  compounded 
against  the  Government.  Now,  I  use  that  expression  "  against  the  Govern- 
ment," because  the  definintion  of  an  amortizing  fund  is  to  pay  a  debt  to  the 
Government  and  that  project  owes  the  Government  so  much  money  and  it  can 
only  be  paid  out  of  this  amortization  fund  by  compounding  it  against  the  Gov- 
ernment and  Mr.  Ford  getting  the  benefit  of  the  compounding. 

Mr.  Worthington.  I  was  just  hoping  you  would  make  it  a  little  clearer 
there  as  to  Mr.  Ford's  advantage — the  advantage  you  say  he  gets. 

Mr.  Miller.  He  gets  his  amortization  fund  running  at  compound  interest, 
and  it  would  have  to  in  order  to  yield  enough  to  amortize  the  plant. 

Mr.  Worthington.  Yes;  but  as  far  as  that  is  concerned,  if  you  wanted  to, 
you  could  have  a  sinking  fund  set  up  on  any  Government  venture,  and  that 
is  right  where  this  proposition  comes  to  the  forefront  as  entirely  different. 
If  you  were  to  put  the  Panama  Canal  on  the  basis  of  Mr.  Ford's  offer  it 
would  fall  short  by  $20,000,000  a  year  plus.  Suppose  you  had  put  the  Recla- 
mation Service  on  the  same  basis,  it  would  fall  short  some  $6,000,000,  and 
if  you  had  charged  on  the  Ohio — and  do  not  understand  that  I  am  knocking 
the  Ohio  at  all,  because  that  is  not  the  proposition,  because  I  could  take  any 
other  river.  We  can  take  the  Missouri,  if  you  want  to;  but,  taking  the  Ohio 
River,  if  you  had  charged  1  per  cent  since  1827  you  would  have  "busted" 
the  Government.  That  is  what  would  have  happened  and  that  is  right  where 
the  difference  comes  in  here.  As  to  the  4  per  cent,  which  is  admittedly  lower 
than  you  can  place  water-power  bonds,  I  want  to  tell  you  that  Mr.  Ford, 
I  think,  will  be  heard  from.  I  think  the  country  will  hear  from  him  further 
on  the  subject  of  the  burden  to  the  industries  of  this  country  on  account  of 
high  rates  of  interest  for  power  developments.  Now,  it  is  not  an  advantage 
that  he  gets  by  the  Government  financing  this  project  or  lending  its  credit  at 
4  per  cent,  as  you  stated,  because  the  consumer  gets  it.  The  consumer  gets 
it;  and,  if  it  was  possible — and  I  hope  to  interest  you  in  this  subject  wholly 
apart  from  this  hearing,  if  you  will  allow  me  to — if  it  was  possible  to  have 
these  powers  developed,  say,  in  your  own  State  and  in  other  States  at  2  per 
cent,  we  could  pay  high  wages  and  beat  any  country  in  the  world  in  the  cost 
of  production  and  in  the  markets  of  the  world. 

Mr.  Miller.  I  notice  you  made  an  observation  regarding  the  Panama  Canal. 
Of  course,  we  want  to  keep  clearly  in  our  minds  the  fact  that  the  Panama  Canal 
was  built  for  strategic  reasons  and  never  as  a  commercial  enterprise. 

Mr.  Worthington.  Yes. 

Mr.  Miller.  It  was  never  built  with  the  view  of  making  it  self-sustaining. 
The  lesson  that  America  learned  with  reference  to  building  the  Panama  Canal 
was  the  voyage  of  the  old  ironclad  Oregon  around  Cape  Horn  in  order  to  get 
to  the  seat  of  war,  and  from  that  good  hour  America  became  busy  in  securing 
some  means  of  getting  her  battleships  to  possible  seats  of  war  other  than 
by  going  around  Cape  Horn,  and  the  Panama  Canal  was  the  solution  of  that 
problem  and  It  was  built,  and  it  is  there  for  that  purpose  now,  and  the  com- 
mercial use  of  it  is  merely  incidental.  The  same  thing  is  true,  exactly,  with 
reference  to  the  building  of  this  Nitrate  Plant  No.  2.  Its  primary  purpose 
was  for  war,  and  its  secondary  purpose,  like  the  Panama  Canal,  was  for 
peace  and  for  the  pursuit  of  peace,  and  to  my  mind  it  is  just  as  dangerous  to 
part  with  the  title  of  that  one  enterprise  as  it  is  to  part  with  the  title  to  the 
Panama  Canal.  As  I  have  said,  the  only  argument  against  that  is  that  we 
are  perhaps  getting  through  this  leasehold  interest  and  through  its  various 
provisions  the  same  amount  of  protection  that  we  would  get  if  we  held  the 
title  to  it. 

Mr.  Worthington.  Would  you  not  think  it  good  business  if  you  could  sell 
these  battle  cruisers  and  battleships  to  somebody  who  would  keep  them  up 
and  run  them  and  let  you  have  them  any  time  you  wanted  them? 

Mr.  Miller.  No,  sir;  I  would  not.  My  colleagues  might  not  agree  with  me, 
but  I  would  never  sell  a  battleship  to  anybody  else  and  let  them  run  it. 


f 


I. 


378 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


379 


m 


willing  to  sell  these  ships  in  yonr  Shipping  Board  and  have  somebody  run 
them  and  let  you  have  them  back  when  you  wanted  them? 

Mr.  Miller.  Well,  now,  we  are  getting' into  another  field.  For  mv  part  that 
has  so  many  angles  that  I  am  afraid  we  would  get  clear  afield 

Mr.  WoRTHiNGTON.  I  agree  with  you. 

Mr.  Crowther.  Mr.  Worthington,  this  morning  you  seemed  to  take  some  little 
pleasure,  as  other  witnesses  do.  in  castigating  Congress  and  chastising  Congress 
for  their  inaptitude  in  grasping  the  importance  of  manv  of  these  questions 
I  do  not  mean  this  present  committee,  but  Congress  as  a  whole.  I  realize  that 
the  favorite  outdoor  and  indoor  sport  in  this  country  is  to  pound  Congress  for 
their  various  lack  of  capabilities.  &  wi 

Mr.  Worthington.  I  did  not  quite  put  it  that  way,  Congressman. 

Mr.  Crowther.  No;  but  I  simply  wanted  to  say  that  in  order  for  a  man  to 
represent  his  constituency  and  come  down  here  and  be  on  a  committee  and 
attend  all  these  hearings  he  would  have  to  know  more  than  there  is  in  the 
Encyclopedia  Britannica  and  be  informed  about  evervthing  in  the  world 
home  of  the  questions  asked  by  members  of  the  committee,  no  doubt,  expose 
their  Ignorance.  >       f 

Mr.  Worthington.  Oh,  no. 

Mr.  Crowther.  I  am  speaking  of  myself  entirely:  and  thev  seem  to  convev 
the  Idea  to  many  of  the  witnesses  that  we  are  hostile  as  'a  body  to  everv 
proposition  that  is  before  us. 

Mr.  Worthington.  No;  I  did  not  mean  to  convey  that. 

Mr.  Crowther.  It  seemed  to  me  you  did  this  morning. 

Mr.  Worthington.  I  want  to  be  understood  as  not  meaning  that.  I  poorlv 
expressed,  perhaps,  what  I  did  mean.  What  I  meant  to  sav  was  that,  ^ince  a 
Member  of  Congress  is  not  a  trained  engineer,  it  is  difficult 'for  the  engineer  to 
get  contact  with  him.    That  is  what  I  meant. 

Mr.  Crowther.  To  get  it  into  his  head,  you  mean. 

Mr.  Worthington.  Well,  I  do  not  mean  that  either.  I  certainlv  did  not 
mean  to  attack  or  question  the  intelligence  of  Congress.  Many  people  are 
highly  intelligent  on  one  subject  and  at  the  same  time  on  another  subject  it  is 
impossible  to  get  connection  with  them.  I  think  you  will  agree  to  that  will 
you  not?  ' 

Mr.  Crowther.  VeiT  often  a  question  is  asked  by  a  member  of  the  com- 
mittee and  is  answered  and  that  conveys  the  idea  through  the  press  imme- 
diately that  he  is  or  is  not  violently  opposed  to  a  particular  measure,  and  those 
things  develop.  I  want  to  ask  you  one  or  two  questions,  not  from  a  legal 
standpoint,  because  like  Mr.  Greene,  of  the  committee,  I  am  not  a  lawyer.  All 
the  rest  of  the  members  of  the  committee,  I  believe,  are  lawyei^,  and  there 
has  been  some  suggestion  that  lawyers  make  poor  legislators  because  they  are 
vastly  more  concerned  about  the  establishment  of  precedents  than  they  are 
about  actual  accomplishments.  I  do  not  know  that  that  is  so,  and  I  make 
that  statement  \Aith  all  due  deference  to  the  members  of  that  profession. 
What  I  think  would  be  of  interest  and  would  be  a  necessity  for  this  committee 
in  order  to  pi-esent  the  matter  to  the  members  of  the  House  and  to  the  country 
at  large  would  be,  as  suggested  by  Mr.  James  this  morning,  an  actual  state- 
ment as  to  the  amount  of  fertilizer  that  is  to  be  produced,  because  in  this 
quasi  legal  document,  incidentally,  there  is  one  paragraph  which  to  mv  mind 
is  demagogic  and  did  not  belong  in  the  agreement,  and  this  section  15,  as  I 
understand  it,  was  adopted  at  the  suggestion  of  agricultural  and  farm  bureaus 
and  several  other  societies  who  wrote  that  section  the  way  it  was  put  in  here. 

Mr.  Worthington.  No  ;  I  must  correct  that  impression  altogether. 

Mr.  Crowther.  I  am  glad  you  are  going  to  correct  that,  because  that  state- 
ment has  been  made. 

Mr.  Worthington.  They  did  not  do  anything  of  the  sort,  and  anyone  who 
intimated  that  they  did  was  doing  an  injustice  to  Mr.  Ford  and  those  who  were 
associated  with  drafting  his  offer.  I  will  say,  though,  that  when  this  paper 
came  to  the  point  of  actually  getting  on  the  road  to  this  committee  the  farmers 
were  consulted  about  the  language,  and  there  was  nothing  wrong  in  that, 
was  there? 

Mr.  Crowther.  Nothing  wrong,  particularly,  except  I  do  not  see  the  need 
for  using  that  language.  Why  could  you  not  say,  as  is  stated  in  one  other 
line,  "  in  order  that  commercial  fertilizer,"  but  instead  of  that  it  says,  "  in 
order  that  the  farmers  may  be  supplied  with  fertilizer  at  fair  prices  and  with- 
out excessive  profits,  the  company  agrees,"  etc.    It  keeps  referring  to  the  close 


relationship  between  this  project  and  the  advantages  to  the  farmer  that  are 
to  accrue. 

Mr.  Worthington.  I  wanted  to  get  the  opportunity  to  sav  that  the  language 
employed  was  so  employed  in  order  to  carry  the  thought  to  you  that  the  fer- 
tilizer Avas  to  get  to  the  farmer  as  directly  as  possible. 

Mr.  Crowther.  That  is  exactly  what  I  have  wanted  to  find  out  and  what 
I  have  asked  about  several  times,  and  I  do  not  believe  as  vet  we  have  had  a 
<lefinite  answer  about  it.  I  think  Mr.  Miller  commenced  earlier  in  the  inves- 
tigation to  inquire  as  to  whether  or  not  Mr.  Ford  was  to  carry  through  the 
process  from  the  production  of  the  component  parts,  ammonium  nitrate,  etc., 
to  the  finished  product  of  fertilizer,  which  he  was  to  deliver  to  the  farmer  and 
which,  as  Mr.  Quin  said,  they  expected  Uncle  Henry  to  deliver  to  them  just 
the  same  as  he  did  their  Ford  cars. 

Mr.  Worthington.  I  do  not  think  there  is  any  doubt  about  that. 

Mr.  Crowther.  Do  you  think  there  would  be  any  objection  on  Mr.  Ford's 
part  to  stating  and  Imving  in  the  contract  about  what  they  think  might  be 
produced,  deliverable  to  the  farmers,  in  minimum  tons,  commensurate  with 
the  production? 

Mr.  Worthington.  I  do  not  think  so. 

Mr.  Crowther.  You  spoke  of  phosphoric  acid  this  morning.  Of  course,  that 
is  a  component  part  of  fertilizer? 

Mr.  Worthington.  Yes. 

Mr.  Crowther.  And  that  would  be  covered  by  the  language  in  the  section 
with  reference  to  the  production  of  nitrogen  and  other  fertilizer  compounds? 

Mr.  Worthington.  Yes. 

Mr.  Crowther.  That  would  cover  that  part  of  it  very  well. 

Mr.  Worthington.  With  regard  to  phosphoric  acid  produced  by  electric- 
furnace  methods,  an<l  I  think  that  phosphoric  acid  produced  by  electric-furnace 
methods  is  leading  the  fixation  of  the  nitrogen  of  the  atmosphere,  and  I  am 
going  to  suggest  that  instead  of  my  going  into  that  field,  that,  as  I  understand 
it,  Mr.  Swann  is  coming  here,  and  to  undertake  to  descril)e  it  would  be  a  dupli- 
cation, because  he  will  be  so  much  more  intelligent  and  interesting  than  I  can 
possibly  be  and  more  instructive. 

Mr.  Crowther.  Who  is  Mr.  Swann? 

Mr.  Worthington.  Mr.  Swann  is  president  of  the  Federal  Phosphorus  Co. 

The  Chairman.  I  have  invited  him  to  appear  after  Mr.  Worthington  is 
through. 

Mr.  Crowther.  In  answer  to  Mr.  Miller,  you  spoke  of  the  probability  of 
developing  not  only  this  nitrate  industry  but  things  that  would  develop  the 
whole  agi-icultural  industry  or  tend  to  their  development.  .Just  exacly  what 
did  you  have  in  mind  by  that?  One  of  our  witnesses  called  attention  to  the 
fact  the  other  day,  and  I  think  Mr.  Mayo  acquiesced  in  the  statement,  that  it 
was  quite  possible  that  great  plants  would  be  constructed  there  for  the  manu- 
facture of  all  sorts  of  farming  implements  and  that  implements  of  every  con- 
ceivable kind  might  be  produced  there,  and  in  addition  to  that,  the  No.  1 
nitrate  plant,  which  was  constructed  to  produce  ammonium  nitrate  by  the 
Haber  process,  being  a  failure,  was  going  to  be  used  as  an  automobile  plant 
^ow,  of  course,  while  it  may  be  difficult  and  Mr.  Ford  mav  think  it  is  not 
necessary  for  him  to  put  in  this  contract  what  he  has  a  vision  of  as  regards 
future  production,  still  I  think  this  committee  and  the  people  of  the  country 
would  like  to  know  what  the  present  prospects  before  them  are  with  regard 
to  fertilizer  production.  ' 

Mr.  AVorthington.  Well,  Mr.  Ford  has  said  in  my  presence  more  than  once, 
and  so  has  Mr.  Mayo,  in  our  discussions  of  the  subject,  that  it  was  entirely 
possible  that  the  fertilizer  end  of  this  development  would  l>e  the  major  end. 

Mr.  Crowther.  That  that  would  be  the  major  end  of  this  entire  proposition? 

Mr.  AVoRTHiNGTON.  Yes,  sir. 

Mr.  Crowther.  When  he  went  down  there  that  was  one  of  the  things  that 
was  farthest  from  his  mind,  was  it  not? 

Mr.  Worthington.  Let  me  impress  you  with  the  fact  that  at  that  time  Mr 
Ford  had  never  looked  into  this  question  of  producing  soil  food  by  electric- 
furnace  methods  and  by  using  cheap  water  power,  and  did  not  believe  in  the 
game  at  all.    He  twitted  me  rather  unmercifully  about  this  whole  proposition 
but  when  he  got  deeper  into  it  and  the  facts  were  laid  before  him  he  seized  it! 

Mr.  Crowther.  You  have  testified  also  during  the  course  of  your  testimony 
or  suggested  that  in  connection  with  the  tremendous  explosion  which  caused 
such  a  terrific  loss  of  life  abroad,  that  that  proi>osition  would  probably  not 


l\ 


I 


380 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


381 


ig 


the 


be  considered— that  is,  the  development  of  the  air-reduction  plant,  usin 
Haber  process. 

Mr.  WoETHiNGTON.  The  modified  Haber  process  for  nitrate  plant  No.  1,  as 
designed;  no,  sir.  That  is  a  plain  business  proposition.  It  has  never  been 
worked  out,  and  my  information  is,  from  those  who  are  vastly  better  informed 
than  I  am,  that  it  is  not  suited  to  this  country  at  all.  We  have  not  yet  at- 
tained technical  perfection  for  any  such  plant.  Germany  has,  and  Germany 
has  paid  the  sad  lesson  for  using  the  Haber  process.  Whatever  did  happen 
that  caused  the  explosion  I  do  not  pretend  to  say,  but  the  explosion  happened 
at  the  Haber  plant. 

Mr.  Crowther.  It  was  testified  before  the  committee  that  there  was  an  in- 
vestigation being  made  to  find  out  what  the  cause  was. 

Mr.  W^ORTHiNGTON.  I  belicve  there  is  an  investigation  going  on  at  this  time. 
Mr.  Crowther.  It  has  been  testified  here  that  ammonium  nitrate  itself  is  not 
especially  explosive.    It  can  be  detonated,  but  not  easily. 
Mr.  WoRTHiNGTON.  That  is  true. 

Mr.  Crowther.  You  spoke  about  Mr.  Ford  having  this  vision  before  him, 
of  reducing  the  price  of  hydroelectric  power  for  manufacturing  purposes,  and 
you  pictured  the  tremendous  burden  industry  was  carrying  because  of  those 
high  prices. 

Mr.  WoRTHiNGTON.  Yes. 

Mr.  Crowther.  Do  you  know  whether  or  not  he  intends  to  establish,  from 
this  1,000,000  horsepower,  new  rates,  and  intends  to  let  the  people  have  the 
power  cheaper  than  has  been  customary,  or  will  he  be  prohibited  from  doing 
that  by  the  State  laws  and  the  public  utilities  commission?  Wiil  he  thus  be 
prohibited  from  disseminating  power  at  a  lesser  rate  than  is  being  charged? 
Has  he  any  philanthropic  vision  as  regards  very  much  cheaper  power  and 
carrying  through  this  cheap  horsepower? 
Mr.  WoRTHiNGTOx.  Yes;  I  think  he  has. 

Mr.  Crowther.  So  that  the  people  will  be  able  to  light  their  houses  and 
apply  the  power  to  their  other  needs? 

Mr.  WORTHINGTON.  Yes :  what  he  wishes  to  get  at  is  this :  He  wishes  to  take 
the  interest  burden  off  of  power,  and  he  thinks  there  ought  to  be  a  policy 
established  in  this  country  tx)  do  that. 

Mr.  Crowther.  He  is  making  a  good  start,  paying  only  4  per  cent  and  com- 
pounding the  interest. 

Mr.  WoRTHiNGTON.  He  will,  I  think,  establish  other  enterprises  on  the  Ten- 
nessee River  on  his  own  account. 

Mr.  Crowther.  You  spoke  this  morning  of  the  applications  that  were  made 
under  the  Fedenil  water  power  act-  I  have  a  copy  of  the  magazine  published 
here  in  Washington,  within  the  last  week,  which  published  the  entire  list  as 
of  January  1.  1922,  and  I  notice  that  those  applications  cover  practically  every 
site  in  the  United  States. 

Mr.  WoRTHiNGTON.  That  is  a  fact. 

Mr.  Crowther.  I  notice<l  very  few  of  them  had  an  approximate  amount  of 
horsepower  that  would  be  developed  to  a  very  large  extent,  and  two  of  them — 
one  with  54.0<X)  horsepower  and  one  with  60,000  horsepower — had  a  great  deal 
more  than  any  one  project  in  Germany.  I  also  noticed  that  although  the  aggre- 
gate made  a  total  horseiwwer  which  was  astonishing,  yet  only  a  very  small 
proportion  of  them  were  acted  on.  about  30  altogether,  I  believe.  How  long 
are  those  applications  good  for?  How  long  can  they  keep  those  applications 
in  effect  or  hold  them?  • 

Mr.  WORTHINGTON.  Y'ou  mean  how  long  does  the  application  hold? 
Mr.  Crowther.  Yes:  is  there  no  limit? 

Mr.  WORTHINGTON.  Would  you  let  me  put  an  answer  to  that  in  the  record? 
I  do  not  recall  exactly,  but  I  will  answer  it  as  definitely  as  possible  in  the 
record.    I  do  not  exactly  remember  that  at  the  moment 
Mr.  Crowther.  I  will  be  glad  to  have  you  do  that 

Mr.  WORTHINGTON.  I  Will  put  a  more  detailed  answer  to  that  in  the  record. 
Note. — The  Federal  water  power  act  approved  June  10,  1920   (Public,  No. 
280),  contains  the  following: 

"  Sec.  5.  That  each  preliminary  permit  issued  under  this  act  shall  be  for  the 
sole  purpose  of  maintaining  priority  of  application  for  a  license  under  the  terms 
of  this  act  for  such  period  or  periods  not  exceeding  a  total  of  three  years,  as  in 
the  discretion  of  the  commission  may  be  necessary  for  making  examinations  and 
Burveys,  for  preparing  maps,  plans,  specifications,  and  estimates,  and  for  making 
financial  arrangements.    Each  such  permit  shall  set  forth  the  conditions  under 


which  priority  shall  be  maintained  and  a  license  issued.  Such  permits  shall  not 
be  transferable,  and  may  be  canceled  by  order  of  the  commission  upon  failure 
of  permittees  to  comply  with  the  conditions  thereof 

Mr.  Crowther.  I  notice  that  the  corporations  existed  in  the  big  cities,  some 
of  them  far  distant  from  the  point  for  which  the  application  was  made,  until 
they  had  a  territorj'  on  the  1st  of  January  which  pretty  well  covered  the  entire 
United  States,  wherever  there  was  available  water  power. 

Mr.  WORTHINGTON.  That  is  true. 

Mr.  Parker.  I  think  Mr.  Crowther  asked  you  a  question  awhile  ago  that  you 
did  not  answer :  That  is,  whether  Mr.  Ford  would  agree  to  make  a  finished  fer- 
tilizer to  the  minimum  quantity  put  in  the  contract ;  that  is,  whether  he  would 
agree  to  make  a  minimum  quantity  of  the  finished  fertilizer? 

Mr.  WORTHINGTON.  I  think  if  the  honorable  Member  would  look  at  section  14 
he  will  agree  that  Mr.  Ford  binds  himself  to  produce  the  approximate  annual 
capacity  of  the  present  plant,  and  that  can  be  stated  at  110.000  tons  of  am- 
monium nitrate  and  the  equivalent  thereof.    That  is  the  minimum. 

Mr.  Parker.  That  is  the  minimum  of  the  components  of  fertilizer      The 
quesiton  is  whether  he  will  make  finished  fertilizer  that  would  include  or  be ' 
equivalent  to  that  amount  of  nitrate. 

Mr  WORTHINGTON.  It  would  be  veiy  difficult  to  do  that.  Without  speaking 
for  Mr.  Ford  or  Mr.  Mayo,  and  undertaking  to  give  my  own  opinion,  if  it  would 
add  anything  to  it  at  all 

Mr.  Parker  (interposing).  You  have  no  authority  to  speak  for  Mr.  Ford? 

Mr.  WORTHINGTON.  Not  to  agree  to  that.  I  would  say  possibly  it  could  not 
be  done,  but  I  do  not  believe  anybody  knows.  The  field  is  so  promising  that  I 
think  you  will  decide  to  hear  some  other  witnesses  in  connection  with  that 
My  opinion  is  it  will  go  into  a  very  large  tonnage  of  completed  fertilizer 

Mr.  Hill.  Mr.  Worthington,  you  said  that  all  this  Muscle  Shoals  proposition 
could  be  narrowed  down  to  one  thing — capital. 

Mr.  WORTHINGTON.  That  is  right. 

Mr.  Hill.  As  I  understand  it,  Mr.  Ford  contemplates  putting  a  very  large 
sum  of  money  into  the  development  of  this  property  if  he  receives  it  under  this 
contract? 

Mr.  WORTHINGTON.  Hc  neccssarlly  will  have  to  do  that. 

Mr.  Hill.  Have  you  ever  received  any  idea  from  him  as  to  approximately 
how  much  money  he  would  expect  to  put  into  it,  outside  of  the  money  he  pays 
to  the  Government?  ^     ^  y^^^y 

Mr.  WORTHINGTON.  I  do  uot  think  I  have  ever  heard  Mr.  Ford  say  definitely 
how  much  it  would  be.  I  venture  the  assertion  that  he  does  not  know  But  I 
have  gotten  this  measure  in  talking  to  him  and  to  Mr.  Mayo,  that  necessarily 
ten  or  fifteen  million  dollars  would  have  to  go  in,  and  rapidly,  if  he  puts  this 
power  to  work,  and  he  would  have  to  go  at  it  rapidly.  I  get  the  impression 
that  It  would  finally  run  to  forty  or  fifty  million  dollars. 

Mr.  Hill.  Then,  it  is  your  impression  that  Mr.  Ford's  plans  would  con- 
template  

Mr.  WORTHINGTON  (Intcrposing) .  How  much  more  than  that  I  can  not  say, 
and  that  is  a  conclusion  that  I  have  drawn  from  my  association  with  them 
I  expect  I  am  straining  the  proprieties  to  say  what  I  think  about  it,  but  I  want 
to  talk  to  you  as  frankly  as  possible. 

Mr.  Hill.  I  do  not  want  to  ask  you  any  improper  questions. 

Mr.  WORTHINGTON.  I  know  you  do  not. 

Mr.  Hill.  As  I  understand  it,  from  your  conversations  with  Mr.  Ford  you 
tnmk  he  might  put  in  as  much  as  forty  or  forty-five  million  dollars  on  this 
project? 

Mr.  AVoRTHiNGTON.  I  do  not  see  how  he  is  going  to  use  this  power  unless  he 
does  do  it. 

Mr.  Hill.  That  is  precisely  what  I  have  in  mind. 

Mr.  WORTHINGTON.  He  has  to  do  it ;  there  is  no  market  for  it ;  he  can  not 
sell  it.  , 

Mr.  Hill.  In  other  words,  it  is  your  view  that  in  order  to  utilize  this  project, 
wnich  I  understood  you  to  say  was,  mainly,  in  the  beginning  at  least,  a  power 
project,  that  Mr.  Ford  would  have  to  put  into  it,  in  your  opinion,  $40,000,000. 

Are  you  able,  without  disclosing  any  confidence,  or  with  propriety,  to  give  the 
committee  an  outline  of  about  what  that  $40,000,000  would  be  expended  for  in 
tnis  plant.    We  are  all  very  anxious  to  know  the  details  of  this  proposition. 

Mr.  WORTHINGTON.  You  are  no  more  so  than  I  am. 


382 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


•383 


Mr.  Hill.  We  have  a  responsibility  that  perhaps  you  do  not  have:  we  have 
to  vote  on  this  proposition. 

Mr.  WoRTHiNGTON.  I  am  mindful  of  that,  and  I  wish  I  could  sav  something 
on  that  line  that  would  be  so  reliable  as  to  be  worth  something  to  the  committee 
All  I  can  tell  you  is  that  Mr.  Ford,  in  speaking  to  his  staff,  or  some  of  them' 
when  they  wondered  how  it  would  be  loaded,  said  he  would  load  it.    That  is  all 
I  know,  and  I  believe  he  will  do  it. 

Mr.  Hill.  I  am  not  in  any  way  questioning  your  confidence  in  Mr.  Ford.  The 
question  with  us  here  is  to  know  exactly  what  the  proposition  is  that  we  are 
going  to  refer  to  the  House.  As  I  understand  you,  you  gathered  from  Mr.  Ford 
that  he  ext)ecteil  to  spend  about  $40,000,000.  Do  you  not  think  we  ought  to  ask 
Mr.  Ford  to  come  before  this  committee  and  tell  us  what  his  project  is,  because 
Mr.  Mayo  is  not  at  all  sure  how  much  he  proposes  to  si)end,  and  so  far  no  one 
else  has  been  able  to  tell  us. 

Mr.  WoRTHiXGTON.  I  waut  to  be  very  frank  with  you. 

Mr.  Hill.  You  have  been,  and  that  is  what  we  expect. 

Mr.  WoRTHiNGTON.  I  do  uot  think  it  will  accomplish  anvthing  to  ask  him  to 
come.    I  do  not  think  he  could  absolutely  satisfy  this  committee  if  he  did  come 

Mr.  Hill.  Is  that  a  reflection  on  the  intelligence  of  the  committee,  or  on  the 
inability  of  Mr.  Ford. 

Mr.  WORTHINGTON.  Xo,  Sir,  neither:  I  am  thinking  about  the  difliculty  of  anv- 
body  answering  what  you  ask.  But  I  would  like  to  suggest  a  remedy*  for  ths'it 
situation;  that  you  have  this  assurance;  that  whether  he  loads  this' power  or 
finds  consumers  for  it,  he  has  to  pay  you  4  per  cent  on  the  cost,  beginning  at 
the  end  of  four  and  three  years,  I  believe. 

Mr.  Hill.  As  it  will  cost  the  Government  about  4J  or  4f  per  cent  to  get  the 
money  on  which  he  will  pay  4  per  cent,  that  argument  does  not  appeal  to  me 
very  much.  What  I  would  like  to  find  out— and  apparentlv  mv  question  is  a  verv 
difl^cult  one  to  answer— is  this :  You  said  you  got  from  Mr.  Ford,  or  from  vonV 
wnversation  with  him— and  you  have  testified  that  you  have  been  associated 
with  him  for  about  eight  months  in  this  matter— you  stated  he  had  led  vou  to 
believe  he  expected  to  spend  about  $40,000,000  ultimatelv  in  this  matter  * 

Mr.  WORTHINGTON.  Let  me  put  it  in  this  way,  that  I  concluded  that  he  would 
nave  to  do  so  from  what  he  said  he  was  going  to  do. 

Mr.  Hill.  Precisely;  and  I  want  you  to  tell  the  committee  what  things  he 
told  you  on  which  you  concluded  he  would  put  in  $40,000,000.  If  I  tell  vou 
I  am  going  to  buy  a  Ford  truck  and  a  Ford  tractor  and  a  Ford  car  vou  con- 
clude that  I  will  spend  about  $1,200.  As  I  understoml  vou.  vou  told  *me  that 
air.  Ford  told  you  he  would  put  in  about  $40,000,000. 

Mr.  WORTHINGTON.  Xo ;  I  did  not  say  that. 

Mr.  Hill.  I'ou  said  you  concluded  he  would  spend  about  that  amount 

Mr.  WORTHINGTON.  That  is  somewhat  different. 

^Ir.  Hill.  Will  you  tell  the  committee  what  statement  Mr.  Ford  made  to  you 
which  led  you  to  conclude  he  was  going  to  put  $40,000,000  into  this  business? 

Mr.  WORTHINGTON.  I  think  I  stated  that,  but  let  me  see  if  I  can  get  it  be- 
fore you  again.  With  a  rather  imperfect  knowledge  of  how  much  it  takes  to 
finance,  say,  an  aluminum  development,  I  concluded  that  when  Mr.  Ford  said 
he  was  going  to  try  to  make  aluminum,  and  possibly  some  of  its  alloys,  and 
having  had  some  association  in  the  past  with  a  nitrogen-fixation  interest,  and 
having  had  the  opportunity  to  see  estimates  that  were  made  on  operations 
that  might  be  carried  on  at  Muscle  Shoals  if  this  power  were  developed,  al- 
together, in  summing  up  my  associations  and  experience,  I  thought  he  could 
not  get  out  for  less  than  forty  or  fifty  million  dollars.  That  is  just  as  clearly 
as  I  can  state  it. 

May  I  supplement  that  with  the  information  I  got  from  past  associations 
that  run  over  several  years,  and  I  think  it  would  be  relativelv  accurate,  but 
I  can  not  do  it  now?  If  you  will  give  me  the  opportunity,  we  can  bring  to 
you  some  estimates  that  were  made  to  this  very  committee. 

Mr.  Hill.  Stated  to  this  committee? 

IMr.  WORTHINGTON.  I  do  uot  mean  this  committee  in  this  Congress,  but  state<l 
to  the  Military  Committee  and  to  the  Agricultural  Committee  in  a  previous 
Congress.  I  do  not  know  whether  such  suggestions  by' one  in  my  position  are 
appropriate,  but  I  think  I  could  bring  you  some  information  that'would  clarify 
the  case  you  are  now  inquiring  about. 

^Ir.  Hill.  In  my  opinion,  any  witness  who  appears  before  a  committee  of 
Congress  to  give  information  to  the  committee  is  doing  a  very  great  public 
service,  and  we  want  to  hear  everything  we  can  hear  which  would  have  any 
bearing  on  this  very  important  problem. 


What  I  have  been  trying  to  find  out  by  my  questions  to  you  is  the  amount  of 
money  Mr.  Ford  proposes  to  spend  on  this  project  which  is  now  before  us  for 
consideration.  As  I  recall  it,  the  highest  amount  that  Mr.  Mavo  was  w  Uing  to 
say  definitely  that  Mr.  Ford  contemplated  expending  was  about  $5,000,000.  I 
say  that  subject  to  correction.  You  said  it  was  about  that  amount,  did  vou  not, 
Mr.  Mayo? 

Mr.  Mayo.  That  is  not  correct. 

Mr.  Hill.  How  much  did  you  sjiy  :\rr.  Ford  contemplated  putting  into  this 
plant  outside  of  what  he  would  pay  the  Government? 

Mr.  Mayo.  If  I  remember  correctly,  I  said  I  thought  it  would  take  about 
$5,000,000  in  addition  to  operate  the  nitrate  plant,  and  the  total  amount  would 
probably  run  not  less  than  $25,000,000  or  $30,000,000,  or  even  in  excess  of  that. 
It  has  always  been  my  opinion  tliat  ho  would  proi)al)ly  have  to  spend  eventuallv 
approximately  $50,000,000. 

Mr.  Hill.  Could  you  file  in  the  record  an  estimate  or  a  statement  of  what 
the  $50,000,000  would  be  spent  for,  in  a  general  way,  without  betraying  anv 
confidence? 

Mr.  Mayo.  I  do  not  think  I  would  want  to  disclose  that.  I  might  add  that 
when  we  built  what  we  call  the  Rouge  plant  at  Detroit  we  finished  the  project 
which  cost  us  nearly  $50,000,000,  and  the  balance  of  the  work  to  go  along  with 
th  s  nitrate  plant  we  thought  would  reach  about  that  amount. 

Mr.  Hill.  Your  testimony  was  there  would  be  about  $5,000,000  more  needed 
for  nitrate  plant  No.  2? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Hill.  W'hnt  amount  would  be  necessary  for  producing  fertilizer? 

Mr.  Mayo.  That  is  a  pure  conjecture,  because  if  the  process  is  changed  it 
might  greatly  change  the  amount. 

Mr.  Hill.  There  might  be  as  much  as  $45,000,000  additional  put  into  the 
project  which  Mr.  Ford  would  have  a  perfect  right  to  use  there? 

Mr.  Mayo.  Yes;  it  is  my  own  personal  opinion  that  that  would  be  the 
minimum, 

Mr.  Hill.  Now,  Mr.  Worth ington,  all  these  questions  are  based  on  your  sug- 
gestion that  ths  Muscle  Shoals  proposition  can  be  narrowed  down  to  one 
thing — capital? 

Mr.   WORTHINGTON.    Yes. 

Mr.  Hill.  Apparently  Mr.  Ford  has  in  mind  putting  in  about  $5,000,000  to 
make  nitrate  plant  No.  2  available  for  the  production  of  fertilizer  or  whatever 
other  necessities  may  ar  se  in  reference  to  that  particular  plant.  Outside  of 
that,  he  has  projects  which  are  so  big  and  so  important  to  the  general  public 
that  they  have  excited  a  great  deal  of  public  interest  through  the  press.  So  the 
attitude  at  the  present  time  of  a  great  many  people  is  that  Mr.  Ford  is  offering 
to  do,  through  ths  proposition,  a  thing  of  very  great  and  very  general  benefit 
to  the  whole  American  people,  especially  to  the  farmers.  That  impression  is 
quite  general.  It  is  one  that  is  gained  through  the  newspapers.  Now,  it  seems 
that  Mr.  Ford  is  proposing  to  put  up  perhaps  $50,000,000.  At  the  same  time 
he  is  askng  the  United  States  to  advance  a  very  large  sum  of  money,  the  Sec- 
retary of  War  says  about  $50,000,000.  Have  you  had  any  talks  with  Mr.  For* 
as  to  the  amounts  he  thinks  the  Government  would  have  to  put  up  to  finish  the 
(lams?    There  has  been  some  uncertainty  as  to  that  amount. 

Mr.  WORTHINGTON.  Well,  Mr.  Ford  thought  that  the  work  on  the  dams  and  the 
powerhouses,  not  including  the  navigation  locks,  such  part  as  should  be  charged 
to  navigation,  would  call  for  about  $30,000,000.  or  he  suggested  that  amount. 
That  was  not  very  far  away  from  other  estimates. 

Mr.  Hill.  Now,  we  have  a  range,  say,  from  thirty  to  fifty  million  dollars,  one 
being  Mr.  Ford's  estimate  and  one  being  the  estimate  of  the  Army  engineers,  for 
the  completion  of  the  project. 

Mr.  WORTHINGTON.  Taking  Mr.  Ford's  estimate  at  $30,000,000  and  leaving  out, 
which  he  did,  the  cost  of  that  portion  of  the  work  that  should  be  charged  at  the 
two  dams  to  navigation,  you  can  not  quite  draw  a  parallel,  because  in  the  case 
of  the  engineers'  estimate,  of  course,  they  included  the  locks.  I  do  not  know 
what  they  are  going  to  cost.  We  did  take  the  trouble  to  find  out  what  they 
possibly  could  be  let  at.  and  that  was  around  $40,000,000.  I  do  not  mean  that 
^Ir.  Ford  did:  Mr.  Majo  and  myself  and  Mr.  Waldo  and  others,  in  order  to 
remove  uncertainty  and  get  away  from  this  troublesome  thing  of  estimates 
made  by  various  people,  made  an  estimate,  and  it  looked  like  it  was  $40,(X)0,000, 
Pf^rhaps,  and  certainly  not  over  $42,000,000. 

92900—22 25 


> 


384- 


MUSCLE  SHOALS  PROPOSITIONS. 


Mr.  Hill.  Then,  Mr.  Worthington,  we  have  a  situation  in  which  the  United 
States  would  have  to  advance  vast  amounts,  roughly,  from  the  Treasury,  for  the 
purpose  of  completing  this  project. 

Mr.  WoKTHiNGTON.  Yes. 

Mr.  Hill.  Would  you  mind  telling  us  what,  in  your  opinion,  would  be  the 
benefits  that  the  Federal  Government  would  receive  from  its  financing  this 
proposition?  Shall  I  say  as  a  preface,  that  what  is  bothering  me  is  this:  Cheap 
fertilizer  for  the  farmers  is  a  very  desirable  thing.  It  is  just  as  beneficial  to 
the  people  in  the  cities  as  it  is  to  the  people  in  the  country ;  we  are  inextricably 
tied  up,  and  it  seems  to  me  it  is  a  very  false  thing  to  raise  a  question  between 
the  city  man  and  the  country  man  on  the  matter  of  fertilizer.  It  is  a  question 
in  my  niind  how  far  the  Federal  Government  should  go  in  the  expenditure  of 
credit  for  Government  activities  in  trying  to  create  cheap  fertilizer. 

The  second  thing  is  that  it  is  very  necessary  to  have  our  nitrates  for  use  in 
time  of  war,  and,  of  course,  that  is  one  of  the  big  elements  in  this  proposition. 

Then,  the  third  thing  is  that  it  is  a  very  beneficial  proposition,  concerning 
which  there  is  no  dispute,  that  we  need  our  water  power  developed.  I  know 
something  about  the  water  power  situation  in  Switzerland  and  what  it  has  done 
for  Switzerland. 

It  being  granted  that  cheap  fertilizer  is  desirable,  that  preparedness  in  ni- 
trates is  now  very  essential  and  that  the  development  of  water  power  is  most 
highly  desirable,  I  would  like  your  views  as  a  departure  in  the  policy  of  financing 
States  would  get  out  of  what  I  regard  as  a  departure  in  the  policy  of  financing 
a  private  enterprise.  That  is  the  question  in  the  minds  of  a  great  many  of  our 
colleagues.  We  have  this  project  before  us ;  so  far  nobody  else  has  come  along 
with  a  suggestion  as  to  what  should  be  done  with  it. 

Iklr.  WOBTH13VGTON.  Let  us  include  navigation  in  there;  will  you  not  agree 
to  that? 

Mr.  Hill.  I  would  like  to  ask  you  about  that. 

Mr.  Worthington.  I  would  like  to  get  you  to  include  that  before  my  an- 
swer is  made. 

Mr.  Hill.  I  would  like  you  to  put  in  there  anything  else  you  would  like  to 
put  in.  The  improvement  of  rivers  and  harbors  is  a  very  legitimate  function 
of  the  Government.  Would  you  make  a  state«ient  as  to  what  character  of 
navigation  that  stream  had  been  subjected  to  before  the  dams  came  in,  and 
include  that  in  your  general  answer?  I  know  you  said  there  had  been  certain 
navigation  there. 

Mr.  Worthington.  I  answered  Mr.  Miller  on  that  phase  of  it.  I  think. 

Mr.  Hill.  What  I  did  not  understand  then  was  about  how  serious  was  the 
navigation,  about  how  much  'tonnage  a  year. 

Mr.  Worthington.  Practically  none,  Congressman.  Mr.  Burton  pronounced 
3Iuscle  Shoals  the  most  horrible  example  in  all  the  rivers  of  this  country. 

Mr.  Hill.  I  may  say  we  have  a  certain  amount  of  navigation  on  the  Sus- 
quehanna Kiver,  but  it  is  not  very  serious  navigation,  so  far  as  the  transpor- 
tation of  pro<lucts  is  concerned. 

Mr.  W^okthington.  The  serious  thing  about  this  was  that  there  was  not  any. 
It  was  a  nonnavigable  stream;  that  is  the  truth  about  it. 

Mr.  Hill.  Let  me  put  the  whole  thing  in  a  concrete  form.  Suppose  I  should 
be  favorable  to  this  proposition  here  and  support  the  acceptance  of  the  proposi- 
tion on  the  floor  of  the  House,  and  I  go  back  to  my  people  and  they  say  to  me, 
"What  did  you  vote  lor  this  proposition  for?  What  is  in  it  for  the  American 
people?"    AVill  you  answer  that  question  for  me? 

Mr.  AVobthington.  Why  not  let  me  go  into  your  district  and  do  it? 

Mr.  Hill.  I  may  ask  you  to  do  it,  but  I  would  like  to  have  your  answer  it 
for  me  here. 

Mr.  Worthington.  That  is  all  right.  In  answering,  of  course,  I  will  not 
answer  except  on  the  merits  of  the  case  as  I  see  them.  I  think  you  are  justi- 
fied first  because  I  think  you  will  admit  you  are  confronted  with  the  necessity 
to  complete  Dam  No.  2.  The  Secretary  of  War  so  advises  you.  You  may  get 
some  one  to  take  that  off  of  your  hands.  I  think  you  could  say  to  your  people 
that  you  are  also  confronted  with  the  very  important  question  of  seeing  to  it 
that  the  purposes  of  that  plant  are  preserved  and  ready. 

Mr.  Hill.  That  is,  plant  No.  2? 

Mr.  Worthington.  Yes ;  in  case  we  ever  get  into  trouble.  In  the  next  place, 
I  think  you  could  say  that,  taking  Mr.  Ford's  accomplishments  and  giving  some 
credence  and  belief  to  what  he  says  he  will  do,  and  considering,  if  you  please, 


MUSCLE   SHOALS  PROPOSITIONS. 


385 


^^Sf 


that,  if  successful,  you  at  least  can  expect  that  there  will  be  created  taxable 
values  from  the  development  of  that  power  corresponding  with  what  vou  find 
in  North  Carolina  and  California.  And  then,  finally,  there  is  the  navigation 
improvement.  I  do  feel  you  could  say  to  your  constituents  that  if  vou  can 
vote  appropriations  for  improving  the  navigation  of  the  tributaries  of  the 
Tennessee  River,  and  rivers  like  tlie  Ohio  and  its  tributaries,  and  the  Missouri 
and  other  rivers,  from  which  you  do  not  get  a  pennv  of  interest,  nor  the  re- 
turn of  a  penny  of  principal,  you  surely  are  justified  in  supporting  this  appro- 
prmtion  when  we  get  4  per  cent,  or  practically  4  per  cent  on  the  Government's 
investment  and  tlie  return  of  the  princir>al. 

Mr.  Hull.  That  would  be  ia)  completion  of  Dam  No.  2*  (b)  the  maintenance 
of  niti-ate  plant  No.  2  in  stand-by  or  ready  condition;  (c)  the  general  creation 
of  taxable  values  which  the  Federal  Government  needs;  (d)  improvement  of 
navigation,  which  has  to  be  compared  with  the  Ohio,  the  Mississippi  and  other 
river  projects. 

Mr.  Worthington.  Yes. 

Mr.  Hull.  In  that  you  have  not  included  the  fertilizer  output  for  the  farmer 
That  would  be  another  element. 

Mr.  Worthington.  I  was  going  to  leave  that  to  sav  that  I  thought,  and  I 
.  really  do  think  that  has  greater  promise  in  it  as  a  national  ccmtribution  than 
(my  other  phase  of  the  ease. 

Mr.  Hill.  That  has  made  a  vei-y  great  public  appeal. 

Mr.  Worthington.  I  do  not  believe  the  public  is  going  to  be  disappointed 
It  is  going  to  take  some  courage  and  a  lot  of  money. 

Mr.  Hill.  The  question  in  reference  to  the  fertilizer  that  I  am  constantlv 
met  with  is  this  question  about  which  ^Ir.  Miller  and  various  other  members 
of  the  committee  have  asked  you.  That  is  the  question,  how  much  actual 
fertilizer  the  American  farmer  is  going  to  get. 

Mr.  Worthington.  That  is  as  hard  to  answer.  I  think,  as  to  have  tried  to 
answer  the  question,  if  it  had  been  asked,  how^  much  basic  steel  would  the 
conntry  get  when  the  basic  steel  operations  started  in  this  country  You  can 
not  answer  such  a  question  in  tons.  I  do  not  think  vou  could  answer  that 
question  to  your  entire  satisfa<tif»n  and  bring  it  down  to  tons  of  completed 
fertilizer,  not  quite,  because  all  of  the  field  has  not  been  covered.  It  is  new 
It  is  inviting.  You  are  going  to  decide  that  yourselves  before  you  get  throueh 
with  these  hearings. 

Mr.  Hill.  That  answer  is  precisely  what  I  should  have  expected  you  to 
make,  and  it  is  in  line  with  what  Mr.  Mayo  said.  Nobody  knows  definitely 
liow  much  fertilizer  could  be  produced  there;  it  is  not  possible  to  say? 

^Ir.  Worthington.  So  far  as  the  future,  entire  possibilities  are  concerned 
you  could  not  do  that  any  more  than  if  one  had  undertaken  to  predict  how 
many  Ford  automobiles  Mr.  Ford  would  make  if  one  had  predicted  it  18  or  20 
.years  ago. 

Mr.  Hill.  Then  the  maximum  is  uncertain.  Would  it  be  fair  to  ask  that  there 
ne  put  into  this  contract  a  definite  minimum  of  the  amount  of  actual  fertilizer 
under  clause  14?  ' 

Mr  Worthington.  Would  you  indulge  us  to  clear  that  up  in  answer  to 
Mr.  James's  request  that  we  put  in  a  clarifying  statement,  which  we  have 
agreed  to  do?    Will  you  allow  that  to  answer  your  question? 

Mr.  Hill.  I  heard  that  question  and  that  will  cover  it 

Mr.  Worthington.  We  will  undertake  to  do  that. 

(The  statement  mentioned  will  be  found  on  p.  356.) 

Mr.  Hill.  In  connection  with  your  expression  in  reference  to  the  allotment 
Whether  there  would  be  any  allotment  of  a  definite  amount  of  horsepower  for 
val  "r  ^^  ^^^  fertilizer  plant,  and  the  nitrate  plant,  what  would  that  be  in 

Mr.  Worthington.  In  that  particular  case,  measuring  the  production  of 
nitrate  plant  No.  2  in  ammonium  nitrate,  it  would  be  about  110,000  horse- 
power. 

Mr.  Hill.  You  spoke  of  its  being  from  100,000  to  110,000  horsepower. 

Mr.  Worthington.  Stating  the  production  in  terms  of  ammonium  nitrate. 

Mr.  Hill.  Would  it  be  a  thing  for  us  to  consider  here  in  connection  with 
section  14,  concerning  which  there  have  been  a  good  many  questions— you 
probably  recollect  that  the  Secretary  of  War  testified  that  he  was  not  clear 
as  to  the  guaranty  for  the  production  of  fertilizer,  so  we  have  been  particularly 
interested  in  section  14.     Suppose  we  added  to  section  14,  in  the  third  line 


386 


MUSCLE  SHOALS  PROPOSITIONS. 


after  the  words  "  ammonium  nitrate  i^er  annum,"  something  to  this  effect : 
"  And  that  the  company  would  promiso  to  devote  to  the  said  production  100,000 
of  primary  horsepower  from  dams  Nos.  2  or  3.  or  from  tlie  steam  plant  at 
Gorgas,  or  the  steam  plant  at  nitrate  plant  No.  2  throughout  the  lease  period." 
That  is  providing  that  there  would  be  a  devotion  of  a  certain  amount  of  horse- 
power to  that  production  of  fertilizer. 

Mr.  \yoRTHiNGTON.  That  section  absolutely  carries  that  amount  of  power, 
that  nitrate  plant  No.  2  is  operated  to  the  capacity  production  of  110,000  tons 
of  ammonium  nitrate,  or  its  equivalent. 

Mr.  Hill.  I  so  understand  from  you.  Would  there  be  any  objection  to  put- 
ting that  in  as  an  amendment  to  the  provisions  of  the  section,  that  they  de- 
vote a  minimum  of  100,000  horsepower  to  the  production  of  fertilizer? 

Mr.  WoBTHiNGTON.  You  wlll,  I  am  sure,  appreciate  how  one  in  my  position 
is  situated  right  now;  that  I  could  not  answer  whether  Mr.  Ford  would  agree 
to  that. 

Mr.  Hill.  Would  jou  mind  talking  that  over  with  Mr.  Ford? 

Mr.  WonTHiNGTOX.  I  will  discus.^  it  with  ^Ir.  Mayo  and  we  will  see  what 
can  be  done. 

Mr.  Hill.  I  am  obliged  to  you  for  your  answers.  I  personally  feel  that  any 
one  who  appears  "before  a  committee  of  Congress  has  an  opportunity  to  serve 
the  whole  public  in  giving  information.    I  thank  you  very  much. 

Mr.  Fields.  Mr.  Worthington,  following  the  last  question  of  IVIr.  Hill,  and 
the  reciuest  made  of  you  by  Mr.  James  to  put  into  the  record  a  statement  show- 
ing the  amount  of  completed  fertilizer  that  Mr.  Ford  proposes  to  produce 
annually,  is  it  not  a  fact  that  they  have  made  requests  of  you  it  is  impossible 
for  you  to  comply  with  unless  they  name  a  formula  for  fertilizer,  upon  which 
to  base  your  calculation? 

Mr.  Worthington.  In  part  that  is  true,  but  in  this  statement  we  will  cover 
that  and  make  it  clear  just  what  it  does  mean. 

Mr.  Fields.  I  believe  you  stated  this  morning  that  if  the  amount  of  ani- 
nioniuni  nitrate  to  be  produced  at  nitrate  plant  No.  2  was  put  into  fertilizer 
on  the  basis  of  2-.S-2  it  would  produce  2.«X»,<X)()  tons  of  completed  fertilizer? 

^Ir.  Worthington.    Yes.  sir. 

:SIr.  Fields.  If  it  should  be  mixed  ui>on  a  different  formula  it  would  change 
the  amount  of  the  completed  product;  if  it  should  l>e  prepared,  for  instance, 
upon  the  formula  of  l*-8-2  it  would  mean  .3,(XK).0<X)  tons:  if  it  should  be  pre- 
pared upon  the  formula  1-8-2  it  would  mean  4,000.000  tons.  After  all,  it  de- 
pends upon  the  mixture,  uix)n  the  ingi-e«lients  of  plant  food  that  go  into  the 
fertilizer  and  also  the  amount  of  filler  Miuch  constitutes  the  larger  part  of  the 
fertilizer? 

IMr.  Worthington.    I'es. 

I^Ir.  Fields.  To  attempt  to  bind  :Mr.  Ford  at  this  time  to  prodm^  a  given 
number  of  tons  of  completed  fertilizer,  we  would  have  to  prepare  a  bas^s  of 
compound  upon  which  he  should  produce  the  phmt  foods  and  the  filler,  which 
the  agricultural  interests  might  want  to  change  from  time  to  time. 

Mr.  WoiiTHiNGTON.  I  think  that  is  sul)stantially  correct,  and  if  you  did  that 
you  might  foreclose  the  opportunity  for  getting  the  greatest  results  out  of  the 

^vhole   proposition.  ^       .„    ^.      ,     ^        , 

Mr  Fieids.  But  there  is  this  assurance,  however,  that  if  this  plant  produces 
190  0(K)  tons  of  ammonium  sulphate  and  it  goes  into  the  raamifacture  of  fer- 
tilizer it  will  have  to  carry  with  it  the  other  ingi-etlients  necessarj'  with  that 
ingredient  to  make  the  completed  fertilizer. 

Mr.  Worthington.    Yes. 

Mr  Fields.  And  the  agricultural  interests  of  the  country  might  want  to 
continue  to  use  fertilizer  with  a  heavy  filler,  as  they  now  use  it,  or  they  might 
want  to  use  the  highlv  concentrated  fertilizers,  as  was  describerl  by  Dr.  umr- 
nev  before  the  committee  on  yesterday,  which  can  be  used  with  a  great  deal 
more  economy  when  the  country  learns  how  to  use  them. 

Mr.  Worthington.    Yes.  , 

Mr  Fields.   I  believe,  Mr.  Worthington,  you  are  an  engineer,  are  you  not . 

Mr   Worthington.   I  was  educated  as  a  civil  engineer. 

Mr'  Fieids.  As  a  citizen  of  Alabama  you  have  been  interested  for  many  yeais 
in  the  improvement  of  the  Tennessee  River  and  its  tributaries. 

Mr.  Worthington.    Yes.  ^.^^  .        ..^k^o 

Air  Fields.  About  how  many  years  of  study  have  you  given  to  that? 
Mr  W^orthington.   I  have  been  tacked  on  to  this  Muscle  Shoals  proposition 
«;ince'a90]      Then  in  1912  and  1913  I  got  interested  in  the  entire  river  and  its 
tributaries,  and  that  interest  has  Increased  from  time  to  time  to  the  present. 


MUSCLE   SHOALS  PROPOSITIONS. 


387 


Mr.  Fields.  You  are  probably  as  familiar  with  the  natural  resources  of  the 
Tennessee  River  Valley  as  any  other  man.  For  the  information  of  the  com- 
mittee will  you  tell  us  something  about  the  natural  resources  of  the  Tennessee 
Kiver  A'alley  that  could  be  reached  by  the  navigation  contemplated  bv  Mr. 
Ford. 

Mr.  Worthington.  There  is  con] ;  there  is  some  iron,  and  the  upper  reaches 
of  the  Tennessee  carry  the  largest  uncut  hardwood  supply  in  all  the  Southeast. 
The  marble  developments  in  the  Knoxville  district  are  well  known,  and  that 
character  of  freight  particularly  ought  to  enjoy  river  transportation.  In  the 
field  of  raw  materials  that  would  serve  the  electric  furnace  industry  I  do  not 
think  many  sections  in  the  United  States  would,  upon  examination^  be  found 
superior  to  what  you  will  find  in  the  Tennessee  Valley.  ^ 

Mr.  Fields.  Are  there  many  coal  deposits  there? 

Mr.  Worthington.  Yes;  I  mentioned  that.  But  you  have  copper,  zinc,  and 
other  minerals.  I  wonder  if  you  would  not  be  good  enough  to  let  me  supple- 
ment my  statement  by  putting  into  the  record  a  rather  correct  statement  in 
regard  to  this  matter? 

Mr.  Fields.  I  would  be  very  glad  to  have  you  do  that. 

Resources  of  the  Tennessee  Valley  and  immediate  vicinity.^ 


Mineral  and  metal  production,  1918: 

Barytes 

Bauxite 

Coal 


Commercial  clay . 
Copper- 
Ore 


Metal , 

Corundum 

Crude  clay  products 

Feldspar 

Gold 


Gypsum  and  other  salts. 
Iron- 
Ore 


Pig 

Lead 

Marble- 
Building  stone . . . 
Dust  and  chips... 

Manganese 

Mica- 
Sheet  production. 
Scrap  production. 

Phosphate  Rock 

Pyrites 

Quartz. 


Amount. 


Value. 


94,045  tons I 

18, 230  lone  tons...' 

18,347,996  tons 

146,892  tons 


529,092  tons 

14,799,680  pounds. 
820  tons 


40,020  tons. 
235  ounces. 


Sand  and  gravel 

Silver..... 

Slate  (valuable  deposits) . 

Talc  and  soapstone 

Zinc 


Total 

Agricultural  production,  1919  * 

Basic  manufactures  production,  1918- » 
Coke. 


886,120  tons 

187,527  tons j 

3,410,400  pounds... 

262,913  cubic  feet..' 

13,995  tons I 

29,774  tons ' 

I 

4,706  sheets | 

1,046  tons 

419,479  tons ! 

24.285  lone  tons.... 

31,126  tons 

728,027  tons 

93,620  ounces 

1,000  square  feet... 

72,971  tons 

42,141,311  pounds. . 


$560, 022 

152,968 

50,986,228 

551, 272 

(») 

2,960,000 

67,461 

193,362 

160,275 

4,866 

«  2,451,600 

3,012,808 

7,110,983 

242, 139 

582,639 

16,457 

654,612 

460,450 

12,930 

1,917,546 

198,632 

50,000 

502,453 

93,620 

50 

114,822 

3, 834, 859 


77,893,054 
469,531,267 


612,271  tons. 

Brick  and  tile i  38  operators 


Lime 

Portland  cement 

Sulphuric  acid.. 


Total. 


Summary: ' 

Mineral  and  metal  products . . . 

Agricultural  products 

Ba.sic  manufactured  products . 


Total. 


139,127  tons 

1,637,623  barrels... 

318,175  tons '      2.069,623 


4,344,382 
1.741,866 
729,884 
2, 456, 734 


11,342,489 


77,893,054 

469,531.267 

11,342,489 


558, 766, 810 


Aj".^*  referred  to  is  shown  on  map  prepared  bv  Tennessee  River  Improvement  Association  now  on 
exhibit  in  House  caucus  room. 
*  From  records  of  U.  S.  Geolocical  Survev. 

Values  recovered  ^iven  below. 
♦Estimated. 
^  Estimatei  from  census  returns.  « 


388 


MUSCLE  SHOALS  PROPOSITIONS. 


Mr.  WobVhington.  When  I  mentioned  such  things  as  copper  and  zinc,  please 
understand  they  are  being  produced ;  I  do  not  mean  mere  deposits. 

Mr.  Fields.  Is  there  very  much  of  this  aljove  Muscle  Shoals? 

Mr.  WoRTHiNGTON.  Nearly  all  of  it.  There  are  some  mineral  deposits  south 
of  Muscle  Slioals;  some  clays  that  are  important. 

Mr.  Fields.  Then  these  minerals  to  which  you  referred  have  no  water  trans- 
portation now? 

Mr.  WoRTHiNGTON.  There  is  no  outlet  for  any  of  the  raw  or  manufactured 
materials  north  of  Muscle  Shoals. 

Mr.  Fields.  In  answer  to  some  questions  propounded  to  you  by  the  chairman 
you  mentioned  having  severed  your  connection  with  the  Alabama  Power  Co. 
I  do  not  wish  to  ask  you  any  questions  that  would  be  in  any  way  personal,  but 
from  the  correspondence  of  certain  gentlemen  in  that  section  which  has  been 
made  a  part  of  the  hearings,  and  from  other  contentions  that  have  been  pre- 
sented, my  curiosity  has  become  a  little  bit  aroused,  I  must  confess.  If  I  am 
wrong  in  my  conclusions  I  want  to  get  cleared  up  in  my  own  mind,  but  if  I  am 
right  I  think  the  committee  and  the  country  ought  to  have  the  benetit  of  it. 

You  were  first  interested  as  a  citizen  in  the  development  of  the  Tennessee 
River  and  its  tributaries;  that  was  before  you  became  connected  with  tlie 
Alabama  Power  Co.? 

Mr.  WoBTHiNGTON.  Pardon  me;  I  did  not  quite  get  that,  about  being  person- 
'  ally  interested. 

Mr.  F1E1.DS.  I  say  you  were  first  interested  as  a  citizen  in  the  development 
of  the  Tennessee  River? 

Mr.  WoRTHiNGTON.  Oh,  yes. 

Mr.  Fields.  That  interest  on  your  part  resulted  in  the  severance  of  your 
relations  with  that  concern.  Why  was  it  they  were  concerned  in  the  develop- 
ment, or  preventing  the  development  you  people  were  trying  to  bring  about? 
AVas  it  because  the.y  regarded  it  as  a  possible  competitor? 

Mr.  WoRTHiNGTOx.  It  is  fair  to  say  yes,  but  it  was  very  natural  for  them  to 
feel  that  way.  I  do  not  think  I  would  say  they  are  to  blame  for  it.  They  had 
gone  to  relatively  large  expense ;  there  is  no  question  about  that,  and  they  had 
searchfully  surveyed  Muscle  Shoals,  and  the  most  complete  information  on  the 
.subject  to  this  day,  in  the  public  document  you  have  here,  I  think,  is  as  much 
due,  or  more  due.  to  Mr.  Thurlow,  the  chief  engineer  of  the  Alabama  Power 
Co.  than  to  any  other  engineer. 

NoTL. — The  <locument  mentioned  is  House  Document  1262,  Sixty-fourth  Con- 
gress, first  session.  It  contains  a  survey  and  report  on  Muscle  Shoals  considered 
as  a  joint  navigation  water-power  project,  which  was  made  in  1915-16  at  a 
cost  of  alM)ut  $ir»<),(KX>. 

Mr.  Fields.  I  believe  you  statetl  they  had  acquired  property. 

Mr.  WoRTHiNGTON.  They  had.  However,  the  cost  of  the  property  they  had 
there  was  negligible.  They  spent  a  lot  of  money  on  surveys,  and  they  hoped, 
I  suppose — of  cour.se,  they  hopetl — to  see  the  development  made  and  to  carry 
out  their  plans  which  they  had  proposed  to  the  United  States,  but  which  I  had 
to  decide  were  hopeless.  I  had  to  make  my  decision  on  that  iK>int ;  and,  on  the 
other  hand,  they  made  their  decisions  in  their  own  interests,  and  I  do  not 
think  they  are  altogether  to  blame,  and  I  am  not  going  to  confess  that  I  was. 

Mr.  Fields.  The  thing  that  strikes  me  in  connection  with  other  things  that 
have  developed  in  the  hearings  is  that  here  is  an  organization  that  is  laying 
its  plans  to  get  hold  of  Muscle  Slioals.  if  it  can,  and  I  do  not  blame  them 
for  that. 

Mr.  \A'oKTHTNGTOX.  It  lias  a  perfect  right  to  try  to  get  it. 

Mr.  Fields.  But  if  it  can  not  get  hold  of  it.  it  is  apparently  trying  to  so 
retard  its  progress  that  nobody  else  can  get  hold  of  it,  and  thereby  prevent  it 
from  becoming  a  competitor  in  its  line. 

Mr.  WoRTHiNGTON.  Well;  you  are  carrying  me  into  a  field 

Mt.  Fields  (interposing).  That  was  an  expression  of  my  own  opinion. 

Mr.  \\'oi;thington.  I  would  be  criticizing  some  good  fellows,  perliaps,  and 
maybe  making  a  ini.stake  in  doing  it,  and  I  do  not  want  to  do  that. 

Mr.  Fields.  You  will  grant  me  the  right  to  draw  my  own  conclusions. 

Mr.  AVoRTHTNGTOX.  Of  course. 

Mr.  Fields.  I  believe  the  Alabama  Power  Co.  claims  to  have  an  option  upon 
a  i)art  of  this  property  covered  by  Mr.  Ford's  proposition. 

Mr.  WORTHINGTON.  Yes. 


MUSCLE  SHOALS  PROPOSITIONS. 


389 


Mr.  Fields.  And  the  Air  Nitrate  Corporation  claims  to  have  an  option  upon 
nitrate  plant  No.  2.    What  is  the  connection,  Mr.  Worthington,  if  you  know, 
between  these  companies? 
Mr.  WORTHINGTON.  The  American  Cyanamid  Co.  and  the  Alabama  Power  Co.? 
Mr.  Fields.  Tlie  Air  Nitrate  Corporation  really  is  the  American  Cyanamid 
Co.? 
Mr.  WORTHINGTON.  Ycs ;  it  is  all  about  one. 

Mr.  Fields.  Is  there  any  connection  between  the  American  Cyanamid  Co. 
and  the  Alabama  Power  Co.? 

Mr.  Worthington.  I  do  not  know  what  the  intercorporate  relations  are  now. 
I  do  not  think  I  would  be  willing  to  testify  on  that  point.  When  I  was 
a  director  of  the  American  Cyanamid  Co.  some  of  the  leading  controlling 
stockholders  of  tlie  Alabama  Light  &  Traction  Co.  Avere  in  the  Alabama  Powder 
Co. ;  I  do  not  know  whether  they  are  yet  or  not.  I  have  not  been  interested 
enough  for  a  long  time  to  find  out. 
Mr.  Fields.  It  is  a  fact  that  they  were  at  one  time? 

Mr.  Worthington.  Yes.    At  one  time  Mr.  Washburn  was  president  of  the 
Alabama  Power  Co.  and  at  the  same  time  president  of  the  American  Cyanimid 
Co.    Their  intercorporate  relations  were  very  close. 
Mr.  Fields.  What  are  the  activities  of  the  American  Cyanimid  Co.? 
Mr.  Worthington.  The  operation  of  a  very  large  air  nitrogen  fixation  plant 
and  the  production  of  cyanimid  in  Canada  at  Niagara  Falls.    The  extent  of 
the  American  Cyanimid  Co.'s  operations  in  New  Jersey  I  do  not  know,  e;ccept 
that  I  think  they  produce  ammonium  phosphate,  and  they  have  very  large 
phosphate  operations  in  Florida. 
Mr.  Fields.  Mr.  James  Duke  is  connected  w^ith  the  American  Cyanimid  Co.? 
Mr.   Worthington.  Oh,   jes ;    Mr.   Duke,   I   think,   controls   it,  he   and   his 
associates  control  it  beyond  question ;  they  did  at  one  time. 

Mr.  Fields.  And  they  also  control  the  Air  Nitrate  Corporation  which  claims 
to  have  an  option  on  nitrate  plant  No.  2? 

Mr.  Worthington.  I  suppose  they  do,  because  that  is  all  one;  the  Air 
Nitrate  Corporation  and  the  American  Cyanimid  Co.,  as  far  as  this  proposi- 
tion was  concerned,  it  seems  to  me,  would  be  regarded  as  one. 

Mr.  Fields.  I'ou  referred  this  morning  to  the  power  development  of  North 
Carolina  and  what  it  had  meant  to  that  State  in  the  increase  of  revenue^  etc. 
Was  that  water-power  development? 

Mr.  Worthington.  Oh,  yes;  it  was  hydroelectric  development,  about  400.000 
horsepower  is  being  developed  in  that  State. 

Mr.  Fields.  How  do  the  possibilities  of  the  Tennessee  River  and  its  tribu- 
taries compare  with  the  development  in  North  Carolina? 
Mr.  Worthington.  Do  you  mean  the  Muscle  Shoals  development? 
Mr.  Fields.  Yes ;  Muscle  Shoals  and  those  above. 

Mr.  Worthington.  In  answering  that  question  one  must  ask  for  a  very 
wide  latitude,  because  the  possible  water  powers  on  the  upper  Tennessee  anil 
its  tributaries  have  never  been  surveyed.  The  tributaries  upon  which  these 
powers  may  be  iK>ssibly  found — in  which,  indee^l.  many  will  be  found — are 
regarded  as  navigable  streams,  and  we  have  been  trying  to  get  the  surveys  made. 
I  think  it  is  possible  some  of  those  powers  would  be  developed  if  the  surveys 
were  to  be  made,  and  by  surveys  I  mean  detailed  surveys,  like  that  at  Muscle 
Shoals.  That  is  what  is  the  matter  with  the  power  on  these  streams,  they 
are  not  surveyed. 

Mr.  Fields.  How  does  Muscle  Shoals,  which  has  been  surveyed,  compare 
with  the  other  water  powers? 

Mr.  Worthington.  One  comparison  would  be  this:  The  approximate  total 
hydroelectric  development  in  the  Carolinas,  Georgia,  Alabama,  and  Tennessee 
is  about  750,000,  approximately  the  same  as  Muscle  Shoals  will  be,  but  with 
more  secondary  powder  than  is  at  Muscle  Shoals. 

Note. — The  principal  completed  hydroelectric  developments  in  the  States 
named  may  be  summarized  as  follows : 

Horsepower. 

North  Carolina 298,900 

South  Carolina 140,  400 

Georgia , . 129,  400 

Alabama 92, 000 

Tennessee .  112,700 

Total 773,400 


390 


MUSCLE  SHOALS  PROPOSITIONS. 


Mr.  Fields.  Nitrate  plant  No.  ]  has  been  referred  to  by  some  of  the  mem- 
bers of  the  committee.  I  want  to  add  at  this  point  that  an  officer  of  the 
Ordnance  Department  stated  here  the  other  day  it  would  require  about 
.$4,000,000  to  equip  nitrate  plant  No.  1  so  that  it  would  produce  nitrogen  as  it 
was  first  intended  to  do.  I  judge  that  Mr.  Ford  would  not  want  to  put  that 
additional  $4,000,000  upon  that  plant,  and  that  is  one  of  the  reasons,  possibly, 
why  he  may  not  consider  using  it  for  the  production  of  nitrogen. 

Mr.  WoRTHiNGTON.  For  that  reason  quite  largely,  and  others  economic  and 
conclusive. 

Mr.  Fields.  There  was  one  question  asked  here  this  morning  wh'lch  seemed 
to  me  you  did  not  clearly  grasp.  That  was  whether  this  product  that  would 
be  produced  at  plant  No.  2  could  be  used  for  other  purposes  than  the  pro- 
duction of  fertilizers.    Could  it  be  marketed? 

Mr.  AVoRTHiNGTON.  It  would  be  impossible,  in  such  quantity  of  production. 

Mr.  Fields.  Therefore,  if  Mr.  Ford  produces  190,000  tons  of  ammonium  sul- 
phate at  plant  No.  2,  annually,  in  order  to  find  a  market  for  it  he  must  use  it  in 
the  production  of  fertilizer  and  sell  it  as  a  fertilizer  compound? 

Mr.  WoRTHiNGTON.  We  might  illustrate  that.  Suppose  there  was  a  loophole 
in  that  agreement  by  which  Mr.  Ford  might  operate  nitrate  plant  No.  2  in  the 
pro<luct'on  of  nitric  acid.  Leave  its  capacity  at  180,000  tons  annually.  It  would 
not  do  him  any  good ;  there  is  no  market  for  it.  That  is  a  basis  for  producing 
nitric  acid  that  never  happens  in  this  country  and  perhaps  never  will,  except 
in  time  of  war,  so  it  would  not  help  him  if  he  had  an  opportunity.  And,  fur- 
ther, if  he  should  do  that  it  would  be  forfeiting  the  confidence  of  the  country. 

Mr.  Fields.  You  referred  this  morning  to  the  relation  of  the  production  of 
power  to  labor.  I  do  not  understand  you  to  claim  that  it  will  reduce  the  earn- 
ing power  of  labor,  but  will  increase  its  power  of  production. 

Mr.  WoRTHiNGTON.  That  is  quite  true,  and  you  might  carry  that  this  far.  Use 
this  example :  If  you  electrify  the  railroads  you  would  relieve  the  coal  miners 
of  the  mining  of  coal  for  those  railroads  and  they  would  have  to  m'ne  coal  for 
some  other  consumer,  or  find  some  other  work.  And  you  would  reduce,  ol! 
course,  the  number  of  railway  employees.  That  does  not*  mean  at  all  that  you 
would  reduce  the  per  diem  of  those  who  did  the  work,  but  at  the  same  time, 
understand,  you  would  get  a  much  cheaper  transportation. 

Mr.  Fields.  It  would  not,  however,  reiluce  the  price  of  labor,  just  as  farm 
machinery  did  not  reduce  the  price  of  farming. 

Mr.  WoRTHiNGToN.  Not  at  all.  On  the  contrary,  it  Mould  make  it  possible  to 
pay  what  might  be  said  to  be  a  higher  rate  of  railway  wage  and  still  have  much 
cheaper  transportation. 

(ThereuiK)n  at  4.30  o'clock  p.  m..  the  committee  adjourneil  to  meet  to-mor- 
row, Friday,  Febi-uary  17,  1922,  at  10.30  o'clock  a.  m.) 


mi 


Committee  on  Military  Affairs, 

House  of  Representatives, 

Friday,  Febrvary  17,  1922. 

The  committee  met  at  10.30  oxlock  a.  m.,  Hon.  Julius  Kahn  (chairman) 
presiding. 

STATEMENT  OF  MR.   J.   W.   WORTHINGTON— Besumed. 

The  Chairman.  Mr.  Worthington,  Mr.  Fields,  who  finished  his  questioning 
List  evening,  desires  to  ask  you  just  one  more  question,  and  then  Mr.  Quin  will 
proceed. 

Mr.  Fields.  Mr.  Worthington.  I  gathered  from  the  questions  propounded  by 
^Ir.  Miller  that  he  has  the  impression  that  if  the  Government  parts  with  title 
to  Nitratje  Plant  No.  2  that  it  violates  its  policy  enunciated  in  section  124  of 
the  national  defense  act  of  1916.  As  I  understand  that  section  and  that  act,  the 
object  of  it  was  the  production  of  nitrates,  primarily  for  military  use,  and, 
as  I  further  understand,  the  basis  of  that  production  is  power.  In  selling 
Nitrate  Plant  No.  2,  if  the  Government  shall  do  so,  does  it  part  title  with  the 
production  of  power  at  ^luscle  Shoals,  or  is  not  that  a  part  of  Dam  No.  2 
and  Dam  No.  3  which  remain  in  the  Government  in  fee? 

Mr.  Worthington.  Yes:  the  dams  and  the  power  facilities  are  merely  leased, 
and  the  offer  says  that,  the  power  will  be  furnished  to  produce  nitrates.  As 
I  understand  you,  your  question  refers  to  wartime  needs? 

Mr.  Fields.  Yes. 

Mr.  Worthington.  It  protects  that  very  necessity. 


MUSCLE   SHOALS  PROPOSITIONS. 


391 


Mr.  Fields.  As  I  understand  it.,  section  124  of  the  national  defense  act  of 
1916  did  not  refer  particularly  to  the  construction  or  maintenance  of  any  par- 
ticular power  plant,  but  its  object  was  the  production  of  ultra t^es,  which  is  also 
one  of  the  objects  in  the  contemplated  contract  with  Mr.  Ford. 

Mr.  Worthington.  No,  sir,  Judge;  it  just  referred  to  nitrates  and  water 
power  or  other  power. 

Mr.  Fields.  It  did  not  particularly  refer  to  Nitrate  Plant  No.  2. 

Mr.  Worthington  It  turns  out  in  this  case  you  have  both  water  power  and 
steam  power. 

Mr.  Fields.  And  it  further  turns  out,  does  it  not.  that  thirteen  of  the  twenty 
million  dollars  appropriated  in  that  act  has  been  expended  on  Dam  No.  2? 

Mr.  Worthington.  About  that  amount. 

JNIr.  Fields.  And  that  no  part  of  it  has  been  expended  on  Nitrate  Plant  No.  2. 

Mr.  WoRTHiNTON.  I  Understand  that  you  are  correct,  and  that  that  was  testi- 
fied to  by  the  Ordnance  Department. 

Mr.  Fields.  Is  it  not  also  correct  that  Nitrate  Plant  No.  1  is  the  first  plant 
that  was  constructed  in  pursuance  of  that  act  and  proved  a  failure  in  its  first 
operation  ? 

Mr.  Worthington.  I  am  not  very  clear  or  positive  about  where  those  funds 
did  come  from  or  from  what  appropriations,  but  I  am  just  told  here  that  out 
of  this  .$20,000,000  in  section  124  considerable  expenditures  were  made  at  No.  1. 

Mr.  Fields.  Anyhow,  Nitrate  Plant  No.  2  has  no  direct  connection  with  sec- 
tion 124,  whereas  Dam  No.  2  does,  because  it  was  partly  constructed  from  that 
appropriation. 

Mr.  Worthington.  I  think  that  is  true. 

Mr.  Fields.  And  the  title  to  that  dam  still  remains  in  the  (Government  if 
this  lease  is  consummated? 

Mr.  Worthington.  Yes. 

Mr.  Quin.  Mr.  Worthington,  you  are  an  engineer,  are  vou  not? 

Mr.  Worthington.  I  was  educated  as  a  civil  engineer.* 
Quin.  You  are  a  citizen  of  the  State  of  Alabama? 

WORTHINGTONi    l^CS. 

QuiN.  How  long  have  you  been  familiar  with  the  Muscle  Shoals  terri- 


Mr. 
IMr. 
Mr. 
tory  ? 
Mr. 


n  the  Ten- 


WoRTHiNGON.  Well,  I  first  saw  this  Muscle  Shoals  stretch 
nessee  River  in  1900. 

Mr.  Quin.  Twenty-two  years  ago. 

Mr.  Worthington.  Y'^es. 

Mr.  Quin.  About  what  age  gentleman  are  you? 

Mr.  Worthington.  That  is  encroaching  a  little;  however.  Congressman,  I 
have  forgotten  how  old  I  am. 

Mr.  Quin.  You  are  old  enough  to  be  familiar  with  the  river  on  which  these 
dams  are  constructed  and  the  surrounding  territory? 

Mr.  Worthington.  Yes,  sir ;  I  think  I  can  qualify  on  that  point. 

Mr.  Wright.  Mr.  Chairman,  if  I  may  be  permitted,  I  ask  a  question  of  privi- 
lege on  behalf  of  the  witness,  because  he  is  a  bachelor. 

Mr.  Worthington.  I  am  obliged  to  you. 

Mr.  Quin.  Mr.  Worthington,  some  questions  were  asked  here  about  the  finan- 
cial part  of  this  thing.  The  money  the  Government  has  expended  there  in 
that  dam  would  be  a  loss  unless  it  was  completed,  w^ould  it  not? 

Mr.  Worthington.  Oh,  yes. 

Mr.  Quin.  Now,  Mr.  Miller  questioned  you  about  the  rate  of  interest  and 
what  the  aggregate  of  that  would  be  for  the  Government's  investment  there. 
Are  you  familiar  with  the  river  and  harbor  legislation  of  the  United  States 
Government? 

Mr.  Worthington.  Well,  yes;  in  a  general  way. 

Mr.  Quin.  This  Government  has  spent  many  hundreds  of  millions  from  the 
time  it  began  the  improvement  of  harbors? 

Mr.  Worthington.  Yes;  a  little  over  $700,000,000. 

Note. — The  actual  total  expenditures  made  for  maint-enance  and  improvement 
of  rivers  and  harbors  from  the  fiscal  year  ending  June  30,  1896,  to  that  ending 
June  30,  1920,  inclusive,  total  $703,053,4.56.35.  (Statement  compiled  by  J.  H. 
McGann,  clerk  of  the  Committee  on  Rivers  and  Harbors,  from  the  annual  reports 
of  the  Chief  of  Engineers,  in  bulletin  of  National  Rivers  and  Harbors  Congress, 
March,  1921,  p.  5.) 


;*! 


■ii 


II 


392 


MUSCLE   SHOALS  PROPOSITIONS. 


PnY/'  ^Af""'-^^^^  ''i^}'^^  chief  harbors  of  the  coast  of  the  Atlantic  Ocean,  the 
Gulf  of  Mexico  and  the  Pacific  Ocean  have  been  improved  and  are  being  main- 
tained  by  the  Federal  Government? 

Mr.  WoRTHiXGTON.  Undoubtedlv. 

Mr.  QuiN.  The  river  transportation  of  the  United  States  has  been  under  the 
appropriations  and  direct  work  of  the  Federal  Government  through  its  engi- 

Mr.    WORTHINGTON.   YcS. 

Mr.  QuiN.  Has  this  Government  ever  received  one  dime  in  interest  on  anv 
of  those  investments? 

Mr.  WoRTHiNGTON.  Not  SO  far  as  I  know. 

x.¥/\^«^^-  '^^^  ^'^^'  ^^^^  Harbor  is  for  the  benefit  of  all  the  people  of  the 
United   States? 

Mr.  WoRTHiNGTox.  Yes. 

Mr.  QuiN.  The  products  of  the  farm,  the  factory,  and  the  mine  of  the  most 
distant  States  of  this  Union  may  go  out  of  that  harbor  to  the  markets  of  the 
world  ? 

Mr.  WoRTHiNGTox.  Quite  true. 

Mr.  QuiN.  And  all  the  imports  we  receive  through  that  harbor  for  the  ad- 
vantage of  the  people  of  the  United  States? 

Mr.  WORTHINGTON.    YcS. 

Mr.  QuiN.  And  whenever  a  river  is  improved  it  is  for  the  advantage  of  the 
whole  population,  is  it  not? 

Mr.  WoRTHiNGTON.  Yes. 

Mr.  QuiN.  When  the  Roosevelt  Dam  was  constructed,  at  a  cost  of  about 
$15,000,000,  for  the  immediate  farm  territory  there,  or  to  irrigate  that  land, 
that  indirectly  was  for  the  benefit  of  all  the  people  of  the  United  States? 

Mr.  WORTHTNGTON.   YCS. 

Mr.  QuiN.  There  was  never  any  interest  charged  by  the  Government  for 
that  dam,  was  there? 

Mr.  WORTHINGTON.  I  do  uot  think  so.  I  do  not  think  any  interest  is  paid  on 
any  of  the  appropriations  to  carry  on  your  reclamation  projects. 

Mr.  QuiN.  Then  the  completion  of  Dam  No.  2  and  the  construction  of  Dam 
No.  3  will  be  the  same  as  any  other  river  and  harbor  improvement,  with  the 
exception  that  this  adds  an  additional  increment  to  the  values  of  the  United 
States  and  is  of  material  interest  to  all  the  people. 

Mr.  AVoRTHiNGTON.  Yes ;  that  is  true. 

Mr.  QuiN.  And.  as  you  have  stated,  it  makes  navigation  certain. 

Mr.  WoRTHiNGTON.  Very  complete. 

Mr.  Qtjin.  And  it  adds  about  800,000  horsepower,  both  primary  and  sec- 
ondary combined. 

Mr.  WORTHINGTON.  Well,  it  will  depend  upon  what  the  engineers  decide  upon 
as  a  definite  installation  on  Dam  No.  3,  but  I  think  it  is  a  better  statement  to 
say  700,000,  or  it  may  be  750.000. 

Mr.  QuTN.  What  would  it  be  if  the  other  dams  are  built  up  above  by  Mr. 
Ford  as  contemplatecl? 

Mr.  WORTHINGTON.  If  the  dams  on  the  upper  Tennessee  and  tributaries  should 
be  built,  it  is  a  rough  guess  to  say  that  there  is  a  million  horsepower  there  that 
could  be  developed   above  Chattanooga, 

Mr.  QuiN.  In  addition  to  this  700,000  you  spoke  of? 

:Mr.  WORTHINGTON.  Yes ;  but  let  me  remind  you  that  the  surveys  have  never 
been  made,  and  this  is  a  rough  guess, 

Mr.  QuiN.  That  is  what  we  are  driving  at.  We  want  this  information  for  the 
benefit  of  the  gentlemen  who  are  to  vote  on  this  question  and  who  are  not 
members  of  this  committee.  As  a  matter  of  fact,  it  is  improper,  from  a  finan- 
cial and  economic  standpoint,  to  be  charging  Mr.  Ford  with  the  interest  that 
Mr.  Miller  speaks  of  on  the  dam  construction  in  view  of  the  Government's 
activities  in  river  and  harbor  construction. 

Mr.  WORTHINGTON.  Well,  do  you  ask  me  a  question  ? 

Mr.  QuiN.  Yes,  sir. 

Mr.  WORTHINGTON.  T  cau  only  offer  you  my  own  opinion  about  it.  I  do  not 
think  that  because  the  Government  has  found  it  necessary  to  make  large 
appropriations  for  the  improvement  of  our  harbors  and  the  improvement  of 
the  navigation  of  our  interior  rivers — I  do  not  think  that  policy  should  neces- 
sarily apply  to  a  joint  navigation-water  power  development.  On  the  contrary, 
just  expressing  my  own  private  opinion,  I  think  a  plan  or  a  policy  could  be 
set  down  all  over  the  country  whereby  these  powers  could  pay  a  large  part, 


MUSCLE   SHOALS  PROPOSITIONS. 


393 


and  in  some  cases  all,  of  the  cost  of  the  improvements.  That  means  that  the 
customers  for  power  pay  the  bill  and  a  local  section  bears  the  exi^ense,  but  it 
also  gets  the  benefit.  »       i    •- 

Mr.  QuiN.  Tliey  get  the  direct  benefit. 

Mr.   WORTHINGTON.    YcS. 

Mr.  QuiN.  Mr.  Worthington,  you  are  familiar  with  the  time  that  this  dam 
was  started  down  there? 

Mr.  Worthington.  Oh,  yes. 

Mr  QuiN.  It  was  originated  for  two  purposes,  and  I  was  on  the  committee 
tliat  helped  to  do  it.  One  purpose,  and  the  primary  purpose,  was  to  establish 
a  nitrate  plant  for  the  Government  in  time  of  war,  and  secondarily,  for  fer- 
tilizer for  the  farmers  of  this  country  in  time  of  peace.  There  is  no  dispute 
about  that.  The  whole  record  shows  that  to  be  the  case.  Now,  peace  is  on. 
On  the  <tli  day  of  February,  1921,  the  House  of  Representatives,  the  lower 
branch  of  the  Congress  of  the  United  States,  after  long  debate,  by  a  majority 
vote  of  7  determined  not  to  continue  the  completion  of  Dam  No.  2,  and  let  me 
say  that  on  that  afternoon  I  had  a  bowed  head  and  a  sad  heart.  Now,  the 
Congress  by  a  majority  vote,  representing  the  people  of  the  United  States, 
has  practically  said  that  this  thing  is  worthless  and  shall  not  be  completed. 
Mr.  Ford,  through  you,  has  presented  this  proposition  to  the  Congress  of  the 
United  States,  and  in  this  proposition  he  proposes  to  have  that  splendid  nitrate 
plant  ready  at  all  times,  with  a  working  personnel,  to  turn  over  to  this  Gov- 
ernment in  case  of  emergency  or  in  case  of  war  or  threatened  war:  is  not 
that  true? 

Mr.  Worthington.  That  Is  true. 

Mr,  QuiN.  The  consideration  which  he  puts  up  to  this  Government  is  that 
in  the  completion  of  Dam  No.  2  and  the  construction  of  Dam  No.  3,  he  finances 
by  $55,000  a  .vear  the  expense,  practically,  of  maintaining  both  those  dams  for 
navigation. 

Mr.  Worthington.  That  is  right, 

»Ir,  Qi  IN.  Then  Mr.  Ford  has  offered  to  this  Government  more  than  the 
United  States  Congress  voted  to  give  by  its  vote  on  the  7th  day  of  Februarv. 
1921. 

Mr.  Worthington.  Yes;  that  is  true. 

Mr.  QuiN.  He  is  the  first  and  only  man  that  has  come  forward  in  this  time 
of  dire  distress  and  offered  to  take  care  of  this  great  property,  so  far  as  this 
committee  is  concerned,  or  the  Congress  is  concerned. 

Mr.  Worthington.  Yes. 

Mr.  QuiN.  Some  gentlemen  seem  to  be  far  afield  on  the  idea  of  fertilizer. 
One  gentleman  of  this  committee  insisted  that  the  language  in  here  where  it 
says  that  it  shall  be  for  the  purpose  of  making  cheap  fertilizer  for  the  farmers 
is  demagogic.  Is  it  possible  that  because  Mr.  Ford  in  his  proposition  to  the 
United  States  specifies  that  110,000  tons  of  fertilizer  and  its  components  shali 
be  distributed  to  the  farmer  under  this  offer  is  demagogic?  Would  you  con- 
strue that  to  be  demagoguery  pnt  upon  the  American  Congress? 

Mr.  Worthington.  Do  you  ask  me  the  question? 

Mr.  QuiN.  Yes,  sir. 

Mr.  Worthington.  You  qualified  me  as  an  engineer. 

Mr.  QuiN.  Did  you  ever  farm  any? 

Mr.  Worthington.  Oh,  yes;  I  have  fanned. 

Mr.  QuiN.  You  were  raised  in  Alabama,  were  you  not? 

Mr.  Worthington.  Yes,  .ves;  and  worked  on  a  farm,  too,  but,  Congressman, 
you  know  you  did  qualify  me  as  an  engineer. 

Mr.  QuiN.  That  is  true,  and  I  believe  I  can  qualify  you  as  a  fanner;  vou 
look  like  I  do. 

Mr.  Worthington.  Well.  I  want  to  be  excused  from  passing  on  that  point. 
Of  course,  anybody  that  wished  to  do  so  could  put  their  own  construction  on 
it.  but  I  would  rather  not  do  that  now. 

Mr.  QuiN.  That  is  all  right.  You  know  some  folks  always  accuse  anybody  of 
being  a  demagogue  who  says  anything  for  the  farmers. 

Mr.  Worthington.  Yes;  I  have  heard  that. 

Mr.  QuiN.  You  stated  in  reply  to  a  question  yesterday  that  the  Congress  had 
not  understood  tlie  water-power  situation  when  it  put  a  limitation  on  water 
powers  of  the  Unitetl  States  at  50  years. 

Mr.  Worthin(jton.  Well,  pardon  me,  Mr.  Quin,  it  was  not  quite  as  broad  as 
that.  I  said  that  I  did  not  think  this  100  years  or  50  years  proposition  had  been 
very  clearly  understood,  and  I  thought  it  had  been  misunderstood. 


394 


MUSCLE  SHOALS  PROPOSITIONS. 


Mr,  QuiN.  AVell,  you  are  right  in  part.  The  Congress  of  the  United  States 
was  endeavoring  to  safeguard  the  people.  You  understand  the  record  of  con- 
gressional activity  shows  that  certain  great  financial  institutions  had  inter- 
locking directorates,  the  same  gentlemen  would  be  officers  and  directors  in  one 
corporation  that  was  to  do  the  financing  and  be  officers  and  directors  in  the 
thing  they  were  going  to  finance,  and  so  on,  which  would  cripple  legitimate 
industry.  In  other  words,  Congress  was  endeavoring  to  prevent  them  from 
exploiting  the  people,  and  that  was  the  reason  for  this  50-year  limitation. 
Now,  in  this  instance,  with  this  great  proposition  wherein  1,700,000  horsepower 
can  be  created,  it  is  my  judgment  that  a  50-year  limitation  is  too  little, 
esi)ecially  when  we  are  dealing  with  a  man  like  Mr.  Ford,  who  is  a  tried,  tested, 
and  proven  friend  of  the  plain  people  of  this  country. 

Mr.  WoRTHiNGTON.  I  think  any  reasonable  man  would  say  that  there  ought  to 
be  a  longer  period  of  time  for  a  700,000-horsepower  project  than  50  years. 
That  is  not  a  matter  of  legislation  or  anything  of  that  sort ;  it  is  just  a  plain 
business  proposition.  You  would  want  a  longer  time  to  develop  seven  coal 
mines  or  eight  coal  mines  of  1,000  tons  a  day  than  you  would  one. 

Mr.  QuiN.  Oh,  it  is  manifest  to  my  mind.  The  Aluminum  Co.,  above  there, 
you  stated,  had  a  perpetual  lease  or  right  in  that  water  power. 

Mr.  WoRTHiNGTON.  Yes ;  I  think  under  the  laws  of  Tennessee  they  have  a 
perpetual  ownership,  but,  Mr.  Quin,  I  also  made  it  very  clear  that  I  did  not  see 
any  objection  to  it. 

Mr.  Quin.  Well,  I  do  not.  either.  It  depends  on  who  it  is  that  has  it.  If  it 
is  a  great  power  of  wealth  that  starts  out  to  exploit  both  the  Government  and 
the  consumers  who  are  using  the  product  of  that  power,  then  it  might  become 
a  dangerous  thing,  might  it  not? 

:Mr.  WORTHINGTON.  Well,  your  question  opens  up  a  very  wide  field  of  dis- 
cussion, and  yet  I  must  insist  that  the  period  over  which  they  have  their  hold- 
ing, even  if  perpetual,  would  have  nothing  to  do  with  the  selling  price  of  their 
prwluct,  any  more  than  the  period  of  the  lease  of  a  coal  mine  would  have  any- 
thing to  do  with  the  selling  price  of  the  coal.  I  do  not  think  that  the  period 
has  anything  to  do  with  the  subject  at  all.  If  you  want  to  get  regulation, 
if  that  is  what  you  are  looking  for,  you  will  have  to  reach  it  on  some  other 
basis  than  a  i)eriod,  and  then,  again,  it  looks  to  me  as  if  your  power  law  has  been 
Imilt  ur)  with  a  purpose  and  a  plan,  almost,  of  carrying  the  Government  into 
the  power  business  at  the  end  of  50  years.  I  think  you  are  going  to  have  a 
grent  temptation,  and  with  all  the  light  before  us,  that  is  not  a  good  thing,  in  my 
opinion. 

Mr.  Quin.  The  railroads  of  the  Uniteil  States  have  their  charters  granted  to 
them  to  operate? 

Mr.  WORTHINGTON.  Oh,  yes. 

^Ir.  Quin.  Those  railroads  operate,  as  a  rule,  for  100  years? 

Mr.  WORTHINGTON.  I  do  uot  know  what  the  usual  length  of  a  railroad  charter 
is.    I  really  do  not  know. 

Mr.  Quin.  The  Government  of  the  United  States  in  the  case  of  a  great  many 
of  these  roads,  like  the  Santa  Fe  system,  for  instance,  gave  every  other  .section 
of  land  along  the  right  of  way  in  order  to  have  the  railroad  put  through ;  did 
they  not? 

Mr.  WORTHINGTON.  There  were  very  large  gifts  of  land  by  the  Government 
to  the  transcontinental  railroads  as  well  as  the  assistance  of  bonds. 

Mr.  Quin.  All  of  the  railroads  up  until  a  few  years  ago,  in  fact,  had  these 
laud  grants.  There  were  some  38  roads  to  my  knowledge  that  had  land  grants 
in  the  United  States. 

Mr.  WORTHINGTON.  I  think  so. 

Mr.  Quin.  And  in  my  own  State  they  had  immense  grants. 

Mr.  WORTHINGTON.  Yes. 

Mr.  Quin.  Figuring  on  the  same  basis  that  Mr.  Miller  figured  about  the  value 
of  interest,  the  interest  at  4  per  cent  on  the  land  granted  to  these  railroads 
would  bankrupt  all  the  Governments  of  the  world  in  100  years,  would  it  not? 

Mr.  WORTHINGTON.  Well,  it  would  make  them  pretty  poor,  I  think,  myself. 

Mr.  Quin.  The  Government  of  the  United  States  was  after  developing  the 
country  through  which  those  roads  would  run,  was  it  not? 

^Ir.  WORTHINGTON.  Oh,  yes. 

Mr.  Quin.  On  that  question  of  interest.  Mr.  Worthington,  I  notice  that  Eliot 
in  his  valuable  work,  on  page  182,  says  that  if  Methuselah  at  the  age  of  21  years 
had  loaned  $1  at  6  per  cent,  compounded  yearly,  at  the  time  of  his  death,  948 
years  later,  the  interest  would  be  997  sextillions  of  dollars.    That  is  just  on  $1. 


MUSCLE   SHOALS  PROPOSITIOXS. 


395 


What  would  it  be  if  the  United  States  Government  had  charged  4  per  cent  on 
the  value  of  all  of  these  lands  granted  to  these  corporations  known  as  railroad 
companies,  or  the  money  spent  on  river  and  harbor  construction  in  the  United 
States  from  the  date  we  began  to  do  that  work  up  until  this  hour? 

Mr.  WORTHINGTON.  It  passes  me. 

Mr.  Quin.  It  is  nonsense  to  talk  about  such  a  thing  as  my  friend.  :Mr.  [Miller, 
does,  when  he  talks  about  4  per  cent  being  too  little  for  this  great  dam  construc- 
tion down  there.  That  is  going  into  the  field  of  foolishness,  is  it  not,  from  a 
governmental  standpoint? 

Mr.  WORTHINGTON.  Oh,  I  could  not  say  that.    I  am  on  the  defensive. 

The  Chairman.  The  gentleman  will  try  not  to  be  personal. 

Mr.  Quin.  I  did  not  mean  that  in  a  personal  way. 

The  Chairman.  The  committee  is  trying  to  conduct  its  hearings  for  the 
purpose  of  getting  information  and  we  will  not  indulge  in  personalities.  We 
will  get  along  better. 

Mr.  Quin.  I  did  not  mean,  Mr.  Chairman,  anything  of  that  kind.  It  is  this 
record  I  am  after.  The  Members  of  the  House  will  see  from  this  record  what 
we  are  driving  at,  and  certain  definite  conclusions  have  been  reached  here 
from  figures.  If  the  Government  of  the  United  States  pursues  that  wise  and 
beneficent  policy  of  public  improvement  and  development  for  the  benefit  of 
all  the  people  we  will  still  have  to  ask  the  people  to  put  up  money  for  such 
improvements,  will  we  not? 

Mr.  WORTHINGTON.  Oh,  yes. 

Mr.  Quin.  Without  the  hope  or  expectation  of  any  interest  on  it. 

Mr.  WORTHINGTON.  Oh.  yes. 

Mr.  Quin.  Except  pro  bono  publico. 

Mr.  WORTHINGTON.  Yes. 

Mr.  Quin.  The  transportation  question  is  one  of  the  most  serious  that  con- 
fronts our  people  to-day,  is  it  not? 

Mr.  WORTHINGTON.  Indeed,  it  is. 

Mr.  Quin.  The  unit  of  power  as  well  as  the  wage  largely  enters  into  the 
cost  of  transportation,  does  it  not? 

Mr.  Worthington.  Yes,  indeed. 

Mr.  Quin.  There  is  no  power  known  to  man  as  cheap  as  water  power,  is 
there? 

Mr.  Worthington.  That  is  the  cheapest. 

Mr.  Quin.  Wlienever  a  man  has  an  investment  that  has  a  wheel  to  turn, 
with  a  whistle  to  blow,  he  had  better  look  out  to  see  that  his  expenses  do  not 
outrun  his  revenues,  should  he  not? 

Mr.  Worthington.  He  had  better  be  watchful. 

Mr.  Quin.  And  as  an  economical  way  to  turn  that  wheel  there  has  nothing 
been  found  equal  to  water  power,  has  there? 

Mr.  Worthington.  No. 

Mr.  Quin.  In  the  pioneer  days  of  this  country  the  folks  erected  little  dams 
across  the  creeks,  put  up  their  water  mills  to  grind  their  corn  and  hominy 
and  wheat. 

Mr.  Worthington.  Yes,  sir. 

Mr.  Quin.  And  if  they  did  not  do  it  in  that  way  they  had  to  have  a  lever 
pulled  by  a  horse  or  a  mule  or  seven  or  eight  men,  did  they  not? 

Mr.  Worthington.  Yes. 

Mr.  Quin.  They  did  not  have  steam  engines  to  do  it  with  in  those  days. 
With  that  almost  primeval  method  of  using  the  water  still  the  people  of  this 
country  do  not  yet  appreciate  what  water  power  is. 

Mr.  Worthington.  Well.  I  do  not  believe  they  do. 

Mr.  Quin.  I  know  that  I  did  not  until  this  project  started,  and  I  was  raised 
on  hominy  and  meal  ground  by  one  of  those  old-fashioned  water  mills.  They 
did  not  have  steam  engines  then  and  they  called  the  place  Hominy  Creek. 
The  agricultural  interest  of  the  United  States  js  the  basic  interest  of  the 
country  really,  is  it  not? 

Mr.  Worthington.  Yes ;  that  is  at  the  bottom  of  everything. 

Mr.  Quin.  All  the  people  engaged  in  the  manufacturing  business  and  in  all 
other  lines  of  activity  in  this  country  depend  directly  on  the  man  who  tills 
the  soil;  is  not  that  true? 

Mr.  Worthington.  That  is  true. 

Mr.  Quin.  And  those  people  who  are  tilling  the  soil,  according  to  Government 
statistics,  are  heavily  involved  to-day,  are  they  not? 

Mr.  Worthington.  Undoubtedly. 


i! 


hiH 


396 


MUSCLE   SHOALS  PROPOSITIONS. 


Mi- 
Mr 


Mr. 
Mr. 


Mr.  QriN.  I  understand  that  a  few  years  ago  the  census  reports  or  the 
Government  statistics  indicated  $1,750,000,000  of  mortjrajres  on  the  farms  of 
the  Lnited  States.  To-day  the  estimates  are  that  there  are  $8,000,000,000  of 
farm  niortjra^es  in  the  United  States.    Sometliinj?  has  caused  that,  lias  it  not ^ 

Mr.  A\  ORTHIXGTON.  Tliat  would  appear  to  he  so.    Yes,  something,' 

Mr.  QriN.  Then,  if  there  is  any  class  of  people  in  the  United  States  who 
need  to  he  helped  through  governmental  agencies  it  is  the  farmer  or  ao-ri- 
cultural  class,  it  it  not?  * 

Mr.  WoKTHiNiJTON.  Yes :  I  think  that  is  so. 

Mr.  QuiN.  How  far  is  it  from  Muscle  Shoals  to  the  Gulf  of  Mexico' 

Mr.  WoKTHiNGTON.  About  325  miles,  I  think,  by  airline ;  but  I  think  it  is, 
perliaps.  3<o  miles  by  rail.    That  is  a  rough  estimate. 

Mr.  QriN.  The  State  of  Alabama  has  large  deposits  of  iron,  has  it  not' 

31  r.  A\  ORTHiNGTON.  Yes. 
QriN.  And  coal? 
WoRTHiNGTON.  Oh,  yes. 

Mr.  QuiN.  And  all  kinds  of  ore? 

Mr.  WoRTHiNGTON.  You  mean  iron  ore? 
QriN.  Yes,  sir. 

WORTHINGTON.    YeS. 

:Mr.  QuiN.  And  lime? 

]Mr.  WoRTHiNGTOx.  Oh,  yes. 

Mr.  QuiN.  They  have  cement  works  down  there,  have  they  not? 

:\Ir.  WoRTHiNGTON.  Oh,  yes. 

Mr.  Qi-iN.  The  State  of  Tennessee  has  lime,  cement,  marble,  and  quarries  of 
all  kinds? 

Mr.  ^VoRTHl^GTON.  Yes;  and  zinc  and  copper. 

Mr.  QuiN.  And  the  timber  interests  are  large  in  all  of  that  territory  tribu- 
tary to  the  Tennessee  River,  both  in  Alabama  and  in  Tennessee? 

:Mr.  WoRTHiNGTON.  Not  so  much  in  Alabama,  but  the  upper  reaches  of  the 
Tennessee  River  go  into  the  largest  uncut  section  of  hardwood  timber  in  all 
the  Southeast. 

Mr.  Quix.  With  the  completion  of  Dam  No.  2  and  Dam  No.  3  bv  the  Govern- 
ment, and  Mr.  Ford's  contemplated  dams  above  there,  aside  from  the  develop- 
ment of  this  marvelous  water  power,  you  have  water  transportation  directly 
from  there  to  the  Ohio  River? 

Mr.  WORTHINGTON.  To  the  Ohio  and  to  the  Mississippi. 

Mr.  QriN.  And,  then,  out  of  the  Ohio  into  the  Mississippi? 

Mr.  WORTHINGTON.  Yes. 

Air.  QriN.  And  the  Mississippi,  both  north  and  south,  and,  then,  the  tribu- 
taries of  the  Mississippi? 

Mr.  WORTHINGTON.  That  is  right. 

Mr.  Qt'in.  AVith  this  work  completed  as  contemplated,  all  of  that  raw  mate- 
rial in  that  territory  or  the  manufactured  products  made  from  it,  can  get  out 
on  the  Tennessee  River,  go  down  the  Ohio,  up  and  down  the  Mississippi  and  its 
tributaries,  into  the  very  heart  of  the  United  States,  so  that  the  consumers 
can  receive  that  product  at  a  cheap  rate  of  transportation. 

Mr.  WORTHINGTON.  Oh,  yes;  that  would  follow. 

Mr.  QuiN.  And  if  they  wanted  to,  they  could  go  down  the  Mississippi  and 
into  the  Gulf  of  Mexico  and  thence  to  all  the  markets  of  the  world 
:Mr.  WORTHINGTON.  Oh,  yes. 

Mr.  QuiN.  Or  they  could  go  up  the  canal  and  into  the  Great  Lakes  through 
Chicago. 

Mr.  WORTHINGTON.  Yes. 

Mr.  QriN.  The  transportation  alone  would  warrant  the  Government  in  the 
expense  of  finishing  these  two  dams,  would  it  not? 

Mr.  WORTHINGTON.  I  think  it  would.  Of  course,  it  is  a  large  expenditure, 
a  little  unusual,  to  be  sure, -but  if  you  take  what  vou  have  done  on  other 
rivers  and  unless  you  decidy  you  are  going  to  reverse  vour  policv,  I  would 
say  yes."  Indeed,  if  you  follow  the  same  policy  of  expenditure  on  the  Ten- 
nessee as  on  the  Ohio,  undoubtedly  that  is  true ;  but  as  you  know,  there  is  a 
difference  of  opinion  on  that  subject. 

Mr.  QuiN.  And  always  will  be. 

Mr.  WORTHINGTON.  Perhaps  so. 

Mr.  QuiN.  As  long  as  men  talk.  The  main  feature,  aside  from  navigation,  is 
the  great  water  power  that  will  be  developed  there 

Mr.  AVoETHiNGTON.  That,  I  think,  is  the  primary  industrial  consideration. 


MUSCLE   SHOALS  PROPOSITIONS. 


397 


Mr.  QuiN.  And  that  ought  to  attract  the  attention  of  all  the  people  of  this 
country. 

:Mr.  WORTHINGTON.  Yes,  sir. 

Mr.  Quix.  The  Chief  of  Engineers  of  the  Government  said  that  it  was  the 
hnest  water-power  stream  in  the  United  States  with  the  possible  exception  of 
the  St.  Lawrence,  which  is  partly  in  Canada. 

.1  ^^F'  .WORTHINGTON.  Well,  I  can  not  agree  with  him  entirely  about  that.     I 
think  It  IS  among  the  very  first  power  streams.     Probably  in  the  West  thev 
have  some  superior  ones,  but  it  is  one  of  the  very  first.         ' 
*i  ?^*;  Sm^^"  ^^^  amount  of  horsepower  that  will  be  required  to  manufacture 
this  fertilizer  according  to  the  agreement  in  this  contract  would  be  how  much' 

Mr.  WORTHINGTON.  Well,  right  there,  I  would  like  to  sav  that  I  do  not 
think  anyone  could  possibly  tell  how  much  it  will  take  finally,  and  in  order 
to  clear  that  question  up  as  far  as  I  can  to  the  committee  I  think  it  is  a  case 
of  this  sort :  Some  18  or  20  years  ago  aluminum  was,  in  a  sense,  a  rare  metal 
and  there  was  only  a  very  little  of  it  produced,  and  it  was  sold  at  $1  to  $1  50  a 
pound.  Aluminum  is  now  quoted  at  26  cents  and  less,  perhaps,  and  here  is 
tlie  di»*ection  of  the  answer  to  your  question,  which  is  the  best  I  can  make  • 
There  are  400.000  horsepower  engaged  in  producing  aluminum  in  this  country 
fi^oi*^.  ^^fn^/™^""?  ™a»y  is  that  if  you  can  cut  the  cost  of  aluminum  from 
^l.J5  to  $1.50  down  to  26  cents  with  water  power,  why  may  not  you  hone  to 
cut  he  cost  of  fertilizer,  using  similar  methods?  'if  /ou  did  cut  the  co^  of 
fertilizer  m  relatively  the  same  way,  then  it  would  be  hard  to  answer  vour 
question,  because  it  would  not  be  100,000  horsepower,  it  would  be  1.000  000  'that 
would  be  needed,  and  more  and  more,  of  course. 

Mr.  QuiN.  That  would  depend  then  on  the  relative  increase  of  fertilizer  out- 
put  or  fertilizer  products. 

Mr  WORTHINGTON.  The  consumption  of  fertilizer  will  be  determined  in  ton- 
nage by  the  cost  of  it.  If  it  is  cheap,  they  will  use  a  great  deal  of  it,  and  just 
as  the  curve  of  cost  goes  high  the  curve  of  consumption  goes  down 

Mr.  QuiN.  That  is  true.  Some  of  my  colleagues  on  the  committee  can  not 
understand  how  they  can  make  fertilizer  in  a  concentrated  form  and  get  it  to 
the  farmer  in  that  form.     Prof.  Whitney,  I  think,  explained  that 

Mr  WORTHINGTON.  Well,  Mr.  Quin,  if,  perhaps,  your  comment  is  true,  and  I 
do  not  pretend  to  pass  upon  it,  that  matter  would  be  cleared  up  by  a  gentleman 
who  I  understand  is  to  follow  me,  absolutely,  I  think,  to  the  satisfaction  of 
the  committee. 

Mr.  QuiN.  Prof.  Whitney  cleared  that  up. 

Mr.  WORTHINGTON.  Well,  I  did  not  hear  him. 

Mr.  Quin.  I  would  like  to  put  in,  through  you,  an  idea  for  those  gentlemen 
Oil  the  floor  of  the  House  who  have  not  heard  these  statements  and  for  some 
of  the  members  on  the  committee,  perhaps,  who  can  not  understand  it  You 
stated  that  you  were  reared  on  a  farm.  Did  you  ever  see  an  old-time  ash 
hopper? 

Mr.  WORTHINGTON.  Yes,  indeed. 

Mr.  Quin.  They  took  hickory  and  oak  wood  and  put  it  in  a  barrel  with  some 
shucks  at  the  bottom  and  poured  water  in  and  the  lye  dripped  out. 

Mr.  WORTHINGTON.  That  absolutely  happened. 

Mr.  Quin.  They  were  doing  that  to  get  the  potash  out  of  the  wood  for  soap- 
making  qualities,  were  they  not? 

Mr  WORTHINGTON.  In  the  ash  they  did  get  fertilizer  and  thev  got  nitrogen, 
too,  I  think. 

Mr.  Quin.  Then  they  took  that  lye  and  put  it  in  a  pot  with  some  pork  rind 
or  waste  pork  fat  and  put  a  fire  around  it  and  boiled  it  to  a  certain  temperature 
and  they  had  soap,  did  they  not? 

Mr.  WORTHINGTON.  That  was  the  process. 

Mr.  Quin.  It  took  the  potash  and  other  fertilizer  ingredients  to  get  that  soan 
did  it  not? 

Mr.  WORTHINGTON.  Oh,  yes. 

Mr.  Qitin.  And  they  had  a  barrel  standing  there  that  had  300  pounds  of 
ashes  in  it  which  contaiiml  that  soap  or  potash,  and  when  the  good  housewife 
got  through  with  it  she  had  about  10  pounds  of  soap  ready  to  wash  the  clothing 
and  scrub  the  floors  of  the  house. 

Mr.  WoRTHiNGTON.  Yes. 

Mr.  Quin.  And,  furthermore,  you  can  go  into  any  drug  store  and  buy  concen- 
trated lye,  can  you  not? 

Mr.  WORTHINGTON.  Oh,  yes. 


^»     I  j 


398 


MUSCLE  SHOALS  PROPOSITIONS. 


I 


Mr.  Quix.wAnd  witlioiit  having  to  have  it  drip  through  that  liopper  of  ashes 
in  order  to  get  this  lye,  they  can  now  get  a  little  can  of  lye  that  you  can  put 
in  your  coat  pocket  and  that  answers  just  as  well  as  that  wliole  barrel  full  of 
ashes  would.  Is  it  not  then  reasonable  to  suppose  that  the  fertilizer  can  come 
out  of  the  atmosphere  through  this  process  at  plant  No.  1  or  plant  No.  2  at 
Muscle  Shoals,  and  have  that  fertilizer  turned  out  in  a  concentrated  form 
and  save  all  of  this  waste  of  transporting  useless  materials  with  the  fertilizer 
that  is  sent  to  the  farmer? 

Mr.  WoRTHiNGTON.  Oh,  indeed,  Mr.  Swann  will  make  that  very  clear  to  you 
if  he  follows  me. 

Mr.  QuiN.  There  is  no  doubt  about  that? 
'      Mr.  WoRTHiNGTON.  Oh,  no. 

Mr.  QuiN.  The  fact  is  that  a  man  with  10  or  15  acres  of  land  could  get  enough 
of  tliat  concentrated  fertilizer  through  parcel  post  to  do  him,  could  he  not? 

Then  the  question  that  the  Secretary  of  War  raised  that  Mr.  Ford,  according 
to  his  judgment,  could  not  produce  fertilizer  or  this  nitrogen  stuff  cheap  enough, 
will  not  hold  water. 

Mr.  WoRTHiNGTOx.  Well,  that  was  the  opinion  of  the  Secretary,  to  which  I  am 
very  respectful,  but  I  do  not  think  he  is  a  fertilizer  maker. 

Mr.  QuiN.  Well,  I  did  not  think  so  myself,  but  he  held  that  if  it  could  be 
done,  he  would  be  willing  for  this  proposition  with  a  50-year  period. 

Mr.  WoRTHTNGTox.  Well,  I  think  Mr.  Swann  will  show  you  that  it  can  be  done. 

Mr.  QuTN.  Mr.  Worthington,  they  have  in  that  immediate  territory  phosphate 
beds,  have  they  not? 

Mr.  Worthington.  Oh,  yes;  we  have  large  deposits  of  phosphate  rock  in 
Tennessee. 

Mr.  Qltin.  It  will  be  no  trouble  to  reach  that  phosphate  rock  from  the  Muscle 
Shoals  plant? 

Mr.  Worthington.  Oh,  no. 

Mr.  QuiN.  Do  you  know  of  another  place  in  the  United  States  as  well  situated 
for  the  economical  manufacture  of  fertilizer  and  its  compounds  and  products  as 
the  situation  you  have  right  there  at  nitrate  plant  No.  2? 

Mr.  Worthington.  Not  at  all. 

Mr.  Quin.  Of  all  the  places  in  the  United  States 

Mr.  Worthington  (interposing).  That,  I  think,  is  the  cheapest  in  the  United 
States. 

Mr.  Quin.  All  the  raw  material  is  right  handy  there? 

Mr.  Worthington.  Yes. 

Mr.  Quin.  And  Mr.  Ford  knows  that? 

Mr.  Worthington.  Yes ;  I  think  he  is  confident  of  that. 

Mr.  Quin.  Some  gentlemen  are  afraid  that  some  earthquake  or  disaster  will 
happen  down  there.    Are  you  familiar  with  the  history  of  the  Tennessee  River? 

Mr.  Worthington.  Well,  part  of  it  for  a  period. 

Mr.  McKenzie.  If  you  will  pardon  me,  Mr.  Quin,  I  think  Mr.  Worthington 
went  over  all  that  matter  yesterday  and  it  is  now  in  the  record,  and  I  do  think  we 
ought  to  hurry  along  and  not  have  repetition  in  the  hearing. 

Mr.  Quin.  I  want  to  show  that  there  has  not  been  any  earthquake  there.  Is 
there  any  record  in  sacred  or  profane  history  of  any  earthquake  in  that  ter- 
ritory ? 

Mr.  Worthington.  Mr.  Quin,  not  to  my  knowledge. 

Mr.  Quin.  Well,  from  the  time  that  mother  earth  trembled  and  shook  herself 
and  left  that  river  standing  there,  there  has  not  been  an  earthquake  there,  has 
there? 

Mr.  McKenzie.  I  think  you  will  have  to  show  that  the  witness  was  there  all 
the  time. 

Mr.  Quin.  Is  it  not  reasonable  to  conclude  that  that  same  river  will  be  run- 
ning there,  except  we  intend  to  harness  it  up  and  conserve  that  water  power, 
from  now  on  until  the  Angel  Gabriel  plants  one  foot  upon  the  sea  and  the 
other  on  the  land  and  blows  his  bugle  on  the  day  of  judgment? 

Mr.  Worthington.  Well,  I  think  Mr.  Ford  is  willing  to  take  the  risk  in  that 
respect,  and  the  United  States  has  already  taken  that  risk. 

Mr.  Quin.  And  the  Government  and  the  taxpayers  would  be  willing  to  con- 
tinue taking  the  risk  of  an  earthquake. 

Mr.  Worthington.  I  could  not  answer  for  the  taxpayers. 

Mr.  Quin.  The  investment  as  contemplated  by  Mr.  Ford  from  your  conver- 
sations with  him  include  the  development  of  the  dams  above,  and  necessarily 
the  employment  of  a  world  of  labor. 


MUSCLE  SHOALS  PROPOSITIONS. 


399 


Mr.  Worthington.  Oh,  yes;  there  will  be  a  very  large  number  of  people 
employed  in  connection  with  this  matter,  undoubtedly. 

Mr.  Quin.  The  development  of  this  cheap  water  power  with  the  necessary 
industries  incident  to  it  would  make  all  of  that  Tennessee  River  valley  hum  with 
industry,  would  it  not? 

Mr.  Worthington.  Yes;  I  think  it  would  be  quite  unusual,  perhaps.  Of 
course,  if  the  upper  dams  are  built,  it  will  take  time  to  bring  the  hum  which 
you  mention. 

Mr.  Quin.  Oh,  yes;  I  do  not  expect  that  this  will  be  done  in  a  day,  but  we 
are  representing  the  people  for  the  future  as  well  as  for  the  present.  It  is 
going  to  be,  when  it  is  completed,  a  large  wealth  and  tax  producer  for  the 
United  States  and  the  adjoining  States. 

Mr.  Worthington.  There  is  no  doubt  about  that  if  the  plan  works  out. 

Mr.  Quin.  Then,  to  offset  this  supposed  interest  charge  on  the  Government  in 
the  construction  of  those  dams,  you  have  a  saving  in  transportation  of  the 
products  of  that  territory  to  the  consumer,  have  you  not? 

Mr.  Worthington.. Very  true;  and  particularly  so  in  the  cost  of  transport- 
ing the  fertilizer,  if  the  plan  works  out. 

Mr.  Quin.  I  was  just  coming  to  that.  You  have,  aside  from  the  proposed 
cheapness  in  price,  and  it  has  been  stated  that  Mr.  Ford  believes  he  can  put 
it  dotvn  to  the  farmers  for  one-half  of  what  they  are  paying  now,  or  at  any 
rate,  for  33^  per  cent  less 

Mr.  Worthington  (interposing).  I  agree  with  him  about  that. 

Mr.  Quin.  Then,  upon  the  amount  of  fertilizer  consumed  in  1920,  that  is  a 
saving  of  many  millions  of  dollars  to  the  American  people;  to  the  fanners 
directly  and  indirectly  to  the  consumers  of  farm  products.  Then,  aside  from 
that,  instead  of  carrying  all  this  dead  waste  in  the  fertilizer,  in  hauling  2,000 
pounds  of  that  fertilizer  when  only  400  pounds  of  it  is  really  fertilizer,  you  will 
save  then  in  freight  rates  many  millions  of  dollars  during  the  course  of  a  year 
or  2  years  or  10  years,  would  you  not? 

Mr.  Worthington.  That  ought  to  follow. 

Mr.  Quin.  The  saving  to  the  people  of  the  United  States  from  the  develop- 
ment of  this  river  and  water  power,  as  contemplated  here  by  Mr.  Ford,  would 
offset  all  of  the  interest  that  the  Government  might  be  losing  on  such  an 
investment,  would  it  not? 

Mr.  Worthington.  That  would  appear  to  be  true. 

Mr.  Quin.  It  occurs  to  me  that  Congress  made  a  great  mistake  last  Februarv 
when  we  voted  this  down,  and  I  believe  that  to  turn  down  this  Ford  proposition 
would  be  the  crime  of  the  twentieth  century,  the  way  I  feel  about  it. 

Mr.  Fisher.  Mr.  Worthington,  I  come  from  a  section  where  there  is  a  very 
lively  interest  in  the  development  of  Muscle  Shoals.  The  city  of  Memphis  is 
the  only  city  of  large  size  within  150  or  200  miles  that  is  without  water  power. 
We  have  industrial  need  for  power.  I  would  like  to  know  whether  or  not  all  the 
power  which  is  to  be  developed  from  the  Muscle  Shoals  development  will  be 
utilized  by  Mr.  Ford  at  Muscle  Shoals  or  is  there  a  possibility  of,  say,  a  city 
like  Memphis  through  proper  agencies  getting  some  of  that  water  power  for  the 
development  of  its  Industries. 

Mr.  Worthington.  Well,  I  could  only  give  you  my  opinion.  It  would  be  Just 
merely  my  opinion.  You  have  heard  what  Mr.  Mayo  answered,  I  think,  in  his 
testimony  on  that  subject.  From  what  I  know  of  Mr.  Ford,  I  think  if  Memphis 
went  to  him  they  would  get  what  they  wanted  in  that  respect,  but  that  is  a 
matter  of  opinion.  It  is  quite  difficult,  if  I  might  take  the  chance  and  say  it,  to 
settle  all  these  multiplied  questions  of  policy  without  knowing  whether  vou 
have  got  anything  to  settle  them  on.  It  just  does  occur  sometimes  that  there 
are  so  many  questions  asked  that  could  be  answered  with  assurance  and  with 
definiteness,  if  we  had  something  to  answer  them  on. 

Mr.  Fisher.  You  are  very  familiar  with  the  investigations  that  have  been 
made  about  the  development  of  navigation  on  the  Tennessee  River.  I  will  ask 
you  whether  or  not  those  who  have  been  promoting  the  development  of  the 
Tennessee  River  have  met  with  any  great  success  in  getting  appropriations  hei*e- 
tofore  from  the  Congress  for  that  development. 
Mr.  Worthington.  Not  to  my  knowledge. 

Mr.  Fisher.  I  will  ask  you  whether  or  not  from  your  study  of  the  territories 
which   the  Tennessee  drains,  there  are  great  natural  resources  that   would 
naturally  go  to  river  traffic  rather  than  railroad  traffic,  such  as  marble,  lumber, 
coal,  and  iron. 
Mr.  Worthington.  Undoubtedly. 


'   "I 

-3  •:. 


92900—22- 


-26 


400 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


401 


Mr.  Fisher.  Do  you  know  of  any  other  or  quicker  way  that  the  navigation 
possibilities  of  the  Tennessee  River  could  be  developed  than  by  such  a  scheme 
as  is  offered  by  ^Ir.  Ford? 

Mr.  WoRTHiNGTON.  It  Is  the  only  way  you  can  do  it.  You  can  develop  it  on 
some  other  scheme,  but  there  will  not  be  much  navigation. 

Mr.  Fisher.  Our  section  of  the  country,  as  you  know,  is  sadly  in  need  of 
fertilization. 

Mr.  WoRTHixGTON.  Yes. 

Mr.  Fisher.  From  jour  study  of  Mr.  Ford's  outline,  do  you  think  the  farmers 
in  their  belief  in  the  possibilities  offered  by  Mr.  Ford  have  the  right  to  expect 
and  hope  that  cheap  fertilizers  can  be  and  will  be  produced  for  them? 

Mr.  WoRTHiNGTON.  I  think  so. 

Mr.  Wright.  Mr.  Worthington,  I  believe  you  stated  yesterday  that  you  are 
not  a  paid  employee  of  Mr.  Ford. 

Mr.  Worthington.  Oh,  yes;  I  stated  that  yesterday. 

Mr.  Wright.  You  are  the  president  of  the  Tennessee  River  Improvement 
Association? 

Mr.  Worthington.  Oh,  no ;  I  am  the  chairman  of  the  executive  committee. 

Mr.  Wright.  Will  you  tell  the  committee  what  the  activities  of  that  as^^ocia 
tion  are,  and  what  are  its  objects  and  purposes. 

Mr.  Worthington.  The  association  is  quite  an  old  one,  perhaps  25  years, 
and  it  is  an  association  like  the  Ohio  River  Association  and  in  part  like  the 
Mississippi  A'alley  Association,  engaged  in  efforts  to  get  the  navigation  ob- 
structions of  the  Tennessee  removed,  but  it  is  a  little  different  in  respect  to  its 
activities  since  1915  or  1913,  from  some  of  them,  because  the  association,  I  may 
.say,  put  teeth  in  its  work  and  paid  for  information,  and  dug  it  up  and  tried 
to  keep  it  put.    That  is  about  the  size  of  it. 

Mr.  Wright.  The  point  I  am  getting  at  is  this.  Colonel,  would  the  development 
of  this  Muscle  Shoals  property,  in  accordance  with  an  acceptance  of  Mr.  Ford's 
proposition,  be  in  line  with  the  efforts  and  objects  of  your  association. 

Mr.  Worthington.  Oh,  to  be  sure :  that  is  the  object. 

Mr.  Wright.  That  will  largely  explain  your  connection  with  it  and  your 
activities  in  connection  with  it? 

:^fr.  Worthington.  Yes;  it  was  thought  we  had  to  go  somewhere  very  soon. 
There  was  going  to  be  possibly  a  long  wait,  and  as  I  said  yesterday  it  was 
a  question  of  capital,  and  we  felt  that  Mr.  Ford  had  it,  and  it  turns  out  he 
has  it,  with  which  to  do  this  job.  It  was  nothing  extraordinary ;  it  seemed  to 
me  it  was  the  most  natural  thing  to  do, 

Mr.  Wright.  Do  you  understan<l  it  is  the  puri^ose  of  Mr.  Ford  to  give 
the  consumers  of  fertilizers  the  benefit  of  this  cheap  power. 

Mr.  Worthington.  Oh,  yes.  He  says  how  he  will  do  it,  and  he  says  he  will 
not  get  more  than  8  per  cent  profit. 

^Ir.  Wright.  With  the  Gorgas  plant  contiguous  to  a  coal  supply,  steam  power 
could  be  generated  there  very  economically,  could  it  not? 

Mr.  Worthington.  Yes ;  it  could  be  generated  economically ;  as  far  as  the 
coal  power  could  be  generated,  I  think  that  is  so. 

Mr.  Wright.  Then  you  think  water  power  would  be  generated  as  cheaply 
there  as  anywhere  else? 

Mr.  Worthington.  I  think  they  could  get  relatively  cheap  power. 

Mr.  Wright.  So  he  would  have  two  sources  of  cheap  power? 

Mr.  Worthington.  But  it  is  fair  to  Mr.  Ford  to  say  that  his  mind  is  not  on 
steam  i)ower. 

Mr.  Wright.  That  is  an  adjunct? 

Mr.  Worthington.  Yes. 

Mr.  Wright.  Do  you  regard  this  enterprise  as  applying  to  this  region  alone, 
or  as  a  national  asset? 

Mr.  Worthington.  I  think  it  is  national  in  its  results,  if  the  results  expected 
mature. 

Mr.  Stoll.  Mr.  Worthington,  if  I  understand  your  testimony  correctly,  is  it 
your  opinion  that  if  Mr.  Ford  gets  Muscle  Shoals,  there  are  certain  definite 
developments  we  may  expect,  namely,  the  navigation  of  the  Tennessee  River, 
the  manufacture  of  fertilizer,  and  the  development  of  electric  power.  He  will 
find  that  much  a  certainty? 

Mr.  Worthington.  I  do  not  think  there  is  any  doubt  about  that. 

Mr.  Stoll.  Also,  that  there  are  certain  probabilities,  namely,  that  you  would 
manufacture  aluminum,  and  probably  electrify  certain  railroads. 

Mr.  Worthington.  Electric  steel,  perhaps. 


Mr.  Stoll.  And  third,  that  there  are  certain  possibilities  that  are  almost  be- 
yond the  imagination  of  man? 

Mr.  Worthington.  Congressman,  I  think  you  have  stated  and  defined  it  per- 
fectly; just  as  perfectly  as  you  could  state  it. 

Mr.  Garrett.  Mr.  Worthington,  in  your  whole  life  did  vou  ever  appear  be- 
fore a  more  inquisitive  body  than  this  committee? 

Mr.  Worthington.  I  am  still  before  the  body.  Congressman. 

Mr.  Garrett.  The  question  I  want  to  ask  you  is,  is  there  in  vour  possession 
now,  after  this  examination  by  all  these  gentlemen  on  the  committee,  any  infor- 
mation that  I  could  possibly  elicit  by  any  question  I  might  think  of?  Have  you 
told  the  whole  story? 

Mr.  Worthington.  Congressman,  do  you  not  think  you  are  crowding  me  a 

Mr.  Garrett.  I  do  not  want  to  rehjish  anything  that  has  been  gone  over  I 
was  wondering  wliether  there  was  anything  in  your  mind  vou  want  to  say 
Avhich  you  had  not  said. 

Mr.  Worthington.  In  frankness,  I  think  the  case  is  before  the  committee, 
and  as  I  have  stated  before,  if  you  will  let  Mr.  Swann  show  vou  what  nobody 
else  in  this  country  can  better  show  you,  I  think  vou  will  have  this  case  very 
well  illustrated  and  well  understood. 

Of  course,  there  are  a  great  many  things  that  might  be  said,  but  I  do  not  see 
why— there  are  some  very  interesting  phases  of  the  case  that  might  be  dis- 
cussed, but  it  would  be  entirely  within  the  pleasure  of  this  committee  to  say 
how  long  they  would  care  to  discuss  them. 

Mr.  Garrett.  Sometimes  a  witness  has  something  in  his  mind  that  has  not 
been  fully  developed  by  interrogations  and  I  was  wondering  if  there  was  anv- 
thing  you  would  like  to  say  furtlier. 

Mr.  Worthington.  That  gives  me  an  opportunity  to  sav  this.  You  know 
there  was  some  little  colloquy  yesterday,  quite  friendly,  I  am  sure,  about  what 
I  call  contact.  IMy  mind  goes  bjick  to  that  somewhat,  and  I  would  like  to  say 
this:  We  who  try  to  nnswer  you  have  our  difl^culties;  I  am  very  sure  we  want 
to  answer  you  in  full,  if  possible.  But  there  are  some  of  the'  questions  that 
absolutely  must  remain  for  the  future ;  nobody  can  answer  them  now.  I  better 
understand,  since  I  have  been  before  the  committee,  your  viewpoint,  and  I 
better  appreciate  some  of  the  questions  that  were  asked  yesterday.  I  know 
very  well  you  are  entitled  to  every  bit  of  information  that  can  be  given  to  you 
There  is  this  fact  I  hope  you  will,  from  the  human  standpoint,  remember,  that 
this  negotiation  has  been  on  now  since  June  6  last,  and  I  do  not  want  to  say 
to  the  committee  that  Mr.  Ford  is  an  impatient  man — verv  much  the  contrary 
But  put  yourself  in  his  place,  if  you  can,  a  very  busy  man,  with  a  great  many 
great  big  things  to  deal  with,  and  then  have  to  consider  negotiations  in  con- 
nection with  his  offer  after  all  these  months.  Just  please  appraise  our  diffi- 
culties in  dealing  with  that  kind  of  a  case. 

I  wish  especially  to  leave  with  the  committee  this  thought.  I  think  a  great 
many  people  have  been  in  error  all  the  time.  Please  remember  that  Mr.  Ford 
was  invited ;  he  did  not  seek  this  proposition.  And  then  again,  there  is  just 
one  little  thing  further  and  that  is  this :  I  think  Mr.  Ford  has  shown  a  pa- 
tience that  is  perfectly  unusual.  His  offer  came  down  here  to  the  Secretary 
of  War— do  not  understand  that  I  am  complaining  about  him  at  all,  or  making 
any  statement  that  is  unfriendly— but  it  is  a  fact  that  the  Secretary  of  War 
gave  out  Mr.  Ford's  offer,  or  the  text  of  it.  to  the  public,  and  he  still  invited 
bids,  and  I  understand  the  Secretary  of  War  still  expects  them.  Right  there 
IS  a  little  case  in  which  it  seemed  to  me  the  letting  out  of  aft  offer  was  not 
just  according  to  Hoyle. 

The  Chairman.  So  far  as  this  committee  is  concerned,  thev  only  received 
the  letter  of  the  Secretary  of  War  forwarding  this  proposition  to  Congress 
about  two  weeks  ago.  and  for  10  or  11  days  we  have  been  meeting,  forenoons 
and  afternoons,  so  that  the  committee  has  certainly  not  been  guilty  of  dela.v. 
Mr.  AVoRTHiNGTON.  It  must  be  made  plain  that  I  did  not  at  all  intimate  that 
this  committee  has  not  been  persistent  in  its  work.  What  I  am  trying  to  get 
'•efore  the  committee  is  this :  When  you  remember  that  the  news  is  continually 
f^oniing  out,  that  there  is  another  offer  coming  in,  and  you  find  a  man  occasion- 
ally getting  fretful  when  these  changes  are  suggested,  please  remember  our 
flifficulties. 


II 


I 


402 


MUSCLE  SHOALS  PROPOSITIONS. 


Mr.  Gabrett.  I  understood  you  to  say  you  were  tbe  gentleman  who  carried 
the  proposal  from  the  Government  to  Mr.  Ford? 

Mr.  WoKTHiNGTox.  Let  that  be  made  perfectly  clear.  The  Chief  of  En- 
gineers was  asked  to  come  to  Detroit.  He  could 'not  go,  and  he  said  that  he 
would  like  to  have  me  go,  although,  of  course,  he  made  it  perfectly  clear  he 
could  not  give  me  any  official  status.    I  told  him  no  official  status  was  needed. 

Mr.  Garrett.  So  far  as  Mr.  Ford  is  concerned,  as  I  understand  from  your 
testimony,  the  Government  invited  him  to  make  a  proposal  concerning  Muscle 
Shoals? 

Mr.  WoRTHiNGTON.  He  received  the  same  invitations  that  the  others  did. 

Mr.  Garrett.  And  he  has  made  that  proposition  and  you  have  now  given  the 
committee  all  of  the  information  you  have  in  connection  with  the  whole  mat- 
ter, so  far  as  Mr.  Ford's  viewpoint  is  concerned;  and  as  far  as  I  am  con- 
cerned  

Mr.  Worthington  (interposing).  As  far  as  I  possibly  could. 

Mr.  Garrett.  The  matter,  as  far  as  I  am  concerned,  I  think  I  understand 
fairly  well,  and  it  is  reasonably  clear  to  me  as  a  layman,  except  one  proposi- 
tion, and  that  is  on  the  question  of  the  amount  of  fertilizer  that  is  going  to  be 
manufactured  at  this  plant  for  distribution  among  the  farmers.  In  reading 
section  14  of  the  proposal  I  drew  the  conclusion  before  the  evidence  was 
offered  that  what  Mr.  Ford  intended  to  do,  what  that  section  provides  that 
he  shall  do,  is  that  he  will  maintain  nitrate  plant  No.  2  for  the  manufacture 
of  ammonium  nitrate,  or  its  equivalent  in  fertilizer  compounds,  to  the  amount 
of  110,000  tons  of  ammonium  nitrate  per  year. 

Mr.  Worthington.  That  is  true. 

Mr.  Garrett.  I  understood  that  to  mean  that  when  you  take  that  element 
as  a  component  part  of  fertilizer,  that  the  total  number  of  tons  of  finished 
or  concentrated  fertilizer  would  be  110,000  tons  of  ammonium  nitrate  con- 
verted into  nitrogen  divided  by  the  amount  of  nitrogen  contained  in  one  ton 
of  the  complete  fertilizer.  I  want  to  know  whether  I  have  got  that  right 
or  not? 

Mr.  Worthington.  I  think  you  have  that  just  about  right. 

Mr.  Garrett.  If  that  be  true,  according  to  the  testimony  of  other  witnesses, 
going  upon  the  ordinary  basis  of  2-8-2  fertilizer,  it  would  be  equivalent  to 
something  like  2,000,000  tons  per  annum,  as  a  minimum. 

Mr.  Worthington.  That  is  right. 

IVIr.  Garrett.  The  question  of  the  maximum  would  depend  upon  the  de- 
mand of  the  country,  and  of  course  the  amount  of  fertilizer 

Mr.  Worthington  (interposing).  I  think  the  maximum  would  be  determined 
by  the  cost  per  ton.  If  it  is  low,  it  will  rise  right  up.  And  right  there — 
I  wish  I  could  get  the  sympathy  of  the  committee  on  one  point.  I  thought 
about  your  troubles  last  night  and  tried  to  put  myself  in  your  place,  and  I 
would  like  to  say  this:  Suppose  you  put  yourself  back  at  Niagara  Falls,  10 
or  20  years  ago,  and  you  were  sitting  there  to  determine  whether  you  would 
furnish  capital  or  not,  and  you  had  asked  those  people  what  the  tonnage  of 
l)rcKluction  would  be.  Gentlemen,  tliey  could  not  have  answered  you  at  all, 
and  that  is  just  the  case  you  have  before  you  to-day. 

Mr.  Garrett.  That  was  my  personal  conclusion  of  the  matter,  and  my  con- 
st ruction  of  the  contract  was  that  section  14  was  put  in  there  as  a  notice,  so 
far  as  tbe  fertilizer  feature  of  it  was  concerned,  that  here  is  a  minimum; 
that  we  would  have  that  capacity  of  ammonium  nitrate  going  into  the  finishe<l 
product.  That  would  be  the  mininuun.  What  else  it  will  be,  whether  it  will 
be  10,000,000  tons  10  years  from  now  we  do  not  pretend  to  state.  But  we  do 
start  with  this  minimum  gross  amount,  and  we  state  that  it  is  a  minimum. 
In  comparing  this  with  the  total  am«>unt  of  fertilizer  now  produced  there  have 
been  estimates  as  to  whether  this  product  will  reduce  the  price  of  fertilizer. 

Mr.  Worthington.    That  is  rigljt. 

The  Chairman.  Mr.  Worthington,  thi*?  matter  of  the  fixation  of  nitrogen 
has  been  before  Congress  since  about  1912,  hasj  it  not? 

Mr.  Worthington.    Yes,  Mr.  Chairman.  I  think  that  is  right. 

The  Chairman.  Were  you  not  interested  in  bringing  the  matter  to  the  atten- 
ti(m  of  Congress  at  that  time? 

Mr.  Worthington.  Oh,  yes ;  back  in  1912.  representing,  in  part,  the  Alabama 
Power  Co.  and  the  American  Cyanamid  Co.,  I  did  do  my  best  to  get  a  grant 
for  the  Alabama  Power  Co.  to  build  what  was  known  as  Lock  No.  18  at  the 
dam  on  the  Coosa  Iliver.     I  supi)ose  that  is  what  you  refer  to? 

The  Chairman.    It  is. 


MUSCLE   SHOALS  PROPOSITIONS. 


403 


Mr.  ^\  okthington.  That  is  true ;  and  perhaps  as  you  were  a  Member  of 
Congress  at  that  time  you  reniember  the  grant  was  given,  and  that  Mr  Taft 
A\iio  was  then  President,  found  it  necessary  to  veto  it.  That  was  a  very  sad 
thing.  I  do  not  know  but  that  I  am  glad  you  mentioned  it.  It  seems  that 
we  made,  unluckily,  so  many  mistakes  ai>out  the  fixation  of  nitrogen  in  this 
country  that  if  it  is  possible  we  ought  not  to  do  it  any  more. 

The  Chairman.   We  did  learn  some  things  from  our  mistakes. 

Mr.  Worthington  Yes ;  and  we  ought  surely  try  to  get  right  on  this  thin- 
at  this  time,  if  possible.  That  failed.  Mr.  Chairman,  as  I  remember  it  onlv 
because  the  Secretary  of  War  at  that  time  demanded  that  he  be  given  the 
right  to  make  a  charge  for  the  use  of  the  water.  AVell,  that  could  not  be 
agreed  to  The  result  was  the  cyanamid  plant  designed  to  be  built  at  Mont- 
S?"r^.i'  :^  '  7^^}  ^^  Canada,  and  the  sad  thing  about  the  whole  matter  is 
that  it  the  mistake  had  not  l)een  made  the  Government  would  have  «ave<l 
during  the  war,  I  am  sure,  not  less  than  ,^30,000,000,  because  vou  vvouhriiave 
had  an  air  nitrogen  fixation  r.lant.  and,  if  you  please,  it  would  have  used 
the  very  same  process  you  have  had  at  plant  No.  2,  and  you  gentlemen  know 
you  would  have  just  expanded  that.  So  it  se^ms  that  we  have  been  auite 
unlucky  m  this  country  on  that  subject. 

I  want  to  call  Mr.  Miller's  attention  to  the  fact  that  he  has  more  water 
power  in  his  State,  perhaps,  than  in  any  State  in  the  I^nion.  I  do  not  know 
how  he  feels  about  it,  but  as  far  as  Alabama  is  concerned,  I  am  unalterablv 
opposed  to  any  Secretary  of  War  assessinjr  a  tax  upon  the  use  of  water  I  do 
not  care  who  he  is.  He  is  too  far  away  from  the  water  power  sites  to  decide 
that  question ;  nine  times  out  of  ten  he  would  K-  a  lawyer,  who  does  not  know 
much  about  kilowatts.  That  is  rather  voluntary  on  my  part,  Mr.  Chairman, 
but  I  hope  it  is  not  impertinent. 

The  Chairman.  It  is  very  instructive  to  the  committee.  I  come,  as  vou 
know,  from  the  State  of  California,  and  the  interference  bv  Government  officials 
with  the  development  of  water  power  has  been  more  harmful  than  I  would  be 
able  to  tell  in  a  few  minutes. 

Mr.  Worthington.    I  do  not  think  you  could. 

Mr.  Hull.  Mr.  Worthington,  we  sometimes  lose  sight  of  what  I  think  the 
committee  considers  the  fundamental  object  of  this  entire  matter,  and  that  is 
the  fixation  of  nitrogen  for  war  purposes.  This  whole  thing,  fundamentallv 
IS  considered  as  a  national  defense  problem,  and  nothing  else.  In  the  makin<^ 
of  this  contract  with  Mr.  Ford,  was  there  any  question  in  regard  to  his  being 
compelled,  for  the  life  of  the  contract,  for  the  100  years,  to  maintain  plant 
Ao.  2  as  a  plant  that  would  fix  nitrogen  for  use  in  the  manufacture  of 
explosives? 

Mr  Worthington.  There  is  no  question  about  that ;  he  binds  himself  to  keep 
the  plant  there,  prepared  to  do  that. 

Mr.  Hull.  You  refer  to  the  provisions  of  paragraph  (b)  in  section  14' 

Mr.  Worthington.  Yes ;  that  is  right,  Mr.  Hull. 

Mr.  Hull.  Maj.  Burns,  on  page  215  of  the  testimony  before  the  committee 
rather  doubts  whether  that  is  sufficient.    Have  you  any  doubt  in  regard  to  that^ 

Mr.  Worthington.  I  think  no  one  in  the  world  would  doubt  it.  I  never  heard 
the  question  raised  before. 

Mr.  Hull.  If  there  is  any  doubt  about  it,  Mr.  Ford  would  not  be  opposed 
to  making  it  specific,  I  take  it.  It  is  not  as  specific  as  it  might  be;  I  will  admit 
that ;  but  I  think  the  intent  was  to  be  specific.  I  think  we  can  not  reiterate  it 
too  many  times,  and  it  seems  to  me  it  is  necessary  that  it  should  go  into  the 
contract,  and  that  part  of  the  contract  must  go  into  the  deed ;  is  that  not  true' 

Mr.  Worthington.  I  am  sure  you  will  not  find— I  do  not  think  I  will  be  mis- 
taken about  that— that  Mr.  Ford  would  be  unwilling  to  do  any  reasonable  thing 
He,  however,  has  shown  some  hesitation  about  continuing  to  make  changes.    He 
said  this,  that  some  time,  somewhere,  the  negotiations  had  to  come  to  an  end 

Mr.  Hull.  That  is  the  only  point,  making  specific  what  he  really  intended 

Mr.  Worthington.  If  you  would  kindly  confer  with  Maj.  Burns  and  draw 
np  something  that  is  right,  and  give  it  to  Mr.  Mayo,  he  will  see  about  it.  There 
IS  no  hesitation  or  disposition  not  to  try  to  do  it. 

Mr.  Hull.  I  have  not  any  doubt  as  to  the  intention ;  the  only  doubt  I  have  is 
on  this  score,  that  if  we  do  not  clear  it  up  now,  30  or  40  or  50  vears  from  now 
somebody  will  be  going  around  wondering  what  we  did  mean.  *  So  it  seems  to 
nie  we  ought  to  make  it  very  clear  at  this  time,  because  I  would  not  for  one 
minute  support  this  contract  if  that  was  not  made  positively  clear. 


404 


MUSCLE  SHOALS  PROPOSITIONS. 


Mr.  WoRTHiNGTox.  I  may  say  that  I  am  sorry  Maj.  Burns  has  found  it  neces- 
sary to  tell  you  what  you  say,  because  he  was.  as  I  recall,  present  when  the  final 
draft  was  entered  upon  in  the  Judge  Advocate  General's  office,  and  it  is  unfor- 
tunate he  did  not  suggest  the  difficulty  at  that  time. 

Mr.  E*ARKER.  Mr.  Worthington.  you  have  mentioned  the  navigation  plans  on 
the  Tennessee  River.  I  do  not  think  it  has  been  stated  what  draft  of  boats  is 
^contemplated  by  those  plans  and  by  the  locks. 

Mr.  Worthington.  The  improvement  of  the  Tennessee  River,  Congressman, 
from  Muscle  Shoals  to  the  Ohio  River,  provides  for  a  G-foot  draft,  and  that  is 
completed,  a  distance  of  259  miles. 

Mr.  Parker.  Are  there  any  locks? 

Mr.  Worthington.  One  lock. 

Mr.  Parker.  What  is  the  length  and  breadth  of  the  lock. 

^Ir.  Wqrthington.  The  lock  has  a  26-foot  lift,  with  a  canal  8  miles  behind  it. 

Mr.  Parker.  What  is  the  length  of  the  lock? 

Mr.  Worthington.  This  lock  is  80  by  287  feet. 

Mr.  Parker.  Are  the  same  sort  of  locks  contemplated  at  other  places? 

Mr.  Worthington.  That  is  the  only  one  of  that  type.  That  is  at  Colbert 
Shoals. 

Mr.  Parker.  Above  and  at  the  dams  what  sized  locks  are  contemplated? 

Mr.  Worthington.  The  only  lock  is  at  Hales  Bar. 

]Mr.  Parker.  At  Dams  2  and  3. 

Mr.  Worthington.  At  Dams  1,  2,  and  3  the  latest  information  I  have  is 
that  they  are  60  by  300  feet.    There  are  several  lifts. 

Note.— The  rejiort  of  the  Chief  of  Engineers  for  1920  (p.  1326)  gives  the 
dimensions  of  the  locks  planned  at  Dam  No.  2  as  stated  above.  It  is  under- 
stood, however,  that  these  locks  are  to  be  at  least  as  large  as  any  on  tlie 
Tennessee  River,  and  it  is  expected  that  suitably  enlarged  dimensions  will  be 
adopted  when  construction  work  is  resumed. 

Mr.  Parker.  I  only  want  to  get  the  draft. 

Mr.  Worthington.  It  is  6  feet,  and  can  be  made  9  feet  whenever  necessary. 

Mr.  Parker.  Wliat  ;s  the  draft  at  Hales  Bar? 

Mr.  Worthington.  Six  feet. 

Mr.  Parker.  So  it  is  a  6-foot  draft? 

Mr.  Worthington.  That  is  the  plan,  with  a  possible  rise  to  9  feet. 

Mr.  Parker.  That  would  provide  for  a  boat  of  pretty  good  size? 

Mr.  Worthington.  Yes ;  that  would  be  very  good. 

IVIr.  McKenzie.  Mr.  Worthington,  you  are  familiar  with  this  subject  from  its 
very  inception,  I  take  it? 

Mr.  Worthington.  Yes,  sir;  that  is  so.  Mr.  McKenzie.  I  guess. 

Mr.  ^McKenzie.  In  1912,  when  you  succeeded  in  getting  the  act  passed  by 
Congress  for  the  development  of  Muscle  Shoals  or  on  the  Tennessee  River 

]Mr.  Worthington  (interposing).  On  the  Coosa  River. 

Mr.  McKenzie.  There  were  two  interested  parties,  I  assume,  at  that  time? 

Mr.  Worthington.  There  were. 

Mr.  McKenzie.  One  was  the  American  Cyanamid  Co..  and  the  other 

Mr.  Worthington   (interposing).  The  Alabama  Power  Co. 

Mr.  McKenzie.  And  at  that  time,  of  course,  the  world  was  at  peace;  the 
European  war  had  not  broken  out  at  that  time. 

Mr.  AVorthington.  Yes,  sir ;  that  is  quite  true. 

Mr.  McKenzie.  And  the  question  of  the  con.struction  of  this  particular  plant 
was  not  predicated  uixm  the  manufacture  of  nitrates  for  military  purposes? 

Mr.  Worthington.  I  think  that  is  true;  the  military  side  of  it,  or  the  pre- 
naredness  side,  was  not  pressed  at  that  time. 

Mr  McKenzie.  At  that  time  the  agricultural  interests  of  the  country  were 
the  people  who  were  really  interested,  outside  of  the  American  Cyanamid  Co., 
which  expected  to  manufacture  different  products,  and  the  Alabama  Power  Co., 
which  would  have  taken  some  of  the  power. 

Mr.  Worthington.  Yes.  ^    ^  u    o      t^     i.  m  ^^o 

Mr  McKenzie.  That  law,  you  said,  was  vetoed  by  President  Taft? 

Mr*  Worthington.  But  I  do  not  want  to  say  I  criticized  him,  because  I  got 
in  nei-fect  good  humor  with  him  after  he  talked  to  me  about  it. 

Mr  McKenzie.  In  1916  you  came  back  to  Congress  and.  as  I  remember,  oe- 
ing  a  member  of  the  Committee  on  Military  Affairs  at  that  time,  the  original 
proposition  was  to  have  this  plant  constructed  at  Muscle  Shoals. 


MUSCLE   SHOALS  PROPOSITIONS. 


405 


Mr.  Worthington.  Well;  we  did  present  to  your  committee  in  1916  the 
suggestion  or  plan  that  you  prepare  for  the  national  defense  of  the  country 
in  the  matter  of  nitrates,  and  at  that  point ;  that  is  right. 

Mr.  McKenzie.  That  is  my  recollection.  Some  of  us  opposed  it  at  that 
time  on  account  of  the  fact  that  the  Alabama  Power  Co.  either  owned  or  had 
options  on  the  flowage  rights  where  dam  No.  2  is  constructed ;  in  fact,  were 
entrenched  at  that  particular  place. 

Mr.  W^ORTHiNGTON.  That  is  a  fact. 

Mr.  McKenzie.  To  some  of  us  it  looked  as  thcmgh  it  might  be  a  proposition  to 
enable  the  Alabama  Power  Co.  to  make  a  profit,  which,  of  course,  Members  of 
Congress  are  always  suspicious  of  in  a  proposition  of  that  kind. 

Mr.  Worthington.  That  is  true. 

Mr.  McKenzie.  Finally,  after  a  long  discussion,  section  124  of  the  national 
defense  act  was  agreed  upon  and  enacted  into  law,  and  received  the  ai)proval  of 
the  President. 

Mr.  Worthington.  That  is  true. 

Mr.  McKenzie.  Now,  at  that  time  our  country  was  at  peace. 

Mr.  Worthington.  It  was. 

Mr.  McKenzie.  But  the  two  principal  things  placed  before  us  at  that  time 
were,  first,  the  emphasis  of  the  necessity  of  having  nitrates  for  the  manufacture 
of  munitions,  and  secondarily  to  have  a  plant  so  constructed  that  in  time  of 
peace  it  could  be  utilized  for  the  manufacture  of  one  of  the  elements  that 
go  into  the  manufacture  of  fertilizer. 

Mr.  Worthington.  That  is  the  history  of  the  case. 

Mr.  McKenzie.  In  my  judgment,  had  it  depended  upon  either  oue  of  those 
propositions  alone,  section  124  would  never  have  passed  Congress;  but  when 
the  two  elements  were  combined  there  were  enough  votes  to  pass  the  bill. 

Mr.  Worthington.  That  is  my  judgment,  too. 

Mr.  McKenzie.  Section  124  of  the  national  defense  act  provides  that  the 
President  shall  investigate,  and  according  to  his  judgment  determine  the  best 
and  cheapest  and  most  available  means  of  the  production  of  nitrate  and  other 
products  for  the  munitions  of  war,  and  useful  in  the  manufacture  of  fertilizer. 
In  other  words,  the  proposition  was  to  produce  nitrates  or  other  products 
useful  in  the  manufacture  of  fertilizer. 

Then,  going  on  down  through  the  section  it  provides  that  he  shall  have 
power  to  lease,  purchase,  by  condemnation  or  otherwise,  certain  property  and 
construct  buildings,  and  so  forth,  for  the  manufacture  of  such  products  which 
can  be  used  in  the  manufacture  of  munitions  and  also  be  useful  in  the  produc- 
tion of  fertilizer. 

Mr.  Worthington.  That  is  right. 

Mr.  McKenzie.  Then  further  down  in  the  section  there  was  a  paragraph 
thrown  in  which  says  that  the  plant  provided  for  under  this  act  shall  be  con- 
structed and  operated  solely  by  the  Government  and  not  in  conjunction  with  any 
other  industry  or  enterprise  carried  on  by  private  capital. 

Mr.  Worthington.  That  is  right. 

Mr.  McKenzie.  That  was  put  in,  you  well  remember,  in  order  to  confine  the 
activities  of  the  Government  to  governmental  operations. 

Mr.  Worthington.  That  is  absolutely  true. 

Mr.  McKenzie.  My  recollection  is  that  I  voted  against  the  bill,  not  believing 
in  Government  operation.  Was  there  anything  done  under  section  124  for  a 
number  of  years? 

Mr.  Worthington.  In  1917,  there  being  an  apparent  danger  that  the  United 
States  would  go  to  war,  investigations  by  the  Ordnance  Department  were 
made;  and  finally,  you  will  remember,  the  President  did  send  out  a  Cabinet 
commission  of  three  to  look  over  the  country,  and  they  visited  certain  States. 
Then,  finally,  if  you  remember,  there  were  a  number  of  commissions — at  least 
two,  perhaps — that  were  investigating  to  find  out  what  processes  to  use,  with 
the  final  result  that  they  decided  to  adopt  this  modified  Haber  process,  owned 
by  the  General  Chemical  Co.  Then— I  think  it  was  in  1917,  in  the  fall  of  1917— 
the  question  of  the  location  came  up,  and  plant  No.  1  was  located  in  the  western 
part  of  Sheffield,  Ala.  A  little  while  after  that  some  ordnance  officers  of  the 
English  Government,  as  I  understand  It,  came  over  here  and  suggested  to  our 
ordnance  officers  the  grave  danger  of  the  situation,  and  there  was  a  rush  made 
to  go  further,  and  then  came  plant  No.  2.  Then,  as  you  know,  they  went  on  and 
had  under  construction  two  more  plants,  each  one  half  the  size,  in  capacity, 
of  plant  No.  2.  Those  other  plants  were  located  near  Cincinnati  and  at  Toledo, 
Ohio.    That  is,  roughly,  the  history  of  the  matter. 


II 


406 


MUSCLE  SHOALS  PROPOSITIONS. 


I  am  not  criticizing  tlie  location  of  the 


Jlr.  McKenzie.  You   understand 
plant  at  Muscle  Shoals? 
Mr.  WoBTHiNGTON.  No ;  I  do  not  so  understand  your  question. 
Mr.  McKenzie.  Because  I  believe  if  there  is  any  place  in  the  world  where 
the  Government  could  possibly  manufacture  fertilizer  and  compete  with  private 
enterprise  it  might  possibly  be  at  Muscle  Shoals. 
Mr.  WoRTHiNUTON.  I  think  j^ou  are  correct  about  that. 

Mr.  McKenzie.  But  I  ha^  e  never  been  convinced  of  that  fact ;  and  our  frieiul 
from  Mississippi,  Mr.  Quin,  may  have  properly  stated  for  the  hearing,  it  seems 
to  me,  when  telling  of  his  sorrow  at  the  defeat  of  the  appropriation  last 
February,  that  it  was  defeated,  not  because  Congress  docs  not  approve  of  the 
manufacture  of  fertilizer  for  use  by  tlie  farmers,  but  it  was  defeated  because 
of  the  fact  that  the  majority  of  Congress  believed  that  the  Government  can 
not  enter  upon  this  enterprise  at  Muscle  Shoals  or  any  other  place  and  produce 
fertilizer  at  a  price  that  will  enable  the  Government  to  compete  with  the 
private  manufacturers  of  this  product,  except  at  a  loss;  or,  in  other  words, 
subsidizing  the  plant. 

Mr.  WoRTHiNGTON.  I  think  that  is  a  fair  statement.  I  do  not  feel  that  Mr. 
Quin  could  be  any  sorrier  than  I  was  at  the  defeat  of  the  appropriation. 
But  I  rather  think  now,  the  way  the  matter  is  headed,  that  it  was  a  good  thing 
Mr.  McKenzie.  I  want  to  say  to  the  gentleman  that  I  think  it  was  one  of  the 
wisest  things  Congress  has  done  since  I  have  been  a  Member  of  it.  The  enor- 
mous waste  and  extravagance  that  has  been  carried  on  down  there  demon- 
strated the  utter  futility  of  the  Government  undertaking  to  operate  this  plant 
to  advantage  for  the  farmers  or  anyone  else ;  and,  in  view  of  the  fact  that  we 
had  300,000  tons  of  nitrate  in  reserve  on  hand  to  take  care  of  the  needs  of  the 
War  Department,  we  could  not  see  that  it  was  a  wise  thing  for  the  Govern- 
ment to  proceed  with  the  expenditure  of  this  money  until  some  plan  had  been 
adopted,  some  way  had  been  found  whereby  this  power  could  be  utilized  to  the 
advantage  of  the  people  of  this  country  without  loss  to  the  Government  of  the 
United  States.  Therefore  it  was  defeated. 
Mr.  WoRTHiNGTON.  That  is  right. 

Mr.  McKenzie.  And  it  was  the  intention  of  many  of  us  at  least  to  continue 
to  defeat  such  proposals  until  the  Secretary  of  War  or  the  administration 
could  bring  about  some  solution  that  would  enable  this  development  to  go  on 
and  bring  about  the  results  desired  by  the  farmers  of  this  country,  and  at  the 
same  time  protect  the  Ordnance  Department  in  the  supply  of  nitrates.  Be- 
cau!«e  of  that  we  held  the  thing  up.  I  think  it  was  generally  known  to  the 
men  who  were  doing  things  in  this  Government,  and  out  of  that  grew  the 
proposal  of  Mr.  Henry  Ford.  He  has  come  forward  as  one  of  the  men  of 
this  country  offering  to  take  over  this  plant  on  certain  conditions.  And  I 
will  say  he  has  approached  the  solution  of  what  I  believe  to  be  one  of  the  most 
momentous  questions  before  this  country.  I  think  there  are  great  possibilities 
in  it.  I  have  never  decried  it  except  that  I  think  it  would  be  folly  for  the 
Government  to  undertake  to  operate  it.  but  I  am  in  fa\^or  of  any  proposition, 
whether  it  is  Mr.  Ford's  or  some  one  else's,  whereby  Somebody  will  come  in 
and  give  to  the  Government  a  sufficient  guaranty  that  the  purpose  of  the 
project  will  be  carried  out  in  good  faith,  and  that  the  Government  will  be 
relieved  of  the  responsibility  of  undertaking  to  furnish  the  requirements  of 
this  country  in  a  necessary  product,  on  which  they  would  have  to  pay  a  sub- 
sidy to  enable  them  to  sell  it  to  the  farmer  at  anything  like  a  fair  price.' 

In  the  course  of  the  testimony  which  has  been  given  to  the  committee  my 
friend  Mr.  Miller  has  criticized,  or  has  brought  out  the  fact  that  in  his  opinion 
the  Government  is  supposed  to  forever  maintain  this  plant  No.  2  to  protect  it 
in  the  supply  of  nitrate.     I  do  not  understand  that  this  proposition  in  any 
way  affects  that.    Mr.  Ford  agrees  to  keep  it  in  good  condition  and  in  opera- 
tion for  100  years.    At  the  end  of  the  100  years  the  plant  reverts  to  the  Gov- 
ernment, and  we  still  have  it,  unless  we  desire  to  make  some  other  regulation 
in  connection  with  it. 
Mr.  WORTHINGTON.  And  be  subject  to  your  call. 
Mr.  McKenzie.  Absolutely. 
Mr.  WORTHINGTON.  That  is  entirely  true. 

Mr.  McKenzie.  But  I  want  to  ask  you  this  question,  as  a  business  proposi- 
tion: Do  you  not  feel  that  in  a  proposition  involving  so  much  that  there 
should  be  a  provision  in  the  contract  providing  that  should  Mr.  Ford,  his  heirs 
or  assigns,  or  the  corporation  which  he  will  afterwards  bring  into  existence, 


MUSCLE   SHOALS  PROPOSITIONS. 


407 


or  its  successors,  fail  to  carry  out  the  conditions  of  the  contract  for  the  pro- 
tection of  the  Government,  that  a  forfeiture  should  take  place?  In  other  words, 
it  is  too  big  a  proposition  to  provide  merely  for  an  indemnity  of  $200,000  or 
$500,000.  If  he  is  in  good  faith,  it  seems  to  me,  knowing  him  as  a  business 
man,  not  personally,  that  he  would  not  object  to  that  sort  of  a  proposition  for 
the  protection  of  the  Government. 

Mr.  WORTHINGTON.  I  thought  more  than  once  about  your  question  because 
you  know  it  has  been  a  subject  of  discussion.  On  lirst  consideration  I  believe 
your  viewpoint,  as  I  think  you  have  correctly  stated  it,  is  right.  But  on 
second  consideration,  if  you  will  please  look  at  section  18  you  will  under- 
stand what  I  mean.  If  Mr.  Ford  fails,  does  not  comply  with  the  terms  of 
the  contract,  or  in  the  event  of  the  violation  of  any — if  you  please — any  of 
the  terms  of  this  proposition  or  any  contract  made  in  furtherance  of  its  terms, 
the  company  agrees  that  the  Attorney  General  may,  upon  the  request  of  the 
Secretary  of  War,  institute  proceedings  in  equity  in  the  district  court  of  the 
United  States  for  the  Northern  District  of  Alabama  for  the  purpose  of  can- 
celing and  terminating  the  lease.  Right  there  let  me  say  if  such  a  thing 
happens  every  dollar  that  Mr.  Ford  puts  at  Muscle  Shoals  is  gone.  After 
carefully  considering  that  clause,  trying  to  answer  you  as  a  businessman,  you 
having  made  a  business  inquiry,  I  do  not  think  that  it  will  do  any  good'  or 
improve  the  situation  or  further  clench  the  security  or  make  you  safer  to 
adopt  your  suggestion,  because  if  the  whole  thing  was  to  go  to  pot  and  fail  a 
mere  forfeiture  can  not  be  a  cure  for  the  thing  at  all.  That  is  my  viewpoint 
after  considering  it  very  fully. 

Mr.  McKenzie.  According  to  your  testimony  and  the  testimony  of  others, 
the  Government  would  not  be  justified  in  spending  this  large  amount  of  money, 
so  far  as  the  navigation  of  the  Tennessee  River  is  concerned ;  that  is  your  view- 
point? 

Mr.  WORTHINGTON.  Yes. 

Mr.  McKenzie.  Having  in  mind  the  very  large  reserve  of  nitrates  we  have 
on  hand  at  present,  and  the  possibilities  of  acquiring  additional  nitrates  in 
other  ways,  is  it  your  judgment  that  the  Government  of  the  United  States  at 
this  time  would  be  justified  in  considering  this  an  emergency  that  would  war- 
rant us  in  appropriating  money  simply  tjo  take  care  of  the  nitrate  end  of  the 
situation  for  war  explosives? 

Mr.  WORTHINGTON.  If  you  had  not  expended  on  the  dam  the  amount  you  have 
expended  I  would  not  be  able  to  support  the  proposition.  But  you  having, 
however,  expended  the  amount  you  have  on  the  dam,  I  have  never  seen  any 
way  out  of  it  except  to  do  what  is  proposed.    That  is  my  position. 

Mr.  McKenzie.  You  qualified  that  to  some  extent.  To  my  mind  there  is  no 
such  emergency  that  would  justify  us  in  spending  $50,000,000  immediately  to 
acquire  a  larger  supply  of  nitrates  just  at  tJiis  time. 

Mr.  WORTHINGTON.  Not  Simply  for  explosive  purposes. 

Mr.  McKenzie.  Coming  back  to  the  other  proposition,  those  two  things  being 
true,  then  the  only  justification  for  the  expenditure,  either  by  the  Government 
or  under  Government  operation  or  leasing  the  property  to  Mr.  Ford  or  some- 
one else,  rests  on  the  fact  that  in  this  country,  according  t/)  the  statements 
of  the  leading  agriculturists  of  our  country,  there  is  an  emergency,  so  far  as 
fertilizer  is  concerned. 

Mr.  WORTHINGTON.  That  is  true. 

Mr.  McKenzie.  And  that  it  is  essential  and  necessary  that  something  be 
done,  and  on  that  you  base  your  claim  for  this  action  at  this  time. 

Let  me  ask  you  another  question.  Of  course,  we  all  agree  that  there  is  a  very 
great  potential  water  power  at  that  point.  In  case  the  Government  should 
build  the  dam  and  the  powerhouse,  acting  on  the  theory  that  it  could  be  sold 
or  leased,  do  you  believe,  or  is  it  your  judgment  on  that  as  a  man  of  long  ex- 
perience in  business,  that  Mr.  Ford's  company  or  any  other  company  or  indi- 
vidual would  be  justified  in  the  expenditure  of  the  vast  sum  of  money  that 
would  be  necessary  to  erect  a  plant  at  Muscle  Shoals  and  utilize  this  power, 
that  would  be  justified  under  a  lease  of  50  years? 

Mr.  WORTHINGTON.  Indeed  I  do  not.  ~ 

Mr.  McKenzie.  Do  you  express  it  as  your  judgment  that  it  is  doubtful  at 
least  that  the  Government  could  find  a  lessee  that  would  take  the  property 
over  on  any  such  conditions? 

Mr.  WORTHINGTON.  I  do  uot  think  you  can,  if  you  require  that  lessee  of  the 
power  to  carry  out  your  intentions  in  reference  to  fertilizer.    You  might  pes- 


P 


i 


408 


MUSCLE  SHOALS  PROPOSITIONS. 


sibly  get  somebody,  not  including  Dam  No.  3,  to  complete  Dam  No.  2;  you 
might  possibly  get  somebody  to  agree  to  50  years,  but  I  do  not  think  so.  I 
do  say  that  I  think  it  would  be  a  very  unbusinesslike  proposition. 

Mr.  McKenzie.  Are  you  willing  to  stat.e  that  it  is  your  judgment  that  under 
the  Ford  proposition  the  Government  will  be  selling  him  jiower  at  a  very  rea- 
sonable rate,  if  not  a  low  rate;  in  other  words,  if  he  undertook  to  construct 
the  dam  and  create  the  power  himself  and  ©iterate  it,  it  would  cost  him  a  great 
deal  more  than  the  $2,000,000  which  has  been  estimated  as  the  amount  of  4 
per  cent  interest  or  rental  he  would  have  to  pay? 

In  other  words,  looking  at  it  from  a  cold,  business  standpoint,  is  it  not  true 
that  the  Government  would  be  giving  to  Mr.  Ford  at  least  charitable  considera- 
ion  on  that  point? 

Mr.  WoRTHiNGTON.  Would  you  not  be  willing  to  substitute  the  word  "  favor- 
able" for  "charitable?" 

Mr.  McKenzie.  Yes. 

Mr.  WoRTHiNGTON.  While,  it  is  undoubtedly  true;  and  if  I  may  follow  that 
just  a  bit,  let  me  say  that  the  Government,  under  the  circumstances,  in  view  of 
the  Government's  investment  down  there,  has  made  a  good  trade  to  do  it,  with 
the  understanding,  and  I  am  sure  certainly  with  the  belief  that  you  are  going 
to  see  some  satisfactory  results  in  obtaining  low  costs  with  cheap  power. 

Mr.  McKenzie.  After  all,  getting  right  down  to  brass  tacks,  Mr.  Worthing- 
ton,  is  there  not  involved  in  this  proposition,  after  we  do  develop  it,  from  every 
standpoint,  that  the  Government  is  going  to  be  the  loser,  in  a  sense,  financially, 
just  figuring  in  the  matter  of  dollars,  but  in  the  hope  that  all  the  conditions 
coupled  up  with  it,  in  view  of  the  potential  elements  and  benefit  that  it  is  going 
to  be  to  agriculture,  you  feel,  and  that  is  the  feeling  of  the  men  behind  you. 
representing  the  agriculturists  down  in  that  country  and  all  over  the  United 
States,  that  it  will  be  worth  the  price? 

Mr.  WORTHINGTON.  I  Very  positively  tell  you  I  do  feel  that  way. 

Mr.  McKenzie.  And  in  view  of  the  many  other  expenditures  that  our  Govern- 
ment has  made,  upon  which  we  have  never  received  any  return 

Mr.  WORTHINGTON  (interposiug) .  And  never  will 

Mr,  McKenzie.  I  want  to  say  to  you  very  frankly,  Mr.  Worthington,  that  if 
Mr.  Ford  or  some  one  else  has  the  genius  to  unscramble  this  proposition,  I  think 
I  should  be  very  glad  to  favor  some  proposition  to  enable  the  Government,  not, 
I  would  say,  to  unload  this  proposition,  but  to  put  it  into  the  hands  of  some  one 
so  that  it  can  be  operated  successfully  and  without  loss  to  the  Government. 

Mr.  WORTHINGTON.  Put  it  to  work. 

Mr.  McKenzie.  That  is  it. 

Mr.  Miller.  Mr.  Worthington,  did  you  get  the  idea  from  my  questions  yester- 
day that  I  favored  a  kilowatt  tax? 

Mr.  WORTHINGTON.  Oh,  no. 

Mr.  Miller.  I  understood  you  to  intimate  that  I  did. 

Mr.  WORTHINGTON.  Oh,  no ;  I  am  very  sure  you  do  not,  jcoming  from  your 
State. 

The  Chairman.  We  are  very  much  obliged  to  you  for  the  very  enlightening 
information  you  have  given  us. 

(Thereupon  the  committee  took  a  recess  until  2  o'clock  p.  m.) 


MUSCLE  SHOALS  PROPOSITIONS. 


Committee  on  Military  Affairs, 

House  of  Representatives, 

Friday,  February  17,  1922. 

STATEMENT  OF  MR.  HUGH  L.  COOPER,  OF  STAMFORD,  CONN. 

The  Chairman.  Mr.  Cooper,  will  you  state  your  name  in  full,  your  present 
occupation,  and  some  of  the  big  engineering  works  that  you  have  been  con- 
flected  with? 

Mr.  Cooper.  :My  name  is  Hugh  L.  Cooper,  and  my  residence  is  Stamford, 
Conn.,  and  I  have  been  a  consulting  engineer  for  about  20  years,  and  in  the 
practice  of  hydraulic  engineering  for  about  30  years.  I  have  built  several 
water  powers  in  different  parts  of  the  world.  One  of  them  was  at  Niagara 
Falls  and  one  was  at  Keokuk,  Iowa,  and  one  at  McCalls  Ferry,  Pa.,  one  in 
Brazil,  one  in  Chile,  several  in  Canada,  and,  I  think,  the  aggregate  of  them 
all  is  something  in  excess  of  1,000,000  horsepower,  not  including  the  Muscle 
Shoals  work,  where  I  am  the  consulting  engineer  for  the  Government.  I  would 
like  to  say  I  got  into  this  dam  job  very  peculiarly. 

The  Chairman.  I  did  not  quite  catch  that? 

Mr.  Cooper.  I  want  to  say  that  I  got  into  this  dam  job,  it  is  a  damn  job, 
and  I  mean  just  that,  in  a  very  peculiar  way.  It  was  not  from  my  seeking. 
I  have  been  hearing  about  the  Muscle  Shoals  job  for  15  years,  and  about  every 
time  anybody  wanted  to  do  anything  in  the  last  15  years  the  Muscle  Shoafs 
job  has  been  in  the  road.  It  was  in  the  road  in  Congress.  It  was  called  a  job. 
I  do  not  think  it  ever  was  a  job  in  the  sense  some  of  its  maligners  called  it ; 
at  the  same  time  it  was  used  to  defeat  a  great  deal  of  good  legislation  in  the 
aid  of  water  power;  and,  as  far  as  I  am  personally  concerned,  I  would  be 
very  glad  if  something  could  happen  out  of  this  investigation  that  would  si)eed 
^he  day  when  it  is  done,  finished,  and  we  get  rid  of  it. 

When  I  was  in  the  service  in  France  I  was  ordered  home  by  somebody ;  I  do 
not  know  who  it  was ;  I  suppose  it  was  the  Secretary  of  War,  to  build  this  job, 
and.  of  course,  that  was  very  disagreeable  news  to  me.  On  arrival  I  went  to 
work  as  hard  as  I  could  and  started  the  work  and  redesigned  it,  and  it  was 
about  two  months  under  way  when  I  got  ordered  back  to  France.  I  never  knew 
exactly  how  that  happened,  except  I  knew  it  meant  a  lot  of  hard  work  after 
I  got  over  there.  Then,  when  I  came  home.  I  found  that  the  Chief  of  Engi- 
neers had  been  changed  and  that  the  new  Chief  of  Engineers  said  that  in  view 
of  the  fact  they  were  following  plans  which  I  had  recommended  when  I  was  in 
the  service,  he  thought  that  I  owed  it  to  the  Government  to  keep  right  on,  on  a 
Government  basis,  and  do  this  work  for  nothing,  and  I  have  been  fool  enough 
to  do  it  up  to  this  time. 

I  do  not  say  that  in  any  spirit  of  disrespect  to  anybody,  but  I  do  say  that 
it  is  a  little  strange,  in  my  experience  at  least,  to  be  the  designer  and  responsible 
for  the  execution  of  plans  for  forty  or  fifty  million  dollars  of  work  for  $1  a 
year,  after  the  armistice  is  signed,  and  that  is  another  reason  I  would  like  to 
see  somebody  hurry  up  and  get  this  dam  done. 

The  Chairman.  Mr.  Cooper,  I  want  to  congratulate  you  on  the  fact  that  you 
have  been  willing  to  serve  your  country  without  sticking  your  hands  into  the 
Treasury  and  trying  to  pull  out  a  big  plum. 

Mr.  Cooper.  Thank  you  very  much. 

Now,  I  have  a  very  definite  sympathy  for  the  committees  in  Congress  that 
have  to  listen  to  testimony,  especially  testimony  from  engineers.  As  a  rule, 
they  do  not  know  what  they  are  trying  to  say  very  well,  and  the  second  thing 
is  they  do  not  very  well  know  how  to  say  that  which  they  do  know,  and 
realizing  that  this  committee  is  pretty  well  tired  out  and  also  because  of  the 

409 


I 


410 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


411 


fact  that  I  ^ave  only  been  investigating  this  Ford  proposal  for  abont  three 
days,  I  naturally  have  not  a  great  deal  to  say  about  it,  but  I  have  prepared 
four  or  five  statements,  and  I  think  perhaps  it  would  facilitate  and  hasten 
this  investigation  or  my  testimony,  at  least,  if  I  would  pass  this  around  to 
you  gentlemen,  and  then  they  can  ask  their  questions  and  we  will  get  through 
a  lot  quicker  and  we  will  not  have  near  as  much  trouble  about  wandering 
testimony. 

The  Chairman.  Would  it  take  very  long  to  read  the  statement? 

IVIr.  Cooper.  No;  they  are  reasonably  short. 

The  Chairman.  I  think  probably  the  better  way  would  be  to  read  it  and 
let  the  members  digest  it,  as  you  read  it,  and  then  ask  you  questions  about  it. 

Mr.  Cooper,  Before  entering  upon  these  particular  statements,  I  wish  to 
make  very  emphatic  one  thing,  and  that  is  I  am  not  here  in  advocacy  of  Mr. 
Ford's  proposal  or  anybody  else's  proposal,  or  against  anybody's  proposal,  Mr. 
Ford's  included.  As  I  take  the  chairman's  telegram  to  me,  what  he  wanted 
me  to  do  was  to  come  down  here  and  tell  what  few  facts  I  could  about  Mr. 
Ford's  proposal  as  submitted,  and  then  to  answer  as  best  I  can  such  questions 
as  you  may  desire  to  ask  me. 

In  looking  over  the  Ford  proposition,  based  upon  my  knowledge  of  the  ex- 
tent of  the  work  and  the  cost  of  it,  and  the  terms  of  the  proposed  payments 
for  the  use  of  it,  as  contained  in  the  Ford  proposition,  the  first  thing  that 
astounded  me  was  the  difference  between  the  amount  of  money  that  the  United 
States  Treasury  was  going  to  pay  out  and  the  amount  that  they  would  get 
back  during  the  lease  period. 

Now,  my  statement  No.  1,  which  is  an  analysis  of  the  final  statement  on 
page  3,  shows,  if  my  figures  are  correct  and  I  think  you  will  find  they  are, 
that  the  expenditures  of  the  Ford  proposition  as  written  will  cost  the  Treasurv 
of  the  United  States  $1,275,000,000.  That  is  an  absolutely  flat  fact.  I  am 
referring  now  only  to  the  power  question.  It  has  nothing  to  do  with  the 
nitrate  plants  at  all. 

On  page  2  you  will  note  that  there  is  a  statement  of  the  estimated  cost  of 
the  dams  Nos.  2  and  3,  amounting  to  $83,175,475.  That  is  the  cost  at  the 
time  Mr.  Ford  agrees  to  pay  4  per  cent  return  on  what  turns  out  to  be 
$50,000,000.  His  proposition,  as  interpreted  by  me,  and  as  confirmed  by  state- 
ments from  the  War  Department  engineers,  showed  he  is  going  to  pay  into 
the  Treasury  4  per  cent  on  about  $50,000,000,  which  is  $2,000,000  a  year. 

In  arriving  at  this  rather  startling  sum  of  $1,275,000,000  I  have  taken  the 
total,  as  you  see,  specified  as  $83,175,475,  and  compounded  it  annually  at  4 
per  cent  for  a  balance  of  the  lease  period.  I  use  4  per  cent  because  that  is 
the  per  cent  used  in  Mr.  Ford's  document.  It  is  believed  by  most  men  I  hear 
talk  that  that  is  a  fair  rate  of  interest  to  consider  for  public  funds.  When 
the  cost  is  $83,175,475  to  the  Treasury,  Mr.  Ford  begins  to  pay  into  the  Treas- 
ury $2,000,000  a  year.  If  the  Treasury  invests  that  $2,000,000,  which  I  be- 
lieve they  could  do,  at  4  per  cent,  at  the  end  of  the  lease  period  the  money 
produced  by  the  4  per  cent  on  the  $2,000,000  payments  would  be  $1,275,000,000 
less  than  the  cost  to  the  Treasury  of  the  $83,175,000  during  the  lease  period. 
That  is  all  I  have  to  say  about  that  statement.  If  anyone  cares  to  question 
me  about  that  statement,  I  think  now  would  be  a  good  time  to  do  it. 

The  Chairman.  I  think,  for  the  benefit  of  the  record,  you  ought  to  put  into 
the  record  the  detailed  statement  you  have  given  to  members  of  the  committee. 

Mr.  Cooper.  I  will  be  glad  to  have  that  go  into  the  record. 

(The  statement  referred  to  is  as  follows:) 

Proposed  Ford  Contract  for  Muscle  Shoals  Power. 

statement  no.  1. — ^re  difference  between  mb.  f0rd*s  lease  payments  to  the 
l'nited  states  treasury  and  the  amount  the  treasury  will  have  to  pay 

OUT  IF  MR.  ford's  PROPOSAL  IS  ACCEPTED  AS  WRITTEN. 

1.  In  what  follows,  4  per  cent  interest  Is  assumed  to  be  the  best  interest  rate 
the  Treasury  of  the  United  States  can  avail  itself  of  during  the  next  100-year 
period,  and  it  is  to  be  noted  that  this  4  per  cent  rate  is  the  base  rate  of  all 
the  calculations  in  Mr.  Ford's  proposal,  and  therefore  this  assumption  can  not 
be  criticized  as  inharmonious  with  the  letter  and  spirit  of  the  Ford  contract 
now  before  Congress. 

2.  I  find  that  at  the  time  Mr.  Ford  will  begin  the  payment  of  a  full  4  per 
cent  interest  return  to  the  Treasury  of  the  United  States  the  sums  expended 


by  the  United  States  Government  up  to  this  4  per  cent  payment  basis,  as  esti- 
mated by  the  Chief  of  Engineers,  will  be  as  follows : 

For  completion  of  Dams  Nos.  2  and  3 $50,000,000 

Interest  accrued  during  the  construction  prior  to  the  beginning  of 
the  4  per  cent  interest  payments  less  interim  interest  payments 

made  by  Mr.  Ford  (War  Department  estimate) 13,844,475 

Previously  spent  on  Dam  No.  2  (War  Department  estimate) 17,000,000 

Cost  of  flowage  rights  for  Dam  No.  3  (War  Department  estimate).    2,331,000 

Total 83, 175, 475 

3.  For  the  purposes  of  a  fair  and  parallel  comparison  I  have  assumed,  in 
order  to  get  a  correct  figure  representing  the  loss  to  the  Treasury  in  dollars, 
in  this  transaction,  that  the  Treasury  cost  of  the  above  total  of  $83,175,475  at 
the  rate  of  4  per  cent  interest  would  be  compounded  annually  for  the  lease 
period,  thus  producing  a  grand  total  of  $3,304,095,000  demand  on  the  Treasury. 

4.  Investing  the  $2,CKX),(X)0  Mr.  Ford  proposes  to  pay  into  the  Federal  Treas- 
ury annually,  which  is  4  per  cent  of  the  estimated  cost  to  complete  the  .lob, 
which  estimated  cost  (United  States  Engineers'  Department  estimate)  to  com- 
plete is  $50,000,000.  Such  a  plan  would  return  to  the  United  States  Treasury 
at  the  end  of  the  lease  period  $1,979,185,000. 

5.  This,  you  will  note,  results  in  a  grand  total  deficit  (excluding  the  amorti- 
zation payments  in  paragraph  10  of  the  Ford  contract)  to  the  Treasury  of 
$1,324,910,000. 

6.  Mr.  Ford's  amortization  payments,  in  paragraph  10  of  his  contract,  are 
planned  to  amortize  $50,000,0()0  of  the  above  deficit,  leaving  a  net  deficit  for 
the  Treasury  to  provide  for  of  $1,275,000,000. 

STATEMENT  NO.  2 — RE  AMOUNT  OF  LOW-TEN SION  HYDROELECTRIC  ENERGY  DELH-ERED 
TO  GENERATOR  STATION  BUS  BARS  THAT  WILL  BE  CREATED  BY  THE  COMPLETION  OF 
DAMS  NOS.  2  AND  3  ACCORDING  TO  THE  REQUIREMENTS  OF  MR.  FORD'S  PROPOSAL. 

A  kilowatt  is  1^  horsepower. 

A  horsepower  is  three-fourths  of  a  kilowatt. 

Primary  power  is  power  that  is  available  365  days  per  year. 

Secondary  power  is  power  that  is  available  for  some  fraction  of  365  days 
per  year. 

The  secondary  power,  mentioned  below,  will  be  available  from  a  minimum 
of  4  months  per  annum  to  llf  months  per  annum. 

1.  When  projects  Nos.  2  and  3  are  completed,  and,  making  no  allowance  for 
the  value  of  Important  storage  reservoirs  in  the  Tennessee  River  above  Dams 
Nos.  2  and  3,  that  future  public  interest  will  require  to  be  constructed,  the 
capacity  to  be  installed  in  projects  Nos.  2  and  3  (No.  2,  6(X),000  horsepower; 
and  No.  3,  250,000  horsepower)  will  produce  an  average  annual  kilowatt  de- 
livery to  generator  station  bus  bars  as  follows: 


Dam  No.  2. 
Dam  No.  3. 

Total 


Kilowatt  hours. 


Primary. 


700,000,000 
285,500,000 


Secondary. 


1,490,000,000 
608,000,000 


985,500,000  I  2,098,000,000 


2.  The  total  annual  energj'  (primary  and  secondary)  supply  from  both  sta- 
tions will,  therefore,  be  3,083,500,000  kilowatt  hours. 

3.  The  average  cost  to  Mr.  Ford  of  the  total  energy  in  paragraph  2  is  (see 
statement  No.  3)  $3,622,246  annu'ally,  or  at  a  rate  of  1.18  mills  per  kilowatt 
hour,  a  cost  far  lower  (about  50  per  cent)  than  can  be  arranged  for  elsewhere 
on  the  American  continent. 

4.  In  average  generator  station  practice  in  the  American  hydroelectric  field 
secondary  kilowatt  hours  are  figured  at  about  50  per  cent  of  the  value  of  pri- 
mary kilowatt  hours. 


ii 


412 


MUSCLE  SHOALS   PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


413 


5.  On  the  basis  of  the  relative  values  specified  in  paragraph  4.  tlie  costs  to  Mr. 
Ford  for  primary  and  secondary  power  become  as  follows : 

985,000,000  kilowatt  hours,  at  1.81  mills $1,782,850 

2,098,000,000  kilowatt  hours,  at  0.905  mill 1,  898, 690 


Total 3.  681, 540 

Mr.  Ford's  annual  payment  for  the  foregoing  energy  (par.  3)  is  slightly 
less  than  the  above  grand  total,  and  therefore  the  use  ot  the  unit  costs  of 
1.81  mills  and  0.905  mill,  respectively,  for  primary  and  secondary  power  is 
conservative. 

It  will  be  interesting  to  show  now  what  the  gross  annual  cost  of  $3,622,246, 
as  shown  in  statement  No.  3,  applied  to  the  energj'  produced  from  Dams  Nos. 
2  and  3,  as  shown  by  statement  No.  2.  will  yield  as  to  costs  per  horsepower  per 
annum  for  the  various  classes  of  power.  Assuming  8,000  hours'  nnnual  use  for 
24-hour  power  and  5,256  hours'  annual  use  for  the  best  annual  load  factor 
(about  (K)  per  cent)  that  can  be  built  up  in  connnercial  work  in  the  territory 
reachable  from  Muscle  Shoals  shows  the  following  horsepower  net  costs  to  Mr. 
Ford : 

(a)  For  24-hour  power  annual  cost,  8,000  hoursXl.81  mills X 0.746=  (primary 
power),  $10.80  per  horsepower. 

ih)  For  60  per  cent  load  factor  power  annual  cost,  5,256  hours X  1.81  mills X 
0.746=  (primary  power),  $7.10  per  horsepower. 

(r)   For  24-hour  power  annual  cost  -jgj-X  10.80=  (secondary  power),  $5.40 

per  horsepower. 

(rf)  The  total  energy  of  3,083,500,000  kilowatt  hours,  si^ecified  in  paragraph 
2.  is  equivalent  to  an  average  of  517.000  horsepower  used  8,000  hours  per 
annum.  This  517,000  horsepower  will  cost  Mr.  Ford  $3.622  246  iier  annum,  or 
at  the  rate  of  $7.01  per  horsepower,  a  price  considerably  less  than  one-half  of 
what  similar  power  can  be  secured  for  elsewhere  on  the  American  continent. 

Note. — The  foregoing  amounts  of  energy  were  computed  for  a  capacity  of 
550,000  horsepower  for  Dam  No.  2.  These' energy  amounts  have  not  here  been 
increased  to  correspond  to  the  600,000  horsepower  capacity  called  for  at  Dam 
No.  2  in  the  Ford  proposal.  This  omission  will  amply  provide  for  the  capacity 
nee<led  to  develop  a  60  per  cent  load  factor  for  primary  power  as  above  used. 

7.  The  horsepower  costs  to  Mr.  Ford,  as  specified  in  paragraph  6,  are 
approximately  half  the  same  costs  at  Keokuk  and  at  Niagara  Falls,  on  either 
side  of  the  international  boundary,  and  similarly  are  less  than  half  the  costs 
of  the  same,  class  of  energy  in  the  commercial  power  territory  reachable  from 
Muscle  Shoals. 

8.  It  is  apparent,  therefore,  that  the  Ford  proposal  calls  on  the  Federal 
Treasury  for  $1,275,000,000  during  the  next  100  years  in  order  that  Mr.  Ford 
may  secure  sole  unregulated  possession  of  the  greatest  water  power  the 
South  has  and  at  a  cost  to  Mr.  Ford  around  one-half  of  what  similar  power 
is  available  for  elsewhere  on  the  American  Continent. 

STATEMENT    NO.    3 — ^BE   OPERATION    AND   3kf AINTENANCE   OF   JktUSCLE    SHOALS    WATER 

POWERS. 

1.  I  estimate  the  annual  cost  to  Mr.  Ford  to  operate  and  maintain  Muscle 
Shoals  Dams  Nos.  2  and  3,  up  to  and  including  low-tension  bus  bars,  will  be : 

Operation,  850,000  horsepower,  at  60  cents  per  horsepower  year__ $510,  000 

Repairs  and  maintenance: 

For  Dam  No.  2  (specified  in  contract) $35,000 

For  Dam  No.  3  (specified  in  contract) 20,000 


Renewals : 

Machinery  in  power  house — 

For  Dam  No.  2,  to  replace  18  units  every  30  years, 
costing  $16  per  horsepower  installed,  calls  for  an 
annual  sinking  fund,  bearing  4  per  cent  interest, 

compounded  annually,  of 155,000 

For  Dam  No.  3,  to  likewise  replace  units  in  this 
plant,  requires . 65,000 


.55,000 


Renewals — Continued. 
Buildings,  etc. — 

For  Dam  No.  2,  replacement  of  power  house,  aux- 
iliary buildings,  intake  gates,  screens,  etc.,  an- 
nual charge 

For  Dam  No.  3,  for  similar  replacement 


18.000 
7,500 


Rental : 

For  Dam  No.  2.  4  per  cent  on  estimated  cost  to  com- 
plete for  600,000  horsepower  capacity,  $27,000,000,  __  1,080,000 

For  Dam  No.  3.  4  per  cent  on  estimated  cost  for  250,000 

horsepower  capacit^^  plant,  $23,000,000 920,000 


25,000 


2,000,000 


(The  above  total  of  $50,000,000  is  the  amount  estimated  by 
the  Chief  of  Engineers  as  necessary  to  complete  Dams  Nos.  2 
and  3.) 

Taxes,  850.000  horsepower,  at  90  cents  per  horsepower  year 765, 000 

(This  charge  includes  local  and  State  taxes  only,  as  Mr. 
Ford's  proposal,  as  written,  excludes  Federal  Power  Commis- 
sion jurisdiction.) 
Annual  amortization  payment  called  for  in  paragraph  10  of  Ford 
proposed  contract 1 46,  746 


220,000 


Total  yearly  operating  expenses  after  Dams  Nos.  2  and  3  are 
completed 3,  622, 246 

STATEMENT    NO.   4 RE   SHOWING   IF    4    PER  CENT  INTEREST    IS   PAID   BY   MR.    FORD   ON 

TOTAL   COST  OF   DAMS   NOS.   2   AND   3,   AND   PAYS    |79,432   ANNUALLY   TO    AMORTIZE 
$83,175,475,  WHICH  IS  THE  ABOVE  TOTAL  COST. 

If  ^Ir.  Ford  should  amend  his  offer  to  pay  4  per  cent  on  the  total  cost  of 
Dams  Nos.  2  and  3  (see  statement  No.  3,  pp.  8,  9),  his  gross  annual  cost  of 
power  would  be  as  follows : 

(1)  4  per  cent  interest  on  $83,175,47.5 ^ $3,327,019 

(2)  Add  operation  charges  (as  per  statement  No.  3,  on  pp.  8,  9), 

$3,622,240.  less  S2,000,000  interest  charges l,  622,  246 

(3)  Add  to  complete  the  amortization  of  $83,175,475,  not  included 

in  item   (2)  above 32,686 

Total  annual  cost  for  power 4,981,951 

On  the  basis  of  the  above  annual  cost  of  $4,981,951  applying  to  an  annual 
production  of  3,083,500,000  kilowatt  hours,  the  kilowatt  hour  cost  becomes 
1.68  mills. 

For  primary  power  used  8,(X)0  hours  yearly,  Mr.  Ford's  annual  cost 

would  be _ $14. 83 

For  (50  per  cent  load  factor  (general  commercial  power)  primary  power, 

Mr.  Ford's  annual  cost  would  be 1 9.75 

For  24-hour  secondary  power,  Mr.  Ford's  annual  cost  would  be  at  the 

rate  of 7. 41 

The  total  energy  created  of  3,083,500,000  kilowatt  hours  is  equivalent 

to  an  average  of  517,000  horsepower  used  8,000  hours  per  annum; 

this  517,000  horsepower  will  cost  Mr.  Ford 9.  64 

All  of  the  above  costs  per  horsepower  are  at  least  20  per  cent  lower  than 
present  costs  for  the  same  classes  of  power  elsewhere  in  t!ie  South  or  at 
Keokuk  or  Niagara  Falls. 

Note. — The  use  of  8,(X)0  houi-s  armually  is  here  assumed  for  primary  power, 
because  8,000  hours  is  about  the  average  annual  use  when  deductions  for  normal 
shutdowns  and  repair  requirements  are  allowed  for. 

The  above  plan  of  paying  4  per  i^ent  on  total  costs  would  fully  amortize  the 
total  costs  of  Dams  Nos.  2  and  3  at  the  end  of  the  lease  period,  and  would  save 
the  Treasury  of  the  United  States  during  the  lease  period  $1,275,000,000,  equiva- 
lent to  an  average  annual  saving  of  over  $13,5(X),0(X). 

The  Chairman.  You  say  that  according  to  Mr.  Ford's  agreement,  or  accord- 
ing to  his  statement,  he  will  begin  to  pay  $2,000,000  a  year  on  Dams  Nos.  2 


r 


L 


414 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


415 


t     : 


and  3.  and 'that  the  aggregate  cost  of  the  completion  of  the  dams  will  be  about 
$83,175,4T5. 

Mr.  Cooper.  Yes.  But  he  only  pays  on  the  cost  of  the  new  money  required 
to  complete  Dams.  Nos  2  and  3,  which  is  estimated  by  the  War  Department  to 
be  $50,000,000. 

The  Chairman.  Where  do  you  get  the  figure  that  you  also  refer  to  as  the 
probable  cost  to  the  Government  of  these  dams,  namely,  about  $1,000,000,000? 

Mr.  Cooper.  The  cost  of  the  dams  is  $50,000,000. 

The  Chairman.  Where  do  you  get  the  tigui-e  of  $1,000,000,000  you  were 
speaking  of? 

Mr.  Cooper.  I  assume  the  Government  would  have  to  borrow  the  $83,000,000, 
because  it  has  not  got  it,  and  that  it  will  have  to  keep  on  borrowing  to  pay 
the  interest  on  the  $83,000,000.  In  other  words,  you  compound  it  at  4  per  cent 
interest.  The  $83,000,000  is  the  total  amount  that  is  invested  in  this  enterprise ; 
and  I  have  compounded  the  interest  exactly  the  way  we  would  do  in  private 
business.  Incidentally,  I  would  like  to  say  that  it  is  my  humble  opinion  that 
the  Government  of  the  United  States  at  all  times  should  consider  the  cost 
of  interest  just  as  much  as  they  consider  the  principal,  and  thus  find  out  more 
correctly  the  extent  of  the  Government's  commitments  in  these  big  enterprises 
Taxes  for  interest  and  principal  come  out  of  the  same  set  of  pockets. 

The  Chairman.  This  morning  evidence  was  adduced  before  the  committee  to 
the  effect  that  we  have  a  great  deal  of  river  and  harbor  work  every  year  in  the 
different  secfons  of  the  country,  and  no  interest  is  ever  charged  on  that  work. 

Mr.  Cooper.  That  is  a  matter  of  policy  for  the  Congress  to  decide.  This  is 
power  business,  and  it  is  quite  different.  We  are  paying  the  money  out,  and 
the  taxpayers  are  paying  the  interest  as  well  as  the  principal. 

The  Chairman.  You  think  this  money  can  not  be  raised  in  any  other  way 
than  through  a  bond  issue? 

Mr.  Cooper.  I  am  not  enough  of  a  financier  to  say  that,  but  I  notice  that  is 
about  the  way  you  are  doing  right  along. 

The  Chairman.  It  has  been  contended  by  some  members  of  the  committee 
that  this  money  could  be  raised  by  the  ordinary  process  of  levying  taxes.  That 
would  not  ^require  the  payment  of  any  interest,  and  that  is  the  way  most  of 
the  river  and  harbor  work  is  done. 

Mr.  Cooper.  You  are  all  the  time  paying  it  because  you  are  all  the  time  bor- 
rowing. It  does  not  make  any  difference  what  you  call  your  borrowing,  you 
are  continually  paying  oui"  interest  on  coupons,  and  that  fixes  the  price  of  money. 
If  you  did  not  spend  this  $83,000,000  on  this  enterprise  you  could  take  up  and 
retire  $83,000,000  worth  of  bonds,  and  save  the  payment  of  4  per  cent  interest  on 
that  amount.  So  I  think  it  is  conservative  to  here  use  4  per  cent  in  calculating 
the  cost  to  the  United  States  Treasury  of  Mr.  Ford's  proposal. 

Mr.  Wurzbach.  Would  you  not  take  into  consideration  the  amount  of  money 
the  Government  already  has  invested  in  Dam  No.  2,  and  figure  the  4  per  cent 
interest  on  approximately  $16,000,000?    I  think  we  have  that  much  invested. 

Mr.  Cooper.  Yes. 

Mr.  Wurzbach.  And  compound  the  interest  at  4  per  cent  on  that  sum  for  100 
years,  and  would  you  not  eat  up  that  amount  from  the  $1,275,000,000? 

Mr.  Cooper.  No;  this  $16,000,000  is  already  spent  and  you  are  now  paying 
more  than  4  per  cent  on  this  loan.  The  deficit  to  the  Treasury  at  the  end  of  the 
lease  period  will  be  the  figure  set  down  in  statement  No.  1 ;  that  is,  $1,275,000,- 
000.    There  is  nothing  theoretical  about  it ;  it  is  a  practical  fact. 

Mr.  QuiN.  Mr.  Cooper,  where  do  you  get  the  other  $33,000,000  from?  You 
state  it  will  cost  about  $50,000,000  for  the  dams,  according  to  the  Army  en- 
gineers. 

Mr.  Cooper.  To  finish  them. 

Mr.  QuiN.  Where  does  the  other  $33,000,000  come  from? 

Mr.  Cooper.  On  the  top  of  page  2  is  the  statement  of  how  that  is  made  up. 
Do  you  want  me  to  read  that  to  you  ? 

Mr.  QuiN.  Yes,  sir ;  I  wish  you  would. 

Mr.  Cooper.  First,  we  have  the  interest  accrued  during  the  construction  prior 
to  tlie  beginning  of  the  4  per  cent  interest  payments,  less  the  interim  interest 
payments  made  by  Mr.  Ford,  according  to  the  War  Department  estimate.  That 
amounts  to  $13,844,475,  and  that  is  interest  at  4  per  cent  on  the  expenditures  up 
to  the  time  Mr.  Ford  begins  to  pay  his  4  per  cent.  You  may  remember  in  his 
proposition  he  proposes  to  make  six  annual  payments  of  $200,000  a  year 
on  one  dam,  and  three  annual  payments  of  $160,000  a  year  on  the  other  dam. 
After  they  are  deducted  there  is  left  this  $13,844,475. 

Mr.  QuiN.  You  are  leaving  in  there  the  $16,000,000  already  expended? 


•n^'i;  ^2?'^'';5'J.^a'"''  V'?  ^^cretary  of  War  stated  it  as  $17,000,000.  I  think  it 
will  be  $1<, 000,000,  and  I  have  included  that  amount  in  my  figures  The  last 
item  IS  the  item  in  reference  to  the  overflowed  lands,  amounting  to  $2,331,000, 
and  that^ makes  a  total  of  $83,175,475.  These  are  the  Wnr  Department  fi-ures 
which  I  have  confirmed  this  moriiino:  i„  consultation  with  the  Chief  of  Engineers 

Mr.  QuiN.  This  proposition  covers  a  governmental  activity  for  navigation    a 
quasi  governmental  activity  for  fertilizer,  and  nitrates;  that  is  what  is  proposed 
Is  it  not?  L      f         y 

Mr.  Cooper.  I  do  not  think  I  am  competent  to  pass  on  that.  I  can  only  tell 
you  about  the  engineering  side  of  it  and  the  cost  side  of  it.  .Just  what  the 
Government  plans  are  is  something  I  do  not  know  anvthing  about 

Mr.  QuiN  You  are  just  putting  up  the  propositioirthat  Mr.  Ford  ought  to  be 
charged  with  all  the  interest  on  the  amount  invested  at  4  per  cent' 

Mr.  Cooper    Before  I  get  through  I  have  a  constructive  suggestion  to  make 
to  the  committee  about  this  4  per  cent  propo.sition.     I  think  I  will  be  doing  a 
real  service,  m  helping  ah)ng  a  plan  that  will  enable  Congress  to  accept  Mr 
Jords  proposition  unless  something  very  much  better  comes  along 

Mr.  QuiN.  According  to  your  method  of  reasoning,  Mr.  Cooijer.' the  Govern- 
5!^i\n^''JJ^  charging  up  against  the  folks  4  per  cent  interest,  base<l  on  the 
,J.<0O,tH)0,000  we  have  put  in  the  river  and  harbor  improvements  since  we  have 
been^ engaged  in  that  line  of  activity  for  the  benefit  of  all  the  people;  is  that 

Mr.  Cooper.  I  do  not  think  that  is  hardly  an  analogous  ease,  although  if  I 
were  to  express  my  personal  opinion  I  would  say  that  nothing  on  rivers  and 
harbors  should  ever  be  done  unless  you  couhl  see  it  was  going  to  eam  some- 

Mr.  QuiN.  We  think  it  earns  something  for  the  benefit  of  commerce 

Mr.  Cooper.  What  the  value  of  the  Ford  proposition  from  the  point  of  view  of 
navigation  or  war  preparation  is,  you  might  as  well  ask  t^e  elevator  bov  I 
do  not  know  anything  about  it.  i/.  ,    i 

Mr.  QuiN.  You  think  Dam  No.  2  ought  to  be  finished  *» 

Mr.  Cooper.  I  certainly  do. 

Mr.  QuiN.  Did  you  design  Dam  No.  3? 

Mr.  Cooper.  No,  sir. 

vJJL^-^®'"^?'  ?^f'  ^'^"P^^'  .^■«"  ^ave  been  a  witness  at  practically  everv  in- 
vestigation that  has  been  made  by  Congress  in  reference  to  Muscle  Shoals 
nave  you  not?  ' 

Mr  Cooper.  Yes,  sir;  and  probably  on  every  water-power  proposition  in  the 
last  15  years. 

Mr  Fisher.  In  reference  to  your  estimate  of  the  Ford  offer,  I  would  like 
to  ask  you  just  what  value  you  place  on  plant  No.  2,  taking  into  consideration 
having  it  ready  under  the  terms  of  the  contract  always  as  a  nitrate  plant  for 
the  Federal  Government  and  subject  to  the  Government's  demand 

Mr.  Cooper.  You  mean  how  much  I  estimate  it  would  cost  to  finish  it' 

Mr.  Fisher.  What  is  the  value  of  the  plant  to  the  Government?  You  gave 
figures  as  to  what  the  Ford  offer  would  cost  the  United  States. 

Mr.  Cooper.  Yes. 

Mr.  Fisher.  Under  the  terms  of  the  contract,  Mr.  Ford  has  agreed  to  de- 
liver nitrate  plant  No.  2  all  the  time  ready  for  the  United  States  Government 
When  not  in  use  by  the  United  States  Government,  but  subject  to  its  demand 
^"  time  of  war,  and  to  maintain  there  a  laboratory  for  the  use  of  the  Army 
officers  in  connection  with  nitrate  preparedness;  and  at  the  end  of  the  100 
years  to  turn  back  to  the  United  States  that  plant  in  perfect  condition  to 
manufacture  nitrates  if  the  Government  wants  it.  Have  you  estimated  what 
that  value  is  to  the  United  States  Government? 

Mr.  Cooper.  No. 

Mr.  Fisher.  Have  you  estimated  it  at  all?  Have  you  in  your  figures,  which 
run  up  to  a  very  considerable  amount,  esitmated  what  the  value  would  be  to 
the  United  States  to  have  there  -a  fertilizer  factory  which  will  produce  fer- 
tilizers for  the  farmers  of  this  country?  You  have  made  an  estimate  amount- 
ing to  a  tremendous  sum  as  to  what  the  Ford  offer  would  cost  the  United 
States  Government.  I  ask  you  have  you  made  any  estimate  of  the  value  of 
the  other  proi)ositions? 

Mr.  Cooper.  No. 

Mr.  Wright.  Colonel,  did  you  take  into  consideration  the  amount  Mr.  Ford 
pays  annually  into  the  amortization  fund? 

Mr.  Cooper.  Yes,  sir;  the  figures  are  all  there. 

92900—22 27 


I 


416 


MUSCLE  SHOALS  PROPOSITIONS. 


Mr  Wright.  What  do  you  say  it  will  amount  to  at  the  end  of  a  hundred 
years? 

Mr.   Cooper.  $1,275,000,000. 

Mr.  Wright.  Do  you  tables  show  how  you  arrived  at  that  figure? 

Mr.  Cooper.  Yes. 

The  Chairman.  On  what  page  are  those  figures? 

Mr.  Cooper.  On  pages  1,  2,  3,  and  4.  I  can  send  to  the  committee  the  de- 
tailed mathematical  calculations  from  one  stage  to  another  if  you  desire  it 
These  are  the  results. 

The  Chairman.  If  you  would  like  to  have  it  put  in  the  record  we  will  be 
glad  to  have  it. 

Mr.  Cooper.  I  do  not  care  what  goes  into  the  record. 

The  Chairman.  The  chairman  would  be  very  glad  to  have  your  statement 
put  into  the  record. 

Mr.  Cooper.  You  shall  have  it. 

Mr.  Stoll.  Mr.  Cooper,  I  do  not  know  whether  I  understand  your  statement 
correctly  or  not.  You  mean  if  the  Government  accepts  Mr.  Ford's  offer  and  com- 
pletes Dam  No.  2  and  builds  Dam  No.  3  at  a  total  cost  of  $50,000,000,  that  at 
the  end  of  the  lease  period  it  would  cost  the  Government  $1,275,000,000  more 
than  Mr.  Ford  pays  to  the  Government.     * 

Mr.  Cooper.  Yes;  I  mean  exactly  that. 

Mr.  Stoll.  That  is  all  predicateil  on  the  idea  that  the  Government  is  investing 
that  money  at  4  per  cent  interest? 

Mr.  Cooper.  That  money  is  worth  4  per  cent,  whether  it  is  loaned  or  received. 

Mr.  Stoll.  The  Government  has  never  undertaken  to  lend  out  money,  has  it? 

Mr.  Cooper.  Yes ;  I  think  it  has.  If  you  pay  4  per  cent  for  your  loan  that 
established  the  price,  or  rather  the  value,  of  money. 

Mr.  Stoll.  If  an  individual  had  a  hundred  thousand  dollars  and  he  laid  it 
aside  and  did  not  invest  it,  at  the  end  of  25  years  he  would  still  have  the  hun- 
dred thousand  dollars  in  his  safe  deposit  box. 

Mr.  Cooper.  Yes ;  but  it  would  not  be  good  business. 

Mr.  Stoll.  No  ;  but  he  would  not  have  anything  but  the  $100,000.  If  the  Gov- 
ernment is  in  the  business  of  loaning  money,  the  $.50,000,000  they  spend  to  build 
this  dam,  unless  they  do  put  it  out  at  interest,  they  still  will  have  at  the  end  of 
the  100  years. 

Mr.  Cooper.  I  do  not  think  that  is  quite  true,  because  as  long  as  the  Govern- 
ment is  borrowing  it  will  be  paying  interest  at  the  rate  of  4  per  cent,  which  it 
ought  to  be  protecting  itself  against.  If  the  Government  did  not  loan  Mr.  Ford 
$2,000,000  annual  payments,  but  instead  used  this  money  to  reduce  loans  already 
out  the  net  results  on  the  Treasury  would  be  the  same  as  if  these  payments 
were  actually  loaned. 

Mr.  Stoll.  But  this  is  all  predicated  on  the  idea  that  the  Government  puts 
this  money  out,  which  it  does  not  do. 

Mr.  Cooper.  It  does  it  in  effect,  as  long  as  the  Government  borrows  money, 
and  I  guess  it  will  always  be  a  borrower. 

Mr.  Stoll.  In  effect ;  but  the  fact  is  they  do  not  do  it ;  so  that  you  have  figured 
this  on  a  false  basis,  have  you  not? 

Mr.  Cooper.  No  ;  my  basis  is  in  no  sense  a  false  basis,  as  I  have  previously 
explained. 

Mr.  Stoll.  They  have  spent  $16,000,000  on  Dam  No.  2,  have  they  not? 

Mr.  Cooper.  Yes ;  I  think  it  will  be  about  $17,000,000. 

Mr.  Stoll.  Could  that  dam  be  salvaged  at  any  value? 

Mr.  Cooper.  No,  sir. 

Mr.  Stoll.  It  has  to  be  completed,  or  it  is  useless,  and  there  will  be  that  much 
money  thrown  away? 

Mr.  Cooper.  That  is  correct. 

Mr.  Stoll.  Suppose  it  is  not  completed.  Have  you  figured  what  it  would  cost 
the  Government  for  100  years,  based  on  the  $17,000,000? 

Mr.  Cooper.  I  have  not. 

Mr.  Stoll.  Would  it  not  be  practically  one-third  of  what  it  w^ould  be  on  the 
$50,000,000? 

Mr.  Cooper.  Yes. 

Mr.  Stoll.  Which  do  you  think  is  the  wiser  proposition,  to  complete  the  dam 
or  not  to  complete  it? 

Mr.  Cooper.  It  is  much  wiser  to  complete  it  for  many  reasons. 

Mr.  Garrett.  Mr.  Cooper,  on  page  2  of  your  statement  you  have  estimated 
for  the  completion  of  Dams  Nos.  2  and  3,  $50,000,080? 


MUSCLE   SHOALS  PROPOSITIONS. 


417 


Mr.  Cooper.  Yes. 

Mr.  Garrett.  That  is  the  estimate  of  the  Government  engineers? 
Mr.  Cooper.  Yes. 

Mr.  Garrett.  Mr.  Ford's  engineer.^  estimated  the  cost  to  be  about  $42,000,000. 
What  do  you  think  it  will  cost? 

Mr.  Cooper.  I  think  Mr.  Ford's  engineers  are  mistaken. 

Mr.  Garrett.  You  think  your  figures  are  right? 

Mr.  Cooper.  I  think  they  are.  and  if  there  is  anv  change  made  it  will  be 
more  than  $50,000,000,  instead  of  less. 

Mr.  Garrett.  On  what  do  you  base  that  statement? 

Mr.  Cooper.  On  30  years'  experience  in  building  dams. 

Mr.  Garrett.  And  the  $.33,000,000  additional  which  you  add  would  bring 
the  total  up  to  $83,000,000.  Those  items  are  made  up  of  one  of  supposed  interest 
for  a  certain  period,  another  is  for  money  already  spent  on  the  dam,  and  then 
there  is  another  item  for  flowage  rights.  You  put  all  of  t1io.se  elements  of 
cost  in  your  estimate  and  add  to  that  the  $.50,000,000,  which  makes  a  total 
of  .$83,000,000,  and  then  you  calculate  on  that  basis  for  the  next  100  years. 

Mr.  Cooper.  It  does  not  come  quite  to  100  years;  it  is  about  94  years. 

Mr.  Garrett.  At  the  end  of  the  lease  period. 

Mr.  Cooper.  Yes. 

Mr.  Hull.  Mr.  Cooper,  I  was  unfortunately  not  able  to  be  here  at  the 
beginning  of  your  statement.  Have  you  covered  the  question  of  the  100-year 
lease  to  Mr.  Ford?    Do  you  consider  that  unreasonable? 

Mr.  Cooper.  Very. 

Mr.  Hull.  Why? 

Mr.  Cooper.  Because  nobody  on  earth  can  tell  anything  about  the  conditions 
100  years  from  now,  or  any  fi'action  of  100  years  from  now.  If  you  will  look 
at  the  conditions  in  1822  and  run  your  mind's  eye  over  what  has  haiipened 
between  1822  and  1922,  you  can  readily  see  no  human  being  could  have  made 
a  contract  in  1822  that  would  have  coveretl  the  conditions  that  have  occurred 
since  that  time  even  for  a  50-year  period. 

Mr.  Hull.  As  a  business  man  would  you  spend  fifteen  or  twenty  million 
dollars  without  having  a  lease  of  100  years? 

Mr.  Cooper.  Yes;  I  am  an  engineer  for  corporations  that  are  planning  to 
spend  more  than  $100,000,000  on  50-year  leases  now. 

Mr.  Hull.  What  is  the  lease  on  the  Keokuk  dam? 

Mr.  Cooper.  That  is  perpetual? 

Mr.  Hull.  You  built  the  dam? 

Mr.  Cooper.  Yes. 

Mr.  Hull.  Did  you  think  that  was  unreasonable? 

Mr.  Cooper.  You  mean  the  time? 

Mr.  Hull.  Yes,  sir. 

Mr.  Cooper.  No,  I  did  not  think  so;  but  I  will  tell  you  that  coal  in  that 
district  was  $1.40  a  ton,  against  which  we  had  to  compete. 

Mr.  Hull.  What  is  the  price  of  coal  now? 

Mr.  Cooper.  There? 

Mr.  Hull.  Yes. 

Mr.  Cooper.  I  think  it  is  about  $2.30. 

Mr.  Hull.  What  are  you  getting  for  horsepower  out  there? 
1     I.-  9^^*^-  That  comes   a  little  later   in  this  same   paper,   and  if  vou  can 
kindly  let  me  get  to  it  in  that  way,  I  would  prefer  it. 

Mr   Hull.  Certainly.    A  year  ago,  if  I  remember  correctly,  vour  testimony 

^^f  to  the  effect  that  the  Government  could  finish  this  proposition  itself 

Air.  Cooper.  Yes ;  and  if  the  Government  will  take  my  advice  it  would  do 
tnat  now. 

Mr.  Hull.  You  would  recommend  that  now? 

Mr.  Cooper.  Yes;  right  now. 

Mr.  Hull.  What  do  you  think  we  could  get  for  the  power  there?  That  i«? 
What  do  you  think  the  rate  per  horsepower  would  be? 

Mr.  Cooper.  I  think  you  could  lease  it  on  the  basis  of  a  return  to  the  Gov- 
ernment of  5  per  cent  on  all  the  money  they  put  in  it. 

Mr.  Hull.  Of  course,  that  is  on  Dam  No.  2? 

Mr.  Cooper.  Yes. 

Mr.  Hull.  You  would  not  build  Dam  No.  3? 

Mr.  Cooper.  I  do  not  know  much  about  Dam  No.  3. 

Mr.  Hull.    Would  you  have  to  build  Dam  No.  3  to  have  navigation' 

Mr.  Cooper.  Yes. 


418 


MUSCLE  SHOALS  PROPOSITIONS. 


ISIr. 
Mr. 


Mr. 
Mr. 
^Ir. 


Mr.  HuLT^  You  would  liave  to  take  that  into  consideration  if  you  were  tiT- 
ing  to  solve  the  navigation  problem  at  the  same  time? 

Mr.  Cooper.  Yes. 

Mr.  Hull.  \^)u  have  not  any  opinion  in  regard  to  nitrate  plant  No.  2,  or 
plant  No.  1?    In  reference  to  that  part  of  it  you  liave  not  any  fixed  opinion? 

Mr.  Cooper.  No  scientific  opinion,  but  a  little  later  I  would  like  to  tell  you 
something  that  has  recently  come  to  my  attention  about  the  fertilizer  game  it- 
self that  may  apply  to  those  two  plants. 

Mr.  Hull.  You  said  the  100-year  period  is  unreasonable.  What  would  be  a 
reasonable  length  of  time  for  a  lease  on  this  property? 

Mr.  Cooper.  I  think  50  years  would  be  a  maxinumi  time.  That  time  should 
not  be  allowed  unless  the  lease  was  subject  to  public  service  regulation. 

Mr.  Hull.  He  would  be  subject  to  the  laws  of  Alabama,  would  he  not? 

Mr.  Cooper.  I  do  not  know  anything  about  that  part  of  it.  I  have  seen  a 
statement  in  the  newspapers  that  he  was  not  to  be  subject  to  the  laws  of  any 
State  or  the  United  States,  in  that  sense.  I  do  no  mean  to  say  that  the  gen- 
tleman was  contemplating  murder,  or  anything  of  that  kind,  but  I  mean,  in 
direct  reply  to  your  last  question,  that  he  would  not  come  under  the  Federal 
water  power  law  or  not  under  the  State  law.  He  is  to  have  a  straight 
lease,  and  that  would  exempt  him  from  the  action  of  the  laws  of  Alabama. 
That  is  what  I  have  seen  and  read:  I  do  not  know  anything  about  it  except 
what  I  have  read  in  the  newspapers. 

Mr.  Hull.  I  think  not;  but  that  is  a  question  we  can  take  up  later.  You  as 
vn  engineer  take  the  50-year  limit  of  the  Federal  water  power  law  as  a  proper 
limit? 

Mr.  Cooper.  Yes:  it  is  long  enough. 
Hull.  In  all  cases? 
Cooper.  Yes. 

Mr.  Hull.  I  am  glad  to  hear  you  say  so. 

Mr.  Cooper.  I  have  always  said  so. 

Hull.  I  have  understood  that  most  engineers  think  that  is  a  handicap. 
<'oopER.  I  have  been  advocating  the  50-yeap  period  for  10  years. 
Hull.  Let  us  go  back  to  the  question  of  the  Government  finishing  the 
prop<isiti(»n.  Supiwse  the  Government  would  finish  it  Y'ou  understand,  of 
course,  that  it  would  be  impossible  to  administer  it  thi-ough  Congress,  and  the 
Government  could  not  administer  it  unless  a  corporation  was  organized  to 
take  it  over;  is  tJiat  not  true? 

Mr.  Cooper.  That  is  true,  but  my  theory  in  connection  with  that.  :Mr.  Hull, 
is  that  you  can  always  get  a  better  price  for  something  that  is  usable  than  for 
something  that  is  about  half  completeil. 

Mr.  Hull.  I  am  glad  to  hear  you  say  that,  because  you  are  an  expert,  anl 
I  have  advocated  that  thing  for  some  time. 

Mr.  Cooper.  We  are  in  entire  accord  on  that. 

Mr.  HLT.L.  You  say  it  would  t.;ike  $50,000,000  to  finish  it? 

Mr.  Cooper.  I  think  so. 

3Ir.  Hull.  You  could  not  finish  it  for  less  and  n.ake  the  river  navigable? 

3Ir.  Cooper.  Not  navigation  that  would  be  equally  valuable.  You  could  re- 
store the  canals  along  there,  but  the  canal  navigation  is  not  worth  much. 

Mr.  Hull.  There  would  not  be  any  question  that  if  we  finrthed  it.,  as  pro- 
posed in  the  Foixl  proiwsition,  that  we  would  have  good  6-foot  navigation  up 

the  river  ? 

!^Ir.  Cooper.  No  question  on  earth  about  that  for  the  stretch  of  the  river 

affected  by  dams  2  and  3.  ,         .         .  -n 

I^Ir.  Hull.  There  is  not.  any  question  about  the  power  that  these  dams  wm 
develop  under  the  Ford  proposition,  is  there? 

Mr.  Cooper.  I  do  not  think  so. 

:Mr.  :Miller.  Mr.  Cooi>er,  what  period  of  time  have  you  allowed  for  the  com- 
pletion of  Dam  No.  2? 

Mr.  Cooper.  Thirty-six  months.  ^^     oo 

I^Ir.  Miller.  How  long  do  you  consider  it  would  take  to  construct  Dam  No.  6! 

Mr!  Cooper.  About  the  same  time. 

Mr.  Miller.  Would  you  carry  on  those  operations  sinmltaneously,  or  wouW 
you  complete  Dam  No.  2  and  then  go  to  Dam  No.  3? 

Mr.  Cooper.  Complete  Dam  No.  2  first. 

Mr.  Mitxer.  Then  you  have  a  period  of  six  years  to  cover. 

Mr.  Cooper.  Yes,  sir. 


MUSCLE   SHOALS  PROPOSITIONS. 


419 


Mr.  Greene.  Of  course,  the  Federal  Government  now  holds  the  les.sees  of 
water  power  to  a  50-year  contract. 

INIr.  Cooper.  Yes. 

Mr.  Greene.  If  we  were  to  give  Mr.  Ford  100  years  we  might  give  him  the 
advantage  in  the  way  of  competition  with  people  who  do  not  derive  the  support 
of  the  Federal  Government  in  their  enterprises. 

Mr.  Cooper.  And  if  the  price  of  coal  goes  up.  as  nearly  everybody  thinks  it 
is  going,  at  the  end  of  100  years  the  Ford  lease  would  be  worth  a  perfectly 
fabulous  sum. 

Mr.  QuiN.  Mr.  Cooper,  your  interest  charge  which  you  have  allowed  would 
bring  :Mr.  Ford  out  in  debt  to  the  Government  to  the  amount  of  $1,200,000,000, 
would  it  not? 

Mr.  Cooper.  Oh,  no;  not  at  all;  he  would  not  owe  the  Government  anything. 

Mr.  QuiN.  Y"ou  mean  that  is  just  what  it  would  theoretically  bring  to  the 
Government? 

Mr.  Cooper.  No;  no  theory  at  all;  it  is  a  practical  matter.  The  taxpayers 
would  have  to  pay  this  $1,275,000,0(K>  of  real  money  into  the  United  States 
Treasury  because  IMr.  Ford's  payments  did  n«»t  meet  the  costs  to  the  Treasury  of 
the  properties  leased  by  that  amount. 

Mr.  QuiN.  Mr.  Eliot — and  no  doubt  you  are  familiar  with  his  w^ork — said 
that  if  1  cent  were  invested  on  the  1st  day  of  January  A.  D.  1,  drawing  6  per 
cent  interest  per  annum,  compounded  every  year,  up  to  January  1,  1895,  would 
have  amounted  to  $8,497,840,000;  then  we  have  lost  all  that,  have  we  not? 

Mr.  Cooper.  Nothing  like  that  at  all. 

Mr.  Garrett.  In  response  to  a  question  asked  of  you  you  said  that  if  coal 
continues  to  go  up,  at  the  end  of  this  100-year  period  the  lease  would  be  worth 
a  fabulous  sum. 

Mr.  Cooper.  Yes ;  I  would  say  for  the  last  50  years  of  the  period. 

Mr.  Garrett.  But  at  the  end  of  the  50  years 

Mr.  Cooper  (interposing).  It  all  goes  back  to  th^  Government. 

Mr.  Garrett.  Then  the  Government  would  have  this  property  that  had  been 
bi-ought  up  to  a  high  state  of  development? 

Mr.  Cooper.  And  would  have  great  value. 

Mr.  Garrett.  It  w^ould  have  great  value  to  the  Government? 

Mr.  Cooper.  It  would  have  gi-eat  value  to  the  Government. 

Mr.  Greene.  In  making  that  answer  have  you  taken  into  consideration  the 
fact  that  one  of  the  propositions  submitted  by  Mr.  Ford  is  that  whatever  dis- 
position the  Government  may  seek  to  make  of  this  property  at  the  end  of  the 
100-year  lease  Mr.  Ford's  heirs  or  assigns  or  the  company  that  represents  them 
shall  have  a  perpetual  right  to  the  power. 

Mr.  Cooper.  I  did  not  know  that  they  had  a  perpetual  right  to  the  power,  I 
thought  they  had  a  perpetual  preference  right. 

Mr.  Greene.  That  is  the  point  in  contention,  but  the  language  was  interpreted 
by  some  to  give  them  a  perpetual  right  to  take  the  powei*  at  reasonable  rates. 

Mr.  Cooper.  I  think  that  may  be  so.  but  I  am  not  a  lawyer,  and  I  do  not  want 
to  get  into  that  end  of  it. 

Mr.  Stoll.  In  reference  to  the  question  I  asked  you  a  while  ago  when  I  said 
the  Government  was  not  in  the  business  of  lending  money,  I  meant  that  was  not 
their  business ;  that  is,  lending  any  surplus  money  they  might  have.  Of  course, 
it  is  true  they  do  have  arrangements  for  lending  money  to  farmers,  based  on  farm 
security.    I  meant  any  surplus  money. 

Mr.  Cooper.  Not  as  bankers  per  se. 

The  Chairman.  We  will  be  glad  to  have  you  continue  your  statement,  Mr. 
Cooper. 

Mr.  Cooper.  I  thought  it  would  be  of  interest  to  the  committee  to  know  some- 
thing about  the  size  of  the  wateriwwer  that  they  were  considering  that  was 
included  in  the  Ford  offer,  and  by  size  I  mean  the  amount  of  energj-  covered 
by  the  lease.  To  estimate  the  quantity  of  power  that  will  be  available  during 
the  term  of  this  lease  is  a  very  difficult  question  for  any  engineer  to  solve  for 
the  reason  that  undoubtedly,  begii>ning  at  once  and  continuing  for  many  years, 
there  will  be  created  in  the  valley  of  the  Tennessee  above  these  dams  nunierous 
storages  which  will  greatly  increase  the  value  of  these  water  powers.  In  my 
estimates  I  am  now  about  to  quote  to  you  I  have  taken  no  account  of  that  be- 
cause I  do  not  want  to  get  into  the  realm  of  conjecture.  I  am  only  quoting 
from  absolute  measurements  of  existing  conditions  which  I  have  made  through 
my  own  organization,  and  therefore,  in  so  far  as  that  is  worth  anything  it  is 
authoritative,  as  far  as  I  am  concerned. 


i 


w 


420 


MUSCLE  SHOA-LS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


421 


I  find  that  the  annual  production  of  energj-  from  these  two  dams  will  be 
3.883,000,000  kilowatt  hours.  That  does  not  mean  anything  to  you  or  to  me 
because  you  can  not  comprehend  it,  or  I  can  not  at  least,  but  it  is  the  equiva- 
lent of  517,000  horsepower,  8.000  hours  a  year,  which  is  about  the  current 
maximum  of  continuous  use  of  power;  .">17,<XK)  horsepower  is  the  amount  of 
power  that  3,000,000  people  normally  use  in  commercial  life.  Perhaps  that 
will  give  you  some  idea  of  how  big  the  power  is  which  is  being  talked  about 
here;  517,000  horsepower  will  save  about  5.000.000  tons  of  coal  a  year. 

Passing  from  that  statement,  and  keeping  that  in  mind,  I  have  made  an 
estimate  which  represents  an  endeavor  «>n  my  part  to  carefully  and  conserva- 
tively estimate  what  Mr.  Ford's  annual  exi)enses  will  be  when  these  two  dams 
are  completely  in  commission,  in  that  way  enabling  us  to  find  out  how  much 
power  is  to  cost  Mr.  Ford  under  his  proposed  contract.  If  that  has  all  been 
brought  out  here  before  I  do  not  think  I  ought  to  take  your  time  to  talk  about 
it,  but  if  it  has  not  been  brought  out  I  think  it  would  be  a  good  thing  for  you 
to  know  now. 

The  Chairman.  I  think  we  would  like  to  have  your  view  of  the  matter,  at 
least. 

Mr.  Cooper.  If  you  will  turn  to  page  8.  we  can  consider  statements  Nos.  2 
and  3  together.  I  find,  and  this  estimate  is  based  upon  practical  experience,  that 
a  careful  interpretation  of  Mr.  Ford's  proposed  contract  shows  that  his  annual 
expenses  or  operating  costs  when  dams  Nos.  2  and  3  are  finished,  would  be 
.  .$3,622,000  a  year.  That,  of  course,  will  include  the  $2,000,000  lease  money  he  will 
have  to  pay,  and  I  have  included  taxes  at  the  rate  of  $765,000  a  year,  which 
is  considerably  less  than  ordinary  water  powers  in  the  United  States  are 
now  paying. 

Mr.  Crowther.  May  I  interrupt  to  ask  if  the  Alabama  law  exempting  con- 
cerns for  10  years  is  still  in  force;  that  is,  against  power  companies? 

Mr.  Cooper.  I  do  not  know;  if  it  is,  it  ought  not  to  be,  in  my  opinion. 

The  Chairman.  Mr.  Martin,  of  the  Alabama  Power  Co.,  is  in'^the  audience. 
Can  he  tell  us  about  that? 

Mr.  Martin,  That  law  is  still  in  force  and  exempts  the  property,  business, 
and  franchises  of  companies  engaged  in  the  development  of  hydroelectric  energy 
for  a  period  of  10  years  after  the  beginning  of  construction. 

Mr.  Crowther.  Would  that  apply  if  there  was  any  departure  from  merely 
primary  production  of  that  power,  if  there  was  any  development  considered 
or  premeditated,  if  there  was  any  subsidiary  business  in  connection  with  it. 
Take,  for  instance,  the  fertilizer  business.  Would  they  still  come  under  that 
exemption,  or  would  it  apply  only  to  the  development  of  hydroelectric  power, 

Mr.  Martin.  The  statute,  as  it  is  to-day,  provides  that  the  property,  busi- 
ness, and  franchise  of  any  person,  firm,  or  corporation  who  may  develop  hydro- 
electric power  is  exempt  for  a  period  of  10  years  after  the  construction.  If 
you  will  examine  section  2069  of  the  code  of  Alabama  of  1907  you  will  find  the 
full  statute.     It  is  only  about  15  or  20  lines. 

Mr.  Crowther.  It  provides  for  an  exemption  for  10  years? 

Mr.  Martin.  After  the  beginning  of  construction. 

Mr.  COOPER.  In  10  years  he  would  have  to  pay  taxes,  and  I  wanted  to  take 
the  most  generous  view  of  it.  I  think  the  figures  I  have  used  should  be  used, 
and  I  do  not  want  to  be  accused  of  trying  to  build  up  some  situation  that  is 
in  the  slightest  <legree  unfair  from  Mr.  FonVs  standpoint. 

Mr.  Crowther.  It  is  not  unfair  if  it  is  the  law. 

Mr.  Cooper.  I  am  not  trying  to  build  up  a  situation  showing  an  artificial  low 
price;  I  am  trying  to  build  up  a  s  tuation  that  is  normal  in  the  business. 

Mr.  Ckowtheb.  You  are  being  rather  fairer  than  if  you  took  the  other  propo- 
sition. 

Mr.  Cooper.  Absolutely ;  I  am  not  taking  advantage  of  any  law,  or  any  storage, 
or  anything  else. 

Mr.  Ckowther.  T  apologize;  but  I  thought  this  would  be  a  good  .place  to 
hnve  that  put  in  the  record. 

Mr.  Cooper.  We  can  go  back  now  to  page  6.  This  is  really  the  meat  in  the 
coconut.  I  will  call  your  attention  to  the  .statement  marked  6  (a).  Figuring 
the  annuMl  exi>enses,  as  I  have  .just  quoted  them,  into  the  amount  of  energy 
thrit  I  previously  showed  as  being  derivable  from  the  dams,  we  find  that  Mr. 
Ford  would  get  his  24-hour  power  for  $10.80  a  horsepower  per  annum,  which 
is  about  half  the  current  price  for  this  chiss  of  power  anywhere  else  in  the 
United  States.  On  the  basis  of  a  60  per  cent  load  factor,  by  which  I  mean  a 
power  that  is  used,  such  as  the  cotton  mills  use,  and  which  is  the  ordinary 


commercial  power  in  the  South,  the  power  6  (b)  would  only  cost  $7.10  a  horse- 
power, which  is  a  good  deal  less  than  half  the  price  in  that  territory.  On  sec- 
ondary power  6  (c)  the  price  would  only  be  $5.40  a  horsepower.  I  would  like 
conclude  this  part  of  the  statement  by  saying  that  as  a  net  result  of  the  propo- 
sition, as  it  is  written,  Mr.  Ford  wiU  be  getting  the  cheapest  power  on  the 
American  Continent.  Whether  Congress  wants  to  give  it  to  him  is  another 
matter,  and  I  do  not  enter  into  that  field  at  all. 

Mr.  Stoll.  That  is  predicated  on  the  idea  that  he  can  sell  or  utilize  all  of 
this  power. 

Mr.  Cooper.  Oh,  yes ;  I  think  he  can. 

Mr.  Stoll.  You  think  he  can.  Are  there  enterprises  there  now  that  use  that 
much  power? 

Mr.  Cooper.  I  will  come  to  that  in  connection  with  another  statement 

The  Chairman.  The  Chief  of  Engineers  of  the  War  Department  told  this 
committee  at  the  beginning  of  these  hearings  that  along  in  1921  he  was  instructed 
by  the  Secretary  of  War  to  invite  bids  from  the  men  who  might  be  interested 
in  continuing  the  work  at  Muscle  Shoals.  He  told  some  8,  10,  or  12  men  of 
this  country  who  were  engaged  in  building  up  plants  of  that  kind  to  make 
some  offer  to  the  War  Department  or  to  the  Secretary  of  War  for  the  utiliza- 
tion of  the  plant  at  Muscle  Shoals,  and  the  only  favorable  reply  he  received 
from  anybody  was  the  reply  from  Mr.  Ford.  They  all  seemed  to  be  afraid  of 
the  thing,  but  Mr.  Ford  really  did  make  an  offer.  Then  the  Secretary  of  War 
wrote  Mr.  Ford  that  his  offer  did  not  even  contemplate  interest  on  the  great 
expense  of  building  Dam  No.  2,  or  completing  it,  and  building  Dam  No.  3 
Then  Mr.  Ford  made  a  subsequent  offer  which  is  the  offer  we  have  before  us 
Now,  taking  your  statement  of  the  situation  at  Muscle  Shoals,  do  vou  not 
think  it  rather  remarkable  that  nobody  else  in  this  country  was  willing  to 
make  an  offer  regarding  the  plant  at  Muscle  Shoals,  except  Mr.  Ford? 

Mr.  Cooper.  Mr.  Ford  has  more  money  than  anybody  else  in  the  United 
States.    I  do  not  think  that  is  very  remarkable. 

The  Chairman.  Of  course,  he  has  considerable  means ;  but  do  you  not  think 
there  was  a  risk  involved  in  the  proposition?  Was  he  not  taking  any  risks 
at  all? 

Mr.  Cooper.  I  do  not  think  so  at  all.    Not  at  these  prices ;  no. 

The  Chairman.  You  think  it  was  not  surprising  that  all  these  other  men 
who  were  already  in  the  business-^ — 

Mr  Cooper  (interposing).  I  think  if  anybody  in  the  business  had  thought 
that  Congress  would  take  such  a  kindly  view  of  a  price  as  cheap  as  his  there 
would  have  been  several  fellows  bidding. 

The  Chairman.  We  had  some  exhibits  in  the  hearings  showing  that  quite 
a  number  of  big  corporations  handling  water  power  found  it  could  not  be 
worked  at  all  through  Congress,  and  rather  sneered  at  the  whole  thing 

Mr.  Cooper.  I  have  read  those  statements ;  I  think  they  were  made  with  a 
deliberate  attempt  to  bear  the  market ;  that  is  what  I  think  of  them  all  They 
were  not  made  in  good  faith.    I  want  to  say  that  with  especial  emphasis. 

The  Chairman.  We  respect  you  for  making  a  courageous  statement. 

Mr.  Cooper.  I  thank  you. 

The  Chairman.  That  is  a  remarkable  view  of  the  situation— that  it  was 
done  to  bear  the  market. 

Mr.  Fields.  Are  your  statements  in  the  paper  you  are  talking  about' 

Mr.  Cooper.  Those  are  the  one^  lam  talking  about  specifically.  On  page  10 
you  will  find  the  last  statement.  It  shows  that  if  Mr.  Ford  would  pav  4  ner 
cent  on  the  $83,000,000,  instead  of  $50,000,000  (his  present  offer  equals  about 
2*  per  cent  on  $83,000,000),  he  would  still  get  the  power  for  a  price  20  per 
cent  less  than  he  could  anywhere  else  on  the  American  continent.  If  I 
was  as  rich  as  Mr.  Ford,  or  half  as  rich,  I  would  not  be  trying  to  pry  that 
other  li  per  cent  out  of  the  United  States  Treasury ;  I  would  go  down  there 
and  take  this  job  and  pay  4  per  cent  on  the  whole  thing. 

The  details  are  all  shown  in  this  statement,  and  I  do  not  think  it  is  neces- 
sary to  take  the  committee's  time  In  going  into  the  details.  I  hoi^e  I  have 
made  myself  plain,  that  if  he  paid  4  per  cent  on  the  $83,000,000,  and  thereby 
save  the  Government  $1,275,000,000.  he  would  still  have  in  his  possession  for 
100  years  the  greatest  water  power  in  the  South,  and  at  a  price  that  is  abnor- 
mally cheap. 

If  there  are  no  questions  I  only  have  one  or  two  more  statements  to  make, 
and  then  I  will  be  through. 

Mr.  Stoll.  Y^ou  said  you  would  state  how  he  could  utilize  that  power. 


P 


422 


MUSCLE   SHOAJLS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


423 


? 


Mr.  CcKtPEE.  I  am  coming  to  that. 

KoT''^  Chairman    The  flowaRe  rights  between  Dam  No.  2  and  Dam  No  3  hnvB 

So!L',^""'f?„^  t'"  ^  "^T^'f  ""l^  t"  'he  committee  at  from  $lSS).5oS  to 
?2.000,000.  Do  I  understand  you  to  say  that  you  think,  instead  of  ask  iw^tlm 
Government  to  include  those  lands  In  the  purchase  i"gMs    ifrshould  be  wi li 

iof  tl^arfandr'  *•""'  '"'""''  ""  ""  '""""''  ""*  Go-venin'nt  is  to  lay  o"t 

^^rbii'i^^t^r  tiiT"''-  '''■•  '^'"■"  "■""•"  ^"'  '"'^•^ » ""-^^  -'"'-'"•" 

I  thmk  If  there  is  any  value  in  any  statement  I  have  made  to  this  commit 
tee.  to-day,  it  is  this  statement  I  have  just  now  made  to  vou     Yorwirfim " 
It  you  go  to  the  bottom  of  it,  it  is  the  truth,  too.  ' 

Mr.  Parker.  I  think  your  statement  shows  he  gets  his  horsepower  at  a  verv 
cheap  price  compare<l  with  present  rates.  I  understand  you  to  say  horsepower 
rates  are  likely  to  rise  from  year  to  year. 

Mr.  Cooper.  Very  much  so. 

Mr.  MoRiN.  It  is  your  judgment  that  the  flowage  rights  the  Government  win 
acquire  under  the  Ford  offer  could  be  purchased  at  $1,350,000? 

Mr.  Cooper.  I  do  not  think  so ;  because  in  all  the  historv  of  flowage  rights 
there  has  never  been  one  of  those  estimates  which  has  been  right 

Mr.  MoRix.  What  would  be  the  amount? 

Mr.  Cooper.  If  I  was  going  to  guess  at  it  I  would  double  it.  At  the  Keokuk 
Dam  I  estimated  the  overflow  lands  at  .$1,500,000  and  some  thousand  dollar^; 
and  it  cost  us  $4,500,000.  I  had  300  options  on  all  kinds  of  land  to  guide  us  in 
that  estimate. 

The  Chairman.  The  United  States  Government  was  not  buving  that  land 
Mr.  Cooper.  No;  easy  people  were  buying  it. 

The  Chairman.  But  the  United   States  Government  would  be  buying  this 
land.    You  know  how  prices  rise  when  the  Government  wants  to  buy  anvthing 
Mr.  Cooper.  Yes ;  it  is  a  very  bad  situation. 

Mr.   MoRiN.  AVould   it  be  necessary   for  the  United    States   Government   to 
acquire  land  for  railway  and  terminal  connections  there? 
Mr.  Cooper.  In  any  of  these  places? 
MoRiN.  Yes. 

Cooper.  I  do  not  think  so. 

Fields.  Would  you  charge  any  part  of  the  flowage  to  navigation? 
Cooper.  Not  until  there  was  some  navigation  to  charge  it  to. 
Fields.  If  the  dams  are  completed? 

You  have  to  complete  Dam  No.  1. 

If  Dam  No.  1  was  completed  there  would  be  navigation? 
Yes ;  up  to  end  of  the  pool  back  of  Dam  No.  3. 
Then  would  you  charge  anything? 

No;  not  unless  there  was  some  real  navigation  on  the  river.  I 
can  tell  you  a  very  short  story,  but  it  is  a  very  interesting  one,  and  I  think  this 
committee  ought  to  know  it.  At  Keokuk  we  spent  $2,000,000  in  the  construction 
of  a  lock  and  dry  dock,  which  we  gave  to  the  Government.  The  interest  on  the 
$2,000.0(K)  would  buy  all  of  the  boats  that  run  up  and  down  there,  and  if  we 
burned  up  the  boats  and  the  cargoes  they  carried  we  would  still  have  a  hand- 
some profit.  I  had  a  delectable  experience  with  the  master  of  one  of  those 
boats  on  the  Mississippi  River.  He  took  me  down  onto  his  boat  and  showed  hip 
a  cargo  he  was  hauling  from  St.  Louis  up  to  St.  Paul  and  back  to  St.  Louis, 
and  thus  show  some  freight  movement,  so  they  could  come  down  here  and  get 
some  more  money.  I  saw  that  cargo  myself,  and  the  captain  showed  it  to  me. 
The  Chairman.  You  mean  come  to  Washington? 
Mr.  Cooper.  Yes :  the  Upper  Mississippi  River  Improvement  Association. 

The  Chairman.  They  wanted  to  show 

Mr.  Cooper  (interposing).  A  tremendous  business. 

The  Chairman.  So  as  to  mulct  the  Treasury  of  the  United  States? 

Mr.  Cooper.  Absolutely. 

The  Chairman.  The  men  who  are  engaged  in  that  business  are  traitors  to 
their  country. 

Mr.  Cooper.  Of  course  they  are. 

Mr.  Garrett.  I  understood  you  to  say  you  thought  Mr.  Ford  should  pay  inter- 
est on  $83,175,000.  That  includes  the  original  cost  also,  and  added  to  that  the 
two  or  three  million  dollars  for  flowage  rights. 


Mr. 

Mr. 

Mr. 

Mr. 

Mr. 

Mr.  Cooper. 

Mr.  Fields. 

Mr.  Cooper. 

Mr.  Fields. 

Mr.  Cooper. 


Mr.  Cooper.  The  interest  on  it? 

Mr.  Garrett.  The  interest  on  all  of  it. 

Mr.  Cooper.  Yes. 

IMr.  Garrett.  You  think  if  this  proposition  of  Mr.  Ford  should  not  be 
accepted,  and  another  proposition  should  come  to  the  committee,  whoever 
makes  those  propositions  should  be  governed  by  the  same  rules? 

Mr.  Cooper.  Absolutely.  I  have  a  statement  to  make  which  is  not  an 
opinion,  but  is  a  statement  of  fact  also,  but  I  think  will  be  a  surprise  to  this 
committee,  and  it  is  something  that  ought  to  be,  and  I  hope  will  get  into  the 
newspapers,  and  get  down  South  around  Florence,  so  that  when  I  go  down 
there  the  next  time  they  will  not  shoot  ine. 

I  am  very  well  aware  of  the  tremendous  desire  of  the  people  in  the  South, 
especially  those  in  northern  Alabama,  for  the  consummation  of  Mr.  Ford's 
proposals.  They  have  good  reason  to  want  it,  and  I  do  not  blame  them;  I 
would  want  it,  too,  if  I  were  there. 

As  I  understand  Mr.  Ford's  proposal,  it  is  a  proposal  on  his  part  to  go  into 
various  lines  of  chemical  work.  He  has  said  that  in  public  print  in  many 
places.  I  doubt  exceedingly  the  wisdom,  from  the  standpoint  of  the  public 
interest  in  the  South,  of  taking  out  of  the  water-power  reserves  in  the  South 
so  great  an  amount  as  517,000  horsepower.  I  think  the  time  will  very  soon 
come,  if  this  is  consummated,  that  the  very  people  in  the  South  who  are 
clamoring  for  the  acceptance  of  this  proposal  will  be  crying  for  its  abrogation. 
That  opinion  would  not  be  worth  anything  if  I  couhl  not  point  to  something 
specific  to  back  it  up. 

It  just  so  happens  that  20  years  ago  at  Niagara  Falls  they  started  to  build 
what  is  now  400,000  horsepower.  At  that  time  they  could  not  get  a  market  for 
it,  so  they  took  in  the  chemical  people.  The  chemical  people  and  the  water- 
I)Ower  people  tied  up  and  built  up  a  great  industry,  all  in  chemistry.  But  it 
is  a  fact  that  this  water  power  at  Niagara  Falls  did  not  even  get  as  far  as 
Buffalo.  23  miles  away.  And  two  years  ago  Buffalo  had  to  pav  for  the  operation 
of  a  steam  plant  at  a  cost  of  $10,000,000,  and  that  city  is  within  23  miles  of 
the  greatest  water  power  in  the  world,  so  called. 

Now,  then,  since  the  last  year  there  has  been  a  widely  concerted  movement 
all  over  the  State  of  New  York,  represented  by  counties,  by  numerous  mayors, 
and  chambers  of  commerce,  and  all  kinds  of  barn-stormers  at  Albany,  to  get 
the  power  situation  at  Niagara  FaUs  corrected,  and  at  this  moment,  this  very 
moment,  they  are  passing  legislation  that  is  absolutely  conclusive  and  com- 
pelling, so  that  the  power  at  Niagara  Falls  can  be  distributed  all  over  the 
country,  and  no  more  of  it  go  into  chemistry.  Gov.  Miller  of  New  York 
has  sent  a  message  to  the  legislature  on  that  subject.  The  water-i^ower  com- 
mission has  recommended  that  it  should  be  done.  I  do"  not  want  to  be  under- 
stood as  saying  that  these  chemical  industries  at  Niagara  Falls  were  a  curse 
to  the  country.  Far  be  it  from  me  to  say  that.  They  actually  accomplished 
a  great  good,  and  the  country  would  have  been  in  a  dickens  of  shape  in  this 
war  without  all  of  them.  But  there  is  a  limit  to  which  any  more  water  power 
should  be  assigned  to  chemistry.  The  whole  Sta4:e  of  New  York,  and  all 
these  people  up  there,  after  only  20  years  of  experience  with  the  chemical 
industries,  are  storming  the  legislators  to  stop  the  use  of  power  in  chemistry 
in  a  territory  that  is  buying  coal  for  power  use.  Chemical  industries  do  not  use 
very  much  labor.    Take  the  Aluminum  Co. 

Everybody  knows  that  they  are  a  tremendously  large  company  and  very 
successful,  and  the  Lord  only  knows  what  we  would  have  done  in  the  last 
war  without  them.  They  have  150,000  horsepower  in  the  aluminum  works 
at  Messina,  and  the  town  is  not  much  bigger  now  than  it  was  20-  vears  ago.  ' 
AVhat  they  need  to  do  in  the  South  is  this:  The  South  needs  chea'p,  reliable 
energy  to  be  distributed  all  over  the  country,  for  the  assistance  of  a  large 
territory.  Secretary  Lane  was  the  author  of  the  movement  to  investigate  the 
superpower  zone  question.  The  quickest  way  to  get  a  superpower  zone  in  the 
South  is  to  have  the  assistance  that  can  only  come  from  these  two  powers  at 
Muscle  Shoals.  If  you  put  these  two  powers  at  Muscle  Shoals  away  into 
chemistry  it  will  be  the  same  thing  as  taking  a  vertebra  out  of  a  man ;  there 
is  nothing  to  fasten  the  ribs  to.  You  would  not  have  anything  to  start  a 
superpower  zone  with  at  all.  When  these  people  get  over  their  present  spell 
they  will  see  very  plainly  the  errors  in  their  present  enthusiasm. 

I  am  not  going  to  plead  for  the  rejection  of  Mr.  Ford's  proposal  at  all,  but  my 
conscience  requires  that  I  make  the  foregoing  statements,  after  which  I  do 


H 


i. 


424 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


425 


not  care  what  Congress  does.  I  think  it  would  be  a  tremendous  calamity  to 
the  South  if  the  greatest  water  power  they  have  got  should  be  taken  out  of 
the  field  of  public  utility  for  100  years. 

The  only  other  question  I  have  in  my  mind  is  this — and  on  that  I  can  not 
speak  with  detiniteness — that  the  value  of  this  whole  great  mass  of  energy 
at  these  two  dams  is  not  possible  to  estimate,  because  no  one  can  tell  how 
much  the  price  of  coal  is  going  up.  We  can  very  readily  see  where  at  the  end 
of  50  years  of  this  lease  that  this  power  would  be  worth  more  than  twice  what 
it  is  now,  due  to  the  increased  cost  of  coal. 

Now,  finally,  I  want  to  say  I  can  not  understand  how  anybody  would  want 
to  take  this  great  property  upon  which  the  Government  has  spent  around 
$33,000,000,  which  is  admittedly  the  greatest  water  power  in  the  South,  and 
put  it  where  no  representative  of  the  public  could  really  regulate  the  price  and 
regulate  those  to  whom  it  shall  be  delivered,  and  the  class  of  service,  and  all 
that  concerns  the  public  interest.  I  really  think  if  a  water-power  man  had 
come  down  here  and  had  made  the  same  proposition  Mr,  Ford  has  made  he 
would  never  have  lived  to  get  home.     It  is  an  astounding  proposition. 

Mr.  MoRiN.  If  we  should  decide  to  accept  Mr.  Ford's  proposition,  what  do 
you  think  should  be  the  limit  of  the  term  of  the  lease? 

Mr.  Cooper.  Fifty  years. 

Mr.  MoRiN.  That  is  the  maximum? 

Mr.  Cooper.  Yes. 

Mr.  MoRiN.  You  do  not  think  his  proposition  should  be  accepted? 

Mr.  Cooper.  Not  in  its  present  terms.  I  think  Mr.  Ford  is  bright  enough 
and  his  men  around  him  are  bright  enough  so  that  they  will  accept  all  of  these 
suggestions  I  have  made  here  to-day  before  they  will  let  this  property  go. 

Mr.  MoRiN.  Do  you  think  if  the  Government  should  complete  those  works 
itself  they  could  then  find  somebody  to  operate  the  works  for  50  years  to 
better  advantage  than  by  accepting  Mr.  Ford's  proposal  ? 

Mr.  Cooper.  You  mean  the  power  plant? 

Mr.  MoRiN.  Yes. 

Mr.  Cooper.  I  do  not  believe  I  quite  understand  your  question. 

Mr.  MoRiN.  If  the  Government,  after  finishing  this  work  itself,  would  be  able 
to  get  some  concern  to  take  over 'this  proposition  at  Muscle  Shoals  and  operate 
it  to  better  advant^ige  than  by  accepting  Mr.  Ford's  proposition ;  that  is  the 
question  ? 

Mr.  Cooper.  Yes;  and  right  here  I  would  like  to  say  one  thing  about  ferti- 
lizers, if  the  committee  is  not  tired.  This  is  an  entirely  new  angle  of  it.  I 
have  been  sitting  in  on  fertilizer  conferences  for  10  years.  I  was  sent  for  by  the 
British  Government  10  years  ago  to  go  to  Egypt  and  sit  in  on  a  conference  in 
connection  with  a  fertilizer  plant  for  the  Nile  Valley.  As  a  designer  of  water 
powers  I  have  been  seeking  successful  fertilizers  as  a  justification  for  building 
water  lowers  that  have  not  any  other  market.  During  all  these  10  years  I 
have  discovered  that  the  discoveries  themselves  are  outrunning  anybody's 
willingness  to  go  beyond  a  certain  point,  because  the  state  of  the  art  is  very 
new ;  that  is  to  say,  they  do  not  know  much  about  it,  so  far  as  I  can  find  out — 
not  any  of  them. 

When  we  realize  that  chemistry  is  at  the  beginning  of  its  development,  and 
electricity  also,  I  think  it  is  a  perfectly  wild  statement  to  expect  that  110,000 
tons  of  ammonium  nitrate  is  the  way  out.    That  I  know  is  not  so. 

I  happen  to  know  of  a  tremendous  new  fertilizer  program  that  is  coming  to 
America  from  Europe  that,  will  only  take  a  third  of  the  power  that  this  am- 
monium nitrate  requires.  I  am  told  on  authority  that  does  not  go  back  to  any 
fertilizer  company  at  all  but  through  other  circles  that  it  will  be  a  re\'elation 
and  a  revolution  in  the  fertilizer  business,  and  I  do  not  see  how  you  would  be 
willing  or  anxious  to  tie  down  to  any  particular  thing,  especially  when  all  of 
the  processes  of  nitrogen  recovery  and  all  these  other  recoveries  are  admittedly 
by  all  scientists  in  a  very  ineflicient  state  of  development. 

Mr.  MoRiN.  Do  you  think  that  Mr.  Ford  could  produce  fertilizer  at  prices 
to  compete  with  other  concerns? 

Mr.  Cooper.  I  do  not  believe  my  judgment  on  that  is  worth  anything;  I  do 
not  know. 

Mr.  Hull.  Mr.  Cooper,  we  do  not  tie  ourselves  down  to  any  particular  de- 
velopment along  the  fertilizer  line  if  we  accept  Mr.  Ford's  proposition;  it  is 
open. 

Mr.  Cooper.  I  can  not  see  where  Mr.  Ford's  promise  is  to  do  anything.  He 
just  promises  to  investigate.     There  are  a  great  many  different  men  investi- 


gating fertilizer  now,  and  surely  they  have  not  any  such  proposition  as  this 
behind  them. 

Mr.  Hull.  He  promises  to  investigate  and  to  have  that  investigation  con- 
trolled by  an  independent  commission  to  work  out  the  best  way  of  producing 
fertilizer.  If,  as  you  say,  something  new  comes  along,  they  unquestionably 
would  undertake  to  take  that  up. 

Mr.  Cooper.  That  is  a  matter  that  is  entirely  in  the  wLsdom  of  Congre.ss; 
it  is  not  an  engineering  question. 

Mr.  Hltll.  You  do  not  care  to  speak  about  that  feature  of  it? 

Mr.  Cooper.  My  opinion  is  not  worth  anything  on  that. 

Mr.  Hull.  If  it  would  cheapen  fertilizer  material  it  would  be  worth  all  it  is 
costing  the  Government,  would  it  not? 

Mr.  Cooper.  No,  I  don't  think  so.  According  to  some  of  the  previous  testi- 
mony here  to-day  I  think  you  will  have  to  pass  a  law  compelling  the  farmers 
to  use  it  in  many  eases. 

Mr.  Hi'LL.  There  has  been  some  question  as  to  the  difference  in  the  cost  of 
finishing  the  dams.  Some  people  have  claimed  that  Mr.  Ford  couhl  finish 
them  cheaper  than  the  Government.  You  are  fairly  conversant  with  the  Gov- 
ernment operations  down  there,  so  far.     Have  they  been  extravagant? 

Mr.  Cooper,     No. 

Mr.  Hull.  Do  you  think  the  Government  could  finish  that  work  with  their 
present  organizaticm,  building  up  the  same  organization  that  they  had,  and 
finish  it  as  cheaply  as  anyone  else? 

Mr.  Cooper.  Taking  everything  into  consideration,  I  would  say  yes. 

Mr.  Hull.  I  heard  you  say  it  had  cost  the  Government  $33.(M10,000  up  to  the 
present  time.  I  do  not  quite  understand  that.  I  thought  the  river  develop- 
ment had  cost  $30,000,000. 

Mr.  Cooper.  That  takes  in  a  lot  of  other  items. 

Mr.  Hull.  Tlie  flowage  rights? 

Mr.  Cooper.  Yes,  and  loss  of  interest  up  to  date. 

Mr,  Hull.  That  is  all  water  over  the  wheel. 

Mr.  Cooper.  Yes,  but  in  private  life  we  have  to  take  care  of  it. 

Mr.  Hull.  The  Government  has  not  taken  care  of  what  they  got. 

Mr.  Cooper.  I  think  the  Government  will  have  to  take  care  of  what  they  have 
been  letting  run  awa.y,  pretty  soon,  or  we  will  all  be  busted. 

Mr.  Hull.  Summing  it  up,  you  think  the  Government  ought  to  finish  this 
.  work  unless  we  can  get  a  better  proposition;  is  that  your  view? 

Mr.  Cooper.  Yes. 

Mr.  Hull.  Suppose  you  were  a  member  of  this  committee,  trying  to  conserve 
the  Government's  interest  and  save  money  as  best  we  may,  and  you  were  sat- 
isfied that  we  could  not  get  the  money  to  finish  this  up,  and  this  thing  was 
standing  down  there,  and  a  man  came  along  like  Henry  Ford  and  offere<l  to 
finish  it  up,  and  he  was  the  only  one  who  did  make  such  an  offer.  What  would 
you  do  then? 

Mr.  Cooper.  I  do  not  believe  I  would  be  bothered  about  that,  because  one  of 
your  premises  is  wrong  in  connection  with  that. 

Mr.  Hull.  Which  one? 

Mr.  Cooper.  Your  premise  that  you  cannot  get  the  money. 

Mr.  Hull.  We  tried  veiy  hard. 

Mr.  Cooper.  I  mean  Government  money. 

Mr.  Hull.  We  tried  our  best  a  year  ago. 

Mr.  Cooper.  I  think  you  could  get  it  now. 

Mr.  Hull.  We  did  not  get  it  through  Congress,  and  we  tried  the  best  we  could 
to  get  it  through  Congress.  But  there  is  one  question  I  would  like  t«)  have  your 
opinion  on  as  an  engineer ;  that  is  in  regard  to  the  Gorgas  plant.  According  to 
Mr.  Ford's  proposition  we  have  to  buy  the  Gorgas  plant.  Is  that  necessary  for 
the  completion  of  his  project? 

Mr.  Cooper.  No,  I  do  not  think  so.  I  do  not  know  enough  about  Mr.  Ford's 
plans  to  really  answer  that  question. 

Mr.  Hull.  Is  the  perpetual-preference  plan  that  Mr.  Ford  puts  in  there  unfair? 

Mr.  Cooper.  The  100-year  business? 

Mr,  Hull.  No  ;  the  preference  right  at  the  end  of  the  lease. 

Mr.  Cooper.  I  think  so. 

Mr.  Hull.  That  is  simply  a  preference  to  him? 

Mr.  CooPEB.  I  know,  but  you  do  not  know  anything  about  what  kind  of  i)eople 
the  Fords  will  be  100  years  from  now  or  50  years  from  now. 


426 


MUSCLE   SHOALS  PROPOSITIOXS. 


MUSCLE   SHOALS  PROPOSITIONS. 


427 


Mr.  Hrix.  That  means  that  having  the  property  there,  and  having  developed 
it.  if  two  companies  offer  the  same  thing,  the  Ford  company  should  be  given 
the  preference.  Why  is  that  unfair?  I  understand  that  some  people  say  it  is 
unfair,  but  I  can  not  see  why  it  is  unfair.         « 

Mr.  CooPEB.  Because  you  can  never  compel  anybody  in  the  United  States  to 
do  anything  that  they  ought  to  do  unless  they  really  want  to,  bv  law  or  in  anv 
other  way. 

:Mr.  Hull.  It  would  be  up  to  Congress. 

Mr.  Cooper.  I  know,  but  you  can  pass  all  the  laws  you  want  to,  and  if  a  fellow 
did  not  want  to  do  right  he  would  not  do  it.  They  always  get  out  of  it.  You 
have  got  to  have  the  will  to  do  right  before  you  really  do  right. 

Mr.  Hltll,  If  you  rent  a  farm  to  a  man  and  put  in  a  provision  in  the  lease 
that  at  the  end  of  the  lease  period  you  will  give  him  the  preference  in  re-leasin*^ 
it,  that  is  not  unfair,  is  it? 

Mr.  Cooper.  That  is  not  an  engineering  question,  and  I  do  not  want  to  discuss 
it  any  further. 

The  Chairman.  We  have  a  case  now  before  the  whole  counti-y  of  a  law  passed 
by  Congress  and  ratified  by  the  States,  but  the  people  do  not' seem  to  like  the 
law,  and  they  break  it.    That  is  the  prohibition  law. 

Mr.  F^iELDs.  And  that  is  getting  better. 

Mr.  Miller.  What  is  the  horsepower  at  the  Keokuk  Dam  ? 

Mr.  Cooper.  We  are  now  generating  a  maximum  each  day  of  about  165,000 


horsepower. 
Mr.  Miller 
Mr.  Cooper. 
Mr.  Miller 
Mr.  Cooper. 


And  the  cost  of  the  Keokuk  Dam  was  how  much? 
About  $24,000,000. 
That  was  built  in  what  year? 
It  was  finished  in  1912. 
Mr.  Miller.  At  the  time  the  dam  was  completed  was  there  a  demand  for  the 
maximum  amount ;  that  is,  at  the  Keokuk  Dam? 
Mr.  Cooper.  No. 

Is  there  a  demand  for  the  maximum  amount  now? 

We  are  entirely  sold  out.    I  happen  to  be  the  vice  president  of 


!Mr.  Miller. 
Mr.  Cooper. 
the  company. 
Mr.  Miller. 


How  do  the  rates  per  kilowatt  hour  at  the  Keokuk  Dam  now 
compare  with  the  rates  you  got  when  the  power  was  first  developed? 

Mr.  Cooper.  About  25  per  cent  higher. 

Mr.  Miller.  How  long  were  you  at  Muscle  Shoals? 

Mr.  Cooper.  The  first  time,  about  two  months. 

Mr.  Miller.  Are  you  acquainted  with  what  is  known  as  the  prospective 
Dam  No.  3? 

Mr.  Cooper.  Yes. 

Mr.  Miller.  How  does  the  size  of  that  dam — that  is,  the  dimensions — com- 
pare with  Dam  No.  2? 

Mr.  Cooper.  It  is  somewhat  longer  and  much  less  in  height. 

Mr.  Miller.  Dam  No.  2  has  a  drop  of  about  how  much? 

:Mr.  Cooper.  About  94  feet. 

Mr.  Miller.  Over  the  gates? 

Mr.  Cooper.  Yes ;  the  difference  between  the  two  levels  is  about  95  feet. 

Mr.  Miller.  What  is  Dam  No.  3? 

3Ir.  Cooper.  Thirty-eight  feet. 

Mr.  MiLLim.  That  fall  of  38  feet  at  Dam  No.  3  backs  the  water  up  how  far? 

Mr.  Cooper.  I  do  not  know,  but  I  think  about  60  miles. 

Mr.  Milij:r.  You  back  it  up  by  the  pool  at  Dam  No.  2  only  about  14  miles 
or  something  like  that? 

Mr.  Cooper.  Something  like  that. 

The  Chairman.  I  think  the  record  shows  that  the  distance  the  water  is 
backed  up  by  No.  3  Dam  is  63  miles. 

Mr.  Fields.  You  say  that  you  recommend  that  the  Goveniment  complete 
the  dam? 

Mr.  Cooper.  In  the  absence  of  a  better  proposition  than  Mr.  Ford's ;  ves.  I 
understand  the  Alabama  Power  Co.  has  a  project  which  is  to  be  submitted  to 
you,  but  I  do  not  know  anything  about  that  except  what  I  see  in  the  papers. 

^Ir.  Fields.  It  is  your  opinion  that  the  dam  should  be  completed? 

Mr.  Cooper.  Unqualifiedly  yes. 

Mr.  Fields.  Then,  in  the  event  Mr.  Ford's  proposition  should  not  be  accepted, 
and  a  better  proposition  or  a  proposition  that  Congress  would  accept  should  not 
be  offered  what  would  you  recommend  that  we  do  with  the  dam? 


Mr.  Cooper.  I  would  get  all  the  facts  before  each  Congressman  and  each 
Senator,  and  I  would  be  mighty  sure  they  actually  knew  what  the  facts  were, 
and  I  am  sure  they  would  vote  for  the  proposition.  The  trouble  with  you,  dear 
gentlemen,  is  that  you  have  so  much  to  do  that  you  do  not  get  all  the  facts 
on  these  things. 

Mr.  Fields.  You  would  not  recommend  the  operation  by  the  Government? 

Mr.  Cooper.  No,  sir. 

Mr.  QuiN.  Congress  passed  on  that  question  last  February,  and  they  killed  !i. 

Mr.  Cooper.  Do  you  not  think  Congress  knows  a  lot  more  about  that  now 
than  they  did  at  that  time?  I  know  something  about  the  things  that  killed  it, 
and  I  do  not  think  they  are  around  here  now. 

Mr.  QuiN.  I  am  simply  telling  you  what  the  record  shows. 

Mr.  Cooper.  I  know  what  the  record  shows  and  I  know  what  happened  at 
that  time,  too. 

Mr.  QuiN.  They  did  not  let  it  go  through. 

Mr.  Cooper.  No  ;  it  was  a  fluke. 

Mr.  Quix.  You  stated  that  the  Government  did  not  waste  any  money  down 
there,  that  the  work  was  done  economically.  There  was  a  war  investigating 
committee — one  of  those  smelling  committees — who  investigated  that  proposi- 
tion, and  they  reported  great  extravagancies  on  that  work. 

Mr.  Cooper.  I  do  not  think  they  did  with  reference  to  the  dam.  If  they  did 
they  made  a  mistake. 

Mr.  QuiN.  There  was  not  any  money  wasted  in  the  construction? 

Mr.  Cooper.  No;  I  do  not  think  there  was  in  that  sense. 

Mr.  QuiN.  I  am  glad  to  hear  that.  I  hope  Congress  will  realize  that.  You 
say  Mr.  Ford  would  have  the  cheapest  power  in  the  United  States? 

Mr.  Cooper.  Yes. 

Mr.  QriN.  About  how  much  per  cent  cheaper  than  any  other  power? 

Mr.  Cooper.  If  he  paid  4  per  cent  on  the  total  cost  that  would  be  20  per  cent 
less.  On  his  present  terms  it  is  about  half  the  price,  and  I  can  not  see  any 
earthly  excuse  for  his  having  it  at  that  price. 

Mr.  QuiN.  With  the  extraordinarily  cheap  power  he  would  have  he  would  he 
able  to  make  fertilizer  and  sell  it  cheaply  to  the  farmers? 

Mr.  Cooper.  If  I  correctly  interi^ret  what  I  have  been  listening  to  in  the  last 
five  or  six  years,  the  price  of  ptnver  has  a  very  small  place  in  the  total  cost 
of  fertilizer  that  the  farmer  buys,  and  under  these  new  processes  it  would  be 
a  very  small  amount,  and  the  farmer  would  never  know  the  difference. 

Mr.  QuiN.  With  all  this  high  cost  of  power  in  coal  and  transportation  on 
coal,  do  you  mean  to  say  that  water  power  at  this  very  cheap  rate  would  not 
enable  him  to  make  fertilizer  cheaper  that  the  steam  factory  can  make  it? 

Mr.  Cooper.  Some  of  the  new  processes  do  not  require  nuich  if  any  water 
power  at  all. 

Mr.  QuiN.  If  they  come  into  use  and  Ford  utilizes  them,  can  be  not  make 
fertilizers  out  of  any  thing  they  can  make  it  out  of? 

Mr.  Cooper.  He  is  a  miracle  man  with  the  Ford  car,  but  he  can  not  do  every- 
thing I  believe. 

Mr.  QuiN.  He  puts  out  a  five-passenger  touring  car  that  runs  on  the  finest 
avenue  in  the  United  States,  or  on  a  cow  path. 

Mr.  Cooper.  I  have  one  of  them  myself,  so  I  know  all  about  it. 

Mr.  QuiN.  Is  it  not  reasonable  to  presume  that  his  expert  men  would  be 
able  to  make  use  of  this  new  method  of  making  this  fertilizer? 

Mr.  Cooper,  Not  do  that,  and  do  the  other  things  they  are  trying  to  do.  But 
I  do  not  care  whether  you  give  It  to  him. 

Mr.  QuiN.  You  said  the  farmers  would  not  use  the  fertilizer  unless  a  law  was 
passed  to  make  them  do  it.    W^hy  not? 

Mr.  Cooper.  I  do  not  know;  I  do  not  understand  farmers  very  well.  The 
testimony  here  to-day  indicates  that  farmers  are  slow  to  use  fertilizers.  I 
have  heard  a  lot  of  them  say  they  would  not  use  it. 

Mr.  QuiN.  You  have  not  talked  to  the  kind  of  farmers  I  know. 

Mr.  Fisher.  Can  we  count  on  you  to  offer  criticisms  of  the  other  offers  made 
for  Muscle  Shoals? 

Mr.  Cooper.  If  you  can  stand  it,  I  can. 

Mr.  Fisher.  Have  you  examined  the  new  offer  which  the  newspapers  state 
the  Alabama  Power  Co.  has  made? 

Mr.  Cooper.  No. 

Mr.  Fisher.  I  hope  we  will  have  the  pleasure  of  a  criticism  from  you  on  that 
if  it  is  presented. 


428 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


429 


■S.' 


Mr.  Cooi*ER.  I  thank  you. 

Mr.  Stoll.  You  expressed  the  opinion  that  Congress  did  not  understand  the 
proposition  when  they  refused  to  complete  dam  No.  2.  I  suppose  there  were 
very  few  engineers  in  Congress  at  that  time,  and  that  tliere  are  very  few 
in  Congress  at  this  time.  Do  you  think  it  will  help  Members  of  Congress  to 
see  this  plant?    Do  you  think  it  will  help  them  to  come  to  a  conclusion? 

Mr.  Cooper.  Yes. 

Mr.  Stoll.  You  think  it  would  be  advisable  to  look  at  it? 

Mr.  CooPEK.  In  20  years  I  have  never  found  a  Congressman  who  would  not 
do  the  normal  thing  if  you  get  the  facts  down  his  throat. 

Mr.  Stoll.  Under  the  figures  in  your  table  here  these  two  dams  would 
generate  850,000  horsepower.  Can  Mr.  Ford  utilize  that  himself  in  manu- 
facturing? 

Mr.  Cooper.  My  own  guess  is — and  this  is  the  first  time  I  have  guessed  for 
you  to-day — that  he  is  not  going  to  make  much  fertilizer,  but  he  is  going  to 
make  aluminum  for  Ford  cars. 

Mr.  Stoll.  Can  he  use  the  850,000  horsepower  he  will  get  there? 

Mr.  Cooper.  Can  he  use  it? 

Mr.   Stoll.  Yes. 

]VIr.  Cooper.  I  do  not  know. 

Mr.  Stoll.  Is  there  any  place  there  where  he  can  sell  it? 

]Mr.  Cooper.  Under  present-day  transmission  if  he  goes  at  it  in  a  normal 
way  he  can  sell  it  to  the  public. 

Mr.   Stoll.  Where? 

Mr.  Cooper.  All  around  through  the  South. 

Mr.  Stoll.  There  are  very  few  large  cities  around  there. 

Mr.  Cooper.  Cheap  power  makes  a  demand  for  more  power  always. 

Mr.  Stoll.  How  far  can  you  send  this  power? 

Mr.  Cooper.  More  than  400  miles. 

Mr.  Stoll.  That  is  an  undeveloped  country. 

Mr.  Cooper.  Yes;  I  have  been  down  there. 

Mr.  Stoll.  Do  you  think  you  could  sell  that  much  power? 

Mr.  Cooper.  Inside  of  15  years ;  not  in  less  time  than  that. 

Mr.  Stoll.  That  is  problematical ;  he  will  have  to  find  a  market  for  his 
power.    There  is  no  market  there  now. 

Mr.  Cooper.  If  he  carries  out  his  aluminum  project,  which  I  think  he  has 
in  mind,  he  is  not  going  to  have  to  look  for  a  very  large  market. 

Mr.  Stoll.  In  making  up  your  figures  you  figured  on  his  getting  a  price  for 
all  this  power. 

Mr.  Cooper.  I  figured  on  what  it  would  cost  him.  I  assumed  he  would  sell 
it  for  more,  else  he  would  not  make  any  money. 

Mr.  Stoll.  That  is  the  presumption,  of  course.  He  would  not  produce  power 
unless  he  could  sell  it,  of  course. 

Mr.  Cooper.  Many  men  have  done  it.  I  imagine  he  would  follow  the  normal 
course.  Everybody  has  to  originally  produce  more  power  than  he  can  sell  and 
grow  a   market   afterwards. 

Mr.  Stoll.  Is  there  any  way  to  store  it? 

Mr.  Cooper.  No. 

Mr.  Stoll.  It  would  be  dead  loss  unless  he  could  dispose  of  it? 

Mr.  Cooper.  Yes. 

Mr.  Stoll.  In  figuring  his  profits,  is  it  not  a  rather  wild  guess  to  say  he  would 
make  all  this  money,  unless  he  could  dispose  of  his  current? 

Mr.  Cooper.  No  ;  I  do  not  think  so,  because  the  price  is  so  very  low  it  will 
attract  a  market ;  that  is  the  point.    He  can  get  a  chemical  market  for  it. 

Mr.  Stoll.  Unless  he  does  sell  it,  your  figures  fall  down. 

Mr.  Cooper.  Until  he  does  sell  it,  the  figures  fall  down.  I  have  not  said  it 
was  a  profit  at  all ;  I  did  not  use  the  word  profit  at  all.  None  of  these  figures 
refer  to  a  profit. 

Mr.  Stoll.  You  made  fce  statement  that  he  would  get  cheap  power. 

Mr.  Cooper.  You  know  cheap  power  does,  not  mean  that  you  have  a  profit 
out  of  it. 

Mr.  Stoll.  He  is  too  good  a  business  man  to  spend  that  much  money  and 
develop  850,000  horsepower  unless  he  could  dispose  of  it  in  some  way. 

Mr.  Cooper.  He  certainly  lias  plans  to  dispose  of  it,  but  he  does  not  reveal 
hig  plans. 

Mr.  Stoll.  Do  you  not  think  the  reason  he  wants  a  hundred-year  lease  is 
because  there  is  going  to  be  a  gradual  development? 

Mr.  Cooper.  No;  there  is  nothing  like  that 


Mr.  Stoll.  You  never  talked  with  Mr.  Ford? 

Mr.  Cooper.  No. 

Mr.  Stoll.  You  do  not  know  what  his  plans  are? 

Mr.  Cooper.  No.  But  I  know  how  fast  a  market  for  power  grows.  When 
we  started  20  years  ago  in  the  Niagara  Falls  district  you  could  hardly  give 
away  power,  but  to-day  there  is  a  market  for  1,000.000  horsepower. 

Mr.  Stoll.  That  is  a  manufacturing  district  and  is  very  thickly  populated; 
they  have  large  cities  there. 

Mr.  Cooper.  That  is  an  instance  of  the  extraordinary  way  in  which  that 
market  has  grown.  But  the  market  grown  there  has  been  created  by  the 
parent  water-power  situation. 

Mr.  Stoll.  Within  400  miles  of  Muscle  Shoals  there  would  not  be  over  a 
couple  of  million  people. 

Mr.  Cooper.  The  statistics  of  the  power  business  show  that  one  horsepower 
is  used  by  about  five  people.  If  there  are  2,000,000  people  within  the  transmis- 
sion distance  of  Muscle  Shoals,  that  is  400,000  horsepower. 

Mr.  Stoll.  I  do  not  know  that  there  are  2,000,000  people  there;  that  is  guess- 
work. 

Mr.  Cooper.  My  memory  is  that  it  is  something  more  than  that. 

Mr.  Stoll.  Within  a  radius  of  400  miles  of  Muscle  Shoals  you  think  there 
would  be  2,000,000  people? 

Mr.  Cooper.  I  would  not  say  whether  it  would  be  2.000,000. 

Mr.  Hull.  There  is  just  one  question  I  want  to  ask  you  along  the  line  of 
primary  and  secondary  power.  There  is  quite  a  difference  in  the  two  powers, 
as  far  as  selling  the  power  is  concerned? 

Mr.  Cooper.  There  is  a  great  difference. 

Mr.  Hull.  Down  there  you  would  have  a  large  amount  of  secondary  power 
compared  with  your  primary  power? 

Mr.  Cooper.  About  twice  as  much,  at  the  present  time.  But  that  ratio  will 
change  when  you  build  your  storages. 

Mr.  Hull.  It  will  gradually  change? 

Mr.  Cooper.  And  improve  greatly. 

Hull.  That  would  be  changed  by  the  development  of  Dam  No.  3? 
Cooper.  Not  much. 

Hull.  The  power  at  Niagara  Falls  and  Keokuk  is  practically  all  pri- 
mary power,  is  it  not? 

Mr.  Cooper.  No. 

Mr.  Hull.  How  much  secondary  power  do  you  have  at  Keokuk? 
Cooper.  About  half. 
Hull.  Can  you  sell  that? 

Cooper.  Yes ;  we  have  sold  all  of  it,  every  kilowatt. 

Miller.  I  asked  this  question  of  a  gentleman  early  in  the  examination, 
whether  the  acquisition  of  a  water  power  at  Muscle  Shoals  was  not  the  main 
inducing  cause  of  Mr.  Ford's  submitting  this  proposal. 

Mr.  Cooper.  I  should  think  it  was ;  yes,  sir. 

Mr.  Parker.  You  spoke  of  aluniinum.  How  much  horsepower  would  it  take 
to  make  all  the  aluminum  for  the  present  manufacture  of  Ford  cars? 

Mr.  Cooper.  I  am  afraid  I  will  not  be  able  to  give  you  a  correct  answer  about 
that,  but  my  guess  is  it  would  be  about  250,000  horsepower. 

Mr.  Fields.  I  understood  you  to  say  you  are  connected  with  the  Keokuk 
Power  Co.? 

Mr.  Cooper.  Yes. 

Mr.  Fields.  Are  you  connected  with  any  other  power  company? 

Mr.  Cooper.  No. 

Mr.  Fietj)s.  Of  the  United  States  or  Canada? 

Mr.  Cooper.  No;  just  as  an  engineer. 

Mr.  Fields.  What  companies  are  you  connected  with  as  an  engineer? 

Mr.  Cooper.  With  the  Niagara,  Lockport  &  Ontario  Co.,  at  Niagara  Falls, 
and  the  Frontier  Corporation,  of  New  York.  I  am  also  connected  with  a  few 
other  power  corporations. 

Mr.  Fields.  Is  this  Niagara  Falls  concern  you  mentioned  connected  with  the 
American  Cyanamid  Co.? 

Mr.  Cooper.  No. 

The  Chairman.  We  are  very  much  obliged  to  you  for  your  very  instructive 
and  enlightening  statement,  Mr.  Cooper. 

(Thereupon,  at  5  o'clock  p.  m.,  the  committee  adjourned  to  meet  Monday, 
February  20,  1922,  at  10.30  o'clock.) 


IMr. 
Mr. 
Mr. 


Mr. 
Mr. 
Mr. 
Mr. 


MUSCLE  SHOALS  PROPOSITIONS. 


Committee  on  Militaky  Affairs, 

House  of  Representatives. 

Friday,  February  17,  1922. 
The  committee  met,  pursuant  to  recess,  at  2  o'clock  p.  m. 

STATEMENT    OF    MB.    THEODORE    SWANN,    PRESIDENT    FEDERAL 

PHOSPHORUS  CO.,  BIRMINGHAM,  ALA. 

The  Chairman.  Mr.  Swann,  will  you  please  state  your  name  and  vour  present 
occupation,  and  residence. 

Mr.  Swann.  Tlieodore  Swann,  president,  Federal  Phosphorus  Co.,  Birming- 
ham, Ala. 

The  Chairman,  Mr.  Swann,  you  are  an  engineer. 

Mr.  Swann.  No,  sir. 

The  Chairman.  But  you  have  studied  the  situation  at  Muscle  Shoals  aud 
along  the  Tennessee  River  for  a  considerable  time? 

Mr.  Swann.  Yes,  sir. 

The  Chairman.  You  claim,  or  your  friends  claim  for  you.  that  vou  know 
nearly  as  much  about  the  situation  down  there  as  anybody.  I  would  like  you 
to  state  to  the  committee  in  your  own  way  just  what  tiie  condition  is,  and 
what  the  situation  is  at  Muscle  Shoals.  You  will  kindly  proceed  in  your  own 
way. 

Mr.  Swann.  My  first  connection  with  ^luscle  Shoals  was  when  I  was  sales 
manager  of  the  Alabama  Power  Co.  in  1913,  at  which  time  in  mv  position  I 
collected  data  as  to  the  possible  market  for  power,  should  they  develop  the 
property  which  they  at  that  time  owned. 

At  a  later  date,  I  started  an  electric-furnace  plant  for  the  production  of  ferro- 
luanganese,  in  February,  1917,  for  the  purpose  of  utilizing  secondary  power  of 
which  the  company  had  a  large  quantity.  I  then  resigned  mv  position  with  the 
Alabama  Power  Co. 

I  personally  own  the  controlling  interest  in  this  company  as  well  as  the 
Federal  Phosphorus  Co.    We  engaged  a  staff 

The  Chairman  (interposing).  What  do  you  mean  by  "this  company?" 

Mr.  Swann.  The  Southern  Manganese  Corporation,  which  was  the  company 
that  produced  ferromanganese. 

We  engaged  the  best  technical  staff  we  could  find  to  develop  something  for 
the  electric  furnace  to  do  with  secondary  power,  as  the  ferromanganese  market 
was  being  well  supplied  prior  to  the  armistice ;  in  fact,  there  was  a  surplus 
lu  this  country  as  was  proven  by  the  quick  drop  in  price  after  November  11th 

The  Chairman.  You  mean  November  11,  1918? 

^Ir.  Swann.  Yes. 

The  Chairman.  That  is  the  day  on  which  the  armistice  was  signe<l. 

Mr.  Swann.  Yes. 

The  Chairman.  Or  went  into  effect. 

Mr.  Swann.  Yes.  In  fact,  in  New  York  on  the  day  of  the  premature  an- 
nouncement, while  I  was  operating  eight  furnaces  on  ferromanganese,  I  wired 
"i.v  plant  to  shut  down  three  furnaces,  knowing  that  there  was  too  much 
lerromanganese  in  the  country. 

T.,^  was  in  touch  all  along  with  the  War  Industries  Board,  and  Mr.  C.  H. 
McDowell,  who  was  the  director  of  the  chemical  section,  suggested  that  we 
make  potash. 

AVe  continued  some  experiments  on  the  utilization  of  Georgia  shales  for  pro- 
uucing  potash,  since  our  supply  was  cut  off  from  Germany  at  that  time,  and  the 
western  fields  had  not  been  developed. 


Ml 


92900—22 28 


431 


432 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


433 


We  did  ^produce  some  potash  by  volatilizing  it  in  the  electric  furnace ;  that 
is,  we  charged  into  the  furnace  a  potash-bearing  shale,  and  we  produced  a 
product  as  high  as  40  per  cent  potash,  which,  at  the  prices  then  prevailing 
would  have  been  a  very  prolitable  business. 

A  little  later,  Mr.  McDowell  suggested  the  Government  would  need  more 
phosphorus  for  smoke-screen  and  other  war  purposes,  and  we  took  a  contract 
to  build  a  plant  for  the  Government  on  the  basis  of  cost  plus  $1  for  the  produc- 
tion of  large  tonnage  of  phosphorus. 

We  had  not  proceeded  very  far  with  the  plans  when  the  armistice  was 
signed.  We,  of  course,  were  interested  in  phosphorus  from  our  studies  at 
that  time,  and  it  was  further  suggested  that  phosphoric  acid  could  be  made 
in  the  electric  furnace. 

The  Bureau  of  Soils  had  conducted  some  experiments  at  their  Arlington 
Farm  and  later  at  Hoboken,  but  only  in  a  limited  way  with  a  small  furnace. 
They  deserve  much  credit  for  their  work. 

The  War  Industries  Board  arranged  the  loan  of  one  of  the  representatives 
of  the  Bureau  of  Soils,  Mr.  J.  N.  Carothers,  who  came  down  to  assist  on  behalf 
of  the  Government  in  getting  the  plant  ready  for  the  production  of  phosphorus. 
Later,  I  secured  the  services  of  Mr.  Carothers,  who  came  with  us  to  join  in 
this  development. 

Very  briefly  speaking,  we  had  a  20.000  kilowatt  plant,  which  is  about  one- 
fourth  as  large;  in  fact,  it  is  slightly  more  than  one-fourth  as  large  as  the 
Muscle  Shoals  plant.  We  did  not  know  what  we  were  going  to  do  with  it. 
We  could  not  continue  the  manufacture  of  ferromanganese  because  the  Eng- 
lish had  come  into  competition  and  reduced  the  price  to  a  very  low  figure. 
It  could  be  made  in  the  blast  furnace,  and  there  is  absolutely  lio  excuse  for 
making  anything  in  an  electric  fuinace  unless  you  can  make  it  of  better  grade 
or  higher  quality  than  in  the  blast  furnace. 

Knowing  that,  we  made  studies  of  every  alloy  that  had  been  made  in  the 
electric  furnace,  searchng  for  the  location  of  raw  materials,  the  principal 
points  of  manufacture,  the  principal  markets,  and  when  we  came  to  phosphate 
rock,  since  we  are  located  substantially  midway  between  the  Tennessee  an<l 
Florida  deposits,  and  as  the  United  States  has  more  than  one-half  of  the 
world's  supply  of  phosphate  rock,  we  decided  to  confine  our  experiments  to 
something  to  do  with  phosphate  rock  in  order  that  we  m'ght  salvage  our 
war-time  plant  and  make  it  of  some  use  and  value;  otherwise,  we  would  have 
to  scrap  it. 

I  might  say  we  really  had  a  prize  offered  us.  We  built  this  plant  for  a 
total  of  alx)ut  .$800,000.  It  would  not  scrap  for  .$1.^0.000.  Therefore,  if  we  could 
find  something  it  could  do,  we  could  make  it  work  its  cost  or  a  prize  of  $650,000 
was  offered  to  ourselves  if  we  found  something  with  which   to  utilize  it. 

We  first  started  in  the  producfon  of  ferrophosphorus,  to  learn  something 
of  the  peculiarities  of  working  phosphate  rock. 

The  exiieriments  conducted  by  the  Bureau  of  Soils  were  of  value  to  us  but 
they  proved  there  was  considerable  technical  difficulty  in  the  handling  of 
phosphate  rock. 

At  a  later  date,  we  made  phosphoric  acid ;  in  fact,  our  first  phosphoric  acid 
was  made  about  2*  years  ago.  Then  we  tried  the  combining  of  potash-bearing 
shale  from  Ge<irgia  in  the  electric  furnace  with  phosphate  rock  to  produce 
a  pota.ssium  phosphate. 

I  might  briefly  describe  the  process  for  making  phosphoric  acid  in  the 
electric  furnace.  Our  furnaces  were  of  the  open-top  rectangular  type,  known 
as  the  carbide-type  furnace,  exactly  like,  except  smaller,  than  the  ones  you 
have  at  Muscle  Shoals  nitrate  plant  No.  2. 

The  capacity  of  each  of  our  furnaces  was  4,000  horsepower,  which  removed 
them,  of  course,  from  the  experimental  class. 

We  charged  into  the  electric  furnace,  phosphate  rock  from  Teunessee,  which 
is  the  lump  rock,  or  the  Florida  pebble  rock  as  our  source  of  phosphorus ;  then 
the  silica  rock  which  is  an  acid  to  flux  the  excess  of  a  base  or  lime  that  is 
present  in  the  phosphate  rock,  coke  braize  as  a  reducing  agent — not  the  ordi- 
nary lump  coke,  but  a  cheaper  material,  coke  braise,  and  then  some  cast-iron 
borings.  Our  purpose  in  adding  the  cast-iron  borings  was  to  improve  the 
operating  condition  of  the  furnace  and  make  some  ferrophosphorus  whic'li 
really  was  our  bread  and  butter  while  we  were  developing  this  process  as  we 
had  lost  a  very  large  sum  of  money  on  the  decline  of  manganese,  which  dropped 
in  a  short  i>eriod  of  time  from  .$280  a  ton  to  $95  a  ton;  incidentally,  one  of 


the  first  of  the  commercial  wars,  in  which  the  English  said  thev  were  goin-  to 
take  back  the  market  that  they  had  in  this  <,,«„trv— and  thev'did 

The  phosphorus  is  evolved  as  phosphorus  by  th^  heat  of  the  electric  arc  or 
furnace.  A\hen  it  comes  in.  contact  with  air  in  an  inclosed  furnace,  it  turns 
to  phosphorus  pentoxide,  sindlar  to  the  form  in  which  they  use  the  phosphor  s 
for  snioke-screen  work.  It  is  a  dense,  heavy,  white  fume.  That  is  carried 
over  in  the  gases  and  pas.sed  through  a  condenser  and  precipitator  Bein- 
hydroscopic  or  picking  up  water  easily,  strange  as  it  may  seem,  it  comes  out  of 
the  electric  furnace  as  a  liquid.  The  liquid  phosphoric  acid  that  we  colle<-t 
IS  approximately  65  per  cent  P205,  which  is  four  times  the  strength  of  ordinarv 
acid  phosphate  as  produced  by  the  sulphuric-acid  method 

Now,  once  we  obtained  liquid  phosphoric  acid  of  this  high  degree  of  nuritv 
and  high  strength,  we  naturally  sought  first  the  markets  that  would  bring  us 
the  best  price,  which  are  known  as  the  fo<Kl-grade  markets 

B.y  a  simple  process  of  purification,  due  to  the  fact  that  we  have  a  pure  acid 
to  start  on,  we  were  able  to  obtain  an  acid  that  is  suitable  in  the  East  for  soft 
drinks  and  is  mixed  with  either  lime  or  ammonia  or  soda  into  a  water  softener 
a  boiler  compound,  or  rust-proof  coiiiiK)und,  or  for  u.se  bv  the  peroxide  blonde< 
b.v  way  of  the  h.vdrogen-pei'oxide.  There  are  very  many  u.ses  for  phosphoric 
acid,  and  sugar  refining  is  one  of  them. 

TT^^?^'^o'l''l^'^u  i^^*  *''"^^  ^"^^  ^'^""^  «  ^«"*  •^'h^^^  *»^  ^^^  total  busine.ss  of  the 
United  States  but  always  had  in  mind  the  fertilizer  industry 

Roughly   speaking,   25,000  horse|)ovver   would   produce  enough   of  the   hi^h- 
grade  acid  to  supply  the  entire   requirements  of  the  United   States    but^o 
take  care  of  the  fertilizer  industry  on,  say,  the  average  of  the  past  10  vears 
would  take  from  400,000  to  600,000  horsepower.  * 

Having  once  been  in  the  jjower  business,  and  knowing  something  of  that 
end  of  the  proposition,  I  always  had  in  mind  trying  to  find  somethimr  that 
could  utilize  secondary  power,  knowing  that  it  could  be  obtained  cheap  in  the 
South,  since  the  entire  Appalachian   section  is  one  of  seasonal  stream  flow 
Ihe  fertilizer  business  is  seasonal,  so  the  two  fit  in  together  very  well 

The  65  per  cent  liquid  ph(»sphoric  acid  is  used  to  treat  or  acidulate  whicli 
IS  the  trade  name,  ground  phosphate  rock,  and  a  triple  sui>erphosphate  is  pro- 
duced containing  48  i)er  cent  phosidioric  acid,  or  three  times  that  of  ordinarv 
phosphate.  The  ordinary  acid  phosphate  is  produced  bv  grinding  phosi)hate 
rock,  treating  it  with  suli)huric  acid  to  n)ake  available  the  phosphoric  acid 
present  in  the  rock. 

By  our  process  we  first  obtain  a  liquid  pliosphoric  acid  out  of  the  rock  and 
then  use  that  element  of  paint  food  to  li Iterate  nioi-e  i)lant  food  from  the  raw 
rock. 

We  also  can  take  liquid  phosphoric  :uid  and  fix  ammonia  gas  from  the 
oy-product  coke  ovens  into  an  ammonium  phosphate,  or  take  the  liquM  -ind 
n^u^  gaseous  element  and  collect  it  as  a  salt  available  for  use  as  a  fertilizer 
i his  led  up  to  another  interesting  experiment  in  connection  with  the  lu-oduc- 
tion  of  potash  and  phosphoric  acid.  In  the  priHluction  of  phosphoric  acid  we 
Charge  into  the  furnace  a  material  for  fluxing  silica  rock,  in  the  pro«luctio)i 
ot  potash  the  base  being  an  acid  with  rharged  lime.  So  the  natural  question 
that  would  occur  would  be,  why  not  charge  enough  potash-bearing  shale  into 
The  furnace  to  satisfy  the  requirements  and  pr<Kluce  a  pot.Mssium  phosphate •• 
Ami  on  September  12,  1919,  we  produced  this  samide  of  K.O  or  potash  7  in 
1 2O5  or  phosphoric  acid,  66.7.  That  is  true  potassium  phosphate,  and  is  stili 
a  liquid  m  solution. 

If  potassium  phosphate  were  produced  by  this  method  at  Muscle  Shoals  or 
elsewhere  in  the  South  or  West  it  couhl  be  used  to  fix  bv-product  coke-oven 
ammonia   gas  and  produce  a  complete  fertilizer  of  vei-v   high  concentration 
I...^  V*^  '^?y""^^^  }^^  necessary  to  dose  it  up  with  a  little  of  the  other  concen- 
nated  fertilizer  elements  to  get  the  proiier  plant  foo<l  value  for  the  <lifferent 

Now,  in  reference  to  the  prseenjt.  type  of  fertilizer,  as  von  have  i>een  tohl 
r.Lnh"P•'"''"^^^'**^''^  fertilizer  with  resi>ect  to  the  plant  food  are  amuKuiia; 
phosphoric  acid,  and  potash.  The  statistics  do  not  show  the  exact  amount 
or  each  used  throughout  the  United  States,  because  they  vary,  depending  on 
vv«/r^  '^^'  ''^^'^  1^^^  ^"  ''"'^  t^'^  avaialbility  of  the  potash.  When  our  suiiidv 
anZm/'^r]^n^"i  ''^'  «.^,  ^-^^i'^^-  ^'^*  '^^^  »ot  use  as  much  potash  or  as  large  an 
ulalT  1  ^^"l^an  nitrates:  but  it  is  generally  accepte<l  that  in  the  South 
nhere  a  larger  part  of  the  fertilizer  is  u.sed.  the  average  is  not  far  from 
^  y-d,  as  known  in  the  trade,  or  3  per  cent  anmionia,  9  i.er  cent  phosphori  • 


•-[ 


434 


MUSCLE  SHOALsi  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


435 


acid,  and  3  per  cent  iK)tasli,  making  a  total  of  l.j  per  cent  plant  food  and  85 
I>er  cent  inert  material  or  filler.  The  variations  in  the  ^liddle  West  and  the 
East  and  so  on  are  slij^htly  different  from  that,  but  perliaps  that  is  not  far 
from  the  general  average  of  the  Unite<l  States. 

Now,  the  natural  question  comes,  why  do  the  fertilizer  people,  the  fertilizer 
manufacturers,  produce  a  material  and  ship  it  that  is  so  low  in  plant  food 
content  as  indicated?  The  answer  is  rather  simple.  It  is  not  because  they 
desire  to  deliberately  dilute  the  product  and  put  in  a  filler,  but  by  virtue  of 
the  process  by  which  they  manufacture  it 

As  in  all  other  things,  there  must  be  development.  The  development  that 
we  have  made  in  our  process  there  makes  it  possible  for  them  to  produce  a 
more  concentrat^l  fertilizer.  Of  course,  there  is  still  another  question :  Can 
you  get  the  farmers  to  use  it?  A  lot  of  them  have  been  in  the  habit  of  buviug 
something  at  so  much  per  ton.  When  you  ask  them  five  times  as  much*  per 
ton  you  are  going  to  have  a  little  difficulty  in  getting  some  of  tliem  to  under- 
stand they  are  not  paying  five  times  ns  much,  but  getting  something  that  is  con- 
centrated. That  will  come,  it  is  true,  but  it  will  l>e  slow.  There,  will  have  to  be 
a  campaign  of  education. 

I  think  it  might  be  proper  to  read  into  the  record  a  statement  in  the  Fer- 
tilizer Green  Book  entitled.  "  High  analysis  approve<l."  I  want  to  read  just 
three  paragraphs  from  this  and  then  there  are  some  testimonials  from  the  dif- 
ferent State  and  Government  exi)eriment  stations.    The  article  reads  as  follows: 

"  1.  It  will  effect  savings  in  the  cost  of  manufacture,  labor,  bags,  transpor- 
tation, handling,  storing,  etc.,  because  each  ton  of  goods  will  contain  more 
pounds  of  actual  plant  food. 

"  2.  It  will  reduce  the  large  number  of  useless,  wasteful  brands,  through  the 
elimination  of  low-analysis  mixtures,  thereby  simplifying  the  farmers'  fertilizer 
problems  and  increasing  manufacturing  efficiency. 

"3.  It  will  enhance  the  quality  and  reliability  of  fertilizers,  the  direct  re- 
sult of  which  will  be  better  results  in  the  field." 

As  I  understand  it,  the  problem  before  this  committee  is,  what  to  do  with 
the  fertilizer  situation  at  Muscle  Shoals. 

I  think  we  can  say  with  a  definiteness  that  leaves  no  room  for  question,  that 
during  the  last  three  years  and  a  half  of  experimentation  at  Anniston,  Ala., 
where  our  plant  is  locateil,  we  have  positively  pri>ven  that  phosphate  rock  can 
be  smelted  in  an  electric  furnace  and  phosphoric  acid  collected  for  use  in  the 
fertilizer  industry  that  will  reduce  the  jiresent  costs. 

Referring  to  Prof.  Whitney's  testimony  as  to  the  amount  of  phosphoric  acid 
that  is  washed  away  and  left  on  the  dumps  at  the  mines,  we  have  used  an<l 
can  use  a  much  lower  grade  phosphate  rock  than  can  be  used  in  the  sulphuric 
acid  method.  That  alone  represents  a  great  saving.  For  instance.  I  have  an 
option  on  one  large  tailing  ix>nd,  as  they  call  it.  at  50  cents  }i  ton,  which  will 
represent  a  saA'ing  to  me.  when  I  utilize  it,  of  some  five  or  six  hun<lred  thousand 
dollars  versus  the  cost  of  mining  new  r<K*k  and  carrying  it  through  all  the  proc- 
esses to  utilize  it.    That  alone  is  an  important  point  in  reducing  the  costs. 

I  believe  the  real  point  in  connection  with  ^luscle  Shoals  has  been  missed. 
You  have  talked  of  ammonia  in  its  various  forms  as  being  produced  there.  Am- 
monia represents  only  about  2  i)er  cent,  or  perhaps,  a  little  more,  of  the  total 
of  the  plant  food  used  in  fertilizer.  It  seems  to  me  that  if  you  are  looking  at 
this  from  a  business  .standpoint,  as  to  how  you  can  really  reduce  the  cost,  you 
would  want  to  consider  also  the  largest  element,  phosphoric  acid,  which  is  from 
one  and  one-fourth  to  one  and  one-half  times  the  total  weight  of  the  potash 
and  the  ammonia  combined. 

I  do  not  know  what  the  experts  will  say  to  this  statement,  but  there  were 
certain  facts  brought  out  at  the  hearings  on  March  22.  1920,  from  which  I  ob- 
tained this  information. 

The  Chairman.  What  hearing  was  that? 

Mr.  SwANN.  That  was  before  the  Senate  conunittee  in  reference  to  the  pro- 
duction of  atmos|)heric  nitrogen  at  Muscle  Shoals. 

The  Chairman.  What  is  the  document  you  are  referring  to? 

Mr.  SwANN.  Hearings  before  the  Senate  Conunittee  on  Agriculture  and  For- 
estry, conducted  in  1920, 

According  to  the  statistics  coutainetl  therein,  in  1909,  by  the  cyanamid  process, 
there  was  produced  2,500  tons,  by  the  Hal)er  process,  none;  in  1913,  by  the 
cyanamid  process,  60.000,  by  the  Haber.  7.000;  in  1917,  by  the  cyanamid  process, 
200,000.  and  by  the  Haber  process.  no,0<X>;  in  1920  by  the  cyanamid  process, 
325,000,  and  by  the  Haber,  308.0(K),  showing  conclusively  that  the  cyanamid 
process  was  not  increasing  in  anything  like  the  relation  of  the  Haber  process. 


I  do  no  pretend  to  be  an  expert  on  the  production  of  ammonia  at  all,  but 
I  am  merely  taking  the  figures  and,  naturally,  looking  at  the  Muscle  Shoals 
plant  to  see  what  could  be  done  with  it  and  knowing  that  our  furnaces  at 
Anniston  were  of  the  same  general  type  as  the  furnaces  at  Muscle  Shoals, 
a  simple  archroof  of  brick  could  be  put  over  the  furnaces  in  Nitrate  Plant 
^o.  1.  and  a  long  brick  gas  main  built,  a  cooling  system  and  a  precipitator 
ouilt,  and  phosphoric  acid  could  be  produced  there  in  large  quantities  in  that 
plant,  which  is  well  equii>i)e(l  to  handle  phosphoric  acid,  since  the  elements 
or  the  raw  materials  that  go  into  making  carbide  are  lime  and  coke  and 
the  elements  that  go  into  the  other  material  could  be  handled  in  the  same  bins 
being  jihosphate  rock,  silica  rock,  and  coke  braize. 

You  would,  of  course,  in  that  connection,  not  make  ferro  phosphorus  which 
we  have  made. 

Then,  either  by  the  modified  Haber  process  or  some  o'.her  process  which 
will  likely  come,  you  would  produce  your  ammonia  and  not  carry  it  to  the 
point  of  anniKmiiiin  nitnite  oi-  aniinoiiium  sulphate,  but  fix  the  gaseous  ammonia 
into  liquid  phosphoric  acid  produced  there,  and  if  it  was  found  cheaper  to 
l)roduce  your  potash  than  to  buy  it.  charge  into  your  electric  furnaces  potash- 
bearing  shale  from  the  neighborhood.  And  there  are  great  tonnages  of  it,  so 
that  you  would  produce  the  p(»tassium  phosphate  as  a  liquid  and  utilize  that 
in  fixing  your  gaseous  ammonia  into  a  complete,  concentrated   fertilizer 

Now.  with  respect  to  concentrated  fertilizer,  as  I  stated  before,  the  farmer 
may  be  rather  slow  to  come  to  it,  but  I  believe  in  his  intelligence,  and  that 
when  once  shown,  he  will  use  it,  and  I  do  not  think  that  anvthing  can  stop 
the  development  and  the  utilization  of  concentrated  fertilizer. 

A  number  of  the  experts  believe  that  the  farmer  will  use  on  his  soil  direct 
a  more  conceuti-ated  fertilizer,  but  it  is  very  easy  to  produce  a  concentrated 
fertilizer  that  will  contain  from  four  to  five  times  as  much  plant  food  as  is 
now  containetl  in  an  jiverjige  ton  of  mixed  fertilizer,  ship  it  to  him,  even  though 
the  average  freight  rate,  perhaps,  is  not  over  $3  or  .$3.50  per  ton  from  the 
j)oint  of  prfKluction  to  the  point  of  consumption,  let  him  m'x  that  concentrated 
fertilizer  with  two  or  three  or  four  sacks  of  good  dry  sand  or  good  dry  d'rt, 
and  I  suppose  if  he  is  a  dirt  farmer  he  ought  to  have  those  products  on  his 
farm,  and  apply  those  to  his  soil  in  the  equipment  he  now  has,  his  farm 
machinery,  which  is  adapted  for  spreading  a  dilute  fertilizer  on  the  soil. 

This  process  is  adaptable  to  be  used  anywhere,  where  secondary  or  cheap 
power  is  available,  and  I  say  secondary  because  that  means  cheaper  power 
than  primary  power,  and,  of  course,  should  be  used  if  the  greatest  economy 
is  desired  as  n^r  the  center  of  consumption  as  possible. 

In  carrying  on  our  investigations  we  have  negotiated  with  the  Aluminum 
Co.  of  America  for  secondary  power  at  their  Alcoa,  Tenn.,  plant,  believing  we 
could  make  some  fertilizer  for  the  section  that  could  easily  be  served  from 
there.  AVe  have  had  negotiations  with  an  electric  furnace  company  at  Chat- 
tanooga, who  own  an  electric  furnace  that  is  partially  idle,  and  get  their  power 
from  the  Tennessee  Power  Co.  We  have  had  negotiations  with  the  Anaconda 
Copper  Mining  Co.,  who  have  a  large  electric  furnace  plant  at  Great  Falls, 
Mont.,  which  they  built  during  the  war  to  produce  ferromanganese,  and' 
which  is  now  shut  down,  and  through  an  allied  company,  the  Montana  Power 
Co..  they  have  large  quantities  of  power  available. 

Also,  there  have  been  discovered  in  that  section  of  the  West  the  greatest 
known  deposits  of  phosphate  rock  in  the  world.  That  phosphate  rock  has  no 
hope  of  reaching  ceitain  of  the  present  consuming  markets,  unless  it  can  be 
sent  out  in  a  concentrated  form.  And,  just  at  this  point,  without  apparently 
knocking  the  present  method  of  manufacture,  I  would  like  to  call  your  attention 
to  a  striking  instance  of  which  I  do  not  believe  you  will  find  the  equal  in  any 
other  of  the  great  industries.  Phosphate  rock,  as  mined,  contains  about  32  per 
cent  phosphoric  acid.  After  you  have  treated  it  with  sulphuric  acid  to  make  it 
available  to  the  soil,  it  has  an  average  of  about  16  i>er  cent.  By  the  time  it 
actually  gets  to  the  farmer  it  is.  cut  down  in  the  mixture  he  gets  to  about 
9  per  cent;  or  the  finished  material  is  approximately  one-fourth  of  the  raw 
material  originally  minetl.  High  freights  have  brought  a  lot  of  that  home  to 
us.  Many  things  could  be  done  with  lower  freight  rates  that  can  not  be  done 
to-day.  High  freight  rates  will  relocate  many  industries,  and  that  is  some- 
thing to  be  considered.  When  you  try  to  find  out  how'  much  fertilizer  can  be 
made  at  Muscle  Shoals,  you  must  bear  in  mind  that  you  could  make  too  much 
there.    It  would  cost  you  too  much  to  distribute  from  that  point.     There  are 


436 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


437 


other   xyiUvv  -powers.     There  are   oMier   secoiularv   powers.      There   are   other 
locations  thai  use  it.     That  is  purely  a  husiness  question,  as  to  the  ewt    o  n 
.0.1  and  the  tonnage  that  couhl  he  made  at  that  particular  location. Xend in? 

t  ei  hi  ■T^'h  ^*"'''-   f  r'""  "'••'^^^•••••^^'   t»'^  ^---^t   <,f  manufacture,  and   outj^'o  ng 
tieijrhts  to  the  point  of  consumption.  ^ 

v^!^f\Ji!^?  l^'^'^'^^^T^/ti'''''^'''-  ^^'^  '*'*^*^"t  "'*^^»»«*1  «f  manufacture  and  to 

epeat  ^^]mt  I  said  ahout  the  fertilizer  manufacturer  not  deliberately  diluting 

his  material,  his  <„sts  are  hij;h  herause  of  the  fact  that  he  has  t^iL  in  the 

n;;"i\\en  mTt^H^  ^'l"  ^'"•^'''^^^^,  "'*'  ^"^'^''^^^  ''^  ainin<>nia';uU>lu^ie",c^ 

F(.r  instance   assume  the  fij,'ure  is  corre<t  that  the  price  of  sulphate  of  -im 
inoma  as  testitie,!  hy  a  previous  witness  is  .fli)  a  ton/ and  assu  le  ,^^^^^ 

•    In      ^"ii;^'"''^*'  f-^*>  '»t  -^1-  'IHivered  at  the  by-products  c^»ke-oven  plant    the 
luoducer  of  l,y-pro<luct  coke-oven  ammonia  would  he  just  as  well  off  it'    e  could 

1.     .       ^  «  Milpluite    of    ammonia    at    $r>0    a     ton.      That    monev    is    lost 
In    round    hgures.   the   amount    of   plant    food    in   a    t<m    of   ammonium   phos- 
Mni   r;-' neTt^  this  prcx-ess  averaging  13  per  cent  ammoi^a 

<iHM.  pel  cent  phosplu^ric  acid,  you  wouhl  have  to  ship  4.35  tons  of  ordinai-v 
:.  Kl  phosphate  and  sulphate  of  ammonia  to  either  the  fanner  o-  the  feitiizeT 
inanutacturer  in  order  that  they  might  get  out  of  it  the  same  amonnt  orSt 

dohlgM'v"  ''''^''  ^^''-'^  ^''''''^  "''^•''  "''^  "''^''  ^'"'^  '^^^'•^'*^'  ^"^^  «»  ^^'^at  scale  are  we 
We  tirst  developed,  as  I  stateil,  tlie  fo.>d  grade  market  because  it  brought  us  a 
higher  prce.  ^^  e  nee<  ed  the  nu.ney  in  our  <levelopments.  and  just  artlds  peHod 
I  think  It  only  fair  that  I  make  a  statement  regarding  our  c<m.panv  because 
ot  my  previous  connection  with  the  Alabama  Power  Co.,  because  I  an  Inivn^ 

r Znl  Pr'"/  r'"  "'  V-'1  '"""•  '•"'*  *''  '">'  association  witii  the  other  eoUan  es 
a  number  of  them,  which  are  involved  in  one  way  or  another.     I  am  verv  glad 
to  say  that  I  have  been  selling  Mr.  Ford  phosnhori<.  acid  which  he  user  n  n  st- 
proohng  his  cars.     I  am  not  only  independent  but  alwa.vs  have  been 
^^^^i  he  (  HAiKMAx.  The  committee  will    be  very  pleased   to   hear  your   state- 

Mr.  SwAxx   (continuing).  Having  owned  51  per  cent,  or  the  control  of  mv 
CO inpany,  and  always  expecting  to;  and  it  has  been  a  development  in  which 
r  Nvll  say.  we  have  l>een  encourages!  by  the  power  company.     We  have  l^n 
assisted  by  them  at  many  times  when  conditions  were  hard     AVe  have  lea^d 

foVn  inVJfhwrV'  ^^^1  "'""•^'  '""*^"-  ^"'^  ^'*^  "»-^  negotiating  with  them  now 
for  a  large  block  of  secondary  power  from  their  new  dam  on  the  Coosa  River- 
at  the  same  time,  we  have  sold  our  fertilizer  to  the  fertilizer  companies  since 
we  were  not  producing,  up  to  this  time,  a  sufficient  quantity "nustifv  us 
in  having  a  d  stributing  organization.  So  you  can  see  that  it  p?ac^  me 
in  a  very  peculiar  position,  and  I  have  tried  to  relate  to  vou  a  few  of  the 
fundamental  facts  in  the  statement  of  what  has  been  accomplished  This  can 
be  repeated  at  Muscle  Shoals.  This  can  be  retreated  in  Montana,  in  GeorSa 
jn  Tennessee,  or  elsewhere.  vreoi^ui, 

The  farmer  can  get  cheaper  fertilizer  by  this  process  and  leave  the  manu- 
facturer a  legitimate  manufacturing  profit  which  he  must  have 

If  you  will  refer  to  the  financial  statements  of  some  of  the  fertilizer  com- 
panies, you  will  find  they  have  lost  some  very  large  sums  of  money  I  be- 
Qon^/Sm^^r^  sheets  of  the  two  largest  companies  show  a  loss  o*f  above 
pO,000,000  last  year  in  the  decline  m  prices,  due  to  the  fact  that  they  have  to 
buy  their  raw  materials  a  long  time  ahead. 

Now,  my  object  is  to  make  the  bulk  of  the  monev  we  make  out  of  the  food- 
grade  product  which  we  can  reduce  greatly  in  value,  and  to  see  our  process  used 
wherever  it  is  required  in  the  United  States  for  the  production  of  fertilizer. 
W  e  have  a  total  of  15  patents  on  it.  We  have  spent  a  lot  of  monev  We  risked 
everything  we  had  and  a  few  things  we  did  not  have  in  the  development  of 
the  process.    We  only  expect  a  very  reasonable  rovalty.    We  will  not  burden 

*i^  i'^5"u^''^V   ^'^  ^°^^'  "^^^^^  ^   ""^^y  •'*"^^*^  part  of  the  saving  that  can  be 
effected  by  whoever  may  want  to  use  this  process. 

I  think  this  statement  will  rather  clear  up  any  question  of  my  connections 
or  any  question  as  to  what  our  policy  may  be.  I  will  be  verv  glad  to  answer 
any  specific  questions  the  committee  may  desire  to  ask 


The  Chairman.  At  the  beginning  of  your  statement,  or  near  the  beginning 
of  your  statement,  you  spoke  of  the  fact  that  England  had  been  very  active 
prior  to  the  war  and  could  not  extend  her  industries  over  the  world  during 
the  war,  but  at  the  end  of  the  war  period  began  to  reach  out  again  for  the 
market  in  this  country;  do  you  remember  that? 

Mr.  SwANN.  I  do;  to  the  tune  of  $250,000.  That  is  what  I  lost  in  the  de- 
cline of  manganese  when  we  had  tried  to  do  what  the  Government  wanted  us 
to  do  in  keeping  a  stock  of  manganese  ore  ahead. 

The  Chairman.  Is  there  no  provision  of  any  American  law  that  will  pro- 
tect the  American  producer  in  that  regard? 

Mr.  SwANN.  I  personally  appeared  before  the  Federal  Trade  Commission 
and  we  tried  to  invoke  an  old  antidumping  law,  and  got  away  with  it  for  a 
short  time,  but  it  did  not  hold  in  court.  They  were  selling  in  the  United  States 
cheaper  than  they  sold  in  England  or  on  the  continent. 

The  Chairman.  They  were,  at  that  time? 

Mr.   SwANN.  Yes. 

The  CHAiRiiAN.  Is  there  any  protection  so  far  as  the  tariff  is  concerned^ 

Mr.  SwANN.  No.    There  is  a  tariff'  proposed  but  not  enacted. 

The  Chairman.  That  is  being  proposed  in  the  bill  which  is  still  pending  in 
the  Senate  committee? 

Mr.  Swann.  Yes. 

The  Chairman.  And  that  will  give  protection  if  it  is  enacted  into  law' 
Mr.  Swann.  Yes. 

The  Chairman.  You  said  something  about  concentrated  fertilizer  and  the 
difficulty  of  getting  the  farmers  to  use  it.  The  farmer,  I  take  it.  from  what  you 
and  others  have  said,  is  accustomed  and  has  been  accustomed  for  some  time 
t(»  i)iirchase  fertilizer  which  contains  quite  a  good  amount  of  filler. 

Mr.  Swann.  Yes. 

The  CHAiRifAN.  Of  course,  he  pays  the  freight  on  that,  and  not  onlv  pavs  the 
freight  but  pays  for  the  .service  of  packing  it  in  bags  or  boxes,  whichever  wav 
it  is  shipped,  and  that  is  all  an  added  expense,  I  take  it. 

Mr.  Swann.  Yes ;  and  wlien  he  finds  out  the  cost  of  packing  and  of  freight 
and  of  bags  and  of  handling,  he  will  certainly  turn  slowlv  but  surely  to  the 
more  concentrated  fertilizers.  The  farm  bureaus  and  the  countv  demonstration 
agents  and  so  on  will  carry  that  i)ropaganda  on,  and  I  believe  a  market  will 
be  found  for  the  concentrated  fertilizers  about  as  fast  as  thev  are  developed 
Prof.  Whitney  went  one  step  be.vond  what  I  have  suggested,  which  I  think  will 
apply  to  certain  crops,  and  that  is.  they  will  take  this  concentrate<l  fertilizer, 
dissolve  it  in  water,  and  spray  some  of  it  or  put  it  on  with  a  sprinkler.  That 
is  perfectly  feasible  in  truck  farming  especially,  where  thev  utilize  a  large 
tonnage  of  fertilizer  per  acre. 

The  Chairman.  You  have  explained  what  I  wanted  to  ask  vou  about.  Do 
.vou  feel  it  will  be  very  difl^cult  to  show  the  farmers  of  this  country  the  benefits 
that  will  accrue  to  them  if  they  utilize  the  concentrated  fertilizer  rather  than 
the  stuff  that  is  being  sold  to  them  containing  great  quantities  of  filler? 

Mr.  Swann.  It  will  be  difficult.  It  is  always  difficult  to  get  any  one  great 
class  like  the  farmers  to  change  and  break  away  from  things  they  are  used  to 
We  are  all  more  or  less  creatures  of  habit,  but  they  will  do  it.  Some  of  them 
are  now  buying  their  own  fertilizers  and  mixing  it,  and  I  w<mld  like  to  explain 
one  point  in  that  connection.  If  a  farmer  buys  acid  phosphate  to  day,  and, 
say  sulphate  of  ammonia  or  Chilean  nitrates  for  his  ammonia,  and  kaiiiite  or 
muriate  of  potash  from  Germany  for  his  potash,  and  attempts  to  mix  those 
together,  there  is  a  difficulty  for  him  unless  he  has  a  certain  amount  of 
technical  training,  to  mix  them  in  the  proper  proportions;  and  the  method  we 
propose  is  to  send  it  to  him  ready  mixe<l  in  the  concentrated  fertilizer,  and  to 
use  the  expression  of  one  of  the  gentlemen  of  the  committee,  fiave  him  buy 
it  just  as  he  goes  to  the  drug  store  and  buys  some  medicine  which  sa.vs.  "  Take 
two  tablespoon fuls  in  half  a  glass  of  water  three  times  a  dav."  We  will  put 
on  the  sack,  "  Mix  this  with  four  sacks  of  dry  dirt."  and  then  if  he  wants  to 
pay  more  for  the  package  goods,  jnit  your  filler  in  and  sell  it  to  him.  Sooner 
or  later  he  will  learn  how.  In  offering  some  of  our  products,  we  found  they 
objected  to  the  concentrated  form,  and  then  we  said,  "  We  will  give  you  16, 
'^-,  or  we  will  give  you  48  per  cent,"  l)ut.  in  that  case,  we  charged  for  putting  in 
the  filler,  because  we  had  to  put  it  in. 
The  Chairman.  Of  course,  that  created  additional  work. 
Mr.  Swann.  Certainly ;  if  they  want  to  pay  for  it,  it  is  their  loss  and  mis- 
fortune.   Now,  it  will  take  time  to  correct  that  condition,  but  I  have  enough 


438 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


439 


*1 


conflrlence  fii  the  intellifronee  of  the  farmer  and  the  experimental  stations  and 
the  county  agents,  etc,  to  believe  it  will  come  about  as  fast  as  the  demand  and 
the  supply  of  concentrated  fertilizer  is  made  available. 

The  Chaibman.  Out  in  California  we  have  extension  lessons  that  are  given 
to  farmers  by  both  of  our  great  universities,  the  University  of  California,  and 
also  the  Leland  Stanford,  jr..  University,  so  that  the  professors  go  direct  to 
the  farmers  and  instruct  them  in  regard  to  these  matters.  Is  that  done  in 
this  country  very  generally? 

Mr.  SwANN.  Oh,  yes ;  it  is  done  very  generally. 

The  Chaibman.  And  are  the  meetings  well  attended  by  the  farmers? 

Mr.  SwANN.  Yes;  I  think  they  are. 

The  Chaibman.  Do  you  not  think  if  that  course  is  pursued  generally  the 
farmer  will  get  used  to  using  the  concentrated  fertilizer  very  much  quicker 
than  he  would  otherwise?  yuicKcr 

Mr.  SwANN.  I  do.  The  head  of  one  of  the  farm  bureaus  last  night  told  me 
that  as  soon  as  concentrated  fertilizer  was  available  that  through  his  and 
other  organizations  a  propaganda  would  be  carried  on  so  that  the  farmer  would 
realize  the  benefits  that  would  come  to  him,  and  there  would  be  a  market  made 
available  to  absorb  the  tonnage,  and  I  believe  that  is  true. 

avaSabIe^4^^^^*  ^^"  ^^'     ^^  ^^^"  ^^  ^^^  concentrated  fertilizer  becomes 

Mr.  SwANN.  Yes ;  it  is  not  available  to-day  in  large  quantities.    As  in  anv 

new  process,  it  takes  time  to  develop  it.    For  almost  a  year  after  we  made  our 

first  experimental  phosphoric  acid  we  could  not  repeat  the  results  we  obtaine<l 

T^Jjr^'f^}^'  T^^""®  ^^^  '"^'*®  ^^^^^  t*^^^  I  would  like  to  tell  you  about. 
I  could  write  10  volumes  on  what  not  to  do  and  put  on  about  2  pages  all  the 
things  we  know  how  to  do.  ^ 

Mr.  Geeene.  Do  you  have  any  suggestions  to  make  or  testimony  to  offer 
relaUve  to  the  terms  of  the  Ford  proposition,  Mr.  Swann? 

Mr.  SwANN.  I  have  not,  Mr.  Greene.  As  I  tried  to  explain  my  position,  we 
have  attempted  to  develop  the  process  for  making  concentrated  fertilizer  ha  Vine 
been  connected  with  and  known  of  the  Muscle  Shoals  proposition  for  over 
10  years;  I  have  always  believed  it  would  be  developed  by  some  one  I  did 
not  know  by  whom  or  how  it  would  be  operated.  I  do  not  suppose*  any  of 
us  know  now.  ^ 

Mr.  Gbeene.  Then,  your  testimony  runs  to  the  advisability  of  having  a  con- 
centrated fertilizer  for  the  farmers  lather  than  to  the  specific  details  of  tliis 
i^ord  proposition? 

^J^^\SZ^'^^:  .]  a™  simply  trying  to  show  that  we  have  accomplished  the 
thing  that  is  talked  about,  and  that  it  can  be  utilized  there  and  elsewhere  and 
I  trust  our  process  is  used,  whover  gets  it. 

The  Chaibman.  I  want  to  say  to  the  gentlemen  of  the  committe  that  we 
have  another  gentleman  here  who  is  ready  to  testify  before  us  this  afternoon, 
and  I  feel  that  if  we  will  just  ask  questions  of  the  witness  and  eliminate  speeches 
and  things  of  that  sort,  we  will  get  along  vei-y  nicely.  I  want  to  say  that  I  did 
not  mean  that  for  Mr.  Greene,  but  this  morning  we  had  a  little  example  of 
how  far  we  can  go  without  getting  anywhere,  and  I  would  like  to  get  through 
as  speedily  as  we  can. 

Mr.  Hull.  Mr.  Swann,  following  the  line  of  the  questions  asked  by  Mr. 
Greene,  then  it  is  your  opinion  that  if  we  make  this  contract  with  Mr  Ford. 
or  something  similar  to  it,  he  could  develop  this  process  Which  you  speak  of 
for  making  concentrated  fertilizers? 

^?i'- u^^^x^/^- ?^  ^^'^"^^  "^*  ^^^'^  *^  develop  it;  it  is  alreadv  developed.  It 
could  be  utilized. 

Mr.  Hull.  He  could  utilize  it,  then? 

Mr.  Swann.  Yes. 

Mr.  Hull.   It  might  be  developed  further. 

Mr.  Swann.  Oh,  it  will  be  developed  further  as  the  development  goes  on,  of 
course. 

Mr.  Hull.  That  is  what  I  had  in  mind. 

Mr.  Swann.  But  it  is  developed  to  the  i)oint  now  that  makes  it  available. 

Mr.  Hull.  Then  does  it  not  conclusively  follow  that  he  will  be  able  to  cheapen 
fertilizer  to  the  farmer  very  materially? 

Mr.  Swann.  With  the  price  of  power  suggested,  there  is  no  question  but 
what  fertilizer  can  be  produced  cheai^er. 

Mr.  Hull.  Now.  just  one  other  question.  You  seem  to  place  a  great  deal  of 
emphasis,  and  I  think  we  all  do,  on  the  fertilizer  end  of  this  proposition.    How- 


ever I  want  to  call  your  attention  to  the  fact  that  fundamentallv  this  is  a 
question  of  national  defense,  and  the  question  of  the  fixation  of 'nitrates  i- 
what  this  committee  is  primarily  trying  to  solve.  It  is  solved,  as  I  understand. 
It,  in  plant  No.  2.  We  have  the  plant  there  and  we  want  to  keep  it.  Now,  thr. 
question  comes  up,  if  Mr.  Ford  develops  along  the  line  you  liave  suggested, 
would  the  fixation  of  nitrate  be  maintained  in  plant  No.  2?  «>&         . 

Mr.  Swann.  Of  course,  I  can  not  answer  what  he  or  aiivone  else  would  do 
I  can  only  say  from  the  knowledge  I  have  I  do  not  believe  anniionia  for  fer- 
tilizer can  be  made  as  cheaply  by  the  cyanamid  process  as  it  can  be  obtained 
from  other  sources. 

Mr.  Hull.  Yes;  but  you  are  speaking  of  ammonia  for  fertilizer 
Mr.  Swann.  Yes. 

Mr.  Hull.  We  are  speaking  of  ammonium  nitrate  for  high  explosives  That  is 
the  question  we  have  got  to  solve  primarily. 

Mr.  Swann.  If  your  plant  is  there,  of  course;  it  is  available. 

Mr.  Hull.  And  in  order  to  follow  this  line  of  development,  it  woidd  not  be 
necessary  to  destroy  what  we  have,  would  it? 

Mr.  Swann.  No. 

Mr.  Hull.  That  is  the  point  I  had  in  mind. 

Mr.  Swann.  I  did  not  make  complete  my  statement  a  moment  ago.  Should 
It  be  desirable  from  an  economic  point  of  view  and  from  the  point  of  view  of 
getting  low  costs,  which,  of  course,  must  come,  jou  could  convert  these  furnaces 
over  to  phosphoric  acid  furnaces,  and  I  should  say  that  two  weeks'  time  would 
be  all  that  would  be  required  to  convert  them  back  to  carbide  furnaces  All 
you  would  have  to  do  would  be  to  tear  the  roof  off  and  put  in  a  new  lining 
of  carbon  blocks,  and  if  you  wanted  to  keep  prepared,  vou  could  keep  on  hand 
a  stock  of  carbon  blocks  sufficient  to  line  all  the  furnaces  again. 

Mr.  Hull.  That  is  the  answer  I  wanted.    I  thank  you. 

Mr.  Cbowtheb.  Mr.  Swann,  you  said  you  had  some  acquaintance  with  the 
conditions  at  Muscle  Shoals,  having  been  with  the  Alabama  Power  Co  They 
owned  the  site  of  Dam  No.  2  or  the  Wilson  Dam,  did  they  not? 

Mr.  Swann.  Yes,  sir. 

Mr.  Cbowtheb.  And  they  disposed  of  that  to  the  Government  for  a  small 
consideration  ? 

Mr.  Swann.  It  is  my  understanding  they  gave  it  to  the  Government.  That 
is  my  understanding  but  I  am  not  exactly  informed  on  that. 

Mr.  Cbowtheb.  You  do  not  know  about  that.  What  is  ferromanganese 
used  for? 

Mr.  Swann.  It  is  used  in  the  production  of  steel.  Everv  ton  of  steel  must 
contain  a  certain  percentage  of  manganese  and  especially  shell  steel  contains 
more  than  the  general  run  of  steel. 

Mr.  Cbowtheb.  Is  it  not  true  that  in  the  early  part  of  the  Sixty-sixth  Con- 
gress we  introduced  in  the  House  a  special  bill  in  connection  with  five  or 
SIX  other  small  bills  to  protect  that  material  from  a  tariff  point  of  view  as  a 
war  industry.  * 

Mr.  Swann.  Yes. 

Mr.  Crowtheb.  And  that  was  one  of  the  bills  criticised  as  popgun  legislation 
or  popgun  bills  by  Mr.  Kitchen  who  was  on  the  fioor  at  that  time,  and  it  did 
not  meet  with  any  very  favorable  consideration,  and  tungsten,  if  I  remember 
correctly,  was  another  product,  and  several  other  things. 

Mr.  Swann.  Yes. 

Mr.  Crowtheb.  You  spoke  of  the  sprinkling  method  of  using  fertilizer.  I 
think  I  brought  that  out  by  asking  Dr.  Whitney  whether  the  two  ingredients 
he  has  submitted  were  soluble  in  ordinary  water  and  he  said  yes.  There  is 
nothing  new  about  that? 

Mr.  Swann.  Absolutely  nothing  new. 

Mr.  Cbowtheb.  The  old  fertilizers  and  the  natural  fertilizers  have  been 
sprinkled  and  distributed  that  way  on  the  soil  for  manv  vears,  have  they  not' 

Mr.  Swann.  That  is  correct. 

Mr.  Cbowtheb.  Do  you  thing  that  is  a  pretty  good  method  to  use? 

Mr.  Swann.  In  some  instances  it  might  be  a  very  good  way,  especially  if 
you  bought  your  fertilizer  originally  in  a  concentrated  form. 

Mr.  Cbowtheb.  Are  these  49ynthetic  compounds? 

Mr.  Swann.  Your  ammonia,  perhaps,  would  be  called  a  synthetic  compound. 

Mr.  Cbowtheb.  What  have  you  to  say  about  Dr.  Whitney's  statement  that  after 
a  10-year  period  of  treatment  with  these  compounds  or  these  artificial  fertilizers, 
the  crop  growth  showed  a  gradual  increase  up  to  10  years  and  then  they  went 


m\ 


m 


440 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


441 


down  in  direct  proportion  to  the  soil  tliat  had  had  no  treatment  at  all.  You 
will  remember  that  he  spoke  of  that? 

Mr.  SwANN.  Yes. 

Mr.  Crowther.  Have  yon  any  knowledge  on  that  subject? 

Mr  SwANN.  I  have  no  direct  knowledge  on  that  subject. 

Mr.  Crowther.  He  spoke  as  if  they  were  hurting  the  soil  with  these  artificial 
ingredients  because  after  10  years  the  crops  deteriorated  in  just  the  same  pro- 
portion that  crops  deteriorated  on  soil  year  after  year  that  had  had  no  special 
fertilizer  and  no  special  attention  given  to  it,  and  I  think  he  spoke  of  the 
distinct  advantage  of  the  natural  forms  of  nitrogen  that  were  produced  by 
rotation  of  crops  and  by  plowing  in  certain  crops,  as  being  perhaps  the  ideal 
system.  I  was  just  wondering  if  you  had  anything  to  say  on  that.  That  is  all. 
*  Mr.  Fields.  In  vour  opinion,  :Mr.  Swann,  there  is  no  question  but  what  it  will 
be  possible  to  get  fertilizer  to  the  farmer  in  concentrated  form,  so  he  can  use 
it  and  apply  it  to  the  soil  without  the  expense  of  the  large  amount  of  filler 
that  is  carried  to-day. 

Mr.  Swann.  That  is  our  opini(m  and  we  have  backed  it  up  with  our  money 

in  the  last  three  years  and  a  half. 

Mr.  Fields.  I  am  mighty  glad  to  hear  you  say  that,  and  I  will  say,  INIr.  Chair- 
man, that  what  he  has  said  and  shown  here  is  what  I  had  in  mind  the  other 
day  when  I  aske<l  the  Chief  of  Ordnance  about  the  possibilities  of  concentrated 
fertilizers.    You  say  there  are  heavy  deposits  of  phosphate  rock  in  ^lontana? 

Mr.  Swann.  I'es. 

Mr.  Fields.  And  in  what  other  sections  of  the  country? 

Mr.  Swann.  The  principal  sections  are  the  Tennessee  lump  rock,  which  is 
very  near  Muscle  Shoals,  and  the  deposits  in  Florida.  There  is  a  little  bit  in 
South  Carolina  but  the  principal  point  of  production  is  Florida,  Tennessee 
coming  next.  The  western  deposits  are  large  but  the  market  is  not  very  great. 
They  are  too  far  from  market  now. 

Mr.  Fields.  So  the  fertilizer  will  have  to  be  manufactured  in  those  sections, 
and  when  that  is  done,  it  will  save  freight  rates  to  the  farmers  in  those  sections 
of  the  country? 

Mr.  Swann.  Y>s. 

Mr.  Fields.  I  do  not  want  to  make  a  statement,  Mr.  Chairman,  but  I  do  want 
to  refer  to  one  or  two  questions  you  asked  a  moment  ago  about  the  professors 
of  the  colleges  in  your  State.  I  suppose  every  State  in  the  Union,  certainly  every 
one  I  know  of.  is  working  with  the  Federal  Government  in  what  they  call  farm 
demonstration  work. 

The  CHAiRAfAN.  Extension  courses,  they  call  them  in  California. 

Mr.  Fields.  They  do  not  come  in  contact  with  all  the  farmers,  but  they  do 
come  in  contact  with  the  most  progressive  farmers  of  the  counties,  and  the 
elimination  of  the  heavy  expense  incident  to  freighting  and  handling  the 
amount  of  filler  that  we  get  in  fertilizer  to-day  is  a  crying  need  of  the  farmers. 
They  all  realize  the  necessity  of  relief  from  that  expense.  That  is  all.  Mr. 
Chairman. 

Mr.  QiiN.  :Mr.  Swann,  you  have  from  actual  experience  of  manufacture,  the 
knowledge  of  this  subject  which  you  have  just  detailed  to  this  committee^  as 
I  understand  it. 

Mr.  Swann.  Yes. 

Mr.  QuiN.  Then  it  is  not  any  dream  that  concentrated  fertilizer  can  be  pro- 
duced and  turned  over  to  the  farmer? 

Mr.  Swann.  No,  sir. 

Mr.  QuiN.  The  gentleman  who  contended  that  it  was  impossible  unless  you 
had  about  80  per  cent  of  filler  is  in  error,  is  he  not? 

Mr.  SwANN.  By  these  samples  we  can  demonstrate  that. 

Mr.  QuiN.  From  practical  demonstration  by  your  own  factory,  there  is  no 
doubt  but  what  concentrated  fertilizer  can  be  sent  out  and  economically  sent 
out  from  the  factory  to  the  consumer? 

Mr.  Swann.  I  have  no  doubt  about  it ;  no. 

Mr.  QuiN.  As  you  stated,  the  expense  of  this  so-called  filler,  this  sand  or 
dirt,  and  the  expense  of  putting  it  into  sacks  and  storing  it  in  warehouses 
and  the  expense  of  high  freight  rates,  adds  materially  to  the  cost  of  the  fer- 
tilizer sent  in  bulk  with  all  that  filler,  does  it  not? 

Mr.  Swann.  Yes ;  and  not  only  that,  but,  as  I  stated  before,  they  do  not  add 
the  filler,  but  by  the  process  of  making  it  with  sulphuric  acid  the  filler  is  pro- 
duced.   So  you  have  an  additional  cost.    It  is  more  expensive  even  than  if  you 


did  add  it,  because  filler  would  not  cost  as  much  as  sulphuric  acid,  the  ma- 
terial they  use  to  make  available  the  phosphoric  acid  in  the  rock  and  to  fix  the 
ammonia  and  the  ammonia  gas. 

Mr.  QuiN.  A  fertilizer  factory  at  Atlanta,  Ga.,  Jackson,  Miss.,  or  New 
Orleans,  La.,  gets  its  gross  products  in  as  concentrated  form  as  po.ssible? 

Mr.  Swann.  Yes;  the  way  the  rock  is  mined,  they  do.  They  get  as  high 
grade  as  they  can  get. 

Mr.  QuiN.  And  still  the  expense  on  all  of  that  gross  product  in  shipment  and 
handling  must  be  paid  by  the  ultimate  consumer  of  the  fertilizer? 

Mr.  Swann.  Yes. 

Mr.  QuiN.  Then  as  a  practical  and  sensible  thing  for  the  farmers  directl.v, 
and  for  all  the  people  who  consume  farm  products  indirectly,  it  is  necessary  to 
give  them  cheap  fertilizer,  or  as  cheap  as  possible,  is  it  not? 

Mr.  Swann.  Naturally. 

Mr.  QuiN.  In  the  Ford  contract  he  i>roposes  to  put  this  fertilizer  up  to 
110,000  tons,  and  that  means  if  they  add  a  filler  to  it  in  proportion,  it  would 
be  about  2,000,000  tons  of  fertilizer  ready  to  go  on  the  soil. 

Mr.  Swann.  I  think  that  was  tlie  figure  given.  Of  course,  the  amount  of 
nitrogen  or  ammonia  varies  in  the  different  fertilizers  and  that  question  can 
only  be  definitely  answered  when  you  state  the  formula,  but  that  is  about 
correct;  yes. 

Mr.  Quin.  The  question  of  potash  was  mentioned  by  you.  Is  it  possible  to 
get  potash  economically  from  any  source  around  Muscle  Shoals? 

Mr.  Swann.  At  the  present  time  you  can  buy  German  potash  cheaper  than 
you  could  produce  it. 

Mr.  Quin.  What  sources  of  potash  have  we  in  the  United  States? 

Mr.  Swann.  Well,  there  is  the  kelp  in  the  western  States,  and  the  natural 
brines  in  Nebraska  and  the  by-product  from  the  cement  mills,  as  well  as  wood 
ashes  and  various  miscellaneous,  small  sources. 

Mr.  Qi  IN.  The  great  potash  field  at  present  is  the  quarries  of  Germany? 

Mr.  Swann.  At  the  moment  it  can  be  bought  cheaper  than  it  can  be  produce<i 
at  most  places.  I  am  not  competent  to  state  the  cost  of  the  western  producer.  I 
believe  they  asked  for  a  tariff  for  a  short  period,  and  at  the  end  of  that  period 
they  claim  they  will  be  in  position  to  compete  with  the  natural  soui'ces  of 
potash. 

Mr.  QriN.  Would  you  mind  giving  us  for  the  benefit  of  the  record,  what 
is  potash? 

Mr.  Swann.  Well,  potash  is  an  element  of  plant  food,  the  same  as  phosphoric 
acid  or  ammonia.     It  is  one  of  the  three  elements  that  go  into  fertilizer. 

Mr.  Quin.  And  It  Is  one  of  the  essential  things  for  certain  plants  and  certain 
soils  where  the  soil  does  not  produce  it? 

Mr.  Swann.  l^es. 

Mr.  Quin.  And  it  comes  from  the  decomposition  of  animal  and  vegetable 
matter  on  the  soil,  does  it  not? 

Mr.  Swann.  That  contains  some  of  the  other  elements  also. 

Mr.  Stoll.  Mr.  Swann.  what  element  of  fertilizer  do  we  get  from  the  coke 
ovens? 

Mr.  Swann.  Ammonia. 

Mr.  Stoll.  Will  the  process  you  have  mentioned  interfere  with  their  business? 

Mr.  Swann.  Not  in  the  least,  and  as  I  have  explained,  they  buy  approximately 
1  ton  of  sulphuric  acid  to  fix  the  equivalent  of  a  ton  of  sulphate  of  ammoniii. 
That  ton  of  sulphate  of  ammonia  as  shipped  out  contains  about  2.t  per  ceut 
ammonia.  The  other  75  per  cent  is  the  salt  from  the  sulphuric  acid,  a  wrapi)er 
or  a  filler  or  a  carrier,  or  whatever  you  want  to  call  it. 

Mr.  Stoll.  Which  of  the  three  elements  we  have  in  our  fertilizer  is  the 
scarcest  in  this  country? 

Mr.  Swann.  I  should  say  that  depends  entirely  on  the  crop  and  what  you 
want  to  use  it  for.  Of  course,  we  have  more  phosphoric  acid  than  any  of  the 
other  elements,  except  that  if  ammonia  or  nitrogen  is  made  from  tlie  air,  I 
assume  we  have  our  share. 

Mr.  Stoll.  Is  it  a  fact  that  ammonia  is  the  scarcest? 

Mr.  Swann.  At  the  present  moment,  all  of  it  is  a  drug  on  the  market.  We 
are  exporting.  We  always  do  export  considerable  phosphate  rock,  and  we  are 
exporting  sulphate  of  ammonia  now,  and  of  course,  import  some  of  our  ixjtash. 

Mr.  Stoll.  The  use  of  fertilizer  now  is  not  nearly  as  extensive  as  it  was 
.years  ago  on  account  of  the  high  prices  and  on  account  of  evervthing  going  to 
the  "bowwows;"  is  not  that  true? 


1 


442 


MUSCLE  SHOALS  PROPOSITIONS. 


■   » 

3Ir.  SwANN.  That  is  true. 

Mr.  Stoll.  In  normal  times,  is  not  ammonia  the  scarcest  article? 

Mr.  SwANN.  I  do  not  think  so. 

Mr.  Stoll.  Well,  what  is  the  scarcest? 

Mr.  SwANx.  In  normal  times  there  is  plenty  of  each  available.  I  do  not 
know  that  you  could  pick  out  one  as  the  scarcest. 

Mr.  Stoll.  And  there  is  an  abundance  of  each? 

Mr.  SwANN.  There  has  been  a  rapid  development  of  the  by-product  coke 
ovens  and  one  of  the  things  worrying  them  is  how  they  are  going  to  dispose 
of  the  annnonia. 

Mr.  Stoll.  Do  you  mean  that  there  is  an  abundance  of  ammonia  without  get- 
ting it  from  the  air? 

Mr.  SwAXN.  No;  I  would  not  say  that.    As  Prof.  Whitney  has  pointed  out 
we  should  be  using  about   10,000,000  tons  of  fertilizer   instead  of  dropping 
back  to— I  do  not  recall  his  figures,  but  I  think  it  was  5,500,000  tons  that 
we  used  last  year. 

Mr.  Stoll.  What  I  wanted  to  get  at  was  this :  In  order  to  get  the  supply  of 
ammonia  we  need,  we  are  dependent  upon  the  atmosphere  to  get  it,  are*  we 
no? 

Mr.  SwANN.  Some  of  it,  yes ;  I  should  say. 

The  Chairman.  We  are  very  much  obliged  to  you,  Mr.  Swann,  for  your  very 
clear  statement.     It  has  been  a  great  pleasure  to  hear  what  you  have  said. 


?!!: 


MUSCLE  SHOALS  PROPOSITIONS. 


Committee  on  IMilitary  Affairs. 

House  of  Representatives. 
Monday,  Fchruarn  20,  1922. 

The  committee  met  at  10.30  o'clock  a.  m.,  Hon.  Julius  Kahn  (.chairman)  pre- 
siding. 

The  Chairman.  On  February  3  Mr.  K.  F.  Cooper,  vice  president  of  the 
American  Cyanamid  Co..  and,  as  I  understand  it,  the  head  of  the  Air  Nitrate 
Corporation,  sent  me  this  telegram : 

Hon.  Julius  Kahn, 

Chairman  Committee  on  Militari/  Affairs, 

House  of  Representatives,  Washington,  D.  C. 

Air  Nitrates  Corporation  requests  opportunity  to  be  heard  by  your  committee 
on  any  proi)osal  affecting  United  States  nitrate  plant  No.  2  at  Muscle  Shoals 
and  particularly  regarding  reported  plan  to  violate  rights  of  this  company  un- 
der contract  of  June  8,  1918,  with  United  States  Government. 

^  .  K.  F.  Cooper,  Vice  President. 

I  may  say  that  he  is  also  vice  president  of  the  American  Cyanamitl  Co.  To 
that  I  replied  that  he  would  he  given  a  hearing  at  the  proper  time,  and  on  Feb- 
ruary 8  I  received  This  letter  from  him : 

Air  Nitrates  Corporation, 
New  York,  February  8, 1922. 
Hon.  Julius  Kahn, 

Cfiairman  Committee  on  M Hilary  Affairs, 

House  of  Representatives,  Washington,  D.  C. 

Dear  Sir:  This  acknowledges  with  thanks  receipt  of  your  courteous  note  of 
February  4  advising  us  that  we  will  be  given  an  opportunity  to  present  before 
your  committee  a  statement  regarding  the  Muscle  Shoals  matter. 

Awaiting  your  further  advices  as  to  the  date  when  it  will  best  serve  the  con- 
venience of  your  committee  to  have  us  api)ear,  we  remain, 
Yours,  respectfully, 

K.  F.  Cooper,  Mce  President. 

A  few  days  ago  I  sent  Mr.  Cooper  a  telegram  asking  him  to  apijear  this  morn- 
ing for  the  purpose  of  giving  his  testimony  before  the  committee,  and  he  wired 
back  that  he  would  send  down  Mr.  Hammitt,  of  his  company,  who  is  thoroughly 
familiar  with  the  situation.  Mr.  Hammitt  is  here  this  morning  and  we  will 
be  very  glad  to  hear  from  him  on  this  subject. 

STATEMENT    OF   MB.    J.    O.    HAMMITT,    VICE   PRESIDENT   AIB 
NITRATES  CORPOBATION,  511  FIFTH  AVENUE,  NEW  YOBK. 

The  Chairman.  Mr.  Hammitt,  will  you  kindly  give  your  name  and  also  the 
position  you  occupy  at  the  present  time? 

Mr.  Hammitt.  My  name  is  J.  O.  Hammitt.  I  am  vice  president  of  Air  Nitrates 
Corporation  which  designed  and  built  United  States  plant  No.  2,  commonly 
known  as  the  Muscle  Shoals  nitrate  plant. 

Air  Nitrates  Corporation  is  a  subsidiary  of  the  American  Cyanamid  Co.  Air 
Nitrates  Corporation  has  a  purely  nominal  capitalization  of  $1,000,  all  of  which 
is  owned  by  the  American  Cyanamid  Co.  The  real  party  in  interest  is  the 
American  Cyanamid  Co.,  whose  stockholders  have  all  the  beneficial  interests  in 
what  rights  are  possessed  by  Air  Nitrates  Corporation,  and  in  order  to  avoid 
confusion  the  committee  may  consider  me  here  as  the  representative  of  the 
American  Cjanamid  Co.  or  of  Air  Nitrates  Corporation  in  case  any  questions 
«rise  affecting  either  of  those  two  companies. 

443 


444 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


445 


The  identity  of  the  two  companies  is  practically  one,  and  the  reason  why 
Air  Nitrates  Corporation  was  created  at  all  was  twofold:  First,  to  serve  the 
purposes  of  the  United  States  Govenuuent ;  and  second,  to  protect  the  interests 
of  the  stockholders  of  the  American  Cyanamid  Co. 

The  (Jovernment  desired  to  have  a  plan  set  up  by  which  all  of  the  accounts 
all  of  the  expenditures,  all  of  the  activities  relating  to  the  design  and  construc- 
tion of  this  nitrate  plant  and  other  nitrate  plants  it  desired  to  have  built  to 
use  the  same  i)rocess.  should  be  subject  to  supervision,  examination,  inspection 
and  audit  by  the  representatives  of  the  Government,  and  for  the  purpose  of  mak- 
ing that  as  simple  and  inexpensive  and  effective  as  possible,  it  was  desired 
that  a  separate  corporate  entity  be  set  up  to  handle  this  particular  job  so  as 
not  to  mix  any  of  these  matters  with  the  other  business  of  the  Ameri<an  Cyana- 
mid Co. 

The  American  Cyanamid  Co.  also  desired  that  a  separate  corporation  should 
be  create^l  in  order  that  the  assets  of  the  American  Cyanamid  Co.  should  not  be 
in  any  way  involved  in  connection  with  the  construction  of  these  nitrate  plants 
amounting,  before  we  got  through,  to  approximately  seven  times  the  total 
assets  of  the  company. 

The  reason  we  apijear  before  the  conmiittee  is  that  the  acceptance  by  the 
United  States  of  the  offer  of  Mr.  Henry  Ford  for  the  acquisition  by  him  of 
the  nitrate  plant  and  water-power  property  at  Muscle  Shoals  violates  the 
solemn  and  binding  agreement  of  the  United  States  Government  entertnl  into 
with  our  company  under  date  of  June  8,  1918,  and  I  think  there  is  now  on  the 
desk  of  each  member  of  the  committee  a  copy  of  the  contract  referre<l  to,  and 
on  page  17  of  that  contract  is  article  19,  which  is  the  particular  article  to  which 
1  refer,  and  which  would  be  violated  by  the  acceptance  of  the  offer  of  Mr.  Ford. 

This  article  reads : 

"  Sale  of  plants. — If  upon  cessation  of  this  war,  or  for  any  other  reason,  the 
United  States  determines  to  cease  the  construction,  equipment,  or  oi)eration  of 
any  of  the  said  plants  and  to  dispose  of  the  same,  the  agent  shall  be  given 
the  lirst  opportunity  (for  a  reasonable  period  of  time  not  to  exceed  six  months 
after  receipt  of  wi-itten  notice  stating  the  determination  of  the  United  States 
to  dispose  of  the  same,  and  the  material  terms  upon  which  such  disposition  will 
be  made,  to  piirchase  the  same  upon  as  favorable  terms  as  the  United  States 
is  wiling  to  accejit  therefor,  before  the  United  States  shall  sell  the  same  to 
any  other  party." 

The  agent  referred  to  in  this  contract  and  in  the  paragraph  and  in  the  para- 
graph I  have  read  is  Air  Nitrates  Corporation,  which  I  represent.  The  plants 
referre<l  to  in  this  paragraph  include  the  Muscle  Shoals  plant.  United  States 
nitrate  plant  No.  2. 

The  contract  is  signed  in  behalf  of  the  United  States  by  Col.  Samuel  Mc- 
Roberts,  representing  the  Ordnance  Department. 

The  existence  of  this  contract,  as  a  binding  obligation  of  the  United  States, 
standing  definitely  in  the  way  of  an  acceptance  of  the  proposal  being  considered 
by  the  connnittee,  is  recognized  in  the  report  of  the  Chief  of  Ordnance,  dated 
January  28,  1922,  which  has  been  transmitted  to  the  committee  and  is  in  its 
records. 

The  Chaibman.  Was  this  contract  signed  by  anybody  on  behalf  of  the 
Cyanamid  Co.? 

Mr.  Hammitt.  It  was  signed  by  Mr.  Frank  S.  Washburn,  as  president  of  the 
Air  Nitrates  Corporation  and  there  is  a  separate  contract  entered  into  be- 
tween the  United  States  and  the  American  Cyanamid  Co.,  and  further,  a  con- 
tract between  the  American  Cyanamid  Co.  and  Air  Nitrates  Corporation,  mak- 
ing up  the  complete  scheme  which  was  set  up  for  the  work  upon  the  nitrate 
plants. 

The  Secretary  of  War  and  the  Chief  of  Ordnance  have  stated  their  view 
to  the  committee,  that  having  entered  into  this  agreement  the  I'nited  States 
should  live  up  to  it. 

The  Acting  Judge  Advocate  General  of  the  Army,  however,  has  submitted 
to  the  Secretary  of  War  an  opinion  to  the  effect  that  since  no  authority  ex- 
isted for  the  sale  of  the  plants  at  the  time  this  contract  was  entered  into,  this 
particular  provision  of  the  contract  is  null  and  void. 

Now,  it  is  not  my  intention  to  attempt  to  make  a  legal  argument  before  the 
committee;  but  I  wish  that  the  committee  would  understand  that  we  have  not 
been  guilty  of  any  neglect  in  seeing  that  these  legal  questions  which  might 
arise  were  passed  upon  before,  rather  than  after,  the  contract  was  entered  into. 

This  was  a  very  important  provision  of  the  contract.  From  the  point  of 
view  of  the  stockholders  of  the  American  Cyanamid  Co.,  it  was  necessary  that 


some  kind  of  protection  be  provided  against  the  plant  which  we  were  to  design 
and  erect  for  the  Government  during  the  war,  being  used  after  the  war  for 
the  purpose  of  destroying  the  company  responsible  for  its  design  and  construc- 
tion ;  and  so  we  desired  to  obtain  the  very  best  legal  advice  that  we  could  ob- 
tain in  order  that  the  provision  to  protect  the  stockholders  of  the  American 
Cyanamid  Co.,  as  placed  in  the  contract,  should  always  hold ;  and  after  con- 
sulting the  representatives  of  the  Government  and  ascertaining  that  it  was 
satisfactory  to  them  for  us  to  retain  Mr.  Charles  Evans  Hughes,  the  present 
Secretary  of  State,  in  connection  with  this  question,  we  retained  Mr.  Hughes 
for  that  purpose. 

Now,  I  was  not  personally  present  in  the  conferences  in  which  the  provisions 
of  this  contract  were  agreed  upon,  but  I  can  state  to  the  committee  that  Mr. 
Hughes  was  present  in  the  conference  where  this  matter  was  considered,  and 
that  it  was  on  the  strength  of  his  advice  that  this  form  of  protection  was  pro- 
vided for  the  American  (Cyanamid  Co.  in  the  terms  of  this  section. 

The  Chaibman.  That  is,  section  19? 

Mr.  Hammitt.  Article  19  of  the  contract;  yes,  sir.  It  is  our  belief  that  the 
advice  which  was  satisfactory  to  us  and  satisfactory  to  the  Government,  at 
the  time,  was  sound  advice;  that  this  provision  of  the  contract  will  hold  in 
the  courts ;  but  we  set  up  that  it  is  unfair  to  put  us  in  conflict  with  the  United 
States  Government  on  this  matter  and  to  make  us  wend  our  weary  way  through 
the  law  courts  for  a  period  of  years  in  order  to  establish  this  right.  The  appeal 
I  wish  to  make  to  this  committee  is  not  based  upon  the  question  of  whether 
that  contract  is  valid  or  not,  whether  that  provision  is  null  and  void  on  ac- 
count of  some  technicality,  or  whether  it  is  binding.  That  question,  if  it  must 
be  settled  on  that  ground,  will  have  to  be  settled  in  the  courts ;  but  my  appeal 
to  this  committee  is  an  appeal  to  the  fairness  of  the  committee  and  to  the 
support  of  the  public  policy  in  favor  of  the  United  States  Government  living 
up  to  its  agreements. 

Here  is  the  situation  that  led  those  who  made  that  agreement  to  believe 
that  it  was  fair  that  that  kind  of  protection  should  be  provided. 

The  American  Cyanamid  Co.  had  devoted  years  of  effort  and  millions  of 
dollars  of  the  money  of  its  stockholders  to  acquiring  patent  rights,  developing 
processes,  in  expensive  research,  in  the  design  and  construction  of  plants,  and 
the  placing  of  those  plants  in  operation,  and  in  the  difficult,  time-taking  and 
expensive  work  of  introducing  new  products  into  Americau  commerce  and 
finding  a  stable  place  in  American  commerce  for  those  products;  and  then 
came  the  war  with  Germany,  and  the  only  company,  the  only  organization  on 
this  side  of  the  Atlantic  Ocean  that  was  engaged  in  fixing  nitrogen  on  a  com- 
mercial scale  was  the  American  Cyanamid  Co. 

It  had  not  been  then,  and  it  has  not  been  up  to  now,  a  marvelously  profitable 
operation.  The  American  Cyanamid  Co.  has  succeeded  in  paying  the  6  per 
cent  dividends  on  its  preferred  stock  with  the  exception  of  the  last  two  quarterly 
payments,  and  it  has  never  paid  a  penny  of  dividends  on  its  common  stock; 
but  it  was  a  contribution  to  American  industry  and  there  was  a  hope  in  it 
that  the  money  that  had  been  invested  in  it  could  be  got  out. 

The  United  States  Government  needed  th's  process  for  the  purpose  of  manu- 
facturing anuuonium  nitrate,  a  war  explosive;  and  the  American  Cyanamid 
Co.  was  called  upon  to  place  its  processes,  its  experience,  its  knowledge  of 
the  art  that  had  cost  large  sums  of  money  to  acquire,  and  years  of  efforts,  at  the 
disposal  of  the  United  States  Government  for  fighting  the  war ;  and,  of  course, 
the  American  Cyanamid  Co.  was  desirous  of  doing  that,  as  every  American 
corporation  capable  of  contributing  anything  toward  winning  the  war,  was 
desirous  of  contributing  everything  it  had.  But  while  we  would  have  been 
very  poor  patriots  if  we  had  not  been  willing  to  give  the  Government  everything 
We  had  to  help  toward  winning  the  war,  we  would  not  only  have  been  very 
poor  business  men  but  guilty  of  a  violation  of  our  trust  to  our  stockholders, 
if  we  had  not  asked  for  protection  against  the  use,  after  the  war.  for  the 
purpose  of  destroying  us  and  the  investments  of  our  stockholders,  of  the  plants 
that  we  were  to  build  for  the  Government  during  the  war  and  which  without 
our  cooperation  could  not  have  been  designed  and  built. 

Now,  we  might  have  asked  for  i)rotection  in  a  number  of  different  ways. 
It  might  have  been  askeil  that  after  the  war  these  plants  be  des  royed,  but 
the  Government  desired  that  these  plants  should  be  maintained  permanently 
or  at  least  indefinitely  as  a  protection  against  future  war  emergency,  and 
so  they  were  built  as  permanent  plants,  and  we  put  into  them  every  bit  of 


446 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


447 


knowledge  ami  exi)erience  and  skill  that  we  had.  and  we  delivered  to  the 
Lnited  States  rjovernment  a  plant  that  operates,  that  meets  the  require- 
ments for  which  it  was  designed,  and  we  did  not  fall  down  on  our  part  of 
the  agreement. 

We  might  have  asked  that  it  be  definitely  agreed  that  these  plants  never 
be  used  for  any  puri^ose  except  the  manufacture  of  war  munitions,  but  it  was 
desired  that  these  plants  being  built  as  permanent  plants,  steel  frames,  masonrv 
constructed  buildings,  heavy  machinery,  should  be  available  for  any  possible 
future  economic  use  in  the  manufacture  of  fertilizers  and  other  materials,  and  so 
what  did  we  obtain  from  the  Government  in  the  way  of  protection?  We  obtained 
merely  this:  That  if  the  Government  ever  does  sell  the  plant,  it  gives  us  the 
first  chance  to  buy  it,  not  on  any  better  terms  than  it  is  willing  to  give  to 
somebody  else,  but  on  precisely  as  good  terms;  and  now  it  is  proposed  that 
a  man  who  had  nothing  whatever  to  do  with  putting  down  there  at  Muscle 
Shoals  what  is  there,  who  had  nothing  whatever  to  do  with  the  development 
of  the  processes  that  are  capable  of  being  used  there,  who  has  contributed 
nothing  to  meet  the  Government's  war  problem  as  it  is  met  at  Muscle  Shoals 
shall  receive  a  fee  simple  title  to  this  plant  from  the  United  States  Govern- 
ment, and  along  with  it  the  cheapest  power  on  the  American  continent,  financed 
out  of  the  American  Treasurj-,  for  the  puri)ose  of  carrying  on  a  war  of  ex- 
termination   against    the   company    that   designed    and    built    that   plant. 

Now,  if  that  does  not  shock  the  sense  of  justice  of  this  committee,  I  am 
very  seriously  mistaken.  Frankly,  if  the  American  Cyanamid  Co.  or  any  of 
you  gentlemen  in  your  private  business,  having  made  a  solemn  agreement  of 
this  sort,  and  on  the  strength  of  it  induced  a  corporation  to  expose  itself  to 
hazards  to  the  extent  that  the  American  Cyanamid  Co.  has  exposed  itself,  then 
on  account  of  a  legal  technicality  endeavored  to  escape  from  that  contract,  we, 
or  you,  would  find  that  people  would  not  care  to  deal  with  us  in  the  future,  and 
if  they  did  deal  with  us,  they  would  deal  with  us  at  arms  length ;  and  I  can  not 
see  why  there  is  any  public  policy  in  favor  of  the  United  States  Government 
showing  a  lower  standard  of  business  morality  than  is  essential  for  a  private 
corporation,  if  the  corporation  is  to  stay  in  business  in  the  United  States. 

Now,  the  Air  Nitrates  Corporation  and  the  American  Cyanamid  Co.  have 
not  made  one  penny  of  profit  out  of  the  contract  to  which  I  referred,  or  out  of 
the  designing  and  construction  of  this  plant  at  Muscle  Shoals.  The  record  of 
the  committee  contains  references  to  a  $2,000,000  fee.  There  was  not  any 
$2,000,000  fee.  There  was  a  maximum  fee  provided  of  $1,500,000,  but  that  was 
not  money  that  the  American  Cyanamid  Co.  or  the  Air  Nitrates  Corporation 
was  permitted  to  receive  and  keep.  Suppose  that  was  a  fee  in  the  ordinarv 
sense.    We  did  $100,000,000  worth  of  work  for  the  Government. 

In  jour  general  business  experience,  have  you  gentlemen  had  acquaintance 
with  contracts  of  that  character  where  for  design  and  construction  the  fee  is 
less  than  1^  per  cent?  It  would  have  been  a  reasonable  fee,  but  it  was  not  a 
fee  in  the  sense  that  we  were  to  receive  it  and  keep  it.  We  have  not  received 
it  all  yet,  but  let  us  assume  that  we  do  receive  it  all.  In  the  first  place,  we  are 
rquired  to  pay  80  per  cent  of  it  back  to  the  Unite<l  States  Government  in  taxes, 
and  that  reduces  your  $1,500,000  down  to  $300,000,  and  that  is  not  U  per  cent 
but  0.3  of  1  per  cent.  Then  the  State  of  New  York  provides  under  its  "laws  that 
we  must  pay  approximately  $75,000  of  that  to  the  State  of  New  York  in  taxes, 
aod  that  reduces  the  $1,500,000  down  to  $225,000,  and  then  this  contract  itself 
provides  that  we  are  to  deliver  to  the  United  States  Government  without  charge 
the  full  services  for  the  period  required  of  the  men  in  whom  there  resided  to  a 
greater  extent  than  in  any  other  group  the  knowledge  and  the  experience  and 
the  skill  and  the  ability  for  the  design  and  operation  of  that  kind  of  a  plant, 
and  we  paid  those  men  their  compensation  out  of  private  funds,  and  it  amounted 
to  more  than  the  balance  that  was  left  to  us  out  of  our  fee,  although  it  amounted 
to  le.ss  during  that  ix»riod  than  we  have  paid  since  then  for  a  similar  period  to 
the  same  men  for  their  services  out  of  the  same  private  funds.  Then  there 
were  a  considerable  number  of  expenditures  which  it  was  necesstiry  to  make  on 
this  job,  if  we  were  not  to  fall  down  on  the  job,  which  it  was  practically  im- 
possible for  the  United  States  to  reimburse,  and  which  the  United  States  not 
only  has  not  yet  reimbursed  but  a  considerable  part  of  which  they  never  will 
reimburse.  And,  gentlemen,  while  I  can  not  tell  you  the  extent  of  the  cash 
loss,  because  the  details  have  not  yet  been  fully  adjusted,  yet  I  can  tell  you, 
in  the  first  place,  that  what  we  net  on  this  operaion  is  a  loss.  We  have  not 
been  paid  in  American  dollars  for  anything  we  gave  up,  and  what  we  net  on 
this  operation  is  a  loss,  and  it  is  somewhere  between  nothing  and  $75,000.    So 


I  make  my  appeal  to  the  fairness  of  the  committee  and  to  the  public  policy  in 
behalf  of  the  United  States  Government  living  up  to  the  agreements  it  has 
made.  The  committee  may  have  in  mind  the  fact  that  it  is  dealing  now  with 
a  corporation  which  has  not  been  paid  in  other  coin  for  anything  that  it 
contributed  toward  winning  the  war. 

That  finishes  the  statement  I  came  here  to  make,  Mr.  Chairman. 

The  Chaibman.  I  presume  that  when  you  began  to  negotiate  with  the  officers 
of  the  Government  regarding  your  help  in  putting  up  nitrate  plant  No.  2,  you 
were  familiar  with  the  law  that  was  on  the  statute  books  and  had  been  enacted 
on  the  3d  of  June,  1916.  There  was  a  clause  in  that  law  which  reads  as 
follows : 

"  The  plant  or  plants  provided  for  under  this  act  shall  be  constructed  and 
operated  solely  by  the  Government  and  not  in  conjunction  with  any  other  in- 
dustry or  enterprise  carried  on  by  private  capital." 

You  were  familiar  with  that,  I  imagine? 

Mr.  Hammitt.  I  am  quite  sure  that  our  attorneys  w^ere  familiar  with  that 
provision  and  other  provisions  of  law  affecting  this  situation ;  and  I  am  quite 
sure,  Mr.  Chairman,  that  if  it  were  absolutely  certain  that  that  provision  of 
law  would  always  remain  the  same,  it  would  have  been  useless  to  make  any 
provision  to  cover  a  possible  sale  of  the  plant,  but  what  the  committee  has  be- 
fore it  now  is  a  proposition  to  change  that  provision  of  the  law  and  what  the 
United  States  Government  agreed  to  was  that  if  that  provision  of  the  law  ever 
was  changed  so  that  they  ever  did  offer  the  plant  for  sale,  we  should  have  an 
opportunity,  not  on  better  terms,  but  on  as  good  terms  as  anybody  else,  to 
acquire  the  plant. 

The  Chairman.  You  say  the  Government  wants  to  change  the  law.  Do  you 
consider  that  if  the  Government  desires  to  sell  the  plant  outright  to  private 
individuals  that  that  would  be  a  change  of  the  law? 

Mr.  Hammitt.  I  would  rather  not  testify,  Mr.  Chairman,  regarding  any 
question  of  legal  interpretation;  at  least,  without  first  taking  the  committee 
into  my  confidence  to  the  extent  of  saying  that  I  am  not  a  lawyer. 

The  Chairman.  You  have  stated  your  case  very  well. 

Mr.  Hammitt.  The  committee  would  not  care  to  take  my  judgment  on  any 
legal  question,  Mr.  Chairman.  If  there  is  anything  that  the  chairman  or  the 
members  of  the  committee  wish  me  to  express  an  opinion  on,  having  first 
stated  that  my  opinion  on  a  legal  matter  is  of  no  value  whatever,  of  course, 
I  would  be  very  glad  to  answer  it. 

The  Chairman.  The  committee  has  been  hearing  this  matter  discussed  from 
several  viewpoints,  and  I  think  Gen.  Williams  stated  to  the  committee  he 
thought  that  despite  that  provision  of  the  law,  your  company  had  a  moral  obli- 
gation; is  that  the  way  you  feel  about  it? 

Mr.  Hammitt.  I  feel  there  certainly  exists  a  moral  obligation,  and  I  am 
advised  and  believe  that  there  exists  also  a  legal  obligation.  I  came  here  to 
discuss  the  moral  obligation,  Mr.  Chairman,  because,  quite  obviouslv,  the 
Judge  Advocate  General  having  passed  upon  the  legal  obligation  ,if  the  com- 
mittee does  not  recognize  any  moral  obligation,  we  may  have  to  determine 
the  legal  obligation  in  the  courts,  and  that  is  a  thing  that  we  want  absolutely  to 
avoid. 

The  Chairman.  This  is  the  evidence  before  the  committee : 
"  The  Chairman.  We  will  ask  the  Judge  Advocate  General  about  that  when 
he  makes  his  statement.    State  why,  in  your  opinion,  there  is  a  moral  obliga- 
tion? 

"  Cten.  Williams.  The  Government  found  itself  very  greatly  in  need  of  power. 
The  Alabama  Power  Co.  had  already  projected  this  extension,  and  all  their 
plans  had  been  drawn,  and  they  came  to  the  assistance  of  the  Government  at 
a  critical  time,  putting  at  its  disposal  their  facilities  and  the  plans  which  they 
had  already  made. 

"  The  Chairman.  And  those  facilities  and  plans  were  accepted  by  the  Gov- 
ernment? 
]'  Gen.  Williams.  They  were  accepted  by  the  Government. 

"  The  Chairman.  And  have  been  used  ever  since  by  the  Government,  have 
they? 

"Gen.  Williams.  They  were  used  for  a  while  by  the  Government  in  the 
operation  of  the  plant  at  Muscle  Shoals  "— 
And  so  forth. 
Mr.  Parker.  That  refers  to  the  Alabama  Power  Co. 

92900—22 ^29 


448 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


449 


The  Chairman.  Yes;  but  they  were  both  on  the  same  plane  with  respect  to 
this  special  work. 

Now,  what  do  you  think  would  have  happened  if  these  companies  had  refused 
to  help  the  Government  during  the  war,  because  this  all  happened,  as  I  recall^ 
during  the  war. 

Mr.  Hammitt.  Mr.  Chairman,  I  never  gave  that  a  minute's  thought.  Such  a 
thing  as  the  American  Cyanamid  Co.  refusing  to  gives  its  assistance  during  the 
war  is  a  thing  that  nobody  ever  would  conceive  of,  and  what  would  happen 
as  a  legal  matter  I  could  certainly  not  advise.  As  a  practical  matter,  it  is  an 
absolute   impossibility   to  conceive  of. 

The  Chairman.  Well,  of  course,  feeling  ran  very  high  in  this  country  during 
that  period  when  we  were  putting  up  this  plant.  There  were  people  who 
thought  that  any  man  who  would  refuse  to  do  what  the  Government  asked  was 
a  traitor  to  his  country. 

Mr.  Hammitt.  I  think  that  feeling  was  justified. 

The  Chairman.  Do  you  know  what  would  have  happened  to  the  company  if 
it  had  point-blank  refused  to  take  any  action  on  the  ground  that  the  law  itself 
set  forth  in  this  statement  that  tin*  plant  or  plants  provided  for  under  this 
act  shall  be  constructed  and  operated  solely  by  the  Government  and  not  in  con- 
junction with  any  other  industry  or  enterprise  carried  on  by  private  capital? 

Mr.  Hammitt.  Well,  Mr.  ('hairman,  I  really  could  not  speculate  as  to  what 
particular  form  it  wcmld  take,  but  I  should  say  that  if  any  company  had  refused 
to  <-m>perate  with  the  Government,  that  its  punishment  should  have  been  as  com- 
plete as  it  was  possible  to  make  it.  I  think  that  perhaps  the  committee  may 
find,  upon  investigation,  that  this  particular  nitrate  plant  is  not  subject  to  the 
provisions  of  that  act  of  1916.  I  believe  it  is  a  fact  that  if  you  will  examine 
the  accounting  of  the  War  Department,  you  will  not  find  any  part  of  the  nitrate 
plant  paid  for  out  of  the  appropriation  carried  in  that  particular  bill.  I  think 
ycm  will  tind  it  paid  for  out  of  appropriations  for  armaments  and  fortifica- 
tions, and  it  may  possibly  be,  although  I  would  not  like  to  pass  upon  the  ques- 
tion, that  that  provision  does  not  apply  to  the  nitrate  plant  itself.  It  does 
ai)ply  to  other  parts  of  the  offer  of  Mr.  Ford. 

The  Chairman.  I  think  the  evidence  i)efore  the  committee  is  that  the  money 
that  was  used  for  building  this  nitrate  plant  was  not  taken  out  of  this  fund,, 
but  the  money  for  Dam  No.  2  was  taken  out  of  this  fund. 

;Mr,  Hammitt.  Yes,  sir. 

The  Chairman.  But  the  fact  remains  that  all  the  money  that  is  in  the  Muscle 
Shoals  plants  was  taken  from  appropriations  that  were  made  for  military  pur- 
l>oses. 

Mr.  Hammitt.  There  is  not  the  slightest  doubt  about  that,  Mr.  Chairman. 

The  Chairman.  I  was  going  to  read  what  Col.  Hull  had  to  say  about  the 
matter,  and  I  will  read  what  Col.  Hull  has  to  say  about  the  matter  of  the 
m<»ral  obligation.     I  said  to  him: 

"The  Chairman.  What  do  y(m  think  about  that  moral  obligation? 

"  Col.  Hull.  Ordinarily,  I  am  strictly  in  favor  of  the  Government  carrying 
4»ut  its  contracts  that  are  duly  entered  into,  notwithstanding  that  the  officer,  in 
the  time  of  emergency,  exceeded  his  powers." 

That  is  the  case  here,  probably. 

But  in  this  contract  I  notice  it  is  a  cost-plus  contract.  It  is  a  long  contract 
that  bears  many  evidences  of  having  been  very  carefully  prepared  by  the 
uttorneys  for  the  company,  and  they  have  provided  in  there  several  very  re- 
markable things,  namely,  the  construction  of  a  power-transmission  line  and 
power  plant  at  the  expense  of  the  United  States,  but  at  the  .same  time  providing 
that  the  company  takes  the  real  estate  and  an  option.  The  company  can  not 
get.  ordinarily,  in  time  of  war,  the  right  of  way  as  cheaply  or  as  expeditiously 
as  the  Government  can,  and  it  certainly  would  have  been  a  matter  of  ordinary 
Inisiness  sense  when  they  were  constructing  a  plant  and  buying  real  estate 
to  do  it  in  that  way.  Therefore,  I  believe  it  is  a  perfecty  proper  case  to  leave 
to  Congress,  after  a  due  investigation,  to  determine  what  the  equity  of  the 
matter  may  be. 

Mr.  Hammitt.  My  comment  on  that,  Mr.  Chairman,  is  that  the  witness  is 
discussing  an  entirely  different  contract,  with  an  entirely  different  company, 
wih  which  the  American  Cyanamid  Co.  and  Air  Nitrates  Corporation  have  no 
<*onnection  whatever,  and  that  whatever  he  may  have  said,  whether  it  was  well 
sa  d  or  ill  said,  regarding  the  moral  obligation  in  that  particular  transaction,  has 
n<»thing  whatever  to  do  with  the  moral  obligation  in  this  transaction  which  I 
have  been  discussing. 


The  Chairman.  The  fact  is  that  both  companies,  both  the  Air  Nitrates 
Corporation  and  the  Alabama  Power  Co.  violated  this  positive  section  of  the 
law,  that,  the  plant  or  plants  provided  for  under  this  act  shall  be  constructed 
and  operated  solely  by  the  Government  and  not  in  conjunction  with  any 
otner  industry  or  enterprise  carried  on  by  private  capital."  That  is  verv  clear 
to  me  as  an  expression  of  law. 

Mr  Hammitt.  I  do  not  think  you  mean  to  say,  Mr.  Chairman,  though,  that 
by  taking  a  contract  which  made  us  the  agent  of  the  United  States  for  the 
design  and  construction  of  the  Muscle  Shoals  nitrate  plant,  which  is  all  we 
have  done,  we  violated  the  provisions  of  the  national  defense  act.  If  that 
is  the  view,  then  our  only  escape  from  violating  that  provision  would  have 
been  never  to  have  built  the  planf,  and  the  phmt  was  needed  for  war  purposes, 
and  it  IS  very  fortunate  that  we  were  advised  that  we  were  not  violating  the 
law  by  building  it. 

The  Chairman.  That  is  why  I  asked  you  a  moment  ago  what  would  have 
happened  to  your  corporation  if  you  had  refused  to  come  to  the  assistance  of 
the  Government  while  the  Government  was  in  a  state  of  war. 

Mr.  Hammitt.  I  think  some  means  undoubtedly  would  have  been  found  to 
have  compelled  us  to  do  so. 

Mr.  McKenzie.  Mr.  Hammitt,  how  many  years  have  vou  been  connecter  I 
with  the  American  Cyanamid  Co.? 

Mr.  Hammitt.  My  connection  with  the  American  Cyanamid  Co.  develope<l 
through  a  connection  with  the  Air  Nitrates  Corporation  during  the  war,  so  that 
it  IS  a  matter  of  several  years. 

.  ^^r-  ^^^Kenzie,  You  are  not  familiar  with  the  attempt  at  getting  legislaton 
m  1916  which  finally  resulted  in  section  124  of  the  national  defense  act  I 
take  it? 

Mr.  Hammitt.  I  have  no  familiarity  from  any  personal  contact  with  that 

Mr.  McKenzie.  Do  you  know  of  your  own  knowledge  whether  tiie  American 
Cyanamid  Co..  represented  by  Mr.  Washburn.  appeare<l  before  the  Committee 
on  Military  Affairs  at  that  time  advocating  such  legislation  that  would  enable 
the  Government  to  build  the  dams  and  afterwards  lease  the  nropertv  to  soin*' 
corporation  to  operate?  *  ' 

Mr.  Hammitt.  I  would  not  like  to  testify  in  detail  as  to  what  Mr.  Washburn 
had  testified  at  that  time,  but  I  understand,  while  I  have  no  personal  knowl- 
edge of  it,  that  he  did  appear. 

Mr.  McKenzie.  You  understand  that  that  was  the  proposition  which  was 
submitted  to  Congress  at  that  time,  the  American  ( Vanamid  Co.  having  in  mind 
the  manufacture  of  nitrates  at  Muscle  Shoals?  But  it  was  felt  at  that  time 
as  some  feel  now,  it  was  too  big  a  proposition  for  any  individual  corporation' 
to  undertake,  to  pay  the  expense  of  construction  of  the  dams,  and  therefore 
Congress  was  asked  to  make  an  appropriation  to  construct  the  dams  and  af- 
terwards lease  the  power  to  some  corporation. 

Mr,  Hammitt.  J  would  say  this,  in  general,  regarding  anv  suggestions  mi- 
recommendations  that  were  made  by  any  individuals  prior  to"  the  war :  While 
I  am  not  a  well-acquainted  witness  on  that  subject,  and  am  verv  sorrv  that  Mr 
Washburn  could  not  himself  be  before  the  committee,  but  he  is  prevented  from 
being  before  the  committee  by  illness,  which  has  prevented  him  from  attending 
to  business  for  a  period  now  of  more  than  a  year,  and  I  will.sav,  in  general" 
that  any  recommendations  regarding  the  disposition  of  that  water  power 
project  made  prior  to  the  war  and  made  prior  to  the  enactment  of  the  general 
Federal  water  power  act,  were  based  upon  conditions  both  as  to  water  power 
development  and  as  to  nitrate  development,  which  are  so  radically  different 
from  the  present  conditions,  that  it  would  be  very  unwise  to  follow  those  earlier 
recommendations  in  dealing  with  the  present  situation. 

Mr.  McKenzie.  At  any  rate,  you  are  well  aware  of  the  fact  that  when  such 
a  proposition  as  I  have  stated  was  advocated  at  that  time,  did  not  materialize, 
we  enacted  section  124,  as  it  now  appears,  of  the  national  defense  act,  which 
provides  for  the  construction  by  the  Government  and  the  operation  by  the  Gov- 
ernment of  plants  for  the  manufacture  of  this  particular  product  which  can 
be  used  in  the  manufacture  of  munitions,  and  is  also  useful  in  the  manufacture 
of  fertilizer. 

Mr.  Hammitt.  And  I  am  quite  sure  that  Mr.  Washburn  never,  in  any  of  his 
testimony,  recommended  that  kind  of  a  provision. 

Mr.  McKenzie.  No;  I  understand  that;  but  I  say  that  is  the  situation  now, 
that  the  law  provides  in  section  124  that  the  Government  shall  operate  this 


450 


MUSCLE   SHOALS  PROPOSITIONS. 


plant,  as  the  chairman  just  read  a  few  moments  ago,  not  in  conjunction  with 
any  other  company. 

Mr.  Hammitt.  Yes;  and,  of  course,  unless  you  change  that  law  you  could 
not  possibly  accept  the  proposal  of  Mr.  Ford. 

Mr.  McKenzie.  Yes.  Now,  coming  down  to  the  period  of  the  war  and  this 
particular  contract,  a  copy  of  which  we  have  before  us,  can  you  tell  the  com- 
mittee just  how  the  American  Cyanamid  Co.  came  to  enter  into  such  a  con- 
tract?   Who  took  the  initiative  in  that  matter? 

Mr.  Hammitt.  The  initiative,  at  the  time  the  contract  for  the  design  and 
construction  of  the  plants  was  entered  into,  was  taken  by  the  Government. 
Prior  to  that  time,  the  American  Cyanamid  Co.,  having  information  that  was 
the  same  information  that  led  the  Government  ultimately  to  enter  into  this 
kind  of  contract,  called  the  matter  to  the  attention  of  the  Government  and 
recommended  to  the  Government  that  they  provide  themselves  with  protection. 

Mr.  McKenzie.  Did  representatives  of  the  American  Cyanamid  Co.  go  to 
the  Ordnance  Department  with  certain  recommendations  or  plans  or  sugges- 
tions, or  did  some  one  representing  the  Government  come  to  the  American 
Cyanamid  Co.,  and  if  so,  if  you  know,  tell  us  how  it  was  done,  and  the  name 
of  the  representative  or  representatives  of  the  Government. 

Mr.  Hammitt.  I  can  not  give  you  any  detailed  testimony  on  that  subject.  I 
can  state,  in  general,  that  the  contract  under  which  the  Muscle  Shoals  Nitrate 
Plant  was  designed  and  built  was  written  as  a  result  of  conferences  to  which 
the  American  Cyanamid  Co.  was  invited  by  the  Government,  rather  than  con- 
ferences to  which  the  American  Cyanamid  Co.  had  invited  the  Government. 

Mr.  McKenzie.  I  was  assuming  from  what  you  stated  about  the  patriotic 
motives  of  the  American  Cyanamid  Co.,  and  their  great  desire  to  help  the 
Government  at  that  time,  that  they,  perhaps,  went  to  the  Government  and 
made  certain  suggestions,  but  I  understand  you  now  to  say  that  the  repre- 
sentatives of  the  Government  came  to  the  American  Cyanamid  Co.,  and,  of 
course,  the  American  Cyanamid  Co.  controls  patents  covering  the  manufacture 
of  this  particular  form  of  nitrate;  is  that  true? 

Mr.  Hammitt.  Yes;  but  the  American  Cyanamid  Co.  had  at  a  previous 
time  made  representations  to  the  Government  recommending  what  it  believed 
the  proper  course  for  the  Government  to  pursue  for  the  protection  of  the  Gov- 
ernment in  its  nitrates  supply,  and  those  suggestions  having  been  made,  and 
not  having  been,  as  I  remember  the  situation,  particularly  well  received  at  that 
time,  the  American  Cyanamid  Co.  had  no  occasion  for  any  further  communica- 
tions with  the  Government  on  the  subject,  and  would  have  been  justified  in 
believing  that  the  Government  was  more  fully  advised  than  the  American 
Cyanamid  Co.  as  to  whether  such  provision  should  be  made. 

Subsequently,  however,  the  Government  invited  the  American  Cyanamid  Co. 
into  conference,  and  it  was  as  a  result  of  that  invitation  that  the  negotia- 
tions were  entered  into  that  led  to  the  vsrriting  of  this  kind  of  contract. 

Mr.  McKenzie.  You  are  aware  of  the  fact,  Mr.  Hammitt,  that  during  the  war 
we  had  down  here  in  Washington  what  was  known  as  the  Council  of  National  De- 
fense, and  we  had  organizations  and  suborganizations  there  representing  every 
possible  phase  of  manufacture  of  the  necessities  of  war.  Now,  can  you  not  tell 
the  committee  just  who  it  was  that  came  to  the  American  Cyanamid  Co.  and 
entered  into  these  conferences  with  the  American  Cyanamid  Co.  to  do  this 

work? 

Mr.  Hammitt.  I  am  very  sorry  I  can  not ;  no,  sir. 

Mr.  McKenzie.  You  can  not? 

Mr.  Hammitt.  I  can  not. 

Mr.  McKenzie.  Who  can  tell  us? 

Mr  Hammitt  I  would  be  very  glad  to  prepare  a  complete  history  of  that 
for  the  committee  and  place  it  in  the  record  if  that  would  serve  your  purpose. 

Mr.  McKenzie.  Yes ;  we  just  want  to  know  how  this  was  brought  about. 

Mr!  Hammitt.  Yes,  sir.  ,        .  ^    ^  .    ^rru  ^ 

Mr.  McKenzie.  So  we  can  call  on  the  representative  of  the  Government.  What 
I  am  driving  at  is  to  get  the  history  of  the  matter. 

Mr.  Hammitt.  Yes. 

Mr.  McKenzie.  Now,  at  any  rate,  you  held  conferences,  and  your  company,  as 
I  understand  it,  was  imbued  with  the  desire  to  do  its  patriotic  duty  to  the 
Government  in  time  of  war,  and  you  entered  into  conferences  with  representa- 
tives of  the  Government  and  started  in  to  prepare  a  contract.    When  you  did 


MUSCLE   SHOALS  PROPOSITIONS. 


451 


that,  strangely,  it  seems  to  me,  you  employed,  perhaps  the  most  noted  lawyer  in 
the  United  States,  Charles  Evans  Hughes,  to  come  into  that  conference  as  your 
representative.    Now,  for  what  purpose? 

Mr.  Hammitt.  Mr.  Hughes  was  called  for  the  purpose  of  advising  regarding 
the  form  of  protection  that  could  be  provided  for  the  American  Cyanamid  Co. 
against  the  thing  which  it  was  creating  during  the  war  being  used  after  the  war 
for  the  purpose  of  destroying  it.  I  should  like  to  make  it  clear  that  Mr. 
Hughes  was  not  retained,  generally,  for  the  purpose  of  representing  the 
American  Cyanamid  Co.  in  the  negotiations  for  all  provisions  of  the  contract, 
and  that  the  retaining  of  Justice  Hughes  was  subsequent  to  the  submission  of 
the  question  of  whether  he  should  be  retained  to  the  Government's  representa- 
tives, and  it  was  with  their  approval. 

Mr.  McKenzie.  But  he  was  employed  prior  to  the  execution  of  this  contract? 

Mr.  Hammitt.  Yes,  sir. 

Mr.  McKenzie.  And  sat  in  the  conferences? 

Mr.  Hammitt.  Yes;  sir. 

Mr.  McKenzie.  I  would  like  to  get  all  the  light  I  can  on  that  proposition, 
because  it  seems  to  me  to  have  been  a  very  simple  thing.  Here  was  the 
American  Cyanamid  Co.  engaged  in  the  manufacture  of  certain  materials  used 
in  explosives,  knew  how  to  put  up  the  plants,  controlled  the  patents,  and  out 
of  patriotic  impulse  they  wanted  to  help  the  Government,  and  the  Government 
Avanted  a  plant  put  up  down  at  Muscle  Shoals  where  they  could  manufacture 
this  material  which  was  necessary  in  time  of  war.  Now,  it  seems  to  me  that 
that  was  a  simple  proposition  and  did  not  require  any  lawyer  such  as  Mr. 
Hughes  to  enable  your  company  to  help  construct  a  plant  that  would  assist 
the  Government  in  time  of  stress,  and  your  statements  about  the  patriotic 
motives  of  your  company  are  very  commendable.  I  think  it  is  very  proper  they 
should  have  that  sort  of  feeling,  but  why  they  should  call  in  Mr.  Hughes  or 
any  other  lawyer  to  help  draft  such  a  contract  as  I  have  in  front  of  me  no\y,  I 
can  only  understand  in  one  way,  and  I  want  you  to  explain  that.  Is  it  possible 
that  the  American  Cyanamid  Co.  at  that  time  was  figuring  to  forestall  the 
Government  from  using  the  property  which  it  was  employing  them  to  construct, 
and  for  which,  as  you  say,  they  paid  them  $1,500,000  for  their  services;  is 
that  what  Mr.  Hughes  was  in  this  conference  for  at  that  time? 

Mr.  Hammitt.  Now,  may  I  begin  at  the  last  end  of  your  statement? 

Mr.  McKenzie.  Yes. 

Mr.  Hammitt.  Because  I  do  not  like  to  have  the  record  continually  filled  up 
with  the  statement  that  we  were  paid  $1,500,000  when  it  is  not  a  payment  of 
$1,500,000  if  vou  give  that  to  me  and  take  $1,200,000  of  it  right  back,  is  it? 

Mr.  McKenzie.  Well,  I  would  say  that  if  I  was  paid  $1,500,000  as  an  attorney 
during  the  war  for  performing  some  service,  that  I  receive  the  money  and,  of 
course,  if  the  Government  took  part  of  it  away  in  taxes,  that  is  another  proposi- 
tion. 

Mr.  Hammitt.  Yes;  but  you  would  not  consider  you  were  coming  out  of  that 
operation  with  a  profit  if  you  reteived  it  in  one  hand  and  liad  to  give  it  back 
with  more,  too,  in  another  hand. 

Mr.  McKenzie.  That  is  true. 

Mr.  Hammitt.  And  as  I  have  stated,  that  is  exactly  what  happened  in  this 
case. 

Mr.  McKenzie.  We  will  not  argue  that  proposition. 

Mr.  Hammitt.  Now,  in  the  second  place,  the  reason  we  sought  the  best  legal 
advice  we  could  get  was  because  there  were  important  legal  questions  as  to 
how  the  United  States  Governnrent  could  protect,  by  agreements,  the  American 
Cyanamid  Co.  against  the  property  which  we  designed  and  built  for  the  Gov- 
ernment during  the  war  being  used  to  destroy  the  assets  of  the  American 
(-\vanamid  Co.  after  the  war.  There  were  important  legal  questions  relating 
to  that.  What  they  were  I  can  not  tell  you,  but  they  were  sufficiently  important 
so  that  we  consulted  the  Government  about  the  advisability  of  retaining  .Justice 
Hughes,  which  we  suggested,  and  which  with  the  Government's  consent  we  did. 

Mr.  McKenzie.  At  that  time  the  American  Cyanamid  Co.  had  a  practical 
monopoly,  did  it  not,  of  the  manufacture  of  this  product? 

Mr.  Hammitt.  It  did.  and  except  for  the  fact  that  it  has  built  a  jdant  that  the 
Government  now  owns  and  that  it  has  given  the  Government  a  license  to  oper- 
ate under  its  patents,  it  still  has  a.  monopoly,  and  that  monopoly  is  built  just 
exactly  the  same  as  monopolies  generally  are  built  in  the  chemical  industry, 
by  first  pouring  your  money  and  energy  into  tlie  development  of  a  thing  and 


t . 


452 


MUSCLE   SHOALS  PROPOSITIONS. 


then  hopinjrVoii  will  he  ;il!(.\ved  t(.  keop  it  Ion-  enoiijrli  to  get  voiir  nionev  back 
luid  a  protit.  »      . 

Mr.  McKkxzik.  Xonv,  th:i[  hrinjrs  me  ri-ht  hack  to  my  tiist  imint :  Is  it  a  fact 
that  you  emph)ye(l  Charles  Evans  Hughes  as  your  attorney  to  prepare  such  a 
contract  that  you  w(mhl  ahsolutely  be  secured  in  the  c-(mtinuation  of  that 
monopoly?  . 

Mr  Hammitt.  I  wouhl  like  to  modify  that  only  to  this  extent:  Not  to  prepare 
n  contract,  but  to  jHivise  regarding  the  form  of  protection  that  could  be  put 
in  thsit  contract,  in  order  that  we  should  have  the  very  thing  that  is  specified 
here,  the  right  to  buy  that  plant  at  Muscle  Shoals  on  as  good  terms  as  vou  are 
willing  to  sell  it  to  anylxKly  else.  .    u  ait; 

Mr.  McKenzik.  That  absolutely  prevents  any  competition,  does  it  nof> 
Mr  Hammitt.  No  :  it  does  not  prevent  competition,  provide^l  Mr.  Ford  or 
somebody  else  is  willing  to  purchase  it  on  terms  more  favorable  to  the  Gov- 
ernment than  we  are  willing  to  purchase  it  on.  If  we  are  willing  to  purchase 
it  on  as  good  terms  as  anybody  else  it  gives  us  protection.  If  somebody  else 
is  willing  to  offer  the  Government  better  terms  than  we  will  accept,  it  gives  us 
no  protection.  ^  *      ^ 

Mr.  McKenzie.  Is  it  a  fact  that  the  American  Cyanamid  Co.  has,  for  a 
number  of  years,  had  its  eye  on  this  particular  plant  at  Muscle  Shoals,  and 
at  no  time  was  it  taking  any  chances  on  anyone  getting  in  there,  either  the 

fX^^il™^'*  ^^  ^^^  ^^^^^  ^^  *^^  Government  who  might  enter  into  competition 
with  that  company,  and  in  the  preparation  of  this  contract,  was  not  that  one 
of  the  vital  propositions  you  had  under  consideration? 

Mr.  Hammitt.  That  question  is  also  in  two  parts.  In  the  first  place.  I  do 
not  know  it  to  be  a  fact  that  the  American  Cyanamid  Co.  has  had  its  eve  looking 
In  the  direction  of  Muscle  Shoals  for  a  long  period  of  time.  It  certainly  is 
a  fact,  as  the  Congressman  has  suggested,  when  we  got  into  negotiation  with 
the  Government  looking  to  the  design  and  construction  of  a  plant  four  times 
the  size  of  a  similar  unit  in  one  of  our  own  plants  we  considered  it  vitally 
important  that  there  should  be  some  protection  against  that  plant  being  used 
in  competition  with  us  after  the  war.  If  there  had  not  been  a  war  there  would 
not  have  been  any  plant  at  Muscle  Shoals,  certainly  not  built  on  those  terms 
Since  there  was  a  war,  and  by  reason  of  the  war  need  we  provided  that  plant 
for  the  Government,  we  thought  it  very  necessary  that  we  should  have  protec- 
tu>n  against  the  use  of  that  plant  to  destroy  our  investment  after  the  war  In 
regard  to  the  matter  of  protection  I  might  say  that  the  contract  pi-ovided  that 
we  should  be  permitted  to  buy  it  on  as  good  terms  as  anybody  else. 

Mr.  McKenzie.  You  are  a  business  man,  I  take  it? 

Mr.  Hammitt.  Yes,  sir. 

Mr.  McKenzie.  You  are  somewhat  familiar  with  the  practices  of  business 
men  in  large  corporations? 

Mr.  Hammitt.  Yes,  sir. 

Mr.  McKenzie.  Do  you  think  it  would  be  possible  for  any  outsider,  other 
than  the  American  Cyanamid  Co.,  under  all  the  existing  conditions,  the  Ameri- 
can Cyanamid  Co.  controlling  the  patents  and  having  an  absolute  monopoly  of 
the  situation,  to  come  in  and  pay  a  price  that  the  American  Cyanamid  Co. 
would  be  willing  to  pay  in  order  to  keep  this  proposition  blocked? 

Mr.  Hammitt.  I  will  say  that  I  do  not  think  it  is  at  all  likely  that  anyone 
else  can  afford  to  pay  the  Government  a  better  price  than  the  American  Cyana- 
mid Co.  can  afford  to  pay  the  Government  for  the  Muscle  Shoals  plant. 

Mr.  McKenzie.  Then  this  is  the  situation :  The  millions  of  agriculturists  of 
this  country  and  those  believing  in  the  national  defense  feature  of  it  are  in- 
terested in  the  development  of  this  particular  proposition.  You  come  to  us 
very  frankly— and  I  am  not  censuring  you  for  it— you  come  very  frankly 
putting  your  cards  on  the  table,  and  ask  this  Congress  not  to  take  any  action 
that  would  disregard  a  contract  that  was  entered  into  by  the  American 
Cyanamid  Co.,  and  this  Government  when  we  were  at  war  that  would  absolutely 
shut  out  the  agriculturists  of  this  country,  or  the  Government,  in  the  purchase 
of  the  materials  to  make  explosives,  and  put  them  absolutely  at  the  mercy  of 
this  company  which  has  a  monopoly ;  is  that  not  the  question? 

Mr.  Hammitt.  I  should  say  it  is  not. 

Mr.  McKenzie.  That  is  the  way  it  looks  to  me;  I  may  be  wrong  about  it. 

Mr.  Hammitt.  Because,  in  the  first  instance,  we  have,  under  the  provisions 
of  this  contract,  no  right  to  purchase  that  plant  unless  we  pay  for  it  as  much 
as  anybody  else  is  prepared  to  pay.  In  the  second  place,  I  assume  you  have 
had  some  experience  in  business. 


MUSCLE   SHOALS  PROPOSITIONS. 


453 


Mr.  McKenzie.  Not  very  much. 

Mr.  Hammitt.  I  assume,  at  any  rate,  you  will  recognize  the  public  policy 
back  of  the  patent  law,  and  you  recognize  that  the  United  States  patent  law 
has  a  particular  provision  which  provides  that  any  person  who  has  been  granted 
a  patent  shall  have  the  exclusive  use  of  that  patent  for  a  certain  number  of 
years,  for  the  purpose  of  encouraging  invention,  and  you  wouhl  certainly  con- 
sider it  unconscionable  if,  after  investing  money  in  the  development  of  proc- 
esses and  the  acquisition  of  patents  and  the  find  ng  of  a  marktt  for  a  material 
on  the  strength  of  the  existing  laws,  because  of  the  interposition  of  a  war  the 
protection  that  those  laws  extend  to  everybody  should  be  taken  away  from  a 
particular  company. 

Mr.  McKenzik.  I  do  not  suggest  any  such  thing.  I  think  the  owner  of  a  pat- 
ent is  entitled  to  the  protection  of  the  law  and  royalty  for  the  use  of  the  pat- 
ent by  anyone  else. 

Mr.  Hammitt.  But  you  do  not  require  any  otlier  patentee  lo  allow  the  use 
of  his  patent  uixni  the  payment  of  a  royalty.  You  give  him.  under  the  pro- 
visions of  the  patent  law — and  if  you  do  not  believe  that  is  a  proper  public 
policy,  I  think  you  should  go  about  changing  it — protection  for  a  certain  i)erio«t 
of  time.  We  inveJ^ted  our  money  on  the  faith  of  that  protection.  We  ask  that 
that  protection  be  not  taken  away  from  us  by  reason  of  the  interposition  of  a 
war  emergency. 

Mr.  McKenzie.  If  this  contract  is  good  under  existing  law,  then  in  my  .iudg- 
nient,  the  law  it.self  needs  amendment,  because  the  way  I  view  it.  a  contract  of 
this  character  ought  to  be  void  on  the  ground  of  public  policy. 

Mr.  Hammitt.  I  am  sorry  you  feel  that  way  about  it. 

Mr.  Greene.  Mr.  Hammitt,  you  have  called  attention  to  article  19  of  your 
contract,  that  is,  the  contract  of  the  Air  Nitrates  Corporation  and  the  United 
States  of  America,  regarding  the  construction  of  the  Muscle  Shoals  plant.  You 
make  out  that  you  have,  by  the  terms  of  article  19,  the  right  to  purchase  the 
same  upon  as  favorable  terms  as  the  United  States  is  willing  to  accept  from 
anybody  else,  and  therefore,  before  the  United  States  shall  sell  the  same  to  any 
other  party,  you  shall  have  the  right  to  meet  those  terms,  if  you  desire.  Have 
you  made  any  offer  to  the  Government,  based  upon  the  provisions  of  article  19V 

Mr.  Hammitt.  We  have  not. 

]Mr.  Greene.  In  view  of  the  fact  that  other  offers  have  been  made,  do  you 
wish  to  have  yourselves  now  regarded  as  competitors  for  the  plant  on  the 
terms  of  article  19? 

Mr.  Hammitt.  We  do,  on  the  terms  of  Article  19,  to  this  extent.  Of  course, 
we  did  not  make  an  offer  of  the  character  of  the  one  that  is  under  considera- 
tion before  this  (committee,  because,  frankly,  we  would  not  have  had  the 
nerve  to  present  that  kind  of  a  proposition  to  the  United  States  Government, 
and  we  believe  if  we  had  come  down  here  and  presented  that  kind  of  a  proposi- 
tion to  the  United  States  Government,  most  of  the  comment  would  have  been 
upon  the  extent  of  our  nerve.  But  if  the  committee  definitely  decides  that, 
contrary  to  what  we  frankly  believe  is  public  policy,  the  United  States  Govern- 
ment shall  go  into  the  business  of  subsidizing  a  particular  manufacturing  opera- 
tion, then  we  want  to  bid  for  the  subsidy. 

^Ir.  Greene.  Is  that  answer  to  be  interpreted  to  mean  that  if  the  United 
States  Government  will  itself  continue  to  hold  the  property  and  administer  it, 
or  let  it  stand  out  in  a  stand-by  condition,  you  make  no  offer? 

Mr.  Hammitt.  At  the  present  time  we  w<mld  not  make  any  offer,  because  we 
do  not  believe  it  is  practicable  to  have  a  commercial  operation  of  that  nitrate 
plant  at  the  present  time,  unless  the  United  Sates  Government  will  make  up 
the  losses  by  providing  a  subsidy.  And  it  never  occurred  to  us  that  the  Congress 
was  going  to  embark  the  Government  upon  that  kind  of  indirect  competition 
with  private  business.  But  if  the  Congress  does  determine  upon  that  policy 
then  we  must  make  our  business  arrangements  under  such  policy  as  the  Con- 
gress gives  us,  and  we  would  want  to  have  the  subsidy,  very  likely,  rather 
than  have  that  subsidy  given  to  somebody  else  to  compete  against  us. 

Mr.  Greene.  But  how  can  you  get  your  proi)osal  considered  if  you  wait 
until  Congress  determines  it  shall  be  the  policy  to  accept  Mr.  Ford's  offer? 

Mr.  Hammitt.  If  the  Congress  decides  that,  we  think  that  the  proper  action 
to  be  taken  is  to  remove  the  barriers  existing  in  the  law  and  enable  a  proper 
administrative  officer  to  make  a  binding  offer  to  the  Air  Nitrates  Corporation,  as 
provided  in  the  contract,  and  give  us  an  opportunity,  as  provided  in  the 
contract,  to  consider  that  offer. 


454 


MUSCLE   SHOALS  PROPOSITIONS. 


Mr.  Gkeexe.  I  do  not  understand  exactly  wlmt  you  mean  by  that.  What  do 
you  mean  by  that? 

Mr.  Ham  MITT.  I  mean  that  under  the  exist"ng  hiw,  obviously  Mr.  Ford's  offer 
could  not  be  accepted. 

Mr.  Gkeene.  I  do  not  know  how  you  can  say  that.  You  are  assuming  more 
than  the  conmiittee  itself  has  made  up  its  mind  to  propose. 

Mr.  Hammitt.  I  understand  it  never  would  have  come  to  Congress  unless  it 
was  understood  that  it  could  not  be  accepted. 

Mr.  Grei-:ne.  You  are  reading  into  the  record  something  that  the  committee 
has  not  passed  upon.    There  is  no  testimony  before  the  committee  to  that  effect. 

Mr.  Hammitt.  I  understand,  at  any  rate,  that  the  Secretary  of  War  felt 
that  he  had  no  authority  to  make  a  contract  with  Mr.  Ford. 

Mr.  Greene.  He  has  no  right  under  the  law  to  dispose  of  War  Department 
property  without  the  sanction  of  Congress.  Even  if  it  be  an  ordinary  am- 
munition wagon,  he  can  not  sell  it. 

Mr.  Hammitt.  But  he  has  general  authority  to  disi)ose  of  War  Department 
property. 

Mr.  Greene.  Not  including  anything  of  this  character. 

Mr.  Hammitt.  My  judgment  is  that  you  would  serve  the  best  interests  of  the 
United  States,  if  you  desire  to  dispose  of  this  property,  by  giving  to  an  admin- 
istrative officer  general  authority  to  dispose  of  this  property  on  the  best  terms 
that  can  be  obtained. 

Mr.  Greene.  Is  that  to  be  interprete«l  to  mean  that  instead  f>f  accepting  Mr. 
Ford's  offer  outright  if  Congress  shall  elect  to  provide  that  the  property  may  be 
put  into  shape  to  be  offered  for  competitive  bids,  you  will  then  be  a  bidder? 

Mr.  Hammitt.  I  would  not  be  prepared  to  state,  in  behalf  of  the  Air  Nitrates 
Corporation  or  the  American  Cyanamid  Co.  that  under  any  circumstances,  if 
you  separate  the  ntrate  plant  from  the  water-power  project,  that  we  would  be 
prepared  to  offer  a  bid.  But  if  the  committee  decides  to  deal,  in  the  name  of  a 
nitrate  proposition  with  what  really  is  a  water-power  proposition,  then  I  am 
quite  certain  in  my  own  mnd  that  the  American  Cyanamid  Co.  would  like  to 
be  considered  as  a  competitive  element  in  the  bidding. 

Mr.  Greene.  And  until  Congress  elects  one  policy  or  another,  you  do  not 
make  any  offer? 

]Mr.  Hammitt.  No;  we  do  not. 

Mr.  Greene.  And  you  stand,  admittedly,  as  a  dog  in  the  manger? 

Mr.  Hammitt.  Not  at  all;  because  I  will  say  this.  Congressman,  that  while 
I  can  not  speak,  of  course,  on  a  matter  that  obviously  must  be  submitted  to 
the  board  of  directors  of  the  American  Cyanamid  Co.,  without  it  first  being 
so  submitted,  that  if  the  matter  would  be  put  in  such  a  shape  that  I  could 
submit  to  the  board  of  directors  of  the  American  Cynamid  Co.,  and  they  to 
their  stockholders,  the  acceptance  of  rejection  of  this  property  on  the  terms 
proposed  by  Mr.  Ford,  then  my  personal  opinion  is  it  would  be  acccepted. 

Mr.  Greene.  Let  us  see  how  we  get  at  that.  When  the  United  States  Govern- 
ment did  ask  for  bids  on  this  propert.v — that  is,  the  War  Department — flid 
your  company  submit  any  bids? 

Mr.  Hammitt.  We  were  not  asked  to  submit  a  bid  on  the  nitrate  plant  in  the 
first  instance,  but  if  we  had  been  asked  to  submit  such  a  bid,  we  would  have 
been  compelled  to  tell  the  War  Department  that  there  was  no  possibility  of  the 
operation  of  this  nitrate  plant  at  this  time,  or  for  a  substantial  period  to  come, 
on  a  commercial  basis  without  loss,  and  we  would  not  consider  it  proper  to  sub- 
mit to  the  Government  a  proposal  that  the  Government  make  up  that  loss.  What 
we  did  receive  was  an  inquiry  as  to  whether  we  would  be  interested  in  pro- 
posals regarding  the  development  of  water  power,  and  w^e  advised  the  Chief  of 
Engineers  of  the  Army  that  our  only  connection  with  the  Muscle  Shoals  prop- 
erty related  to  the  nitrate  plant,  and  that  we  could  not  see  at  present  any  way 
of  making  the  nitrate  plant  a  profitable  customer  for  the  water  power,  and  that 
therefore  it  did  not  seem  to  us  that  we  were  able  to  help  him  any,  but  if  he 
desired  anything  in  particular  from  us  in  the  way  of  cooperation,  we  would  be 
glad  to  give  it. 

Mr.  Greene.  You  did  not  bid,  but  Mr.  Ford  did? 

Mr.  Hammitt.  Those  two  statements  are  certainly  correct ;  yes,  sir. 
Mr.  Greene.  Now,  that  Mr.  Ford  has  bid,  you  interpose  your  right  to  prevent 
the  execution  of  any  contract  with  him,  but  you  do  not  offer,  on  your  own 
account,  to  take  up,  by  a  definite  proposition  from  yourselves,  property  which 
you  seek  to  prevent  going  to  Mr.  Ford? 


MUSCLE   SHOALS  PROPOSITIONS. 


455 


Mr  Hammitt.  Congressman,  I  do  not  believe,  frankly,  that  the  United  States 
Congress  is  ever  going  to  approve  the  principle  of  the  Government  dipping 
down  into  the  Treasury  to  support  a  manufacturing  operation.  And  I  do 
not  want,  personally,  to  see  the  American  Cyanamid  Co.  or  the  Air  Nitrates 
Corporation  put  in  the  position  of  competing  for  that,  kind  of  subsidy,  nor  do 
I,  as  a  matter  of  public  policy,  want  to  see  the  United  States  Government 
granting  that  kind  of  a  subsidy  to  somebody  else. 

However,  after  all,  when  we  get  down  to  it,  no  matter  how  much  you  and  I 
are  discussing  this  from  the  point  of  view  of  the  nitrate  plant,  this  is  not  a 
nitrate-plant  proposition ;  this  is  a  water-power  proposition,  and  this  nitrate 
plant  end  of  it  is  nothing  except  what  somebody  offers  for  the  purpose  of  at- 
tracting a  certain  support  in  order  to  enable  him  to  get  a  cheap  water-power 
contract.  We  never  conceived  of  the  Muscle  Shoals  project  in  that  light,  and 
because  we  did  not  conceive  of  it  in  that  light  we,  of  course,  were  not  in  a  posi- 
tion to  write  anything  like  this  offer  which  Mr.  Ford  has  proposed. 

Mr.  Greene.  I  understiind  that  very  likely  some  phases  of  your  suggestions 
might  meet  with  a  response  from  other  persons  in  the  room  with  regard  to  the 
matter  of  public  policy.  But  that  is  not  the  issue  involved.  The  is.sue  is  one 
plainly  of  the  construction  of  contractural  relations  between  the  two  parties 
and  your  alleged  intervening  right.  What  use  do  you  intend  to  make  of  your 
right?  The  Government  has  asked  you  to  make  a  proposition,  but,  as  you 
explained,  you  have  refrained  from  doing  so  because  your  idea  of  public  policy 
would  not  permit  you  to  make  such  an  offer.  In  the  meantime  another  man 
who  has  not  the  same  idea  of  public  policy  but  whose  idea  of  public  policy  is 
quite  different,  has  made  an  offer.  Upon  the  receipt  of  his  offer  and  notice  to 
the  public  that  he  has  made  such  an  offer,  you  interpose  your  alleged  inter- 
vening right.  Now,  the  question  is  one  concerning  which  the  Government  does 
not  intend  to  let  anything  remain  in  suspense.  It  must  dispose  of  one  or  both 
of  these  propositions.  It  must  either  accept  or  reject  Mr.  Ford's  offer.  Do 
you  then  insist  that  your  regard  for  a  proper  public  policy  is  so  great  that 
you  will  neither  make  an  offei  yourselves  nor  allow  the  Government  to  accept 
Mr.  Ford's  offer? 

Mr.  Hammitt.  I  am  firmly  convinced  that  this  whole  problem  can  be  solved 
nnich  better,  and  you  could  get  along  with  it  very  much  faster  if  you  removed 
the  existing  legislative  barriers  with  which  you  obstruct  the  possibility  of  the 
disposition  of  this  property,  by  placing  an  administrative  officer  in  a  position 
to  negotiate.  Then  you  may  get  some  one,  perhaps,  who  is  willing  to  negotiate, 
but  anybody  who  can  not  capitalize  the  advertising  end  of  his  proposition  can 
not  negotiate  with  the  Congress  of  the  United  States.  I  could  not  negotiate 
directly  with  Congress  as  a  Congress,  so  that  I  would  talk  across  the  table 
with  you  and  you  ask  me  to  commit  my  company  to  something;  you  are  only 
one  of  43.5  men  in  one  House.  You  could  get  along  much  faster  and  much  better 
the  other  way.  That  is  the  fact,  and  that,  as  a  man  of  some  experience  in  busi- 
ness, you  and  other  members  of  the  committee  recognize. 

Mr.  Greene.  You  express  your  distrust  of  the  court  to  which  you  submit 
your  testimony. 

Mr.  Hammitt.  No:  I  simply  suggest  my  view,  very  respectfully,  to  the  effect 
that  the  function  of  this  court  is  to  perform  within  its  legislative,  function,  and 
my  appeal  t.o  the  committee  is  based  upon  a  recognition  of  its  legislative  func- 
tion. 

Mr.  Greene.  All  right.  Then,  it  seems,  taking  you  at  your  own  words,  that 
you  have  not  appeared  with  a  definite,  affirmative  proposition;  that  instead 
of  adopting  Mr  Ford's  course  and  making  an  offer  your  suggestion  is  that 
Congress  shall  write  some  new  legislation  that  will  enable  you  to  make  an 
offer,  and  you  have  confined  yourself  in  your  statement  simply  to  intervening 
your  right.  These  suggestions  that  we  change  the  law  in  order  to  enable  you 
to  come  in  appear  to  be  second  thoughts. 

Mr.  Hammitt.  I  felt  that  the  particular  function  that  I  had  before  the 
oommittee  was  to  present  this  feature  of  the  proposition  as  it  bears  upon 
the  Ford  offer,  and  I  hope  I  will  not  be  ruled  out  of  court  on  the  ground 
that  I  have  not  gone  further  than  that 

But  if  you  desire  my  suggestion,  which  I  did  not  have  the  temerity  to 
offer,  as  to  what  you  ought  to  do  about  this  Muscle  Shoals  situation,  I  will 
be  perfectly  glad  to  present  it  to  you. 

Mr.  Greene.  That  is  exactly  what  we  want. 

Mr.  Hammitt.  In  the  first  place,  I  would  separate  the  two  propositions, 
which  do  not  belong  together.    I  would  deal  with  the  water-power  proposition 


456 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


457 


as  a  water-power  proposition,  and  I  would  deal  with  the  nitrate  proposition 
as  a  preparedness  proposition.  i^uyuMLion 

Now,  first    as  to  the  water-power  proposition,  I  would  provide  by  general 
law  for  the  development  of  the  water  power  down  there,  by  private  capita 
under  the  provisions  of  the  Federal  water  power  act.  the  same  as  e^'^rv  S 

re^  rUr'^'-"\\?^  T""'"^'  ^^'^'^^  '^  developed,  and  I  would  remofe  the VeSn 
restrictions  m  the  law  against  the  development  of  that  water  power  under 

propertv        ^"'' *'''''''"''  ""^  ^^'^  '''«*^''  I^<^^^'^»*  a<^t,  without  regard  to  the  nitrate 

,.^^^fr  ^-^^'^  I  would  do  in  regard  to  the  nitrate  propertv,  or  what  I 
would  advise  the  United  States  Government  it  shouhl  do!  I  would  keep  hat 
nitrate  plant  unoperated,  in  a  stand-by  condition,  which  is  100  per  cent  better 
preparedness  anyway  than  putting  it  in  operat^.n.  If  you  want  to  know  win 
that  IS  so.  I  will  be  very  glad  to  go  into  it,  although  I  did  not  believe  it  was 
my  function  before  this  committee  to  do  so.  That  is  100  per  cent  better  pre- 
paredness. I  would  say  keep  it  until  such  time  as  there  is  a  possibilitv  of  its 
being  oi)erated  commercially  without  a  subsidy,  and  without  bankrupting  the 
operator,  and  when  that  time  came  I  would  lease  it  or  .sell  it,  or  do  whatever 
seems  wise  to  do,  and  I  would  protect  the  Government's  interest  and  mesh  this 
into  the  general  scheme  of  nitrate  manufacture. 

At  the  present  time  there  is  not  any  commercial  operation  of  that  plant 
that  !s  possible  without  a  subsidy,  and  that  is  what  I  would  recommend  to  the 
Government  because  there  is  no  commercial  operation  of  that  plant  now 
possible  without  a  subsidy. 

Mr.  Greene.  Let  me  ask  a  question  right  here. 
Mr.  Ham  MITT.  Certainly. 

Mr.  Greene.  You  la'd  stress  upon  tlie  words  "that  plant."  Is  there  not 
something  in  the  local  or  physical  condition  that  makes  vou  have  the  view 
that  it  can  not  be  operated  without  a  subsidy? 

Mr.  Hammitt.  It  is  both  in  the  local  and* physical  condition,  ves.    The  plant 
can    not  be  operated   commercially.   Congressman,   because   !t  'is  not   capable 
of  mak  ng  anything  that  has  a  market  on  which  vou  could  get  back  the  cost 
of  production. 
Mr.  Greene.  You  are  speaking  of  the  nitrate  plant? 

Mr.  Hammitt.  I  am  speaking  of  the  nitrate  plant ;  yes  sir.  It  is  not  capable 
of  being  operated  on  a  basis  that  would  carry  any  overhead.  It  is  simplv  not 
a  practicable  commercial  proposition.  I  will  say  this  to  you  also  in  order 
that  you  may  fully  appreciate  our  position.  The  verv  minute  we  feel  that 
there  is  a  pos.sibility  of  operating  the  plant  down  there  without  losing  money 
we  will  come  to  the  United  States  Government  with  a  proposition  to  oiierate 
that  plant,  if  the  way  is  still  open. 

Mr.  (JREENE.  Your  last  remarks,  I  suppose,  are  directed  to  the  ph.vsical  con- 
dition of  the  plant,  as  the  reason  why  it  can  not  be  operated  without  overhead. 
Mr.  Hammitt.  It  is  designed  for  the  manufacture  of  a  war  explosive,  ammo- 
nium nitrate.  It  can  not  be  operated  on  ammonium  nitrate,  and  nobody  ever 
suggested  it  could  be  so  oi)erated  at  a  profit.  Tliere  is  no  market  for  aminoniuni 
nitrate  that  the  full  product  of  that  plant  would  amount  to,  and  there  is  no  mar- 
ket for  the  ammonium  nitrate  that  would  be  made  there  that  would  pay  the  cost 
of  production. 

Now,  it  can  be,  with  certain  additions  and  alterations,  converted  to  the  manu- 
facture of  various  nitrogenous  fertilizer  materials.  The  only  one  of  those  that 
has  a  large  enough  market  to  make  it  an  attractive  operation  for  a  plant  any- 
where near  approaching  that  size  is  sulphate  of  ammonia,  and  the  cost  of  pro- 
ducing sulphate  of  ammonia  at  Muscle  Shoals  would  be  from  30  to  50  per  cent 
more  than  the  present  wholesale  market  price  of  sulphate  of  ammonia.  That  is 
the  reason  I  say  you  can  not  operate  that  plant  commercially  at  the  present  time 
Mr.  Greene.  Then  your  proposition  is  if  the  Government  should  put  it  into 
such  condition  so  that  it  may  be  operated  commei'cially  you  will  make  a  bid  for  it. 
Mr.  Hammitt.  If  the  Government  retains  it  as  a  pfant  capable  of  producing 
ammonium  nitrate,  and  that  is  the  only  field  we  have  explored  in  our  considera- 
tion of  the  matter,  of  course,  because  we  have  always  considered  and  have  been 
advised  by  the  War  Department  that  the  preparedness  feature  of  that  situation 
was  the  paramount  one,  we  do  not  know  what  they  could  change  it  to  that 
would  make  it  profitable  in  operation. 

Mr.  Greene,  Have  you  come  forward  with  any  helpful  suggestions? 
Mr.  Hammitt.  I  am  sorry  to  say  we  have  not  been  .able  to  develop  any  sug- 
gestions that  were  really  helpful.    We  have  spent  a  good  many  hours  discussing 


the  matter  with  representatives  of  the  Department  of  Agriculture  and  the  War 
Department,  and  we  have  made  rooms  full  of  figures  trjing  to  'work  out  .some 
proposition  that  would  make  the  operation  of  that  plant  a  feasible  operation.  We 
have  gone  at  it  seriously,  and  with  a  great  deal  of  experience  going  back  over  a 
number  of  years.  And  I  want  you  gentlemen  to  appreciate  that  I  am  not  holding 
anything  back  at  all  when  I  say  we  know  of  no  way  by  which  that  plant  can  be 
made  commercially  practicable. 

Mr.  Greene.  My  questions  are  not  to  be  construed  as  necessarily  hostile.  I 
want  the  facts. 

Mr.  Hammitt.  I  have  not  so  construed  them. 

Mr.  Greene.  I  want  to  know  what  your  situation  may  be  defined  on  the  floor 
•of  the  House  to  be,  and  so  defined  with  your  own  authority  back  of  it.  It  is  ap- 
parent that  so  long  as  the  Government  will  do  nothing  with  this  plant,  will  not 
let  it  get  into  the  hands  of  any  possible  competitor  of  yours,  you  do  not  want  the 
plant  yourselves. 

Mr.  Hammitt.  Only  with  this  modification,  and  that  is  that  the  present  situa- 
tion might  change  with  market  conditions,  or  if  there  were  development  in  the 
art  that  would  make  it  possible  to  have  a  successful  commercial  operation  of  a 
plant  of  that  character.  But  under  present  conditions,  and  the  conditions  that 
we  believe  will  obtain  for  a  period  of  years,  that  is  exactly  the  position  of  the 
cyanamid  company. 

Mr.  Greene.  If  somebody  else  makes  a  proposal  that  they  will  take  the 
plant  with  such  iini)rovements  and  experiments  as  they  may  make  and  produce, 
how  about  that?  Will  you  make  any  comi^etitive  offer  in  connection  with 
that? 

Mr.  Hammitt.  We  will  not  be  interested  in  competing  with  them  if  they 
propose  to  do  it  at  the  expense  of  the  United  States  Government.  Under  those 
circumstances  we  will  not  compete  with  them.  We  will  not  propose  that  the 
Government  of  the  United  States  extend  a  subsidy,  but  as  soon  as  it  becomes 
apparent  that  the  Government  proposes  to  extend  a  subsidy  to  somebody  else 
to  compete  with  us,  then  we  would  want  an  opportunity  to  bid  on  it. 

Mr.  Greene.  I  do  not  see  after  all  but  that  the  situation  simply  depends  upon 
what  Congress  may  do  by  and  by,  and  therefore  it  is  not  merely  a  conjectural 
situation,  but  it  is  an  impossible  one.  After  Congress  has  done  that  it  is  too 
late  for  you  to  do  anything. 

Mr.  Hammitt.  Would  it  be  assisting  this  matter  to  have  you  instruct  me  to 
go  back  to  New  York  and  consult  with  the  lM)ard  of  directors  of  the  American 
Cyanamid  Co.  regarding  what  kind  of  a  proposition,  involving  a  heavy  subsidy 
from  the  Government,  thev  could  offer  to  the  Congress? 

Mr.  Greene.  The  connnittee  has  no  authority  to  offer  any  specific  terms 
upon  which  a  proposition  may  be  based.  You  are  aware  of  the  fact  that  we  are 
simply  an  advisory  committee  and  not  the  final  deciding  power. 

Mr.  Hammitt.  Yes ;  and  I  think  in  disposing  of  this  matter  it  is  not  a  legis- 
lative but  an  adminstrati\  e  matter,  and  the  legislative  function  is  to  provide 
certain  general  provisions  of  law  under  which  the  matter  can  be  disposed  of  by 
an  administrative  authority. 

Mr.  Greene.  Then  under  those  circumstances  how  would  you  figure  it?  In 
doing  business  with  tlie  Government  you  have  to  do  things  "  as  is,"  do  you 
not?    You  do  that  in  the  commercial  world? 

Mr.  Hammitt.  Yes;  but  we  do  not  make  much  progress  unless  Congress 
makes  the  "  as  is  "  a  condition  under  which  progress  can  be  made. 

Mr.  Greene.  You  have,  only  a  few  sentences  back,  proposed  how  we  might 
make  that  progress. 

Mr.  Hammitt.  No  ;  I  did  not  understand  that  I  was  making  any  proposition. 
I  was  asking  you  whether  it  would  assist  the  committee  to  do  a  certain  thing. 

Mr.  Greene!  But  you  defined  what  you  would  do  with  this  property  if  you 
had  control  of  it.  That  is  the  first  time  you  put  up  an  affirmative  proposition. 
If  you  have  that  affirmative  proposition  in  mind,  why  are  you  not  empowered, 
in  your  own  relationship  to  your  company,  to  ask  them  to  submit  some  propo- 
sition on  the  basis  of  that  reason?  Mr.  Ford  apparently  went  to  work  on  the 
basis  of  his  own  reasoning,  assisted  by  the  advice  of  his  experts,  and  sub- 
mitted his  proposition  and  asked  Congress  to  come  up  to  it.  There  is  no 
existing  law  in  reference  to  many  of  the  details  of  Mr.  Ford's  proposition,  and 
that  is  why  he  makes  an  affirmative  proposition.  Why  do  you  not,  having 
your  own  idea  of  what  the  public  policy  ought  to  be,  and  having  your  own 


i 


458 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


459 


idea  which  you  have  expressed  to  the  committee  of  the  commercial  status^ 
make  your  owh  proposition  and  ask  Congress  to  come  up  to  it? 

Mr.  Hammitt.  You  do  not  know  the  board  of  directors  of  the  American 
Cyanamid  Co.  as  well  as  I  do  if  you  think  I  can  go  into  a  meeting  of  that  board 
of  directors  and  suggest  that  we  propose  to  the  United  States  Government  that 
the  Government  subsidize  us  to  operate  that  nitrate  plant. 

Mr.  Greene.  I  did  not  make  any  such  statement. 

Mr.  Hammitt.  That  is  the  only  basis  on  which  we  would  operate  the  nitrate 
plant,  or  on  which  Mr.  Ford  can  operate  it,  or  anybody  else,  and  make  it  a  com- 
mercial success. 

Mr.  Greene.  You  are  here  to  oppose  a  subsidy  to  Henry  Ford  ? 

Mr.  Hammitt.  Absolutely;  Yes,  sir. 

(Thereupon  the  committee  took  a  recess  until  2  o'clock  p.  m.) 

after  recess. 
The  committee  met,  pursuant  to  recess,  at  2  o'clock  p.  m. 

STATEMENT  OF  MR.  J.  O.  HAMMITT — Resumed. 

The  Chairman.  Mr.  Hammitt,  Mr.  Hull  would  like  to  ask  you  some  questions. 

Mr.  Hull.  You  spoke  of  a  subsidy  this  morning. 

Mr.  Hammitt.  Yes,  sir. 

Mr.  Hmx.  In  what  way  do  you  think  we  are  subsidizing  Henry  Ford? 

Mr.  Hamm:itt.  If  the  offer  of  Mr.  Ford  is  accepted.  Mr.  Ford  will  receive  very 
cheap  water  power  at  the  expense  of  the  United  States  Treasury  because,  in 
the  first  place,  Mr.  Ford  proposes  to  pay  a  very  much  smaller  interest  rate 
to  the  United  States  upon  the  additional  money  the  United  States  invests  in 
the  water  power  than  he  would  be  required  to  pay  if,  like  all  the  rest  of  us  in 
industry,  he  was  compelled  to  finance  the  development  of  the  water  power  in 
the  usual  way;  and,  secondly,  Mr.  Ford  does  not  propose  to  pay  any  interest 
at  all  upon  the  amount  of  money  the  Government  already  has  invested  and  a 
considerable  part  of  the  amount  which  the  Government  will  have  to  addi- 
tionally invest,  and  so  I  am  sure,  if  you  set  the  figures  down,  you  will  find  that 
a  considerable  part  of  the  cost  of  that  water  power  will  be  paid,  first,  by  the 
credit,  and  then  by  the  actual  expenditure  by  the  United  States  of  cash  which 
will  not  be  reimbursed  to  the  Government.  It  was  my  impression  that  the 
committee  had  gone  into  that  question  thoroughly  enough  to  have  the  exact 
financial  facts  relating  to  that  offer  before  it,  but  if  the  committee  has  not 
such  an  analysis  I  should  certainly  be  very  glad  to  furnish  one  to  the  com- 
mittee. 

Mr.  Hull.  I  do  not  know  what  the  rest  of  the  committee  has.  but  I  have 
gone  into  it  far  enough  to  say  that  in  my  opinion  the  use  of  the  word  "  sub- 
sidy "  is  wrong.    It  is  not  a  subsidy  at  all. 

Mr.  Hammitt.  Then  suppose  we  say 

Mr.  Hull  (interposing).  It  may  be  a  good  bargain.  I  am  not  saying  any- 
thincT  about  that,  but  the  use  of  the  word  "subsidy"  is  unfortunate,  in  my 
opinion. 

Mr.  Hammitt.  Then  suppose  we  say,  Congressman,  instead  of  using  the 
word  "  subsidy  "  which,  of  course,  I  use  with  a  definition  of  my  own  in  mind, 
that  Mr.  Ford  would  receive  aid  out  of  the  Government  Treasury  in  order  to 
make  up  the  losses  which  he  would  certainly  incur  from  any  operation  of  the 
nitrate  plant  he  engaged  in.    Now,  that  is  exactly  what  I  meant  by  subsidy. 

Mr.  Hull.  As  I  understand  it,  your  company  will  not  make  an  offer  under 
any  circumstances  similar  to  Henry  Ford's;  is  that  true? 

Mr.  Hammitt.  No;  my  company  will  not  come  to  the  United  States  Con- 
gress and  request  the  United  States  Congress  to  give  it  a  subsidy;  but  I  will 
say.  Congressman,  that  if  the  Congress  adopts  a  policy,  which  we  understand  is 
not  the  Government's  policy,  of  dealing  with  matters  of  this  sort  by  giving  aid 
out  of  the  Government  Treasury  and  indicate  that  the  best  terms  upon  which 
it  is  prepared  to  give  such  aid  are  the  terms  involved  in  Mr.  Ford's  offer,  and 
then,  in  carrying  out  this  particular  contract,  puts  that  matter  in  such  shape 
that  I  can  take  it  to  the  board  of  directors  of  the  American  Cyanamid  Co., 
it  is  my  firm  belief,  of  which  I  am  just  as  certain  as  one  can  be  of  what  will 
be  the  action  of  another  group  of  men  exercising  their  individual  judgment,^ 
that  we  would  accept  it,  and  yet  we  would  not  ask  it,  Congressman,  because, 
frankly,  we  do  not  believe  it  is  in  accordance  with  public  policy  that  such  a 
thing  should  be  done. 


Mr.  Hull.  As  I  understand  it,  Mr.  Ford  was  asked  to  make  an  offer.  Now, 
he  has  made  an  offer.  As  I  understaid  it,  notice  was  sent  to  all  companies  to 
make  an  offer,  and  your  company,  which  claims  prior  rights,  has  made  no  offer 
that  gives  it  any  prior  rights. 

Mr.  Hammitt.  What  rights  my  company  has.  Congressman,  do  not  depend 
upon  any  offer  made  by  my  company.  In  the  second  place,  neither  Mr.  Ford, 
as  I  understand  it,  nor  the  American  Cyanamid  Co.,  as  I  know  the  facts,  was 
invited  by  the  Chief  of  Engineers  to  make  an  offer  for  the  nitrate  plant  at 
all,  and  we  are  not  in  the  water-power  business.  We  advised  the  Chief  of 
Engineers  that  our  interest  in  the  Muscle  Shoals  situation  could,  naturally, 
in  view  of  the  business  we  are  in,  be  only  in  relation  to  the  nitrate  plant, 
and  as  to  that,  we  could  see  no  way  of  making  it  a  profitable  customer  for 
the  water  power,  and  that,  therefore,  we  were  not  in  a  strong  position  to  make 
any  suggestion  regarding  the  water  power. 

Mr.  Hull.  There  is  the  peculiar  part  of  your  argument,  as  I  see  it.  You 
claim  that  Mr.  Ford  is  going  to  lose  money,  in  one  place. 

Mr.  Hammitt.  No;  Congressman — ■■ — 

Mr.  Hull  (continuing).  And  then  you  claim  in  another  place  he  is  receiving 
a  subsidy. 

Mr.  Hammitt.  And  the  two  go  together. 

Mr.  Hull.  One  moment.  And  you  say  you  do  not  want  to  make  an  offer  on 
the  part  where  he  would  make  money,  but  you  would  like  to  make  an  offer 
where  he  would  lose  money,  perhaps;  is  that  your  proposition? 

Mr.  Hammitt.  Not  at  all. 

Mr.  Hull.  It  sounds  like  it  to  me. 

Mr.  Hammitt.  We  see  no  way,  without  aid  of  the  Government  Treasury,  that 
any  company  can  afford  to  undertake  at  the  present  time  the  operation  of  that 
nitrate  plant,  and  we  will  not  ask  aid  out  of  the  Government  Treasury.  Mr. 
Ford  will  not  lose  money  on  his  proposition  if  it  be  accepted  and  sustained  in 
the  courts,  in  my  opinion,  because  the  losses  will  be  borne  by  the  United  States 
Government  through  its  contributions  to  the  cost  of  the  large  and  impor- 
tant blocks  of  power  that  Mr.  Ford  will  receive,  and  it  is  entirely  conceivable 
that  by  financing  a  valuable  thing  like  a  water  power  for  an  individual  or  a 
corporation  you  can  make  up  to  it  enough  of  a  premium  to  justify  it  in  oper- 
ating a  manufacturing  plant  at  a  loss,  and  that;  really  is  the  essence  of  the  Ford 
proposal.  It  is  not  a  fertilizer  proposition,  primarily,  but  it  is  a  means  of  ob- 
taining at  the  expense  of  the  Government  Treasury  a  very  cheap  water  power. 

Mr.  Hull.  But  all  the  rights  you  have  under  article  19  are  contained  in  this 

language : 

"The  agent  shall  be  given  the  first  opportunity  (for  a  reasonable  period  of 
time  not  to  exceed  six  months  after  receipt  of  written  notice  stating  the  deter- 
mination of  the  United  States  to  dispose  of  the  same,  and  the  material  terms 
upon  which  such  disposition  will  be  made),  to  purchase  the  same  upon  as  favor- 
able terms  as  the  United  States  is  willing  to  accept  therefor,  before  the  United 
States  shall  sell  the  same  to  any  other  party." 

Mr.  Hammitt.  Yes,  sir;  and  we  have  not  yet  received  that  written  notice. 
If  it  is  desired 

Mr.  Hull  (interposing).  But  you  know  about  it.  You  have  that  notice.  You 
would  not  be  here  if  you  had  not. 

Mr.  Hammitt.  Mr.  Hull,  if  you  will  again  direct  your  attention  to  the  pro- 
vision you  have  just  read,  you  will  observe  it  provides  this  procedure:  First, 
the  United  States  determines  to  dispose  of  the  plant.  That  is  the  first  thing 
that  must  be  done.  Now,  the  United  States  has  not  determined  any  such 
thing  as  yet.  That  is  a  matter  that  is  under  consideration  here.  That  has  not 
been  determined  and  that  is  the  first  step.  The  second  step  is  that  the  United 
States  makes  a  written  offer  to  the  American  Cyanamid  Co.  on  what  it  con- 
siders the  best  terms  it  is  prepared  to  accept,  and  then  the  American  Cyana- 
mid Co.  having  been  given  a  reasonable  time  to  consider  that  offer  indicates 
whether  it  will  purchase  the  plant  on  those  terms  or  not.  If  it  will  not  pur- 
chase the  plant  on  those  terms,  then  you  are  entirely  free  to  deal  with  Mr. 
Ford  or  with  anybody  else  unless  you  improve  your  terms.  You  must  give  us 
an  opportunity  to  purchase  this  plant  on  as  good  terms  as  you  are  making  with 
anybody,  but  if  there  is  anybody  who  is  prepared  to  purchase  the  plant  on  better 
terms  than  the  American  Cyanamid  Co.  will  pay,  then  you  can  dispose  of  this 
option  as  soon  as  you  place  the  matter  in  the  hands  of  some  administrative 
officer  who  can  attend  to  an  administrative  job  of  that  character,  and  it  is  not 
a  matter  of  difficulty,  and  I  do  not  believe  it  would  take  any  six  months. 


460 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


461 


^ 


Mr.  HuLfi.  I  will  say  riirht  liere  that  I  am  somewliat  (►f  a  stickler  for  keeiv 
mg  our  obligations,  but  1  certainly  am  not  a  stickler  for  keeping  obligation* 
witli  a  comimny  that  does  n«»t  try  to  protect  its  rights  and  hides  behind  hair- 
splitting technicalities  such  as  you  have  mentioned  here  as  a  reason  for  not 
making  an  offer.  You  have  known,  the  country  has  known,  evervbody  has- 
km'!"'  Pi:«ctically.  that  we  are  going  to  dispose  of  this  property,  in  all  prob- 
ability. You  have  tiled  no  offer.  You  make  no  pretense  yet  to  making  us  an 
oiler,  and  then  you  come  in  here  and  say  that  this  committee  can  not  dispose  of 
this  property ;  that  you  want  it  tunied  over  to  somebodv  else  that  vou  can  do 
business  with  across  the  table.  I  might  say  that  in  my  opinion  there  has  been 
too  much  ot  that  kind  of  business  done  across  the  table  and  not  enough  of  it 
out  here  m  the  open  where  peoi)le  can  see  what  is  being  done. 

Mr.  Hammitt.  I  hope,  Mr.  Hull,  I  have  not  made  any  suggestion  that  a  ref- 
erence of  this  matter  to  a  member  of  the  President's  Cabinet  would  have  the 
effect  of  initiating  a  kind  of  negotiation  that  could  not  stand  the  light  of  day 
and,  surely  Mr.  Hull,  you  must  recognize  that  a  company  like  the  American 
eyananiid  Co.,  whose  total  assets  are  not  more  than  approximately  one-tenth 
of  the  bank  account  of  the  Ford  companies  can  not  undertake  to  submit  an 
offer  m  the  existing  state  of  the  law  with  the  same  facilitv  that  Mr  Ford  with 
his  control  of  more  wealth  than  any  other  individual  in  the  world,  can  under- 
take to  submit.  It  is  necessary,  before  we  can  make  such  an  offer,  that  the 
matter  be  gone  over  with  our  bankers,  with  those  who  will  be  responsible  for 
the  hnancmg  of  the  proposition ;  and  it  is  a  matter  of  very  much  more  difficulty 
I  assure  you,  to  even  excite  the  interest  of  a  banker  on  a*  proposal  that  the  con- 
tract never  contemplated  we  should  be  required  to  make  in  order  to  protect 
our  interests,  made  to  the  United  States  Government  at  a  time  when  the  United 
States  GoveiTiment  requires  a  procedure  through  Congress  and  the  enactment 
of  laws  m  order  that  that  proposition  may  be  considered.  Now,  I  think  it  is 
most  unreasonable,  especially  after  agreeing  with  the  American  Cyanamid  Co 
that  it  should  have  this  opportunity  of  having  the  matter  submitted  to  it  and 
an  opportunity  to  give  it  consideraion— I  think  it  is  most  unreasonable  now  to 
insist  that  the  American  Cyanamid  Co.  do  a  thing  which  only  a  man  in  Mr 
Ford's  peculiarly  fortunate  position  would  be  in  a  position  to  do. 

Mr.  Hull.  Yes :  but  you  forget  that  we  passed  a  law  especially  prohibiting 
this  verj'  thing  of  dealing  with  a  private  corporation. 

Mr.  Hammitt.  Yes;  and  Mr.  Ford  proposes  now  that  you  do  so. 
Mr.  Hill.  But  it  seems  as  though  those  who  were  to  administer  the  law  were 
r)ersuaded,  at  least,  by  some  one,  to  make  a  contract  that  defied  the  law    and 
then  you  come  in  here  and  get  under  that  contract  which  was  in  express  defiance 
of  the  law  of  Congress. 

Mr.  Hammitt.  Xow,  Congressman.  I  can  clear  that  situation  up,  in  the  first 
place,  and  help,  I  think,  the  whole  discussion  of  this  question,  by  pointing  out 
that  the  law  to  which  you  refer— the  national  defense  act— does  not  apply  to 
this  contract  at  all,  has  nothing  whatever  to  do  with  the  work  that  was  done 
under  this  c(mtract.  You  have  several  different  things  down  there  at  Muscle 
Shoals,  and  the  one  thing,  the  one  important  thing,  that  Mr.  Ford  is  interested 
in  and  that  the  Chief  of  Engineers  asked  people  to  make  offers  for  is  the  water 
power,  and  that  water  power,  so  far  as  it  has  been  constructed,  has  been  con- 
structed under  the  provisions  of  the  national  defense  act  and  with  appropria- 
tions made  by  it.  The  nitrate  plant  was  not  built  under  the  national  defense 
act  and  did  not  come  under  the  provisions  of  the  national  defense  act  It  is 
not  held  by  the  War  Department  that  the  national  defense  act  has  anything 
whatever  to  do  with  the  nitrate  plant  or  with  this  contract.  So  that  the  sug- 
gesti<m  that  this  contract  is  a  violation  of  the  national  defense  act  does  not 
apply  at  all.  The  national  defense  act  had  nothing  to  do  with  it.  This  plant  was 
built  just  like  a  cantonment  was  built,  with  no  relationship  whatever  to  the 
provisions  of  that  secticm  of  the  national  defense  act.  I  apprehend  that  that 
situation  has  not  been  fully  understood.  If  you  refer  that  same  question  to  the 
Judge  Advocate  General.  I  am  sure  he  will  give  v(m  the  same  answer  as  I 
have  noted  from  reading  the  testimony  that  War  Department  officials'  have 
given  you  that  same  answer  in  this  hearing. 

Mr.  Hltll.  The  Ordnance  Department,  as  I  understand,  gives  us  an  answer 

smewhat  like  that. 

Mr.  Hammitt.  They  undoubtedly  were  correctly  informed. 

]Mr,  Hull.  But,  as  I  understand  it,  the  law  was  broad  and  covered  the  entire 

project.    There  was  not  any  question  when  we  passed  the  law  but  what  it  did 

cover  everything  they  were  to  put  in  down  there.    It  may  be  that  in  order  to 


avoid  this  very  technicality  some  of  the  men  in  the  Ordnance  Department  may 
have  taken  other  funds  and  did  not  take  money  out  of  this  fund,  but  those  are 
questions  again  of  administration  that  we  can  not  always  follow. 

Mr.  Hammitt.  The  fact  is,  of  course,  that  this  particular  plant  and  this  par- 
ticular contract  have  nothing  whatever  to  do  with  the  nat  onal  defense  act 
Now,  what  particular  bearing  that  has  on  the  situation  I  do  not  know   but  f 
would  like  to  have  the  fact  clear  before  the  committee. 

Mr.  Hull.  I  want  to  say  right  here  that  so  far  as  I  am  concerned  it  has 
I  was  a  member  of  the  committee  when  that  act  was  passed  and  I  supposed 
and  I  think  every  member  of  this  committee  that  was  present  at  that  time  under- 
stood, that  this  entire  project  was  erected  under  that  act. 

Mr.  Hammitt.  May  I  perhaps  help  the  situation  a  little  further  by  pointing 
out  that  there  was  a  nitrate  plant  initiated,  I  believe,  under  that  act,  but  it  was 
not  this  nitrate  plant.  It  was  not  the  nitrate  plant  at  Toledo,  which  was  started 
under  this  contract.  It  was  n(»t  the  nitrate  plant  at  (Cincinnati,  which  was 
started  under  this  contract,  neither  of  which  was  completed;  nor  was  it  this 
nitrate  plant  which  was  completed,  but  there  was  a  nitrate  plant  and  maybe 
that  helps  to  an  understanding  of  the  situation.  There  was  a  nitrate  plant 
in  tiated,  I  believe,  under  the  national  defense  act. 

Mr.  Hull.  W^here  was  that? 

Mr.  Hammitt.  That  was  nitrate  plant  No.  1,  using  the  Haber  process,  and  on 
the  opposite  side  of  Sheffield  from  this  nitrate  plant  No.  2. 

Mr.  Hull.  Under  what  law  was  this  plant  constructed? 

Mr.  Hammitt.  I  believe  this  plant  was  constructed  under  the  appropriations 
for  armaments  and  fortifications.  It  was  constructed  during  the  war  as  a  war 
measure. 

Mr.  Hull.  That  s  the  fund  out  of  which  it  was  paid  for,  but  under  what  law 
of  Congress  was  it  constructed? 

Mr.  Hammitt.  I  think  that  has  been  covered  in  the  testimony  before  the  com- 
mittee to  date,  but  I  am  afraid  I  can  not  give  a  satisfactory  answer  to  that 
question. 

Mr.  Hull.  You  say  your  contract  was  made  with  Mr.  McRoberts? 

]Mr,  Hammitt.  This  contract  is  signed  by  Col.  McRoberts. 

Mr.  Hull.  I  suppose  you  know  Col.  McRoberts. 

Mr.  Hammitt.  I  never  met  him,  sir. 

Mr.  Hull.  You  do  say  that  plant  No.  1  was  constructed  under  the  national 
defense  act,  and  that  :s  the  Haber  process  plant. 

Mr.  Hammitt.  It  is  my  understanding  it  was  initiated  out  of  the  national 
defense  act.  I  think  they  had  to  go  to  other  funds  to  get  the  money  to  com- 
plete it. 

Mr.  Hull.  Did  your  company  furnish  the  plans  for  that  plant? 

Mr.  Hammitt.  No,  sir ;  we  had  nothing  whatever  to  do  with  plant  No.  1. 

^Ir.  Hull.  Suppose  the  Government  should  run  that  plant  down  there  and 
operate  it,  would  your  company  have  any  claim  against  the  Government? 

Mr.  Hammitt.  That  would  not  be  a  violation  of  this  contract. 

Mr.  Hull.  You  say  that  you  paid  80  per  cent  of  your  fee  of  $1,500,000  back 
to  tlie  Government;  is  that  correct? 

Mr.  Hammitt.  The  fee. of  .$1..50(),0(X)  has  not  been  paid.  Only  a  part  of  it 
has  l)een  paid,  and  ther^  are  in  <mr  tax  matters  still  certain  matters  that  have 
not  finally  been  determined  by  the  internal -revenue  officers,  but  we  have  iiaid  the 
bulk  of  the  tax,  and  there  is  no  doubt  that  that  would  be  the  effect  of  the 
application  of  the  tax  law  to  the  payment  of  the  complete  fee ;  that  is,  we  would 
have  to  pay  80  per  cent  of  it,  undoubtedly,  back  to  the  Government. 

^Ir.  Hull.  But  that  is  just  the  80  per  cent  excess-profits  tax  that  you  refer  to. 

Mr.  Hammitt.  It  is  a  war  tax. 

Mr.  Hull.  If  we  paid  you  $1,500,000  for  your  plans  on  this  project  and  you 
''ad  a  million  and  a  half  dollars  of  losses  on  some  other  project,  vou  would  not 
l>ay  us  back  anything ;  is  not  that  true? 

Mr.  Hammitt.  I  am  not  sure  I  understand  that  question. 

Mr.  Hull.  If  your  company  operated  and  made  $1,500,000  and  we  paid  it,  and 
you  h)st  $1,500,000  in  another  enterprise,  you  would  not  pay  us  back  anything 
at  all;  Js  not  that  true? 

Mr.  Hammitt.  No;  that  is  one  of  the  effects  of  the  creation  of  the  Air 
titrates  Corporation  as  a  separate  corporation.  You  see.  Air  Nitrates  Corpora- 
tion had  no  other  business  in  which  it  might  h)se  this  amount  of  money.  So 
niat  Air  Nitrates  Corp<n*ati(m  had  no  function,  never  had  any  function,  never 
'lid  anything  except  this  one  job,  and  Air  Nitrates  Corporation  has  not  made 
any  money. 


i\ 


462 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


463 


1 


Mr.  HuLR  Is  that  the  company  which  at  present  is  having  a  controversy  with 
the  Treasury  Department  as  to  the  payment  of  taxes? 

Mr.  Hammitt.  There  is  no  controversy  that  I  am  aware  of  regarding  the 
payment  of  taxes,  but  Air  Nitrates  Corporation  is  the  corporation  that  would 
pay  all  the  taxes  upon  any  profits  or  income  from  this  construction  at  Muscle 
Shoals. 

Mr.  MoRiN.  Mr.  Hammitt,  there  is  one  thing  I  want  to  get  clear.  As  I  under- 
stand it,  your  contention  is  that  under  the  present  law  the  Secretary  of  War 
has  not  any  authority  to  dispose  of  this  plant  or  of  these  works  at  Muscle 
Shoals,  and  that  he  has  come  to  Congress  to  ask  that  the  law  be  so  amended 
that  he  can  deal  with  that  situation ;  am  I  right  about  that? 

Mr.  Hammitt.  I  think  it  would  be  necessary  for  the  law  to  be  amended  in 
ordef  that  he  might  deal  with  that  situation. 

Mr.  MoRiN.  If  we  were  to  amend  the  law  so  that  the  Secretarv  of  War  could 
consider  a  proposition  to  dispose  of  these  plants  at  Muscle  Shoals  to  Mr.  Ford 
or  to  any  other  bidder,  to  the  best  advantage  to  the  Government,  would  your 
firm  be  ready  to  submit  a  proposition  to  the  Government? 

Mr.  Hammitt.  If  you  dealt  with  that  matter  as  I  would  recommend  it  be 
dealt  with,  namely,  by  providing  for  the  disposition  of  the  water-power 
development  under  the  general  provisions  of  the  Federal  water-power  act,  and 
then  provided  separately  for  the  disposition  of  the  nitrate  plant,  because  one 
thing  is  a  chemical  manufacturing  proposition  and  the  other  thing  is  a  water- 
power  proposition,  then  I  think  that  neither  my  companv  nor  anv  other  com- 
pany would  be  prepared  to  make  any  offer  which  the  Government  could 
accept  for  taking  over  the  nitrate  plant,  because  the  only  thing  that  makes 
the  nitrate  plant  attractive  to  Mr.  Ford  or  to  anybody  else  is  as  a  means  of 
getting  a  cheap  water  power ;  but  I  am  quite  satisfied  that  if  vou  authorize  the 
Federal  Water  Power  Commission  to  deal  with  this  water-power  development 
the  same  as  all  other  water-power  developments  you  will  get  a  development 
and  you  will  not  have  to  spend  Government  money  to  get  it.  Now,  that  will 
be  taken  up,  probably,  not  by  the  American  Cyanamid  Co.,  because  it  is  not 
in  the  power  business,  but  it  will  be  taken  up  by  Mr.  Henry  Ford  or  by  some 
corporation  or  interest  that  is  engaged  in  the  power  business.  That  would  be 
the  natural  party  to  take  up  that  kind  of  a  development.  That  would  leave 
the  nitrate  plant  itself  in  a  stand-by  condition,  ready  for  a  war  emergency, 
absolutely  complete,  with  a  capacity  to  produce  what*  it  was  designed  to  pro- 
duce, and  a  very  much  more  valuable  asset  for  war  than  if  you  put  it  into 
operation  in  time  of  peace,  because  once  you  place  that  plant  in  operation 
In  time  of  peace  it  has  got  to  find  its  place  ultimately  in  the  peace-time 
markets. 

It  will  be  supplying,  ultimately,  a  part  of  the  nitrates  that  are  used  in  time 
of  peace,  and  then  when  we  get  into  a  war  all  of  a  sudden  we  will  require  a 
considerable  additional  supply  of  nitrates,  and  the  only  way  you  will  be 
able  to  get  them  from  Muscle  Shoals  will  be  by  depriving  agriculture  of  the 
product  of  the  Muscle  Shoals  plant.  Whereas  if  you  keep  the  Muscle  Shoals 
plant  in  stand-by  condition  as  a  war  reserve  there  will  be  other  plants  devel- 
oped, always  adequate  to  supply  the  requirements  of  agriculture  for  nitrates, 
and  when  you  get  into  a  war  you  will  have  an  actual  surplus  capacitv  to 
the  extent  of  the  capacity  of  the  Muscle  Shoals  plant. 

Mr.  MoRiN.  Suppose  we  should  amend  the  law  so  as  to  authorize  the  Secre- 
tary of  War  to  accept  Mr.  Ford's  proposition,  what  would  be  the  attitude  of 
your  company? 

Mr.  Hammitt.  My  company  would  be  compelled  to  instruct  its  attorneys  to 
resist  the  execution  of  that  decision  in  the  courts. 

Mr.  MoRiN.  You  stated  this  morning  that  Plant  No.  2  could  not  be  operated 
to  manufacture  nitrates  at  a  profit? 

Mr.   Hammitt.  Yes,    sir. 

Mr.  MoRiN.  Did  that  include  fertilizer  or  fertilizer  compounds  also? 

Mr.  Hammitt.  I  would  be  glad  to  broaden  that  statement  so  as  to  include 
fertilizer  compounds  and  to  reiterate  it.  It  does  apply  to  them,  although  I  do 
not  think  I  spoke  of  other  compounds  besides  nitrogenous  compounds. 

Mr.  MoRiN.  I  would  like  to  have  that  statement  explained,  because  that  state- 
ment has  been  made  here  several  times,  but  it  has  not  been  explained  to  the 
committee  why  the  plant  could  not  be  operated  at  a  profit. 

Mr.  Hammitt.  In  the  first  place,  this  plant  is  designed  for  the  manufacture 
of  ammonium  nitrate.  Ammonium  nitrate  is  not  a  fertilizer  material.  It  is 
not  practicable  as  a  fertilizer  material  for  two  principal  reasons.    In  the  first 


place,  it  is  very  much  too  expensive  a  form  of  fixed  nitrogen  for  fertilizer  use; 
and,  in  the  second  place,  it  is  hygroscopic;  that  is,  it  takes  up  moisture  from 
the  air  and  it  cakes  hard  and  it  is  unsuitable  for  handling  by  the  farmer  or 
for  handling  in  a  mixing  plant,  and  there  are  certain  other  disadvantages 
about  it,  but  the  general  fact  is  that  ammonium  nitrate  is  not  a  suitable  fer- 
tilizer material. 

As  it  stands  to-day,  the  plant  can  not  make  any  material  that  is  used  in 
the  fertilizer  industry.  The  cyanamid  which  would  be  made  by  that  plant  as 
a  part  of  the  process  of  manufacturing  ammonium  nitrate  is  a  crude  cyanamid 
that  requires  going  through  another  process  before  it  becomes  a  suitable  fer- 
tilizer cyanamid.  The  only  materials  that  that  particular  type  of  plant  is  of 
use  in  making  that  find  a  place  in  the  fertilizer  industry  are  these: 

First,  I  will  mention  those  that  we  consider  serious;  next,  I  will  mention 
the  one  that  Mr.  Swann  testified  about  the  other  day,  which  we  never  had 
considered  serious,  and  do  not  consider  serious  yet,  as  a  means  of  working 
out  the  Muscle  Shoals  situation,  and  I  will  be  glad  to  state  why  we  do  not 
consider  that  serious. 

The  first  is  cyanamid.  Now,  you  can  make  that  cyanamid  of  the  Muscle 
Shoals  plant  into  a  fertilizer  cyanamid  by  a  relatively  minor  process  of  fur- 
ther manufacture  for  which  you  must  provide  a  plant  that  is  not  there  now; 
but  the  total  amount  of  cyanamid  that  we,  who  make  all  of  it  on  this  side 
of  the  Atlantic  to  supply  the  entire  American  market,  and  are  now  operating  our 
plant  at  one-third  capacity  because  there  is  not  market  enough  even  to  keep 
our  plant  in  operation,  and  we  are  unable  to  recommend  to  the  fertilizer  indus- 
try that  they  use  cyanamid  in  fertilizer  in  greater  percentages  than  50  or  60 
pounds,  under  ordinary  conditions,  to  the  ton  of  finished  fertilizer,  because  if 
you  use  it  in  larger  quantities  under  ordinary  conditions  of  mixing  you  cause 
a  reversion  of  your  acid  phosphate,  a  necessary  part  of  that  fertilizer,  to  an 
insoluble  form  of  calcium  phosphate  that  is  not  available  for  plant  food.  So 
that  you  have  a  definite  limitation  upon  the  amount  of  cyanamid  you  can  use, 
and  that  limitation,  if  you  shut  our  plant  down  and  destroyed  our  own  busi- 
ness entirely  and  gave  the  whole  American  market  to  Muscle  Shoals,  and  then 
had  the  largest  consumption  of  cyanamid  that  the  American  fertilizer  industry 
has  ever  used  in  the  largest  year,  you  could  make  all  of  it  with  less  than  the 
<j»pacity  of  2  of  the  10  furnaces  at  Muscle  Shoals.  So  that  is  not  an  opera- 
tion that  could  practicably  be  initiated  at  Muscle  Shoals  for  the  use  of  that 
nitrate  plant  and  show  anything  except  a  heavy  loss. 

Now,  you  have  another  fertilizer  material,  another  fixed  nitrogen  material, 
that  the  experts  called  in  by  the  War  Department  considered  very  much  more 
Itromising,  namely,  sulphate  of  ammonia. 

In  order  to  manufacture  sulphate  of  ammonia  at  the  Muscle  Shoals  plant, 
you  use  a  certain  part  of  the  existing  plant ;  not  all  of  it.  You  never  can  use 
the  entire  plant  in  making  any  fertilizer  material.  In  making  sulphate  of  am- 
monia or  cyanamid,  you  would  use  a  part  of  that  plant  that  represents  in 
actual  investment  something  like  50  or  60  per  cent  of  the  entire  plant,  and 
then  to  make  your  sulphate  of  ammonia,  you  would  add  another  plant,  which 
you  would  have  to  build  down  there,  so  you  would  carry  your  materials  through 
that  nitrate  plant  as  it  exists  up  to  a  certain  point  where  you  would  have 
the  ammonia  gas,  and  that  would  be  gotten  through  the  plant  that  exists  there 
now,  and  then  you  would  carry  it  off  in  a  different  direction,  through  a  new 
plant  you  would  have  to  build,  and  at  the  end,  you  would  get  sulphate  of  am- 
monia. The  cost  of  producing  that  sulphate  of  ammonia  at  Muscle  Shoals  we 
have  estimated  at  approximately  $70  a  ton.  The  committee  has  had  before  it 
the  Chief  of  Ordnance  of  the  Army  and  he  has  submitted  an  estimate  which,  as 
I  remember,  was  $75  a  ton,  and  the  committee  has  had  before  it  the  head  of 
the  fixed  nitrogen  research  laboratory  of  the  Department  of  Agriculture,  and 
he  has  made  an  estimate,  and  his  estimate,  as  I  remember  it,  was  $65  a  ton, 
and  ours  is  midway  between  the  two ;  but  you  can  buy  all  the  sulphate  of  am- 
monia you  want,  gentlemen,  wholesale,  at  $50  a  ton,  and  the  average  price  of 
sulphate  of  ammonia  for  the  year  1921  was  several  dollars  less  than  $50  a 
ton.  Now,  if  it  costs  you  from  33^  per  cent  to  50  per  cent  more  to  make  a 
material  than  you  can  buy  it  for  at  wholesale,  and  you  are  not  going  to  raise 
the  price  of  sulphate  of  ammonia  by  operating  Muscle  Shoals — you  are  likely 
to  have  the  opposite  effect  upon  the  sulphate  market  by  dumping  all  the  prod- 
uct of  that  plant  on  the  market — it  is  quite  obvious  you  can  not  make  that 
at  a  profit. 

92900—22 30 


464 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIOXS. 


465 


And  then  comes  the  suggestion  presented  here  at  some  length  the  other  day 
by  Mr.  Swann  for  a  third  fertilizer  material,  phosphoric  acid,  and  he  said 
to  build  a  hood  over  those  carbide  furnaces  and  provide  certain  additional  ap- 
paratus, and  we  will  smelt  phosphate  rock  in  that  furnace  with  certain  other 
materials,  and  we  will  get  out  of  it  a  phosphoric  acid.  And,  by  the  way,  it 
does  not  help  you  a  bit  toward  your  war  preparedness  for  nitrogen,  because 
there  is  not  any  nitrogen  in  it,  but,  nevertheless,  phosphoric  acid  is  a  very 
important  fertilizer  material,  but  the  trouble  with  Mr.  Swann's  suggestion  at 
Muscle  Shoals  is  exactly  the  same  as  the  trouble  that  Mr.  Swann  has  found 
with  his  suggestion  as  he  has  been  working  it  out  at  Anniston,  Ala.  To  be 
sure,  he  can  make  a  phosphoric  acid  by  that  method.  He  can  make  it  at  a 
price  at  which  he  has  been  able  to  sell  it  to  the  food  industries  that  pay  from 
5  to  9  times  the  price  per  unit  of  P205  that  the  fertilizer  industi-y  can  pay, 
provided  he  can  bring  out  of  that  furnace  as  his  main  product,  and  the  thing 
that  absorbs  the  greater  part  of  his  phosphoric  acid,  not  the  phosphoric  acid 
at  all  but  a  ferrophosphorus,  and  that  is  the  thing,  as  he  testified,  he  had  been 
making  his  bread  and  butter  on.  Now,  gentlemen,  at  Anniston,  at  the  first 
of  the  year,  according  to  the  information  we  had  from  Mr.  Swann,  he  had 
one  2,000-kilowatt  furnace  in  operation.  He  had  a  20,000-kilowatt  plant  and 
he  had  one-tenth  of  it  in  operation,  and  he  was  planning  the  operation  of  an- 
other furnace,  and  he  was  making  ferrophosphorus  as  his  principal  product 
and  he  was  getting  a  certain  amount  of  phosphoric  acid  and  in  that  way  the 
operation  was  all  right,  up  to  that  extent,  and  perhaps,  he  could  put  another 
2,000-kilowatt  furnace  to  work,  but  4,000  kilowatts  on  that  kind  of  operation 
will  make  all  the  ferrophosphorus  that  the  American  industry,  even  in  normal 
times  or  the  steel  industry  will  use,  and  it  is  the  steel  industry  it  goes  into, 
and  as  a  by-product  of  the  manufacture  of  that  amount  of  ferrophosphorus, 
filling  the  full  requirements  of  the  normal  American  market,  you  would  get 
the  equivalent  of  30.000  tons  of  16  per  cent  acid  phosphate,'  the  fertilizer 
material. 

Now,  the  normal  consumption  of  acid  phosphate  in  fertilizer  is  4,000,000 
tons.  So  that  is  the  oxtent  to  which  that  kind  of  an  operation  can  affect  the 
fertilizer  market.  And  so  I  might  go  on  with  not  only  fertilizer  materials  but 
every  conceivable  kind  of  material  that  you  could  make  down  there  at  Muscle 
Shoals,  and.  believe  me,  we  have  done  this  thing,  because  it  is  not  a  comforcable 
thing  to  us  to  have  that  plant,  four  times  the  size  of  our  plant  at  Niagara 
Falls,  in  idleness  and  a  continual  threat.  As  soon  as  we  can  find  a  way  we  can 
suggest  to  the  United  States  Government  that  that  plant  can  be  commercially 
opei-ated,  we  will  come  down  and  beg  the  United  States  Government  to  take 
sucli  steps  as  will  make  it  possible  to  put  it  into  operation.  We  want  to  get 
it  disposed  of  in  some  way,  so  it  is  no  longer  a  menace,  but  there  is  not  a  single 
thing  we  have  been  able  to  find  that  will  make  a  commercial  operation  there. 

Mr.  MoRiN.  In  your  judgment,  can  Mr.  Ford  manufacture  fertilizer  or  fer- 
tilizer compounds  in  that  plant  at  a  profit? 

Mr.  Ham  MITT.  No,  sir. 

Mr.  MoRiN.  Suppose  he  should  install  a  new  process,  other  than  the  plant 
that  is  there  now,  could  he  do  it? 

Mr.  Hammitt.  Not  and  use  that  plant. 

Mr.  MoRiN.  I  mean  if  he  installed  a  new  plant. 

Mr.  Hammitt.  That  is  really  too  broad  a  field  for  me  to  give  an  offhand 
statement  on.  It  is  possible.  I  have  no  doubt  that  if  Mr.  Ford  could  get  water 
power  at  the  price  that  he  would  get  it  under  this  proposal,  because  of  having 
assistance  out  of  the  National  Treasury,  he  might  be  able  to  build  plants  down 
there  that  would  make  something  or  other  at  a  very  substantial  profit,  but  he 
can  not  use  that  plant  to  make  fertilizer  materials  at  a  profit,  even  under  those 
conditions. 

Mr.  MoBiN.  It  has  been  stated  here  that  he  could  not  unless  he  should  in- 
stall a  new  process,  but  that  if  he  should  install  a  new  process,  in  order  to  allow 
him  to  make  fertilizer  or  fertilizer  compounds,  the  value  of  the  plant  there 
would  be  destroyed  to  the  Government  in  case  of  war. 

Mr.  Hammitt.  He  could  not  maintain  that  plant  in  a  condition  ready  at 
any  time  to  serve  the  purposes  of  the  Government  in  war  and  use  any  other 
process  that  we  know  of  for  manufacturing  his  fertilizer  material. 

Mr.  .Tames.  In  answer  to  a  question  from  Mr.  Morin,  did  I  understand  you 
to  say  that  Congress  has  no  right  to  authorize  the  Secretary  of  War  to  enter 
into  this  contract  with  Mr.  Ford? 


Mr.  Hammitt.  I  do  not  remember  the  particular  question  and  answer,  but 
the  fact  is,  according  to  our  advice,  it  would  be  necessiiry  for  the  Government 
first  to  offer  the  proposition  to  the  Air  Nitrates  Corporation  on  the  same  terms, 
and  then,  if  we  indicated  we  would  accept  it  on  those  terms,  it  could  not  be 
offered  to  Mr.  Ford.  If  we  indicated  we  would  not  take  it  on  those  terms  it 
could  be  offered  to  Mr.  Ford  on  those  terms. 

Mr.  James. 'What  you  intended  to  say,  then,  was  that  you  could  not  make 
any  proposition  to  the  Government  until  such  time  as  the  law  was  changed 
so  that  you  could  deal  direct  with  some  agent  of  the  Government. 

Mr.  Hammitt.  And  separating  the  nitrate  plant  from  the  water  power,  as 
it  should  be  separated,  of  course,  neither  we  nor  anybody  else  would  be  in 
a  position  to  make  an  offer  to  the  United  States  on  terms  that  the  United  States 
could  afford  to  accept,  to  take  over  the  nitrate  plant  and  put  it  into  operation. 

Mr.  .Tames.  What  are  the  total  assets  of  the  American  Cvanamid  Co.? 

Mr.  Hammitt.  Approximately  $15,000,000. 

Mr.  .James.  What  are  the  total  liabilities? 

Mr.  Hammitt.  Well,  assets  and  liabilities  balance  up,  as  you  know,  on  a 
balance  sheet.  I  have  here  the  statement  of  the  American  Cyanamid  Co.,  that 
I  would  be  glad  to  hand  to  you.  Congressman,  if  you  would  like  to  see  it. 

The  Chairman.  Would  you  object  to  putting  it  in  the  record? 

Mr.  Hammitt.  No,  sir. 

The  Chairman.  If  it  is  rather  short,  could  you  not  read  it  for  the  benefit  of 
the  committee? 

Mr.  Hammitt.  It  is  the  usual  annual  statement  of  a  company,  and  there  is 
the  usual  preliminary  matter  consisting  of  an  announcement  to  tlie  stockholders, 
and  then  there  are  two  tables  of  figures  that  give  all  the  information  that  the 
committee  could  possibly  want  or  could  get  from  any  ordinary  financial  .state- 
ment, and  I  should  think  that  if  what  you  want  is  to  know  the  condition  of 
the  American  Cyanamid  Co.,  you  can  get  that  best  by  putting  in  these  two  pages 
of  figures.  I  would  be  very  glad  to  read  ihem,  but  that  sort  c»f  thing  does  not 
permit 

The  Chairman  (interposing).  Perhaps  the  members  of  the  committee  would 
like  to  hear  it  read.  Mr.  James,  who  is  now  questioning  you,  states  he  would 
like  to  hear  that  read  to  the  committee. 

Mr.  Hammitt.  This  is  a  statement  for  the  year  ended  June  30,  1921.  Do  I 
understand  you  wish  me  to  read  it? 

The  Chairman.  Yes. 

Mr.  Hammitt.  It  shows  current  assets  consisting  of  the  following:  Cash, 
$380,339.85;  notes  receivable,  ,$1,600;  accounts  receivable,  .$134,735.30;  United 
States  Liberty  loan  bonds  at  cost,  that  is,  they  are  carried  at  cost,  although 
the  par  is  higher,  .$50,376.15;  inventories  of  merchandise,  materials,  and  si^n- 
plies,  $1,850,437.75,  making  a  total  of  those  current  assets  of  <$2,41 7,489.05. 
Then  there  is  due  from  subsidiary  companies  amounts  totaling  $4.33,033.43. 
There  are  investments  in  subsidiary  companies  in  amounts  totaling  $4,846,714.20. 
The  most  important  of  those  investments  is  in  the  Amalgamated  Phosphate  Co., 
engaged  in  phosphate  mining  in  Florida,  in  the  pebble  phosphate  district.  That 
amounts  to  $4,845,713.20,  and  the  remainder  is  a  nominal  investment  in  a  fumi- 
gating corporation  and  the  $1,000  of  stock  of  the  Air  Nitrates  Corporation. 
The  fixed  assets  of  the  company  amount  in  total  to  $9,063,033.37,  of  which  plant, 
properties,  and  equipment  carried  at  cost,  less  reserves  for  depreciation,  is 
$4,241,830.67,  and  licenses,  patents,  and  good  will,  less  the  proportion  that  has 
been  written  off  upon  them  for  depreciation,  is  $4,821,202.70.  With  a  small 
item  of  prepaid  insurance  added,  that  amounts  to  total  assets  of  $16,811,645.43. 
So  that  I  was  slightly  underestimating  when  I  stated,  in  answer  to  your 
question,  in  round  numbers  the  assets  of  the  companv. 

As  against  that,  there  are  current  liabilities  of  $499,729.99.  Those  consist 
of  the  usual  form  of  current  liabilities,  accounts  payable,  accrue<l  wages  and 
taxes,  dividends  payable,  and  reserve  for  income  and  excess-profits  taxes.  In 
addition  to  that,  there  are  notes  payable  to  subsidiary  companies  amounting 
to  .$830,225,  the  largest  part  of  which  is,  again,  notes  payable  to  the  Amalgamated 
Phosphate  Co.,  engaged  in  phosphate  mining.  The  capital  stock  of  the  company 
constitutes  liabilities  of  $12,190,200.  That  consists  of  a  little  more  than 
$5,500,000  of  prefei-red  stock  and  a  little  more  than  $6,500,000  of  common  stock. 
As  I  stated  this  morning,  that  preferred  stock  is  a  6  per  cent  cumulative  pre- 
ferred stock,  and  it  has  paid  all  its  dividends  except  the  last  two  quarterlv 
dividends.     The  common  stock  has  never  paid  any  dividends.     The  surphi's 


466 


MUSCLE   SHOALS   PROPOSITIONS. 


aceonnt  is  lf;3.291 ,489.62.     Now,  that,  as  always  in  such  statements,  of  course, 
shows  an  exact  balance  between  the  liabilities  and  the  assets. 

Mr.  James.  The  capital  stock  of  the  American  Cyanamid  Co.  is  about 
$12,200,000,  and  of  the  Air  Nitrates  Corporation  about  $1,000. 

Mr.   Hammitt.  Approximately  $12,200,000  for  the  American  Cyanamid  Co. 

^Ir.  James.  If  tho  United  States  believed  that  the  Air  Nitrates  Co.  had 
violated  its  contract,  they  would  have  to  sue  the  Air  Nitrates  Co.,  would  they 
not? 

Mr.  Hammitt.  If  the  remedy  were  by  suit,  that  would  be  the  company  they 
would  enforce  that  remedy  against. 

]Mr.  James.  They  could  not  sue  the  American  Cyanamid  Co.? 

Mr.  Hammitt.  They  could  not;  no,  sir.  As  a  matter  of  fact,  (Congressman, 
if  it  were  a  possible  thing,  which  it  is  not,  for  a  company  with  that  limit  upon 
its  as.sets,  responsibly  to  undertake  work  amounting  to  $100.000,(X)0  and  make 
itself  liable  for  that  work,  it  certainly  would  require  a  degree  of  compensation 
to  the  financial  interests  that  would  have  to  carry  that  risk  very  much 
l)eyond  anything  that  this  thing  cost,  and  there  was  not  a  single  thing  that 
Air  Nitrates  Corporation  did  in  the  expenditure  of  money,  you  understand, 
tliat  did  Tiot  require  the  approval  of  the  officers  of  the  United  States  Govern- 
ment, and  Air  Nitrates  Corporation  was  the  agent  of  the  Government.  It 
operated  by  direction  of  the  Government  as  to  every  detail.  We  were  giving 
knowh  dge  and  experiei.ce  in  design  and  construction,  but  when  it  came  up  to 
the  question  of  buying  equipment,  the  order  for  that  equipment  had  to  be 
approved  by  the  Unite<l  States. 

Mr.  James.  Yes;  but  you  were  not  agent  for  the  United  States  when  you  tied 
us  up  to  this  contract  so  we  can  not  sell  to  anybody  except  yourself. 

Mr.  Hammitt.  The  contract  itself  provides  that  we  are  the  agent  of  the 
United  States  Government  for  the  purpose  of  doing  a  certain  thing  that  the 
corporation  was  created  to  do,  and  it  was  provided  that  that  was  the  only 
thing  that  the  corporation  should  be  engaged  in ;  but  this  particular  provision 
of  the  contract  is  in  there  for  the  purpose  of  protecting  the  American  Cyanamid 
Co.,  the  real  party  in  interest,  against  having  used  to  destroy  it  after  the  war 
the  thing  that  it  provided  for  the  Government  during  the  war. 

Mr.  James.  Any  judgment  that  the  United  States  might  secure  would  be 
against  the  Air  Nitrates  Corporation? 

Mr.  Hammitt.  Yes. 

Mr.  James.  No  judgment  would  be  against  the  American  Cyanamid  Co.? 

Mr.  Hammitt.  No. 

Mr.  James.  That  means  that  the  United  States  in  case  it  got  judgment  would 
get  judgment  against  a  company  with  $1,000  capital  stock? 

Mr.  Hammitt.  Every  one  of  whose  acts  had  been  directed  by  the 
officers  of  the  United  States  Government  itself,  and  irrespective  of  the 
capitalization  of  that  company,  if  the  company  had  made  any  money 

Mr.  James  (interposing).  Just  answer  my  question. 

Mr.  Hammitt.  Then,  of  course,  the  Government  would  have  its  remedy 
against  whatever  were  the  assets  of  that  corporation,  but  the  Government  has 
liever  had  any  occasion  to  sue  us  because  we  performed  our  contract  100 
per  cent. 

Mr.  James.  If  it  got  judgment,  though,  it  could  only  levy  against  the  assets 
of  the  Air  Nitrates  Co. 

Mr.  Hammitt.  I  think  that  is  quite  clear. 

Mr.  James.  It  could  not  levy  against  the  assets  of  the  American  Cyanamid 
Co.  with  a  capital  stock  of  $12,200,000.  and  assets  of  approximately  $16,000,000. 

Mr.  Hammitt.  I  think  that  is  quite  true ;  yes,  sir. 

Mr.  James.  I  understood  you  to  say  you  were  not  an  attorney. 

IMr.  Hammitt.  No,  sir. 

^Ir.  James.  Then  your  opinion  about  the  construction  of  any  contract  or  law 
or  anything  else  of  that  sort,  being  a  layman,  would  be  guided  by  the  advice  of 
Mr.  Hughes  and  your  attorneys,  and  not  the  Judge  Advocate  General's  office. 

Mr.  Hammitt.  Not  of  Mr.  Hughes  at  the  present  time,  of  course,  because  Mr. 
Hughes  is  not  our  attorney,  but  certainly  I  would  be  guided  by  the  advice  of  the 
attorneys  of  the  AmericJin  Cyanamid  Co. 

Mr.  James.  In  fact,  you  would  not  be  faithful  to  your  trust  if  you  did  not  take 
their  word  in  preference  to  the  Judge  Advocate  General's  office. 

Mr.  Hammitt.  I  think  that  is  true. 

Mr.  James.  And  being  a  layman  like  yourself,  it  is  my  duty  to  take  the  opinion 
of  the  Judge  Advocate  General's  office  on  the  con.struction  of  any  contract  against 


MUSCLE   SHOALS  PROPOSITIONS. 


467 


the  opinion  of  your  attorneys.    Now,  I  want  to  call  your  attention  to  a  question 
asked  by  Congressman  Greene  of  the  Acting  Judge  Advocate  General : 

"  If  this  proposition  on  the  part  of  Mr.  Ford  is  accepted  as  it  is  written  in  the 
copy  before  us,  do  you  understand  that  thereby  the  United  States  Government  is 
freed  entirely  from  any  resulting  obligations  to  any  corporation  or  firm  or  per- 
sons incidental  to  the  Muscle  Shoals  project  in  any  way  after  Mr.  Ford  has  taken 
possession  under  the  terms  of  the  accepted  proposition? 

"  Col.  Hull.  So  far  as  I  have  been  advised,  that  is  correct." 

Any  profits  made  by  the  Air  Nitrates  Co.,  are  they  still  in  the  treasury  of  the 
Air  Nitrates  Co.  or  were  they  paid  over  to  the  American  Cyanamid  Co.? 

Mr.  Hammitt.  The  situation  was  the  other  way,  the  American  Cyanamid  Co. 
has  had  to  advance  money  to  Air  Nitrates  Corporation,  I  believe,  in  order  to  meet 
the  very  small  amount  of  obligations  that  the  Air  Nitrates  Corporation  has.  The 
situation  would  be  that  if  Air  Nitrates  Corporation  made  any  profits  they  would 
certainly  be  turnetl  over  to  the  American  Cyanamid  Co. 

Mr.  James.  The  Air  Nitrates  Co.,  I  understand,  has  paid  approximately 
$1,200,0(X)  in  taxes. 

Mr.  Hammitt.  No,  sir;  they  have  not  paid  that  much  because  they  have  not 
received  their  entire  fee;  but  they  have  paid  substantially  the  full  amount  of 
the  tax  bills  so  far  as  the  thing  has  been  assessed  up  to  date. 

Mr.  James.  Who  are  the  bankers  of  the  American  Cyanamid  Co.? 

Mr.  Hammitt.  We  have  an  account  in  the  Guaranty  Trust  Co.,  the  Bankers 
Trust  Co.,  and  one  other  in  New  York,  which  for  some  reason  or  other 

Mr.  James.  I  do  not  mean  the  particular  banks  where  you  do  business,  but  you 
said  that  if  you  made  a  proposition  you  would  have  to  consult  your  bankers,  and 
I  wondered  what  you  meant  by  those  words,  "  your  bankers." 

Mr.  Hammitt.  Well,  Congressman,  I  think  we  will  have  a  very  much  better 
opportunity  to  do  business  with  them  if  we  do  not  notify  them  in  advance  that 
they  are  elected,  and  that  is  a  question  which  I  think  on  reflection  you  will  ex- 
cuse me  from  answering. 

Mr.  James.  Who  are  the  leading  stockholders  of  the  American  Cyanamid  C<».? 

Mr.  Hammitt.  There  are  two  stockholders  who  might  be  considered  leading 
stockholders  because  they  own  a  substantial  part  of  the  stock.  One  of  them  i^ 
Mr.  James  B.  Duke  and  one  is  the  Virginia-Carolina  Chemical  Co.  Mr.  Duke 
owns  between  23  and  24  per  cent  of  the  stock  and  the  Virginia-Carolina  Chemi- 
cal Co.  owns  approximately  26  per  cent  of  the  stock.  To  the  best  of  my  knowl- 
edge, and  I  think  this  is  probably  thoroughly  accurate,  there  is  no  other  in- 
dividual or  group  or  interest  that  possesses  as  much  as  10  per  cent  of  the  stock, 
and  probably  none  that  possesses  more  than  5  per  cent.  In  other  words,  they 
are  the  only  two  very  large  stockholders. 

Mr.  James.  About  bow  much  is  Mr.  Duke  worth? 

Mr.  Hammitt.  I  have  not  the  slightest  idea. 

Mr.  Miller.  Mr.  Hammitt,  the  American  Cyanamid  Co.  has  been  organized 
how  long — how  many  years? 

Mr.  Hammitt.  About  15  years. 

Mr.  Miller.  Its  capital  stock,  I  understand  you  to  say,  is  about  $12,220,000; 

Mr.  Hammitt.  Yes,  sir. 

Mr.  Miller.  Were  you  connected  with  the  American  Cyanamid  Co.  prior  to 
the  organization  of  the  Air  Nitrate  Co.? 

Mr.  Hammitt.  No,  sir. 

Mr.  Miller.  Ten  gentlemen,  I  believe,  organized  the  Air  Nitrates  Co. 

Mr.  Hammitt.  No,  sir. 

Mr.  Miller.  How  many? 

Mr.  Hammitt.  It  was  organized  by  the  American  Cyanamid  Co. 

Mr.  Miller.  Yes;  and  the  American  Cyanamid  Co.  paid  the  capital  stock  of 
$1,000. 

Mr.  Hammitt.  Those  10  men  you  refer  to,  Congressman,  had  no  intere^sr 
through  stock  ownership  or  interest  in  profits  or  in  any  other  way  in  the  Air 
Nitrates  Corporation,  and  were  not  entitled  to  receive  a  penny  of  compensa- 
tion from  Air  Nitrates  Corporation.  They  were  simply  10  men  who  were 
loaned  by  the  American  Cyanamid  Co.  to  the  Government  under  the  provisions: 
of  the  series  of  contracts  that  provided  for  that. 

Mr.  Miller.  And  these  10  gentlemen  you  speak  of  were  executive  officer^, 
etc.,  in  the  Air  Nitrates  Co.? 

Mr.  Hammitt.  Yes ;  and  in  the  American  Cyanamid  Co. 

Mr.  jMiixek.  So  far  as  their  association  with  the  Air  Nitrates  Co.  is  con- 
cerned, the  Ignited  States  paid  them  entirely  for  their  services,  did  they  not': 


468 


MUSCLE   SHOALS   PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


469 


Mr.  Ham  MITT.  No,  sir ;  they  did  not  pay  them  a  cent  of  any  character  what- 
ever. What  I  mean  is  that  the  services  of  these  men  were  given  under  the 
contracts.  They  received  compensation  but  they  received  it  all  out  of  the  pri- 
vate funds  of  the  American  Cyanamid  Co.  and  not  any  of  it  from  the  Govern- 
ment. 

Mr.  Miller.  Then  your  schedule  A  on  page  21  of  the  contract  is  of  no  force 
and  effect. 

Mr.  Hammitt.  It  is  modified  by  the  provision  as  to  what  Air  Nitrates  Cor- 
poration is  to  furnish  without  charge,  and  one  of  the  things  it  is  to  furnish 
without  charge  is  the  services  of  these  individuals. 

Mr.  Miller.  I  call  your  attention  to  subdivision  E  of  the  !?chedule,  on  page 
21,  which  reads  as  follows: 

"  Salaries  of  managers,  engineers,  superintendents,  timekeepers,  accountants, 
clerks,  foremen,  and  other  employees  at  the  main  and  field  ofllces  of  the  agent 
in  connection  with  -aid  work,  salaries  of  the  executive  officers  of  the  agent 
except  such  as  shall  be  placed  at  the  disposal  of  the  agent  bv  the  American 
<\vanamid  Co.  and  set  forth  in  said  contract  marked  *  Exhibit  1.' " 

How  many  of  those  gentlemen  did  the  cyanamid  company  contribute? 

Mr.  HA^rMiTT.  These  10  men  to  whom  you  referred,  and  they  were  not  paid 
anything  by  Air  Nitrate  Corporation  or  by  the  Government,  and  the  provision 
under  which  their  services  were  delivered  is  covered  by  article  10  of  the  con- 
tract which  you  will  find  on  page  11. 

Mr.  Miller.  Now,  let  us  lay  the  cards  right  down  on  the  table  and  see  whnt 
we  have  here.  We  have  the  American  Cyanamid  Co.  which  you  say  was  organ- 
ized approximately  15  years  ago.  It  has  approximately  $12,200,000  of  capital. 
Now.  the  war  comes  on  and  it  is  necessary  for  the  United  States  Government 
to  have  a  large  output  of  ammonium  nitrate.  Your  folks  have  been  in  the 
manufacture  of  that  article  for  some  years  and  you  have  a  $12,000,000  plant. 

Mr.  Hammitt.    Yes ;  of  manufacturing  nitrogenous  materials. 

Mr.  Miller.  Tlie  Unitefl  States  Government  negotiates  with  you  and  your 
cyanamid  company  Immediately  organizes  a  subsidiary  company,  known  as  the 
Air  Nitrate  Co.,  which  is  organized  with  a  capital  stock  of  $1,000,  and  which 
is  entirely  paid  for  out  of  the  assets  of  the  American  Cyanamid  Co.,  and  the 
executive  officers,  etc.,  in  this  Air  Nitrate  Co.  were  therefore  connected  with 
the  American  Cyanamid  Co.;  is  that  right? 

Mr.  Hammitt.  That  is  right  as  to  these  10  men. 

Mr.  Miller.  Yos;  and  all  other  men.  aside  from  these  10  men  that  were 
furnished  by  the  American  Cyanamid  Co.,  were  paid  by  the  United  States  of 
America,  according  to  subdivision  E  of  schedule  A. 

Mr.  Hammitt.  Yes,  sir. 

^Ir.  Miller.  Now,  in  that  condition  the  Air  Nitrates  Co.  enters  into  a  con- 
tract with  the  United  States  Government  as  the  agent  of  the  United  States 
GoA'ernment.    That  is  the  situation,  is  it  not? 

IMr.  Hammitt.  That  is  the  situation,  and  you  have  stated  it  correctly  up  to 
the  point 

Mr.  :Miller  (interposing).  Then  we  have  the  anomalous  situation  of  the 
United  States  Government,  as  a  principal,  entering  into  a  contract  with  the 
Air  Nitrates  Corporation,  as  its  agent;  or,  in  other  words,  a  principal  entering 
into  a  contract  with  its  agent.  Now,  I  notice  on  page  4  of  the  contract  with  the 
Air  Nitrates  Co.  this  language : 

"  Whereas  the  said  company  is  unwilling  to  subject  its  property  and  assets 
to  liability  in  connection  with  he  planning,  consruction,  and  operation  of  the 
proposed  plants  and  has  accordingly  organized  the  Air  Nitrates  Corporation 
(the  agent  under  this  agreement)  which  shall  act  as  the  agent  of  and  which 
shall  be  solely  responsible  to  the  United  states  and  others  in  the  planning,  con- 
struction, and  operation  of  the  proposed  plants,  and  according  to  the  terms 
hereof." 

Now,  the  Air  Nitrates  Co.,  which  you  say  is  owned  by  the  American  Cyanamid 
Co.,  got  a  construction  fee  on  this  work,  did  it  not? 

Mr.  Hammitt.  A  fee  for  design  and  construction. 

Mr.  Miixer.  Yes ;  for  designing  and  construction.  That  is  shown  on  page  12 
of  the  contract.  You  got  a  fee  for  construction  of  3J  per  cent  of  the  cost  up  to 
$30,000,000,  and  then  you  get  a  fee  of  1§  per  cent  of  all  sums  above  $30,000,000 
that  was  put  into  this  proposition.  There  was  approximately  $67,000,000  put 
into  the  plant,  was  there  not? 

Mr.  Hammitt.  Approximately. 

Mr.  Miller.  Then,  according  to  a  rough  arithmetical  computation,  your  con- 
struction fee  would  amount  to  about  $1,604,200. 


Mr.  Hammitt.  If  there  were  not  a  provision  fixing  a  maximum  beyond  which 
we  should  not  be  compensated. 

Mr.  Miller.  Where  is  that  provision?  It  says  here  1§  per  cent  of  such  cost 
in  excess  of  said  $30,000,000.  "  The  total  of  the  construction  fee  shall  not  exceed 
$1,500,000."     That  is  what  you  mean? 

Mr.  Hammitt.  Yes,  sir. 

Mr.  Miller.  Now,  this  $1,000  corporation,  in  the  interest  of  your  $12,000,000 
corporation,  gets  a  construction  fee  of  $1,500,000  for  the  construction  of  that 
plant.    Then  on  top  of  that  you  get  an  operation  fee,  do  you  not? 

Mr.  Hammitt.  Yes;  which  aniount(xl  to 

Mr.  Miller.  You  get  an  operation  fee  of  2^  mills  per  pound. 

Mr.  Haimmitt.  Yes;  and  I  want  to  say  that  in  my  statement  that  the  com- 
pany has  sustained  a  loss  rather  than  a  profit,  I  included  the  operation  fee, 
which  amcuuts  to  about  $7,000,  and  also  the  royalty,  amounting  to  about  $8,000, 
making  a  total  of  about  $15,000.  That  all  goes  into  the  pot  and  yet  we  came 
out  with  less  money  than  we  started  with. 

Mr.  Miller.  Let  us  see  what  you  get  and  where  we  are  coming  out  when  this 
contract  is  fulfilled.  We  have  got  $1,500,(XX)  as  a  construction  fee,  and  we 
will  put  that  down,  and  then  let  us  see  about  your  operation  fee : 

"  One-fourth  of  1  per  cent  per  pound  of  ammonium  nitrate  produced  in  com- 
pliance with  art'cle  7  hereof,  and  accepted  or  utilized  by  the  United  States, 
up  to  and  including  110,000  tons  produced  in  any  fiscal  year  of  the  United 
States,  and  one-eighth  of  1  cent  per  pound  of  ammonium  nitrate  so  produced 
and  accepted,  or  utilized  in  any  said  fiscal  year  in  excess  of  such  110,(XX)  tons. 
Payment  shall  be  made  monthly." 

Now,  you  have  computed,  if  this  plant  runs  at  full  capacity,  what  your  opera- 
tion fee  will  be,  have  you  not? 

Mr.  Hammitt.  You  mean  if  we  had  operated  it? 

Mr.  IMiller.  Yes ;  that  is  what  they  built  this  plant  for — to  operate. 

Mr.  Hammitt.  I  have  not  that  computation  in  front  of  me. 

Mr.  Miller.  110,000  tons  of  ammonium  nitrate  figuring  on  a  basis  of  2,000 
pounds  to  the  ton  makes  about  220,000,000  pounds  of  ammonium  nitrate  per 
annum  which  would  be  the  capacity  of  that  plant.  That  runs  into  money  pretty 
fast. 

Mr.  Hammitt.  Is  that  a  question?    I  am  not  sure  I  got  it. 

Mr.  Miller.  That  is  the  cons  ruction  fund  and  the  operation  fund.  Now  you 
have  another  thing,  and  that  is  this  royalty.  Your  royalties  are  covered  by 
a  contract  between  the  United  States  and  the  American  Cyanamid  Co.? 

Mr.  Hammitt.  Yes,  sir. 

Mr,  Miller.  Which  contract  was  entered  into  simultaneously  with  the  con- 
tract between  the  United  States  and  the  Air  Nitrates  Corporation? 

Mr.  Hammitt.  Yes,  sir. 

Mr.  Miller.  In  other  words,  we  have  the  agent  of  the  Government  in  the 
construction  of  this  plant,  the  child  of  the  parent  corporation,  and  your 
parent  corporation,  also,  all  of  you  entering  into  a  contract  with  the  United 
States  Government, 

Mr,  Hammitt,  That  is  quite  correct. 

Mr.  Miller.  I  am  referring  now  to  page  27  of  the  contract,  in  regard  to 
royalties.  Article  VI,  which  says : 

"  In  consideration  of  the  granting  of  the  license  provided  for  in  Article  I 
hereof  and  of  the  other  conditions  to  be  performed  by  the  licensor,  the  licensee 
agrees  to  pay  the  licensor  during  the  term  thereof  specified  in  said  article, 
as  royalty,  an  amount  equivalent  to  6  mills  per  pound  on  all  nitrogen  fixed  as 
lime  nitrogen  manufactured  at  the  plants  hereinbefore  described  in  the  contract 
of  even  date  between  the  United  States  and  the  Air  Nitrates  Corporation,  and 
to  which  reference  has  hereinbefore  been  made,  up  to  and  including  the  first 
91,700,000  pounds  of  such  nitrogen  so  fixed  in  any  fiscal  year  of  the  United 
States,  and  in  addition  thereto  3  mills  per  pound  on  all  nitrogen  fixed  as 
lime  nitrogen,  in  any  said  fiscal  year  in  excess  of  the  said  91,700,000  pounds 
of  nitrogen." 

The  output  of  plant  No.  2  being  110,000  tons  of  ammonium  nitrate,  figur- 
ing 2,000  pounds  to  a  ton,  the  amount  would  be  about  220,000,CKX)  pounds  a  year, 
would  it  not? 

Mr.  Hammitt.  Your  figures  are  all  right,  except  for  this  fact :  You  are  ncW. 
dealing,  in  fixing  these  fees  for  royalties,  for  example,  upon  the  tonnage  of 
ammonium  nitrate.    You  are  dealing  with  the  tonnage  of  nitrogen. 


470 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


471 


Mr.  Miller.  What  is  the  (liflfereiice  between  the  tonnase  of  nitrogen  and 
aninioniimi  nitrate  at  a  factory  at  which  you  are  only  producing  ammonium 
nitrate? 

Mr.  Hammttt.  Because  the  amount  of  nitrogen  in  the  110,000  tons  of  anmio- 
nium  nitrate,  would  only  be  about  42,000  tons.  With  that  exception  you  are 
dealing  with  a  correct  computation  of  what  would  liave  been  our  protit  if 
we  had  operateil  the  plant  under  this  contract. 

Mr.  MiLLKR.  Forty-two  thousand  tons  of  nitrate  is  all  that  this  plant  can 
produce? 

JNIr.  Hammitt.  Of  nitrogen. 

Mr.  MiLLEK.  You  mean  of  nitrogen? 

Mr.  Hammitt.  Yes,  sir. 

Mr.  Miller.  W^hy  did  you  compute  the  royalties  on  nitrogen  instead  of 
royalties  upon  ammonium  nitrate? 

^Ir.  Hammitt.  Because  the  nitrogen  is  the  valuable  thing  which  has  been 
produced,  and  the  rest  of  it  is  merely  the  carrier  of  that  nitrogen.  For  the 
same  reason,  for  example,  that  we  sell  our  product  in  commerce  to  the  fer- 
tilizer industry  on  the  same  basis  except  that  we  use  a  unit  of  ammonia  instead 
of  a  unit  of  nitrogen. 

Mr.  Miller.  How  much  royalty  did  you  figure  the  American  Cyanamid  Co. 
would  get  out  of  this  plant  when  it  was  running  at  its  full  capacity;  that  is, 
how  much  niyalty  would  you  get  out  of  the  Ignited  States  Government? 

Mr.  Hammitt.  That  is  so  far  from  anything  that  ever  was  an  actual  fact 
that  I  can  only  make  a  rough,  quick  estimate.  I  should  say  it  would  be  about 
a  million  dollars. 

]Mr.  Miller.  About  a  million  dollars  a  year? 

Mr.  Hammitt.  About  a  million  dollars  a  year,  at  the  capacity  of  that  plant. 

Mr.  Miller.  Then  if  the  United  States  Government  is  running  this  plant 
at  its  full  capacity  you  would  be  getting  10  per  cent  on  your  capital  stock 
out  of  this  one  institution,  would  you  not? 

Mr.  Hammitt.  It  does  not  come  to  quite  10  iier  cent;  it  would  be  approxi- 
mately 8i  per  cent 

Mr.  MiTXER.  A  million  dollars  a  year  on  a  capital  stock  of  $12,220,000? 

Mr.  Hammitt.  Yes,  sir. 

Mr.  Miller.  It  would  be  between  8  and  9  i)er  cent. 

Mr.  Hammitt.  Yes,  sir. 

Mr.  Miller.  On  top  of  that,  your  Anrerican  Cyanamid  Co.  is  the  beneficiary 
of  th  s  construction  fund  and  the  beneficiary  of  the  operating  fund? 

Mr.  Hammitt.  You  mean  the  construction  fee  and  the  operating  fee? 

Mr.  Miller.  Yes. 

]^Ir.  Hammitt.  Yes;  and,  of  course,  the  United  States,  if  we  had  made  that 
kind  of  war  profits,  would  apply  the  same  system  of  taxation. 

Mr.  Miller.  I  am  not  talking  about  taxation ;  I  am  not  saying  a  thing  about 
taxation.  I  am  talking  about  the  relation  between  the  United  States  Gov- 
ernment and  the  American  Cyanamid  Co. 

Mr.  Hammitt.  The  only  reason  I  mentioned  it 

Mr.  Miller  (interposing.)  You  are  getting  a  million  dollars  out  of  the 
royalties? 

Mr.  Hammitt.  Not  "  are  getting,"  but  would  have  gotten  in  case  the  plant 
were  operated  to  its  capacity  for  a  year. 

Mr.  Miller.  I  am  basing  this  on  the  hypothesis  that  the  plant  will  be  operated 
to  its  full  capacity  of  110,tX)0  tons  of  aiiTmonium  nitrate  a  year.  Your 
royalties  will  amount  to  a  million  dollars  a  year,  you  say? 

Mr.  Hammitt.  Yes;  that  is  the  right  figure;  I  guess  it  is  somewhere  near 
right. 

^Ir.  Miller.  Then  the  operating  fund  or  the  construction  fund  will  amount 
to  how  much  all  told? 

Mr.  Hammitt.  The  construction  fee  would  amount  to  a  million  and  a  half. 

Mr.  Miller.  Adding  that  to  the  other  makes  two  millions  and  a  half.  Now» 
you  are  entitled  to  your  operating  fee,  which  according  to  the  basis  figured  on 
here,  with  the  plant  running  at  capacity,  would  be  in  the  vicinity  of  $560,000 
a  year? 

Mr.  Hammitt.  I  am  assuming  your  figures  are  right.  Congressman. 

]Mr.  Miller.  I  think  they  are.  Now,  the  American  Cyanamid  Co.  has  gotten 
between  8  and  9  per  cent  on  its  capital  stock  out  of  your  royalties  every  year» 
provided  the  plant  runs  to  capacity? 


Mr.  Hammitt.  You  mean   we  would   have  gotten,   if  that   hypothesis   were 

correct. 

Mr.  Miller.  I  did  not  mean  out  of  the  royalties,  but  cmt  of  the  construction 

fee,  which  is  $1,500,000. 

Mr.  Hammitt.  We  have  not  yet  received  it,  but  we  believe  we  ultimately  will 
receive  it. 

Mr.  Miller.  I  am  figuring  out  where  the  Government  gets  off  under  the  terms 
of  this  contract.  The  Government  was  to  pay  $1,500,000  as  a  construction  fee. 
That  is  what  we  obligated  ourselves  to  pay;  that  is  the  maximum  sum? 

Mr.  Hammitt.  That  is  the  maximum  construction  fee  under  the  contract. 

Mr.  MiLiJiR.  Now,  we  pay  you,  if  the  plant  runs  to  its  capacity,  $1,000,000 
in  royalties  annually  as  long  as  the  plant  runs.  We  are  to  pay  you  an  operat- 
ing fee  as  long  as  the  plant  runs  at  the  rate  of  $560,000  a  year.  Now,  if  these 
contract  provisions  are  carried  out  we  will  pay  you  $1,500,000  for  the  construc- 
tion fee,  which  is  approximately  9  per  cent  on  your  capital  stock ;  then  we  pay 
vou  between  8  and  9  per  cent  on  your  stock  for  royalties  every  year,  so  in  about 
io  years  that  would  absorb  your  entire  capital  stock.  And  we  pay  you  $560,000 
more  per  year  to  operate  this  plant.  It  looks  like  a  pretty  good  contract  from 
the  American  Cyanamid  Co.'s  angle  of  it,  does  it  not? 

Mr.  Hammitt.  But  you  are  considering  and  describing  a  situation  which  is  a 
hvpothesis  that,  of  course,  never  happened. 
*Mr.   Miller.  You  figured,   did   you  not,   that   this  plant   would   run   to   its 
capacity,  Mr.  Hammitt?    Did  not  the  American  Cyanamid  Co.  figure  it  would 
run  to  its  capacity? 

Mr.  Hammitt.  I  assume 

Mr.  Miller  (interposing).  And  provided  for  it  in  its  contract? 

Mr.  Hammitt.  But  assuming  the  American  Cyanamid  Co.  figured  that  the 
opeiation  would  be  built  up  to  capacity,  and  would  be  continued  to  capacity 
until  the  war  was  ended.  Of  course,  the  fact  is  that  the  war  ended,  substan- 
tiallv,  with  the  armistice  in  November,  1918,  and  what  you  are  describing  is  not 
what  the  American  Cyanamid  Co.  has  received  or  will  receive  under  this  contract. 
But  once  you  put  that  in  the  record.  Congressman,  if  it  is  made  perfectly  clear 
that  that  would  have  been  true  if  we  had  received  these  things,  and  that  they 
are  based  upon  a  hypothesis  of  circumstances  that  did  not  actually  happen, 
then  I  am  perfectly  willing  you  should  make  your  own  analysis  and  put  that  in 

the  record. 
]\;r.  Miller.  I  thoroughly  realize,  ^Ir.  Hammitt,  that  the  plant  did  not  come 

up  to  full  capacity. 

Mr.  Hammitt.  I  know  that. 

Mr.  Miller.  I  am  undertaking  to  analyze  what  the  Air  Nitrates  Corpora- 
tion was  prepared  to  do  with  the  United  States  Government  and  what  the 
American  Cvanamid  Co.  was  prepared  to  do  with  the  United  States  Government 
under  the  terms  of  the  contracts  with  the  United  States  Government,  entered 
into  with  each  of  the  corporations,  which  based  the  proposition  upon  the  ca- 
pacity of  the  plant. 

\T|.   TTammitt   Yes 

Mr!  Miller.  And  tlie  calculations  I  made  are  that  you  will  get,  or  the  Ameri- 
can Cvanamid  Co.  will  get,  annually  as  long  as  that  plant  runs  to  capacity, 
between  8  and  9  per  cent  on  the  entire  capital  stock  of  the  American  Cyanamid 
Co.;  am  I  right  about  that? 

Mr.  Hammitt.  I  certainly  believe  that  those  figures  you  have  used  are  either 
exactly  accurate  or  somewhere  near  accurate;  I  do  not  want  to  quarrel  with 
you  about  those  figures. 

Mr.  INIiLLER.  Take  it  as  between  8  and  9  per  cent  a  year,  if  the  plant  runs 
to  capacity.  In  11  years,  or  a  little  over  11  years,  that  amount  will  have  paid 
in  the  entire  capital  stock  of  the  American  Cyanamid  Co.  in  royalties,  would 

i<^  not?  ,  .... 

Mr.  Hammitt.  It  would  not  run  for  that  period  of  time  because  it  is  not 
conceivable  it  can  run  for  that  period  of  time  on  that  basis,  because  the  most 
important  of  the  patents  would  expire.  But  except  for  that  statement,  your 
statement  is  quite  correct,  assuming  that  what  you  are  talking  about  all  the 
time  is  gross  return,  and  you  are  not  deducting  from  that  gross  return,  as  the 
taxpaver  of  course  has  to  deduct  from  his  gross  return  before  he  can  amortize 
any  of  his  capitalization,  and  deduct  that  in  the  payment  of  taxes. 

Mr.  I^Iiller.  I  do  not  want  any  reference  again,  Mr.  Hammitt,  to  taxes. 
We  all  have  taxes  to  pay.  You  quibble  when  you  have  to  pay  back  to  the 
Government  of  the  United  States  the  character  of  taxes  you  have  to  pay,  and 


472 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


473 


that  is  altogether  a  different  thing.  The  word  taxes  is  not  mentioned  in  the 
contract.  You  can  not  find  it  in  the  contract.  What  I  am  trying  to  get  at  is 
this,  in  connection  with  this  organization :  In  the  relations  between  the  United 
States  Government  and  the  Air  Nitrates  Corporation  on  the  one  hand  and  the 
United  States  Government  and  the  American  Cyanamid  Co.  on  the  other  hand, 
I  want  to  find  out  whether  or  not,  if  the  contract  was  carried  out,  in  11  years, 
from  the  income  of  the  royalties  alone,  the  United  States  Government  would 
have  paid  back  the  entire  capital  stock  of  the  American  Cyanamid  Co.  at  the 
rate  of  $1,000,000  a  year,  which  you  figured  out  to  be  the  amount.  What  taxes 
you  have  to  pay  is  another  matter.  On  top  of  that  you  get  $560,000  a  year  for 
an  operating  fee,  which  is  over  half  the  amount  you  get  on  royalties,  and  you 
figure  royalties  at  approximately  9  per  cent,  so  that  your  operating  fee  is  at 
least  4^  per  cent. 

So  there  is  another  fund  that  would  pay  up  the  entire  capital  stock  of  the 
American  Cyanamid  Co.  in  less  than  eight  years,  if  the  plant  is  running  at  full 
capacity ;  that  is,  those  two  funds  fiowing  in  to  the  American  Cyanamid  Co 
would  entirely  absorb  the  capital  stock  of  that  company  in  less  than  eight 
years. 
Mr.  Ham  MITT.  Provided  it  stayed  in  the  American  Cyanamid  Co.  they  would 
Mr.  Miller.   I  mean  under  this  contract  you  have   entered  into  with   the 
United  States  Government. 

Mr.  Hammitt.  Assuming  that  the  contract  operated  in  that  wav,  and  that 
we  were  to  assume  or  could  assume  the  same  attitude  of  lack  of  interest  in 
taxes  that  you  assume  when  you  refuse  to  permit  them  to  be  mentioned.  When 
we  come  before  certain  committees  of  Congress  we  are  told  that  taxes  are  a 
very  important  thing.  Then  when  we  come  before  another  committee  of  Con- 
gress, I  know  you  do  not  intend  to  have  the  record  show  that  because  these 
taxes  are  not  mentioned  in  the  contract  they  do  not  have  to  be  paid,  but  if  you 
pay  80  per  cent  back  in  taxes  to  the  United  States  Government  and  5  per  cent 
back  in  taxes  to  the  State  of  New  York,  then  you  have  a  verv  different  net 
result  than  if  you  leave  those  things  out.  And  the  only  objection  I  have  to 
leaving  those  things  in  is  not  to  interfere  with  a  perfectly  sound  mathematical 
calculation,  but  to  interfere  with  any  impression  that  may  be  had  from  your 
remarks  that  money  that  is  taken  away  from  us  stays  with  us,  because  it  does 
not,  and  this  money,  of  course,  we  never  received. 

Mr.  Miller.  I  will  ask  you  again  that  you  cease  reference  to  the  tax  propo- 
sition. I  am  not  getting  at  that  at  all  at  this  time. 
Mr.  Hammitt.  I  think  that  is  a  very  unfair  request,  but  I  will  comply  with  it. 
Mr.  Miller.  What  I  am  getting  at  is  the  relation  between  the  United  States 
Government  and  these  two  corporations.  Now,  we  have  from  your  income 
from  the  operating  fee  a  fund  which  the  American  Cyanamid  Co.  gets  the 
benefit  of,  and  an  income  from  the  royalties,  of  which  the  American  Cyanamid 
Co.  gets  the  benefit,  and  which  would  pay  up  the  entire  capital  stock,  less  vour 
taxes,  in  a  little  over  eight  years. 

Mr.  Hammitt.  That  would  seem  to  be 

Mr.  Miller  (inteiposing).  On  top  of  that  we  have,  the  first  crack  out  of 
the  box,  $1,500,000  for  a  construction  fee  which  the  American  Cyanamid  Co 
gets  the  benefit  of.  Then,  according  to  my  hasty  calculation,  the  United  States 
Government,  in  this  contract,  obligates  itself  to  pay  the  American  Cyanamid 
Co.  a  construction  fee,  an  operating  fee,  and  royalties  which  all  come  out  of 
the  United  States  Treasury  and  go  to  the  American  Cyanamid  Co.,  and  would 
pay  every  dollar  of  the  capital  stock  of  that  companv  in  a  little  over  five 
years— that  is,  the  whole  capital  stock  amounting  to  $12,220,000. 

Mr.  Hammitt.  As  long  as  you  could  apply  it  to  that  purpose,  it  would. 
Mr.  Miller.  Out  of  that  you  have  taxes  and  overhead  to  pay? 
Mr.  Hammitt.  Yes;  you  bet  we  have. 

Mr.  Miller.  But  the  United  States  entered  into  that  contract  upon  the  basis 
of  which  you  were  to  receive  in  a  little  over  five  years  an  amount  equal  to  the 
entire  capital  stock  of  the  American  Cyanamid  Co.  paid  back  to  you  out  of  the 
United  States  Treasury;  that  is  approximately  right,  is  it  not? 

Mr.  Hammitt.  Assuming  that  the  war  should  continue  for  that  period  of 
time,  and  assuming  that  the  operations  should  continue  for  that  period  of  time, 
and  subject  to  an  opportunity  which  I  should  like  to  have  to  correct  these 
figures  on  the  record,  if,  upon  a  computation,  I  find  that  they  are  not  correct. 
Mr.  Miller.  It  is  not  necessary  for  the  war  to  continue.  The  only  thing 
necessary  to  continue  is  the  plant,  at  its  capacity  production,  and  then  you 
would  get  the  benefit  of  all  these  things. 


Mr.  Hammitt.  Provided  the  operation  to  capacity  production  were  operated 
by  the  Air  Nitrates  Corporation;  otherwise  we  would  not  get  the  benefit  of 
these  things. 

Mr.  Miller.  What  I  was  getting  at  was  where  the  United  States  Govern- 
ment gets  off  out  of  these  contracts  and  where  the  corporation  dealing  with  the 
United  States  Government  comes  out  at  the  end  of  the  road.  We  have  a  nitrate 
plant  down  there  which  the  Air  Nitrates  Corporation  constructed  and  which 
€Ost  the  Government  in  the  neighborhood  of  $67,000,000.  As  a  part  of  that 
enterprise,  it  was  conceived  by  the  United  States  Government  that  it  would 
operate  these  by  hydroelectric  power. 

Mr.  Hammitt.  I  do  not  get  the  last  part  of  that. 

Mr.  Miller.  I  say  from  the  Government's  proposition  and  the  Government's 
end,  the  intention  of  the  Government  is  to  operate  that  nitrate  plant  No.  2  by 
hydroelectric  power  generated  by  the  water-power  plant. 

Mr.  Hammitt.  If  that  is  the  intention  of  the  United  States  Government 

Mr.  Miller  (interposing).  There  could  be  no  other  intention  in  the  world, 
could  there,  Mr.  Hammitt,  when  the  United  States  Government  is  building  a 
$67,000,000  plant  on  the  banks  of  the  river  and  then  starting  in  to  build  a  dam, 
putting  $17,000,000  into  the  dam ;  there  could  be  no  other  hypothesis  than  that 
it  was  the  intention  of  the  Government  to  run  that  plant  by  the  hydroelectric 
power  generated  at  that  dam,  could  there? 

Mr.  Hammitt.  I  am  frank  to  say  I  can  not  give  you  the  precise  hypothesis  on 
the  basis  of  which  that  money  was  put  into  the  dam,  because  the  dam  was  not 
built  to  operate  that  plant  at  the  time;  nor  was  the  water  power  essential  that 
it  should  be  operated  during  the.  war.  The  construction  of  that  dam,  while  it 
was  undertaken,  was  very  quickly  stopped  during  the  war  because  it  was 
obvious  that  it  would  take  so  long  to  complete  the  water-power  project  that  you 
would  not  have  the  use  of  it  during  the  war.  So  it  seems  the  plant  was  not 
built  for  that  purpose. 

If  you  conceive  of  a  commercial  operation  of  the  nitrate  plant  by  the  United 
States  Government,  then  I  can  see  that  you  must  conceive  of  the  delivery  of 
very  cheap  hydroelectric  power  to  that  plant  for  that  purpose.  If  you  conceive 
of  a  plant  being  held  in  stand-by  condition  for  use  in  war,  I  should  recommend 
that  you  separate  the  hydroelectric-power  project  from  it  entirely  and  deal  with 
it  as  an  entirely  separate  matter. 

Mr.  Miller.  Your  only  reason  in  separating  the  water  power  from  the  nitrate 
plant  is  that  cheap  power  there  would  enable  the  product  of  that  plant  to  come 
in  competition  with  your  product  at  a  less  expense  of  production,  is  it  not? 

Mr.  Hammitt.  No,  sir ;  it  is  not. 

Mr.  Miller.  Let  us  hear  why  it  is  not. 

Mr.  Hammitt.  I  want  to  make  that  perfectly  clear.  Our  interest  is  not 
affected  by  any  belief,  for  we  have  no  belief,  that  even  with  power  at  the  price 
Mr.  Ford  could  get  it  under  this  contract  he  could  oi^rate  the  nitrate  plant 
otherwise  than  at  a  loss.  We  have  arrived  at  that  belief  as  the  result  of  very 
careful  study  of  the  subject,  and  we  say  that  even  with  power  at  the  price  at 
which  Mr.  Ford  would  get  it  he  could  not  operate  the  nitrate  plant  except  at  a 
loss.  But  Mr.  Ford  would  receive  under  this  contract  vastly  more  power  than 
could  possibly  be  used  in  the  operation  of  the  nitrate  plant,  and  he  would  receive 
that  so  cheap  that  he  could  afford  to  take  a  loss  on  such  operation  of  the  nitrate 
plant  as  he  entered  into  under  this  contract  and  to  pay  that  as  a  premium  for 
the  water  power  he  got— and  it  is  the  water  power  he  is  primarily  interested  in, 
of  course. 

Mr.  Miller.  You  and  I  are  perfectly  in  accord  upon  that  proposition— that  the 
water  power  is  the  inducing  cause  of  Mr.  Ford's  making  any  proposition  to  the 
United  States  Government  in  connection  with  this  project.  But  the  only  thing 
you  are  afraid  of  is  that  Mr.  Ford  would  get  the  benefit  of  cheap  power  there 
and  run  his  nitrate  plant  with  that  cheap  power ;  and  if  he  should  run  it  at  a 
loss,  the  loss  could  be  recouped  out  of  the  profits  from  the  surplus  water  power. 

Mr.  Hammitt.  Exactly  so ;  yes,  sir. 

Mr.  MiLM».  Now  we  understand  each  other  on  that  proposition.  This  plant 
makes  ammonium  nitrate.  Does  your  factory  at  Niagara  Falls  make  ammonium 
nitrate? 

Mr.  Hammitt.  No,  sir. 

Mr.  Miller.  This  plant  makes  ammonium  nitrate.     What  does  your  plant 

make? 


474 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS   PROPOSITIONS. 


475 


Mr.  Hammitt.  We  make  at  Niagara  Falls  for  our  main  product,  cyanamid  - 
and  if  the  Aluscle  SlioaN  plant  were  entirely  devoted  to  the  mrmufacture  of 
ammonium  nitrate,  we  would  not  have  the  slightest  concern  about  any  com- 
petition from  that  plant,  because  that  is  not  the  product  we  make  or  propose 
to  make.  On  the  other  hand,  after  you  got  your  ammonium  nitrate  you  would 
have  to  dump  it  into  the  Tennessee  River  and  float  it  to  the  Gulf  of  Mexico 
because  you  would  not  have  any  use  for  it.  *' 

Mr.  MiLLEB.  I  was  very  much  pleased,  Mr.  Hammitt,  with  your  patriotic 
angle  of  this  thing,  which  you  stated  to  the  committee  this  morning,  turning  over 
your  entire  organization.  But  I  see  out  of  that  patriotic  impulse  you  had  that 
there  was  a  scheme  of  financing,  or  a  principle  of  philosophy  in  financing  it^ 
by  which,  if  the  output  of  this  Government  factory  should  continue  uninter- 
rupted, it  would  pay  up  the  entire  amount  of  the  capital  stock  of  the  American 
Cyanamid  Co.  in  a  little  over  five  years. 

Now,  also,  on  top  of  that  we  have  what  I  should  call  a  very  remarkable 
proposition  here  in  connection  with  Article  XIX  in  the  contract  between  the 
United  States  Government  and  the  Air  Nitrates  Corporation.  This  article  is  a 
very  cleverly  drawn  article ;  and  you  say  it  was  drawn  by  no  less  an  attoniey 
thn  Mr.  Charles  E.  Hughes? 

Mr.  Hammitt.  No,  sir. 

Mr.  MirxEB.  Who  drew  it? 

Mr.  Hammitt.  I  really  can  not  tell  you  who  drew  it. 

Mr.  MiLLEB.  Mr,  Hughes  was  called  in  consultation  on  it,  and  it  received 
his  O.  K.? 

Mr.  Hammitt.  As  to  whether  this  particular  language  received  the  approval 
of  Justice  Hughes,  I  can  not  state.  I  can  state  that  this  form  of  protection  was 
provided  on  the  strength  of  his  advice. 

Mr.  MiLLEB.  Article  XIX  reads  as  follows : 

**Sale  of  plants. — If  upon  cessation  of  this  war  or  for  any  other  reason  the 
United  States  determines  to  cease  the  construction,  equipment,  or  operation 
of  any  of  the  said  plants  and  to  dispose  of  the  same,  the  agent  shall  be  given 
the  first  opportunity  (for  a  reasonable  pericxl  of  time,  not  to  exceed  six  months 
after  receipt  of  written  notice  stating  the  determination  of  the  United  States 
to  dispose  of  the  same,  and  the  material  terms  upon  which  such  disposition 
will  be  made),  to  purchase  the  same  upon  as  favorable  terms  as  the  United 
States  is  willing  to  accept  therefor,  before  the  United  States  shall  sell  the 
same  to  any  other  party." 

Then  that  article  19  of  the  contract  between  the  United  States  Government 
and  the  Air  Nitrates  Corporation  was  clearly  made  in  the  interest  of  the  Ameri- 
can Cyanamid  Co. 

Mr.  Hammitt.  Undoubtedly ;  yes,  sir. 

Mr.  MiLLEB.  Then  we  have  this  anomalous  condition,  with  the  subsidiary 
coi-poration  of  the  American  Cyanamid  Co.,  itself  likewise  at  the  same  time 
an  agent  of  the  United  States  Government,  negotiating  a  contract  with  its 
principal  in  the  interest  of  the  parent  organization.  That  is  what  you  have 
there,  is  it  not? 

Mr.  Hammitt.  As  a  matter  of  fact 

Mr.  MiLLEB  (interposing).  That  is  just  exactly  what  the  situation  is,  is 
it  not? 

Mr.  Hammitt.  Yes;  from  the  technical  point  of  view,  but  the  practical 
situation  undoubtedly  was  that  men  who  knew  exactly  what  interests  every- 
body represehted,  and  who  had  a  definite  object  to  accomplish,  and  who  were 
all  of  them  agreed  that  this  protection  should  be  extended  to  the  American 
Cyanamid  Co.,  sat  around  the  table  and  agreed  upon  the  form  of  protection. 
Now,  there  was  not  any  case  of  doubt  as  to  the  fact  that  every  man  in  that 
conference  who  was  an  officer  of  the  American  Cyanamid  Co.  was  there  for 
the  purpose,  among  other  things,  of  protecting  the  interests  of  the  American 
Cyanamid  Co.,  and  it  was  fully  agreed  by  the  representatives  of  the  Govern- 
ment that  there  was  an  interest  there  which  should  be  protected. 

Mr.  MiLLEB.  And  I  think  they  were  perfectly  successful  in  protecting  that 
interest. 

Mr.  Hammitt.  I  think  so;  yes,  sir. 

Mr.  MiLLEB.  What  you  were  getting  rid  of  under  the  provisions  of  article  19 
was  a  possible  competitor  after  the  war  was  over,  was  it  not? 

Mr.  Hammitt.  Unless  that  competitor  were  prepared  to  pay  a  higher  price 
for  the  plant  than  we  were  willing  to  pay. 


Mr.  MiLLEB.  You  had  a  right  under  your  contract  to  buy  this  plant  from  the 
United  States  Government  should  it  ever  desire  to  sell  it  at  a  price  equal  to 
that  of  any  other  offer? 

Mr.  Hammitt.  Yes,  sir. 

Mr.  MiLLEB.  And  your  purpose  in  putting  that  in  there  was  to  head  off 
a  possible  competitor? 

Mr.  Hammitt.  Yes,  sir. 

Mr.  MiLLEB.  Then  we  will  add  to  the  other  things,  where  the  contract  pro- 
vided for  a  system  of  financing  this  proposition  by  which  the  American  Cyana- 
mid Co.  would  get  its  capital  stock  entirely  paid  for  within  five  years  or  six 
years,  this  incidental  proposition  by  which  you  would  get  rid  of  a  competitor, 
or  you  would  have  a  preferential  right  over  any  other  competitor  when  the 
war  was  over. 

Mr.  Hammitt.  If  there  had  not  been  any  w^ar  and  we  had  continued  to  hold 
and  operate  under  our  patents  and  processes,  there  never  would  have  been  any 
other  competitor,  and  if  there  had  not  been  a  war  and  the  plant  had  not  been 
designed  and  constructed  there  never  would  have  been  a  competitor.  So  we 
were  not  getting  rid  of  a  competitor,  which,  had  there  not  been  the  interposi- 
tion of  a  war,  we  never  would  have  been  compelled  to  face.    That  is  the  point. 

Mr.  MiLLEB.  But,  on  the  other  hand,  if  there  had  not  been  a  war  there  would 
have  been  no  necessity  for  the  United  States  Government  entering  into  a  con- 
tract with  anybody.  But  you  say  this  contract  was  predicated  upon  the  war. 
or  the  necessity  for  making  this  contract  w^as  predicated  upon  the  war.  Let 
me  take  another  angle  of  this  proposition.  You  want  the  watjer  power  and  the 
possible  fertilizer  angle  divided? 

Mr.  Hammitt.  I  think  that  is  the  best  solution  that  can  be  offered  for  this 
problem. 

Mr.  MiLLEB.  How  would  you  be  in  any  bettjer  situation,  so  far  as  Mr.  Ford's 
offer  is  concerned,  if  the  water-power  proposition  were  considered  alone  and 
the  cyanamid  proposition  were  considered  alone?  If  Mr.  Ford's  proposition 
should  be  accepted,  including  both  of  those  angles  of  it,  by  the  United  States 
Government,  he  would  then  be  the  owner  of  both  and  he  could  sell  himself 

power. 

Mr.  Hammitt.  We  will  take  our  chances  on  that,  because  once  you  separate 
the  nitrate  proposition  from  the  water-power  proposition  Mr.  Ford  will  not 
receive  the  water-power  proposition  on  those  terms. 

Mr.  MiLLEB.  You  mean  it  will  be  controlled  by  the  price  set  by  the  public 
utilities  commission,  the  price  at  which  the  power  is  sold  in  the  State  of 
Alabama^ 

Mr.  Hammitt.  I  mean  the  terms  are  so  extremely  favorable  on  the  water 
power  to  Mr.  Ford  that  somebody  else  surely  will  come  in  and  offer  something 
more,  and  if  nobody  else  will,  I  think  the  American  C.vanamid  Co.  will  imme- 
diately become  interested  in  the  water  power,  because  it  looks  as  if  that  is  the 
best  kind  of  business  tx)  go  into. 

Mr.  MiLLEB.  Incidentally,  whether  you  became  interested  in  the  water-power 
propositi(m  or  not,  you  would  then  be  in  a  position  to  head  off  any  possible 
competitor  in  the  business  getting  hold  of  that  cyanamid  plant  down  there, 
w^ould  vou  not?    That  is  an  accurate  statement,  is  it  not? 

Mr.  Hammitt.  I  do  not  see  any  way  by  which  we  could  assist  the  situation 
affecting  the  nitrate  plant  by  negotiations  regarding  water  power.  But  I 
will  say  this,  that  if  you  separate  the  water  power  from  the  nitrate  plant,  with 
the  experience  we  have  had,  with  the  knowledge  that  we  have  .of  the  art.  and 
w'ith  the  processes  that  we  control  we  will  certainly  be  in  at  least  as  good 
a  position,  and  very  likely  a  better  position  than  anybody  else,  to  undertake 
the  operation  of  the  nitrate  plant,  and  the  very  minute  any  operation  of  that 
nitrate  plant  becomes  a  commercially  feasible  proposition  we  will  then  come  to 
the  Government  as  a  matter  of  business  and  ask  for  an  opportunity  to  take 
it  over  on  terms  that  will  safeguard  the  Government's  interests  and  provide 
for  its  operation. 

Mr.  MiLLEB.  Here  is  the  situation:  In  1916,  under  the  national  defense  act, 
there  was  a  fund  of  .$20,000,000  appropriated  by  Congress  and  put  into  the 
hands  of  the  President,  for  the  investigation,  procurement,  etc.,  of  a  nitrate 
plant.  That  is  before  we  got  into  the  war.  We  are  told  that  the  principal 
part  of  that  appropriation  went  into  this  dam. 

Mr.  Hammitt.  I  think  you  are  correctly  informed. 

Mr.  MiLLEB.  And  that  the  nitrate  plants,  both  No.  1  and  No.  2  were  con- 
structed out  of  fortification  funds. 


476 


MUSCLiE  SHOALS  PROPOSITIONS. 


Mr.  Ham^htt.  It  was  my  impression  that  approximately  $3,000,000  out  of 
the  $20,000,000  appropriated  had  gone  into  nitrate  plant  No.  1,  but  perhaps  I 
am  mistaken  about  that. 

Mr.  MiLLEB.  You  see  by  that  that  none  of  the  $20,000,000  appropriated  for 
the  construction  of  the  nitrate  plants  under  the  national  defense  act  of  June 
3,  1916,  ever  went  into  the  nitrate  plants  in  the  war.     It  was  diverted. 

Mr.  Hammitt.  As  a  matter  of  fact.  Congressman,  if  it  went  into  that  dam  it 
was  practically  all  spent  after  the  war  was  over. 

Mr.  MiLLEB.  I  do  not  know  about  that ;  it  probably  was. 

Mr.  Hammitt.  There  is  no  doubt  about  that. 

Mr.  Miller.  Now,  we  get  another  appropriation  from  the  outside  to  build  the 
nitrate  plant,  which  we  intended  to  build  out  of  the  $20,000,000  fund. 

Mr.  HAMiiiTT.  I  am  not  sure  that  the  latter  statement  is  correct,  because  the 
$20,000,000  fund  was  appropriated  for  water-power  development,  as  v^ell  as  for 
development  of  nitrate  plants. 

Mr.  Miller.  So  far  as  I  can  see,  the  only  authority  Congress  ever  conferred 
upon  anybody  to  construct  the  nitrate  plants,  and  the  only  fund  ever  appro- 
priated by  Congress  to  construct  a  nitrate  plant  was  the  fund  appropriated 
under  the  act  of  June  3,  1916. 

Mr.  Hammitt.  The  Ordnance  Department  Mas  of  the  opinion  that  there  was 
another  fund,  and  that  it  was  out  of  another  appropriation.  I  am  not  pre- 
pared to  pass  upon  that. 

Mr.  Miller.  That  was  the  only  money  put  in  there.  Now,  Mr.  Hammitt,  what 
is  the  obstacle  in  the  way?  Getting  right  doAvn  on  opposite  sides  of  the  table— 
what  is  the  obstacle  in  the  way  of  the  American  Cyanamid  Co.  making  a  propo- 
sition to  the  United  States  Government?  You  are  vice  president  of  the  Air 
Nitrate  Corporation,  and  you  have  notice  now  that  the  United  States  Govern- 
ment is  negotiating  for  the  alienation  of  this  piece  of  property  and  having  that 
notice,  why  do  you  not  submit  a  proposition  to  the  Secretary  of  War,  or  to  the 
Congress  of  the  Ignited  States?  Keeping  in  view  always  that  it  is  a  well- 
known  principle  of  law  that  what  you  have  knowledge  of  as  a  man  you  have 
knowledge  of  as  an  official,  why  do  you  not  submit  such  a  proposition? 

Mr.  Hammitt.  Given  a  situation  in  which  we  are  unwilling  to  make  rep- 
resentations to  the  Congress  or  the  Government  or  the  public  which  we  do  not 
believe  to  be  true ;  given  a  situation  in  which  we  do  not  believe  it  to  be  true 
that  that  nitrate  plant  can  be  operated  successfully  on  a  commercial  basis  at 
the  present  time:  given  the  fact  that  we  do  not  yet  believe  that  it  is  conceiv- 
able that  the  United  States  Government  proposes  to  enter  into  business  either 
directly  by  Goveriiiiient  operation  of  the  manufacturing  plants  or  indirectly  by 
extending  a  subsidy  to  a  private  individual  to  assist  him  in  such  operation,  I 
do  not  think  we  are  in  a  position  to  interest  the  bankers  to  whom  we  would  go 
with  tills  matter  to  prepare  such  a  proposition. 

And  what  would  be  the  first  thing  they  would  say  to  us?    They  are  hard- 
lieaded  bankers  let  us  assume.     What  is  the  first  thing  they  wilf  say  to  us? 
They  will  say  any  proposition  you  offer  at  this  time  would  be  merely  a  case 
of  bidding  against  yourself.    Congress  itself  can  not  negotiate.    There  are  too 
many  Congressmen.    This  talk  of  the  United  States  being  in  negotiation  at  the 
present  time  does  not  interest  a  banker,  because  he  knows  that  Congress  is  not 
organized  to  conduct  negotiations,  and  until  Congress  has  placed  the  thing  in 
the  hands  of  an  administrative  officer  who  can  effectually  negotiate,  I  tell  you  it 
is  a  pretty  difficult  thing  to  interest  hard-headed  financiers  in  the  financing  of 
any  kind  of  a  proposition.    I  do  not  think  the  Government  ought  to  put  itself 
in  the  position  where  it  is  as  difficult  as  possible  to  have  anybody  to  bring  a 
proposition  to  the  Government  for  its  consideration,  where  there  is  nobody 
except  a  man  in  the  peculiarly  fortunate  position  Mr.  Ford  is  in,  who  can  bring 
a  proposition  to  the  Government,  thus  excluding  all  possible  competition.     At 
the  present  time,  I  am  quite  sure  it  would  not  be  a  practicable  thing.    I  would 
not  be  prepared  to  recommend  it  to  the  board  of  directors  of  the  American 
Cyanamid  Co.,  that  is,  to  endeavor  to  prepare  and  to  submit  a  proposition. 

Mr.  Miller.  This  thought  occurs  to  me,  Mr.  Hammitt,  that  if  Mr.  Ford  can 
negotiate  directly  through  the  channels  which  you  seem  to  think  objectionable, 
and  he  is  negotiating  directly  with  Congress,  having  put  up  a  proposition  that 
we  may  accept  if  we  desire  to;  and  that  being  true,  I  will  ask  you  why  you 
can  not  do  the  same  thing?  Why  have  you  not  the  same  opportunity  to  figiire 
as  Mr.  Ford  has? 

Mr.  Hammitt.  Because  the  problem  is  a  problem  of  financing,  and  Mr.  Ford 
is  in  a  far  better  position  than  my  company  is. 


MUSCLE   SHOALS  PROPOSITIONS. 


477 


Mr.  Miller.  That  is  exactly  what  I  thought  your  answer  would  be.  In  other 
words,  Mr.  Ford  can  make  a  more  advantageous  proposition  than  you  can,  and 
that  is  the  reason  you  do  not  make  a  proposition. 

Mr.  Hammitt.  No. 

Mr.  Miller.  Was  that  not  what  you  said? 

Mr.  Hammitt.  No.  I  believe  Mr.  Ford  can  make  a  proposition  in  this  way, 
with  the  existing  state  of  the  law,  when  it  is  entirely  possible  we  can  not  make 
any  at  all,  and  yet,  if  you  will  eliminate  the  inequalities  between  a  corporation 
with  from  $12,000,000  to  $16,000,000  of  assets,  and  an  individual  with  a  bank 
account  under  his  control  of  $150,000,000 — if  you  will  equalize  that  situation — 
by  making  it  possible  for  us  to  negotiate  on  the  basis  on  which  the  small 
fellow  can  do  some  financing,  then  maybe  you  will  have  some  competition ;  if  you 
provide  that  this  thing  shall  be  handled  on  a  basis  on  which  a  small  fellow 
can  not  do  any  financing  then  you  will  not  get  any  competition  or  help  from 
the  small  fellow.  Y'^ou  will  find  him  forced  to  rely  upon  the  provisions  of  his 
contract  with  the  United  States. 

Mr.  Miller.  I  had  thought,  frankly,  that  this  was  in  the  interest  of  the 
American  Cyanamid  Co.,  because  if  Mr.  Ford  takes  it  over,  and  provided  that 
your  contract  is  not  ultra  vires,  then  Mr.  Ford  will  pay  you  a  million  dollars 
a  year  on  royalties,  which  will  amount  to  the  entire  amount  of  your  capital 
stock  in  12  years,  and  he  will  pay  you,  also,  $560,000  a  year  for  an  operating 
fee,  and  from  those  two  sources  alone,  what  Mr.  Ford  will  have  to  pay  you, 
will  eliminate  your  entire  stock  within  a  comparatively  short  time. 

Mr.  Hammitt.  No  ;  this  time  your  figures  are  wrong. 

Mr.  Miller.  Do  you  mean  to  tell  me  that  you  will  not  get  approximately 
$1,000,000  a  year  in  royalties? 

Mr.  Hammitt.  I  am  not  speaking  of  royalties;  I  am  speaking  of  operating 
fees.  You  will  have  to  leave  that  out,  because  that,  even  under  the  terms  of 
the  contract,  would  not  come  to  us. 

Mr.  Miller.  Then,  leave  that  out,  still  you  would  have  a  million  dollars  a 
year  which  he  would  pay  you  in  royalties,  which  would  be  sufficient  to  retire 
your  entire  capital  stock  within  12  years. 

Mr.  Hammitt.  Do  you  believe  that  Mr.  Ford,  under  the  provisions  of  this 
contract,  would  operate  this  nitrate  plant  to  capacity,  and  have  you  had 

Mr.  Miller  (interposing).  He  agrees  to  do  it,  to  operate  it  to  the  capacity 
of  110,000  tons  of  ammonium  nitrate. 

Mr.  Hammitt.  I  do  not  read  the  contract  in  that  way. 

Mr.  Miller.  Have  you  the  Ford  contract  before  you? 

Mr.  Hammitt.  No,  sir. 

Mr.  Miller.  Have  you  looked  at  it  very  carefully? 

Mr.  Hammitt.  I  have  read  it  carefully ;  yes,  sir. 

Mr.  Miller.  Section  14  provides: 

"  The  company  agrees  to  operate  Nitrate  Plant  No.  2  at  the  approximate 
present  annual  capacity  of  its  machinery  and  equipment  in  the  production  of 
nitrogen  and  other  fertilizer  compounds  (said  capacity  being  equal  to  ap- 
proximately 110,000  tons  of  ammonium  nitrate  per  annum)  throughout  the  lease 
period,  except  as  it  may  be  prevented  by  strikes,  accidents,  fires,  or  other  causes 
beyond  its  control." 

Now,  suppose  Mr.  Ford's  proposition  is  accepted.  Then,  for  100  years,  the 
American  Cyanamid  Co.  has  an  income  of  $1,000,000,  or  as  long  as  your  patents 
exist. 

Mr.  Hammitt.  Congressman,  do  not  put  that  in  the  record  in  that  way,  be- 
cause it  is  not  the  fact;  it  is  not  a  correct  interpretation  of  that  provision 
of  the  contract.  I  honestly  do  not  believe,  if  you  will  let  me  help  you  with 
that  interpretation,  that  you  will  believe  that  is  the  proper  interpretation  of 
rhe  contract.  Y'^ou  have  had  representatives  of  Mr.  Ford  here  before  you,  and 
they  have  told  you  Mr.  Ford  will  not  make  fertilizer  materials  at  Muscle 
Shoals,  unless  he  can  make  them  at  a  profit.  Mr.  Ford  stated  the  same  thing 
to  the  Secretary  of  War,  and  the  Secretary  of  War  testified . before  you  to  that 
effect.  And  I  believe,  actually,  that  if  operations  were  continued  at  Muscle 
Shoals,  producing  sulphate,  of  ammonia,  at  a  cost  of  $70  a  ton  to  produce 
that  which  was  continuously  sold  at  $50  a  ton,  it  would  probably  result  in  a 
proceeding  before  the  Federal  Trade  (ilommission  to  order  that  stopped  as  un- 
fair competition. 

Mr.  Miller.  We  will  not  speculate  on  those  things. 

Mr.  Hammitt.  Then  you  have  in  there  jour  provision  for  strikes  and  acci- 
dents, and  you  are  proceeding  on  the  theory  that  you  are  going  to  get  something 


478 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


479 


for  the  100  years,  but  no  man  would  continue  that  kind  of  an  operation  at  a 
regular  annual  loss. 

In  addition  to  that  do  you  know  that  there  is  a  common  understanding  in 
business  that  Mr.  Ford  does  not  pay  royalties  until  those  who  claim  the  royalties 
have  dragged  their  weary  way  along  with  his  attorneys  supported  by  his 
bank  account  up  to  the  highest  courts,  and  if  you  want  any  information  on 
that  subject  I  suggest  that  you  consult  the  records  of  litigation  relating  to 
matters  of  that  kind. 

Mr.  Miller.  I  glean  from  your  answer  that  you  are  afraid  that  your  royalties 
would  not  stick  on  this  contract. 

Mr.  Hammitt.  No;  we  believe  that  if  we  have  the  same  experience  that  otheis 
have  had  with  perfectly  valid  claims  that  we  may  have  to  go  through  expensive 
litigation  before  we  collect.  You  have  spoken  of  a  period  of  100  years,  and 
the  principal  patents  we  have  expire  in  1932,  and  if  he  waited  for  water  power 
to  operate  that  plant  it  would  be  several  years  before  he  could  get  started 
there,  and  there  would  only  be  six  years  instead  of  a  hundred  years  during 
which  the  royalties  could  be  paid,  and  that  is  assuming  a  capacity  operation, 
which,  frankly,  I  do  not  believe  would  result  from  this  contract,  and  I  really 
doubt  if  you  believe  it. 

Mr.  Miller.  Are  you  stating  the  matter  correctly?  Have  you  undertaken 
to  bind  the  United  States  in  this  contract  to  pav  for  royalties  on  your  patents 
that  will  expire  in  1932? 

Mr.  Hammitt.  Not  after  the  patents  expire. 

Mr.  Miller.  Where  is  there  anything  in  your  contract  that  says  after  the 
patents  expire  the  royalties  will  cease?  As  I  read  the  contract  you  have  per- 
manently bound  the  United  States  to  pay  you  a  million  dollars  a  year  royalties 
as  long  as  this  contract  is  in  existence,  and  you  tell  me  now  that  the  patents 
will   expire  in  1932. 

Mr.  Hammitt.  I  have  been  advised  by  the  attorneys  of  the  American  Cyana- 
mid  Co.,  and  it  has  always  been  our  understanding,  and  has  been  our  testimony 
before  various  congressional  committees,  that  no  royalties  would  continue  after 
the  expiration  of  those  patents. 

Mr.  Miller.  According  to  that  statement  your  principal  patents  will  expire 
in  10  years.  If  the  contract  should  remain  in  force  for  12  years,  then  the  income 
from  the  ro.valties  alone  would  retire  your  entire  capital  stock,  and  added  to 
that  your  operating  fee,  together  with  the  income  from  the  royalties,  would 
retire  your  entire  capital  stock  in  a  far  less  period  than  10  years. 

Mr.  Hammitt.  Of  course  there  is  no  operating  fee  except  in  case  of  operation 
by  the  Air  Nitrate  Corporation  as  an  agent  of  the  Government. 
Mr.  INIiLLEB.  This  contract  is  in  perpetuity. 

Mr.  Hammitt.  If  the  Government  sells  the  plant,  then  the  Air  Nitrate  Cor- 
poration does  not  operate  it  and  does  not  receive  any  operating  fees.    That  is 
our  understanding  of  the  contract.    Let  us  cut  that  out. 
Mr.  ]MiLLER.  Then,  you  have  a  million  dollars  left. 

Mr.  Hammitt.  That  leaves  us  dependent  ujx)n  royalties,  and  our  chiims  for 
royalties  under  our  patents  under  this  contract  and  under  the  license  Mr. 
Ford  would  receive,  as  the  basis  for  our  compensation  against  losses  due  to  his 
being  enabled  to  carry  on  subsidized  competition  against  us.  I  state  to  you 
frankly  that  we  do  not  consider  that  as  adequate  protection,  and  that  is  the 
reason  we  are  pleading  for  the  protection  that  we  inidt^rstand  is  contained  in 
the  terms  of  the  contract.  It  is  a  matter  of  business  judgment  whether  it  is 
adequate  protection  or  not,  and  it  is  our  business  judgment  that  it  is  not. 

Mr.  Miller.  I  hear  your  explanation.     Is  there  anytliing  else  you  nave  in  your 
mind — any  other  objection  to  Mr.  Ford's  taking  this  plant  over — if  this  offer  is 
accepte<l.     In  other  words,  have  you  anything  in  your  mind  that  you  have  not 
suggested  to  me  or  some  other  member  of  the  connnittee? 
Mr.  Hammitt.  I  have  not;  no.  sir. 

Mr.  INIiLLER.  I  understand  your  statement  perfectly  clearly.  1  understand 
also  that  if  this  contract  of  Mr.  Ford  should  be  accepted  by  Congress  and  he 
should  run  that  plant  to  its  full  capacity,  and  your  patents  are  worth  anything, 
and  your  contract  is  worth  anything,  in  10  years  you  will  have  received  back  in 
royalties  $10,000,000  of  your  .$12,220,000  capitalization  out  of  that  fund  alone. 
There  is  the  situation  for  you.  If  you  could  get  out  in  the  next  10  years  tea 
millions  in  royalties  alone,  without  tuching  a  hand  to  it,  it  seems  to  me  a  pretty 
good  proposition  for  the  American  Cyanamid  Co..  which,  as  you  say,  has  failed 
to  pay  dividends.  Here  is  a  fund  of  a  million  dollars  coming  in  to  your  com- 
pany annually.     That  is  what  I  am  driving  at. 


air.  Hammitt.  les;  and  I  am  saying.  Congressman,  that  as  a  matter  of  busi- 
ness judgment,  taking  into  consideration  all  of  the  elements  that  have  been 
suggested,  we  do  not  think  that  is  satisfactory  protection. 

Mr.  Miller.  Then,  there  must  be  some  other  angle,  something  else,  Mr.  Ham- 
mitt, that  would  put  your  company  against  the  acceptance  of  such  a  proposition 
as  that,  because  you  would  be  getting  10  per  cent  on  the  whole  capital  stock  of 
your  company  every  year. 

Mr.  Hammitt.  I  assure  you  that  I  can  not  furnish  you  anv  further  light  on 
that  subject. 

Mr.  Parker.  Mr.  Hammitt,  on  page  23  and  the  following  pages  of  that  contract 
there  is  a  license  agreement  for  the  use  of  the  patents,  which  agreement  was 
made  between  the  American  Cyanamid  Co.  and  the  United  States.  Could  this 
plant  be  operated  at  all  without  that  license  during  the  life  of  the  l^se? 

Mr.  Hammitt.  It  could  not. 

Mr.  Parker.  I  see,  on  page  24,  that  the  first  license  given  by  this  companv  is 
before  and  during  the  time  the  United  States  shall  remain  in  the  present  war 
and  in  any  event  until  June  1,  1921.  And  on  page  27,  article  6,  it  is  for  the 
first  91,700,000  pounds  of  nitrogen,  and  an  amount  equivalent  to  6  mills  per 
pound.  How  many  pounds  of  nitrogen  are  there  in  110,000  tons  of  ammonium 
nitrate? 

Mr.  Hammitt.  Approximately  42,000  tons;  that  is,  short  tons,  2,000  pounds  to 
the  ton. 

Mr.  Parker.  How  many  pounds  is  that? 

Mr.  Hammitt.  Eighty-four  million  pounds. 

Mr.  Parker.  How  many  pounds  of  nitrogen  are  there  in  a  ton  of  nitrate *» 

Mr.  Hammitt.  Eight  hundred  and  forty  pounds. 

Mr.  Parker.  At  6  mills  a  pound,  how  much  is  a  ton? 

Mr.  Hammitt.  That  is  $5.04. 

Mr.  Parker.  That  is  a  pretty  fair  tax  on  the  price  of  the  stuff ;  it  is  one-tenth 
on  it,  is  it  not?    It  costs  $50  a  ton? 

Mr.  Hammitt.  This  ammonium  nirate  you  are  speaking  of,  Congressman,  is 
not  the  $50  a  ton  material.  I  do  not  know  what  it  is  selling  for  now ;  but  it  sold 
for  about  $350  a  ton  during  the  war. 

Mr.  Parker.  I  pass  now  to  what  happened  after  the  war,  and  I  want  to  ask 
you  about  article  10,  page  9,  which  provides  that  at  the  expiration  of  the  war  the 
charge  shall  be  li  cents  per  pound  unless  changed  by  arbitration. 

Mr.  Hammitt.  Yes,  sir. 

Mr.  Parker.  How  much  is  that  per  ton? 

Mr.  Hammitt.  That  is  $12.60. 

Mr.  Parker.  How  much  would  that  be  on  110,000  tons? 

Mr.  Hammitt.  As  I  have  stated  in  my  previous  testimony,  it  amounts  to  some- 
where around  a  million  dollars. 

Mr.  Parker.  Suppose  you  multiply  $12.60  by  110,000;  what  then  will  vou  get' 

Mr.  Hammitt.  That  would  be  $1,300,000. 

Mr.  Parker.  At  the  old  rate  it  would  not  be  as  high  as  Mr.  Miller  stated  I 
think  it  will  probably  be  110,000  times  $5.04,  which  will  make  about  $550,000  a 
year.  I  see  by  the  provision  on  page  31  that  the  American  Cyanamid  Co.  ob- 
viously intended  and  expected  that  the  United  States  would  sell  to  others  be- 
cause it  provides  that  "  the  license  fee  "—that  is,  the  United  States—"  may  trans- 
fer to  the  purchaser  of  any  one  or  more  of  said  plants  the  right  to  avail  itself  of 
the  license  in  this  article  granted  in  the  operation  of  the  plants  so  purchased,  if 
said  purchaser,  as  a  term  of  said  purchase,  expressly  covenant  to  undertake,  ob- 
serve, perform  all  the  terms  of  this  article,  including  the  pavment  of  royalties 
and  findings  of  the  said  undertakers,  if  any,  after  expressly  '*  *  ♦  pfant  or 
plants  so  purchased." 

Mr.  Hammitt.  Without  that  provision  there  would  be  no  value  in  the  provi- 
sion authorizing  the  United  States  to  sell  the  plant. 

Mr.  Parker.  That  is  very  true ;  but  this  is  a  provision  for  purchase. 

Mr.  Hammitt.  1>s,  sir. 

Mr.  Parker.  And  construes  the  other  somewhat.  Now,  I  desire  to  know,  re- 
turning to  the  contract  itself,  whether  under  the  terms  of  that  contract  it  is  or  is 
not  true  that  the  United  States  is  bound  to  pay  the  operating  expenses  of  a  quar- 
ter of  a  cent  a  pound  whether  it  applies  to  the  agent  or  not.  The  contract  pro- 
vides that  the  agent  agrees  to  operate  until  June,  1921,  or  as  long  as  the  United 
Estates  remains  in  the  present  war.  On  page  12,  in  the  paragraph  providing  for 
the  operation  fee  it  provides  "  one-quarter  of  a  cent  per  pound  of  ammonium 
nitrate  produced  in  compliance  with  article  7  hereof."  That  is  $5  a  ton,  is  it  not? 
92900—22 31 


480 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


481 


Mr.  HA3»lMi'n.  Yes,  sir. 

Mr.  Parker.  "And  accepted  or  utilized  by  the  United  States,  up  to  and  in- 
cluding,' 110,000  tons  produced  in  any  fiscal  year."  That  would  be  $550,000  a 
year.  Now,  on  page  15,  article  17,  there  is  a  provision  for  the  termination  of  the 
agreement  as  to  any  plants,  and  the  United  States  is  to  pay  for  any  materijil 
on  hand,  etc.;  and  also,  on  page  15,  it  is  provided  tliat  if  the  contract 
is  terminated  as  to  any  plant  during  or  prior  to  the  operation  thereof  by  the 
agent  "  then  the  agent  shall  be  paid  the  sum  of  money,  if  any,  then  due  on 
account  of  the  production  of  ammonium  nitrate  in  said  plants,  and  the  United 
States  shall  thereafter  continue  to  pay  during  the  period  set  forth  in  article  4  "— 
that  is,  until  the  termination  of  the  war,  or  1921 — "  a  quarter  of  a  cent  per 
pound."  So  that  this  provides  for  paying  the  agent  whether  it  operates  the 
plant  or  nq^ ;  is  that  not  true? 

Mr.  Hammitt.  I  think  that  is  limited  to  the  period  of  the  war,  which  has 
already  expired. 

Mr.  Parker.  During  that  period,  anyway,  the  United  States  was  to  pny  that 
whether  it  was  operated  by  the  agent  or  not? 

Mr.  Hammitt.  I  think  so ;  yes,  sir. 

Mr.  Parker.  I  find  in  article  18,  on  page  16,  the  provision  that  "  nothing  in 
this  contract  contained  shall  be  deemed  to  prevent  the  United  States  from  at 
any  time  discontinuing  the  construction  or  operation  of  any  or  all  of  said  plants, 
and  in  the  event  of  such  discontinuance  the  United  States  shall  be  under  no 
liability  to  the  agent  for  any  payments  as  respects  such  plant  or  plants  beyond 
those  in  this  agreement  specified.  In  the  event  that  construction  or  operation 
is  resumed  at  any  of  said  plants  at  which  construction  or  operation  has  been 
discontinued  the  provisions  of  this  contract  shall  govern  the  rights  and  obliga- 
tions of  the  parties  with  respect  to  any  such  plant  to  the  same  effect  as  though 
the  construction  or  operation  thereof  had  not  been  discontinued."  Does  that 
apply?  Suppose  the  United  States  began  to  operate  the  plant  after  the  war; 
would  they  have  to  pay  operating  expenses  to  the  company? 

Mr.  Hammitt.  Judge  Parker,  I  would  like  to  make  the  same  explanation  I 
made  to  the  chairman  in  regard  to  questions  that  involved  the  interprets! tion 
of  the  contract.  I  want  the  committee  to  understand  I  am  not  a  lawyer  and 
do  not  profess  to  be  able  to  answer  legal  questions. 

Mr.  Parker.  Representing  the  company,  do  you  say  that  if  the  United  States 
was  to  operate  that  plant  they  would  have  to  pay  the  operating  expenses 
amounting  to  a  quarter  of  a  cent  a  pound,  or  $5  a  ton? 

Mr.  Hammitt.  It  is  my  understanding  that  that  operating  fee  would  have  to 
be  paid  to  the  Air  Nitrates  Corporation  only  as  long  as  it  operated  the  plant. 

Mr.  I'ARKER.  Nov/,  after  the  war  is  over? 

Mr.  Hammitt.  Yes,  sir. 

Mr.  Parker.  It  would,  if  it  had  to  be  operated  during  the  war. 

Mr.  Hammitt.  It  would  seem  to  me  that  would  be  the  interpretation  of  the 
contract. 

Mr.  Parker.  It  was  to  be  paid  during  the  war.  But  this  is  not  limited  to  the 
war.  It  says,  "  In  the  event  that  construction  or  operation  is  resumed  at  any 
of  the  said  plants  at  which  construction  or  operation  has  been  discontinued, 
the  provisions  of  this  contract  shall  govern  the  rights  and  obligations  of  the 
parties."  I  want  to  be  sure  you  do  not  claim  one-quarter  of  a  cent  per  pound 
if  the  T'nited  States  should  try  to  operate  that. 

Mr.  Hammitt.  Judge  Parker,  I  am  perfectly  veiling  to  accept  your  interpreta- 
tion of  the  provisions  of  the  contract,  but  my  understanding  is 

Mr.  Pabkeb  (interposing).  I  want  to  know  what  your  understanding  is. 

Mr.  Hammitt.  My  understanding  is  that  there  will  be  no  fee  for  oiierating  of 
the  plant  unless  the  Air  Nitrate.  Corporation  operates  the  plant.  That  was  my 
understanding  as  a  layman,  but  just  how  it  is  worked  out  from  the  provisions 
of  this  contract,  I  would  very  much  prefer  that  lawyers  would  pass  upon  that 
question. 

Mr.  Pabkeb.  At  the  time  this  contract  was  made  there  was  a  statute  appro- 
priating $20,000,000  for  plants  at  Muscle  Shoals  to  produce  fixed  nitrates  for 
fertilizers  or  explosives,  which  plant  should  be  operated  solely  by  the  United 
States,  and  every  provision  of  this  contract,  whether  money  was  spent  under 
that  statute  or  not,  is  entirely  in  agreement  with  the  statute  for  the  plant  is 
to  be  operated  by  the  United  States  through  its  agents.    That  is  true,  is  it  not? 

Mr.  Hammitt.  I  should  say  it  were  true,  except  possibly  for  those  provisions 
relating  to  the  sale  of  the  plants. 


Mr.  Parker.  I  am  speaking  of  the  provisions  for  the  construction  and  opera- 
tion; they  are  entirely  in  accordance  with,  and  it  seems  as  if  thev  had  been 
drawn  under  that  statute. 

Mr.  Hammitt.  I  think  there  is  no  doubt  about  that. 

Mr.  Parkeb.  That  they  are  in  agreement  with  that  statute? 

Mr.  Hammitt.  Yes,  sir. 

Mr.  Parker.  And  your  suggestion,  I  think,  is  that  that  statute  made  no 
provision  for  the  sale  of  any  of  those  plants,  and  you  desire  to  guard  against 
a  sale  which  may  be  made  or  suggested  by  the  United  States  under  some  other 
statute  or  some  other  power.  You  want  to  guard  against  a  sale  not  provided 
for  by  that  statute? 

Mr.  Hammitt.  Yes,  sir. 

Mr.  Pabkeb.  Did  you  not  get  notice  last  July  of  Mr.  Ford's  proffer  *> 

Mr.  Hammitt.  The  only  notice  we  have  received  of  Mr.  Ford's  offer  is  the 
same  everybody  else  has  received,  namely 

Mr.  Pabkeb  (interposing).  That  was  published  in  the  newspaper,  was  it  not'' 

Mr.  Hammitt.  Well,  not  as  early  as  last  July,  because  that  proposition  was 
discussed  for  months  before  the  details  of  it  were  published,  but  it  was  pub- 
lished in  the  newi^papers  ultimately. 

Mr.  Pabkeb.  If  you  had  been  a  private  individual  and  not  the  United  States 
and  had  owned  a  nitrate  plant  that  required  an  enormous  amount  of  power  and' 
was  also  very  expensive  for  that  reason,  and  also  had  owned  a  lot  of  water 
power  adjacent  to  it,  which  was  very  cheap,  would  you  not  as  a  business  propo- 
sition, consider  that  it  was  sensible  to  try  to  dispose  of  them  together** 

Mr.  Hammitt.  No,  sir :  I  think  I  would  not. 

Mr.  Pabkeb.  If  you  were  a  private  individual  who  owned  power  and  a  plant 
which  could  not  be  made  of  any  value  except  with  that  power,  would  you  not 
think  that  a  good  business  proposition  to  try  to  dispose  of  them  together' 

Mr.  Hammitt.  No,  sir. 

Mr.  Parker.  You  have  already  testified  that  without  verv  cheap  power  that 
nitrate  plant  can  not  be  used  in  the  production  of  anv  kind  of  nitrogen  with 
success,  and  producing  under  present  market  conditions. 

Mr.  Hammitt.  I  would  say  even  with  a  cheap  power,  as  provide<l  under  this 
contract,  it  could  not  be  so  used. 

Mr.  Parker.  With  the  present  power  it  can  not  be  so  used? 

Mr.  Hammitt.  I  should  say  it  could  not. 

^Ir.  Parker.  That  plant  produces  several  things  wliich  are  used  in  the 
market.  I  do  not  speak  particularly  of  fertilizer,  but  it  also  produces  calcium 
carlnde  m  very  large  quantities.    Is  it  good  calcium  carbide? 

Mr.  Hammitt.  There  is  no  reason  why  it  should  not  produce  good  calcium 
vjjrbide. 

Mr.  I»arker.  Is  there  a  great  current  demand  for  good  calcium  carbide *> 

:Mr.  Hammitt.  I  think  that  at  the  present  time  the  calcium-carbide  indiistrv 
IS  very  largely  down  in  the  United  States  and  Canada. 

Mr.  Parker.  Is  there  a  demand  for  it? 

Mr.  Hammitt.  There  is  a  demand  for  a  certain  amount  of  it,  of  course- 
init  the  present  state  of  the  industry  is  one  of  depression. 

Mr.  Parker.  I  do  not  care  for  a  general  statement.  How  much  calcium 
carbide  is  made  at  this  factory  during  the  year? 

Mr.  Hammitt.  They  can  produce  175,000  tons. 

Mr.  Parker.  How  much  calcium  carbide  is  disposed  of  in  the  United  States 
iiiid  the  world  at  the  present  time?    I  mean  how  much  is  disposed  of  in  a  year? 

Mr.  Hammitt.  I  can  not  say;  I  am  not  at  all  familiar  with  the  carbidfe 
industry. 

^Ir.  Parker.  Is  there  more  than  175,000  tons? 

Mr.  Hammi'i^.  I  am  not  sure  that  outside  of  the  consumption  of  carbide  for 
<yanamid  it  is.  although  I  certainly  would  not  want  to  testifv  as  a  witness  on 
tlie  carbide  industry. 

•Mr.  Parker.  How  much  do  you  use  in  making  cyananiid  in  the  operation 
<'f  .vour  plant? 

Mr.  Hammitt.  In  the  operation  of  our  plant  in  Canada  making  60,000  tons 
"^  cyjinamid  we  would  use  about  40,000  or  45.000  tons  of  carbide. 

Mr.  Parker.  It  is  used  more  or  less  all  over  the  world.  Is  it  made  better 
"r  cheaper  in  the  United  States  than  anywhere  else? 

•Mr.  Hammitt.  I  doujbt  if  it  is  any  better  product  in  the  United  States  than  in 
"tiler  countries.    The  quality  of  the  product  depends,  of  course,  not  onlv  upon 


482 


MUSCLE   SHOALS  PROPOSITIONS. 


the  operation,  but  upon  the  raw  materials.  But  it  is  a  question  of  wliere  the  raw 
materials  are  available. 

Mr.  Parker.  The  limestone  there  is  exceedingly  good,  is  it  not;  that  is,  near 
Muscle  Shoals,  it  is  98  per  cent  limestone,  or  something  of  that  sort? 

^Ir.  Hammitt.  The  limestone  at  the  Waco  quarry  connected  with  that  plant 
is  very  good  calcium  limestone. 

Mr.  Parker.  And  a  large  quantity  of  it  can  be  got  there? 

]Mr.   Hammitt.  Yes. 

Mr.  Parker.  And  is  the  coke  very  great  or  not? 

Mr.  Hammitt.  We  use  a  high-grade  coke  which  is  available  for  the  Muscle 
Shoals  plant. 

Mr.  Parker.  And  the  whole  cost  of  carbide,  outside  of  rather  cheap  materials 
lies  in  cheap  power,  does  it  not? 

Mr.  Hammitt.  Of  course,  there  are  many  items,  but  power  is  a  verv  impor- 
tant item. 

Mr.  Parker.  Is  it  not  a  chief  item,  besides  the  limestone  and  coke? 

Mr.  Hammitt.  No  ;  you  would  use  a  great  deal  of  labor  In  the  manufacture 
of  carbide,  which  is  an  electric-furnace  operation,  and  in  the  plant  at  Muscle 
Shoals  I  suppose  40  per  cent  of  the  labor  would  be  in  the  carbide-furnace 
rooms. 

Mr.  Parker.  Labor  down  there  is  cheap,  is  it  not? 

Mv.  Hammitt.  I  doubt  if  that  is  true  to  a  very  large  extent.  It  depends  not 
upon  the  price  you  pay  for  labor  entirely,  but  upon  the  class  of  labor  that  is 
available. 

Mr.  Parker.  You  also  make  ammonia  gas  there,  do  you  not? 

Mr.  Hammitt.  That  can  be  made  at  the  Muscle  Shoals  plant. 

Mr.  Parker.  That  is  made  in  large  quantities.  If  you  have  110,000  tons  of 
nitrate  there  would  be  a  large  amount  of  ammonia  gas,  would  there  not? 

Mr.  Hammitt.  Yes ;  that  would  be  made  in  very  large  quantities. 

Mr.  Parker.  Ammonia  gas  is  another  valuable  product  for  a  great  manv 
imanufactures,  is  it  not? 

^Ir.  Hammitt.  No  :  ammonia  in  the  form  of  ammonia  gas  at  the  present  time 
is  a  very  cheap  product,  because  when  we  speak  of  sulphate  of  ammonia  as  the 
product  of  by-product  coke  ovens  we  commonly  speak  of  it  as  sulphate  of 
ammonia,  but  as  a  matter  of  fact,  all  of  our  ammonia  comes  as  the  by-product 
of  coke  ovens  and  gas  works,  and  it  is  usually  reported  in  terms  of  an  equiva- 
lent amount  of  sulphate  ammonia.  So  annnonia  is  a  cheap  product,  and  very 
much  cheaper  of  manufacture  than  it  can  be  produced  at  Muscle  Shoals. 

Mr.  Parker.  As  to  the  cheapness  of  the  production  of  ammonium  nitrate  or  of 
the  sulphate  or  of  the  carbide,  they  are  all  affected  very  much  by  the  cheap- 
ness of  power. 

Mr.  Hammitt.  If  they  are  made  by  the  process  for  which  the  Muscle  Shoals 
plant  was  designed ;  yes,  sir. 

Mr.  Parker.  Yet  you  still  say — and  I  wish  you  would  say  yes  or  no — that  you 
do  not  think  it  would  be  good  business  to  dispose  of  the  power  and  the  plant 
at  the  same  time,  if  you  sold  them. 

Mr.  Hammitt.  I  do  not  think  that  would  be  the  best  way  to  dispose  of  them. 

Mr.  Parker.  I  think  some  months  ago  you  heard  that  the  Government  was 
proposing  or  asking  for  proposals  for  the  sale  of  these  properties  together; 
that  is.  the  sale  of  the  nitrate  plant  and  of  the  power  plant,  and  the  lease  of  the 
water  power  for  a  long  term  of  years,  at  terms  of  interest  on  the  cost  of  the 
water  power,  and  on  terms  that  the  nitrate  plant  should  be  maintained  and 
kept  in  operation  for  the  production  of  components  of  fertilizers.  You  heard 
of  that? 

Mr.  Hammitt.  No,  sir;  as  a  matter  of  fact,  I  do  not  think  that  was  the 
general  invitation  the  Government  extended.  I  think  that  particular  combi- 
nation was  invented  by  Mr.  Ford. 

Mr.  Parker.  W^ere  not  the  terms  of  the  agreement  or  proposal  you  saw  some 
months  ago  made  by  Mr.  Ford? 

Mr.  Hammitt.  Of  Mr.  Ford's  proposition;  yes. 

Mr.  Parker.  Was  not  the  Government's  proposition  that  the  water  power 
should  go  also  with  the  nitrate  plant? 

Mr.  Hammitt.  Not  certainly,  until  after  the  receipt  of  Mr.  Ford's  proposition. 

Mr.  Parker.  What  did  the  letter  say? 

Mr.  Hammitt.  The  letter  referred  entirely  to  the  water  power,  as  I  renieni 
ber  it. 

Mr.  Parker.  Referred  entirely  to  water  power? 

Mr.  Hammitt.  As  I  remember  it;  yes. 


MUSCLE   SHOALS  PROPOSITIONS. 


483 


Mr.  Parker.  Not  to  the  nitrate  plant? 

3Ir.  Hammitt.  I  believe  it  did  not. 

Mr.  Parker.  Have  you  that  letter  here? 

Mr.  Hammitt.  I  have  not. 

The  Chairman.  The  letter  is  in  the  record. 

Mr,  Parker.  Nevertheless,  when  you  got  that  letter  or  heard  of  Mr  Ford's 
proposal,  and  when  you  found  that  the  War  Department  was  asking  for  pro- 
posa  s  upon  the  property  down  there,  you  never  made  any  proposition  whatever? 

311.  Hammitt.  We  have  made  no  proposition. 

Mr.  Crowther.  Speaking  about  taxes,  Mr.  Hammitt,  was  your  firm  advised 
jis  to  the  fact  that  the  law  of  Alabama  rendered  you  free  from  taxation  for  a 
jjeriod  of  10  years  on  such  projects  in  the  state  of  Alabama? 

lor'acmaTpIw^^^^^^^^^^^^    '^"  ^'°'^^^  *'^^^  ^^^^'^^^^  ''''  '^^^  ^--*-« 
Mr.  CRowTHEai.  You  spoke  of  the  difficulty  of  collecting  royalties.    Did  vou 
ha^e  reference  to  what  I  have  heard  lately  of  the  long  difficult  course  through 
the  courts  that  one  Selden  had  in  trying  to  get  some  royalties  f?om  Ford  !n 
connection  with  a  gas  engine,  and  that  he  also  had  had  difficulties  with  other 
companies  using  his  patent  and  they  finally  paid  him? 
Mr.  Hammitt.  I  think  that  is  one  experience  generally  known 
Mr.  Crowther.  Many  other  companies  did  pay  this  man  his  rovalties' 
;ur.  Hammitt.  Yes. 

-lefeated^'himf'^*  ^"^  ^''''^  ^''^"^  ^""^^^^  ^'"^  ^^'*'*"^^  *^^  "'^"^^^  ""^il  he 

.Mr.  Hammitt.  I  believe  that  is  the  fact,  sir. 

Mr.  Crowther.  It  seems  to  me  that  there  is  a  remarkable  resemblance,  Mr 
Hninmi  t-and  I  do  not  know  that  it  is  necessary  to  read  them  now-between 
article  19  of  your  contract,  which  has  been  commented  upon  as  giving  a  mere 
preferential  right  to  your  corporation,  and  article  17  of  Mr.  Ford's  contract 
It  looks  as  though  they  might  possibly  have  used  article  19  in  writing  article  17 
in  their  offer,  but  it  seems  they  even  strengthened  it  a  little,  to  their  advan- 
tage For  instance,  article  19  of  your  contract  closes  with  this  clause  "to 
purchase  the  same  upon  as  favorable  terms  as  the  United  States  is  willing  to 
accept  therefor  before  the  United  States  shall  sell  the  same  to  any  other  partv  " 

Article  1<— and  I  claim  no  originality  for  this  discovery;  Mr.  Greene  spoke 
ot  It  as  being  almost  a  grant  in  perpetuity,  but  it  seems  to  me  it  is  still  stronger 
than  article  19,  because  it  says,  "  In  order  that  said  company  may  be  sunolied 
w.th  electric  power  "-and  again  these  words-"  and  the  farmers  vvith  ferU- 
lizers,  after  the  termination  of  100-year  leases,  should  the  United  States  elect 
not  to  operate  such  power  plants  but  determine  to  lease  or  dispose  of  same 
the  company  shall  have  the  preferred  right  "—as  appears  here  iharticle  19-^ 
••  to  negotiate  with  the  United  States  for  such  lease  or  purchase  and  upon  such 
terms  as  may  then  be  agreed  upon.  If  the  said  leases  are  not  renewed  or  the 
property  covered  thereby  is  not  sold  to  said  company,  :ts  successors,  or  assigns 
any  operation  or  disposal  thereof  shall  not  deprive  the  company,  its  successors' 
or  assigns  of  the  right  to  be  supplied  with  electric  power  at  reasonable  rates  and 
in  amount  equal  to  its  needs,  but  not  in  excess  of  the  averago  amount  used  bv 
It  dur  ng  the  previous  10  years."  ^ 

So  that  if  it  be  true  that  during  the  previous  10  j^ears  there  was  developed 
an  industry  large  enough  to  use  all  of  the  power  there  would  not  be  enough  to 
sell  to  anybody.  ^ 

Mr.  Hammitt.  That  would  be  my  interpretation  of  it. 

Mr.  Crowther.  So  that  there  is  in  section  17  a  still  stronger  preferential 
Clause  even  than  there  is  n  section  19  of  your  contract.  They  still  maintain 
the  same  right  under  it  to  have  a  preferred  status  as  to  negotiations,  and  then 
It  :t  IS  sold  they  still  hold  that  they  are  to  be  supplied  with  the  amount 
<'t  power  they  have  averaged  during  the  previous  10  vears  of  use;  and  the 
possibil  ty  might  arise  that  they  would  have  used  all  of  the  available  power, 
so  there  would  be  nothing  to  sell. 

Mr.  Hammitt.  I  will  say  if  the  Congress  decides  in  carrving  out  the  provi- 
sions <»f  our  contract  to  olter  the  Muscle  Shoals  project  to  us  on  the  terms  on 
which  Mr.  Ford  proposes  to  take  it,  we  would  give  very  careful  consideration  to 
tliat  provsion  of  the  contract. 

Mr.  Crowther.  While  there  has  been  considerable  criticism  of  article  19  of 
ynir  contract,  it  looks  to  me  as  though  article  17  of  the  Ford  offer  is  still 
stronger  and  gives  them  a  greater  hold  on  the  property,  because  thev  might 
•levelop  industries  there  that  would  use  in  the  prevous  10  years  all  the  power, 


484 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


485 


Is  there  any  calcium  carbide 


so  that  there  would  be  nothing  whatever  to  sell, 
be  ng  imported  into  this  country,  do  you  know? 

Mr.  Hammitt.  I  do  not  think  there  is  any  calcium  carbide  being  'mported  at 
the  present  time.  The  Union  Carbide  Co.,  I  think,  some  times  delivers  carbide 
in  the  United  States  from  its  plant  on  the  Canadian  side  of  Niagara  Falls. 

Mr.  Crowther.  Just  what  component  part  of  explosives  is  ammonium  nitrate? 
Is  that  the  product  that  by  distillation  produces  nitrous  oxide? 

M]-.  Hammitt.  You  have  gas  before  you  get  annnonium  nitrate.  The  am- 
monium nitrate  produced  at  Muscle  Shoals  was  to  be  used  with  T.  N.  T.,  and 
to  produce  a  bursting  charge  an<l  an  explosive  known  as  amotol  was  to  be 
used.  Tbat  is  rather  an  interesting  situation  regarding  the  Muscle  Shoals 
nitrate  phmt.  be<'ause  if  you  keej)  tbat  plant  in  stand-by  comlition,  and  it  does 
reipure  a  period  of  months  to  get  that  plant  in  operation  n  case  we  go  into  a 
war.  the  product  of  that  plant  is  not  of  any  use  until  you  have  other  plants 
in  operation.  You  have  to  get  a  T.  N.  T.  plant  in  operation  before  you  can 
use  annnonium  nitrate.  An(l  those  phmts  have  been  scrapi)ed.  You  have  ulti- 
mately got  to  have  your  propellant  charges  which  were  to  be  made  at  Nitro  and 
Old  Hickory  plants,  which  have  been  scrapped.  Those  plants  wouhl  have  to  be 
set  up  again,  or  else  any  immediate  production  of  ammonium  nitrate  would 
merely  clog  the  railroads  with  a  considerable  amount  of  shipments  which  would 
not  have  anywhere,  to  go  and  there  would  be  no  way  to  use  them. 

Mr.  Crowther.  In  other  words  to  make  this  a  valuable  adjunct  to  the  >Var 
Department  there  shouhl  be  maintained  in  stand-by  condition  several  other 
T)lants  for  the  production  of  several  other  ingredients  to  make  this  one  avail- 
able: they  must  all  work  together? 

Mr.  Hammitt.  Tbey  nnist  all  work  together,  and  there  would  certainly  be  no 
opportunity  to  use  the  product  of  the  Muscle  Shoals  plant  successfully  until 
.'^ome  of  these  other  things  were  also  ready. 

(Thereupon  tbe  committee  adjourned  at  o  o'clo<*k  p.  m..  to  meet  to-morrow, 
Tuesday,  February  21,  1922,  at  10.30  o'clock  a.  m.) 


Committee  on  Military  Affairs. 

House  of  Representatives. 
Tuesday,  Fehruam  21,  1922. 

The  committee  met  at  10.30  o'clock  a.  m..  Hon.  Julius  Kahn  (chairman)  pre 
siding. 

STATEMENT  OF  MR.  J.  O.  HAMMITT — Resumed. 

The  Chairman.  Mr.  Hammitt,  the  committee  will  be  very  glad  to  conclude 
with  you  this  morning,  and  Mr.  Wurzbach  would  like  to  ask  you  some  questions. 

Mr.  Wurzbach.  Mr.  Hammitt,  what  is  cyanamid? 

Mr.  Hammitt.  Cyanamid  is  a  form  of  fixed  nitrogen  which  is  produced  by 
soaking  up  all  the  nitrogen  gas  you  can  soak  up  into  calcium  carbide  and  then 
pre[>aring  it  in  a  form  in  which  it  can  be  practicably  used  in  a  fertilizer  mixing 
plant.    It  has  approximately  25  per  cent  of  ammonia. 

^Ir.  WuRZKACH.  Did  you  explain  why  the  Air  Nitrates  Coi-poratlon  could  not 
nuike  an  offer  now  for  the  nitrate  plant  if  the  nitrate  plant  was  separated  from 
the  water-power  proposition? 

Mr.  Hammitt.  Y'es,  sir.  Assuming  that  the  situation  were  all  laid  out  clear, 
so  that  it  was  perfectly  practicable  to,  make  a  disposition  of  the  nitrate 
jdant  separately  from  the  water  power,  we  would  not  be  able  to  make  a  proposi- 
tion for  the  nitrate  plant,  because  we  can  not  work  out  any  manufacturing  pro- 
gram for  that  nitrate  plant  that  could  be  commercially  successful,  unless  it 
received  aid  from  the  Government,  and  a  proposition  involving  aid  from  the 
(Jfjvernment  we  believe  is  against  public  policy,  as  involving  an  indirect  en- 
trance of  the  Government  into  private  industry. 

Mr.  \VnizBACH.  If  that  is  true,  then  the  option  you  have  under  section  V^ 
is  such  an  option  that  you  could  not  avail  yourself  of  it  if  you  were  given  tlie 
right  to  avail  yourself  of  it,  by  your  own  admission? 

Mr.  Hammitt.  No ;  because  while  we  will  not  make  the  Government  a  propo- 
sition for  the  operation  of  the  plant  with  financial  aid  from  the  Government, 
if  the  Government  decides  that  it  is  going  to  provide  for  the  operation  aided 
out  of  the  Government  Treasury ;  if,  for  example,  the  Government  should  decide 
that  this  proposition  of  Mr.  Ford's  would  be  acceptable  to  the  Government,  then 


we  would  have  something  we  could  do  business  on,  of  course.  It  would  not  be 
in  accordance  with  our  judgment  of  the  way  contracts  ought  to  be  made  with 
the  United  States  Government  but  it  would  protect  the  interests  of  our  stock- 
holders. 

Mr.  Wurzbach.  But  aside  from  any  governmental  aid  or  subsidy,  suppose 
that  the  P^ord  offer  had  not  been  made  or  suppose  that  it  were  withdrawn  from 
all  consideration,  and  the  Government  were  to  separate  the  nitrate  plant  from 
the  water  power,  and  in  accordance  with  article  19  would  give  you  notice  and 
would  ask  you  to  make  a  bid,  you  would  not  be  able  to  make  any  kind  of 
bid  at  all? 

Mr.  Hammitt.  Under  article  19  what  the  Government  would  give  us  would 
be  a  notice  that  would  contain  a  statement  of  the  best  terms  upon  which  the 
Government  was  prepared  to  dispose  of  that  plant.  Now,  we  believe  that  the 
Government  is  not  in  a  position  to  offer  terms  that  will  protect  the  Government 
that  we  would  accept ;  but  if  the  Government  should  offer  us  terms,  then  it  would 
no  longer  be  any  part  of  our  function  to  consider  whether  those  terms  pro- 
tected the  Government;  that  would  have  been  decided  by  responsible  govern- 
mental authority,  and  we  would  give  very  careful  consideration  to  the  question 
of  whether  we  could  take  over  that  nitrate  plant  and  operate  it  on  those  terms, 
and  it  is  our  belief  that  we  would  be  in  at  least  as  good  a  position,  and  very 
likely  in  a  better  position,  to  work  out  an  operation  of  that  plant,  as  soon  as  a 
situation  arises  where  such  an  operation  is  commercially  feasible,  than  any 
other  party. 

Mr.  AVurzbach,  But  there  is  nothing  in  article  19  that  either  expressly  states 
or  implies  any  Government  aid  to  the  corporation  or  individual  contemplating 
the  purchase  of  the  nitrates  plant,  is  there  ? 

Mr.  Hammitt.  Nothing  whatever,  as  I  read  that  article. 

Mr.  Wurzbach.  Nothing  at  all.  Now,  putting  aside  or  taking  out  of  con- 
sideration the  Ford  proposal  altogether,  and  assuming  that  the  Government 
would  suggest  to  the  Air  Nitrates  Corporation  that  they  intend  to  sell  this 
property  for  cash. 

Mr.  Hammitt.  Yes,  sir. 

Mr.  Wurzbach.  Would  the  Air  Nitrates  Corporation  be  in  a  position  to  avail 
themselves  of  that  article  19  and  make  an  offer;  and,  if  so,  what  offer  would  they 
be  able  to  make? 

Mr.  Hammitt.  It  is  my  opinion  that  the  Air  Nitrates  Corporation  would  not  be 
in  a  position  to  offer  to  purchase  the  plant  under  those  conditions. 

Mr.  Wurzbach.  What  is  the  financial  ability  of  the  Air  Nitrates  Corporation? 

Mr.  Hammitt.  The  Air  Nitrates  Corporation  is  able  to  pay  its  bills,  sir,  and 
it  is  able  to  conduct  its  present  operations  and  it  has  good  credit.  The  financial 
capacity  of  any  relatively  small  industrial  unit,  such  as  Air  Nitrates  Corpora- 
tion, to  take  over  a  new  proposition  is  always  dependent  upon  the  soundness  of 
that  new  proposition,  among  other  things,  and  if  the  new  proposition  were  an 
attractive  proposition  financially  and  one  that  promised  to  be  able  to  earn 
interest  on  bonds  that  might  be  issued  for  the  purpose  of  financing  it,  the  Air 
Nitrates  Corporation  could  present  that  matter  to  those  whose  business  is 
finance  and  doubtless  could  get  a  hearing  before  them,  and  if  the  proposition 
were  sound,  could  get  that  cooperation  which  every  corporation  requires  to  get 
when  it  expands  in  financing.  It  would  be  most  uneconomical  for  a  coiT)oration 
with  the  business  that  the  American  Cyanamid  Co.  has  to  have  an  enormous 
bank  account,  because  that  would  merely  mean  so  much  money  that  was  not 
put  to  work.  The  Air  Nitrates  Corporation,  or  rather  I  mean  the  American 
Cyanamid  Co.,  has  not  money  that  has  not  got  to  work.  The  Air  Nitrates 
Corporation  is  merely  a  subsidiary  of  the  American  Cyanamid  Co. 

Mr.  WmzBACH.  The  option  inures,  however,  only  to  the  Air  Nitrates  Corpora- 
tion and  not  to  the  American  Cyanamid  Co.,  does  it  not? 

Mr.  Hammitt.  The  option  is  a  right  of  the  Air  Nitrates  Corporation,  and  the 
Air  Nitrates  Corporation  is  owned  entirely  by  the  American  Cyanamid  Co., 
and  I  would  be  deceiving  the  committee  if  I  did  not  make  it  clear  to  the 
committee  that  the  American  Cyanamid  Co.  is  the  real  party  in  interest. 

Mr.  Fields.  Mr.  Hammitt,  where  is  the  home  office  of  the  American  Cyan- 
amid Co.? 

Mr.  Hammitt.  511  Fifth  Avenue,  New  York. 

Mr.  Fields.  What  is  the  extent  of  its  operations  in  the  United  States? 

Mr.  Hammitt.  It  has  a  phosphate  mine  in  Florida ;  one  of  the  largest  of  the 
Florida  pebble  phosphate  mines,  involving  an  investment  of  approximately 
$5,000,000,  without  the  actual  figures  before  me.    It  has  a  plant  on  the  New 


I 


486 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


487 


o?^'a^^^  ^  ^'^^  ^^^^  Harbor  involving  an  investment  of  something  over 
?3,0(X),000,  a  part  of  which  has  been  written  off  as  depreciation,  bringing  the 
amount  of  that  investment  down  to  something  over  $2,000,000.  It  has  a  plant 
in  California,  which  is  a  relatively  small  plaqt,  but  engaged  in  the  very  impor- 
tant business  of  manufacturing  hydrocyanic  gas  for  the  fumigation  of  citrus 
trees  in  California. 

The  Chairman.  In  what  part  of  California? 

Mr.  Hammitt.  It  is  near  Los  Angeles. 

Those  are  the  plants  of  the  American  Cyanamid  Co.  in  the  United  States 
To  complete  the  story,  its  only  other  plant  is  located  on  the  Canadian  side  of 
the  Niagara  River  at  Niagara  Falls. 

Mr.  Fields.  And  that  is  its  big  operation? 

Mr.  Hammitt.  The  size  of  the  investment  in  that  plant,  so  far  as  not  amor- 
tized, is  a  little  under  $3,000,000.  I  would  not  say  it  was  its  big  operation  in 
normal  times.  At  the  present  time  the  main  business  of  the  American  Cyan- 
amid Co.  has  nothing  whatever  to  do  with  the  fertilizer  industry  and  consists 
of  products  made  at  Niagara  Falls,  Canada,  and  at  Azusa,  Calif.,  which  is  the 
location  near  Los  Angeles. 

Mr.  Fields.  What  connection  has  the  American  Cyanamid  Co.  with  the 
Alaba)jia  Power  Co.? 

Mr.  Hammitt.  It  has  absolutely  no  intercorporate  connection  of  any  char- 
acter whatever. 

Mr,  Fields.  None  of  the  stockholders  of  the  American  Cvanamid  Co  own 
stock  in  the  Alabama  Power  Co.? 

:Mr.  Hammitt.  I  could  not  say  that  as  to  all  of  our  stockholders,  but  I  will 
say  that  no  one  owning  a  very  large,  substantial  interest  in  the  American  Cyan- 
amid Co.  owns  a  large,  substantial  interest  in  the  Alabama  Power  Co.  I  think 
It  is  entirely  possible  that  some  of  our  stockholders  may  have  stock  in  the  \la- 
bania  Power  Co.  or  own  some  of  their  securities. 

Mr.  Fields.  It  is  highly  probable,  is  it  not,  that  some  of  the  stockholders  of 
the  American  Cyanamid  Co.  own  stock  in  the  Alabama  Power  Co.? 

Mr.  Hammitt.  I  think  it  is  probable  to  this  extent:  There  is  one  banking 
house  in  London  that  at  one  time  handled  some  of  our  securities,  and,  accord- 
ing to  my  information,  has  handled  securities  of  the  Alabama  Power  Co.,  and 
that  is  Sperling  &  Co.  Sperling  &  Co.'s  interest  in  the  American  Cyanamid 
Co.  IS  entirely  through  stock  ownership,  for  we  have  no  bonds,  and  the  amount 
of  stock  in  American  Cyanamid  Co.  that  they  own,  I  should  say,  does  not 
amount  to  more  than  6  per  cent;  and  when  I  state  that  I  am  including  not 
only  the  stock  that  Sperling  &  Co.  probably  actually  own  but  I  am  speaking 
also  of  the  stock  that  Sperling  &  Co.  were  engaged  in  marketing. 

Mr.  Fields.  What  connection  has  the  American  Cyanamid  Co.  with  the 
Georgia  Railroad  &  Power  Co.? 

Mr.  Hammitt.  None  whatever. 

Mr.  Fields.  None  of  its  stockholders  own  stock  in  the  Georgia  Railroad  & 
Power  Co.? 

Mr.  Hammitt.  Not  to  my  knowledge. 

Mr.  Fields.  What  connection  has  it  with  the  Columbus  Power  Co. ;  that  is. 
what  connection  has  the  American  Cyanamid  Co.  with  the  Columbus  Power  Co.? 

Mr.  Hammitt.  None  whatever. 

Mr.  Fields.  What  connection  has  the  American  Cyanamid  Co.  with  the  Cen- 
tral Georgia  Power  Co.? 

Mr.  Hammitt.  None  whatever. 

Mr.  Fields.  Has  it  any  connection  with  the  Tennessee  Power  Co.  ? 

Mr.  Hammitt.  It  has  none. 

Mr.  FiEiJis.  The  reason  I  am  asking  these  questions  is  because  I  notice  thai 
Mr.  Duke  and  the  representatives  of  these  four  companies  are  apparently 
agreed  as  to  their  opinion  of  the  production  of  power  at  Muscle  Shoals. 

Mr.   Hammitt.  Yes. 

Mr.  Fields.  And  I  thought  there  might  be  some  connection  between  the  com- 
panies because  their  minds  so  thoroughly  agreed  upon  that  subject. 

Mr.  Hammitt.  There  is  no  connection  whatever. 

Mr.  Fields.  You  say  that  the  Air  Nitrates  Corporation  is  a  subsidiarv  of  the 
American  Cyanamid  Co.? 

Mr.  Hammitt.  Yes,  sir. 

Mr.  Fields.  And  you  claim  that  the  Government  of  the  United  States  is  mor- 
ally, if  not  legally,  bound  to  sell  nitrate  plant  No.  2  to  the  Air  Nitrates  Cor- 
poration by  reason  of  article  10  in  this  contract? 


Mr.  Hamaiitt.  Providing,  in  the  first  place,  the  Government  determines  to 
sell  it;  and,  in  the  second  place.  Air  Nitrates  Corporation  is  prepared  to  pay 
for  it  as  good  a  price  as  anybody  else  is  prepared  to  pay. 

Mr.  Fields.  I  notice  that  article  19  does  not  apply  alone,  as  I  construe  it,  to 
plant  No.  2  at  Muscle  Shoals,  but  also  to  plants  3  and  4  in  Ohio. 

Mr.  Hammitt.  That  is  true. 

Mr.  Fields.  Is  the  Air  Nitrates  Corporation  in  a  position  and  ready  to  sub- 
mit a  proposition  to  the  Government  on  plants  3  and  4? 

Mr.  Hammitt.  Those  plants  were  not  completed.  Congressman ;  and  quite  in 
accordance  with  our  views,  and  I  think  in  accordance  with  the  advice  that  in 
response  to  inquiry  we  gave  to  the  Government,  those  plants  have  been  dis- 
mantled. 

Mr.  Fields.  They  have  already  been  dismantled? 

Mr.  Hammitt.  Yes,  sir. 

Mr.  Fields.  I  knew  they  were  not  completed,  but  I  did  not  know  they  had 
been  dismantled. 

Mr.  Hammitt.  Yes,  sir;  they  have  been. 

Mr.  Fields.  Now,  with  regard  to  public  policy,  you  contend  that  as  a  matter 
of  public  policy  the  Government  and  the  Congress  should  recognize  this  contract 
in  article  19? 

Mr.  Hammitt.  I  do.  I  think  it  is  proper  public  policy  for  the  United  States 
Government  to  live  up  to  the  agreement  that  it  has  made,  and  as,  of  course,  I 
have  made  clear  to  the  committee,  I  consider  this  an  agreement  which  the 
United  States  Government  has  entered  into,  and  that  there  is  no  objection  to 
it  except  one  that  is  based  upon  legal  technicality. 

Mr.  Fields.  Now,  let  us  see  about  that.  Let  us  forget,  for  the  moment,  your 
connection  with  the  Air  Nitrates  Corporation  and  my  connection  with  the 
Government,  except  our  connection  as  citizens. 

Mr.  Hammitt.  Yes,  sir. 

Mr.  Fields.  As  a  matter  of  general  public  policy,  would  you  feel  that  the 
agents  of  the  Government  should  be  bound  in  their  transactions  with  corporations 
or  individuals  who  are  negotiating  with  the  Government  by  the  Constitution  of 
the  United  States  and  the  laws  upon  the  statute  books,  or  by  their  own  desires 
or  what  they  might  desire  to  accomplish  upon  the  spur  of  the  moment?  As  a 
general  policy,  which  would  you  recommend? 

Mr.  Hammitt.  As  a  general  policy,  I  am  certainly  in  favor  of  sustaining  the 
Constitution  and  the  laws. 

Mr.  Fields.  Then  as  a  general  policy,  if  you  are  in  favor  of  sustaining  the  Con- 
stitution and  the  laws,  why  would  you  make  an  exception  in  this  particular  case? 

Mr.  Hammitt.  In  the  first  place  you  do  not  want  to  put  me  in  the  position  of 
appearing  to  state  that  this  is  an  exception,  because,  of  course,  you  recognize  the 
fact  that  we  do  not  think  it  is  an  exception.  We  think  that  this  provision  is  en- 
tirely valid,  but  assuming  that  there  was  a  sound,  legal  objection  to  the  validity 
of  this  particular  provision,  I  would  have  in  mind  the  fact  that  at  the  time  this 
contract  was  made  there  were  a  great  many  unusual  things  which  the  Govern- 
ment was  required  to  do.  Everyone,  certainly,  who  was  familiar  with  the  ex- 
perience of  the  Government  in  its  endeavor  to  mobilize  American  industry  recog- 
nizes that  fact. 

Now,  not  only  were  there  a  great  many  unusual  things  to  do,  but  there  were 
a  great  many  things  that  had  to  be  done  under  very  great  pressure ;  and  in  addi- 
tion to  that  there  was  a  very  considerable  amount  of  very  unusual  emotion  in 
the  country  that  is  always  an  incident  of  a  thing  like  this  World  War.  Feeling 
ran  very  high.  If  a  matter  upon  which  there  had  been  very  competent  legal 
advice,  taking  it  in  the  ordinary  terms,  if  regarding  a  matter  of  that  sort,  as  to 
which  there  had  been  very  competent  le;?al  advice,  the  American  Cyanamid  Co. 
had  said,  "  Well,  now,  there  is  a  little  legal  doubt  as  to  whether  that  particular 
provision  will  hold,  despite  this  advice  we  have  received,  and  we  will  not  risk 
entering  into  that  kind  of  a  contract,"  you  know  that  the  officers  of  the 
American  Cyanamid  Co.  would  have  been  considered  pro-German.  Their  lives 
would  not  have  been  very  pleasant  in  these  United  States,  and  I  say  that  it  is 
entirely  proper  that  it  should  be  so.  So  that  I  think  I  would  consider,  as  to  this 
particular  contract  which,  as  I  have  said,  I  believe  in  this  particular  provision 
is  valid,  and  will  hold  in  the  courts,  but  assuming  that  there  were  a  shade  of  doubt 
about  it,  I  think,  under  those  circumstances,  I  certainly  would  resolve  the  sh«de 
of  doubt  in  favor  of  carrying  out  this  contract ;  and  I  will  say  that  if  you  do  not 
do  that  itis  more  than  likely  that  a  most  careful  and  meticulous  legal  examination 
of  a  great  many  contracts  that  were  made  at  that  time,  during  the  war,  might 


488 


MUSCLE   SHOALS  PROPOSITIONS. 


ead  you  to  raise  similar  question  regarding  them.  Now,  all  of  this,  I  am  statins 
Congressman,  in  an  effort  to  give  a  complete  answer  to  your  question.  I  want  it 
dear  on  the  records  that  all  of  it  is  predicated  on  a  thing  being  a  fact  which  I 
do  not  admit  as  being  a  fact,  and  do  not  believe  as  being  a  fact,  nanielv,  that 
there  is  any  substantial  doubt  as  to  the  legality  of  that  provision  of  the  contract 
3lr.  i^iELDs.  In  reply  to  your  suggestion. that  a  failure  on  the  part  of  the  Gov- 
ernment to  recognize  this  contract  may  lead  to  an  investigation  of  other  con- 
tracts, I  want  to  say  in  that  connection  that  if  other  illegal  contracts  were  made 
uiider  the  conditions  to  which  you  refer,  this  one  being  made  on  the  18th  dav 
of  July  just  as  our  Armies  were  starting  their  drive  in  Europe,  when  the  nublic 
mind  was  not  centered  upon  contracts  or  their  legality,  but  upon  winning  the 
war,  it  any  corporation  or  tirni  or  individual  at  that  time  and  under  that 
stress  with  the  aid  of  the  most  able  counsel  that  the  United  States  has,  suc- 
ceetled  in  securing  illegal  contracts,  not  authorized  by  the  Constitution  of  the 
Lnited  States  and  the  laws  of  the  United  States,  thev  ought  every  one  to  be 
contested,  and  I  for  one  hope  that  that  may  be  done.  '  ^  ^  *^^*^^>  '^"^  to  be 
Now,  let  us  take  up  the  question  again  of  the  moral  obligation.  A  few  davs 
ago  I  asked  Col.  Burns,  who  was  counsel  for  the  American  Cyanamid  Co  H.. 
was  not  able  to  tell  me.  I  was  sure  they  had  able  counsel,  and  I  learned 
from  you  yesterday  that  their  counsel  was  Mr.  Justice  Hughes,  one  of  the  most 
honorable  citizens  of  the  United  States,  and  possibly  the  most  able  lawver  hi 
the  United  States. 

Mr.  Hammitt.  Now,  Congressman,  do  not 

Mr.  Fields  (inteiposing).  Wait  until  I  finish  my  statement  I  am  not  savina 
anything  that  is  disparaging  ol  Mr.  Hughes,  and  I  am  not  going  to 

Mr.  Hammitt.  But  you  are  stating 

Mr.  Fields  (interposing).  But,  of  course,  when  the  cyanamid  company  told 
him  what  they  wanted,  that  they  wanted  to  construct  this  plant  on  a  cost-plus 
basis  and  wanted  a  royalty  fee  and  an  operation  fee  and  an  option  upon  th»' 
plant  m  the  event  the  Government  should  decide  to  sell  it,  he,  as  an  attorney 
and  an  honorable  man,  proceeded  to  draw  their  contract  for  them  as  stron"- 
as  it  Could  be  drawn,  and  nobody  criticizes  him  for  that. 

Mr.  Hammitt.  Now,  Congressman,  in  the  first  place 

Mr.  Fields  (interi)osing).  I  have  not  finished  mv  statement. 
Mr.  Hammitt.  All  right,  sir. 

Mr.  Fields.  We  want  to  come  again  to  the  moral  obligation  of  the  Congress 
and  the  Government  upon  a  contract  of  that  kind. 

Mr.  Hammitt.  But  you  are  not  going  to  leave  that  other  statement  in  the 
record   without  allowing  me  to  correct  the   facts   regarding  our  retainer  to 
Justice  Hughes.    It  was  not  a  general  retainer.    He  was  not  our  attorney. 
Mr.  Fields.  He  was  your  counsel  upon  this  proposition. 

Mr.  Hammitt.  As  to  the  matter  of  the  drafting  of  this  contract  our  attoruevs 
were  Messrs  Sullivan  &  Cromwell.  Justice  Hughes  was  called  in  solely  't«» 
advise  regarding  this  one  particular  point,  as  to  the  form  of  protection  'that 
we  could  receive,  and  I  do  not  want  t^  have  the  record  appear  that  Justice 
Hughes's  part  in  this  matter  was  any  greater  than  it  was.  Now,  I  think  that 
does  not  affect  your  subsequent  statement  at  all,  and  you  must  be  glad  to 
have  the  record  correct. 

Mr.  Fields.  Yes;  I  am  glad  to  have  you  make  that  statement,  because  it 
brings  out  anotJier  thought.  Messrs.  Sullivan  &  Cromwell  were  able  attorneys. 
I  assume,  or  they  would  not  have  been  in  the  employ  of  the  American  Cyana- 
mid Co. 

Mr.  HAMiiiTT.  Their  reputation  does  not  depend  upon  this  particular  re- 
tainer.   They  certainly  are  able  attorneys. 

Mr.  Fields.  But  for  some  particular  reason,  unknown  to  the  committee.  Mr. 
Justice  Hughes  was  called  in  for  consultation  upon  this  contract  or  upon  this 
particular  provision  of  the  contract. 

Mr.  Hammitt.  And  if  the  committee  does  not  know  the  reason,  I  would  like 
to  state  it  to  the  committee,  which  is  that  we  desired  to  have  the  verv  best 
legal  advice  on  that  point  we  could  get  in  the  United  States,  and  we  suggested, 
to  that  end,  the  retention  of  Justice  Hughes  to  advise  on  that  point  to  the  offi- 
cers of  the  Government,  and  found  that  it  was  satisfactory  to  them,  and  were  so 
advised  by  them,  and  thereupon  Justice  Hughes  was  called  in. 

Mr.  Fields.  Well,  Mr.  Hammitt,  you  evidently  had  a  lingering  suspicion  that 
you  were  about  to  involve  the  United  States  in  an  illegal  contract  or  at  least 
a  contract  about  which  there  was  a  great  deal  of  question  as  to  its  legalitv. 


MUSCLE   SHOALS  PROPOSITIONS. 


489 


Mr.  Hammitt.  No;  we  simply  had  a  very  difficult  problem  as  to  how  we 
should  i)rovide  the  kind  of  protection  that  the  American  Cyanamid  Co.  desired 
and  the  (Jovenimcnt  officers  agreed  it  should  have,  and  to  do  it  in  a  legal  way. 
We  had  never  had  any  expectation  of  writing  an  illegal  contract,  and  if  there 
had  been  any  doubt  whatever  at  that  time  as  to  the  legality  of  this  contract, 
after  the  matter  had  been  considered  by  the  attorneys,  we  would  have  sought 
our  protection  in  some  different  way  and  surely  would  have  found  a  legal  way. 

Mr.  Fields.  Well,  how  could  you  have  found  a  legal  way  other  tlian  to  liave 
come  to  Congress, 

Mr.  Hammitt.  Well,  wherever  we  would  have  had  to  go  or  whatever  we 
would  have  had  to  do,  I  am  perfectly  confident  that  we  would  have  found  a 
legal  way,  and  just  what  form  that  would  take  and  just  how  that  thing  would 
be  workeil  out  is  a  question,  as  you  have  observed,  that  very  able  attorneys 
were  engaged  upon,  and  not  being  an  attorney  of  any  sort  myself,  I  certainly 
do  not  want  at  this  time,  after  the  facts,  to  suggest  how  it  would  have  been 
done. 

Mr.  Fields.  Y'ou  would  not  have  refused  to  have  constructed  that  plant  for 
the  Government,  for  which  they  paid  you  $1,. 500,000,  if  the  Government  had  re- 
fused to  give  you  this  option,  would  you? 

Mr.  Hammitt.  As  to  the  construction  of  that  plant  for  which  we  have  re- 
ceived no  money  that  we  have  not  had  to  pay  back,  the  American  Cyanamid  Co., 
I  imagine,  if  faced  with  a  situation  where  that  thing  had  to  be  done,  in  a  way 
that  would  give  the  American  ('yanamid  Co.  no  protection  whatever  in  the 
future — in  other  words,  if  it  had  to  be  done  on  the  basis  of  the  American 
Cyanamid  Co.  paying  the  cost  of  the  war  at  the  expense  of  its  stockholders 
instead  of  its  being  paid  by  the  United  States  Government,  we  would  have  been 
faced  with  a  problem  that  I  confess  I  do  not  know  just  how  it  would  have  been 
worked  out,  but  I  am  very  strongly  impressed  with  the  fact  that  it  is  conceiv- 
al)le  that  under  those  circumstances,  without  any  protection  whatever,  the 
American  Cyanamid  Co.  would  have  felt  compelled  to  contribute  what  it  could 
contribute  and  trust  to  the  fairness  of  the  Government  in  the  future,  through 
its  legislative  as  well  as  its  executive  branches,  in  protecting  the  American 
Cyanamid  Co.  against  destruction  as  a  result  of  what  it  had  contributed.  Now, 
that  situation  we  did  not  face,  because  even  if  we  had  been  advised  that  this 
thing  was  invalid,  we  would  have  exhausted,  no  doubt,  the  possibilities  of  find- 
ing some  form  of  protection  that  would  have  been  clearly  valid.  Now,  just  what 
form  that  would  be,  as  I  said  before,  I  can  not  specify  or  speculate  regarding 
at  all,  but  I  know  that  we  would  have  looked  for  some  other  form  of  prote<*- 
tion  if  there  had  been  any  doubt  about  the  validity  of  this. 

Mr.  Fields.  Arti.'le  IV,  section  3,  clause  2,  «f  the  Constitution  reads  in  part : 

"  The  Congress  shall  have  power  to  dispo.se  of  and  make  all  needful  rules  and 
regulations  respecting  the  territory  or  property  belonging  to  the  United  States." 

Upon  your  contention  that  you  think  it  was  a  legal  contract,  do  you  mean  for 
the  record  to  show  that  you  contend  that  you  believe  that  Mr.  Justice  Hughes, 
for  many  years  an  Associate  Justice  of  the  Supreme  Court  of  the  United  States, 
was  not  familiar  with  that  clause  of  the  Constitution? 

Mr.  Hammitt.  No;  I  am  quite  sure  he  was  familiar  with  it. 

Mr.  Fields.  Then,  every  ^lember  of  Congress  at  the  beginning  of  each  session 
takes  an  oath  to  support  and  defend  the  Constitution ;  and,  in  view  of  the  fact 
that  your  chief  counsel  knew  that  the  Constitution  contained  that  language 
and  that  a  Member  of  Congress  takes  an  oath  to  support  and  defend  the  Constitu- 
tion, you  claim  that  this  contract  should  carry  more  moral  force  with  the  Con- 
gress that  the  Constitution  and  the  oath  that  they  have  taken  to  support  it. 

Mr.  Hammitt.  I  certainly  do  not  claim  that  any  contract  should  carry  more 
moral  or  binding  force  in  any  way  than  the  Constitution  of  the  United  States. 

Mr.  Fields.  Very  well.    I  am  glad  to  hear  you  say  that. 

Now,  in  regard  to  the  exercise  of  your  option.  It  seems  that — following  you 
as  carefully  as  I  can — there  is  hardly  any  course  that  the  Government  can  take 
in  line  with  the  principles  implied  hi  other  Government  contracts  or  with  the 
sound,  honorable  ethical  methods  of  business  that  will  enable  you  to  exercise 
your  option  :  just  what  would  the  Government  have  to  do? 

Mr.  Hammitt.  I  think  it  is  an  actual  fact.  Congressman,  and  this  is  undoubt- 
edly what  you  are  coming  to  in  your  consideration  of  the  matter;  that  that 
nitrates  plant  down  there  can  not  possibly  be  operated  by  the  American  Cyan- 
amid Co.  or  by  anybody  else  at  the  present  time  upon  a  commercial  basis 
without  sustaining  a  loss.     Therefore,  if  the  United  States  Government  is  to 


490 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


491 


provide  for  its  operation  on  a  commercial  basis,  the  United  States  Government 
must  bear  that  loss  or  somebody  else  must,  and  the  American  Cyanamid  Co  is 
unable  to  do  so. 

Mr.  Fields.  Well,  did  the  American  Cyanamid  Co.  have  that  thought  in  mind 
when  it  drew  this  contract? 

Mr.  Hammitt.  I  would  not  be  able  to  say  whether  the  American  Cyanamid 
Co.  at  that  time  was  able  to  project  as  to  what  the  situation  regarding  a  com- 
mercial operation  of  that  plant  would  be  after  the  war.  And,  right  at  that  point 
let  me  tell  you  one  reason  why  it  would  have  been  very  difficult  to  project  it' 
You  take  the  year  1914,  before  the  World  War,  and  you  take  the  wliole  history 
back  for  a  considerable  period  of  years  before  we  entered  into  the  World  War, 
the  amount  of  sulphate  of  ammonia  produced  in  the  United  States  in  those 
years  was  very  insufficient  to  meet  the  American  requirements,  and  we  were  im- 
iwrting  somewhere  from  60,000  to  100,000  tons  of  sulphate  of  ammonia  annually, 
mostly  from  Great  Britain.  Now,  along  came  the  war,  and  the  capacity  of  the 
by-product  coke  ovens  built  up  to  meet  war  needs  and  in  some  cases ' 

Mr.  Fields  (interposing).  Which  was  an  abnormal  condition,  of  course. 

Mr.  Hammitt  (continuing).  And  in  some  cases,  aided  with  the  advance  of 
Government  funds  for  that  purpose,  built  up  under  pressure  to  meet  war  needs,, 
so  expanded  the  American  production  that  it  went  up  from  approximately 
185,000  tons  to  500,000  tons;  and,  so,  in  the  year  1920  and  even  in  the  year  1921, 
with  the  steel  industry  very  largely  down,  we  have  had  a  surplus  of  sulphate- 
of  ammonia  in  the  United  States  for  export  and  have  exported  as  much  as 
approximately  125,000  tons  in  one  year,  instead  of  importing  100,000  tons. 

Mr.  Fields.  Oh,  yes ;  but  you  are  not  taking  into  consideration  the  depressed 
condition  in  agriculture  whereby  agriculture  did  not  consume  the  amount  of 
fertilizer  or  the  amount  of  ammonium  nitrate  that  it  did  under  normal  con- 
ditions. 

Mr.  Hammitt.  But  the  total  amount  of  consumption  of  ammonia  in  the 
United  States  in  the  most  banner  and  bumper  year  for  agriculture  and  for 
everj'thing  else  never  approached  the  present  production  capacity  of  the  by- 
product coke  ovens  and  the  gas  works,  and  we  have  become  a  large  exporting 
Nation.  And  there  is  another  thing  I  did  not  take  into  account  in  that  state- 
ment. The  same  expansion  in  that  industry  for  producing  ammonia  as  a  by- 
product which  occurred  in  the  United  States  during  the  war  also  occurred 
during  the  war  in  Germany.  It  occurred  during  the  war  in  England.  It  oc- 
curred during  the  war  in  France.  So  that  when  we  go  into  the  export  market 
with  our  surplus  products  we  are  meeting  an  over-expanded  industry  in  those 
other  countries ;  and  it  is  a  fact  that  you  are  paying  now,  if  you  buy  sulphate 
of  ammonia,  less  than  one-half  tlje  price  for  it  that  you  were  paying  for  it  a 
few  years  ago. 

Now,  I  am  not  sure  that  the  American  Cyanamid  Co.  engaged  at  that  time 
In  negotiation  with  the  United  States  Government  was  able  to  forecast  that 
situation,  and  therefore  I  am  not  at  all  sure  that  the  American  Cyanamid  Co. 
w^ould  have  been  able  to  say  at  that  time  that  after  the  war  it  was  not  prac- 
ticable to  operate  this  plant  on  a  commercial  basis;  but  we  can  say  it  now,, 
with  our  knowledge  of  the  facts. 

Mr.  Fields.  In  that  connection,  if  fertilizer  products  could  be  produced  more 
cheaply  than  they  have  been  produced,  that  would  naturally  increase  the  de- 
mand for  them  and  the  consumption  of  them  in  the  United  States,  would  it  not? 

Mr.  Hammitt.  Yes;  it  would.  I  think  that  is  undoubtedly  true.  I  think 
that  the  quantity  of  fertilizer  that  is  sold  is  very  materially  affected  by  the 
price,  and  I  think  that  that  matter  must  be  of  very  great  concern  to  the  fertilizer 
indu.stry,  which  at  the  present  time  has  a  capacity  in  this  country  of  10,000,000 
tons  and  has  a  market  of  less  than  5,000,000  tons. 

Mr.  Fields.  And  that  should  be  a  matter  of  great  concern  to  the  consumers 
and  users  of  fertilizer. 

Mr.  Hammitt.  It  certainly  should,  because  the  price  of  any  product  is  of 
importance  to  the  consumer. 

Mr.  Fields.  And  if,  by  any  method,  the  cost  of  production  can  be  lessened, 
the  users  of  fertilizer  certainly  must  be  entitled  to  some  consideration  in  an 
analysis  of  that  problem. 

Mr.  Hammitt.  Yes,  Congressman;  and  that  consideration,  I  think,  does  not 
extend  to  this  point:  I  do  not  think  that  the  money  of  the  taxpayers  should 
be  taken  out  of  the  United  States  Treasury  to  make  up  the  losses  of  a  manu- 
facturing operation  in  order  to  dump  more  sulphate  of  ammonia  on  the  market  in 
order  to  depress  the  price  of  sulphate  of  ammonia  still  further.    That  I  do  not 


think  should  be  done  even  for  the  purpose  of  reducing  the  pric^  of  fertilizer. 
Now,  th'at  is  irrespective  of  the  question  of  what  effect  that  would  have  upon 
the  price  of  the  fertilizers,  which  would  be  exceedingly  small ;  but  if  you  are 
going  to  attempt  to  examine  me  on  a  fertilizer  question,  let  me  take  you  further 
into  my  confidence  and  say  I  am  not  a  fertilizer  manufacturer.  I  do  not  know 
anything  about  fertilizer  manufacturing  except  in  a  very  general  way.  I  am 
engaged  in  a  chemical  manufacturing  business,  one  of  whose  products  goes 
into  the  fertilizer  industry,  but  my  knowledge  of  the  fertilizer  industry  is 
extremely  general,  and  I  think  it  would  be  to  the  interest  of  this  committee, 
if  it  wants  to  examine  into  a  fertilizer  question,  to  call  before  it  somebody— 
and  the  committee  has  not  had  anybody  here  yet— who  has  had  some  practical 
experience  in  the  manufacture  of  fertilizer. 

Mr.  Fields.  I  had  no  thought  of  going  into  that. 

Mr.  Hammitt.  I  do  not  want  to  qualify  as  a  fertilizer  manufacturer. 

Mr.  Fields.  Your  reference  to  the  price  of  sulphate  of  ammonia  led  to  the 
question  I  asked,  but  let  us  get  back  to  plant  No.  2.  I  would  like  to  under- 
stand, if  possible,  just  how  you  expect  the  Government  to  proceed  to  make  a 
proposition  to  .sell  this  plant  to  the  Air  Nitrates  Corporation.  I  have  never 
been  able  to  get  that  straightened  out  in  my  mind  from  your  statements,  and 
I  am  very  anxious  to  do  that. 

Mr.  Hammitt.  Now,  of  cour.se,  the  United  States  will  have  to  adopt  its  own 
methods,  and  would  not  necessarily  accept  what  I  think,  personally,  would 
be  the  most  satisfactory  method,  but  whatever  method  it  adopts,  and  I  am  per- 
fectly willing  to  suggest  what  I  think  would  be  the  most  satisfactory  method 
t)efore  I  get  through ;  but  first  let  us  lay  down  the  general  principles,  that  un- 
der this  provision  of  the  contract  the  first  thing  the  United  States  must  do 
must  be,  in  some  form  or  other,  to  reach  a  decision  to  dispose  of  the  plant. 
Then  having  reached  that  decision  it  must  communicate  in  writing,  through 
whatever  body  it  sets  up  as  the  proper  authority  to  do  that,  to  the  Air  Nitrates 
Corporation  the  fact  of  its  determination  to  dispose  of  its  plant,  and  the  mate- 
rial terms  upon  which  such  disposition  will  be  made,  and  then  the  Air  Nitrates 
Corporation  has  something  before  it  to  consider,  something  that  can  be  con- 
sidered by  its  directors  and  its  stockholders,  and  something  that  can  be  con- 
sidered by  the  bankers ;  and  it  is  to  have  a  reasonable  time  for  such  considera- 
tion, and  such  reasonable  time  is  not  to  exceed  six  months,  and  I  do  not  think 
the  reasonable  time  will  reach  six  months,  because  a  matter  of  that  sort  will 
receive  very  prompt  and  very  thoroughgoing  consideration,  and  we  will  start  out 
with  a  considerable  knowledge  of  what  the  capabilities  and  the  limitations  of 
the  plant  are.  ^ 

Mr.  Fields.  Judging  from  what  you  have  said  here,  and  what  you  said  on 
yesterday,  I  gather  that  you  contend  for  the  right  to  compete  with  any  offer 
made  by  any  other  individual  or  corporation. 

Mr.  Hammitt.  Well,  we  contend  for  rather  more  than  that. 

Mr.  Fields.  All  right;  what  is  it? 

Mr.  Hammitt.  We  contend  for  the  right  to  purchase  that  plant  on  as  favor- 
able terms  as  the  Government  is  willing  to  make  with  somebody  else.  That  is, 
if  it  is  between  us  and  the  other  fellow,  and  we  are  each  of  us  willing  to  offer 
precisely  the  same  terms,  there  is  not  any  competition  under  this  provision 
of  the  contract;  we  get  the  plant. 

Mr.  Fields.  That  is  the  point  I  wanted  to  bring  out.  Suppose  the  Govern- 
ment should  say  to  you,  "We  have  determined  to  sell  this  plant  to  Mr.  Ford 
for  a  certain  price,"  we  will  say  the  approximate  salvage  value,  $7,000,000,  and 
you  come  in  and  say,  "  We  are  going  to  exercise  our  option."  Then  somebody  of- 
fers $10,000,000  for  it,  and  somebody  else  $12,000,000.  Do  you  expect  the  Govern- 
ment to  hold  it  open  for  you  and  to  give  you  a  chance  to  compete  with  the 
other  man  after  he  has  offered  his  bid?  Do  you  contend  that  the  Government 
should  not  permit  others  to  bid,  if  they  wanted  to  do  so,  and  would  not  that 
be  a  one-sided  proposition? 

Mr.  Hammitt.  Well,  as  to  whether  that  offer,  delivered  to  Air  Nitrates  Cor- 
poration, at  the  $7,000,000  price  could  subsequently  be  withdrawn  by  the  Gov- 
ernment before  it  was  accepted,  being  an  entirely  new  point  which  I  have 
never  given  any  consideration  to,  I  would  not  want  to  make  any  statement  upon  it. 
I  think  that  matter  would  have  to  be  considered  by  an  attorney,  and  I  think 
your  judgment  on  that,  for  I  judge  you  are  an  attorney,  would  be  better  tlmn 
mine. 

Mr.  Fields.  No  ;  I  am  not  an  attorney. 


11 


I 


,  rt 


492 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


493 


Now,  I  believe  that  j;oii  recommended  that  this  nitrate  plant  No.  2  be  main- 
tained by  the  Government  in  an  idle,  stand-by  condition. 

Mr.  Hammitt.  I  think  that  is  the  best  disposition  to  make  of  that  plant  at 
the  present  time;  yes,  sir. 

Mr.  Fields.  And  that  it  be  maintained  indefinitely  in  an  idle,  stand-by  con- 
dition for  the  use  of  the  Government  in  case  of  emergency. 

Mr.  HAMiiiTT.  Yes;  and  by  "indefinitely"  I  mean  until  such  time  as  it  is 
practicable  to  operate  that  plant  on  a  commercial  basis  without  loss 

Mr.  Fields.  Then,  getting  right  down  to  the  milk  in  the  coconut,  vou  are 
not  seeking  a  chance  to  exercise  your  option,  but  you  desire  to  have  the  Gov- 
ernment hold  this  plant  in  an  idle,  stand-by  condition,  holding  it  out  of  com- 
petition with  the  American  Cyanamid  Co.,  at  an  expense  of  approximately 
?>200,()(X)  a  year. 

Mr.  Hammitt.  There  are  several  parts  to  that  question,  and  I  have  been 
over  this  so  frequently  that  I  thought  my  position  was  thoroughly  clear;  but 
let  us  go  over  it  again  briefly.  In  the  first  place,  we  think  the  best  thing  the 
(;<»vernment  can  do  with  the  plant  at  the  present  time  is  to  keep  it  in  stand-by 
condition,  and  the  testimony  you  have  had  from  the  Ordnance  Department  does 
not  say  that  that  costs  $200,000,  but  is  now  costing  $125,000  a  vear,  and  that  the 
proposition  is  self-sustaining  in  view  of  the  fact  that  a  part  of  that  plant  is 
rente<l  to  the  Alabama  Power  Co.  for  a  minimum  of  $120,000  a  vear,  plus 
something  per  kilowatt  hour,  so  that  it  does  not  need  to  cost  the  Government 
a  cent. 

:Mr.  Fields.  But  in  order  to  get  that  result 

Mr.  Hammitt.  If  you  want  me  to  answer  your  question  fully- 


im 


Mr.  Fields.  I  do  not  want  your  statement  to  go  in  the  record  uncorrected. 
In  order  to  get  the  result,  to  which  you  refer,  they  would  also  have  to  main- 
tain and  operate  or  lease  the  properties  that  the  Government  owns  in  con- 
junction with  the  Alabama  Power  Co.,  the  steam  plant,  etc.,  to  reach  that 
figure;  and  if  the  plant  was  maintained  as  an  individual  proposition,  in  an 
idle,  stand-by  condition,  it  would  cost,  according  to  the  figures  in  the  record 
approximately  $200,000  a  year.    Last  year  it  cost  us  $201,647. 

Mr.  Hammitt.  My  recollection  is  different  as  to  the  present  cost  of  main- 
taining the  plant,  but  assuming  it  is  what  you  say,  and  assume  in  order  to^ 
make 

Mr.  Fields  (interposing).  It  was  less  because  there  were  certain  credits 
added  from  certain  incomes. 

Mr.  Hammitt.  Now,  let  us  assume,  as  you  state,  that  in  order  to  make  the 
property  self-sustaining  it  is  necessary  to  lease  the  steam  plant.  I  certainly 
would  lease  that  steam  plant  if  I  could  get  an  income  out  of  it  rather  than 
keep  that  steam  plant  in  idleness.  As  a  matter  of  fact,  if  I  could  lease  the 
nitrate  plant  on  a  basis  on  which  the  Government  would  get  an  income  out 
of  it,  instead  of  keeping  it  in  idleness,  I  would  recommend  leasing  the  nitrate 
plant.  When  I  say  that  I  think  the  best  thing  to  do  with  the  nitrate  plant  is 
to  keep  it  in  the  stand-by  condition,  it  is  because  I  do  not  believe  you  can  make 
any  other  disposition  of  it  unless  you  go  into  the  Government  treasury  to  make 
up  somebody's  losses.  Now,  we  do  not  recommend  that  you  give  a  subsidy  to 
anybody  to  operate  that  nitrate  plant,  but  if  you  are  going  to  give  a  subsidy 
to  somebody  on  condition  that  he  operate  that  plant,  we  want  an  opportunity 
to  get  that  subsidy  on  as  favorable  terms  as  anybody  gets  it,  and  we  believe 
that  that  is  the  obligation  to  us  under  this  contract. 

Mr.  Fields.  You  say  you  would  recommend  first  that  it  be  leased.    Suppose- 
that  in  the  proposal  of  Mr.  Ford  he  proposed  to  least  nitrate  plant  No.  2  instead 
of  i»urchasing  it,  would  you  then  approve  of  the  Ford  proposition? 

Mr.  Hammitt.  I  would  not  approve  the  Ford  proposition,  but  it  would  not  vio- 
late article  19  of  our  contract. 

Mr.  Fields.  But  you  would  not  even  then  approve  the  Ford  proposition? 

Mr.  Hammitt.  I  certainly  would  not  approve  of  any  i)roposit:on  tliat  involves 
the  United  States  Government  adding  out  of  the  Public  Treasury  a  particular 
manufacturer  to  compete  with  private  industry,  and  that  is  what  the  Ford 
proposition  involves. 

Mr.  Fields.  Now,  you  have  emphasized  the  fact  three  or  four  times  that  the 
(Jovernment  would  be  subsidizing  Mr.  Ford,  because  the  power  producetl  at 
Muscle  Shoals  would  be  the  cheapest  in  all  the  country,  and  yet  Mr.  Duke,  a 
very  prominent  figure  in  your  company,  I  assume,  and  Mr.  Lee,  of  the  Southern 
Power  Co.,  and  the  representatives  of  the  four  southern  power  companies  that 
wrote   the   War  Department   nrotesting   against   the   development  of  Muscle 


Shoals,  all  stated— jind  I  referred  to  that  awliile  ago— that  the  development  of 
power  at  Muscle  Shoals  was  impracticable,  and  Mr.  Duke  went  so  far  as  to  siiy 
rhat  if  the  Government  will  build  its  transmission  line  over  to  North  Carolina 
"  we  will  sell  them  power  there  cheaper  " — I  do  not  remember  the  figures  right 
now,  but  considerably  cheaper  than  it  can  be  produced  at  Muscle  Shoals.  They 
(hariicterized  the  wliole  proposition  as  foolish  on  the  part  of  the  Government, 
because  the  power  could  not  be  produced  cheaply,  and  now  you,  associate(i 
with  those  gentlemen  or  some  of  them,  say  that  it  can  be  produced  so 
cheaply  that  it  would  be  a  subsidy  to  Mr.  Ford.  I  am  frank  to  say  I  can  not 
understand  the  reasoning  of  you  gentlemen.  If  you  are  correct,  why  did  these 
other  gentlemen  make  that  representation  to  the  Government ;  and  if  they  are 
correct,  your  premise  is  entirely  wrong. 

Mr.  Hammitt.  Now,  if  you  can  not  understand  that.  Congressman,  let  me 
nssist  you  a  little  bit.  I  never  read  the  letter  of  Mr.  Duke  until  I  saw  it  in  the 
record  of  the  hearings  before  this  committee  the  other  day.  I  have,  perhaps, 
not  a  very  detailed  recollection  of  what  the  letter  stated,  but  just  taking  your 
(►utline  of  it  and  assuming  that  to  be  correct,  what  Mr.  Duke  says  is  that  if  you 
take  that  power  at  Muscle  Shoals  aiid  you  transmit  it  over  to  the  territory  of 
the  Southern  Power  Co.,  which  is  400  miles  away,  that  by  the  time  you  have  put 
that  amount  of  transmission  cost  into  it,  on  top  of  the  actual  cost  of  developing 
it.  it  will  be  more  expensive  in  the  territory  of  the  Southern  Power  Co.  in  North 
and  South  Carolina  than  the  power  they  could  develop  in  North  and  South  Caro- 
lina by  making  a  similar  investment  there.  Now,  that  is  what  he  said,  accord- 
ing to  your  outline.    I  believe  that  is  what  he  said  in  his  letter. 

Mr.  Fields.  Yes. 

Mr.  Hammitt.  Now,  in  the  case  of  Mr.  Ford,  Mr.  Ford  does  not  propose  to 
develop  this  power.  What  Mr.  Ford  proposes  is  that  the  United  States  Gov- 
ernment develop  it. 

Mr.  Fields.  But  the  point  I  am  making  is  that  Mr.  Ford 

:Mr.  Hammitt  (continuing).  And  then,  after  the  United  States  Government 
<levelops  it,  he  proposes  that  the  United  States  Government  insure  it,  and  that 
every  bit  of  indefinite  obligation  regarding  it  which  he  can  not  measure,  shall 
!»e  carrieil  by  the  United  States  Government,  and  he  proposes  even  to  require 
the  United  States  Government  to  put  in  more  electrical  generating  equipment 
than,  except  <luring  very  brief  periods  of  the  year,  could  be  used,  and  then  he 
proposes  to  pay  the  United  States  Government  a  definite,  fixed  rental  for  it. 

Now,  you  have  had  an  analysis  of  how  Mr.  Ford  comes  out  on  that  proposi- 
tion made  by  a  very  eminent  water-power  engineer  on  whose  judgment,  by  the 
way,  I  think  it  has  been  the  habit  of  congressional  committees  to  rely  rather 
more  than  even  on  the  judgment  of  Mr.  Duke. 

Mr.  Fields.  I  will  say  that  while  listening  to  that  testimony,  I  thought 

^Ir.  Hammitt  (continuing).  And  upon  analysis — do  you  want  to  permit  me 
to  finish  my  sentence? 

Mr.  Fields.  All  right;  go  ahead  and  finish  your  statement. 

Mr.  Hammitt.  And  upon  that  analysis  it  must  be  perfectly  apparent  to  the 
committee  that  Mr.  Ford  is  getting,  if  he  gets  this  proposition  accepte<l.  the 
cheapest  power  on  the  American  Continent,  and  getting  it  at  the  expense  of  the 
United  States  Treasury. 

Mr.  Fields.  But  it  still  remains  true  that  Mr.  Duke  contended  in  his  letter 
that  power  could  be  sold  more  cheaply  in  North  Carolina  than  it  could  be  pro- 
duced at  Muscle  Shoals. 

^Ir.  Hammitt.  No;  he  never  said  anything  of  the  sort. 

Mr.  Fields.  Well,  his  letter  speaks  for  itself. 

^Ir.  Hammitt.  Yes;  his  letter  speaks  for  itself. 

Mr.  Fields.  And  it  is  in  the  record. 

Mr.  Hammitt.  Yes,  sir. 

Mr.  Fields.  Now,  you  have  repeatedly  said  that  Mr.  Ford  could  not  pnxluce 
fertilizer  there  and  compete  with  the  other  fertilizer  manufacturers.  If  he 
can  not,  why  fear  him  as  a  competitor?  . 

Mr.  Hammitt.  Because  his  losses  would  be  made  up  out  of  the  Government 
Treasury,  in  the  first  place.  That  is  the  main  point.  I  have  never  said  that 
Mr.  Ford  could  not  operate  that  plant  and  make  fertilizer  and  sell  it  at  a  loss, 
provided  he  could  put  one  hand  into  the  Government  Treasury  to  dip  out  an 
amount  sufl[icient  to  make  up  that  loss  and  pay  him  a  profit  on  top  of  that. 

Mr.  Fields.  I  can  not  agree  with  you  that  he  is  putting  one  hand  into  the 
Treasury.  He  is  paying  interest  upon  the  investment  essential  to  the  comple- 
tion of  it,  and  if  we  do  not  go  on  and  complete  it,  if  we  take  the  advice  of  vour 


494 


MUSCLE   SHOALS  PROPOSITIOIs'S. 


Mr  Duke^and  do  not  complete  it,  we  lose  all  we  have  put  in  so  it  i«!  e-nno 
anyhow;  and  if  we  go  ahead  and  complete  it  Mr.  Ford  pa/s  4  per  cent  interest 
fo  comp"  '""  connection  thei-ewith,  upon  the  amount  necessary 

Mr.  Hammitt.  Well,  all  I  can  say  regarding  that,  Congressman    is  that  mv 
analysis  of  the  Ford  proposition  and  your  analysis  differ  ^ 

Mr.  Fields.  I  think  they  do.     On  yesterday  you  stated,  Mr.  Hammitt.  it  was 
your  understanding  that  the  Secretary  of  War  would  not  have  sent  tie  Ford 
proposition  to  Congress  if  he  had  believed  it  would  be  accepted  by  the  Consi-pss 
I  am  sort  of  curious  to  know  how  you  reached  that  understanding 

nof  an"r"ofYt  a't X'toe.'""'  ''  '  ""'^  '"^  ^"^'  ^^^^^"^"^  ^«  ^^^^  ^  --^ 
Mr.  Fields.  I  am  quite  sure  you  did. 

T  ^L^'^^^T'i^  ^  ^.^^^  ""^y  ^"^^'  statement  I  want  to  withdraw  it  because 
I  have  no  such  thought.  ucv,au»e 

Mr.  Fields.  I  noticed  it  created  a  great  deal  of  interest  in  the  room,  and 

Thnf  H?  ^l  ^"f  """^  ^?  ^^""''^  ^''^\  ^^''^  ^''^"  ^^^^  «"i^^l  at  that  understanding 
that  the  SecretaiT  of  War  would  not  have  sent  Mr.  Ford's  proposition  to 
Congress  if  he  had  thought  it  would  have  been  accepted  uyosiuon  to 

Mr.  Hammitt.  If  I  made  any  such  statement  I  hope  I  mav  have  an  oDDor- 
tunity  to  eliminate  it  from  the  record,  because  I  certainly  had^io  such  thoK 

Mr.  Fields.  That  statement  was  made,  and  I  shall  object  to  its  being  wf- 
drawn.    If  necessary,  I  will  call  for  the  stenographer's  notes 

Mr.  Wright.  If  he  wants  to  explain  it,  that  is  all  right. 
T  ^  Hammitt.  Let  me  say  this :  I  do  not  believe  I  ever  made  such  a  statement 
I  do  not  believe  you  will  find  it  in  the  stenographer's  notes.  But  if  I  did  make 
'^LIJ^T  ."^^^^^^^'^^  ^^n^  anything  I  believe,  and  if  I  made  it  I  must  have 
been  suffering  from  some  kind  of  mental  aphasia  when  I  made  it.  I  do  not  want 
the  statement  to  appear  as  representing  my  views.  I  do  not  believe  I  ever 
made  it,  or  that  anybody  ever  got  it  from  anvthing  I  said 

The  Chairman.  The  stenographer's  notes  will  show  what  was  said 

Mr.  Crowther.  It  seems  to  me,  Mr.  Chairman,  that  the  gentleman  ought  to 
have  a  chance  at  lenst  to  explain  it.    Very  frequentlv,  during  the  course  of  our 
hearings,  when  a  Member  makes  an  unusual  statement,  he  Ssks  thai  ft  be  no 
for  record     When  we  reserve  to  ourselves  this  unusual  privilege,  it  set^ms  to  me 
It  IS  only  fair  to  extend  the  same  privilege  to  the  witness 

statme^nTXt  wa'made'""'  ""''"' ^   '  "''^^  ^^^'^"^  ^''  explanation  of  the. 

Mr.  Hammitt.  My  explanation  would  be  that  it  is  not  true 
.h^r!^-.^^'''^-  ^f,  ^i^^  statement  was  made,  the  notes  of  the  reporter  will 
show  it,  and  we  will  have  the  transcript  of  the  notes  in  order  to  determine 
just  exactly  what  was  said.    But  I  think  in  all  fairness,  the  witness's  attention 
having  been  called  to  the  alleged  statement,  he  should  have  a  right  to  explahl 

Mr  Fields.  I  do  not  object  to  that,  Mr.  Chairman.    I  do  object  to  its  beinsr 
irformaSon  '"'"  """''"''-    ^^  ^^'^  ^  P^^'""'  ''^'''  *^  ^^^^^^^  it     I  wan\  some 

Mr.  Parker.  Can  he  not  take  it  back  now  and  say  he  did  not  mean  it' 

«  ^ofSf^^"^!;.  hi'MT''^  "k1  f^"**'"^  ^  ^''''^  yesterday  and  says  he  has  stated 
a  fact  to-daj.  he  has  the  right  to  say  so.    That  is  always  the  rule  in  regard  to 
evidence.    A  witness  can  say  that  he  was  not  telling  the  truth  on  vesterdav 
and  that  to-day  he  is  telling  the  truth.  yesieraay. 

The  Chairman.  I  do  not  think  that  is  quite  fair. 

^h«I'';iP^??'^-  ^^l  }^^!^  ^^'^  statement  he  made  yesterday  was  not  correct  and 
that  the  statement  he  is  making  to-day  is  correct  ^"^xeci,  aim 

.^^  Chairman.  That  is  a  little  better,  because,  after  all,  when  a  gentleman 
appears  before  a  committee  like  this  committee  he  certainly  should  be  treated 
with  proper  respect.  If  he  has  made  a  statement  and  it  is  'fthe  record  and 
subsequently  his  attention  is  called  to  it  and  he  says  it  was  wrong,  he  can  inlke 
any  explanation  of  it  that  he  thinks  is  necessary. 

Mr.  Fields.  An  explanation  was  what  I  was  asking  for 
«  Jk^  Chairman.  He  should  be  allowed  to  correct  the  statement,  but  he  should 
not  be  allowed  to  w  thdraw  the  statement. 

Mr.  Fieij)s.  Frequently  in  the  revision  of  remarks,  when  a  question  has  not 
been  raised,  statements  are  often  withdrawn. 

The  Chairman.  Of  course,  some  men  make  statements  when  they  correct 
the  transcript  for  printing— put    n  things  they  never  said  at  all. 


MUSCLE   SHOALS  PROPOSITIONS. 


495 


i 


Mr.  Fields.  And  they  withdraw  some  things  that  they  did  say. 

The  Chairman.  Yes. 

Mr.  Green.  May  I  suggest  that  all  of  this  colloquy  is  based,  not  upon  the 
record  but  upon  somebody's  recollection  of  the  record.  We  will  not  get  any- 
where until  we  have  the  record  before  us,  and  then  we  can  see  whether  it  was 
said  or  not. 

The  Chairman.  I  have  said  the  record  will  be  transcribed  by  the  reporters 
as  speedily  as  possible,  and  we  will  find  out  exactly  what  was  said  at  yester- 
day's hearing. 

Mr.  Fields.,  I  am  through,  Mr.  Chairman. 

Mr.  QuiN.  Mr,  Hammitt,  where  are  you  from,  please,  sir;  what  State? 

Mr.  Hammitt.  New  York. 

Mr.  QuiN.  Reared  there? 

Mr.  Hammitt.  Yes,  sir. 

Mr.  QuiN.  Who  were  the  10  gentlemen  who  composed  the  organization  of  the 
Air  Nitrates  Corporation?    Give  their  names. 

Mr.  Hammitt.  I  think  you  are  referring.  Congressman,  to  the  10  men  whose 
services  were  delivered  to  the  Government  without  charge  under  the  Air  Ni- 
trates Corporation's  contract.  Those  men  did  not  form  the  Air  Nitrates  Cor- 
poration, as  I  explained  yesterday,  but  it  was  formed  by  the  American  Cyana- 
mid  Co. 

Mr.  QuiN.  Who  were  the  10  stockholders  of  that  corporation?  The  testimony 
is  that  there  were  10  stockholders  who  put  in  $100  each. 

Mr.  Hammitt.  That  testimony  is  in  error.  There  is  only  one  stockholder 
and  that  is  the  American  Cyanamid  Co.,  and  that  stockholder  owns  all  the  stock. 
None  of  these  10  men  to  whom  you  refer  owns  a  dollar  of  stock  in  the  Air 
Nitrates  Corporation,  ever  received  a  dollar  of  compensation  from  the  Air  Ni- 
trates Corporation,  or  ever  has  had  or  will  have  any  interest  in  any  possible 
profits  of  the  Air  Nitrates  Corporation  unless  he  gets  it  as  a  stockholder  of  the 
American  Cyanamid  Co. 

Mr.  QuiN.  Please  give  us  the  names  of  those  10  men  you  speak  of. 

Mr.  Hammitt.  Those  10  men  are  Mr.  Frank  S.  Washburn,  whose  address  is 
Rye,  N.  Y. ;  Mr.  K.  F.  Cooper,  whose  address  is  Great  Neck,  Long  Island,  N.  Y. ; 
Mr.  O.  G.  Bond,  whose  address  is  at  Great  Neck ;  Mr.  George  A.  Hendrie,  whose 
address  is  Great  Neck ;  Mr.  W.  S.  Stoll,  whose  address  is  Rye,  N.  Y. ;  Mr.  W.  S. 
Landis,  whose  address  is  New  York  City ;  Mr.  George  E.  Cox,  whose  address  at 
that  time  was  Niagara  Falls,  N.  Y. ;  Mr.  J.  J.  Elbert,  now  deceased ;  and  Mr. 
R.  C.  Greene,  whose  address  I  think  is  New  York  City. 

Mr.  QuiN.  Was  Mr.  Cooper  the  same  gentleman,  the  engineer,  who  testified 
before  this  committee  a  few  days  ago? 

Mr.  Hammitt.  No,  sir. 

Mr.  QuiN.  They  are  different  men? 

Mr.  Hammitt.  Entirely  different  men,  and  they  are  not  related  to  each  other 
in  any  way  whatever.  You  heard  Mr.  Hugh  L.  Cooper,  and  this  gentleman  I 
just  referred  to  is  Mr.  Kenneth  F.  Cooper. 

Mr.  QuiN.  What  time  did  Mr.  Washburn  cease  to  be  president  of  the  Alabama 
Power  Co.,  if  you  know? 

Mr.  Hammitt.  I  would  like,  if  you  want  to  get  that  date  accurately,  to  look 
it  up  for  you.    I  think  it  probably  was  in  1914  or  1915. 

Mr.  QuiN.  What  company  did  you  leave  to  go  with  the  American  Cyanamid 
Co.? 

Mr.  Hammitt.  I  was  engaged  immediately  before  I  entered  the  employ  of  the 
American  Cyanamid  Co. — I  was  employed  by  Air  Nitrates  Corporation ;  immedi- 
ately before  I  went  to  the  Air  Nitrates  Corporation  I  was  engaged  in  an  elec- 
trical manufacturing  business  in  which  I  was  a  stockholder,  a  very  small  busi- 
ness. 

Mr.  QuiN.  You  have  been  with  the  American  Cyanamid  Co.  sin(^e  the  opera- 
tion of  the  Air  Nitrates  Corporation  began  at  Muscle  Shoals? 

Mr.  Hammitt.  Yes,  sir.  I  spent  about  seven  months  at  Muscle  Shoals  on  the 
construction  of  the  Muscle  Shoals  nitrate  plant. 

Mr.  QuiN.  How  long  a  time  was  the  Air  Nitrates  Corporation  engaged  in  its 
designing  and  construction  work  at  Muscle  Shoals? 

Mr.  Hammitt.  The  work  began  in  November,  1917— that  is,  the  work  of 
designing.  The  first  ground  was  broken,  as  I  remember,  in  March,  1918.  The 
construction  was  substantially  completed  and  the  first  product  came  through 
the  plant,  as  I  remember  it,  in  November,  1918.  There  was  a  test  operation 
after  that,  and  a  certain  amount  of  finishing-up  work  that  ran  over  into  the 
92900—22 32 


* 
* 


496 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


497 


spring  df  1919.  Now,  I  should  say  there  were  probably  15  or  16  or  17  months 
something  of  that  sort,  spent  on  that  work  altogether. 

Mr.  QuiN.  The  Virginia-Carolina  Chemical  Co.  and  Mr.  Duke  own  a  majority 
of  the  stock  of  the  American  Cyanamid  Co.  do  they  not? 

Mr.  Hammitt.  No;  if  you  add  their  stockholdings  together  you  get  a  very 
small  fraction  under  one-half. 

Mr.  QuiN.  What  stock  did  Mr.  Washburn  own  in  the  American  Cyanamid  Co  ' 

Mr.  Hammitt.  I  do  not  know. 

Mr.  QuiN.  He  owns  considerable  stock,  I  presume,  being  president  of  the 
company. 

Mr.  Hammitt.  I  do  not  know  the  extent  of  his  stockholdings. 

Mr.  QuiN.  Is  that  the  same  Mr.  Duke  who  sent  the  communication  to  Gen 
Beach,  Chief  of  Engineers,  of  the  War  Department,  as  testified  during  these 
hearings? 

Mr.  Hammitt.  Yes;  and  he  sent  that  communication  as  the  president  of  a 
power  company. 

Mr.  QuiN.  Of  the  Southern  Power  Co.? 

Mr.  Hammitt.  Yes,  sir. 

Mr.  QuiN.  The  Southern  Power  Co.  is  linked  up  with  the  Virginia-Carolina 
Chemical  Co.,  is  it  not? 

Mr.  Hammitt.  Not  in  any  way  that  I  know  of. 

Mr.  QuiN.  Is  not  the  Virginia-Carolina  Chemical  Co.  the  big  high  priest  in 
the  fertilizer  combination  or  trust? 

Mr.  Hammitt.  It  is  one  of  the  largest  fertilizer  manufacturing  companies 
I  do  not  believe  that  under  the  usual  definition  of  a  trust  there  is  such  a  thing 
as  a  fertilizer  trust. 

Mr.  QuiN.  It  is  too  cheap,  I  suppose? 

Mr.  Hammitt.  You  mean  the  fertilizer  is  too  cheap? 

Mr.  QuiN.  Yes. 

Mr.  Hammitt.  I  do  not  think  that  has  very  much  to  do  with  it.  I  think  tlie 
point  is  that  there  are  a  great  many  different  fertilizer  manufacturers,  and  one 
of  the  largest  of  them  is  the  Virginia-Carolina  Chemical  Co. 

Mr.  QuiN.  With  Mr.  Duke's  connection  with  your  company,  and  the  Virginia- 
Carolina  Chemical  Co.  having  all  that  stock  in  it,  they  naturally  have  a  domi- 
nating influence  in  the  American  Cyanamid  Co.,  do  they  not?     ' 

Mr.  Hammitt.  I  have  no  knowledge  of  Mr.  Duke's  connection  with  the  Vir- 
ginia-Carolina Chemical  Co.  Where  did  you  get  that,  Congressman?  I  do  not 
remember  anything  about  that.  I  certainly  have  not  given  any  evidence  to  the 
effect  that  Mr.  Duke  controls  the  Virginia-Carolina  Chemical  Co.,  and  to  the 
best  of  our  knowledge  he  does  not.     I  do  not  know  of  any  such  connection. 

Mr.  QuiN.  These  concerns  are  all  hostile  to  the  Government  completion  of 
that  business  and  the  acceptance  of  Mr.  Ford's  proposition  to  take  over  and 
operate  that  plant,  are  they  not? 

Mr.  Hammitt.  I  do  not  know  the  attitude  of  the  other  companies,  besides  the 
American  Cyanamid  Co.  and  the  Air  Nitrates  Corporation.  I  should  think  the 
Virginia-Carolina  Chemical  Co.  would  be  very  much  concerned  about  any  propo- 
sition to  introduce  a  Government-subsidized  competition  into  the  fertilizer 
industry,  but  I  can  not  figure  out  any  particular  reason  for  any  special  interest 
in  the  Ford  offer  on  the  part  of  the  Southern  Power  Co.  I  do  not  really  know 
what  their  attitude  is. 

Mr.  QuiN.  The  proper  department  of  the  Government  issued  an  invitation  for 
all  who  will  to  come  and  bid  on  that  Muscle  Shoals  property,  did  it  not?  That 
was  a  general  invitation? 

Mr.  Hammitt.  It  was  advertised  as  a  general  invitation,  and  a  special  invita- 
tion was  sent  to  quite  a  considerable  number  of  companies. 

Mr.  QriN.  And  Mr.  Ford  is  the  only  one  of  all  the  concerns  in  the  United 
States  who  made  a  concrete  proposition  to  the  Government,  and  that  is  before 
this  committee  at  this  ime;  is  that  not  true? 

Mr.  Hammitt.  My  understanding  is  that  there  are  other  propositions,  but 
that  is  the  only  one  now  before  the  committee. 

Mr.  Qrix.  I  mean  it  was  the  only  one  before  the  committee  up  to  the  time  the 
committee  began  to  consider  it? 

Mr.  Hammitt.  I  understand  that  is  the  only  one  before  the  committee. 

Mr.  QuiN.  Mr.  Ford,  through  his  representatives,  testified  here  that  this  plant 
could  produce  fertilizer  at  50  per  cent  less  than  it  is  being  produced  for  to-day, 
and  you  gentlemen  contradict  that.  What  basis  have  you  for  your  contradiction 
of  what  his  experts  say? 


Mr.  Hammitt.  We  have  not  said  Mr.  Ford  could  not  make  fertilizer  at  Muscle 
Shoals  at  any  particular  price,  but  we  have  said  we  do  not  believe  that  there 
is  any  way  that  the  Muscle  Shoals  nitrate  plant  could  be  effectively  used  for  the 
production  of  fertilizer  on  a  basis  on  which  you  can  sell  your  product  in  the 
American  market  without  sustaining  a  loss.  We  do  not  want  to  enter  into 
any  controversy  with  Mr.  Ford  regarding  any  plans  he  has.  We  just  express 
our  opinion  that  we  do  not  think  that  he  can  make  a  profit  out  of  the  operation 
of  the  nitrate  plant,  and  he  has  expressed  the  view  that  unless  he  makes  a  profit 
he  will  stop  operating. 

I  have  explained  in  considerable  detail  to  the  committee,  and  I  am  answering 
in  that  way  because  I  do  not  believe  you  want  me  to  go  all  over  it  again,  what 
I  think  the  plant  will  produce,  and  what  market  they  have,  and  what  it  will 
cost  for  the  production.    I  do  not  believe  you  want  me  to  go  over  that  again. 
Mr.  QuiN.  Mr.  Ford  is  backing  up  his  talk  with  money,  is  he  not? 
Mr.  Hammitt.  I  do  not  know  how  you  want  to  interpret  it. 
Mr.  QuiN.  His  engineer  testified  here  that  he  was  going  to  put  up  forty  or 
fifty  million  dollars  down  there. 

Mr.  Hammitt.  I  am  sure  you  would  not  want  to  make  a  contract,  considering 
as  part  of  the  terms  of  the  contract  the  testimony  of  Mr.  Ford's  representative 
before  the  committee.  You  have  not  even  put  me  under  oath,  and  I  do  not  sui>- 
pose  you  put  him  under  oath. 

Mr.  QuiN.  No ;  we  have  faith  in  the  integrity  of  the  gentlemen  who  come  be- 
fore this  committee. 

Mr.  Hammitt.  Yes;  and  I  presume  you  also  have  in  mind  that  you  are 
asked  to  make  a  contract  with  a  corporation  which  will  live  for  a  hundred 
years,  and  Mr.  Ford  can  not  possibly  have  an  active  life  of  more  than  15  years 
longer,  so  that  you  have  the  great  bulk  of  the  hundred  years  period,  85  years, 
when  you  will  be  dealing  with  somebody  else,  and  you  do  not  know  now  who 
he  is.  I  frankly  think  your  confidence  may  possibly  be  misplaced,  if  it  is  placed 
entirely  in  Mr.  Ford. 

Mr.  QuiN.  Yes,  sir;  but  this  is  not  10  men  with  a  hundred  dollars  apiece 
that  we  are  dealing  with  now.  The  Air  Nitrates  Corporation  is  composed  of 
10  men.  Did  they  put  up  the  hundred  dollars  apiece?  There  is  no  evidence  that 
tHey  paid  the  $1,000  in  there. 

Mr.  Hammitt.  I  wonder  if  it  is  necessary  for  me  to  state  again  that  the  10 
men  to  whom  you  refer,  whose  names  at  your  request,  I  have  read  into  the 
lecord,  did  not  organize  the  Air  Nitrates  Corporation,  do  not  own  a  penny  of 
the  stock  of  the  Air  Nitrates  Corporation,  and  never  did;  and  never  received 
a  penny  of  compensation  from  the  Air  Nitrates  Corporation,  and,  so  far  as  I 
know,  never  will,  and  can  not  possibly  get  any  profit  out  of  the  Air  Nitrates 
Corporation  unless  they  get  it  as  stockholders  in  the  American  Cyanamid  Co., 
which  is  the  only  way  anybody  can  ever  get  any  profits  out  of  the  Air  Nitrates 
Corporation,  if  it  made  those  profits. 

Mr.  QuiN.  But,  Mr.  Hammitt,  your  contract  states  that  this  Air  Nitrates 
Corporation  was  formed  for  the  special  purposes  of  avoiding  liability  of  the 
Cyanamid  company.  That  is  stated  in  plain  language,  so  its  assets  would  not 
be  responsible. 

Mr.  Hammitt.  That  is  one  of  the  reasons  why  it  was  formetl. 

Mr.  QriN.  Now,  after  that  corporation  was  formed,  with  no  assets  back  of 
it  except  a  thousand  dollars,  it  undertakes  to  deal  with  the  100,000,000  people 
of  the  United  States,  and  in  that  deal  it  has  had  itself  called  the  agent  of 
the  United  States  under  the  terms  of  the  contract ;  is  that  not  true? 

Mr.  Hammitt.  It  was  called  the  agent  under  the  terms  of  that  contract. 

Mr.  QuiNN.  And  then  this  agent  of  the  United  States  with  no  assets  to  back  it 
up  went  into  a  deal  by  which  the  Government  was  to  put  up  all  the  money, 
and  this  thousand  dollar  corporation  was  to  receive  a  fee  which  amounted 
to  .$1,.500,000  for  the  designing  and  construction  of  the  nitrate  plant. 

Mr.  Hammitt.  There  was  that  and  some  other  things  connected  with  it,  all 
•»f  which  I  have  explained  to  the  committee,  not  once,  but  nmny  times,  the 
»iet  result  of  which  was  that  the  coi-poration  did  not  make  one  penny  out  of 
the  operation. 

^Ir.  QuiN.  How  much  remains  unpaid  of  the  fee  of  $1,500,000? 

Mr.  Hammitt.  My  recollection  is  that  it  is  something  over  $300,000. 

Mr.  Qvix.  Then  there  has  been  about  $1,150,000  or  $1,200,000  paid  on  that  fee? 

Mr.  Hammitt.  I  have  not  the  exact  figures:  I  think  they  are  in  the  record. 
I  think  you  went  over  this  matter  with  the  ofllcers  of  the  Ordnance  Department, 
and  that  is  in  the  record. 


498 


MUSCLE   SHOALS  PROPOSITIONS. 


]Mr.  QtTiN.  What  lawyer  repn'seiitinj?  the  Government  was  present  when  ihe 
contract  was  sig:ne<l? 

Mr.  Hammitt.  I  can  not  say. 

Mr.  QuiN.  Was  there  any  lawyer  for  the  United  States  Government  par- 
ticii)ating  in  this  deal? 

Mr.  Hammitt.  I  have  no  donht  there  was. 

Mr.  QuiN.  What  is  the  name  of  the  Army  officer? 

Mr.  HAJiiMiTT.  You  nrean  who  signed  the  contract? 

Mr.  QuiN.  Yes. 

Mr.  Hammitt.  Vol.  Samuel  IMcRoherts. 

Mr.  Quix.  Was  he  the  one  who  be^an  negotiations,  or  was  that  Col.  .Toyes? 

]Mr.  Hammitt.  My  recollection — now,  as  a  matter  of  fact.  Congressmen,  I 
had  no  personal  contact  with  those  negotiations,  and  the  committee  dire<?te<l 
me  yesterday  to  prepare  and  put  in  the  record  a  statement  showing  who 
were  the  parties  representing  the  different  sides  iu  this  negotiation,  and  I  hope 
you  will  let  me  prepare  that  statement  and  submit  it  to  the  couunittee  in  tlu- 
record. 

Mr.  Qrix.  That  will  be  satisfactory.     Is  Col.  McRoberts  in  the  Army  now? 

Mr.  Hammitt.  No;  I  think  not. 

Mr.  QuiN.  Was  he  an  emergency  officer? 

Mr.  Hammitt.  I'es,  sir. 

Mr.  QuiN.  Where  was  he  from? 

Mr.  Hammitt.  INIy  recollection  is  that  he  was  vice  i»residcnt  of  tl»"  Naticii-il 
City  Bank  before  he  went  into  the  Government  service. 

Mr.  QuiN.  I'ou  mean  the  National  City  Bank  of  New  York? 

Mr.  Hammitt.  Y'es,  sir. 

Mr.  QuiN.  That  is  the  Standard  Oil— Rockefeller— bank  is  it  not?  What  po- 
sition did  he  hold  with  that  bank? 

Mr.  Hammitt.  I  have  stated  that  to  the  best  of  my  recollection  he  was  vice 
president  of  that  bank. 

Mr.  QuiN.  Is  he  there  now? 

Mr.  Hammitt.  I  am  sure  I  do  not  know. 

Mr.  QuiN.  The  other  gentleman  who  signed  the  contract  with  the  Alabama 
Power  Co.  was  named  Wiriiams,  I  believe.  He  was  out  of  that  same  bank, 
the  testimony  shows.     Did  you  come  in  contact  with  him  in  your  dealings? 

Mr.  Hammitt.  I  did  not  come  in  contact  with  him,  and  I  do  not  know  of 
Col.  Williams  as  being  with  the  National  City  Bank.    Perhaps  you  are  correct. 

Mr.  QuiN.  That  is  the  testimony.  It  was  testified  that  he  was  fixing  to  sail 
for  the  Orient. 

Mr.  Hammitt.  Yes,  sir. 

Mr.  QuiN.  You  do  not  know  whether  Col.  McRoberts  is  with  that  bank,  or 
where  he  is  now.    You  stated  you  did  not  know,  I  believe. 

Mr.  Hammitt.  No ;  I  do  not  know.  He  is  a  banker  by  profession,  and  I  pre- 
sume he  is  somewhere  in  the  banking  business. 

Mr.  QuiN.  That  is  a  contract  made  on  the  part  of  the  United  Stated  by  C<»1. 
McRoberts,  vice  president  of  the  National  City  Bank  of  New  York,  with  the 
Government's  own  agent,  a  thousand-dollar  corporation,  under  the  terms  of  the 
contract,  to  carry  on  a  work  that  cost  how  much  in  round  figures? 

Mr.  Hammitt.  About  $67,000,000  at  this  particular  plant,  and  the  total 
amount  of  work  done  under  that  contract  amounted  to  about  $100,000,000. 

Mr.  QuiN.  The  report  of  the  War  Expenditures  Committee  was  made  on  thai 
project.    Are  you  familiar  with  that? 

^Ir.  Hammitt.  I  have  read  the  report ;  yes,  sir. 

Mr.  QuiN.  It  speaks  of  wild  extravagance  down  there  in  that  construction 
work  on  which  this  amount  of  money  was  expended. 

Mr.  Hammitt.  Congressman,  I  want  to  tell  you  perfectly  frankly,  I  believe 
I  have  a  great  deal  more  confidence  in  the  sanity,  and  truthfulness — and  I  <1" 
not  mean  that  in  any  invidious  sense — but  I  mean  the  fairness  in  presentini: 
the  facts  contained  in  the  minority  report  by  Mr.  Garrett,  of  Tennessee,  tlif 
minority  representative  upon  that  subcommittee,  than  the  majority  report,  re- 
garding the  work  at  Muscle  Shoals.  In  connection  with  the  work  at  Jkluscle 
Shoals,  from  my  familiarity  with  the  work  there,  I  can  say  it  was  a  job  that 
I  personally  am  proud  to  have  been  connected  with. 

Mr.  QuiN.  Even  Mr.  Garrett  did  not  praise  it  very  much,  did  he? 

Mr.  Hammitt.  Yes;  he  did  praise  it  very  highly. 

Mr.  QuiN.  Did  he  say  that  that  money  was  nicely  and  wisely  expended 
there?  His  report  is  on  record  here.  Did  Mr.  Garrett  say.  that  money  wa^ 
wisely,  i)roperly,  and  efficiently  expended? 


MUSCLE   SHOALS  PROPOSITIONS. 


499 


Mr.  Hammitt.  If  he  had  said  that  he  would  have  said  a  thing  that  all  of  us 
know  could  not  have  possibly  been  done  on  a  job  of  that  size,  where  you  went 
into  4  sciuare  miles  of  corn  and  cotton  fields,  without  adequate  roads*  without 
railroad  facilities,  and  in  a  period  of  eight  months  and  eight  days  after  break- 
ing ground  delivered  in  operation  a  nitrate  plant  which  was  the  largest  manu- 
facturing plant  of  that  kind  in  the  vrorld.  If  anybody  thinks  that  money  spent 
on  a  job  done  under  pressure  like  that  in  wartime  was  efficiently  expended,  I 
should  say  he  had  not  much  practical  experience  with  that  kind  of  work.  Of 
course,  it  was  not  economically  and  efficiently  expended,  all  of  it.  The  main 
thing  is  that  we  had  a  program  to  meet,  and  it  was  a  difficult  program  to 
meet.  We  had  a  job  to  deliver  a  plant  that  would  meet  the  requirements  that 
had  been  allocated  to  us  in  connection  with  the  1919  campaign  for  explosives. 
We  had  the  very  difficult  job  of  getting  it  through  on  time.  But  we  did  get  it 
through,  and  if  we  had  not  done  the  best  we  could  in  the  designing  and  con- 
struction of  that  plant  and  had  not  delivered  to  the  Government  a  good  plant 
that  would  work,  it  would  not  be  necessary  for  me  to-day  to  plead  against  the 
use  of  that  plant  to  destroy  the  company  that  designed  and  built  it. 

Mr.  QuiN.  You  said,  I  believe,  that  none  of  those  10  men  was  on  the  pay  roll 
of  the  Government  in  connection  with  that  work.    Is  that  correct? 

Mr.  Hammitt.  That  is  correct. 

Mr.  QuiN.  The  war  expenditure  committee  shows  here  in  its  hearings  the 
list  of  the  gentlemen  who  did  not  receive  salaries  from  the  American  Cyanamid 
Co. 

Mr.  Hammitt.  You  mean  from  the  Air  Nitrates  Corporation.         , 

Mr.  QuiN.  No ;  it  says  from  the  American  Cyanamid  Co.  That  was  the  one 
that  was  the  beneficiary,  as  you  said.  I  notice  here  the  names  of  Mr.  Frank 
AVashburn,  Mr.  K.  E.  Cooper,  Mr.  W.  E.  Bond,  Mr.  W,  S.  Landis,  and  Mr.  R.  D. 
Greene.  Then  it  gives  a  list  of  those  who  did  receive  salaries  from  the  United 
States.    I  presume  that  is  correct? 

Mr.  Hammitt.  I  presume  it  is. 

Mr.  QuiN.  Do  you  know  Capt.  Marberly. 

Mr.  Hammitt.  I  do  not  think  I  know  him,  personally. 

Mr.  QuiN.  He  was  the  gentleman  who  gave  the  evidence.  He  was  in  charge 
of  the  Ordnance  Department  work  in  connection  with  the  Air  Nitrates  Cor- 
iwration? 

Mr.  Hammitt.  He  was  the  disbursing  officer. 

Mr.  QuiN.  With  that  construction  work  under  that  contract,  the  Air  Nitrates 
Corporation,  the  agent  of  the  Government  4nade  this  contract  to  hog  tie  the 
Government  after  the  Government's  activities  in  war,  did  it  not?  In  other 
words,  to  make  it  so  the  United  States  could  not  dispose  of  it,  except  through 
the  Air  Nitrates  Corporation,  or  the  American  Cyanamid  Co..  for  that  is  the 
one  it  was  dealing  with. 

Mr.  Hammitt.  As  has  been  rather  frequently  stated,  the  Air  Nitrates  Coi*po- 
ration  negotiated  this  contract  with  the  Government  containing  article  19, 
which  you  described,  the  theory  being  that  it  would  do  as  you  say,  although 
I  would  not  describe  it  in  exactly  the  same  way. 

Mr.  QuiN.  Do  you  not  know  that  there  is  a  very  well-founded  law  that  the 
agent  can  not  bind  the  principal  for  himself  against  the  interest  of  the  prin- 
cipal? 

Mr.  Hammitt.  I  am  not  a  lawyer,  and  I  do  not  want  to  discuss  principles  of 
law  because  they  are  things,  frankly,  with  which  I  am  not  familiar. 

Mr.  QuiN.  You  say  there  is  a  moral  obligation  for  the  Government  to  stand 
by  this  contract  made  under  the  circumstances  that  have  been  related  in  the 
evidence  before  the  committee.  Do  you  think  that  is  true,  that  it  is  a  moral 
obligation  on  the  part  of  the  Government  to  do  that  now? 

Mr.  HAifMiTT.  I  surely  would  not  have  stated  it  so  many  times  unless  I 
believed  it  was  true.    I  do  believe  it  is  true. 

Mr.  QuiN.  It  is  natural  for  you  to  feel  that  way,  as  an  interested  party, 
i^peaking  for  the  principal.  You  admit  that.  We  are  the  representatives  of 
the  people  and  you  are  representing  the  American  Cyanamid  Co.  and  the 
Air  Nitrates  Corporation. 

Mr.  Hammitt.  Your  statement  regarding  whom  we  represent  in  this  pro- 
ceeding is  quite  correct,  and  I  will  say  the  people  are  very  well  represented. 

Mr.  QuiN.  If  we  can  not  believe  in  this  anomalous  situation  that  has  de- 
veloped here,  of  the  principal  being  bound  by  the  acts  of  the  agent  in  this 
situation,  you  can  not  censure  us,  can  you? 

Mr.  Hammitt.  I  certainly  could  not  censure  you. 


500 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


501 


Mr.  QuiN.  Is  it  not  fair  to  assume  that  tlie  great  mass  of  the  American 
people  could  not  feel  that  they  are  honestly  and  morally  bound  to  stand  by 
such  a  proposition? 

Mr.  Hammitt.  I  believe  that,  being  familiar  with  the  facts,  a  great  majority 
of  the  American  citizens  being  educated  in  the  principles  of  fair  play  and  in 
the  private  and  public  policy  of  living  up  to  agreements,  would  take  the  same 
position  that  I  have  taken  before  the  committee,  and  if  I  did  not  believe  that 
position  could  be  sustained  I  would  not  have  the  temerity  to  urge  it  before 
this  committee. 

Mr.  QuiN.  Then,  you  would  agree  to  the  fact  that  a  thousand  dollar  corpora- 
tion should  handle  a  $67,000,000  construction  and  work,  with  a  fee  of  $1,500,000 
to  cover  the  construction  of  it,  and  then  $560,000  for  operation— you  believe 
that  would  smell  good  to  them?    That  is  what  it  means. 

Mr.  Hammitt.  I  do  not  think  they  would  have  to  analyze  that  contract  with 
the  use  of  the  olfactory  nerve  at  all. 

Mr.  QuiN.  The  fact  that  Mr.  Ford  has  made  this  proposition  and  that  he  has 
made  good  on  all  undertakings  in  which  he  has  engaged  has  naturally  aroused 
those  interests  with  whom  he  would  come  in  competition,  has  it  not? 

Mr.  Hammitt.  I  think  it  seems  to  have  excited  a  very  general  interest. 

Mr,  QuiN.  If  Mr.  Ford  could  carry  out  the  contemplated  plans  there,  as 
testified  before  this  committee,  to  the  great  benefit  of  the  American  people, 
you  would  not  characterize  that  as  any  subsidy  out  of  the  Treasury  of  this 
country,  would  you? 

Mr.  Hammitt.  Not  unless  it  were  a  subsidy. 

Mr.  QuiN.  I  had  not  heard  of  this  proposition  of  a  single  dollar  going  into 
his  pocket  on  any  subsidy.  The  Government  completes  the  dam  and  then 
builds  another  dam.  Mr.  Ford  pays  interest  on  it,  and  through  his  payments 
on  the  amortization  fund  he  pays  it  all  back,  and  the  great  benefits  that  may 
flow  from  that  would  amount  to  a  great  deal  more,  some  of  us.  believe,  than 
the  Government  would  be  out  in  the  completion  of  that  work.    Is  that  not  true? 

Mr.  Hammitt.  I  do  not  agree  with  that  analysis. 

Mr.  QuiN.  Then  you  say  you  do  not  believe  in  any  kind  of  a  subsidy.  That  is, 
I  take  it,  you  do  not  believe  in  the  railroad  subsidy  that  was  paid  to  some  of 
the  southern  roads  and  the  subsidy  we  are  talking  about  now  paying  to  Ameri- 
can ships.    You  do  not  believe  in  that? 

Mr.  Hammitt.  If  you  consider  that  pertinent  to  the  inquiry,  I  will  be  veiy 
glad,  if  that  is  what  the  committee  desires,  to  express  my  views  with  regard  to 
railroad  and  ship  subsidies. 

Mr.  QuiN.  Just  answer  that  yes  or  no. 

Mr.  Hammitt.  The  thing  is  much  too  complicated  to  be  answered  in  that  way. 
It  is  a  subject  which  involves  a  great  deal  of  discussion  on  the  floor  of  Congress, 
where  there  are  men  very  much  more  able  to  discuss  it  than  I  am,  and  they 
can  not  dispose  of  it  with  one  word  on  each  side. 

Mr.  QuiN.  That  is  very  true,  but  you  did  dispose  of  this  proposition  of  Mr. 
Ford's  by  calling  it  a  subsidy. 

Mr.  Hammitt.  I  have  been  on  the  witness  stand,  since  10.30  o'clock  yesterday 
morning  rather  continuously,  and  I  am  sure  I  have  said  more  than  one  word, 
and  some  words  I  have  said  over  again  many  times.  That  is  the  uneconomical 
part  of  it,  in  my  opinion. 

Mr.  QuiN.  Mr.  Duke  expressed  himself  in  rather  a  violent  manner  toward 
this  proposition  in  his  letter  to  the  War  Department,  did  he  not? 

Mr.  Hammitt.  My  recollection  of  the  letter  which,  as  I  say,  I  never  saw 
until  I  read  it  in  the  record 

Mr.  QuiN  (interposing).  Inadvisable  and  foolish  are  the  terms  he  used. 

Mr.  Hammitt.  It  does  not  indicate  any  violence.  That  is  the  impression  I 
got  from  reading  the  letter. 

Mr.  QuiN.  You  did  not  gather  the  impression  that  he  was  very  friendly 
toward  the  Government  doing  that  work  down  there,  did  you  ? 

Mr.  Hammitt.  I  gathered  that  he  recommended  very  positively  against  the 
wisdom  of  the  Government  doing  it. 

Mr.  Qtjin.  Then  the  position  assumed  by  you  under  this  contract  by  the  Air 
Nitrates  Corporation,  is  that  it  was  a  proposition  of  heads  I  win  and  tails  yon 
lose  in  talking  with  the  Government.  Was  that  not  the  exact  kind  of  deal  it 
was? 

Mr.  Hammitt.  No,  sir. 

Mr.  QuiN.  Then,  when  they  got  that  fee,  if  the  Government  started  to  sell  it, 
and  was  bound  not  to  do  it  under  such  a  contract  as  was  made  there,  you  take 
it  that  that  was  a  fair  contract? 


Mr.  Hammitt.  I  do ;  yes,  sir. 

Mr.  Fisher.  Will  you  kindly  give  us  the  name  of  the  lawyers  employed  by 
the  Air  Nitrates  Corporation  or  by  the  American  Cyanamid  Co.  that  approved 
the  first  agreement  which  you  proposed  to  submitt  to  the  Government  for 
signature? 

Mr.  Hammitt.  My  impression  is  that  the  law  firm  who  represented  us  in 
these  contract  matters  was  the  firm  of  Sullivan  &  Cromwell. 

Mr.  Fisher.  Were  they  your  legal  advisers  up  until  the  day  of  the  signing 
of  the  contract,  which  the  evidence  here  shows  was  dated  in  June,  1918? 

Mr.  Hammitt.  They  were. 

Mr.  Fisher.  Did  you  have  other  law  firms  besides  Sullivan  &  Cromwell 
^dvising  you ;  I  mean  about  the  contract  for  the  nitrate  plant  No.  2? 

Mr.  Hammitt.  That  clears  the  question.  I  believe  we  had  no  one,  except 
as  I  have  stated  before  the  committee,  that  on  a  special  question  we  called  in 
Justice  Hughes. 

Mr.  Fisher.  Can  you  give  us  the  date  when  the  services  of  Justice  Hughes 
were  retained  by  your  corporation? 

Mr.  Hammitt.  I  can  not  give  the  date  now,  but  I  will  be  glad  to  supply  it. 

Mr.  Fisher.  At  that  time  he  was  practicing  law  in  New  York,  and  was  con- 
sidered one  of  the  ablest  lawyers  in  New  York? 

Mr.  Hammitt.  Both  of  those  things  are  true. 

Mr.  Fisher.  You  submitted  to  him  a  proposition  that  had  given  your  former 
law  firm  difliculty,  did  you  not? 

Mr.  Hammitt.  Undoubtedly. 

Mr.  Fisher.  And  that  was  relating  to  the  matter  you  have  discussed,  article 
19  of  the  final  contract? 

Mr.  Hammitt.  Yes,  sir. 

Mr.  Fisher.  On  so  vital  a  matter  to  your  corporation  you  certainly  got  a 
written  opinion  from  Justice  Hughes  about  that  particular  matter,  did  you  not? 

Mr.  Hammitt.  We  did  not. 

Mr.  Fisher.  Well,  he  gave  an  oral  opinion  to  whom? 

Mr.  Hammitt.  His  opinion  was  expressed  in  a  conference,  in  which  the 
form  of  protection  that  would  be  extended  to  the  American  Cyanamid  Co.  in 
this  contract  was  agreed  upon.  Now,  I  can  not  state  to  you  who  was  present 
ill  that  conference. 

Mr.  Fisher.  You  were  not  present? 

Mr.  Hammitt.  I  was  not  present. 

Mr.  FisHFR.  Was  that  conference  held  in  New  York  City  or  in  Washington? 

Mr.  Hammitt.  I  can  not  even  state  whether  it  was  in  New  York  City  or  in 
Washington.    ' 

Mr.  Fisher.  As  a  matter  of  fact,  it  was  so  vital  to  the  corporation  that  they 
employed  a  very  distinguished  lawyer.  Could  you  give  us  the  name  of  one  of 
the  ofllicers  of  your  corporation,  or  either  corporation,  who  was  present  at  this 
important  conference? 

Mr.  Hammitt.  I  imagine  that  undoubtedly  Mr.  Washburn,  the  president  of 
the  company,  was  present,  and  as  you  understand,  Congressman,  the  reason 
I  appear  here  in  place  of  Mr.  Washburn  is  that  it  is  absolutely  impossible  for 
him  to  attend  to  business  on  account  of  the  present  state  of  his  health,  and 
that  has  been  the  situation  for  a  year.  I  may  be  an  unsatisfactory  witness  to 
the  committee  in  some  respects  by  not  having  anticipated  some  of  the  things 
the  committee  might  want,  but  if  there  is  any  detail  about  these  negotiations 
and  the  history  of  them  that  you  would  like  to  have  me  submit  a  statement  of 
I  will  be  glad  to  do  it. 

Mr.  Fisher.  Understand,  I  am  not  criticizing  you  as  a  witness,  but  I  would 
like  to  have  the  name  of  some  person  who  could  testify  as  to  what  happened  at 
that  important  conference. 

Mr.  Hammitt.  Those  records,  of  course,  are  just  as  available  in  the  Ordnance 
department  as  they  are  in  the  recollection  of  anyone  who  attended  that  con- 
ference. 

Mr.  Fisher.  That  is  not  the  question  I  asked  you.  There  was  a  private  con- 
ference when  Judge  Hughes  was  present,  and  there  was  a  serious  matter  pre- 
sented which  had  not  been  solved  by  your  former  lawyers,  a  very  distinguished 
law  firm  in  New  York  City.  I  would  like  to  have  the  name  of  one  of  tho 
omcers  of  your  corporation  that  was  present  to  discuss  that  serious  problem 
other  than  that  of  the  man  who  is  now  unable  to  testify. 

Mr.  Hammitt.  I  do  not  know  that  there  was  any  other  officer  of  the  American 
'^yanamid  Co.  or  the  Air  Nitrates  Corporation  present  at  that  conference,  and 


'« 


^ 


MUSCLE  SHOALS  PROPOSITIONS. 


503 


502 


MUSCLE  SHOALS  PROPOSITIONS. 


there  were  many  conferences  at  that  time  at  which  there  was  no  other  officer 
present  than  Mr.  Washburn.  Now,  then,  I  have  not  the  least  doubt  that  Col. 
McRoberts  was  present  at  that  conference.  I  have  not  the  least  doubt  that 
there  were  various  representatives  on  both  sides,  but  we  are  in  the  unfortunate 
position  tliat  the  attorney  who  did  practically  all  of  the  work  in  advising  us 
with  regard  to  this  contract,  Mr.  Rosencrantz,  of  the  firm  of  Sullivan  &  Crom- 
well, is  dead,  and  the  officer  of  the  American  Cyanamid  Co.  who  responsibly 
conducted  those  negotiations  has  been  unable  to  come  to  his  office  because  of  a 
condition  of  health  more  than  ten  times,  and  then  not  for  more  than  half  an 
hour  or  an  hour  and  a  half  or  two  hours  at  a  time  in  a  period  of  15  months, 
under  definite  instructions  from  his  physician,  so  I  am  sure  that  his  doctors 
will  not  be  willing  to  take  the  responsibility  of  his  coming  down  here.  In 
substitution  for  these  witnesses  who  were  present  in  the  conferences,  as  to 
whom  we  have  not  control,  so  far  as  I  know,  of  any  except  those  I  have  men- 
tioned, and  the  Government  has  control  of  plenty  who  can  testify  as  to  what 
took  place,  I  should  be  very  glad  to  submit  to  you  any  statement  of  the  facts 
you  would  like  to  obtain,  and  I  am  very  much  embarrassed  by  reason  of  my 
inability  to  answer  all  the  questions. 

Mr.  Fisher.  I  simply  aske"tl  for  the  name  of  an  officer  of  the  corporation  who 
was  present,  and  you  are  unable  to  give  any  except  the  man  who  you  say  is 
unable  to  testify. 

Mr.  Hammitt.  Because  I  think  he  is  the  only  officer  of  the  corporation  who 
was  there. 

Mr.  Fisher.  As  I  understand  it,  it  is  the  custom  to  consult  a  great  lawyer 
on  a  very  technical  proposition  like  this,  and  in  that  case  is  it  not  the  custom 
that  such  a  lawyer  always  gives  a  written  opinion  on  it?  Is  it  not  possible  that 
there  may  be  a  written  opinion  that  was  given  by  Judge  Hughes. 

Mr.  Hammitt.  No;  because  I  definitely  made  inquiry  about  that,  knowing 
that  the  committee  would  want  to  know  those  facts,  and  I  was  definitely 
informed  that  there  was  no  written  opinion. 

Mr.  Fisher.  May  I  ask  when  that  inquiry  was  made,  and  did  you  also  ask 
where  the  conference  was  held? 

Mr.  Hammitt.  No. 

Mr.  Fisher.  You  neglected  to  ask  that? 

Mr.  Hammitt.  I  did ;  yes,  sir. 

Mr.  Fisher.  Were  you  present  in  Washington  when  the  negotiations  were 
had  with  the  Ordnance  Department? 

Mr.  Hammitt.  I  was  not. 

Mr.  Fisher.  You  had  nothing  to  do  with  that  at  all?    , 

Mr.  Hammitt.  Nothing  whatever. 

Mr.  Fisher.  You  have  expressed  in  your  testimony  such  a  tender  sympathy 
for  the  taxpayers  of  the  country  that  I  would  like  to  ask  you  to  name  in  the 
record  the  employees  of  your  corporation  and  the  subcontractor  corporation 
whose  salaries  were  paid  for  as  a  part  of  the  cost  of  nitrate  plant  No.  2,  which 
were  in  excess  of  $5,000? 

Mr.  Hammitt.  I  shall  be  very  glad  to  submit  such  a  statement. 

Mr.  Fisher.  I  should  like  to  submit  to  you  on  page  3065  of  hearings  before 
a  subcommittee  of  the  war  expenditures  committee,  volume  3,  serial  6,  i)arts 
50  to  59  and  60  to  64,  and  ask  you  to  examine  that  list  and  state  whether  or 
not  that  is  accurate. 

The  Chairman.  What  is  the  title  of  that  document? 

Mr.  Hammitt.  These  are  hearings  before  Subcommittee  No.  5  of  the  Select 
Committee  on  Expenditures  in  the  War  Department,  of  the  House  of  Repre- 
sentatives, Sixty-sixth  Congress,  second  session,  and  this  is  volume  3,  serial  6, 
parts  50  to  59  and  64  to  66.    My  attention  has  been  called  to  page  3065. 

The  Chairman.  That  identifies  the  document  completely  for  the  record. 

Mr.  Hammitt.  If  you  want  anything  more  than  my  general  statement  that 
I  assume  this  is  correct,  I  would  like  to  take  that  and  check  up  the  statement 
and  submit  a  further  statement  for  the  record  in  regard  to  it. 

Mr.  Fisher.  That  would  be  entirely  all  right. 

Mr.  Hammitt.  I  will  be  glad  to  do  that. 

Mr.  Fisher.  I  would  like  you  to  state  the  total  amount  of  the  fee  that  your 
corporation  has  received  from  the  United  States  Government  for  the  con- 
struction work  at  nitrate  plant  No.  2;  how  much  have  you  collected  to  date 
from  the  United  States  Government? 

Mr.  Hammitt.  Approximately,  $1,200,000.  I  am  sure  the  exact  figures  are 
already  in  the  record,  because  there  was  a  thorough  examination  on  that  sub- 


ject of  the  Ordnance  Department,  and  that  is  one  of  the  reasons  why  I  did 
not  think  it  necessary  for  me  to  inform  myself  as  to  the  exact  figures. 

Mr.  Fisher.  That  was  a  percentage  of  the  total  amount  paid  for  the  ex- 
penses of  that  work;  that  was  a  percentage,  a  cost-plus  contract? 

Mr.  Hammitt.  That  was  a  cost  plus  a  percentage,  with  a  provision  for  a 
maximum  fee. 

Mr.  Fisher.  You  have  expressed  an  opinion  that  it  would  be  the  best  thing 
for  the  Government  to  have  that  plant  in  a  stand-by  condition.  The  contract 
provides  for  a  sale.  Do  you  understand  that  if  the  Government  should  deter- 
mine to  lease  it  and  not  sell  it,  that  the  lessees  under  the  terms  of  the  con- 
tract, as  you  construe  it,  could  operate  the  processes  there  by  paying  the 
stipulated  royalties? 

Mr.  Hammitt.  No;  the  United  States  has  no  authority  to  grant  a  license 
under  these  patents  to  a  lessee. 

Mr.  Fisher.  Then  do  I  understand  that  by  process  of  elimination  there  is 
nothing,  under  your  interpretation  of  the  contract,  that  the  Government  can 
do  with  this  proposition  except  first  to  get  an  offer  and  then  submit  it  to  you 
and  let  you  have  six  months  before  you  do  anything  about  it. 

Mr.  Hammitt.  Provided  the  Government  decides  to  dispose  of  the  plant,  it 
would  be  necessary  for  it  to  follow  that  procedure,  and  the  time  we  would  have 
to  consider  it  would  be,  as  provided  in  article  19  of  the  contract,  a  reasonable 
time,  not  exceeding  six  months. 

Mr.  Fisher.  Then  as  I  understand  it,  according  to  your  interpretation  of  the 
contract,  there  is  nothing  that  the  Government  can  do  except  to  sell  it? 

Mr.  Hammitt.  No;  the  Government  can  keep  it  in  stand-by  condition,  which 
is  what  we  recommend  that  the  Government  do.  The  Government  can  operate 
it.  The  Government  can  leave  it  to  somebody  who  has  some  idea  of  operation, 
that  does  not  involve  the  patents  of  the  American  Cyanamid  Co. 

Mr.  Wright.  What  was  your  compensation  growing  out  of  this  contract  for 
the  construction  of  the  plant? 

Mr.  Hammitt.  I  received  during  the  period  of  time  that  I  was  engaged  on  this 
work  for  the  Air  Nitrates  Corporation,  a  compensation  of  $7,500  a  year. 
Mr.  Wright.  You  were  paid  by  the  Government? 

Mr.  Hammitt.  I  was  paid  by  the  Air  Nitrates  Corporation  out  of  Govern- 
ment funds. 

Mr.  Wright.  Mr.  Hammitt,  you  have  been  asked  a  great  deal  about  article 
19  of  this  contract.  Boiled  down  to  its  last  analysis,  it  means  one  thing,  and 
that  is  that  the  American  Cyanamid  Co.  at  the  time  this  construction  was  con- 
templated had  a  monopoly  of  that  industry  in  the  United  States,  or  practically 
a  monopoly? 

Mr.  Hammitt.  They  had  an  absolute  monopoly  of  the  manufacture  of  cyana- 
mid, and  the  marketing  of  cynamid,  and  manufacture  by  the  cyanamid  process. 
Mr.  Wright.  That  being  true,  it  was  the  purpose  of  article  19  to  enable  the 
American  Cyanamid  Co.  to  continue  that  monopoly? 

Mr.  Hammitt.  Except  under  the  conditions  as  provided  in  that  article  under 
which  the  United  States  may  license  another  purchaser  to  operate  that  plant 
under  those  patents. 

Mr.  Wright.  You  had  the  privilege  of  becoming  the  purchaser  upon  as  fa- 
vorable terms  as  anyone  else? 
Mr.  Hammitt.  We  did. 

Mr.  Wright.  By  accepting  the  terms  of  that  article  you  could  continue  to 
maintain  your  monopoly? 
Mr.  Hammitt.  Yes,  sir. 

Mr.  Wright.  The  Virginia-Carolina  Chemical  Co.  is  engaged  in  the  produc- 
tion of  commercial  fertilizer? 
Mr.  Hammitt.  Yes,  sir.  ' 

Mr.  Wright.  What  i)ercentage  of  the  stock  of  th^  American  Cyanamid  Co. 
did  you  say  that  company  owned? 
Mr.  Hammitt.  Approximately  26  per  cent. 

Mr.  Wright.  The  Virginia-Carolina  Chemical  Co.  of  course  is  a  large  customer 
of  the  American  Cyanamid  Co.? 
Mr.  Hammitt.  Yes,  sir. 

Mr.  Wright.  You  furnish  them  with  a  product  that  enters  into  the  manu- 
facture of  fertilizer? 
Mr.  Hammitt.  We  do. 

Mr.  Wright.  Will  you  secure  and  place  in  the  record  the  names  of  the  gentle- 
men in  the  American  Cyanamid  Co.  who  own  stock  in  the  Virginia-Carolina  Co., 
and  state  the  amount  which  each  one  owns. 


I 


504 


MUSCLE  SHOALS  PROPOSITIONS. 


Mr.  Hammitt.  I  do  not  know  whether  I  can  get  access  to  the  stock  lists  of 
the  Virginia-Carolina  Chemical  Co.  I  can  do  this:  I  can  make  inquiry  of  all 
the  directors  and  all  the  executive  officers  of  the  American  Cyanamid  Co.,  and 
I  am  sure  they  will  all  be  very  glad  to  inform  me  what  stock  they  own,  if  any, 
in  the  Virginia-Carolina  Chemical  Co.,  and  I  would  be  very  glad  to  give  you  a 
statement  in  regard  to  that. 

Mr.  Wright.  Likewise,  can  you  secure  such  a  list  of  the  stockholders  of  the 
Virginia-Carolina  Chemical  Co.,  who  own  stock  in  the  American  Cyanamid  Co.  ? 

Mr.  Hammitt.  I  would  not  like  to  say  for  certain  that  I  could,  because,  of 
course,  I  would  be  asking  for  information  from  men  who  w^ere  not  my  associates 
in  business,  and,  while  I  can  not  conceive  of  any  reason  why  they  should  be  un- 
willing to  furnish  that  information,  I  can  not  say  definitely  that  I  can  do  that. 

Mr.  Wright.  It  is  your  understanding  that  it  is  a  fact  that  some  of  the 
stockholders  of  one  company  owned  stock  in  the  other  and  vice  versa? 

Mr.  Hammitt.  I  think  it  is  possible,  just  the  same  as  it  is  entirely  possible 
that  some  of  the  stockholders  in  the  American  Cyanamid  Co.  have  stock  in 
the  Pennsylvania  Railroad  Co.,  but  there  is  no  corporate  connection  between  the 
two,  other  than  that  which  is  indicated,  which,  of  course,  is  a  substantial  one, 
namely,  that  the  Virginia-Carolina  Chemical  Co.  itself  owns  26  per  cent  of 
the  stock  of  the  American  Cyanamid  Co. 

Mr.  Wright.  Mr.  Washburn  was  once  president  of  the  Alabama  Power  Co., 
was  he  not? 

Mr.  Hammitt.  He  was;  yes,  sir. 

Mr.  Wright.  Does  he  own  any  stock  in  the  American  Cyanamid  Co.? 

Mr.  Hammitt.  That  is  a  question  which  I  thought  might  be  asked,  so  I  made 
an  inquiry  about  that.    He  does  not. 

Mr.  Wright.  Not  in  the  American  Cyanamid  Co.? 

Mr.  HAMMifT.  I  thought  you  said  the  Alabama  Power  Co.  He  does  own 
stock  in  the  American  Cyanamid  Co.,  but  how  much  I  do  not  know. 

Mr.  Wright.  He  has  disposed  of  his  stock  in  the  Alabama  Power  Co.? 

Mr.  Hammitt.  I  understand  he  has  sold  all  of  his  holdings  in  the  Alabama 
Power  Co. 

Mr.  Wright.  Do  you  know  how  many  members  or  stockholders  of  the 
American  Cyanamid  Co.  own  stock  in  the  Alabama  Power  Co.  now? 

Mr.  Hammitt.  I  do  not ;  no,  sir. 

Mr.  Wright.  Do  any  of  them  own  stock  in  it? 

Mr.  Hammitt.  I  am  not  aware  of  any  that  own  any  stock,  except  that  as  I 
have  stated ;  I  assume  that  Sperling  &  Co.,  who  marketed  some  of  our  securi- 
ties, also  marketed  the  securities  of  the  Alabama  Power  Co.,  and  probably 
still  have  some  interest  in  securities  of  the  Alabama  Power  Co.,  and  they  may 
have  a  very  small  interest  at  the  present  time  in  the  securities  of  the  American 
Cyanamid  Co.  Aside  from  that  particular  instance,  I  have  no  idea  whatever 
of  any  individual  or  group  which  owns  stock  in  the  two  companies.  There  is 
absolutely  no  corporate  connection  or  joint  control  or  interlocking  of  any 
character  between  the  two  companies.    They  are  absolutely  separate. 

Mr.  Wright.  You  spoke  about  the  American  Cyanamid  Co.  owning  a  large 
phosphate  plant  in  Florida. 

Mr.  Hammitt.  They  have  phosphate  mines  in  Florida. 

Mr.  Wright.  Is  that  plant  operated  in  the  name  of  the  American  Cyanamid 
Co.,  or  in  the  name  of  some  subsidiary  company  of  the  American  Cyanamid  Co.  ? 

Mr.  Hammitt.  Well,  it  is  operated  by  the  American  Cyanamid  and  in  its  name, 
but  it  has  obligations  to  a  subsidiary  company  to  deliver  to  it  a  certain  amount 
of  material  in  order  to  supply  the  contracts  that  the  subsidiary  company  had 
entered  into  before  we  acquired  the  subsidiary  company. 

Mr.  Wright.  What  is  the  name  of  the  subsidiary  company? 

Mr.  Hammitt.  The  Amalgamated  Phosphate  Co. 

Mr.  Wright.  How  is  it  as  to  your  operations  in  California,  near  Los  Angeles? 

Mr.  Hammitt.  Our  ownership  in  the  Owl  Fumigating  Corporation,  while  I 
called  it  a  subsidiary  company,  amount  to  50  per  cent  of  the  stock  of  the  Owl 
Fumigating  Corporation,  but  with  a  provision  under  which  we  are  enabled  to 
vote  51  per  cent  of  the  stock,  so,  except  as  to  a  division  of  the  profits  between 
the  American  Cyanamid  Co.  and  the  other  stockholders,  we  control  the  Owl 
Fumigating  Corporation,  but  when  it  comes  to  dividing  the  profits  they  get  half 
the  profits,  and  the  American  Cyanamid  Co.,  as  the  other  stockholder,  gets  the 
other  half. 

Mr.  Wright.  You  said  the  capital  stock  of  the  American  Cyanamid  Co.  is 
$12,000,000  and  some  odd  thousand? 


MUSCLE  SHOALS  PROPOSITIONS. 


505 


Mr.  Hammitt.  Yes,  sir. 

INIr.  Wright.  How  much  was  actually  paid  in,  and  in  what  way  was  it  paid 
in,  in  cash,  or  property,  or  what  went  in  to  make  up  the  capitalization? 

Mr.  Hammitt.  I  assume  that  the  preferred  stock  of  the  American  Cyanamid 
Co.  represents  actual  cash. 

Mr.  Wright.  What  does  that  amount  to? 

Mr.  Hammitt.  That  amounts  to  approximately  half  of  the  $12,000,000. 

Mr.  Wright.  Very  well. 

Mr.  Hammitt.  I  assume  that  the  common  stock  of  the  American  Cyanamid  Co. 
represents  a  considerable  number  of  intangible  assets. 

Mr.  Wright.  Such  as  patent  rights? 

Mr.  Hammitt.  Largely  consisting  of  such  things  as  patent  rights. 

Mr.  Wright.  What  is  the  American  Aluminum  Co. ;  where  is  it  located ;  what 
does  it  do ;  what  does  it  produce? 

Mr.  Hammitt.  The  Aluminum  Co.  of  America  is  a  corporation  engaged  in  the 
manufacture  of  aluminum,  and  it  has  properties  in  a  number  of  different  parts 
of  the  United  States. 

Mr.  Wright.  Is  there  any  identity  that  exists  between  it  and  the  American 
Cyanamid  Co.? 

Mr.  Hammitt.  Not  the  least  bit ;  none  whatever. 

Mr.  Wright.  The  Alabama  Power  Co.  is  financed  with  Canadian  or  British 
capital  principally,  is  it  not? 

Mr.  Hammitt.  I  am  sure  I  do  not  know.  I  would  not  like  to  testify  regarding 
the  present  financing  of  the  Alabama  Power  Co.  I  understand  it  is  the 
intention  of  the  committee  to  call  representatives  of  the  Alabama  Power  Co. 
before  it,  and  they  can  undoubtedly  furnish  you  with  that  information. 

Mr.  Wright.  Is  it  true  that  the  majority  of  the  capital  invested  in  the  Ameri- 
can Cyanamid  Co.  is  English  or  Canadian  capital? 

Mr.  Hammitt.  No,  sir;  it  is  not  true.  It  is  true  that  probably  not  more 
than  10  per  cent,  or,  possibly,  as  much  as  16  or  17  per  cent — I  have  not  the 
exact  figures  of  the  stock  of  the  American  Cyanamid  Co. — is  owned  in  all 
foreign  countries.  I  have  stated  to  the  committee  who  were  the  principal 
stockholders  of  the  American  Cyanamid  Co.,  and,  of  course,  it  would  be 
quite  inconsistent  with  that  fact  to  indicate  any  foreign  control,  because  I 
have  told  you  who  the  principal  stockholders  were. 

Mr.  Wright.  I  did  not  know  how  much  of  those  companies  was  owned  by 
foreign  capital. 

Mr.  Hammitt.  We  know  that  Mr.  James  B.  Duke,  one  of  the  stockholders,  is 
not  owned  by  foreign  capital.  I  am  quite  certain  that  the  Virginia-Carolina 
Chemical  Co.  is  a  thoroughly  American  corporation. 

Mr.  Wright.  You  do  not  know-how  much  aid  it  gets  from  foreign  capital? 

Mr.  Hammitt.  I  have  never  heard  of  it  getting  any.  I  do  not  know  anything 
about  its  financial  affairs. 

Mr.  Wright.  You  said  that  the  Air  Nitrates  Corporation  was  not  organized 
by  these  10  gentlemen  who  have  been  inentioned  here,  but  it  was  organized 
by  the  American  Cyanamid  Co.  Will  you  please  state  just  the  process  that 
was  gone  through  in  the  organization  of  the  Air  Nitrates  Corporation?  Where 
was  it  chartered,  who  were  the  incorporators,  or  who  petitioned  the  court 
for  a  charter?    Tell  us  the  details  of  how  it  was  organized. 

Mr.  Hammitt.  It  was  organized  under  the  laws  of  the  State  of  New  York, 
which  provide  for  the  filing  of  a  certificate  of  incorporation  in  the  State  capitol 
in  Albany.  The  question  as  to  who  were  the  incorporators  of  that  company 
was  a  matter  of  absolute  indifference.  They  could  have  been  oflficers  or  they 
may  have  been  clerks.  But  they  never  performed  any  function  except  the 
purely  ministerial  function  of  signing  their  names  to  the  incorporation  papers. 
The  stock  of  the  corporation  is  ow^ned  by  the  American  Cyanamid  Co.  Its 
charter  is  undoubtedly  on  file  in  the  State  capitol  in  Albany,  and  we  undoubt- 
edly have  a  copy  of  it,  and  if  the  committee  would  feel  better  informed 
by  having  a  copy  of  it  I  would  be  glad  to  send  it  to  you. 

Mr.  Wright.  It  organized  after  it  received  its  charter,  did  it  not,  elected  a 
president  and  board  of  directors  and  other  oflicers? 

Mr.  Hammitt.  Yes ;  they  elected  a  president  of  the  company,  and  the  president 
was  Mr.  Frank  S.  Washburn.    They  elected  a  number  of  vice  presidents. 

Mr.  Wright.  Who  voted  the  stock  in  perfecting  the  organization  of  tlie 
company? 


506 


MUSCLE  SHOALS  PROPOSITIONS. 


Mr.  H.VMMiTT.  I  iuiajrine  the  stock  was  voted,  in  peifectiiifr  the  orj^anization 
by  a  trust  officer  of  some  sort,  representing  the  American  Cvananiid  Co. 

^[r.  Wright.  So  the  American  Cyanamid  Co.  did  all  the  votins  in  the  organi- 
zation of  that  company? 

Mr.  Hammitt.  Yes. 

Mr.  Wright.  Do  you  niean  to  say  that  the  gentlemen  acting  as  officers  and 
directoi-s  and  shareholders  who  operated  this  Air  Nitrates  CoiToration  did  not 
owni  a  dollar  of  stock  in  it? 
.      Mr.  Hammitt.  If  it  was  i-equired  under  the  by-laws  to  have  qualifying  stock 
then  provision  was  made  that  the  stock  should  be  deposited  in  their  name,  and 
Jilso  provision  was  made  that  they  should  never  get  any  benefit  from  it.     \11 
the  beneficial  interests  in  any  stock  of  the  Air  Nitrates  Corporation,  whicli 
as  1  have  explained  to  the  committee,  is  not  worth  anything  at  all,  because  it 
never  made  any  money  and  never  will,  is  owned  by  the  American  Cyanamid  Co 

Mr.  AVright.  Nitrate  plant  No.  2  at  Muscle  Shoals  cost  $67,000,000,  did  it  not*^ 

Mr.  Hammitt.  Yes,  sir. 

Mr.  AVright.  Have  you  any  idea  what  its  present  value  is? 

Mr.  Hammitt.  That  is  a  very  intangible  thing,  because  you  have  to  consider 
what  you  are  figuring  its  value  for.  Its  present  scrap  value,  delivered  to 
anybody  who  would  take  it  with  the  full  privilege  of  breaking  it  up  or  doing 
anything  he  wanted,  and  without  any  obligation  whatever,  so  that  he  would 
just  scrap  it  up  for  scrap  value— I  suppose  its  value  would  be  about  10  per  cent 
of  the  amount  of  the  investment  in  it.  Indeed  I  will  say  that  certain  parts  of 
the  chemical  plant  would  have  a  scrap  value  that  was  exceedingly  small  but 
the  power  plant  itself  would  have  a  scrap  value  that  is  very  high,  and  when 
you  average  the  cost  up  I  should  say  then  the  scrap  value  would  be  perhap-^ 
10  per  cent.  If  you  consider  it  as  a  means  of  protecting  the  Government  against 
a  future  war  emergency,  then  it  may  be  its  value  is  many  hundreds  of  millions 
Of  dollars.  You  can  not  tell ;  that  is  a  thing  which  this  committee  would  have 
better  judgment  on  than  I  would  have.  But  if  you  consider  it  as  a  plant  to 
be  operated  at  the  present  time  by  the  cyanamid  process  without  a  subsidv  it 
has  not  any  value  at  all. 

Mr.  Wright.  There  is  a  steam  plant  constructed  near  nitrate  plant  No  2. 
is  there  not?  -    . 

Mr.  Hammitt.  Yes ;  it  is  a  part  of  the  plant. 

Mr.  Wright.  Is  it  adequate  to  operate  the  plant? 

Mr.  Hammitt.  Yes.  sir. 

Mr.  Wright.  Do  you  know  what  the  horsepower  produced  there  is' 

Mr.  Hammitt.  Its  present  installation  is  60,000  kilowatts,  which  amounts  to 
78,000  horsepower,  or,  roughly,  80,000  horsepower. 

Mr.  Wright.  That  is  really  a  part  of  the  plant,  and  of  course  the  plant 
would  be  useless  without  power? 

Mr.  Hammitt.  Without  that  power  or  some  other  kind  of  power  There  is 
a  transmission  line  running  to  the  Muscle  Shoals  plant  from  the  Alabama 
Power  Co.'s  plant  on  the  Warrior  River,  88  miles  awav,  and  there  is  this  pro- 
posed water-power  development. 

Mr.  Wright.  If  I  understand  you  correctly,  the  Air  Nitrates  Corporation  has: 
no  plan  or  idea  at  present  of  submitting  an  offer  for  nitrate  plant  No   2*^ 

Mr.  Hammitt.  That  is  true ;  yes,  sir. 

Mr.  Wright.  They  have  worked  out  no  plan  by  which  there  is  in  prospect 
a  definite  offer  to  be  submitted  to  the  Government? 

Mr.  Hammitt.  That  is  true. 

Mr.  AVright.  Your  whole  idea  is  that  the  plant  ought  to  be  left  in  a  stand-bv 
condition  ? 

Mr.  Hammitt.  That  is  true ;  yes,  sir. 

Mr.  Garrett.  Mr.  Hammitt,  you  have  been  asked  almost  everything  but 
there  is  one  thing  I  should  like  to  have  you  clear  up  in  my  mind  I  think  I 
understand  the  situation  fairly  well  now,  except  one  thing,  and  that  is  just 
about  the  operation  of  the  Muscle  Shoals  nitrate  plant  under  the  proposition- 
Mr.  Ford  has  submitted.  As  I  understand  you  you  say  that  if  it  were  operated 
under  that  proposition  it  would  destroy  the  American  Cyanamid  Co 

Mr.  Hammitt.  Perhaps  the  operation  of  that  nitrate  plant  would  not  ac- 
complish the  complete  destruction  of  the  American  Cyanamid  Co ,  but  it  would 
certainly  injure  the  American  Cyanamid  Co.  very  materiallv  by  placing  upon 
the  market  a  product  of  the  cyanamid  process,  whatever  the  product  of  that 
plant  should  be. 

Mr.  Garrett.  You  are  speaking  of  fertilizer  products? 


MUSCLE  SHOALS  PROPOSITIONS. 


507 


Mr.  Hammitt.  Assuming  that  they  were  fertilizer  products,  it  would  place 
on  the  market  fertilizer  products  of  the  cyanamid  process  in  competition  with 
our  product  and  produce  a  market  on  a  basis  by  which  the  United  States  Gov- 
ernment assists  our  competitor  financially,  and  that  would  very  materially 
injure  the  American  Cyanamid  Co. 

Mr.  Garrett.  Is  it  your  opinion,  after  investigating  the  Ford  proposition, 
that  if  the  plant  should  be  installed  regardless  of  Government  aid  or  other- 
wise, it  could  be  so  operated  that  it  would  materially  retluce  the  price  of 
commercial  fertilizer? 

Mr.  Hammitt.  Not  unless  it  was  sold  at  less  than  manufacturing  cost,  be- 
cause if  you  produce  a  considerable  quantity  of  a  fertilizer  ammoniate  it  does 
not  make  any  difference  what  it  costs  you  to  make  it,  you  have  to  sell  it,  and 
the  only  thing  you  can  get  for  it  .is  what  the  market  will  pay.  While  un- 
doubtedly that  fertilizer  operation  at  Muscle  Shoals  would  net  Mr.  Ford  a 
very  substantial  loss,  which  he  would  have  an  opportunity  to  recoup  out  of 
the  power  end  of  his  proposition,  it  would  also  net  the  ammonia  industry  a 
very  material  loss  by  dumping  this  material  manufactured  under  Govern- 
ment subsidy  on  the  market  in  competition. 

Mr.  Garrett.  Then,  regardless  of  whatever  system  of  bookkeeping  might  be 
employed  by  Mr.  Ford  or  his  company  that  he  is  to  organize  to  operate  this 
plant,  it  is  your  opinion  that  he  could  and  would  put  a  commercial  fertilizer  on 
the  market  that  would  materially  reduce  tl\e  price? 

Mr.  Hammitt.  I  think  it  is  entirely  probable  that  for  a  certain  period  of 
time,  at  least,  he  would  put  a  fertilizer  material  on  the  market  that  WiMild  liavc 
the  effect  of  materially  depressing  the  market  for  the  fertilizer  materials  we 
make.  Those  fertilizer  materials  occupy  so  small  a  part  on  the  farmer's 
actual  fertilizer  that  I  would  not  like  to  testify  to  the  effect  that  it  would 
materially  reduce  the  price  of  fertilizer. 

Mr.  Garrett.  What  fertilizer  materials  does  your  company  manufacture 
that  would  be  produced  by  the  Muscle  Shoals  operation? 

Mr.  Hammitt.  Cyanamid. 

Mr.  Garrett.  What  is  that  in  the  make-up  of  fertilizer?  What  do  you  call 
that  in  the  fertilizer?  When  you  speak  of  the  different  component  parts  of 
fertilizer,  what  do  you  call  it  then? 

Mr.  Hammitt.  It  is  in  the  fertilizer  in  the  form  of  units  of  ammonia ;  that 
is,  the  nitrogenous  content  of  the  fertilizer? 

Mr.  Garrett.  That  is  the  nitrogen? 

Mr.  Hammitt.  Yes,  sir. 

Mr.  Garrett.  The  principal  parts  of  the  fertilizer  are  nitrogen,  phosphoric 
acid,  and  potash? 

Mr.  Hammitt.  Yes,  sir. 

Mr.  Garrett.  Usually  there  is  about  2  per  cent  of  nitrogen  in  the  average 
fertilizer,  although  some  of  it  ranges  as  high  as  4  per  cent? 

Mr.  Hammitt.  Again.  I  think  it  would  be  better  to  examine  the  fertilizer 
manufacturers  in  connection  with  that,  but  my  impression  is  that  2  per  cent 
is  not  the  average  now ;  it  is  really  a  little  higher  than  that. 

Mr.  Garrett.  At  least  it  may  run  higher ;  it  runs  from  2  to  4  per  cent,  as  a 
rule? 

Air.  Hammitt.  Sometimes  it  runs  as  high  as  10  per  cent. 

Mr.  Garkett.  The  information  I  am  trying  to  get  for  my  own  satisfaction  as 
well  as  for  the  record  is  just  how  the  operation  of  that  plant  is  going  to  destroy 
your  concern.  I  can  understand  how  your  concern  would  be  very  much  oppo.sed 
to  it  if  it  was  going  to  do  that,  and  that  is  the  information  I  am  trying  to  get. 
Making  a  long  story  short,  and  you  have  been  on  the  witness  stand  for  wo  days, 
and  I  know  you  are  tired  ;  I  sympahize  with  you.  After  you  boil  this  whole  thing 
<.lown,  in  so  far  as  any  money  value  is  concerned,  the  only  real  thing  of  value 
that  the  American  Cyanamid  Co.  has  now  or  has  ever  had  in  this  proposition 
is  the  value  of  the  patent  rights,  is  it  not? 

Mr.  Hammitt.  Well,  there  are  a  number  of  things  that  we  contributed  besides 
patent  rights. 

Mr.  Garrett.  I  mean  when  you  measure  it  in  dollars  and  cents.  Your  con- 
tract provides,  and  you  have  testified,  thajt  the  Government  was  to  bear  all 
the  expense,  and  tliis  organization  has  been  so  perfected  that  the  Air  Nitrates 
Corporation,  which  you  say  is  simply  a  dummy,  was  to  represent  and  does  rep- 
resent, in  fact,  the  American  Cyanamid  Co.,  and  the  whole  purpose  of  it  was 
that   there  should  never  under   any   sort   of  circumstances  be   any   financial 


508 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


509 


charge  against  the  American  Cyanamid  Co.  in  the  construction  of  this  plant,  and 
It  IS  so  stated  in  the  contract. 

Mr.  Hammitt.  That  is  one  purpose  of  the  creation  of  the  Air  Nitrates  Cor- 
poration. 

Mr.  Garrett.  When  we  speak  of  the  Air  Nitrates  Corporation,  it  is  the  same 
as  speaking  of  the  American  Cyanamid  Co.? 

Mr.  Hammitt.  That  is  right. 

Mr.  Garrett.  So,  as  a  matter  of  fact,  when  they  went  down  there,  every  dollar 
expended,  as  provided  in  the  contract,  all  of  the  liabilities  that  m'ight  be 
charged  agamst  the  Air  Nitrate  Corporation,  were  to  be  borne  bv  the  Govern- 
n)ent  of  the  United  States,  according  to  section  10  of  the  contract,  which  says 
that  "  the  United  States  shall  bear  all  costs  and  expenses  of  every  character 
and  description."  They  put  that  language  in  there,  and  it  was  well  drawn  I 
will  say,  from  the  standpoint  of  the  American  Cyanamid  Co. 

Mr.  Hammitt.  That  is  true,  to  a  certain  extent.  I  want  to  help  you  to  get 
the  record  clear,  and  to  make  a  long  story  short,  and  the  only  respect  in  which 
It  IS  not  true  is  that  it  is  provided  in  the  same  contract,  in  Article  X,  on  page 
n,  as  follows :  "  The  agent  shall  make  no  charge  to  the  United  States  for  the 
following  things,"  and  those  are  the  things  they  are  to  deliver  without  charge. 

Mr.  Garrett.  What  they  furnished  without  charge  were  those  things  men- 
tioned in  paragraphs  1,  2,  3,  and  4,  in  Article  X,  on  page  11  of  the  printed  copv 
of  the  contract? 

Mr.  Hammitt.  Yes,  sir. 

Mr.  Garrett.  But  that  involved  no  monetary  expenditure  whatever? 

Mr.  Hammitt.  Oh,  yes;  it  is  a  very  important  monetary  expenditure,  be- 
lieve me. 

Mr.  Garrett.  I  mean  so  far  as  it  is  set  out  here. 

Mr.  Hammitt.  To  deliver  over  to  the  Government  for  a  year  and  a  half  the 
servicese  of  10  men  for  their  full  time,  and  10  very  expensive  men  involves 
monetary  expenditure. 

Mr.  Garrett.  That  was  supposed  to  be  taken  care  of  out  of  the  million  and  a 
half  dollar  fee,  was  it  not? 

Mr.  Hammitt.  If  it  was  supposed  to  be  taken  care  of  out  of  that  fee,  it  was 
not.  But  assume  it  was  taken  care  of  out  of  that  fee,  that  would  merely  mean 
that  there  had  been  paid  back  to  the  Government  everything  in  the  way  of  a 
fee  that  had  been  paid  to  Air  Nitrates  Corporation. 

Mr.  Garrett.  That  resolves  itself  back  into  the  question  of  taxes,  which 
everybody  had  to  pay. 

Mr.  Hammitt.  You  bet  they  did.  ' 

Mr.  Garrett.  What  I  am  trying  to  bring  out  was  that  instead  of  the  Govern- 
ment making  this  contract  with  you  and  paying  you  these  fees,  taking  a  good 
part  of  it  back  in  taxes,  if  it  had  commandeered  this  plant,  just  as  it  took  the 
boys  who  went  into  the  Army,  and  had  said  it  shall  not  be  a  matter  of  whether 
you  hold  or  withhold  those  patent  rights,  which  you  only  get  by  virtue  of  the 
laws  enacted  by  the  Government,  they  could  have  commandeered  the  whole 
thing  and  put  it  at  Muscle  Shoals.  The  Government  could  have  done  that, 
could  it  not? 

Mr.  Hammitt.  I  should  think  the  Government's  power  during  war  time  pos- 
sibly might  have  extended  to  that  point. 

Mr.  Garrett.  Absolutely ;  but  that  course  was  not  pursued.  It  finally  comes 
about  that  your  rights  here  are  these  patent  rights  referred  to  on  page  34. 
Is  not  the  principal  patent  right  involved  in  this  controversy  included  in  those 
mentioned  on  pages  34.  35,  and  36,  the  one  that  is  numbered  1217247.  for  the 
process  of  making  ammonium  nitrate  and  other  products,  dated  Februarv  27, 
1917?  Is  not  that  the  principal  one  that  would  be  involved  in  the  IMuscle  Shoals 
proposition  ? 

Mr.  Hammitt.  No  ;  I  certainly  would  not  say  that. 

Mr.  Garrett.  What  would  be  the  principal  ones  there? 
Mr.  Hammitt.  All  of  them. 

Mr.  Garrett.  This  Ford  contract  says  he  is  to  make  ammonium  nitrate  to  a 
certain  capacity,  or  its  equivalent,  and  that  is  all. 
Mr.  Hammitt.  Or  its  equivalent^ 

Mr.  Garrett.  To  the  amount  of  110.000  tons  per  annum. 
Mr.  Hammitt.  That  is  very  much  like  saying  a  man  will  make  an  amount  of 
cloth  equal  to  so  many  million  ladies'  hair  nets,  because  the  units  are  not  easily 
transferrable  from  one  to  the  other. 


Mr.  Garrett.  I  want  to  get  this  clear.  I  see  that  that  patent  I  referred  to  a 
moment  ago  wa§  granted  on  February  27, 1917. 

Mr..  Hammitt.  Yes. 

Mr.  Garrett.  Who  was  the  patentee  in  that  case,  do  you  recall? 

Mr.  Hammitt.  I  do  not. 

Mr.  Garrett.  Are  not  all  these  patents  enumerated  here  the  discoveries  of 
some  individual  chemist  who  worked  out  this  process,  some  one  in  his  laboratory, 
who  sold  the  patent  to  the  American  Cyanamid  Co.,  and  they  paid  him  for  it 
in  common  stock ;  is  not  that  the  usual  practice? 

Mr.  Hammitt.  No;  I  should  say  that  the  majority  of  these  patents  were 
developed  by  employees  of  the  American  Cyanamid  Co.  through  a  process  of 
research  that  was  directed  by  the  American  Cyanamid  Co.,  conducted  in  its  own 
laboratory,  at  its  own  plants,  and  financed  by  it.  ^ 

Mr.  Garrett.  Granting  that  to  be  true,  as  a  rule  these  patent  rights  are  the 
evolution  and  the  product  of  the  brains  of  an  individual  worker  in  the  American 
Cyanamid  Co.,  some  fellow  who  went  off  in  the  laboratory  and  worked  out  the 
process,  although  being  paid  a  nominal  salary,  or  perhaps  a  good  salary,  by  the 
American  Cyanamid  Co.;  it  does  not  make  any  difference  about  that.  Never- 
theless these  patents  were  all  the  development  of  some  man's  brain. 

Mr.  Hammitt.  Of  many  of  them  working  in  combination. 

Mr.  Garrett.  When  he  developed  it  it  was  patented  in  his  name,  and  they 
usually  pay  a  man  who  develops  a  process  like  that  in  the  common  stock  of  the 
corporation.    That  is  the  usual  process  in  this  country. 

Mr.  Hammitt.  Our  arrangement  was  somewhat  different  from  that. 

Mr.  Garrett.  You  have  gone  over  all  that  question  of  the  construction  of  the 
contract,  and  I  do  not  care  to  go  into  that  any  further.  But  following  a  ques- 
tion by  Mr.  Miller,  if,  as  a  matter  of  fact,  you  have  a  good  contract,  as  you 
contend  you  have,  and  if,  as  a  matter  of  fact,  the  Government  should  ace^t 
Mr.  Ford's  proposition,  then  you  would  have  your  royalties  for  a  period  of 
years,  until  the  patents  expired,  and  that  would  make  a  very  handsome  fee, 
so  far  as  your  company  is  concerned.  If,  as  a  matter  of  fact,  Mr.  Hammitt, 
just  between  ourselves,  here  across  the  table,  this  company  should  get  this 
proposition,  or  it  should  be  turned  over  to  Mr.  Ford,  and  that  company  should 
make  the  amount  of  material  called  for,  and  your  company  should  get  $1,000,000 
a  year  in  royalties,  would  that  not  be  a  very  good  proposition  for  your  com- 
pany, and  would  not  your  company  make  as  much  in  that  regard  as  it  would 
possibly  lose  as  a  competitor  of  Mr.  Ford  in  the  sale  of  fertilizer? 

Mr.  Hammitt.  Congressman,  I  explained  at  some  length  ye.sterday  what  our 
views  were  as  to  the  possibilities  of  our  collecting  that  money  and  what  effort 
would  be  necessary. 

Mr.  Garrett.  I  am  assuming  that  you  will  do  it ;  of  course,  if  you  do  not  do  it, 
you  have  lost  that  much. 

Mr.  Hammitt.  We  will  do  it,  but  it  is  our  business  judgment  that  we  have 
better  protection,  very  much  better  protection,  under  the  provisions  of  article 
19  of  our  contract  than  that  protection  would  be  for  us,  and  it  is  our  best  judg- 
ment that  our  interests  can  only  be  properly  protected  in  that  way  by  which  it 
was  agreed  in  the  contract  that  they  should  be  protected — ^by  carrying  out  the 
terms  of  article  19.  That  is  the  reason  I  have  taken  up  a  day  and  a  half  of  the 
committee's  time. 

Mr.  Garrett.  I  understand  that  to  be  your  position,  but  you  understand  that 
the  law  department  of  the  War  Department  does  not  hold  the  same  view  that 
you  do  in  regard  to  that  contract,  and  the  question  of  whether  Congress  would 
follow  it  or  follow  you  is  a  question  yet  to  be  solved.  That  is  for  future  devel- 
opment ;  but  the  point  I  wanted  to  get  at  was  on  the  merits  of  the  case,  if  that 
contract  should  stand  and  Congress  should  decide  you  have  a  good  contract, 
that  section  19  is  good,  in  view  of  the  fact  that  no  other  company  has  made  an 
offer,  except  two  offers  that  have  been  made  by  correspondence  which  have 
been  sent  to  Members  of  Congress,  if  Congress  should  decide  to  accept  Mr. 
Ford's  proposition  and  he  should  go  to  work  on  the  plant,  if  your  contract  is 
good,  you  will  collect  many  millions  of  dollars  from  your  royalties  on  account 
of  the  operation  of  that  plant. 

Mr.  Hammitt.  There  is  no  doubt  we  will  have  an  income  from  royalties. 

Mr.  James.  Mr.  Hughes  was  called  in  by  your  company  especially  in  con- 
nection with  section  19? 

Mr.  Hammitt.  In  connection  with  the  problem  that  was  worked  out  In  sec- 
tion 19. 


510 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


511 


Mr.  Jamks.  That  laii.2:u!i.ire  was  either  drafted  or  approved  bv  Mr.  Hughes, 
was  it  not? 

Mr.  Hammitt.  I  do  not  believe  I  can  say  th;i\t  Mr.  Hughes  aetuallj'  passed 
upon  the  language  itself,  but  it  was  approved  about  in  that  form  and  drafted 
about  in  that  form  on  the  strength  of  his  advice. 

Mr.  James.  He  had  not  been  consulted  on  any  previous  contract,  had  he? 

Mr.  Hammitt.  Not  that  I  know  of. 

Mr.  James.  He  was  not  consulted  in  reference  to  the  contract  of  November 
16,  1917? 

Mr.  Hammitt.  To  the  best  of  my  knowledge  I  think  it  is  undoubtedly  true 
that  he  was  not  so  consulted. 

Mr.  James.  That  contract  entered  into  on  November  16,  1917,  was  for  the 
construction  of  nitrate  plant  No.  2,  was  it  not? 

Mr.  Hammitt.  It  was. 

Mr.  James.  Is  that  a  long  contract? 

Mr.  Hammitt.  Approximately  the  same  length  as  this  one. 

Mr.  James.  Was  there  any  article  in  that  contract  that  resembled  section  19 
of  this  contract? 

Mr.  Hammitt.  There  was,  yes,  sir.    It  was  not  in  exactly  the  same  form. 

Mr.  James.  It  was  not  quite  strong  enough? 

Mr.  Hammitt.  I  think  it  was  not  nearly  so  strong  as  Article  XIX. 

Mr.  James.  But  the  contract  on  which  you  built  nitrate  plant  No.  2  you 
claim  did  not  have  any  section  19,  but  had  another  section,  in  the  contract 
dated  November  16,  1917,  and  the  nitrate  plant  No.  2  was  constructed  under 
that? 

Mr.  Hammitt.  No.  This  contract  of  June  8,  1918,  by  its  terms  supersedes 
the  previous  contract,  and  the  gi-eater  amount  of  construction  work  was  done 
after  this  contract. 

Mr.  James.  You  entered  into  the  contract  of  November  16,  1917,  for  the  con- 
struction of  nitrate  plant  No.  2? 

Mr.  Hammitt.  That  contract  does  not  now  exist,  because  it  is  superseded 
by  this  one. 

Mr.  James.  When  you  took  the  original  contract  with  the  United  States  vou 
agreed  to  do  certain  things  under  the  contract  of  November  16,  1917? 

Mr.  Hammitt.  We  started  under  that  contract ;  yes,  sir. 

Mr.  James.  According  to  the  contract  here,  the  reason  that  was  changed  was 
for  the  best  interests  of  the  United  States? 

Mr.  Hammitt.  Yes;  it  was  thought  better  to  have 

Mr.  James  (interposing).  It  was  not  thought  to  be  for  the  best  interests  of 
your  company ;  it  was  for  the  best  interests  of  the  United  States,  was  it  not, 
because  I  note  that  you  state  on  page  4  that  the  reason  given  for  changing  the 
contract  was  in  accordance  with  the  best  interests  of  the  United  States. 

Mr.  Hammitt.  I  think  it  was  undoubtedly  considered  to  be  in  the  best  inter- 
ests of  the  United  States  to  cover  the  larger  operation  by  a  superseding  con- 
tract rather  than  by  a  supplemental  one. 

Mr.  James.  The  reason  given  for  changing  the  contract  was  that  it  was  nec- 
essary to  contract  two  additional  plants. 

Mr.  Hammitt.  That  was  the  occasion  for  writing  the  new  contract. 

Mr.  James.  That  was  the  excuse? 

Mr.  Hammitt.  That  was  the  occasion;  of  course,  you  had  to  have  another 
contract,  either  a  supplement  to  this  one  or  something  superseding  it. 

Mr.  James.  Was  the  contract  signed  on  June  16,  1918? 

Mr.  Hammitt.  Was  this  one? 

Mr.  James.  Yes.  I  notice  it  is  stated  on  page  20  that  "  In  witness  whereof, 
the  parties  hereto  have  caused  these  presents  to  be  executed  and  delivered, 
in  triplicate,  at  Washington,  D.  C,  the  day  and  year  first  above  written." 

Mr.  Hammitt.  That  is  the  8th  of  June. 

Mr.  James.  1918? 

Mr.  Hammitt.  Yes,  sir. 

Mr.  James.  Then,  tell  me  why,  on  page  18,  section  21,  it  is  stated  that  "  this 
article  shall  not  apply  to  this  contract  so  far  as  it  may  be  within  the  operation 
or  exception  of  section  116  of  the  act  of  Congress  approved  March  4,  1919"? 

Mr.  Hammitt.  That  is  a  misprint. 

Mr.  James.  What  is  the  correct  year? 

Mr.  Hammitt.  I  do  not  know  what  the  correct  year  is,  but  that  was  a  statute 
then  in  existence,  and  this  contract  was  executed  on  the  date  it  states.  That 
is  a  mistake  of  the  printer. 


Mr.  James.  Would  you  mind  putting  in  the  record  the  correct  date,  and  also 
the  exact  language  of  section  116? 

Mr.  Hammitt.  The  date  of  the  act  and  the  exact  language  of  section  116? 

Mr.  James.  Yes. 

Mr.  Hammitt.  Yes ;  I  will  do  that. 

Mr.  James.  I  notice  it  states  in  Article  XXI,  on  page  18,  that  "  No  Member 
of  or  Delegate  to  Congress  or  Resident  Commissioner  shall  be  admitted  to  any 
share  or  part  of  this  contract."  What  was  the  occasion  for  using  such  language 
as  that?  Nobody  in  Congress  was  trying  to  get  any  share,  or  trying  to  butt 
in,  was  he? 

Mr.  Hammitt.  I  think  that  was  the  usual  provision  in  all  contracts,  and  it 
was  simply  a  means  of  making  clear  what,  I  suppose,  was  always  the  fact,  that 
there  was  no  Member  or  Delegate  in  Congress  who  was  interested,  and  I  take 
it  that  there  is  some  general  provision  of  law  that  requires  that.  At  any  rate, 
that  never  was  called  to  my  attention,  and  we  never  thought  of  that  provision. 

Mr.  James.  I  would  like  to  have  the  contract  of  November  16,  1917,  in  the 
record. 

The  Chaikman.  If  there  is  no  objection  that  will  be  inserted  in  the  record. 

(The  contract  referred  to  is  as  follows:) 

ORDNANCE  DEPARTMENT  CONTRACT,   UNITED   STATES  ARMY. 

These  articles  of  agreement  entered  into  this  16th  day  of  November,  1917. 
by  and  between  Air  Nitrates  Corporation,  a  corporation  organized  and  exist- 
ing under  the  laws  of  the  State  of  New  York,  of  the  first  part  (hereinafter  called 
the  corporation)  and  the  United  States  of  America,  by  J.  W.  Joyes,  colonel, 
Ordnance  Department,  United  States  Army  (hereinafter  called  the  contracting 
officer),  acting  by  authority  of  the  Chief  of  Ordnance,  United  States  Army,  and 
under  the  direction  of  the  Secretary  of  War,  of  the  second  part.     Witnesseth : 

Whereas  the  American  Cyanamid  Co..  a  corporation  of  the  State  of  Maine. 
is  the  producer  of  certain  chemicals  by  the  so-called  cyanamid  process,  necessary 
for  the  production  of  ammonium  nitrate,  and  is  familiar  with  and  controls 
exclusive  patents  and  processes  for  the  production  of  such  chemicals  in  this 
country.  The  United  States  plans  to  have  produced  ammonium  nitrate  upon 
a  large  scale,  and  to  have  created,  constructed,  and  operated  a  plant  for  such 
production.  The  said  company  proposes  to  assist  the  United  States  in  its 
plans  (1)  by  licensing  the  United  States  and  the  Air  Nitrates  Corporation  ns 
agent  of  the  United  States  to  use  its  patents  and  processes;  (2)  by  placing  at 
the  disposal  of  the  Air  Nitrates  Corporation  all  its  experiences,  records,  and 
plans  appertaining  to  the  production  of  the  said  chemicals ;  (3)  by  placing  at  the 
disposal  of  the  Air  Nitrates  Corporation  certain  members  of  its  executive  and 
technical  force;  (4)  by  placing  at  the  disposal  of  the  Air  Nitrates  Corporation 
all  its  plants  for  the  purpose  of  training  superintendents,  foremen,  and  chief 
operatives.  And  the  United  States  proposes  to  compensate  the  American 
Cyanamid  Co.  for  so  licensing  such  patents  and  processes  all  as  set  forth  in  a 
contract  market!  "1"  bearing  even  date  herewith  and  annexed  hereto.  The 
said  company  is  unwilling  to  subject  its  property  and  assets  to  liability  in  con- 
nection with  the  creation,  construction,  and  operation  of  the  plant.  Accord- 
ingly the  said  company  has  organized  the  Air  Nitrates  Corporation  (the  corpo- 
ration under  this  agreement)  which  shall  act  as  the  agent  of  and  which  shall  be 
solely  responsible  to  the  Government  in  the  creation,  construction,  and  oi^era- 
tion  of  the  proposed  plant  and  according  to  the  terms  hereof,  and 

Whereas  war  exists  between  the  United  States  and  Germany,  constituting  a 
national  emergency. 

Now,  therefore,  under  the  provisions  of  section  120  of  an  act  of  Congress 
relating  to  national  defense,  approved  June  3,  1916,  and  pursuant  to  all  other 
laws  of  the  United  States  and  Executive  orders  of  the  President  of  the  United 
States  or  heads  of  its  departments,  under  which  the  requirements  of  adver- 
tising for  proposjils  are  dispensed  with,  and  contracts  in  the  form  hereof  dulv 
authorized. 

This  contract  witnesseth  that  in  consideration  of  the  mutual  agreements 
herein  contained,  the  said  parties  have  agreed,  and  by  these  presents  do  agree, 
to  and  with  each  other  as  follows,  viz : 

Article  1.  The  corporation  will  engage  exclusively  in  the  creation,  construc- 
tion, and  oi)eration  of  the  plant  herein  described. 


929(X)— 22- 


-33 


512 


MUSCLE  SHOALS  PROPOSITIONS. 


Abt.  2.  The  corporation  acting  as  agent  for  and  at  the  cost  of  the  Unitea 
States,  agrees  to  plan,  create,  lay  out,  construct,  erect,  and  install  or  cause  to  be 
planned,  created,  laid  out,  constructed,  erected,  and  installed  at  Muscle  Shoals, 
Ala.,  upon  land  of  the  United  States,  to  be  purchased  by  the  corporation  for 
the  United  States,  all  temporal^'  buildings,  houses,  warehouses,  hospitals,  stores, 
conunissaries,  structures,  plant  machinery,  railway  tracks,  roundhouses,  roads, 
ways  and  sewerage,  water  and  lighting  systems,  and  do  all  grading  and  purchase 
locomotives,  cars,  fixtures,  tools,  equipment,  apparatus,  and  appurtenances,  anrl 
shall  purchase  for  the  United  States  and  open  up.  equip,  and  operate  such 
quarry  or  quarries  as  shall  be  reasonably  necessary  for  the  undertaking  pro- 
vided for  by  this  agreement,  and  shall  build  or  cause  to  be  built  and  equipped 
a  local  power  plant  for  the  purpose  of  furnishing  part  or  all  of  the  requisite 
power,  all  hereinafter  collectively  referred  to  as  the  "  plant."  necessary  for  the 
production  of  approximately  110.000  shoit  tons  of  ammonium  nitrate  per  annum 
by  the  use  of  the  so-called  cyanamid  process,  in  accordance  with  a  general  plan 
li'ereto  annexed  and  made  a  part  hereof,  and  such  changes  as  may  be  made 
from  time  to  time  in  said  plan,  such  changes  to  be  made  with  the  approval  or 
ratification  of  the  contracting  officer.  The  entire  construction  of  the  plant 
shall  be  at  the  cost  of  the  United  States,  but  the  corporation  shall  make  no 
charge  to  the  United  States  for  the  items  specifically  set  forth  in  paragraphs 
1.  2.  3,  and  4  in  article  4  hereof.  The  United  States  may  make  arrangements 
witli  others  than  the  corporation  for  the  furnishing,  from  an  outside  source, 
of  a  portion  of  the  electric  power  necessary  to  operate  the  plant. 

Abt.  3.  The  corporation  acting  as  agent  for  and  at  the  cost  of  the  United 
States  agrees  to  operate  the  said  plant  up  to  June  1,  1921,  or  thereafter  for 
as  long  as  the  United  States  shall  remain  in  the  present  war,  and  to  use  its 
best  efforts  to  begin  said  operation  at  the  earliest  practicable  date  and  when- 
ever the  plant  is  sufficiently  advanced  to  obtain  production  to  begin  said 
operation.  The  operation  of  the  plant  shall  be  at  the  cost  of  the  United  States, 
but  the  corporation  shall  make  no  charge  to  the  United  States  for  the  items 
specifically  set  forth  in  paragraphs  1,  2,  3,  and  4  in  article  4  hereof. 

Abt.  4.  The  United  States  will  bear  the  entire  cost  of  the  construction  and 
operation  of  the  plant  and  conducting  the  business  and  activities  of  the  corpo- 
ration, and  will  supply  the  coi-poration  with  all  money  necessary  therefor  in 
such  amounts  and  in  such  manner  as  to  allow  all  of  its  activities  with  respect 
to  the  construction  and  operation  of  the  plant  to  proceed  without  delays  or 
interruptions  and  without  the  necessity  of  the  corporation  providing  any.  capital 
or  borrowing  any  moneys.  ,      ^  „      . 

The  corporation  will  make  no  charge  to  the  United  States  for  the  foUowmg 

t  iiings : 

1.  For  procuring  from  the  American  Cyanamid  Co.  a  license  to  it  as  agent 
of  the  United  States  to  use  the  said  company's  patents  and  processes. 

2.  For  procuring  from  the  American  Cyanamid  Co.  the  disposal,  for  the  pur- 
poses of  the  Air  Nitrates  Corporation,  of  the  said  company's  experiences,  rec- 
ords, and  plans  appertaining  to  the  production  of  the  said  chemicals  herem- 

above  referred  to. 

3.  For  procuring  from  the  American  Cyanamid  Co.  the  disposal,  for  the  pur- 
poses of  the  Air  Nitrates  Corporation,  of  the  follow^ing  members  of  the  said 
company's  executive  and  technical  force,  namely,  the  president,  vice  president 
and  general  manager,  superintendent  of  manufacture,  sales  and  traffic  manager, 
chief  technologist,  chief  engineer,  assistant  engineer,  and  in  addition  thereto, 
in  connection  with  the  operation  of  the  plant,  two  principal  works  managers, 
as  such  offices  may  from  time  to  time  be  filled. 

4.  For  procuring  from  the  American  Cyanamid  Co.  the  disposal,  for  the  pur- 
poses of  the  Air  Nitrates  Corporation,  of  all  of  the  said  company's  plants  for 
the  purpose  of  training  superintendents,  foremen,  and  chief  operatives. 

Abt.  5.  Time  being  the  essence  of  this  agreement,  the  corporation  will  (i' 
organize  as  soon  as  practicable  such  departments  as  shall  be  necessary  or 
desirable,  including  engineering,  administrative,  purchasing,  manufacturing,  ac- 
counting, and  !egal  departments;  (2)  procure  options  upon  and  purchase  for  the 
United  States  and  with  moneys  supplied  by  the  United  States  such  land  as 
may  be  necessary  or  proper  for  construction,  operation,  and  safeguarding  tlie 
plant  and  public  and  such  quarry  or  quarries  as  may  be  necessary  or  proper 
for  the  operation  of  the  plant;  (3)  engage  labor  and  purchase  material,  sup- 
plies, and  the  like;  (4)  use  the  services  of  the  president,  vice  president  ana 
general  manager,  engineer  assistant  to  the  general  manager,  superintendent  oi 
manufacture,    sales   and   traffic   manager,   chief   technologist,   chief   engmeer, 


MUSCLE  SHOALS  PROPOSITIONS. 


513 


assistant  engineer,  and  in  addition  thereto,  in  connection  with  the  operation 
of  the  plant,  two  principal  works  managers,  all  of  said  American  Cyanamid 
Co.,  as  such  offices  may  from  time  to  time  be  filled;  (5)  secure  the  experiences, 
records,  studies,  designs,  and  plans  bearing  in  any  way  upon  the  processes 
necessary  for  the  manufacture  of  ammonium  nitrate  which  the  American 
Cyanamid  Co.  now  has  or  which  hereafter  may  be  acquired  during  the  term  of 
said  contract  marked  "  1 " ;  (6)  establish  and  maintain  a  main  office  in  the 
city  of  New  York,  N.  Y.,  branch  and  field  offices,  and  employ  advisory,  adminis- 
trative, executive,  clerical,  and  other  labor,  including  managers,  superin- 
tendents, engineers,  chemists,  draftsmen,  mechanics,  and  clerical  force  and 
laborers;  (7)  procure  machinery,  tools,  appliances,  fixtures,  and  materials 
of  all  sorts;  (8)  construct  and  maintain  adequate  but  temporary  houses  of 
different  and  suitable  grades  for  employees  and  for  persons  employed  by  the 
corporation  whose  services  are  reasonably  necessary  in  carrying  on  its  activi- 
ties under  this  agreement,  for  the  reasons  that  there  are  no  housing  facilities 
available  at  Muscle  Shoals,  and  provide  all  that  may  be  necessary  or  desirable 
by  way  of  sanitation  or  otherwise  for  the  general  welfare  of  such  employees, 
including  infirmaries,  hospitals,  commissaries,  and  stores;  (9)  construct  rail- 
way tracks,  roads,  streets,  ways,  and  sewerage,  water  and  lighting  systems, 
and  procure  locomotives  and  cars;  (10)  procure  construction  equipment,  in- 
cluding pumps,  derricks,  concrete  mixers,  hoists,  shovels,  cranes,  and  the  like; 
(11)  enter  into  contracts  for  the  construction  of  the  plant  or  for  any  portions 
thereof,  or  for  anything  in  connection  therewith. 

Abt.  6.  The  corporation  in  dealing  with  parties  other  than  the  United  States 
shall  make  all  contracts,  purchases,  and  other  arrangements  for  performing 
this  contract  in  its  own  name  and  for  its  account,  and  shall  not  bind  or  purport 
to  bind  the  United  States,  unless  the  contracting  officer  shall  in  writing  ap- 
l)rove.  The  corporation  shall,  unless  directed  by  the  contracting  officer,  insert 
in  every  contract  made  for  the  construction '  or  operation  of  the  plant,  a  pro- 
vision that  such  contract  may  be  assigned  by  the  corporation,  with  the  consent 
of  the  contracting  officer,  and  that  such  contract  relates  to  the  main  contract 
between  the  corporation  and  the  United  States. 

All  property,  including  land,  paid  for  or  partly  paid  for  by  the  Unitjed  States, 
shall,  upon  completion  of  payment,  l>ecome  the  property  of  the  United  St-  tes. 
The  United  States  may  at  its  option  from  time  to  time  furnish  the  corporation 
with  any  property  for  the  construction  and  operation  of  the  plant-;  provided, 
however,  that  the  corporation's  undertakings  for  the  same  made  in  good  faith 
are  not  thereby  interfered  with. 

The  corporation  in  operating,  caring  for,  and  storing'  property  shall  use  all 
jeasonable  efforts  to  adequately  protect  the  same,  and  otiierwise  shall  not  be 
liable  for  any  loss  or  damage  thereto,  and  the  corporation  shall  be  obligated 
to  procure  and  thereafter  maintain  only  such  fire,  liability,  indemnity,  or  other 
insurance  in  such  forms,  in  such  amounts,  and  for  such  periods  of  time  as  the 
contracting  officer  or  inspector  may  approve  or  require. 

The  corporation  and  contractors  shall  make  no  departure  from  the  standard 
rate  of  wages  paid  to  workmen  in  the  locality  where  the  said  work  of  construc- 
tion and  operation  is  being  done  without  the  prior  consent  or  approval  of  the 
contracting  officer  or  the  inspector. 

Art.  7.  The  United  States  shall  not  be  obligated  to  make  any  expenditures 
relating  to  the  performance  of  this  contract  unless  the  approval  or  ratification 
of  the  contracting  officer  shall  have  been  obtained. 

The  corporation  in  the  construction  and  operation  of  the  plant  shall  abide 
by  such  directions  of  the  contracting  officer  as  he  shall  give  the  corporation 
from  time  to  time,  and  such  construction  and  operation  shall  be  in  all  respects 
subject  to  the  approval  or  ratification  of  the  contracting  officer.  The  corjiora- 
tion,  its  officers  and  agents  duly  appointed  by  the  corporation  for  the  puriM)se 
of  obtaining  such  approval  or  ratification  as  the  case  may  be,  shall  from  time 
to  time  consult  with  the  contracting  officer  upon  the  general  charactjer  of  work 
•  ontemplated  or  previously  done,  or  previously  or  about  to  be  contracted  for. 

The  proces.ses  and  work  involved  in  the  manufacture  of  the  final  product  ot 
iunmoniuni  nitrate  shall  be  conductjed  so  that  said  final  product  may  bo  in 
accordance  with  the  Ordnance  Department's  specifications  for  such  mat^^rial. 

Pay  rolls  for  labor  and  services  performed,  invoices  for  material.  inv(»ic(  s 
for  rental,  contracts  for  construction  of  plant,  and  payments  thereunder  shall 
bo  furni.shed  to  the  contracting  officer  or  insi^ector  for  approval  or  ratification. 
Upon  such  approval  or  ratification  the  contracting  officer  shall  either  furnish 


514 


MUSCLE   SHOALS  PROPOSITIONS. 


funds  to  the  amounts  of  all  of  said  charges  approved  or  ratified,  which  shall  be 
immediately  paid  out  by  the  corporation  under  the  supervision  of  the  contract- 
ing officer  or  his  representatives,  or  may  be  paid  direct  by  the  contracting  officer 
or  his  representatives  to  the  persons  entitled  thereto.  The  United  States  may 
make  payments  for  property  delivered  or  services  performed  under  any  con- 
tracts or  subcontracts  direct  to  the  contractors  or  subcontractors. 

The  contracting  officer  will  from  time  to  time  instruct  the  corporation  as  to 
(1)  the  methods  to  be  followed  in  reporting  cost;  (2)  the  submission  of  state- 
ments thereof,  bills  therefor,  and  all  other  supporting  papers;  (3)  the  sub- 
mission of  engineers'  and  accountants'  certificates;  and  (4)  such  additions, 
if  any  there  be,  to  the  allowance  of  costs  and  such  regubitions  and  instructions 
with  regard  to  its  determination  as  from  time  to  time  shall  be  adopted  by  the 
Chief  of  Ordnance,  or  as  may  be  required  in  order  to  enable  the  contracting 
officer  to  issue  his  proper  certificate  for  payment  thereof. 

Instructions  for  all  purposes  under  this  agreement  whenever  practicable 
shall  be  in  writing  addressed  to  the  corporation. 

Abt.  8.  As  full  compensation  for  the  services  of  the  corporation  the  United 
States  shall  make  payment  to  the  corporation  of  the  following  fees : 

(1)  Fee  No.  1,  equivalent  to  3^  per  cent  of  the  entire  cost  of  the  creation  and 
construction  of  the  plant.  Payments  of  such  fee  shall  be  made  monthly  upon 
the  proper  certificate  of  the  contracting  officer  for  that  portion  of  the  entire 
cost  approved  or  ratified  during  the  month  or  months  preceding  and  for  which 
the  fee  is  then  unpaid.    The  total  of  this  fee  shall  not  exceed  $1,000,000. 

(2)  Fee  No.  2  is  equivalent  to  one-quarter  of  1  cent  per  pound  of  am- 
monium njtrate  produced  at  the  plant  in  accordance  with  the  Ordnance  De- 
partment's specifications  for  such  material,  or  accepted  by  the  inspector,  from 
commencement  of  operation  to  June  1,  1921,  and  thereafter  for  so  long  as  the 
United  States  shall  remain  in  the  present  war.  Payment  shall  be  made 
monthly  upon  the  proper  certificate  of  the  contracting  officer  or  inspector  show- 
ing delivery  and  acceptance  of  ammonium  nitrate. 

Art.  9.  Cost  upon  which  fee  No.  1  of  the  corporation  is  based  shall  be  tlio 
entire  cost  from  the  16th  day  of  November,  1917,  of  creating  and  constructing 
the  plant  approved  or  ratified  by  the  contracting  officer,  including,  among  other 
items,  the  following : 

(a)  All  the  land,  including  quarry  or  quarries,  labor,  material,  machinery, 
fixtures,  equipment,  apparatus,  appurtenances,  tools  not  owned  by  the  workmen, 
supplies  and  equipment  necessary  for  either  temporary  or  permanent  use  for 
the  construction  and  operation  of  the  plant,  including  the  opening  up  and 
operation  of  quarry  or  quarries. 

(b)  Rental  for  construction  plant  and  for  the  main  and  branch  offices,  and 
for  furnishing  and  equipment  for  such  offices. 

(c)  Loading  and  unloading  construction  plant,  the  transportation  thereof, 
including  transportation  to  and  from  the  place  or  places  where  it  is  to  be 
used  in  connection  with  said  work,  the  installation  and  dismantling  thereof, 
and  ordinary  repairs  and  replacements  during  its  use  in  the  said  work. 

(d)  Transportation  and  expenses,  including  transportation  tax  to  and  from 
the  work  of  the  necessary  field  and  office  forces,  procuring  labor,  and  expeditinj: 
the  production  and  transportation  of  material  and  equipment.  All  freight 
charges  on  equipment,  furnishings,  material,  and  supplies,  including  transpor- 
tation tax  thereon. 

(e)  Salaries  of  managers,  engineers,  superintendents,  timekeepers,  foremen, 
and  other  employees  at  the  main  and  field  offices  of  the  corporation  in  connec- 
tion with  said  work,  salaries  of  the  executive  officers  of  the  corporation,  except 
such  as  shall  be  placed  at  the  disposal  of  the  corporation  by  the  American 
Cyanamid  Co.,  and  set  forth  in  contract  marked  "  I." 

(/)  Temporary  buildings,  houses,  warehouses,  hospitals,  infirmaries,  stores, 
commissaries,  and  structures,  and  the  equipment  required  therefor,  and  fi- 
nishings and  equipment  required  for  main  and  field  offices,  and  the  cost  <>f 
maintaining  and  operating  the  same,  and  including  such  minor  expenses  as 
telegrams,  telephone  service,  expressage,  postage,  etc. 

(g)  Temporary  buildings  of  different  grades,  warehouses,  local  power  plant, 
structures,  plant  machinery,  railway  tracks,  locomotives,  cars,  roundhouses, 
roadways,  grading  and  sewerage,  water  and  lighting  systems,  fixtures  men- 
tioned and  described  in  article  hereof. 

ih)  All  bonds  required  by  this  agreement,  and  all  bonds  necessary  or  proper, 
fire,  liability,  and  other  insurance,  and  such  los.ses  and  expenses  not  compen- 
sated by  insurance  or  otherwise  as  are  found  and  certified  by  the  contracting 


MUSCLE  SHOALS  PROPOSITIONS. 


515 


officer  to  have  been  actually  sustainetl  (including  settlements  made  with  the 
written  consent  and  approval  of  the  contracting  officer)  by  the  corporation  in 
connection  with  said  work,  and  to  have  clearly  resulted  from  causes  other  than 
the  fault  or  neglect  of  the  corporation.  Such  losses  and  expenses,  when 
incurred  by  the  corporation  in  connection  with  damage  to  third  person  result- 
ing? from  the  work,  shall  be  included  in  the  cost  of  the  work,  but  not  for  the 
purpose  of  tletermining  the  corporation's  fee;  but  such  losses  and  expenses, 
when  incurred  by  the  corporation  in  connection  with  constructing  and  replacing 
imy  of  the  work  destroyed  or  damaged,  shall  be  included  in  the  cost  of  the 
work  for  all  purposes  hereunder. 

(i)  Permit  fees,  royalties,  and  other  similar  items  of  expense  incidental  to 
the  execution  of  this  argeement. 

ij)  Transportation,  including  all  transportation  tax,  traveling  and  hotel 
expenses,  and  telephone,  telegraph,  mail,  and  express,  expenses  of  officers, 
engineers,  and  other  employees  of  the  corporation  as  are  actually  incurred 
in  connection  with  this  work. 

(k)  Amounts  paid  to  contractors  or  subcontractors  under  contracts  approved 
or  ratified  by  the  contracting  officer,  and  sums  paid  by  the  United  States  upon 
contracts  made  with  any  person  at  the  request  of  the  corporation. 

(0  All  manner  of  expense  of  the  corporation  in  creating  and  constructing 
the  plant  and  its  equipment,  including  administration,  superintendence,  engi- 
neering, materials,  labor,  freight,  transportation  tax,  power,  heat,  light,  rentals, 
insurance,  liabilities,  losses  not  covered  by  insurance,  and  all  overhead,  general, 
and  legal  costs  and  expense,  and  including  all  other  items  of  expenditure  made 
by  the  corporation  not  properly  chargeable  to  manufacturing. 

(m)  In  addition  thereto  further  allowances,  if  any  there  be,  of  cost  from 
time  to  time  may  be  made  by  the  contracting  officer. 

The  enumeration  of  the  foregoing  items  shall  not  be  deemed  to  be  inclusive 
of  all  items  of  cost  and  shall  not  be  construed  to  exclude  in  determining  cost 
and  the  fee  thereon  other  items  of  expenditures  entering  into  the  cost  of 
creation  and  construction  of  the  plant  and  not  herein  enumerated. 

All  revenue,  if  any,  from  the  operation  of  any  housing,  boarding  houses, 
connmssary,  stores,  infirmary,  hospital,  or  other  facilities,  or  from  rebates, 
refunds,  etc.,  shall  be  accounted  for  by  the  corporation  to  the  United  States. 

The  United  States  may  itself  furnish  construction  plant,  materials,  machinery, 
equipment,  or  other  property  for  use  upon  the  job ;  the  cost  of  all  such  property 
shall  be  include<l  in  the  cost  upon  which  the  corporation's  fee  shall  be  based. 

Abt.  10.  The  contracting  officer  will  detail  an  inspector  to  work  with  the  cor- 
poration at  its  main  office  in  New  York  and  an  inspector  to  work  with  the 
corporation  at  its  branch  office  at  the  site  of  the  plant,  which  insi)ectors  shall 
have  authority  to  give  approvals,  ratifications,  and  instructions  to  the  corpora- 
tion hereunder  and  to  receive  and  transmit  to  the  disbursing  officer  vouchers 
prepared  by  the  corporation. 

At  the  retiuest  of  the  corporation  the  United  States  may  enter  into  contracts 
with  any  person  or  corporation  to  perform  any  of  the  work  in  connection  with 
the  construction  of  the  plant  or  for  supplying  materials,  machinery,  or  equipment 
therefor,  but  the  sums  paid  thereon  shall  be  deemed  to  be  a  part  of  the  cost  of 
the  plant  in  determining  the  coriwration's  fee  No.  1. 

In  the  event  that  the  corporation  shall  deem  it  for  the  best  interest  of  the 
United  States  in  carrying  out  this  agreement,  the  contracting  officer  may  uiwn 
reqijest  purchase  and  pay  for  direct  any  work  in  connection  with  the  construc- 
tion of  the  plant  and  materials,  supplies,  machinery,  and  equipment,  but  the 
corporation  shall  prepare  such  atlvertisements,  specifications,  abstracts  of  pro- 
posals, and  vouchers  for  such  purchases  upon  the  prescribed  Government  blanks 
and  present  the  same  to  the  contracting  officer  for  approval  and  acceptance,  and 
the  contracting  officer  shall  pay  the  sums  set  out  in  such  proposals  as  approved 
and  accepted  to  the  persons  making  the  same.  The  sums  so  paid  shall  be  in- 
eluded  in  the  cost  of  the  plant  in  determining  the  corporation's  fee  No.  1. 

The  contracting  officer  shall  detail  a  disbursing  officer  for  service  at  the  main 
office  and  one  for  service  at  the  branch  office  at  the  site  of  the  plant,  with  power 
and  sufficient  funds  to  discharge  the  pay  rolls  as  they  become  due  and  to  make 
any  other  payments  as  they  shall  become  due  on  account  of  this  agreement. 

Art.  11.  It  is  further  agreed  that  if  in  the  judgment  of  the  contracting  officer 
the  exidation  of  ammonia  and  its  conversion  to  dilute  nitric  acid  or  the  manu- 
facture«f  ammonium  nitrate  from  dilute  nitric  acid  by  interaton  with  ammonia 
may  be  done  more  advantageously  by  improvised  methods  of  persons  or  com- 
panies other  than  the  corporation,  the  contracting  officer  shall  be  free  to  call 


516 


MUSCLE  SHOALS  PROPOSITIONS. 


upon  th»  corporation  to  install  and  use  such  methods  or  processes  in  its  oi^ra- 
tion  of  the  plant  at  the  cost  and  expense  of  the  United  States.  The  contracting 
officer  shall  be  free  to  consult  with  i)ersons  other  than  the  corporation  upon  all 
matters  relating  to  the  operation  of  the  plant,  to  the  end  that  the  best  results 
of  operation  may  be  obtained. 

Art.  12.  The  contracting  officer  or  his  representative  shall  be  afforded  at' all 
times  proper  facilities  for  inspection  of  the  work  and  shall  at  all  times  have 
access  to  the  premises,  to  the  work  and  material,  and  to  all  books,  records,  cor- 
respondence, instructions,  plans,  drawings,  receipts,  vouchers,  and  memoranda 
of  every  description  of  the  corporation  pertaining  to  said  work ;  and  the  corpora- 
tion shall  preserve  for  a  period  of  six  years  after  its  completion  or  cessation 
of  work  under  this  contract  all  of  the  books,  records,  and  other  papers  just 
mentioned.  The  corporation  or  its  duly  authorized  representative  shall  be  ac- 
corded the  privilege  of  examining  the  books  and  papers  of  the  contracting  officer 
relating  to' the  work  performed  or  materials  furnished  under  this  contract  for 
the  purpose  of  checking  up  and  verifying  the  cost  of  this  work. 

Art.  13.  In  the  event  that  in  the  opinion  of  the  Chief  of  Ordnance  the  public 
interests  so  require,  this  contract  may  be  terminated  by  notice  in  writing  to  the 
corporation  without  prejudice  to  any  claim  the  United  States  may  have  against 
the  corporation  or  the  corporation  may  have  against  the  United  States.  In  the 
event  of  the  termination  of  this  contract  as  aforesaid  the  United  States  shall  pay 
to  the  corporation  all  costs  and  obligations  of  the  corporation  arising  in  connec- 
tion with  the  construction  or  operation  of  the  plant  therefor  properly  incurred, 
but  not  previously  paid.  In  addition  thereto  the  United  States  shall  make  the 
following  payments  under  the  following  conditions: 

(1)  In  the  event  that  this  contract  is  terminateil  during  the  construction  of 
the  plant,  if  the  corporation  is  not  in  default  in  any  substantial  agreement 
herein  contained,  the  United  States  shall  pay  the  corporation  such  percentage  of 
the  fee  No.  1  provided  for  in  article  8  hereof,  and  not  theretofore  paid,  ;is 
may  be  found  by  the  Chief  of  Ordnance  as  fairly  and  justly  amounting  to  tlio 
percentage  of  the  work  then  performed,  including  obligations  incurred  whicli 
the  contracting  officer  may  approve  or  ratify,  and  for  which  payment  has  been 
or  will  be  made. 

(2)  In  the  event  that  the  contract  is  terminated  during  or  prior  to  the  opera- 
tion of  the  plant  by  the  corporation,  then  the  corporation  shall  be  paid  the  sum 
of  money  if  any  then  due  on  account  of  the  production  of  ammonium  nitrate, 
and  the  United  States  shall  thereafter  continue  to  pay  to  the  corporation  one- 
quarter  of  1  cent  per  pound  for  the  ammonium  nitrate  produced  therein  for  the 
period  provided  in  paragraph  2  of  article  8  hereof. 

Provided,  however,  and  it  is  understootl  and  agreed,  that  this  contract  shall  not 
be  canceled  prior  to  June  1,  1921,  or  so  long  as  the  United  States  shall  remain  in 
the  present  war,  except  for  the  permanent  cessation  of  all  activities  of  tlie 
United  States  in  connection  with  the  plant,  unless  the  corporation  exhibits  such 
default  or  negligence  as  to  require  that  the  United  States  in  its  best  interests 
should  directly  construct  and  operate  the  plant. 

Art.  14.  It  is  understood  and  agreed  that  if  upon  cessation  of  this  war  or 
for  any  other  reason  under  this  agreement  the  United  States  determines  to  cease 
the  construction  or  operation  of  the  plant  and  proposes  to  dispose  of  the  sanus 
the  corporation  shall  be  given  the  first  opportunity  to  purchase  the  plant  and 
Its  contiguous  property,  and  that  no  other  propositions  for  the  purchase  thereof 
shall  be  considered  by  the  United  States  until  the  corporation  has  had  a  reason- 
able period  of  time  in  which  to  negotiate  a  purchase. 

Art.  15.  This  contract  shall  not,  nor  shall  any  right  to  receive  payment  or 
any  other  interest  therein,  be  transferred  or  assigned  by  the  corporation  to  any 
persons,  firms,  or  companies  without  the  consent  of  the  Secretary  of  Wai-. 

Art.  16.  In  the  event  that  labor  disputes  shall  arise  directly  affecting  tlio 
performance  of  this  contract,  and  causing,  or  likely  to  cause,  delay,  the  corpora- 
tion may  address  a  written  statement  thereof  to  the  Chief  of  Ordnance  for 
transmission  to  the  Secretary  of  War  with  the  request  that  such  dispute  be  set- 
tled, providing  such  information  shall  be  within  the  control  of  the  corporation, 
as  the  Secretary  of  War  shall  require,  and  it  is  stipulated  and  agreed  that  the 
Secretary  of  War  may  thereupon  settle  or  cause  to  be  settled  such  dispute. 

Art.  17.  This  contract,  and  all  subcontracts  made  in  pursuance  hereof,  is 
subject  to  the  provisions  of  the  following  laws : 

1.  The  naval  approprirtion  act  approved  March  4,  1917,  containinjs,  among 
other  things,  the  provision  quoteil  below  in  the  President's  Executive  order 
dated  March  24.  1917. 


MUSCLE  SHOALS  PROPOSITIONS. 


517 


2.  The  President's  Executive  order  dated  March  24,  1917,  which  provides 
as  follows:  ^  ,,      , 

"  Under  authority  contained  in  the  naval  appropriation  act  approved  March 
4,  1917  (Public,  64th  Cong.),  whereby  it  is  provided— 

"  That  in  case  of  national  emergency  the  President  is  authorized  to  suspend 
provisions  of  law  prohibiting  more  than  eight  hours  of  labor  in  any  one  day 
of  persons  engaged  upon  work  covered  by  contracts  with  the  United  States. 

"Provided  further.  That  the  wages  of  persons  employed  upon  such  con- 
tracts shall  be  computed  upon  a  basic  day  rate  of  eight  hours'  work,  with  over- 
time rates  to  be  paid  for  at  not  less  than  time  and  one-half  for  all  hours' 
work  in  excess  of  eight  hours. 

"  It  is  hereby  ordered  that  the  provisions  of  the  act  approved  June  19,  1912. 
limiting  the  hours  of  daily  service  of  mechanics  and  laborers  on  work  under 
contracts  to  which  the  United  States  is  a  party  are  suspended  with  respect  to 
all  contracts  for  ordnance  and  ordnance  stores  and  other  military  supplies  and 
material,  contracts  for  buildings  under  construction  or  to  be  constructed  at 
the  arsenals,  and  contracts  for  fortifications  work  during  the  pending  emergency 
and  until  further  orders. 

"  This  order  shall  take  effect  from  and  after  this  date. 

"  WooDROW  Wrr.sox. 

"  The  White  House,  March  24,  1917." 

The  act  of  June  19,  1912,  referred  to  in  the  aforesaid  Executive  order  con- 
tains, among  other  things,  the  following  provisions : 

"  Sec.  1.  That  every  contract  hereafter  made  to  which  the  United  States 
*  *  *  is  a  party,  and  every  such  contract  made  for  or  on  behalf  of  the  United 
States  *  ♦  *  which  may  require  or  involve  the  employment  of  laborers  or 
mechanics,  shall  contain  a  provision  that  no  laborers  or  mechanics  doing  any 
part  of  the  work  contemplated  by  the  subcontractor  for  any  part  of  said  work 
contemplated  shall  be  required  or  permitted  to  work  more  than  eight  hours  in 
any  one  calendar  day  upon  such  work ;  and  every  such  contract  shall  stipulate 
a  penalty  for  each  violation  of  such  provision  in  such  contract  of  $5  for  each 
laborer  or  mechanic  for  every  calendar  day  in  which  he  shall  be  required  or 
permitted  to  labor  more  than  eight  hours  upon  said  work    *     *    *." 

Art.  18.  No  Member  of  or  Delegate  to  Congress,  or  Resident  Commissioner, 
is  or  shall  be  admitted  to  any  share  or  part  of  this  contract  or  to  any  benefit 
that  may  arise  therefrom ;  but  this  article  shall  not  apply  to  this  contract  as 
far  as  it  may  be  within  the  operation  or  exception  of  section  116  of  the  act  of 
Congress  approved  March  4,  1909  (55  Stats.,  1109). 

Art.  19.  No  person  or  persons  shall  be  employed  in  the  performance  of  this 
contract  who  are  undergoing  sentences  of  imprisonment  at  hard  labor  which 
have  been  imposed  by  the  courts  of  the  several  States,  Territories,  or  municipali- 
ties having  criminal  jurisdiction. 

Art.  20.  Except  as  this  contract  shall  otherwise  provide,  any  doubts  or  dis- 
putes which  may  arise  as  to  the  meaning  of  anything  in  this  contract  shall  be 
referred  to  the  Chief  of  Ordnance  for  determination.  If,  however,  the  cor- 
poration shall  feel  aggrieved  at  any  decision  of  the  Chief  of  Ordnance  upon  such 
reference,  he  shall  have  the  right  to  submit  the  same  to  the  Secretary  of  War. 

Art.  21.  Notice  under  this  contract  shall  be  deemed  to  have  been  sufficiently 
given  to  and  received  by  the  corporation  when  mailed  in  a  sealed,  postpaid 
wrapper  addressed  to  Air  Nitrates  Corporation,  at  511  Fifth  Avenue,  New 
York.  N.  Y.  • 

Art.  22.  The  corporation  shall  furnish  to  the  United  States  at  cost  to  the 
United  States,  within  10  days  after  execution  and  delivery  of  this  agreement,  a 
performance  bond  in  the  sum  of  $250,000,  conditioned  upon  the  full  and  faithful 
performance  of  that  portion  of  this  contract  providing  for  the  construction  of 
the  plant  by  the  contractor.  Such  bond  shall  be  in  the  form  and  with  sureties 
satisfactory  to  the  contracting  officer. 

Art.  23.  If  necessitated  by  lack  of  existing  appropriations  of  public  funds  ap- 
plicable to  that  part  of  this  agreement  with  respect  to  the  operation  of  the  plant, 
the  United  States  shall  have  the  right  to  make  and  execute,  and  the  corporation 
shall  thereupon  execute,  a  new  contract  under  the  same  terms  and  conditions  as 
these  presents. 

Art.  24.  This  contract  may  be  executed  in  any  number  of  counterparts,  all  of 
which  together  shall  constitute  one  original  contract.  Whenever  the  term  "  con- 
tracting officer  "  is  used  in  this  contract  the  same  shall  be  construed  to  mean 
the  contracting  ofl[icer  executing  this  agreement,  his  successor  or  successors,  his 


518 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


519 


duly  authorized  ag:ent  or  agents,  or  anyone  designated  by  the  Chief  of  Ordnance 
from  time  to  time  to  act  as  contracting  officer  hereunder. 

In  witness  whereof  the  party  of  the  first  part  has  caused  this  contract  to  be 
executed  by  its  proper  officers  thereunto  duly  authorized,  and  the  United  States 
of  America  has  caused  this  contract  to  be  executed  by  the  undersigned  contract- 
ing officer  thereunto  duly  authorized. 

Ani  Nitrates  Corporation. 
By  Frank  S.  Washburn, 

President. 
C.  M.  Grant, 

Secretary. 

J.  W.   JOYES, 

Colonel,  Ordnance  Department,  United  States  Army,  Contracting  Officer. 

Witness : 

Clarke  M.  Rosecrantz. 
Attest  : 

Alfred  H.  White. 

Mr.  Parker.  You  say  you  sold  fertilizer  material  to  the  Virginia-Carolina 
Chemical  Co.  and  possibly  to  other  companies.  What  fertilizer  materials  did 
you  sell? 

Mr.  Ham  MITT.  We  sell  cyanamid  to  the  Virginia-Carolina  Chemical  Co. 

Mr.  Parker.  Do  you  sell  phosphates,  Uml 

Mr.  Ham  MITT.  I  am  not  sure  whether  they  have  bought  phosphate  rock. 

Mr.  Parker.  I  do  not  mean  to  them,  but  to  other  people. 

Mr.  Hammitt.  Oh,  yes;  we  sell  phosphate  rock. 

Mr.  Parker.  Do  you  sell  phosphates? 

Mr.  Hammitt.  No,  sir. 

Mr.  Parker.  Do  they  use  the  cyanamid  as  a  fertilizer  material? 

Mr.  Hammitt.  Yes,  sir. 

Mr.  Parker.  Right  in  the  fertilizer,  as  it  is? 

Mr.  Hammitt.  Yes;  right  in  the  fertilizer. 

Mr.  Parker.  What  quantity  of  your  product  do  you  sell,  and  at  what  price? 

Mr.  Hammitt.  We  have  sold,  in  the  largest  year,  to  the  American  fertilizer 
industries  as  much  as  40,000  tons,  and  in  40,000  tons  of  cyanamid  there  would 
be 

Mr.  Parker  (interposing).  What  percentage? 

Mr.  Hammitt.  You  mean  the  percentage  of  our  total  business? 

Mr.  Parker.  What  percentage  of  cyanamid  is  nitrogen? 

Mr.  Hammitt.  There  is  25  per  cent  ammonia ;  that  is  the  unit  we  use.  That 
would  be  10,000  tons  of  ammonia.  The  present  price  of  that  form  of  ammonia 
is  approximately  $2.10  per  unit,  and  a  unit  is  20  pounds,  which  would  mean 
about  10  cents  a  pound. 

Mr.  Parker..  Do  you  sell  carbide? 

Mr.  Hammitt.  No,  sir ;  we  use  all  the  carbide  we  make  for  making  cyanamid 
from  it. 

Mr.  Parker.  Do  you  sell  any  other  product  from  your  factory  except  cvna- 
mid? 

Mr.  Hammitt.  Yes ;  we  sell  cyanide,  and  we  sell  hydrocyanic  acid  gas. 

Mr.  Parker.  You  have  got  the  phosphates  already.  Take  the  cyanide  and 
the  hydrocyanic  acid  gas,  could  those  he  made  at  this  nitrate  plant? 

Mr.  Hammitt.  You  can  make  your  cyanide  from  the  crude  cyanamid — it 
would  be  necessary  to  put  up  another  plant  for  that  purpose. 

Mr.  Parkker.  Cyanide  of  what? 

Mr.  Hammitt.  I  think  our  cyanide  would  probably  be  called  calcium  cyanide; 
for  that  is  a  mixture. 

Mr.  Parker.  Does  the  hydrocyanic  acid  gas  need  another  process? 

Mr.  Hammitt.  That  is  manufactured  from  the  cyanide.  That  requires 
another  separate  plant.  Our  entire  plant  in  California  is  devoted  to  making 
hydrocyanic  acid  gas  from  cyanide. 

Mr.  Parker.  Are  they  complicated  plants? 

Mr.  Hammitt.  Y'es;  they  are  both  complicated.  We  make  various  other 
forms  of  ammoniates. 

Mr.  Parker.  Your  principal  sale  is  in  cyanamid,  is  it,  or  do  you  sell  more 
ammonia  ? 


Mr,  Hammitt.  In  normal  times  our  best  business  is  in  cyanamid.  At  the 
present  time  our  best  business  in  money  value  is  cyanide,  but  that  is  because 
the  fertilizer  industry  is  down. 

The  Chairman.  We  are  very  much  obliged  to  you. 

Mr.  Hammitt.  I  am  very  much  obliged  to  the  committee  for  a  day  and  a  half 
of  courtesy. 

The  Chairman.  I  want  to  thank  you  for  your  kindness  in  your  answers  to 
the  questions  asked  by  members  of  the  committee. 

(Thereupon  the  committee  took  a  recess  until  2.30  o'clock  p.  m.) 

after  recess. 
The  committee  met  pursuant  to  recess  at  2  o'clock  p.  m. 

STATEMENT  OF  MR.  CHARLES  H.  MacDOWELL. 

The  Chairman.  Mr.  MacDowell,  will  you  kindly  state  your  name  in  full,  the 
positions  you  occupied  for  the  Government  during  the  war,  and  your  present 
position. 

Mr.  MacDowell.  Charles  H.  MacDowell ;  during  the  war,  director  of  the 
chemicals  division  of  the  War  Industries  Board,  handling  all  materials  of  that 
general  character  which  entered  into  the  chemical  and  explosive  program ;  presi- 
dent of  the  National  Fertilizer  Association ;  president  of  the  Armour  Fertilizer 
Works,  Chicago ;  president  of  the  Western  Society  of  Engineers ;  and  member  of 
the  Federated  Engineering  Council  of  Washington. 

The  Chairman.  Mr.  MacDowell,  I  understand  that  you  are  very  familiar  with 
the  subject  of  fertilizers,  especially.    Do  you  know  the  Muscle  Shoals  plant? 

Mr.  MacDowell.  I  know^  something  of  it,  as  I  was  reasonably  familiar  with 
the  starting  of  it  and  the  need  for  the  product. 

The  Chairman.  Will  you  kindly  state  to  the  committee  in  your  own'  way  what 
you  know  about  the  early  life  of  the  Muscle  Shoals  work. 

Mr.  MacDowell.  My  own  particular  specialty  in  the  War  Industries  Board, 
aside  from  directing  the  general  activities  which  were  carried  on  through  some 
20  department  heads,  was  the  personal  handling  of  the  nitrate  of  soda  problems. 

We  were  entirely  dependent  on  Chile  for  that  particular  form  of  ammonia  or 
of  nitrogen,  I  should  say,  which  had  the  most  to  do  with  the  development  and 
carrying  out  of  the  war  program  as  far  as  explosives,  propelling  powders,  and 
many  other  war  needs  were  concerned.  Chile  has  normally  a  capacity  to  manu- 
facture about  3,000,CKX)  tons  of  nitrate  of  soda  annually.  It  has  a  normal  stock 
on  hand  in  plants  and  at  coast  of  about  600,0(X)  tons. 

Prior  to  our  getting  into  the  war  Europe  had  been  calling  for  large  quantities 
of  nitrates  for  the  manufacture  of  their  war  needs.  When  I  say  Europe  I  mean 
the  allied  countries. 

Nitrates,  which  ordinarily  had  a  value  of  around  7  to  8  shillings  a  Spanish  100 
pounds,  had  gone  up  perhaps  to  10  or  11  shillings  when  we  entered  the  war.  As 
we  had  the  long  pocketbook  some  Chileans  thought  there  was  a  good  opportunity 
to  get  more,  and  the  price  was  rapidly  advanced  to  as  high  as  16  shillings. 

In  studying  how  we  should  handle  the  matter  and  get  a  price  within  the  gen- 
eral pocketbook  the  plan  was  developed  that  it  should  be  handled  through  an  in- 
ternational nitrates  committee,  and  that  practically  eliminating  the  details  of 
the  machinery  there  would  be  one  directing  power  and  one  real  buyer  to  handle 
all  of  the  nitrates  which  we  might  need. 

The  situation  was  a  difficult  one.  The  Germans  for  a  time  had  a  fleet  on  that 
side  of  the  Pacific.  We  were  short  of  tonnage  and  we  had  many  problems  to 
solve.  We  did  solve  them.  We  were  scared  a  good  many  times,  but  we  wiggled 
through.  We  traded  nitrates  around  from  plant  to  plant  and  took  them  from 
fertilizer  people,  borrowed  them,  and  took  them  in  other  ways,  and  we  kept  every 
war  activity  fully  supplied  with  nitrates  during  that  critical  period. 

However,  the  Government  felt  that  it  was  necessary  to  have  other  supplies 
beyond  those  that  naturally  existed  in  this  country.  We  were  geting  a  pretty 
fair  tonnage  of  ammonia  from  the  by-product  coke  and  gas  oven  people,  but  it  was 
thought  in  the  best  interest  that  we  should  prepare  and  build  as  rapidly  as 
possible  certain  plants  for  the  fixation  of  nitrogen  for  whatever  purpose  we 
might  make  use  of  it. 

Two  plants  were  started  at  or  near  Muscle  Shoals.  One  of  them  was  based 
on  some  experimental  work  which  had  been  done  by  a  company  here  in  attempt- 


520 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


521 


ing  to  sol^e  what  is  known  as  the  Haber  method  of  uniting  the  two  gases  which 
Germany  had  developed  prior  to  the  war  and  which  was  serving  her  purposes 
wonderfully. 

The  other  method  which  was  adopted  was  one  which  was  carried  on  success- 
fully in  Europe  and  in  this  country  known  as  the  cyanamid  process  for  fixing 
nitrogen.  That  particular  plant  was  located  at  Muscle  Shoals  and  was  planned 
to  have  a  capacity  of  110,000  tons  or  thereabouts  of  ammonium  nitrate,  one  of 
the  high  explosives. 

There  are  several  ways,  I  might  say,  of  making  ammonium  nitrate.  One  of 
them  is  a  method  of  taking  the  weak  nitric  acids  made  in  making  dynamite 
and  other  nitrating  things  and  passing  ammonia  gas  through  it,  and  then 
crystallizing  out  the  product.  That  is  the  ordinary  peace-time  method  of  mak- 
ing it  for  what  are  known  as  permissible  explosives. 

The  second  plan,  and  the  one  which  was  used  most  largely  in  the  allied  coun- 
tries, as  they  had  no  nitrogen  fixation  plants,  was  to  take  sulphate  of  ammonia 
and  nitrate  of  soda  and  mix  them  together  in  solution,  and  there_was  a  swap 
there  of  the  ingredients,  and  out  of  it  came  ammonium  nitrate. 

Our  Government  built  a  plant  at  Perryville,  Md.,  which,  if  I  remember  cor- 
rectly, had  a  capacity  of  about  300  tons  a  day  of  that  material. 

During  1918  we  imported  from  Chile  1,800,000  tons,  odd,  of  nitrate  of  soda 
We  would  have  gone  beyond  2,000,000  tons  had  the  war  continued.  Our  mili- 
tary plans  for  1919  required  that  we  bring  in  two  million  and  some  odd  thou- 
sand tons  of  nitrate  for  the  war  program  alone,  plus  all  of  the  production  of 
Muscle  Shoals  and  plus  the  ammonia  which  was  recovered  by  the  by-products 
plants.    So  it  was  a  very  big  and  a  very  difllcult  problem. 

In  addition  to  that,  we  use  in  this  country  in  making  sulphuric  acid,  which  is 
also  a  component  of  the  explosives,  something  like  90,000  tons  of  nitrate  of  soda. 
We  normally  use  about  160,000  tons  in  making  blasting  powders  and  explosives 
of  that  particular  type.  In  addition,  normally,  the  fertilizer  industry  used 
about  300,000  tons  of  nitrate  of  soda  through  the  regular  channels  of  the  indus- 
try, and  the  farmers  were  buying  as  much  as  about  100,000  tons,  so  that  our 
use  of  that  particular  commodity  was  approximately,  in  the  fertilizer  industry 
and  in  the  farm  needs  for  it  as  such,  about  400,000  tons. 

The  Chaibman.  At  about  this  time  you  are  speaking  of,  Germany  had  been 
swept  off  the  seas  and  there  was  no  danger  in  bringing  the  nitrates  from  Chile 
to  this  country. 

Mr.  MacDowell.  Yes ;  that  danger  was  eliminated.  The  greatest  trouble  we 
had  was  in  getting  bottoms  to  bring  It  in.  During  the  winter  of  1917-18  if 
you  will  recall,  we  had  a  very  severe  winter  and  we  had  to  take  boats  and 
transport  coal  and  other  things  with  them,  and,  further,  we  were  needing  our 
transportation  for  shipments  to  Europe. 

We  were  at  one  time  within  four  weeks  of  exhausting  our  nitrate  supply  but 
we  sat  down  very  hard  on  the  Shipping  Board  and  a  change  took  place  and  we 
got,  as  I  recall,  as  high  as  390,000  tons  of  nitrates  out  of  Chile  in  one  month 
So  we  got  that  fixed  up  and  we  got  along  pretty  well. 

We  had  to  divert  nitrates  to  France  on  account  of  losses  there  which  got  in 
the  way  of  our  distribution  here,  and  we  had  a  good  many  dramatic  problems 
to  solve,  but  we  did  get  by  and  without  one  day's  loss  so  far  as  nitrate  of  soda 
was  concerned.  That  is  about  all  I  know  of  Muscle  Shoals ;  just  the  general 
need  for  the  development  of  nitrogen  fixation  capacity  here  to  supplement  what 
we  could  get  from  other  sources. 

The  Chairman.  The  act  of  1916,  the  national  defense  act,  had  a  provision 
as  you  know,  section  124,  for  the  fixation  of  nitrogen  at  a  plant  to  be  constructed 
In  the  United  States. 

Mr.  MacDowell.  Yes,  sir. 

The  Chairman.  Do  you  know  whether  the  object  to  be  attained  by  that  en- 
actment was  intended  to  protect  this  country  in  case  we  lost  control  of  the 
seas  and  had  to  depend  on  ourselves  for  this  nitrate? 

Mr.  MacDowell.  Unquestionably. 

The  Chairman.  That  was  the  purpose  very  largely,  you  think? 

Mr.  MacDowell.  Yes ;  to  as  near  as  possible  provide  ourselves  at  home  with 
this  very  essential  chemical  for  both  miltary  and  agricultural  purposes. 

The  Chairman.  That  is  the  way  Germany  supplied  herself  during  the  war? 

Mr.  MacDowell.  Yes. 

The  Chairman.  Germany  having  been  cut  off  from  the  Chilean  supply  by 
hostile  fleets. 


Mr.  MacDowell.  Yes.  One  of  the  main  foundations,  undoubtedly,  of  Ger- 
many's entry  into  the  war  at  the  time  was  the  fact  that  she  was  fortified  by 
what  she  thought  at  that  fme  was  a  large  production  or  ability  to  produce  some 
of  her  essential  explosives. 

The  Chairman.  In  the  use  of  the  nitrates  made  at  Muscle  Shoals,  was  the 
matter  of  the  fertilizer  or  the  use  in  fertilizing  of  the  commodity  to  be  pro- 
duced at  that  point  taken  into  consideration? 

Mr.  MacDowell.  In  the  general  public  discussion  of  nitrogen  fixation  which 
was  started,  if  you  will  recall,  in  1916,  the  fact  that  cannon  and  plants  ate  the 
same  food  was  emphasized,  and  the  thought  was  put  out  that  if  we  should 
develop  our  ability  to  produce  this  necessary  chemical  in  this  country  we  would 
have  both  a  war-time  and  a  peace-time  need  for  the  product. 

The  Chairman.  But,  as  I  recall  now,  the  use  of  the  product  for  explosives 
was  consdered  of  vital  importance  at  that  time. 

Mr.  MacDowell.  That  was  the  national  defense  feature  of  it,  and  was,  of 
course,  the  largest  influence  or  the  greatest  influence  in  reaching  that  general 
decision. 

The  Chairman.  Regarding  fertilizer,  this  product  of  the  nitrate  plants  is 
not  in  itself  a  fertilizer,  is  it? 

Mr.  MacDowell.  It  can  be  used  in  itself  as  a  fertilizer  to  supply  the  nitrogen 
feature  of  agriculture ;  yes. 

The  Chairman.  Is  it  not  one  of  the  component  parts  of  the  fertilizer? 

Mr.  MacDowell.  As  we  understand  the  fertilizer  business,  it  is  one  of  the 
several  essent'al  chemicals  or  plant  foods  that  go  to  make  the  finished  fer- 
tilizer which  is  most  largely  used  by  the  farmers  of  the  country. 

The  Chairman.  You  are  familiar  with  the  plant  at  Muscle  Shoals? 

Mr.  MacDowell.  Reasonably  so.  I  have  not  seen  it  but  I  am  reasonably 
familiar  with  it ;  yes. 

The  Chairman.  Do  you  believe  that  the  Government  could  sell  outright  the 
nitrate  plant  No.  2  to  a  man  like  Ford,  selling  it  at  a  comparatively  small 
amount  of  what  it  cost  and  help  the  farmers  of  this  country  by  using  the  prod- 
ucts of  that  nitraie  plant  for  making  fertilizer? 

Mr.  MacDowell.  In  answer  to  that  I  will  say  that  until  the  farmer  uses  ma- 
terially greater  quantities  of  nitrogen  in  the  forms  whch  would  be  made  down 
there,  there  is  no  need  for  that  product  for  agriculture  in  this  country.  As 
the  farmer  uses  more  nitrogen,  if  the  normal  sources  of  supply  do  not  increase 
in  proportion  to  his  increased  demand,  there  will  come  a  time  when  that  prod- 
uct will  be  needed,  but  at  the  moment,  no ;  and  as  far  as  I  can  foresee  for  some 
years,  no.  I  am  speaking  now  from  the  production  and  from  the  demand 
standpoint. 

The  Chairman.  Then  do  you  believe  that  the  conditions  are  such  in  this 
country  that  a  man  like  Henry  Ford  would  be  justified  in  asking  a  100-year  lease 
or  the  sale  of  that  property  on  conditions  that  in  the  100  years  subsequent  to 
the  signing  of  the  agreement,  he  would  require  probably  1.5  or  20  years,  before 
he  could  begin  to  sell  that  nitrate  for  fertili/.er? 

^Ir.  MacDowell.  I  could  not  say  how  long  it  would  take,  but  it  is  a  numl>er 
of  years  ahead  before  there  would  be  a  demand  for  it ;'  that  is,  the  nitrogen 
part  of  it. 

The  CirATRirAX.  So  that  Mr.  Ford,  being  lo<^ked  upon  as  a  shrewd  business 
man,  probably,  would  be  justified  in  asking  for  a  long  lease  or  the  sjile  of  that 
nitrate  plant,  and  then  a  long  lease  of  the  leased  portion  of  Muscle  Shoals? 

Mr.  :MacDowell.  He  naturally  would  want  to  get  as  long  a  lease  as  he  couhl, 
but  from  the  standpoint  of  the  production  of  nitrogen  at  that  plant,  under  th.^ 
cyanamid  process,  I  am  of  the  opinion  that  within  five  years  that  process  will 
be  obsolete  and  that  therefore  that  particular  plant  will  not  at  that  time  bt? 
nearly  as  efficient  in  the  production  of  nitrogen,  if  we  get  beyond  the  by-product 
production,  as  other  methods,  one  of  which  is  already  operating  in  this  country. 

The  Chairman.  Do  you  think  that  the  cyanamid  process  will  be  obsolete  in 
about  five  years? 

Mr.  MacDowelt..  I  think  so,  as  far  as  the  production  of  nitrogen  is  concerned 
for  fertilizer  purposes.    It  has  other  uses,  of  course. 

The  Chairman.  Of  course,  the  numufacture  of  these  various  products  has 
been  rather  limited  in  point  of  time. 

Mr.  MacDowell.  Oh,  yes.. 

The  Chairman.  How  long,  if  you  know,  has  the  cyanamid  lu'ocess  been  used 
by  the  world? 

Mr.  ^MacDowell.  I  am  not  accurate  in  my  memory,  but  I  would  say  about 
15  years. 


522 


MUS(XE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


52a 


The  Chairman.  And  we  got  into  tlie  World  War,  or  at  least,  the  World  War 
broke  out  in  1914,  eight  years  ago? 

Mr.  MacDowell.  Yes. 

The  Chairman.  Germany  at  that  time  was  producing  cvanamid. 
Mr.  MacDowell.  Yes;  in  a  limited  way. 

The  Chairman.  So  that  she  was  probably  ahead  of  the  rest  of  the  woi-1,1 
We  had  some  discussion  of  it  in  Congress  along  in  1912  or  3913. 

Mr.  MacDowell.  Yes. 

The  Chairman.  But  we  did  practically  nothing  about  it.  T  think  there  was 
a  plant  installed  at  Niagara  Falls. 

Mr.  MacDowell.  Yes. 

The  Chairman  But  the  amount  of  production  was  not  very  great. 

Mr.  MacDowell.  That  was  experimental  and  following  certain  other  methods 
than  the  one  used  by  the  cyanamid  company. 

The  Chairman.  Now,  you  believe  that  progress  has  been  made  with  regard 
to  the  products  of  the  nitrate  iilants  that  enables  the  world,  or  will  enable  th(^ 
world  in  a  comparatively  short  time,  to  set  aside  those  products  and  employ 
an  entirely  new  method  with  regard  to  the  making  of  the  material  that  g(Ms 
into  the  fertilizer. 

Mr.  MacDowell.  I  will  say  this :  I  think  from  all  I  know  and  have  read  that 
the  Haber  method  and  the  Claude  method,  which  is  a  French  development,  will 
enable  nitrogen  compounds  to  be  produced  much  moi-e  efficiently  than  under  the 
main-strength  method,  as  you  might  say,  which  is  used  for  making  it  by  the 
cyanamid  process.  I  think  that  is  the  general  feeling  of  the  scientists  of  the 
worhl,  that  the  greatest  progress  is  coming  in  that  direction,  and  it  is  for  that 
reason  I  say  that  I  think  inside  of  possibly  tive  years  this  method  will  probably 
be  called  obsolete,  because  it  takes  at  Muscle  Shoals  100,000  horsepower  coii- 
tinuously  to  make  110,000  tons  of  annnonium  nitrate,  whereas  under  the  Haber 
process  20,000  horespower  would  be  used:  and,  as  I  understand  it,  under  the 
C'laude  process  10,000  horsepower  would  be  used,  and  it  does  not  seem  to  me 
that  it  is  the  economical  an«l  sound  thing  to  use  90.000  additional  horsepower  in 
any  locality,  when  power  can  be  so  well  usetl  for  other  purposes,  to  make  n 
pro<luct  which  can  be  made  by  the  expenditure  of  10.000  horsepower. 

The  Chairman.  I  understand  that  in  the  use  of  the  cyanamid  process  you 
have  got  to  have  a  very  high  horsepower. 

Mr.  MacDowell.  Yes.  Further,  the  raw  materials  are  large  in  tonnage. 
A  great  deal  of  special  work  has  to  be  done  beyond  the  method  used  in  making 
the  product  through  the  Haber  gas  plan. 

The  Chairman.  Do  they  require  so.  much  horsepower  for  the  Haber  process? 

Mr.  MacDowell.  Only  about  one-tifth,  and  with  the  improved  one-tenth  of  the 
horsepower  which  is  required  for  the  cyanamid  process. 

The  Chairman.  What  do  you  mean  by  "the  improved  " ;  do  you  mean  the 
French  process? 

Mr.  MacDowell.  Yes ;  the  French  Claude  process,  which  is  not  yet  out  of  the 
woods,  but  apparently  very  close  to  it. 

Mr.  Hull.  Mr.  MacDowell,  you  say  you  are  connected  with  the  National  Fer- 
tilizer Co.? 

Mr.  MacDowell.  The  National  Fertilizer  Association. 

Mr.  Hull.  What  is  that  association? 

Mr.  MacDowell.  That  is  an  association  comprised  of  most  of  the  people 
engaged  in  the  fertilizer  industry. 

Mr.  Hull.  What  is  the  purpose  of  it? 

Mr.  MacDowell.  The  purpose  is  for  the  improvement  generally  of  the  fer- 
tilizer industry.  It  maintains  n  large  organization  for  the  dissemination  of 
.scientific  knowledge  to  the  farmers.  It  works  closely-  in  that  connection  with 
the  Department  of  Agriculture  here  and  with  the  various  State  experiment 
stations.  It  has  agi-onomists  and  men  skilled  in  the  dissemination  of  informa- 
tion which  the  various  farm  experiment  station  people  get  out,  and  it  publishes 
their  results.  It  also  maintains  a  fellowship  or  several  fellowships  at  the  differ- 
ent agricultural  colleges  to  solve  certain  problems  in  connection  with  the  fer- 
tilizer industry,  such  as  the  best  way  to  distribute  fertilizers,  the  best  strengths 
to-  be  used,  and  where  to  place  the  fertilizer  in  relation  to  the  roots  of  the 
crops,  so  that  the  makers  of  agricultural  implements  may  devise  distributing 
machinery  to  carry  that  out.  It  also  maintains  a  chemical  section  that  is 
studying  the  problems  which  have  to  do  with  the  business  methods  of  analyses 
and  with  problems  of  that  sort.  It  maintains  an  insurance  section  to  study  and 
look  after  the  interests  of  such  members  as  may  want  to  have  their  insurance 


Irniidled  through  a  connuittee  that  imderstands  insurance,  so  that  economie.s 
iiuiy  be  effected  in  the  carrying  out  of  matters  of  that  sort.  It  also  looks  after 
the  general  trans^iortation  factors  and  features  in  the  distribution  of  fertilizers, 
keeps  in  touch  with  the  railroad  authorities — and  did  here  all  during  the  war — 
to  endeavor  to  get  cars  at  the  different  sections  where  materials  are  accumu- 
late<l  and  at  plants  where  finished  fertilizers  are  shippeil,  so  that  the  distribu- 
tion may  be  made  effectively  and  iiromptly.     It  has  other  interests  of  that  sort. 

Mr.  Hull.  Does  it  in  any  way  have  anything  to  do  with  the  price? 

Mr.  MacDowell.  It  has  nothing  to  do  with  prices. 

Mr.  Hull.  It  has  no  agreements  as  to  the  prices? 

Mr.  MacDowell.  Absolutely  none;  and  has  no  features  slanting  at  all  in 
that  particular  direction. 

Mr.  Hull.  Are  they  the  authors  of  what  might  be  called  this  propaganda 
that  is  being  sent  to  Members  of  Congress  in  regard  to  the  Muscle  Shoals 
proposition  ? 

Mr.  MacDowell.  Over  its  name. 

Mr.  Hull.  Who  finances  it? 

Mr.  MacDowell.  The  fertilizer  association. 

Mr.  Hull.  And  that  includes  all  the  members  of  the  association? 

Mr.  MacDowell.  Yes. 

Mr.  Hull.  And  that  includes  practically  all  the  fertilizer  manufacturers? 

Mr.  MacDowell.  Yes. 

Mr.  Hull.  Do  they  make  any  nitrates  themselves? 

Mr.  ;MacDowell.  Practically  none  in  this  form.  A  good  many  of  the  mem- 
l)ers  take  waste  materials,  such  as  leather  scraps  and  hair  and  old  felt  hats 
and  occasionally  an  old  silk  hat,  and  old  shoes  and  all  materials  containing 
nitrogen,  and  treat  those  chemically  and  make  that  particular  form  of  nitrogen. 

Mr.  Hull.  They  also  make  some  nitrogen  out  of  blood? 

INIr.  MacDowell.  Yes;  blood  and  tankage  and  materials  of  that  sort.  They 
also  take  waste  sugar  molasses  from  the  beet-sugar  manufacturers  and  treat  that. 
They  take  the  garbage  tankage  and  other  waste  materials  which  come  from  the 
farm  and  which  they  think  it  is  sound  to  send  back  to  the  farm  to  make  these 
various  nitrogenous  materials.  They  also  buy  cottonseed  meal,  especially  dur- 
ing years  when  there  is  off  meal,  and  they  use  at  times  quite  large  tonnages  of 
cottonseed  meal.  They  also  buy  nitrate  of  soda.  They  are  very  large  users 
of  sulphate  of  ammonia.  They  buy  some  cyanamid,  and  they  get  everything 
they  can  which  will  fit  into  the  fabrication  of  fertilizers. 

Mr.  Hull.  They  are  purchasers,  then,  of  nitrates? 

Mr.  MacDowell.  They  are  purchasers  of  nitrates,  broadly  speaking;  yes. 
Tliere  is  a  very  small  production  of  ammonium  sulphate  through  the  burning 
of  bone  for  the  making  of  boneblack  for  sugar  refining,  but  that  would  only 
amount  to  a  few  tons  a  year. 

Mr.  Hull.  They  are  opposed  to  the  Government  making  this  Ford  contract, 
are  they? 

Mr.  MacDowell.  They  are  not  in  favor  of  the  Government  making  this  Ford 
contract.  They  are,  however,  in  favor  of  the  development  of  the  water  power 
at  Muscle  Shoals. 

Mr.  Hull.  Why  are  they  opposed  to  the  Government  acK.*epting  the  Ford 
proposition? 

Mr.  MacDowell.  For  two  reasons:  One  reason  is  a  public-policy  reason, 
where  they  think  it  is  questionable  public  policy  to  provide  facilitiee  and  over- 
facilities  at  a  water  power  for  one  man  to  monopolize  for  100  years.  They 
do  not  think  it  is  wise  public  policy  to  give  one  man  the  power  to  say  to  a 
<;ommunity  what  kind  of  industry  shall  be  located  in  that  particular  section  of 
the  country.    That  is  their  opposition  to  it  from  that  standpoint. 

Naturally,  an  industry  which  is  as  large  as  the  fertilizer  industrj',  which 
is  as  important  to  the  successful  getting  along  of  so  many  sections  of  the 
country,  is  interested  in  its  investments  ai\d  in  its  stable  future.  Further — and 
this  is  the  main  reason  I  am  here — there  has  been  so  much  said  about  the 
need  for  fertilizers  and  cheaper  fertilizers  that  I  thought  it  was  wise  to  let 
you  gentlemen  know  something  about  the  fertilizer  situation  as  it  is;  whether 
there  be  need  for  additional  products  before  there  is  need  for  it ;  whether  the 
situation,  broadly  speaking,  warrants  this  investment  based  on  the  fact  or 
on  the  statement  that  we  need  to  put  in  the  water  power  to  make  fertilizer; 
and,  further,  I  thought  I  might  be  informative,  personally,  to  the  connuittee, 
in  connection  with  this  general  subject,  owing  to  my  rather  intimate  knowledge 
of  it  over  a  good  many  years. 


524 


MUSCLE  SHOALS  PROPOSITIOJSTS. 


Mr.  Hull.  According,'  to  .your  statement,  it  would  cost  at  Muscle  Shoals  $68  a 
ton  to  produce  this  product,  which  is  now  being  sold  at  $48  a  ton. 

Mr.  MacDom  ELL.  Yes ;  around  there.    I  think  it  is  now  about  $50  a  ton. 

^Ir.  Hl-ll.  If  that  is  the  case,  there  would  not  be  any  danger  at  all  of  Henrv 
Ford  upsetting  the  industry? 

Mr.  MacDowell.  Xot  from  the  supply  standpoint,  as  the  fertilizer  industry 
l)uys  this  material.  There  is  always,  naturally,  a  disturbance  when  large  ex- 
cesses of  materials  are  thrown  on  the  market.  To-day  the  United  States  has 
a  surplus  of  sulphate  of  ammonia  recovered  through  the  normal  channels 
There  is  always  an  upsetting  when  anything  anywhere  near  as  large  as  this 
proposal  is  started,  very  naturally.  Whether  it  be  a  revolution  or  an  evolution 
of  course,  depends  on  time;  but  there  always  is  an  upsetting  condition  which 
arises  from  anything  of  this  sort,  and  naturally  the  fertilizer  people  who  have 
very  large  investments  consider  those  things,  and  they  may  very  naturally  be 
worried  about  such  matters.  That  is  a  natural  reaction,  and  there  is  no  use 
not  being  frank  about  it. 

Mr.  Hull.  Then,  really,  what  you  are  worried  about  is  that  he  might  produce 
fertilizer  or  nitrates  down  there  for  a  good  deal  less  than  $68? 

Mr.  MacDowell.  No  ;  I  am  not  worried  about  that  feature,  because  there  are 
certain  factors  which  would  prevent  the  cheap  manufacture  of  nitrates  at  that 
plant.  They  may  get  way  below  $58,  or  whatever  the  price  is,  but  I  want  to  tell 
you,  gentlemen,  if  you  will  permit,  how  sulphate  of  ammonia  is  made  to-dav, 
so  you  may  get  some  idea  of  the  cost  side  of  the  products  which  must  compete 
with  the  Muscle  Shoals  production.  Coal  contains  nitrogen,  ranging  broadly 
from  eight-tenths  of  1  per  cent  up  to  1^  per  cent  of  nitrogen.  That  is  a  con- 
stituent of  coal.  When  it  goes  to  a  by-product  coke  plant  or  when  it  goes  to 
the  city  gas  plant  and  is  put  into  the  retorts  or  ovens  to  be  coked  a  gas  is 
formed.  Those  temi^eratures  are  too  high  to  recover  all  of  the  ammonia  in 
that  gas,  but  it  goes  along  with  the  gas.  It  must  be  taken  out  of  the  gas,  as 
it  is  deleterious  to  the  gas,  and  it  is  recovered  by  the  simple  exr)edient  of  pass- 
ing it  through  a  shower  or  a  bath  of  .sulphuric  acid  or  dissolving  it  in  ordinary 
everyday  water. 

If  coal  costs  $6  a  ton  at  the  coking  plant  and  figuring  that  there  is  500 
pounds  of  ammonia  in  a  ton  of  sulphate  of  anmionia,  which  is  a  fact,  the  mate- 
rial cost  of  the  .500  pounds  of  ammonia,  with  coal  at  $6  a  ton,  would  be  $1.50 
for  the  ammonia  which  goes  into  that  ton  of  sulphate  of  ammonia. 

At  Muscle  Shoals  with  the  cyanamid  process,  in  order  to  reach  that  point 
where  the  gas  maker  and  the  coke  maker  absorbs  it,  they  have  got  to  go  to 
the  quarry  and  quarry  lime.  They  have  got  to  ship  it  to  Muscle  Shoals  at 
a  transportation  cost.  They  have  got  to  burn  that  lime  at  Muscle  Shoals. 
They  have  got  to  get  coke  either  by  coking  or  by  buying  coke,  transporting  the 
coke  to  Muscle  Shoals  and  grinding  it.  They  have  got  to  mix  those  two  to- 
gether and  put  them  in  an  electric  furnace  and  treat  that  material  to  make 
carbide  of  calcium.  They  have  got  to  make  liquid  air.  They  distill  off  the 
nitrogen  from  the  liquid  air.  They  take  the  carbide  and  put  it  in  small  con- 
tainers, heat  it  up  again,  pass  the  nitrogen  through,  and  when  it  is  absorbed 
that  product  is  known  as  crude  cyanamid.  They  then  take  that  product  and 
put  it  in  big  steel  pressure  tanks  and  use  a  caustic  solution  and  make  steam 
and  boil  it  or  treat  it  in  order  to  get  the  ammonia  off  of  the  cyanamid  to  reach 
the  point  where  the  by-product  coke  oven  gets  it  with  practically  no  cost. 

Beyon<l  that  point  the  costs  are  practically  identically  the  same  as  between 
the  Muscle  Shoals  method  and  the  method  which  is  adopted  by  the  coke  people. 

Now,  in  1914,  our  pro<luction  of  all  kinds  of  anmionia  from  gas  ovens  and 
by-products  ovens  was  around  200,000  tons.  We  use  a  lot  of  lids  ammonia  for 
making  anhydrous  ammonia  for  refrigeration.  That  is  one  of  the  main  ele- 
ments used  in  refrigeration.  We  use  it  in  chemical  processes  for  assembling 
soda  ash  and  for  doing  other  things.  We  also  use  it  occasionally  at  home  in 
the  old,  familiar  household  ammonia.  They  make  other  chemicals  with  it. 
The  portion  which  they  do  not  dispose  of  in  that  way  they  lix  in  sulphuric 
acid  and  dispose  of  it  as  sulphate  of  ammonia,  which  is  a  fertilizer  product. 

In  1913  and  1914  we  were  importing  around  90,000  tons  of  sulphate  of 
ammonia.  During  the  w^hole  war  period  our  production  increased.  Instead 
of  wasting  these  valuable  products  in  the  old  beehive  ovens,  we  are  gradually, 
and  rather  rapidly,  installing  these  by-products  coke  plants,  and  also  install- 
ing more  coal  plants  for  making  gas  in  the  cities. 

As  a  result  of  this  entire  war  development,  hastened  and  encouraged  by  the 
Government  advances  to  people  to  make  more  metallurgical  coke  and  domestic 


MUSCLE   SHOALS  PR0P0SITI0:N'S. 


525 


coke  during  the  war,  our  capacity  increased  during  that  period  to  approxi- 
mately 550,000  tons  equivalent  of  sulphate  of  ammonia.  It  is  not  all  used 
in  that  way,  only  a  part  of  it  being  used  in  that  way. 

In  1919,  which  was  a  pretty  good  fertilizer  year,  although  materials  were 
a  little  scarce.  Dr.  Whitney  states  we  exported  something  like  130,000  tons 
of  sulphate  of  ammonia.  In  1920  I  am  unable  to  get  the  accurate  figures.  In 
1921  we  exported  102,000  tons,  and  we  did  not  send  any  to  Cuba,  and  Cuba, 
normally,  under  sugar,  uses  about  35,000  to  40,000  tons. 

In  1920  we  had  the  biggest  fertilizer  year  on  record.  As  near  as  we  can 
ascertain,  the  fertilizer  people  themselves  used  about  135,000  tons  of  sulphate 
of  ammonia.  In  other  words,  they  are  only  using  about  one-half  of  the  total 
which  goes  out  of  the  country. 

Now,  in  addition  to  that,  there  is  some  direct  form  of  sulphate  of  ammonia  used 
by  farmers  and  truckers  I  can  not  give  you  any  figures  on  that,  because  I 
do  not  know  them;  but  I  do  know  that  under  normal  conditions  to-day  there 
is  an  exportable  surplus,  if  we  were  running  our  coke  plants  to  90  per  cent  of 
capacity,  of  somewhere  between  150,000  and  200,000  tons  of  sulphate  of  am- 
monia. 

Now,  the  fertilizer  people  naturally  do  not  think  that  the  farmers  use  as 
much  nitrogen  as  they  should.  On  the  other  hand,  many  of  the  agricultural 
authorities,  and  rightly  too,  are  saying  that  we  should  go  still  further  in  the 
use  of  clovers,  cowpeas,  and  those  various  legumes  to  get  organic  matter  into 
our  soil  before  we  reach  the  stage  when  it  would  be  profitable  for  them  to  buy 
nitrogen  in  the  commercial  form;  and  if  you  gentlemen  will  talk  with  your 
various  experiment-station  people  you  will  find  that  in  many  sections  of  the 
country  they  so  advise. 

During  the  war,  there  developed  in  Germany  a  capacity  to  produce  2,500,000 
tons  of  sulphate  of  ammonia.  England  has  a  normal  exportable  surplus  of 
350.00(J  tons.  Chile  has  a  manufacturing  capacity  of  3,000,000  tons.  The 
production  at  Muscle  Shoals  or  the  production  of  more  sulphate  of  ammonia 
in  the  coke  oven  plants  will  not  do  away  with  a  our  large  importations  of 
nitrate  of  soda  from  Chile.  Nitrate  of  soda  in  efficiency  as  a  fertilizer .  stands 
at  100  per  cent  as  against  90  per  cent  for  sulphate  of  ammonia.  It  is  a  very 
quick,  predigested  form  and  it  is  extremely  valuable  in  the  trucking  sections 
where  they  want  to  get  into  the  markets  and  capture  as  much  of  the  high 
prices  for  potatoes  and  other  products  as  they  can.  It  is  very  desirable  in 
certain  sandy  soils  and  certain  soils  where  there  is  not  organic  matter.  It  is 
largely  used  in  the  manufacture  of  blasting  powder  and  in  other  ways,  and 
I  feel  sure  in  saying  to  you  gentlemen  that  we  will  not  only  continue  to  use 
nitrate  of  soda  from  Chile,  but  that  we  will  increase  our  purchases  as  the 
years  go  on;  and  after  all,  it  is  their  dollar  to  buy  our  products  in  this 
country. 

Mr.  Hull.  These  coal-tar  products  or  products  of  the  coke  ovens  are  by- 
liroducts  of  the  steel  industry,  are  they  not  ? 

Mr.  MacDowell.  No;  no  necessarily.  It  is  a  by-product  of  the  industries 
which  provide  metallurgical  coke  for  the  steel  and  other  people  and  domes. ic 
coke  for  burning  :n  place  of  anthracite  and  for  other  purposes,  and  that  domestic 
feature  is  increasing  all  the  time.  Further,  we  are  develpng  in  this  country 
what  are  known  as  low-temperature  methods  of  cokng  coal  to  make  an  anthra- 
cite substitute.  We  have  one  large  plant  in  West  Virginia  now.  I  think 
it  is  around  Fairmont,  although  I  do  not  recall  for  sure.  In  that  methotl  of 
coking  you  get  much  larger  recoveries  of  ammduia  and  other  products  than 
you  do  with  the  higher  temperature  methods  used  by  the  by-products  coke 
l)eople  for  metallurgical  purposes.  You  get  out  of  a  ton  of  coal  for  metallurgical 
purposes  somewhere  between  16  and  20  pounds  of  sulphate  of  ammonia  per  ton, 
which  means  somewhere  around  4  to  5  pounds  of  the  real  ammonia  per 
t<m  of  coal  coked. 

Mr.  Hull.  In  any  case  it  *s  simply  a  by-product. 

Mr.  MacDowell.  It  is  a  by-product,  yes.  It  is  a  credit  to  the  cost  of  making 
coke. 

Mr.  Hull.  And  the  price  at  which  you  sold  it  would  not  affect  the  production 
very  much. 

Mr.  MacDowell.  It  would  not  affect  the  producfon  at  all. 

Mr.  Hull.  It  would  be  produced  in  any  case,  depending  upon  how  much 
you  produced  the  principal  article. 

Mr.  MacDowell.  Yes;  and  if  :t  sold  for  less  it  would  shove  up  the  cost 
of  coke  or  benzol  or  tar  or  creosote  or  the  55,000  different  things  that  come 
out  of  that  particular  thing. 


526 


Ml;St:LK   SHOALS  PROPOSITIONS. 


MUSCIJE  SHOALS  PROPOSITIONS. 


527 


Mr.  Hull.  The  gi-eat  body  of  fertilizer  people,  or  a  great  nnmv  of  the  fertilizer 
people,  are  not  producers  at  all  of  amnionium  sulphate,  are  they? 
Mr.  MacDowell.  Practically  none. 

Mr.  Hull.  Then  >yould  they  not  be  benefited  to  some  extent  If  the  product  was 
cheapened  ? 

Mr.  MacDowell.  Yes.  naturally ;  but  as  we  already  have  a  big  surplus  and 
as  we  have  gotten  away  with  that  surplus  pretty  successfully,  because  Eng- 
land was  not  coking  coal  and  Germany  was  not  prepared  to  compete  around 
the  world,  even  though  we  have  had  to  come  down  to  $2  per  100  pounds  and  even 
less  for  the  product,  yet  as  those  countries  come  into  the  market,  we  are  goin" 
to  have  increasing  difficulty  in  disposing  of  the  surplus  sulphate  of  ammonia 
around  the  world.  The  point  I  am  making  is  that  it  does  not  matter  to  the 
fertilizer  people,  providing  there  are  reasonably  stable  conditions,  because  their 
materials  have  to  be  bought  a  long  time  ahead.  It  does  not  matter  to  them 
from  a  nitrogen-production  standpoint,  because  they  are  buyers,  but  that  does 
not  d»)  away  with  the  question  which  comes  up:  Is  it  good  sense  to  waste 
coal  and  transportat'on  and  power  which  could  be  better  used  in  other  direc- 
tions to  make  something  which  is  already,  and  for  some  time  apparentlv,  is 
overproduced  in  this  country?  That  is  the  attitude  of  the  fertilizer  people  fron) 
that  standpoint. 

Mr.  Hull.  Perhaps— I  do  not  quite  catch  the  point— but  it  seems  to  me  as 
though  the  fertilizer  people  were  worrying  for  fear  Henry  Ford  would  break 
up  on  this  proposition ;  is  that  the  point? 
Mr.  MacDowell.  Will  break  up? 

Mr.  Hull.  Yes :  that  he  will  go  broke  on  this  proposition. 
Mr.  MacDowell.  Oh,  no ;  we  are  not  woirying  about  Henry,  and  he  is  abun- 
dantly able  to  take  care  of  himself,  and  if  he  wants  to  get  into  the  fertilizer 
game  he  can  do  it.  He  does  not  have  to  have  ^luscle  Shoals  to  get  into 
the  fertilizer  game.  If  he  thinks  it  is  something  he  wants  to  tackle  he  can  got 
into  it  without  that,  and  do  it  very  much  better,  as  a  matter  of  fact.  We 
can  not  dispute  his  right  to  do  that. 

Mr.  Hull.  Is  it  because  you  are  afraid  of  his  making  a  bad  bargain? 
Mr.  MacDowell.  I  am  not  afraid  of  his  making  a  bad  bargain  and  did  not 
appear  here  from  that  standpoint  at  all.  I  thought  that  the  committee  might 
be  interested  in  having  me  tell  them  plainly  the  annnoniates  or  nitrogen  situa- 
tion, because  you  gentlemen  are  asked  to  do  something  based  on  the  proposi- 
tion that  there  is  need  for  certain  fertilizer  materials,  and  we  say  that  for 
the  time  there  is  no  such  need. 

Now,  Mr.  Swann  was  here.  I  am  the  Mr.  MacDowell  that  Mr.  Swann 
referred  to^  as  having  gotten  him  started  in  this  particular  research  which 
he  has  been  doing  down  at  Anniston.  Ala. 

We  wanteil  some  phosphorus  during  the  war  and  he  had  a  large  part  of  the 
equipment  necessarj-  to  make  it,  and  we  thought,  as  we  were  having  difficulty  in 
getting  it  from  Niagara  Falls  and  Canada,  that  the  Government  might  be 
able  to  get  facilities  for  making  phosphorus  there  very  much  cheaper  than 
anywhere  else.  At  that  time  he  had  this  equipment,  which  was  not  beinir 
used,  and  I  asked  him  if  he  would  not  like  to  experiment  to  see  if  he  could 
not  make  some  potash,  which  we  needed  in  agriculture,  and  also  suggested 
that  he  might  work  further  on  some  phosphate  volatilization,  which  I  knew 
something  about,  because  I  had  done  a  little  something  on  it  myself.  He 
has  done  splendid  work.  He  has  gotten  up  to  about  80  per  cent  recoven'. 
The  fertilizer  industry  in  the  acid  method  recover  about  9.5  per  cent.  His 
statements  with  regard  to  concentrated  fertilizers  and  the  economy  of  ship- 
ping them,  however,  do  not  accord  with  the  development  of  the  art  as  the 
scientists  and  as  the  farmers  understand  it  to-day. 

A  good  deal  of  the  fertilizer  which  is  used  is  distributed  in  grain  drills  and 
in  close  proximity  to  the  grain.  We  know  from  practical  experience  and  from 
tests  that  you  can  not  go  beyond  a  certain  concentration  or  you  injure  the  ger- 
minating power  of  the  seed.  We  know  further  from  Work  which  Dr.  Shriner. 
of  the  Department  of  Agriculture,  has  been  doing  for  some  time,  and  fnun 
other  sources,  that  plants  require  balanced  rations,  that  certain  plants  require 
excess  ammonia  or  excess  phosphoric  acid  or  excess  potash.  We  are  finding 
out  Ji  whole  lot  about  that. 

Now,  we  do  not  think  it  is  good  sense  simply  because  you  can  ship  con- 
centrated stuff  to  give  the  plants  something  which  may  give  them  the  bellyache, 
so  far  as  phosphoric  acid  is  concerned,  because  they  do  not  need  anywhere 
near  that  quantity  of  material. 


Now,  the  fertilizer  industry  has  adopted  this  plan  or  policy,  and  that  is 
that  it  is  the  business  of  the  agricultural  experiment  stations  and  the  United 
States  Government  experiment  station  to  tell  them  what  formulas  and  what 
strengths  are  best  adapted  for  the  different  soils  or  for  the  different  kinds 
of  crops  to  be  grown  in  the  different  localities.  In  other  words,  it  is  their 
business  to  do  that,  and  it  is  our  business  to  make  fertilizers  to  match  as  nearly 
as  we  can  those  instructions  which  they  put  out. 

Now,  when  we  speak  of  2-8-2  and  3-9-3,  they  are  pretty  fair  fertilizers. 
There  are  large  tonnages  of  fertilizers  put  out  for  trucking  and  for  crops  that 
run  10  per  cent  ammonia  and  8  per  cent  available  phosphoric  acid  and  5  per 
cent  potash,  and  some  of  them  run  as  high  as  15  per  cent  potash.  We  want 
to  concentrate.  We  are  advising  the  farmer  all  the  time  to  use  as  strong  a 
mixture  as  he  can.  That  is  our  belief.  It  is  economy,  and  the  fertilizer 
industry  is  vitally  interested  in  getting  cheaper  ferilizers  to  the  farmer.  The 
farmer  is  the  only  man  that  the  fertilizer  industry  sells.  His  interest  is  the 
fertilizer  industry's  interest.  They  must  do  everything  they  can  to  cheapen, 
the  cost  of  getting  plant  food  to  the  farm.  It  would  be  a  foolish  industry  if 
it  did  not  work  in  that  way.  It  is  experimenting,  and  it  wants  the  power  to 
use  processes  or  the  right  to  use  processes  perfecting  the  art  or  anything  which 
has  to  do  with  decreasing  the  cost  of  making  fertilizer.  If  Mr.  Swann  works 
out  his  process  or  if  somebody  else  works  out  a  process  which  will  cheapen  the 
cost  of  making  fertilizer,  the  industry  or  some  component  part  of  the  industry 
wants  the  right,  if  he  will  give  it  under  a  royalty,  to  use  those  things. 

It  would  not  feel  happy,  I  will  admit,  if  Mr.  Ford  had  secondary  power  w^hich 
cost  him  $5.20  per  horsepower  per  year,  as  Mr.  Cooper  suggested  the  other  day, 
and  not  be  able  to  get  somewhere  near  the  same  line  of  cost  in  order  to  supply 
a  certain  part  of  the  territory  or  certain  sections  of  the  country.  In  other 
words,  the  fertilizer  industry  feels  that  the  Government,  if  it  puts  in  that  power 
plant,  should  make  it  available,  as  far  as  cost  is  concerned,  to  different  people 
who  may  want  to  go  down  in  that  locality  and  perform  any  function  which  is 
beneficial  to  the  country. 

I  am  speaking  very  frankly,  gentlemen,  because  I  want  you  to  know  how 
those  I  have  talked  with  feel  about  it  in  regard  to  the  industry. 

Mr.  Hull.  Of  course  we  want  to  get  all  the  information  we  can,  and  while 
perhaps  some  of  these  questions  may  seem  a  little  personal,  yet  it  is  because  we 
want  to  get  the  different  angles  to  this  matter. 

Mr.  MacDowell.  Yes;  that  is  right. 

Mr.  HUT.L.  Now,  the  amount  of  fertilizer  that  a  farmer  uses  depends  upon  the 
soil  he  has,  largely,  does  it  not? 

Mr.  MacDowell.  No  ;  not  necessarily.  It  depends  primarily  upon  the  crop  he 
is  growing,  plus  the  condition  of  his  soil.  For  cereals,  for  instance,  you  do  not 
begin  to  use  the  tonnage  of  fertilizer  you  would  under  cotton,  or  more  par- 
ticularly under  the  various  truck  crops  which  are  grown  in  sandy  soils. 

Mr.  Hull.  There  are  certain  soils  that  require  practically  no  fertilizer, 
although  I  do  not  say  there  is  any  soil  but  what  would  be  improved  by  the 
use  of  it. 

Mr.  MacDowell.  Oh,  yes. 

Mr.  Hull.  Out  in  Iowa,  for  instance,  we  have  used  very  little  fertilizer. 

Mr.  MacDowell.  Yes ;  but  you  are  doing  some  good  work  at  your  experiment 
station  there. 

Mr.  Hull.  And  yet  wis  are  the  first  State  in  the  Union  in  the  production  of 
agricultural  crops,  but  that  is  due  to  the  soil. 

Mr.  MacDowell.  Yes. 

Mr.  Hull.  And  I  presume  that  even  in  Iowa  we  have  found  that  we  have  got 
to  go  to  the  use  of  fertilizer. 

Mr.  MacDowell.  Yes;  in  maturing  your  com  early  and  to  get  away  from 
soft  com. 

Mr.  Hull.  And  the  question  all  comes  back  to  this  main  point ;  if  you  make 
the  fertilizer  cheap  enough,  you  would  increase  the  production  very  materially ; 
is  not  that  tme? 

Mr.  MacDowell.  If  you  will  use  fertilizers  more  extensively,  you  will  in- 
crease the  acre  production  very  materially  and  cheapen  the  cost  of  growing  a 
bushel  of  wheat  or  a  bushel  of  potatoes. 

Mr,  Hull.  The  only  limitation  to  that  is  the  consumption  of  food  products. 

Mr.  MacDowell.  Yes ;  if  you  want  to  tackle  it  from  that  angle.  The  ferti- 
lizer industry  does  not  think  it  would  be  good  sense  for  the  United  States,  for 
instance,  to  materially  increase  its  production  of  wheat,  but  it  might  be  good 

92900—22 34 


I 


528 


MUSCLE  SHOALS  PROPOSITIONS. 


sense  for  it  to  grow  the  wheat  it  does  produce  on  fewer  acres  to  make  it  cost 
them  less  per  bushel,  so  they  would  have  a  greater  spread  between  the  market 
and  what  it  cost  them. 

Mr.  Hull,  j  would  not  want  to  get  into  an  argument  about  that  with  you 
because  I  do  not  agree  with  you  at  all  on  that  proposition  and  I  have  had  some 
experience.    I  do  not  think  there  is  any  such  thing  as  overproduction. 

Mr.  MacDowell.  I  will  admit  from  the  economic  standpoint  that  is  true. 

Mr.  HuLu  Not  in  the  present  state  of  the  world. 

Mr.  MacDowell.  I  will  admit  that  theoretically  you  are  right  on  that,  but 
what  I  mean  is,  broadly  speaking,  we  have  300,000,000  bushels  of  wheat  for 
export  now,  and  we  are  having  difficulty  in  selling  it,  and  it  would  not  be  wise 
for  us  to  go  ahead  and  increase  that  to  500,000,000  bushels  simply  because  we 
could  produce  it. 

Mr.  Hull.  Of  course,  by  decreasing  production  we  might  increase  the  price 
but  to  me  that  is  contemptible.  ' 

Mr.  MacDowell.  I  am  not  speaking  of  decreasing  production. 

^Ir.  Hull.  With  the  present  state  of  the  world,  every  time  you  increase  the 
price  of  wheat,  somebody  starves  in  the  world. 

Mr.  MacDowell.  I  am  not  talking  about  decreasing  the  production;  I  am 
talking  about  increasing  the  production  per  acre  so  you  can  grow  it  cheaper 
and  so  you  can  sell  it  cheaper  and  still  make  a  profit,  which  is  the  other  side 
of  it. 

Mr.  Hull.  That  is  like  the  farmer  who  started  to  burn  his  corn. 

Mr.  MacDowell.  That  is  economically  wrong,  of  course.  I  guess  there  is 
no  dispute  about  our  economics.    I  think  we  are  in  accord  on  that. 

Mr.  Pabkeb.  Mr.  MacDowell,  I  believe  that  the  coke  that  comes  to  this 
plant  at  Muscle  Shoals  comes  from  Birmingham? 

Mr.  MacDowell.  Very  likely;  yes. 

Mr.  Pabkeb.  How  much  coke  is  made  there  in  a  year? 

Mr.  MacDowell.  I  have  not  any  idea.  They  make  quite  a  little  sulphate  of 
ammonia  there.  I  have  not  any  figures,  and,  as  a  matter  of  fact,  it  is  verv 
dlflacult  to  get  that. 

Mr.  Pabkeb.  How  much  ammonia  do  they  make  there? 

Mr.  MacDowell.  That  I  could  not  tell  you,  but  I  know  there  are  a  number 
of  thousands  of  tons  made  there  a  year. 

Mr.  Pabkeb.  Is  most  of  that  coke  made  there  by  the  old  beehive  oven  or 
by  the  modem  by-products  oven. 

Mr.  aiAcDowELL.  None  of  it  by  the  beehive  oven,  and  all  of  it  by  the  modem 
oven. 

Mr.  Pabkeb.  And  only  some  few  thousand  tons  come  out  of  it? 

Mr.  MacDowell.  A  number  of  thousands.  I  do  not  know  how  many.  I 
have  not  any  data  on  that  feature  of  it,  but  it  is  a  fairly  considerable  produc- 
tion, because  thefre  is  a  good  deal  of  iron  made  there. 

Mr.  Pabkeb.  I  was  trying  to  get  at  the  amount  of  ammonia  that  was  made 
there. 

Mr.  MacDoweu:,.  I  could  not  say. 

Mr.  Pabkeb.  That  is,  the  amount  of  sulphate  of  ammonia. 

Mr.  MacDowell.  I  could  not  tell  you,  but  there  is  a  considerable  produc- 
tion made  there. 

Mr.  Pabkeb.  With  such  a  large  iron  business  as  exists  there,  would  not  that 
produce  a  very  large  proportion  of  the  sulphate  of  ammonia  used  in  this  coun- 
try? 

Mr.  MacDowell.  No  ;  if  you  will  figure  that  you  get  from  16  to  20  pounds 
of  sulphate  of  ammonia  per  ton  of  coal  coked  and  will  multiply  that  by  the 
coking  capacity  of  these  different  coking  centers,  you  can  tell  something  about 
what  the  production  is  from  that  standpoint;  but,  further,  you  have  got  the 
city  gas  plants  and  they  are  coming  in  very  rapidly. 

Mr.  Pabkeb.  I  believe  you  stated  that  there  is  60,000  horsepower  installed  in 
the  plant  at  Muscle  Shoals. 

Mr.  MacDowell.  As  I  recall,  there  is  60,000  kilowatts,  which  is  80,000  horse- 
power. 

Mr.  Pabkeb.  How  much  coal  would  that  plant  use  a  year? 

Mr.  MacDowell.  I  could  not  tell  you. 

Mr.  Pabkeb.  About  how  much? 

Mr.  MacDowell.  I  could  not  even  give  you  an  estimate  on  that.  It  is  a 
very  large  amount. 


MUSCLE   SHOALS  PROPOSITIONS. 


52g 


Mr.  Pabkeb.  Three  or  four  tons  or  more  per  horsepower,  is  it  not? 

Mr.  MacDowell.  I  have  not  any  figures  on  that. 

Mr.  Pabkeb.  I  was  trying  to  find  out  whether  it  would  be  cheaper  to  make 
the  sulphate  of  ammonia  by  this  expensive  process  you  have  mentioned  or  to 
use  the  coal  that  went  into  it. 

Mr.  MacDowell.  If  you  have  use  for  the  coke.  Of  course,  you  would  not  go 
into  the  coking  business  to  get  sulphate  of  ammonia. 

Mr.  Pabkeb.  No;  but  in  operating  that  plant,  how  much  would  you  get  out 
of  it? 

Mr,  MacDowell.  From  16  to  20  pounds  per  ton,  coked. 

Mr.  Pabkeb.  But  you  do  not  know  how  many  tons  are  used  in  that  engine? 

Mr.  MacDowell.  No,  sir ;  I  do  not. 

Mr.  Parker.  Do  you  use  cyanamid  as  a  fertilizer? 

Mr.  MacDowell.  Very  little— a  few  hundred  tons.  I  think  our  greatest  con- 
sumption has  been  3,000  tons  in  one  year,  and  that  was  some  years  ago. 

Mr.  Parker.  Is  there  any  difference,  or  can  you  compare  sulphate  of  ammonia 
and  cyanamid  for  that  purpose  and  state  which  is  the  best? 

Mr.  MacDowp:ll.  Cyanamid  is  a  form  of  nitrogen  which  is  classified 

^Ir.  Parker  (interposing).  I  do  not  want  to  go  into  the  details,  but  which  is 
the  best  for  fertilizer? 

Mr.  MacDowell.  Sulphate  of  ammonia  is  the  best. 

Mr.  Parker.  Why? 

^Ir.  MacDowell.  Because  it  is  not  alkaline,  and  you  can  use  it  in  much  larirer 
quantities  per  ton  and  make  a  much  more  concentrated  fertilizer. 

Mr.  Parker.  And  the  cyanamid,  you  think,  is  alkaline? 

Mr.  MacDowell.  Decidedly  so. 

Mr.  Pabkeb.  And  can  not  be  used  in  large  quantities? 

Mr.  MacDowell.  It  is  nor  recommended  by  the  makers  at  over  60  pounds  of 
cyanamid  per  ton  of  finished  fertilizer. 

Mr.  Parker.  I  believe  it  spoils  your  acid  phosphate  if  it  is  used  in  larger 
quantities? 

Mr.  MacDowell.  It  reverts  the  soluble  phosphoric  acid  in  the  acid  phosphate ; 
yes,  and  it  also  has  a  tendency  to  release  the  ammonia  from  other  forms  off 
into  the  air. 

Mr.  Fields.  Mr.  MacDowell,  I  was  very  much  impressed  by  your  reference  to 
the  condition  of  the  country  with  regard  to  nitrates  during  the  war. 

Mr.  MacDowell.  Yes. 

Mr.  Fields.  Figuratively  speaking,  we  were  on  very  thin  ice. 

Mr.  MacDowell.  Very  thin.  I  was  worried  to  beat  the  band,  but  I  did  not 
let  anybody  know  it. 

Mr.  Fields.  And  you  would  recommend  that  the  country  exercise  due  pre- 
caution to  prevent  being  confronted  with  that  kind  of  a  condition  again. 

Mr.  MacDowell.  I  certainly  would ;  yes. 

Mr.  Fields.  Would  you  recommend  the  maintenance  of  the  Muscle  Shoals 
proposition  for  the  production  of  nitrates  for  war  purposes  in  time  of  neeil? 

Mr.  MacDowell.  I  would. 

Mr.  Fields.  Would  you  recommend  the  completion  of  the  dams  there,  with 
that  object  in  view,  if  there  was  nothing  else  to  be  considered? 

Mr.  MacDowell.  I  would. 

^Ir.  Fields.  And  you  would  recommend  the  maintenance  of  nitrate  plant  No. 
2,  if  for  no  other  purpose,  in  connection  therewith? 

Mr.  MacDowell.  I  would;  yes.  I  think  there  is  no  question  but  what  in 
the  Interest  of  national  defense  until  \ve  .get  along  past  the  troublesonfe  days 
of  to-day,  we  ought  to  keep  everything  of  that  sort  handy,  so  that  it  can  be 
niade  use  of  very  quickly  in  case  of  need. 

Mr.  Fields.  I  am  very  glad  to  have  the  benefit  of  your  views  upon  that  sub- 
.iect.  With  regard  to  tlie  consumption  of  fertilizer,  there  has  been  a  general 
increase  in  the  use  of  fertilizer  from  the  first  use  of  it,  has  there  not? 

Mr.  MacDowell.  Yes ;  it  was  increasing,  'I  would  say,  from  an  average  of 
ab(mt  7i  per  cent  a  year  up  to  1914.  During  some  periods  it  would  go  to 
10  per  cent,  but  I  would  say  an  average  of  7^  per  cent  yearly  increase  up  to 
1914. 

Mr.  Fields.  Have  you  informed  yourself  as  to  the  number  or  the  percentage 
of  farmers  in  the  United  States  who  now  use  fertilizer? 

Mr.  MacDowell.  I  could  not  give  you  definite  information  as  to  the  num- 
ber.   The  largest  consumption  of  fertilizer  is  in  the  coastal  plains,  starting  with 


530 


MUSCLE   SHOALS  PROPOSITIONS. 


Aroostook  County,  Me.,  and  going  clear  down  to  Florida,  with  a  little  swing 
around  on  the  Gulf.  That  is  the  point  of  largest  consumption,  and  if  you 
gentlemen  would  be  interested,  I  have  here  some  copies  of  maps  prepared  by 
the  Department  of  Agriculture  showing  where  the  plants  for  fertilizer  produc- 
tion are  located  and  the  tonnages  made.  I  think  it  will  give  you  an  idea  of  the 
matter.  This  was  gotten  out  by  the  Department  of  Agriculture  as  a  result  of 
their  study  of  the  situation. 

Mr.  Fields.  The  fact  that  the  first  use  and  the  greatest  use  of  fertilizer 
is  in  the  older  sections  of  the  country  is  an  indication  that  the  use  of  fertilizer 
will  continue  to  increase,  will  it  not? 

Mr.    MacDowell.  Oh.    yes.      Wherever    they    start    them    and    study    them 
properly  there  is  a  general  increase.     You  may  slip  somewhat.     You  slipped 
last  year,  and  you  have  gone  down  from  8,000,000  tons  to  less  than  4,500,000  tons. 
•     Mr.  Fields.  You  attribute  that,  however,  to  the  general  condition  in  agri- 
culture, do  you  not? 

Mr.  MacDowell.  Yes,  sir. 

Mr.  Fields.  There  is  a  very  large  percentage  of  the  farmers  of  the  country 
who  have  not  yet  begun  to  use  fertilizer  at  all. 

Mr.  MacDowell.  Yes. 

Mr.  Fields.  And  the  fertilizer  people  take  on  new  customers  every  year. 

Mr.  MacDowell.  Yes ;  and  they  are  having  materials  tried  out,  and  they  are 
doing  everything  they  can  with  the  State  people  to  find  out  what  is  needed  in 
a  given  section  of  the  country. 

Mr.  Fields.  I  notice  you  referred  a  while  ago  to  one  very  important  point 
with  regard  to  the  use  of  highly  concentrated  fertilizers.  You  stated  tliat  if 
the  fertilizer  was  too  highly  concentrated  it  would  injure  the  seed. 

Mr.  MacDowell.  Yes;  or  the  root  growth  conring  from  the  germination  of 
the  seed. 

Mr.  Fields.  That  must  necessarily  be  overcome  and  doubtless  will  be  over- 
come to  a  great  extent  by  the  invention  of  new  machinery  with  which  to  apply 
fertilizer  to  the  soil  and  by  changing  the  methods  of  application,  will  it  not? 

Mr.  MacDowell.  Yes;  depending  on  the  crop  on  which  it  is  used.  I  had 
more  particular  reference  to  the  grains,  where  the  cost  of  growing  Is  such 
that  they  want  to  get  the  maximum  fertilizer  efficiency  from  a  m'nimum  appli- 
cation. Therefore  they  drill  it  right  in  with  the  grains  and  it  is  right  in  the 
hill  with  the  short  root  growth  of  the  grain.  You  know  the  grain  roots  do 
not  cover  a  large  territory;  but  if  you  are  fertilizing  corn,  where  the  roots 
extend  out  and  hunt  around  for  their  grub  wherever  they  can  smell  it,  then 
you  adopt  a  diifeent  method  of  distribution. 

Mr.  Fields.  In  other  words,  to  distribute  fertilizer  scientifically,  you  must 
distribute  it  according  to  the  root  of  the  plant  which  is  to  be  fertilized? 

Mr.  MacDowell.  Yes;  and  that  is  what  we  are  studying,  how  best  that  can 

be  done. 

Mr.  Fields.  When  the  farmer  first  began  the  use  of  fertilizer,  before  he  had 
any  machinery  for  putting  it  on  the  ground,  he  would  take  a  spoon  and  drop 
some  fertilizer  under  each  hill  of  corn. 

Mr.  MacDowell.  Yes. 

Mr.  Fields.  And  he  thought  he  got  better  results  by  putting  all  his  fertilizer 
close  to  the  plant. 
-  Mr.  MacDowell.  Yes. 

Mr.  Fields.  Whereas  he  has  since  learned  that  he  gets  better  results  by 
sowing  it  broadcast  so  the  roots  of  the  corn  can  feed  on  it  and  get  water, 

Mr.  MacDowell.  Yes;  that  is  right. 

Mr.  Fields.  And  before  we  get  to  anything  like  a  high  state  of  development 
in  the  use  of  fertilizer,  we  must  study  more  carefully  the  plants  to  be  fertilizeil 
and  the  proper  methods  of  putting  the  fertilizer  in  the  ground. 

Mr.  MacDowell.  Yes;  that  is  right,  and  the  other  things  which  are  neces- 
sary in  the  soil  to  make  the  fertilizer  valuable,  such  as  the  bacteria  which  put 
a  lot  of  this  plant  food-  in  shape  ^  the  plant  can  take  it.  You  see  nitrate  of 
soda,  for  Instance,  is  carried  all  over  the  farm,  and  the  plant  takes  it  up. 
It  is  a  nitrate.  Sulphate  of  ammonia  has  got  to  be  worked  on  by  the  bac- 
teria and  converted  Into  a  nitrate  because  it  goes  Into  the  plant's  stomach  as  a 
nitrate.  So  you  have  got  to  have  food  for  the  bacteria,  and  there  is  where 
your  clovers  and  your  organic  matter  come  in. 

Mr,  Fields,  And  the  agricultural  experiment  stations  are  working  on  this 
problem  of  the  scientific  development  of  the  use  of  fertilizer. 

Mr.  MacDowell.  Yes,  sir. 


MUSCLE  SHOALS  PROPOSITIONS. 


531 


Mr.  Fields.  And  advising  the  fertilizer  people  on  the  one  hand  how  to  pre- 
pare the  fertilizer,  and  the  manufacturers  of  farming  Implements  how  to  pre- 
pare the  farming  Implements,  and  the  farmer,  on  the  other  hand,  how  to  use 
the  combination  of  the  two. 

Mr.  MacDowell.  Yes. 

Mr.  Fields.  All  of  which  adds  to  the  consumption  of  fertilizer  by  the  fariijer 
who  has  been  using  it  for  years  and  all  of  which  also  contributes  new  cus- 
tomers. 

Mr.  MacDowell.  Yes;  naturally.  And  I  may  say  right  there,  gentlemen, 
tliat  tJie  way  to  get  the  cost  of  fertilizers  down  is  for  the  farmer  to  buy  more 
fertilizers.  If  you  have  a  plant  that  is  pitched  to  ship,  say,  40,000  tons,  and 
vour  various  charges  for  your  salesmen,  office  expenses,  and  everything  of  that 
sort  are  $200,000,  that  is  $5  a  ton.  If  that  plant  only  ships  20,000  tons  you 
have  got  a  cost  of  $10  a  ton.  If  you  can  squeeze  it  beyond  40,000  and  get 
50,000  tons  you  have  then  less  than  $5  a  ton  as  your  expenses.  In  other  words, 
rhe  fertilizer  industry  to-day  has  a  capacity  to  make,  I  should  say,  from  eleven 
to  twelve  million  tons  under  forced  draft.    The  biggest  year  it  has  had  is  8,000,- 

000  tons.  It  dropped  down  last  year  to  $4,500,000  tons.  The  industry  lost 
millions  and  millions  of  dollars,  and  In  addition  to  that  it  has  sixty  or  seventy 
million  dollars  still  out  for  1920  and  1921  with  the  cotton  farmers,  and  it  is 
paying  Interest  on  It  and  sweating  like  the  devil,  wondering  where  it  is  going 
to  come  out.  I  just  instiince  that  to  show  you  that  increased  tonnage  cheapens 
the  cost  of  fertilizer  and  cheapens  that  cost  of  fertilizer  to  the  farmers,  because 
the  fertilizer  man's  salvation  Is  tonnage.  He  is  foolish  if  he  tries  to  pitch  his 
price  at  a  point  where  he  will  not  move  the  greatest  possible  tonnage  through 
his  plant,  because  that  is  the  way  he  gets  his  cost  down  and  makes  his  busi- 
ness more  secure. 

Mr.  Fields.  As  a  farmer  who  uses  a  good  deal  of  fertilizer,  I  regret  to  hear 
you  state  that  oup  only  hope  of  cheap  fertilizer  is  to  buy  more  of  it,  because 

1  know  that  it  is  very  burdensome  to  pay  our  bills  now  for  fertilizer. 

Mr.  MacDowell.  Yes.  I  will  say,  gentlemen,  that  In  the  South  to-day  a 
pound  of  cotton  will  buy  as  much,  if  not  more,  pounds  of  standard  fertilizei 
than  it  would  in  1914.  Now,  that  is  not  a  healthy  situation  for  the  fertilizer 
people,  because  they  are  losing  a  large  amount  of  money. 

Mr.  Fields.  Of  course,  we  all  understand  that  every  class  of  business  is  now 
shot  to  pieces. 

Mr.  MacDowell.  Every  effort  has  been  made.  Our  greatest  obstacle  to  cheap 
fertilizer  is  railroad  rates.  We  are  122  per  cent  over  1914  in  the  North,  and 
about  116  per  cent  in  the  South,  and  we  have  many  instances  where  the  freights 
on  fertilizer  are  200  pe  rcent  over  what  they  were  in  1914.  When  you  con- 
sider that  on  an  8,000,000-ton  outshipment  you  bring  in  materials  and  ship 
out  tjo  the  extent  of  about  14,000,000  tons,  you  can  see  how  your  freight  pyra- 
mids up  on  a  proposition  of  that  kind. 

Mr.  Fields.  Since  you  have  referred  to  the  freight  rates,  that  brings  to  my 
mind  another  question.  If  plans  can  be  worked  out  whereby  highly  concen- 
trated fertilizers  may  be  used,  that  will  relieve  the  farmers  materially  on 
freight  rates,  will  it  not? 

Mr.  MacDowell.  Yes;  and  on  bags  and  labor  and  every  other  item  that  goes 
into  the  making  of  fertilizer. 

Mr.  Fields.  By  reason  of  the  elimination  of  all  that  dead  weight ;  the  bags 
must  be  furnished,  and  that  requires  so  much  labor  to  handle  it,  and  everything 
else. 

Mr.  MacDowell.  But  you  can  go  only  so  far,  and  as  far  as  we  can  foresee, 
practically,  we  can  only  get  a  certain  concentration,  because  you  have  to  have 
u  certain  dilution,  or  you  will  get  a  soil  solution  strength  there  which  Is  too 
strong.  Ill  other  words.  It  is  a  question  of  distribution,  scattering  all  over  the 
acre  of  ground,  or  In  the  right  place  for  that  particular  crop.  If  It  Is  one  that 
jr<>es  too  far  down  for  seeding  purposes. 

Mr.  Fields.  That  Is  where  we  need  to  be  studying  more  scientific  methods 
all  the  time? 

Mr.  MacDowell.  Yes. 

Mr.  Fields.  .Judge  Parker  suggests  that  I  ask  you  whether  fertilizer  could 
ii«»t  be  diluted  on  the  farm? 

^Ir.  MacDowell.  It  can,  if  you  have  dry  sand,  or  if  you  can  pulverize  clay 
'lods.  But  until  you  get  your  farm  consumption  very  much  bigger  than  it  is 
now  it  is  not,  broadly  speaking,  a  practical  thing.  In  Ohio  they  use  only  1^ 
tons  of  fertilizer  on  a  farm,  and  they  do  not  use  a  high  enough  grade.     In 


} 


I 


532 


MUSCLE  SHOALS  PROPOSITIONS. 


South  Carolina  they  use  something  like  4  tons,  while  in  N«w  Jersey  they  use 
5.  Certain  farmers  handling  the  thing  in  a  big  way  can  do  it.  We  are  trying 
all  the  time  to  improve  the  situation ;  that  is  a  big  part  of  the  fertilizer  busi- 
ness. 

Mr.  Parker.  I  wanted  to  Icnow  whether  you  can  not  lielp  the  situation  by 
diluting  it  at  the  station. 

Mr.  MacDowell.  We  do  that  so  much  better.  We  have  plants  that  ship  out 
as  much  as  50,000  tons  a  year.  The  stuff  has  to  be  treatetl  and  mixed  and 
given  a  certain  treatment  so  that  it  will  be  drillable  when  it  goes  out.  You  can 
not  keep  fertilizers  in  bags  for  a  long  time  and  have  a  good  drillable  condition. 
Nothing  makes  the  farmer  madder,  after  he  has  gone  over  a  good  part  of  his 
farm,  than  to  find  that  his  drill  has  not  been  working.  Furthermore,  we  ship 
our  phosphate  rock  from  Tennessee  and  Florida,  but  the  bulk  comes  from 
Florida  because  it  is  cheaper  than  in  Tennessee.  But  that  is  scattered  around 
and  shipped  by  boat  from  Tampa  to  New  York  and  Baltimore  and  other  places, 
but  Baltimore  is  the  biggest  producing  center  in  the  United  States.  It  is  way 
beyond  its  capacity ;  they  try  to  do  too  much  there.  Then  it  meets  our  sulphur, 
which  comes  from  the  Texas  and  Louisiana  fields.  As  a  matter  of  fact,  Mr. 
Chairman,  the  raw  material  situation  is  largely  a  southern  proposition.  It  is 
owned  and  manned  largely  by  southern  people — that  is.  the  sulphur  and  the 
phosphate  rock.  As  a  matter  of  fact,  the  discovery  that  this  calcium  carbide 
could  be  made  into  cyanamid  was  made  at  Sprague,  N.  C,  by  some  southern 
men  working  in  one  of  their  laboratories,  where  they  were  working  on  phos- 
phate rock  experiments. 

There  is  one  other  point,  in  considering  the  practicable  side  of  the  Muscle 
Shoals  proposition  as  a  large  fertilizer-producing  section,  and  that  is  in  con- 
nection with  the  facilities  for  shipment.  Muscle  Shoals  is  on  two  branch  lines 
of  railroads.  There  is  always  a  car  shortage  in  Atlanta,  Birmingham,  and 
Montgomery,  and  with  the  present  business,  not  this  last  year,  but  under  nor- 
mal conditions,  we  have  the  greatest  trouble  in  getting  cars  to  ship  out  ferti- 
lizers, and  we  could  do  a  bigger  business  if  we  could  get  more  cars.  But  if  you 
will  notice  the  maps  you  will  see  that  we  are  shipping  from  many  sections.  We 
have  the  greatest  difRculty  now  in  getting  the  cars  to  haul  350,000  tons  of  phos- 
phate rock  every  year  under  normal  conditions  from  the  southern  phosphate 
fields  to  the  plants  farther  north. 

Some  suggestion  has  been  made  that  this  amount  of  nitrogen  produced  at  this 
plant  would  make  2,000,000  tons  of  2-8-2.  But  2,000,000  tons  means  100,000  cars 
carrying  20  tons  each.  During  the  shipping  season  that  would  mean  from  800 
to  1,000  carloads  a  day.  But  it  is  not  practicable  to  figure  on  any  tonnage  as 
high  as  that.  As  a  practicable  proposition,  it  is  very  difficult  to  get  the  cars 
because  other  people  are  using  them,  and  other  sections  of  the  country  must 
have  their  fertilizers,  and  in  my  judgment  it  is  not  practicable  to  develop  sucli 
an  unusual  fertilizer  manufacturing  and  shipping  plant  at  that  point.  That  is 
purely  a  physical  proposition. 

Mr.  Fields.  But  that  point,  like  all  other  points  in  the  country,  has  its  in- 
fancy. Of  course,  there  might  be  such  development  there  as  would  justify  the 
construction  of  greater  transportation  facilities. 

Mr.  MacDowell.  Yes;  and  you  have  the  river,  and  you  may  be  able  to  barge 
some  stuff.  There  are  several  large  plants  at  Nashville  on  that  river,  but  it  is 
very  seldom  that  they  barge  anything  because  they  have  not  the  barge  facilities. 
Then,  too,  you  have  to  keep  fertilizers  under  cover.  That  means  that  you  hav(» 
to  have  facilities  at  the  different  stations  along  thfe  river  to  properly  take  care 
of  that  stuff,  and  we  have  not  got  those  facilities  at  the  present  time.  But  we 
hope  we  can  get  them,  because  that  is  one  of  the  biggest  things  we  can  do,  to 
develop  a  terminal  for  that  stuff  so  that  we  will  not  have  to  pay  so  much  dead 
freight.    We  are  not  there  to-day,  and  it  is  a  slow  development. 

Mr.  QxjiN.  Mr.  MacDowell,  you  are  at  the  head  of  the  Armour  fertilizer  in- 
dustry? , 

Mr.  MacDowell.  Yes ;  I  started  that  by-product  business  and  developed  it. 

Mr.  Qthn.  How  long  ago? 

Mr.  MacDowell.  It  was  started  in  1894. 

Mr.  QuiN.  That  is  their  method  of  disposing  of  waste? 

Mr.  MacDowell.  We  found  that  we  had  these  waste  materials,  and  we  wanted 
to  increase  the  value  of  the  hog,  and  we  got  into  it  for  that  reason,  and  to 
avoid  being  shut  up  as  a  public  nuisance. 

Mr.  QuiN.  How  many  factories  have  you? 


MUSCLE  SHOALS  PROPOSITIONS. 


533 


Mr.  MacDowell,  We  have,  I  would  say,  outside  of  the  packing  houses,  some 
twenty  odd  plants  around  the  United  States,  two  in  Cuba,  one  in  Porto  Rico, 
and  then  we  have  plants  in  South  America  and  around  the  world. 

Mr.  QuiN.  The  ones  where  the  packing  houses  themselves  are  located  use  a 
great  many  of  the  elements  of  waste  from  the  stock  which  is  slaughtered,  do 
they  not? 

Mr.  MacDowell.  Everything  that  can  not  be  better  used  for  something  else 
goes  into  those  materials;  yes. 

Mr.  QuiN.  And  you  can  produce  your  fertilizer  cheaper  at  the  factory  close 
to  your  slaughterhouses  than  you  can  somewhere  else,  can  you  not? 

Mr.  MacDowell.  If  we  were  dependent  on  that  material;  yes. 

Mr.  QuiN.  What  fertilizer  elements  come  from  the  stock  yards? 

Mr.  MacDowell.  Nitrogen  and  phosphoric  acid.  I  may  say  as  a  matter  of 
interest  that  within  the  last  six  or  eight  years  much  of  the  blood  and  a  great 
deal  of  the  tankage  has  been  going  out  to  Mr.  Hull's  country  in  Iowa  to  feed 
hogs,  and  we  get  the  fertilizer  only  indirectly.  Many  of  the  packing-house 
products  are  getting  into  the  feeds. 

Mr.  QuiN.  Do  you  get  any  potash  out  of  the  slaughterhouse  products? 

Mr.  MacDowell.  No,  sir.  I  may  say  that  I  developed  the  first  potash  mine 
in  the  United  States,  personally,  out  in  Utah ;  but  we  do  not  get  anv  potash 
out  of  by-product  stuff. 

Mr.  QuiN.  This  country  is  short  on  that  element  of  fertilizer,  is  it  not? 

Mr.  MacDowell.  As  far  as  its  own  production  is  concerned ;  yes. 

Mr.  QuiN.  We  have  been  dependent  upon  importations  from  Germany,  so  far 
as  potash  is  concerned? 

Mr.  MacDowell.  Yes ;  and  from  France  now. 

Mr.  QuiN.  Do  you  gentlemen  have  any  idea  that  any  important  sources  for 
potash  can  be  discovered  here  in  the  United  States? 

Mr.  MacDowell.  I  have  been  hopeful  that  it  can  be  made  economlcallv  near 
Salt  Lake  City,  to  the  west  of  Salt  Lake  City.  I  have  had  engineers  go  through 
tliat  field  very  carefully,  and  as  far  as  the  cost  out  there  is  concerned,  it  can 
be  made  economically  at  Searles  Lake  in  southern  Calif(u-nia. 

Mr.  QuiN.  That  is  kelp? 

Mr.  MacDowell.  No  ;  that  is  some  of  the  brines  in  the  old,  dry  lakes.  There 
is  that  plant  there,  and  there  are  lakes  out  in  Nebraska  that  make  pretty  fair 
potash.  But  the  trouble  is  they  are  so  far  away  from  the  coastal  plain  sec- 
tion, so  that  it  would  be  difficult  to  make  use  of  them  because  of  the  high  cost 
of  tran.«rportation.  That  is  the  difficulty,  and  I  do  not  know  how  we  are  going 
to  overcome  it,  although  we  may  be  able  to  get  water  transportation  from 
Searles  Lake  later  on.  When  I  say  that  I  mean  that  the  industries  are 
paying  from  $13  to  $20  a  ton  freight  charges  on  potash  from  Salt  Lake  Citv 
or  from  the  brines  of  Nebraska  down  to  the  sections  in  the  South  where  they 
use  them.  And  we  are  getting  our  potash  from  France  and  from  Germanv 
to-day  at  $2.70  a  ton  by  water.  There  is  your  problem.  I  do  believe  that  we 
will  discover  some  way  of  developing  some  potash  in  this  country,  and  that  is 
one  Veason  why  I  had  Mr.  Swann  do  some  work  in  that  section,  because  I  was 
hopeful  that  he  might  stumble  on  something  which  wouhl  be  beneficial. 

Mr.  QuiN.  What  are  the  ingredients  of  fertilizer  that  go  into  vegetables? 
You  spoke  of  the  trucking  industry ;  just  what  do  you  mean? 

Mr.  MacDowell.  You  grow  truck  generally  on  sandy  loams,  with  not  over 
8  per  cent  of  clay,  and  if  you  get  that  you  could  in  two  or  three  weeks  get  a 
good  start  in  maturing  your  truck.  You  use  fertilizer  there  because  the  sandy 
soils  are  not  very  rich.  You  use  quite  concentrated  fertilizer,  especially  oil 
some  truck  crops,  running  as  high  as  15  per  cent  potash. 

^Ir.  QuiN.  What  percentage  of  nitrogen  do  they  use  on  the  truck  crop? 

Mr.  MacDowell.  They  run  as  high  as  10  per  cent  of  ammonia  and  8*  per 
cent  of  nitrogen.  That  is  one  of  the  sections  where  they  use  a  lot  of  nitrogen, 
sind  Aroostook  County,  Me.,  which  is  one  of  the  most  heavily  fertilizeil  sections 
of  the  world,  and  also  the  Hawaiian  Islands,  beat  any  other  section.  They 
use  2,000  pounds  of  a  fertilizer  containing  5  per  cent  of  ammonia  and  often  as 
much  as  from  6  to  8  per  cent  of  phosphoric  acid  and  from  7  to  10  per  cent 
of  potash. 

Mr.  QuiN.  What  do  they  use  on  cotton? 

Mr.  MacDowetx.  On  cotton  they  use,  speaking  in  averages,  about  3  per  cent 
of  ammonia,  9  per  cent  of  phosphoric  acid,  and  8  per  cent  of  potash.  The 
average  has  been  going  up.  But  the  better  planters  are  using  higher  grades 
than  that,  such  as  4-10-4,  and  along  that  line.    We  have  been  putting  out 


534 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


535 


ourselves  an  acid  phosphate  of  16  per  cent.  We  do  make  it  stronger  thM^  that 
but  to  get  it  driUable  we  make  a  combination  of  ^16-2.  That  is  16  per  cent 
of  acid  phosphate,  2  per  cent  of  ammonia,  and  2  per  cent  of  Potash.  On  the 
other  hand,  to  compete  with  the  1-^1  stuff,  which  we  do  not  believe  is  the 
economical  thing  for  the  farmers  to  use,  we  are  putting  In  a  combination  of 
2-16-2,  which  saves  the  farmer  $10  a  ton.  ,  ,   ^     ^     ,    u    «  „ 

Mr.  Qtjin.  One  method  of  applying  fertilizer  in  the  truck  industry  is  by  spray- 

''^ lir^  Ma"cDoweix.  No  ;  that  is  used  only  a  very  littie.  It  is  mostly  applied 
bv  broadcasting  or  with  some  drills.  Broadcasting  is  rather  an  extravagant 
way  in  which  to  do  it.  however.  They  have  found  that  drilling  and  puttmg 
it  in  little  rows,  with  a  certain  application,  will  bring  them  more  money  than 
by  using  the  broadcasting  method,  and  thus  using  it  rather  extravagantly. 

Mr.  QuiN.  They  have  a  method  of  placing  the  fertilizer  on  the  crop  after  the 
croD  is  up  and  partly  worked  out,  do  they  not? 

Mr  mIcDowell.  Yes ;  they  do  that  in  certain  sections  of  the  country,  and 
that  is  what  they  call  top  dress.    Sometimes  they  make  a  second,  or  even  a 

^^Mr.^QuiT  They  have  several  methods;  one  is  to  put  it  down  when  they 
break  the  ground? 

Mr.  MacDoweix.  Yes. 

Mr.  QuiN.  In  a  drill? 

Mr.  Q^?.*'tSJ^  h^e  another  method,  by  putting  It  down  while  they  are 
planting? 

Mr.  QuiN.^And^hen^'they  have  another  method  by  which  they  apply  it  by 

"^SJ^'M^cDowE^^'Yes;  but  the  spraying  method  is  not  very  heavily  used 
because  the  soil  has  tiie  power  of  fixing  the  salts  in  the  soil   and  you  do  not 
want  vour  roots  to  come  up  to  the  surface;  you  want  the  fertilizer  to  stay 
In  the  ground  below  the  surface.    They  are  just  like  dogs,  they  will  go  where 
thp  ffrub  is  and  vou  have  to  keep  it  down. 

Ilf  QUIN  we  have  the  practical  men  understanding  the  different  sod  needs 
for  fertilizer,  and  what  the  different  types  of  crops  need  In  the  way  of  different 
Dercentaees  if  fertilizers.  Do  you  think  the  agricultural  colleges  and  the  ex- 
SentlTs?atfons  In  each  State,  and  the  farm  demonstrators  in  each  county 
should  deal  directly  between  the  fertilizer  producer  and  the  consumer? 

Mr  MacDowell.  You  mean  having  them  engaged  In  business  i 

Mr'  QuiN.  No;  I  mean  telling  the  farmer  what  the  soil  needs. 

Mr"  MacDowell.  That  Is  our  endeavor,  so  far  as  we  can  get  them  to  do  it , 
we  tlilnk  that  Is  sound.  But  we  do  not  believe  the  fertilizer  industry  should 
c^Tvyonex^r^Leutal  stations  or  do  that  work  that  the  Government  itself  can 
do  more  impersonally  than  we  can.    We  think  that  Is  their  business  to  tell  the 

^^n-^VuiTAniTthe  national  association  of  which  you  are  president  has  that 
as  one  of  Its  functions,  to  give  the  farmers  what  Is  best  suited  to  their  soils? 

M?  MACDOWELL.  Yes;  we  are  trying  to  help  sell  the  work  which  these  scien- 
tific liien  do  in  their  stations.  They  really  need  it,  because  there  is  a  wonderful 
lot  of  scientific  development  hidden  away  In  pamphlets  that  nobody  gets  at 
We  do  not  think  they  are  especially  good  salesmen  of  the  work  which  they  do. 
Thev  are  content  when  they  make  their  reports.  

Mr  QuiN  In  the  type  of  fertilizer  for  cotton  which  you  are  familiar  with 
and  sell  In  my  country',  how  much  of  that  In  a  ton  is  sand  and  waste? 

Mr.  MacDowell.  That  depends  upon  what  kind  of  material  you  use. 

Mr.  QuiN.  I  said  fertilizer  for  cotton. 

Mr.  MacDowell.  Take  3-8^3. 

Mr  OriN    That  is  about  what  you  have  for  cotton  i  „      , ,     u  ^ 

Mr"  MacDowell.  Yes:  or  about  3-9-3.  There  is  1,700  pounds  of  acid  phos- 
nhntP  in  It  at  the  beginning.  If  you  use  cottonseed  meal  you  have  60  pounob 
of  fertUzer  7  l>^r  cent,  and  it  would  take  800  pounds  of  cottonseed  meal  to  ^ 
give  the  3;  and  that  would  be  1,000  pounds  thei-e.  and  800  pounds  of  meal;  and 
if  vou  want  8  per  cent  you  have  only  300  pounds  leeway  there  If  you  use 
muriate  of  potash,  you  use  roughly  about  100  pounds  of  muriate  of  Potash.  ur 
if  vou  do  not  use  muriate  of  potash  you  would  use  some  other  form  that  did  noi 
give  so  much.    And  vou  could  correct  that  without  much  trouble. 


Mr.  QuiN.  That  is  the  cottonseed  meal  is  helping  us  in  making  fertilizer? 

Mr.  MacDowell.  It  is  right  now,  although  some  of  it  is  going  in  because  the 
spinner  wants  it,  he  is  asking  for  It,  and  It  has  to  be  given  to  him. 

Mr.  QuiN.  The  elements  of  fertilizer  can  be  made  at  the  Muscle  Shoals  plant? 

Mr.  MacDowell.  There  are  two  things  you  can  make.  One  Is  your  nitrogen 
and  the  other  is  the  phosphoric  acid,  either  in  the  regular  way  or  by  the  elec- 
tric-furnace method,  if  that  works.  As  far  as  potash  is  concerned,  you  could 
bring  your  shales  in  there  and  make  your  potash.  But  I  would  say,  in  that 
connection,  however,  the  cheaper  thing  would  be  to  buy  the  French  and  Ger- 
man potash  and  ship  It  In  here. 

Mr.  QuiN.  If  you  can  get  the  potash  and  the  nitrogen,  what  is  the  other  sub- 
^i'flnce  ^ 

Mr.  MacDowell.  You  have  potash,  nitrogen,  and  phosphoric  add. 

Mr.  QuiN.  That  makes  fertilizer,  does  it  not? 

Mr.  MacDowell.  Yes ;  that  is  right. 

Mr.  QuiN.  That  is  the  complete  fertilizer  in  the  proper  proportion  .to  be  ap- 
plied on  any  crop? 

Mr.  MacDowell.  You  have  to  mix  it  to  get  your  proper  proportion. 

Mr.  QuiN.  Those  are  the  three  fertilizer  ingredients? 

Mr.  MacDowell.  Oh,  yes. 

Mr.  QuiN.  And  all  of  those  fertilizer  ingredients  can  be  obtained  from  the 
raw  materials  that  are  at  or  in  the  vicinity  of  Muscle  Shoals? 

Mr.  MacDowell.  Or  in  that  neighborhood ;  yes.  For  instance,  at  Birmingham 
they  have  sulphate  of  ammonia.  They  get  phosphoric  acid  or  phosphate  rock 
from  that  territory  and  ship  It  in  and  treat  it.  They  get  their  add  from  the 
Tennessee  Copper  Co.  And  there  is  another  illustration  of  the  usefulness  of 
fertilizer.  The  using  of  that  acid  permits  the  plant  to  run,  and  the  plant 
employs  thousands  of  people,  which  Is  Its  direct  contribution  to  the  welfare  of 
that  community  through  being  able  to  use  add  for  fertilizer  purposes. 

Mr.  QuiN.  Commercial  fertilizer  Is  a  necessity  now? 

Mr.  MacDow  ell.  In  that  section ;  yes. 

Mr.  QuiN.  You  have  to  get  it  through  these  leguminous  plants,  if  you  can  not 
get  It  commercially? 

Mr.  MacDowell.  Yes ;  that  Is  the  first  thing  to  do,  anyway. 

Mr.  QuiN.  From  the  soya  bean  and  other  leguminous  plants.  In  the  absence 
of  that  the  farmer  Is  bound  to  have  fertilizer,  or  you  would  not  do  any  business. 

Mr.  MacDowetx.  Or  in  the  presence  of  it,  If  he  wants  to  get  the  best  results. 

Mr.  QuiN.  If  they  can  make  at  Muscle  Shoals  these  three  Ingredients  of 
fertilizer,  which  are  all  they  use 

Mr.  MacDowell  (Interposing).  Outside  of  a  little  magnesium  and  a  few- 
other  things. 

Mr.  QuiN.  And  put  them  in  a  concentrated  form  and  get  that  concentrated 
fertilizer  to  the  consumer,  he  can  mix  it  or  spray  it,  as  the  case  may  be.  If  that 
were  done,  would  that  not  cut  out  the  expense  of  shipping  all  of  that  filler? 

Mr.  MacDowell.  In  part  he  can  do  that  to-day,  and  a  good  many  farmers  are 
doing  it. 

Mr.  QuiN.  Some  gentlemen  said  they  could  not  do  It. 

Mr.  MacDoweli..  They  are  buying  sulphate  of  ammonia,  which  contains  25 
per  cent  of  ammonia,  and  it  is  being  shipped  to  certain  fruit  and  truck  farmers. 
They  are  doing  It  also  with  nitrate  of  soda.    That  is  a  part  of  ♦^hp  fertilizer 

business. 
Mr.  QuiN.  There  is  no  discount  on  the  farmer  being  able  to  mix  it  with  the 

filler.  If  he  has  any  sand? 

Mr.  MacDowell.  Yes;  and  If  he  happens  to  be  located  In  tho  narht  location 
he  can  drv  It  and  get  It  Into  shape  to  drill. 

Mr.  QuiN.  You  speak  of  a  lack  of  shipping  facilities  from  Muscle  Shoals.  Is 
it  not  a  fact  that  with  the  concentrated  form  of  fertilizer  which  would  be  sent 
out  of  there  the  large  number  of  cars  you  refer  to  would  not  be  required? 

Mr.  MacDowell.  That  is  true  if  he  does  ship  nitrogen  which  he  makes;  it 

would  require  fewer  still. 

Mr.  QuiN.  This  project  as  contemplated  proposes  to  Improve  navigation  there 
so  they  can  float  those  products  on  boats  out  Into  the  Ohio  River  and  send  them 
out  that  way? 

j^jj.  \TacDowell   Yes. 

Mr.  Qum.  Then  there  would  not  be  any  objection  to  that,  if  you  can  make 
that  stuff  and  get  it  to  the  seaboard  at  $2.20  a  ton? 


536 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


537 


Mr.  MAbDowEix.  We  can  do  that  now  at  Nashville,  for  instance,  which  is 
very  close  to  the  phosphate  field.  The  plants  are  right  on  the  river,  but  there 
are  no  barges  and  no  facilities  for  handling  it. 

Mr.  QuiN.  Your  association  in  the  literature  which  was  sent  to  each  Mem- 
ber of  Congress  stated  that  obviously  no  matter  how  cheap  the  Muscle  Shoals 
plant  could  make  sulphate  of  ammonia,  it  could  not  greatly  reduce  the  cost  of 
<!ommerclal  fertilizer. 

Mr.  MacDowell.  Yes. 

Mr.  QuiN.  You  did  not  include  in  that  statement  the  consideration  of  how 
cheaply  they  may  produce  phosphoric  acid,  did  you?    You  did  not  figure  that? 

Mr.  MacDowell.  No;  that  was  not  figured. 

Mr.  QuiN.  Did  you  figure  on  them  producing  the  phosphate  so  close  to  that 
plant?    It  is  very  close  to  that  plant? 

Mr.  MacDowell.  Yes;  it  is  very  close  to  Nashville.  The  cheapest  phos- 
phorous beds  are  in  Florida,  at  tidewater. 

Mr.  QuiN.  They  can  produce  the  other  ingredients  there,  too? 

Mr.  MacDowell.  Yes. 

Mr,  QuiN.  Then  if  these  three  ingre<lients  of  fertilizer  could  be  produced 
at  the  Muscle  Shoals  plant,  your  statement  could  not  apply,  could  it? 

Mr.  MacDowell.  It  would  not  apply  in  full  force,  if  they  can  produce  these 
materials,  which  they  have  not  commercially  done.  That  is,  potash  has  not 
been  commercially  produced.  I  do  not  think  they  have  gone  over  70  per  cent 
utilization,  and  it  is  much  cheaper  to  buy  that  potash  from  Germany  than  to 
try  to  make  it.  The  phosphoric  acid  is  cheaper  to  make  by  the  acid  process 
than  by  the  other  proc^ess. 

Mr.  QuiN.  We  will  assume  they  could  not  make  it.  That  is  one  of  the  ele- 
ments. The  other  two  elements  can  be  produced  at  Muscle  Shoals.  In  this 
big.  yellow  circle  on  the  circular  you  sent  out  you  say  that  the  ordinary  fer- 
tilizer has  only  4  per  cent,  on  the  average  of  sulphate  of  ammonia. 

Mr.  MacDowell.  On  the  average;  yes. 

]Mr.  Qi'iN.  Then  you  say  that  the  other  necessary  ingre<lients,  such  as  or- 
ganic anmioniates,  nitrogen,  potash,  phosphoric  acid,  and  the  mixing,  and  ba^'- 
ging.  and  freight,  and  other  necessary  costs  amounts  to  29  cents.  Is  that  a 
correct  statement? 

Mr.  ;MacDowell.  From  the  cost  standpoint;  .ves. 

Mr.  Qtin.  Then  the  ultimate  consumer  of  the  fertilizer  is  paying  most  of 
the  expense  of  the  fertilizer  for  the  mixing,  and  the  bagging,  and  the  freight, 
anil  storage,  and  other  charges  on  it. 

Mr.  MacDowell.  He  is  paying  quite  a  lot ;  yes. 

Mr.  QuiN.  Alnmt  what  percentage  now  would  you  say  that  these  real  fertilizer 
elements  amount  to  by  the  time  it  gets  to  the  ultimate  consumer?  You  are 
familiar  with  the  business,  and  I  would  like  to  know  your  opinion  of  that  per- 
centage. 

Mr.  MacDowell.  As  I  recall,  freight  is  35  per  cent  of  the  cost;  that  is, 
freight  alone.  The  ingredients,  if  I  recall  correctly,  as  determined  by  the  De- 
partment of  Agriculture,  normally  constituted  about  65  per  cent  formerly. 
Now,  they  do  not  constitute  so  much. 

Mr.  Qt  IN.  That  would  include  the  whole  100  per  cent? 

Mr.  MacDowell.  I  say  now  they  do  not  cost  so  much,  and  we  have  figured 
the  freight,  which  did  not  cost  so  much,  to  be  about  double,  so  that  that  makes 
the  difference  now. 

Mr.  QriN.  It  is  double  what  it  was  before  the  war? 

Mr.  MacDowell.  Yes.  The  big  element  of  cost  lately  has  been  lack  of  busi- 
ness. 

Mr.  QuiN.  Do  you  mean  that  fertilizer  costs  more  because  you  do  not  sell  so 
much  of  it? 

Mr.  MadDowell.  Yes;  the  expenses  are  almost  doubled  on  that  end  of  the 
proposition. 

Mr.  QiTiN.  But  what  have  you  to  say  about  the  fact  that  the  farmer  is  not 
able  to  buy  it? 

IVfr,  MacDowell,  That  is  one  of  the  difficulties  at  the  present  time.  You 
can  not  get  your  costs  down  by  not  doing  business.  You  have  got  to  get  your 
costs  down  by  doing  business.    That  is  what  we  want  to  do  if  we  can. 

Mr.  Qtin.  We  want  to  know  why  it  is  that  they  can  not  cut  out  all  this  ex- 
pense of  this  filler,  and  the  freight,  and  the  cost  in  handling  it. 

Mr.  MacDowell.  Because  up  to  date  it  has  not  been  thought  advisable  by 
.agriculturalists  to  use    too  concentrated  mixed  fertilizers.     And  further  than 


that,  the  farmer  himself  has  his  own  liking  for  fertilizers  which  we  think  arc 
not  strong  enough,  and  we  are  trying  to  get  him  to  use  stronger  fertilizers. 

Mr.  QuiN.  Mr.  MacDowell,  where  they  have  the  farm  demonstration  agent 
to  give  the  farmers  instruction  as  to  the  proi>er  way  of  mixing  that,  do  you  not 
think  it  is  a  matter  of  knowledge  between  the  commercial  fertilizer  manufac- 
turer and  the  farmer,  and  that  knowledge  should  be  carried  to  the  farmer? 

Mr.  MacDowell.  Yes;  he  has  the  knowledge,  and  if  he  wants  to  do  it,  he 
can  mix  the  fertilizers  any  time  he  wants  to  try  it ;  there  is  nothing  to  prevent 
him  from  doing  it.  But  you  must  remember  that  fertilizers  are  shipped  in  car- 
load lots,  whereas  fertilizer  ingredients  are  shipped  in  less  than  carload  lots. 
And  if  the  consumption  on  the  farm  is  only  a  ton  and  a  quarter,  as  it  is  in 
Ohio,  it  is  cheaper  to  take  low-grade  fertilizer  and  try  to  fuss  with  it  himself. 
but  when  we  get  into  big  trucking  operations  it  is  a  different  i>roposition,  I 
will  say  this,  that  we  prefer,  as  an  industry,  to  ship  high-grade  goods. 

Mr.  Qi'iN.  I  presume  you  read  the  evidence  of  Mr.  Ford's  engineers? 

IMr.  MacDowell.  No,  sir;  I  did  not. 

Mr.  QriN.  If  Mr.  Ford  can  make  this  fertilizer  in  any  form  of  finished  prod- 
uct, or  in  a  concentrated  form,  do  you  not  think  it  would  make  it  cheaper  to 
the  fai-mer  if  that  cost  is  so  nuich  less  than  it  would  be  elsewhere  on  account 
of  the  cheap  water  power? 

Mr.  MacDowell.  I  do  not  know  how  much  power  would  come  in  on  that 
proposition,  but  the  farmer  can  get  concentrated  fertilizers  to-day.  Just  what 
Mr.  Fold  is  proposing  to  make.  As  a  matter  of  fact,  there  is  4  per  cent  super- 
phosphate made  to  day,  and  it  is  unsalable.  The  American  Cyanamid  Co.  put 
in  a  plant  to  make  ammonium  phosphate,  the  very  thing  which  they  have  been 
talking  about  making  at  Muscle  Shoals.    But  the  plant  is  closed ;  they  can  not 

afford  to  run  it. 

Mr.  QuiN.  They  belong  to  the  National  Fertilizer  Association,  do  they  not? 

Mr.  MacDowell.  I  think  they  do ;  they  are  an  associate  member. 

Mr.  QuiN.  There  is  another  company  making  fertilizer,  the  Virginia-Carolina 
Chemical  Co.    They  are  members  of  the  National  Fertilizer  Association? 

Mr.  MacDowell.  Yes. 

Mr.  QriN.  That  plant  at  IMuscle  Shoals  was  constructed  for  the  manufacture 
of  nitrates  in  time  of  war,  and  fertilizer  in  time  of  peace,  was  it  not? 

Mv.  MacDowell.  Well,  they  hoped  to  make  it  in  time  of  peace;  yes. 

^Ir.  QuiN.  If  Mr.  Ford  says  he  can  make  this  fertilizer  there — and  he  said 
that  through  his  representatives  at  a  hearing  by  this  committee — at  50  per 
cent  less  than  it  is  being  made  for  to-day,  would  not  that  be  a  great  boon  for 
the  people  of  this  country? 

Mr.  MacDowell.  He  can  not  do  it  unless  he  steals  his  stuff,  and  I  am  quite^ 
sure  he  could  not  do  that. 

Mr.  QuiN.  Why  then  is  your  association  so  much  opposed  to  this  plant  down 
there  being  devoted  to  the  manufacture  of  fertilizer  by  Mr.  Ford? 

Mr.  MacDowell.  We  have  not  any  objection  to  Mr.  B^ord  manufacturing 
fertilizer,  if  he  wants  to  get  into  it.  But  we  have  this  stock,  as  I  explained 
earlier,  that  Congress  is  asked  to  put  in  800,000  or  850,000  horsepower,  with 
electrical  equipment,  in  order  to  be  able  to  use  100,000  horsepower  to  produce 
nitrates.    Is  that  sound  from  the  standpoint  of  public  policy? 

Furthermore,  the  fertilizer  industry  felt  that  the  Congress  should  know  more 
about  the  fertilizer  business  and  the  need  for  additional  fertilizer  now.  One 
of  the  great  troubles  with  this  country  and  the  world  is  that  there  is  about 
150  per  cent  of  over  normal  capacity  in  everything.  We  have  got  a  big  excess  of 
capacitv  in  fertilizer  to-day.  We  have  a  big  excess  of  capacity  in  sulphate  of 
annnonia,  which  will  be  made  at  Muscle  Shoals.  Simply  because  you  have  .some- 
thing vou  can  make  something  out  of,  we  do  not  believe  it  should  be  used  to 
make  it  unless  there  is  need  for  it.  If  Mr.  Ford  goes  into  the  fertilizer 
business,  we  will  compete  with  him,  and  if  we  can  not  we  will  get  out  of  the 
business.  We  have  to  take  a  risk.  We  have  made  all  these  developments,  and 
if  we  can  make  these  things  more  cheaply  by  reason  of  improved  development 
we  think  we  ought  to  have  a  chance  as  well  as  Mr.  Ford,  and  we  do  not  think 
he  should  have  a  monopoly  down  there. 

Mr.  QuiN.  Did  you  not  have  a  chance  to  bid  on  this  plant? 

Mr.  MacDowell.  Fertilizer  people  wouM  not  bid  on  a  proposition  of  this 
k'nd. 

Mr.  QuiN.  The  invitations  were  sent  out  generally. 

iMr.  MacDowell.  I  know,  but  it  is  not  a  fertilizer  proposition.  As  to  the 
ph«»sphoric  acid,  I  do  not  agree  with  some  of  the  gentlemen  in  regard  to  that. 


f 


m 


538 


MUSCLE  SHOALS  PROPOSITIONS. 


I  think  there  are  opportunities  there  of  making  concentrated  fertilizers  cheaper 
than  by  the  acid  method,  quite  materially  cheaper  than  by  the  acid  method. 
But  I  say,  as  a  practical  proposition,  supplying  stuff  to  the  farmers  all  over 
the  country,  you  can  only  go  so  far,  because  these  concentrated  fertilizers  have 
been  made  for  35  years.  They  have  been  making  this  concentrated  stuft'  in 
Belgium  and  Holland  for  a  number  of  years,  but  they  have  to  send  it  away  to 
get  rid  of  it.  There  have  been  two  companies  making  this  triple-strength 
stuff,  and  they  have  either  only  been  able  to  sell  a  limited  amount  of  it  or  they 
can  not  do  it  at  all,  although  it  is  shipped  all  over  the  country.  That  is  the 
triple-strength  phosphate.    It  takes  time  to  work  those  things  out. 

Mr.  QuiN.  I  see  that  they  are  using  the  concentrated  fertilizer  in  large  quanti- 
ties in  my  country.     I  know  they  are  using  it. 

Mr.  MacDowell.  Yes ;  and  we  sell  a  lot  of  it.    We  would  like  to  sell  more  of  it. 
Mr.  QuiN.  Then  these  gentlemen  who  say  it  can  not  be  done  are  Igriorant  on 
that  subject? 

Mr.  MacDowell.  I  will  say  that  from  the  standpoint  of  fixing  nitrogen,  Mr. 
Ford  can  not  compete  at  Muscle  Shoals  with  the  cost  of  the  present  methods 
of  recovery  from  by-product  coke,  and  we  have  a  surplus  from  that. 

Mr.  QuiN.  With  the  scientists  at  work  all  the  time,  and  with  Mr.  Ford's 
ability  to  get  the  best  scientists  on  his  staff,  do  you  not  presume  that  in  a  short 
time  this  industry  will  be  revolutionized  and  that  the  fertilizer  products  will 
be  at  a  much  cheaper  price  than  at  the  present  time? 
Mr.  MacDowell.  I  hope  so.  I  am  working  to  that  end  as  fast  as  I  can. 
Mr.  QuiN.  Did  you  not  state  that  in  five  years'  time  the  present  method  will 
be  obsolete? 

Mr.  MacDowell.  I  think  so;  yes. 

Mr.  QuiN.  It  is  not  unreasonable  to  think  that  Mr.  Ford  should  begin  t(» 
make  it  cheaper  very  soon? 

Mr.  MacDowell.  He  could  not  use  h'.s  equipment  and  would  not  need  all  that 
power  for  that  purpose. 

Mr.  QuiN.  He  could  use  such  of  it  as  he  did  need  for  that  purpose. 
Mr.  MacDowell.  Well,  I  think  he  could  use  the  power  to  better  advantnge 
making  something  else. 

Mr.  QuiN.  You  do  not  think  he  is  going  to  let  that  power  go  to  waste? 
Mr.  MacDowell.  No;  I  think  not. 

Mr.  QuiN.  You  know  that  Mr.  Ford,  as  a  business  man,  would  utilize  it? 
Mr.  MacDowell.  Yes ;  and  I  think  myself  that  it  is  a  tremendous  amount  of 
power  to  put  in  the  hands  of  one  man  to  say  who  shall  use  it.     Furthermore, 
from  the  engineering  standpcunt,  I  think  that  you  are  interested  to  see  that  he 

develops  as  much  of  the  primary  power 

Mr.  QuTN  (interposing).  That  is  what  he  is  going  to  do  down  there;  we 
can  not  do  it.  This  man  proposes  to  do  that  very  thing,  to  develop  1,000,000 
horsepower. 

Mr.  MacDowell.  There  is  large  secondary  power.  You  have,  from  an  engi- 
neering standpoint,  only  got  150,000  primary  horsepower  down  there.  I  think 
you  ought  to  go  to  work  and  reservoir  it  back  so  that  there  will  be  from 
250,000  to  350,000  primary  power  down  there.  You  do  not  want  to  have 
an  industry  established  and  working  down  there  for  four  or  five  months 
in  the  year,  and  have  all  those  men  hunting  after  jobs  for  the  balance  of  the 
year.  You  do  not  want  to  have  the  industries  down  there  in  such  a  condition 
so  that  when  you  first  wake  up  in  the  morning  you  have  to  go  out  and  fin<l 
out  whether  there  is  enough  power  to  work  with  during  the  day.  Those  are  our 
problems.  It  ought  to  be  balanced  and  worked  upon  sound  engineering  lines, 
and  the  fertilizer  business  is  with  you  on  that  feature  of  it.  Where  we  get 
an  industrial  section  developed  it  is  better  for  the  farmer  in  finding  a  sales 
market  for  his  truck  crops. 

I  only  wanted  you  to  know  that  there  is  no  nee€l  at  the  present  time,  and 
probably  will  not  be  for  some  time,  for  the  nitrogenous  fertilizer  which  it  is 
proposed  to  make  at  Muscle  Shoals.  I  wanted  you  to  know  that  Germany 
and  England  will  be  in  the  market  and  control  the  price,  because  those  things 
come  in  duty  free  and  they  can  control  the  price  over  here,  and  that  Chile 
has  got  to  sell  stuff  to  get  buying  power  in  this  country,  and  we  want  to 
sell  her  something.  As  far  as  I  can  see  there  is  no  danger  of  nitrogen  starva- 
tion in  this  country  for  a  long  time. 

From  the  preparedness  standpoint  you  should  keep  this  nitrate  plant,  in 
my  judgment.  If  you  want  to  work  out  the  financing  of  it  as  best  you  can, 
you  can  sell  nitrate  plant  No.  1,  and  you  can  sell  a  lot  of  things.    As  I  under- 


MUSCLE  SHOALS  PROPOSITIONS. 


539 


stand  it,  it  has  been  estimated  that  the  things  down  there  have  a  value  of 
approximately  $16,000,000,  which  is  $11,000,000  more  than  Mr.  Ford  offers  for 
it.  You  can  sell  the  whole  proposition  and  have  the  nitrogen-fixation  plant 
available,  if  necessity  demands  its  use,  and  you  can  commandeer  the  power 
at  any  time.  You  can  keep  up  the  nitrogen-fixation  plant  on  an  economical- 
investment  basis,  hold  it  until  there  is  need  for  it  for  fertilizer  purposes. 
Let  us  hope  there  will  be  no  need  for  it  for  war  purposes.  That  is  my  thought 
in  connection  with  it 

The  Chaibman.  My  recollection  of  the  testimony  before  the  committee  is  that 
Ford  says  he  can  make  the  fertilizer  about  one-third  cheaper  than  what  it  is 
being  sold  for  now.    I  do  not  remember  that  he  said  he  could  make  it  one-half 

cheaper. 

Mr.  QuiN.  Mr.  Mayo  stated,  and  I  asked  him  about  it,  whether  he  could  make 
it  33^  per  cent  cheaper,  and  he  said  he  could;  and  then  I  asked  him  if  they 
could  make  it  one-half  cheaper,  and  he  said  certainly. 

The  Chairman.  It  may  be  you  are  right  about  it,  but  I  remembered  very  well 
his  statement  about  making  it  one-third  cheaper. 

Mr.  Fisher.  Mr.  MacDowell,  were  you  with  the  War  Industries  Board  while 
the  building  of  the  nitrate  plants  was  going  on? 

Mr.  MacDowell.  Yes,  sir. 

Mr.  Fisher.  So  far  as  the  transportation  of  the  material  to  that  point  was 
concerned  they  were  able  to  get  material  transported  there  to  build  those  two 
enormous  plants? 

Mr.  MacDowell.  Yes,  sir. 

Mr.  Fisher.  It  is  on  the  main  line  of  the  Southern  Railway,  and  there  are 
two  branch  lines  of  two  other  roads  that  run  into  Muscle  Shoals? 

Mr.  MacDowell.  Yes,  sir. 

Mr.  Fisher.  You  were  in  a  very  important  position  on  the  War  Industries 
Board,  and  I  take  it  it  was  part  of  your  duties  to  keep  the  United  States  pre- 
pared, in  so  far  as  nitrates  were  concerned,  for  a  supply  of  ammunition  for 
4,000,000  men? 

Mr.  MacDowell.  Yes,  sir. 

Mr.  Fisher.  Throughout  that  period  of  time,  while  you  were  giving  that 
thouglit  serious  study,  you  did  come  to  the  conclusion  that  the  United  States 
should  have  prepared  itself,  so  far  as  its  supply  of  nitrates  was  concerned,  be- 
fore the  war? 

Mr.  MacDowell.  Yes. 

Mr.  Fisher.  If  the  Committee  on  Military  Affairs  is  presented  with  a  program 
of  nitrate  preparedness  which  has  the  indorsement  of  the  Chief  of  Ordnance, 
that  plan  ought  to  be  very  carefully  considered  by  the  committee  before  being 
rejected,  ought  it  not? 

Mr.  MacDowell.  I  would  think  so;  yes. 

Mr.  Wright.  Mr.  MacDowell,  you  think  this  plan  of  the  utilization  of  con- 
centrated fertilizer  will  gradually  come  about? 

Mr.  MacDowell.  We  are  working  in  that  direction,  but  how  far  it  will  go  I 
do  not  know,  because  there  are  certain  soil  problems  in  the  use  of  it  that  stand 
in  the  way  of  going  too  far. 

Mr.  Wright.  You  would  be  interested  in  making  concentrated  fertilizer? 

Mr.  MacDowell.  We  want  to  make  concentrated  fertilizer. 

Mr.  Wright.  You  can  sell  concentrated  fertilizer  to  as  good  advantage  ag 
you  can  sell  fert'lizer  with  the  filler. 

Mr.  MacDowell.  We  do  not  use  much  filler.  Of  course,  we  do  make  a  lower- 
grade  stuff.  For  some  of  our  stuff  you  might  pay  60  cents  a  unit  for  it  in 
Baltimore.  However,  you  could  use  the  50-cent  stuff,  and  you  would  use  it  be- 
cause it  is  cheaper  and  it  can  be  used  with  the  so-called  filler.  That  is  true  all 
the  way  through.  As  you  get  into  the  more  concentrated  materials  you  want 
to  get  into  the  more  concentrated  finished  goods,  because  the  filler  is  a  hard 
thing  to  get ;  you  do  not  like  to  get  it,  you  prefer  not  to  use  it,  because  you  prefer 
the  concentrated  stuff 

Mr.  Wright.  When  you  put  in  the  filler,  it  is  put  in  so  that  the  fertilizer  is 

properly  distributed?  ,       „      .     ^ 

Mr.  MacDowell.  Yes ;  and  to  use  all  of  the  proper  materials.  For  instance, 
you  may  use  waste  beet  slop  and  get  1  per  cent  ammonia  in  that  mixture  with- 
out any  filler,  practically.  You  may  want  to  use  7  or  8  per  cent  of  cottonseed 
meal  to  make  1  per  cent,  and  you  have  to  put  some  filler  in  because  you  are 
using  a  more  concentrated  material.  We  are  trying  to  get  where  we  can  make 
standard  things,  and  we  are  trying  to  utilize  everything  that  comes  off  the  farm 


540 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


541 


and  send  it  back  to  the  farm.  We  are  trying  to  do  all  those  things  by  consolda- 
tions  which  we  think  are  important  in  the  interests  of  the  country  and  of  the 
world.  We  ourselves  as  an  industry  are  trying  to  be  helpful  and  give  service 
to  the  country.    I  think  I  can  safely  make  that  statement. 

Mr.  Wright.  You  are  a  practical  fertilizer  man  and  have  devoted  a  great  deal 
of  time  and  thought  to  the  industry.  I  had  always  thought  that  the  proper  wav 
to  intelligently  use  commercial  fertilizer  was  to  first  have  your  soil  analyzed 
and  ascertain  from  that  analysis  what  elements  of  plant  food  it  possessed 'ami 
then  supply  the  deficiency. 

Mr.  MacDowell.  That  does  not  always  work. 

Mr.  Wright.  I  understood  Prof.  Whitney  to  say  that  that  had  not  proved  a 
success. 

Mr.  MacDowelt^  Because  sometimes  the  soil  particles  are  coarse,  and  you  find 
stuff  that  can  not  get  to  the  surface. 

Mr.  Wright.  If  that  is  not  the  correct  way,  how  would  vou  do  it? 

Mr.  MacDowell.  We  ti*y  it  on  the  ground  by  using  different  fornuilfe. 

The  Chairman.  You  spoke  of  Searles  Lake? 

Mr.  MacDowell.  Yes. 

The  Chairman.  In  what  part  of  California  is  Searles  Lake? 

Mr.  MacDowell.  It  is  in  San  Bernardino  County,  about  150  ndles  noithwest 
of  Los  Angeles. 

The  Chairman.  It  is  down  there  near  what  is  called  Death  Valley? 

Mr.  MacDowell.  Yes ;  It  is  a  little  bit  to  the  west  of  Death  v'allev ;  and  we 
have  a  goo<l  many  millions  of  tons  of  potash  in  there. 

The  (Chairman.  Is  not  the  ownership  of  that  claimed  by  a  Germany  company? 

Mr.  MacDowell.  No  ;  on  the  contrary  there  are  two  plants  there.  One  of  them 
is  owned  by  the  Trawna  Co.,  which  was  almost  entirely  British,  with  some  Ameri- 
can capital.  The  other  is  owne<l  by  the  Solvay  group,  now  a  part  of  the  larger 
Allie<l  Chemical  Co..  I  think  they  call  it.  There  is  no  (Jerman  element  there  as 
far  as  I  know,  or  anything  approaching  it. 

The  Chairman.  There  has  been  a  good  deal  of  discussicm  about  the  ownershin 
of  that  lake.  ' 

Mr.  MacDowell.  Yes ;  there  was  trouble  to  begin  with.  At  first  it  was  located 
as  a  Trawna  deposit,  and  there  was  some  trouble  in  reference  to  the  ownership. 
I  think  the  English  Goldfield  groups  had  a  mortgage  there.  I  knew  about  that 
very  early,  because  it  has  been  the  custom  for  persons  to  ask  me  about  potash 
when  any  new  possibility  comes  up. 

The  Chairman.  I  remembered  what  I  read  in  the  papers  in  San  Francisco. 
and  there  was  some  diflftculty  about  the  ownershij).  Is  not  that  one  of  the  reasons 
why  they  have  not  been  finding  so  much  potash  there? 

Mr.  MacDowell.  No  ;  I  do  not  think  so.  They  had  trouble  in  reference  to  the 
titles.  Part  of  that  territory  was  withdrawn  frcmi  entry  under  the  President's 
proclamation,  and  then  they  had  to  work  under  the  leasing  bill,  to  know  how  it 
could  be  gotten  hold  of.  So  I  think  the  Trawna  Co.,  the  first  company,  did  not 
have  that  trouble  on  part  of  that  property  because  they  had  located  and  had  their 
titles  early.  The  trouble  has  been  that  in  the  first  place  there  is  borax  in  the 
brine.  They  make  borax,  and  some  of  it  hurt  the  crops  in  certain  secticms.  But 
they  have  overcome  that,  and  they  have  a  very  good  thing,  but  their  rate  is  verv 
high,  and  with  the  German  and  the  French  going  back  to  prewar  prices  on  potash 
they  could  not  possibly  meet  the  situation. 

Mr.  McKenzie.  Mr.  MacDowell,  you  are  spetiking  here  as  the  representative  of 
the  members  of  the  American  Fertilizer  Association? 

Mr.  MacDowell.  The  national  association ;  yes,  sir. 

Mr.  McKenzie.  And  in  your  statement  before  the  connnittee,  of  course,  you  are 
expressing  the  views  of  the  members  of  that  association? 

Mr.  MacDowell.  Yes,  sir ;  and  probably  some  views  of  my  own  develoi)e(l  bv 
the  questioning,  which  they  do  not  know  anything  about. 

Mr.  McKenzie.  I  was  listening  to  your  statement  and  your  testimony,  and  from 
it  I  draw  the  conclusion  that  the  people  whom  you  represent  object  to  the  Ford 
proposition  on  two  grounds ;  first,  that  it  is  against  public  policy  for  the  Govern- 
ment to  recognize  such  a  proiwsitlon  ;  in  the  second  place  you  object  because  yon 
believe  that  under  the  terms  of  the  proposed  contract  Mr.  Ford  would  be  given 
advantages  which  would  make  him  an  unfair  comi)etitor  with  the  members  of 
your  association. 

Mr.  MacDowei.l.  He  might  be;  yes. 


Mr  :McKenzie.  In  other, words,  you  fear  that  operating  under  the  so-called 
contract  Mr.  Ford  would  have  an  advantage  over  the  present  manufacturers 

of  fertilizer.  .        .        ,       t 

Mr.  MacDowell.  He  might  have;  I  am  not  stressing  that  point  strongly;  I 
am  trying  to  present  to  you  gentlemen  the  broad  viewpoint  of  whether  there 
is  need  for  making  this  contract  from  the  fertilizer  standpoint. 

Mr.  McKenzie.  Coming  down  to  your  objections,  those  are  your  two  ob- 
jections? 

Mr.  MacDowell.  Yes. 

Mr.  McKenzie.  And  they  are  the  objections  of  the  menrl^ers  of  the  American 
Fertilizer  Association? 

Mr.  MacDowell.  I'^es. 

Mr.  I^IcKenzie.  Otherwise  you  would  have  no  objections. 

Mr.  MacDowell.  We  have  not  any  objections  to  Mr.  Ford's  going  into  the 
fertilizer  business  if  he  wants  to  go  into  it. 

Mr.  Fields.  In  that  connection,  however.  Mr.  MacDowell,  you  do  not  know 
of  anybody  in  the  United  States  who  would  assume  the  burden  of  maintaining 
a  nitrate  plant  for  the  protection  of  the  Government  in  time  of  stress  without 
some  compensation  for  it. 

Mr.  MacDowell.  No;  I  do  not  know  of  anyone  who  knows  the  fertilizer 
industry  who  would  want  to  take  over  that  plant  and  want  to  operate  it  now. 

Mr.  Fields.  I  did  not  apply  my  question  exclusively  to  manufacturers  of 
fertilizer.    You  know  of  no  citizen  who  would  do  that 

Mr.  I^IacDowell.  I  do  not  know  of  anyone  who  knows  anything  about  the 
business  who  would  be  willing  to  do  that,  from  that  standpoint  alone. 

Mr.  Fields.  So  if  the  Government  is  to  maintain  this  as  a  prepare<lness 
proposition  it  must  do  this  or  it  must  lease  it  to  somebody,  to  .some  individual 
under  such  terms  as  will  enable  him  to  do  it. 

Mr.  MacDowell.  Ye«. 

^Ir.  Fields.  We  must  accept  one  or  the  other  of  those  propositions? 

Mr.  MacDowell.  Yes. 

Mr.  MoRiN.  What  percentage  of  fertilizer  used  in  this  country  can  Mr. 
Ford  produce,  if  he  manufactures  to  the  full  capacity  of  the  plant,  and  deliver 
to  the  farmer? 

Mr.  MacDowell.  That  is  very  difllicult  to  say.  because  it  is  divided  into  two 
parts.  He  could  ship  110,000  tons  of  nitrate  without  any  trouble,  and  200,000 
tons  of  sulphate  without  any  trouble.  But  going  into  the  manufacture  of  com- 
plete fertilizer,  it  is  a  question  of  how  much  he  could  do.  I  think  the  biggest 
fertilizer  plant  we  have  in  the  United  States  has  a  capacity  around  300,000 
tons,  and  every  one  of  them  is  much  too  big.  The  way  they  make  fertilizer 
and  distribute  it  now  is  to  go  out  into  the  territorj^  where  the  goods  are 
used,  and  then  they  ship  in  their  rock  without  any  filler,  and  then  they 
ship  in  ther  sulphur  without  any  filler.  99*  per  cent  pure,  and  they  make  this 
sulphuric  acid,  and  nmke  thoise  formulas  right  there.  In  normal  times  you  would 
have  this  large  number  of  plants  which  would  give  this  service  in  a  particular 
section.  If  you  will  look  at  the  maps  you  will  see  the  large  number  of  small 
plants  which  have  been  developed  on  that  theory.  So  far  as  the  cost  is  con- 
cerned you  can  make  fertilizer  cheaper  at  ports  than  in  the  interior,  because 
you  can  get  the  phosphate  rock  out  from  Florida  for  $2.15  per  long  ton  by  water, 
and  you  can  not  get  it  on  a  railroad  for  that  amount.  You  can  not  brmg  up 
your  sulphur  for  $2  a  ton,  and  there  is  no  land  freight  on  the  potash.  So 
you  can  make  it  much  cheaper  at  the  ports  than  you  can  in  the  interior.  Never- 
theless, there  has  been  quite  a  development  of  plants  in  the  interior  because 
there  is  service  to  be  gotten.  It  is  quite  a  job  to  distribute  four  or  five  million 
tons  in  four  or  five  lots  when  the  cars  are  scarce  and  the  labor  is  scarce.  It 
is  all  fixed  stuff,  worked  under  chemical  processes. 

Mr.  MoRiN.  I  thought  I  understood  you  to  say  that  you  understood  Mr.  Ford 
could  make  the  fertilizer,  but  it  would  be  impossible  for  him  to  ship  it  because 
of  the  shipping  conditions. 

Mr.  MacDowell.  l"es,  sir;  that  is  the  point. 

Mr.  MoRiN.  He  could  not  get  the  cars  in  there? 

Mr.  MacDowell.  They  expect  you  to  ship  out  your  maximum  in  three  months 
in  the  South,  and  it  would  be  practically  impossible  to  start  that  in  the  last 
of  January  and  finish  it  about  the  last  of  April.    It  has  to  be  done  in  that  time. 

Mr.  MoRiN.  He  could  only  supply  a  very  small  percentage  of  the  fertilizer 
used? 


542 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


543 


^^'^f^^^owELT..  He  would  have  to  go  a  long  w^  to  do  it,  because  there  is 
very  little  fertilizer  used  around  Muscle  Shoals. 

Mr.  MoBiN.  You  do  not  think,  as  a  fertilizer  producer,  it  would  be  of  very 
great  benefit  to  the  country  at  large  to  have  him  go  into  that  business' 

Mr.  MacDowell.  He  would  be  of  service  wherever  he  could  reach  but  as  to 
the  possibilities  of  supplying  any  large  territory,  I  do  not  think  he  could  do  it 
for  physical  reasons,  as  well  as  for  lack  of  facilities. 

The  Chaibman.  The  committee  is  very  much  obliged  to  you.    You  have  given 
us  a  lot  of  valuable  and  interesting  information. 

(Thereupon  the  committee  adjourned  at  4.30  o'clock  p.  m.  to  meet  to-morrow 
Wednesday,  February  22,  1922,  at  10.30  o'clock  a.  m.)  " 


Committee  on  Militaby  Affairs, 

House  of  Representatives, 

Wednesday,  February  22,  1922. 

The  commitee  met  at  10.30  o'clock  a.  m..  Hon.  Julius  Kahn  (chairman)  pre- 
siding. 

STATEMENT  OF  MB.  GRAY  SILVER,  WASHINGTON  REPRESENTA- 
TIVE AMERICAN  FARM  BUREAU  FEDERATION,  MUNSEY  BUILD- 
ING, WASHINGTON,  D.  C. 

The  Chairman.  Mr.  Silver,  I  take  it  you  are  fairly  familiar  with  the  matters 
the  committee  has  been  considertng  for  the  last  two  weeks.  Will  you  kindly 
state  your  name  in  full  and  the  position  you  occupy? 

Mr.  Silver.  My  name  is  Gray  Silver,  and  I  am  the  Washington  representa- 
tive of  the  American  Farm  Bureau  Federation. 

The  American  Farm  Bureau  Federation  is  greatly  interested  in  the  subject 
you  have  under  consideration,  ^Ir.  Chairman,  from  several  viewpoints. 

The  question  of  developing  the  water  powers,  in  a  broad  way,  is  of  great 
interest  to  the  farmers,  but  in  this  particular  proposed  development  the  farm- 
ers are  interested  greatly  in  the  fertilizer  end  as  well  as  in  the  other  proposals, 
and  I  will  read  you  resolutions  passed  by  our  groups  at  different  times  recently 
to  show  you  that  it  is  not  without  mature  study  and  thought  on  this  case 
that  they  speak. 

At  the  annual  meeting  of  our  national  association  in  Chicago  on  March  4, 
1920,  they  adopted  a  resolution  as  follows: 

"We  support  the  measure  pending  in  Congress  looking  toward  the  opera- 
tion of  the  nitrate  plant  No.  2  at  Muscle  Shoals  for  the  production  of  nitrogen 
fertilizer  compounds." 

The  Chairman.  What  is  the  date  of  that  resolution? 

Mr.  Silver.  That  was  in  1920.    That  goes  back  some  time. 

The  Chairman.  That  goes  back  to  a  period  before  Mr.  Ford  made  any  offer 
at  all. 

Mr.  Silver.  Yes;  I  am  presenting  that  to  show  that  they  are  not  recent 
converts  to  it. 

The  Chairman.  Who  was  figuring  on  Muscle  Shoals  at  that  time? 

Mr.  Silver.  This  was  when  the  proposal  was  before  Congress  that  they 
complete  the  dam  and  the  Government  operate  it. 

The  Chairman.  I  understand. 

Mr.  Silver.  They  were  interested  at  that  time  and  have  been  interested 
since. 

Last  fall  at  their  annual  meeting  at  Atlanta,  Ga.,  in  November,  1921,  the 
following  resolution  was  adopted,  and  in  our  national  meetings  practically 
every  State  is  represented,  because  all  but  two  of  the  States  of  the  Union  have 
State  federations,  and  we  have  a  large  membership,  and  in  this  meeting  of 
some  5,000  farmers  this  resolution  was  adopted : 

"  We  recognize  in  the  Muscle  Shoals  nitrate  water-power  project  in  Alabama 
such  an  essential  measure  to  secure  the  preservation  of  our  soil  resources  as 
well  as  to  develop  the  industrial  and  transportation  facilities  of  our  Nation. 
that  we  urge  the. Congress  of  the  United  States  to  authorize  the  Secretary  of 
War  to  enter  into*  such  contract  or  contracts  with  Henry  Ford  for  the  com 


pletion  and  continuous  operation  of  the  project  as  will  protect  the  public  wel- 
fare. If  such  authority  is  not  promptly  given,  we  reserve  the  right  to  institute 
such  action  as  will  guarantee  the  completion  and  operation  of  this  enterprise 
under  Federal  supervision." 

At  a  meeting  of  the  southern  group,  as  we  call  it,  of  the  American  Farm 
Bureau  Federation,  composed  of  some  15  States,  with  visitors  from  12  or  14 
other  States,  the  following  resolutions  was  adopted  on  January  20,  1922  : 

"  Several  hundred  farmers,  represent  ng  the  many  thousands  in  organized 
agriculture  from  15  Southern  States,  as  well  as  delegates  from  the  West  and 
far  West,  after  careful  investigation  of  the  dams  and  power  plants  at  Muscle 
Shoals,  Aia-*  believe  it  to  be  an  economic  crime  to  continue  to  allow  this  devel- 
opment to  lie  idle  and  uncompleted. 

"As  a  means  to  proper  development  we  unreservedly  indorse  Henry  Ford's 
offer  to  lease  and  operate  the  power  and  nitrate  plants. 

"  We  reiterate  the  stand  taken  at  the  last  meet  ng  of  the  Farm  Bureau  Fed- 
eration in  indorsement  of  the  Ford  offer. 

"  We  recommend  that  Congress  authorize  the  issuance  of  bonds  necessary  to 
to  complete  the  dams  at  Muscle  Shoals.  This  will  avoid  the  necessity  of  taking 
funds  direct  from  the  Treasury.  Henry  Ford's  offer  would  pay  interest  on  such 
bonds,  and  the  first  earnings  from  the  sale  of  electrical  energy  would  amortize 
the  bonds." 

This  resolution  was  adopted  after  the  convention  had  visited  the  property 
itself  at  Muscle  Shoals. 

The  Chairman.  Where  was  that  convention  held? 

Mr.  Silver.  At  Florence,  Ala. 

The  Chairman.  That  is  right  at  Muscle  Shoals? 

Mr.  Silver.  That  is  right  by  the  Muscle  Shoals  property;  yes. 

Secretary  Wallace  called  a  conference  of  those  engaged  in  agriculture  and 
related  lines,  as  we  use  the  expression,  whch  met  in  the  city  of  Washington  on 
January  23  to  27,  1922,  and  the  following  resolution  was  adopted  at  that  meet- 
ing, with  farmers  and  others  participating : 

"  Resolved,  That  to  accomplish  results  without  any  further  delay  whatsoever 
we  urge  the  Secretary  of  War  to  recommend  and  the  Congress  to  accept  Henry 
Ford's  proposal  to  take  over  the  hydroelectric  power  and  air  nitrate  plants  at 
Muscle  Shoals  under  a  guaranty  to  operate  same  for  100  years  at  its  present 
capacity  of  approximately  100,000  tons  of  ammonum  nitrate  per  annum,  open- 
ing the  Tennessee  River  to  navigation,  cheapening  the  production  of  fertilizer, 
metals,  and  other  commodities,  and  assuring  the  United  States  nitrogen  inde- 
pendence in  peace  or  war." 

That  resolution  gives  you  the  thought  and  the  proof  that  thiap  subject  has 
been  in  the  farmer's  mind,  and  in  order  to  go  into  it  very  fully  and  not.  per- 
chance, to  make  any  mistake,  the  Amercan  Farm  Bureau  Federation  appointed 
a  committee  and  had  that  committee  visit  Muscle  Shoals  and  make  a  report  to 
the  American  Farm  Bureau  Federation,  which  report  I  shall  not  read  unless  it 
is  wished  but  will  offer  it  for  the  record.  If  you  do  not  care,  I  am  not  particu- 
lar about  its  being  printed  in  the  record,  but  I  am  offering  it  simply  to  show 
that  we  have  studied  the  matter  carefully  and  to  show  that  the  conclusions 
arr  ved  at.  as  evidenced  by  the  resolution,  are  not  without  a  proper  and  full 
study  and  a  full  understanding  of  what  we  think  is  involved,  both  in  the  Ford 
proposition  at  Muscle  Shoals  as  a  waterway  and  as  a  fertilizer  development. 

The  Chairman.  If  there  is  no  objection,  we  will  put  that  report  in  the  record. 

Mr.  FiEDS.  I  think,  Mr.  Chairman,  a  report  made  after  a  careful  study  by 
an  organization  like  this  ought  to  go  into  the  hearings. 

Mr.  Parker.  How  long   s  it? 

Mr.  Silver.  Thirty-six  pages. 

The  Chairman.  It  represents  practically  the  opinion  of  the  farmers  who  are 
members  of  your  organization? 

Mr.  Silver.  Yes. 

The  Chairman.  I  think,  as  making  up  a  part  of  the  record,  it  might  be  well 
to  let  it  go  into  the  record. 

Mr.  Silver.  Thank  you,  Mr.  Chairman. 

(The  report  referred  to  follows:) 

92900—22 35 


544 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS   PROPOSITIONS. 


545 


Repout^  of  the  MusfLE  Shoals  Committee  of  the  Amekican   Farm   BuREAr 

Federation. 

To  the  Executive  Committee  of  the  American  Farm  Bureau  Federation. 

Gentlemen:  Your  coiuuiittee  which  was  appointed  to  invt^stijjate  the  Miis(|.> 
Shoals  project  has  performed  that  (hity  in  the  double  capacity  of  personally  in- 
spectinj?  plants  and  by  collecting;  the  available  information'  from  all  source?^ 
for  your  consi«lerarion.  Wt*  bej;  lea>e  t'»  report  as  follows: 

I.    iNTUOUL'CTrON. 

Sutce  the  sipiiiij-  <»r  the  armistice  on  November  11,  1918,  many  of  tlie 
oi)eratious  in  whi'ch  the  Federal  (government  tVmnd  itself  enj;aj,'ed  prior  to  that 
date  have  been  <liscontinued  on  account  of  a  peace-time  basis  not  requirinir 
certain  war  expenditures  and  activities  to  be  continued.  It  is  with  a  threat  de- 
jrrce  of  jj^ratification  that  all  citizens  see  our  (Government  gradually  diseardinj; 
all  expenditui-es  and  all  projects  that  were  purely  incidents  of  the  great  wai" 
There  are  a  few  undertakings,  however,  the  necessity  for  which  had  been  seen 
before  our  entrance  into  the  war,  that  <leserve  the  fullest  consideration  both  by 
urban  rural  citizens  to  ascertain  whether  or  not  it  is  best  to  continue  them  in- 
definitely for  the  good  of  the  general  public. 

There  is  no  problem  of  conservation  more  vital  than  that  of  preserving  th(» 
ferrility  of  the  soil  of  our  country.  Those  v.ho  dwell  in  cities  are  essentiallv  as 
much  interested  in  this  task  as  are  those  who  actually  till  the  fields.  The  food 
of  our  Nation  must  come  largely  from  a  well-preserved  soil,  and  that  soil  neces 
sarily  nnist  carry,  either  naturally  or  in  the  form  of  fertilizers,  the  proper 
nitrogen  content.  It  has  been  sahl  repeatedly  that  agriculture  in  its  broadest 
sense  has  been  neglected  by  the  Fe<leral  (rovernment  in  various  ways.  It  is 
hoped  that  a  genuine  natiimal  policy  of  soil  conservation  and  food  production 
will  be  furtheied  at  this  time  by  taking  such  action  relative  to  securing  an 
ade(|uare  and  econonncal  supply  of  nitrogen  as  is  recommended  elsewhere  in 
this  rer>ort. 

The  outstanding  war-time  proje<t  which  can  be  continued  as  a  peace- 
time undertaking  while  at  the  same  time  retaining  all  its  war-time  functions 
for  public  safety  is  the  Muscle  Shoals  project  in  Alabama.  On  account  of  the 
magnitude  of  this  project  not  only  in  size  but  in  importance  to  the  whole  Nation, 
your  connnittee  has  thought  it  well  to  report  in  a  comprehensive  way  and  at 
some  length.  For  clarity  of  presentation  the  subject  matter  has  been  divided 
into  11  parts  with  frequent  comment  l>y  the  conmiittee  and  with  two  very 
definite  rec<iinmendarions  at  the  conclusion  of  the  report. 

II.  What  Was  Seen  At  Muscle  Shoals. 

in)  The  Tennessee  Uiver  at  Muscle  Shoals,  from  which  power  is  to  b»^ 
take!!  to  operate  the  nitrate  plants  and  for  other  purposes,  is  as  large,  taken  at 
the  mean  or  average  flow,  as  is  the  Ohio  River  at  Cincinnati,  Ohio,  the  Missis- 
sippi River  at  Dubuque,  Iowa,  or  the  Missouri  River  at  Omaha,  Nebraska. 

(h)  The  banks  of  the  Tennessee  River  at  Muscle  Shoals  are  of  such  height 
that  a  hund.red  foot  head  of  water  may  be  held  without  building  any  retaining 
walls  or  dikes  whatever  except  the  dam  proper. 

(c)  The  pool  formed  by  the  dam  will  extend  for  a  distance  of  15  miles  up- 
stream, aiid  the  total  amount  of  land  flooded  or  damaged  by  the  water  is  9.000 
acres.    This  area  has  been  bought  and  paid  for  by  the  Government  with  a  very 
few  exceptions  where  condemnation  proceedings  are  now  nearing  completion 
This  land  was  secui-ed  at  an  average  price  of  less  than  $45  per  acre. 

{(1)  The  Wilson  Dam  is  about  one-third  completed  and  more  than  one-third 
paid  for,  as  will  be  seen  when  the  immense  expenses  attached  to  the  prepara- 
tory work  are  considered,  which  expenses  do  not  again  have  to  be  met  in 
finishing  the  project. 

/  (e)  Two  sections  of  the  Wilson  Dam — one  at  the  north  bank  and  one  in 
the  center  of  the  river  on  an  island — are  partially  completed.  There  yet  re- 
mains for  construction  on  these  sections  the  discharge  gates  at  the  top  and  the 
roadway  above  the  gates. 

(f)  The  foundation  is  laid  for  a  large  portion  of  the  rest  of  the  dam  and 
the  protecting  cofferdams  have  been  removed. 


At  that  time  90 
100  per  cent  com- 


{(f)  The  exca^•ations  for  the  power  plant  and  south  section  of  the  dam 
have  been  made  under  protection  of  an  immense  cofferdam  which  will  pennit 
work  to  be  cairied  on  in  that  section  if  the  work  is  not  too  long  delaved. 

(70  A  construction  bridge  carrying  several  railroad  tracks,  and  support- 
ing seven  derricks,  each  capable  of  lifting  10  tons,  has  been  built. 

(/)  Tv.enty-five  miles  of  railroad  track  have  l)een  laid  to  haul  supplies, 
rock,  sand,  cement,  c(mcrete,  etc. 

(/)  Several  locomotives,  some  of  which  A\eigh  05  tons  each,  have  been 
used  constantly  in  hauling  material  to  the  concrete  mixers  and  thence  to  the 
dam. 

ik)  Three  mixing  plants  with  capacity  to  keep  all  the  other  equipment 
moving  at  full  si)eed  have  been  installed,  one  on  the  island  near  the  center  of 
the  streauL  one  on  the  north  shore,  and  one  on  the  south  shore. 

(/)  A  large  construction  camp  has  been  erected  with  individual  homes  for 
man-i(Ml  men,  bunk  houses  and  mess  buildings  for  single  men,  and  administra- 
tion offices  and  residences  foi-  the  official  corps. 

(m)  The  Wilson  Dam  is  4.100  feet  long:  its  base,  which  is  sunk  12  to  lo 
feet  into  the  solid  rock  of  the  river  l)ed,  is  160  feet  wide:  its  height  from  the 
original  river  bed  to  the  bottom  of  the  overflow  gates  is  80  feet  and  to  the 
i-oadvM,\  on  the  t«.p  120  feet.  This  structure  when  completed  will  be  the 
largest  single  piece  of  monolithic  concrete  construction  in  the  world. 

in)  Two  locks  for  navigation  i)urposes  are  being  c(mstructed  at  the  north  end 
<if  the  dam,  each  one  having  a  lift  of  45  feet,  and  with  other  dimensions  ade- 
quate to  accoiumodate  the  largest  river  craft. 

(o)  Nitrate  plant  No.  2  at  M^iscle  Shoals  stands  to-dav  fullv  equipped  and 
capable  of  producing  110,000  tons  per  annum  of  ammoniunl  nitrate. 

(;>)  The  site  on  wh Ch  this  plant  is  built  comprises  approximately  2  0(¥)  acres 

iq)  At  the  height  of  operations  on  this  plant  20,000  workmen  were  employed 
It  was  built  in  one  year,  and  the  flrst  ammonium  nitrate  was  produced  one  da v 
less  than  a  year  from  the  time  of  starting  (onstruction  work, 
per  cent  of  the  mammoth  plant  was  finished,  and  to-dav  it  is 
plete  for  the  production  of  fixed  nitrogen. 

(/•)  The  steam  power  plant  was  built  so  that  nitrate  plant  No.  2  could  begin 
production  without  waiting  for  the  comidetion  of  the  Wils(  n  Dam,  which  was 
expected  to  take  approximately  three  years.  This  steam  plant  produces  nearlv 
as  nnich  electrical  energy  as  any  other  steam  plant  ever  built  and  contains 
one  steam  turb:ne  unit  Mith  electrical  generators  which  generates  60000 
kdowatts  or  80,000  horsepower— being  one  of  the  largest  turbines  ever  con- 
structed and  operated.  In  addition,  there  is  place  for  a  smaller  unit  which 
wouhl  be  capable  of  producing  30,000  kilowatts,  or  40,000  horsepower  making 
a  total  horsepower  for  the  entire  steam  power  electric  plant  when  completed 
of  120,000  horsepower,  which  is  ample  to  operate  the  electric  furnaces  in 
{mother  part  of  the  plant. 

( «?)  The  boiler  room  of  this  immense  plant  comprises  a  batterv  of  15  units  each 
rated  at  15.000  horsepower.  These  boilers  when  running  full  capacity  consume  ap- 
proximately 1..5()0  tons  of  coal  each  day,  which  fuel  is  dumped  from  the  cars  on 
overhead  tracks  into  vast  bins,  and  thence  fed  into  the  furnaces  by  automatic 
stokers  without  being  touched  by  human  hands  since  leaving  the 'mine  The 
three  stacks  to  provide  draught  for  these  furnaces  vary  in  height  from  275  feet 
to  ,i(X)  fe(-t,  and  in  diameter  at  the  base  from  23  feet  to  26  feet. 

(0  The  kiln  room  where  the  lime  rock  is  burned  to  lime  contain^  seven 
<-.N  iindrical  kilns  which  turn  slowly  and  which  are  heated  bv  a  blast  from  huely 
ground  coal.  These  kilns  are  of  steel,  lined  with  fire  brick,^lnd  are  so  mounted 
niat  the  lime  rock  when  placed  in  the  higher  end  will  gradually  travel  the  en- 
nre  length  of  the  kiln,  which  is  125  feet  and  emerge  from  the  lower  end  as 
Durned  lime.  Approximately  1,500  tons  of  lime  rock  can  be  burned  in  a  day 
\\  inch  shrinks  in  the  form  of  burned  lime  to  about  one-half  that  weight. 

(M)  The  electric  furnace  building  where  the  burned  lime  and  coke  are  fused 
electrically  into  carbide,  as  the  first  step  toward  fixing  nitrogen,  is  about  1  000 
reet  long  and  contains  12  electric  furnaces,  eacli  of  which  requires  10,000  horse- 
power for  Its  oi)eration.  Only  10  of  these  furnaces  are  expected  to  operate 
«  1  ^"/  ?,"^  ^'"^^'  ^^a^'i"S  2  for  repairs  at  all  times.  The  giant  electrodes  through 
>Much  the  electrical  current  passes  and  which  furnish  the  heat  for  fusing  the 
urned  lime  and  the  coke,  are  subjected  to  such  terrific  heat  that  thev  have  to 
oe  renewed  every  three  days.     This  shows  the  necessitv  for  extra  'furnaces 


m 


546 


MUSCLE   SHOALS  PROPOSITTOJ^^S. 


MUSCLE   SHOALS  PROPOSITIONS. 


547 


^^^rU^''"^''^  produces  50  tons  of  carbide  per  day,  or  a  total  for  the  10  furnace^ 
of  '>00  tons.  Practically  all  work  of  l.andling  the  materials  used  in  nitrato 
plant  .No.  2  is  done  by  machinery.  However,  these  electrical  furnaces  mu^t 
be  fed  by  hand  in  order  to  fill  the  blowholes  that  appear  in  the  molten  mas<^ 
wbich,  unless  filled  by  shovelfuls  of  coke  and  lime,  cause  rapid  radiation  of 
neat. 

(V)  The  plant  where  nitrogen  is  taken  from  the  air  by  the  liquid-air  process 
IS  many  t:mes  larger  than  any  similar  plant  ever  constructed.  In  this  plant 
nitrogen  testing  99.9  per  cent  pure  is  secured  in  volumes  aggregating  500  0(H) 
cubic  feet  every  hour.  The  oxygen  and  a  small  part  of  the  nitrogen  are  returned 
to  the  atmosphere. 

iw)  The  oven  building  contains  1,536  ovens  in  which  the  nitrogen  is  fixed  or 
caught  in  the  carbide.  Each  oven  is  about  3  feet  in  diameter  and  5  feet  deen 
holding  approximately  1,600  pounds  of  carbide.  This  charge  is  heated,  elel' 
tncally,  to  white  heat,  and  the  nitrogen  from  another  building  is  forced  throu'-Ii 
It  and  is  caught.  The  product  from  these  kilns  is  cyanamid  or  lime  nitrogen 
and  contains  21  per  cent  of  fixed  nitrogen. 

(x)  The  autoclave  building  contains  56  cylindrical  steel  autoclaves,  which  are 
steam-tight,  vertical  boilers  with  agitators  to  stir  the  powdered  cyanamid  in 
order  to  drive  off  the  ammonia  gas.  Each  autoclave  holds  four  tons  of  the 
pow^dered  cyanamid,  and  it  takes  about  an  hour  and  one-half  to  get  the  fixefl 
nitrogen  out  of  the  cyanamid  and  into  the  form  of  ammonia  gas  in  order  later 
to  convert  it  into  ammonium  nitrate  for  military  or  agricultural  purposes 

(?/)  Many  smaller  buildings,  each  of  which  is  indispensable  in  the  complete 
process  through  which  lime,  coke,  and  air  must  go  in  order  to  get  nitrates  for 
either  explosives  or  fertilizers,  are  component  parts  of  the  gigantic  whole  of 
nitrate  plant  No.  2.    In  all  there  are  about  30  buildings  as  units  in  this  plant. 

iz)  Nitrate  plant  No.  1  is  a  much  smaller  plant  than  No.  2  and  is  designed  to 
secure  nitrogen  from  the  air  and  fix  it  for  military  or  agricultural  uses  by  nn 
entirely  different  process  than  the  one  used  in  No.  2.  It  has  never  operated  on  a 
commercial  or  practical  scale  but  is  completely  equipped  for  operation. 

COMMENT  BY  THE  COMMITTEE. 

The  information  given  above  contains  some  remarkable  facts  which  your  com- 
mittee feels  free  to  comment  upon,  not  in  the  way  of  specific  recomniendations 
but  rather  that  you  may  be  informed  what  relation  these  facts  bear  to  our 
welfare  as  citizens  and  as  farmers. 

(a)  That  the  Wilson  Dam  contains  the  possibility  of  develoiJng  a  hydro- 
electric plant  far  in  excess  of  any  yet  contemplated  in  America — with  the  excep- 
tion of  Niagara  Falls— is  evidenced  by  the  fact  thnt  it  will  maintain  a  head  of 
water  almost  100  feet  high  and  has  the  volume  of  flow  referred  to  in  II  (a). 
whereas  the  great  Keokuk  Dam  across  the  Mississippi  River  holds  only  a  40-foot 
head  of  water. 

(h)  There  seems  to  have  been  no  graft  in  the  (rovernment's  ncquisition  of  tlie 
land  which  will  be  inundated.  The  average  price  paid  for  this  land  seems  to 
your  committee  to  be  entirely  within  reason ;  furthermore,  there  appears  no 
likelihood  of  litigation  subsequent  to  such  inundation, 

(c)  Millions  of  dollars,  undoubtedly,  have  been  spent  in  the  prepnratory  work 
which  necessarily  had  to  precede  actual  construction.  Now  that  all  this  pre- 
paratory work  has  been  done  and  paid  for,  it  is  the  thought  of  your  committe<' 
that  legislation  and  appropriation  should  be  provided  for  in  Congress  to  avoid 
the  loss  of  all  this  preliminary  construction. 

(d)  The  engineers  in  charge  of  construction  work  on  the  Wilson  Dam  state 
that  although  only  about  one-third  of  the  permanent  work  has  been  completed. 
more  than  one-third  of  the  total  expense  has  been  met  on  account  of  the  cofjt 
of  the  preparatory  work. 

(e)  Your  committee  is  impressed  with  the  necessity  for  a  resumption  of  build- 
ing operations  on  the  5am,  which  were  discontinued  in  April  on  account  of  a 
lack  of  appropriatio»js. 

if)  It  is  needless  to  state  that  the  great  steam  plant  which  is  capable  of 
running  all  of  nitrate  plant  No.  2  was  built  only  to  operate  the  plant  until 
the  Wilson  Dam  could  be  completed  and  furnish  a  cheaper  power.  The  steam 
plant  should  now  be  considered  as  an  auxiliary  power  plant  to  the  hydraulic 
development,  as  nitrates  can  be  made  much  cheaper  with  hydraulic  rather  than 
with  steam  power. 


((/)  Your  committee  desires  you  to  remember  that  in  the  fixation  of  atmos- 
pheric nitrogen  in  the  lime-nitrogen  process  some  substance  must  be  made  that 
will  soak  up  nitrogen  somewhat  as  a  sponge  does  water.  Carbide,  which  is 
made  by  fusing  lime  and  coke  in  an  electric  furnace,  is  the  material  used  in 
nitrate  plant  No.  2.  However,  it  is  a  chemical  reaction  that  takes  place,  and 
not  a  physical  one. 

III.  Availability  or  Nitkate  Plant  No.  2  fob  Manufactubing  Febtilizebs. 

It  is  a  generally  recognized  fact  that  up  to  a  certain  point  the  manufacturing 
of  nitrates  for  military  or  for  agricultural  uses  follows  a  common  course.  This 
is  true  whether  the  nitrates  are  atmospherically  fixed  or  obtained  otherwheres. 
Tn  this  report,  of  course,  we  are  primarily  concerned  with  the  form  of  niti-ates 
which  is  secured  from  the  air,  as  the  other  forms  have  been  longer  used  and 
more  fully  understood.  There  are  three  great  sources  of  commercially  used 
nitrates.  First  in  tonnage  is  Chilean  nitrate ;  then  the  ammonia  secured  as  a 
by-product  from  coke  ovens;  and  finally  atmospheric  nitrogen,  which'  until 
recent  years  has  been  a  dream  of  scientists,  but  is  now  very  practical  and  is 
rapidly  forging  ahead  in  the  tonnage  produced.  To  these  three  may  be  added 
a  fourth  source,  which  is  the  use  of  legumes  in  fixing  atmospheric  nitrogen,  and 
which  farmers  are  coming  more  and  more  to  value.  This  is  nature's  way  of 
taking  fertilizer  out  of  the  air  and  placing  it  in  the  soil  in  tubercules  on  the  roots 
of  legumes.  Man  has  recently  learned  how  to  do  the  same  thing  mechanically 
and  chemically. 

In  the  fixation  of  atmospheric  nitrogen,  either  for  military  or  agricultural 
purposes,  several  steps  are  necessary  before  we  have  a  commercial  product. 
In  order  that  there  may  be  a  clear  understanding  of  the  process  used  in  nitrate 
plant  No.  2  at  ^luscle  Shoals,  an  effort  will  be  made  herewith  to  detail  in  non- 
technical  and  comprehendable  terms  the  various  stages  in  the  process. 

1.  Lime  rock  is  burned  into  lime  and  mixed  with  dried  coke  which  has  been 
finely  powdered. 

2.  This  mixture  is  melted  together  in  electric  furnaces  which  generate  a  heat 
exceeding  1,500°  C.  The  product  of  tliese  furnaces  is  known  as  carbide,  which 
is  the  same  product  that  is  used  in  all  acetjiene  lighting  plants. 

3.  The  carbide,  after  cooling,  is  ground  through  various  machines  until  most 
of  it  will  pass  through  a  screen  having  200  meshes  to  the  square  inch. 

4.  Air  being  formed  of  a  mixture  of  nitrogen  and  oxygen,  and  only  the  nitrogen 
l)eing  needed  for  this  process,  the  two  gases  are  separated,  first,  by  compressing 
and  cooling  the  air  until  it  becomes  liquid,  then  distilling  this  liquid  to  separate 
the  two  gases,  much  in  the  same  way  that  alcohol  is  separated  from  water  in 
making  spirituous  liquors. 

5.  This  nitrogen  is  then  blown  gently  through  ovens,  in  which  the  powdered 
carbide  has  been  heated  electrically  to  a  white  heat ;  and  the  result  is  that  the 
carbide  catches  or  fixes  the  nitrogen,  in  a  manner  very  similar  to  the  "  soaking 
up  "  of  water  sprayed  into  a  box  of  sand. 

6.  Now  we  have  lime  nitrogen  (cyanamid),  which  is  the  first  form  of  air- 
fixed  nitrogen  either  for  military  or  agricultural  uses.  It  carries  about  21  per 
cent  fixed  nitrogen  and  is  directly  available  as  a  fertilizer  but  has  some  limita- 
tions in  its  use. 

7.  The  lime  nitrogen  after  being  ground  to  a  fine  powder  is  treated  to  a  bath 
of  steam  and  a  weak  alkali  under  pressure  of  about  150  pounds  to  the  square 
inch.    This  causes  a  gas  to  be  forme<l,  known  as  ammonin. 

8.  About  half  of  this  ammonia  gas  is  mixed  with  air,  and  by  being  passed 
through  an  electrically  heated  platinum  gauze  the  gas-air  is  heated  to  600°  C. 
When  this  superheated  mixture  is  suddenly  subjected  to  a  low  temperature  it 
hegins  to  change  to  nitric  acid,, much  as  tlie  moisture  in  a  cloud  condenses  into 
rain  drops  when  struck  by  a  cooling  wind.  The  cooling  process  is  continued  until 
Jill  the  ammonia  is  changed  into  a  50  per  cent  nitric  acid. 

9.  The  other  half  of  the  ammonia  gas  is  then  forced  into  tanks  which  hold 
the  nitric  acid  and  is  absorbed  by  the  acid.  This  gives  us  ammonium  nitrate  in 
liquid  form.  This  process  is  comparable  to  the  method  of  making  carbonated 
water  in  which  a  gas  Is  forced  into  the  w^ater  and  held  there. 

10.  This  liquid  ammonium  nitrate  is  subjected  to  heat,  and  evaporation 
removes  all  the  liquid,  leaving  a  pure  ammonium  nitrate,  which,  when  cooled 
in  revolving  pans  in  which  there  are  stirring  paddles,  gives  us  a  grained  powder 
not  unlike  sand  in  appearance  and  which  carries  35  per  cent  of  nitrogen.  We 
all  know  that  sorghum,  when  subjected  to  the  proper  heat  for  too  long  a  time, 


548 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


549 


SsfTtWs'flmn^^;?"-     ^^^'-y^^^^^^  crystallization  process  happens  in  the 
case  or  tnis  liqiiul  annnonnini  nitrate 

iHidl^.^'Hrt'^^^^^^^^^^  '^^'  '^'''''  T'^  "^  the  process  describe.] 

n  tr«L      Q   1  K     •     '    'T    ^^''  ****^'^  annnonium  sulphate  instead  of  ammonium 
hP  nnr;i,  .^"  ^^""^  f '^^^  ^^  "^^^  ^^  the  production  of  ammonium  sulphate  ca 
Ten       f^^lL^'  "'^'^^•"  t^*V^'«"t.    When  the  Government  plant  at  Nashvil^ 
Tenn.,  tor  the  production  of  explosives  was  disposed  of  at  the  close  of  th^ 
TniT"*  of  Its  equipment  for  the  production  of  sulphuric  acixl  was  re?aine^^ 

Xnt  No"^'  /?.  -^T'^^'^^*^''  "^^^  ^^  "^^  ^^•^"^^^^  ^^'-  installation  at  nitrate 
plant  No.  2  if  it  is  found  necessary  to  do  so. 

12.  Either  one  of  the  above-named  products  is  readily  adaptable  to  fertilizer 


uses. 


COMMENT   BY   THE  COMMITTEE. 


1.  lour  committee  desires  to  suggest  that  in  dealing  with  the  whole  prono- 
sition  of  manufacturing  nitrates  for  military  or  agrfcSltural  uses  the  locS 
Of  the  plants  is  of  prime  importance.    Nitrate  plant  No.  2  at  Muscle  ShSu^ 

taTsllTocaiion?'  '''"'""  ''""^'  ^'^  '^'  '""""^"^  remarkable  list  of  advan 

(n)  Practically  inexhaustible  quarries  of  the  purest  lime  rock  are  e-milv 
accessible     The  present  quarries  are  only  28  miles  removed  '' 

(h)  Coke,  ^yhich  con.bined  with  burned  lime  in  the  early  stages  of  the  process 
used  at  nitrate  plant  No.  2.  is  produced  in  large  quantities  in  the  coaffields 
of  Tennessee  and  can  be  transix)rted  quickly  to  Muscle  Shoals.  The  greatest 
coke-coal  beds  in  the  Nation  lie  between  the  Tennessee  and  the  Ohio  Rivers 

(c)  The  greatest  deposits  of  raw  phosphate  rock  in  America  are  in  Tennessee 
which  adds  the  possibility  of  using  phosphate  rock  in  electric  fSrnaces  and 
producing  phosphoric  acid  and  available  phosphates  as  well  as  nitrates 

Ul)  Coal  beds  of  immense  proportions  almost  surround  Muscle  Shoals  all 
within  easy  hauling  distance.  Great  quantities  of  coal  are  needed  to  burn  the 
hnie  rock  as  well  as  to  operate  the  great  steam  power  plant  as  an  auxiliarv 
to  the  water  power  There  seems  to  be  no  need  of  nitrate  plant  No.  2  produdn^' 
Its  own  coke,  as  this  product  can  be  purchased  economically  from  coke  oveii^ 
already  operating.  The  same  statement  may  be  true  relative  to  sulphuric  achl 
in  making  ammonium  sulphate.  otimiiiic  aLi.i 

^^\.^^^/^^^J^^^^^e  River  is  a  navigable  stream  and  so  offers  cheap  tran^;- 
portation  both  for  supplies  needed  at  the  plant  and  for  products  shipped  there- 
from   to  the  whole  Mississippi.  Missouri,  and  Ohio  River  systems 

if)  Muscle  Shoals  is  nearly  in  the  heart  of  the  great  fertilizer-using  section 
ot  our  Nation,  but  is  also  situated  agriculturally  somewhat  near  the  center 
of  the  whole  country.  cemvi 

iff)  Muscle  Shoals  is  far  enough  inland  to  be  considered  in  the  safety  zone 

nZZ^L  V"'aV  ^^^^i'''  'f  ''}'  i"^'«<iins  »"»y  should  land  on  the  Gulf  shore  the 
Infi  «  1  ^/"^^i^^.^hoals  IS  so  great  that  this  plant  would  be  comparativelv 
safe  and  could  continue  making  nitrates  to  repulse  the  enemy 
nf  H,i  xvM^'  **'t'^  immense  water-power  development  incident  "to  the  completion 
^  l'^^\  -'  ^^^"' .there  is  the  certainty  that  much  of  the  electrical  power  can 
be  sold  for  industiial  uses  other  than  operating  nitrate  plant  No.  2  Within 
easy  transmission  distances  of  ]Muscle  Shoals  lie  the  metropolitan  centers  of 
Birmingham  Ala.:  Memphis  and  Chattanooga,  Tenn.,  not  to  mention  others 
of  considerable  importance.  The  great  coal  operations  of  this  territory  mav  I>p 
expected  to  become  users  of  electric  current,  too 

fpSiH!o''''V  ^^  r>^^'""tted  the  committee  to  remark  that  the  cheapness  of  any 
fertilizer  depends  to  a  very  large  extent  upon  the  ease  and  simplicitv  with 
\Nhich  it  IS  manufactured,  and  that  the  more  frequentlv  it  is  handled  or  treated 
m  the  process  of  manufacturing  the  more  expensive  it  becomes.  Consequently 
the  cheapest  fertilizer  which  is  capable  of  being  produced  at  Muscle  Shoals  is 
the  hme-nitrogen  (cyanamid).  This  product  is  a  good  nitrogenous  fertilizer 
when  used  by  itself  but  carries  much  more  nitrogen  than  the  usual  mixed 
fert  Uzer  and  niust  be  used  carefully.  When  only  a  nitrogenous  fertilizer  is 
needed  hme-mtrogen  gives  as  good  results  as  are  secured  by  anv  other  form 
of  nitrogen  but  is  somewhat  slower  in  its  availability.  However,  in  mixed 
fertilizers  the  linie-nitrogen.  if  used  in  too  great  quantities,  causes  the  phos- 
phates to  become  less  soluble,  and  hence  less  available  as  plant  food  on  account 
?l  .  f J  f  *'^^^tiug  unfavorably  on  the  phosphates.  It  is  fair  to  state,  though, 
that  the  chemists  seem  nearly  to  have  a  treatment  for  the  lime-nitrogen  which 


will  remove  this  undesirable  characteristic.  It  is  entirely  to  be  expected  that 
with  further  experiment  these  difficulties  will  be  entirely  overcome. 

When  lime-nitrogen  is  advanced  through  its  subsequent  stages  and  is  changed 
into  ammonia  gas,  then  to  nitric  acid,  and  finally  into  ammonium  nitrate  or 
ammonium  sulphate,  it  can  be  readily  used,  either  alone  or  in  mixed  fertilizers. 
All  these  later  stages,  as  above  stated,  increase  the  cost  of  the  nitrogen  content 
of  whatever  product  is  manufactured. 

3.  In  this  report  but  little  mention  will  be  made  of  nitrate  plant  No.  1.  The 
process  designed  to  be  used  in  that  plant  is  entirely  different  from  the  one  in 
No.  2,  and,  although  it  is  comparatively  a  simple  chemical  process,  the  me- 
chanical difficulties  have  been  such  as  to  offer  great  diflaculties  to  a  practical 
operation  of  the  plant.  Your  committee  desires  the  permission  to  suggest, 
however,  that  its  faith  in  the  ability  of  our  chemists  is  so  great  as  to  justify 
us  in  holding  nitrate  plant  No.  1  intact  ready  to  operate  when  the  difficulties 
shall  have  been  overcome.  Accordingly  you  will  note  in  one  of  the  two  definite 
recommendations  at  the  end  of  this  report  that  your  committee  has  incorporated 
both  nitrate  plants  in  the  same  recommendation. 

IV.    NECESSITY  FOK  AN  INCREASED  NITROGEN  SUPPLY. 

The  world's  supply  of  nitrogen  comes  from  two  ^reat  classifications — the  or- 
ganic and  the  inorganic.  The  organic  nitrogen  is  supplied  by  such  commodi- 
ties as  tankage,  dried  blood,  and  cottonseed  meal.  These  products  are  rapidly 
being  transferred  from  the  fertilizer  field  to  the  stock-feeding  industry.  It  has 
developed  that  the  feeder  of  live  stock  can  compete  in  the  purchase  of  these 
products  much  to  the  disadvantage  of  the  feeder  of  soils  who  desires  to  use  them 
as  fertilizers.  Their  use  as  fertilizers  is  rapidly  ceasing,  but  a  constant  in- 
crease is  noted  for  these  products  as  stock  food.  So  we  may  as  well  not  con- 
sider these  organic  nitrogenous  products  in  summing  up  our  available  fertilizer 
sui)ply.     Their  use  is  comparatively  negligible  as  plant  food. 

Our  inorganic  nitrogen  comes  almost  wholly  from  three  sources.  First  in 
iniportnnce,  as  measured  by  the  tonnage  used,  is  the  Chilean  nitrates.  Next  in 
tonnage  produced  comes  the  coke  ovens,  from  which  a  form  of  nitrogen  is  se- 
rurefl  as  a  by-product.  In  recent  years  a  third  source  has  been  developed  in 
the  fixation  of  atmospheric  nitrogen.  The  development  of  methods,  especially 
the  lime  nitrogen  or  cyanamid  process  for  fixing,  or  capturing,  the  nitrogen 
that  is  in  the  air,  has  assumed  such  importance  in  recent  years,  not  alone  in  our 
country,  but  in  several  other  nat'ons,  as  to  justify  the  statement  that  the 
world's  increasing  demand  for  nitrates  in  industry  for  military  purposes  and 
in  agriculture  will  be  met  largely  by  the  fixation  of  atmospheric  nitrogen. 

A  review  of  the  present  situation  as  regards  the  Chilean  nitrates  and  the 
by-product  from  the  coke  ovens  will  serve  to  confirm  the  statement  made.  In 
the  period  between  1913  and  1920  the  production  of  Chilean  nitrates  increased 
only  about  28  per  cent,  although  the  whole  world  was  seeking  nitrogen.  This 
may  be  accounted  for  partly  by  the  falling  off  of  the  nitrate  content  in  the 
Chilean  product,  which  requires  the  handling  of  a  much  larger  tonnage  of 
the  raw  material  to  satisfy  the  world  needs.  The  available  nitrogen  in  the 
Chilean  product  has  dropped  from  nearly  30  per  cent,  where  it  was  in  former 
years,  to  less  than  20  per  cent  now.  This  signifies,  no  doubt,  that  the  best 
beds  of  the  nitrate  deposits  have  been  used.  Also,  it  may  seem  that  inaccessi- 
hility  of  the  remaining  beds  makes  production  much  slower  than  was  formerly 
the  case.  Whereas,  a  laborer  years  ago  was  able  to  produce  more  than  70  tons 
per  year,  now  the  same  laborer  is  producing  approximately  55  tons. 

The  production  of  nitrogen  as  a  by-product  from  coke  ovens  is  altogether 
dependent  upon  the  growth  of  the  steel  industry.  Coke  is  produced  primarily 
!is  an  adjunct  to  the  production  of  steel,  and  can  not  profitably  be  produced 
in  quantities  in  excess  of  the  requirements  of  the  steel  furnaces.  In  other 
words,  it  can  not  be  produced  simply  for  its  by-products,  which  are  nitrogen, 
tar,  gas,  and  oil.  Somewhat  more  than  half  the  coke  of  our  country  is  produce<l 
in  ovens  which  can  save  the  by-products,  but  the  old-fashioned  beehive  coke 
ovens  are  not  being  suixrceded,  although  they  produce  nothing  but  the  coke 
and  do  not  save  the  by-products.  This  may  point  to  the  conclusion  that  as 
more  ovens  are  built,  or  old  ones  remodeled,  the  determining  factor  in  their 
'Operation  is  the  production  of  coke  and  not  the  by-products.  So  we  should  not 
expect  the  coke  industry  to  lead  out  in  nitrogenous  production  when  its  develop- 
ment is  dependent  upon  the  growth  of  another  industry — steel.     The  increase 


550 


MUSCLE   SHOALS  PROPOSITIONS. 


1 1 

!.  1 


du?t"on'?rom  Ihf  j,v'n^-!i '^""1*   ^''^°'  J«'P'-^«™">'S  ammonium-sulphate  pro- 

pmluct  ovens  had  been  made  into  ammonium  sulpZte     ThrLcts  are  tw 

alHeultte  ""in '191^^'.^ T  «^"T•'°'""'  ^"'P'«"^  '«  neverTaifable'fo 
agriculture.     In  1918  the  actual  production  of  ammonium  sulnhate  wm  2lSiQd 

tons,  according  to  the  United  States  Geological  SurveTreS     As  a  len^l^t 

average,  45  per  cent  of  the  so-called  ammonium  sulphafe  represents  sfml^^^ 

production  of  ammonia  in  gaseous  form,  which  is  absorbed  %watT  and  k 

►suipnate  and  sold  as  a   fertilizer  ingredient.     In  other  words    the   nmnmnio 
in"rk"et  "'  ''"  ''"'  "''"'  ''''''  '^^  refrigeration  rathei   thn';  the  'feSr 
In  opposition   to  the  slow  growth  of  nitrogen  production   in   the  rhilP-n, 
nitrates,  and    n  coke  ovens,  it  is  significant  to  note  that  foi  the  years  ?9  3  t" 
1920  the  Productmn  of  atmospherically  fixed  nitrogen  enjoyed  ^i   growth  of 
approximately  783  per  cent.     It  is  also  worthy  of  note  that  thrworld  took  •  H 
this  nitrogen  and  asked  for  more.     We  may  confidently  exp^t  the  use  of  nitroii^e 
m  fertilizers,  in  nmmunition,  and  in  industry  to  constantly  expand^ 
pansion  will   be  measured  largely   by  the  price  of  the  nitrogen  soJ 
can  be  manufactured  and  placed  on  the  markets  cheaply,  and  cease  to  be-al 
It  now  is-the  determining  factor  in  the  price  of  all  mixed  fertSs   we  m.?v 
look  forward  to  a  multiplied  use  of  nitrogen.     Farm^s  kUv  that  the^opc^^^^^ 
ations  are  rapidly  depleting  our  soil  of  nitrogen,  and  thev  willin-lv  woi^d 
replace  this  ingredient  in  the  soil  if  it  could  be  had  reasonablv     A  masonab le 
estimate  of    he  annual  nitrogenous  loss  from  our  soils  will  be  between  ?hroe 
and  four  million  tons,  to  balance  which  we  had  in  1920  a  total  w^r?d's  pro 
duction  of  nitrogen  of  only  one  and  one-half  million  tons,  not  aH  of  whfch  w-^s 
available  for  us,  of  course.    To  feed  the  world  and  to  make  at  least  a  temnor^n 

!:rLk"e^^oT^-crea^'nLT^^^      '^  "^^'^^  ^"^  ^^^^  ^^^^  -  ea  J  ^ilreThTaV; 

^\^  - -;: 

tion  of  nitrogen  is  doubling  every  decade.     AVhether  this  increase  can  be  im    - 
tamed-and  it  can  be  accelerated  under  the  most  favorable  conditions  fo^nro- 

COMMENT   BY    THE   COMMITTEE. 

peSnemVcts^"^"^^*'"^  conclusions  your  committee  calls  attention  to  these 

iV^  m?^!  fj!^  ^^'?^^^  ^^  running  behind  in  the  production  of  nitrogen. 
(6)  That  the  price  of  Chilean  nitrate  is  increasing  as  its  supply  becomes  more 
inadequate. 

Jwl  Vl^Vl'u  ^^^'I'^'l^i?*^^  •'^''"'^  P^*^  ^"  1^^^'  $85,000,000  for  Chilean  nitrato. 

(tf)  That  the  United  States  has  paid,  including  1919.  altogether  for  Chilean 
nitrate,  plus  freight,  insurance,  etc..  approximated  $800,000  000 

lV^  JJ^*  ^^.i®  ^'^®*  expenditure  justifies  us  in  seeking  other  sources  of  nitrogen. 

in  THat  nitrogen  either  by  itself  or  in  mixed  fertilizers  should  be  placed 
on  the  market  at  a  valuation  which  is  not  so  nearly  prohibitory  of  its  use 

(g)  That  to  secure  a  lessened  valuation  in  nitrogen  it  must  be  taken  from 
the  air,  where  it  is  inexhaustible. 

(h)  That  since  only  about  55  per  cent  of  our  estimated  total  consumption  would 
be  produced  by  our  own  nitrogen  plants  of  all  descriptions,  including  nitrate 
plant  No.  2,  there  is  only  a  remote  possibility  of  overproduction  for  the  present 
decade. 


MUSCLE   SHOALS  PROPOSITIONS. 

(i)  That  the  by-product  coke  ovens  are  not  to  be  considered  as  primarily  pro- 
ducers of  fertilizer  ingredients,  because,  first,  their  production  depends'  upon 
the  steel  industry;  and,  secondly,  their  products  are  sold  as  much  as  possible 
in  the  form  of  aqua-ammonia,  and  the  remainder  only  as  ammonium  sulphate. 

V.  Costs  and  Estimates. 

A.  NITRATE   PLANT    NO.    1. 

3  large  buildings $7,19.5,496.71 

13  smaller  buildings 2,  270, 413.  97 

Railways,  land,  walks,  village,  etc 3,  788, 661 !  05 

Total 13,  254.  571.  73 

B.  NITKATE   PLANT    NO.    2. 


Approximate  total  expenditures 1__. 


$69,026,833.43 


Overhead,  Air  Nitrates  Coii)oration $3,504,628.14 

Construction  fees.  Air  Nitrates  Corporation,  in- 
cluding unpaid  l)alance 1,500.000.00 

Temporary  buildings 4,  260,  550.  00 

Chemical  plant 37,842.899.98 

Power  plant 10,  436,  337.  05 

Land  for  plant  reservation  site 237.  711.  00 

Permanent  housing 1 2,  767,  837.  36 

Reservation  site  and  public  works 1.  427, 162.  47 

Community    and    commissarv   ac- 
tivities   ■_ $9,  411.  528.  79 

Less  cash  revenues  (miscellaneous 
and  commissary) 4,  922,  799.  69 

Quarry 715^  494  ^5 

Opmition 1,  860,  46:^,  60 


Total 

Less  operating  expenditure 


69,  026,  88;5.  43 
1,  860,  463.  60 


Construction  expenditure 67. 166.  369.  83 

C.   THE    WILSON   DAM. 

Various  estimates  have  been  offered  as  to  the  total  cost  of  this  dam  but  as 
conditions  relative  to  cost  are  changing  so  rapidly  it  is  impossible  to  secure 
great  accuracy.  Two  estimates  are  herewith  submitted.  The  first  one  is  based 
on  conditions  as  they  were  in  1919,  and  is  being  held  on  that  level  in  order  to 
be  definitely  sure  that  the  final  cost  can  not  exceed  the  figures  given.  The  sec- 
ond estimate  is  based  on  conditions  as  they  were  in  1916.  but  there  has  been 
added  in  each  item  a  100  per  cent  increase,  in  the  hope  that  such  an  arbitrary 
increase  will  approximately  rei3resent  the  difference  in  the  cost  factors  in  the 
year  1916  and  at  the  present  time. 


(A.) 

Allotted  for  construction,  as  per  national  defense  act  of  1916_- 
Transf erred  from  armament  and  fortification  fund  June,  1910- 


$13, 160,  000.  00 
4.  000,  000.  00 


Total  allotments  to  date 17,160,000.00 

Total  approximate  expenditures  and  commitments  to  date 16.  6.~)0,  000.  00 

Amount  to  be  asked  from  Congress 10, 000, 000.  00 

Approximate  total  cost   (based  on  1919  condi- 
tions)   $50, 000, 000.  00 

Amount  properly  allotted  to  navigation  purposes.       4,  500,  000.  00 

Net  cost  for  power  purposes 4.5, 500.  (XK).  00 

Production  cost,  one  horsepower  per  year  (based  on  average 
horsepower  300,000  and  a  10  per  cent  interest  and  operating 
expense) 15. 00 


552  MUSCLE   SHOALS  PROPOSITIONS. 

(B.) 

General  engineering?  and  offices  expenses $2,275,000.00 

Camps,  general  plant,   railroad   constructions 2,  212,  000  00 

The  dam  proper 4. 12?',  OOo!  00 

Locks 1, 064,  000. 00 

Substructure  of  powerhouse  and  tailrace 2,  000. 000. 00 

Flowage  damages '  350]  OOo!  00 

Road    changes 30,000.00 

Clearing 76,  ooo.  00 

Head  gates 135,  ooO.  00 

Racks 68.  000.  00 

Cranes 50, 000.  00 

Generating    equipment 4,  200,000.00 

Cables  and  wiring 150,000.00 

100  per  cent  increase 16,737.000.00 

Total 16,  737, 000.  00 

Total  cost  of  dam 33,474,000.00 

Amount  properly  allotted  to  navigation  purposes  and  not  useful 
for  power 4, 500, 000.  (X) 

Cost  of  dam  for  power  purposes 28.974,000.00 

Production  cost  of  1  horsepower  per  year  (based  on  average 
horsepower  300,000  and  a  10  per  cent  interest  and  oi)eratiiig 
expense) 9  6g' 

Note, — One  horsepower  at  Niagara  Falls  sells  at  $17  per  year. 

D.    MANUFACTUBING     COST    OF     CALCIUM     CYAN  A  MID      (LIME-NITROGEN)      AT     TXITED 

STATES   NITRATE  PLANT  NO.   2. 

[Based  on  a  two-weeks'  run  with  steam  power.) 


MUSCLE  SHOALS  PROPOSITIONS. 


553 


Two  weeks'  test  at  approxi- 
mately 20  ner  cent  ca- 
pacity, production,  1.450 
tons:  cost  per  ton  of  lime 
nitrogen. 

Estimated  cost  of  manufacture  at  100  per 
cent  capacity,  production  222,200  tons  per 
year. 

Item. 

Quan- 
tity per 

ton  of 
lime 

nitro- 
gen. 

Unit 
cost. 

Cost  per 

ton  of 

lime 

nitrogen. 

Quantity  per 
year. 

Unit 
cost. 

Total 

yearly 

cost 

Cost  per 

ton  of 

lime 

nitrogen. 

Limestone tons. . 

Coke do 

Coal do 

Electrodes pounds. . 

Power kilowatt  hours. . 

Miscellaneous   material    and 
supplies 

2 

..54 

.26 

44 

2,765 

$2.25 
9.75 
4.25 

.06 

.00738 

}4.50 
5.26 
LIO 
2.64 

20.40 

2.75 
n.35 

388,906 

120,000 

46,700 

8, 400, 000 

624,000,000 

$1.25 

6.00 

4.00 

.05 

.0042 

$486,000 

720, 000 

187,000 

420,000 

2,496,000 

591,000 
1,600,000 

$2.19 

3.24 

.84 

1.89 

» 11. 23 

2  66 

Labor 

1 

7.20 

1 

Total 

1 

48.00 
13.85 

1 

6,500,000 
411,000 

2Q  25 

Overhead 

....|...  — .. 

1   8.'> 

..............  ........ 

Total 

i 

61.85 

6,911,000 
1,533,000 

•^1   10 

Royalties  per  present  contract. 

1 

2.56 
3.12 

. 

6.90 

Operating  fee  per  present  con- 
tract  

........1...  ....... 

I 

Total 

67.53 

I 

8,444,000 

38  00 

1 

1 

iWhen  the  Wilson  Dam  is  complete,  the  cheaper  water  power  will  be  available.  If 
we  assume  this  to  cost  $0.00075  per  kilowatt  hour,  the  cost  of  cyanamid  fertilizer  will 
be  reduced  to  $30.85  per  ton.  It  should  be  noted  that  the  power  cost  of  $0.00075  per 
kilowatt  hour,  used  in  this  and  the  following  tables  is  not  as  large  as  will  be  placed 
upon  the  power  which  is  sold,  but  represents  approximately  what  may  fairly  be 
charged  against  nitrate  plants  for  power. 


One  ton  of  lime  nitrogen  when  oiled  and  hj'drated  produces  1.10  tons  of 
commercial   cyanamid. 

Cost  of  1  ton  commerciMl  cyanamid   ($38)   divided  by  1.10 $34.  5.j 

Cost  of  oil  and  oiling .75 

Bagging 1-75 

Research  and  main  office 2. 10 

Total,    commercial   cyanamid 39. 15 

E.    MANUFACTURING     COST     OF     AMMONIUM     NITRATE     AT     UNITED     STATES     NITRATE 

PLANT    NO.    2. 

[Based  on  a  two-weeks'  run  with  steam  power.] 


Two  weeks'  test  at  approx- 
imately 20  per  cent  capac- 
ity, production  950  tons; 
cost  per  ton  of  nitrate. 

Estimated  cost  of  manufacture  with  lime- 
nitrogen  plant  running  100  per  cent  capac- 
ity: 20  per  cent  of  the  product  being  con- 
verted into  22,000  tons  of  nitrate. 

Item. 

Quan- 
tity per 
ton  of 
ammo- 
nium 
nitrate. 

Unit 
cost. 

Cost  per 
ton  of 

ammo- 
nium 

nitrate. 

$9.08 

10.62 

2.22 

5.34 

43.87 

11.36 
34.73 

Quantity 
per  year. 

Unit 
cost. 

Total 

yearly 

cost. 

Cost  per 

ton  of 

nitrate. 

Limestone tons.. 

Coke do — 

Coal do.... 

Electrodes pounds. . 

Power kilowatt  hours. . 

Miscellaneous   material    and 
sronlies .   . .        

4.04 

1.09 

.53 

89 

5,945 

$2. 25 
9.75 
4.25 

.06 

.00738 

77,780 

24.000 

9,340 

1,680,000 

133,270,000 

$1.25 
6.00 
4.00 
".05 
.004 

$97,200 

144.000 

37,360 

84,000 

533,080 

266,000 

$4.42 
6.51 
L70 
3.82 

24.22 

12.08 

Labor 

509,000  1          23.14 

Total 

117.22 
40.38 

1,670,640  1         75.92 

Overhead    .        

1 

100,000  1           4.56 

Total.        

157.60 
6.27 

1,770,640            80.48 

Royalties   per   present   con- 
tract. . 

254,000  1          11.55 

Oneratine  fee 

5.00 

Total 

168. 87 

i 
1 

2,024,640  '          92.03 

Baeeinc . .           ...         .... 

2.00 
5.63 

Research  and  main  office 

•. 1 

Total 

99.66 

Note. — When  the  Wilson  Dam  is  complete,  the  cheaper  water  power  will  be  available.    If  we  assume 
this  to  cost  $0.00075  per  kilowatt  hour,  the  cost  of  nitrate  will  be  reduced  to  $80.05  per  ton. 


554 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


555 


r.    M\yvFMTrniya   cost  of   A^rMoxiUM   silphati:   at   i^^ited   statks   nitrate 

PLANT    NO.    2. 

Estimated  cost  of  manufacture  with  lime  nitrogen  plant  running  100  per 
cent  capacity;  40  per  cent  of  the  product  being  converted  into  86,000  tons 
of  sulphate. 

[Based  on  a  two-weeks'  run  with  steam  power.) 


Item. 


Limestone tons. 

Coke do. . . 

Coal do. . . 

Electrodes pounds. 

Power kilowatt-hour. 

Sulphuric  acid 

Miscellaneous  materials  and  supplies 

Labor ■ 


Total . 
Overhead . . 


Total 

Royalties  per  present  contract. 


Total  for  86,000  tons  of  ammonium  sulphate 

.Vssuming  65  per  cent  would  be  shipped  in  bulk,  the 
cost  of  bagginp  the  remainder  prorated  is  estimated  at . 
Research  and  main  office ' 


Quantity  per 
year. 


Unit 
cost. 


Total 

yearly 

cost. 


155,560 

48,000 

18,680 

3.360,000 

255,482,400 

82,600 


$1.25 
2.00 
4.00 
0.05 
0.004 

10.00 


$194, 450 

288,000 

74,720 

168,000 

1,022.000 

826.000 

447,500 

1,033.000 


4.  a53, 670 
198,000 


4.251,670 
582.000 


4.83:^.670 


Total . 


Cost  per 

ton  of 

sulphate. 


$2.27 

3.35 

.87 

l.% 

U.89 
9.60 
5.20 

12.01 


47, 15 
2.30 


49.45 
6.77- 


56.22 

.50 
3.41 


60.13 


Note.— When  the  Wilson  Dam  is  complete,  the  cheaper  water  power  will  be  available.    If  we  assume 
this  to  cost  $0.00075  per  kilowatt-hour,  the  cost  of  sulphate  will  be  reduced  to  $50.58  per  ton. 

(J.  K.STI.MATKl)  COST  ( EXCLUSIVE  OF  INTEREST  CHARGES)  OF  PRODUCING  PHOSPHORIC 
ACID  I?Y  THE  ELF:CTRIC-FTTRNACE  METHOD,  ASSUMING  POWEU  AT  $25  PER  HORSE- 
POWER YEAR. 


Item. 


Quantity 
(tons)  * 
"mine 
run." 


Phosphate  rtx-k 

Phosphate  matrix 

Sand 

Coke 

Operating  expenses: 
labor,   $4.45;  power, 


Electrodes, 
$44.01 


$2.13; 


Total  cost  per  ton 

Total  cost  per  pound. 


Cost  of 
material 
per  ton . 
Tennes- 
see. 


3.73 

1..50 

.75 


$1.60 

.50 

4.50 


Cost  per 

ton  of 

acid 

(Pj0.s) 

raw  rock. 


Quantitj' 

(tons) 
"washed." 


3.32 


$5.40 

.75 

3.37 

50.59 


1.50 
.75 


Cast  of 

material 

per  ton, 

Tennes- 

sec* 


$7.00 


Cost  per 

ton  of 

acid 

(PjO.O 

raw  rock . 


.50 
4.50 


$22.24 


.75 
3.37 

50.59 


60.11 
.03-J- 


76.95 
.04- 


NoTE.— When  we  assume  power  to  cost  $0.00075  per  kilowatt  hour  ($0.0005625  per  horsepower  hour) 
and  use  this  cheaper  hydroelectric  power,  the  power  item  will  stand  at  $4.92  per  horsepower  year  instead 
of  at  $25  as  is  used  in  the  above  table,  which  is  approximately  the  commercial  rale  for  power.  This  will 
reduce  the  operating  expense  for  power  as  estimated  above  from  $44.01  to  $S.<i6  and  give  a  total  cost  per 
ton  for  "mine  run"  of  $:J5.35and  for  "washed"  of  $41.60;  or,  per  pound  of  0.01767  and  0.0208,  respectively 

The  estimates  in  the  table  given  above  are  all  based  on  a  ton  production  of 
IM)b.  To  transfer  these  estimates  into  terms  of  16  per  cent  acid  phosphate  it 
is  neces.sary  to  remember  that  there  are  only  320  pounds  of  P2O5  in  a  ton 
of  acid  phosphate.  By  taking  the  pound  costs  in  the  table  and  multiplying  them 
by  320  we  ascertain  the  cost  of  16  per  cent  acid  ]>hosphate,  which  will  give  us 
for  the  "  mine  run  "  $9.60  and  for  the  "  washed  "  $12.80.  With  power  from  the 
hydroelectric  installation,  these  prices  further  reduce  to  $5.65  and  $6.65  re- 
spectively per  ton  of  acid  phosphate. 

The  figures  in  the  above  table  and  notes  constitute  what  will  doubtless  be 
a  very  spectacular  development  relative  to  fertilizer  prices. 


H.   ESTIMATED    SUPPLY    AND    CONSUMPTION    OF    NITROGEN    FOB    1924    AND     1930,    IN 

TONS   OF  PURE    NITROGEN. 


Estimated  peace-time  consumption  in- 

Agriculture 

Industries 

Military  explosives 


1924 


172,000 

120,000 

2.500 


1930 


285,000 
150,000 
3,000 


Total  consumptiou 


Ei-timatcd  doTTiCstic  supply  from— 

By-product  coke  ovens 

Privately  owned  fixed-nitrogen  plants 

Total  domestic  supply 

Deficiency  in  domestic  supplv  if  Government  plants  do  not  operate 

Estimated  supply  from  Government  fixed-nitrogen  plants 

Deficiency  in  domestic  supply  if  Government  plants  operate 

Estimated  imports  necessary: 

Canadian  lime-nitrogen -  - 

Chilean  or  European  nitrate,  if  Govenunent  plants  not  operated 

Chilean  or  European  nitrate,  if  Government  plants  operated 

Proportion  of  total  consumption  furnished  by  domestic  supply: 

If  Government  plants  not  operated per  cent. 

If  Government  plants  operated do-  •  - 


122,500 

172,000 

45,000 

127,000 

15,000 
157,000 
112,000 

41.6 
56.9 


184,500 

353,500 

55,000 

198,500 

15,000 
238,000 
183,500 

42. 2 
54.  7 


I. 

NITROGEN   IN   RED  CLOVER   AND  COWPEAS. 

Condition 
of  crop. 

2 

Nitrogen  in  pounds  per  acre. 

Fixed 

in  soil 
per  afcre. 

6 

Crop. 
1 

Whole 
plant. 

• 

3 

From 
air. 

4 

Roots 

and 

stubble. 

5 

References. 
7 

Red  clover 

Mature 

...do 

103.00 
103.40 
146.00 
69.70 
112.90 

68.60 
68.90 
97.30 
46.40 
75.20 

33.20 
40.30 
78.40 
25.30 
16.70 

*1.20 
t5.80 

t29.70 
t2.00 

♦21.00 

Delaware,  A.  E.  S. 

Do 

New  York,  A.  E.  S. 

M  ammoth  clover 

Cowpea 

...do 

...do 

...do 

Do. 
Mississippi,  U.  S  D.  A. 
Indiana,  A.  E.  S. 

' 

Total 

535.00 

356.40 

193.90 

tl5.30 

• 

The  sum  of  4  and  5  when  compared  to  3  gives  the  amount  of  nitrogen  fixed  in  the  soil  or  taken  from  the 
soil  in  growing  the  plant.  .,       ,  ^^^  ^  ^ .      .         ^  t       r 

In  6  the  sign  (*)  means  the  pounds  of  nitrogen  fixed  in  the  soil  and  (t)  means  what  has  been  taken  from 
the  soil.  ,.      .    , 

It  seems  that  not  all  clover  and  cowpea  fields  enrich  the  soil  by  cheimcal  action. 

No  figures  are  available  in  this  connection  relative  to  alfalfa.  „.^ .   , 

The  average  vield  per  acre  of  alfalfa  hay  in  the  United  States  for  1920  was  2.74  tons.  This  hay  analyzes 
2.3  per  cent  of  nitrogen,  which  gives  us  0.063  tons  of  nitrogen,  or  126  pounds  in  each  ton  of  alfalfa  hay.  How 
much  of  this  is  drawn  from  the  air  and  how  much  from  the  soil  has  not  yet  been  definitely  determined. 

The  average  yield  per  acre  of  red  clover  hay  in  the  United  States  for  1920  was  1.46  tons.  This  hay  ana- 
lyzes 2  per  cent  of  nitrogen,  which  gives  us  0.029  tons  of  nitrogen,  or  58  pounds,  in  each  ton  of  red  clover 
hay.  It  would  seem,  from  the  above  table  that  many  red  clover  fields  are  drawing  upon  the  nitrogen 
e  serves  of  the  soil  instead  of  adding  thereto. 

J.    WATER   POWER   AT   MUSCLE   SHOALS. 

[Based  on  flowage  records  of  19  years.] 


Horsepower  in  stream. 


100,000 
240,000 
360,000 
480,000 
600,000 


Months 
avail- 
able. 


12 
9 

7 

5i 

4 


Horsepower  used  and  wasetd  with — 


4  power  units. 


Used.      Wasted. 


'100,000 
120,000 
120,000 
120,000 
120,000 


120,000 
240,000 
360,000 
480,000 


10  power  units. 


18  power  units. 


Used. 


100,000 
240,000 
336,000 
336,000 
336,000 


Wasted.      Used.      Wasted. 


24,000 
144,000 
264,000 


100,000 
240,000 
360,000 
480,000 
600,000 


0 
0 


?  Note.— The  first  four  units  are  to  be  of  30,000  horsepower,  but  all  others  are  to  be  rated  at  36,000  horse- 
power. 


556 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


557 


K.    ROYALTIES. 


Product. 


Royalty  t 


I  Total 

Air        I  American     per  ton. 
Reduction  !  Cyanamid 
Co.  Co. 


Commercial  lime-nitrogen. 

Ammonium  nitrate 

Ammonium  sulphate 


$0,522 
1.16 
.594 


$5. 753 

10. 305 

6. 176 


$6.  275 

11.555 

6.770 


Note  —Although  most  of  the  patent  rights  on  methods  and  devices  for  fixing  atmospheric  nitroeen  ari^ 
Sri"!l?-^/^^  American  (  yanamid  Co.,  some  are  owned  by  the  American  Reduction  cT  This  Ses  if 
necessary  to  pay  two  royalties.    These  royalties  are  now  subject,  however,  to  arbitration . 

L.    MAIXTENANCE   OR   STAND-BY   EXPENSE   OF    NITRATE   PLANTS    NOS.    1    AND    2. 


July  1,  1919,  to    .Tuly  1,  1920,  to  I  Julv  1.  1921,  to 
June  30,  1920.      June  30,  1921.  j  June  30, 1922.» 


1171,605.  .58  ' 
472,642.63 


$H0,  .500. 00 
179. 476.  20 


Nitrate  plant  No.  1 

Nitrate  plant  No.  2 ...........!..  ..^  y^^  ^j 

It  has  been  stated  by  War  Department  officers  that  the  daily'operation  of  these  plants 
IS  equu-alent  to  a  storage  of  150,000  tons  of  nitrate  of  soda  for  explosives.  At  m  per 
ton  this  represents  an  investment  on  the  part  of  the  Government  of  $7,;500,000,  which, 
at  o  per  cent  interest  annually,  amounts  to 

Storage  on  ir)0,000  tons  annually  (estimated  by  War  Department  officials  at  %m,m) 


$60,000.00 
132,000.00 


375,000.00 
100,000.00 


Totalfor  19221. 


667,000.00 


1  Estimated. 


M.  world's  production  of  mixed  inorganic  nitrogen. 

[In  metric  tons  of  nitrogen.] 


Product. 


Chilean  nitrate 

By-product  from  coke  ovens 

Atmospheric  nitrogen  (arc,  Haber,  cyanamid) 

— — ^ 1 — 


1913 


1917 


390,000 

343,000 

85,000 


392,000 
.364,000 
340,000  I 


1920 


500,000 
410,000 
665,000 


Per  cent  of 
increase 

from 
1913-1917. 


28 

19 

783 


N.  comp-\rative  prices. 
(In  tons.) 


Products. 


Muscle  Shoals. 


Steam    I    Water 


Wholesale  1920 
prices. 


Domes- 


power,       power,   j  Imports.     ^"fP' 


Lime  nitrogen  (21  per  cent) 139  15 

Ammonium  nitrate  (35  per  cent) "  99*66 

Ammonium  sulphate  (21  per  cent) I  60  13 

Acid  phosphate  (16  per  cent) ] "  ] 


From  mine  run 

From  washed \]\\\\.]\\] 

Nitrate  of  soda  (Chilean  nitrate,  17  per  cent) 


9.60 
12.80 


$30.85 
80.05 
50.58 


$65.36 
132.67 


5.65 
6.60 


68.50 


$110.00 
19.50 


1  Not  quoted  as  fertilizer. 
Re^pSrterT^"  wholesale  prices  here  quoted  are  taken  from  the  1920  Yearbook  of  the  Oil,  Paint  and  Drug 


V'l.     The  Ueport  of  the  Nitrogen  Pkoducts  Coaimittee  of  the  Ministry  ok 
Munitions  of  War  of  the  British  Government. 

The  j^neatest  contributioii  to  the  literature  relating  to  the  fixation  of  atnios- 
I)herie  nitrogen  that  is  now  available  is  the  report  of  the  committee  of  eminent 
Englishmen,  24  in  number,  who  were  appointed  in  June,  1916,  to  investigate 
fully  all  the  scientific  and  industrial  problems  incident  to  the  creation  of  a 
nitrogen-fixing  industry  in  the  Empire.  This  report  contains  36  large  pages, 
and  is  the  result,  of  months  of  painstaking  work  on  the  part  of  the  committee. 
The  final  report  of  this  committee  was  made  in  May,  1919. 

It  will  be  of  decided  value  in  our  study  of  the  Muscle  Shoals  project  to  know 
what  conclusions  were  reached  by  the  nitrogen  products  committee.  Conse- 
quently, space  in  this  report  is  being  taken  for  several  quotations  from  the 
English  document. 

"(A)  A  hirge  addition  to  the  home  output  of  ammonium  sulphate,  coupled 
with  the  increasing  competition  of  synthetic  nitrogen  products,  would  undoubt- 
edly cause  a  reduction  in  its  market  price,  and  this  would  be  of  advantage  to 
agriculture  and  to  the  export  trade. 

"(B)  It  appears  probable  that  undertakings  of  this  character  would  have 
to.  receive  the  support  of  the  Government  or  be  carried  out  entirely  as  national 
projects. 

"(C)  The  main  characteristics  of  the  cyanamid  process  are: 

"(«)  The  relatively  small  power  requirements  per  unit  fixed  as  contrasted 
to  the  arc  process. 

"(?))  The  direct  production  of  a  solid  nitrogenous  fertilizer  (lime  nitrogen), 
thus  avoiding  the  costs  incurred  in  all  the  other  established  synthetic  processes 
for  converting  liquid  products  into  a  solid,  marketable  form. 

"(c)  The  production  of  a  cheaper  marketable  form  of  combined  nitrogen 
than  is  obtainable  by  any  other  fixation  process. 

"(f/)   Its  great  adaptability  as  regards  the  products  obtainable. 

"(D)  There  seems  no  reason  why  manufacture  both  of  carbide  and  also  ol 
calcium  cyanamid  (lime  nitrogen),  if  laid  out  on  a  large  scale,  should  not  be 
successful  in  this  country.  There  are  blocks  of  undeveloped  water  power  in 
Scotland  of  sufficient  size  for  the  operation  of  a  large  factory. 

"(E)  The  market  price  of  a  metric  ton  of  combined  nitrogen  in  the  rnite<l 
Kingdom  prior  to  the  war  varied  from  66  pounds  to  67  pounds  (in  the  form 
of  ammonium  sulphate  and  Chile  nitrate,  respectively). 

"(F)  The  synthetic  processes  can  produce  a  metric  ton  of  combined  nitrogen 
at  a  cost  at  the  factory  of  from  20  pounds  to  30  pounds. 

"(G)  The  synthetic  processes  can  produce  a  metric  ton  of  concentrated  (93 
to  96  per  cent)  nitric  acid  for  about  half  the  cost  of  the  Chile  nitrate  retort 
process. 

"(H)  The  synthetic  processes  can  produce  a  metric  ton  of  combined  nitrogen 
ready  for  the  fertilizer  market,  as  cyanamid  ammonium  sulphate,  at  a  cost 
at  the  factory  of  about  or  even  less  than  one-half  the  prewar  market  price  of 
combined  nitrogen  in  the  United  Kingdom. 

"(I)  A  large  proportion  of  the  synthetic  plant  would  find  an  application 
under  peace  conditions  for  the  manufacture  of  nitrogenous  fertilizers,  either 
for  home  consumption  or  for  exportation. 

"(J)  As  compared  with  the  retort  process  (used  in  connection  with  the 
Chile  nitrate)  the  saving  in  the  running  costs  over  a  period  of  two  years  would 
probably  cov*»r  the  initial  capital  outlay. 

"(K)  Dealing  broadly  with  the  postwar  demand,  the  requirements  of  agri- 
culture are  certain  to  be  imich  larger  than  formerly,  the  imperitive  need  for 
maintaining  and  extending  the  world's  production  of  food,  and  the  vital  im- 
portant of  combined  nitrogen  for  this  purpose,  having  emerged  as  the  salient 
lessons  of  the  later  stages  of  the  war. 

"(L)  The  consumption  of  combined  nitrogen  practically  doubled  in  the  10 
years  before  the  war.  When  account  is  taken  of  the  relative  areas  under  culti- 
vation in  the  food-producing  countries  of  the  world,  of  the  prewar  consumption 
of  nitrogenous  fertilizers  in  the  most  progressive  of  the  agricultural  countries, 
and  of  the  corresponding  consumption  in  the  remaining  countries,  it  is  abund- 
antly clear  that  the  quantities  of  nitrogenous  manures  employed  were  in  many 
cases  below  the  most  advantageous  or  profitable  level.  The  difl^iculties  expe- 
rience<l  during  the  war  period  in  obtaining  supplies  have  already  provided  a 
salutary  lesson  as  to  the  importance  of  fertilization,  and  the  resulting  wider 
reqpgnition  of  the  value  of  fertilizers  will  lead  to  an  increase  in  the  demanri 


558 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


559 


to 


for  nitrogenous  manures  in  countries  where  the  consumption  has  liitherto  been 
very  small  m  proiK)rtion  to  the  area  under  cultivation.  In  the  opinion  of  the 
committee  the  provision  of  a  really  cheap  supply  of  fixed  nitrof?en  would  lead 
to  p  greatly  extended  consumption  of  nitrogenous  fertilizer. 

"  (M)  There  will  be  also  an  increased  industrial  demand  for  fixed  nitrogen 
nevertheless,  the  total  requirements  for  industry  are  unlikely  to  amount  t( 
"^  «^?XT^   ?  ^  relatively  small  proportion  of  the  demand  for  agriculture. 

(N)  It  is  evident  that  the  supremacy  of  the  Chile  nitrate  industry  is 
already  being  challenged,  and  the  near  future  holds  out  the  prospect  that 
ammonium  sulphate  of  synthetic  nitrogen  products  may  become  the  dominant 
factor  in  the  nitrogen  market  and  govern  the  price  of  nitrate  instead  of  fol- 
lowing it  as  hitherto. 

"  (O)  The  proved  utility  of  Chile  nitrate  as  a  fertilizer,  however,  is  such 
as  to  insure  its  position  in  agriculture  for  a  long  time  to  come,  but  the  extent 
ot  the  demand  under  postwar  conditions  will  be  largely  determined  by  the 
price  at  which  the  product  can  be  marketed. 

"  (P)  Other  things  being  equal,  however,  the  preponderating  factor  in  de- 
termining the  future  consumption  of  combined  nitrogen  in  agriculture  will  be 
the  price  at  which  it  is  procurable.  The  possibilities  in  this  direction  due 
to  the  development  of  the  synthetic  nitrogen  industry  have  already  been  indi- 
cated, and  in  the  event  of  adequate  supplies  of  fixed  nitrogen  being  forth- 
coming at  a  price  showing  even  a  moderate  reduction  upon  the  prewar  figure 
the  committee  is  strongly  of  the  opinion  that  there  will  be  a  very  substantial 
increase  in  the  consumption.  If,  however,  the  price  of  nitrogen  remains  at 
the  level  of  the  present  controlled  price  of  ammonium  sulphate,  the  demand 
is  likely  to  be  largely  determined  by  factors  such  as  the  prices  obtainable 
for  agriculture  produce. 

"  (Q)  The  committee  is  satisfied  that  synthetic  processes  can  at  the  present 
time  be  operated  in  the  United  Kingdom  upon  a  sound  economic  basis  and 
that  the  undoubted  advantages  enjoyed  by  such  methods  will  become  more 
pronounced  in  the  course  of  time  as  the  result  of  constant  efforts  towards 
improvement. 

"  (R)  The  committee  is  emphatically  of  the  opinion  that  the  national  inter- 
ests demand  the  establishment  forthwith  of  nitrogen  fixation  and  allied  proc- 
esses upon  a  considerable  manufacturing  scale. 

"  (S)  It  appears  that  the  question  of  overproduction,  which  was  raised  in 
evidence  given  before  the  committee,  is  hardly  likely  to  constitute  a  serious 
factor  in  the  postwar  situation. 

"  (T)  A  minimum  of  perhaps  70  per  cent  of  the  world's  total  supplies  of 
nitrate  and  ammonia  nitrogen  was  utilized  in  agriculture  prior  to  the  war. 

"  (U)  Combined  nitrogen  (as  cyanamid  or  ammonium  sulphate)  can  be 
obtained  by  synthetic  processes  at  a  cost,  at  the  factory,  which  is  less  than 
half  the  market  price  of  combined  nitrogen  from  other  sources,  prewar  con- 
ditions being  taken  as  the  basis  in  each  case. 

"  (V)  The  world's  demand  for  combined  nitrogen  appears  to  double  every 
10  years.  The  increased  production  during  the  war  has  not  been  more  than 
the  normal  rate  of  increase  during  peace. 

"  (W)  As  far  as  the  United  Kingdom  is  concerned,  nitrogen  fixation  and 
allied  processes  will  constitute  a  new  'key'  industry.  The  committee  is  of 
the  opinion  that  the  initiation  and  development  of  the  industry  will  require 
the  active  supp(^rt  of  the  Government." 

COMMENT  BY   THE  COMMITTEE. 

1.  As  an  aid  in  the  study  of  the  foregoing  quotations,  it  may  be  well  at 
this  point  to  explain  that  there  are  three  processes  which  are  used  commer- 
cially in  the  fixation  of  atmospheric  nitrogen.  Whether  or  not  one  or  an- 
other of  these  processes  enjoys  any  particular  advantages  over  the  others  de- 
pends altogether  upon  several  factors  that  enter  into  the  manufacturing  of 
fixed  nitrogen.  From  a  practical  and  agricultural  point  of  view  the  cost  of 
the  operation,  and  the  consequent  market  price  of  the  commodity,  is  always 
the  determining  factor,  so  far  as  the  availability  for  farming  uses  is  concerned. 
Then  again,  the  power  required  necessarily  enters  into  the  consideration. 
That  process  which  requires  least  power,  other  things  being  equal,  will  nat- 
urally be  the  most  favored  method  of  fixing  nitrogen.  Also  the  proximity 
of  the  plant  to  its  sources  of  raw  material,  and  their  availability,  will  as- 
suredly reflect  themselves  in  the  ultimate  price.  • 


The  three  processes  referred  to  frequently  by  the  nitrogen  products  com- 
mittee are  the  arc,  the  Hiiber  (pronounced  Haber),  and  the  cyanamid  or  lime- 
nitrogen. 

The  arc  process  enjoys  the  distinction  of  being  simple  in  that  it  uses  the 
electric  arc  to  force  a  combination  of  nitrogen  and  oxygen,  which  combina- 
tion is  caught  in  water,  and  after  treatment  in  an  alkali  produces,  as  a  pri- 
mary product,  nitric  acid.  Air  and  water  constitute  the  main  raw  materials 
in  this  process.  The  handicap  of  the  arc  process  is  that  it  requires  such  an 
expenditure  of  electrical  power.  Not  more  than  4  per  cent  of  the  electrical 
energy  used  is  represented  in  the  nitrogen  secured.  This  makes  the  arc 
process  almost  indefensible  except  where  water  power  to  generate  the  elec- 
trical energy  is  superabundant.  Norway  is  the  only  country  to  use  this  proc- 
ess commercially,  w^hich  may  be  accounted  for  by  a  study  of  her  immense 
water-power  resources. 

The  Haber  process  is  used  mainly  in  Germany  and  was  her  principal  reliance 
for  nitrogen  during  the  war.  This  process  is  based  on  securing  a  highly 
precise  mixture  of  hydrogen  and  nitrogen,  under  great  pressure  and  while 
subjected  to  terrific  heat.  If  the  mixture  of  these  gases  is  properly  main- 
tained the  heat  and  the  pressure  are  easily  controlled  and  the  resulting  prod- 
uct of  fixed  nitrogen  is  secured.  But,  however,  if  too  much  of  one  gas  is 
admitted  or  too  little  of  the  other,  the  chemical  reaction  is  highly  dangerous 
in  that  an  explosion  occurs.  A  war  incident  may  be  cited  in  which  the  Ameri- 
can war  planes  were  bombing  a  German  plant  of  the  Hiiber  variety,  and  al- 
though none  of  the  bombs  hit  the  mark  the  plant  was  destroyed  on  account 
of  the  workmen  fleeing  for  safety  from  the  bombs  and  so  leaving  the  gases 
uncontrolled  for  half  an  hour.  The  principal  advantage  of  this  process  over 
any  other  known  process  is  the  small  amount  of  electrical  energy  required. 
Approximately  only  one-fourth  the  energy  is  used  in  this  process  that  is  con- 
sumed in  the  lime-nitrogen  method,  and  only  about  one-sixteenth  as  much  as 
the  arc  process  demands.  Nitrate  plant  No.  1  was  built  to  use  the  Hiiber 
process,  but  has  never  produced  fixed  nitrogen  commercially.  The  committee 
desires  to  suggest,  though,  that  if  the  Germans  can  do  it,  so  can  we;  and  to 
suggest  further  that  the  difficulties  encountered  in  the  successful  application 
of  the  well-known  chemical  laws  concerned  in  this  process,  are  mostly  of  a 
mechanical  nature  now,  and  we  may  confidently  expect  such  difficulties  to  be 
overcome  by  the  ingenuity  of  our  chemists  and  mechanics  working  together. 

The  cyanamid  or  lime-nitrogen  process  has  been  explained  at  some  length  in 
a  preceding  division  of  this  report.  Suffice  it  to  say  that  this  process,  all  things 
considered,  is  meeting  with  the  most  favor  all  over  the  world,  and  is  the  one 
used  in  nitrate  plant  No.  2. 

2.  The  report  of  the  nitrogen  products  committee  of  the  British  Government 
accentuates  the  following  conclusions  which  have  been  arrived  at  in  this  country 
relative  to  a  development  of  the  nitrogen-fixing  industry : 

"(a)  That  such  an  industry  would  have  the  effect  of  reducing  prices  on  the 
nitrogen  content  of  fertilizers. 

"(6)  That  such  an  industry  would  have  the  controlling  influence  in  the  de- 
termination of  market  quotations  on  fertilizers. 

"(c)  That  such  an  industry  should  receive  the  support  of  the  Government. 

"(rf)  That  such  an  industry,  at  least  with  our  present  knowledge  of  otlier 
processes,  should  be  based  on  the  cyanamid,  or  lime-nitrogen  process. 

"(e)  That  the  synthetic  processes  (arc,  Hiiber,  cyanamid)  may  reasonably 
be  expected  to  produce  combined  nitrogen  at  approximately  one-half  the  pre- 
war price. 

"(H  That  the  establishment  of  such  an  industry,  although  expensive,  might 
be  expected  to  amortize  the  original  capital  cost  in  a  few  years  by  the  saving 
effected  in  market  prices  on  nitrogen. 

"(g)  That  agriculture  will  use  nitrogenous  fertilizers  in  proportions  which 
increase  or  decrease  as  the  price  of  nitrogen  fluctuates. 

"(/i)  That  agriculture  is  the  biggest  user  of  nitrogen  and  therefore  is  pri- 
marily concerned  in  its  production  at  a  price  which  will  permit  of  its  use. 

"(i)  That  the  Chilean  nitrate  industry  will  continue  as  a  factor  in  the  ferti- 
lizer market  indefinitely,  but  that  we  should  place  ourselves  in  position  to  be 
independent  of  foreign  supplies,  both  in  times  of  peace  and  war. 

"(;)  That  a  plant  to  manufacture  fixed  nitrogen  can  be  operated  on  an 
economically  sound  basis. 


92900—22- 


-36 


!  I 


560 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


561 


*'ik)  That  the  nitrogen  industry  is  not  of  concern  only  to  one  group— as  the 
military,  the  industrial,  the  agric'ultural— nor  is  it  of  interest  to  merely  one 
>ectiou  of  our  country.  But  it  is  a  national  problem  which  challenges  the  interest 
of  all  citizens  who  have  regard  for  public  safety  in  time  of  war  or  who  desire 
that  soil  conservation  and  food  proiiuction  be  safeguarded  in  order  that  agri- 
culture and  industry  may  prosper. 

"(0  That  there  is  slight  danger  of  an  overproduction  of  nitrogen  so  long 
as  the  price  factor  is  held  constant  and  equable." 

VII.  Power. 

Enough  information  has  been  offered  in  other  portions  of  this  report  to  show 
that  any  plant  designed  for  the  fixation  of  atmospheric  nitrogen,  which  is  to  be 
placed  on  the  competitive  markets,  must  have  readily  and  steadily  available 
the  cheapest  form  of  power.  In  war  times,  when  low  cost  of  operation  was  not 
of  prime  importance,  provided  a  higher  cost  expedited  our  activities,  it  was 
possible  to  contemplate  the  operation  of  such  plants  as  nitrate  plant  No.  2  with 
lK)wer  which  did  not  qualify  as  being  the  least  costly.  Accordingly  a  giant 
steam  plant  was  installed  to  run  the  plant  during  the  interim  between  the 
completion  of  No.  2  and  of  the  Wilson  Dam,  it  being  known  that  the  power 
from  the  dam  could  not  be  available  for  perhaps  three  years  after  the  plant 
began  production.  Nitrogen  production  by  steam  power  is,  of  course^  more 
costly  than  by  water  power,  which  is  true  of  any  other  industry  that  can  be 
hydroelectrified. 

In  peace  times  the  successful  and  economical  operation  of  nitrate  plant  No.  2 
for  the  production  of  fertilizers  depends  almost  wholly  upon  the  completion  of 
the  hydroelectric  plant  in  connection  with  the  Wilson  Dam.  The  whole  propo- 
sition at  Muscle  Shoals  revolves  around  the  item  of  cheap  power.  Without  this 
cheap  power  it  is  hardly  possible  to  hope  that  the  production  of  nitrogen  will 
be  secured  at  a  figure  low  enough  to  materially  affect  the  market  price  of 
fertilizers.  All  estimates,  data,  and  reports  from  every  country  point  sig- 
nificantly to  hydroelectric  power  as  being  the  determining  factor  in  the  manu- 
facturing of  atmospheric  nitrogen.  All  other  competitive  factors,  such  as  tlie 
supply  of  raw  materials,  their  location  with  regard  to  the  plant,  the  available 
market  for  the  product,  the  chemical  and  mechanical  difficulties,  all  take  places 
of  secondary  importance  when  compared  with  the  one  indispensable  factor, 
cheap  power. 

That  there  will  be  an  abundance  of  water  power  at  Muscle  Shcals  upon  the 
completion  of  the  Wilson  Dam  is  evident  when  the  salient  facts  connected  there- 
with are  considered.  The  dam,  being  100  feet  high,  will  maintain  a  normal 
head  of  95  feet.  The  dam  and  power  house  are  being  constructed  for  the 
ultimate  installation  of  18  generating  units,  each  consisting  of  a  water  turbine 
and  generator  capable  of  producing  30,000  or  36,000  horsepower.  Seventeen  of 
these  units  are  expected  to  be  ready  for  operation  at  all  times,  leaving  one  out 
for  repairs.  These  17  operating  units  will,  therefore,  have  a  total  normal  output 
of  about  600,000  horsepower.  The  installation  plans  call  for  the  immediate 
placing  of  only  four  of  these  units,  which  will  be  ample  to  operate  nitrate  plant 
No.  2,  as  they  will  produce  120,000  horsepower.  It  is  worthy  of  note  that  the 
installation  of  only  four  units  will  allow  much  water  to  flow  over  the  top  of 
the  dam  unused  during  most  of  the  year,  whereas  if  10  units  were  installed  they 
c<mld  operate  to  full  capacity  on  an  average  of  half  the  time,  which  would 
justify  their  installation. 

These  statements  are  based  on  the  known  flow  of  the  Tennessee  River  at 
]Muscle  Shoals  during  the  period  from  1895  to  1914  inclusive,  with  only  one 
year  not  considered  on  account  of  incompleteness  in  the  records.  In  all  that 
time,  19  years,  the  lowest  the  river  ever  dropped 
horsepower;  but  only  6  years  of -the  19  recorded 
small  as  to  drop  below  the  108,000  horsepower 
plant  No.  2.  In  these  six  years  the  time  in  which 
cient  to  produce  this  required  horsepower  amounted  to  1.3  per  cent  of  the  total 
time.  In  these  times  of  low  flow  the  steam  plant  stands  ready  as  auxiliary 
power,  but  to  keep  the  power  constant  for  the  four  units  required  to  operate 
No.  2  tlie  steam  plant  would  have  to  be  fired  up  only  1  day  out  of  60,  on  an 
average. 

The  records  of  fiowage  at  Muscle  Shoals  show  that  for  9  months  in  the  .vear 
there  will  be  approximately  2-10,000  horsepower,  for  7  months  in  the  year  360,- 
000  liorsei)Ower,  for  5^  months  in  the  year,  480,000  horsepowei-,  and  for  4 
months  in  the  year  600,000  horsepower,  making  an  average  of  300,000  horse- 
power for  the  whole  year. 


would  have  produced  85,000 
show  a  flow  at  any  time  so 
required  to  operate  nitrate 
the  flow  was  less  than  sufti- 


If  we  decide  to  install  only  the  first  four  power  units  and  be  satisfied  to 
make  no  use  of  the  remaining  power  we  must  be  content  to  see  much  water 
spill  over  the  dam.  If,  however,  we  desire  to  harness  the  full  force  of  the 
stream  we  will  advocate  the  placing  of  the  entire  battery  of  18  horsepower  units 
even  if  it  can  not  be  used  throughout  all  the  year.  These  consideraticms  have 
given  rise  to  descriptive  terms  to  define  the  amounts  of  power  available  at 
Muscle  Shoals.  All  that  power  (approximately  100,000  H.  P.)  which  can  be 
depended  upon  from  day  to  day,  year  in  and  out,  as  the  average  lowest  power 
available,  is  known  as  primary  horsepower.  If  for  one  day,  or  even  for  one 
week,  as  an  extraordinary  occurrence,  the  river  should  drop  below  this  aver- 
age lowest  po\ver  line  no  recognition  is  given  such  occurrence  in  this  defini- 
tion. All  other  waterpower  at  Muscle  Shoals,  from  the  minimum  of  100,000 
horsepower  to  a  maxinmm  of  600,000  horsepower,  is  called  secondary  power. 

As  a  maximum  waterpower  development  at  Muscle  Shoals  with  18  power 
units  installed  we  have;  One  hundred  thousand  primary  horsepower  plus  500,- 
(KK)  secondary  horsepower.  It  needs  to  be  remembered  that  the  primary  power 
(joes  not  vary — it  is  constant — but  the  secondary  power  is  quite  variable. 

There  is  a  third  power  available  at  Muscle  Shoals  from  the  steam  plant. 
This  classifies  neither  as  primary  nor  secondary  power  but  should  be  considered 
altogether  as  auxiliary  power.  Its  use  should  be  to  suppplement  the  secondary 
power  as  occasion  requires. 

The  immense  reserves  of  secondary  power  available  at  Muscle  Shoals,  not 
to  mention  the  primary  power  which  is  just  about  ami»le  to  operate  No.  2  con- 
stantly, brings  to  our  attention  the  necessity  of  finding  a  suitable  market  for 
such  excess  power.  It  may  not  leasonably  be  expected  that  such  a  market  will 
develop  instantly.  The  history  of  great  hydroelectric  plants  has  been  that  at 
first  there  has  been  an  excess  of  power  for  the  available  market;  but  that  soon 
rlie  demand  for  power  exceeded  the  capacity  of  the  plants.  So  it  will  mi- 
(loubtedly  be  at  Muscle  Shoals.  It  would  be  foolhardy  in  the  extreme,  no 
(Inubi,  to  expect  at  once  handsome  dividends  on  our  govennnental  investment  at 
Muscle  Shoals  other  than  that  which  comes  to  all  citizens  from  a  satisfactory 
supplv  of  nitrogenous  products. 

It  would  be  unfair  though,  to  estimate  the  cost  per  horsepower  of  the  Wilson 
I>aiu  on  any  other  basis  other  than  one  that  contemplpates  the  eventual  use 
ot  all  power  classified  above.  Undoubtedly,  either  l»y  direct  location  of  fac- 
t'Mies  or  by  transmission,  all  the  power  that  the  dam  is  capable  of  producing 
will  be  utilized.  Therefore,  taking  the  total  estimated  cost  of  the  dam  with  its 
power  equipment  but  without  the  navigation  features  (which  will  be  found  in 
detail  in  another  division  of  this  report)  and  dividing  by  the  maximum  power 
(levelojied  we  have  the  f(>llowing;  Forty-five  million  five  hundred  thousand  dol- 
lars divided  by  600,000  equals  $75,  cost  of  installing  each  horsepower  if  all 
iwwer  were  used  constantly. 

Inasmuch,  however,  as  the  primary  and  secondary  power  do  not  stand  at 
that  high  figure  all  the  time,  but  maintain  a  mean  average  of  about  300,000 
horsepower,  the  following  equation  more  nearly  represents  a  fair  estimate  of 
installation  costs  per  horsepower.  Forty-five  million  five  hundred  thousand  dol- 
lars divided  by  300,000  equals  $150,  cost  of  installing  each  horsepower,  based  on 
average  power  developed.  It  will  be  seen  that  the  initial  capital  cost  of  1 
liorsepo>ver  at  Musch*  Shoals  compares  favorably  with  the  same  power  when 
bought  in  the  form  of  a  high-grade  gasoline  engine  for  use  about  the  barn  or  in 
the  shop.  It  is  only  fair  to  state,  however,  that  other  estimates  as  to  the  cost  of 
tlie  dam.  exclusive  of  navigation  features,  and  which  are  from  dependable 
sources,  reduce  the  figures  above  used  by  fully  $]5,000,(K)0.  Tlie  estimate  here 
used  was  made  in  1919  at  peak  prices  and  is  being  adhered  to  as  the  highest 
possible  cost  of  the  dam. 

Moreover,  the  cost  of  operaticm,  per  horsepower,  after  the  installation  is  paid 
for  is  far  less  than  that  of  any  other  kind  of  plant,  not  excei>ting  the  most  eco- 
nomical steam  plant.  In  this  connection  the  great  saving  in  coal  that  would  be 
brought  about  shouM  not  be  overlooked. 

ft 

COMMENT  BY   THE   COMillTTEE. 

liecogiiizing  that  the  power  development  at  Muscle  Shoals  as  represented  by 
tile  Wilson  Dam  ecpials  in  importance,  though  not  in  expense,  the  building  of 
nitrate  plant  No.  2;  and  fully  realizing  that  No.  2  will  be  greatly  handicapped 
»nril  the  dam  is  completed;  and  considering  that  the  dam  will  meet  its  first 


562 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


563 


justification  for  the  expense  of  building  it  in  the  operation  of  No.  2 ;  your  com- 
inittee,  therefore,  desires  most  candidly  to  state  its  thoughts  on  the  correlation 
that  exists  between  the  two  undertakings: 

"(a)  First  of  all,  it  is  desirable  that  the  Muscle  Shoals  project  pay  a  ren- 
sonable  return  on  a  reasonable  capitalization. 

"(?>)  Next  in  importance,  no  doubt,  is  the  necessity  for  operating  No.  2  by 
power  from  the  Wilson  Dam. 

"(c)  Provision  should  be  made  for  installing,  at  least  the  major  part,  of  the 
power  units  so  that  excess  power  would  be  available. 

"(f/)  If  the  complete  installation  of  power  units  is  placed  then  it  might 
be  well  to  suggest  that  the  excess  power  be  disposed  of  commercially  but  that 
in  any  event  the  necessities  of  the  nitrate  plants  for  power  be  met  fully  before 
«u('h  excess  power  is  sold. 

"(€)  There  will  be  enough  excess  power,  however,  to  return  a  handsome 
revenue  to  the  Government. 

"(/)  It  must  not  be  forgotten  that  the  combined  expenditures  at  Muscle 
Shoals  in  the  Wilson  Dam  and  nitrate  plant  No.  2  represent  a  citizens'  invest- 
ment made  for  us  by  our  Government.  This  investment  will  be  of  value 
to  all  citizens,  and  consequently,  all  citizens  should  desire  that  the  entire 
project  be  put  on  a  business  basis.  The  effort  should  be  to  make  this  gigantic 
undertaking  of  our  Government  '  pay  out.'  It  can  only  be  done  by  a  business- 
like administration  of  its  affairs  as  will  be  explained  in  a  later  division  of  this 
report." 

YIII.       POSSTBILITIES. 

In  our  consideration  of  nitrate  plant  No.  2  thus  far  in  this  report  attention 
has  been  focused  almost  exclusively  upon  its  capacity  to  produce  nitrogenous 
fertilizers,  as  lime-nitrogen,  ammonium  nitrate,  and  ammonium  sulphate.  In 
fact  the  plant  was  built  as  a  nitrogen-fixation  establishment  so  that  nitric  acid 
and  nitrates  could  be  available  for  the  manufacture  of  military  explosives  and 
for  use  in  fertilizers.  That  in  the  erection  of  this  great  plant  Congress  ha<l 
in  mind  its  dual  purpose — military  and  agricultural — is  shown  by  the  following: 
quotation  from  section  124  of  H.  R.  12766  of  the  Sixty-fourth  Congress : 

"  The  President  of  the  United  States  is  hereby  authorized  and  empowered 
to  make,  or  cause  to  be  made,  such  investigation  as  in  his  judgment  is  necessary 
to  determine  the  best,  cheapest,  and  most  availtVde  means  for  the  production  of 
nitrates  and  other  products  for  munitions  of  war  and  useful  in  the  manufacture 
of  fertilizers  and  other  useful  products  by  water  power  or  any  other  power  as  is 
in  his  judgment  the  best  and  cheapest  to  use;  and  is  also  hereby  authorize<l 
and  empowered  to  designate  for  the  exclusive  use  of  the  United  States,  if  in 
his  judgment  such  means  is  best  and  cheapest,  such  site  or  sites,  upon  any 
navigable  or  nonnavigable  river  or  rivers  or  upon  the  public  lands,  as  in  his 
opinion  will  be  necessary  for  carrying  out  the  purposes  of  this  act;  and  is 
further  authorized  to  construct,  maintain,  and  operate,  at  or  on  any  site  or 
sites  so  designated,  dams,  locks,  improvements  to  navigation,  power  houses. 
and  other  plants  and  equipment  or  other  means  than  water  power  as  in  his 
judgment  is  the  best  and  cheapest,  necessary  or  convenient  for  the  generation  of 
electrical  or  other  power  and  for  the  production  of  nitrates  or  other  products 
needed  for  munitions  of  war  and  useful  in  the  manufacture  of  fertilizers  and 
other  useful  products." 

(A)    AMMONIUM  PHOSPHATE. 

A  great  development  that  can  be  hoped  for  at  nitrate  plant  No.  2,  is  the  «'»- 
taining  of  available  phosphoric  compounds  from  phosphate  rock  by  treat  in-' 
it  in  the  electrical  furnace.  It  will  be  remembered  that  limestone  and  coke 
are  fused  into  carbide  by  n)eans  of  intense  heat  in  the  electric  furnaces,  nnd 
this  fusion  constitutes  the  first  step  in  the  fixation  of  atmospheric  nitrogen. 
Later  steps  produce  I'me-nitrogen,  and  from  it  is  produced  ammonia  gas.  A 
gas  is  of  no  value  as  a  fertilizer  as  it  can  not  be  placed  in  the  soil ;  it  nnisf 
be  absorbed  in  some  liquid  to  make  it  available,  and  later  reduced  to  a  solid 
form  of  a  crystalline  nature.  In  No.  2  th's  ammonia  gas  is  absorbed  either 
in  nitric  acid  to  produce  ammonium  nitrate,  or  in  sulphuric  acid  to  produce 
ammonium  sulphate.  In  fact  there  are  several  acids  that  will  absorb  this  ammonia 
gas.  To  cite  only  one  more,  it  may  be  stated  that  hydroelectric  acid  can  be 
used  to  form  ammonium  chloride,  which  is  good  for  fertilizer  use.     In  nitrate 


nlant  Ko.  2,  if  we  desire  to  go  beyond  the  lime-uitrogeu  or  cyanamid  product-- 

Ivhich  is  of  itself  a  good  fertilizer  but  with  limitations— and  produce  the  usual 

utilizer  commodites  which  are  generally  used,  we  have  to  reiluce  our  lime 

itrogen  to  a  gas,  ammonia,  and  use  that  as  ths  base  of  our  further  develop- 

ents     This  ammonia  gas  contains  practically  all  the  nitrogen  that  the  lime 

trogen  carried,  but  it,  in  its  turn,  has  to  have  its  nitrogen  fixed  or  caught 

jis  above  stated,  in  liquid  form  first,  through  the  use  of  an  acid,  and  then 

solidified  by  ^^mjng.^  forth,  largely  immaterial  to  this  ammonia  gas  which  acid 
is  used  to  absorb  or  catch  it.  Heretofore  in  this  report  slight  consideration  has 
hen  given  any  fertilizer  question  except  the  purely  nitrogenous  one.  If,  how- 
ever, other  acids  can  be  produced  in  No.  2  which  will  absorb  this  ammonia 
-as  and  if  these  other  acids  of  themselves  have  fertilizing  values,  then  it  wil 
he'well  to  make  such  slight  changes  and  additions  in  the  equipment  as  will 
enable  us  to  produce  more  than  one  fertilizer  constituent.  -v.  ^     *  ^ 

Bv  using  the  same  electric  furnaces  that  have  been  previously  described,  and 
bv  filling  them  with  phosphate  rock,  coke,  and  sand,  instead  of  lime  rock  and 
coke,  it  is  possible  to  produce  a  very  pure  form  of  phosphoric  acid  which  carries 
45  per  cent  of  available  phosphates.  Here  again  we  see  the  desirability  of  the 
location  of  No.  2  as  some  of  our  largest  phosphate  beds  lie  in  Tennessee  not  tar 
from  Muscle  Shoals.  This  plan  has  never  been  tried  out  in  ISo.  2,  and  in  fact 
some  alterations  would  need  to  be  made  in  the  equipment ;  but  there  has  been 
i,  six  months'  test  made  of  this  process  by  the  United  States  Department  of 
\griculture  on  a  commercial  scale.  The  result  of  this  test,  financially,  was  that 
on  account  of  high-priced  electric  power  the  product  of  the  test  cost  more  than 
nroducing  acid  phos^hate  by  the  old  and  wasteful  method  of  treating  the  raw 
phosphate  rock  to  a  bath  of  sulphuric  acid.  The  conclusion,  however,  seems 
to  be  that  with  hydroelectric  power  as  cheaply  as  it  can  be  had  at  Muscle  bhoals 
the  process  of  making  phosphoric  acid  is  entirely  feasible  and  practicable. 

In  the  usual  way  which  is  now  followed  in  the  production  of  acid  phosphate 
"rent  use  is  made  of  sulphuric  acid  which  has  no  fertilizing  value  whatever 
but  re-illv  has  an  acidulous  effect  of  the  soil.  This  is  also  true  of  the  use  of 
^nlnhuric  acid  in  No.  2  as  an  absorbent  for  the  ammonia  gas  to  make  am- 
monium sulphate.  In  both  instances  we  are  carrying  something  along,  sulphuric 
acid,  which  has  no  fertilizing  value. 

\  substitution  of  phosphoric  acid,  which  carries  a  very  necessary  fertilizer 
iiu're<lient  for  the  other  acids  above  mentioned,  as  the  absorbent  for  the  am- 
monia gas,'  would  result  in  giving  us  ammonium  phosphate,  a  fertilizer  carrying 
two  very  valuable  soil  foods— nitrogen  and  phosphate.  This  ammonium  phos- 
phate differs  from  the  ammonium  nitrate  and  ammonium  sulphate  previously 
described  as  products  of  No.  2,  in  that  it  carries  two  fertilizers  in  one  com- 
pound instead  of  one  fertilizer  in  two  compounds. 

(B)    POTASSIUM    PHOSPHATE. 

It  Will  be  seen  from  the  foregoing  paragraphs  that  at  Muscle  Shoals  we  have 
iissuredlv  a  plant  to  produce  nitrogen,  and  also  we  have  the  same  plant  available 
as  a  possible  producer  of  phosphate.  This  gives  us  two  of  the  three  ingredients 
that  usually  go  to  make  up  the  mixed  fertilizers  which  are  sold  to-day. 

In  close  proximitv  to  the  plant  at  Muscle  Shoals  there  lie  great  beds  of  potash 
shales  many  of  which  contain  4  per  cent  of  potash.  It  has  been  experimentally 
ascertained  that  the  substitution  of  these  potash  shales  for  the  sand  which  is 
used  in  the  production  of  phosphoric  acid  in  the  electric  furnaces  does  not  mate- 
rially interfere  with  the  chemical  reaction  that  produces  phosphoric  acid,  but 
<loes  produce  at  the  same  time  a  fusion  or  union  of  the  potash  in  tiie  shale  with 
the  phosphoric  acid.     This  gives  us  potassium  phosphate  with  phosphoric  acid 

carrying  the  potash.  ,        ,    ^    .    . 

The  production  of  phosphoric  acid  in  making  potassium  phosphate  is  in  excess 
of  the  amount  needed  to  absorb  the  potash  and  can  be  united  with  ammonia, 
^'iving  ammonium  phosphate.  .,  .,.^     r 

It  will  be  seen,  therefore,  that  in  the  one  plant  there  is  a  great  possibility  for 
the  development  of  a  complete  fertilizer  output  by  absorbing  the  ammonia  gas 
of  the  lime-nitrogen  process  and  the  potash  from  the  shales  in  phosphoric  acid 
which  is  of  itself  a  carrier  of  fertilizer  values  and  then  crystallizing  the  com- 
hounds  by  the  application  of  heat,  much  like  sugar  is  secured  from  the  juice  of 
the  beet. 


564 


MUSCLE   SHOALS  PROPOSITIONS. 


(C)    OXYGEN, 


MUSCLE   SHOALS  PROPOSITIONS. 


565 


In  one  of  the  buildings  at  nitrate  plant  No.  2  the  air  is  separated  into  tw.> 
<>oniponent  gases,  nitrogen  and  oxygen.  The  nitrogen  is  used  in  mailing  lime- 
nitrogen,  but  the  oxygen  is  released  and  returns  to  the  atmosphere.  Inasnnich 
as  this  gas  is  used  extensively  in  factories  and  shops  for  welding  and  simihir 
uses,  eventually  we  may  expect  that  it  will  be  retained  and  disposed  of  com- 
mercially. 

COMMENT  BY  THE  COMMITTEE. 

Although  the  making  of  phosphate  and  potash  fertilizers  at  nitrate  plant  No.  2 
are  herein  classified  as  possibilities,  it  must  be  conceded  by  all  that  not  much 
remains  to  be  done  in  an  experimental  way  as  most,  if  not  all,  the  chemical 
problems  have  been  solved.  Their  classification  as  pos.sibilities  rather  th.in 
actualities  is  accounted  for  by  the  fact  that  No.  2  was  built  to  make  lime- 
nitrogen  and  other  forms  of  nitrogenous  products,  and  certain  additions  to  tlie 
equipment  and  perhaps  some  new  construction  would  be  necessary  if  other  feiti- 
lizers  were  made.  Whether  or  not  such  expenditures  will  be  approved  remains 
in  doubt. 

Farmers  should  realize,  though,  that  the  phint  is  abundantly  justified  if  it 
produces  nothing  more  than  nitrogenous  products. 

That  there  may  be  a  clearer  understanding  of  the  importance  of  the  entire 
Muscle  Shoals  project,  and  especially  that  the  significance  of  its  phosphate  de- 
velopment may  be  fully  realized,  your  committee  submits  herewith  some  quora- 
tions  from  an  article  written  in  July,  1919.  by  Dr.  Caro,  who  is  recognized  in 
Germany  as  the  leading  authority  on  nitrogen  fixation.  Di*  Caro  was  minister 
of  war  munitions  for  Germany  at  one  time. 

"  Far  more  dangerous  (to  the  German  nitrogen  industry)  than  the  competition 
of  Chilean  nitrate  appears  to  be  the  possibility  of  competition  with  artifically 
fixed  nitrogenous  fertilizers  produced  in  foreign  countries. 

"  The  largest  of  these  foreign  lime-nitrogen  i)lants  is  located  in  the  I'nited 
States  in  Alabama.  Its  situation  is  most  excellent.  It  is  connected  witli  the 
ocean  by  means  of  the  Tennessee  River,  which  has  been  made  navigable.  It  is 
situated  at  a  source  of  almost  constant  water  power  amounting  to  400,000  horse- 
power, and  is  right  in  the  midst  of  a  locality  where  all  the  raw  materials  of  the 
lime-nitrogen  (cyanamid)  industry  are  present  in  the  highest  purity  and  at  the 
Tery  lowest  prices. 

"  Nearby  are  the  inexhaustible  deposits  of  high  i^er  cent  phosphate  rock.  The 
possibility,  therefore,  exists  of  producing  cheaply  ammonium  phosphate  contain- 
ing roughly  45  per  cent  of  water  soluble  phosphoric  acid  and  20  per  cent  nitrogen. 

"  To  be  sure  the  Unitetl  States  is  in  a  position  to  use  right  there  the  nitrogen 
thus  protluced,  amounting  to  about  130,000  tons  per  year — nevertheless  it  will 
be  possible  to  ship  it  long  distances  to  places  where  its  phosphoric  acid  content 
will  be  of  importance,  and  hence  it  will  be  sure  to  offer  very  strong  competition 
to  the  German  fixed  nitrogen  industry." 

IX.  Conservation. 

Nitrate  plant  No.  1.  nitrate  plant  No.  2,  and  the  Wilson  Dam  together  consti- 
tute what  is  probably  the  greatest  single  conservation  activity  of  our  Govern- 
ment. This  entire  project  should  be  viewed  in  the  same  light  as  is  an  irrigation 
project,  a  forest  reclamation  activity,  or  a  levee  and  drainage  problem.  Its 
great  purpose,  in  peace  times,  is  to  assist  in  maintaining  our  soil  fertility,  and. 
consequently,  in  the  adequate  production  of  food  for  our  increasing  millions. 

As  all  other  conservation  projects  are  of  general  interest  to  all  the  citizens, 
so  is  this  undertaking  at  Muscle  Shoals.  Farmers  and  military  men  need  not 
assume  to  themselves  all  the  benefits  accruing  from  an  operation  of  this  project. 
In  times  of  war  it  will  be  predominately  military  in  type;  in  times  of  peace  it 
will  be  almost  wholly  agricultural  in  character;  but  at  all  times  it  will  be  <>t 
service  to  all  our  people,  to  protect  and  to  feed. 

When  the  rapid  depletion  of  our  soil  resources,  especially  the  nitrogen  content, 
is  considered  we  can  not  view  with  complacency  the  ultimate  condition  toward 
which  we  are  advancing  agriculturally.  An  average  crop  of  corn  takes  from  tlic 
soil  about  3,000,000,0(X>  pounds  of  nitrogen.  A  cotton  crop  of  15,000,000  bales 
depletes  the  soil  to  the  extent  of  one-half  billion  pounds  of  nitrogen.  Otln'r 
crops  take  lesser  amounts  but  the  grand  total  will  not  fall  below  6,000.000,000 
pounds.     Of  course,  the  alchemy  of  nature  is  working  all  the  time  in  slowly 


replacing  this  lost  nitrogen  but  the  process  is  wholly  inadequate  to  keep  pace 
with  the  requirements  of  our  growing  crops. 

Man  is  doing  a  great  deal  to  replace  what  his  crops  take  from  the  soil  in 
the  form  of  nitrogen  by  growing  legumes,  by  spreading  manures,  and  by  using 
fertilizers.  But  his  efforts  do  not  more  than  half  restore  the  nitrogen  that  the 
soil  loses  yearly.  More  nitrogenous  fertilizers  at  a  cheaper  price  would  assist 
wonderfully  in  checking  this  soil  depletion. 

COMMENT  BY   THE  COMMITTEE. 

In  1920  the  average  yield  of  red  clover  hay  was,  for  the  whole  nation, 
1  46  tons  per  acre.  This  hay  carried  enough  nitrogen  to  yield  0.029  tons  per 
acre  or  58  pounds.  If  enough  of  this  clover  had  been  turned  under  by  the 
plow  so  that  all  the  nitrogen  would  have  been  given  to  the  soil,  it  would  have 
taken  approxiinatelv  4.000,000  acres  to  equal  the  annual  output  of  nitrate 
plant  No.  2.  Since,  however,  the  sacrifice  of  all  this  clover  hay,  at  the  price 
secured  on  an  average  for  such  a  product,  would  represent  a  soil  fertility  in- 
vestment of  ai'proximately  $60,(X)0,000,  it  can  be  seen  how  significant  our  soil 
conservation  problems  are  becoming. 

X.      RECOMMENDATIONS. 

In  consideration  of  all  the  foregoing  information:  after  personally  in- 
specting nitrate  plant  No.  1,  ntrate  plant  No.  2,  the  Wilson  Dam,  the  flood  area 
above  the  dam,  and  the  construction  equipment ;  after  advising  with  engineers 
and  chemists  on  the  sites  of  the  project;  and  after  submitting  the  items  of 
cost  and  estimates  herein  contained  to  other  engineers  and  chemists  of 
national  reputation;  your  committee  unanimously  makes  two  specific  recom- 
mendations, as  follows :  .....        ^ 

(a)  That  the  Wilson  Dam  be  completed  by  the  Government  without  undue 

tlelay.  ,  ^  ...  i 

(h)  That  since  the  Government  now  has  the  r  gh!^s,  under  contract,  to  produce 
nitrates  by  air-fixation  processes,  the  ntrate  plants.  No.  1  and  No.  2,  shall 
be  placed  under  the  direction  of  a  governmentally  owned  corporation,  wh.ch 
may  at  its  d'scretion,  operate  the  plants  or  maintain  them  ready  for  operation, 
but  with  strict  regulations  relative  to  prices  to  be  secured  for  commodiies  in 
which  products  of  these  plants  are  used. 

COMMENT  BY  THE  COMMITTEE. 

In  connection  wilh  the  recommendations  above  set  out  your  committee  offer 
this  additional  information: 

Relative  to  recommendation   («)  :  ^  .        j>  - 

{a)  That  the  work  on  the  Wilson  Dam  is  now  only  sufficient  for  main- 
tenance. .  .  .     1      , 

(h)  That  such  maintenance,  or  stand-by  expense,   is  too  great  to  be   long 

continued.  ^  ..,  ^  i 

(c)  That  work  can  not  be  resumed  on  the  Wilson  Dam  unt  1  Congress  makes 
the  necessarv  appropriation,   which  wlil  be  approximately  .$10,000,000. 

((/)  That  the  completion  of  the  Wilson  Dam  is  indispensable  to  a  successful 
and  economical  operation  of  the  nitrate  plants.  ..  ^  „ 

(e)  That  since  the  Federal  Government  has  invested  millions  of  dollars  at 
Muscle  Shoals,  it  is  nothing  but  good  business  to  complete  the  investment  by 
finishing  the  Wilson  Dam  so  that  the  entire  undertaking  may  begin  to  return 
service  to  the  people  and  interest  to  the  Treasury. 

if)  That  if  work  is  too  long  suspended  on  the  Wilson  Dam,  much  of  the 
temporary  preparations  for  construction  will  not  then  be  available  but  will 
have  to  be  again  performed. 

Relative  to  recommendation   (5)  :  ,...„,, 

{a)  That  nitrate  plants  No.  1  and  No.  2  can  be  operated  by  the  Inderal 
Gove,i-nment  as  the  lessee  of  patent  rights  covering  the  processes  use<l.  There 
is  herewith  submitted  a  quotat'on  from  the  contract  which  has  been  s  gned 
by  the  firm  owning  the  patents  and  the  Federal  Government : 

"The  licensor  (the  firm  owning  the  patent  rights)  hereby  gives  and  grants 
to  the  licensee  (the  Federal  Government)  in  addition  for  use  and  applicat  ou 
exclusively  by  the  licensee  in  the  operation  of  the  aforesaid  plants,  the  rights, 
license    and  privilege  to  use  any  and  all  of  the  patents,  processes,  methods. 


566 


MUSCLE   SHOALS  PROPOSITIONS. 


aiusc;li<:  shoals  propositions. 


567 


and  (lesions  embraced   ^n  the  license  hereinbefore  jjranted  to  the  licen^ep  hv 

Ihe    icensee  shall  i.ay  monthly  to  the  licensor  for  such  addtional  Iicen«sa 
under  this  ar  icle  a  royalty,  unless  and  until  changed  bv  tL  arbitr  it  no  ieivin 
manul^Xe  i'.'^'h*  T''  ''''  ^^"""^^  ^^  "^^^'^^^^  ^'^^^^'^t  in  m  ran  I  a  lIpioduTs 
use  of  an     of ''^^^^^^^  ""'  ^'''''  ""^^  ^'1''^  ^^  '^'^  Plants  under  and  by  the 

U^r^lr^ini^:^^/''  ^^•'^^^^'^^^^"  ^^  ^^•^-^^^^  ^-«  ^^  -ther  party  to 
(r)   That  the  ntrate  plants  can  not  be  leased  by  the  Federal  Government 
proc;ssJrus^^  "•'"'  ""^^'^  "^'^'^^  ''  ^^  ''''  ^^^«  ^l^^t  own  th'e  patents^  the 
"  The  licensor,  for  use  and  application  exclusively  by  the  United  States  Oov 
I'^^'^'^io' }^'\^loi'esaia  agent   (the  representative  of  the  oSnce  DeS- 
inent  who  signed  the  contract  for  the  Government)  at  such  plants   has^fven 
granted,  assigned   and  does  hereby  give,  grant,  and  aLign  to"^  the  iicense^e  the 
r  ght,  license,  and  privilege  to  use  any  and  all  the  processes   methods  and  de 
signs  covered  by  letters  patent  of  the  United  States  and  fnvoW^d  in  the  manu^^ 
^n^i'In^  ''^•i'T  "^^^.f^   (calcium  cyanamid),  its  conversion  to  ammonia  gas 
and  the  oxidation  of  the  ammonia  to  weak  nitric  acid  etc  "  ^^^""^"nia  gas 

id)  That  therefore,  your  committee  could  see  oniy  three  alternatives  rela- 
tive to  the  disposition  of  the  plants,  as  follows-  aueiuames  reia- 

(1)  To  lease  them  for  operation;  which  leasing,  under  the  contract  would 
necessarily  be  to  the  firms  owning  the  patent  rights,  and  would  gve  us  as  a 
primary  conclusion,  that  no  appreciable  lowering  of  fertilizer  prices  would  ensue 

(2)  To  keep  the  plants  intact  on  a  yearly  stand-by  or  maintenance  expense' 
hn/'iU''''"*'^  be  great,  ready  to  produce  nitrogen  in  the  event  of  anothe?  war' 
but  suffermg  all  the  time  an  unavoidable  deterioration  of  the  present  eau^n- 
ment  and  of  its  adaptability  to  the  development  of  new  processes  X'h  m i "h t 
reasonably  be  expected  to  render  us  helpless,  so  far  as  nitrogen  Nation  is  con 
cerned,  m  comparatively  a  few  years.  "auliou  is  coii 

(3)  To  operate  the  plants  under  some  sort  of  governmental  machinery  with 
would  guarantee  a  business-like  administration  of  their  affairs 

(e)  That  your  committee  chose  the  third  method  outlined  above  and  wishes 
at  this  point  to  outline  briefly  its  ideas  as  to  the  administration  of  the  plants 

Your  committee  thinks  it  is  a  universal  conclusion  that  such  establishments 
should  not  be  dependent^  upon  annual  appropriations  from  CongrSs  bm  [bat 
the:^-^  should  be  thoroughly  equipped,  supplied  with  the  necessary  operating 
capitalin  the  shape  of  a  loan  or  otherwise,  and  then  directed  by  a  board  which 
should  be  left  free  to  operate  the  plants  on  a  business  basis 

on  !!'1^^K^'*'l.^^''r!?^'^  ^^  ^^'^  ^^^^^  ^^^^  of  a  corporation,  the  stock  of  which  is 
all  held  by  the  Treasury  of  the  United  States.  The  members  of  the  board 
should  represent  various  occupations  of  our  people,  but  each  member  should 
be  a  person  of  proven  business  ability.  It  is  preferred  by  your  Committee  tha 
the  members  of  the  board  be  appointed  by  the  President  ofXuS  States 
similar  to  the  appointment  of  other  Federal  boards  and  commissions  Ifter 
their  appointment  the  members  of  this  board  should  be  left  free,  except  %vitli 
such  limitations  as  are  legally  necessary,  to  direct  the  affairs  of  the  entire 
Muscle  Shoals  project  as  a  corporate  entity. 

The  powers  of  this  corporation  for  which  this  board  acts  should  be    in  the 
opinion  of  your  committee,  generally  as  follows:  ' 

(1)  To  own  and  operate  the  entire  Muscle  Shoals  project  • 
manuf^tu?ed-^^  ^^^  ^'"'^^^  ^^^^^^'  *^  P^<^^^<^ers,  and  to  others  the  products 

(3)  To  regulate  the  prices  obtained  for  any  mixtures  in  which  products  of 
these  plants  are  used; 

(4)  To  purchase,  lease,  or  acquire  patents,  both  domestic  and  foreign    of 
unproved  processes ;  ^  ' 


(5)  To  operate  the  entire  preposition  as  a  business  corporation  charging 
prices  sufficient  to  pay  a  reasonable  dividend  on  a  reasonably  estimated  capital 
cost. 

if)  That  your  committee  does  not  consider  the  Muscle  Shoals  undertaking 
as  it  now  stands  as  predominately  either  an  engineering  or  a  chemical  problem, 
as  those  tasks  have  largely  been  performed.  It  is  now,  rather,  a  business 
problem  which  is  of  concern  to  the  people  in  all  parts  of  the  Nation. 

(g)  That  your  committee  does  not  at  all  favor  selling  the  entire  Muscle 
Shoals  project,  as  has  been  done  with  other  great  war-munition  plants,  some 
of  which  cost  approximately  as  much  as  Muscle  Shoals  and  were  sacrificed,  on 
time  sales,  at  prices  representing  about  5  per  cent  of  their  construction  costs. 

(Ji)  That  after  the  Government  has  operated  these  plants  for  some  time  and 
has  acquired,  by  purchase  or  otherwise,  patent  rights  on  the  processes  used 
therein,  and  has  demonstrated  fully  that  the  research  and  practical  features 
justify  a  continuance  of  their  operation,  the  matter  of  leasing  or  selling  them 
to  farmers  or  others  for  continued  operation  would  then  be  of  pressing  im- 
portance, as  such  leasing  or  selling  could  be  conducted  on  a  competitive  basis 
which  is  now  impossible  since  the  Government  is  only  the  licensee  of  patent 
rights  that  are  owned  by  others. 

XI.  Conclusion. 

It  is  hoped  that  the  presentation  of  the  information  herein  contained  will  serve 
to  confirm  you  in  the  thought  that  the  action  of  the  American  Farm  Bureau  Fed- 
eration in  months  past  relative  to  the  Muscle  Shoals  project  has  been  a  cor- 
rect action,  and  should  be  continued  with  the  guidance  of  the  two  recommenda- 
tions above  made. 

There  is  an  imperative  demand  at  this  time  for  the  initiation  of  legislation 
in  Congress  which  will  make  it  possible  to  complete  the  Wilson  Dam  and  to 
operate  the  nitrate  plants.  It  is  urgently  requested  that  you  signify  your  ap- 
proval of  the  recommendations  of  the  committee  in  order  that  the  president 
of  the  American  Farm  Bureau  Federation,  the  legislative  director,  and  the  legis- 
lative committee  may  feel  authorized  to  proceed. 
Respectfully  submitted. 

W.  G.  Jamison, 
President  Colorado  Farm  Bureau  Federation. 

John  G.  Brown, 
President  Indiana  Federation  of  Farmers'  Associations. 

Chesteb  H.  Gray, 
President  Missouri  Farm  Bureau  Federation. 
Washington,  D.  C,  May  SI,  1921. 

Mr.  Silver.  The  farmer  finds  himself  at  this  time  in  a  most  unhappy  situ- 
ation from  being  compelled  to  buy  in  markets  that  have  been  boosted  in  one 
way  or  another,  with  one  trade  practice  or  another.  It  may  be  by  an  excessive 
protective  tariff,  it  may  be  by  an  unfair  freight  rate,  or  it  may  be  by  privatf- 
selling  agreements,  secret  pn>cesses,  formulas,  or  otherwise,  but  these  different 
practices  have  been  built  up  and  enter  into  wliat  we  call  in  our  production 
high  cost  factors. 

I  can  illustrate  one  of  those  factors  with  the  Pittsburgh  plus  case.  Pitts- 
burgh plus  provides — it  is  purely  an  agreement  with  no  law  for  it,  but  an  agree- 
ment among  interested  parties— that  they  sell  all  steel  on  the  Pittsburgh  base 
price  plus  freight.  If  steel  is  produced  at  Muscle  Shoals,  and  all  the  materials 
are  there  to-day,  just  as  they  are  at  Birmingham,  a  little  further  down  the  river 
it  would  vacate  this  Pittsburgh  plus  case.  This  Pittsburgh  plus  case  is  beinp 
contested  before  the  Federal  Trade  Commission  as  well  as  before  the  Inter- 
•^tate  Commerce  Commission,  and  $7.60  is  paid  in  phantom  freights  on  ever.v 
ion  of  steel  that  is  resold  on  the  Pittsburgli  base  used  at  Chicago,  there  beinj; 
tL.;t  i.iu.h  of  a  handicap  between  Pittsburgh  and  Chicago. 

The  Chaiumain.  What  do  you  mean  by  "phantom  freights"? 

^Ir.  SiLVEii.  I  mean  that  is  freights  that  are  paid  under  this  Pittsburgh 
plus  agreement  on   goods  never   shipped. 

The  Chairman.  To  whom  is  that  paid? 

Mr.  Silver.  That  is  paid  to  the  manufacturers,  either  the  producer  or  the 
manufacturer  of  steel.  Steel  is  sold  through  a  trade  agreement  on  what  i?^ 
known  as  the  Pittsburgh  plus  base.  That  means  that  if  I  buy  steel  at  Gary, 
lud.,  and  1  nsi^  this  figuratively,  because  any  other  place  would  apply  as  well, 


r 


568 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


569 


although  i  have  paid  no  freight  except  from  Gary,  which  is  just  u  suburb  of 
Cliicaj,'0,  into  Chicago,  if  I  buy  that  steel,  I  pay  the  Pittsburgh  price  plus  the 
freight  from  Pittsl)urgh  to  Chicago.  That  is  a  phantom  freight  added  to  the 
cost  of  tlie  steel  when  produced,  and  after  it  has  been  produceil  and  sold  to  a 
manufacturer  he  adds  on  his  20  per  cent  to  this  phantom  freight  as  a  manu- 
facturing cost  which  makes  it  $8.40,  and  that  is  all  phantom  but  is  verv  real 
to  the  person  who  pays  it. 

The  Chairmax.  In  otlier  words,  he  maltes  a  profit  of  20  per  cent  on  the 
freight  that  he  is  compelled  to  pay? 

Ml-.  Silver.  Tliat  he  does  not  pay  but  is  inchided  in  the  agreement. 

Tlie  Chaikaiax.  Do  tliey  not  charge  the  conmiodity  with  that  freiglit  at  all? 

:Mr.  Silver.  If  the  steel  were  produced  in  Pittsburgh  and  shipped  to  Chi- 
cago, it  is  a  legitimate  charge,  because  they  pay  the  freight.  If  it  is  pro- 
duced in  Chicago,  I  might  say,  l)ecause  Gary  is  a  suburb  of  Chicago,  if  it  is 
produced  in  Chicago  they  pay  that  freight  under  this  selling  game  just  the 
same.  It  is  added  to  the  cost.  So  that  $7.60  a  ton  is  added  to  the  selliii^i 
I)rice  of  the  steel  and  then  20  per  cent  is  added  on  that  by  the  manufacturers 
when  we  go  to  buy  a  binder  or  any  other  part  of  our  equipment  made  from 
steel.    That  is  one  of  the  ways  of  building  what  we  call  high  cost  factors. 

If  steel  is  produced  at  Muscle  Shoals  it  vacates  that  as  one  of  the  4ngh-cost 
factors  and  is  one  of  the  things  that  makes  a  strong  ;ippeal  in  the  development 
of  a  natural  resource  that  Henry  Ford  be  given  the  opportunity  to  develop  that 
I)!ant.  because  we  believe  he  would  not  enter  into  any  such  trade  agreements. 
^\'e  feel  we  would  have  another  base,  ami  that  would  vacate  the  Pittsburgh  plus 
base  generally. 

The  Chairman.  On  this  phantom  freight  proiK)sition,  the  consumer  or  the 
buyer  of  the  steel  is  compelled  to  pay  for  something  that  nobody  has  got. 

Mr.  Silver.  That  nobody  has  rendered  any  service  for. 

The  Chairman.  And  ultimately 

Mr.  Silver  (interposing).  And  it  is  a  great  sum.  approximating  some  $70,- 
000,000  a  year.  Why,  in  the  Federal  Reserve  Hank  building  in  Chicago  alone 
there  was  $60,000  of  phantom  freight  and  plus  costs. 

Mr.  Crago.  It  is  an  attempt  to  make  up  to  the  manufacturer  who  is  not  ad- 
vantageously located  like  the  man  in  the  Pittsburgh  district  the  difference  in 
cost.    That  is  what  it  is  done  for,  is  it  not? 

Mr.  Silver.  It  started  out  in  that  way,  but  it  has  got  to  be  just  one  system  of 
building  up  what  we  call  high-cost  factors. 

Mr.  Parker.  I  have  not  seen  that  agreement.    Have  you  got  it  here? 

Mr.  Silver.  I  beg  your  pardon. 

Mr.  Parker.  Have  you  got  that  Pittsburg  base  agreement  here?  O'he  point 
of  it.  as  I  understand  it,  is  all  steel  is  paid  for  as  if  it  were  produced  in  Chicago? 

Mr.  Silver.  No;  in  Pittsburgh. 

Mr.  Parker.  I  mean  in  Pittsburgh. 

Mr.  Silver.  That  is  right. 

Mr.  Crago.  And,  of  course,  the  great  quantity  is  produced  at  Pittsburgh  and 
pays  this  legitimate  freight,  and  this  just  helps  the  others  to  get  the  same 
advantages,  does  it  not? 

Mr.  Silver.  If  the  cost  prices  were  the  same  at  all  the  places  and  it  was  sohi 
where  it  was  produced,  but  Gary  enjoys  the  advantage  of  making  cheaper  steel 
than  Pittsburgh  does  and  so  does  Birmingham,  and  therefore  in  addition  to 
the  fact  they  produce  cheaper  steel  they  not  only  sell  on  Pittsburgh  base  but 
sell  plus  the  freight. 

Mr.  Kearns.  What  makes  you  think  that  Mr.  Ford  would  not  adopt  the  same 
tadics  that  other  manufacturers  do?  What  is  in  his  record  to  make  you  think 
that? 

Mr.  Silver.  His  life  business;  I  am  thinking  now  of  the  automobile  business. 

Mr.  Kearns.  Does  he  not  sell  the  most  expensive  machine  to  operate  that  was 
ever  made? 

Mr.  Silver.  I  shall  not  discuss  with  you  that  point,  but  with  his  viewpoint 
in  industry  he  has  produced  a  car  that  has  enabled  the  average  farmer  to  own  a 
car  when  but  for  Mr.  Ford's  viewpoint  in  industry  many  farmers  would  never 
have  been  able  to  have  ridden  in  an  automobile,  and  they  would  still  be  using 
the  horse  and  wagon. 

Mr.  Kearns.  Yes;  he  produces  a  cheap  car,  but  what  makes  you  believe  (hat 
if  he  should  get  this  contract  or  this  lease  at  Muscle  Shoals  he  would  produce 
steel  or  any  other  manufactured  commodity  and  would  not  take  advantage  of 
prices  the  same  as  any  other  business  man? 


Mr.  Silver.  His  viewpoint  in  producing  at  a  low  cost  and  selling  in  volume. 
He  would  fight  just  as  he  fought  in  the  Selden  patent  case.  The  Selden  patent 
was  a  method  of  building  high-cost  factors.  He  contested  it  successfully  and 
sold  his  cars  cheaper. 

The  Chairman.  The  chairman  will  not  ask  any  more  questions,  and  we  will 
all  pass  around  the  table  as  usual.  I  wanted  to  get  a  little  enlightenment  about 
this  matter  when  you  spoke  of  it,  because  I  knew  nothing  of  the  situation,  but  I 
will  not  interrupt  further.    Just  make  your  own  statement  in  your  own  way. 

]Mr.  McKenzie.  Mr.  Chairman,  as  one  member  of  the  committee,  I  think  it  is 
entirely  within  the  province  of  the  chairman  of  the  committee  as  the  witness 
goes  along  to  interject  such  questions  as  he  sees  fit  and  proper,  and  I  think  all 
of  the  members  of  the  committee  will  join  me  in  extending  to  our  chairman  that 
courtesy. 

Mr.  QuiN.  I  think  that  myself.  The  chairman  can  frequently  help  the  witness 
to  de^elop  the  case. 

Mr.  Fields.  I  have  never  understood  the  rule  that  was  adopted  for  the  guid- 
ance of  the  committee  in  conducting  these  hearings  to  apply  to  the  chaiinian  in 
straightening  out  some  statement  that  is  made,  and  I  thiidv  that  the  chairman 
can  be  of  a  great  deal  of  assistance  to  the  committee  in  that  way. 

The  Chairman.  That  is  what  I  thought,  too. 

INIr.  Fields.  I  am  perfectly  willing  as  a  member  of  the  conunittee  to  ol)serve 
the  ride  as  long  as  it  is  observed  by  other  members,  and  I  think  the  rule  should 
not  apply  to  the  chairman. 

The  Chairman.  Of  course,  what  I  was  trying  to  get  from  the  witness  was  an 
explanation  of  this  term,  which  was  new  to  us  and  which  we  have  not  heard 
of  before  to-day. 

]\Ir.  Fields.  It  was  very  proper,  and  the  chairman  rendered  a  service  to  the 
committee,  as  he  has  upon  a  number  of  other  occasions ;  and  I  will  add,  in  this 
connection,  Mr.  Chairman,  that  my  complaint  the  other  morning,  when  I  stated 
I  had  not  been  the  first  to  violate  the  rule,  was  not  directed  at  the  chairman  but 
at  other  members  of  the  committee. 

The  Chairman.  As  long  as  we  have  agreed  among  ourselves  to  ask  questions 
in  rotation,  we  had  better  observe  the  rule  and  we  will  get  along  all  right. 

Mr.  Silver.  However,  I  would  consider  it  a  favor.  Mr.  Chairman,  if  at  any 
time  I  am  not  making  myself  understood  that  the  chairman  would  interrogate 
me  so  that  I  may  be  clearly  understood. 

Mr.  Wright.  I  think,  Mr.  Chairman,  it  is  the  unanimous  desire  of  the  com- 
mittee that  the  chairman  ask  questions  as  he  chooses ;  and,  to  set  that  matter 
at  rest,  I  make  a  motion  to  that  effect. 

(The  motion,  being  duly  seconded,  prevailed  unanimously.) 

Mr.  Kearns.  I  am  in  hearty  sympathy  with  that  motion,  and  I  hoi>e  my 
questions  have  not  provoked  all  this  discussion. 

The  Chairman.  Oh,  no.    Will  you  kindly  proceed,  Mr.  Silver? 

Mr.  Silver.  Along  with  that  illustrati<m  I  could  give  others;  but  I  shall  n<»t 
do  so,  because  I  think  you  understand  my  thought. 

The  development  of  water  power,  to  the  farmer  mind,  is  one  of  the  ways— 

and  a  very  material  way — of  lessening  these  cost  factors  if  it  is  develoi^ed  on  the 

right  and  proper  plan.  'Our  belief  in  that  is  evidenced  by  one  of  the  resolutions 

I  read  to  you,  and  also  by  a  letter  which  I  wrote  to  Secretary  Weeks  some 

weeks  since,  which  reads  as  follows :  ^     ^^^ 

January  9.  1922. 

Hon.  John  W.  Weeks, 

i^ecretary  of  ^yar,  Washiugton,  I).  C. 

My  Dear  Mr.  Secretary  :  In  turning  over  in  my  mind  our  conference  «»n 
Mr.  Ford's  proposal  to  take  over  the  Muscle  Shoals  development,  and  consid- 
ering the  various  phases  of  the  situation,  I  realize  that  the  most  serious  difli- 
culty  appears  to  be  the  question  of  securing  an  appropriation  at  this  tini;'  o' 
heavy  expenditure. 

In  searching  for  a  solution  it  has  occurred  to  me  tliat  an  authoiizati«>n  tor 
a  Muscle  Shoals  bond  issue  of  $40,000,000  would  remove  the  necessity  for  an 
appropriation.  I  am  confident  that  under  present  conditions  such  a  bond  issu*- 
could  be  floated  at  4  per  cent.  The  interest  payments  of  iMr.  Ford  amounting 
to  $1,680,000  annually,  would  pay  4  per  cent  interest  on  $42,()00.(^H)0  of  bonds. 
He  provides  an  amortization  fund  through  which  the  bonds  would  be  retinal 
at  the  end  of  the  100-year  period.  It  would  be  my  thought  to  issue  the  bonds 
for  50  years,  at  which  time  the  sinking  fund  would  have  accumulated  to  the 
point  where  a  reissue  might  be  fioat;«l  at  a  lower  rate  of  interest.  By  this 
means  the  Government  would  secure  the  development  of  this  power  with  no 


570 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


571 


I 


additional  appropriation  and  have  amortized  nearly  one-half  of  the  present 
war-time  expenditure  of  $17,000,000  on  the  dam,  since  the  amortization  fund 
will,  in  addition  to  retiring  the  bond  issue  of  $40,000,000,  retire  $8,000,000  ad- 
ditional. 

Should  this  suggestion  meet  with  your  approval  we  shall  be  glad  to  cooper- 
ate with  you  in  securing  the  adoption  of  this  plan  of  financing  the  develop- 
ment. 

Very  truly,  yours, 

American   Farm   Bureau  Federation, 
Gray   Silver,    Washington  Representative. 

If  the  waterways  of  this  country  are  developed  on  a  basis  that  permits  you 
to  amortize  out  the  cost  of  the  investment,  you  have  electric  current  on  a  very 
much  less  base  than  any  now  produced.  In  other  words,  if  you,  and  I  am  think- 
ing of  your  committee  and  Congress,  authorize,  in  accepting  Mr.  Ford's  tender, 
a  bond  issue  for  the  needed  amount,  as  much  as  $40,000,000,  and  these  pay 
ments  of  Mr.  Ford  are  allowed  to  go  as  proposed  to  amortize  out  the  cost  of 
the  dam,  that  current  would,  on  one  of  these  days,  be  on  a  basis  of  mainte- 
nance and  depreciation,  and  in  that  way  you  would  have  less  manufacturing 
cost. 

I  gave  you  an  illustration  of  steel,  and  the  same  principle  will  apply  to  man- 
ufacturing cotton,  to  manufacturing  farm  equipment  and  machinery,  and  in 
all  the  economic  phases  of  our  life.  I  am  thinking  of  our  farm  life,  but  it 
applies  just  the  same  to  other  phases  of  our  national  life;  and  in  addition  to 
that,  it  would  make  a  cheap  current  that  could  be  used  on  the  farm.  The 
farmers  of  this  country,  where  they  carry  their  water  from  the  foot  of  the  hill, 
as  I  have  done  so  many  times,  where  they  have  to  bend  over  the  washtub  and 
wash  their  clothing,  where  they  have  to  drive  their  cattle  down  the  lane  to 
water,  opening  gates,  etc.,  can  all  be  done  by  electric  power,  and  many  more 
things  other  than  I  have  enumerated,  when  it  is  produced  on  a  basis  that  is 
cheap  enough  so  that  the  production  of  foodstuffs  and  raw  materials  for 
clothing  will  pay  the  bill. 

Any  time  that  the  economics  of  the  situation  are  right,  the  farm  homes  will 
be  much  more  comfortable  homes.  In  addition  to  the  things  I  have  mentioned, 
they  will  have  labor-saving  devices  and  comfort-making  equipment,  Jind  that 
will  stop,  in  a  measure,  this  movement  from  the  farm  to  the  town,  for  the 
country  people  will  have  the  opportunity  to  have  in  their  homes  the  same  kind 
of  labor-saving  devices  and  comfort-making  equipment  that  are  found  in  the 
city  homes,  and  they  should  be  allowed  to  have  them. 

Here  is  a  natural  resource,  and  here  is  a  method  of  developing  it  that  will 
give  it  on  a  basis  they  can  use  it,  and  we  most  earnestly  appeal  to  Congress 
that  they  do  the  thing  that  will  enable  us  to  avail  ourselves  of  the  results  of 
tills  natural  resource  with  a  proper  method  of  development. 

I  am  now  speaking  particularly  of  Muscle  Shoals,  and  my  mind  drifts  to 
people  who  may  make  other  tenders  or  who  are  objecting  to  it.  Why  pick  on 
Mr.  Ford  at  Muscle  Shoals?  There  are  many,  many  other  water-power  sites, 
and  if  the  Alabama  Power  Co.,  or  somebody  else,  wants  to  develop  water 
power,  why  not  just  move  over  here  on  some  other  river,  or  at  some  other  point 
in  that  river,  and  develop  it?  Why  protest  against  the  development  of  Muscle 
Shoals,  if  you  are  unwilling  to  develop  water  power?  It  is  just  arguing  against 
the  law  of  economics,  and  you  are  not  going  to  stop  water-power  development, 
and  if  you  want  to  develop  water  power,  why  bother  with  this  situation?  Here 
is  a  man  who  is  willing  to  develop  this  water  power,  and  is  willing  to  go  on  and 
do  the  needed  thing,  so  that  we  insist  and  urge  that  you  give  him  the  oppor- 
tunity, and  if  somebody  else  wants  another  opportunity,  why,  give  him  that 
opportunity  also. 

Now,  in  reference  to  the  less-cost  factors,  I  will  speak  on  another  phase, 
namely,  railroad  freight,  the  thing  that  has  to  do  very  much  with  the  farmer's 
life.  There  is  enough  of  undeveloped  water  power  and  more  to  operate  the 
railways  of  the  Nation.  We  are  suffering  under  a  burden  of  excessively  high 
freights,  and  if  those  railways  could  be  electrified,  we  would  have  many  econo- 
mies that  would  make  the  cheapest  freights  we  have  ever  had,  if  the  power  is 
developed  on  the  plan  I  mentioned,  amortize  out  the  cost  and  put  the  current 
down  on  the  basic  cost  of  maintenance  and  depreciation. 

This  would  not  change  the  cars  we  have  to-day.  It  would  necessitate  the 
changing  of  the  steam  locomotives  for  an  electric  motor  and  the  wiring  and 
machinery,  etc.,  to  run  it,  or  a  third  rail  or  whatever  they  saw  fit  to  use,  but 
it  is  not  such  a  staggering  thought  from  the  viewpoint  of  the  investment,  for 


we  would  have  saved  a  great  amount  of  money  in  equipment  thnt  would  other- 
wise be  necessary  to  be  expended.  For  instance,  the  average  movement  of 
freight  cars  is  something  like  7  miles  a  day,  where  they  are  moved  by  steam. 
Where  they  are  moved  by  electric  power,  it  is  something  like  14  miles  a  day. 
The  same  equipment  speeding  up  twice  as  fast,  barring  the  time  it  stops  for 
loading  and  unloading,  would  move  twice  the  freight.  This  means  you  do  not 
have  to  go  on  building  freight  cars  in  the  same  proportion  as  you  otherwise 
would,  for  you  get  a  greater  utility  out  of  the  cars  that  are  now  necessary. 
The  money' that  would  go  into  new  freight  equipment  would  very  properly 
go  into  the  development  of  water  powers. 

Then  another  thought,  as  illustrated  out  here  in  West  Virginia,  going  from 
Bluefield  up  to  Roanoke,  where  they  have  an  unusually  steep  hill  to  pull, 
with  the  steam  engines — trains  were  always  broken  down  on  this  hill.  The 
cars  would  pull  apart  and  the  engines  would  puff  and  blow  and  would  pull  the 
trains  apart  and  the  railroad  had  to  lay  sidings  around  this  hill  so  that  when 
these  freight  trains  were  broken  down  the  passenger  trains  could  operate. 
Seven  years  ago  that  line  was  electrified,  and  in  the  seven  years  it  is  reported 
that  not  a  single  drawbar  head  has  been  pulled.  In  other  words,  the  trains 
hauled  with  the  new  method  of  power  have  gone  up  with  a  steady  pull  and 
have  pulled  the  same  equipment  exactly  that  used  to  break  down  and  have 
pulled  it  up  over  this  hill  and  gone  on  their  way  without  delay,  and  that  has 
become  so  uniform  and  general  that  they  have  taken  out  these  side  switches 
that  they  formerly  had  to  have  to  let  the  passenger  trains  around  when  they 
were  pulled  by  steam  engine. 

This  means  also  that  the  equipment  wears  longer  and  you  do  not  have  the 
repairs  on  it.  It  also,  in  a  great  measure,  makes  a  happy  situation  as  to 
the  terminals.  You  do  run  with  an  electric  motor  down  to  every  station  or 
every  division  and  have  a  lot  of  hostlers  to  take  your  steam  horse  out  and 
put  him  in  a  stable  and  blanket  him  and  rub  him  down.  These  electric  motors 
run  on  and  stand  a  more  continuous  pull  and  run. 

I  am  reading  now  from  a  report  on  the  advantages  of  this  sui>erpower  system, 
and  I  will  rend  this,  as  it  is  just  a  short  clause : 

"The  reserves  of  line  and  machinery  required  for  joint  operation  will  be 
much  less  than  the  aggregate  of  the  separate  reserves  required  for  individual 
operation.  The  great  waste  involved  in  the  maintenance  of  separate  reserves  of 
motive  power  as  prepared  by  the  operating  statistics  of  the  roads,  quote<l 
elsewhere,  show  that  the  average  freight  locomotive  in  this  territory  is  in 
productive  service  only  3,250  hours  out  of  8,760  hours  in  a  year." 

That  is  a  mighty  small  part  of  the  year. 

"And  the  average  passenger  locomotive  only  2,630.  With  joint  electrical 
operation  and,  consequently,  unification  of  type  of  motive  power,  there  would 
be  a  striking  improvement.  Tlie  steam  locomotive  runs  8  hours  a  day;  the 
electric  locomotive,  20  hours  a  day." 

That  illustrates  the  additional  work  you  would  get  out  of  your  electric 
horse  to  pull  your  train  instead  of  your  steam  horse  to  pull  your  train.  You 
can  use  the  electric  horse  when  you  have  abundance  of  cheap  power  and  get 
cheap  freight  rates,  and  as  the  farmer  pays  four-sevenths  of  the  freight  rates 
in  this  (ountry  he  is  very  vitally  interested  in  any  development  that  will 
help  to  bring  that  about.  ,  , 

Now,  all  of  this  is  illustrative  of  the  fact  that  agriculture  to  live  and  be 
prosperous  must  have  less  cost  factors,  and  these  illustrations  are  all  made 
to  show  that  this  is  a  practical  method  of  securing  for  agriculture  and  for 
the  Nation  less  cost  factors  for  their  business,  and  when  it  is  developed  for 
rheir  business  it  is  not  for  any  class  or  a  special  favor,  because  if  we  have 
cheap  freights,  every  other  group  and  class  have  cheap  freights,  and  if  we 
have  cheaper  steel,  every  other  class  has  it,  and  if  we  have  cheaper  fertilizer, 
it  produces  corn  and  wheat  and  cotton  and  the  things  that  are  essential  not  only 
to  our  welfare  but  to  our  very  existence,  on  a  basis  that  we  can  afford  to 
meet  and  compete  in  the  world's  markets. 

As  it  is  to-day,  to  give  another  illustration,  from  Norway  and  Sweden  they 
are  taking  nitrates  from  the  air  and  bringing  them  around  to  the  coast  of 
California,  your  home  State,  Mr.  Chairman,  and  selling  that  product  in  coiniie- 
tition  with  the  Chilean  nitrate,  a  natural  product  produced  just  below  there, 
because  they  have  built  up  their  cost  factors  on  that  fertilizer  until  you 
can  manufacture  it  from  the  air  and  transport  it  that  great  distance  and  sell 
it  for  the  orchards  of  your  home  State  at  less  cost  than  you  can  buy  it  from 
Chile. 


572 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


573 


\\  e  are  m-ging  this  nitrate  development  or  this  fertilizer  development,  and 
as  we  look  at  this  proposition  we  usually  use  the  term  commercial  plant  food 

It  you  stop  a  minute  and  think,  when  I  touch  that  point,  of  the  great  quan- 
tities of  foodstuffs  and  raw  materials  for  clothing  that  are  taken  from  our 
soil  each  year,  our  corn,  our  wheat,  and  cotton,  and  all  the  other  things  that 
enter  into  it— by  far  the  largest  part  of  it  goes  to  the  cities  lor  consumption 
and  export,  and  that  is  taking  just  that  much  of  the  available  plant  food  from 
our  soil,  thereby  impoverishing  it  that  much,  because  when  it  goes  to  the  city 
and  goes  down  the  sewer  it  does  not  come  back  to  the  farm  any  more  The 
soil  IS  robbed  of  that  much,  and  we  will  become  a  desert  in  time  if  we  continue 
taking  plant  food  from  the  soil  and  not  replenishing  it.  The  great  place  to 
get  the  nitrates  is  from  the  air.  There  are  other  fertilizer  materials  available 
at  ^his  particular  point,  and  while  this  plant  is  never  going  to  produce  all  the 
fertilizer  we  want  it  will  be  a  marker  in  the  development  of  supplies  to 
replace  this  great  amount  of  plant  food  taken  from  the  soil  in  the  crops  we 
grow  and  which  must  be  replaced  if  we  are  to  have  a  prosperous  nation 

We  can  not  go  on  checking  on  the  soil  any  more  than  you  can  go  on  checking 
on  the  bjink.  lour  bank  account  will  come  to  an  end  if  you  do  not  put  some- 
thing in  there  to  keep  it  in  good  shape,  and  if  we  go  on  checking  on  the  soil 
we  come  to  the  end  just  the  same. 

Now,  just  as  a  reminder,  I  will  speak  of  what  was  said  here  the  otlier 
day,  and  1  am  using  cost  figures  from  Dr.  Whitney,  page  89,  hearings  of  the 
Senate  committee  on  S.  3390:  " 

"  The  estimate  of  the  cost  of  producing  phosphoric  acid  in  the  electric  furnace 
shows  a  cost  of  $29.85  per  ton.  Power  is  figured  at  $3  per  horsepower  and 
amounts  to j^i).2H  per  ton.  If  you  figure  the  power  at  .$ir,  per  h(u-senower  it 
would  cost  $26.40  per  ton  for  power  alone." 

I  just  give  that  as  one  of  the  illustrations  of  how  we  must  have  cheap  power 
to  produce  cheap  commercial  plant  food  if  we  are  to  be  enabled  to  buy  com- 
mercial plant  food  at  the  sale  price  of  the  product  which  it  pro<luces 

From  cost  figures,  page  95  of  the  same  hearing  • 

«Qi*  In '"fx-ff^""  r'"'^'"  ""^  '^  "''"^  ^''  ^ilo^^att  hour,  the  cost  of  cyanamid  is 
$31.10.  With  water-power  cost  at  three-fourths  of  a  mill  the  cost  is  $21  97  " 
I  hat  means  a  saving  right  there  of  about  35  per  cent  with  the  cheaper  power 
As  another  illustration  of  the  fact  that  we  are  not  short  of  water  power  it  has 
-?kV?fuV'f  ^^'^  ^^''^  ^*'%  undeveloped  water  powers  amount  to  something  like 
02,089^300  horsepower.  If  all  the  existing  railways  of  the  country  were  etectri- 
hed,  they  would  only  consume  about  14,000,000  horsepower.  So  we  would  not 
absorb  all  our  undeveloped  water  power  if  we  electrified  all  the  railroads  Of 
course  I  reahze  that  that  can  not  be  done  immediately  but  there  must  be  a 
starting  place,  and  we  think  this  is  a  good  time  to  start ;  not  that  we  are  goin- 
to  run  all  the  railvvays  from  Muscle  Shoals,  but  the  same  kind  of  development 
that  develops  Muscle  Shoals  economically  and  on  a  less-cost  factor  basis  would 
develop  these  other  water  powers. 

Now,  when  a  farmer  goes  out  to  buy  fertilizer,  although  there  are  several 
companies  and  many  agencies,  he  gets  the  same  price  in  the  same  territory  no 
matter  what  agent  or  what  company  he  approaches.  He  may  not  be  able  to 
prove  a  working  agreement  and  a  trust,  as  we  call  it,  that  makes  high  prices 
but  If  you  were  a  farmer  and  went  from  agent  to  agent  and  from  place  to  place' 
you  would  be  thoroughly  convinced  that  there  was  a  working  agreement  that 
the  farmer  can  not  get  through  when  he  buys  commercial  plant  food 

nocI^.l'^V^-^Af''  ^^'^  T*"^  •'"'^^  ^^^  ^^""^  ^^  '^'^  **^1^^^'«  i'l  the  P.ttsburgh  plus 
case,  that  it  Mr.  Ford  were  in  the  fertilizer  business  under  the  provisions  of 
this  contract  the  farmers  would  get  much  cheaper  fertilizer.  There  would  be 
a  less  cost  m  the  distribution  as  proposed  by  Mr.  Ford,  after  the  fertilizer  was 
produced,  and  different  ones  have  testified  here  that  at  Muscle  Shoals  it  can  be 
produced  for  one-half  what  it  has  heretofore  been  produced  for,  and  bv  a  co- 
operative method  of  distribution  there  would  be  economies  to  that  end  which 
we  do  not  have  the  opportunity  of  gett  ng  the  benefit  of  now 

Then  again  there  is  another  thought  I  would  like  to  brng  to  your  attention. 
Ir^^ic  tI  '  ^^,^^^5^  ^^''^^  ''""^  present,  that  on  yesterday  one  of  the  witnesses, 
Air.  McDowell,  of  the  National  Fertilizer  Association,  speaking  for  the  members 
of  the  organization  (names  of  the  members  of  this  organization  are  <^iven  in 
appendix),  testified  that  by-product  of  ammonia  gas  from  the  coke  ovens  was 
produced  at  about  $6  a  ton,  each  ton  being  equivalent  to  about  4  tons  of  sulphate 
of  ammonia,  plus  the  acid  that  they  mixed  it  with  at  a  cost  of  some  $12  or 
thereabout  per  ton :  or,  in  other  words,  if  you  add  the  $12  for  the  sulphuric  acid 
that  you  mix  it  with  and  add  this  $1.50  for  the  ammonia  gas  and  make  some 


allowance  for  mixing  it,  which  would  run  into  the  teens  in  some  places — say 
^IS — when  I  am  this  year  trying  to  buy  that  same  product  for  my  orchard  I  am 
asked  for  it  from  $57  to  $60.  Now,  it  seems  that  there  is  room  for  economy,  and 
there  is  room  for  getting  on  a  less  cost  factor  basis  in  that  business ;  and  with 
our  experience  in  trying  to  buy  and  finding  the  same  prices  anywhere  we  go  in  a 
given  territory,  then  when  they  come  here  voluntarily  and  testify  that  it  does 
not  cost  more  than  that,  we  are  awfully  anxious  that  somebody  be  allowed  to 
find  out  what  happens  in  the  dark,  between  the  cost  of  this  production  and 
what  it  costs  us. 

If  the  fertilizer  folks  believe  some  phases  of  ther  own  testimony  here  when 
they  say  it  can  not  be  done  and  that  neither  Mr.  Ford  nor  anyone  else  can  do  it, 
why  are  they  worried  about  it? 

I  have  no  figures,  but  it  just  drives  through  my  mind  that  they  would  not 
worry  a  minute  about  it  and  would  not  be  here  testifying  if  they  beleved  their 
own  testimony. 

Just  along  this  line,  I  think  I  need  not  call  your  attention  to  the  fact  that  in 
addition  to  testifying  here  there  is  a  propaganda  going  on.  I  think  no  doubt 
the  Alembers  of  Congress  have  gotten  circulars  and  all  kinds  of  printed  matter 
to  show  that  it  can  not  be  done  and  that  this  ought  not  to  be  done,  etc.  Down 
on  my  farm  in  West  Virginia  I  am  getting  that  literature.  Of  course,  I  am 
s'mply  on  a  list  of  voters,  or  something  of  that  sort,  and  I  am  getting  propa- 
ganda to  show  that  it  can  not  be  done  and  to  show  it  ought  not  to  be  done,  and 
all  sorts  of  things  like  that. 

There  is  a  well-defined  propaganda  going  on  in  this  country  to  prevent  Mr. 
Ford  from  having  an  opportunity  to  see  what  he  can  do  at  Muscle  Shoals. 

The  question  of  power  I  have  already  touched  on.  Power  is  a  great  raw 
material,  and  eviny  time  that  you  get  raw  material  that  'S  so  widely  used  as 
power  on  a  less-cost  basis,  you  affect  helpfully  all  the  purpo^ses  to  which  that 
raw  material  is  put. 

In  the  production  of  electric  current  about  75  or  80  per  cent  of  the  cost  is  in 
the  interest  charged  on  the  investment.  It  is  not  the  number  of  people  em- 
ployed at  a  dam  or  at  a  plant  or  in  the  electrc  business  that  makes  the  high- 
priced  current.  It  is  the  money  cost,  and  if  by  a  proper  method  of  development 
vou  can  cut  the  intere«?t  rate  in  half,  this  amortization  method  we  have  six>ken 
of  be  applied,  you  can  take  80  per  cent  of  that  cost  out:  and  if  that  is  true,  is  it 
not  due  the  American  people  that  that  be  done? 

If  we  go  on  building  high  cost,  as  we  have,  wliether  it  be  with  a  tariff  or 
trade  practce  or  formula  or  patents,  and  get  so  far  above  the  other  countries 
of  the  world,  do  we  not  simply  isolate  ourselves  and  bring  down  trouble*  on 
ourselves?  A  great  many  nations  have  air  fixation  i)rocesses;  in  fact,  ihe 
.United  States  is  the  only  large  Nation  that  does  not  have  them.  Now.  while 
they  have  air  fixation  plants  in  other  nations,  they  are  going  to  produce  cheaply. 
They  are  going  to  produce  not  only  clieap  fertilizer,  but  cheap  manufactured 
goods,  and  if  we  are  going  to  keep  the  export  trade  we  liave  in  manufactured 
goods,  as  well  as  in  farm  products,  we  must  have  this  cheap  raw  material, 
this  cheap  current,  and  in  that  financing  is  the  biggest  single  item  that  can 
make  it  cost  much  less  money. 

As  one  illustration  of  the  economy  effected  by  the  use  of  electricity,  which 
I  did  not  mention  awhile  ago,  based  on  the  experience  of  the  Chicago.  Alil- 
waukee  &  St.  Paul  Railroad,  if  all  the  railroads  were  electrified  we  would 
save  annually  122,500  000  t<ms  of  coal,  or  about  one-third  of  the  C(mntry's 
jiroduction  of  bituminous  coal,  and  the  coal  cars  to  carry  it  and  the  expense  of 
hauling  it.  Now,  that  coal  if  saved  will  be  saved  for  future  uses,  Ijut  the  water 
is  running  away.  W^e  can  not  use  that  water  after  it  has  gone  over  the  dam. 
The  streams  go  on  and  on  forever,  but  we  have  lost  the  economies  at  this  time. 
Now.  this  has  been  referred  to  as  n  subs  dy,  if  Mr.  Ford  is  allowed  to  have 
an  opportunity  to  develop  these  plants  at  Muscle  Shoals.  We  do  iK»t  believe 
that  the  proposed  development  is  a  sul>sidy.  Mr.  Ford,  if  we  understand  it 
right,  and  we  believe  we  do,  is  not  asking  for  a  subsidy  and  the  farmers  are 
n(»t  asking  for  a  subsidy.  We  are  asking  for  a  fair  opportunity  to  develop 
on  a  proper  business  basis. 

It  has  been  said  that  4  per  cent  bonds  will  not  sell;  that  you  can  not 
finance  this  enterprise  in  that  way.  If  you  take  a  4  per  cent  Government 
bond  which  is  nontaxable  and  add  to  it  the  taxes  in  the  local  communities, 
for  instance,  in  New  York  State  where  they  had  2.7  mills  in  1920  or  1.5  in 
1921,  or  the  city  taxes  in  the  different  cities  which  run  from  1  to  3  per  cent,  that 
is  not  such  a  bad  investment ;  and,  in  addition,  I  believe  that  if  it  was  necessary 


574 


MUSCLE   SHOALS   PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


575 


the  farmers  of  this  country  would  buy  the  necessary  bonrts  at  4  per  cent  to 
see  that  this  development  goes  on. 

I  know  that  farmers  are  in  d'stress  and  T  know  that  lots  of  them  have  not 
any  money  and  ran  not  meet  their  intere-t  charges  and  pav  their  debts-  but 
there  are  some  farmers  who  still  have  some  monev.  and  I  feel  I  am  clearlv 
within  the  truth  when  I  say  that  I  believe  there  \vould  be  no  hesitation  oil 
the  part  of  the  farmers  of  the  country  to  subscribing  for  these  bonds 

There  has  been  considerable  contention,  I  do  not  know  whether  it  has  been 
before  the  committee,  but  in  public  meetings  and  in  the  press,  abont  INIr 
*ords  guaranty  of  8  per  cent  as  a  maximum  profit  that  would  be  allowed" 
In  spite  of  all  the  contention  and  all  the  statements  that  he  is  not  goin-  to 
do  It  and  can  not  do  it,  nobody  has  offered  to  produce  it  on  a  like  basis.  Not 
a  single  soul  has  said,  "  I  will  do  it  for  less  or  I  will  do  it  for  that  amount " 

beveral  years  ago  Mr.  Ford  promised  a  tractor,  a  truck,  and  a  touring  car 
all  for  .$1,000.  That  made  a  strong  appeal  to  the  heart  of  the  farmer,  and 
the  farmers  did  not  forget  the  promise.  He  has  now  gotten  the  prices  down 
so  that  $1,187  will  buy  the  three,  and  if  he  goes  to  Muscle  Shoals  we  believe 
he  will  be  clearly  within  the  $1,000. 

It  was  reported  several  days  ago  that  the  Alabama  Power  Co.  would  make  a 
tender,  which  I  understand  has  been  submitted  to  Congress,  and  I  have  a  copy  of 
the  release  here  with  me.  but  the  matter  I  want  to  call  to  vour  attention  is 
a  telegram  from  Charles  W.  Rittenour,  president  of  the  Alabama  Farm  Burenii 
Federation,  as  follows: 

MoNTG03krERY.  Ala.,  February  17,  1922. 
Gray  Silver. 

Munney  BuiUmg,  Wnshinfjton,  D.  C: 
The  Alabama  Farm  P»ureau  Federation  fee's  that  any  legislation  providing 
for  turning  Muscle  Shoals  project  to  the  Alabama  Power  Co.  as  against  arrange- 
ment with  Henry  Ford  will  be  passed  in  opposition  to  the  best  interests  of 
the  farmer  of  Alabama,  the  South,  and  the  Nation,  as  well  as  that  of  business 
in  general,  and  that  the  offer  of  the  Alabama  Power  Co.  is  the  culmination  of 
trick  methods  which  are  devoid  of  business  ethics. 

Charles  W.  Rittenoue, 
President  Aloha  ma  Farm  Bureau  Federation. 

Now.  personally,  I  do  not  know  the  Alabama  Power  Co.,  but  here  is  the  Farm 
Bureau  of  Alabama,  which  they  list  among  their  17.000  customers,  and  they 
speak  in  this  language. 

The  Chairman.  I  have  a  great  many  telegrams  that  were  sent  to  the  chairman 
of  the  commitee  and  we  will  put  them  in  the  record  at  the  proi)er  time. 

Mr.   Silver.  Thank  you. 

There  have  be^n  lots  of  estimates  made  by  different  parties  and  freely  talked^ 
about,  as  well  as  published,  in  referenre  to  the  costs.     We  believe  tiiat  Mr. 
Ford  should  be  given  the  opportunity  to  demonstrate  what  he  can  do  in  the 
fertilizer  end,  as  he  has  so  well  demonstrated  to  the  world  what  he  can  do 
in  the  manufacturing  business  in  other  lines. 

He  may  not  proceed  by  the  turn  of  mind  of  some  other  folks  that  have  other 
figures.    We  believe  he  is  a  genius  and  will  be  helpful  in  this  situation. 

Mr.  Chairman,  my  assistant  will  discuss  technically  with  you  the  fertilizer 
end  of  this  proposition.  I  think  I  have  about  completed  my  statement,  and 
the  whole  story  that  I  want  to  get  across  to  you  is  embraced  in  just  a  few 
words  and  is  this:  We  must  have  less  cost  factors  in  agriculture,  and  we 
believe  that  Muscle  Shoals  is  a  starting  place.  We  want  to  start  right  there 
and  carry  the  principles  involved  in  the  development  there  to  all  our  water 
powers.     I  thank  you. 

The  Chairman.  I  take  it  the  members  of  the  committee  wiM  want  to  ask 
you  some  questions,  and  I  would  like  to  ask  you  a  few  questions  mvself. 

Section  15  of  Mr.  Ford's  second  proposal  refers  to  your  organization  and 
several  others  in  this  language: 

"  In  order  that  the  farmers  may  be  supplied  with  fertilizers  at  fair  prices 
and  without  excessive  profits,  the  company  agrees  that  the  maximum  net 
profit  which  it  shall  make  in  the  manufacture  and  sale  of  fertilizer  products 
at  nitrate  plant  No.  2  shall  not  exceed  8  per  cent  of  the  actual  annual  cost  of 
production  thereof.  In  order  that  this  provision  may  be  carried  out  the  com- 
pany agrees  to  the  creation  of  a  board  of  not  more  than  nine  voting  members, 
chosen  as  follows:  The  three  leading  representative  farm  organizations- 
national,  in  fact — namely:  The  American  Farm  Bureau  Federation,  the  Na- 


tional Grange,  the  Farmers'  Educational  and  Cooperative  Union  of  America 
(or  their  successors)  shall  each  designate  not  more  than  seven  candidates  for 
said  board.  The  President  shall  nominate  for  membership  on  this  board  not 
more  than  seven  of  these  candidates  selected  to  give  representation  to  each 
of  the  above-mentioned  organizatons,  said  nominations  to  be  made  subject  to 
confirmation  by  the  Senate,  and  there  shall  be  two  voting  members  of  said 
board  selected  by  the  company.  A  representative  of  the  Bureau  of  Markets, 
Department  of  Agriculture  (or  its  legal  successor),  to  be  appointed  by  the 
President,  shall  also  be  a  member  of  the  board,  serving  in  an  advisory  capacity, 
without  the  right  to  vote.  The  said  board  shall  determine  what  has  been 
the  cost  of  manufacture  and  sale  of  fertilizer  products  and  the  price  which 
has  been  charged  therefor,  and,  if  necessary  for  the  purpose  of  limiting  the 
annual  profit  to  8  per  cent  as  aforesaid,  shall  regulate  the  price  at  which 
said  fertilizer  may  be  sold  by  the  company.  For  these  purposes  said  board 
shall  have  access  to  the  books  and  records  of  the  company  at  any  reasonable 
time.  The  said  board  shall  also  determine  the  equitable  territorial  distri- 
bution of  fertilizer  products  produced  at  nitrate  plant  No.  2.  If  and  when 
said  board  can  not  agree  upon  its  findings  and  determinations  then  the  points 
of  disagreement  shall  be  referred  to  the  Federal  Trade  Commission  (or  its 
legal  successor)  for  arbitration  and  settlement,  and  the  decision  of  said  com- 
mission in  such  cases  shall  be  final  and  binding  upon  the  board." 

Your  organization  is  one  of  the  three  mentioned  in  this  section. 

Mr.  Silver.  Yes. 

The  Chairman.  Have  you  any  method  by  which  you  can  perpetuate  your- 
selves; in  other  words,  I  take  it,  you  are  organized  at  the  present  time  for  a 
limited  period.  You  may,  through  a  condition  of  affairs  over  which  you  have 
no  control,  go  out  of  existence  altogether,  and  so  may  the  other  two  organiza- 
tions. Then,  how  would  you  keep  alive  this  organization  that  Mr.  Ford  refers 
to  in  this  section? 

Mr.  Silver.  You  no  doubt  noticed  right  after  the  words  "  Cooperation  Union 
of  America  "  the  words  "  or  their  successors." 

The  Chairman.  Yes;  I  did. 

Mr.  Silver.  Now,  the  Farm  Bureau  may  disappear,  the  grange  may  disap- 
pear, or  the  farmers'  union.  That  is  all  within  the  possibilities,  but  when 
agriculture  disappears  there  will  be  no  need  for  continuing  the  contract,  and 
so  long  as  agriculture  continues  there  will  no  doubt  be  organizations  among 
the  farmers,  and  the  words  "  or  their  successors  "  were  put  in  there  for  that 
purpose.  Although  we  have  a  considerable  membership  and  are  a  right  smart 
organization  at  this  time,  there  would  be  our  successors  in  whatever  organi- 
zations may  spring  up. 

The  Chairman.  But  this  contract  refers  particularly  to  these  particular 
organizations. 

Mr.  Silver.  Or  their  successors,  and  the  successors  w^ould  be  the  organlza- 
tion«  that  would  come  along  to  take  our  place. 

The  Chairman.  Suppose  the  men  in  agriculture  do  not  form  any  organiza- 
tions to  take  the  place  of  those  mentioned  in  this  proposal,  it  is  very  important, 
I  take  it,  that  in  a  100-year  lease  there  should  be  a  distinct  understanding  who 
the  members  of  the  board  referred  to  may  be  for  that  whole  period  of  100 
years.    Have  you  given  that  any  thought? 

Mr.  Silver.  Our  thought  on  that  point  is  that  with  our  whole  national  life 
organized  and  with  all  other  phases  of  society  organized,  agriculture  can  only 
exist  by  being  properly  organized,  and  if  the  time  should  come  when  there  Is 
no  organization,  and  we  still  had  a  country,  we  would  have  Congress,  and  we 
would  come  back  and  ask  Congress  to  change  to  suit  the  conditions  that  then 
existed.  We  would  work  out  some  plan  that  would  be  a  workable  plan  at 
that  time. 

The  Chairman.  If  you  had  to  go  to  Congress,  who  would  make  that  repre- 
sentation if  your  organization  had  gone  out  of  existence? 

Mr.  Silver.  We  would  still  have  agriculture,  if  we  had  a  country.  We 
would  still  have  the  same  people  referred  to  as  our  successors. 

The  Chairman.  Among  the  farmers  of  the  country,  have  you  not  had  fights 
among  yourselves? 

Mr.  Silver.  Sure. 

The  Chairman.  I  think  it  is  a  good  thing  that  you  should  study  these  things 
out.  It  may  not  be  possible  for  you  to  agree,  and  suppose  one  faction  comes 
to  Congress  and  says,  "  We  are  the  successors  of  such  and  such  an  organiza- 
tion," and  then  another  group  of  farmers  comes  to  Congress  and  says,  "That 

92900—22 ^37 


576 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCUa  SHOALS  PROPOSITIONS. 


is  not  so  f  there  is  not  a  word  of  truth  in  that.  We  are  the  successors  of  this 
organization,"  and  then  hoth  sets  of  farmers  wlio  appear  before  Congress  put 
up  seven  men  to  represent  their  organizations.  How  is  the  President  going 
to  Ivuow  from  whom  to  select  or  who  to  nominate  as  the  ones  lie  is  to  send 
to  Congress  f(»r  contirmation? 

Mr.  Silver.  Well,  that  is  one  of  the  things  we  have  wished  on  the  President, 
whoever  he  may  be  at  that  time.  If  more  than  the  three  mentioned  here  should 
recommend  their  seven,  I  am  entirely  willing  to  leave  that  to  the  determina- 
tion at  that  time  of  the  President,  whoever  he  may  be,  in  his  reconnnendation. 

The  Chairman.  You  see  the  peculiar  thing  involved  here,  Mr.  Silver,  is  that 
this  is  a  contract. 

Mr.  Silver.  Yes;  it  is. 

The  Chairman.  You  cannot  imagine  things. 

Mr.   Silver.  No:   but  the  contract  provides 

The  Chairman   (interposing).  And  you  have  got  to  go  by  the  terms  of  the 

contract. 

I^Ir.  Silver.  But  the  contract  provides  for  their  successors.  There  may  be 
some  question  as  to  w^ho  they  may  be,  but  the  contract  provides  that  at  the  time 
the  matter  comes  up  there  shall  be  some  action  taken  as  to  who  they  are. 

The  Chairman.  The  courts  and  Congress,  even,  will  abide  by  the  language  in 

the  contract. 

Mr.  Silver.  Yes. 

The  Chairman.  I  can  see  that  possibly  great  differences  can  grow  up,  and 
we  can  have  bitter  fights  about  this  end.  Now,  is  it  not  better  to  try  to  reach 
some  agreement  which  will  make  it  clear  and  specific  as  to  just  who  is  meant. 

Mr.  Silver.  What  is  your  thought,  Mr.  Chairman? 

The  Chairman.  I  have  not  given  it  any  gi-eat  amount  of  thought,  because 
I  have  been  busy  with  a  lot  of  other  things ;  but  I  really  think  it  will  not  take 
a  long  time  for  the  men  who  are  in  the  organizations  to  think  out  a  procedure 
whereby  it  will  be  absolutely  definite  as  to  who  the  men  will  be  that  the 
President  shall  name  for  this  board. 

Mr.  Garrett.  Mr.  Chairman,  would  you  mind  asking  him  the  question  there 
as  to  whether  it  would  be  objectionable  to  this  organization  to  provide  that  in 
the  event  of  their  disappearing  from  activity,  that  in  that  event  the  Secretary 
of  Agriculture  shall  make  the  suggestion  to  the  President  referred  to  in  this 

naragraDh. 

The  Chairman.  You  have  heard  the  suggestion  of  the  gentleman  from  Texas. 
He  suggests  that  if  vour  organization  goes  out  of  business  and  you  have  nu 
successor,  that  the  Secretary  of  Agriculture  might  be  empowered  to  name  seven 
men  from  whom  the  President  shall  make  his  selection. 

Mr.  Silver.  Yes. 

The   Chairman.  Would  that  be  satisfactory? 

Mr  Silver  I  would  be  verv  glnd  to  have  any  suggestions  from  the  com- 
mittee but  I  would  not  want  to  acquiesce  in  any  change  without  submitting  it 
to  our  executive  committee.  We  have  discussed  some  clarifying  expressions 
with  the  maker  of  the  tender,  and  I  still  have  a  reservation  here  as  to  thai 
matter  for  future  use,  and  I  will  be  glad  to  submit  that  suggestion,  anion? 
others  to  our  executive  committee,  so  that  we  may  have  a  meeting  of  minds 
as  to  the  best  thing  that  can  be  done.  We  want  the  best  possible  thing  we  can 
get  out  of  the  situation.  ^  .      ^,  .  ..^ 

The  Chairman.  The  only  thing  that  has  impelled  me  to  mention  this  matter 
at  this  time  is  that  we  have  had  discussions  on  that  very  thing  with  .several 
witnesses,  and  as  you  represent  a  farm  organization,  I  wanted  to  bring  it  to 
vour  attention  and  see  what  recommendations  you  might  make.  I  think  your 
organization  and  the  other  organizations  and  the  members  of  the  committee  cao 
finally   work  out  a  thing  that  will, be  thoroughly  satisfactory  to  everybody 

concerned  n 

Mr  Silver.  Yes ;  I  thank  you  for  the  suggestion,  and  feel  sure  that  we  an 
want 'to  cooperate;  and  that  the  language  which  makes  it  right  the  committee 
and  the  Farm  Bureau  would  want  to  accept  in  good  faith. 

Mr  McKenzie.  Mr.  Silver,  you  are  speaking  to  our  committee  as  tlie  repie^ 
sentative  of  all  the  organized  farmers  of  the  United  States,  as  I  understand  you  ■ 
Mr.  Silver.  I  speak  as  the  representative  of  the  Amer  can  Farm  Bureau  Fed- 
eration. The  other  farm  organizations  are  in  accord  with  the  thought  but  1  am 
not  officiallv  speaking  for  them.  This  contract  or  clause  was  written  after 
consiSon  an^agreement  with  the  farm  organizations,  but  I  am  not  the  official 
spokesman  of  the  other  groups. 


577 


Mr.  McKenzie.  I  assume,  however,  that  the  views  expiessed  by  you  have  the 
;ipproval  of  the  other  farm  organizations? 

Mr.  Silver.  Yes.  There  is  no  difference  of  opinion,  so  far  afi  I  know,  be- 
tween us. 

Mr.  McKknzie.  About  how  many  men  are  included  in  those  organizations,  Mr. 
Silver,  just  as  a  rough  estimate? 

Mr.  Silver.  I  can  si)eak  more  definitely  for  the  Farm  Bureau  Federation. 
At  tlie  last  annual  meeting,  our  reports  showed  around  1,000,000  paid-up  members 
at  that  time.  That  is  not  the  full  roll  that  is  carried  on  our  books,  which  will 
pay  in  some  time  later.  Owing  to  financial  difficulties  among  the  farmers,  some 
of  tliem  are  in  arrears,  but  we  feel  there  are  around  a  million  and  a  half  per- 
fectly good  members  in  our  organization,  but  the  actually  paid-up  membership 
in  the  latter  part  of  November  was  just  about  1,000,000. 

Mr.  McKenzie.  That  is,  in  the  one  organization? 

Mr.  Silver.  Yes;  in  the  one  organization.  The  grnnge — and  I  am  going  by  the 
testimony  given  by  the  Washington  representative  of  the  grange  before  a  com- 
mittee in  Congress  some  time  since — showed  a  membership  of  about  700,000; 
and,  I  am  not  quite  sure,  but  somewhere  between  a  quarter  and  a  half  million 
members  was  the  testimony  of  the  Farmers'  Union. 

Mr.  McKenzie.  If  I  understood  you  correctly,  you  have  organizations  in  prac- 
tically all  of  the  States  of  the  Union  except  two? 

Mr.  Silver.  Yes. 

Mr.  McKenzie.  In  your  organization  you  include  in  your  membership  the 
retired  farmers? 

Mr.  SiivER.  Yes. 

Mr.  McKenzie.  And  anyone  who  has  an  interest  in  agriculture? 

Mr.  Silver.  Yes ;  the  determination  in  selecting  our  ofl[icei*s  is  that  their  prin- 
cipal source  of  income  vshall  be  from  and  their  principal  activity  shall  be 
devoted  to  agriculture. 

Mr.  McKenzie.  If  I  understand  your  testimony,  and  I  think  I  do,  the  conten- 
tion of  the  men  whom  you  represent  is  that  they  are  compelled  to  carry  on  their 
lifework  and  to  pay  a  higher  rate  of  cost  for  the  production  of  their  products 
than  they  can  well  do? 

Mr.  Silver.  Right. 

Mr.  McKenzie.  And  sell  their  production  at  the  prices  fixe<l  in  the  markets? 

Mr.  Silver.  In  the  markets  of  the  world,  which  is  the  market  we  sell  in.  That 
is  right,  Mr.  McKenzie. 

Mr.  McKenzie.  And  your  contention  is  that  one  of  two  things  must  happen : 
Either  the  cost  of  production  must  be  reduced  or  the  price  of  the  farmers'  com- 
modities jacked  up  or  elevated. 

Mr.  Silver.  Right. 

Mr.  McKenzie.  That  being  true  has  given  rise,  I  take  it,  to  the  agitation 
now  going  on  among,  perhaps,  I  might  correctly  say,  the  more  radical  ele- 
ment in  your  organization  and  other  farm  organizations  for  congressional 
action  looking  to  the  fixing  and  stabilizing  of  the  prices  of  the  farmers' 
commodities. 

Mr.  SiL\T}R.  That  is  exactly  right. 

Mr.  McKenzie.  Now,  I  want  to  ask  you  whether  in  your  testimony  before 
this  committee  you  have  had  in  mind  the  one  great  proposition,  that  in  carry- 
ing out  the  proposal  of  Mr.  Ford,  or  any  such  proposal,  tending  to  reduce 
the  cost  of  the  farmers'  products,  that  that  is  in  line  with  the  view  of  the 
majority  of  your  people,  and  would  be  more  in  keeping  with  our  traditions 
and  more  in  keeping  with  the  Constitution  of  our  country  than  taking  the 
other  radical  view  of  attempting  congressional  action  to  boost  the  prices  of  the 
farmers'  products. 

Mr.  Silver.  You  understand  it  fully  and  have  stated  the  question,  and  my 
answer  is  just  as  vour  question  indicates,  because  that  is  the  endeavor  of  our 
organization.  We  are  not  believers  in  arbitrary  price  fixing  of  our  products, 
but  we  must  have  a  living  return  out  of  the  products;  and  in  order  to  get 
that,  if  the  cost  factors  can  be  brought  within  the  proper  production  costs 
when  we  sell  our  crops,  we  have  the  margin  which  the  other  groups  attempt 
to  get  by  arbitrarily  fixing  the  prices  on  some  level  that  they  believe  will  re- 
turn a  profit  to  them.  ^       ^     .        . 

Mr.  McKenzie.  You  contend,  as  I  take  it,  and  rightfully,  that  the  American 
farmer  is  entitled  to  a  fair  return  of  profit  on  his  investment. 

Mr.  Silver.  Yes. 

Mr.  McKenzie.  And  a  fair  return  for  his  labor. 

Mr.  Silver.  He  must  have  it. 


678 


MUSCLE   SHOALS  PROPOSITIONS. 


Mr.  McKenzie.  The  same  as  any  other  man. 

Mr.  Silver.  Yes. 

Mr.  McKenzie.  Now,  then,  if  the  cost  of  production  can  be  reduced,  then 
proportionately  the  sale  or  the  price  of  the  sale  to  the  consumer  can  be  re- 
duced and  the  farmer  still  earn  a  reasonable  profit. 

Mr.  Silver.  That  is  true,  whenever  we  are  on  a  cost  basis.  Of  course,  a 
great  deal  of  our  stuff  at  this  time  has  been  below  the  cost  of  production,  but 
at  any  time  when  the  economies  are  sufficient  to  offset  the  difference  be- 
tween the  actual  price  and  the  sale  price  then  we  get  on  the  basis  you 
speak  of. 

Mr.  McKenzie.  I  understand  you  are  not  contending  now  that  the  freight 
rates  should  be  reduced  and  the  cost  of  fertilizer  reduced  and  the  cost  of 
binders  and  other  agricultural  implements  which  you  have  to  use  in  farming 
shall  be  reduced,  and  that  the  farmer  shall  enjoy  all  of  that  reduction  for  his 
own  particular  benefit,  and  that  the  selling  price  shall  be  kept  at  the  maximum. 

Mr.  Silver.  No. 

Mr.  McKenzie.  But  you  are  demanding  that  this  action  be  taken  in  order 
to  lower  the  cost  to  the  farmer,  in  order  that  he  can  sell  in  a  market  that 
is  fair  to  the  consumer  and  still  have  a  reasonable  profit. 

Mr.  Silver.  You  have  stated  the  question  correctly. 

Mr.  McKenzie.  That  is  your  battle. 

Mr.  SIL^•ER.  Yes,  sir. 

Mr.  McKenzie.  That  is  the  battle  you  are  fighting  now. 

Mr.  Silver.  Yes;  that  is  the  fight. 

Mr.  McKenzie.  Now,  this  question  of  Muscle  Shoals,  it  strikes  me — and  I  do 
not  care  whether  it  is  Muscle  Shoals  or  Niagara  Palls  or  Keokuk  Dam  on  the 
Mississippi  River 

Mr.  Silver  (interposing).  No;  and  we  do  not,  either.  It  is  just  the  oppor- 
tunity we  are  looking  at. 

Mr.  McKenzie.  To  my  mind  it  is  a  more  far-reaching  economic  and,  perhaps, 
political  question  than  we  might  think  at  first  blush. 

Mr.  Silver.  I  think  you  are  right. 

Mr.  McKenzie.  In  other  words,  it  has  within  it  the  germ  of  bringing  about  a 
revolution  in  this  country  so  far  as  the  cost  of  agricultural  products  is  con- 
cerned. 

Mr.  Silver.  That  is  true. 

Mr.  McKenzie.  And  would  be  reflected  in  benefit  to  the  consumer  as  well  as 
benefit  to  the  farmer. 

Mr.  Silver.  That  is  true. 

Mr.  McKenzie.  And  I  want  to  ask  you  another  question,  and  I  am  asking 
this  simply  to  get  your  views  on  these  matters  in  the  record,  because  I  have 
my  own  views  about  it,  but  that  it  not  material,  perhaps. 

Mr.  SiL\^R.  Yes. 

Mr.  McKenzie.  There  is  one  of  two  ways  of  operating  this  plant;  one  is  by 
Government  ownership  and  operation  and  the  other  is  by  private  management. 

Mr.  Silver.  Yes. 

Mr.  McKenzie.  You  have  had  a  good  deal  of  experience  and  have  been  some- 
what of  an  observer,  and  I  take  it  you  are  a  good  American  citizen. 

Mr.  Silver.  I  trust  so. 

Mr.  McKenzie.  What  is  your  judgment  as  to  the  wisdom  of  governmental 
operation  of  any  kind  of  a  public  utility? 

Mr.  Silver.  The  members  of  the  Farm  Bureau,  to  which  I  belong,  believe — 
and  this  is  broadly  speaking — that  the  Government  should  not  act  where  the 
individual  can. 

Mr.  McKenzie.  Then  it  is  your  belief  that  this  particular  project  can  be  op- 
erated by  individuals? 

Mr.  Silver.  We  now  have  under  the  Ford  tender  that  opportunity.  We  did 
not  have  that  a  year  or  two  ago.  It  is  so  big  that  it  has  been  bigger  than  the 
individual  could  handle.  It  is  an  enormously  big  proposition,  and  nobody  was 
willing  to  come  forward  to  handle  it.  I  am  talking  now  about  individuals.  It 
was  at  that  time  a  governmental  institution.  It  still  requires  the  procedure 
of  the  Government  to  make  it  possible  for  Mr.  Ford  to  work  it,  although  he  is  a 
wonderfully  rich  man  and  has  a  big,  strong  organization,  but  we  want  it  op- 
tfttted  under  the  Ford  offer,  if  we  can  have  it  so,  as  a  private  operation.  That 
!•  our  wish. 

Mr.  McKenzie.  Of  course,  this  committee  is  not  swayed,  I  take  it,  notwith- 
gtanding  the  statement  of  our  good  colleague,  Mr.  Quin,  toward  Mr.  Ford. 

Mr.  Silver.  No. 


MUSCLE  SHOALS  PROPOSITIONS. 


579 


Mr.  McKenzie.  Or  the  Alabama  Power  Co.,  or  any  other  organization.  We 
have  been  trying  to  solve  this  problem  in  a  fair  way,  but  I  am  very  glad,  indeed, 
to  hear  you  say  that  if  it  is  possible  to  side-step  governmental  operation  of  this 
plant  and  have  it  operated  by  Mr.  Ford  or  some  one  else  as  an  individual  propo- 
sition that  you  believe  it  will  serve  the  best  interests  of  our  Government. 

Mr.  Silver.  We  sincerely  believe  that,  not  only  in  this  case,  but  in  connection 
with  the  railroads.  In  the  1,500  farm  bureaus  which  we  had  at  the  time  of  the 
question  of  the  Government  turning  back  or  not  turning  back  the  railroads,  after 
Government  operation  during  the  war,  not  one  single  farm  bureau  in  the  United 
States  voted  for  Government  ownership.  Each  and  every  one  voted  for  private 
operation  of  the  railroads.  Now,  that  is  the  kind  of  people  whose  wishes  I  am 
reflecting  here  in  this  matter. 

Mr.  McKenzie.  Of  course,  if  it  was  operated  by  Government  ownership,  the 
subsidy  spoken  of  by  some  of  the  gentlemen  who  have  appeared  before  us  would 
go  on  just  the  same,  except  the  subsidy  would  be  paid  to  the  farmers  by  the  Gov-,, 
ernment  instead  of  being  paid  to  Mr.  Ford.    Is  that  your  view  of  it? 

Mr.  Silver.  If  you  can  interpret  it  in  that  way.  To  my  mind  it  is  not  a  proper 
interpretation ;  but  if  it  were  true,  it  would  go  on  just  the  same. 

Mr.  McKenzie.  In  other  words,  in  order  to  sell  to  the  farmer  at  a  reasonable 
price  fertilizer  produced  by  governmental  operation,  would  it  be  your  judgment 
that  we  would  have  to  have  one  hand  in  the  Treasury  to  make  up  the  difference 
between  what  it  cost  the  Government  to  manufacture  it  and  what  the  individual 
could  manufacture  it  for  under  like  circumstances? 

Mr.  Silver.  I  do  not  know  whether  I  quite  catch  your  question,  but  if  I  do 
catch  it,  I  would  say  no ;  but  I  am  not  quite  sure  about  your  question.  I  do  not 
think  for  a  moment  that  Mr.  Ford  or  Mr.  Anybodyelse  operating  Muscle  Shoals 
as  proposed  under  this  tender  has  one  hand  in  the  Treasury. 

Mr.  McKenzie.  No  ;  I  do  not  mean  that ;  but  I  mean  that  if  the  Government 
was  operating  it  as  a  governmental  proposition,  in  order  for  the  Government  to 
be  able  to  sell  to  the  farmer  fertilizer  at  a  price  lower  than  that  at  which  it  is 
now  produced  by  individuals  in  this  country,  the  Government  would  have  to 
make  up  the  losses  by  taking  money  out  of  the  Treasury.  In  other  words,  the 
men  appointed  by  the  Secretary  of  War  or  by  some  other  governmental  adminis- 
trative head  here  in  Washington,  perhaps,  bank  clerks  and  druggists  and  phar- 
macists, and  so  on,  to  go  down  to  Muscle  Shoals  to  manufacture  fertilizer  for 
the  farmer,  probably  would  not  be  able  to  work  on  as  economical  a  basis  as  the 
man  employed  by  individuals,  who  would  only  employ  such  men  as  would  be 
competent  to  do  the  work  which  they  were  expected  to  do. 

Mr.  Silver.  We  believe  you  would  get  more  economical  operation  in  private 
industry  than  you  would  in  a  Government-operated  industry;  but  at  IMuscle 
Shoals,  in  this  particular  case,  we  believe  that  the  economies  in  the  operation 
that  would  be  available  there  by  the  cheap  raw  material  and  power  would  cut 
costs  below  the  costs  that  generally  prevail  now,  not  only  in  the  cost  of  produc- 
tion, but  in  the  cost  of  'distribution. 

Mr.  McKenzie.  That  is  true,  and  I  am  afraid  I  have  not  made  myself  plain. 
I  am  trying  to  bring  out  the  fact  that  from  experience  and  observation  it  is  ap- 
parent, it  seems  to  me,  to  everyone,  that  governmental  operation  of  a  utility  such 
as  this  would  be,  or  of  a  manufacturing  enterprise  carried  on  by  the  Government, 
could  only  be  carried  on  at  a  loss  as  compared  with  the  operation  of  the  same 
plant  by  private  ownership. 

Mr.  Silver.  We  think  that  Government  operation  would  be  higher  with  the 
same  plant  and  with  all  the  economies  balanced. 

Mr.  McKenzie.  Then  by  selling  this  property  or  entering  into  a  lease  with 
Mr.  Ford  or  some  one  else  who  might  make  a  better  offer,  having  in  mind  the 
interests  of  the  Government  first,  we  would  be  infinitely  better  off,  and  the 
people  of  the  country  would  be  better  off,  than  for  the  Government  to  undertake 
the  operation  of  it  as  a  governmental  activity.    Is  not  that  true? 

Mr.  Silver.  Yes. 

Mr.  McKenzie.  I  am  glad  to  have  you  say  that,  and  I  think  that  is  all  I  want 
to  ask  you. 

Mr.  Greene.  Mr.  Silver,  you  said  you  did  not  think  this  proposition  of  Mr. 
Ford  involved  a  subsidy  from  the  Government. 

Mr.  Silver.  Yes. 

Mr.  Greene.  Of  course,  the  word  "  subsidy  "  is  a  sort  of  portmanteau  word. 
You  can  put  almost  anything  into  it  and  call  it  by  that  name. 

Mr.  Silver.  Yes. 

Mr.  Greene.  Subsidies  take  various  forms.  Suppose  the  Government  had 
an  immense  property  such  as  the  one  at  Muscle  Shoals  and  sold  it  to  a  private 


580 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


581 


li 

T     I 

'M 

11 

'  t 

It 


enterprise  at^a  price  not  only  way  below  what  it  had  already  invested  iu  it 
itself  but  at  a  price  far  below  its  commercial  valuation,  so  that  the  private 
enterprise,  entering  upon  its  use,  had  only  a  limited  amount  of  money  to  charge 
off  to  capital  stock,  and  could  do  business  thereafter  on  a  basis  entirely  dif- 
ferent from  the  basis  that  private  enterprises  elsewhere  must  follow,  would  not 
that  amount  to  a  subsidy? 

Mr.  Silver.  There  might  be  such  an  interpretation  in  some  minds.  That  is 
not  the  generally  accepted  use  of  the  word  "  subsidy,"  however,  is  it?  I  do  not 
so  understand  it.  Now,  they  might  have  the  advantage  to  be  gained  by  having 
bought  something  cheap. 

Mr.  Greene.  Exactly.  ' 

Mr.  Silver.  But  that  is  not  the  usual  use  of  the  word  "  subsidy." 

Mr.  Greene.  Then,  if  we  do  not  want  to  split  hairs  over  the  meaning  of  the 
word  "  subsidy "  and  turn  ourselves  into  a  dictionary  committee,  let  us  see 
what  a  subsidy  does.  A  subsidy  gives  an  advantage  in  bookkeeping ;  a  subsidy 
gives  an  advantage  in  the  economical  administration  or  operation  of  anything. 
It  helps  to  pay  the  expense.    That  is  what  it  is  designed  for,  is  it  not? 

Mr.  Silver.  Yes ;  that  is  one  way  of  stating  it. 

Mr.  Greene.  And  that  is  the  only  purpose  of  it,  so  that  a  man  can  come  out 
even  or  better. 

Mr.  Silver.  It  is  to  be  a  helpful  thing. 

Mr.  Greene.  And  whatever  term  we  call  it  by  and  whatever  form  the  propo- 
sition takes,  it  reduces  itself  to  the  fact  that  the  man  who  gets  the  benefit  of  it 
does  not  have  to  put  so  much  of  his  own  money  into  it  in  order  to  come  out 
even. 

Mr.  Silver.  That  is  one  way  of  stating  it. 

Mr.  Greene.  That  is  an  accurate  way,  is  it  not? 

Mr.  Silver.  I  did  not  question  the  accuracy  of  it. 

Mr.  Greene.  Then,  if  the  Government  starts  out  on  a  policy  by  which  it 
takes  a  very  valuable  property  which  has,  we  will  say,  loosely,  an  indefinite 
commercial  value,  and  nobody  knows  probably  the  accurate  value  or  how  much 
you  would  charge  this  thing  off  to  be  worth,  but  worth  very  much  more  than 
the  $5,000,000  Mr.  Ford  offers  for  it 

Mr.  Silver.  Yes. 

Mr.  Greene  (continuing).  And  also  agrees  to  put  its  own  money  into  it  in 
order  to  complete  the  fixtures  before  it  is  turned  over  to  Mr.  Ford. 

Mr.  Silver.  Yes. 

Mr.  Greene.  A  private  enterprise  starting  out  with  such  a  plant  as  that 
would  have  a  tremendous  advantage  over  any  other  private  enterprise  that 
had  to  raise  its  own  money  and  had  to  get  a  water  power  wherever  it  could 
and  under  the  best  terms  it  could. 

Mr.  Silver.  Let  us  think  about  that  a  moment.  Mr.  Ford  agrees  to  pay, 
using  the  illustration  you  gave,  the  $5,000,000  for  a  certain  plant.  He  does 
not  buy  that  plant  as  you  or  I  would  buy  a  plant  and  turn  it  over  to  whatever 
purposes  we  might  see  fit,  as  was  done  in  my  own  State  of  West  Virginia  at 
Nitro  and  at  some  other  places,  but  he  buys  it  and  agrees  to  carry  it  for  a 
certain  specific  purpose  and  to  carry  it  for  the  Government's  use  as  a  going 
concern,  equipped  and  manned  whenever  it  may  be  needed,  and  there  is  a  cost 
factor  there  that  ought  to  be  thought  about. 

Mr.  Greene.  I  am  not  trying  to  neglect  the  terms  of  the  contract.  I  am 
trying  to  get  nt  the  policy  of  it.  I  am  simply  asking  you  these  questions  in 
good  faith,  and  not  necessarily  as  an  antagonistic  proposition,  but  we  want 
to  get  at  the  various  angles  of  the  matter.  This  thing  is  bigger  than  fertilizer. 
It  means  entering  upon  a  public  policy  and  by  the  very  terms  of  the  contract 
we  bind  ourselves  and  our  children  and  our  children's  children  and  generations 
thereafter  following,  and  the  question  is  whether  you  believe  it  is  good  public 
policy  for  the  Government  itself  to  contribute  property  and  funds,  whatever 
may  be  the  amount  that  subsequent  bookkeeping  may  disclose.  We  are  talking 
about  the  principle  of  contributing  property  and  funds  to  enable  one  private 
enterprise  to  compete  against  any  other  and  against  all  the  others  in  the  pro- 
duction of  any  particular  material. 

Mr.  SiLA-ER.  Now,  we  will  just  turn  that  into  dollars,  because  property  in  one 
sense  is  dollars,  and  think  about  it  a  little  bit  in  different  terms  than  the  spe- 
cific property  involved  there.  We  are  doing  a  great  deal  of  reclamation  work. 
The  Government  is  putting  money  in  dams  and  in  other  things  necessary  to 
irrigate  arid  lands  and  produce  more  foodstuffs  and  raw  materials  for  clothmg, 
and  in  order  to  do  that  the  soil  needs  water.  Now,  in  this  particular  case  they 
take  the  water  and  put  it  over  a  wheel  and  catch  from  the  atmosphere  a  ferti- 


lizing element  and  put  it  back  on  the  leached  soil  from  which  we  have  been 
Sg  foSuffs  and  raw  materials  for  clothing,  etc.,  and  sending  them  away 
Wh^n  you  go  back  to  the  question  involved  there  it  is  simply  a  question  of 
this  sortM  it  a  desirable  policy  for  the  Government  to  encourage  agriculture 

""^Mr^  GREEN^eT^^^^  you  cite  of  irrigation  of  arid  lands  arises  oat  of 

''''^fit^''iT^tf:moZT'S^r.e  kind  of  production,  of  foodstuffs  and 

'Tlr'^mE  Tarn" M  to  get  at  your  idea  of  the  principle  involved.  It 
is  naiumTly  the  fi?S  duty  of  a  Government  to  see  that  the  people  who  respond 
to  it  aS  who  are  obligated  to  it  at  least  have  a  spot  of  ground  to  \ive  on 
That  ?s  n^essary.  ThSt  is  something  upon  which  tHere  is  no  possibility  of 
fnvbodv  outlining  some  soil  out  of  private  resources.  They  must  be  provided 
fXL^X!r^^ecZe  that  is  ultimately  a  physical  condition;  they  have  to 

^^Tfr   Silver   And  they  must  have  foodstuffs  and  raw  material  for  clothing. 

Mr.  GREENE.  I  am  gT^^^  at  the  basic,  because  if  ^ou  have  to  consider  food- 
stuffs  then  have  to  follow  that  line  of  sequences,  you  will  finally  have  a  prin 
Sple  unde?  the  operation  of  which  there  would  be  equal  reason  for  the  furmsh- 

%^^^^^'^lTlo^n^T,^^^  oflr^nd  in  order  to  produce  food  and 

clothing.  .        ^     ^  v^r^A 

Mr.  Greene.  Not  all  plots  of  ground  produce  food.  ^^^^c,f«ffc 

Mr!  Silver.  But  we  have  got  to  have  the  plots  of  ground  to  produce  foodstuffs. 

as  well  as  having  other  things.  .  ^     x,        •*.  ^jii 

Mr  Greene.  I  do  not  want  to  carry  this  discussion  to  a  point  where  it  will 
weary  the  committee  or  take  up  too  much  of  its  time.  These  lands  which  are 
h^rhrated  were  once  Government  land,  and  the  Government  by  adoptmg  a  policy 
rrlstorinTthe  ar^^^  lands  to  use.  If  you  start  with  the  theory  that  you  can  put 
anybody  up  in  business  to  compete  against  private  industry  with  the  aid  of 
anvprnment  funds,  where  are  we  going  to  stop?  ... 

Mr  C^  Wh^n  you  irrigate  arid  lands  you  set  somebody  up  in  business 
to^mpSr^'ith  the  other  farmers,  and  you  produce  more  foodstuffs  and  raw 

""m^ gIe^ne'you^^^^  out  with  the  idea  that  you  were  furnishing  homes 
forp^opr^and  yoS  do  not  contend  that  the  arid  lands  are  a  serious  competitor 
wTth  X  rich  a&ltural  lands  of  the  country.    They  are  places  where  people 

%i*liLVEB.  To  my  mind,  you  have  to  carry  along  just  what  I  stated  a  few 
minutes  aX  that  where  those  lands  were  barren  without  water  the  Govern- 
menrput  up  tte  money  to  put  the  water  on  those  lands.  !«  this  case  it  is 
mittlne  UP  ttie  money  to  put  the  product  of  the  water  back  on  the  soil.  I  thi^ 
mat  is  a  ?omplSe  answe?.  I  may  not  be  answering  the  question  adequately  to 
vonr  mind  but  to  my  mind  that  is  the  reaction.  ...      4., 

^X.  GREENE  The/  if  the  Government  can  subsidize  directly  or  mdirectly 
l)v  any  amount  of  advantage  in  economics  one  enterprise  that  it  selects  ^y 
contnu't  ^  it  may  compete  against  other  private  i^dustries^m  this  particular 
ca<?e  it  ^-^  the  manufacturer  of  fertilizer— where  are  we  to  draw  the  line/ 
What  other  industry  that  has  now  the  investment  of  capital  in  the  enterprise 
tii'iiishJ"  by  private  citizens  will  be  the  next  one  to  meet  competition  by 

'"Mi^'-SiLVER.  I  do  not  for  a  moment  think  of  it  as  %«J^,t>sidy     On  the  ot^^^ 
hand-and  I  am  not  going  to  enter  into  a  discussion  ^^JJ'^^-l^"".^^^^^^ 
levies  a  tariff,  which  is  a  class  privilege,  that  may  or  may  not  be  J"st\fled  ^nd 
it  takes  from  one  group  of  people  and  gives  to  another  b/ Governmejit  authority^ 
Mr.  GREENE.  On  that  theory  would  you  argue  that  two  wrongs  made  one 

riffht*' 

Mr*  SiTVER  No  sir:  but  I  do  contend  that  there  are  sometimes  conditions 
tluit  instifv  certain  things  being  done,  and  Congress  in  its  wisdom  tries  to 
d  tha  takin-  in  o  consfderation  the  fact  which  they  realize  that  they  some- 
Hmes  tread  oS  people's  toes.  But  they  have  used  their  best  judgment  to  do 
a  helpful  thing  for  the  people  as  a  whole.  .  ^  ^4.       «„ 

Mr  GREENE  There  are  other  raw  materials  or  essentials  to  industry  in 
otlier  lines  which  are  quite  as  essential  to  the  support  and  maintenance  of  so- 
cietv  as  fertilizer.    I  realize  that  agriculture  is  the  mother  of  the  arts,  but 


582 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


583 


our  presently  organized  social  system  depends  on  other  things  as  much  as 
on  fertilizer. 

Mr.  Silver.  Not  until  they  have  gotten  something  to  eat. 

Mr.  Greene.  But  you  are  balancing  it  between  the  present  highly  organized 
social  system  and  a  return  to  the  primitive  way  in  which  everybody  would 
feed  himself,  as  they  used  to  do,  and  we  do  not  expect  to  go  back  to  that 
We  do  not  want  to.  But  we  can  not  escape  from  the  original  conclusion 
that  we  have  to  eat  to  live,  and  having  lived  there  are  other  things  as  essen' 
tial,  or  else  we  do  not  want  to  eat  to  live.  We  do  not  live  to  eat.  There  are 
other  things  considered  as  essential,  perhaps  clothing,  but  we  do  not  set  up 
some  machinery  by  which  we  can  assist  private  enterprise  by  having  favorable 
terms  to  compete  with  its  neighbors  in  the  manufacture  of  clothing. 

Mr.  Silver.  Just  turn  your  question  around — when  you  say  we  do  not  just 
live  to  eat.  But  we  do  live  to  eat,  if  we  do  not  do  the  things  we  are  discussing 
in  providing  the  things  we  are  discussing  for  clothing  and  foodstuffs,  we  do 
not  eat  to  live  and  do  other  things. 

Mr.  Greene.  You  would  not  undertake  to  convince  the  committee  that  you 
have  arrived  at  that  stage  where  foodstuffs  are  in  a  perilous  condition. 

Mr.  Silver.  I  am  not  thinking  of  to-day ;  I  am  thinking  of  the  future. 

Mr.  Greene.  So  am  I,  and  I  am  wondering  what  kind  of  policy  we  will  commit 
our  children  to. 

Mr.  Silver.  Whether  we  have  an  abundance  of  foodstuffs  on  the  most  eco- 
nomic basis,  or  raw  materials  for  clothing  on  the  most  economic  basis,  is  the 
question  involved  here. 

Mr.  Greene.  I  dare  say  your  mind  and  mine  would  not  meet  on  that 

Mr.  Silver.  We  might  not. 

Mr.  Greene.  You  said,  concerning  the  question  of  financing  this  proposition. 
that  the  farmers  would  take  bonds  at  4  per  cent. 

Mr.  Silver.  Yes. 

Mr.  Greene.  How  do  you  reconcile  that  with  the  constant  clamor  that  they 
can  not  pay  their  mortgages  on  their  farms  now? 

Mr.  Silver.  I  will  qualify  that.  In  the  farmer's  meetings  now  the  talk  is 
like  this:  "I  have  not  been  able  to  pay  interest  on  my  mortgage;  I  have  not 
been  able  to  pay ;  in  many  instances  the  girl  who  was  in  school  has  had  to  get 
out,  because  I  did  not  have  money  to  continue  her  in  school ;  the  boy,  who  was 
ready  to  go  to  school,  could  not  go,  because  I  did  not  have  the  funds  where- 
with to  send  him,  and  so  on  down  the  line.  The  house  furnishings,  which  ran 
down  during  the  war  period,  are  still  down,  because  then  it  was  not  thought 
very  patriotic  to  buy  those  things,  and  now  I  have  not  the  money  to  buy  with." 
And  so  on. 

But  there  are  still  farmers  with  money,  in  spite  of  the  fact  that  farm- 
ing, as  an  industry,  is  in  a  very  unhappy  plight;  just  so  unhappy  that  it  can 
not  meet  its  payments.  But,  on  the  other  hand,  there  are  some  farmers  who 
still  have  money,  and  I  believe  in  the  6,500,000  farmers  there  would  be  some, 
who,  if  necessary,  could  buy  these  bonds  to  see  that  Muscle  Shoals  was  de- 
veloped, for  they  are  looking  forward  to  its  development  that  would  mean  a 
program  along  the  lines  of  developing  our  natural  resources  that  would  be  a 
help  to  our  farmers. 

Mr.  Greene.  You  think  they  would  come  to  the  support  of  bond  issues  for 
this  purpose  much  more  readily  than  to  the  maintenance  of  bonds  issued  for 
Federal  farm  loans,  directly  for  their  purposes? 

Mr.  Silver.  There  have  been  so  few  Federal  farm-loan  bonds  issued  that 
that  is  hardly  a  question  which  you  can  raise.  I  do  not  know  who  bought 
them;  but  the  other  day  $75,000,000  of  those  Federal  farm  loan-bonds  were 
sold  almost  In  one  day. 

Mr.  Greene.  When  the  Federal  farm-loan  proposition  was  originally  pre- 
sented we  were  told  when  the  law  passed  that  the  farmers  would  soon  take 
care  of  themselves. 

Mr.  Silver.  They  did  ask  for  some  working  capital,  and  that  you  give  an 
authorization  for  a  higher  interest  rate  when  money  was  selling  higher. 

Mr.  Greene.  I  mean  working  capital.  We  were  told  originally  that  if  we  just 
started  them  off,  that  then  they  would  take  care  of  themselves. 

Mr.  Silver.  But  the  courts  tied  them  up  tight.  They  were  tied  up  by  the 
court  procedure  for  quite  a  while,  and  then  we  got  into  a  period  of  high-priced 
money,  so  that  they  had  so  many  handicaps  that  were  not  anticipated. 

Mr.  Greene.  I  am  not  trying  to  minimize  the  handicaps  that  the  farmer 
has  been  living  under,  but  I  am  asking  whether  you  have  confidence  in  the 


purposes  of  the  farmers  as  a  whole  so  that  you  believe  that  they  will  finance 
this  proposition  any  more  than  any  other  we  have  put  before  them. 

Mr.  Silver.  I  am  thinking  about  the  war  issues  of  securities,  and  that  is 
the  only  time  the  farmer  had  a  chance  to  buy  government  issues,  except  the 
really  small  amount  of  farm  loans.  The  farmers  did  buy  war  issues  to  the 
limit;  they  were  good  buyers.  I  live  in  an  agricultural  county,  and  of  the 
5,000  men  in  my  home  county,  over  4,900  invested  in  Government  bonds,  or 
war  savings  stamps.  They  were  not  able  to  buy  in  the  volume  that  some  other 
communities  were  able  to  buy  in. 

Mr.  Greene.  Of  course,  that  was  not  a  commercial  or  a  business  proposition, 
and  you  would  not  make  the  analogy  that  people  coming  to  the  support  of  the 
Government  in  time  of  war  for  patriotic  purposes  were  of  the  same  mind  as 
they  would  be  in  the  case  of  a  commercial  venture. 

Mr.  Silver.  I  grant  that,  but  I  do  say  that  in  the  case  of  the  only  chance 
they  ever  had  to  buy  they  did  buy. 

Mr.  Greene.  They  had  a  chance  to  put  working  capital  into  the  Federal 
farm  loans. 

Mr.  Silver.  The  farmer  has  been  asking  for  months  for  Federal  farm  loan 
bonds.  But  they  have  not  been  supplied,  and  they  have  not  been  in  distribu- 
tion so  the  farmer  could  readily  get  them.  Recently  they  have  been  selling 
at  a  premium.  When  the  time  comes  that  those  bonds  can  reach  the  farmer 
readily  he  will  buy  if  he  has  the  money  with  which  to  buy.  But  whether 
he  has  the  money  depends  upon  the  things  we  are  discussing  here. 

Mr.  Greene.  I  come  from  a  farming  community  that  is  very  thrifty,  and 
I  have  the  utmost  respect  for  my  farmer  neighbors.  I  am  a  descendant  of 
the  soil,  as  all  of  us  in  that  part  of  the  country  are,  but  I  think  if  I  took 
you  from  this  table  to  one  side  and  appealed  to  your  business  instinct  to 
get  your  expression  as  to  whether  farmers  as  a  rule  temperamentally  flock 
to  the  support  of  commercial  issues  supposed  to  be  to  their  advantage,  I 
think  you  would  want  to  be  sure  that  the  stenographer  had  a  few  cautionary 
limitations  in  your  answer. 

Mr.  Silver.  In  that  question  I  scarcely  think  you  are  quoting  me,  and  you 
are  making  a  suggestion  that  I  do  not  think  I  have  read  into  the  record, 

Mr.  Greene.  No,  I  do  not  mean  that.  I  am  talking  about  making  an  invest- 
ment that  the  farmer  will  back  up.  You  and  I  can  not  quite  get  together 
on  the  subsidy  side  of  it.    There  is  only  one  more  question  I  want  to  ask  you. 

Of  course,  the  matter  of  the  electrification  of  railroads  by  the  potential  power 
in  the  country  is  naturally  one  of  the  great  economic  problems  that  confront 
us,  and  I  do  not  suppose  that  you  would  contend  that  the  mere  development  of 
Muscle  Shoals  would  give  us  much  light  on  that.  The  water  power  of  the 
country  is  not  so  dispersed  geographically  that  all  of  the  railroads  would  get 
power  from  them  even  if  the  power  were  developed.  That  is  rather  a  theory 
than  a  probability  of  actual  realization,  as  yet. 

Mr.  Silv-er.  I  specifically  said,  on  the  contrary,  that  I  was  not  discussing 
Muscle  Shoals  from  the  point  of  view  of  operating  service,  but  if  developed 
rightly  it  will  be  helpful. 

Mr.  Greene.  It  would  be  an  experiment  along  that  line. 

Mr.  Silver.  The  experimentation  is  in  a  very  large  degree  done.  Hundreds 
of  miles  of  railways  are  now  being  operated  electrically  and  econoi^ically.  I 
am  thinking  of  the  national  life  of  our  people  when  I  say  if  we  could  develop 
waterways  on  the  plan  proposed  here,  amortizing  the  cost  as  we  go  along, 
and  getting  power  down  on  a  low  basis  instead  of  on  a  high  basis  it  would  be 
of  tremendous  advantage.  As  it  is  now  our  waterways  and  other  things  are 
built  up  by  issuing  bonds  and  stock,  and  more  bonds  and  more  stock  as  the 
earnings  increase,  and  the  cost  of  material  and  power  is  built  up  to  a  high 
level.  But  if  wo  reverse  the  proposition  as  it  can  be  applied  to  Mr.  Ford's 
tender,  and  instead  of  building  and  financing  at  a  tremendously  high  rate  of 
interest  if  we  could  get  it  on  a  low  basis  we  will  be  helping  every  kind  of 
activity  that  can  use  raw  material  with  the  power. 

Mr.  Greene.  Would  you  have  the  Government  do  that? 

Mr.  Silver.  I  would  not  hesitate  to  have  the  Government  authorize  a  bond 
issue  just  for  any  water-power  development  that  was  of  sufficient  size  to  enter 
into  our  life's  activities  as  this  does. 

Mr.  Greene.  You  mean  the  Government  shall  stand  back  of  it  or  stand  sponsor 
for  the  bonds,  or  would  you  authorize  their  issue  by  private  capital? 

Mr.  Silver.  Authorizing  their  issue  by  private  capital  means  bonds  and 
stocks  and  more  bonds  and  stocks,  building  high-cost  factors  or  high-priced 
raw  material  and  of  power  all  the  time.     A  proposition  in  this  immediate 


584 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


585 


tender,  which' I  see  no  reason  for  not  being  extended  to  others,  is  the  amortiza- 
tion of  the  cost  in  the  way  it  is  provided  for  here.  „.     , , 

Mr  Greene.  But  that  is  not  what  I  was  asking  you.  Would  you  have  the 
Government  authorize  the  disposal  of  power  by  the  amortization  process  and 
limit  such  a  process  by  law,  or  would  you  have  the  Government  itself  own 
and  control  the  power  and  itself  amortize  it  on  some  terms  or  lease  it  to  private 

individuals?  .     .  ,    *     i.v    „        4.- 

Mr.  Silver.  Just  as  I  said,  I  would  apply  the  same  principle  in  the  amortiza- 
tion at  Muscle  Shoals  at  other  places  as  it  is  desirable. 

Mr.  Greene.  That  would  mean  the  Government  buying  property. 

Mr.  Silver.  The  Government  starts  with  the  property. 

Mr.  Greene.  I  am  not  talking  about  this  property. 

Mr  Silver.  It  has  a  river  to  start  with.  There  is  no  reason  why  the  Gov- 
ernment should  not  amortize  the  cost  of  the  dam  and  have  the  lowest-cost 

factor  in  raw  material.  .^  .     x         ^v.-  m       «*  ««? 

Mr  Greene.  I  guess  we  do  not  get  together  on  that.  I  am  thinking  of  pri- 
vate water  powers  now,  owned  and  controlled,  because  if  you  start  anywhere 
you  would  want  them  all.  That  is  a  question  of  proper  national  policy,  and  I 
think  you  are  getting  pretty  close  to  the  edge  of  a  dangerous  practice.  I  will 
just  try  to  make  that  clear.  I  am  simply  trying  to  draw  the  line  m  between 
the  proposition  you  made  to  Mr.  McKenzie  and  this  proposition.  You  did  not 
want  the  Government  to  own  and  operate  railroads.  You  thought  it  could  be 
done  better  by  private  enterprise.  And  yet  I  wonder  if  there  is  very  much 
difference  in  the  Government  undertaking  to  get  possession  of  all  these  private 
water  powers  and  then  leasing  them  out  on  terms  to  private  individuals— I 
wonder  if  there  is  any  difference  in  principle. 

Mr  Silver.  The  question  involved  there  is  not  a  serious  question,  nor  is  it 
a  question  of  Government  operation  at  all.  If  the  Government  does  exactly 
what  I  suggested  and  authorizes  a  bond  issue  and  it  is  amortized  as  I  have 
suggested  and  that  policy  is  carried  as  far  as  the  .iudgment  of  the  Government 
sees  fit  but  in  doing  so  keeping  in  mind  the  public  welfare,  which  applies  in 
the  case  of  railroads  and  other  things  which  I  have  mentioned,  then  I  think 
there  will  be  a  solution.  The  purpose  is  to  get  cheap  raw  material  in  the  way 
of  power  needed  for  the  different  activities,  the  essential  activities  of  national 

life 

Mr  Greene.  You  appreciate  that  once  the  Government  began  to  direct  by 
that  process  of  limitation  the  control  and  administration  of  all  natural 
resources  involved  in  power  it  opens  a  field  of  going  into  mines  and  quarries 
and  other  natural  resources  just  the  same. 

Mr.  Silver.  Let  me  say  right  there  that  the  group  of  people  I  speak  for— 
and  i  am  referring  to  farmers,  largely— are  the  group  of  people  that,  in  the 
main  you  have  got  to  rely  upon  to  protect  and  maintain  private  ownership. 
If  the  farmers  of  the  country  had  taken  a  different  attitude  on  the  railway 
que"^tion  there  might  have  been  a  different  answer  to-day.  They  believe  in 
private  ownership,  and  if  at  any  time  big  business,  as  it  is  sometimes  re- 
ferred to,  breaks  with  the  great  farming  group  and  their  fixed  belief  m 
private  property,  which  is  more  firmly  fixed  in  that  group  of  people  than  in 
any  other  group  of  our  national  life,  because  next  to  human  rights  they  be- 
lieve in  property  rights— if  big  busine^^s  does  break  with  that  group,  although 
I  do  not  anticipate  that  they  will,  because  there  is  no  reason  for  them  break- 
ing organized  labor  would  take  the  railroads  under  the  Plumb  plan  or  some 
other  plan,  from  the  owners,  and  organized  labor  would  take  the  coal  mines 
from  the  owners,  and  the  very  people  you  refer  to  are  the  people  you  have  to 
rely  on  to  maintain  property  rights.  ^  ,   ,.  .^^      ^„ 

Mr  Greene.  You  echo  my  opinion  quite  convincingly.  I  believe  with  you 
that  the  substantial  element  we  must  depend  upon  for  the  old  constitutional 
idea  of  Government  is  largely  the  people  of  the  countryside.  I  heartily  con- 
cur in  that  opinion.  That  is  one  of  the  reasons  why  I  am  suggesting  to  you 
that  in  undertaking  contracts  of  this  character  are  we  not  in  danger  of  be- 
ginning to  woo  them  away  from  their  original  faith?  ^  „  u     « 

At  the  end  of  Mr.  Ford's  offer  there  is  a  provision  that  there  shall  be  a 
right   at   the   expiration    of   the  hundred-year   lease  in  this   company   or   its 
successor  to  the  use  of  the  power  for  all  time,  under  reasonable  rates, 
you  believe  that  is  healthy  public  policy?  ^  >,  t 

Mr.  Silver.  I  read  into  the  record  one  of  the  resolutions  under  which  I 
acting,  which  ought  to  answer  that  question. 

(Thereupon    at  12.30  o'clock  p.   m.,  the  committee  adjourned  to  meet 
morrow,  Thursday,  February  23,  1922,  at  10.30  o'clock  a.  m.) 


Do 


am 
to- 


committee  on  military  affairs, 

House  of  Representatives, 
Thursday,  February  23,  1922. 

The  committee  met  at  10.30  o'clock  a.  m.,  Hon.  .tulius  Kahn    (chairman) 
presiding. 

STATEMENT  OF  MB.  GRAY  SILVER — ^Resumed. 


The  Chairman. 
tion  in  part,  and 
Hull  will  begin  to 

Mr.  Silver.  Mr. 
Yesterday  I  read 
I  did  not  give  it 
be  included  in  the 

The  Chairman. 

(The  statement 


At  noon  yesterday  we  had  only  completed  your  examina- 
this  morning  we  will  continue  from  where  we  left  off.    Mr. 
ask  you  some  questions. 

Chairman,  If  I  may,  I  would  like  to  make  one  ^atement. 
an  extract  from  the  report  on  the  superpower  system  and 
to  the  reporter.    I  would  like  to  ask  that  this  entire  sheet 
record  in  connection  with  the  part  I  read  on  yesterday. 
If  there  is  no  objection,  that  will  be  done, 
referred  to  follows:) 

"advantages  of  railroad  electrification. 


"  Unified  operation  by  electricity,  on  the  other  hand,  would  give  much  better 
conditions  than  any  that  could  possibly  be  attained  under  unified  operation 
bv  steam.  There  would  be  a  new  motive  power,  in  which  all  units  or  parts 
designed  for  similar  service  would  be  identical  and  interchangeable.  There 
would  be  pooling  of  all  power,  with  great  reduction  of  reserves.  Repair  shops 
would  be  consolidated  and  maintenance  would  become  a  standardized  manu- 
facturing job.  Track  capacity  would  be  greatly  increased  and  certain  tracks 
would  be  allocated  to  freight  or  passenger  service  exclusively.  All  freight 
trains  would  be  run  on  schedule;  the  average  speed  would  be  more  nearly 
the  same  and  would  be  increased  at  least  to  the  12..5  miles  an  hour  needed  to 
avoid  the  present  punitive  overtime  payments.  Engine  houses  facilities  would 
be  much  simplified  by  consolidation.  .     ,  ^      ^  ,  ^  *.  m  k^ 

"  The  reserves  of  men  and  of  machinery  required  for  joint  operation  will  De 
much  less  than  the  aggregate  of  the  separate  reserves  required  for  individual 
operation  The  great  waste  involved  in  the  maintenance  of  separate  reserves  of 
motive  power  is  exhibited  by  the  operating  statistics  of  the  roads,  quoted  el^- 
where  which  show  that  the  average  freight  locomotive  in  this  territory  is  in 
productive  service  onlv  3,2.50  hours  out  of  the  8,760  hours  in  a  year,  an<l  the 
average  passenger  locomotive  only  2,630  hours.  With  joint  electric  operation 
and  consequent  unification  of  types  of  motive  power  there  would  be  a  strikmg 
improvement.  The  steam  locomotive  runs  8  hours  a  day;  the  electric  loco- 
motive 20  hours.  ^,  ..      ^-  «„4.Srt„„i 

"  Some  of  the  advantages  of  electric  operation  are  the  conservation  of  national 
resources,  both  of  coal  and  labor ;  an  increase  in  the  capacity  of  main  and  yard 
tracks  •  an  improvement  of  the  physical  condition  of  terminals  and  an  increase 
n  the  'value  of  the  property,  as  shown  by  the  New  York  Central  and  Pennsyl- 
vania terminals  in  New  York  City;  benefits  both  to  the  traveling  public  and 
to  residents  along  the  route  through  the  elimination  of  noise  and  smolve ;  the 
possibilitv  of  providing  multiple-level  terminals  and  freight  warehouses ;  and 
economy  in  operation  through  the  use  of  fuel  and  machinery  for  generating 
ener-v  bv  a  few  skillful  operators  in  economical  stations  as  contrasted  with  a 
large    number    of    technically    ignorant    operators    with    small,    uneconomical 

""  "ThrSectric  locomotive  is  equipped  with  meters  that  afford  complete  knowl- 
edge and  control  of  operating  conditions  and  that  are  also  a  ^^luab  e  gnide  m 
handling  the  train,  particularly  in  starting  a  long,  heavy  tram  With  electric 
tract  on  the  economy  of  the  entire  sequence  of  operation  is  not  dependent  upon 
one  man  as  it  is  with  steam.  Operation  is  therefore  no  longer  a  matter  of  in- 
dMdiial  human  iudgment,  skill,  or  fidelity.  It  is  this  unfortunate  human  ele- 
mlifS  at  ni^^imisX  theoretical  advantages  of  the  '  full-jeweled  movement ' 
Seam  locomotive.  The  effectiveness  of  the  devices  for  increasing  efficiency  and 
Spadtv  such  as  brick  arches,  superheaters,  stokers,  s  phons,  automatic  fire 
doo?s  and  power  reverses,  necessarily  depends  on  the  intelligence  and  faith- 
fulness of  the  average  engineer,  and  in  consequence  the  average  results  are  low. 
Thrfnherent  wasteftU^  of  the  steam  locomotive  is  proved  by  its  own  advo- 
Jates^their  claim  that  •  40  per  cent  of  its  coal  can  ^^Vr.«^vin^*o?^' ne^  c^^t 
of  these  auxiliary  devices.'    Then  why  be  skeptical  of  a  saving  of  60  per  cent 


[ 


586 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


587 


J 


/ 


by  a  modern^power  station,  which  has  all  these  devices  in  greater  complete- 
ness and,  in  addition,  has  brains  to  use  them? 

"  The  speed  of  different  classes  of  trains  will  be  more  nearly  uniform.  Much 
heavier  trains  can  be  handled,  and  at  the  same  time  light  freight  trains  can 
be  moved  at  the  si)eed  of  local  passenger  trains.  It  has  been  proved  that  for 
the  heaviest  freight  service,  such  as  mountain-grade  work,  the  electric  loco- 
motive is  superior  to  the  steam  locomotive,  but  its  superiority  in  handling  light 
freight  at  high  speed  is  not  so  generally  understood. 

"As  the  electric  locomotive  is  simple  and  as  all  locomotives  of  a  given  class 
are  identical  and  no  more  skill  is  required  to  operate  them  than  is  demanded 
of  an  ordinary  chauffeur,  all  locomotives  will  be  pooled,  so  that  the  total  num- 
ber required  will  be  materially  reduced. 

"  The  flexibility  of  the  electric  locomotive  is  much  greater  than  that  of  the 
steam  locomotive.  Its  capacity  is  determined  by  heating  and  therefor  by  the 
average  work  it  has  to  do,  and  not  by  the  maximum  grade,  which  is  taken 
care  of  by  the  overload  capacity  of  the  engine.  With  electric  traction  the 
maximum  grade  for  the  profiles  within  the  superpower  zone  is  practically 
eliminated  as  the  determining  factor  in  locomotive  equipment. 

"The  availability  of  the  electric  locomotive  for  service  is  at  least  twice 
as  great  as  that  of  the  steam  locomotive.  After  a  trip  it  can  be  thoroughly 
Inspected  in  less  than  an  hour,  whereas  the  thorough  inspection  of  a  heavy 
steam  locomotive  consumes  4  to  10  hours.  It  requires  no  water,  fuel  stations,^ 
ashpits,  or  turntables.  The  repair  shop  capacity  required  is  less  than  a  third 
of  that  needed  for  steam  locomotives.  The  expense  of  track  maintenance  is 
'  reduced  and  the  ballast  is  cleaner.  The  engine-house  expense  is  reduced  nearly 
to  a  negligible  amount.  In  the  electric  locomotive  energy  can  be  regenerated 
where  the  profile  permits  it,  thus  saving  some  energy  and  much  wear  of  brake 
shoes,  bettering  the  handling  of  trains,  and  consequently  saving  expense  in 
freight-car  maintenance. 

"As  a  result  of  these  and  other  advantages  the  electric  locomotive  should, 
under  favorable  conditions,  handle  twice  as  many  ton-miles  as  the  steam 
locomotive  per  locomotive-year ;  on  the  Norfolk  &  Western  it  actually  handles 
three  times  as  many  ton-miles.  This  gain  is  not  possible  under  all  conditions, 
but  it  is  possible  where  the  traffic  is  great  and  the  tracks,  yards,  and  terminals 
are  congested,  as  they  are  in  the  superpower  zone. 

"  Electric  traction,  then,  gives  increased  capacity  of  main-track  yard  track, 
and  locomotives  with  reduced  cost  of  operation  and  maintenance  per  ton  mile 
and  per  passenger-mile."  Extract  from  report  of  Chief  Engineer  W.  S. 
Murray  on  the  Superpower  Survey. 

Mr.  Hull.  Mr.  Silver,  I  want  to  clear  up  one  question  that  you  answered 
that  was  asked  by  Mr.  McKenzie.  I  do  not  suppose  that  you  intended  in 
answering  the  question  the  full  import  that  your  answer  might  give.  It  seems 
to  me  very  important  to  know  just  how  the  farmers  stand  in  regard  to  one 
matter.  You  said  that  the  farmers  of  the  country  were  opposed  to  the 
Government  manufacturing  or  entering  into  any  business  that  could  be  con- 
ducted by  private  parties. 

Mr.  Silver.  Broadly  speaking,  I  said  that.  I  used  the  expression  in  a  broad 
way,  and  was  trying  to  use  a  short  expression. 

Mr.  Hull.  As  I  caught  it,  it  might  be  construed  to  say  that  the  farmers  of 
this  country  were  in  favor  of  the  Government  not  manufacturing  any  munitions 
of  war  during  peace  time.  Now,  that  is  a  very  big  question,  and  is  one  that  is 
pressing  hard  not  only  in  this  country  but  all  over  the  world,  and  if  the  farmers 
are  in  favor  of  private  manufacture  of  war  materials  in  peace  time,  I  am  very 
badly  misinformed.  As  I  understand  it,  they  are  absolutely  opposed  to  it. 
I,  myself,  am  very  bitterly  opposed  to  it  and  shall  fight  this  as  long  as  I 
have' breath  of  life  to  fight  it,  and  I  want  to  know  whether,  in  your  opinion, 
briefly,  the  farmers  only  are  in  favor  of  private  manufacture  of  munitions  of 
war  during  peace  time,  when  we  have  factories  that  can  manufacture  these 
things  which  factories  the  Government  owns. 

Mr.  Silver.  I  agree  with  your  thought  as  expressed  in  that  particular,  that 
it  would  be  a  proper  Government  function  for  the  Government  to  provide 
itself  with  munitions. 

Mr.  Hull.  I  simply  wanted  the  record  clear ;  that  is  all. 

Mr    Silver   Yes 

Mr.  Hull.  And  now  I  want  to  get  back  to  the  proposition  that  is  before  the 
committee  with  regard  to  the  Ford  proposition  at  Muscle  Shoals.  I  understand 
we  are  to  have  another  proposition  put  before  us  submitted  by  the  Alabama 
Power  Co.    They  make  a  proposition  which  is  quite  radically  different  from 


Mr  Ford's  They  propose  to  turn  back  to  the  Government  100,000  secondary 
horsepower,  and  they  do  not  take  over  plant  No.  2  for  the  manufacture  of 
fertilizer. 

T^i*    Silver   Yes 

Mr*.  Hull.  That  presents  a  very  different  problem  for  us  to  consider,  because 
under  their  plan,  plant  No.  2  would  not  be  operated. 

Mr.  Silver.  No.  .^  ^      , , 

Mr.  Hull.  And  the  question  comes  up,  or  naturally  will  come  up,  if  we  should 
happen,  in  our  wisdom,  to  accept  the  proposition  of  the  Alabama  Power  Co.  or 
a  proposition  of  that  kind,  are  the  farmers  prepared  to  finance  a  corporation 
that  would  use  this  secon<lary  horsepower  which  they  turn  back  to  us  to  develop 
this  plant  No.  2  in  the  manufacture  of  fertilizer,  as  is  proposed  at  the  present 
time  by  Henry  Ford?    I  think  you  catch  the  idea  I  have  in  mind. 

Mr.  Silver.  Mr.  Congressman,  to  my  mind  the  plant  at  Muscle  Shoals,  to 
which  you  refer,  is  only  a  part  of  what  is  involved.  In  addition  to  the  plant 
which  we  think  has  value,  although  different  people  have  testified  it  Ms  no 
value  except  a  junk  value,  and  we  differ  from  them  on  that,  but  Mr.  Fords 
genius  and  Mr.  Ford's  capital  and  his  disposition  to  be  philanthropic  in  this 
matter  are  all  things  that  we  consider  in  thinking  about  the  Ford  tender  and 
Muscle  Shoals,  and  the  Alabama  Power  Co.,  or  any  other  company.  If  we  can 
interest  Mr.  Ford's  genius  in  this  matter  it  is  a  great  asset  to  agriculture,  and 
Congress  can  not  confer  that  genius  upon  some  farmer.  Congress  can  do  a 
great  many  things,  and  is  a  very  powerful  body,  but  it  can  not  confer  the  genius 
of  Mr.  Ford  upon  some  farmer  and  turn  him  loose  to  run  that  plant,  if  the 
other  things  were  all  in  working  shape.  In  addition  to  that,  the  farmers  are 
not  asking  that  the  plant  be  turned  over  to  them  to  see  if  they  can  or  can  not 
make  a  success  in  the  manufacturing  world.  They  are  asking  that  the  tender 
be  accepted,  which  has  been  made  by  a  genius  in  manufacturing  lines,  and  one 
who  has  the  capital  and  machinery  and  the  organization  to  run  the  business 
and  has  run  one  of  the  most  successful  businesses  that  ever  has  been  run. 

Mr.  Hull.  Naturally,  the  question  that  comes  up  right  there  is  whether  m 
the  Ford  proposition  there  is  proper  protection  as  to  the  future  development 
of  that  property  along  the  lines  you  suggest  and  whether  the  genius  of  the 
organization  of  Henry  Ford  will  be  utilized  for  the  farmers  and  the  people  of 
this  country.  In  other  words,  while  we  hope  it  will  not  happen,  yet  life  is  frail 
and  with  a  man  of  the  age  of  Mr.  Ford  we  have  no  assurance  that  he  will  live 
for  any  definite  period  of  time,  and  suppose  that  in  five  years  he  should  pass 
away,  have  we  properly  protected  the  future  use  of  this  property  along  the  lines 

you  suggest?  ^  ^         •    ,.     4. 

Mr.  Silver.  That  is  a  very  proper  question,  but  if  we  carry  what  you  indicate 
is  your  thought  to  a  proper  conclusion,  no  farmer  would  plant  a- crop  because 
he  might  not  live  to  harvest  it.  Farmers  do  not  look  at  things  just  like  some 
other  folks  do.  They  have  faith  in  the  law  and  have  faith  in  their  govern- 
mental institutions,  and  have  faith  in  the  integrity  of  a  great  many  people, 
although  not  in  all  the  people.  We  will  have  to  make  the  best  contract  we  can 
with  one  who  has  the  genius  and  the  capital  that  will  operate  this  plant,  and 
certain  things  may  have  to  be  taken  on  faith.  Not  that  I  think  we  are  taking 
any  chance  in  this  matter,  but,  looking  into  the  future,  we  know  that  Mr.  Ford 
will  not  live  100  years.  That  is  one  of  the  things  he  will  not  do,  but  his  genius 
in  setting  up  and  starting  this  machinery  may  give  it  an  impetus  that  will  carry 
it  on  for  a  long,  long  time,  and  there  is  no  other  genius  similar  to  Mr.  Ford  s, 
and  this  will  make  for  the  American  people-  a  great  development  that  has  not 
vet  been  started. 

If  you  think  of  this  thing  broadly,  there  just  comes  to  my  mind  something 
which  I  do  not  know  whether  this  is  the  proper  place  to  bring  It  in  or  not,  but 
I  will  bring  it  in  here  anyway.  There  are  two  ways  of  developing  this  great 
natural  resource.  There  may  be  others,  but  there  are  two  ways  that  occur  to 
my  mind  now.  One  is  the  way  I  discussed  with  you  yesterday,  and  that  is  to 
develop  this  particular  project  in  a  way  that  wUl  be  a  marker  for  the  develop- 
ment of  other  similar  natural  resources  and  at  the  same  time  mam  tarn  to  the 
people  the  equity  in  the  property  after  the  amortization  has  been  completed ;  and 
after  it  is  amortized  out  the  public  are  entitled  to  the  equity.  Or  we  could  do 
the  other  thing,  and  there  just  drifts  through  my  mind  the  developnaent  of  our 
oil  and  gas  business  in  this  country.  That  was  developed  under  the  old  thought, 
and  the  Standard  Oil  and  other  old  groups  did  take  a  natural  resource  and 
build  up  great  fortunes.  I  am  finding  no  fault  with  that,  because  that  was  the 
system  we  were  developing  under  at  that  time,  but  are  the  people  better  served 


588 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


589 


i 

I 


( I 


by  the  one  kind  of  development  or  the  other?  Is  it  better  for  th's  country  to 
have  built  great,  swollen  fortunes,  such  as  the  Standard  Oil  Co.  and  the  great 
head  of  that  company,  Mr.  Rockefeller,  built  up?  He  has  been  busy  trying  to 
give  away  what  he  has  been  taking  from  the  people.  Or  is  it  better  to  develop 
a  natural  resource  so  that  the  people  can  enjoy  the  equity  in  t  as  they  go 
along?  How  many  children  on  the  farm  and  i)ther  places  that  have  no  opportu- 
nity of  school  would  that  great  money,  taken  from  a  natural  resource  by  thf 
Standard  Oil,  have  helped  through  school,  have  helped  to  a  better  living,  more 
comfortable  clothing  in  wintertime  and  a  better  home,  if  it  had  been  developed 
on  some  other  line?  That  is  just  the  thought  that  dr'fts  through  my  mind  and 
I  just  throw  it  out  for  what  it  may  be  worth. 

IMi*.  Hull.  Of  course,  your  answer  is  very  comprehensive,  but  st'U  there  is  a 
lingerng  doubt  in  my  mind  as  to  whether  your  organization  of  farmers,  and 
not  only  yours  but  the  others,  has  properly  taken  'nto  consideration  the  protec- 
tion of  the  people  in  the  future.  Are  you  thoroughly  satisfied  that  if  we  accept 
the  Ford  contract  we  have  done  everything  we  can  to  protect  the  people  in  the 
future? 

Mr.  Silver.  Yes ;  keeping  in  mind  what  I  referred  to  yesterday,  that  there  is 
a  little  clarifying  language  we  are  discussing  w'th  Mr.  Ford.  With  that  in 
mind  I  would  say,  emphatically,  yes.  There  is  no  doubt  about  that  in  my  mind, 
as  indicated  not  only  by  my  testimony  but  by  the  resolutions  adopted  by  our 
group  in  convenfon,  etc.,  after  having  studied  this  question ;  so  that  I  want  to 
answer  your  question,  definitely  and  emphatically,  yes. 

Mr.  Hull.  Of  course,  another  question  that  will  naturally  follow — that  is 
whether  if  we  accept  this  contract  we  are  not  doing  the  very  thing  you  spoak 
of  in  building  up  another  great  fortune? 

Mr.  Silver.  The  difference  I  have  tred  to  make  plain  is  that  the  type  of  mind 
and  the  development  which  we  are  asking  here  is  on  just  the  reverse  of  the 
other  great  fortunes.  We  are  asking  that  the  waterways  be  developed  on  a 
basis  that  maintains  or  protects  the  public  in  enjoying  the  equity.  If  we  make 
a  cheap  raw  material  of  power,  which  the  amortization  features  of  this  invest- 
ment do,  we  are  helping  all  phases  of  our  national  life  and  we  are  hurrying 
up  a  development  which  ought  to  be  made. 

Mr.  Ht'll.  Has  your  organization  analyzed  the  figures  that  Mr.  Hugh  L 
Cooper  furnished  the  conmiittee,  which  sought  to  demonstrate  the  fact  that 
if  we  accept  the  Ford  offer  as  opposed  to  the  offer  by  the  Alabama  Power  Co. 
that  in  reality,  in  100  years  I  think  the  figures  were,  that  it  is  close  to  $2,000,- 
000,000  that  we  will  turn  over  to  Henry  Ford? 

Mr.  Silver.  We  do  not  expect  to  get  any  help  from  the  water-power  trust  on 
this  matter.  .Now,  he  often  is  accused  of  speaking  for  that  group. 

^Ir.  HiTLL.  But  figures  are  figures. 

Mr.  Silver.  Yes. 

Mr.  Hull.  And  they  can  be  analyzed  by  somebody.  I  have  not  had  the  tim(» 
and  I  do  not  suppose  I  am  competent  to  analyze  the  figures,  but  if  he  say« 
if  we  accept  Henry  Ford's  offer,  in  100  years  we  will  be  short  from  one  to  two 
billion  dollars. 

Mr.  Silver.  Without  going  into  a  real,  careful  analysis  of  it.  if  the  Govern- 
ment does  just  what  I  suggested  yesterday,  authorize  a  bond  issue  and  that 
bond  issue  is  retired,  has  it  cost  the  Government  anything,  and  the  earnlngr; 
on  the  basis  of  the  Ford  tender  will  retire  them  and  pay  the  interest.  I  fl^ 
not  care  whose  figures  you  take  or  how  they  juggle  figures;  is  it  possible  for 
any  such  conclusion  to  be  arrived  at  by  a  man  who  is  trying  to  present  what 
is  involved  to  the  public  or  to  any  other  group?  Can  it  reflect  such  a  con- 
clusion as  he  arrived  at? 

Mr.  Hull.  Of  course,  I  do  not  know  that  I  care  to  go  into  the  question  of 
figures,  and  I  suppose  before  we  get  through  we  will  have  experts  analyze  the 
figures  and  tell  us  who  is  trying  to  deceive  us,  but  somebody  is  certainly 
undertaking  to  deceive  the  committee  on  the  figures,  been  use.  as  I  understand 
it,  if  I  have  Ford's  offer  correct,  and  T  suppose  he  has  men  who  are  just  as 
capable  of  figuring  as  the  Cooper  organization,  as  I  understand  it.  he  states 
that  his  payments  will  amortize  this  entire  project,  pay  back  to  the  Govern- 
ment all  that  we  put  in  in  the  future,  with  4  per  cent;  is  that  your  under- 
standing? 

Mr.  Silver.  That  is  mv  understanding:  and  when  the  Government  has  been 
repaid,  it  can  not  lose  $2,000,000,000,  and  it  will  have  the  gaining  of  the  tax- 
able property  as  developed  by  the  operation  of  this  plant. 

Mr.  Hull.  I  understand  that,  but  Mr.  Cooper  says  that,  taking  the  same  state- 
ment, we  will  be  short  from  one  to  two  billion  dollars,  and  there  is  a  vast  dis- 


crepancy there  in  figures,  and  somebody  onght  to  be  able  to  tell  us  who  is 
telling  the  truth. 

Mr.  jImks:  Mr''  Silver,  were  you  one  of  the  gentlemen  consulted  about  the 
wording  of  section  15? 

\\v   Sit  VFR    Yes 

\fi.*    TAAtil'«i    Who  el^e    reDresenting  the   farmers,   was  consulted? 

Air  'luxvl'  Mr  Vtkt^son  and  at  the  time  of  the  consideration  of  section  15. 
to  !>^nch  vou  ?efei-imirof  our  executive  conunittee  and  our  legislation  com- 
mitted amrsuie  others  were  with  us  and  went  over  that  measure-Mr  Hov^^ 
nrd  our  nre^ident  and  Mr.  Bradfute,  and  Mr.  McKenzie,  and-1  do  not  kno^^ 
mat  I  carname  allof  them  that  were  present,  but  there  were  several  of  our 
executive  committee  and  our  legislative  committee. 

Mr.  James.  Who  represented  the  Grange? 

Mr:Ks.Who''*re%Ts^^         the   Farmers'    Educational    and    Cooperative 

^mT  sLv^R^Tam  not  sure  whether  Mr.  Loomis  of  the  Grange  was  there 
at  the  time  or  not    He  was  in  and  out  at  different  times,  but  whether  he 
was  present  at  that  time  or  not,  I  am  not  sure. 
Mr.  James.  Who  wrote  this  language?  .  .     ,  , 

Mr    Silver.  I  do  not  know  who  suggested  the  original  language 
Mr.  James.  Does  that  language  carry  out  your  ideas,  or  is  that  the  idea  ot 

^Mr^^^iLVER.  The  matter  came  to  us,  of  course,  in  the  forna  of  the  Ford 
proposal  and  there  was  a  rewriting  of  part  of  it,  and  we  still  have  some 
matters  to  debate  as  clarifying  language  and  not  as  changmg  the  purpos^ 
S  the  contract.  There  has  been  some  debate  among  our  group  as  to  just 
what  language  most  clearly  states  what  is  involved  here,  but  we  felt  at  the 
time  that  that  language  was  used  that  it  was  happy  language.  We  have  some 
su^ystfons  under  consideration,  as  I  have  twice  told  the  committee,  at  this 
time  for  clarifying  it  somewhat.  ,.     ,,      „     , 

Mr.  JAMES.  Did  you  suggest  this  idea  to  Mr.  Ford  or  did  Mr.  Ford  sug- 
gest it  to  you?  „     ^  « 

Mr.  Silver.  Which  idea,  Mr.  Congressman? 

Mr  stf^^.  The^form 'of  the  original  or  the  first  draft,  as  you  might  put 
it  is  the  form  in  which  it  came  to  us  originally,  and  it  was  somewhat 
changed  I  do  not  know  that  I  know  just  the  individual  who  suggested  the 
language.    I  do  not  know  whether  I  have  answered  your  question  or  not.    I 

'^Mr.^'j^MErThis  section  provides  that  the  three  leading  representative 
farm  organizations  shall  each  designate  seven  members  to  the  board^  etc. 
Was  that  Mr.  Ford's  idea  to  have  seven  members  or  was  that  your  idea .' 

Mr  Silver  Mr.  Ford's  original  suggestion  was  that  the  farmers  have  rep- 
resentatives on  that  board.    Mr.  Ford  made  that  proposal  to  us. 

Mr  JAMES  Yesterday  you  talked  about  cooperative  distributing  of  this 
fertilizer;  is  there  any  language  that  covers  that  in  section  15,  and  if  so, 

'"^  Mr  's^4r.  Realizing  that  this  is  a  new  development  and  that  cooperative 
mSeti^  bv  legal  authority  is  new,  although,  of  course,  10  per  cent  of  the 
Sioducts  of  the  farms  of  the  country  are  marketed  cooperatively,  but 
Sntil  recentlv  we  had  no  legal  authorization  for  so  doing,  and  it  may  not  be 
Cked  as  defiXlv  as  we  hope,  since  the  passage  of  that  bill  to  hook  it,  and 
?w  i^  «  Tiart  of  the  language  we  have  under  discussion  at  this  time.  The 
ho^  and  ambition  ol  th^  farLr  and  of  Mr.  Ford  is  that  when  this  fertilizer 
fsTrXce^  it  will  be  taken  by  farmer  groups  for  distribution  in  a  coopera- 
We  wav  We  want  to  not  only  save  in  the  cost  of  the  Pr?^"?tion  of  fer" 
tm/er  but  we  want  to  have  all  the  possible  economies  in  the  distribution  of  it. 
It  L  just  Ts  important  to  economically  distribute  it  as  it  is  to  economically 

^M^r"  LvMES  That  is  vour  hope,  but  there  is  not  anything  in  this  proposition  of 
sec^fon  l^?hat  has  anvthing  at  kll  to  do  with  cooperative  distribution,  is  there? 
Mr  Silver  The  contract  would  not  necessarily  carry  the  cooperative  distribu- 
tion buf  the  farmers  can  organize  other  distributing  groups  without  this  con- 
tract when  Mr  Ford  delivers  it  to  them,  and  when  we  see  it  is  economically 
produced  and  is  delivered  to  us  we  will  attend  to  the  distribution. 


-690 


MUSCLE  SHOALS  PROPOSITIONS. 


591 


MUSCLE  SHOALS  PROPOSITIONS. 


I 


1. 


Mr.  James.  '^Ir.  Ford's  corporation  is  limited  to  8  per  cent  profit.  Do  you  not 
think  there  shouhl  be  some  provision  by  which  the  corporation  during  the  100 
years  can  not  farm  out  territory  to  certain  individuals  and  then  have  them  farm 
it  out,  which  they  could  €io  unless  there  was  some  amendment  made  to  this 
language?    Have  you  any  proposed  amendment  in  mind? 

Mr.  Silver.  Yes;  the  language  we  are  are  trying  to  clarify  that  with  has  to  do 
with  the  point  you  have  in  mind. 

Mr.  James.  You  w^ould  like  to  have  whoever  buys  this  property  guarantee  to 
manufacture  fertilizer,  would  you  not? 

Mr.  SiLVEB.  We  are  very  much  interested  in  the  fertilizer  feature  We  do  not 
think  it  is  the  only  feature,  but  we  are  very  much  interested  in  it,  and  it  is  one 
of  the  big  things  we  hope  to  accomplish. 

Mr.  James.  Under  section  14,  how  many  tons  of  fertilizer  do  you  think  is 
guaranteed  to  be  produced  per  annum? 

Mr.  Silver.  Mr.  Congressman,  the  per  ton  basis  is  not  the  basis  that  arises 
in  our  minds  when  we  talk  of  fertilizer.  While  we  buy  fertilizer  by  the  ton, 
the  plant  food  in  the  ton  is  the  real  basis ;  and  when  he  says  he  will  produce 
a  certain  amount  of  a  certain  kind  of  commercial  plant  food,  it  may  be  inter- 
preted in  a  2-8-2  goods  or  in  a  2-8-3  or  a  2-8-4,  or  it  may  be  in  the  form  of 
sulphate  of  ammonia,  which  we  buy  and  use  on  our  orchards  just  in  the  form  of 
sulphate  of  ammonia,  24  per  cent. 

Mr.  James.  How  many  tons  do  you  think  are  guaranteed  under  section  14  as 
a  minimum? 

Mr.  Silver.  The  capacity  of  the  plant,  which  is  estimated  at  110,000  tons  of 
ammonium  nitrate,  which  is  one  of  the  parts  of  the  cbmplete  fertilizer,  and  the 
other  parts  that  are  necessary  to  go  with  that  will  make  up  the  complete  fer- 
tilizer, 

Mr.  James.  The  amount  of  nitrogen,  as  I  understand  it,  contained  in  that 
amount  of  sulphate  of  ammonia  is  190,000  tons,  and  in  2-8-2  commercial  fertilizer 
the  amount  is  1,925,000  tons? 

Mr.  Silver.  In  that  formula ;  yes. 

Mr.  James.  And  in  3-S-3  commercial  fertilizer,  1,283,300  tons,  and  in  4-8-4 
commercial  fertilizer,  962,500  tons.  Do  you  not  think  those  figures  ought  to 
be  included  in  this  proposal,  so  that  we  will  know  definitely  about  that  feature 

of  it? 

Mr.  SnvER.  I  want  to  carry  you  back  just  a  minute  to  the  testimony  of  the 
Bureau  of  Soils.  There  is  a  great  amount  of  fertilizer  used,  and  it  is  used  on 
quite  a  few  crops,  but  the  fertilizer  needs  change  from  time  to  time.  You  may 
not  want  that  same  formula,  and  we  want  different  formulas  on  different  crops. 
If  you  specified  in  this  contract  certain  fixed  formulas  for  them  to  deliver  a  cer- 
tain tonnage  by,  I  wonder  if  we  might  not  put  sometliing  in  that  was  hurtful 
rather  than  heli)ful.  I  am  in  sympathy  with  your  thought,  and  we  want  the 
greatest  output ;  but  if  we  go  to  writing  it  in  there  in  fixed  formulas,  I  wonder  if 
we  do  not  do  a  hurtful  rather  than  a  helpful  thing. 

Mr.  James.  Read  me  the  exact  language  where  he  agrees  to  manufacture 

fertilizer. 

Mr.  Silver.  Where  he  agrees  to  manufacture  it  at  all? 

Mr.  James.  Yes. 

Mr.  Silver.  I  am  reading  from  section  14: 

"  The  company  agrees  to  operate  nitrate  plant  No.  2  at  the  approxiate  pres- 
ent annual  capacity  of  its  machinery  and  equipment  in  the  production  of  nitro- 
gen and  other  fertilizer  compounds  (said  capacity  being  equal  to  approximately 
110000  tons  of  ammonium  nitrate  per  annum)  throughout  the  lease  period, 
except  as  it  may  be  prevented  by  strikes,  accidents,  fires,  or  other  causes  be- 
yond its  control,"  etc.,  which  is  the  usual  clause  in  industry.    He  says  they  will 

manufacture  it.  ^   ,    ^  ^  ^.t,    „«,« 

Mr.  James.  He  agrees  to  manufacture  the  compound,  but  can  not  the  com- 
pound be  used  for  other  things. 

Mr  Silver.  Outside  of  the  war-time  needs  of  some  of  these  things,  and  tne 
explosive  and  fertilizer  elements  are  largely  the  same,  outside  of  that,  tne 
fertilizer  is  the  great  place  where  all  the  manufacturers  of  these  chemicals 
look  for  the  sale  of  their  products.  In  addition  to  that,  I  have  the  greatest 
belief  and  faith  that  under  that  language  they  could  not  well  do  any  otner 
thng  It  refers  to  fertilizer,  and  further  do^yn  it  says,  "  I^.  «J^^f/  "^^^M^^ 
farmers  may  be  supplied  with  fertilizers  at  fair  prices  and  without  excessive 
profits  "  The  whole  of  sections  14  and  15  refer  to  the  producing  and  supply 
?ng  of  the  farmers  with  fertilizers  at  reasonable  prices.  I  ^arcely  th  nk  tha 
-any  mind  can  read  this  section-and  I  am  thinking  of  the  judicial  mind  th.it 


might  have  to  interpret  it — and  I  do  not  think  any  mind  would  read  that  alto- 
gether and  say  that  there  was  but  one  purpose  that  could  rightfully  be  accom- 
plished, and  that  is  to  produce  and  supply  fertilizer  for  agricultural  purposes. 

Mr.  James.  Do  I  understand  that  Mr.  Ford  is  going  to  offer  an  amendment 
clearing  that  up? 

Mr.  Silver.  I  think  there  will  be  some  clarifying  language. 

Mr.  Kearns.  Would  your  organization  accept  any  proposition  or  advise  the 
acceptance  of  any  proposition  other  than  one  coming  from  Mr.  Ford? 

Mr.  Silver.  It  is  a  little  hard  to  answer  a  moot  question.  I  do  not  know  what 
might  be  proposed,  Mr.  Congressman.  As  it  stands  at  this  time,  there  is  no 
doubt  about  their  viewpoint,  and  as  it  has  stood  up  to  this  time — the  Ford 
tender  has  been  made  for  some  seven  months  and  has  been  printed  and  pub- 
lished to  the  world  at  large,  and  to  our  mind  there  is  nothing  comparable  with 
it ;  and  in  addition  to  that,  we  still  go  back  to  the  point  of  this  genius  of  Mr. 
Ford,  which  we  hope  to  help  along  in  this  situation. 

Mr.  Kearns.  You  or  your  organization  are  banking  a  great  deal,  then,  on 
the  genius  of  Mr.  Ford. 

Mr.  Silver.  Sure,  we  bank  a  great  deal  on  the  genius  of  Mr.  Ford  along  with 

other  things. 

Mr.  Kearns.  Why;  what  has  justified  you  in  such  a  belief  as  that? 

Mr.  Silver.  Mr.  Ford's  business  life  with  the  farmers  has  been  such  that 
they  have  a  very  great  amount  of  confidence  in  him  and  in  his  ability  to  con- 
struct the  great  manufacturing  industry  that  he  has.  It  took  genius  to  do  it, 
and  Mr.  Ford  has  passed  the  place  where  he  has  any  selfish  need  for  money. 

Mr.  Kearns.  So  has  Rockefeller,  has  he  not? 

Mr.  Silver.  Yes ;  but  they  have  led  different  kinds  of  lives. 

Mr.  Kearns.  How  is  that?  .^  .     v.  ^  •*  ,        *    4.  *.>.«4. 

Mr.  Silver.  Well,  it  may  be  difficult  to  answer  how  it  is,  but  it  is  a  fact  that 

they  have  done  it.      •  ^  ^    ^ 

Mr.  Kearns.  They  have  both  amassed  great  fortunes. 
Mr    Silver.  Yes ;  by  different  methods.  ' 

Mr!  Kearns.  And  they  have  gotten  that  fortune  out  of  the  pockets  of  the 

American  people. 
Mr.  Silver.  Yes,  sir. 
Mr.  Kearns.  Both  of  them. 

Mr  KE^s^Mr  Ford,  if  newspaper  reports  are  true,  stated  the  other  day 
thftke  hafmade  $1^0,0^  himself,  and  he  got  that  out  of  the  pockets  of 
the  American  people. 

Mr!  KEl^s.^That  does  not  Indicate  he  Is  a  great  philanthropist,  as  you  said 

"'^"^M^'Mr^Ford  has  done  Just  exactly  what  you  challenge  He  has 
shown  thaTfn  his  production  at  all  times  he  has  maintained  it  on  the  lowest 
nSle  lever  consistent  with  proper  wages  and  proper  living  conditions  for 
Ms  people  and  has  supplied  the  public  with  the  wares  on  a  basis  under  what 

"'Mr  K^ABN^Do'^younot  think  he  could  have  furnished  this  product  to  the 
American  wople  on  a  much  cheaper  basis  than  he  has  done  If  he  has  amassed 
WWkJwO.^  in  ?he  last  few  years;  do  you  not  think  he  has  been  charging 

%"."s^^^  riV^d^the  same  article  that  I  presume  you  refer  to.  it  was  a 
newspaper  article • 

Mr  S^t^^  I?f  read  the  same  article,  I  understand  he  did  not  plead  guilty 
to^aVKade  $l5m000,000,  although' it  does  not  make  much  difference  in 
tL  point^'ou  make,  but  I  just  waut  to  caU  y«^^/"entmn  to  the  fa^  that  he 
specified  he  had  around  $100,000,000  of  real  estate  and  $100,000,000  of  ma- 
chServ  and  over  $1^,000  000  of  money  that  might  by  some  means  be  capital- 
izS  and  earn  on  $1,000,000,000.    Now,  that  is  a  different  thing.    He  has  not 

'tr' kSrn^  Tthini  Ws^exa^tC?^ent  was  that  his  real  estate  holdings, 
his  de^si^s  in  the  banks,  his  personal  property  of  various  kinds,  and  his  good 
will  could  be  capitalized  at  $1,000,000,000.  v,     ^  f  1.  f 

Mr.  Silver.  Yes ;  I  think  that  is  right.    We  agree  about  that 
Mr  Kearns   Now,  do  you  not  believe  that  if  he  had  had  the  interest  of  the 
American  people  o7  of  Ws  customers  at  heart,  he  could  have  conducted  busi- 

92900—22 38 


592 


MUSCLE  SHOALS  PROPOSITIONS. 


i' 


ness  and  exacted  a  less  profit  than  one  that  would  net  him  $1,000,000,000  in 
10  or  15  ye^s? 

Mr.  Silver.  You  get  back  to  the  point  and  you  make  the  statement  that  he 
has  netted  that.  As  I  read  the  statement,  he  has  not  netted  that  amount,  but 
I  will  not  contend  about  that  point.  He  has  made  several  hundred  million  dol- 
lars, according  to  his  own  statement,  and  he  has  made  it  in  such  a  way  that 
the  people  who  have  bought  his  wares  and  consequently  paid  that  money  are 
not  unfriendly  to  him.  They  have  gotten  more  for  their  money  when  they 
dealt  with  Ford  than  when  they  dealt  with  somebody  else. 

Mr.  Kearns.  They  paid  a  big  tariff  on  it,  however,  at  that. 

Mr:  Silver.  At  that  time,  if  it  had  not  been  for  Ford's  genius,  they  would  have 
been  worse  off.  They  have  been  able  to  pay  Ford  his  tariff,  if  you  want  to 
call  it  that,  or  his  fortune,  if  you  want  to  put  it  the  other  way,  and  have  still 
been  better  off  than  would  have  been  the  case  with  some  of  these  other  groups. 
We  do  not  feel  the  same  way  about  it. 

Mr.  Kearns.  Why  do  you  say  that  the  owner  of  a  Ford  machine  is  better  off 
by  having  one? 

Mr.  Silver.  Well,  it  was  a  choice  with  the  farmer  of  whether  he  had  a  Ford 
or  went  on  foot.  It  was  just  the  choice  of  walking  or  riding  in  a  Ford.  Of 
course,  we  can  never  hope  to  ride  in  a  Packard  or  Pierce-Arrow  or  something 

of  that  sort. 

Mr.  Kearns.  Of  course,  we  all  take  off  our  hats  to  Mr.  Ford  for  having  made 
this  money,  but  what  I  am  trying  to  get  at  is  why  it  is  that  after  he  has 
amassed  this  great  fortune  and  gotten  it  out  of  the  pockets  of  his  customers. 
you  can  bring  yourselves  to  believe  that  he  is  going  to  produce  fertilizer  at  a 
cheaper  rate  for  the  farmer  than  anybody  else. 

Mr.  Silver.  If  he  just  does  for  us  in  the  fertilizer  business  what  he  has  done 
in  the  "flivver"  business,  he  has  provided  cheaper  goods  tor  us  at  a  good 
standard  and  at  a  cheaper  price  than  anybody  else  has  done. 

Mr.  Kearns.  There  are  a  great  many  people,  and  a  great  many  of  them 
owners  of  Ford  cars,  who  would  not  agree  with  you  that  he  has  furnished  things 
cheaper  for  them  in  the  long  run.    Of  course,  the  original  price  is  cheaper. 

Mr.  Silver.  We  could  get  into  long  argument  along  that  line,  but  I  will  go 
back  to  my  statement  that  farmers  would  have  either  been  driving  their  horse 
and  buggy  or  walking,  who  to-day  are  able  to  own  a  Ford  automobile.  He 
has  made  the  product  on  a  basis  of  keeping  down  cost  factors  so  that  we  have 
been  able  to  buy  them,  and,  compared  with  what  we  would  have  paid  elsewhere, 
it  has  been  a  bargain  when  we  bought  them. 

Mr.  Kearns.  Well,  as  the  owner  of  two  Fords,  I  can  not  agree  with  you. 

Mr.  Silver.  You  had  the  alternative  of  buying  somebody  else's  machine. 

Mr.  Kearns.  Has  your  organization  read  and  studied  the  proposition  of  the 
Alabama  Power  Co.? 

Mr.  Silver.  Yes;  they  have  studied  it  to  the  extent  that  they  see  there  is 
no  provision  for  fertilizer  in  the  sense  in  which  we  feel  it  should  be  in  there, 
and  to  our  mind  that  is  a  wall  right  there. 

Mr.  Kearns.  Getting  back  to  the  proposition  of  fertilizer,  why  does  not  your 
organization  insist  on  some  clause  being  put  in  this  contract  by  which  this 
Ford  company  would  be  compelled  to  manufacture  some  kind  of  standard  fer- 
tilizer that  is  used  by  the  farmers?  i 

Mr.  Silver.  If  you  will  tell  me  what  a  standard  fertilizer  is — - 

Mr.  Kearns.  I  do  not  know. 

Mr.  Silver.  No. 

Mr.  Kearns,  But  I  know  he  has  not  agreed  to  make  fertilizers  in  this  con- 
tract.   He  has  agreed  to  make  a  certain  component  part  of  the  fertilizer. 

Mr.  Silver.  Yes. 

Mr.  Kearns.  But  has  not  agreed  to  make  fertilizer. 

Mr.  Silver.  But  the  commercial  plant  food,  and  as  to  the  carrier,  we  will 

agree  about  that.  . 

Mr  Kearns.  Is  there  not  some  clause  that  could  be  put  in  there— I  do  noi 
understand  the  formulas  for  fertilizers— but  could  not  your  organization,  with 
all  the  wisdom  that  is  in  the  organization,  and  with  the  knowledge  that  the 
members  of  that  organization  must  have  of  the  manufacture  of  fertilizer,  could 
they  not  devise  some  clause  or  construct  some  clause  that  would  compel  the 
manufacture  of  fertilizer  that  would  be  ready  for  distribution  and  use  by 

the  farmers  ? 

Mr  Silver.  This  clause,  keeping  in  mind  the  reservations  that  I  have  once 
or  twice  referred  to,  is  satisfactory  to  the  people  that  use  the  fertilizer.    Ihen 


MUSCLE  SHOALS  PROPOSITIONS. 


593 


I  will  go  back  to  the  statement  of  the  head  of  the  Bureau  of  Soils,  who  testified 
very  fully  on  the  fact  that  different  analyses  of  the  soils  did  not  give  the  same 
results  in  the  crops.  I  want  to  say  that  the  handling  of  fertilizers  and  soils 
is  a  very  difficult  thing,  and  as  yet  there  has  been  no  single  formula  devi^ 
or  no  plan  by  which  we  can  know  ahead  of  time  just  what  is  the  most  useful 
thing,  or,  if  we  use  it  successfully  one  time,  we  may  need  to  change  it  at  some 

other  time.  .^.      ,  '4.x. 

Mr  Kearns.  Getting  back  to  my  original  statement  as  to  this  clause  m  the 
contract,  I  understand  that  in  this  contract  there  is  not  any  language  in  there 
that  would  compel  him  to  manufacture  a  finished  fertilizer,  is  there?  That 
question  can  be  answered  yes  or  no.  ^     .^   x^r     /-. 

Mr.  Silver.  I  have  not  made  myself  plain  to  you.  I  want  to  do  it,  Mr.  Con- 
gressman. If  you  took  any  one  formula  and  wrote  in  there  that  formula  as  a 
finished  fartilizer,  as  I  believe  you  have  in  mind 

TVTr    TCearns    Yes 

Mr.  Silver  (continuing).  You  would  limit  the  use  of  the  fertilizer  and  the 
output  of  that  plant  to  the  particular  crop  and  the  particular  soil  that  that  one 
formula  applied  to. 

Mr.  Kearns.  I  understand  that. 

Mr.  Silver.  And  consequently  you  would  deny  a  great  many  people  access  to 
the  product  of  that  plant. 

Mr.  Kearns.  That  is  just  the  question  I  am  asking.  Can  not  your  organiza- 
tion devise  language  here  that  would  compel  him  to  manufacture  fertilizers,  we 
will  say,  the  finished  product,  whatever  that  may  be,  if  he  is  desirous  of  making 
fertilizers  for  the  farmers,  so  that  he  may  advance  the  cause  of  the  farmers, 
rather  than  the  cause  of  his  own  company ;  then  could  you  not  get  together  and 
put  in  your  contract  an  agreement  by  which  he  agrees  to  make  fertilizers  as  the 
needs  of  the  time  should  demand.    I  will  put  it  in  that  way. 

Mr.  Silver.  The  farmers  would  not  want  to  enter  into  a  contract  for  10  years 
or  100  years  based  on  a  specific  demand. 

Mr.  Kearns.  I  do  not  mean  a  specific  fertilizer,  but  could  you  not  devise  lan- 
guage that  will  compel  him  to  make  fertilizers  that  will  be  demanded  by  the 
farmers  from  time  to  time? 

Mr.  Silver.  And  this  does  specifically  provide  for  the  manufacture  of  the 
commercial  plant  food  involved  in  fertilizers. 

Mr.  Kearns.  Yes ;  involved  in  fertilizers,  I  will  admit  that. 

Mr.  Silver.  This  provides  for  that,  and  the  only  way  to  market  that  and  sell 
it  is  to  sell  it  in  fertilizer. 

Mr.  Kearns.  But  suppose  under  his  contract  he  made  this  nitrate  and  then 
refused  to  go  any  further.  How  are  you  going  to  compel  him  under  this  contract 
to  go  any  further.    That  is  what  I  would  like  to  know,  how  you  propose  to  do 

that?  „  ^  1        1^*. 

Mr  Silver.  I  think  that  is  one  of  the  features  that  we  can  well  take  with  a 
certain  amount  of  faith  and  also  on  the  language  we  have  under  consideration 

and  have  not  yet  submitted.  .    .  .    .t     »,     ^      *  n*, 

Mr  Kearns.  But  you  are  asking  us,  Mr.  Silver,  to  vote  into  the  hands  of  Mr. 

Ford  practically  $1.50,000,000  that  belongs  to  the  taxpayers,  and  when  we  do 

that  we  do  not  want  to  take  too  much  on  faitn. 
UTr   Silver   Yes 
Mr.  Kearns.  We  want  something  in  the  contract.    In  other  words,  we  want  it 

denominated  in  the  bond. 

Mr  Silver.  We  think  there  is  something  in  the  contract.  I  do  not  mean  to 
say  that  this  contract  is  without  force  and  effect.  To  my  mind  I  can  not  think 
of  a  manufacturer,  I  do  not  care  who  the  manufacturer  is,  manufacturing  and 
agreeing  to  manufacture  and  to  keep  on  manufacturing  for  100  years  and  not 
keep  up  his  outlet,  and  there  is  only  one  outlet  that  he  can  hope  to  occupy  at  all 
times  and  under  all  conditions  for  the  output  of  that  plant. 

Mr.  Kkakns.  But  under  this  contract  he  can  sell  it  to  other  fertilizer  firms, 
if  he  wants  to,  or  to  anybody  else. 

Mr  Silver  That  is  the  point  about  which  we  are  discussing  some  clarifying 
language,  and  that  is  one  of  the  points  I  referred  to  in  answer  to  one  of  the 
other  gentlemen.  I  think  we  will  have  a  suggestion  to  make  before  the  hear- 
ings are  closed  that  will  answer  that  particular  question. 

Mr.  Kearns.  Do  you  think  you  are  going  to  have  language  in  there  that  will 
be  certain  and  definite,  requiring  him  to  manufacture  fertilizer. 


594 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


595 


1 


Mr.  SiLVEE.  We  think  so.  We  think  we  will  have  language  that  will  not  only 
be  entirely  happy  to  us  but  we  trust  will  be  hapy  to  this  committee. 

Mr.  Keabns.  I  think  the  committee  wants  to  know,  if  it  is  going  to  vote  out 
that  amount  of  money,  that  the  farmers  are  going  to  get  what  they  are  ex- 
pecting. 

Mr.  Silver.  Do  not  think  that  the  farmers  want  to  take  any  chance  about  it. 
They  want  to  be  right  sure  about  it,  and  they  are  trying  to  be  sure  about  it, 
and  they  have  special  committees  studying  and  following  up  this  matter,  and 
they  want  to  know  just  what  you  want  to  know. 

Mr.  Kearns.  If  you  are  studying  the  matter  along  those  lines,  I  think  the 
committee  will  anxiously  await  a  further  report  from  you  on  that  study. 

Mr.  Silver.  Before  these  hearings  close,  we  will  have  the  results  of  that 
study  brought  to  you. 

Mr.  Xearns.  Has  your  organization  ever  studied  or  given  any  consideration 
to  what  this  plant  would  cost  to  build  now?  If  you  should  find  it  in  the  shape 
that  the  Government  did  a  few  years  ago,  when  they  undertook  to  build  this 
plant,  what  would  it  cost  to  build  it  and  complete  it  as  Mr.  Ford  wants  it 
completed  ? 

Mr.  Silver.  We  have  this  plant  just  as  it  stands  not  like  an  interested  party 
would  go  out  and  find  an  unoccupied  site  on  a  river  bank  some  place.  We 
approach  this  as  a  waste  of  the  war,  we  might  say.  Now,  we  either  use  it 
or  we  do  not  use  it,  and  it  is  either  used  and  made  an  asset  of  or  else  it  is  in  a 
large  measure  wasted. 

Mr.  Kearns.  I  understand  that,  but  that  does  not  answer  my  question. 

Mr.  Silver.  Well,  I  beg  your  pardon. 

Mr.  Kearns.  The  taxpayers  of  the  United  States  have  already  spent  there  or 
had  on  the  first  day  of  last  July,  $106,000,000  plus. 

Mr.  Silver.  Yes ;  whatever  the  amount  may  be. 

Mr.  Kearns.  $106,000,000  plus,  so  the  Secretary  of  War  testified  here,  or  in 
round  numbers  $106,000,000.  Of  course,  we  will  grant  that  that  was  done  under 
the  stress  of  war,  and  that  a  great  deal  of  that  money  was  wasted  and  squand- 
ered, but  the  question  I  would  like  to  have  answered  is  what  it  would  cost 
to-day  to  do  what  the  Government  has  already  done  down  there  and  to  com- 
plete the  plant  as  Mr.  Ford  wants  to  complete  it.    How  much  would  that  cost? 

Mr.  Silver.  I  do  not  know. 

Mr.  Kearns.  Do  you  not  think  your  organization  ought  to  know  how  much 
they  are  giving  Mr.  Ford?  Mr.  Ford  agrees  to  complete  it,  and  he  believes  it 
will  cost  anywhere  from  forty  to  fifty  million  dollars. 

Mr.  Silver.  Yes. 

Mr.  Kearns.  And  he  is  to  pay  4  per  cent  on  what  it  costs  tx>  complete  it. 

TW^i*  ^TT  VER   Yes   sir. 

Mr.  Kearns.  Therefore,  he  wants  the  taxpayers  of  the  United  States  to  give 
him  the  $106,000,000  for  his  use  for  100  years  witliout  paying  anything  on  It; 

is  not  that  true? 

Mr.  Silver.  By  the  same  reasoning,  would  we  not  be  glad  to  turn  our  Navy 
over  to  some  one  who  would  keep  it  in  good  running  shape  and  turn  it  over 
to  us  in  time  of  war?    The  fellow  who  did  tliat  would  not  have  a  bargain. 

Mr.  Kearns.  But  he  is  going  to»use  this  plant  in  the  manufacture  of  power 
and  he  is  going  to  use  it  to  manufacture  parts  for  his  automobile,  and  will 
possibly  manufacture  plows,  etx?. 

Mr.  Silver.  Sure ;  but  whether  business  goes  good  or  bad,  he  has  to  still  keep 
that  plant  in  shape  to  produce  these  needed  chemicals  in  peace  time,  under  this 
contract,  for  agricultural  purposes,  and  be  ready  in  time  of  war  to  turn  it 
over  to  the  Government  as  a  going  concern. 

Mr.  Kearns.  But  is  not  the  cost  of  that  negligible,  compared  with  the  money 
that  the  Government  has  already  invested  down  there? 

Mr.  Silver.  Not  according  to  some  estimates  of  what  it  would  cost  the  Gov- 
ernment to  keep  it  as  a  stand  by.  Maj.  Burns  testified  it  would  cost  $2,500,000 
to  keep  it  in  a  stand-by  condition,  charging  depreciation,  etc.,  and  if  we  let 
it  stand  as  an  idle  concern  in  20  years  you  have  lost  it,  anyhow. 

Mr.  Kearns.  Let  me  ask  you  this  question :  If  Mr.  Ford  wanted  to  go  down 
to  Muscle  Shoals,  and  there  was  nothing  built  there,  but  he  wanted  to  go  there 
to  build  a  plant,  just  as  any  other  business  firm  would  want  to  do,  it  would  cost 
him  at  least  $100,000,000  to  build  the  plant  the  way  he  wants  it,  would  it  not? 

Mr.  Silver.  No;  not  according  to  your  statement,  because  you  said  that  a 
great  deal  of  money  that  the  Government  spent  down  there  was  wasted,  and  I 
concur  in  the  stat^ement  that  war  expenditures  are  always  wasteful. 


Mr.  Kearns.  I  moan  if  the  plant  is  completed  down  there  as  he  wants  it,  it 
would  cost  him  at  least  $100,000,000  to  build  it  from  the  ground  up? 

Mr.  Silver.  I  do  not  know  that  I  am  competent  to  guess  on  what  it  would 
cost,  but  it  would  cost  a  heap  of  money. 

Mr.  Kearns.  Certainly  there  was  not  more  than  $56,000,000  wasted  down 
there,  which  is  cutting  it  more  than  half  in  two. 

Mr.  Silver.  We  are  just  guessing  at  that. 

Mr.  Kearns.  Yes ;  but  we  will  say  that  it  cost  him  $100,000,000,  and  if  that 
is  true,  the  Government  is  giving  him  a  subsidy  of  $50,000,000,  is  it  not? 

Mr.  Silver.  Now,  may  I  put  that  around  tlie  other  way? 

Mr.  Kearns.  You  do  not  like  the  word  "  subsidy  "? 

Mr.  Silver.  Walt.  I  am  going  to  let  you  use  the  word  subsidy.  I  did  not 
like  the  word  subsidy  when  it  was  first  mentioned  yesterday,  but  I  am  going  to 
put  it  around  the  other  way,  and  maybe  I  will  think  more  of  It.  Wliat  kind 
of  a  subsidy  is  the  Government  giving  at  the  people's  expense  to  the  present 
manufacturers  of  fertilizer  if  they  do  not  do  this? 

Mr.  Kearns.  What  kind  of  a  subsidy? 

Mr.  Silver.  Yes;  are  they  not  subsidizing  them? 

Mr.  Kearns.  How  is  that?  I  do  not  understand  that.  You  mean  they 
are  paying  them  exorbitant  prices  for  the  fertilizer? 

Mr.  Silver.  Yes. 

Mr.  Kearns.  I  will  agree  with  you  about  that,  and  I  will  agree  with  you 
about  that  as  to  practically  every  manufacturer  to-day,  and  on  the  same 
theory  we  are  subsidizing  every  manufacturer  because  practically  all  of  them 
are  charging  more  for  their  wares  than  they  are  justified  in  charging. 

Mr.  Silver.  You  and  I  agree  about  that  situation— and  this  Is  one  place  to 
cure  it.    That  is  all.    I  do  not  have  another  word  to  say  on  that. 

Mr.  Kearns.  But  do  you  not  think  that  Mr.  Ford  ought  to  pay  some  in- 
terest on  this  other  $50,000,000  that  the  people  are  giving  him?  That  is  the 
point.  Do  you  not  think  he  ought  to  pay  4  per  cent  Interest  on  more  than 
what.lt  requires  to  complete  this  plant? 

Mr.  Silver.  That  is  not  our  belief. 

Mr.  Kearns.  If  he  had  to  build  it  himself,  it  would  cost  him  that  much 
money. 

Mr.  Silver.  I  grant  you  that,  and  he  would  build  a  plant  that  would  be 
suitable  and  right  for  his  plans  at  this  time.  I  understand  that  he  has  got 
to  spend  millions  of  dollars  there  to  make  that  plant  the  kind  of  plant  he 
wants  to  have  there. 

Mr.  Kearns.  You  mean  millions  of  dollars  in  the  operation  of  the  plant? 

Mr.  Silver.  Oh,  no ;  in  reequlpment  and  rearrangement,  etc. ;  millions  of  dol- 
lars to  put  that  plant  in  shape  to  manufacture  in  the  way  he  believes  it  has 
to  be  operated  to  be  economical  and  right  to  carry  out  this  theory  of  manu- 
facturing. 

Mr.  Kearns.  Is  not  that  what  he  wants  the  Government  to  spend  this  other 

$50,000,000  for? 

Mr.  Silver.  No,  sir;  after  it  is  turned  over  to  him,  he  will  have  to  spend 
that  money  in  order  to  effect  the  kind  of  economies  he  has  in  mind. 

Mr.  Kearns.  Do  I  understand  you  to  say  that  he  Is  going  to  spend  this 
twenty-five  or  forty  million  dollars? 

Mr.  Silver.  Steady;  I  did  not  use  any  amount.  I  said  millions  of  dollars. 
I  do  not  hesitate  to  say  that  in  discussing  it  with  him  he  intimated  it  might 
take  between  ten  and  fifteen  million  dollars  to  make  this  plant  the  kind  of 
production  plant  that  he  desired. 

Mr.  Kearns.  Did  he  mean  he  would  have  to  spend  that  much  more  on 
machinery  ? 

Mr.  Silver.  On  equipment  and  rearrangement  of  the  plant  itself  to  make  it 
the  kind  of  a  fertilizer  plant  he  thinks  it  must  be  made  to  do  the  real  trick. 

Mr.  Kearns.  I  have  not  heard  that  testimony,  and  this  is  the  first  time  I 
have  heard  the  statement  made. 

Mr.  Sil\t:r.  That  may  be. 

Mr.  Kearns.  This  Is  the  first  time  I  have  heard  It  said  that  he  was  going  to 
spend  anything  on  additional  machinery.  My  impression  was  he  wanted  the 
Government  to  finance  the  completion  of  that  plant,  ready  to  manufacture  ni- 
trates and  furnish  power,  etc.,  and  If  I  am  wrong  I  would  like  to  know  about  it. 

The  Chairman.  His  representatives  in  appearing  before  the  committee  gave 
it  as  their  opinion  that  Mr.  Ford  would  have  to  expend  thirty  or  forty  million 
dollars. 


596 


MUSCLE  SHOALS  PROPOSITIOKS. 


MUSCLE  SHOALS  PROPOSITIONS. 


597 


Mr.  Kearws.  I  remember  that  testimony,  but  I  thought  they  meant  he  was 
going  to  expend  that  in  carrying  on  his  business. 

The  Chairman.  Oh,  no. 

Mr.  Fields.  And  with  the  permission  of  Mr.  Kearns.  inasmuch  as  he  says  lie 
wants  to  get  the  matter  straightened  out 

Mr.  Kearns.  I  do. 

Mr.  Fields.  The  Secretary  of  War  said  it  ^yould  require  from  one  and  a  lialf 
million  dollars  to  ten  million  dolhirs  for  additional  equipment  of  plant  No.  2 
for  the  production  of  the  nitrate  agreed  to  be  produced  by  Mr.  Ford. 

Mr.  Kearns.  What  is  this  fifty  or  sixty  million  dollars  that  the  Government 
is  to  spend  there  to  be  expended  on? 

Mr.  Silver.  You  have  got  to  finish  the  dam.  and  you  have  got  to  do  a  lot  of 
other  things.  I  do  not  know  that  I  could  answer  as  to  the  items.  You  had  bet- 
ter have  Mr.  Ford's  engineer  tell  you  about  that. 

The  Chairman.  According  to  what  the  representatives  of  Mr.  Ford  said,  the 
Government  is  expected  to  provide  the  money  for  the  completion  of  Dam  No.  2 
and  the  thorough  building  of  Dam  No.  3,  which  has  not  even  been  commenced  at 
the  present  time,  and  the  Government  engineers  say  that  will  take  about 
$50,000,000.    Mr.  Ford  thinks  it  will  take  about  $42,300,000, 

Mr.  Silver.  They  are  talking  about  the  water  power  in  making  that  statement. 

The  Chairman.  Yes.  On  this  nitrate  plant,  the  evidence  is  that  Mr.  Ford 
wants  to  buy  that  outright.  It  has  cost  the  Government  up  to  date  $67,000,000 
and  is  practically  in  working  order.  It  will  not  require  a  great  deal  of  money  to 
complete  it ;  Mr.  Ford,  of  course,  would  have  to  go  ahead  with  it  as  it  is,  but 
he  would  like  the  Government  also  to  buy  the  flowage  rights  and  the  water 
rights  necessarv  in  the  construction  of  Dam  No.  3.  Of  course,  the  amounts  vary 
in  the  different  calculations  of  the  engineers.  The  Government  engineers  are  a 
little  higher  and  provide  a  little  more  money  than  Mr.  Ford's  engineers.  That  is 
the  situation  that  the  plant  is  in  at  the  present  time,  and  that  is  the  testimony 
before  the  committee  as  I  recall  it. 

Mr   Silver   Yes 

Mr.  Kearns.  Tlie  Air  Nitrates  Corporation  claims  to  have  certain  rights  in 
this  plant.    Has  your  organization  ever  investigated  that  question? 

Mr.  Silver.  I  do  not  think  our  organization  has  ever  investigated  as  to  that. 
We  liave  the  expression  of  the  opinion  of  the  Judge  Advocate  General,  and 
aside  from  that  they  have  not  done  anything  about  it. 

Mr.  Kearns.  Would  the  farmers  whom  you  represent  want  this  contract  en- 
tered into  with  Mr.  Ford  if  they  knew  how  we  stood  with  this  Air  Nitrates 

Corporation?  .         ,    ,      ^  ,. 

Mr  Silver.  Our  people  are  inclined  to  take  the  opinion  of  the  Government 
officials  and  of  the  Judge  Advocate  General  to  the  effect  that  this  is  not  a  valid 
obligation  and  that  they  have  no  claim. 

Mr.  Kearns.  I  think  myself  they  have  no  claim,  but  I  wanted  to  know  what 
your  organization  thought  about  it. 

Mr  Silver.  So  we  simply  dismiss  it  with  that  thought  in  mind. 

Mr.  Miller.  Mr.  Silver,  you  went  into  something  of  the  philosophy  of  the 
economic  life  of  the  agriculturist. 

"h/if    Silver    Yes 

Mr!  Miller.  One  thing  basically  that  is  the  matter  with  the  philosophy  of 
the  agriculturist  or  the  system  under  which  we  do  business  is  that  under  the 
present-day  methods  whatever  he  buys  the  other  man  fixes  the  price. 

Mr.  Silver.  Yes. 

Mr.  Miller.  And  whatever  he  sells  the  other  man  fixes  the  price. 

"Mv   Silver   Verv  true. 

Mr!  Miller.  In  other  words,  he  differs  in  that  respect 

Mr.  Silver.  From  any  other  group. 

Mr.  Miller  (continuing).  From  any  other  producer  in  the  world. 

Mr!  Silver.  That  is  true.  ^  ,^        i^ 

Mr  Miller.  The  Congress  undertook  to  overcome  that,  as  near  as  it  could 
be  done  by  legislation,  by  providng  for  what  is  known  as  the  cooperative  mar- 
keting principla  ,  ^, 

Mr.  Silver.  For  which  we  are  very  appreciative.  ,      ,  ^  «^ 

Mr.  Miller.  And  which,  probably,  may  in  future  years  develop  into  a  com^ 
gponding  independence  of  the  agricultural  producer  along  the  lines  of  other 
producers.    That  is  the  hope? 

Mr.  Silver.  Yes. 


Mr.  Miller.  I  think  there  is  no  well-poised  man  in  this  country,  Mr.  Silver, 
tout  what  is  interested  intensely  in  agricultural  production. 

Mr.  Silver.  I  think  that  is  true. 

Mr.  Miller.  And  friendly  toward  it,  because  it  is  the  basic  support  of 
the  human  family.  Now,  coming  down  to  this  concrete  Ford  proposition, 
you  spoke  about  your  belief  that  there  was  a  sort  of  element  of  philanthrophy 
involved  in  it,  and  that  Ford  is  going  to  do  this  wonderful  thing  for  the 
farmers  in  the  production  of  cheap  fertilzers;  that  is  right,  is  it  not? 

Mr.  Silver.  Yes. 

Mr.  Miller.  I  suppose  you  have  observed  that  the  net  result  of  this  contract 
is  that  the  Government  is  financing  Mr.  Ford  at  the  rate  of  4  per  cent  interest, 
but  the  product  the  farmer  has  to  buy  he  buys  at  8  per  cent  interest? 

Mr.  Silver.  Not  to  exceed  that. 

Mr.  Miller.  In  other  words,  Mr.  Ford  is  charging  double  the  amount  of  inter- 
est to  the  farmer  that  he  pays  to  the  United  States  Government.  There  is  not 
much  philanthrophy  in  that,  is  there? 

Mr.  Silver.  He  does  not  necessarily  charge  the  8  per  cent  under  the  contract. 

Mr.  Miller.  Tell  me  where  he  does  not  necessarily  charge  that  I  will  take 
issue  with  you  right  on  that. 

Mr.  Silver.  It  says  not  to  exceed  that  amount. 

Mr.  Miller.    Not  to  exceed  8  per  cent. 

Mr.  Silver.  Yes. 

Mr.  Miller.  And  you  folks  have  a  committee  to  see  that  it  does  not  exceed 
that. 

Mr.  Silver.  That  they  do  not  charge  in  excess  of  that. 

Mr.  Miller.  Mr.  Ford  then  is  privileged  in  all  that  provision  of  the  contract 
in  which  you  folks  are  bound,  that  he  can  make  8  per  cent  out  of  his  money. 

Mr.  Silver.  Now,  so  far  as  that 

Mr.  Miller  (interposing).  That  is  right,  is  it  not,  Mr.  Silver? 

Mr.  Silver.  Just  a  word.    So  far  as 

Mr.  Miller.  Is  not  that  right? 

Mr.  Silver.  So  far  as 

Mr.  Miller.  That  is  all  I  desire  to  ask,  Mr.  Chairman. 

The  Chairman.  As  I  understand  it,  Mr.  Silver  wants  to  make  some  explana- 
tion. 

Mr.  Miller.  I  asked  Mr.  Silver  twice  if  that  was  not  right  and  he  did  not 
and  would  not  answer  my  question,  so  I  am  through 

Mr.  Sn.vER.  I  am  trying  to  answer  and  I  want  to  answer,  but  I  thinlj  that 
neither  yes   nor  no  would  be  a  complete  answer,  sir. 

The  Chairman.  I  think  under  the  rules  of  evidence  you  woyld  be  entitled 
to  say  yes  or  no,  and  then  explain  what  you  meant  by  your  answer;  I  think 
this  question  can  be  answered  in  that  way. 

Mr.  Silver.  I  would  say  no,  then,  as  to  that. 

The  Chairman.  Then  you  want  to  make  an  explanation  of  your  answer? 

M^r    Silver   Yes 

The  Chairman.  I  think  you  would  have  a  right  to  do  that. 

Mr.  Silver.  There  is  nothing  here  requiring  the  payment  of  the  full  8  per 
cent,  and  Mr.  Ford,  in  conversation  with  me,  said,  "  I  would  not  give  that  for 
it  to  make  money  out  of  it,"  speaking  of  the  fertilizer  end  of  the  proposition 
at  Muscle  Shoals.  "My  business  has  been  built  up  largely  by  dealing  with 
the  farmers  of  this  country," 

If  I  can  serve  them,  and  if  I  can  develop  a  great  agricultural  foundation  there 
that  will  be  good  for  all  people,  I  will  think  my  life  has  been  worth  while.  I 
do  not  feel  that  making  money  alone  makes  a  good  citizen.  Now,  just  a  moment 
further.  The  4  per  cent  which  the  gentleman  refers  to  is  a  part  of  the  cost  of 
manufacture,  and  no  interest  on  the  profit.  It  goes  in  on  that  basis,  what  it 
costs  him,  and  not  as  a  part  of  his  profit. 

In  addition,  the  4  per  cent  which  the  gentleman  refers  to  is  invested  in 
water  power,  in  the  dam,  and  that  is  permanent.  This  fertilizer  is  manufactured 
with  machinery  on  which  there  is  a  different  degree  of  depreciation  involved. 
The  fertilizer  in  its  cost  will  just  carry  the  4  per  cent  charge  against  that 
part  of  it,  whatever  part  is  contributed  by  it.  ^       ^     * 

Mr.  Crowther.  Mr.  Silver,  referring  to  the  statement  you  just  made  about 
Mr.  Ford  producing  this  fertilizer,  let  me  call  your  attention  to  the  statement 
on  page  29  of  the  tesimony  of  Secretary  Weeks,  which  you  will  find  on  examina- 
tion of  Mr.  Mayo'«  testimony  was  not  disputed ;  in  fact,  he  rather  acquiesced  In 
the  .statement.    The  Secretary  says,  "  but  I  did  suggest  that  it  seemed  to  me 


1 


598 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


599 


1 


that  thero  slioiihl  be  a  forfeit  in  case  of  the  failure  to  carry  out  that  part  of 
the  a.ifreenient,  l)ecause  in  niy  conversation  with  Mr.  Ford  I  said  to  him,  '  will 
you  jruarantee  to  continue  to  manufacture  fertilizer  during  the  life  of  this  con- 
tract,' to  which  he  replied  that  he  would  not.  I  said,  '  will  you  agree  to  iii- 
vesta  C{'rtain  definite  amount  of  money  in  the  manufacture  of  fertilizer,'  an<'. 
he  said  he  would  not.    Now,  of  course,  he  does,  in  effect. 

"  I  said  then,  in  effect,  '  You  might  stop  the  manufacture  of  fertilizer  in  flvo 
years  or  in  any  other  time  to  the  great  disappointment  of  the  people  down 
there.'  and  he  said  :  '  Of  course,  I  am  going  to  stop  if  I  can  not  manufacture  it 
profitably.'  " 

Has  Mr.  Ford  denied  those  statements,  or  have  any  of  those  who  represent 
him  here  ma<le  any  refutation  of  those  statements? 

Mr.  Silver.  Not  to  my  knowledge.  But  if  all  of  that  is  true,  if  he  shoul  1 
arrive  at  the  place  where  he  discontinues,  the  purpose  would  have  been  accom- 
plished, because  if  the  other  groups  that  are  now  charging  such  outrageous 
prices  come  in  and  undersell  him,  make  it  so  he  can  not  operate,  we  would 
have  scored  a  great  victory. 

Mr.  Crowther.  You  are  not  afraid  that  anybody  would  undersell  Henry  Ford, 
are  you? 

Mr.  Silver.  Not  a  bit  of  it;  so  he  will  go  right  on. 

Mr.  Crowthi<:r.  Then  why  suggest  it  as  a  contingency? 

Mr.  Silver.  That  would  be  the  contingency  under  which  he  would  discon- 
tinue the  manufacture ;  but  I  am  not  uneasy  about  his  discontinuing. 

Mr.  Crowther.  In  making  the  statement  you  appeared  to  be,  but  you  qualified 
it  immediately.  The  statement  you  read  yesterday,  in  addition  to  its  reference 
to  fertilizer,  spoke  of  the  development  of  metals.  That  was  in  something  yon 
put  in  the  record  yesterday,  among  other  things.  To  what  does  that  refer? 
Have  you  any  knowledge  as  to  what  Mr.  Ford  intends  to  develop,  so  far  as 
metals  are  concerned,  in  that  particular  territory? 

Mr.  Silver.  I  do  not  know  that  I  have  any  such  definite  information  that 
would  justify  me  testifying  in  reference  to  that  here.  I  would  rather  that 
Mr.  Ford  or  his  representative  testify  to  the  committee  in  reference  to  that. 
But  in  conversations  with  him  I  could  not  help  but  having  the  Impression  and 
belief,  and  knowing  that  if  he  develops  manufacturing  industries  he  will  need 
metals,  it  is  my  impression  that  he  would  develop  them.  And  I  illustrated  in 
that  way  how  there  could  be  great  savings  made. 

Mr.  Crowther.  With  what  metals? 

Mr.  Silver.  I  mentioned  steel  yesterday  in  connection  with  the  Pittsburgh 
plus  price,  and  I  used  other  illustrations.  I  showed  how  those  things  could  be 
made  cheaper. 

Mr.  Crowther.  Do  you  mean  to  tell  the  committee  that  he  contemplates  mak- 
ing steel  there? 

Mr.  Silver.  I  used  those  illustrations  in  connection  with  what  I  said,  and  I 
illustrate  to-day  again  with  them.  I  have  certain  beliefs,  but  I  would  not 
want  to  testify  to  this  committee  in  any  way  that  would  commit  Mr.  Ford  to 
anything,  because  I  have  no  information  that  would  warrant  me  in  going 

that  far. 

Mr.  Crowther.  You  spoke  of  one  of  the  difficulties  that  had  confronted  the 
farmer  and  made  his  situation  almost  intolerable,  and  I  believe  you  said  that 
the  protective  tariff  was  one  of  those  things? 

Mr.  Silver.  I  said  protective  tariffs  were  class  privileges,  and  they  may  or  may 
not  be  justified,  but  that  the  tariff  is  a  class  privilege  just  the  same.  I  qualified 
it  by  saying  I  did  not  mean  anything  unfriendly,  nor  did  I  wish  to  get  into  a 
discussion  of  the  tariff  question,  but  I  simply  said  it  was  a  class  privilege  that 
may  or  may  not  be  justified. 

Mr.  Crowther.  Is  it  not  true  that  the  recent  improvement  in  the  prices  ot 
wool  for  the  sheepman  and  cattle  for  the  cattleman,  and  in  the  dairy  products, 
and  the  prices  of  grain  at  the  present  time  are  due  very  largely  to  the  passage 
of  an  emergency  tariff  bill  constructed  and  passed  especially  for  the  benefit 
of  the  agricultural  interests  and  at  their  request? 

Mr.  Garrett.  Mr.  Chairman,  if  you  are  going  to  the  tariff  proposition 

The  Chairman  (interposing).  This  committee  is  supposed  not  to  be  a  political 

committee.  ,  ..  ,,.„ 

Mr.  Garrett.  But  the  question  asked  is  a  direct  political  question,  and  it  nas 

been  tested  out  in  this  very  Congress. 

The  Chairman.  I  will  tell  you,  Mr.  Garrett,  in  the  past  when  the  Democrats 
claimed  the  tariff  was  doing  certain  things,  we  had  gotten  to  a  point  where 


the  rations  of  the  men  in  the  Army  were  double,  and  there  was  no  tariff  in- 
volved But  the  Democrats,  however,  made  the  fight  that  everything  was  gov- 
erned by  the  action  of  the  tariff.    The  conunittee  did  not  look  upon  that  as  a 

^^Mr^  GiJRRETT.T  know,  Mr.  Chairman,  but  the  specific  question  the  gentleman 
asked  for  the  record  here,  in  order  to  show  what  the  witness's  answer  would 
be  was  in  regard  to  the  advance  in  the  present  price  of  certain  tarm  products 
and  the  relation  of  that  to  the  emergency  tariff.  For  the  record  of  this  com- 
mittee to  show  that  and  not  to  have  the  record  shoxv  the  decline  of  all  those 
Sings  immediately  following  the  passage  of  that  bill  and  for  months  after- 
wards is  unfair,  it  seems  to  me,  having  the  belief  in  regard  to  that  question 

that  I  have. 

Mr.  Greene.  But  you  are  doing  it  now. 

The  Chairman.  They  would  be  justified ,..,,.      .  ,        ,^  ,.    «-«,. 

Mr  Fields  (interposing).  Mr.  Silver  having  qualified  his  statement  jetetei- 
day,  *in  reference  to  the  tariff,  by  the  qualifying  statement  that  a  protective 
tariff  might  or  might  not  be  justified,  a  direct  political  question  would  not  be 
warranted,  because  no  man  can  tell  from  his  statement  whether  he  is  a  pro- 
tectionist or  not.  ,      ^      .     ,  v..    i.-       4-^  4.u^ 

The  Chairman.  I  do  not  think  so.    That  is  why  I  raised  no  objection  to  the 

^^Mr.^^GARRETT.  I  raise  no  objection  to  it,  and  the  gentleman  who  asked  the 

question  can  suit  himself.  .^,      .        ,  .  u  „ 

Mr.  Crowther.  I  have  tried  to  ask  a  few  questions  without  making  speeches 

in  the  record.  ,  ,  .„  ,  .     .      ,. 

Mr.  Kearns.  Let  us  have  the  question  read,  so  that  we  will  know  just  what 

it  is.  ^  ,-  . 

(The  question  referred  to  was  read,  as  follows:) 

"  Mr  Crowther.  Is  it  not  true  that  the  recent  improvement  in  the  prices  ot 
wool  for  the  sheep  man,  and  cattle  for  the  cattle  man,  and  in  the  dairy  prod- 
ucts and  the  prices  of  grain  at  the  present  time,  are  due,  very  largely,  to  the 
passage  of  an  emergency  tariff  bill  constructed  and  passed  especially  for  the 
benefit  of  the  agricultural  interests,  and  at  their  request?" 

Mr.  Silver.  There  is  a  difference  of  opinion  among  our  people  on  that  ques- 

Mr.  Crowther.  It  does  not  interfere  with  the  concrete  result  that  has  been 
attained? 

Mr.  Silver.  It  does  not  change  the  fact  at  all. 

Mr.  Crowther.  Is  it  not  true,  along  this  particular  line,  in  connection  with 
these  statements  which  you  have  made 

Mr.  Silver  (interposing).  Is  not  that  true? 

Mr.  Crowther.  That  the  agricultural  interests  you  represent  here,  as  you 
say,  are  asking  under  the  permanent  tariff  bill  even  greater  protection  and 
higher  rates  than  they  have  under  the  emergency  tariff  bill;  is  that  not  a  fact? 

Mr.  Silver.  I  want  to  answer  that  questicm,  but,  Mr.  Congressman,  unless  we 
took  the  rates  as  a  whole  and  averaged  them,  I  do  not  see  how  I  can  answer  it. 
My  belief  is  that,  in  the  first  place 

Mr.  Crowther  (interposing).  You  need  not  answer  if  you  do  not  want  to. 

The  Chairman.  He  was  proceeding  to  answer  your  question. 

Mr.  Silver.  No  farm  groups  appeared  and  testified  in  reference  to  the  emer- 
gency tariff  bill,  but  all  of  our  people  were  appreciative  of  the  interest  Con- 
gress took  in  being  helpful.  But  in  connection  with  the  latter  tariff  we  did 
appear  at  the  hearings,  and  that  was  the  only  instance  where  we  did  appear. 
We  asked  for  certain  things  to  be  done.  Just  how  you  can  compare  what  we 
asked  for  in  the  hearings  at  which  we  actually  appeared  with  the  hearings  at 
which  we  did  not  appear,  I  do  not  know.    I  can  not  see  how  that  can  be  done. 

Mr.  Crowther.  I  just  want  to  make  note  of  the  fact  that  what  you  suggest 
is  in  the  interest  of  certain  classes  and  has  the  spirit  of  class  legislation,  of 
preferential  legislation;  that  some  legislation  is  being  sought  by  the  agricul- 
tural interests,  as  was  exemplified  by  Mr.  Miller's  suggestion  regarding  the 
farmers'  cooperative  act,  in  which  the  farmers  receive  exemption  from  the 
usual  penalties  as  regards  restraints  of  trade  and  such  things.  That  is  what 
is  provided  in  the  farmers'  cooperative  act.  You  are  exempted  from  the  pen- 
alties that  are  charged  against  other  organizations  that  are  built  up  for  the 
purpose  of  developing  their  business;  is  that  not  true? 

Mr.  Silver.  No ;  I  do  not  so  understand  it.  .  ^       ^      ^x.  ^      4. 

Mr.  Crowther.  I  understand  the  farmers  are  exempted  under  that  act. 


I 


600 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


601 


!• 


Mr.  Silver.  The  farmer  has  a  different  understanding.  The  farmer  does  not 
helieve  he  has  chiss  or  special  legislation  in  that  matter.  He  does  not  believe 
he  is  exempted  from  the  antitrust  legislation.  He  does  believe  that  under  the 
procedure  provided  there  his  rights  are  clarified,  but  he  has  no  rights  above 
and  beyond  what  other  groups  have. 

Mr.  Cbowthek.  That  is  the  general  understanding  of  the  provisions  of  the 
bill,  and  I  think  the  language  is  fairly  specific  in  regard  to  that. 

You  made  a  statement  regarding  electric  propulsion  of  railroads,  in  which 
you  said  that  the  freight  cars  moved  14  miles  a  day  as  against  7  miles  a  day 
under  steam  propulsion.  What  electrification  of  the  railroads  do  you  know 
of  that  warrants  that  statement?    Does  that  include  only  oue  railroad? 

Mr.  SiLVEK.  I  quoted  that  specifically  yesterday. 

The  Chairman.  I  think,  if  you  will  pardon  me,  in  order  to  save  time,  the 
witness  testified  that  it  was  in  connection  with  some  road  down  here  in  Vir- 
ginia. 

Mr.  Silver.  I  testified  in  reference  to  the  Norfolk  &  Western  Railroad  in 
West  Virginia,  as  to  pulling  over  a  high  hill,  and  to  the  long  operations,  over 
700  miles,  of  the  Chicago,  Milwaukee  &  St.  Paul  road.  I  read  that  specifically 
into  the  record. 

Mr.  Crowther.  You  also  made  the  statement  that  the  farmers  pay  four- 
sevenths  of  the  freight  charges  in  this  country? 

Mr.  Silver.  Yes;  I  got  that  from  Mr.  Thome's  testimony  before  the  Inter- 
state Commerce  Commission. 

Mr.  Crowther.  On  what  do  they  pay  that?  They  do  not  pay  the  freight  on 
everything  grown,  do  they? 

Mr.  Silver.  Of  course  they  do;  who  does  pay  it? 

Mr.  Crowther.  The  man  who  buys  it,  does  he  not? 

Mr.  SIL^'ER.  He  gives  the  farmer  a  check,  less  the  freight  charges.  Then, 
when  the  farmer  buys  something  they  ship  it  to  him  collect,  and  he  pays  at 

the  other  end.  . ».     ,      .  ^.-^^  „«/i  ^« 

Mr.  Crowther.  I  have  bought  a  good  many  cars  of  barley  in  my  time,  ana  we 

always  paid  the  freight. 
Mr.  Silver.  You  took  it  out  of  the  market  price. 
Mr.  Crowther.  No;  we  did  not. 
Mr.  Silver.  The  farmers  do  not  understand  it  that  way ;  they  may  be  wrong 

about  it.  -       « 

Mr.  Crowther.  What  State  are  you  from? 

Mr.  Silver.  West  Virginia. 

Mr.  Crowther.  I  live  in  New  York,  and  we  pay  for  everything  ^^^  get  there. 

Mr  Silver.  There  are  some  mighty  good  people  in  New  York  State,  but  we 
are  often  not  happy  with  the  price  paid  on  the  New  York  market,  but  if  you 
did  not  pay  for  it  at  all  we  would  be  most  unhappy. 

Mr  CROWTHER  When  we  want  to  build  anything,  we  raise  the  money,  and 
we  do  not  ask  the  Government  for  a  penny.  We  raised  $200,000,000  with  which 
to  build  ourselves  a  canal  up  ther^.  and  we  did  not  ask  the  Government  for  a 

<*6nt 
Mr.  SiLv-ER.  It  was  at  a  hearing  on  that  matter  the  other  day.  ^  ^  ^  ^^  ^ 
Mr  Crowther.  You  spoke  of  the  necessity  of  fertilizers  and  the  fact  that 
our  farms  would  soon  be  deserts  if  something  of  that  kind  was  not  done.  In 
that  connection,  as  I  remember.  Dr.  Whitney  testified  that  the  people  in 
several  of  the  European  countries  do  not  use  fertilizers  at  all,  use  nothing 
except  the  natural  fertilization,  and  the  method  of  rotation  of  crops,  and  that 
their  greatest  faith  was  in  their  oldest  soils.  How  do  you  account  for  that? 
Is  there  something  lacking  in  our  understanding  of  the  development  of  the 

soil  of  this  country?  .,         ^  v,         v.        ..  i  •   «  *i,^ 

Mr  Silver  We  have  been  mining  our  soils  and  we  have  been  taking  the 
fertilization  out  of  them  at  a  greater  rate  than  we  have  replaced  fertilizers, 
greater,  possibly,  than  any  other  country  in  the  world.  ,^      ^n 

Mr  Crowther.  You  also  recollect  that  he  made  a  statement  that  after  lu 
years  of  fertilization  of  the  soils  by  synthetic  products,  they  found  a  growth 
in  the  production ;  that  although  during  the  first  10  years  there  was  a  gradual 
growth  in  the  productivity  of  the  soil,  after  that  10-year  period  had  elapsed 
it  went  down  in  corresponding  ratio  to  the  amount  of  the  soil  that  had  no 

fertilizer 

Mr.  Silver.  That  is  if  we  use  nothing  but  the  synthetic  fertilizers;  but  if 
you  use  what  you  get  from  the  legumes  you  will  have  a  permanent  building 

up  of  the  soil.  ^  ^    ^i.    v.-  v.  ^^^f 

Mr.  Crowther.  You  were  testifying  yesterday  in  reference  to  the  high  cost 

charged  by  the  manufacturers  of  fertilizers,  and  in  discussing  that  you  spoke  ot 


the  probable  costs  at  a  plant  where  ammonium  nitrate  is  produced,  and  you 
sDoke  of  the  other  products.  Then  you  figured  that  up  to  about  5^18  or  $20  and 
S  us  that  the  price  is  $48  or  $50.  Do  you  think  that  is  a  fair  comparison 
laking  the  cost  of  two  or  three  ingredients  of  the  fertilizer  and  comparing  that 
with  the  final  cost  of  the  finished  product?  ,  .  ,  ^ 

Mr.  Silver.  That  included  all  of  the  ingredients,  plus  the  labor  which  made 

uu  the  finished  product.  ^  ,.       .      .._     .^^^      -  ^ 

Mr.  Crowther.  What  percentage  of  the  cost,   generally,   in  the  cnse  of  a 

finished  material,  is  represented  by  the  labor  cost?  ,        .  .  ^ 

Mr.  Silver.  I  allowed  four  or  five  dollars,  which  is  more  than  it  costs  us  to 

make  fertilizer.  «      «,» 

Mr  Crowther.  What  do  you  mean  when  you  say     us ! 

Mr*.  Silver.  The  farmers.     We  mix  fertilizer  ourselves  sometimes. 

Mr.  Crowther.  There  was  a  good  deal  of  criticism  on  your  part  in  the 
suggestive  statement  you  made  regarding  what  you  called  the  vicious  propa- 
ganda distributed  around  the  country  against  the  Ford  proposition. 

Mr   Silver.  Opposing  the  development  of  the  Muscle  Shoals  proposition? 

Mr.'  Crowther.  Has  not  that  been  pretty  well  or  about  balanced  by  the  same 
type  of  propaganda  that  has  been  put  out  in  favor  of  it  and  against  all  the 
other  interests?    Do  you  not  think  that  is  about  a  50-50  proposit  on? 

Mr  Silver.  There  is  a  difference,  is  there  not,  in  doing  a  constructive,  heli>- 
ful  thing  in  developing  our  national  life  and   n  preventing  it  be. ng  done? 

Mr.  Crowther.  Of  course,  that  would  be  discussed  from  the  individual  pomt 

<jf  view. 

Mr.  Silver.  Unfortunately ^.  -,    x  i  •„„ 

Mr.  Crowther  (interposing).  As  to  how  much  of  a  C'onstructiye  undertaking 
ths  is  and  how  much  advantage  it  is  going  to  be  for  tHe  agricultural  interests 
of  the  country  is  shown  by  the  statement  I  read  at  tliel)eginning  of  my  ques- 
tions as  to  Mr.  Ford's  position  in  reference  to  the  matter,  and  which  has  not 
been  denied  on  behalf  of  Mr.  Ford,  that  if  he  could  make  these  things  at  a 
profit;  he  would  make  them,  and  if  he  could  not,  he  would  not  make  thern^ 
That  is  aU  there  is  to  it.  Are  you  gong  to  put  qualifying  language  in  there 
and  make  a  hard  and  fast  clause  that  will  make  it  impossible  for  Mr.  Ford  to 
make  any  such  statement  as  that  again,  that  whenever  it  does  appear  to  him 
to  be  profitable  he  is  going  to  quit  the  manufacture?  ^^^t«„  i«ncni«ap 

Mr.  Silver.  Of  course,  we  have  come  to  the  committee  with  certa  n  lan^age 
thft  we  have  agreed  on,  and  the  committee  will  have  this  proposition  before 
it,  to  decide  whether  it  does  or  does  not  want  to  include  it. 

Mr  Crowther.  Do  you  intend  to  offer  something  of  that  sort? 

Mr.  Sn,vER.  We  will  submit  what  we  think  will  cover  the  case,  so  far  as  the 

''Mr''cS>rHT  speaking  of  constructive  and  destructive  methods   yo^^^^^^ 
eized  Mr.  Rockefeller  and  held  him  up  as  the  very  antithesis  of  Mr  Ford   or 
you  held  up  Mr.  Rockefeller's  methods  as  the  very  antitheses  o^.^r.  Ford  s 
proposition     Is  there  not  some  credt  at  least  to  be  given  Mr.  Rockefeller s 
genius  in  the  development  of  the  business  he  is  engaged  in? 

Mr  SiLA^  I  think  he  has  great  genius.  I  did  not  mean  to  reflect  on  Mr. 
Ro^kefelTeXabiUty     I  was  simply  Ulustrating  the  atf  tude  of  the  two  men 

^Mr'^^CR^ow^H^^^^  is  the  difference  in  their  attitude  toward  the  public? 

Mr  Stiver   I  tried  to  make  that  plain.  ^  ,  * 

Mr.  C^^HER  What  has  Mr.  Rockefeller  done  that  has  been  detrimental  to 

%rSr^vER.  He  has  taken  a  great  natural  resource  a«d  built  up  a  great  fo^^^ 

tune,  and  the  methods  he  used,  according  to  the  P^f  ^^^^^f  f  ,?^,f  f^^* 
mind,  have  been  questionable ;  but  they  do  not  question  Mr.  Ford  s  methods 

"'m^  Crowther.  They  do  not?  Do  you  know  how  much  Mr  Ford  took  out 
of  the  War  Corporation  profits  that  were  granted  under  the  Dent  Act  for  what 
was  coming  to  him? 

Mr.  Silver.  I  do  not.  <.i.„*.o 

Mr.  Crowther.  You  do  not  know  anything  about  that/ 

Mr  cS^hS*  I  hope  to  put  a  photostatic  copy  in  the  record  in  regard 
to  that  p^rttc^t  matter  to  offset  some  of  the  statements  you  have  been  mak- 
ing in  regard  to  the  suggestion  about  Mr.  Ford's  ^^'^^J^'^'^^^J^'^^^  To„ 
lested  in  connection  with  this  particular  matt^,  and  at  other  tirn^^^  You 
alleged  in  a  direct  statement  made  by  you  that  Mr.  Cooper,  the  engineer  who 


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MUSCLE   SHOALS  PROPOSITIONS. 


603 


n  ^ 


appeaml  i)efore  the  committee  the  other  day,  spoke  for  the  Water  Power  Trusf 

By  whnt  authority  do  you  make  that  statement? 

abo^^t   ^^^^^*  ^  ^^'"^^  repeat  the  same  language;  that  Is  commonly  talke<l 

Mr.  Crowther.  Oh,  well,  that  is  hardly  the  explanation  one  would  exneci 
from  you  regarding  a  statement  of  that  severity  of  character  regardin-  •, 
mans  standing,  or  with  reference  to  his  services  and  his  appearance  as  n 
witness.     Have  you  no  authoritative  backing  for  that  statement' 

Mr.  Silver.  If  you  wish  me  to,  I  will  file  in  the  record  just  what  officini 
connections  I  can  find  which  will  show  the  company  he  keeps 

Mr.  Crowther.  I  would  be  glad  to  have  you  do  that,  and  file  it  directlv 
under  the  question  I  asked  you,  with  the  statement  that  this  is  your  explann 
tion  of  the  question   in   connection   with  your  direct  charge  that  he  is  tL 
representative  of  the  Water  Power  Trust. 

Mr.  Silver.  All  right,  sir.     (See  Appendix,  p.  1146.) 

Mr    Crowther.  And  not  have  it  so  that  it  will  appear  generally  in  there 

u  ,V^  }^  ^^™^  directly  under  the  question  I  asked  you.  I  do  not  know 
Who  Mr.  Cooper  is,  but  he  appeared  to  be  a  very  competent  witness.  He 
was  one  of  the  very  few  men  who  apparently  knew  just  what  he  was  talkin- 
a  Dour.  '^ 

Mr.  Silver.  I  think  he  is  a  very  able  man. 

Mr.  Crowther.  Yes ;  I  think  he  is.  You  spoke  of  the  capacity  of  this  plant 
down  there,  which  you  said  was  going  to  be  operated,  according  to  the  con- 
^J^^h.}''.  '^^  capacity  of  110,000  tons  of  ammonium  nitrate.  It  has  been  testi- 
fied that  in  order  to  get  that  plant  in  such  condition  that  it  would  produce 
ammonium  sulphate  it  would  be  necessary  to  put  in  about  $1,500,000  additional 
in  plant  No.  2.  That  is  the  testimony  of  the  Chief  of  Ordianie  and  several 
of  the  other  expert  witnesses  who  hcve  testified  before  the  committee  That 
does  not  compare  very  favorably  with  your  estimate  of  ten  or  fifteen 'or  six- 
teen million  dollars  that  would  probably  be  spent  on  this  plant  to  produce 
ammonium  sulphate.  ^  iiiuuui,f 

Mr.  Silver.  There  may  be  some  difference  of  opinion  on  that 

Hfi^'fw'V'^J*  '^  "'-'''^  I"  l^cTJ?!""'  ^^^''^te  plant,  and  it' has  been  tes- 
tified that  It  would  require  about  $1,500,000  to  put  in  the  sulphuric  acid  unit 

^z.^l^r.  Yisr^t^rrirhf '^'  ^^  ^^^  '^^  ^'^'^  -  ^-^  -^^-^«^  ■ 

Mr.  Crowther.  You  use  that  :n  its  free  state.  If  we  were  to  nroduce  thif 
alone,  that  is  the  only  thing  which  in  the  contract  ila^eed  upon  as  to  ?f^ 
production  of  the  equivalent  of  110,000  tons  of  ammonium  nitrate— 

Mr.  Silver  (interposing).  Will  you  say  that  over  again' 
ui^L  nTl^Z^'^  l^  ^^?  contract  the  provision  is  that  the  plant  shall  operate 
at  the  capacity  of  the  plant,  which  is  110,000  tons  of  ammonium  nitrate  a  year? 

Air.  oIla"er.  Yes. 

Mr.  Crowthoi.  That  is  the  equivalent  of  just  short  of  200,000  tons  of  am- 
tw'""'f/?  ^^^nS'P?''^^  ^'f  produces  that  according  to  the  contract,  then 
•there  will   be  190,(W0  tons  of  ammonium   sulphate.    Suppose  he  just  makes 

l^ntlnnld  frfHi.Tf^  T^  it  ou  your  orchards.    He  does  not  agree  to  make  a 
balanced  fertilizer  that  would  be  recognized  as  a  plant  food 

Mr.  Silver.  Of  course,  thsit  is  a  plant  fOod ;  it  can  be  used  on  some  plants. 

Mr.  Crowther.  That  would  really  comply  with  the  contract,  would  it  not? 

Mr.  Silver.  For  the  production  of  nitrogen  and  other  fertilizer  compounds? 

Mr.  Crowther.  Yes. 

Mr.  SiLvoi.  He  would  not  have  complied  with  the  contract  until  he  had 
produced  other  fertilizer  compounds. 

Mr.  Crowther.  He  might  produce  a  ton  a  year ;  that  would  comply  with 
that  sort  of  a  contract.  He  might  produce  a  minimum  quantity,  because  there 
is  nothing  stated  as  to  the  quantity  of  other  fertilizer  compounds-  it  just 
says  to  the  capacity  of  110,000  tons  of  ammonium  nitrate,  which  is  the  equiva- 
lent of  approximately  190,000  tons  of  ammonium  sulphate 

Mr.  Silver.  That  is  the  capacity  of  the  plant. 

Mr.  Crowther.  Is  there  any  other  machinery  to  be  provided  there  or  does 
the  contract  contemplate  the  installation  of  any  other  machinery  in  prepara- 
tion for  the  manufacture  of  any  other  kind  of  fertilizer  compounds' 

Mr.  SiLVTB.  That  is  what  he  is  going  to  spend  the  additional  millions  for. 

Mr.  Crowther.  You  say  that  is  what  he  intends  to  spend  the  additional 
millions  for? 


Mr.  Silver.  Yes ;  he  will  do  lots  of  things,  perhaps,  that  are  not  in  the  con- 
tract. He  is  going  to  do  things;  he  would  not  make  the  great  investment  he 
is  going  to  make  if  he  were  going  to  break  the  contract. 

Mr.  Crowther.  Do  you  think  he  would  make  such  an  investment  if  the  total 
horsepower  was  to  be  limited  to  another  100,000  horsepower  over  the  amount 
of  primary  horsepower  to  be  developed  at  dam  No.  2  now? 

Mr.  Silver.  The  only  way  by  which  I  can  judge  what  he  will  do  is  by  his 
tender.    He  states  the  conditions. 

Mr.  Crowther.  He  does  not  agree  to  do  anything. 

Mr.  Silver.  I  have  no  authority  to  speak  for  Mr.  Ford. 

Mr.  Crowther.  If  you  have  not  had  some  vision  or  some  assurance  of  what 
may  be  accomplished,  how  can  you  in  good  conscience  advocate  before  this 
committee  so  strongly  the  taking  up  of  this  proposition?  You  surely  must  have 
at  least  some  vision  or  some  idea  which  you  must  have  gained  from  your 
conversations  with  him,  even  though  you  may  not  have  any  specific  knowledge, 
as  to  the  realization  of  these  things  you  have  been  talking  about.  You  have 
paid  a  very  glowing  tribute  to  Mr.  Ford's  genius,  but  you  can  not  hitch  his 
genius  into  a  contract.  You  have  some  other  impossible  language  in  there 
and  you  might  get  a  clause  in  there  to  the  effect  that  the  farmers  may  have 
cheap  fertilizer,  and  believing  in  the  genius  so  far  displayed  in  business  opera- 
tions by  Mr.  Ford,  we  hereby  subscribe  ourselves  to  do  such  and  such  a  thing. 

Mr.  Silver.  If  you  contract  with  genius  and  he  undertakes  to  do  a  thing  you 
are  certainly  hooking  genius  up  into  the  carrying  out  of  the  contract. 

Mr.  Crowther.  Yes ;  but  ordinary  genius  is  largely  95  per  cent  perspiration, 
and  most  of  the  time  hard  work.    Are  you  a  farmer? 

Mr.  Silver.  I  can  qualify  there ;  I  am  a  farmer. 

Mr.  Crowther.  With  that  I  will  close,  Mr.  Chairman. 

Mr.  Wurzbach.  Mr.  Silver,  what  is  your  idea  about  requiring  security  of 
Mr.  Ford  or  this  company  he  is  going  to  form  in  the  event  of  the  acceptance 
of  this  offer;  that  is,  in  the  performance  of  all  obligations  to  make  the  pay- 
ments as  provided  for,  of  4  per  cent,  and  the  amortization  payments  and  the 
obligation  to  make  fertilizer?  What  is  your  idea  and  the  idea  of  the  organiza- 
tions you  represent  with  reference  to  requiring  security  or  guarantees  for 
tlie  faithful  performance  of  those  obligations? 

Mr.  Silver.  I  have  no  suggestions,  speaking  for  our  people,  in  reference  to 
that  matter  of  additional  pledges,  other  than  what  he  makes  in  this  contract. 

Mr.  Wurzbach.  What  security  do  you  think  this  offer  now  furnishes  to  the 
Government  and  to  the  farmers? 

Mr.  Silver.  It  certainly  carries  security  with  it,  if  this  tender  is  accepted; 
if  he  invests  a  great  amount  of  money  he  must  keep  it  in  good  faith,  or  legal 
procedure  will  lie  against  him  or  his  company.  He  contracts  with  the  Govern- 
ment to  do  certain  things,  and  then  section  18  of  the  contract  provides  "  as  a 
method  of  procedure  in  the  event  of  the  violation  of  any  of  the  terms  of  this 
proposal  or  any  contracts  made  in  furtherance  of  its  terms,  the  company  agrees 
that  the  Attorney  General  may,  upon  request  of  the  Secretary  of  War,  insti- 
tute proceedings  in  equity  in  the  district  court  of  the  United  States  for  the 
northern  district  of  Alabama,  for  the  purpose  of  canceling  and  terminating  the 
lease  of  Dam  No.  2,  or  Dam  No.  3,  or  both  of  them."  He  has  a  great  investment 
there,  and  he  must  keep  not  only  good  faith  but  he  must  live  up  to  his  contract. 

Mr.  Wurzbach.  That  is  what  he  obligates  himself  to  do.  I  understand  that 
part  of  it. 

Mr.  Silver.  The  penalty  of  cancellation  is  provided. 

Mr.  Wurzbach.  You  think  that  is  the  only  penalty,  the  cancellation  of  the 

contract? 

Mr.  Silver.  It  would  seem  to  me  if  you  canceled  the  lease  and  took  away 
the  water  power  you  would  have  done  plenty.  If  you  take  jiwa.v  ihe  wateH- 
power,  what  power  woull  he  have  with  which  to  operate,  these  iiuhistrics? 

Mr.  Wurzbach.  He  might  violate  his  contract  before  he  had  I'^t  up  any 
very  valuable  improvements.  Do  you  not  think  there  ought  to  be  some  addi 
tional  security,  certainly  covering  the  period  after  the  death  of  Mr.  Ford? 

Mr.  Silver.  The  contract  binds  his  estate  arid  binds  the  company  or  its  suc- 
cessors.    It  carries  right  on  through. 

Mr.  Wurzbach.  If  there  was  no  violation  up  to  the  time  of  his  death? 

Mr.  Silver.  You  could  proceed  against  the  company  after  that. 

Mr.  Wurzbach.  What  is  the  company?  That  is  what  I  am  trying  to  get  at. 
We  do  not  know  whether  this  will  be  another  $1,000  corporation  like  the  Air 
Nitrates  Corporation,  or  a  $5,000  or  $10,000  corporation.    Do  you  not  think  we 


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MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


605 


ought  to  haVe  some  assurance  from  Mr.  Ford  that  a  company  will  be  organized 
with  a  certain  amount  of  paid-up  capital  stock,  or  give  some  bond  to  the  Govern- 
ment that  he  will  or  that  the  company  will  faithfully  perform  the  obligation 
assumed  in  this  offer? 

Mr.  Silver.  To  my  mind,  when  he  says  here  "  violation  of  any  of  the  terms," 
that  is  sufficient  protection.  Now,  then,  his  engineer  testified  that  he  is  going 
to  invest  $30,000,000  or  $40,000,000  or  $50,000,000,  whatever  the  least  figure 
may  be. 

Mr.  WuRZBACH.  What  is  the  least  figure? 

Mr.  Silver.  Thirty  or  forty  million  dollars. 

Mr.  WuRZBACH.  He  would  not  invest  that  in  the  next  three  or  four  years, 
certainly  not  during  the  time  the  Government  is  expending  its  $50,000,000. 
During  that  time  he  would  not  have  expended  that? 

Tlie  Chairman.  Will  you  allow  me  to  make  this  suggestion?  I  understand 
Mr.  Ford  has  come  to  some  conclusion  about  the  amount  of  money  that  the 
company  ought  to  be  organized  for,  and  I  think  his  representative  will  be  willing 
to  come  before  the  committee  and  make  some  statement  in  regard  to  that. 

Mr.  WuRZBACH.  That  has  always  been  the  big  question,  in  my  mind,  and  I 
shall  be  very  glad  to  hear  the  statement  of  Mr.  Ford's  representative. 

(Thereupon  the  committee  took  a  recess  until  2  o'clock  p.  m.) 

AFTER  RECESS. 

The  committee  met  pursuant  to  recess  at  2  o'clock  p.  m. 

The  Chairman.  We  will  continue  from  where  we  left  off  when  we  recessed  at 
noon,  and  Mr.  Fields  will  ask  you  some  questions,  Mr.  Silver. 

STATEMENT  OF  MB.  GRAY  SILVER — ^Besumed. 

Mr.  Fields.  Mr.  Silver,  Mr.  Miller  referred  to  the  fact  that  Mr.  Ford  was  pro- 
posing to  charge  an  8  i)er  cent  profit,  or  not  to  exceed  an  8  per  cent  profit,  on  his 
manufactured  fertilizer  product  at  Muscle  Shoals,  whereas  he  was  only  paying 
4  per  cent  upon  the  money.  The  farmers  of  the  country  thoroughly  understand, 
do  they  not,  that  there  is  a  difference,  and  in  the  nature  of  things  must  neces- 
sarily be  a  difference,  between  the  profit  of  manufacture  and  the  profit  in  lend- 
ing money,  by  reason  of  the  hazard  in  the  former  and  the  security  in  the  latter? 

Mr.  Silver.  The  farmers  will  not  be  confused  about  that. 

lir.  Fields.  It  seemed  from  the  question  that  he  was  attempting  to  combine 
two  propositions  that  you  can  not  combine  at  all  because  of  their  very  nature. 

Mr.  Silver.  Yes;  he  was  confusing  the  interest  on  the  Government's  debt, 
which  goes  in  as  a  part  of  the  cost  and  which  will  be  charged  into  the  manu- 
facturing in  making  up  the  price,  with  the  manufacturing  profit  in  the  sale. 

Mr.  Fields.  Mr.  Keams  has  referred,  as  other  members  of  the  committee  have, 
to  the  fact  that  there  was  nothing  in  the  contract  to  bind  Mr.  Ford  to  manu- 
facture so  much  complete  fertilizer,  which  I  think  you  very  thoroughly  ex- 
plained. 

Mr.  Silver.  Yes. 

Mr.  Fields.  But  it  seems  from  the  questions  that  have  been  propounded 
that  some  gentlemen  have  not  gotten  the  fertilizer  proposition  clearly  in  their 
minds.  It  seems  that  they  look  upon  the  bag  of  completed  fertilizer  that 
they  refer  to  as  containing  100  per  cent  plant  food,  and  thereby  they  become 
confused  about  the  difference  between  the  plant  food  in  a  bag  of  fertilizer 
jind  the  bag  of  fertilizer  itself. 

Mr.  Silver.  Yes. 

Mr.  Fields.  We  will  take  this  bag  of  tobacco  I  have  here,  which  belongs 
to  my  friend  Mr.  Quin,  as  an  illustration,  and  we  will  say  that  that  represents 
a  100-pound  bag  of  2-8-2  fertilizer,  the  complete  fertilizer  that  they  refer  to. 
I  use  100  pounds  because  it  is  more  easily  figured  out,  while,  of  course,  the 
fertilizer,  as  a  rule,  is  packed  in  bags  of  125  or  150  or  160  pounds.  We  will 
say  that  this  hag  contains  100  pound«  of  2-8-2  complete  fertilizer.  Tliat 
would  mean  2  per  cent  of  nitrogen  or  ammonia. 

Mr.  Silver.  Yes, 

Mr.  Fields.  Eight  per  cent  of  phosphoric  acid,  and  2  per  cent  of  potash, 
which  would  be  12  pounds  or  12  per  cent  of  plant  food. 

Mr.  Silver.  Yes ;  out  of  the  100  pounds. 

Mr.  Fields.  Yes;  which  is  the  only  plant  food  value  in  the  100  pounds. 

Mr.  Silver.  Right. 


Mr.  Fields.  The  remainder  of  it,  88  pounds,  is  filler. 

Mr.  Silver.  Yes. 

Mr.  Fields.  Which  may  be  made  of  sand  or  varieus  other  things,  and  has 
no  plant-food  value  and  is  only  dead  weight.  Its  only  value  is  the  con- 
venience to  the  farmer  in  applying  it  to  the  soil  under  our  present  methods 
of  application  to  the  soil. 

Mr.  Silver.  Yes ;  that  is  right.  We  have  to  pay  freight  on  it  and  there  is 
no  advantage  in  any  way  except  that  is  the  form  we  get  it  in. 

Mr.  Fields.  Therefore,  approaching  this  from  the  standpoint  of  plant  food 
in  which  the  farmer  is  interested,  because  he  is  not  interested  in  the  dead 
weight,  because  it  brings  no  value,  we  might  then  refer  to  the  Muscle  Shoals 
proposition  as  a  plant-food  proposition  instead  of  a  fertilizer  proposition. 

Mr.  Silver.  Yes. 

Mr.  Fields.  Then,  if  Mr.  Ford  manufactures  there  190,000  or  200,000  tons,  in 
round  numbers,  of  ammonium  sulphate,  which  is  a  plant  food,  it  is  fair  to 
assume,  first,  that  he  is  going  to  market  it. 

Mr.  Silver.  Yes ;  or  why  would  he  manufacture  it. 

Mr.  Fields.  It  would  be  unfair  to  assume  he  was  going  to  manufacture  it 
and  throw  it  into  the  river,  as  I  suggested  the  other  day. 

Mr.  Silver.  Yes. 

Mr.  Fields.  He  must  continue  under  the  terms  of  his  contract  to  produce  it. 

Mr.  Silver.  Yes,  sir. 

Mr.  Fields.  Then  he  must  find  a  market  for  it.  What  is  its  peace-time 
market  other  than  as  a  plant  food? 

Mr.  Silver.  Fertilizer  is  the  great  market. 

Mr.  Fields.  It  is  plant  food,  then? 

Mr.  Silver.  Certainly. 

Mr.  Fields.  Then  I  ask  what  is  the  peace-time  demand  for  that  product  other 
than  as  a  plant  food?    It  is  very  light,  is  it  not? 

Mr.  Silver.  It  is  very  small,  practically  none. 

Mr.  Fields.  Then,  in  specific  terms,  the  contract  provides  for  ammonium 
nitrate  and  other  fertilizer  products,  and  we  have  there  a  basis  of  190,000  or 
200,000  tx)ns  of  plant  food  in  the  form  of  ammonium  sulphate  to  start  with,  and 
we  also  have  another  provision  in  the  contract  which  refers  to  other  fertilizer 
products. 

Mr.  Silver.  Yes. 

Mr.  Fields.  And  if  Mr.  Ford  produces  the  amount  of  phosphoric  acid  neces- 
sary to  take  its  place  along  with  this  amount  of  ammonium  sulphat.e,  the 
farmer  then  has  gaind  that  much  additional. 

"M-T  Silver.  Yes. 

Mr.  Fields.  And  if  he  produces  the  potash  necessary  to  take  its  place  along 
with  this,  he  has  made  an  additional  gain. 

Mr.  Silver.  Correct 

Mr.  Fields.  That  was  my  understanding  of  the  proposition,  and  I  wanted 
to  know  whether  my  understanding  was  right  or  wrong. 

Mr.  Silver.  That  is  right. 

Mr.  Fields.  I  inferred  from  one  question  propounded  by  Mr.  Crowther  that 
he  had  tJie  impression  that  the  natural  fertilizer  referred  to  by  Dr.  Whitney 
might  be  had  by  the  farmer  without  any  cost  to  him.  I  agree  with  Dr.  Whitney 
that  it  is  probably  the  most  valuable  fertilizer  that  we  can  have,  but  I  would 
not  agree  with  Dr.  Crowther — or  my  understanding  of  his  statement  rather — 
that  the  farmer  could  get  it  without  cost.  In  fact  in  many  instances,  is  it 
not  the  most  expensive  fertilizer  per  acre  we  could  possibly  get? 

Mr.  Silver.  It  is  the  most  expensive. 

Mr.  Crowther.  Mr.  Chairmnn,  I  was  interrupted  and  I  beg  to  interrupt 
there,  because  I  made  no  such  statement  as  that. 

Mr.  Fields.  I  referred,  Mr.  Chairman,  to  my  understanding  of  IMr.  Crowther's 
statement.    I  did  not  quote  it  as  a  positive  statement,  but  as  my  understand 
ing  of  his  statement,  and  my  remarks  will  show  that  in  the  record. 

Mr.  Silv-er.  The  plowing  up  of  a  field  and  sowing  it  in  a  legume,  whether 
it  be  cow  peas  or  soy  beans  or  alfalfa  or  whatever  it  may  be,  is  an  expensive 
process,  and  costs  a  great  deal  of  money  for  the  amount  of  nitrogen  that  you 
may  capture  from  the  air  in  that  way.  That  is  nature's  way,  and  we  are  doing 
a  great  many  things  different  from  the  way  nature  does  them,  in  order  to  accom- 
plish the  same  end.  We  are  now  setting  up  a  machine  or  factory  to  extract 
this  material  from  the  air  and  get  it  in  what  we  hope  is  a  cheaper  form  and 
in  very  much  greater  volume,  because  if  you  cut  down  the  production  of  food- 


p 

1 


606 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


607 


i 
1. 

i 


stuffs  or  the^  acreage  of  foodstuffs  until  you  can  maintain  the  soil  by  the 
method  of  crop  rotation  that  will  very  materially  reduce  the  supply  of  food- 
stuffs and  raw  material  for  clothing. 

Mr.  Fields.  And  the  farmer  of  limited  means  who  is  unable  to  buy  the  seed 
and  plow  the  soil  and  plant  the  crop  for  fertilizer  only,  in  the  absence  of  com- 
mercial fertilizer,  would  be  unable  to  get  fertilizer  at  all. 

Mr.  Silver.  Yes;  that  is  true. 

Mr.  Fields.  I  realize,  Mr.  Silver,  that  a  discussion  of  the  question  of  a  subsidy 
is  not,  possibly,  within  your  line  of  thought,  because  you  are  here  representing 
the  agricultural  interests,  but  since  this  question  has  been  taken  up  with  you 
and  certain  statements  made  in  the  record  I  am  anxious  to  see  if  we  farmers 
can  arrive  at  an  understanding  of  the  question  of  the  subsidy  that  has  been 
charged  by  some  of  the  witnesses  and  some  of  the  members  of  the  committee. 
The  representative  of  the  Air  Nitrates  Corporation  who  appeared  before  the 
committee  charged  that  if  the  Government  sold  this  property  to  Mr.  Ford  it 
would  extend  to  Mr.  Ford  a  subsidy.  We  can  understand,  can  we  not,  that 
if  the  Air  Nitrates  Corporation  should  buy  all  or  any  part  of  that  property  at 
the  same  figure  offered  by  Mr.  Ford  it  would  receive  the  same  subsidy,  con- 
ceding that  it  is  a  subsidy,  that  it  is  objecting  to  the  Government  extending  Mr. 
Ford? 

Mr.  Silver.  Certainly. 

Mr.  Fields.  We  can  understand  that? 

Mr.  Silver.  There  is  no  doubt  about  that. 

Mr.  Fields.  Then,  for  argument's  sake,  we  will  concede  that  there  is  a  sub- 
sidy to  the  purchaser  of  these  war  materials.  First,  the  Government  had  upon 
hand  at  the  close  of  the  war  many  billions  of  dollars  of  property  that. was 
declared  surplus.  Now,  the  farmers  of  the  country  do  not  want  the  Gov- 
ernment to  keep  that  property  that  is  not  needed  by  the  Government  and  incur 
the  expense  of  its  maintenance.  The  farmers,  like  everybody  else,  want  the 
Government  to  dispose  of  it  at  the  best  advantage  possible ;  am  I  not  right 

about  that? 

Ttf r    Silver   Yes 

Mr!  Fields.  I  imagine  that  if  we  concede  that  there  is  an  element  of  subsidy 
in  this  proposition  that  the  actual  commercial  value  of  the  property  sold  or 
the  difference  between  the  actual  commercial  value  to  the  purchaser  and  the 
price  that  it  cost  him  would  represent  the  subsidy.  That  is  only  an  opinion 
of  my  own  which  I  desire  to  express  in  the  discussion  of  this  subject  and  does 
not  require  an  answer  from  anybody.  So  if  we  grant  that  this  is  a  subsidy, 
then  every  citizen  who  buys  war  materials  for  use  that  are  worth  more  to  him 
than  what  he  pays  for  them  is  getting  a  subsidy  from  the  Government,  and 
Mr.  Ford  is  not  in  a  class  by  himself,  and  the  farmers  will  understand  that, 

I  judge. 

Mr.  Silver.  It  would  apply,  of  course,  generally,  but  even  for  argument's 
sake  I  do  not  concede  for  a  moment  it  is  a  subsidy,  because  I  do  not  believe  it  is. 

Mr.  Fields.  I  do  not,  either. 

Mr.  Silver.  But  the  logic  of  your  argument  is  that  the  same  conditions  would 
attach  to  any  other  war  material  sold,  which  I  concur  in. 

Mr.  Fields.  I  stated  in  my  premise  that  we  conceded  it  for  argument's  sake. 

Mr.  Silver.  Yes;  I  understand  that. 

Mr  Fields.  Then,  I  observe  from  information  obtainable,  that  the  Govern- 
ment received  $3,500,000  for  the  Old  Hickory  Munitions  Plant,  which  cost  the 
Government  $80,000,000,  which  was  4.28  per  cent  of  the  original  cost. 

TLc-p    ^TT.vER   Yes 

Mr*.  Fields.  Granting  that  this  is  a  subsidy,  the  Government  therefore  ex- 
tended a  subsidy  to  that  concern. 

T^i*   Silver   Yes. 

Mr  Fields.  I  observe  also  from  the  information  that  is  available  that  tlie 
Government  received  for  the  wooden  ships  that  cost  the  Government  $800,000, 
the  sum  of  $5,000  or  .63  of  1  per  cent.  Now,  the  purchaser  of  those  ships  did 
not  buy  them  to  keep  as  relics,  but  bought  them  to  operate. 

Mr.  Silver.  Certainly. 

Mr.  Fields.  And  in  competition  with  ships  built  at  normal  cost. 

ATr   ^TT  vER   Yes 

Mr!  Fields.  I  aiso  observe  that  the  19  wooden  ships  that  cost  $600,000  each 
sold  for  $2,500,  which  was  .42  of  1  per  cent.  The  nitrate  plant  at  Nitro,  W.  Va., 
which  cost  $60,000,000  was  contracted  at  about  9  per  cent  plus.  That  con- 
tractor fell  down  because  the  proposition  was  too  big  for  him,  just  like  Muscle 


Shoals  is  too  big  for  most  individuals  or  firms,  and  is  now  selling  it  out  for 
the  Government  on  a  50  per  cent  commission,  which  will  probably  bring  a  net 
return  to  the  Government  of  around  5  per  cent. 

Mr!  Fields.  Mr.  Ford  offers  $5,000,000  for  the  property  at  Muscle  Shoals, 
which  cost  the  Government  $85,423,078.73,  which  is  5.85  per  cent  of  its  cost,  or 
which  is  1.43  per  cent  more  than  the  Old  Hickory  Plant  brought  and  more  than 
any  other  property  has  brought  up  to  this  time  on  which  I  have  been  able 
to  secure  the  figures.  Therefore,  granting  that  it  is  a  subsidy.  Ford  is  not 
attempting  to  put  over  an  iniquitous  scheme  upon  the  Government,  apparently, 
but  is  buying  its  property  at  a  greater  percentage  of  its  original  cost  than  any- 
body else  thus  far  has  paid  for  such  property,  and  the  farmers  all  understand 
that. 

Mr.  Silver.  He  is  doing  that,  and  at  the  same  time  developing  a  natural  re- 
source in  the  most  desirable  and  helpful  way. 

Mr.  Fields.  Yes. 

Mr.  Silver.  In  addition  to  buying  it  and  paying  as  much  as  has  been  paid 
for  other  plants,  he  uses  it  to  a  better  purpose. 

Mr.  Fields.  Yes.  Now,  so  much  for  that  part  of  the  subsidy.  The  War 
Department  and  the  Congress  seem  to  be  practically  of  one  mind  about  the 
fact  that  nitrate  plant  No.  2  should  be  kept  for  the  use  of  the  Government  for 
the  production  of  nitrogen  in  time  of  war. 

Mr.  Silver.  Yes. 

Mr.  Fields.  And  so  far  as  I  know,  there  is  no  opposition  to  that  among  the 
farmers  of  the  country. 

Mr.  Silver.  No;  none  at  all. 

Mr.  Fields.  It  seems  to  be  the  unanimous  opinion  of  the  citizenship  of  the 
country,  regardless  of  class,  that  the  Government  should  follow  that  course. 

Mr.  Silver.  Yes. 

Mr.  Fields.  The  complant  is  made  that  Mr.  Ford  does  not  propose  to  pay 
4  per  cent  upon  the  entire  investment  of  the  Government  necessary  to  the  opera- 
tion of  these  dams  and  the  nitrate  plant.  The  Government  has  now  invested 
in  Dam  No.  2  $17,000,000  that  is  not  covered  by  Mr.  Ford's  proposal  to  pay 
interest. 

Mr.  Silver.  Yes. 

Mr.  Fields.  But  as  a  balance  against  the  interest  that  that  would  bring, 
Mr.  Ford  proposes  to  maintain  the  plant. 

Mr.  Silver.  Yes. 

Mr.  Fields.  Which,  according  to  the  figures  that  have  been  presented  at  these 
hearings,  if  I  have  read  them  correctly,  standing  alone,  would  cost  around 
$200,000  a  year  to  maintain.  It  cost,  I  believe,  $201,647.  In  addition  to  that, 
Mr.  Ford  must  bear  the  expense  of  deterioration. 

Mr.  Silver.  Certainly. 

Mr.  Fields.  Which,  according  to  the  figures  of  the  War  Department,  basing 
it  upon  5  per  cent  annually,  would  amount  to  $2,350,000  a  year. 

Mr.  Silver.  Yes. 

Mr.  Fields.  Or  $235,000,000  during  the  life  of  the  lease.  In  addition  to  that, 
with  the  completion  of  these  dams,  the  Government  is  saved  the  expense  of 
operating  the  Muscle  Shoals  canal. 

Mr.  Silver.  Yes. 

Mr.  Fields.  Which  has  cost  the  Government  an  annual  charge  of  $53,000  since 
Us  construction.  I  notice  the  War  Department  does  not  put  it  at  that  much,  due 
to  the  fact  that  they  are  taking  the  figures  of  last  year  when  the  canal  was  not 
in  operation  at  all  by  reason  of  the  uncompleted  condition  of  Wilson  Dam,  which 
obstructs  all  traffic. 

I^Tr    ^iTVER    Yes 

Mr!  Fields.  But  the  average  cost  has  been  $53,000  per  annum,  which  for  the 
life  of  the  lease  would  be  $5,300,000,  or  a  total  for  those  three  items  of  $260,- 
300,000  saved  to  the  Government  against  its  $17,000,000  investment  in  the  dam 
up  to  date. 

Mr.  Silver.  That  is  quite  true. 

Mr.  Fields.  I  think  the  farmers  of  the  country  would  accept  that  as  a  very 
j^ood  deal  for  the  Government,  yould  you  not  think  so? 

Mr.  Silver.  Certainly,  in  private  life,  one  would  think  so,  if  thev  had  that 
kind  of  a  trade  on ;  but  in  addition  to  that,  he  does  applicational  research  and 
keeps  the  equipment  abreast  of  the  times  by  replacements. 

Mr.  Fields.  I  referred  to  the  replacement  cost  in  the  $235,000  a  yep.r. 


i>-N 


\   . 


92900—22- 


-39 


608 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


609 


Mr  Silver.  But  the  replacement  simply  to  maintain  it  at  its  status  quo  wou  d 
not  be  keeping  abreast  of  the  times.  He  will  need  sometimes  to  junk  perfectly 
good  equipment  so  that  new  processes  may  be  applied. 

Mr  Fields.  Yes;  I  had  not  taken  into  account  such  new  processes. 

Mr'.  Silver.  So  it  is  even  more  than  what  you  mention,  and  just  how  to  measure 
that  in  dollars  would  be  very  difficult.  .      .  i.  r     t-.     i 

Mr  FIELDS  Theu  of  the  amount  to  be  expended  from  this  time  on,  Mr.  Ford 
agrees  to  pay  $55,000  a  year,  first,  for  the  maintenance  of  the  locks  and  dams, 

etc  ' 

Mr.  Silver.  Yes ;  for  the  operation  of  them         .  _  _^  ,^ 
Mr.  Fields.  Which,  during  the  lease,  would  be  $5,500,0UU. 

Mr  F^Ids  H?'will  pay  interest  at  the  rate  of  4  per  cent  which  upon  the 
figures  preTentedb;  his^ngineers,  will  «niount  to  $161^OiOj000,  making  a  total 
income  to  the  Government  in  those  two  items  of  $lbb,o4U,0UU.  ,^  ,.,  ^   .^ 

Mr  SiivER  Yes  There  is  some  interest  included  there,  and  I  would  like  if 
I  may  to  n^rt  Irom  the  statement  of  the  public  debt  of  the  United  States  a  list 
of  the  inte?St  bearing  debts  of  the  Government  so  that  it  may  show  what  rate 
of  interest  tL^  has  paid  in  peace  times,  which  would  be  some  reason- 

able basis  for  figuring  what  it  would  pay  in  ordinary  peace  times. 

Mr  F^LDs.  Yes ;  I  would  be  very  glad  to  have  that  put  in  the  record. 

(The  statement  referred  to  is  as  follows:) 


Bonds. 


4  per  cent  consols  of  1930 

2  per  cent  loan  of  1925 

2  per  cent  Panamas  of  1916-1936 

3  per  cent  Panamas  of  1918-1938 

3  per  cent  Panamas  of  1961 - 

2  per  cent  conversion  bonds  of  1946-1947. .... -  -  -  •  • - 

2i  per  cent  postal  sa\angs  bonds,  first  to  twenty-first 

series 


Amount 
issued. 


$646,250,150 
162, 315, 400 
54,631,980 
30,000,000 
50,900,000 
28,894,500 

11,774,020 


Amount 
retired. 


Amount 
outstanding. 


$46, 526, 100 

43, 825, 500 

5,677,800 

4,052,600 


$599,724,050 
118,489,900 
48,954.180 
25,947,400 
.50,000,000 
28,894,500 

11,774,020 


Mr.  FIELDS.  Then,  Mr.  Ford  proposes  an  amortization  fund  which,  retired 
at  4  per  cent,  would  amount  to  $49,000,000  at  the  expiration  of  the  list. 

Mr*  F^^a  Which  all  combined,  would  represent  in  cash  actually  paid  to 
fi^Tdo^'Snmelo^eivena^  by  Mr!  Ford  in  the  maintenance  of  this  plant  and 
^  saving  the  Government  the  expense  of  operating  the  canal,  a  grand  total  of 

^^m;^^.  They  seem  to  be  correct  figures,  but  some  of  it,  however,  is  in- 

*Tr'  S?EiSrSrred  to  that.  The  $166,540,000  is  interest,  the  $49,000,000 
is^he  SLtion  S  and  the  balance  of  it  is  the  $260,300,000  in  the  saving 
on  maintenance,  etc. 

^l-  !S  ^M  ih^^Govemmeni  should  be  able  to  retire  this  amortization 
f„ml  «r?^r  ceS  that  would  amount,  at  the  expiration  of  the  lease,  to 
$;w,868,W2!^hicirwould  be  an  additional  gain  to  the  Government  of  $51,797,70.. 

Mr!  IS.  How  would  5  per  cent  compare  with  the  market  for  farm  loan 

"""m/  fi^^  F?rm  loan  bonds  at  this  time  carry  that  rate  of  interest. 
Mr'  fS'  AnTi  have  heard  that  some  people  have  made  application  for 

*''Mr*i^^V^plfhaveCt*onTy  applied  for  the  bonds  and  could  not  get 
.„  w^thVtUne  of  the  sale  of  the  $40,000,000  bond  issue,  there  was  more 
iS»n's^  0^000  askid  for  by  one  of  the  12  banks  of  the  system.  So  that  not 
SJy  it^hS^e'Tdemand  for  the  bonds  but  there  is  also  a  demand  for  the  loan, 
o^tw  tn  oiHipr  Instance  the  money  could  be  well  loaned  and  at  that  rate. 

M?  fSiIs   So   white  I  s^idta  the  begimilng  that  for  argument's  sake  we 
wo^W  cSetta^  there  was  a  subsidy,  coming  back  "ow  to  my  opinion   » 
Ss  to  mTthat  instead  of  the  Government  extending  a  subsidy  in  this  case 
W^S  maktag  a  trade  with  Mr.  Ford  which  Is  the  most  favorable  trade  the 
Golemmem  has  ever  made  with  an  Individual  in  the  United  States. 

Mr.  SiLVEB.  I  believe  so. 


Mr.  Fields.  For  the  reason  that  this  plant  is  not  to  be  converted  by  the 
purchaser  solely  to  his  ov^n  use  without  giving  any  consideration  to  the  interests 
of  the  Government,  but  plant  No.  2  is  to  be  maintained  at  this  enormous  ex- 
pense by  Mr.  Ford  for  the  benefit  of  the  Government  in  time  of  stress,  should 
the  Government  need  it. 

Mr.  Silver.  Yes ;  it  is. 

Mr.  Fields).  I  believe  that  is  all,  Mr.  Chairman,  and  I  will  admit  that  these 
questions  are  not  very  pertinent  to  the  Washington  representative  of  the  farm 
bureau,  but  were  more  for  the  purpose  of  getting  a  statement  in  the  record  to 
meet  such  suggestions  that  have  been  made  here  from  time  to  time. 

The  Chairman.  The  chairman  of  the  committee  has  repeatedly  asked  that  we 
<*onfine  ourselves  to  the  questions  involved  in  Mr.  Ford's  proposition,  but  the 
members  of  the  committee  have  seen  fit  to  go  outside  of  that  and  ask  about 
everything  else,  and  I  am  not  stopping  anybody. 

Mr.  Fields.  Yes;  and  because  that  has  happened  and  some  statements  have 
gotten  into  the  record  that  need  to  be  answered,  I  have  answered  them  with 
these  figures. 

The  Chairman.  Well,  go  as  far  as  you  like. 

Mr.  Fields.  Thank  you,  Mr.  Chairman,  I  am  through. 

Mr.  QuiN.  Mr.  Silver,  the  21  men  on  this  committee  know  who  you  are  and 
for  whom  you  are  speaking,  but  there  are  421  gentlemen  on  the  floor  of  the 
House  who  are  our  colleagues.  Now,  you  are  president  of  the  Federation  of 
Farm  Bureaus,  is  that  the  title? 

Mr.  Silver.  Not  guilty. 

Mr.  QuiN.  What  is  the  position  you  hold? 

Mr.  Silver.  J.  R.  Howard,  of  Iowa,  is  the  president.  I  am  the  Washington 
representative. 

Mr.  QuiN.  You  are  what  they  call  the  legislative  representative? 

Mr.  Silver.  Well,  my  title  is  the  Washington  representative.  I  am  a  member 
of  the  executive  committee  and  a  director  from  the  State  of  West  Virginia. 

Mr.  QuiN.  How  many  organizations  directly  belong  to  the  Farm  Bureau 
Federat  on  or  whatever  you  call  your  organization? 

Mr.  Silver.  I  would  answer  that  question  by  saying  that  we  have  more  than 
1,500  and  upward  of  2,000  county  organizations  which  are  federated  into  46 
State  federations,  and  those  46  State  federations  are  federated  into  the  Ameri- 
can Farm  Bureau  Federation,  or  the  national  association. 

Mr.  QuiN.  Does  the  Farmers'  Union  belong  in  that  group? 

Mr.  Silver.  No;  that  is  another  organization. 

Mr.  QuiN.  I  used  to  belong  to  the  Farmers'  Alliance,  but  that  is  now  out  of 
existence. 

Mr.  Silver.  Yes,  sir ;  that  is  the  one  w^e  were  discussing  the  other  day. 

Mr.  QuiN.  We  busted  the  jute  trust.  They  tried  to  rob  us  on  our  cotton 
bagging. 

Mr.  Silver.  Right. 

Mr.  QuiN.  Now,  in  the  Un'ted  States  there  are  between  six  and  seven  million 
farmers,  are  there  not? 

Mr.  Silver.  Yes ;  according  to  th«  census. 

Mr.  QuiN.  And  the  great  majority  of  those  farmers  are  represented  through 
your  organ  zation,  directly  and  indirectly? 

Mr.  Silver.  Yes,  sir. 

Mr.  QuiN.  Now,  we  have  many  types  of  farmers.  You  are  a  practical  farmer 
yourself,  are  you? 

Mr.  Silver.  I  am. 

Mr.  QuiN..  We  have  the  landlord  with  his  broad  acres,  with  a  big  house  sitting 
up  in  the  grove  and  cattle  on  a  thousand  hills.    He  is  an  agriculturist  farmer. 

Mr.  Silv-er.  Yes ;  some  have  labeled  him  in  that  way. 

Air.  QuiN.  And  then  we  have  the  farmer  who  produces  cotton  or  grain,  and  so 
on,  on  a  large  scale. 

Mr.  Silver.  Yes. 

Mr.  QuiN.  Now,  about  90  per  cent  of  this  great  number  of  farmers  who  with 
their  own  hands  and  with  the  efforts  of  their  good  wives  and  children  cultivate 
from  15  to  50  acres,  is  not  that  true? 

Mr.  Silver.  Yes ;  but  I  would  put  the  acreage  a  little  larger  than  that.  The 
Government  saw  fit,  when  it  split  up  the  western  domain,  to  make  the  unit 
about  160  acres,  and  I  would  say  from  20  or  25  acres  to  160  acres. 


610 


MUSCLE  SHOALS  PKOPOSinONS. 


MUSCLE  SHOALS  PKOPOSITIONS. 


6U 


-ii 


^ 


1' 


!  i 


Mr.  QuiN.  The  great  majority  of  them  have  about  that  amount? 

Mr.  Silver.  Yes. 

Mr.  QuiN.  That  is  the  man  who  has  a  few  beehives  sitting  out  there  in  the 
yard  and  hen  nests  in  the  back  yard? 

Mr.  Silver.  Right. 

Mr.  QuiN.  And  he  worljs  all  day,  from  daybreak  until  dark. 

Mr.  Silver.  Yes. 

Mr.  Qx'iN.  And  we  have  even  gone  out  after  supper  and  picked  cotton  in 
the  moonlight.     Some  of  them  do  that? 

Mr.  Silver.  Yes. 

Mr.  QuiN.  They  work  all  day,  and  some  of  them,  in  certain  seasons  of  the 
year,  build  a  torcli  in  the  fields  so  they  can  see  to  work  among  their  vegetables. 

3Ir.  SiLA-ER.  True. 

Mr.  QuiN.  Then  the  farmer  is  not  any  6-hour  or  8-hour-day  man,  is  he? 

Mr.  Sn.vER.  No.  The  joke  is  that  he  is  an  8-hour-day  man,  eight  hours  be- 
fore dinner  and  eight  hours  after  dinner. 

Mr.  Quix.  And  works  about  13  months  in  the  year. 

Mr.  Silver.  That  is  right. 

Mr.  Qttin.  Now,  that  class  of  men  and  their  families,  who  really  produce 
about  90  per  cent  of  the  farm  produce  in  certain  periodicals,  are  calle<l  at 
times  "  one  gallus  "  farmers. 

Mr.  Silver.  They  have  been  labeled  that  way  by  some. 

jMr.  Qn*.  Now,  you  represent  the  big  man  with  his  broad  acres  and  the 
'•  one  gallus  "  man,  as  he  is  termed. 

Mr.  Silver.  Yes. 

Mr.  QuiN.  All  of  them  come  in  and  have  a  privity  of  interest  in  this  sub- 
ject here. 

Mr.  Silver.  That  is  true. 

Mr.  QtTiN.  In  this  proposition  submitted  by  Mr.  Ford  have  you  heard  of  a 
single  dissenting  voice,  not  only  from  any  organization  but  from  any  indi- 
vidual farmer? 

^Ir.  Silver.  I  have  not  heard  of  any  farmer  dissenting.  They  are  all  in 
lavor  of  it. 

Mr.  QuiN.  Is  it  not  a  fact  that  they  all  stand  up  and  with  one  accord  pro- 
claim that  they  think  this  is  a  good  thing? 

Mr.  Silver.  They  do. 

^Ir.  QuiN.  How  do  you  account  for  the  fact  that  there  is  such  a  unaniniitv 
of  sentiment  among  that  class  of  our  citizenship,  which  I  think  constitutes  the 
backbone  of  the  country.     Is  it  because  it  is  a  bad  thing,  as  some  suggest? 

Mr.  Silver.  They  believe  it  to  be  a  good  thing,  and  believe  it  is  freeinj; 
them  from  bad  practices  that  other  groups  have  wished  on  them  in  the  past, 
and  they  want  to  get  away  from  unhappy  conditions  which  have  ex- 
isted, and  this  is  a  method  by  which  they  think  they  can  do  that,  and  they 
think  it  is  a  helpful  thing. 

Mr.  QiJiN.  And  here  is  one  man  who  has  come  forward  with  a  proposition 
to  take  this  waste  project  that  Congress  refused  to  finish  by  its  vote  on  the 
7th  of  February,  1921;  this  man  comes  forward  with  a  proposition  for  the 
completion  of  the  work  by  the  Government,  to  capitalize  it,  and  make  this 
fertilizer  as  the  faraing  class  believe  at  a  cheaper  and  more  economical  price 
than  it  is  distributed  to  them  at  present. 

Mr.  Silver.  That  is  true. 

Mr.  QuiN.  Are  you  acquainted  with  the  farm  demonstration  agents  and 
cooperative  purchasing  and  selling  in  the  different  agricultural  sections? 

Mr.  Silver.  Yes. 

Mr.  QuiN.  This  fertilizer,  if  produced,  just  like  this  contract  says— and  so 
far  as  I  am  concerned,  I  do  not  care  whether  they  change  a  word  in  it  or 
not— but  that  fertilizer,  if  put  up  in  a  concentrated  form,  will  have  only  one- 
fifth  of  the  weight  of  the  commercial  fertilizer  that  we  buy  in  sacks  now; 
is  not  that  true? 

Mr.  Silver.  There  will  be  a  great  saving  in  the  freight  and  in  the  bulk. 

Mr.  Quix.  Is  it  not  a  tact  that  the  commercial  fertilizer  factory  gets  the  con- 
centrated pnKluct  just  like  Ford  could  produce  it  down  there,  and  they  go  out  and 
buy  sand  or  earth,  a  very  heavy  product,  haul  it  jn,  and  pay  for  all  that  expense, 
to  mix  it  properly  with  their  sulphate  of  ammonia  or  other  nitrogenous  products 
or  with  potash  products,  or  the  other  product  that  is  in  fertilizer  tliat  we  call 
phosphoric  acid? 


Mr.  Silver.  Not  necessarily  sand.  They  have  a  tiller  which  carries  this  plant 
food.  It  comes  in  different  forms.  I  am  not  a  fertilizer  manufacturer,  but  they 
have  a  carrier  which  carries  these  elements  of  plant  food. 

Mr.  QuiN.  In  my  country  it  is  mostly  sand. 

Mr.  Silver.  That  may  be. 

Mr.  QuiN.  Then,  if  it  be  ground  rock  or  sand,  the  phosphoric  acid — the  potash 
and  the  nitrogen — is  absorbed  on  the  outer  surface  of  that  sand  in  the  mixing, 
is  it  not? 

^Ir.  Silvp:r.  You  had  better  talk  to  somebody  who  is  better  informe<l  tech- 
nically than  I  am  as  to  the  mixing  processes,  Mr.  Quin. 

The  Chairman.  Mr.  Quin,  if  you  will  allow  me,  I  think  that  has  been  tes- 
tified to  at  least  a  half  dozen  times  in  the  hearings. 

]Mr.  Silver.  And  my  assistant,  Mr.  Bower,  will  go  into  the  technical  side  of 
it  when  I  am  through,  and  he  can  answer  that  question  better  than  I  can. 

Mr.  Quin.  This  product  could  be  distributed  under  the  agency  that  is  pro- 
vided for  here — through  these  cooperative  purchasing  agents,  under  the  direction 
of  the  farm  demonstrator  of  the  county,  which  the  county  pays  for? 

Mr.  Silver.  Yes. 

^Ir.  Quin.  Then,  there  is  already  the  machinery  set  up  for  the  acquisition  of 
this  product  of  Muscle  Shoals  and  its  distribution  directly  to  the  farmer? 

Mr.  Silver.  Yes. 

Mr.  Quin.  And  a  few  farmers,  two  townships  of  thorn,  can  get  a  carload  or 
two  carloads,  or  whatever  they  please? 

Mr.  Silver.  Yes. 

^Ir.  Quin.  Then,  the  question  of  whether  or  not  Mr.  Ford  would  put  this  in 
with  the  sand  or  ground  rock  and  have  2,000  pounds  to  be  shipped,  wherein  four 
01'  five  or  certainly  not  over  six  hundred  pounds  would  carry  all  the  fertilizer, 
wcuihl  be  an  expensive  method,  would  it  not? 

Mr.  Silver.  The  least  weight  we  can  have  to  carry,  the  commercial  plant 
food,  of  course,  the  greater  saving  in  freight  and  handling  and  in  every  other  way, 
and  one  of  the  economies  contemplated  is  to  save  in  weight  under  this  process; 
that  is.  to  get  the  same  amount  of  plant  food  with  less  weight  to  carry  and 
handle. 

Mr.  Quin.  Certainly.  This  number  of  farmers  that  we  have  in  the  United 
States,  according  to  the  statistics  we  have,  owe  on  their  farms  about  $8,000,000,- 
000.    That  is  the  amount  of  the  mortgages  on  such  real  estate. 

Mr.  Silver.  Yes;  around  $7,000,000,000,  I  believe;  the  estimate  is  under  the 
last  census. 

Mr.  Quin.  That  industry,  although  they  work  hard,  has  not  been  a  profitable 
one,  then,  has  it,  for  the  last  few  years? 

Mr.  Silver.  No;  it  has  not. 

Mr.  i^uiN.  And  if  there  is  a  prospect  of  that  basic  industry  of  the  United 
States  receiving  at  the  hands  of  Congress  legislation  that  fundamentally  will 
enable  them  to  produce  more  per  acre  at  a  less  cost,  is  it  not  advisable? 

Mr.  Silver.  It  is  advisable  not  only  for  the  farmer's  sake  but  for  the  consum- 
ing public. 

Mr.  Quin.  And  it  is  not  class  legislation,  because  all  the  public  is  directly 

interested. 

Mr.  Silver.  Aboslutely  not ;  nor  are  any  other  of  the  measures  we  have  asked 
for,  or  those  you  have  kindly  granted  to  us,  been  class  legislation  in  any  sense. 

Mr.  Quin.  Certainly  nqt,  in  my  judgment ;  although  it  is  said  by  some  to  be 
that.  This  contract  that  Mr.  Ford  has  offereil  to  the  Government  meets  with 
the  approval  of  the  people  you  represent? 

Mr.  Silver.  It  does. 

Mr.  Quix.  Some  gentlemen  asked  you  about  the  guaranties.  You  consider 
the  investment  Mr.  Ford  is  making  there  of  his  own  capital,  and  knowing  his 
disposition,  you  consider  that  guaranty  sufficient  to  insure  this  fertilizer  be- 
ing produced. 

Mr.  Silver.  We  think  the  terms  of  that  contract  are  suflicient ;  yes. 

Mr.  Quin.  One  gentleman  doubted  the  statement  that  the  farmers  pay  four- 
sevenths  of  the  freight  in  the  United  States.  Let  us  trace  that  for  the  record. 
All  of  the  agricultural  products  must  go  to  a  market,  must  they  not? 

Mr.  Silver.  They  certainly  must,  except  those  that  are  consumed  on  the  farm. 

Mr.  Quin.  And  most  of  it  must  travel  on  railroads  or  on  steamboats,  must  it 
not? 

Mr.  Silver.  Certainly  it  must. 


612 


:    I 


MUSCLE   SHOALS  PROPOSITIOXS. 


QuiN    His  potatoes  and  his  wheat  and  his  corn  and  his  cotton  and  hi 
>  must  accept  what  the  world's  demand  allows  him;  is  not  that  true? 


s 


Mr.  Silver.  No. 
Mr.  QuiN. 
tobacco 
Mr.  Silver.  That  is  very  true. 

fv^L'i..^  h'"'-  -^^'^"^  '^'^^''  '*  ^^*^  *^  **^  destination,  the  warehouse  charges  the 
iZfll:  l'^  "^^";;^'^^'^'  «»^1  the  handling  are  all  charged  against  the  product 
that  the  farmer  has  put  up?  * 

Mr.  Silver.  True. 
•.  ^^»'- QuiN.  Then  he  pays  the  freight  on  that  stuff  to  the  consumer.    He  pavs 
It  to  the  factory  that  puts  up  the  raw  material,  because  that  adds  to  the  price 
of  it.  ' 

Mr.  Silver.  He  certainly  pays  it  to  the  controlling  market.  To  illustrate  with 
wheat.  Liverpool  makes  the  price  of  wheat.  We  certainlv  pav  on  that  wheat 
delivered  to  Liverpool,  whether  it  goes  to  Liverpool  or  not. 

Mr.  QuiN.  The  man  who  gets  his  cotton  out  of  his  field,  gets  it  to  the  gin 
has  to  pay  for  ginning  it;  he  has  to  pay  the  cotton  broker's  fee  for  selling  it- 
he  has  to  pay  the  warehouse  charges ;  he  has  to  pay  the  freight,  and  two-thirds 
of  -it  goes  across  the  high  seas. 

Mr.  Sn.VER.  Yes. 

Mr.  QuiN.  He  pays  the,  freight  on  it  and  all  the  expenses  until  it  is  turned 
over  to  the  spinner  in  the  foreign  country,  is  not  that  true? 

Mr.  Silver.  Yes. 

Mr.  QuiN.  Now,  then,  the  man  who  produces  that  cotton  must  hav«^  fertilizer. 
They  are  growling  here  about  Mr.  Ford  paying  tlie  Government  4  i)er  rent.  The 
man  who  must  have  fertilizer  will  have  to  pay  that  4  per  cent,  will  he  not? 

Mr.   Silver.  Certainly. 

Mr.  QuiN.  And  if  it  was  10  per  cent,  the  farmer  would  have  to  pay  that 
excess  6  per  cent,  would  he  not? 

Mr.  Silver.  Yes. 

Mr.  QuiN.  Now.  he  pays  the  freight  on  all  of  the  equipment  that  lie  must 
have  on  his  farm,  does  he  not? 

Mr.  Silver.  Certainly ;  he  does. 

Mr.  QuiN.  The  factory  makes  that  stuff  and  it  goes  to  the  farmer  and  ho 
is  bound  to  pay  the  price  plus  the  freight. 

Mr.  Silver.  Yes;  the  factory  price  plus  the  freight. 

Mr.  QuiN.  Then  there  is  not  anything  astonishing  about  the  statement 
the  farmers  are  paying  four-sevenths  of  the  freight  paid  in  the  country. 

Mr.  Silver.  The  hearings  of  the  Interstate  Commerce  Commission  give 
in  very  much  detail  and  follow  it  through  in  a  very  complete  way. 

Mr.  QuiN.  I  never  knew  before  that  that  was  true,  but  I  can  see  how 
would  be  so  with  the  great  number  of  people  involveil,  and  if  tliose  farmers 
were  to  go  on  a  strike  for  6  months  all  of  us  city  fellows  would  starve  to 
death:  would  we  not? 

The  Chairman.  What  city  do  you  come  from? 

Mr.  QuiN.  I  am  living  here  in  Washington. 

The  Chairman.  You  say  "  us  city  fellows,"  and  I  was  just  wondering  what 
city  you  came  from. 

Mr.  QriN.  McComb  city,  and  we  do  not  farm  in 
the  farmers  and  all  towns  have  to  live  off  of  them. 

Mr.  Silver.  During  the  war  p«riod,  when  a  meeting  was  called  of  the  house- 
wives league  in  the  city  of  New  York,  Mr.  Scrivens,  the  president  of  the  New 
York  State  Federation,  was  on  the  platform  and  was  talking  about  what  was 
involved  in  food  production.  He  was  interrupted  by  a  lady  on  the  platform 
who  said,  "  We  know  you  farmers  are  profiteering,  and  if  you  do  not  quit  your 
profiteering,  we  are  going  to  get  our  food  some  place  else."  .Just  what  she 
had  in  mind.  I  do  not  know,  but  unless  you  do  like  that  lady  said,  you  would 
rely  on  the  farmers  of  the  United  States,  which  is  the  Egypt  at  this  time  of 
the  world. 

Mr.  QuiN.  I  have  no  doubt  that  some  of  them  believe  the  farmers  profiteer, 
but  as  a  sample  of  that  my  ancestors  have  been  farming  for  two  or  three 
hundred  years,  and  before  the  war  they  were  big  plantation  holders,  but  by 
the  time  it  got  to  me  I  was  a  '*  one  gallus  "  farmer.  The  farmer,  working  the 
number  of  hours  you  have  stated,  a  great  many  of  them,  have  to  wear  patched 
and  shabby  clothes,  do  they  not? 

Mr.  Silver.  Indeed,  they  do. 


that 


that 


that 


that  city. 
We  know 


We 

that. 


live  off  of 


MUSCLE  SHOALS  PROPOSITIONS. 


613 


Mr.  QuiN.  And  it  is  not  from  choice,  is  it?  ,  ,  ,  ^.  ,  ^,  ,„„  , ,  ^„i^ 
Mr.  Silver.  It  certainly  is  not.  and  the  patched  and  shabby  clothing  i^  only 
a  little  part  of  it.  They  would  like  to  send  their  children  to  better  schools 
and  thev  would  like  to  have  better  homes  and  would  like  to  have  better  equip^ 
ment  in  their  homes.  There  are  just  lots  of  them  they  would  like  to  have  and 
they  labor  long  and  hard  so  that  they  might  have  just  the  simplest  of  comforts 

^"ilr  QuiN.  And  there  are  thousands  of  farmers  all  over  the  United  States  who 
are  not  able  to  have  shoes  for  their  children  in  the  wintertime.  ,  ,,  .    ^. 

Mr  Sit.ver  a  great  many  of  them  do  not  have  them,  particularly  at  this  time. 

Mr*.  QuiN.  Mr.  Silver,  they  seem  to  doubt  Mr.  Ford's  feelings  for  the  people. 
He  manufactured  these  automobiles  you  were  talking  about  and  started  in  xn-iUi 
nothing.  Did  he  have  to  have  anybody  else  to  lower  the  price  for  him  or  did 
he  do  that  voluntarily? 

Mr.  Silver.  He  did  it  voluntarily. 

Mr.  QuiN.  As  soon  as  the  war  was  over,  did  he  not  announce  a  great  <leal 
lower  price  for  his  automobiles,  and  tractors,  and  trucks? 

Mr.  Silver.  That  was  the  first  place  where  prices  were  reduced. 

Mr  Qum  And  he  reduces  the  prices  on  farm  tractors,  and  trucks,  and  cars 
periodicallv  and  sometimes  before  they  wake  up  in  the  morning  the  agencies 
have  notice  of  some  reduction.    They  did  that  last  fall,  did  they  not? 

ilr.  Silver.  Yes. 

Mr.  QriN.  He  has  on  the  market  to-day  the  cheapest  tractor  a  man  can  run, 
and  that  one  little  gasoline  enghie  can  run  as  many  plows  as  9  Negroes  and  18 

mules  d*iv  after  dav 

jMr  Silver.  I  do' not  know  about  that  application  of  it  but  he  has  a  good 
tractor  that  does  do  the  work,  and  it  is  by  odds  the  cheapest  one  in  dollars  on 

the  market.  , ,  ,     .^  ^    ,.^  ^,      ^ 

Mr.  QuiN.  And  nobodv  through  competition  forced  him  to  do  that,  <lid  they? 

Mr.  Silver.  No.  Because  it  was  the  cheapest  tractor  before  he  made  this  last 
reduction,  which  was  a  veiy  material  one. 

Mr.  QuiN.  Then  with  that  necessity  for  the  farm,  on  his  own  volition,  being 
put  down  in  price,  have  you  any  reason  to  believe  that  he  w^ould  pursue  a  differ- 
ent policy  with  reference  to  fertilizer  at  this  activity  at  Muscle  Shoals? 

Mr.  Silver.  None  on  earth.    We  believe  he  would  pursue  that  course. 

Mr.  QuiN.  Certainly ;  that  is  all. 

The  Chairman.  I  see  that  McComb  City  has  2,386  inhabitants.  I  congratu- 
late you  on  being  a  big  city  man. 

Mr.  QriN.  That  is  an  old  census.    We  have  grown  now  to  10,000. 

The  Chairman.  This  is  the  United  States  Official  Postal  Guide  of  July,  1921. 

Mr.  QuiN.  That  is  wrong.    The  population  is  10,000. 

Mr.  Wright.  Mr.  Silver,  you  have  been  carried  over  a  good,  long,  broad  field 
yesterday  and  to-day,  and  I  believe  you  touched  on  agriculture  and  finance  and 
law  and  chemistry,  and  divers  other  subjects,  including  political  and  economic 
questions.  You  have  been  asked  repeatedly  here  about  sections  14  and  15  of 
this  Ford  offer,  and  especially  in  reference  to  article  15,  which  provides  that 
"  in  order  that  the  farmers  may  be  supplied  with  fertilizers  at  fair  prices  and 
without  excessive  profits,  the  company  agrees  that  the  maximum  net  profit 
which  it  sball  make  in  the  manufacture  and  sale  of  fertilizer  products  at  nitrate 
plant  No.  2  shall  not  exceed  8  per  cent  of  tflfe  actual  cost  of  production  thereof." 
etc.  The  special  feature  I  want  to  invite  your  attention  to  is  the  appointment 
of  this  board  to  supervise  this  fertilizer  industry.  Do  you  not  understand  that 
the  members  of  this  board  would  be  in  the  nature  of  trustees  for  the  farmers? 

Mr.  Silver.  Yes ;  they  would  be  the  board  that  would  carry  out  that  part  of 
the  agreement  and  would  be  in  the  nature  of  trustees. 

Mr.  Wright.  Now,  suppose  these  organizations  should  go  literally  and  abso- 
lutely out  of  existence  that  are  named  here  in  article  15,  do  you  not  know  that 
it  is  the  universally  accepted  legal  proposition  that  a  trust  never  fails  for  the 
want  of  a  trustee? 

Mr.  Silver.  Yes.    I  am  not  a  lawyer,  but 

Mr.  Wright.  But  you  recognize  that  principle  of  law? 

Mr.  Silver.  Yes. 

Mr.  Wright.  As  a  sound  legal  proposition? 

Mr.  Wright.  Then  would  not  a  court  of  chancery,  in  the  event  all  these  organi- 
zations should  go  out  of  existence  and  have  no  successors,  appoint  representatives 


i 


I 


I 


/i' 


614 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


615 


1i 


from  som^  organization  nearest  like  the  ones  which  did  go  out  of  existence; 
would  not  that  be  the  rule  in  a  chancery  court? 

Mr.  Silver.  That  might  be  the  procedure. 

Mr.  Wbight.  That  is  a  well-recognized  principle  of  law,  if  you  are  not  fa- 
miliar with  it. 

Mr.  Silver.  Yes ;  I  believe  that  is  a  well-recognized  principle  of  law. 

Mr.  Wright.  It  proceeds  on  the  idea  that  the  court  Vvill  lay  hands  on  it  and 
appoint  trustees  to  act  in  the  place  of  those  who  may  have  gone  out  of  existence, 
so  that  the  trust  will  not  fail. 

Mr.  Silver.  Yes ;  but  as  it  occurs  to  my  mind,  I  attach  but  little  importance 
to  the  suggestion  that  there  will  be  no  farm  organizations,  even  though  the 
existing  ones  might  pass  away. 

Mr.  Wright.  I  agree  with  you  about  that. 

Mr.  Silver.  The  grange  is  50  years  old,  and  better  to-day  than  it  ever  was. 
Fifty  years  or  100  years  is  not  a  long  period  for  a  farm  organization,  and  just 
so  long  as  we  have  agriculture,  with  the  national  life  we  have  and  with  all 
the  other  groups  organized  of  necessity  and  for  self-protection,  the  farmers 
will  have  to  be  organized.  So  I  think  there  is  a  very  remote  possibility  of  that 
happening. 

Mr.  Wright.  In  other  words,  if  the  activities  mentioned  in  section  15  reallv 
function,  you  do  not  anticipate  there  will  not  be  some  one  to  take  the  places  of 
the  organizations  here  named. 

Mr.  Silver.  There  will  be  somebody  to  take  their  places. 

Mr.  Wright.  That  would  inevitably  follow,  would  it  not? 

Mr.  Silver.  Certainly ;  there  is  no  doubt  about  it. 

Mr.  Wright.  And  you  say  you  do  not  think  there  is  any  chance  of  our  not 
having  farm  organizations  as  long  as  we  continue  to  farm. 

Mr.  Silver.  I  just  firmly  believe  that. 

Mr.  Wright.  But  the  interests  you  represent  would  have  no  objection  to 
clarifying  that  language  or  making  it  stronger  if  words  could  do  that? 

Mr.  Silver.  I  do  i»ot  know  that  we  have  any  objection.  We  are  satisfied 
with  that  language  and  we  are  not  asking  anything  in  addition. 

Mr.  Wright.  But  any  other  words  that  will  better  effectuate  the  intention 
you  all  have  in  mind,  you  would  not  object  to? 

Mr.  Silver.  I  think  not 

Mr.  Wright.  In  other  words,  if  some  more  permanent  organization,  could 
be  suggested,  making  it  nearer  in  perpetuity,  there  would  be  no  objection  to 
that? 

Mr.  Silver.  Of  course,  I  would  hate  to  pass  on  it  without  knowing  what 
tlie  form  of  the  suggestion  was,  but  as  a  general  proposition,  I  would  say  not. 

Mr.  Crowther.  I  would  like  to  ask  just  one  question.  You  said  vou  were 
a  farmer.  Mr.  Silver? 

Mr.  Silver.  I  am. 

Mr.  Crowther.  Are  you  an  active  farmer  now? 

"Mr.  Silver.  I  am. 

Mr.  Crowther.  Are  you  all  the  time  in  Washington? 

Mr.  Silver.  I  am  here  the  greater  part  of  the  time. 

Mr.  Crowther.  Somebody  else  runs  your  farm,  then? 

Mr.  Silver.  Yes. 

Mr.  Crowther.  Are  you  a  salaried  representative? 

Mr.  Silver.  I  am. 

Mr.  Crowther.  Would  it  be  an  impertinent  question  to  ask  what  your 
salary  is? 

Mr.  Silver.  No,  sir;  I  have  no  objection  on  earth  to  stating  that.  I  am 
paid  $10,000  a  year. 

Mr.  Crowther.  Of  course,  I  know  it  is  easy  to  get  mixed  up  on  questions 
where  you  are  interrogated  so  often,  but  you  just  stated  to  Mr.  Quin  in 
answer  to  his  interrogatories  that  you  considered  that  contract  all  that  was 
necessary  and  perfectly  satisfactory. 

Mr.  Silver.  With  the  reservations,  of  course,  which  I  have  spoken  of  several 
times  to  the  committee. 

Mr.  Crowther.  Oh,  yes;  but  in  answer  to  him  you  stated  it  was  perfectly 
satisfactory,  and  a  just  recall  the  fact  that  you  had  on  several  occasions 
stated  there  was  new  language  that  your  organization  was  considering  that  you 
thought  was  necessary  and  which  might  be  added  to  the  contract,  to  the  ad- 
vantage of  everybody? 

Mr.  Silver.  I  was  always  keeping  that  In  mind. 


Mr.  Garrett.  As  I  understand  it,  the  farming  interests  which  you  repre- 
sent believe  you  have  language  there  which  will  amply  protect  the  farming 
interests  in  the  years  to  come? 

Mr.  Silver.  Yes. 

Mr.  Garrett.  That  is  what  your  people  believe  about  it? 

"Mv    Silver   Yes 

Mr!  Garrett.  But  if  the  analytical  minds  of  this  committee  should  think 
that  perhaps  you  needed  stronger  language  to  protect  your  interests,  you 
have  no  objection  to  that  language  being  used  and  you  would  welcome  any 
suggestions  looking  to  that  end? 

Mr.  Silver.  I  have  always  approached  the  committees  of  Congress  in  that 
way.  I  have  given  them  our  thoughts  and  beliefs  and  have  been  mostly  happy 
with  their  actions. 

Mr.  MoRiN.  Mr.  Silver,  if  the  Government  should  receive  a  proposal  from 
anv  other  concern  which  in  the  judgment  of  this  committee  or  the  Members 
of  the  Congress  would  be  more  advantageous  to  the  Government  than  Mr. 
Ford's  proposition,  would  your  organization  advise  that  they  accept  it? 

Mr.  Silver.  Would  you  state  that  again?    I  do  not  know  that  I  quite  caught  it. 

Mr.  MoRiN.  If  the  Government  should  receive  a  proposal  which,  in  the  judg- 
ment of  this  committee  or  the  Members  of  the  Congress,  would  be  more  ad- 
vantageous to  the  Government  than  Mr.  Ford's  proposition,  would  your  organi- 
zation recommend  that  they  accept  it? 

Mr.  Silver.  I  would  scarcely  be  in  position  to  pass  on  that  without  our 
executive  committee  and  our  people  passing  on  it.  I  would  not  want  to  take 
a  position  contrary  to  that  which  they  have  taken.  There  is  no  proposal  before 
us,  except  what  we  have  spoken  about,  and,  if  some  other  dondition  arose,  I  would 
want  to  meet  it  at  that  time.  It  would  hardly  be  right  to  ask  me  to  speak 
to  an  imaginary  situation  that  might  arise. 

Mr.  MoRiN.  What  would  be  your  personal  opinion?  Do  you  not  believe  we 
should  accept  the  very  best  proposition  we  receive  from  any  source? 

Mr.  Silver.  We  want  the  best  that  can  be  had  out  of  this  situation,  and,  as 
it  stands  now  and  has  stood  for  months,  we  believe  Mr.  Ford's  proposition  is 

the  best  one.  * 

The  Chairman.  If  there  are  no  further  questions,  we  are  very  much  obliged  to 

you,  Mr.  Silver. 

Mr.  Silver.  I  thank  you  very  much.  Mr.  Bower  is  here  and  will  go  into  some 
phases  of  the  fertilizer  end  and  the  technical  end  of  this  matter,  which,  person- 
ally, I  am  not  qualified  to  do. 

STATEMENT  OF  MR.  B.  F.  BOWER. 

The  Chairman.  Mr.  Bower,  will  you  please  state  your  name  and  also  the 

business  you  are  in?  ,„    ^.   _. 

Mr.  Bower.  R.  F.  Bower.    I  am  Mr.  Silver's  assistant  in  the  Washington 

office  of  the  American  Farm  Bureau  Federation. 

The  Chairman.  Will  you  proceed  in  your  own  way,  please,  to  state  just 
exactly  what  you  want  the  committee  to  know  regarding  the  attitude  of  your 
organization  regarding  Henry  Ford's  offer? 

Iklr.  BOWER.  Thank  you,  Mr.  Chairman.  I  will  try  to  address  myself  to  clear- 
ing up  the  matter  along  the  lines  of  the  letter  which  Mr,  Silver  submitted  to 
the  committee  in  the  early  part  of  the  hearing,  inasmuch  as  we  thought  there 
might  be  doubt  created  in  the  minds  of  the  committee  as  to  the  reasons  why 
we  advocate  Mr.  Ford's  proposal,  and  I  will  try  to  present  this  matter  as  it 
appears  to  us  who  have  studied  this  nitrogen-fixation  question  for  some  time. 

I  think  it  might  be  of  interest  to  the  committee  if  I  would  present  to  you 
at  this  time  a  resolution  adopted  by  the  national  and  State  officials  of  the 
Farmers'  Educational  and  Cooperative  Union  of  America  and  of  the  National 
Grange,  adopted  unanimously  on  February  8,  1916.  This  resolution  appears  in 
the  records  of  the  hearings  of  this  committee  in  considering  the  national  defense 
act  of  1916.     I  would  like  to  read  just  two  paragraphs  of  it. 

"It  is  hereby  resolved,"  etc.  ^     ^      .^     j.        . 

"(1)  That  we  hereby,  as  strongly  as  possible,  appeal  to  the  President  and 
Congress  of  the  United  States  that  during  the  present  term  of  the  Sixty-fourth 
Congress,  such  legislation  shall  be  enacted  as  will  authorize  the  construction 
of  a  dam  or  dams  for  the  development  of  the  necessary  power  for  the  fixation 
of  the  nitrogen  of  the  atmosphere  as  a  fertilizer,  and  in  such  quantities  to 
supply  the  needs  of  the  Government  and  as  far  as  possible  supply  the  demands 


616 


MUSCLE  SHOALS  PROPOSITIONS. 


?rvTi»?l*JJ''^r.?"l^  ^'•''iP'!  development  free,  in  part,  tlie  farmers  of  this  coun- 
try from  the  Chile  saltpeter  monopoly. 

Jl^^  7"^  '"^*f*  !?^^  ^^^  location  of  tliis  air  nitrate  industry  be  determined 
with  reference  to  the  agricultural  interests  of  this  country  and  that  a  site  be 
selected  that  has  near  it  a  source  of  limestone,  coke,  and  phosphate  rock,  as 
rf.L  T  ^*^cp»^^f"Jed  by  the  Department  of  Agriculture,  and  that  further- 
in  this  countr^''  selected  closest  to  the  greatest  consumption  of  fertilizer 

Mr.  Chairman,  the  Government  has  embarked  upon  this  program  which  we 
sought  m  1916.  It  has  partially  developed  a  water  power  for  tbis  purpose 
It  has  built  the  fixation  plant  for  its  own  purpose,  brought  out  by  the  war  It 
is  located  close  to  sources  of  limestone,  coke,  and  phosphate  rock,  and  it  is 
located  closest  to  the  greatest  consumption  of  fertilizer  in  this  country 

We  ask  that  this  be  completed  and  finished  for  the  purpose,  as  outlined  in 
section  124  of  the  national  defense  act ;  and  in  that  act,  as  vou  gentlemen  of 
the  conmuttee  know,  who  were  present  when  that  was  considered,  fertilizer 
was  one  of  the  strong  considerations  you  had  in  mind,  although,  of  course,  we 
realize  that  your  nitrogen  for  national  defense  was  primarilv  in  all  your 
thoughts  in  connection  therewith.  Section  124  mentions  fertilizer  as  one  of 
the  reasons  for  the  passage  of  that  section.  I  am  sure  the  committee  will  agre^ 
that  the  intention  was  that  fertilizers  were  to  be  produced  in  times  of  peace  iif 
it  could  be  so  done  economically  and  properly. 

Now,  this  plant  has  a  potential  value  for  agriculture,  and  the  onlv  wav 
you  can  prevent  that  value  from  becoming  available  is  to  allow  it  to  remain 
idle,  and  you  can  not  take  the  potential  value  away  from  it  even  then,  be- 
cause if  operated,  it  does  have  a  value.  Fortunately,  both  vour  purposes  an'l 
ours  are  best  served  by  the  operation  of  that  plant.  While  it' has  been  denied— 
and  I  will  refer  to  that  later— that  the  operation  of  the  plant  is  the  best  wav 
to  keep  it,  we  can  not  agree  to  that  for  a  moment,  and  an  operating  plant  kejit 
abreast  by  research  and  development  by  Mr.  Ford,  as  he  proposes  to  do  at  his 
own  expense,  is  certainly  a  more  efficient  protection  to  the  Government  than 
an  idle  plant,  depreciating,  and  requiring  to  have  repairs  made.  Fortunately, 
the  operation  of  this  plant  is  the  identical  thing  that  serves  the  purpose  we 
seek. 

Daniel  Webster  has  said,  "Farmers  are  the  foundation  of  civilization  and 
prosperity.  The  farmer  must  always  be  the  foundation,  but  that  does  not 
mean  that  he  must  be  kept  beneath  the  surface."  We  ask  you,  in  consideration 
of  your  decision  on  this  proposition,  that  we  be  not  kept  beneath  the  surface. 
In  making  this  decision  between  the  propositions  you  have  before  you,  you 
have  that  choice  to  make,  and  the  proposition  made  by  Mr.  Ford  does  not 
propose  to  keep  the  farmer  beneath  the  surface.  The  proposition,  as  I  have 
read  it,  in  the  official  copy  transmitted  by  the  Secretary  of  War,  of  the  Alabama 
I'ower  Co.,  makes  no  provision  for  the  farmer. 

This  whole  question  is  a  question  of  soil  fertility.  Our  national  permanence 
deiiends  upon  soil  fertility.  Mr.  Silver  stated  that  but  for  the  maintenance 
of  our  soil  fertility  this  land  would  become  a  desert,  and  I  think  we  only 
have  to  look  back  into  h 'story  to  see  that  among  the  great  nations  of  the 
past,  they  passed  away  on  account  of  the  destruction  of  their  soil  fertility. 
Assyria  and  Babylon  and  the  great  nations  of  biblical  times,  supporting  millions 
of  people,  raising  great  armies  in  Persia  that  came  across  into  parts  of  Europe, 
are  to-day  desert  wastes  where  crops  will  not  grow,  and  they  were  destroyed, 
fundamentally,  because  of  the  destruction  of  their  soil  fertility.  So  we  are 
addressing  ourselves  to  a  problem  that  is  of  interest  to  everyone,  not  necessarily 
only  from  our  viewpoint,  but  from  the  viewpoint  of  the  future  of  our  Nation, 
which  depends  upon  the  maintenance  and   continuance  of  our  soil   fertility. 

It  is  the  duty  and  the  business  of  a  farnier  to  raise  as  large  crops  from  his 
soil  as  it  is  possible  for  him  to  do ;  that  is  his  J^usiness.  But  he  has  a  sacred 
obligation  to  all  society  and  to  his  nation  to  maintain  the  fertility  of  his  soil 
so  that  future  generations  can  be  fed.  If  he  neglects  that  we  will  not  continue 
as  the  prosperous,  independent  Nation  we  are  to-day. 

This  requirement  is  absolutely  fundamental,  and  it  has  been  well  stated  by 
Theodore  Roosevelt  in  the  Outlook  of  October  12,  1912,  at  page  295,  where  he 
said: 

"  I  have  always  been  deeply  impressed  with  Liebig's  statement  that  it  was 
the  decrease  of  soil  fertility,  and  not  either  peace  or  war,  which  was  fundamental 
in  bringing  about  the  decadence  of  nations.     While  unquestionably  nations 


MUSCLE   SHOALS  PROPOSITIONS. 


617 


have  been  destroyed  by  other  causes,  I  have  become  convinced  that  it  was  the 
destruction  of  the  soil  itself  which  was  perhaps  the  most  fatal  of  all  causes." 
How  can  we  maintain  soil  fertility?  There  has  been  a  great  deal  of  talk 
about  soil  fertility  and  a  great  deal  of  talk  about  fertilizers,  but  it  is  a  simple 
proposition.  Soil  fertility  can  only  be  maintained  by  replacing  into  the  soil  those 
elements  that  the  crop  takes  out  in  its  growth.     That  is  the  only  way  you 

can  do  it.  ,  ,  .  ^         ,  •  i 

And  the  best  way  to  do  that  is  through  the  use  of  high-grade  commercial 
fertilizers  at  low  prices.  The  use  of  commercial  fertilizers  at  a  reasonable 
tost  serves  a  double  purpose.  Not  only  does  that  maintain  the  fertility  of  the 
soil  but  it  provides  the  farmer  with  the  most  efficient  labor-saving  devices  he 
can  use;  (hat  is,  the  labor  of  one  man  on  a  field  with  efficient  fertilizer  applica- 
tion will  raise  the  amount  of  crops  tlmt  two  men  could  raise  without  that 
fertilizer,  and  the  whole  question  is  one  of  getting  the  fertilizer  at  a  proijer 
price  The  use  of  cheap  fertilzer  compounds  consequently  will  enable  the 
farmer  to  coinpe:e  for  the  high  wages  paid  by  the  industries  in  the  cities, 
•ind  there  is  no  other  way  for  him  to  reach  that  attainment  so  much  desired. 
Another  point  with  reference  to  this  soil  fertility  is  this:  It  has  been  sug- 
gested that  we  have  gone  ahead  and  continued  to  feetl  the  Nation  with  what 
vou  have,  and  that  we  are  raising  a  bugaboo.  But  in  the  past  increased  food 
production  demanded  by  the  Nation  has  been  met  by  a  westward  progression 
of  agriculture  on  to  the  great  virgin  plains  of  the  Mississippi  Basin.  We  have 
finished  that  exodus  of  eastern  agricultural  population  U)  the  West,  and  to-day 
there  is  practicallv  no  great  area  of  fertile  virgin  land  still  to  be  brought  under 
cultivation.  Of  course,  there  are  irrigation  projectij  and  drainage  projects,  but 
there  is  no  great  acreage  section  of  the  country  where  the  farmers  can  go 
without  great  expense  to  the  Government  to  bring  that  land  under  cultivation 
and  produce  the  additional  crops  that  our  increasing  population  will  deinand. 

The  determining  factor  of  fertilizer  seems  to  have  been  lost  sight  of  largely 
in  this  respect,  and  that  is  that  it  is  a  matter  of  price.  It  is  the  cost  ot  fer- 
tilizer that  is  the  deciding  factor  all  down  the  line.  It  is  the  price  of  the 
material  that  nuikes  the  chemical  into  a  fertilizer.  You  may  take  the  nitrogen 
compounds  or  the  phosphorous  compounds  that  a  druggist  will  retail  to  you 
over  the  counter  and  put  them  on  the  soil.  They  will  increase  the  crop  pro 
duction,  but  thev  are  not  fertilizers.  But  when  they  reach  a  iwint  in  price 
that  a  farmer  can  buy  them  and  apply  them  to  the  soil  ami  increases  <irop 
production  so  that  the  increase  will  more  than  pay  for  the  application  of  this 
fertilizer  to  the  soil,  you  have  a  fertilizer.  And  the  price  of  the  fertilizer  is 
what  limits  its  consumption  in  this  country.  With  all  the  figures  presented 
to  vou  showing  that  there  is  a  7i  iier  cent  increase  in  fertilizer  consumption. 
as  Mr.'  MacDowell  said,  this  thought  has  been  entirely  overlookeil.  I  would 
not  venture  to  tell  the  committee  whnt  the  consumption  of  fertilizers  would 
be  if  the  price  was  reduced  one-third.  The  cost  price  of  fertilizer  right  now 
aUows  its  application  only  to  the  high  value  croi)s.  That  is  why  you  have  the 
great  use  of  fertilizers  in  the  South  and  eastern  parts  of  the  Ration;  ami 
more  than  the  fact  that  the  soil  has  become  exhausted  is  the  fact  that  the  high- 
value  crops  which  the  eastern  farmer  raises  will  allow  the  application  of  fer- 
tilizer where  the  low-value  crops,  from  which  the  main  food  sui)ply  comes,  such 
as  whkt  and  corn,  do  not  allow  the  application  of  fertilizer  at  present  prwe^: 

Fertilizer  must  pay  its  cost,  dIus  a  profit  to  the  farmer;  if  it  does  not  do  that 
it  is  of  no  value  to  him.  Fertilizer  is  just  three  elements  combined  in  the 
various  combinations  in  which  it  is  shipiied  to  the  farmer— nitrogen,  phosphorus, 
and  potassium  You  hear  nitrogen  mentioned  as  ammonia,  ammonium  sul- 
phate, ammonium  nitrate,  sodium  nitrate  from  Chile,  cottonseed  meal ;  those 
are  all  carriers  of  nitrogen  fertilizer.  Phosphorous  fertilizer  is  carried  nhmy^t 
solelv  bv  what  thev  call  acid  phosphate.  It  is  the  phosphate  rock  treated  with 
sulphuric  acid  that  carries  our  phosphorus.  Unfortunately,  our  potash  has  to 
conu>  princijially  from  (ieriiumy,  be<-ause  of  the  price.  Nitrogen  is  tlu'  limiting 
factor  in  crop  production  in  most  of  our  worn-out  soils. 

I  might  use  an  illustration  of  a  barrel  in  which  the  staves  are  broken :  one 
stave  is  broken  about  one-third  way  up  toward  the  top  of  the  barrel,  another 
stave  is  broken  about  half  way  np  the  barrel,  and  another  stave  is  broken  two- 
thirds  of  the  way  up  the  barrel.  The  crop  is  demanding  three  elements— nitro- 
gen, phosphorus,  and  potassium.  The  nitrogen  in  most  of  our  soil  is  the  stave 
broken  ofl:  just  one-third  the  way  up  the  barrel,  and  when  the  crop  has  reached 
the  i>oint  where  it  needs  more  nitrogen,  which  is  not  there,  it  will  not  go  up, 
no  matter  how  high  the  staves  are  that  carry  the  phosphorus  and  potash,  but 


} 


i 


618 


MUSCLE   SHOALS  PROPOSITIONS. 


It  runs  out  at  that  point.  But  if  we  have  a  sufficient  amount  of  nitrogen  tlie 
crop  will  go  up  until  it  reaches  tlie  phospliorous  lealv,  and  then  the  crop  pro 
duction  stops  at  tliat  point.  But  if  we  have  enough  of  those  two  elements  but 
do  not  have  a  sufficient  amount  of  potash,  the  crop  will  go  up  to  the  third 
lirolven  stave.  If  we  have  a  sufficient  amount  of  all  of  those  elements  it  will 
run  over  the  top. 

Let  me  give  you  an  illustration  to  show  why  nitrogen  is  the  linnting  factor. 
A  100-bushel  crop  of  corn  in  the  grain  and  stalk  takes  from  the  soil  148  pounds 
of  nitrogen,  23  pounds  of  phosphorus,  and  71  pounds  of  potash.  You  can 
easily  see  the  large  jiroportion  of  nitrogen,  14S  pounds  to  23  pounds  of  plios- 
phorus  and  71  pounds  of  potash. 

In  order  to  show  you  what  the  demand  for  nitrogen  is — and  you  have  had  it 
stated  here  that  our  demand  will  not  use  the  output  of  the  sulphate  ovens— 
in  1909,  corn,  wheat,  and  oats  in  grain  alone  removed  from  the  soil  of  the 
United  States  3.9(>5,000,000  pounds  of  nitrogen,  G06,(XK),000  pounds  of  phos- 
phorus, and  875,000,000  pounds  of  potash.  That  was  in  just  three  crops  in  the 
grain  alone.  Of  course,  some  of  the  stalk  did  not  come  back  on  the  land,  an<t 
I  am  assuming  that  the  farmer  kept  his  straw  and  grain  fodder  and  sprea<l 
that  over  the  fields.  But  the  grain  is  shipped,  and  that  amount  was  taken 
out  of  the  soil  by  just  those  three  crops.  To  replace  this  nitrogen  into  the  soil 
would  require  9,912,500  tons  of  ammonium  sulphate  a  year.  And  yet  we  are 
told  that  500,000  tons  a  year  is  all  the  farmers  can  use.  It  is  all  they  can  use 
at  the  price  they  have  to  pay,  and  if  we  are  going  to  replace  this  nitrogen 
into  our  soils  we  have  to  get  cheaper  nitrogen. 

I  think  the  committee  would  be  interested  in  the  testimony  given  before  the 
Committee  on  Agriculture  by  Mr.  Washburn  on  February  9,  1916,  on  page  4 
of  the  printed  hearings,  where  he  said : 

"  I  believe,  therefore,  that  the  best  way  in  which  I  can  contribute  something 
of  possible  value  to  your  deliberations  is  to  confine  myself  in  the  main  to  what 
is  possibly  the  most  imj)ortant  single  difficulty  the  farmers  of  this  country 
face  in  the  matter  of  fertilizing  their  crops,  and  the  most  effective  single  remedy 
therefor.  I  refer  to  the  always  high  and  frequently  prohibitive  cost  of  tlm 
nitrogen  fertilizer  as  the  difficulty,  and  to  Government  cooperation  in  the 
establishment  of  the  nitrogen  industry  within  the  borders  of  the  I'^nited  States 
as  the  remedy."  That  statement  was  nmde  by  Mr.  Frank  S.  Washbnrn,  the 
president  of  the  American  Cyanamid  Co. 

The  Chairman.  At  that  time  was  he  president  of  the  Alabama  Power  Co.? 

Mr,  Bower.  I  think  at  that  time  he  either  was  or  had  recently  been  vice 
president  of  the  Alabama  Power  Co.  On  page  6  there  is  a  statement  which  I 
think  I  will  read  to  you  from  the  testimony  of  Mr.  Washburn  at  this  same 
hearing,  because  at  that  time  he  clearly  sets  forth  tfie  problem  now  before  Con- 
gress.   He  said : 

"  It  is  probably  true  that  a  limited  amount  of  nitrogen  applied  to  the  soil 
is  profitable  substantially  regardless  of  its  cost  The  effect  of  additional 
nitrogen  upon  increased  crop  production  is  known  and  measureahle  as  a  result 
of  continuous  exi^erimentation  covering  a  i)eriod  in  England,  for  instance,  of 
60  years.  These  exi^riments  have  been  directed  and  supervised  by  the  greatest 
scientists  in  every  civilized  country,  and  in  consequence  we  know  that  nomi- 
nally a  pound  of  nitrogen  will  increase  the  wheat  crop  by  one-third  of  a  bushel 
of  grain  and  40  pounds  of  straw,  the  corn  crop  by  five-eighths  of  a  bushel,  tlit^ 
potato  crop  by  !•  bushels,  the  tobacco  crop  by  10  p<mnds,  the  cotton  crop  by 
5  pounds,  and  so.  indefinitely.  The  American  farmer  pays,  on  the  average.  28 
to  30  cents  per  pound  of  nitrogen  constituent,  and.  therefore,  when  we  take 
wheat  at  80  cents  per  bushel  and  no  sale  for  the  straw,  he  practically  breaks 
even  on  his  investment  in  nitrogen.  His  entire  profits,  therefore,  must  lie  in 
the  sale  of  the  extra  quantity  of  straw. 

"  On  corn  at  57  cents  per  bushel  he  has  a  net  profit  of  25  per  cent  of  the 
cost  of  the  fertilizer;  <m  potatoes  at  GO  cents  per  bushel  a  net  profit  of  2(X> 
per  cent ;  on  tobacco  at  lOi  cents  i)er  pound,  a  net  profit  of  275  per  cent ;  and 
on  cotton  at  12  cents  per  pound  a  net  profit  of  115  per  cent.  These  prices 
assumed  are  the  five-year  average  received  by  the  farmer,  1909  to  1913,  inclusive. 
To  obtain  the  true  net  profit  one  nnist  deduct  the  cost  of  handling  the  fertilizer 
from  the  railway  station  and  applying  it  to  the  soil.  I  want  to  draw  special 
attention  to  the  significance  of  the  figures  which  have  just  been  given  in  so 
far  as  they  apply  to  the  cereal  crops.  Here  the  profit  in  the  use  of  fertilizers 
at  prevailing  high  prices  is  comparatively  small  and  uncertain.  These  crops 
cover  60  per  cent  of  the  cultivated  acreage  in  the  United  States,  and  in  these 


MUSCLE   SHOALS  PROPOSITIONS. 


619 


figures  we  have  in  part  the  explanation  of  why  it  is  that  the  use  of  "/trogen 
is  practically  confined  in  the  United  States  to  crops  other  than  the  cereals, 
such  as  cotton,  potatoes,  truck,  tobacco,  etc."  ^      i  ^i 

I  thfnk  that  dearly  demonstrates  why  these  fertilizers  are  used  ex  enslvely 
on  cotton,  tobacco,  and  potatoes.  Now,  in  this  matter  the  question  is  where 
are  we  going  to  get  this  nitrogen.  I  think  I  have  demonstrated  the  fact  that 
we  need  it.  and  there  is  only  one  source  from  which  we  can  get  it,  and  that  is 
from  the  air.  The  Chilean  nitrate  beds  are  eventually  going  to  be  exhausted , 
in  a  hundred  years,  according  to  the  testimony  of  some  experts,  they  will  be 
exhausted.  The  cheapest  deposits  have  been  exhausted.  They  can  not  lower 
their  price  suddenly  unless  they  cut  out  their  export  duty,  which  we  hope  the 

operation  of  this  plant  will  make  them  do.  .^      ,,    a      ^  r.  ,^»f  ,•«  ti,o 

In  the  same  year,  1916— and  there  has  been  considerable  development  in  the 
art  since  that  time-the  American  Cyanamid  Co.  again,  through  their  president, 
Mr  Frank  S.  Washburn,  on  page  5  of  a  hearing  before  the  Senate  Committee 
on  'Agriculture  and  Forestry,  on  March  16,  1916   testified  as  follows : 

"  What  has  been  obtained,  economically  speaking,  is  this :  That  the  fnctory 
costs  under  most  favorable  conditions,  those  which  are  not  only  theoretically 
obtainable,  but  actually  obtainable  in  some  parts  of  the  wodd,  eyerything, 
including  overhead  and  superintendence,  and  all  that  sort  of  thing  mside  the 
factory,  but  not  including  the  interest  on  the  investment,  for  producing  nitrogen 
comparable  to  the  nitrogen  that  is  in  the  Chilean  nitrate  is  about  one-third  of 
the  ordinai-y  market  price  of  the  Chilean  nitrate.  ,      ^  \  «. 

"  Senator  Smith  of  South  Carolina.  You  mean  to  say  that  the  factory  cost 
is  about  one-third  of  the  selling  cost?  ^^ 

"Mr.  Washburn.  Of  the  selling  cost  of  Chilean  nitrate. 

Also,  in  a  hearing  before  the  Committee  on  Agriculture  of  the  House  on 
February  9,  1916,  Mr.  Washburn  said:  .   ^     ^ 

"Mv  anticipation  is  that  the  establishment  of  the  nitrogen  industry,  as  it 
can  be  established  with  what  I  believe,  and  what  I  believe  would  appeal  to 
those  who  study  the  subject,  is  the  proper  and  legitimate  Government  c-oopera- 
tion,  will  giv(^  the  farmer  his  fertilizer  for  one-half  of  what  he  would  otherwise 

pav  for  it " 

in  testifying  before  the  Senate  Committee  on  Agriculture  and  Forestry  Dr. 
L  H  Baekeland,  one  of  the  foremost  chemists  in  this  country,  an  independent 
chemist  and  the  inventor  of  Baekolite,  a  man  well  recognized  in  the  profession, 
nmde  the  following  statement  on  this  subject  of  the  fixation  of  atmospheric 

nitrogen  * 

•'  The  statement  is  made  by  the  present  Government  monoptdy  in  Germany 
that  after  the  war  is  over  aiid  after  what  they  know  now  about  the  synthetic 
manufacture  of  nitrogenous  fertilizer  from  the  air,  after  all  the  experience 
thev  have  acquired  during  this  war  while  making  nitric  acid,  that  they  will  be 
in  such  condition  that  they  intend  to  furnish  the  farmers  of  Germany  nitrogen 
fertilizer  at  about  one-half  the  price  it  is  costing  the  consumer  here  in  the 
United  States.  If  Germany  can  do  that,  gentlemen,  there  is  not  the  slightest 
doubt  in  my  mind  that  we  can  do  the  same  here,  or  that  we  can  do  better. 

The  report  of  the  nitrogen  products  committee  of  the  British  Empire,  in 
item  (d),  paragraph  654,  on  page  133,  says:  u      w  •      i 

"  Combined  nitrogen,  as  cvanamide  or  ammonium  sulphate,  can  be  obtained 
hv  svnthetic  processes  at  a  cost,  at  the  factory,  which  is  less  than  one-half  the 
niarket  price  of  combined  nitrogen  from  other  sources,  prewar  conditions  be- 
ing taken  as  a  basis  in  each  case." 

As  an  interesting  matter  in  this  connection,  I  have  a  copy  of  an  argument 
prepared  bv  the  Koppers  Co.,  of  Pittsburgh,  arguing  for  a  duty  on  sulphate 
of  ammonia,  and  on  page  8  of  that  argument,  under  the  heading,  A\hy  pro- 
tection by  legislation  is  necessary,"  the  second  paragraph  says: 

"The  cost  of  operating  these  plants  is  relatively  low,  so  that  even  to-day 
sulphate  of  ammonia  is  being  sold  in  Germany  at  half  the  price  m  the  Lnited 
States,  based  on  the  present  rate  of  exchange." 

So  it  is  an  accomplished  fact  in  Germany. 

Now  Dr  Whitney  and  Dr.  Tolman  and  Mr.  Swann  have  given  some  won- 
derful 'testimony  to  this  committee  as  to  the  possibilities  of  the  phosphorous 
compounds  bv  the  use  of  the  electric  furnace,  all  depending  upon  cheap  water 
power  which  we  believe  we  can  secure  through  the  operation  of  this  plant 
under 'the  contract  proposed  by  Mr.  Ford.  I  will  not  read  their  testimony  in 
regard  to  these  high-grade  materials,  except  to  show  you  a  few  things  along 
that  line.    I  will  come  back  to  that  a  little  later. 


V  ! 


620 


MUSCLE   SHOALS  PROPOSITION'S. 


\ 


The  (letelopinent  of  the  fertilizer  industry  will  not  brini;  about  the  neces- 
sary improvement  in  the  use  of  hij;h-gracle  fertilizer  compounds  throu«a  a 
shny  improvement;  that  is  to  say,  16  per  cent  is  the  highest  content  phos- 
phate material  furnished  to  the  American  farmer  to-day      ' 

The  ('HAiRMAN.  You  say  16  per  cent? 

Mr.  BowEB.  Sixteen  per  cent  acid  phosphate.     It  is  not  possible  to  make 
economically  !>(»  per  cent  acid  phosphate;  there  is  no  wav  of  doins  it   and  tne 
next  compound  jumps,  as  testified  by   Dr.   Whitney  and  Mr.   Swann    to   the 
several  superphosphates,  which  carry  above  40  per  cent,  and  if  we  are  goinc 
to  make  this  step  now,  we  have  got  to  cross  that  creek.    We  can  not  make  two 
jumps  land  at  20  per  cent  and  go  on  to  40  per  cent.    We  have  got  to  jump  from 
?    i    ?;    P^^  Pi-esent  fertilizer  industry,  with  its  investment  in  acid-sulphate 
plants  that  are  making  16  per  cent,  feel  probably  that  the  jump  could  not  be 
made.    It  would  injure  them— I  do  not  question  that  for  a  moment— and  I  think 
that  explains  the  reason  why  they  are  here.     But  agriculture  must  "o  on  • 
we  must  feed  our  crops ;  we  must  begin  to  do  it  intelligently  and  scientifically' 
And  Mr.  Washburn  himself  recognized  that  situation  in  his  testimonv  before 
the  Agricultural  Committee  of  the  House  in  the  same  hearing  I  referred  to 
a  moment  ago,  when  he  said,  "The  answer  to  the  fertilizer  problem    to  be 
of  any  practical  and  immediate  value,  must  lie  in  revolutionizing  present  condi- 
tions instead  of  slow  evolution  proceeding  under  their  domination  "    He  recog- 
nized that  it  must  be  a  jump  to  get  to  these  high-grade  materials ;  and  this 
is  the  crux  of  the  whole  situation  and  the  cause  of  the  opposition      There  is 
no  question  about  it.     It  is  not  that  these  gentlemen  are  coming  here  in  a 
philanthropic  spirit  to  prevent  the  Government  making  a  bad  deal  with  Mr. 
Ford.  ^ 

Last  year— if  T  may  be  i>ermitted  to  inject  this  at  this  point— when  the  propo- 
sition was  for  the  Government  to  operate  this  plant  and  trv  to  secure  the  same 
results  there  was  no  bad  bargain  with  a  private  individual  interwoven  in  it  or 
connected  with  it,  and  they  were  just  as  strenuous  in  their  opposition,  as  most 
of  you  gentlemen  know.  What  they  fear  is  the  result  of  this  development.  What 
we  ^eek  as  farmers  is  to  maintain  our  soil  fertilitv  and  increase  our  crop  pro- 
duction through  the  greatly  increased  use  of  fertilizer  material.  It  is  those  re- 
sults that  these  gentlemen  fear.  It  is  a  clejir-cut  issue.  You  can  not  take  a  step 
forward  in  the  line  of  progress  without  treading  on  somebodv's  toes,  and  unfor- 
tunately to  make  this  development  somebody's  toes  have  got  to  be  stepped  on 
But  I  am  sure  that  the  committee  would  not  agree  that  the  interests  of  an  indus- 
try dependant  upon  a  primary  interest  such  as  agriculture  should  be  considered 
as  superior  to  the  interests  of  agriculture  itself.  That  is  not  a  situation  that 
will  appeal  to  the  people  of  this  country  as  a  whole,  and  certainly  it  will  not 
appeal  to  the  farmers. 

Now,  with  reference  to  the  nitrogen  production  in  this  country.  I  want  to 
make  this  flat  statement,  and  that  is,  simply  that  there  is  no  business  in  the 
United  States  of  America  engaged  primarily  in  the  production  of  nitrogen  com- 
pounds. All  nitrogen  compounds  produced  within  the  borders  of  the  United 
States  are  by-products  of  industries  that  depend  upon  the  sale  of  a  major  product 
for  their  existence;  and  these  industries  who  are  asking  that  you  protect  their 
interests  are  asking  you  to  protect  the  interests  of  a  by-product  of  another  major 
industry.  Take,  for  instance,  if  you  please,  the  by-product  coke  ovens.  Their 
major  product  is  coke,  for  the  steel  industry,  and  by  the  testimony  of  Mr. 
MacDowell  the  cost  of  the  ammonia  in  a  ton  of  ammonium  sulphate,  the  500 
pounds  in  a  ton  of  ammonium  sulphate  is  $1.50.  That  is  his  statement.  They 
argue  if  they  do  not  get  a  dollar  and  a  half  for  the  500  pounds  of  ammonia  they 
will  have  to  increase  the  price  of  coke,  and  consequently  increase  the  price  of 
steel ;  but  the  amount  of  ammonia  they  get  in  producing  a  ton  of  coke  is  not  worth 
15  cents  on  the  ton.  It  is  only  worth  about  6  or  7  cents.  I  will  put  the  correct 
figures  on  that  in  the  record.  If  I  am  not  mistaken  it  is  not  more  than  that  on 
a  ton  of  coke.  On  the  basis  of  $1.50  per  500  pounds  of  ammonia  it  is  0.021  cent 
per  ton  of  coke. 
The  Chairman.  How  much  is  it  on  a  ton  of  steel? 

Mr.  Bower.  I  will  try  to  obtain  those  figures.     I  do  not  know  exactly  the 
amount  of  coke  that  is  used  in  the  manufacture  of  a  ton  of  steel,  but  I  can  get 
that  information  for  you. 
The  Chairman.  I  wish  you  would  put  that  in  the  record. 
Note.— One  ton  of  coke  is  usetl  to  1  ton  of  steel.    So  it  would  be  the  same  0.021 
cent  on  a  ton  of  steel. 

Mr.  Bower.  I  will  be  glad  to  do  it.    In  the  case  of  the  by-product  coke-oven 
industry  they  have  said  repeatedly,  and  they  used  that  argument  most  effectively 


MUSCLE  SHOALS  PROPOSITIONS. 


621 


last  spring,  that  their  production  was  550,000  tons  of  ammonium  sulphate  per 
annum;  but  if  you  read  the  testimony  carefully  where  they  make  that  state- 
ment— and  I  notice  Mr.  MacDowell  was  careful  to  make  it  in  that  way — you  will 
see  that  it  refers  to  sulphate  equivalent.  The  meaning  is  simply  this,  that 
550,000  tons  per  annum  is  the  amount  of  ammonium  sulphate  that  they  can 
produce  if  all  the  ammonia  recovered  from  the  by-product  ovens  was  manufac- 
tured into  ammonium  sulphate  and  sold  as  such ;  but  that  is  not  the  situation. 
Their  primary  market  which  is  always  supplied  first — I  do  not  mean  in  point  of 
time,  but  first  in  point  of  the  industry — is  the  great  market  for  aqua  ammonia 
and  anhydrous  ammonia  and  the  various  ammonia  liquors  that  go  into  house- 
hold use,  and  that  amount  has  got  to  be  deducted  from  the  amount  of  ammonium 
sulphate  produced  before  the  farmer  gets  any  ammonium  sulphate  from  the  by- 
product industries.  In  1920,  which  is  the  biggest  actual  production  year  the  by- 
product coke-ovens  ever  had,  the  total  production  was  467,000  tons.  .  That  is  the 
production  of  sulphate  equivalent ;  that  was  their  total  production,  467,000  tons. 
The  actual  production  of  ammonium  sulphate,  which  is  the  fertilizer  ingredient, 
was  only  337,500  tons,  and  that  was  the  largest  year  the  by-product  coke  ovens 
ever  had.  So  you  will  see  that  there  is  a  difference  there  of  129,500  tons  of 
sulphate  equivalent  going  into  ammonia  liquor.  Let  me  just  point  out  another 
difficulty.  Those  figures  are  from  the  United  States  Geological  Survey  state- 
ment as  to  the  by-products  obtained  from  coke-oven  operation  in  1920. 

There  is  another  difficulty  in  depending  upon  such  a  by-product  source  for 
our  nitrogen.  During  this  past  year,  as  you  gentlemen  know,  the  farmers  of 
This  country  have  been  passing  through  one  of  the  worst  crises  that  agricul- 
ture ever  experienced  in  the  United  States.  Yet  the  by-product  coke  ovens 
are  nearly  shut  down;  the  steel  industry  has  come  to  a  halt,  and  the  pro- 
duction -of  ammonium  sulphate  is  not  coming  forward ;  and  exactly  identical 
conditions  will  again  take  place  whenever  you  have  a  crisis  in  agriculture. 
When  agriculture  goes  through  a  stress  and  storm  period,  as  has  been  the 
case  recently  all  over  the  country,  all  industry  slacks  down,  eventually  work- 
ing back  to  the  steel  industries;  and  when  the  farmer  needs  a  larger  amount 
of  cheap  fertilizer  to  get  back  on  his  feet  the  production  of  ammonium  sul- 
phate is  reaching  its  lowest  level  in  the  course  of  its  decline  following  after 
agriculture.  That  is  one  reason  why  the  American  farmer  can  not  get  cheap 
nitrogen  to  increase  his  soil  fertility.  This  is  a  by-product,  with  a  preferen- 
tial first  market  for  the  ammonia  liquors  before  we  get  any.  In  1920  the 
exports  amounted  to  59.566  tons. 

Last  spring,  when  the  proposition  was  for  the  Government  completion  and 
operation  of  this  project,  the  by-product  coke  oven  interests  were  actively  en- 
gaged in  defeating  it,  and  following  its  defeat  they  prepared  a  document  argu- 
ing against  the  completion  of  the  Wilson  Dam  for  the  operation  of  nitrate 
plant  No  2.    They  sent  out  a  letter  to  a  large  number  of  by-product  coke-oven 
manufacturers  over  the  country  in  effect  stating  that  w^hile  the  proposition  had 
been  defeated  last  spring  it  would  undoubtedly  come  up  again  in  the  fall  and 
they  wanted  to  be  prepared,  and  they  got  quite  a  few  signers  on  the  back,  about 
20  of  them.    I  want  to  call  attention  to  fiive  of  those  especially,  namely,  the 
Indiana  Coke  &  Gas  Co.,  of  Terre  Haute,  Ind. ;  the  Minnesota  By-product  Coke 
Co    of  St   Paul,  Minn. ;  the  New  England  Fuel  &  Transportation  Co.,  Boston, 
Mass  •  the  Seaboard  By-product  Coke  Co.,  of  Jersey  City,  N.  J. ;  and  the  Kop- 
pers  Co.,  of  Pittsburgh,  Pa.    Those  five  I  wish  you  to  remember  for  a  moment. 
Mr  Crowther.  Why  not  put  the  names  of  the  other  signers  in  the  record? 
Mr    Bower    I  would  be  very  glad  to  have  them  all  printed  in  the  record. 
I  have  a  reason  for  calling  especial  attention  to  the  group  I  have  mentioned, 
and  I  have  no  objection  to  all  the  names  going  in  the  record.    The  other  sign- 
ers were  •  Alabama  By-products  Corporation,  Birmingham,  Ala. ;  Camden  Coke 
Co    Newark  N   J. ;  Citizens  Gas  Co.,  Indianapolis,  Ind. ;  Coal  Products  Manu- 
fai^turlnc  Co'    Aurora,  111. ;  Chattanooga  Coke  &  Gas  Co.,  Chattanooga,  Tenn. ; 
Donner  Un^on  Coke  Corporation,  Buffalo,  N.  Y. ;  Domestic  Coke  Corporation, 
Fairmont,  W.  Va.;  Gulf  States  Steel  Co.,  Birmingham,  Ala.;  Inland  Steel  Co 
Buffalo    N    Y  •  uk  Velle  Iron  Works,  Wheeling,  W.  Va. ;   St.  Louis  Coke  & 
Ohemckl  Co     CWcago    111.;   the  Hanna  Furnace  Co.,  Cleveland,  Ohio;   the 
MSSee^Cokfrias  Co.    Milwaukee,  Wis.;  Toledo  Furnace  Co.,  Toledo 
Ohio;  the  Brier  Hill  Steel  Co.,  Youngstown,  Ohio;  the  Youngstown  Sheet  & 
Tube  Co.,  Youngstown.  Ohio ;   Woodward  Iron  Co.,  Woodward,  Ala. ;   Zenith 

"^FTl^wing't^e'Sef;^''^  Muscle  Shoals  appropriation,  when  the  tariff 
bUl  pasTed  the  House,  after  it  had  passed  the  attention  of  the  farmers  was 
called  tTthe  fact  thai  there  was  a  duty  of  $12  a  ton  on  ammonium  sulphate 


dl 


622 


MUSCLE  SHOALS  PROPOSITIONS. 


in  the  tari|P  bill,  on  the  very  product  that  they  manufacture;  and  after  they 
had  argued  that  their  production  was  ample  for  the  American  farmer  and  at 
as  low  a  price  as  he  could  get  it  from  anywhere,  they  turned  right  around 
and  asked  for  this  duty,  and  it  was  put  into  the  tarifE  bill.  There  was  no 
public  hearing,  or  at  least  no  printed  hearing,  and  I  have  examined  them  very 
carefully  to  see  what  representations  were  made.  But  the  duty  of  $12  a  ton 
is  in  the  tariff  bill  as  it  passed  the  House  for  the  first  time. 

When  we  took  up  the  matter  we  found  they  had  been  to  the  Senate  Committee 
on  Finance  and  had  presented  testimony  there  asking  that  the  duty  of  $12  a 
ton  be  left  in  the  tariff  bill.  They  gave  their  reasons  in  the  hearing  before 
the  Senate  Finance  Committee  on  Schedule  1.  The  hearing  was  held  on  July 
30,  1921,  before  the  Senate  Committee  on  Finance,  and  in  their  statement  they 
say :  "  What  we  do  fear  is  abrupt  and  demoralizing  fall  of  prices  due  to  the 
flooding  of  our  markets  with  unnaturally  cheap  material  manufactured  in  Ger- 
man-subsidized, syndicate-controlled,  war-built  nmnitions  plants,  and  that  the 
American  product  will  be  displaced  on  the  American  market  by  unnaturally  cheap 
material  made  by  low-priced  labor  in  these  plants  built  during  the  war  to 
manufacture  munitions."  That  is  the  danger  they  feared,  and  what  they 
sought  protection  against  was  not  the  Chilean  nitrate,  but  the  German  fixed 
nitrogen,  and  they  got  their  duty.  The  reason  I  called  your  attention  to  the 
names  of  those  signers  of  this  statement  is  that  in  the  list  of  organizations 
represented  by  this  committee  are  the  very  five  names  that  I  read  to  the  com- 
mittee as  signing  this  argument  in  opposition  to  the  completion  of  the  Muscle 
Shoals  nitrate  plant.  That  is,  after  defeating  whc^t  the  farmers  believe  was 
a  chance  to  get  cheaper  nitrogen,  and  having,  as  they  claimed,  defeated  that, 
and  according  to  their  letter  preparing  to  carry  their  opposition  through  to 
this  Congress,  they  turned  around  and  got  $12  a  ton  duty  In  the  tariff  bill 
protecting  them  in  their  high-priced  nitrogen. 

Mr.  Crowther.  May  I  interrupt  long  enough  to  say  that  I  hope  we  might 
have  a  copy  of  the  letter  in  which  they  claim  to  have  defeated  that  measure. 
It  seems  to  me  we  ought  to  put  that  letter  in  the  record. 

Mr.  BowEB.  I  will  try  to  procure  a  copy  of  that.  I  had  one,  but  it  has  been 
misplaced.  I  will  state  this,  that  they  did  not  state  definitely  in  the  letter 
that  they  had  defeated  this  proposition,  but  the  set-up  was  that  this  has  been 
defeated,  but  is  coming  up  again  this  fall,  and  we  must  be  again  prepared  to 
protest  against  it.  That  is  the  whole  tenor  of  the  letter.  I  do  not  think  they 
^nade  the  flat  statement  that  they  had  defeated  it. 

Mr.  Crowther.  I  think  with  that  statement  the  letter  need  not  be  put  in  the 
record. 

The  Chairman.  I  think  it  would  be  a  good  thing  if  you  could  get  the  letter 
and  put  it  in  the  hearing. 

Mr.  BowEB.  I  will  try  to  get  it.  Understand  me,  Mr.  Chairman  and  gentle- 
men, I  am  not  criticizing  the  House  of  Representatives  because  of  that  duty 
of  $12  a  ton  in  the  tariff  bill,  because  I  do  not  believe  any  member  of  the 
committee  or  the  House  knew  that  that  duty  was  in  there  when  the  tariff  bill 
passed. 

The  Chahiman.  This  committee  has  nothing  to  do  with  the  tariff  bill. 

Mr.  Bower.  I  understand  that,  but  this  bill  has  already  passed  the  House. 
I  do  not  want  you  to  think  that  I  think  the  members  of  this  committee  really 
knew  that  that  duty  on  ammonium  sulphate  was  in  there,  because  if  they  had 
known  it  I  am  sure  they  would  have  taken  it  out. 

Mr.  Crowther.  We  could  not  take  it  out;  the  bill  was  passed  under  a  rule 
and  there  was  no  way  to  amend  it,  or  take  anything  out  of  it. 

Mr.  Bower.  The  thought  in  our  minds  is  that  the  arguments  which  have 
been  presented  to  you  have  been  that  we  should  be  left  to  depend  upon  such 
sources  of  industry  that  would  do  away  with  all  our  efforts  to  get  cheap  nitro- 
gen and  all  we  want  of  it.    We  would  never  get  it. 

The  next  great  source  of  nitrogen  i)roduced  in  America  is  cottonseed  meal, 
and  there  we  are  making  an  economic  mistake  in  putting  back  in  the  soil  cotton- 
seed meal. 

Cottonseed  meal  should  go  to  the  dairies  of  Mr.  C'rowther's  State  and  of  Iowa 
to  fee<l  the  cattle  or  to  fee<l  their  stock.  It  is  nmch  more  valuable  for  that  than 
to  feed  the  soil.  Then  there  is  also  the  tankage  and  the  blood  meal  and  other 
l)y-pro<lucts  of  the  packers'  industry  which  are  going  into  hog  feed,  and  they 
shouhl  not  go  into  soil  to  be  used  in  the  production  of  crops.  All  of  the  pro- 
ducers of  by-products  contend  that  their  interests  in  this  by-product  should  be 


MUSCLE  SHOALS  PROPOSITIONS. 


623 


protected  as  against  the  interests  of  agriculture  trying  to  feed  and  clothe  the 
country  and  maintain  soil  fertility. 

It  is  interesting  to  note  in  that  connection,  in  dealing  with  cottonseed  meal, 
that  the  Southern  Cotton  Oil  Co.,  the  largest  cottonseed  meal  producer  in  the 
South,  is  owned  outright  by  the  Virginia-Carolina  Chemical  Co.,  which  com- 
pany James  B.  Duke  controls.  He  also  owns  24  per  cent  of  the  American 
Cyanamid  Co.,  and  the  Virginia-Carolina  Co.  also  owns  26  per  cent  of  the 
American  Cyanamid  Co.  I  notice  in  the  testimony  it  was  stated  that  tlie  amount 
of  stock  that  Mr.  Duke  owns  in  the  American  Cyanamid  Co.  is  23  or  24  per  cent. 
That  dmount  was  indefinite,  but  the  ownership  in  the  American  Cyanamid  Co. 
of  the  Virginia-Carolina  Co.  was  definitely  fixed  at  26  per  cent.  We  think  it 
would  add  up  to  about  51  per  cent  if  the  figures  were  exact. 

With  that  thouglit  in  mind,  we  turn  to  the  statement  of  the  American  Cyana- 
mid Co.,  whose  representative  at  this  hearing  has  denounced  this  proposition 
of  Mr.  Ford  as  a  subsidy.  When  questioned  as  to  what  that  subsidy  consisted 
of,  it  was  in  the  securing  of  water  power  at  4  per  cent  interest,  and  he  further 
stated  that  his  company  would  not  have  the  nerve  to  make  such  a  proposition.  I 
would  like  to  read  what  is  said  on  page  11  of  the  hearings  held  before  this 
very  committee,  the  Committee  on  Military  Affairs  of  the  House,  in  1916. 
This  was  a  hearing  by  this  committee  held  on  February  11,  1916,  Mr.  Mc- 
Kenzie  asked  this  question : 

"As  I  understand  your  plan,  Mr.  Washburn,  it  is  this:  You  recommend  the 
cooperative  plan,  rather  than  the  independent  or  Government-owned  plant V" 

Then  the  following  occurred : 

"  Mr.  Washbi'rn.  The  only  plan  that  seems  feasible  to  me. 

•'  Mr.  McKknzie.  Let  me  see  if  I  understand  you.  Your  plan  of  cooperative 
work  is  to  take  the  power  site,  where  the  Government  has  constructed  a  dam 
for  pui*poses  of  navigation,  or  to  aid  navigation,  and  the  company  that  would 
manufacture  this  product  would  then  build  its  structures  alongside  of  this  power 
site,  and  the  Government  would  permit  them  to  use  the  power ;  and  they  would 
pay,  as  I  understand  you,  3  per  cent  on  account  of  the  construction  of  the  dam. 
In  other  words,  the  Government  would  build  the  dam  and  the  company  would 
ere<*t  a  structure  for  the  manufacture  of  the  product,  cooperating  with  the 
manufacturing  concern,  and  it  would  manufacture  this  product  for  fertilizer 
during  time  of  peace,  and  the  Government  would  have  the  right  to  take  the  entire 
product  during  time  of  war,  and  that  the  company  should  pay  annually  to  the 
Government  3  per  cent  on  the  investment  in  the  dam;  is  that  correct? 

"  Mr.  Washburn.  Upon  the  investment  in  the  dam  and  such  hydroelectric 
equipment  as  was  necessary  to  put  the  power  on  the  switchboard. 

"  The  Government  investment  devoted  to  power  normally  would  include  the 
dam,  and  the  power  house  and  its  equipment  and  the  power  woultl  be  paid  for 
by  the  nitrogen  industry  at  3  per  cent  of  the  cost.  That  would  be  an  annual 
tax  upon  the  nitrogen  industry.' 

In  fact,  this  company  which  denounces  the  Ford  proposition  as  a  subsidy 
at  4  per  cent  interest  was  here  before  this  committee  in  1916  asking  for  the 
identical  thing  at  3  per  cent  interest,  and  they  called  it  "  proper  Government 
cooperation."  With  such  testimony  as  that  they  come  before  you  and  ask  that 
this  contract  they  have  made,  which  they  say  is  a  moral  obligation,  shall  be 
lived  up  to.  I  think  they  have  violated  all  of  the  momlity  that  is  in  the  contract, 
and  the  Acting  Judge  Advocate  General  of  the  War  Department  says  there  is 
noi  any  legal  point  involved. 

Their  representative  stated  that  if  you  did  this  thing  in  time  of  war  you 
would  have  to  deprive  the  agricultural  interests  of  a  product  of  this  plant.  His 
solution  was  to  deprive  us  in  time  of  peace,  so  as  not  to  deprive  us  in  time  of 
war.  With  such  an  argument  as  that,  he  did  not  respect  the  intelligence  of  the 
committee.  He  said  that  they  could  not  make  cheap  fertilizer  in  this  plant.  I 
would  like  to  refer  again  to  page  14  of  the  hearing  before  the  Agricultural  Com- 
mittee of  the  House  held  on  February  9,  1916,  where  Mr.  Washburn  stated : 

"  My  anticipation  is  that  the  establishment  of  the  nitrogen  industry,  as  it  can 
be  established  with  what  I  believe,  and  what  I  believe  would  appeal  to  those 
who  study  the  subject,  is  the  proper  and  legitimate  Government  cooperation, 
will  give  the  farmer  his  fertilizer  at  one-half  of  what  he  would  otherwise  pay 
for  it." 

We  submit  that  if  the  Government  will  complete  this  water  power  and 
allow  Mr.  Ford  to  have  it,  we  will  get  fertilizer  at  one-half  of  what  we  would 
other  \vise  pay  for  it. 

The  representative  of  the  American  Cyanamid  Co.  stated  again  that  an  idle 
plant  is  better  preparedness  than  an  operating  plant.    I  do  not  know  whether 

92900—22 40 


'.I 


i 


624 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


625 


the  coramitfee  wants  me  to  continue  this  parallel  right  on  or  not.  I  do  not 
know  exactly  what  to  call  it.  But  in  a  hearing  before  this  very  committee 
on  that  question,  Mr.  Washburn,  on  page  10  of  the  hearings  on  February  11, 
1916,  made  the  following  statement :  ^   .     ^^.      ,     x  i.i  k«  o  r.^,. 

"The  staff  that  would  steadily  be  employed  m  this  plant  would  be  2  pei 
cent  to  12  per  cent  of  the  number  that  would  be  required  in  the  event  of 
war  for  its  full  operation.  Chemical  plants  of  this  kind  require  a  trained 
body  of  men;  and  in  event  of  war  threatening  the  counti^,  we  should  have 
almost  insuperable  difficulty  of  training  from  green  hands  substantially  90 
per  cent  of  the  requisite  directing  and  working  force.  It  is  fairly  a  matter 
of  grave  doubt  whether  under  the  unsettled  conditions  and  excitement  of  ap- 
proaching war  and  the  exigent  demands  upon  every  one  connected  with  the 
Army  and  Navy,  such  a  plant  could  be  placed  in  full  stride  in  less  than  a 
vear.  It  may  be  conceivable  that  a  plant  of  this  sort  could  be  maintained 
in  idleness  without  such  a  degree  of  deterioration  as  to  render  it  useless,  but 
it  is  highly  improbable  that  it  would  be  so  maintained,  and  a  country  which 
should  rely  for  its  powder  supply  upon  the  practically  indefinite  mamtenance 
in  working  of  an  idle  plant  composed  of  highly  delicate  and  comphcated  ap- 
pliances would  take  a  most  extraordinary  risk,  which,  if  it  can  be  avoided, 
would  be  wholly  unwarranted.  A  minor  objection  would  be  the  cost  of  main- 
taining such  a  plant  in  readiness  for  operation,  its  upkeep,  the  interest  on 

the  idle  capital."  , ,         ^    j.  ^.v,     r^  * 

So  in  1916  it  was  an  operating  plant  that  would  protect  the  Government 

against  the  inefficiency,  and  now  it  is  an  idle  plant,  and  they  propose  an  idle 

^Furthermore,  this  plant  is  a  Canadian  plant,  built  in  Canada,  and  manu 
facturing  its  product  in  Canada,  and  paying  taxes  in  Canada  upon  the  plant. 

Now,  we  come  to  the  other  great  interest  we  believe  will  be  affected  by  this 
development  That  is  Chile  and  the  sodium  nitrate  industry  of  that  country. 
Since  1880  there  has  been  an  export  duty  of  $12.53  per  ton— that  is,  per  long 
ton— or  $11.88  per  short  ton,  on  each  ton  of  nitrate  of  soda  exported  from 
Chile  This  has  not  been  changed  since  that  time,  in  spite  of  the  claim  of 
the  by-product  coke-oven  industry  that  they  are  fully  protecting  the  interests 
of  the  farmer.  I  submit  that  that  is  not  true.  There  is  no  competition  in 
supplying  the  American  farmer  with  nitrogen  when  they  will  allow  the  for- 
eign country  to  charge  us  an  export  tax  of  $11.88  on  every  ton  we  use.  In 
1918  when  we  got  into  the  last  end  of  the  war,  because  of  contracts  which 
could  not  be  canceled  that  duty  amounted  to  $20,135,960.60.  In  1913,  a  nor- 
mal year,  it  amounted  to  $7^81,874.08.  Up  to  *uly  1,  1919— and  I  have  not 
orenared  the  figure  since  that  time— the  duty  we  had  paid  to  the  Chilean 
Government  amounted  in  total  to  $163,647,680.68,  for  which  the  American 
taxpayer  got  nothing,  and  it  did  not  contribute  one  iota  to  the  value  of  the 
Chilean  nitrate.  Chilean  nitrate  is  an  absolute  monopoly.  There  is  a  board 
called  the  Chilean  nitrate  board  on  which  sit  two  representatives  of  the 
Chilean  Government,  and  this  board  fixes  the  price  and  allocates  the  amount 
of  Chilean  nitrate  which  are  sold  to  foreign  countries. 

In  the  testimony  before  Mr.  Graham's  committee  questions  were  asked  ot 
Mr  Myers,  who  is  the  American  representative  of  the  Chilean  nitrate  indus- 
trv  as  to  whether  this  group  fixed  prices,  and  he  admitted  it  was  so  and  then 
modified  his  statement  saying  he  did  not  like  the  word  fixed,  that  they  stabil- 
ized the  prices.    But  the  prices  are  fixed  just  the  same. 

In  the  hearing  before  the  Committee  on  Expenditures  in  the  War  Depart- 
ment, part  54,  serial  6,  page  3551,  the  following  conversation  develops  this 

"  Mr.  Almon.  Who  fixes  the  price  of  Chilean  nitrates? 

"  Mr.  Myebs.  The  directorate  of  the  association. 

"Mr!  Almon.  The  Chilean  association? 

"  Mr.  Myers.  Yes,  sir ;  in  Chile.  *  ^,  ., 

"  Mr  Almon.  It  is  in  the  form  of  a  trust  of  all  of  the  producers  of  Chilean 
nitrate,  and  one  of  its  purposes  and  functions  is  to  fix  the  price  of  Chilean  ni- 
trate, as  I  understand  you?  .      .    .^  ,T         4.      4.     .         iT?;^^ 

"  Mr  Myers    Yes ;  but  to  stabilize  the  price  is  the  word  I  prefer  to  use.      B  ix 
sounds  arbitrary  and  as  though  you  were  attempting  to  squeeze  somebody.    1 
do  not  think  it  fair  and  proper  to  use  the  word  '  fix ' ;  they  are  not  extortioners 
or  working  in  that  sense  at  all." 

I  want  to  read  once  more  a  little  bit  from  this  report  of  the  n'trogen  products 
committee  of  the  British  Government,  paragraph  413,  on  page  83. 


The  Chairman.  What  document  is  that? 

Mr.  Bower.  This  is  the  final  report  of  the  nitrogen  products  committee  to  the 
ministry  of  munitions  of  the  Br  tish  Empire,  who  have  made  the  most  ex- 
haustive study  of  the  fixation  of  nitrogen  that  has  ever  been  made,  and  the  com- 
mittee was  made  of  the  best  men  they  had  in  the  British  Empire.  They  cooper- 
ated with  Italy  and  France  and  sent  the  committee  to  Germany  and  studied  the 
occup  ed  territoi-y  there.  This  is  their  final  report  to  the  ministry  of  muni- 
tions of  war  of  the  British  Empire. 

The  Chairman.  What  year  was  that? 

Mr.  Bower.  That  was  in  1920. 

In  paragraph  413,  on  page  83,  it  says: 

"It  is  evident  from  the  above  figures  that  the  supremacy  of  the  Chdean 
nitrate  industry  is  already  being  challenged,  and  the  near  future  holds  out  the 
prospect  that  ammonium  sulphate  or  synthetic  ntrogen  products  may  become 
the  dominant  ^factor  in  the  nitrogen  market  and  govern  the  price  of  nitrate 
instead  of  following  it  as  hitherto." 

I  do  not  believe,  as  a  summing  up  of  our  thoughts  along  that  line,  that  I  can 
do  better  than  read  the  final  summing  up  of  th  s  committee  and  their  recom- 
mendations and  their  findings,  because  the  farmer  has  to  depend  upon  other 
people  to  do  this  work.  We  think  this  report  is  probably  the  most  authentic 
report  that  has  been  made.  Here  are  the  final  recommendations,  preceded  by  a 
statement  of  salient  facts.    This  is  paragraph  654,  on  page  133 : 

"  In  making  the  recommendations  set  out  below  the  commttee  has  been 
guided  by  the  following  salient  facts: 

"(o)  The  sources  of  supply  of  combined  nitrogen  in  the  United  Kingdom 
must  be  increased  considerably  if  the  existing  and  prospective  home  demands 
are  to  be  met  and  the  prewar  scale  of  exportation  is  to  be  maintained. 

"(6)  The  existing  sources  of  supply  of  combined  nitrogen  in  the  United 
K'ngdom  proved  wholly  inadequate  for  meeting  the  war  demands. 

"(c)  The  risks  and  costs  of  importation  during  war  are  very  serious. 

"(d)  Combined  nitrogen  (as  cyanamide  or  ammonium  sulphate)  can  be  ob- 
tained by  synthetic  processes  at  a  cost,  at  the  factory,  which  is  less  than  half 
the  market  price  of  combined  nitrogen  from  other  sources,  prewar  conditions 
being  taken  as  the  basis  in  each  case. 

"(e)  Concentrated  nitric  acid  can  be  made  by  synthetic  processes  for  about 
half  the  prewar  cost  by  the  standard  retort  process  via  Chile  nitrate. 

"(f)  The  ammonia  oxidation  process  provides  a  means  whereby,  during  a 
state  of  war,  the  importations  of  Chile  nitrate  would  be  rendered  unnecessary. 

'*(g)  The  world's  demand  for  combined  nitrogen  appears  to  double  every  10 
years.  The  increased  production  during  the  war  has  not  been  more  than  the 
normal  rate  of  increase  during  peace. 

"(/t)  The  actual  consumption  of  combined  nitrogen  for  agriculture  in  the 
United  Kingdom  has  practically  doubled  during  the  war,  and  there  is  certain  to 
be  a  further  increase. 

"(i)  No  very  large  increase  in  the  output  of  by-product  ammonia  in  Great 
Britain  In  the  immediate  future  seems  probable." 

It  is  on  those  salient  facts  that  they  made  the  following  recommendations  with 
reference  to  the  calcium  cyanamide  process : 

"  The  committee  recommends  that  this  process  should  be  established  in  Great 
Britain  w  thout  delay,  either  by  private  enterprise  (supported,  if  necessary, 
by  the  Government)  or  as  a  public  work." 

Now,  with  reference  to  the  testimony  of  the  National  Fertilizer  Association. 
They  have  sent  out  a  great  deal  «»f  propaganda  in  opposition  to  this  proposit  on 

of  Mr.  Ford. 

In  spite  of  that  propaganda  in  opposition  to  the  Muscle  Shoals  development 
they  ha\e  come  forward  with  no  proposition  to  accomplish  the  results  we  seek, 
which  I  believe  the  committee  will  agree  are  necessary  for  us  to  secure  if 
we  are  to  produce  crops  and  maintain  our  soil  fertility.  They  seem  to  be,  as 
Mr.  Greene  expressed  it  in  questioning  Mr.  Hammitt,  playing  the  part  of  a  dog 
in  the  manger.  Thev  do  not  come  forward  with  any  proposition  to  operate 
the  plant  and  give  us' the  results  we  want,  and  yet  they  say  Mr.  Ford  shall  not 
<lo  it.  I  have  here  the  jiropaganda  sheets  which  they  sent  out.  I  do  not  think 
I  will  take  the  rime  of  the  committee  to  answer  those.  No.  1  ^heet,  which  put 
the  <ost  t(»  the  (iovernment  at  something  over  a  billion  dollars,  is  answered 
by  the  bond  issue  which  we  advocate  and  ask  for  as  a  measure  to  estMV)lish  this 


626 


MUSCLE   SHOALS   PROPOSITIONS. 


plant  nnd  finish  it  so  tliat  there  will  be  no  additional  expense  to  the  rTOvenmierit 
reqnired.  Then,  fui-therniore,  gentlemen,  you  do  not  compound  your  interest  on 
investments  of  that  kind,  because  if  you  did  you  never  could  build  a  battle- 
ship, and  you  never  could  put  a  drop  of  water  on  an  irrigation  project,  if  you 
starte<l  to  compound  interest  in  any  such  way  as  this.  That  is  tlie  way  Col. 
Cooper  arrived  at  his  figures,  compounding  interest  on  a  sum  of  money  which 
!s  not  in  existence — in  other  words,  compounding  interest  on  what  he  claiuLs  is 
a  loss.  You  can  compound  interest  on  INIr.  Ford's  amortization  proposition  be- 
<?ause  he  provides  an  actual  fund  with  which  the  compounding  of  interest  is  to 
take  place,  but  you  can  not  do  it  on  a  minus  quantity,  if  there  is  such  a  thing. 

The  CHAiK^rAN.  I  have  a  letter  from  Mv.  Cooper,  just  received  before  we 
began  the  hearing  this  afternoon,  which  he  asks  me  to  put  into  the  record, 
fihowing  that  he  has  revised  his  figures  somewhat. 

Mr.  Bower.  In  reference  to  what  is  stated  about  the  ammonium  sulphate  In- 
dustry by  Mr.  :MacDowell,  that  the  ammonium  sulphate  industry-  will  sui>ply 
all  of  our  needs.  I  find  that  propaganda  sheet  No.  2  and  sheet  No.  3  and  sheet 
No.  4  are  all  based  (m  the  ammonium  sulphate  industry  supplying  the  deinan<ls 
of  the  American  farmer.  I  would  like  to  put  in  the  record  an  editorial  from 
the  Oil.  Paint,  and  Drug  Reporter,  which  is  their  authority  in  their  entire 
propaganda  in  reference  to  securing  information  as  to  prices.  I  would  like 
to  i)ut  into  the  record  this  editorial  from  that  paper,  taken  from  the  issue  of 
Monday,  January  23,  1922.  It  is  headed,  "Opportunity  calls  to  nitrate."  It 
says: 

"  Conditions  incident  to  several  industries  have  brought  about  a  shortage  of 
ammonimn  sulphate.  Resumption  of  normal  activity  in  producing  circles  has 
been  slow,  but  apparently  it  was  not,  for  a  time,  slow  enough.  So  it  came  to 
pass  that  at  a  time  when  the  manufacturers  of  fertilizer  mixtures  in  which 
ammonium  sulphate  is  a  component  were  not  ready  to  understake  extensive 
operations,  stocks  of  that  chemical  had  piled  up  in  producers'  hands  t()  such 
an  extent  that,  curtailment  of  production  entailing  utter  waste  of  a  valuable 
by-product,  unloading  tactics  were  in  order.  As  is  customary  in  such  a  state 
of  affairs,  tlie  i)rice  of  sulphate  was  reduced  to  a  comparatively  attractive 
figure.  Tlie  American  buyers,  however,  were  not  in  a  purchasing  mood,  and 
foreign  interests  gobbled  up  the  supply.  Now,  when  the  apathy,  or  despond- 
ency, or  pessimism  of  domestic  consumers  has  been  somewhat  dissipated,  and 
they  feel  a  need  for  i>erhaps  limited  amounts  of  sulphate,  there  is  practically 
none  to  be  had. 

"  This  situation,  which  supplies  new  evidence  of  the  influence  of  industrial 
interdependence,  is  avidly  seized  upon  in  certain  circles  to  point  a  moral  as  to 
what  may  happen  to  American  industries  of  many  sorts.  Some  are  vocifer- 
ously declaring  that  the  domestic  ammonium  sulphate  producers  face  a  future 
of  glfK>ni  if  not  of  extinction.  A  parallel  is  drawn  with  the  position  of  American 
pro<lucers  of  pota.sh,  and  it  is  asseverated  that  domestic  consumers  of  sulphate 
will  folh»w  the  example  of  potash  users — they  are  largely  the  same  folks — an.d 
turn  to  Oermany  for  their  supplies,  leaving  the  American  producer  high  but 
not  dry.  rather  bathed  in  cold  perspiration. 

"  Some  months  ago  there  might  have  b(x»n  every  reason  to  accept  this  dire- 
ful prediction.  But,  with  the  destruction  of  the  Oppau  nitrogen  plant,  Ger- 
many has  been  left  somewhat  in  the  background  in  the  ranks  of  producers  of 
amnumiates.  As  a  shortage  of  annnonium  sulphate,  similar  to  that  in  this 
country,  prevails  in  (rreat  Britain,  and  for  similar  reasons  connected  with  pro- 
duction, little  relief  offers  in  that  direction.  Meanwhile,  the  Muscle  Shoals 
deadlock  remains  unbroken. 

"  Is  the  condition  serious?  To  a  certain  extent,  yes.  But  we  are  inclined 
to  look  upon  it  as  an  ill  wind  which  will  blow  good  to  the  Chilean  nitrate 
oficinas.  The  result,  dimbtless,  will  be  a  higher  cost  of  fertilizers,  containing 
nitrogen,  for  the  supply  of  organic  an.unoniates,  vegetable,  animal,  or  fish  is 
not  .such  as  to  pi-omise  relief  from  the  ammonium  sulphate  shortage.  Chilean 
salti)eter  seems  to   have  another  inning  coming. 

"  The  obligatory  change  from  jimmonium  sulphate  to  sodium  nitrate  as  the 
source  of  nitrogen  for  fertilizing  jjurposes,  at  least,  may  be  expected  to  be  but 
temporary.  If  the  producers  of  the  former  desire  to  regain  the  market  their 
success  of  recent  date  in  that  direction  will  be  in  their  minds.  It  may  well  be 
that  they  look  to  other  fields  for  consuming  demand.  Of  course,  th*^y  may 
have  to  revise  their  i)oint  of  view  because  of  the  development  of  a  domestic 
nitrogen  fixation  industry,  but.  apparently,  they  now  are  content  to  supply  the 
customers  who  were  ready  to  buy  when  they  earnestly  desired  to  sell.     It  is 


MUSCLE   SHOALS  PROPOSITIONS. 


627 


certain  that  they  can  not  increase  production,  the  genesis  of  their  product  de^ 
crees  otherwise.  It  is  not  their  fault  that  domestic  consumers  did  not  get  the 
supplies  recently  available.    Chile  may  yet  get  in  funds." 

You  will  notice  their  reference  to  coke  there.  That  is,  the  coke-oven  in- 
dustry can  not  increase  to  meet  the  demands  for  fertilizer  unless  there  is  a 
demand  for  coke.     That  is  from  the  issue  of  January  23,  1922. 

Mr.  MacDowell,  representing  the  National  Fertilizer  Association,  said  that 
until  the  farmers  use  fertilizer  materials  more  than  at  present  there  will  be  na 
use  for  the  plant.  But  the  amount  we  need  is  dependent  upon  the  price,  or  the 
"more"  we  need  is  dej)endent  upon  the  price,  and  if  the  price  remains  high  we 
can  not  use  the  "  more."  So  <m  a  basis  of  maintaining  high  prices  for  nitrogen^ 
they  will  not  let  us  use  our  proper  amount  in  our  soils.  But  if  this  plant  will 
lower  the  price  of  nitiogen.  its  entire  production  will  be  consumed  by  the 
American  farmer  with  avidity.  Then  he  stated  that  the  best  way  to  get  the 
fertilizer  lu-ice  down  was  to  buy  more  of  it.  That  is  a  nice  circle  on  which 
to  start  the  farmer  chasing  around ;  that  is  to  say,  if  he  buys  more  fertilizer 
he  will  get  it  at  a  lower  cost,  and  if  he  gets  it  at  a  lower  cost  he  will  buy 
more  of  it.  Where  do  we  get  on  that  circle  if  we  are  to  start  going  around? 
We  want  to  get  somewhere.  Also  that  the  cost  is  only  incidental  to  the 
farmer:  but  we  do  not  .see  any  solution  in  getting  his  proposition  starte<l.  In 
refutation  of  what  he  state<l,  the  biggest  tonnage  the  fertilizer  manufacturers 
ever  produced  or  the  biggest  tonnage  ever  produced  by  the  fertilizer  associa- 
tion was  in  1918,  when  it  was  8,000,000  tons.  I  submit  that  the  prices  of 
fertilizer  in  1918  were  the  highest  they  ever  had.  So  it  does  not  follow  that 
if  we  use  a  lot  of  fertilizer  we  get  cheap  fertilizer.  In  1918  the  price  of  farm 
products  was  high,  and  the  farmers  could  afford  to  buy  high-priced  fertilizers, 
and  they  did,  and  now  that  the  prices  of  farm  products  have  dropped  the  con- 
sumption of  fertilizer  has  virtually  ceasetl,  and  instead  of  building  up  the 
fej-tility  of  the  soil  we  are  mining  it  and  not  putting  anything  back.  But  lie 
supi)oses  that  the  farmers  could  use  these  superphosphates.  He  stated  that 
they  shii>  that  stuff  to  New  Zealand.  I  do  not  know  what  the  New  Zealand 
people  did  with  it.  Of  course,  what  tbey  shii)ped  to  New  Zealand,  on  account 
of  the  high  freight  charges,  was  the  superphosphates ;  they  shipped  the  40  and 
45  i)er  cent  material  to  New  Zealand  instead  of  the  16  per  cent. 

The  American  Fertilizer  Handbook  for  1920,  page  39,  has  this  statement  : 

"  The  Ammo-Phos  works  in  New  York  Harbor  was  in  steady  operation  during 
the  year,  pnictically  all  of  the  output  going  into  the  export  field.  This  product, 
which  is  made  in  two  grades,  one  containing  about  13  per  cent  ammonia  with 
48  per  cent  available  phosphoric  acid  and  the  other  20  i>er  cent  ammonia  with 
20  per  cent  available  phosphoric  acid,  commands  a  premium  in  the  export  trade 
on  account  of  its  high  concentration  of  plant  food  with  corresponding  reduction 
in  transportation  costs." 

The  production  of  high-grade  materials  of  that  character  at  Muscle  Shoals 
will  correspondingly  reduce  our  freight  rates,  as  well  as  the  export  freight  rates, 
which  these  gentlemen  would  have  to  pay  in  shipping  their  fertilizers  abroad. 
They  ship  these  high  concentrates  out  of  the  country  and  leave  us  the  low  con- 
centrates with  the  high  freight  rates. 

Mr.  MacDowell  stated  that  plants  required  a  balanced  ration,  and  that  the 
2-8-2  and  3-9-3  were  good'  fertilizers.  I  would  like  to  give  you  a  little  table 
of  the  food  requirements  of  plants.  Thirty  bushels  of  wheat  require  35  pounds 
of  nitrogen,  15  pounds  of  phosphoric  acid,  and  9  pounds  of  potash ;  75  bushels  of 
<-orn  require  60  pounds  of  nitrogen,  20  pounds  of  phosphoric  acid,  and  16  pounds 
of  potash ;  60  bushels  of  oats  require  40  pounds  of  nitrogen,  16  pounds  of 
i)hosphoric  acid,  and  11  pounds  of  potash ;  4  tons  of  alfalfa  require  190  pounds 
of  nitrogen,  43  pounds  of  phosphoric  acid,  and  178  pounds  of  potash;  and  2^ 
tons  of  clover  require  103  iwunds  of  nitrogen,  20  pounds  of  phosphoric  acid, 
and  82  pounds  of  potash.  So  the  2-8-2 — that  is.  2  per  cent  nitrogen  and  8 
per  cent  of  phosphoric  acid — is  not  a  balanced  ration  for  a  plant. 

What  has  established  that  formula?  The  price.  They  can  not  put  10  per 
cent  of  nitrogen  in  there  and  furnish  fertilizer  at  a  price  at  which  the  farmer 
can  buy  it.  because  the  nitrogen  is  the  most  expensive  element.  W'here  we 
only  go  to  2  and  3  per  cent  of  nitrogen  the  total  fertilizer  bill  is  made  up  of 
over  half  on  the  nitrogen  cost,  and  the  other  two  items,  the  phosphoric  acid 
and  the  potash,  make  up  the  other  half.  He  says  we  do  not  consume  it  and 
that  the  lower  grade  of  2  per  cent  and  3  per  cent  are  what  we  neied.  The 
reason  it  is  2  and  3  per  cent  is  because  it  is  sold  on  a  tonnage  basis.  If 
lie  puts  10  per  cent  in,  the  price  goes  up  and  the  farmer  can  not  use  it,  and 


628 


MUSCLE  SHOALS  PROPOSITIONS. 


ho  does  not  buy  it.  But  they  hahnu-e  it  on  the  basis  of  tlie  price  of  nuiterial 
and  the  pro  tit  they  can  make  out  of  selling  a  ton.  That  is  wliat  we  are  trying 
to  get  away  from'.  That  is  one  of  the  reasons  why  we  have  hope  of  getting 
an  increased  percentage  in  connnercial  fertilizer  out  of  Mr.  Ford's  proposition. 
We  would  like  to  get  away  from  the  2-8-2  and  the  8-9-3;  we  wouUl  like  to 
^et  some  of  these  superphosphates,  because  if  we  can  cut  our  freight  rates 
we  can  get  our  product  on  much  more  advantageous  terms.  We  would  have  a 
saving  in  price;  it  might  not  be  in  the  factory  cost,  but  if  you  make  am 
monium  phosphate  and  sell  it  to  the  farmers  direct,  the  saving  between  the 
fa(  tory  door  and  the  farm  would  put  that  plant  food  on  the  farmers'  soil  at 
half  the  price.  If  the  factory  cost  was  on  a  parity  per  unit  of  plant  food  the 
saving  of  warehousing,  hauliug,  aud  the  dealer's  profits,  baseil  on  a  per  ton 
cost  on  a  high-grade  material  all  of  those  elements  of  cost  would  be  reduced  to 
one-sixth  after  it  leaves  the  factory  door,  and  by  the  time  it  gets  to  the  farm  I 
venture  to  say  it  will  be  not  over  lialf  the  price  of  the  former  cost,  and  the 
identical  thing  wouhl  be  true  on  all  the  high-grade  material. 

Now,  with  reference  to  the  grades.  I  declare  that  sometimes  I  do  not  know 
what  kind  of  a  game  the  fertilizer  people  are  trying  to  put  on  the  farmer. 
In  this  Survev  of  the  Fertilizer  Industry.  Bulletin  No.  798,  of  the  United 
States  Departnient  of  Agriculture,  dated  October  20,  1919,  on  page  14,  there 
is  a  table  sliowing  the  distribution  of  fertilizer  purchased  in  1917.  by  grades. 
Starting  at  tlie  beginning  of  that  table  there  are  four  columas  of  grades, 
different  combinations  of  nitrogen,  phosphorus,  and  potash,  that  they  have 
foisted  off  on  the  American  farmer,  and  there  is  a  total  of  218  grades  actually 
listed,  with  the  percentage  that  each  grade  bears  to  the  total,  and  of  the  218 
grades  they  made  up  9.").sr)  per  cent  of  the  fertilizer.  Then  at  the  end  it 
says,  "All  other  grades  (724  grades)  made  up  4.15  per  cent."  That  is  not  an 
intelligent  proposition. 

Then,  in  addition  to  that  we  have  the  brands.  In  the  Federal  Trade  (Join 
mission's  report  on  the  fertilizer  intVustry  issued  in  1916,  on  page  219,  it  lists 
the  brands  of  fertilizer  in  the  Southern  States.  We  find  there  that  the  Vir- 
ginia-Carolina Chemical  Co.  put  on  the  market  in  Georgia  999  different 
brands  of  fertilizer,  all  made  up  of  2-S-2  and  3-9-^3,  and  lots  of  it  goes  down 
to  one-half  per  cent  of  nitrogen.  So  the  farmer  would  never  get  as  nmch  as 
a  pound  on  his  soil  after  you  had  bought  it.  and  yet  that  company,  which 
comes  here  and  asks  ycm  to  protect  their  interest,  registered  999  brands  in 
one  State  to  sell  to  the  farmers;  and  the  Armour  Fertilizer  AVorks,  of  whicli 
Mr.  MacDowell  is  president,  registered  977  additional  brands.  So  that  com- 
pany would  sell  the  farmer  fertilizer  on  a  tonnage  basis  and  keep  him  away 
from  the  knowledge  of  what  this  plant  food  is,  and  continue  this  proposition 
of  putting  out,  as  this  table  I  have  showed  you  shows,  thii?  tremendous  amount 
of  different  grades  of  this  nuiterial.  You  will  find  that  52.79  per  cent  of  all 
grades  that  went  to  the  farmer  is  made  up  of  12  per  cent  or  less  of  plant  food. 
That  is  to  say.  in  buying  a  ton  of  fertilizer  we  only  get  240  pounds  of  fer- 
tilizer out  of  2,000  pounds  of  material. 

We  have  had  a  lot  of  talk  about  fillers.  It  is  not  the  filler.  I  will  not  go 
that  far  in  criticizing  the  fertilizer  industry.     That  is  not  the  crux  of  the 

situation.  ^  ^         ,       _    , 

Let  me  show  you  what  they  do.  Take,  for  instance,  the  2-8-2  grade.  Let 
me  read  you  this  from  this  survey  of  the  industry : 

"If  it  is  desired  to  make  a  mixture  containing  2  per  cent  of  ammonia,  8 
per  cent  of  phosphoric  acid,  and  2  per  cent  of  potash  (the  well-knowm  grade 
2-8-2)  and  the  materials  at  hand  are  cottonseed  meal,  containing  7  per  cent 
of  ammonia;  acid  phosphate,  containing  16  per  cent  of  phosphoric  acid;  and 
Nebraska  potash,  containing  28  jjer  cent  of  potash,  the  method  of  making  up 
the  mixture  will  be  as  follows:  Two  per  cent  of  a  2,000-pound  ton  is  40 
pounds;  in  order  to  obtain  40  pounds  of  ammonia  from  7  per  cent  cottonseed 
meal  it' will  be  necessary  to  use  571  pounds  of  cottonseed  meal.  The  amount 
of  phosphoric  acid  desired  is  8  per  cent  of  a  ton  or,  in  fertilizer  parlance,  b 
units,  or  160  pounds.  To  obtain  160  pounds  from  a  16  per  cent  acid  phosphate 
will  require  1,000  pounds  of  acid  phosphate.  The  amount  of  potash  called 
for  is  40  pounds  and  to  obtain  that  from  a  28  per  cent  material  143  pounds  wiU 
be  required.  The  total  amount  of  materials  used,  therefore,  will  be  571  pl"^^ 
1.000  plus  143.  or  1.714  pounds.  To  this  are  added  286  pounds  of  filler  ni 
order  to  make  up  the  ton."  ^ 

The  filler  is  not  the  great  big  thing  in  that,  but  they  put  in  the  286  pounds 
of  filler  to  make  up  the  ton,  and  then  you  have  the  ton  of  2-8-2.    But  they 


MUSCLE   SHOALS  PROPOSITIONS. 


629 


start  with  the  cottonseed  meal  which  carries  7  per  cent  of  nitrogen,  and  then 
they  have  the  acid  phosphate  which  carries  only  16  per  cent  of  nitrogen. 
If  we  can  get  this  proposition  of  ammonium  nitrate  carrying  35  per  cent  of 
nitrogen,  and  you  will  find  that  the  superphosphate  carries  as  high  as  60  per 
cent  of  phosphorus,  and  if  you  take  that  kind  of  material  and  fix  it  you  wdl 
get  awav  from  the  necessity  of  the  2-8-2  stuff.  But  you  can  not  get  away 
from  it '  without  developing  these  high  compound  materials  to  start  with. 
That  is  why  I  say  vou  have  to  quit  using  the  low-grade  stuff,  and  you  have  to 
jump  the  creek  in  one  .lump;  you  can  not  do  it  step  by  step  in  a  slow  process. 

"  While  it  is  likelv  that  in  the  5,000,000  tons  of  fertilizer  produced  in  1918 
more  than  270.000  tons  of  filler  were  used,  the  filler  constitute<l  only  a  small 
proportion  of  the  inert  matter  in  the  mixture.  Thus,  in  the  examples,  the 
2  000-pound  ton  contained  286  pounds  of  filler,  while  the  total  of  inert  matter 
was  as  follows:  Of  the  571  pounds  of  cottonseed  meal.  531  pounds  were  inert ; 
of  the  1,000  pounds  of  acid  phosphate.  840  pounds  were  inert ;  and  of  the  14.^ 
pounds  of  Nebraska  potash,  103  pounds  were  inert ;  so  that  the  total  inert  matter 
in  the  plant-food  carrying  materials  was  1,474  pounds:  and  the  ton  of  fertilizer 
consisted  of  240  pounds  of  plant  food.  1,474  pounds  of  inert  matter  in  the  plant- 
food  carrying  material,  and  286  pounds  of  filler."  .v.     -.  ,-. 

That  filler  would  not  l)e  so  awfully  bad  if  we  could  get  away  from  the  1,4 1 4 
pounds  of  inert  material  in  the  plant-food  bearing  compounds,  which  made  up 
1,714  pounds  of  our  ton,  and  that  is  exactly  what  we  are  trying  to  do  through 

the  operation  of  this  plant.  ^  ^^  ■     ^     ^^  ^ 

The  National  Fertilizer  Association  h:is  continuously  opposed  this  develop- 
ment. It  opposed  it  when  it  was  a  proposition  of  Government  operation.  I 
have  the  report  here  of  the  twenty-eighth  annual  convention  of  the  National 
Fertilizer  Association,  held  at  White  Sulphur  Springs  June  20-23,  1921,  and 
on  page  34  we  have  the  report  of  the  Washington  oflSce  of  the  association.  In 
discussing  the  bill  before  Congress  for  the  operation  by  the  Government  of 
the  Muscle  Shoals  nitrate  plant,  the  report  says :  *     ■     i^     ^ 

"  This  bill  was  favorably  reported  by  the  Senate  Committee  on  Agriculture, 
and  under  the  leadership  of  Senator  Underwood  of  Alabama  was  forced  through 
the  Senate,  although  certain  important  amendments  offered  by  Senator  Wads- 
worth  of  New  York  were  adopted.  Those  amendments  would  require  the 
corporation  to  assume  interest  payments  on  a  bond  issue  to  be  purchased  by 
appropriation  in  the  bill,  and  whenever  such  payments  defaulted  the  enterprise 
would  have  to  cease.  Even  that  form  of  the  bill  was  objectionable ;  and  we 
continued  our  opposition  to  it.  When  the  bill  went  to  the  House,  Chairman 
Kahn  of  the  Militarv  Affairs  Committee,  decided  that  in  view  of  the  congested 
condition  of  the  calendar  it  would  be  a  hopeless  task  to  try  to  obtain  consid- 
eration for  it,  and  it  died  in  committee  with  the  expiration  of  the  Congress  on 

Alarch  4  " 

It  came  to  life  again  when  Mr.  Ford  made  his  proposition  to  take  it  over, 
and  thev  are  here  now  fighting  that  proposition  in  every  way  possible.  You 
will  notice  that  they  do  not  ob.1ect  to  the  Alabama  Power  Co.  s  proposition^  Mr 
MacDowell  stated  he  was  in  favor  of  the  water  power,  but  he  said,  Do  not 
operate  the  nitrate  plants;  you  will  make  a  bad  bargain  if  you  do  that.  But 
the  farmers  will  not  make  a  bad  bargain  if  you  do  that,  and  we  ask  for  your 
acceptance  of  the  Ford  proposition,  because  we  feel  that  he  will  do  these 
things.  You  can  cooperate  in  doing  them,  and  we  believe  what  is  proper  Govern- 
ment cooperation  in  the  first  case  is  proper  cooperation  in  connection  with  Mr. 
Ford's  offer.  I  want  to  call  your  attention  to  the  fact  that  Mr.  Ford,  on  his 
own  initiative,  suggested  hi  his  first  proposition,  which  the  farmers  never 
knew  was  coming,  that  a  board  of  farmers  sit  in  with  him  in  carrying  out  this 
proposition.  That  came  from  him ;  we  had  never  talked  to  him  about  it.  It 
is  the  first  time  the  farmers  ever  have  been  asked  to  sit  in  with  any  cor- 
poration that  was  furnishing  them  any  material,  to  see  that  they  ^^re  getting 
a  square  deal.  We  believe  we  will  get  it.  If  we  do  sit  m  with  Mr  Ford  in 
<?onnection  with  the  operation  of  this  plant,  we  will  get  a  square  deal  and  we 
will  jret  the  results  we  seek,  and  we  will  have  practically  a  new  policy  on  the 
water-power  development.  That  is  one  of  the  big  things.  There  will  be  plenty 
of  power  for  the  fertilizer  industry,  and  there  will  be  other  water  power  de- 
veloped, and  we  will  jump  this  creek  in  one  jump.  That  is  what  Mr.  Ford  in- 
tends to  do,  and  he  will  do  it.  ,  .     ^,        ,4..         ^  ^^-i  4^^,.f!Uf,r 

Then,  too,  we  will  go  a  long  step  forward  in  the  solution  of  our  soil-fei  tility 

problem. 


630 


MUSCLE  SHOALS  PROPOSITIONS. 


'11  : 


n,?/?  ^^,^^^l4:  ^  7^^i^^  ^l^^  *^  ^""*®  ^^^^  *"^^^  ^ro"f^  Theodore  Roosevelt.  In  tluv 
Outlook  of  September  7,  1912,  lie  wrote  : 

"The  Government  must  cooperate  with  the  farmer  to  make  the  farm  more 
productive.    There  must  be  no  skinning  of  the  soil.    The  farm  should  be  left 
to  the  farmer  s  son  in  better  and  not  worse  condition  because  of  its  cultivation 
Moreover,   evei-y   invention   and   improvement,   every   discoverv   and   economy 
should  be  at  the  service  of  the  farmer  in  the  work  of  production" 

Gentlemen,  he  must  have  visualized  the  very  question  which  this  committee 

llil""^^  'J?''"  1?^"^^^-'^^  '''*'^"  ^^  ^^^^  t^a*  statement.  We  are  asking  that 
this  invention,  this  discovery  of  the  fixation  of  air  nitrogen,  be  placed  at  our 
disposal  to  protect  the  fertility  of  our  soil. 

I  thank  you  very  much,  Mr.  Chairman  and  gentlemen. 

Mr.  McKenzie.  Mr.  Bower,  I  understand  that  you,  like  Mr.  Silver,  are  here 
representing  the  farmers  of  the  United  States? 

Mr  Bower.  I  represent  the  American  Farm  Bureau  Federation.  The  Farm- 
ers Union  have  also  indorsed  this  proposal  by  resolution,  and  the  National 
Grange  is  with  us  on  this  proposition.  ,  i  e  x^auonai 

Mr.  McKenzie.  In  section  14,  "  the  company  agrees  to  operate  nitrate  plant 
r  ^  ![?®  approximate  present  annual  capacity  of  its  machinerv  and  equip- 
ment in  the  production  of  nitrogen  and  other  fertilizer  compounds  (said  ca- 
pacity being  equal  to  approximately  110,000  tons  of  ammonium  nitrate  per 
annum)  throughout  the  lease  period,  except  as  it  may  be  prevented  by  strikes 
accidents,  fires,  or  other  causes  beyond  its  control."  Do  you  consider  that  the 
paramount  element  of  consideration  in  Mr.  Ford's  proposition'' 

Mr  BowE».  I  do  not  know,  Mr.  McKenzie,  whether  that  element  is  para-- 
moiint  or  whether  section  (a),  following  that,  is  Paramount.  But  taken  to- 
gether they  make  a  combination  which  has  a  very  strong  appeal  to  the  American 
farmers.  That  paragi-aph  (a)  would  provide  for  research  in  connection  with 
the  electric-furnace  proposition  and  what  it  will  do,  along  the  lines  that  Mr 
Swann  and  Dr.  Whitney  have  testified  about  before  the  committee 

Mr.  McKenzie.  The  Alabama  Power  Ck).,  in  paragraph  2  of  its  proposition. 
states  as  follows: 

"  2.  The  company  offers  to  furnish  the  Government,  or  anyone  it  may  desig- 
nate, with  free  power  in  the  amount  of  100,000  secondary  horsepower  *for  the 
production  of  fertilizer  and  munitions  of  war  and  research  in  connection  there- 
with ;  and  if  for  any  reason  this  use  of  the  power  is  discontinued  the  company 
will  purchase  same.  This  feature  of  the  offer  has  the  advantage  of  providing 
the  Government  a  return  on  the  $17,000,000  it  now  has  invested  In  the  water- 
power  project."  So  far  as  the  Alabama  Power  Co.  is  concerned,  is  there  any 
indication  of  a  guarantee  that  they  w^ill  engage  in  the  manufacture  of  fertilizer? 

Mr.  Bower.  Absolutely  none  whatever. 

Mr.  McKenzie.  Or  any  ingredient? 

Mr.  Bower.  None  whatever.  I  wish  to  call  yoor  attention  to  the  report  of  the 
f^l^i^fS^r^  ^^^^  ^^  connection  with  it.  He  calls  attention  to  the  advantage  of 
that  100,000  secondary  horsepower  as  being  a  return  on  the  $17,000,000  ex- 
pendecl,  evidently  understanding  thoroughly  that  the  nitrate  plant  was  not  to 
use  the  100,000  horsepower,  and  the  Government  would  sell  it  and  get  a  return 
on  the  $1  /  ,000,000. 

Mr.  McKenzie  The  Alabama  Power  Co.  is  pretty  thoroughly  intrenched  in 
that  section  of  the  country,  is  it  not? 

Mr.  Bower.  I  understand  so;  I  am  not  familiar  with  that  situation.  But  the 
thought  with  us  is  that  the  Alabama  Power  Co.  with  its  old  association  with 

J^^^n^n^^tn  n     vf  •''^'*^''^^"  ^^^  American  Cyanamid   Co.,   and  the  American 

C.vanamid  Co   being  so  closely  connected  with  the  Virginia-Carolina  Chemical 

Co    and  the  Virginia-Carolina  Chemical  Co.  being  so  closely  connected  with  the 

cottonseed  meal  concern,  the  whole  thing  is  tied  in  together 

^r.    A  ^^cI^^^'^'ziE.  The  proposition  of  the  Alabama  Power  Co.  is  to  turn  over  to 

the  Government  100,000  secondary  horsepower? 

i.^^^  Bower  According  to  the  flow  of  the  river.    We  do  not  even  get  secondary 

horsepower  through  the  use  of  the  steam  plant  at  all. 

on^rnVinff^/'fH'"''  -T^t^  involves,  if  you  will  permit  me,  either  governmental 
operation  of  the  nitrate  plant  or  operation  by  a  lessee  of  the  Government. 

Mr.  Bower.  Limited  to  100,000  horsepower,  which  he  would  have  to  shut  down 
perhaps  four,  or  five,  or  six  months  of  the  year. 

h^^^n^n^^lf^'  ^^""l"^  ^"^  u^'i^  ^^^  evidence  submitted  to  this  committee 
bearing  on  the  contract  on  which  the  Alabama  Power  Co.  pretends  to  stand 


MUSCLE  SHOALS  PROPOSITIONS. 


631 


now,  in  which  the  Government  of  the  United  States  would  be  estopped  from  ex- 
ercising its  function,  what  is  your  judgment  as  to  the  prospective  extent  of 
either  Government  operation  of  the  nitrate  plant  or  operation  by  a  licensee  of 
the  Government,*  when  subjected  to  the  will  of  the  Alabama  Power  Co.  for  its 
power? 

Mr.  Bower.  None  whatever ;  and  not  only  that,  but  you  have  no  assurance  of 
power  to  operate. 

Mr.  McKenzie.  Mr.  Ford's  proposition  so  far  as  that  is  concerned,  is  a 
straightforward,  direct  contractural  proposition  to  engage  in  that  business,  not 
with  the  secondary  power,  but  with  the  primary  power. 

Mr.  Bower.  With  enough  power  to  operate  at  full  capacity,  either  primary 
or  secondary  power ;  but  if  the  secondary  power  gives  out  we  get  primaiy  power 
because  the  plant  goes  at  full  capacity. 

Mr.  McKenzie.  I  am  not  expressing  any  opinion  in  regard  to  the  wisdom  of 
the  policy  in  Mr.  Ford's  contract,  but  I  want  your  viewpoint,  representing  the 
farmers  of  the  country.  I  take  it,  from  the  proposition  of  the  Alabama  Power 
Co.  as  I  have  read  it,  that,  as  a  mere  matter  of  dollars  and  cents,  pawning 
your  jewelry  at  a  pawnshop,  or  selling  something  in  order  to  get  as  much  out 
of  it  at  the  time  being  as  possible,  it  may  be  that  the  Alabama  Power  Co.'s  offer 
is  a  better  offer  iii  the  matter  of  dollars  and  cents  then,  perhaps,  the  offer  of 
Mr.  Ford. 

Mr.  Bower.  I  would  not  agree  to  that  promise. 

Mr.  McKenzie.  I  want  to  ask  you  this  question:  Whether  or  not  you  gen- 
tlemen have  studied  this  question,  not  alone  from  the  standpoint  of  dollars  and 
cents,  and  taken  into  consideration  the  fact  that  it  is  a  proposition  in  which 
tliere  is  more  involved  than  the  $5,000,000  Mr.  Ford  will  pay  for  certain  prop- 
erties down  there,  but  also  that  he  binds  himself  in  a  continuing  obligation  to 
perform  a  duty  or  carry  on  an  operation  tbat  will,  in  your  judgment,  I  take, 
be  of  lasting  benefit  to  the  agriculturists  of  this  country.    Is  that  your  position? 

Mr.  Bower.  Absolutely  so. 

Mr.  McKenzie.  For  that  reason  you  do  advocate  the  acceptance  of  the  Ford 
offer? 

Mr.  Bower.  Exactly  so. 

Mr.  McKenzie.  Having  in  mind  not  a  mere  monetary  transaction  but  a  mone- 
tary transaction  coupled  up  with  performance,  to  be  performed  hereafter  along 
lines  set  out  in  the  contract  for  the  benefit  of  the  agriculturists  of  this  country? 

Mr.  Bower.  Yes,  sir.  I  do  not  like  it  tied  up  with  the  better  financial  propo- 
sition.   I  do  not  agree  with  you  if  that  is  what  is  in  your  mind. 

Mr.  McKenzie.  We  are  not  discussing  that. 

Mr.  Bower.  Aside  from  that  it  is  undoubtedly  true,  as  evidenced  by  our 
activity  and  insistence  last  year,  that  this  Government  plant  be  operated  at 
Government  expense. 

Mr.  McKenzie.  Let  me  ask  you  this  question :  What  is  your  judgment  as  to 
the  fairness  of  a  computation  of  cost,  based  on  a  straight-out  cash  proposition, 
without  any  conditions  attached  to  it  whatever,  and  an  esimate  of  cost  based 
on  the  proposition  such  as  the  Ford  offer?  Is  there  any  comparison  that  you 
can  draw  that  would  be  a  fair  one,  in  your  judgment? 

Mr.  Bower.  I  do  not  quite  understand  the  intent  of  your  question? 

Mr.  McKenzie.  If  we  sold  the  property  directly  to  Mr.  Ford  for  the  amount 
stipulated  and  turned  over  the  w^ater  power  to  him? 

Mr.  Bower.  Taking  section  14  into  consideration,  as  a  proposition  to  main- 
tain it  for  the  Government? 

Mr.  McKenzie.  Yes.  Is  it  fair  in  estimating  the  cost,  or,  putting  it  the 
other  way,  the  benefits  to  Mr.  Ford  to  figure  as  though  it  were  a  straight-out 
monetary  proposition? 

Mr.  Bower.  No;  I  think  you  have  other  factors  that  come  in  there.  Take 
the  maintenance  of  the  plant  from  that  standpoint.  The  Army  engineers  have 
testified  that  the  depreciation  is  $2,500,000,  and  the  cost  of  maintenance  is 
$200,000  a  year;  so  there  is  $2,700,000  of  expense  to  the  Government  which 
Mr.  Ford  assumes,  and  in  two  years  he  will  pay  you  more  than  you  would  get 
from  the  Alabama  Power  Co.  in  cash. 

Mr.  McKenzie.  In  your  judgment,  this  is  not  a  proposition  or  a  matter  of 
dollars  and  cents  in  a  trade  between  the  Government  and  a  purchaser? 

Mr.  BowEH.  No,  I  do  not  think  so.  Then  you  should  remember  this :  Suppose 
you  agree  to  charge  Mr.  Ford  8  per  cent  interest  on  the  water  power.  We 
farmers  are  going  to  pay  that  in  the  cost  of  our  fertilizer.  If  you  charge  him 
$20,000,000  for  this  nitrate  plant  the  farmers  will  pay  the  interest  on  that  in- 


^1 


'I 


1    i 

j    I 

1    ' 


632 


MUSCLE   SHOALS  PROPOSITIONS. 


vestment.  It  is  a  fair  part  of  the  cost  for  this  development  and  has  to  be  figured 
in.  Then  tlie  amount  of  $5,000,000  for  tliis  plant  is  questioned  by  the  opposition. 
They  say  it  is  a  subsidy,  and  then  they  say  in  the  same  breath  that  the  plant 
can  not  possibly  be  operated  at  a  profit.  If  tJie  plant  can  not  be  operated  at  a 
profit,  then  it  is  not  a  subsidy  for  $5,000,000. 

Mr.  McKexzie.  I  am  not  going  to  take  up  the  t'me  of  the  committee  with 
any  more  questions  except  in  connection  with  one  other  matter.  What  per- 
centage of  potash  used  in  this  country  is  imported? 

Mr.  BowEK.  At  the  present  time  about  100  per  cent,  or  close  to  it.  During  the 
war  we  built  up  a  potash  industry,  and  in  some  sections  that  was  studied  quite 
carefully,  especially  by  the  Trona  Corporation  and  the  Solv^iy  Co.  at  Searles 
Lake.  But  there  is  practically  none  in  operation  to-day,  and  we  are  importiiij,' 
all  of  our  potash. 

Mr.  McKenzie.  Did  I  understand  you  to  say  that  there  was  a  proposed  duty 
to  be  placed  on  potash  coming  into  this  country? 

^Ir.  Bower.  There  is  a  proposed  duty.  It  is  a  peculiar  duty,  and  it  was  in 
the  bill  as  it  passed  the  House.  It  goes  otf  in  5  years,  but  it  is  a  very  high 
rate  of  duty  for  the  first  3  or  4  years  of  that  term.  We  have  registered  our 
protested  against  the  placing  of  a  duty  of  that  kind  on  porash. 

Mr.  ]McKenzie.  You  believe  in  the  effort  to  develop  the  potash  industry  in  our 
own  country? 

Mr.  Bower.  We  do. 

Mr.  McKenzie.  Would  you  cons'der  it  better  public  policy  to  take  care  of 
the  investigation  and  development  of  that  natural  resource  by  the  payment  of 
a  bounty  rather  than  putting  a  duty  of  98  or  99  per  cent  on  that  article 
when  it  comes  from  foreign  countries? 

Mr.  Bower.  We  do;  and  I  might  say  to  the  conunittee  that  we  prepared  a 
little  scheme  to  do  that  very  thing,  and  we  submitted  it  first  to  the  American 
Potash  I'roducers'  Association,  but  they  turned  us  down. 

The  Cijairman.  I  suggest  that  you  submit  it  to  the  Finance  Committee  of 
the  Senate. 

Mr.  Bower.  That  is  where  it  has  been  submitted. 

Mr.  Hull.  Mr.  Bower,  if  we  accept  the  Alabama  Power  Co.'s  proposition, 
do  you  think  it  possible  for  the  farmers  to  organize  a  company  to  develop  the 
fertilizer  industry? 

Mr.  Bower.  I  do  not  think,  in  a  proposition  of  this  kind,  at  our  present  stage 
of  cooperative  development  we  could  handle  the  proposition  satisfactorily  to  the 
Government  or  to  anyone  else.  We  would  have  to  agree  to  maintain  a  plant 
and  keep  it  in  good  condition,  and  I  do  not  think  that  is  a  possible  solution 
right  now. 

Mr.  Httll.  Do  you  think  the  Government  should  do  so? 

Mr.  Bower.  I  do  not  think  anybody  can  do  so  under  the  arrangement  of 
power,  secondary  i)ower,  according  to  the  flow  of  the  river,  which  may  not  he 
anv  power  at  all.    You  can  not  operate  a  plant  on  that  basis. 

Mr.  Hull.  You  are  satisfied  that  the  Ford  pioposition  is  a  better  proposition 
than  the  Alabama  Power  proposition? 

Mr.  Bower.  Financially,  for  the  Government,  yes;  and  for  the  interests 
of  the  agriculturalists,  yes;  for  the  nuiintenance  of  that  plant  for  the  manu- 
facture of  explosives,  yes. 

Mr.  Hull.  I  do  not  see  how  you  arrive  at  the  financial  part  of  it. 

Mr.  Bower.  Mr.  Ford  pays  $5,000,000,  and  the  Alabama  Power  Go.  \)ny^ 
$5,000,000,  less  the  cost  of  constructing  the  locks.  Col.  Cooper  has  testified 
tho.se  locks  will  cost  $4,500,000.  I  have  a  memorandum  which  I  received  from 
Gen.  Taylor,  the  Assistant  Chief  of  Engineers  in  charge  of  river  and  harbor 
works,  in  which  he  says  that  the  amount  allottetl  for  navigation 
$4,500,000,  so  the  Government  wouhl  not  get  more  than  $500,000 
Alabama  Power  Co.  in  cash. 

Mr.  .Tames.  Y'ou  read  into  the  record  certain  statements  made  by  Mr.  Wash- 
burn in  1916. 

Mr.  Bower.  Yes. 

!^rr.  .Tames.  What  bill  was  being  considered,  and  before  what  committee? 

:Mr.  Bower.  I  do  not  know  that  he  addressed  himself  to  any  particular  bm 
at  that  time,  but  his  testimony  resulted  in  the  writing  of  section  124  of  th«' 
national  defense  act. 

:Mr.  .Tames.  You  said  that  last  year  certain  gentlemen  opposed  this  proposi- 
tion? 

Mr.  Bower.  Yes. 


MUSCLE   SHOALS  PROPOSITIONS. 


633 


purposes  i^ 
out  of  the 


Mr.  James.  Before  what  committee? 

Mr.  Bower.  Mr.  Washburn  spent  three  days  before  the  Senate  Conunittee  ou 
Agriculture  and  Forestry  on  this  bill. 

Mr.  .Tames.  That  was  not  before  the  House  committee? 

Mr.  Bower.  No;  there  was  no  hearing  on  that  before  the  House  Committee, 
excppt  the  War  Department  experts. 

Mr.  .Tames.  What  was  the  bill  you  were  particularly  talking  about? 

Mr.  Bower.  That  was  Senate  bill  3390. 

Mr.  Parker.  Mr.  Bower,  clover  and  some  other  crops  put  nitrogen  into  the 
soil? 

Mr. 

Mr. 

Mr. 

^Ir 

Mr, 

Mr 

Mr 

Mr 


Bower.  Yes,  sir;  if  you  plow  it  under. 

Parker.  They  take  nitrogen  from  the  air,  and  not  from  the  soil? 

Bower.  The  plant  does  not. 

Parker.  They  cause  nitrogen  to  be  taken  from  the  air? 

Bower.  Yes.  / 

Parker.  Alfalfa  is  one  of  those  plants,  is  it  not? 

Bower.  Yes. 

Parkf:r.  And  yet  you  refer  to  it  as  if  it  exhausted  the  soil  instead  of 
caus'ng  it  to  come  from  the  air? 

3Hr.  Bower.  You  do  not  add  to  it  unless  you  plow  it  under. 
^Ir.  Parker.  Did  you  not  refer  to  it  in  that  way? 

Mr.  Bower.  I  gave  that  as  the  amount  of  nitrogen  consumed  by  the  plant. 
Mr.  Parker.  Not  consumed  from  the  soil? 
Mr.  Bower.  No;  not  necessarily. 

Mr.  Parker.  Therefore  not  needing  to  get  it  in  that  way  because  it  gets  it 
out  of  the  air? 

Mr.  Bower.  A  large  proportion  of  it;  yes.  sir. 

:Mr.  Parker.  The  American  Cyanamid  Co.  makes  cyanamid,  you  say,  at  the 
Canadian  plant? 
]Mr.  Bower.  Yes. 

^Ir.  Parker.  Is  it  a  water  power  or  a  steam  power  plant? 
^Ir.  Bower.  It  operates  by  power  from  Niagara  Falls. 
Mr.  Parker.  You  quoted  from  a  British  report.    Have  you  got  it  here? 
Mr.  Bower.  Yes. 
Mr.  Parker.  They  gave  a  recommendation  which  you  read  as  to  the  cyanamid 

process? 

Mr.  Bower.  Yes. 

Mr.  Parker.  Did  they  make  other  recommendations  which  you  d'd  not  read? 

Mr.  Bower.  They  made  other  recommendations.  I  said  the  recommendation 
I  read  was  in  regard  to  the  cyanamid  process. 

Mr.  Parker.  You  said  they  made  a  certain  recommendation,  and  then  you 
read  the  recommendation  and  we  found  it  was  in  reference  to  the  cyanamid 
process.    D'd  they  recommend  the  Haber  process? 

Mr.  Bower,  l^es ;  they  recommended  a  small  development  of  the  Haber  process. 

Mr.  Parker.  Did  they  make  other  recommendations? 

>tr.  Bower.  They  made  other  recommendations,  as  we  do  as  to  the  conserva- 
tion of  all  nitrogen  products. 

Mr.  Parker.  This  was  the  only  single  recommendation  in  reference  to  the 

cyanamid  process^ 

Mr.  Bower.  Yes,  sir. 

Mr.  Parker.  I  notice  from  what  you  read  that  they  said  it  might  be  hoped 
that  nitrogen  might  be  made  as  cheaply  as  it  had  been  imported. 

Mr.  Bower.  They  said  it  could  be. 

Mr.  Parker.  Is  that  limited  to  the  cyanamid  process  or  to  the  other  processes? 

Mr.  Bower.  No,  sir ;  I  would  not  think  it  was. 

Mr.  Parker.  Are  not  the  other  processes  reported  as  being  much  cheaper  than 
the  cyanamid  process? 

Mr.  Bower.  They  are  reported  as  such,  but  that  is  denied  by  others. 

Mr.  Parker.  They  did  not  say  the  cyanamid  process  was  cheaper? 

Mr.  'Bower.  No  ;  not  necessarily. 

Mr.  Parker.  Has  it  not  proved  to  be  much  more  expensive? 

Mr.  Bower.  I  do  not  think  so. 

Mr.  Parker.  You  do  not  know,  do  you  ? 

Mr.  Bower.  I  know  the  cyanamid  plants  in  Germany  had  operated  at  full 
capacity,  and  one  of  their  Haber  plants  was  destroyed. 

Mr.  Parker.  That  was  an  explosion? 

Mr.  Bower.  Yes. 


in 


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634 


MUSCLE   SHOALS   PROPOSITIONS. 


Mr.  Pakker.  They  were  working  that  at  a  larger  capacity  when  it  exploded"; 

Mr.  Bower.  Not  larger  than  the  total  cyanamid  production. 

Mr.  Parker.  On  the  whole,  were  they  not  operating  the  Haber  process  much 
more  than  the  cyanamid  process? 

Mr.  Bower.  The  cyanamid  process  was  operated  to  the  full  capacity. 

Mr.  Parker.  Wh"ch  was  producing  the  more? 

Mr.  Bower.  I  could  not  give  you  those  figures. 

Mr.  Crowther.  You  said  that  what  the  farmers  wanted  was  nitrogen,  and 
the  cheapest  method,  the  one  everybody  looked  forward  to,  was  the  air  reduc- 
tion method? 

Mr.  Bower.  Yes,  s'r. 

Mr.  Crowther.  Mr.  Ford  does  not  intend  to  run  an  air-re<luction  plant, 
does  he?  ' 

Mr.  Bower.  Cyanamid  is  produced  by  an  air  fixation  process;  there  is  no 
nitrogen  except  through  the  air-fixation  process. 

Mr.  Crowther.  The  Haber  process  was  supposed  to  be  a  verv  cheap  method 
was  it  not?  '  ' 

Mr.  Bower.  It  was  supposed  to  be. 

Mr.  Crowther.  And  the  plant  would  run  with  20.000  horsepower,  as  com- 
pared with  the  100,000  horsepower  it  takes  to  run  the  other  plant? 

Mr.  Bower.  When  it  runs. 

Mr.  Crowther.  That  proA'ed  a  failure? 

Mr.  Bower.  Yes. 

Mr.  Crowther.  Do  you  think  it  would  be  a  good  thing  to  have  a  plant  down 
there  with  all  that  explosive  material  ground  it,  and  all  the  other  shops 
around  it? 

Mr.  Bower.  I  do  not  think  so,  and  T  think  that  is  the  reason  Mr.  Ford  would 
not  obligate  himself  to  operate  that  plant. 

]Mr.  Crowther.  You  are  going  to  make  the  ammonium  nitrate  and  turn  it 
into  ammonium  sulphate? 

Mr.  Bower.  Not  at  all. 

Mr.  Crowther.  All  you  are  going  to  make  is  ammonium  nitrate,  and  turn  it 
into  ammonium  sulphate? 

Mr.  Bower.  Not  at  all. 

Mr.  Crowther.  What  else  are  you  going  to  make? 

Mr.  Bower.  I  have  tried  to  explain  the  possibilities  of  manufacturing  down 
there.  Mr.  Ford  says  nitrogen  and  other  fertilizer  compounds.  According  to 
one  of  the  provisions  of  this  contract  he  proposes  to  carry  on  research  along 
t  »e  line  that  ^Ir.  Swann,  Dr.  Whitney,  and  Dr.  Tollman  have  told  you  are 
p  issible. 

Mr.  Crowther.  Mr.  Ford  told  you  this? 

Mr.  Bower.  I  think  it  is  in  the  intent  of  the  contract. 

Mr.  Crowther.  You  talked  about  a  subsidy.  It  has  been  testified  to  here 
tJiat  that  concern  could  run  the  ammonium  nitrate  plant  at  a  considerable  loss 
end  get  its  profits  from  the  immense  water  power  development  and  other  indus- 
tries that  might  be  tremendously  profitable. 

Mr.  Bower.  That  might  be  true. 

Mr.  Crowther.  Then,  there  would  not  be  any  force  to  the  subsidy  proposi- 
fion  if  they  could  balance  the  loss  with  their  profits  on  th^  other  thing,  when 
3  on  say  they  are  crying  that  they  could  not  operate  it  at  a  profit. 

Mr.  FiETJ)s.  In  regard  to  the  filler  material  in  fertilizer,  in  the  2-8-2  formula 
At'hich  you  referred  to,  I  believe  you  said  there  were  1,474  pounds  of  inert 
matter? 

Mr.  Bower.  Inert  matter  in  the  plant  food-bearing  material,  and  in  addition 
Id  that  they  have  filler,  too. 

Mn  Fields.  You  use  filler? 

Mr.  Bower.  To  make  up  the  ton. 

Mr.  Fields.  After  all,  this  amount  of  inert  matter  such  as  filler  has  no  plant 
food  value? 

It  has  no  plant-food  value.  . 

Whichever  way  they  take  it,  after  all,  it  amounts  to  the  same 


MUSCLE   SHOALS  PROPOSITIONS. 


635 


Mr.  Bower. 
Mr.  Fields 
as  filler? 
Mr.  Bower 


Yes;  but  the  word  filler  has  a  kind  of  bad  meaning,  that  they 
put  that  stuff  in  to  make  it  low  grade.  The  crux  of  the  thing  is  in  the  highly 
concentrated  materials  that  we  want. 

Mr.  Fields.  This  inert  matter  has  no  more  plant-food  value  than  the  286 
pounds  put  in  as  filler? 


Mr.   Bower.  No,   sir;   in   fact,   it   is  often   detrim^'ntal.     The   suli>hnri<-  {N-i<l 
proportion  is  even  harmful. 

Mr.  Fields.  Whatever  you  call  it.  if  you  could  got  away  from  it  n\u\  could 
get  down  to  the  more  highly  concentrated  fertilizers  the  farmers   would   be 
relieved  of  the  expense  of  the  freight  cliarges,  handling,  bagging,  and  every- 
thing else  that  goes  into  the  carrying  of  that  inert  matter  ov  filler  to  the  farm. 
Mr.  Bower.  Exactly  so. 

Mr.  QuiN.  The  nitrogen  is  more  costly  tlian  either  the  potash  or  the  i)hos- 
phoric  acid,  is  it  not? 
Mr.  Bower.  Yes,  sir. 

Mr.  QuiN.  What  do  you  mean  l)y  the  term  unit  in  corniection  with  fertilizer? 
Mr.  Bower.  I  do  not  want  to  start  to  complicate  this  fertilizer  (luestion  by 
introducing  new  terms.  A  unit  is  1  per  rent  of  u  ton.  or  20  jMninds.  .The 
reason  they  use  tluit  is  so  they  can  compare  tlie  value  of  the  various  nitrosen 
fertilizers.  The  Chilean  nitrate  carries  16  per  cent,  and  they  say  that  is  16 
units,  1  per  cent  being  a  unit.  If  they  want  to  compare  the  i)ri<'e  of  nitrate 
of  soda  with  annuonium  sulphate  tlie.v  divide  the  price  per  ton  by  the  per- 
centage, which  gives  them  the  price  per  unit,  so  you  can  comi)are  the  two  in 
that  wa.v.  It  is  n<»t  fair  to  compare  the  price  of  a  t<»n  of  nitrate  of  soda  with 
a  ton  of  ammonium  sulphate,  because  the  nitrate  of  sodji  carries  17  p<»r  cent 
and  ammonium  sulpliate  carries  as  high  as  25  per  cent. 

Mr.  QuiN.  I  wanted  to  get  that  information  for  the  record. 
The  Chairman.  I  want  to  ask  you   one  question:  Most  countries  speak   of 
the  short  ton  as  the  standard  ton,  but  I  understand  in  buying  Chilean  nitrate 
it  is  sold  by  the  long  ton  of  2,240  pounds? 

Mr.  Bower.  It  is  not  sold  to  the  farmer  on  a  long-ton  basis.    We  buy  a  short 
ton. 
Mr.  Parker.  Tlje  metric  ton  is  nearly  a  long  ton. 
Mr.  Bower.  Yes. 

Mr.  Parker.  All  coal  and  iron  are  sold  by  the  long  ton? 
Mr.  Bower.  Yes:  I  believe  .so. 

Mr.  QuiN.  According  to  your  statement  somebody  hogs  the  farmer  out  of  2r»0 
poimds  on  the  ton. 

iVIr.  Bower.  Not  neces.sarily ;  the  price  could  be  adjusted  accordingly.  That 
would  not  necessarily  follow. 

Mr.  QuiN.  On  the  unit  basis  at  the  ]»resent  eost  nitrogen  would  be  $0  on  the 
'^9-3  fornmla ;  nitrogen  would  be  $9.  phosphoric  aci<l  would  be  ^."iO,  and 
potash  would  be  $80?    That  is  on  the  3-JM}  formula. 

Mr.  Bower.  I  do  not  iinow  where  that  comes  from.     What  is  your  piice  for 
the  commercial   fertilizer? 
Mr.  QuiN.  That  is  the  present  market  price. 

Mr.  Bower.  It  would  depend  upon  the  sources  of  that  nitrogen  somewhat, 
too.    I  would  not  want  to  sjiy  those  figures  were  definitely  correct. 

Mr.  QuiN.  What  I  am  driving  at  is  that  Mr.  MacDowell,  the  i)resident  of  the 
National  Fertilizer  Association,  app<^areil  before  this  committee,  and  they 
had  sent  out  to  the  Congressmen  and.  I  guess,  to  other  i)eople  a  document 
wherein  they  set  up  that  only  4  cents  out  of  the  dollar  of  the  cost  of  fertilizer 
was  for  ammonium  sulphate.  Now,  what  percent  of  nitrogen  is  in  ammonium 
sulphate? 

Mr.  Bower.  It  depends  upon  what  materials  they  use  in  making  their  mixed 
fertilizer.  They  might  use  annuonium  suli)hate  or  they  might  use  nitrate  of 
soda  or  they  might  use  cottonseed  meal.  If  they  use  cottonseed  meal  there 
would  be  i  per  cent  and  if  they  use  ammonium  nitrate  tliere  would 
not  be  any  anunonium  .sulphate  in  it.  The  trouble  with  that  proposi- 
tion is  that  he  does  not  figure,  as  we  do,  that  if  we  cheapen  the  cost  of  nitro- 
u'en  from  one  source  we  will  cheapen  the  other  sources,  and  if  we  cut  the 
price  of  anunonium  sulphate,  as  an  illustration,  way  down  we  are  going  to 
cut  the  price  of  nitrate  of  soda  and  we  are  going  to  cut  the  price  of  nitrogen 
in  cottonseed  meal  and  the  other  sources,  and  there  is  where  the  whole  thing 
falls  down.  Then,  of  cours-e,  he  has  figured  in  all  the  expense  of  bagging  and 
mixing  and  hauling  and  carrying  all  this  business  out  to  the  farm,  and  that  does 
not  have  anything  to  do  with  the  statement  that  the  ammonium  sulphate  only 
tosts  4  cents  of  the  farmer's  dollar. 

Mr.  QuiN.  That  was  intended  for  the  purpose  of  making  it  appear,  and  they 
^<aid  so.  that  this  nitrogen  at  Muscle  Shoals  would  not  reduce  the  price  of 
fertiizer,  no  matter  how  cheaply  they  produced  it.  What  percentage  of  phos- 
phoric acid  on  that  sort  of  a  basis  would  be  in  there? 


/M 


636 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


637 


(I 


Mr.  BowiSr.  I  could  not  tell  you  that,  Mr.  Quia.  In  the  mixed-fertilizer 
goods  phosphoric  acid  runs  around  8  per  cent  of  the  total  right  along.  It 
averages,  possibly,  a  little  better  than  that.  It  would  run  better  than  that, 
because  a  great  deal  of  10  per  cent  acid  phosphate  is  sold  as  such,  the  farmer 
not  being  able  to  buy  any  nitrogen  at  all.  We  in  Virginia  can  not  afford  to 
buy  nitrogen  excH?pt  for  our  truck  crops,  and  we  buy  16  per  cent  acid  phos- 
phate and  grow  a  clover  crop  and  plow  it  under  to  get  our  nitrogen,  but 
that  is  pretty  expensive,  and  it  about  breaks  a  farmer's  heart  to  plow  under 
a  good  crop  of  clover  when  he  sees  the  price  of  hay  going  up.  That  is  the  diffi- 
culty with  that  method  of  obtaining  nitrogen.  The  farmer  makes  up  his  mind, 
"  Yes ;  I  am  going  to  do  that,"  and  then  about  the  time  the  clover  crop  gets 
up  about  a  foot  and  a  half  high  and  the  hay  is  a  little  short  in  his  barn,  in- 
stead of  putting  a  plow  in  there  he  puts  in  a  mower  about  50  per, cent  of  the 
time,  and  it  does  not  get  plowed  under. 

Mr.  QuiN.  In  this  method,  you  have  three  ingredients  of  fertilizer — there 
would  also  be  potash;  would  the  same  analysis  apply  to  that? 

Mr.  Bower.  Let  me  see  that  statement  and  see  if  I  can  straighten  tlils  out 
at  all.     [Reading:] 

"  Small  part  of  fertilizer  bill  would  be  affected  by  operation  of  ^luscle  Shoals 
plant;  96  cents  for  other  necessary  ingredients,  such  as  organic  ammoniates,. 
nitrogen,  potash,  phosphoric  acid,  etc.,  and  for  mixing,  bagging,  freights,  and 
other  necessary  costs." 

I  do  not  believe  I  can  uni*avel  that  for  you,  Mr.  Quin,  becaust^  I  do  not  know 
what  those  mixing,  bagging,  and  other  costs  are,  and  without  that  it  would  be 
prettj  hard  to  tigure  what  was  the  percentage  of  the  iJOtash  cost  or  anything 
else. 

]Mr.  Qnx.  Different  tyiies  of  soil  need  different  kinds  of  fertilizer,  as  you  illus- 
trated this  afternoon,  and  different  plants  need  different  fertilizers. 

Mr.  Bower.  Yes;  and  the  whole  proposition  is  there.  For  instance,  wo  can 
get  along  on  our  big  alluvial  and  loessal  soils  of  the  ^liddle  West  and  the  corn 
belt  section,  because  that  soil  is  black  with  nitrogen.  The  humus  is  a  large 
carrier  of  nitrogen,  and  that  soil  can  grow  crops  without  nitrogen  applications, 
and  we  are  doing  it;  but  when  you  come  down  to  our  sandy  soils  of  tlie  coastal 
plains,  in  the  trucking  sections,  you  have  got  to  give  it  all  the  nitrogen  that  the 
plants  get,  because  there  is  not  any  in  the  soil. 

Mr.  QLnN.  And  all  of  tliese  different  976  brands  of  fertilizer  from  one  factory 
and  about  that   nmny   from   another   are   merely   deceptive    processes   so   far 

as 

Mr.  Bower.  I  would  not  say  that,  exactly. 

Mr.  QuiN.  Do  we  need  that  many  brands? 

Mr.  Bower.  Oh,  no ;  and  it  is  a  tremendous  burden  on  us.  but  it  is  also  done  to 
protect  their  dealers ;  that  is,  one  fertilizer  manufacturer  may  have  two  or  three 
different  dealers  in  the  same  town,  and  in  order  that  they  do  not  figure  they  are 
competing  with  one  another,  one  will  carry  one  brand  of  3-8-3  and  another  will 
carry  another  brand  of  3-8-3,  and  they  are  identical  material,  but  one  is  selUng 
the  Old  Buck  Corn  Booster  and  the  other  is  selling  Royal  Potato  Sprouter, 
and  that  is  the  idea  on  which  they  are  sold  to  tlie  farmer,  and  it  is  an  insult 
to  the  intelligence  of  the  farmer  to  handle  this  thing  in  that  way.  And  it  is  a 
burden  upon  us  to  have  these  low-grade  materials  compounded  in  so  many 
ways,  with  all  this  different  sacking  and  branding  and  bagging,  and  everythinii 

of  that  sort. 

Mr.  Quin.  Mr.  Bower,  these  dealers  all  get  a  profit  on  the  fertilizer  they 
handle,  do  they  not? 

Mr.  Bower.  Yes,  sir. 

Mr.  Qt;in.  Then,  the  farmer  starts  out  with  the  high  freight  on  the  filler,  and 
then  he  comes  to  this  drummer  that  sells  it  to  the  dealer,  and  then  to  the  dealer 
for  his  profit,  and  then  has  his  wareroom  expenses,  and  then  the  farmer  comes 
to  town  and  says,  "  I  want  ycm  to  run  me,  Mr.  Smith,  this  year,"  getting  his  fer- 
tilizer after  paying  the  drummer's  expen.se  and  the  dealer's  expense. 

Mr.  Bower.  And  a  big  interest  rate. 

Mr.  Qnx.  <>n  top  <d"  insuranre  charges  and  so  on.  Then,  if  this  proposition  of 
Mr.  Ford  goes  througii,  and  there  is  a  cooi»erative  meth(»d  of  handling  it,  would 
not  that  cut  out  the  <lrummer's  expense  and  the  dealer's  expense? 

Mr.  Bower.  Undoubtedly,  if  we  can  handle  it  in  a  cooperative  way.  That  is 
one  of  the  things,  as  Mr.  Silver  stated,  we  are  jiaving  under  consifleration.  the 
recognition  of  the  coojk  rative  purchasing  of  the  product.  We  do  not  i)resume 
to  sav  we  can  come  here  and  take  all  of  that  i>roduct  away  from  Mr.   Ford's 


plant  through  cooperative  organizations,  but  we  are  going  to  try  and  take  just 
as  much  as  we  can  to  get  away  from  that  practice,  and  with  the  present  fertilizer 
industry  we  have  had  a  time  and  a  half  getting  them  to  deal  with  cooi)erative 
enterprises  at  all.    A  good  many  of  them  will  not  quote  us. 

Mr.  Quin.  They  are  not  encouraged  by  them  to  say  the  least. 

Mr.  Bower.  Not  at  all. 

Mr.  Quin.  Mr.  Bowers,  the  Virginia -Carolina  Chemical  (3o.  mentioned  by  you 
sells  fertilizer  in  several  States,  does  it  not? 

Mr.  Bower.  Oh,  yes ;  it  is  one  of  the  large  fertilizer  manufacturing  concerns. 

Mr.  Quin.  Is  this  Mr.  Duke  connected  with  that  concern? 

Mr.  Bower.  Yes;  he  owns  a  controlling  interest  in  the  Virginia-Carolina 
Chemical  Co. 

The  Chairmaj^'.  I  think  that  has  been  testified  to  a  half  a  dozen  times. 

^Ir.  Quin.  The  American  Cyanamid  Co.  man  told  me  not. 

The  Chairman.  Mr.  Duke  owns  26  per  cent  of  the  stock. 

Mr.  Quin.  In  the  American  Cyanamid  Co.,  but  this  man  denied  his  having 
any  interest  in  the  Virginia-Carolina  Chemical  Co. 

The  Chairman.  No  ;  I  think  it  was  testified  he  had  an  interest  in  that  company 

also. 
Mr.  Quin.  Wliat  percentage  does  he  own  in  the  American  Tobacco  Co.? 

Mr.  Bower.  I  have  not  any  idea. 

Mr.  Quin.  Mr.  Bower,  you  stated  that  Mr.  Washburn  was  president  of  the 
cyanamid  company  at  the  time  he  made  these  statements  before  this  committee. 

Mr.  BowER.  He  was. 

Mr.  Quin.  And  that  statement  was  to  the  effect  that  for  the  Government  to 
cooperate  with  them  in  the  proposition  that  3  per  cent  would  be  a  fine  thing. 

Mr.  Bower.  He  called  it  proper  Government  cooperation. 

Mr.  Quin.  Is  this  proposition  Mr.  Ford  has  made  this  committee  to  be  decided 
as  improper  under  any  construction  of  the  language  used  by  Mr.  Washburn? 

Mr.  Bower.  I  could  not  understand  it  so ;  no. 

Mr.  Quin.  It  would  be  illogical  to  construe  it  in  that  way? 

Mr.  Bower.  Absolutely  so.  If  it  was  a  proper  Government  cooperation  with 
them  in  1916,  they  would  have  to  admit  it  is  proper  Government  cooperation 
now  with  Mr.  Ford,  and  Ui\  Ford  is  paying  1  per  cent  more  interest  than  they 

offered. 

Mr.  Quin.  There  is  no  doubt  in  your  mind  as  a  representative  of  the  farmers 
as  to  the  language  used  in  this  contract  touching  the  fertilizer  part  of  it,  is 

there? 

Mr.  Bower.  No  ;  there  is  no  doubt  in  our  minds.  Some  of  our  friends  who 
feel  they  want  to  protect  us  a  little  further  suggest  we  might  get  a  little  clarifi- 
cation of  that  language ;  not  a  change  in  the  contract,  but  in  order  to  make  what 
we  are  absolutely  confident  is  Mr.  Ford's  intention  and  purpose  a  little  clearer 
in  the  contract,  we  are  discussing  with  Mr.  Ford's  general  representatives  some 
possible  clarification  along  that  line,  and  I  believe  that  will  be  adjusted  satis- 
factorily to  everyone. 

Mr.  Quin.  As  a  practical  proposition,  with  different  crops  requiring  different 
foimulas,  some  as  you  stated  needing  more  nitrogen  than  others,  it  would  be 
a  fatal  mistake  to  set  up  in  a  contract;  what  formulas  ought  to  be  used  or 
made? 

Mr.  Bower.  Absolutely  so.    It  would  not  be  possible  to  do  so. 

Mr.  Quin.  It  would  just  ruin  it  so  far  as  the  farmers'   interests  are  con- 

<erned. 

Mr.  Bower.  It  might  absolutely  ruin  it  and  it  would  not  be  possible.  The 
110,000  tons  of  ammonium  nitrate  is  taken  by  us  as  a  measure  of  the  amount  of 
production,  not  as  a  product,  and  it  says  so,  as  we  read  it,  "  taken  at  110,000 
tons  of  ammonium  nitrate  per  annum,"  that  is  a  measure,  a  yardstick  on  his 
l)roduction.    That  is  the  amount  of  nitrogen  he  will  produce. 

The  Chairman.  I  think  that  has  been  testified  to  before  the  conunittee  half 
a  dozen  times. 

Mr.  Bower.  I  think  so,  Mr.  Kahn. 

Mr.  Quin.  Mr.  Bower,  as  a  representative  of  the  farmers  of  the  country, 
could  you  consider  the  Alabama  Power  Co.'s  proposition  as  compared  with  the 
I'ord  proposition? 

Mr.  Bower.  Not  at  all.    From  the  farmer's  standpoint  there  is  no  comparison. 

Mr.  Quin.  And  the  Ford  proposition,  is  satisfactory  to  them? 

Mr.  Bower.  Absolutely  so. 


II: 


!    I 


638 


MUSCLE   SHOALS  PROPOSITIONS. 


Mr.  Quip^.  And  as  you  have  stated,  he  suggested  the  langauge  that  is  carried 
in  this  contract  of  his  own  volition  and  made  it  acceptable  to  the  farmers 
without  consulting  them. 

Mr.  Bower.  I  think  I  stated  that  clearly.  Section  15  is  the  one  that  refers 
to  the  farmers'  organizations  and  Mr.  Ford  himself,  without  any  suggestion 
from  any  farmers  that  I  know  of  at  all,  suggested  that  a  board  of  farmers 
sit  in  with  him  and,  as  we  feel,  help  work  this  thing  out.  He  says  that  we 
slmll  even  go  over  his  books  and  find  out  what  his  costs  are.  ■  I  think  that  is  a 
clear  imlication  of  his  intent,  and  is  an  indication  of  what  he  is  going  to  do 
<lown  there.  You  do  not  invite  farmers  to  go  over  your  books  if  you  are  going 
to  put  something  over  on  them  because  there  would  be  a  howl  go  up  at  once. 

The  Chaikman.  If  there  are  no  further  questions,  we  are  very  much  obliged  to 
you,  Mr.  Bower. 

(The  committee  thereupon  adjourned  until  Friday,  Februarj^  24,  1922,  at 
K).30  o'clock  a.  m.) 

Committee  on  Military  Affairs, 

House  of  Representatives, 

Friday,  Febrvary  2J^,  1922. 

The  committee  met  at  10.30  o'clock  a.  m.,  Hon.  Julius  Kahn  (chairman) 
presiding. 

The  Chairman.  I  want  to<  inform  the  committee  that  Mr.  Hugh  L.  Cooper 
has  sent  to  me  nn  analysis  of  his  statement,  as  follows: 

Hugh  L.  Cooper  &  Co., 
New  York,  Fehruary  21,  1922. 
Hon.  Julius  Kahn, 

Chairman  Military  Affairs  Commitiee, 

House  of  Representatives,  Washington,  D.  C. 

Dear  Sir:  1.  Agreeable  to  the  promise  I  made  to  the  House  Military  Affairs 
Conunittee  on  Friday,  February  17,  I  desire  to  submit  the  following  analysis 
justifying  the  statement  I  made  before  the  committee  that  the  cost  to  the  United 
States  Treasury  would  be  in  reality  $1,275,000,000  ov^r  and  above  the  amount 
of  money  received  from  Mr.  Ford  should  Mr.  Ford's  proposal  be  accepted  as 
now  before  the  committee. 

2.  The  above  figure  of  $1,275,000,000  was  arrived  at,  as  stated  in  my  testi- 
mony, by  compounding  the  4  per  cent  interest  charge  annually.  Since  my 
return  to  my  office  I  have  ascertained  that  all  money  borrowed  by  the  United 
States  Government  carries  semiannual  interest  payments  instead  of  annual 
interest  payments.  I  have  therefore  recomputed  this  Treasury  deficit  on  the 
basis  that  the  money  borrowed  for  Dams  Nos.  2  and  3  will  cost  the  Treasury 
4  per  cent  (2  per  cent  payable  semiannually). 

3.  In  order  that  the  committee  may  make  a  check  of  the  figures  quoted  below 
by  referring  them  to  the  Treasury  Department  or  any  other  department  for 
verification,  I  desire  to  set  down  the  following  bases  that  were  used  by  me  in 
arriving  at  the  total  result,  and  these  bases  are  taken  from  the  formal  contract 
proposed  by  Mr.  Ford  and  from  the  cost  of  construction  and  carrying  charge!? 
as  estimated  by  the  Chief  of  Engineers. 

4.  dam  no.  2. 

Basis  (A).  That  Mr.  Ford's  4  per  cent  interest  payments  specified  in  para- 
graph 3  of  his  contract  for  Dam  No.  2  will  apply  to  $50,175,000  January  1. 
1931.    This  $50,175,000  is  arrived  at  as  follows: 

Cost  to  date  of  Dam  No.  2 $17,000,000 

Net  accrued  interest  before  full  4  per  cent  payments  begin 8, 175,  000 

Cost  to  complete  Dam  No.  2 25, 000,  000 

Total 50, 175,  000 

Above  figures  are  Chief  of  Engineer's  estimates. 

Basis  (B).  That  this  4  per  cent  interest  (2  per  cent  payable  semiannually) 
on  $50,175,000  will  run  until  January  1,  2025. 

Basis  (C).  That  beginning  January  1,  1932,  Mr.  Ford  will  pay  annually  into 
the  Treasury  of  the  United  States,  account  Dam  No.  2,  $1,000,000  (4  per  cent 
annually  on  $25,000,000). 

5.  Using  the  above  bases  for  calculation,  I  have  assumed  that  the  $50,175,000 
principal  as  of  January   1,   1931,  and   the  interest  thereon,   thereafter  coni- 


MUSCLE  SHOALS  PROPOSITIONS.  f>39 

pounded  at  the  rate  of  4  per  cent  (semiannual  payments  of  2  per  cent)  would 
be  credited  by  the  $1,000,000  annual  payments  made  to  the  Government  as  and 
when  they  were  made  under  the  proposed  contract.  This  method  of  crediting 
the  payments  direct  to  the  account  they  are  indebted  to  avoids  the  necessity  of 
assuming  that  the  Government  would  turn  around  and  loan  this  monev  at 
4  per  cent. 

6  The  above  four  assumptions  (A,  B,  C,  and  par.  5)  make  a  total  unpaid  cost 
$1 0^6  800  000  *^^  ^^^^^  ^^'''^'^'  ^^^""^  '^  January  1,  2025,  of 

7.  DAM   NO.  3. 

Basis  (A).  Mr.  Ford's  4  per  cent  interest  payment  specified  in  paragraph  7 

?oo  l^^SJ^^"".^^'^  ^""y  ^^"'  ^^-  ^  '^"^  ^PP^y  ^^  $33,000,000  January  1,  1931.  This 
{i»33,000,000  IS  arrived  at  as  follows : 

Cost  to  build  Dam  No.  3 $25  OOO  000 

Overflowed  lands ~_ ~      ~__        9'  33^^'  ^^qq 

Net  accrued  interest  before  full  4  per  cent  payments  beginZZIZI Z      5,'  669,'  000 

Total 33^  Q^^  QQQ 

Above  figures  are  Chief  of  Engineers'  estimates. 

^cSfi^^'^^^.?,*  *^*®  ^  P®^  ^^^*  interest  (2  per  cent  payable  semiannually) 
(»u  $33,000,000  will  run  until  January  1,  2028. 

Basis  (C).  That  beginning  January  1,  1932,  Mr.  Ford  will  pav  annually  into 
the  Treasury  of  the  United  States,  account  Dam  No.  3,  $1,000,000  (4  per  cent 
annually  on  $25,000,000).  »-»-'.         \     y 

8.  Using  the  above  bases  for  calculations,  I  have  assumed  that  the  $33,000  000 
principal  as  of  January  1, 1931,  and  the  interest  thereon,  thereafter  compounded 
at  the  rate  of  4  per  cent  (semiannual  payments  of  2  per  cent),  would  be  cred- 
ited by  the  $1,000,000  annual  payments  made  to  the  Government  as  and  when 
they  were  made  under  the  proposed  contl'act. 

9.  The  above  four  assumptions  (A,  B,  C,  and  par.  8)  make  a  total  unpaid  cost 
of  Dam  No.  3  at  the  end  of  the  lease  period,  w^iich  is  January  1,  2028,  of 
•?409,100,000. 

10.  The  Treasury  account  against  Dam  No.  2  will  show  a  deficit  at  the  end 
of  the  lease  period  (see  par.  6)  of  $1,076,800,000.  With  reference  to  Dam  No 
6,  the  deficit  will  be  $409,100,000,  making  a  total  Treasury  deficit  at  the  end 
of  the  lease  period,  after  crediting  all  of  Mr.  Ford's  payments  as  called  for  by 
paragraphs  3  and  7  (Mr.  Ford's  contract)  of  $1,485,900,000. 

11.  During  the  lease  period,  as  per  paragraph  10  of  Mr.  Ford's  contract,  there 
IS  to  be  in  operation  two  amortization  funds,  as  follows : 

For  Dam  No.  2 $19  §68 

For  Dam  No.  3 3  505 

both  payments  being  paid  every  six  months,  beginning  with  specified  dates. 
These  two  sums  for  the  lease  period,  if  invested  at  the  rate  of  4  per  cent  (2 
per  cent  compounded  semiannually)  will  return  to  the  Treasury  approximatelv 
$50,000,000. 

12.  The  net  total  deficit  tha£  the  Federal  Government  must  supply  by  general 
taxation  because  of  the  failure  of  Mr.  Ford's  payments  to  foot  the  cost  to  the 
Treasury  becomes  $1,485,900,000  (par.  10)  minus  $50,000,000  (par.  11),  or  a 
net  deficit  in  the  Treasury  of  $1,435,900,000. 

13.  I  believe  that  with  the  above  data  before  you,  you  will  be  able  to  see — 
(a)  That  the  method  of  computing  the  cost  to  the  Treasury  is  the  correct  and 

practical  method,  and  tells  accurately  what  the  effect  on  the  Treasury  and  the 
taxpayers  in  the  United  States  will  be. 

(ft)  That  you  will  find,  if  this  question  is  investigated,  the  bases  for  calcula- 
tion and  the  mathematics  applied  to  the  same  are  both  correct. 

14.  This  letter  does  not  cancel  the  statement  made  before  the  committee  that 
the  deficit  would  be  $1,275,000,000,  which  amount  is  correct  for  annual  interest 
applied  to  the  $83,175,000  principal.  The  figures  herein  submitted  are  based 
tiI>on  semiannual  interest  payment  on  the  same  $83,175,000. 

Very  truly,  yours, 

Hugh  L.  Cooper. 
92900—22 41 


iV 


640 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


641 


\. 


The  Chairman.  The  chairman  this  morning  received  a  nimil)er  of  telegrams 
from  the  mavors  of  Chattanooga,  Nashville,  Knoxville,  and  Memphis.  They  had 
read  in  the  newspapers  that  there  was  a  possibility  of  this  committee  going  down 
to  Muscle  Shoals,  so  they  have  extended  a  very  cordial  invitation  to  the  mem- 
bers of  the  committee  to  spend  a  day  or  two  with  everyone  of  them. 

STATEMENT  OF  HON.  S.  HUBEBT  DENT,  JB.,  ATTOBNEY  FOB  THE 

ALABAMA  POWEB  CO. 

The  Ch\irman.  Gentlemen,  Mr.  Dent,  former  chairman  of  this  committee,  is 
present,  and  I  understand  he  is  here  to  represent  the  Alabama  Power  Co.  in 

t'his  matter 

Mr  Dent  Mr  Chairman,  I  represent  the  Alabama  Power  Co.  as  an  attorney 
with  'reference  simply  to  their  legal  rights  in  connection  with  this  proposition. 
I  do  not  represent  the  Alabama  Power  Co.  or  anybody  else  with  reference  to 
any  policy  that  the  committee  may  see  fit  to  adopt.  Mr.  Thomas  W.  Martin, 
the  president  of  the  Alabama  Power  Co.,  is  here  and  desires  first  to  present  the 
facts  relative  to  the  legal  rights  and  other  aspects  of  the  Alabama  Power  Co.  s 
attitude  in  respect  to  Muscle  Shoals  this  morning  before  we  present  the  legal 
argument  in  the  matter,  and  I  would  like  for  Mr.  Martin  to  be  heard  with 

reference  to  the  facts  first.  ,    ,       .  ^        ^    r^  ^        ^ 

The  Chaibm\n.  As  I  understand  it,  the  Acting  Judge  Advocate  General  made 
some  recommendations  regarding  the  legality  of  any  agreement  that  the  Alabama 
Power  Co.  has  with  the  United  States  Government  regarding  the  rights  of  the 

Alabama  Power  Co.  in  this  plant.  .^,    ttt      •      t>*,.«« 

Mr.  Dent.  Which  is  known  as  the  Gorgas  plant,  near  the  Wariior  Kiver. 

The  Chairman.  Yes. 

Mr  Dent.  Which  is  some  88  miles  south  of  Muscle  Shoals. 

The  Chairman.  That  is  our  understanding,  and  we  would  like  to  go  into  that. 

Mr  Dent.  I  would  like  to  go  into  that  with  you.  I  do  not  know  what  the 
program  of  the  committee  is.  Since  I  was  here  about  two  weeks  ago,  the  Ala- 
bama Power  Co.  has  put  in  a  bid  for  Muscle  Shoals. 

The  Chairman.  Yes.  .^.^      i      „  4.^  v>«n.. 

Mr  Dent  I  do  not  know  what  the  disposition  of  the  committee  is  as  to  heal- 
ing the  power  company  on  that  proposition  now  or  whether  they  would  rather 
finish  the  hearing  on  the  Ford  proposition  with  reference  to  the  rights  of  the 
Alabama  Power  Co.  under  that  proposition.  «    ^    ,k«  tt^^i  r.rnnn 

The  Chairman.  We  would  prefer  that  you  take  up,  first,  the  Ford  propo- 

^*  Mr'  Dent.  Then  I  will  ask  that  Mr.  Thomas  W.  Martin,  the  president  of  the 
Alabama  Power  Co.,  be  heard  with  reference  to  the  facts. 

Mr  Miller.  Mr.  Chairman,  as  I  understand  it,  we  are  to  hear  now  the 
Alabama  Power  Co.  side  of  their  contention  regarding  the  Ford  proposition. 

The  Chairman.  Yes. 

Mr.  Miller.  And  not  their  own  proposition? 

The  Chairman.  No  ;  I  thought  it  best  to  take  up  the  Ford  proposition  farst, 
and  then  they  will  take  up  their  own  proposition. 

Mr.  I^IiLLER.  I  agree  perfectly  with  the  chairman. 

STATEMENT  OF  MB.  THOMAS  W.  MABTIN,  PBESIDENT  ALABAMA 

POWEB  CO.,  BIBMINGHAM,  ALA. 

The  Chairman.  Mr.  Martin,  we  will  be  very  glad  to  hear  what  you  have  to 
sav  regarding  this  matter  and  you  may  proceed,  for  the  present  at  leas^'  "^ 
vour  own  wav  and  explain  to  the  committee  what  your  position  is  regar^^"^- 
the  matter  that  was  referred  to  by  the  Acting  Judge  Advocate  General  in  ms 
letter  to  the  Secretary  of  War  regarding  the  rights  of  your  company.  I  ^vll» 
ask  you  first  to  state  your  name  and  the  position  you  occupy.         .,^^    ^in 

Mr.  Martin.  My  name  is  Thomas  W    Martin;  I  live  in  Birmingham,  Al^- 
I  am  president  of  the  Alabama  Power  Co     I  have  been  president  of  the  com 
nanv   since  February,   1920,   succeeding  Mr.   James  Mitchell,   who   had  bee" 
Kklnwith  paralysis  and' who  died  in  1920.    Prior  to  that  time  I  was  v   e 
president  and  general  counsel  of  the  company,  and  had  been  connected  >Mt 
the  company  as  its  counsel  since  1912.  A,.r\n<' 

Mr.  James  Mitchell  was  the  active  executive  of  the  company  durin. 
its  entire  active  history  and  until  he  was  stricken  with  paralysis  in  19-"- 


Some  of  the  transactions  of  which  I  will  speak  were  conducted  by  Mr. 
Mitchell.  I  knew  of  some  of  them  from  participation  in  them,  and  possibly 
to  some  extent,  or  to  a  larger  extent,  possibly,  from  contact  with  him ;  and  in 
the  affairs  of  our  company  I  have  been  a  director  of  the  company  since  its 
active  work  began  in  1912. 

It  is  a  rather  difficult  problem  to  know  just  where  to  confine  myself  in  this 
discussion,  and  I  hope,  Mr.  Chairman,  if  you  think  I  am  going  beyond  the 
strict  limits  of  the  question  which  you  wish  me  to  present,  you  will  call  my 
attention  to  it.  I  will  try  to  confine  myself  to  those  limits.  Necessarily, 
there  are  some  incidents  or  statements  which  for  the  moment  may  seem  as 
collateral  or  indirect,  but  which  I  believe  are  necessary  to  be  presented  to  this 
committee. 

The  Chairman.  Of  course,  the  statement  made  by  the  Acting  Judge  Advo- 
cate General  regarding  this  matter  refers  to  the  law  of  1916,  the  national 
defense  act,  in  a  measure;  and  that  act  provided  that  the  Government  alone 
should  erect  this  plant  and  should  conduct  it  without  any  interference  from 
any  private  corporation.    You  are  familiar  with  that  act,  of  course. 

Mr.  Martin.  Yes;  quite  familiar,  Mr.  Chairman.  The  Alabama  Power  Co. 
was  organized  under  the  laws  of  Alabama  in  1906  by  citizens  of  that  State. 
That  company  remained  a  nonoperating  company  for  six  years.  Meanwhile, 
on  March  4,  1907,  the  stockholders  interested  in  it,  citizens  of  that  State, 
obtained  an  act  of  Congress  approved  March  4,  1907,  to  authorize  the  con- 
struction of  a  dam  at  the  site  selected  for  Lock  No.  12  on  the  Coosa  River. 
That  was  one  of  the  sites  which  had  been  selected  prior  thereto  by  the  engi- 
neers of  the  United  States  at  which  a  dam  should  be  built  in  a  scheme  of 
navigation  improvement  on  that  river. 

Those  gentlemen  who  were  interested  in  the  company,  having  obtained  that 
act  of  Congress,  undertook  to  find  some  one  to  take  over  the  company  and 
develop  the  property.  There  were  others  interested  in  Alabama  in  undevel- 
oped water  power  projects,  some  connected  with  this  same  Alabama  Power 
Co.  group,  others  not  connected  with  it.  I  shall  not  go  into  the  relationships 
of  those  companies,  because  possibly  that  belongs  to  another  branch  of  this 
investigation. 

Mr.  James  Mitchell  came  into  the  situation  in  1912:  was  invited  into  it  bv 
those  people  interested  in  the  Alabama  Power  Co.  and  other  companies.  He 
formed  a  plan  and  took  over  this  company  with  others,  with  a  view  to  the 
developing  of  one  or  more  hydroelectric  stations. 

This  plan  or  these  various  properties,  I  might  say,  had  been  presented  time 
and  again  to  bankers  and  business  men  throughout  this  country  and  abroad 
for  many  years  without  any  success.  Mr.  Mitchell  was  an '  engineer,  an 
American  citizen,  who  had  never  been  in  our  State  prior  to  1911,  and  came 
there  to  look  the  situation  over,  and  became  interested  in  it,  and  undertook 
to  find  capital  for  the  development  of  one  or  juore  properties. 

A  plan  was  formed  to  develop  this  Lock  No.  12  property.  The  initial  plan 
was  to  finance  this  property  with  English  capital,  and  the  program  worked 
out  pretty  much  as  it  was  outlined  in  the  beginning.  Millions  of  dollars  of 
capital  were  found  abroad  principally  for  this  development. 

The  work  of  constructing  the  Lock  12,  dam,  and  powerhouse  was  proceede<l 
with  and  completed  in  the  early  part  of  1914.  but  without  a  sufficient  trans- 
mission system  to  market  the  power;  and  when  the  war  began  in  Europe,  in 
August,  1914,  the  company  found  itself  with  large  indebtedness,  with  its 
securities  held  abroad  in  the  ratio  of  possibly  65  or  70  per  cent  of  all  its 
securities  held  abroad.  It  was  necessary  to  make  an  entirely  new  program. 
The  company  needed  three  times  as  much  capital  as  it  then  had  for  trans- 
mission lines,  stations,  and  for  other  purposes  to  market  the  power.  As 
.vou  gentlemen  may  know,  it  takes  a  great  deal  of  money,  after  the  power  is 
'leveloped,  to  bring  it  to  market. 

A  new  plan  was  formed.  The  English  situation,  represented  by  large  in- 
vestments, w^as  subordinated  to  an  entirely  new  financing  program,  and  an 
nrrangement  was  made  in  this  country  for  further  financing.  It  was  carried 
through  after  long  negotiations  with  the  English  bondholders  and  stockholders. 

The  new  arrangement  was  arranged  in  the  latter  part  of  1914  and  the 
•^aiiy  part  of  1915,  since  which  time  the  company  has  been  entirely  financed 
in  America  to  the  extent  of  some  $23,000,000 ;  and  in  addition  to  that  financing, 
■'»s  you  gentlemen  know  who  have  investigated  these  questions,  large  volumes 
^f  securities  in  American  enterprises  have,  as  a  result  of  the  war  and  con- 


I 


MUSCLE   SHOALS  PROPOSITIONS. 


643 


642 


MUSCLE  SHOALS  PROPOSITIONS. 


f 


,}' 


ditions  abroad,  come  to  this  country.  The  conditions  of  exchange  and  what 
not  have  caused  that  liquidation  abroad  of  American  securities,  and  so  it  has 
been  with  our  enterprise,  and  to-day  we  find  ourselves  with  almost  a  complete 
reversal  of  the  conditions  which  prevailed  in  1914;  that  is  to  say,  we  have 
approximately  35  or  40  per  cent  of  our  securities  held  abroad,  the  balance  in 
America. 

This  Gorgas  situation  came  about  in  this  way :  It  was  necessary  to  have  a 
steam  reserve  plant  to  enable  a  company  such  as  this  to  sell  power.  We 
could  not  develop  further  waterpowers  because  Congress  had  not  passed  the 
legislation,  as  you  gentlemen  know.  None  was  passed  from  1912  to  1920. 
We  built  the  reserve  steam  plant  at  Gadsden  and  we  then  found  it  necessary 
to  build  a  second  reserve  steam  plant.  In  investigating  the  question  of  its 
location,  spending  months  of  time,  we  finally  selected  a  site  on  the  Warrior 
River,  northwest  of  Birmingham  about  30  miles,  an  undeveloped  point  at  the 
confluence  of  Bakers  Creek  and  the  Warrior  River.  The  nearest  settlement 
was  some  8  miles.    The  advantages  were,  coal  mine  at  the  point,  water  for 

condensing  purposes 

The  Chairman   (interposing).  What  do  you  mean  by  "at  the  point?" 
Mr.  Martin.  At  the  location  of  the  plant.    Water  for  condensing  purposes, 
close  proximity  to  Birmingham,  and  hence  to  our  load  centers. 

We  arranged  then  to  purchase  land  at  this  location.  It  was  difficult  to  do 
so.  We  w^ere  only  able  to  purchase  approximately  20  acres  of  land  in  fee  simple 
on  which  to  erect  a  station.  We  purchased  other  surface  lands  immediately 
surrounding  and  also  an  interest  in  a  coal  mine  or  land  then  undeveloped  con- 
taining coal,  with  a  view  to  its  gradual  development  to  enable  us  to  generate 
and  bring  into  our  system  steam  pow^er  from  time  to  time  in  such  volume  as 
necessary  to  supplement  our  water-power  system. 

Of  course,  it  was  necessary  not  only  to  locate  this  site  but  we  had  to  build 
roads,  clear  it  away,  because  it  was  in  a  state  of  nature.  We  had  to  develop 
it  from  the  ground  up,  and  in  addition  to  that,  to  build  transmission  lines  and 
other  stations  bringing  the  power  to  our  main  system  at  Birmingham.  This 
was  in  the  early  part  of  1916,  as  I  recall,  or  some  time  in  1916. 

We  arranged  the  financing  and  the  construction  program  to  build  this 
reserve  station,  and  to  build  a  series  of  lines  carrying  the  power  to  Birming- 
ham. There  arose,  incidentally,  demands  for  power  in  this  district  from  coal 
mines,  from  municipalities  and  gradually,  as  a  part  of  the  same  program, 
we  extended  the  lines  from  this  station. 

I  have  handed  you  gentlemen  a  map  which  shows  this  situation.  At  this 
station  the  land  was  purchased  and  the  property  was  constructed  by  the 
Alabama  Power  Co.,  and  the  lines  which  run  northwest  from  Bessemer  were 
constructed  in  part  during  the  period  ending,  we  will  say,  January  1,  1918, 
when  the  question  arises  which  is  before  this  committee. 

I  would  like  to  show  the  committee  a  large  picture  of  this  Warrior  plant  as 
it  was  constructed  with  its  immediate  buildings  and  surroundings  on  the  1st 
day  of  January,  1918,  which  our  company  owned  then,  before  any  work  was 
done  or  even  seriously  contemplated  by  the  United  States  Government.  This 
[indicating]  is  a  picture  of  the  plant  taken  February  7,  1918. 

Meanwhile,  there  were  definite  negotiations  with  the  Government  for  the 
extension  of  this  plant  which  led  to  this  contract,  but  there  was  no  work 
done  in  connection  with  the  Government  which  appears  in  any  way  upon  this 
picture.     This  picture  represents  the  plant  as  completed  at  that   time.     Or 
course,  it  does  not  show  the  lines  and  stations  and  service  which  radiates 
from  it,  either  back  to  Birmingham  or  otherwise. 
Mr.  Dent.  It  represents  the  plant  as  constructed  by  your  company  originally. 
Mr.  Fields.  Just  what  part  of  the  picture  represents  the  plant? 
Mr.  Martin.  Everything  you  see  in  this  picture,  Mr.  Fields. 
The  Chairman.  That  was  on  February  7,  1918? 
Mr.  Martin.  Yes ;  this  picture  was  taken  on  February  7, 1918. 
The  Chairman.  We  were  already  in  the  war  at  that  time. 
Mr.  Martin.  Yes,  sir ;  and  w^e  were  arranging  a  plan  with  the  Ordnance  otti- 
cers  for  the  extension  of  this  plant. 

This  [indicating]  is  a  picture  of  the  conditions  one  year  before,  when  there 
was  nothing  there  and  all  this  site  w^as  in  a  state  of  nature,  and  this  photo- 
graph [indicating]  was  taken  one  year  later,  and  this  is  the  plant  that  was 
constructed  by  the  Alabama  Power  Co.  as  I  have  explained. 

Now,  so  that  vou  may  get  the  relationships  in  your  mind,  this  is  a  pictuie 
of  the  plant  taken  still  one  year  later,  showing  the  plant  as  extended  under  tne 
arrangement  made  with  the  United  States. 


The  Chairman.  And  that  was  taken  in  1919? 

Mr.  Martin.  Yes,  sir ;  this  picture  was  taken  on  January  14,  1919. 

Now,  why  did  this  situation  arise  or  why  was  this  arrangement  made  with 
the  United  States? 

You  gentlemen  may  know  that  when  it  was  determined  to  construct  nitrate 
plants  at  Muscle  Shoals,  the  idea  was  to  use  water  power.  There  was  no 
water  power  developed  at  Muscle  Shoals.  It  was  necessary  to  provide  some 
other  source  of  power  temporarily  pending  the  construction  of  the  water  power 
plant. 

This  steam  plant  of  our  company  to  which  I  am  referring  w^as  located  88  or 
90  miles  away.  We  were  approached,  first,  by  Mr.  Frank  S.  Washburn,  who 
was  interested  in  the  cyanamid  process.  He  asked  us  to  take  up  with  the  offi- 
cers of  the  Government,  which  we  did 

The  Chairman  (interposing).  Will  you  allow  me  to  ask  you  just  one  ques- 
tion there.  Is  this  the  Mr.  Washburn  who  was  a  stockholder  in  the  cyanamid 
company  ? 

Mr.  Martin.  That  is  the  Mr.  Washburn,  Mr.  Chairman. 

The  Chairman.  He  was  also  a  stockholder  in  the  Alabama  Power  Co.? 

Mr.  Martin.  He  was.     He  is  not  now. 

The  Chairman.  But  at  the  time  when  he  asked  you  to  negotiate  with  the 
United  States  officers,  he  was  a  member  or  interested  in  the  Alabama  Power  Co.  ? 

Mr.  Martin.  He  was  a  stockholder.  He  was  not  otherwise  connected  with 
us.  He  was  not  a  director  or  ofllcer  in  our  company.  He  had  resigned  from 
our  board  at  that  time.  Mr.  James  Mitchell  took  the  matter  up  with  the  offi- 
cers of  the  Ordnance  Department. 

The  Chairman.  Do  you  know  w^hat  officer  of  the  Ordnance  Department  had 
spoken  to  Mr.  Washburn  and  suggested  that  you  get  in  communication  with 
the  Ordnance  Bureau? 

Mr.  Martin.  I  have  understood  that  Gen.  Crozier  was  the  ofl[icer. 

The  Chairman.  Gen.  Crozier  at  that  time  w-as  the  head  of  the  Ordnance 
Bureau  of  the  Government? 

Mr.  Martin.  Yes,  sir ;  he  was  Chief  of  Ordnance  at  that  time.  Mr.  Mitchell 
came  to  W^ashington,  and  if  I  am  correct,  Mr.  Washburn  did  not  further  have 
any  connection  with  any  of  the  negotiations  in  this  matter.  The  entire  dis- 
cussions were  between  officers  or  employees  of  the  power  company  and  the 
direct  representatives  of  the  Government. 

Mr.  Mitchell  came  to  Washington  and  discussed  the  matter  with,  possibly. 
Gen.  Crozier,  and  I  am  sure  he  discussed  it  with  Col.  Joyes,  who  was  the  chief 
of  the  nitrates  division.  Those  discussions  lasted  for  some  days  with  a  view  to 
finding  some  way  of  working  out  the  program  by  which  the  Government  could 
obtain  power  from  our  company  for  the  temporary  operation  of  nitrate  plants. 
It  was  the  idea  at  that  time  that  the  Government  would  construct  a  nitrate 
plant  at  Sheffield,  and  that  within  six  months,  approximately,  the  first  unit  or 
section  of  that  plant  would  be  completed,  which  would  require  some  30,000  kilo- 
watts of  power. 

Time  was  of  the  essence  of  the  arrangement.  Our  company  had  on  its  system 
a  large  load.  Its  capacity  was  taken  up  or  its  minimum  capacity,  at  least, 
was  taken  up  for  a  large  part  of  the  year  with  service  to  municipalities  and 
similar  service  of  that  character,  but  principally  by  industrial  uses.  We  had 
a  large  part  of  the  power  in  the  service  of  such  companies  as  the  Tennessee 
Coal,  Iron  &  Railway  Co.,  other  mining  companies,  and  other  industrial  com- 
panies which  were  essential,  either  directly  or  indirectly,  to  the  prosecution  of 
the  war  activities.  Possibly  80  per  cent  of  the  power  of  our  company  was  in 
industrial  use. 

The  question  was:  AVhat  could  we  do?  We  explained  the  situation  to  Col. 
Joyes.  We  explained  our  position  with  regard  to  customers.  This  reserve 
plant  was  necessary  to  enable  us  to  render  complete  service  throughout  the 
year.  Of  course,  the  Government  had  a  right  to  take  such  power  as  it  cared 
to  take  from  our  system,  under  the  conditions  which  existed.  It  was  a  ques- 
tion of  balancing  up  as  to  what  should  be  done,  whether  to  take  the  power 
from  one  use  or  allow  it  to  remain  in  another  use. 

It  was  agreed,  first  of  all,  that  we  were  in  position  to  supply  some  powder  for 
part  of  the  year  for  this  purpose.  The  arrangement,  before  anything  else 
was  agreed  upon,  was  that  these  officers  said  to  us,  "  We  will  at  least  construct 
a  transmission  line  connecting  with  your  station  and  take  from  you  such  power 
as  emergencies  may  require."  We  were  asked  whether  we  would  agree  to  con- 
struct the  line.    We  agreed  to  construct  the  line  and  to  provide  the  right  of 


•-•I 

•  r 


\\ 


644 


MUSCLE   SHOALS  PROPOSITIONS. 


way,  whichv  we  agreed  to.  We  owned  in  fee  simple  a  part  of  the  right  of  way 
at  that  time,  and  we  agreed  to  immediately  purchase  the  balance  of  it  and 
place  it  at  the  disposal  of  the  Government. 

We  gave  orders  by  telegi-aph  to  proceed  with  the  laying  out  of  a  transmission 
line  for  the  account  of  the  Government.  How  it  was  to  be  paid  for  and  under 
•what  conditions,  no  one  knew.  We  just  went  to  work  completing  the  right  of 
way.  We  appropriated  our  own  money  and  went  ahead  to  get  the  right  of  way 
and  we  got  the  right  of  way. 

In  due  course  a  plan  was  worked  out  by  which  material  would  be  obtained 
and  this  line  constmcted  to  Sheffield.  Coincidently,  or  rather  a  little  later  in 
the  negotiations,  came  this  program  for  the  construction  of  the  Warrior  exten- 
sion because,  obviously,  Ave  could  not,  without  discontinuing  service  to  others, 
supply  30,000  kilowatts  of  power  to  the  Government,  and  the  Government  offi- 
cials concluded  that  it  was  of  public  interest  for  us  to  maintain  service  to  many 
of  these  large  users  of  power.  So  there  was  nothing  to  do  except  to  work  out 
some  arrangement  by  which  a  source  of  power  could  be  created  which  would 
meet  the  emergency. 

This  plant,  of  course,  the  Government  might  have  taken.  It  was  under  our 
general  mortgage.  We  had  made  provisions  in  this  plant  for  its  enlargement. 
^Ve  had  erected  foundations  and  underwater  structures,  water  intakes,  plan- 
ning the  station  for  three  units,  as  commercial  conditions  might  require.  They 
were  important,  very  important,  because  the  very  work  we  had  done,  the  very 
conditions  which  existed,  meant  at  least  six  months  of  saving  in  time,  in  creat- 
ing a  supply  of  30,000  kilowatts  of  power  if  it  could  be  done  bv  an  extension  of 
this  station. 

A  great  d(  il  of  the  work  at  that  time  in  formulating  the  plan  and  in  its 
execution  was  carried  on  by  Maj.  R.  D.  Coombs,  who  was  an  engineer  officer, 
»vho  came  inio  the  service  of  the  Government  during  this  emergency,  and  was. 
as  I  understood,  placed  in  charge  of  working  out  the  details  of  this  matter  under 
Col.  Joyes,  and  afterwards  working  out  and  supervising  the  entire  construc- 
tion program. 

The  Chairman.  He  was  an  emergency  officer? 

Mr.  Martin.  Yes,  sir.  He  was  an  engineer  officer,  as  I  understand,  who  went 
into  the  service  in  the  fall  of  1917. 

In  this  situation,  our  company  having  this  land  and  having  a  plant,  the 
question  was  what  to  do.  It  was  explained  and  understood  clearly  by  repre- 
sentatives of  the  Government  and  our  company  at  that  time  that  there  was  no 
law  under  which  the  United  States  could  agree  to  sell  that  property,  if  created 
on  our  land,  to  the  Alabama  Power  Co.  That  was  understood  and  we  recog- 
nized that  to  be  the  law,  birt  what  to  do  to  protect  the  United  States  was  the 
question.  We  had  no  legal  power  to  sell  a  part  of  our  plant  station.  It  was 
a  question  which  reached  into  our  fundamental  situation.  Then  the  ques- 
tion was :  What  will  we  do,  or  what  could  we  do,  to  protect  the  United  States? 

These  gentlemen  asked  us :  "  If  an  arrangement  is  worked  out  by  which  an 
extension  of  your  station  is  created  and  equipment  placed  there,  will  you  agree 
to  purchase  at  the  conclusion  of  the  emergency  on  the  basis  of  fair  value  to 
the  United  States?  "  We  agreed  to  do  so.  So  that  these  gentlemen  concluded 
that  the  Government  would  be  protected  in  the  situation,  if  we  would  agree, 
on  the  demand  of  the  Government,  to  purchase  the  property  at  fair  value  and 
not  at  junk  value.     We  agreed  to  it. 

We  agreed  to  purchase  the  property,  and  so  the  negotiations  proceeded  upon 
that  theory,  and  that  was  our  arrangement,  the  United  States  agreeing,  or  it 
being  the  plan  to  provide  in  the  contract,  that  the  United  States  would,  if  per- 
mittee! by  law,  sell  to  us  on  our  demand. 

Thus  the  matter  continued  in  this  status.  The  Ordnance  Department  decided 
to  proceed  with  the  enlargement  of  this  station,  arranging  with  our  company 
to  undertake  the  work. 

The  contract  is  dated  the  1st  day  of  December,  1917 ;  but,  obviously,  it  was 
not  executed  then.    It  was  executed  long  afterwards,  as  I  will  tell  you. 

Negotiations  proceeded,  Maj.  Coombs  conducting  them  in  Alabama,  Col. 
Joyes,  and  through  his  organization  here.  The  lawyer  in  charge  in  behalf 
of  the  Government  at  Washington  was  Capt.  Raymond  Hull  Noble,  a  lawyer 
who  had  entered  the  service  and  had  been  living  in  New  York  City,  but  who  died 
in  1918. 

The  Chairman.  Pardon  me  just  a  moment;  the  Army  officer  you  refer  to. 
Col.  Joyes;  was  he  a  Regular  Army  officer  or  an  emergency  officer? 

Mr.  Martin.  He  is  a  regular  officer  of  the  Army. 


MUSCLE  SHOALS  PROPOSITIONS. 


645 


The  Chairman.  He  was  a  regular  officer  in  the  Army? 

Mr.  Martin.  Yes;  and  is  still  in  the  service.  He  was  chief  of  the  division, 
and  these  gentlemen  whose  names  I  have  mentioned,  I  understand,  were  in  his 
department. 

Capt.  Noble  was  the  law  officer  at  first.  He  died  later  in  the  year,  but  before 
we  had  reached  any  agreement  as  to  the  details  of  the  contract  there  were 
passed  several  acts  of  Congress  which  I  want  to  call  to  your  attention,  because 
it  was  in  the  light  of  these  acts  of  Congress  that  the  form  of  the  contract  be- 
came different.  In  recognition  of  these  acts  of  Congress  Capt.  Noble  and  my- 
self, and  we  were  interested,  he  on  the  side  of  the  Government  and  I  on  behalf 
of  the  power  company,  principall,  in  owrking  out  the  legal  situation. 

On  May  10, 1918,  an  act  was  approved  providing  as  follows : 

"Be  it  endcted  by  the  Senate  and  House  of  Representatives  of  the  United 
States  of  America  in  Congress  assembled,  That  during  the  existing  emergency 
the  President  be,  and  he  hereby  is,  authorized,  in  his  discretion  and  upon  such 
terms  as  he  shall  deem  expedient,  through  the  head  of  any  executive  depart- 
ment, to  sell  any  supplies,  materials,  equipment,  or  other  property  heretofore 
or  hereafter  purchased,  acquired,  or  manufactured  by  the  United  States  in  con- 
nection with,  or  incidental  to  the  prosecution  of  the  war,  to  any  person,  partner- 
ship, association,  or  corporation,  or  to  any  foreign  State  or  Government  engaged 
in  war  against  any  Government  with  which  the  United  States  is  at  war;  and 
any  moneys  received  by  the  United  States  as  the  proceeds  of  any  such  sale 
shall  be  covered  into  the  Treasury  of  the  United  States  and  a  full  report  of 
the  same  shall  be  forthwith  submitted  to  Congress." 

A  Jurther  act  was  passed  on  this  same  subject  approved  July  9, 1918. 

The  Chairman.  Do  you  know  what  that  act  was  known  as? 

Mr.  Martin.  I  do  not,  Mr.  Chairman. 

The  Chairman.  Did  it  have  the  name  of  the  author  attached  to  it? 

Mr.  Martin.  I  have  not  heard  that  it  did. 

Mr.  Dent.  I  think,  Mr.  Chairman,  although  I  am  not  sure,  that  it  was  a  leg- 
islative provision  attached  to  some  appropriation  bill.  That  is  my  recollection 
of  the  facts. 

The  Chairman.  Well,  that  was  done  on  a  number  of  occasions  during  the  war. 

Mr.  Martin.  This  appears  to  be  an  independent  act. 

Mr.  Dent.  I  am  not  sure  about  that. 

Mr.  Martin.  On  July  9,  1918,  an  act  was  approved,  and  possibly  this  may 
have  appeared  in  an  appropriation  bill : 

"  Sale  of  war  supplies :  That  the  President  be,  and  he  hereby  is,  authorized, 
through  the  head  of  any  executive  department,  to  sell,  upon  such  terms  as  the 
head  of  such  department  shall  deem  expedient,  to  any  person,  partnership,  as- 
sociation, corporation,  or  any  other  department  of  the  Government,  or  to  any 
foreign  State  or  Government  engaged  in  war  against  any  Government  with 
which  the  United  States  is  at  war,  any  war  supplies,  material,  and  equipment, 
and  any  by-products  thereof,  and  any  building,  plant,  or  factory,  acquired  since 
April  6,  1917,  including  the  lands  upon  which  the  plant  or  factory  may  be  situ- 
ated, for  the  production  of  such  war  supplies,  matrials,  and  equipment  which, 
during  the  present  emergency,  may  have  or  may  hereafter  be  purchased,  ac- 
quired, or  manufactured  by  the  United  States :  Provided  further,  That  sales  of 
guns  and  ammunition  made  under  the  authority  contained  in  this  or  any  other 
act  shall  be  limited  to  sales  to  other  departments  of  the  Government  and  to 
foreign  States  or  Governments  engaged  in  war  against  any  Government  with 
which  the  United  States  is  at  war  and  to  members  of  the  National  Rifle 
Association  and  of  other  recognized  associations  organized  in  the  United  States 
for  the  encouragement  of  small-arms  targt  practice:  Provided  further,  That  a 
detailed  report  shall  be  made  to  Congress  on  the  first  day  of  each  regular  ses- 
sion of  the  sales  of  any  war  supplies,  material,  lands,  factories,  or  buildings, 
and  equipment  made  under  the  authority  contained  in  this  or  any  other  act, 
except  sales  made  to  any  foreign  State  or  Government  engaged  in  war  against 
any  Government  with  which  the  United  States  is  at  war,  showing  the  character 
of  the  articles  sold,  to  whom  sold,  the  price  received  therefor,  and  the  purpose 
for  which  sold:  Provided,  That  any  moneys  received  by  the  United  States  as 
the  proceeds  of  any  such  sale  shall  be  deposited  to  the  credit  of  that  appro- 
priation out  of  which  was  paid  the  cost  to  the  Government  of  the  proiierty  thus 
sold,  and  the  same  shall  immediately  become  available  for  the  purposes  named 
in  the  original  appropriation ;     ♦     ♦     ♦  " 

The  Chairman.  How  does  that  law  affect  the  Alabama  Power  Co.? 

Mr.  Martin.  For  this  reason,  Mr.  Chairman:  This  law  came  into  the  situa- 
tion in  this  way.    This  law  gave  the  authority  from  Congress  to  the  executive 


i 


646 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


647 


branch  of  .the  Government  to  sell  this  character  of  property  and  Cant  NohlP 
and  those  gentlemen  in  the  nitrates  division  construed  it  to  eivrauthoritv  w 
them  to  agree  in  behalf  of  the  United  States  that  thrUnitedSatL  would  ^ii 
this  property  to  tiie  Alabama  Power  Co.  upon  its  r^ues  the  power^^^ 
also  agreeing  to  buy  it  on  the  request  of  the  United  StaterGovlrnme^t  It 
wwhf  .'h  '  "^^^^t^^^ty  which  up  to  that  time  had  existed  name?^^^  to 
such  property  aTS  ""^  ^""^  ^''''  ^°  executive  officers'^'to  sell 

The  Chaikman^.  Let  me  ask  you  this  question :  Your  company,  the  Alabama 
SLt?? '  ''''  ^^  ^^^^^^  ""^  ^^^*  ^^"^  '^^^^'^  *^^y  were  wtmng  to 

Mr.  Mabtin  No,  sir ;  we  never  knew  the  law  was  passed  until  it  wag  passed 
We  were  constructing  and  this  whole  arrangement  was  in  effect,  and  we  had 
agreed  to  purchase  on  the  demand  of  the  United  States.  We  h4d  nothing  to 
do  with  the  passage  of  the  act? 

The  Chairman.  You  did  not  know  about  the  passage  of  the  act,  I  understand 
you  to  say?  ^i^auu 

Mr.  Mabtin.  When  the  contract  was  signed,  of  course,  we  knew  the  law  was 
m  existence. 

The  Chairman.  Have  you  thought  what  might  have  happened  had  you  re- 
fused to  do  anything  for  the  Government  in  accordance  with  the  original  law 
the  United  States  being  at  war  at  that  time?  * 

Mr.  MARTiN._We  did  not  refuse,  Mr.  Chairman,  of  course.  We  were  going 
right  ahead  and  doing  whatever  the  gentlemen  asked  us  to  do.  They  asked  us 
to  do  certain  things,  and  we  agreed  to  do  them. 

The  Chairman.  Did  your  officers  have  meetings  at  that  time  frequently,  and 
your  board  of  directors? 

Mr.  Martin.  Yes ;  of  course  we  had  meetings,  Mr.  Chairman. 

The  Chairman.  Anybody  that  refused  to  carry  out  the  requests  of  the  Gov- 
ernment was  in  danger  of  being  designated  a  pro-German,  was  he  not? 

Mr.  Martin.  Absolutely;  and  we  carried  out  every  request  that  was  made 
of  us,  Mr.  Chairman. 

The  Chairman.  Did  that  fear  have  anything  to  do  with  your  offers? 

Mr.  Martin.  We  were  willing  to  do  whatever  we  could,  of  course,  and  wanted 
to  do  whatever  we  could  to  aid  the  Government  at  the  time.  The  emergency 
was  of  such  a  character  that  we  all,  as  patriotic  American  citizens,  wanted  to 
do  our  duty,  and  we  felt  then  and  feel  now  that  we  did  our  duty.  The  ques- 
tion of  the  disposal  of  this  property  was  a  secondary  consideration,  Mr.  Chair- 
man. 

The  Chairman.  Just  continue  your  statement,  Mr.  Martin. 

Mr.  Martin.  The  Government  officials  felt  it  was  fair  to  require  us  to  pur- 
chase on  the  demand  of  the  Government,  and  we  agreed  to  it  without  any 
hesitation. 

Mr.  Fields.  Mr.  Chairman,  did  Mr.  Martin  give  the  dat«  of  each  one  of  those 
acts? 

The  Chairman.  I  think  he  stated  the  dates,  but  in  order  to  make  doubly 
sure  I  will  ask  him  again.    What  was  the  date  of  the  acts  you  refer  tjo? 

Mr.  Dent.  May  10,  1918,  was  the  first  one,  and  July  9,  1918,  the  last  one. 

Mr.  Parker.  As  to  the  last  act,  I  wish  you  would  read  over  the  words  about 
war  equipment  and  supplies  and  so  on.    I  did  not  get  that  exactly. 

The  Chairman.  Will  you  kindly  read  that  again,  Mr.  Martin  ? 

Mr.  Martin.  "  That  the  President  be,  and  he  hereby  is,  authorized 

Mr.  Parker.  I  do  not  refer  to  that  part,  but  the  part  with  reference  to  selling 
certain  classes  of  property. 

Mr.  Martin.  "Any  war  supplies,  material,  and  equipment,  and  any  by-products 
thereof,  and  any  building,  plant,  or  factory  acquired  since  April  6,  1917." 

Mr.  Parker.  And  then  it  goes  on  and  refers  to  manufactured  products. 

Mr.  Martin.  "  For  the  production  of  such  war  supplies,  materials,  and  equip- 
ment which,  during  the  present  emergency,  may  have  been,  or  may  hereafter 
be,  purchased,  acquired,  or  manufactured  by  the  United  States." 

Now,  prior  to  this  time,  Mr.  Chairman,  and  before  these  acts  were  passed, 
we  had  constructed  this  transmission  line  from  our  system  to  Sheffield,  in  the 
remarkably  short  time  of  five  months,  and  the  line  was  in  operation  before  there 
was  any  additional  power  supply  at  Warrior.  I  do  not  know  whether  yon 
understood  me  exactly.  I  w^as  just  saying  that  before  any  of  these  acts  were 
passed  the  transmission  line  was  constructed  in  five  months  and  was  in  opera 
tlon  in  the  early  part  of  May,  and  the  Government  was  in  position  to  obtain 
all  the  power  it  saw  fit  before  any  of  these  acts  were  passed. 


The  Chairman.  Let  me  ask  you  these  questions  in  order  that  I  may  get  the 
matter  perfectly  clear  in  my  own  mind:  You  made  this  first  agreement  with 
the  Government,  as  I  recall,  in  December,  1917? 

Mr.  Martin.  It  was  more  verbal  than  otherwise.    There  was  no  contract. 

The  Chairman.  It  was  enough  of  a  contract  to  put  your  people  at  work? 

Mr.  Martin.  Yes,  sir;  it  was. 

The  Chairman.  And  that  was  in  December,  1917,  during  the  first  year  of  tJie 
war? 

Mr.  Martin.  Yes,  sir. 

The  Chairman.  Now,  this  last  act,  which  you  said  was  passed  on  Julv  9, 
1918 

Mr.  Martin.  Yes,  sir;  that  is  correct. 

The  Chairman.  Did  you  finally  sign  another  agreement  in  1918? 

Mr.  Martin.  We  did,  Mr.  Chairman;  not  another  agreement,  Mr.  Chairman. 
We  signed  a  single  agreement  covering  the  whole  subject  on  the  day  of  the 
false  report  of  the  armistice,  in  November,  1918.  It  was  signed  by  both  parties 
on  that  day  at  the  city  of  Nfew  York,  in  the  office  of  the  Alabama  Power  Co., 
where  the  meeting  was  held  to  close  the  arrangements. 

I  have  here  a  certified  copy  of  the  minutes  of  the  board  of  directors  of  our 
company  held  on  November  4,  1918,  approving  of  the  contract  and  authorizing 
it  be  to  executed. 

The  Chairman.  At  that  time  this  last  law  which  you  read  had  been  passed 
by  Congress  and  signed  by  the  President. 

Mr.  Martin.  Yes,  sir. 

The  Chairman.  And  the  new  arrangement  which  you  agreed  to  and  which 
I  assume  was  signed  by  the  respective  parties  carried  in  it  this  new  law. 

Mr.  Martin.  Yes;  there  was  no 

The  Chairman  (interposing).  I  believe,  on  the  first  day  of  the  hearing,  we 
put  into  the  record  the  full  contract  that  you  entered  into  with  the  Gov- 
ernment. 

Mr.  Martin.  Yes;  sir;  there  was  not  but  one  contract,  Mr.  Chairman,  and 
that  one  is  dated  December  1,  1917,  and  was  executed  on  November  9,  1918.  It 
is  known  as  contract  T-69.  In  the  meantime,  the  work  had  been  largely 
completed. 

The  Chairman.  Have  you  ever  put  into  the  record  or  have  we  in  the  record 
the  original  contract  that  you  entered  into? 

Mr.  Martin.  There  was  no  other  contract  we  entered  into. 

The  Chairman.  I  mean  the  original  agreement  of  December  1,  1917. 

Mr.  Martin.  It  was  merely  a  letter,  Mr.  Chairman,  directing  us  to  procet']. 

The  Chairman.  Did  it  go  into  details? 

Mr.  Martin.  No,  sir. 

The  Chairman.  Could  you  put  that  letter  into  the  record? 

Mr.  Martin.  I  will  be  very  glad  to. 

The  Chairman.  We  will  be  very  glad  to  have  it. 

Mr.  Martin.  We  were  directed  to  proceed  with  the  construction  of  the 
transmission  line  and  to  make  plans  for  the  extension  of  this  station,  the 
terms  and  conditions,  including  compensation,  to  be  thereafter  agreed  upon. 

Mr.  Dent.  Mr.  Chairman,  I  think  that  is  a  very  important  point  you  are 
bringing  out,  and  when  you  get  through,  will  you  allow  me  to  ask  Mr.  Martin 
some  questions  right  along  that  line,  right  here,  because  I  think  it  is  quite 
important,  if  you  are  through  with  your  quesitions? 

The  Chairman.  Go  ahead. 

Mr.  Dent.  Mr.  Martin,  is  it  not  a  fact  that  from  December  1,  1917,  up  to 
date  of  the  execution  of  the  contract  on  November  9,  1918,  you  were  acting:  under 
verbal  instructions  of.  the  War  Department  and  you  had  no  written  contract 
at  all  with  the  Government? 

Mr.  Martin.  We  had  no  written  contract.  We  were  merely  acting  under 
letters  directing  us  to  proceed. 

Mr.  Dent.  And  verbal  directions. 

Mr.  Martin.  Supplemented  by  verbal  directions  from  time  to  time. 

Mr.  Dent.  And  the  only  contract  that  was  executed  between  the  Govern- 
ment and  your  company  was  the  contract  that  was  dated  December  1,  1917,  but 
actually  executed  November  9,  1918?  . 

Mr.  Martin.  That  is  correct,  Mr.  Chairman. 

After  Capt.  Noble  died,  Mr.  Chairman,  the  work  on  the  legal  side  of  the 
contract  was  taken  up  by  Lieut.  Col.  William  Williams,  a  lawyer  then  in  the 
service,  who  had  been  practising  law  in  New  York  City.  I  did  not  know  him 
and  none  of  us  knew  him  prior  to  the  time  he  took  up  this  subject. 


648 


MUSCLE   SHOALS  PROPOSITIONS. 


•fi 


U     ! 


The  Ch-vkman.  Ht*  was  an  emergency  officer,  as  I  recall.  • 

Mr.  Martin.  Yes,  sir;  he  was  a  lawyer,  and  I  remember  something  about 
him  because  he  told  me  he  had  been  practicing  law  in  New  York  since  1884. 
and  was  then  practicing  law  in  New  York  City.  He  conducted  the  legal  nego- 
tiations to  a  conclusion. 

The  Chairman.  Do  you  know  with  what  firm  he  was  connected  before  he 
came  into  the  Army? 

^Ir.  Martin.  I  do  not  know,  Mr.  Chairman.  I  visited  his  office  a  few  days 
ago  when  this  controversy  came  up.  I  had  not  seen  him  since  the  execution 
of  the  contract.  I  called  him  on  the  phone  in  New  York  and  asked  him  his 
recollection  of  the  time  of  the  execution  of  the  contract. 

The  Chairman.  Yes. 

Mr.  Martin.  He  explained  he  could  not  discuss  it  with  me  because  he  was 
leaving  in  30  minutes  to  take  a  steamer  for  Japan.  However,  he  did  agree  for 
me  to  come  around  and  spend  a  few  minutes  with  him.  I  went  to  his  office 
with  another  director  of  the  company. 

The  Chairman.  Where  was  his  office  at  that  time? 

Mr.  Martin.  It  was  either  15  or  25  Broad  Street.  I  went  to  his  office  and 
talked  to  him,  and  he  recollected  the  details,  as  I  did,  in  connection  with  the 
execution  of  the  contract.  He  said  to  me  he  did  not  care  to  make  any  written 
statement  at  the  moment,  but  he  would  be  very  glad  to  come  before  the  com- 
mittee if  the  committee  cared  to  hear  him.  But  he  left  that  day,  as  he  told 
me,  on  a  trip  of  several  months.  That  is  all  I  know  about  the  situation  as  far 
as  Col.  Williams  is  concerned.  There  was  one  other  officer  of  the  Government 
engaged  with  Col.  Williams  and  Col.  Joyes  in  working  out  the  contract,  and 
that  was  Col.  C.  F.  Beames. 

The  Chairman.  AVas  he  an  emergency  officer? 

Mr.  Martin.  Yes,  sir;  he  was  an  emergency  Engineer  officer.  He  is  not  in 
the  service  now ;  he  lives  in  New"  York. 

The  Chairman.  Do  you  know  where  he  lives  in  New  York,  or  what  his 
address  is? 

Mr.  Martin.  He  is  connected  with  a  firm  at  No.  62  Cedar  Street,  the  fli-in 
of  A.  B.  Leach  &  Co. 

The  Chairman.  Mr.  Dent,  do  you  desire  to  ask  Mr.  Martin  anv  more  ques- 
tions? 

Mr.  Dent.  No;  that  is  all.  I  just  wanted  to  bring  out  the  fact  that  we  only 
had  one  written  contract. 

The  Chairman.  If  you  will  kindly  continue,  Mr.  Martin,  we  will  be  glad  to 
hear  you. 

Mr.  Martin.  I  think  it  might  be  worth  while  to  refer  to  a  certain  bulletin 
which  followed  the  passage  of  these  two  acts  of  Congress  and  which  was  dated 
August  3,  1918,  bearing  upon  the  question  of  this  character  of  a  contract. 
This  bulletin  was  issued  by  Gen.  Goethals,  Assistant  Chief  of  Staff,  and  it 
says: 

"  Where  increased  manufacturing  facilities  are  constructed  at  the  expense 
of  the  Government  or  where  their  cost  is  amortized  in  the  price  paid  by  the 
Government  the  contract  shall  provide  that  title  to  such  facilities  shall  vest  iu 
the  United  States.  The  contractor  may  agree  to  take  such  facilities  at  a  fair 
value  in  diminution  of  the  profit  which  he  otherwise  would  make. 

"  Where  title  to  increased  manufacturing  facilities  vests  in  the  United  States, 
the  contract  shall  provide  that  the  contractor  may  make  written  offer  to  the 
Government  to  purchase  such  facilities,  whereupon,  if  the  Government  accepts 
such  offer,  the  contractor  shall  become  obligated  to  pay  for  such  facilities  at 
their  appraised  value  at  that  time.  The  contract  shall  further  provide  that  if 
the  contractor  does  not  make  or  the  Government  does  not  accept  such  offer 
the  Government  shall  have  the  right  to  remove  such  facilities  after  the  termi- 
nation of  the  contract  within  a  time  reasonably  sufficient  to  effect  such  removal. 
The  contract  may  provide  that  the  Government  shall  have  an  option  at  the 
termination  of  the  contract  to  purchase  at  an  appraised  value  the  laud  on 
which  such  facilities  are  erected. 

"  If,  in  case  of  such  increased  manufacturing  facilities,  it  is  desired  to  make 
a  contract  along  lines  different  from  those  herein  established,  the  approval  of 
the  superior  board  of  review  shall  first  be  secured. 
*    "  By  authority  of  the  Secretary  of  War : 

"  Geo.  W.  Goethals, 
"  Major  General,  Assistant  Chief  of  Staff, 
"Director   of   Purchase,    Storage,    and    Traffic" 


MUSCLE   SHOALS  PROPOSITIONS. 


649 


•The  Chairman.  What  was  the  date  of  that? 

Mr.  Martin.  That  was  dated  August  3,  1918.  I  merely  mention  that  for  such 
bearing  as  it  may  have  on  the  situation. 

Bearing  in  mind  certain  features  of  the  contract,  you  may  recall  that  the 
contract  recites,  in  its  opening,  that,  "'  Whereas  the  contractor  owns  and  oper- 
ates an  electric  generating  and  transmitting  and  distributing  system  in  the 
State  of  Alabama,  which  includes  in  general  (1)  a  hydroelectric  plant  on  the 
Coosa  River,  with  an  installed  capacity  of  67,500  K.  V.  A.;  (2)  a  transmission 
network  (including  a  110,000- volt  system)  connecting  the  aforesaid  plant  with 
various  other  plants  and  substations;  (3)  a  steam-reserve  generating  plant, 
hereinafter  referred  to  as  the  Warrior  station,  situated  on  the  Black  Warrior 
River  at  the  junction  of  said  river  with  Bakers  Creek,  Walkr  County,  and 
having  an  installed  capacity  of  25,000  K.  V.  A. ;  (4)  certain  rights  of  way 
extending  approximately  20  miles  from  said  Warrior  station  toward  Sheffield, 
Ala.,  and  available  for  the  consumption  thereon  of  a  portion  of  the  transmission 
line  hereinafter  referred  to ;  and 

"  Whereas  the  contractor  represents  that  it  now  owns  and  controls  at  said 
Warrior  station  things  and  facilities  which  will  be  useful  in  connection  with 
the  installation,  construction,  and  operation  of  the  Warrior  extension  and 
Warrior  substation  hereinafter  referred  to,  including  (a)  adequate  circulating 
water  intake  and  discharge  facilities,  with  gates,  screens,  canals,  and  tuunfels ; 
(&)  partially  constructed  building  and  apparatus  foundations;  (c)  camps, 
roads,  tracks,  and  docks;  (d)  plans  and  specifications;  (e)  a  staff  for  engi- 
neering, construction,  and  operation;  (f)  ash-handling  facilities  and  ash-dump- 
ing spaces;  and  (g)  other  facilities  in  existence  at  or  about  said  station  at 
the  commencement  of  work  under  this  contract  which  will  be  useful  in  the 
maintenance  and  operation  of  said  Warrior  extension  as  a  point  for  the 
generation  of  electric  energy." 

That  was  recited  in  substance  as  the  situation  that  existed  at  this  station. 
And  the  contract  provided  then,  first,  that  we  should  erect  additional  tie  lines 
between  this  Warrior  station  and  our  system  w.th  a  view  that  the  Government 
should  be  able  at  all  times  not  only  to  take  the  capacity  of  this  extension  and 
this  Warrior  station,  but  that  it  should  be  able  to  take  30,000  additional  kilo- 
watts out  of  our  main  system.  We  undertook  to  construct  this  additional  tie 
line,  which  we  did  at  a  cost  of  some  $300,000.  That  was  our  own  money  and  the 
Government  had  nothing  to  do  with  it.  That  was  one  of  the  obligations  we 
undertook. 

Then  it  was  provided  that  we  should  construct  an  extension  of  this  station 
on  our  own  lands  according  to  Government  specifications,  and  to  this  transmis- 
sion line  on  our  own  right  of  way. 

The  Chairman.  With  whom  did  you  agree  to  do  that,  or  with  what  officer? 

Mr.  Martin.  This  was  the  contract  with  the  United  States,  and  Col.  William 
Williams  executed  it  in  behalf  of  the  United  States. 

Then  there  was  a  provision,  quite  important,  that  upon  the  construction  of 
the  property  we  would  undertake  to  operate  and  maintain  the  extension  as  a 
part  of  our  system  and  supply  from  our  system  at  least  30,000  kilowatts  of 
power ;  not  only  maintain  the  property  at  our  own  expense  but  keep  it  in  first- 
class  order  and  then  insure  it  in  behalf  of  the  United  States,  which  we  have  per- 
formed all  the  while.  We  also  agreed  in  that  contract  that  the  United  States 
should  from  that  time  forward  have  a  superior  right  to  take  power  from  our 
system  over  any  other  contract  which  we  m'ght  thereafter  make,  so  long  as  this 
contract  was  in  existence — that  is,  any  additional  power. 

There  are  various  features  of  the  contract  which  all  go  to  show  that  the 
Government  undertook  to  take  such  amount  of  power  as  it  might  need  or  desire 
from  our  system,  and  we  undertook  from  our  system,  supplemented  by  the 
Warrior  extension,  to  supply  the  power.  It  was  never  throughout  any  of  the 
negotiations  suggested  that  section  124  of  the  national  defense  act  had  any- 
thing to  do  with  this  question.  Nothing  was  ever  discussed  in  reference  to  sec- 
tion 124  of  the  national  defense  act.  From  first  to  last  it  proceeded  as  an 
arrangement  by  which  we  would  supplement  our  facilit'es  to  enable  us  to  sup- 
ply power  to  the  Government,  and  to  protect  the  Government  in  that  situation, 
that  we  were  to  agree  to  purchase  the  property  at  a  fair  value,  not  a  junk 
value — and  the  property  to-day  has  a  fair  value.  Of  course,  it  has  a  fair  value, 
and  when  the  time  comes  and  the  Government  wants  us  to  purchase  the  prop- 
erty we  stand  ready  and  willing  and  able  to  purchase  at  its  fair  value,  in  pur- 
suance of  the  terms  of  this  contract.    We  have  never  said  we  would  purchase  it 


41 


I 


650 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIOXS. 


651 


doso"'""^''**'"^  ^'""^  ^""^  """^  ^^^'"^  ^^  *^'^^^-    ^^  ^'*^"^^  ^  ""^^^^  ^**^  "s  to 

«v^pm   "w.f  ^^'''"'  ^^"/'^^»^"'  erected  as  it  is,  forms  an  integral  part  of  our 
liln  I  n  1^^*^  ""'"^  ^^'^''^  serving  this  plant.    We  have  ash-dumping 

water  Ttake''^  facilities  common  to  one  plant.    We  also  have  a  single 

It  has  been  mentioned  here  that  there  is  a  large  plant  known  as  the  Wind- 
sor plant  in  Ohio,  where  there  are  two  distinct  ownerships,  and  that  was 
cited  as  evidence  that  such  a  plant  as  this  can  be  divided  in  ownership.  But 
1  know  the  Windsor  situation.  There  are  two  ownerships  there,  but  there  is 
a  contract  between  both  of  those  companies.  They  have  organized  an  operat'- 
ing  company,  a  single  operating  company  to  operate  that  entire  station  as  one 
delivering  to  each  company  such  amounts  of  power  as  their  respective  needs 
may  require.  That  is  an  arrangement  which  could  not  be  worked  out  except 
through  a  single  operation,  each  contributing  in  proportion  to  the  power  it 
takes  and  to  the  operating  expense  of  the  station.  But  our  situation  is  such 
that  there  can  not  be  two  operating  stations.  The  Government  officials  tried 
It  out  during  the  war,  but  I  am  sure  they  do  not  think  it  can  be  done  now 
that  IS,  those  gentlemen  who  know  the  facts. 

When  it  came  to  this  question  of  the  national  defense  act  Secretary  Baker 
made  the  statement  before  the  Graham  committee  that  nitrate  plant  No  *> 
was  not  built  under  the  national  defense  act.  It  also  appeared  in  that  in- 
vestigation that  the  Warrior  extension  was  not  built  under  that  act.  We  have 
m  the  record  ^  copy  of  President  Wilson's  directions,  dated  February  23,  1918 
authorizing  $13,385,000  of  the  fund  appropriated  by  section  124  to  be  used  on 
what  is  now  the  Wilson  Dam  and  powerhouse.  Maj.  Burns  has  testified  that 
the  balance  of  that  fund  had  previously  been  spent  on  other  projects,  or  is  now 
in  hand.  Gen.  Williams  testified  that  nitrate  plant  No,  2  was  erected  from  the 
appropriations  for  fortifications,  and  also  that  the  extension  at  the  Gorgas 
plant  was  erected  from  that  source,  and  not  one  cent  of  the  $20,000,000  ap- 
propriated under  the  national  defense  act  was  spent  on  the  Gorgas  plant  or 
the  transmission  line.  These  two  elements  represented  a  large  sum,  $67,000,- 
000,  many  times  in  excess  of  the  $20,000,000  appropriation.  Of  course,  the 
plants  provided  for  under  this  act  were  not  the  plants  provided  for  here,  be- 
cause the  President  did  not  designate  Gorgas  in  his  letter  at  anv  time;  there 
was  no  reference  to  it  at  all.  When  the  President  discharged  the  duties  im- 
posed upon  him  by  that  act  he  selected  property  other  than  the  Warrior  ex- 
tension, and  never  said  the  plant  selected  by  him  under  that  act  should  be 
treated  as  the  nitrate  property. 

On  that  basis  of  the  case,  considering  its  entire  history,  we  feel  that  we  have 
all  along  complied  with  every  request,  verbal  or  written,  of  the  Government. 
We  have  stood  ready  at  all  times  to  place  our  entire  system  at  the  disposal  of 
the  Government.  We  have  made  a  contract  in  good  faith  with  Government 
officials  and  we  stand  ready  to  carry  it  out. 

The  Chairman.  Is  that  as  far  as  you  care  to  go  at  the  present  time,  Mr. 
Martin? 

Mr.  Martin.  I  would  be  glad  to  answer  any  questions  you  wish  to  ask  me. 

Something  was  said  about  our  own  investment  in  connection  with  this 
extension.  If  the  committee  would  care  to  know  about  that  I  would  be  glad  to 
tell  you  what  we  spent  in  connection  with  this  matter. 

Our  investment  and  expenses  amounted  to  $1,016,515.61  in  connection  with 
the  station.    I  shall  be  glad  to  read  the  items  in  detail  if  you  desire  me  to  do  so. 

The  Chairman.  We  will  be  glad  to  hear  the  statement.  That  is  in  connection 
with  the  Government's  request  regarding  the  transmission  of  power  from  the 
line  at  Gorgas  to  nitrate  plant  No.  2? 

Mr.  Martin.  Yes;  and  those  investments  and  expenses  related  to  the  Gorgas 
project.  We  had  a  number  of  obligations  which  we  took  on  in  connection  with 
it  from  time  to  time. 

The  Chairman.  Will  you  kindly  read  the  statement  you  refer  to? 

Mr.  Martin.  We  agreed  in  article  1  of  the  contract  to  construct  what  is  known 
as  a  tie  line  with  a  certain  capacity,  and  which  also  involved  the  duty  of  con- 
structing a  substation  of  sufficient  capacity  at  Bessemer  to  enable  the  power 
to  be  passed  from  our  system  into  this  line.  Those  transmission  lines  from 
Warrior  to  Bessemer  and  additional  substation  facilities  at  the  Bessemer  sub- 
station, inclusive  of  additional  rights  of  way  purchased  by  the  Muscle  Shoals- 
Warrior  transmission  lines,  cost  us  $330,720.  We  agreed  to  stand  part  of  the 
cost  of  constructing  what  is  known  as  the  Drifton  Railroad.    The  Government 


advanced  $30,000  toward  that  construction,  and  our  company  advanced  $103,- 
962.27  in  addition  to  that. 

Then  we  had  certain  expenses,  consisting  of  engineering,  excavation,  and  con- 
struction, chargeable  to  the  second  unit,  placed  or  purchased  for  the  second  unit, 
which  was  occupied  by  the  Government  facilities,  representing  an  investment 
on  our  part  of  $212,627.50. 

When  this  plant  was  created,  or  just  before  the  plant  was  put  into  service, 
we  purchased  additional  coal  from  many  sources  to  operate  this  additional 
unit.  As  we  had  to  place  the  coal  in  storage,  the  storage  facilities  were  inade- 
quate. This  is  not  a  very  large  item,  but  we  had  a  fire  which  burned  $17,100 
worth  of  coal,  the  fire  being  caused  by  spontaneous  combustion.  We  were 
under  an  expense  of  $17,222  for  the  cost  of  handling  coal  in  storage  made  neces- 
sary by  the  cessation  of  Government  activities  and  the  lack  of  coal-handling 
facilities.  Then  there  was  additional  labor  cost  at  the  Warrior  plant  due  to 
the  compulsory  operation  under  the  8-hour  law,  and  that  amounted  to  $12,- 
799.75.  We  had  a  coal  mine  that  we  equipped  to  supply  coal  for  the  entire  out- 
put of  this  station,  and  we  increased  the  facilities  from  a  capacity  of  350  tons 
a  day  up  to  approximately  800  tons  a  day.  The  (equipment  we  put  in  there  rep- 
resented an  investment  of  $224,736.79. 

Then  we  had  some  expenses  of  this  character:  We  had  on  order,  for  in- 
stance, when  the  Government  came  into  the  situation,  a  20,000-kilowatt  unit 
to  occupy  this  second  space  in  our  power  house.  We  canceled  the  order  at  the 
request  of  the  Government,  and  we  had  certain  losses  with  the  manufacturers 
to  meet  for  the  turbine  and  for  the  condensers.  We  paid  the  General  Electric 
Co.  approximately  $10,000  to  rewind  the  turbine  to  meet  the  needs  of  an- 
other purchaser.  We  had  to  take  the  condenser  which  we  now  have  on  the 
j^round  at  a  cost  of  $42,744.86,  Tlien  we  had  some  expense  for  completing  the 
installation  of  the  Government  equipment  at  the  Warrior  plant  after  the  Gov- 
ernment had  stopped  all  payments  in  connection  with  that  work.  Those  items 
altogether  make  a  total  of  $1,016,515.61. 

We  do  not  claim  anything  for  those  things ;  we  merely  mention  those  to  show 
our  out-of-pocket  and  investment  expenses  in  connection  with  this  work.  Of 
course,  our  system  there  represented  at  that  time  property  values  of  approxi- 
mately $35,000,000,  and  that  entire  system  with  all  this  generating  capacity 
and  facilities  were  connected  through  this  tie  line  and  station  with  this  War- 
rior plant.  I  am  reminded  by  one  of  my  associates  that  there  were  a  supple- 
mental contract  to  contract  T-69,  which  I  will  place  in  the  record,  if  the  com- 
mittee wishes,  making  certain  changes  in  certain  provisions.  It  was  negotiated 
in  1919:  which,  in  its  recitals,  in  effect,  reaffirmed  this  contract  that  is  now 
before  the  committee.  I  will  be  glad  to  place  same  in  the  record. 
(The  contract  referred  to  is  as  follows:) 

The  United  States  of  America  and  The  Alabama  Power  Co.,  Birmingham. 

Ala. — Supplementary  Contract  T-69  A  for  Compi.etion  of  Construction 

Features  Relating  to  Original  Contract  T-69.    Dated  August  1,  1919. 

This  contract  made  this  1st  day  of  August,  1919,  between  the  Alabama 
I'ower  Co.,  a  corporation  organized  and  existing  under  the  laws  of  the  State 
of  Alabama  (hereinafter  called  the  contractor)  party  of  the  first  part,  and 
the  United  States  of  America,  by  R.  H.  Hawkins,  lieutenant  colonel,  Ord- 
nance Department,  United  States  Army,  acting  as  contracting  officer  by 
authority  of  the  Chief  of  Ordnance.  United  States  Army,  and  under  the  direc- 
tion of  the  Secretary  of  War,  party  of  the  second  part,  witnesseth : 

(a)  Whereas  a  certain  contract  was  entered  into  between  the  United  States 
and  the  contractor.  No.  T-69,  dated  December  1,  1917,  a  copy  of  which  con- 
tract is  hereto  attached  and  made  a  part  hereof,  marked  "Exhibit  A"  (herein- 
after \  called  "  original  contract " )  which  term  also  includes,  wherever 
used  herein,  all  agreements  or  orders,  if  any,  supplementary  to  said  contract, 
except  this  acreoment:  and 

(6)  Whereas  the  original  contract  provided  that  the  Contractor  should  at 
the  expense  of  the  United  States  prepare  and  submit  to  the  contracting  officer 
general  plans  and  specifications  for  approval  and  upon  such  approval,  con- 
struct certain  facilities  for  the  benefit  and  account  of  the  United  States,  gen- 
erally known  as  the  "Warrior  Extension,"  "Warrior  Substation,"  "Warrior- 
Muscle  Shoals  Transmission  Line,"  "Muscle  Shoals  Substation,"  and  an  ex- 
tension to  the  Enslev-Southern  Branch  of  the  Southern  Railway,  known  as  the 
"Drifton  Extension* Railroad,"  which  facilities  are  described  in  greater  detail 
in  Schedules  A,  B,  C,  D,  and  E,  which  form  part  of  the  original  contract  No. 
T-09;  and 


n\ 


'I 


■^1 


650 


MUSCLE  SHOALS  PROPOSITIONS. 


I    • 


at  Mull^  value  and  are  not  saying  so  to^ay.  It  would  be  unfair  for  us  to 
«v^fZ'  "iv  ?^^'''"'  ^^"/^^"i^"'  e»-^cted  as  it  is,  forms  an  integral  part  of  our 
^v^ter'  intake!  facilities  common  to  one  plant.    We  also  hare  a  single 

sor^tnf^^^o'Sfn  """^^  ^T  "'^^  ^^^^'^  ^^  *  *^^^^  Pl^^t  known  as  the  Wind- 
^t^H  ,,  ^^^*>'  ^^'l»ere  there  are  two    distinct    ownerships,    and  that    was 

cited  as  evidence  that  such  a  plant  as  this  can  be  divided  in  ownei-ship  B^t 
I  know  the  Windsor  situation.  There  are  two  ownerships  there  but  there  ^s 
a  contract  between  both  of  those  companies.  They  have  organized  an  ODemt 
JTpli^r^T'  ^  T^^^  ^P^'^**"^  ^^™P^"-^  '^  ^P^^^te  that  entire  statioS  as  one" 
mav  r^uirp''  Th^,,^?«^P«">'  ^^^^  ^^^^^nts  of  power  as  their  respective  nee^S 
may  require.  That  is  an  arrangement  which  could  not  be  worked  out  exceot 
fa^"^^  ^  /^°i^^  operation,  each  contributing  in  proportion  to  the  m)wer  k 
fS«f  ^^""^  ^"^  *^®  operating  expense  of  the  station.  But  our  situation  is  such 
that  there  can  not  be  two  operating  stations.    The  Government  officials  tried 

hr'/.T''^  ^^V'^'^^  ^""i  ^  ^"^  ^""'^  t^^y  ^o  "«t  think  it  can  be  done  now 
that  IS,  those  gentlemen  who  know  the  facts. 

«,„^*^®?u^*  ^.^?^  *^  this  question  of  the  national  defense  act  Secretary  Baker 
made  the  statement  before  the  Graham  committee  that  nitrate  plant  No  '> 
vltJL"*/-  lY  ."?K^'*J^^  national  defense  act.  It  also  appeared  in  that  in*'- 
yestigation  that  the  Warrior  extension  was  not  built  under  that  act.  We  have 
m  the  record  -a  copy  of  President  Wilson's  directions,  dated  Februarv  23  1^1  S 
authorizing  $13,385,000  of  the  fund  appropriated  by  section  124  to  be  used  on 
what  IS  now  the  Wilson  Dam  and  powerhouse.  Maj.  Burns  has  testified  that 
the  balance  of  that  fund  had  previously  been  spent  on  other  projects,  or  is  now 
m  hand.  Gen.  Williams  testified  that  nitrate  plant  No.  2  was  erected  from  the 
appropriations  for  fortifications,  and  also  that  the  extension  at  the  Gorgas 
plant  was  erected  from  that  source,  and  not  one  cent  of  the  $20,000,000  ap- 
propriated under  the  national  defense  act  was  spent  on  the  Gorgas  plant  or 
the  transmission  line.  These  two  elements  represented  a  large  sum  $67  000- 
000,  many  times  in  excess  of  the  $20,000,000  appropriation.  Of  course'  the 
plants  provided  for  under  this  act  were  not  the  plants  provided  for  here  be- 
cause the  President  did  not  designate  Gorgas  in  his  letter  at  any  time  •  there 
was  no  reference  to  it  at  all.  When  the  President  discharged  the  duties  im- 
posed upon  him  by  that  act  he  selected  property  other  than  the  W^arrior  ex- 
tension, and  never  said  the  plant  selected  by  him  under  that  act  should  be 
treated  as  the  nitrate  property. 

On  that  basis  of  the  case,  considering  its  entire  history,  we  feel  that  we  have 
all  along  complied  with  every  request,  verbal  or  written,  of  the  Government. 
We  have  stood  ready  at  all  times  to  place  our  entire  system  at  the  disposal  of 
the  Government.  We  have  made  a  contract  in  good  faith  with  Government 
officials  and  we  stand  ready  to  carry  it  out. 

The  Chaieman.  Is  that  as  far  as  you  care  to  go  at  the  present  time.  Mr. 
Martin? 

Mr.  Martin.  I  would  be  glad  to  answer  any  questions  you  wish  to  ask  me. 

Something  was  said  about  our  own  investment  in  connection  with  this 
extension.  If  the  committee  would  care  to  know  about  that  I  would  be  glad  to 
tell  you  what  we  spent  in  connection  with  this  matter. 

Our  investment  and  expenses  amounted  to  $1,016,515.61  in  connection  with 
the  station.    I  shall  be  glad  to  read  the  items  in  detail  if  you  desire  me  to  do  so. 

The  Chaibman.  We  will  be  glad  to  hear  the  statement.  That  is  in  connection 
with  the  Government's  request  regarding  the  transmission  of  power  from  the 
line  at  Gorgas  to  nitrate  plant  No.  2? 

Mr.  Martin.  Yes;  and  those  investments  and  expenses  related  to  the  Gorgas 
project.  We  had  a  number  of  obligations  which  we  took  on  in  connection  with 
it  from  time  to  time. 

The  Chairman.  Will  you  kindly  read  the  statement  you  refer  to? 

Mr.  Martin.  We  agreed  in  article  1  of  the  contract  to  construct  wliat  is  known 
as  a  tie  line  with  a  certain  capacity,  and  which  also  involved  the  duty  of  con- 
structing a  substation  of  sufficient  capacity  at  Bessemer  to  enable  the  power 
to  be  passed  from  our  system  into  this  line.  Those  transmission  lines  from 
Warrior  to  Bessemer  and  additional  substation  facilities  at  the  Bessemer  sub- 
station, inclusive  of  additional  rights  of  way  purchased  by  the  Muscle  Shoals- 
Warrior  transmission  lines,  cost  us  $330,720.  We  agreed  to  stand  part  of  the 
cost  of  constructing  what  is  known  as  the  Drifton  Railroad.    The  Government 


MUSCLE   SHOALS  PROPOSITIONS. 


651 


advanced  $30,000  toward  that  construction,  and  our  company  advanced  $103.- 
962.27  in  addition  to  that. 

Then  we  had  certain  expenses,  consisting  of  engineering,  excavation,  and  con- 
struction, chargeable  to  the  second  unit,  placed  or  purchased  for  the  second  unit, 
which  was  occupied  by  the  Government  facilities,  representing  an  investment 
on  our  part  of  $212,627.50. 

When  this  plant  was  created,  or  just  before  the  plant  was  put  into  service, 
we  purchased  additional  coal  from  many  sources  to  operate  this  additional 
unit.  As  we  had  to  place  the  coal  in  storage,  the  storage  facilities  were  inade- 
quate. This  is  not  a  very  large  item,  but  we  had  a  fire  which  burned  $17,100 
worth  of  coal,  the  fire  being  caused  by  spontaneous  combustion.  We  were 
under  an  expense  of  $17,222  for  the  cost  of  handling  coal  in  storage  made  neces- 
sary by  the  cessation  of  Government  activities  and  the  lack  of  coal-handling 
facilities.  Then  there  was  additional  labor  cost  at  the  Warrior  plant  due  to 
the  compulsory  operation  under  the  8-hour  law,  and  that  amounted  to  $12,- 
799.75.  We  had  a  coal  mine  that  we  equipped  to  supply  coal  for  the  entire  out- 
put of  this  station,  and  we  increased  the  facilities  from  a  capacity  of  350  tons 
a  day  up  to  approximately  800  tons  a  day.  The  equipment  we  put' in  there  rep- 
resented an  investment  of  $224,736.79. 

Then  we  had  some  expenses  of  this  character:  We  had  on  order,  for  in- 
stance, when  the  Government  came  into  the  situation,  a  20,000-kilowatt  unit 
to  occupy  this  second  space  in  our  power  house.  We  canceled  the  order  at  the 
request  of  the  Government,  and  we  had  certain  losses  with  the  manufacturers 
to  meet  for  the  turbine  and  for  the  condensers.  We  paid  the  General  Electric 
Co.  approximately  $10,000  to  rewind  the  turbine  to  meet  the  needs  of  an- 
other purchaser.  We  had  to  take  the  condenser  which  we  now  have  on  the 
j^'round  at  a  cost  of  $42,744.86.  Tlien  we  had  some  expense  for  completing  the 
installation  of  the  Government  equipment  at  the  Warrior  plant  after  the  Gov- 
ernment had  stopped  all  payments  in  connection  with  that  work.  Those  items 
altogether  make  a  total  of  $1,016,515.61. 

We  do  not  claim  anything  for  those  things ;  we  merely  mention  those  to  show 
our  out-of-pocket  and  investment  expenses  in  connection  with  this  work.  Of 
course,  our  system  there  represented  at  that  time  property  values  of  approxi- 
mately $35,000,000,  and  that  entire  system  with  all  this  generating  capacity 
and  facilities  were  connected  through  this  tie  line  and  station  with  this  War- 
rior plant.  I  am  reminded  by  one  of  my  associates  that  there  were  a  supple- 
mental contract  to  contract  T-69,  which  I  will  place  in  the  record,  if  the  com- 
mittee wishes,  making  certain  changes  in  certain  provisions.  It  was  negotiated 
in  1919.  which,  in  its  recitals,  in  effect,  reaffirmed  this  contract  that  is  now 
before  the  committee.    I  will  be  glad  to  place  same  in  the  record. 

(The  contract  referred  to  is  as  follows:) 

The  United  States  of  America  and  The  Alabama  Power  Co.,  Birmingham. 
Ala. — Supplementary  Contract  T-69  A  for  Completion  of  Construction 
Features  Relating  to  Original  Contract  T-69.    Dated  August  1,  1919. 

This  contract  made  this  1st  day  of  August,  1919,  between  the  Alabama 
Power  Co.,  a  corporation  organized  and  existing  under  the  laws  of  the  State 
of  Alabama  (hereinafter  called  the  contractor)  party  of  the  first  part,  and 
the  United  States  of  America,  by  R.  H.  Hawkins,  lieutenant  colonel,  Ord- 
nance Department,  United  States  Army,  acting  as  contracting  officer  by 
authority  of  the  Chief  of  Ordnance.  United  States  Army,  and  under  the  direc- 
tion of  the  Secretary  of  War,  party  of  the  second  part,  witnesseth : 

(a)  Whereas  a  certain  contract  was  entered  into  between  the  United  States 
and  the  contractor.  No.  T-69,  dated  December  1,  1917,  a  copy  of  which  con- 
tract is  hereto  attached  and  made  a  part  hereof,  marked  "Exhibit  A"  (herein- 
after s  called  "original  contract")  which  term  also  includes,  wherever 
used  herein,  all  agreements  or  orders,  if  any,  supplementary  to  said  contract, 
except  this  agreement:  and 

(6)  Whereas  the  original  contract  provided  that  the  Contractor  Should  at 
the  expense  of  the  United  States  prepare  and  submit  to  the  contracting  officer 
general  plans  and  specifications  for  approval  and  upon  such  approval,  con- 
struct certain  facilities  for  the  benefit  and  account  of  the  United  States,  gen- 
erally known  as  the  "  Warrior  Extension,"  "  Warrior  Substation,"  "Warrior- 
Muscle  Shoals  Transmission  Line,"  "  Muscle  Shoals  Substation,"  and  an  ex- 
tension to  the  Ensley-Southern  Branch  of  the  Southern  Railway,  known  as  the 
"  Drifton  Extension  Railroad,"  which  facilities  are  described  in  greater  detail 
in  Schedules  A,  B,  C,  D,  and  E,  which  form  part  of  the  original  contract  No. 
T-69;  and 


t 
>  I 

t' 


ti 


ll 

si 


652 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITION'S. 


653 


ji 


((•)  \VU«'rt'as  tlie  ruited  States  did  on  April  15,  1919.  direct  the  suspension 
of  further  coiistriution  work  on  account  of  the  original  contract,  and  as  a  re- 
sult, the  contractor  has  been  unable  to  complete  certain  minor  details  of  con- 
struction calleil  for  and  shown  on  plans  properly  approved  by  the  representa- 
tive of  the  contracting  ofttcer,  under  the  terms  of  that  contract,  the  remaining 
details  being  essential  to  the  satisfactory  operation  of  the  facilities  provided  by 
the  United  States  but  not  of  sufhcient  importance  to  warrant  the  expense  for 
further  maintenance  by  the  United  States  of  a  staff  of  inspectors,  clerical  and 
other  help  to  supervise  their  execution  as  was  necessary  in  the  public  interest 
during  the  active  construction  period;  and 

(i1)  Whereas  the  contractor  has  a  regularly  organized  staff  of  operating 
engineers,  mechanics,  and  workmen  established  at  its  Warrior  generating  sta- 
tion, capable  of  carrying  out  the  completion  of  such  minor  construction  items  as 
remain,  and  with  a  view  toward  economy  and  the  satisfactory  termination  of  the 
construction  program,  it  is  the  desire  of  the  United  States  and  the  contractor 
that  the  operating  staff  of  the  contractor,  guided  by  the  contractor's  technical 
staff,  carry  out  such  work;  and 

ie)  Whereas  it  is  the  desire  of  the  United  States  and  the  contractor  to  main- 
tain in  full  force  and  effect  the  conditions  and  covenants  embodied  in  the  original 
contract  T-69,  and  to  only  modify  the  conditions  of  the  said  original  contract  in 
respect  to  the  methods  of  executing  the  minor  construction  works  and  tests, 
covered  by  this  supplementary  contract  and  of  making  payment  for  such  work. 

Now,  therefore,  in- consideration  of  the  mutual  agreements  herein  contained 
the  said  parties  have  agreed,  and  by  these  presents  do  agree,  with  each  other  as 
follows : 

Article  I. 

GENERAL. 

The  contractor  shall,  at  its  own  expense,  furnish  all  necessary  engineering 
talent,  drawings,  skilled  and  common  hibor,  likewise  all  materials  and  supplies 
not  now  available  at  the  storehouse  of  the  United  States  at  Gorgas,  and  will 
complete  the  items  listed  in  the  following  schedule  of  unfinished  items  of  con- 
struction in  a  thoroughly  workmanlike  manner  (and  to  the  complete  satisfaction 
of  the  contracting  officer,  or  his  duly  authorized  representative).  The  United 
States  shall  furnish  without  cost  to  the  contractor  such  materials  and  supplies 
purchased  by  the  United  States  for  use  in  connection  with  this  contract  and/or 
now  in  its  storehouse  at  Gorgas,  Ala.,  as  may  be  necessary  for  the  completion  of 
the  work  scheduled  and  described  in  Article  II  hereof. 

Article  II. 

SCHEDULE. 

The  following  is  a  schedule  of  items  of  construction  which  the  contractor, 
under  the  terms  of  this  contract,  agrees  to  carry  out : 

Power  house  (the  following  items  required  to  complete)  : 

1.  Install  Louvres  at  end  of  main  monitors  over  conveyors  (material 

on  hand)  ;  labor ,^25 

2.  Provide  stop  logs  for  west  entrance  to  ash  pit  (material  on  hand)  ^ 

labor 50 

3.  Double  rivet  each  vertical  seam  of  corrugated  galvanized  iron  on 

temporary  ends  of  boiler-house  and  turbine-room  sections  of 
building  (rivets  on  hand)  ;  labor lOO 

4.  Place  flashing  around  42  and  16  inch  exhaust  (material  on  hand)  ; 

labor 10 

5.  Grout  around  pipe  holes  in  floor  of  No.  3  boiler  room ;  materiaL 

$4;  labor,  $36 40 

6.  Install  floor  drains  in  No.  3  boiler  room  ;  material,  $4 ;  labor,  $16__  20 

7.  Install  glass  in  door  of  13,000 volt  switch  room  (glass  on  hand)  ; 

labor 10 

8.  Install  locks  on  doors  of  monitors ;  material,  $5 ;  common  labor,  $5_  10 

9.  One  additional  coat  of  paint  on  boiler  room  No.  3,  whitewash  ash 

rooms ;  2  coats  of  paint  on  condenser  room ;  2  coats  of  paint 
on  all  floors;  all  window  sash  to  be  drawn ;  material,  $1,0(X); 
labor,  $445 1^  445 

10.  Fit  and  bolt  down  manhole  covers  on  air  ducts   (material  on 

hand)  ;    labor 50 


Smoke  flues  and  stack: 

11.  Install  check  valves  between  flues  and  ash  sump  (material  on 

hand)  ;    labor |20 

12.  Furnish  and  place  one  cover  for  damper  frame ;  material,  $5 ; 

labor,  $5 10 

Coal-handling  tracks : 

13.  Install  standard-gauge  track  scales    (scales  and   material   for 

scales  on  hand)  ;  cement  powder,  etc.,  $100;  labor,  $1,400 1.500 

14.  Adjust  cross-over  dumps  and  resurface  tracks ;  labor 200 

Coal  crushers  and  conveyors : 

15.  Provide  side  aprons  for  screens  in  crusher  pits  to  prevent  coal 

from  sifting  into  pit  (material  on  hand)  ;  labor 100 

16.  Put  one  coat  of  paint  on  conveyor  sheds  (material  on  hand)  ; 

labor 300 

Boilers : 

17.  Put  plastic  fire  clay  around  superheaters  on  boilers  Nos.  7,  8, 

and  9  (clay  on  hand)  ;  labor 150 

18.  Install  plates  on  sides  of  all  boilers  between  fronts  and  building 

columns  (plates  on  hand)  ;  labor 150 

Stokers : 

19.  Repair  broken  governor  on  No.  16  stoker;  labor 10 

Steam  and  exhaust  lines : 

20.  Furnish  and  install  one  Davis  automatic  valve  for  No.  14  boiler ; 

labor -# 20 

21.  Reinstall  by-pass  valve  on  20-inch  and  2  valves  on  16-inch  when 

valves  are  replaced  by  the  Chapman  Co.;  labor 25 

22.  Connect  steam  and  exhaust  piping  on  No.  16  stoker   (pipe  on 

hand);  labor 25 

23.  Repair  stay  bolts  in  big  steam  separator ;  labor 25 

24.  Connect  steam  and  exhaust  piping  to  fans  in  No.  3  ash   pit; 

2  4-inch  steel  ells,  $25 ;  labor,  $25 5i» 

25.  Install  steam  and  exhaust  line  drains  in  boiler  rooms  (8  f-inch 

check  valves  have  been  shipped)  ;  labor 50 

26.  Install  crossties  on  4  main  steam  lines  over  boilers  (material  on 

hand);  labor 200 

Feed- water  lines : 

27.  Replace  Ross  expansion  joints  on  No.  3  unit  with  pipe ;  labor 100 

28.  Furnish  and   install  one  4-inch  globe  valve  on  boiler  No.  15; 

valve,  $25;  labor,  $25 50 

29.  Furnish  and  install  1  new  handwheel  on  4-inch  globe  valve  on  No. 

13  boiler;  handwheel,  $2;  labor,  $3 5 

Feed-water  pumps. 

30.  Install  new  shaft  in  steam-driveli  pump  in  No.  2  unit  when  shaft 

supplied  without  cost  to  contractor  by  manufacturers ;  labor—  50 

31.  Replace  coupling  pins  in  motor-driven  pump  in  No.  3  boiler  room  ; 

labor ' ^ 

32.  Install  new  operating  cylinders  and  adjust  Copes  regulators  on 

the  steam-driven  pumps  (cylinders  being  shipped)  ;  labor 25 

Air  compressor: 

33.  Install  motor  on  foundation  and  bolt  to  compressor  (motor  on 

order)  ;  labor : ^0 

34.  Install  air  lines  to  turbine  room  and  condenser  pit ;  pipe,  $100 ; 

labor,  $50 1^0 

Pipe  covering : 

35.  Furnish  and  install  additional  pipe  covering  omitted  from  the 

Armstrong  Cork  &  Insulating  Co.'s  contract 3. 000 

36.  Turbine  to  be  painted  (paint  on  hand)  ;  labor 100 

37    Furnish  superintendence,  labor,  fuel,  and  miscellaneous  supplies 

necessary  for  the  final  test  of  the  30,000-kilowatt  General  Elec- 
tric steam-turbo  generator  and  auxiliaries  upon  the  reerec- 
tion  of  the  turbo-generator  and  auxiliaries  by  the  General 
Electric  Co.  (lubricants  on  hand) 2,500 


654 


MUSCLE   SHOALS  PROPOSITIONS. 


39. 


ii 


Boiler  andaurbine  room  instruments : 

38.  Pipe  up  boiler  steam-flow  meters  on  boilers  8,  9,  13,  14,  l.j  16  17 
^^^'^^[^  ^2  ®^^^  boiler;  pipe  up  draft  gauges  on  boilers  8,  9.' 
16,  14,  15,  16,  17,  and  18 ;  pipe  up  steam  gauges  on  instrument 
boards  of  boilers  9,  L3,  14,  15,  16,  17.  and  18;  install,  with 
pipmg  complete,  Venturi  meters  on  individual  boilers,  except 
No.  12  boiler ;  pipe  up  recording  pressure  gauge  for  live  steam 
to  turbine ;  pipe  up  CO'  recorders  for  No.  1  and  No.  2  stacks  • 
pipe  up  pressure  gauges  for  feed-water  pumps  in  No.  3  boiler 
room ;  pipe  up  Venturi  meter  recorder  for  boiler  feed  in  No.  3 
boiler  room;  erect  and  pipe  up  recording  thermometer  for 
heater  inlet  and  outlet  in  No.  3  boiler  room ;  erect  and  pipe  up 
recording  thermometer  for  live  steam  to  turbine ;  furnish  and 
install,  with  piping  complete,  the  manometer  tubes  for  boilers 
7,  8,  9,  10.  11,  13,  14,  15,  16,  17,  and  18;  10  manometer  tubes, 

$950;  3,000  feet  of  f  and  i  inch  pipe,  $500 $1,450 

Install  signal  system  system  in  boiler  room  and  engine  room, 

equipment  on  hand _      _  '        400 

Oil  filters: 

40.  Install  two   small  filters  for   oil   from   auxiliaries    (filters   on 

hand)  ;  pipe,  $500;  labor,  $350 __  350 

Sump  pumps: 

41.  Install  2 

42.  Install  1 

43.  Install  2 
Electrical  installation 

44.  Give  1  coat  of 

labor 

45.  Install  choke  coils 

hand)  ;  labor__. 

46.  Install  signal  system  for  generator ;  material,  $250 ;  labor,~$100l 

47.  Replace  single  strain  insulators  on  No.  3  bank,  110  K.  V.  trans- 

formers, by  double  strain   insulators   (material  on  hand)  ; 
labor 

48.  Install  corona  shields  on  110  K.  V.  afr-brake  switch^' (material 

on  hand)  ;  labor 

49.  Install  three  cables  to  No.  3  bank,  110  K.  V.  transformers"  (cable 

on  order)  ;  labor 

50.  Erect  new  bushings  on  spare  transformers  (one  110  K.  V.  bush- 

ing to  be  repaired,  four  12  K.  V.  bushings  on  order)  ;  labor. 

51.  Install  sheet-iron  covers  on  both  exciter  switch  panels  (material 

on  hand)  ;  labor 

52.  Connect  up  air  compressor  motcJt  (material  on  hand) TlaborZ_IZ 

53.  Connect  up  5  sump  pump  motors  (material  on  hand)  ;  labor__ 

54.  Wire  turbine  trip  sw:tch  to  gauge  board ;  labor 

55.  Replace  3  current  transformers  and  connect  up  potential  trans" 

.  formers  at  the  same  time   (transformers  and  material  on 
hand)  ;  labor 

56.  Lay  concrete  floor  in  tunnel ;  material,  $25 ;  labor,  $25 I 


MUSCLE  SHOALS  PROPOSITIONS. 


655 


sump  pumps  in  condenser  pit  (on  hand) 

sump  pump  in  ash  pit  (on  Ijand) I__I 

sump  pumps  in  coal  crushers  (on  hand) Z 

paint  to  110  K.  V.  switches   (paint  on  hand)  ; 

on  Sheffield  line  switch  No.  1114   (coils  on 


450 


25 


25 

350 


50 

125 

50 

50 


25 
25 

125 
10 


25 

50 


Complete  drainage  of  110  K.  V.  switchyard ;  labor Z__ZI_Z~        250 


57. 

58.  Fill  oil  tanks  and  return  empty  oil  barrels ;  labor 25 

20  semipermanent  houses : 

59.  Build  500  feet  of  6-'nch  sewer  (pipe  on  hand)  ;  labor 100 

^  '^  --         - gQ 


houses  (paint  on  hand)  ;  labor. 


60.  Paint  the  outside  of  4 
12  permanent  houses: 

61.  Complete  the  inside  of  painting  of  house  No.  5 

62.  Complete  the  outside  painting  and  do  all  of  the  inside"  painting 

on  house  No.  6  (paint  on  hand)  ;  labor 

63.  Lay  floors  in  house  No.  8 ;  give  2  coats  of  paint  inside,  1  coat  of 

paint   outside;   erect   hot- water   tank    (material   on   hand)  • 
labor ' 

64.  Screen  all  of  the  12 

labor 

Niles  crane: 

65.  Repa'r  niles  crane,  installing  2 

$10;   labor,  $20 

66.  Repair  automatic  stop  for  crane;  labor 


permanent  houses    (material  on  hand) 


new  sheaves;  sheaves  ordered. 


25 

100 


250 

200 


30 
25 


Cleaning  up: 

67.  Cleaning  up  property,  dismantling  temporary  structures  and 
buildings ;  collect  and  store  all  salvaged  material  at  places  at 
Gorgas  satisfactory  to  thii  contracting  officer  or  his  authorized 
representative,  making  a  complete  list  of  all  such  materials; 
this  does  not  include  crating,  dismantling,  and  packing  ma- 
chinery and  equipment  and  does  not  include  storing  or  moving 
salvaged  materials  after  same  have  been  placed  or  stored  at 
said  location  once  designated  by  contracting  officer $1.500 

Total  amount 17, 300 

Article  III. 

PAYMENT. 

(a)  For  and  in  consideration  of  the  contractor's  acceptance  of  the  accom- 
plishment of  the  above  67  items,  and  upon  receipt  of  a  certiflcate  from  the  con- 
tractor that  the  Alabama  Power  Co.  accepts  the  above  67  items  as  accomplished, 
and  the  "  Warrior  Extension,"  "  Warrior  Substation,"  "  Warrior-Muscle  Shoals 
Transmission  Line,"  and  the  "  Muscle  Shoals  Substation  "  as  complete  and  ready 
for  use  in  the  performance  of  contract  T-69,  the  United  States  of  America  shall 
pay  to  the  contractor  the  sum  of  $17,300. 

(6)  In  reference  to  item  37  of  the  schedule  contained  in  Article  II  hereof.  It 
is  agreed  that  for  the  specified  sum  of  $2,500  the  contractor  will  furnish  super- 
intendence, labor,  fuel,  lubricants,  and  miscellaneous  supplies,  necessary  for 
the  final  test  of  the  30,000  kilowatt  General  Electric  steam  turbogenerator  and 
auxiliaries,  and  will  conduct  such  test;  it  being  understood,  however,  that 
should  conditions  beyond  the  control  of  the  Alabama  Power  Co.  require  that 
additional  test  or  tests  be  made  in  connection  with  the  30,000  kilowatt  steam 
turbogenerator  included  under  item  No.  37  above,  and  involving  an  expense  in 
excess  of  the  sum  of  $2,500  as  agreed  upon  for  that  item,  the  Alabama  Power 
Co.  will  not  be  obliged  to  make  same,  but  the  contracting  officer  may  request 
that  same  be  done  at  the  further  expense  of  the  United  States. 

(c)  The  contractor  shall  not  be  liable  for  accident  or  damages  arising  from 
or  occurring  during  the  test  of  the  said  30,000  kilowatt  steam  turbogenerator 
and  auxiliaries  included  under  said  item  No.  37  of  said  schedule  or  for  any 
modification  of  the  same  as  they  are  set  up  in  said  original  contract. 

Article  IV. 

This  contract  is  made  in  pursuance  of  a  certain  proposal  made  by  the  Alabama 
Power  Co.  to  Col.  J.  W.  Joyes,  dated  May  24, 1919,  and  an  acceptance  thereof  by 
Col.  Joyes  dated  May  24,  1919,  copies  of  which  are  attached  hereto  marked 
"  Exhibit  B  "  and  made  a  part  hereof,  and  the  rights  of  the  parties  under  this 
contract  shall  be  defined  by  such  proposal  and  acceptance  unless  otherwise 
specifically  provided  herein. 

The  United  States  shall  not  be  released  from  any  obligation  or  responsibility 
on  commitments  made  as  provided  for  in  said  original  contract,  on  or  before 
April  15,  1919. 

The  United  States  shall  not  be  relieved  of  any  responsibility  to  the  contractor 
resulting  from  the  performance  of  the  work  covered  by  said  original  contract 
nor  does  the  contractor  release  or  waive  any  claims  not  heretofore  allowed 
under  said  original  contract. 

This  contract,  including  the  proposal  and  acx?eptance  above  referred  to,  does 
not  change,  alter,  or  amend  the  terms,  conditions  and  obligations  contained 
in  the  original  contract  except  as  herein  specifically  set  out. 

In  witness  whereof,  the  i)arties  hereto  have  caused  this  contract  to  be  executed 
in  sextuplicate  on  the  day  and  year  first  above  written,  at  Washington,  D.  C, 
by  their  officers  thereunto  duly  authorized. 

United  States  of  America, 
By  R.  H.  Hawrins, 
Lieutenant  Colonel,  Ordnance  Department, 

Witness  •  United  States  Army,  Contracting  Officer. 

Genevieve  Strohl. 


Attest : 

Walter  M.  Hood,  Secietary. 
(United  States  of  America  Seal.) 
(Alabama  Power  Co.  Seal.) 

92900—22 42 


Alabama  Power  Co., 
By  W.  N.  Walmsley, 
Its  General  Manager,  Contractor. 


hi 


y 


656 


MUSCLE  SHOALS  PROPOSITIONS. 


m 


4fi 


State  of  Alabama,  Jefferson  County. 

I,  Walter  M.  Hood,  secretary  of  Alabama  Power  Co.,  do  hereby  certify  that 
the  following  resolution  was  unanimously  adopted  by  the  board  of  directors 
of  said  company  at  its  regular  meeting  held  at  the  office  of  the  company  in  the 
Brown-Marx  Building,  in  the  city  of  Birmingham,  Ala.,  on  March  9,  1919,  a 
quorum  of  the  board  being  present : 

"  Hesolved,  That  her<^after  the  signatures  of  two  persons,  officers  or  employees 
of  the  company,  shall  be  affixed  to  checks  and  acceptances,  and  that  the  board 
hereby  authorizes  to  sign  such  checks  and  acceptances  the  president,  the  vice 
president,  the  general  manager,  the  assistant  to  the  president,  or  the  assistant 
general  manager,  and  the  treasurer,  the  assistant  treasurer,  or  the  auditor ;  and 
for  bills,  receipts,  and  indorsements  for  deposit,  the  president,  vice  president, 
general  manager,  treasurer,  assistant  treasurer,  or  auditor ;  and  for  notes,  leases, 
contracts,  and  documents,  the  president,  vice  president,  or  general  manager,  and 
the  secretary  or  assistant  secretary." 

And  I  further  certify  that  the  following  officers  of  the  company  were  elected 
at  said  meeting  for  the  ensuing  term  and  until  their  successors  are  elected  and 
qualified:  James  Mitchell,  president ;  Thomas  W.  Martin,  vice  president;  Walter 
M.  Hood,  secretary ;  H.  S.  Swan,  treasurer ;  H.  S.  Swan,  assistant  secretary ; 
M.  P.  Randall,  assistant  secretary :  and  M.  P.  Randall,  assistant  treasurer. 

And  I  do  further  certify  that  Mr.  W.  N.  Walmsley  was  heretofore  on,  to  wit, 
July  1,  1916,  duly  appointed  general  manager  of  the  company  by  the  president, 
and  that  he  is  now"  acting  in  such  capacity. 

Given  under  my  hand  and  the  seal  of  said  company  at  its  office  in  the  city  of 
Birmingham,  Ala.,  on  this  the  11th  day  of  September,  1919. 

Walter  M.  Hood, 
Secretary  Alabama  Power  Co, 


Exhibit  A. 

(Inserted  at  this  place  is  copy  of  the  contract,  dated  December  1,  1917,  be- 
tween Alabama  Power  Co.  and  the  United  States  of  America,  and  known  as  con- 
tract T-69.  which  contract  has  heretofore  been  placed  in  the  record  of  these 
hearings  at  page  146,  et  seq.) 


Exhibit  B. 


ALABAMA   POWER   CO. 


Washington,  D.  C,  May  2Jf,  1919. 

Col.   J.  W.  JOYES, 

Chief  Nitrate  Dimsion  Ordnance  Department, 
United  States  Army,  Washington,  D.  C. 

Subject:  Contract  T-69. 

Sir:  The  certain  items  of  work  remaining  to  be  done  under  contract  T-69, 
and  as  shown  on  the  accompanying  schedule,  Alabama  Power  Co.,  will  com- 
plete for  its  account  upon  the  payment  to  it  of  $17,500  by  the  United  States. 

Such  material  and  supplies  belonging  to  the  United  States,  purchased  for 
use  in  connection  with  this  contract,  which  may  be  necessary  for  the  com- 
pletion of  the  above-mentioned  work,  will  be  available  to  Alabama  Power  Co. 
free  of  charge. 

The  above  sum  includes  the  cost  of  testing  of  the  Warrior  extension,  esti- 
mated at  $2,500.  Should  conditions  beyond  the  control  of  Alabama  Power  Co. 
require  that  an  additional  test  or  tests  be  made,  then  Alabama  Power  Co. 
will  not  be  obligated  to  make  same,  but  the  contracting  officer  may  request  that 
same  be  done  at  the  expense  of  the  United  States. 

The  completion  of  the  items  shown  on  the  attached  schedule  will,  in  our 
judgment,  fulfill  the  conditions  and  intent  of  the  construction  program  covered 
by  contract  T-69  as  instructed  by  you  February  19,  1919  (T-108453). 

It  is  the  understanding  that  no  further  work  under  this  contract  is  to  be 
done  at  the  expense  of  the  United  States  unless  same  may  be  specifically  ordered 
by  the  contracting  officer,  and,  consequently,  upon  the  completion  of  the  work 


MUSCLE  SHOALS  PROPOSITIONS. 


657 


herein  mentioned,  the  construction  features  of  contract  T-69  will  be  considered 
to  be  finished. 

It  is  not  intended  that  the  payment  to  Alabama  Power  Co.  of  the  $17,500 
above  referred  to  will  commit  Alabama  Power  Co.  to  responsibility  for  com- 
mitments or  obligations  incurred  by  the  United  States  in  connection  with  this 
contract,  or  for  any  claims  which  may  arise  thereunder. 

Alabama  Power  Co., 
By  W.  N.  Walmsley,  General  Manager, 

I  certify  that  the  above  is  a  true  copy  of  the  original. 

C.  F.  Beames, 
Lieutenant  CoMiel,  Ordnance  Department  United  States  Army. 


May  24,  1919. 

From:  J.  W.  Joyes,  colonel.  Ordnance  Department,  United  States  Army,  con- 
tracting officer. 

To:  Alabama  Power  Co. 

Subject:  Contract  T-69  dated  December  1,  .1917:  Acceptance  of  proposal  of 
May  24, 1919,  for  certain  work ;  notice  of  termination  of  period  of  preliminary 
operation,  article  14 ;  notice  of  suspension  of  demand,  article  21. 

1.  With  mutual  consent  and  agreement  on  your  part  and  on  that  of  the 
contracting  officer,  and  because  of  actual  unreadiness  of  the  turbogenerator 
pertaining  to  the  Warrior  extension,  the  Chief  of  Ordnance  has  deemed  that 
the  Warrior  extension  (and  therefore  "the  Warrior  extension,  the  Warrior 
substation,  and  the  transmission  line")  was  (and  were)  not,  on  December 
1,  1918,  and  is  (and  are)  not,  at  this  date,  "complete  and  ready  for  use  in  the 
performance  of  this  contract." 

2.  Your  proposal  in  your  letter  of  May  24,  1919,  to  complete  the  several  minor 
items  of  work  now  unfinished  and  the  testing  of  the  Warrior  extension  still 
needed  for  the  sum  of  $17,500  is  accepted  as  submitted.  This  understanding 
will  be  confirmed  by  a  contract  (supplemental)  providing  for  payment  of  that 
sum — $17,500 — by  the  United  States  upon  your  certificate  that  you  accept  the 
items  as  accomplished  and  the  Warrior  extension  as  complete  and  ready  for 
use  in  the  performance  of  this  contract  not  later  than  July  31,  1919. 

3.  The  Chief  of  Ordnance  now  deems  that,  for  the  purposes  of  the  definition 
in  article  14,  and  of  the  provisions  thereof,  the  Warrior  extension,  the  Warrior 
substatioui  and  the  transmission  line  will  be  complete  and  ready  for  use  in  the 
performance  of  this  contract  on  the  31st  day  of  July,  1919,  and  therefore  sets  that 
date  as  the  definite  date  of  termination  of  the  period  of  preliminary  operation 
defined  in  article  14  of  the  contract. 

4.  As  this  date  is  set  in  advance,  your  written  acceptance  thereof  is  re- 
quested in  order  that  for  mutual  convenience  there  may  be  no  future  mis- 
understanding or  doubt. 

5.  Furthermore,  the  United  States,  by  me,  the  undersigned  contracting  officer, 
hereby  serves  upon  you  this  written  notice  as  contemplated  and  provided  for 
by  article  21  that  the  United  States  does  hereby  suspend  as  of  July  31,  1919, 
its  demand  for  energy  provided  for  by  said  article  21,  and  that  having  allowed 
the  full  60  days'  notice  (and  more)  the  United  States  does  from  and  after  said 
31st  day  of  July,  1919,  and  during  the  period  of  such  suspension  as  provided, 
stand  relieved  of  its  obligation  to  make  the  minimum  monthly  payment  of 
$30,000  and  the  contractor  does,  correspondingly  and  during  the  same  period, 
stand  relieved  of  the  payments  mentioned  in  subdivision  (1)  of  article  17. 

6.  For  certainty  of  mutual  understanding  your  written  acceptance  of  this 
notice  and  of  such  effect  thereof  under  article  21  is  requested. 

J.  W.  Joyes, 
Colonel,  Ordnance  Department,  United  States  Army, 

Conir acting  Officer. 

Mr.  Dent  calls  attention  to  one  other  act  which  I  wish  to  mention.  There 
^yas  passed  by  Congress  an  act  which  was  approved  on  March  2,  1919,  entitled 
"An  act  to  provide  relief  in  the  cases  of  contracts  connected  with  the  prose- 
cution of  the  war,  and  for  other  purposes,"  which  reads  as  follows: 

''Be  it  enacted  by  the  Senate  and  House  of  Representatives  of  the  United 
States  of  America  in  Congress  assemtblcd.  That  the  Secretary  of  War  be,  and 


I 


658 


MUSCLE  SHOALS  PROPOSITIONS. 


he  is  herfeby,  authorized  to  adjust,  pay,  or  discharge  any  agreement,  express 
or  implied,  upon  a  fair  and  equitable  basis  that  has  been  entered  into,  in  good 
faith  during  the  present  emergency  and  prior  to  November  12,  1918,  by  any 
officer  or  agent  acting  under  his  authority,  direction,  or  instruction,  or  that 
of  the  President,  with  any  person,  firm,  or  corporation  for  the  acquisition  of 
lands,  or  the  use  thereof,  or  for  damages  resulting  from  notice  oy  the  Govern- 
ment of  its  intention  to  acquire  or  use  said  lands,  or  for  the  production,  manu- 
facture, sale,  acquisition  or  control  of  equipment,  materials  or  supplies,  or  for 
services,  or  for  facilities,  or  other  purposes  connected  with  the  prosecution 
of  the  war.  when  such  agreement  has  been  performed  in  whole  or  in  part, 
or  expenditures  have  been  made  or  obligations  incurred  upon  the  faith  of  the 
same  by  any  such  person,  firm,  or  corporation  prior  to  November  12,  1918. 
and  such  agreement  has  not  been  executed  in  the  manner  prescribed  by  law: 
Provided,  That  in  no  case  shall  any  award,  either  by  the  Secretary  of  War 
or  the  Court  of  Claims,  include  the  prospective  or  possible  profits  on  any  part 
of  the  contract  beyond  the  goods  and  supplies  delivered  to  and  accepted  by 
the  United  States  and  a  reasonable  remuneration  for  expenditures  and  obli- 
gations or  liabilities  necessarily  incurred  in  performing  or  preparing  to 
perform  said  contract  or  order:  Provided  futher,  That  this  act  shall  not 
authorize  payment  to  be  made  of  any  claim  not  presented  before  June  30, 
1919:  And  provided  further,  That  the  Secretary  of  War  shall  report  to  Con- 
gress at  the  beginning  of  its  next  session  following  June  30,  1919,  a  detailed 
statement  showing  the  nature,  terms,  and  conditions  of  every  such  agreement 
and  the  payment  or  adjustment  thereof:  And  provided  further.  That  no  settle 
ment  of  any  claim  arising  under  any  such  agreement  shall  bar  the  United 
States  Government  through  any  of  its  duly  authorized  agencies,  or  any  com- 
mittee of  Congress  hereafter  duly  appointed,  from  the  right  of  review  of  such 
settlement,  nor  the  right  of  recovery  of  any  money  paid  by  the  Government 
to  any  party  under  any  settlement  entered  into,  or  payment  made  under  the 
provisions  of  this  act,  if  the  Government  has  been  defrauded,  and  the  right 
of  recovery  in  all  such  cases  shall  exist  against  the  executors,  administrators, 
heirs,  successors,  and  assigns  of  any  party  or  parties:  And  provided  further. 
That  nothing  in  this  act  shall  be  construed  to  relieve  any  officer  or  agent  of 
the  United  States  from  criminal  prosecution  under  the  provisions  of  any 
statute  of  the  United  States  for  any  fraud  or  criminal  conduct :  And  provided 
further.  That  this  act  shall  in  no  way  relieve  or  excuse  any  officer  or  liis 
agent  from  such  criminal  prosecution  because  of  any  irregularity  or  illegality 
in  the  manner  of  the  execution  of  such  agrement:  And  provided  further, 
That  in  all  proceedings  hereunder  witnesses  may  be  compelled  to  attend,  ap- 
pear, and  testify,  and  produce  books,  papers,  and  letters,  or  other  documents; 
and  the  claim  that  any  such  testimony  or  evidence  may  tend  to  criminate  the 
person  giving  the  same  shall  not  excuse  such  witness  from  testifying,  but 
such  evidence  or  testimony  shall  not  be  used  against  such  person  in  the  trial 
of  any  criminal  proceeding. 

"  Sec.  2.  That  the  Court  of  Claims  is  hereby  given  jurisdiction  on  petition 
of  any  individual,  firm,  company,  or  corporation  referred  to  in  section  1 
hereof,  to  find  and  award  fair  and  just  compensation  in  the  cases  specified 
in  said  section  in  the  event  that  such  individual,  firm,  company,  or  corpo- 
ration shall  not  be  willing  to  accept  the  adjustment,  payment,  or  compensa- 
tion offered  by  the  Secretary  of  War  as  hereinbefore  provided,  or  in  the 
event  that  the  Secretary  of  War  shall  fail  or  refuse  to  offer  a  satisfactory 
adjustment,  payment,  or  compensation   as  provided  for   in  said   section. 

"  Sec.  3.  That  the  Secretary  of  War.  through  such  agency  as  he  may  des- 
ignate or  establish,  is  empowered,  upon  such  terms  as  he  or  it  may  deter- 
mine to  be  in  the  interest  of  the  United  States,  to  make  equitable  and  fan- 
adjustments  and  agreements,  upon  the  termination  or  in  settlement  or  re- 
adjustment of  agreements  or  arrangements  entered  into  with  any  foreifoi 
Government  or  Governments  or  nationals  thereof  prior  to  November  12,  1918, 
for  the  furnishing  to  the  American  Expeditionary  Forces,  or  otherwise  for 
war  purposes,  of  supplies,  materials,  facilities,  services,  or  the  use  of  prop- 
erty, or  for  the  furnishing  thereof  by  the  United  States  to  any  foreign  Gov- 
ernment or  Governments,  whether  or  not  such  agreements  or  arrangement? 
have  been  entered  into  in  accordance  with  applicable  statutory  provisions; 
and  the  other  provisions  of  this  act  shall  not  be  applicable  to  such  adjust- 
ments, p 

"  Sec.  4.  That  whenever  under  the  provisions  of  this  act  the  Secretary  oi 
War  shall  make  an  award  to  any  prime  contractor  with  respect  to  any  por- 


MUSCLE   SHOALS  PROPOSITIONS. 


659 


tion  of  his  contract  which  he  shall  have  sublet  to  any  other  person,  firm,  or 
corporation  who  has  in  good  faith  made  expenditures,  incurred  obligations, 
rendered  service,  or  furnished  material,  equipment,  or  supplies  to  such  prime 
contractor,  with  the  knowledge  and  approval  of  any  agent  of  the  Secretary 
of  War  duly  authorized  thereunto,  before  payment  of  said  award  to  Sec- 
retary of  War  shall  require  such  prime  contractor  to  present  satisfactory 
evidence  of  having  paid  said  subcontractor  or  of  the  consent  of  said  sub- 
contractor to  look  for  his  compensation  to  said  prime  contractor  only;  and 
in  the  case  of  the  failure  of  said  prime  contractor  to  present  such  evidence  or 
such  consent,  the  Secretary  of  War  shall  pay  directly  to  said  subcontractor 
the  amount  found  to  be  due  under  said  award;  and  in  case  of  the  insolvency 
of  any  prime  contractor,  the  subcontractor  of  said  prime  contractor  shall  have 
a  lien  upon  the  funds  arising  from  said  award  prior  and  superior  to  the  lien 
of  any  general  creditor  of  said  prime  contractor. 

"  Sec.  5.  That  the  Secretary  of  the  Interior  be,  and  he  hereby  is,  authorized 
to  adjust,  liquidate,  and  pay  such  net  losses  as  have  been  suffered  by  any 
person,  firm,  or  corporation  by  reason  of  producing  or  preparing  to  produce 
either  manganese,  chrome,  pirites,  or  tungsten  in  compliance  with  the  re- 
quest or  demand  of  the  Department  of  the  Interior,  the  War  Industries  Board, 
the  War  Trade  Board,  the  Shipping  Board,  or  the  Emergency  Fleet  Corpora- 
tion to  supply  the  urgent  needs  of  the  Nation  in  the  prosecution  of  the  war; 
said  minerals  to  be  enumerated  in  the  act  of  Congress  approved  October  5, 
1918,  entitled  *  An  act  to  provide  further  for  the  national  security  and  defense 
by  encouraging  the  production,  conserving  the  supply,  and  controlling  the  dis- 
tribution of  those  ores,  metals,  and  minerals  which  have  formerly  been  largely 
imported,  or  of  which  there  is  or  may  be  an  inadequate  supply.' 

"The  said  Secretary  shall  make  such  adjustments  and  payments  in  each 
case  as  he  shall  determine  to  be  just  and  equitable;  that  the  decision  of  said 
Secretary  shall  be  conclusive  and  final,  subject  to  the  limitation  hereinafter 
provided;  that  all  payments  and  expenses  incurred  by  said  Secretary,  includ- 
ing personal  services,  traveling  and  subsistence  expenses,  supplies,  postage, 
printing,  and  all  other  expenses  incident  to  the  proper  prosecution  of  this 
work,  both  in  the  District  of  Columbia  and  elsewhere,  as  the  Secretary  of 
the  Interior  may  deem  essential  and  proper,  shall  be  paid  from  the  funds 
appropriated  by  the  said  act  of  October  5,  1918,  and  that  said  funds  and  ap- 
propriations shall  continue  to  be  available  for  said  purpose  until  such  time 
as  the  said  Secretary  shall  have  fully  exercised  the  authority  herein  granted 
and  performed  and  completed  the  duties  hereby  provided  and  imposed:  Pro- 
vided, hotvever,  That  the  payments  and  disbursements  made  under  the  pro- 
visions of  this  section  for  and  in  connection  with  the  payments  and  settle- 
ments of  the  claims  herein  described,  and  the  said  expenses  and  administra- 
tion shall  in  no  event  exceed  the  sum  of  $8,500,000:  And  provided  further, 
That  said  Secretary  shall  consider,  approve,  and  dispose  of  only  such  claims 
as  shall  be  made  hereunder  and  filed  with  the  Department  of  the  Interior 
within  three  months  from  and  after  the  approval  of  this  act:  And  provided 
further.  That  no  claim  shall  be  allowed  or  paid  by  said  Secretary  unless  it 
shall  appear  to  the  satisfaction  of  the  said  Secretary  that  the  expenditures 
so  made  or  obligations  so  incurred  by  the  claimant  were  made  in  good  faith 
for  or  upon  property  which  contained  either  manganese,  chrome,  pyrites,  or 
tungsten  in  sufficient  quantities  to  be  of  commercial  importance :  And  provided 
further.  That  no  claim  shall  be  paid  unless  it  shall  appear  to  the  satisfaction 
of  said  Secretary  that  moneys  were  invested  or  obligations  were  incurred 
subsequent  to  April  6,  1917,  and  prior  to  November  12,  1918,  in  a  legitimate 
attempt  to  produce  either  manganese,  chrome,  pyrites,  or  tungsten  for  the 
needs  of  the  Nation  for  the  prosecution  of  the  war,  and  that  no  profits  of 
any  kind  shall  be  included  in  the  allowance  of  any  of  said  claims,  and  that 
no  investment  for  merely  speculative  purposes  shall  be  recognized  in  any 
uianner  by  said  Secretary:  And  provided  further,  That  the  settlement  of  any 
claim  arising  under  the  provisions  of  this  section  shall  not  bar  the  United 
States  Government,  through  any  of  its  duly  authorized  agencies,  or  any  com- 
mittee of  Congress  hereafter  duly  appointed,  from  the  right  of  review  of  such 
settlement,  nor  the  right  to  recover  any  money  paid  by  the  Government  to 
any  party  under  and  by  virtue  of  the  provisions  of  this  section,  if  the  Gov- 
ernment has  been  defrauded,  and  the  right  of  recovery  in  all  such  cases  shall 
extend  to  the  executors,  administrators,  heirs,  and  assigns  of  any  party. 

"That  a  report  of  all  operations  under  this  section,  including  receipts  and 
^disbursements,  shall  be  made  to  Congress  on  or  before  the  first  Monday  in 
I^ecember  of  each  year. 


660 


MUSCLE  SHOALS  PROPOSITIONS. 


"  That  nothing  in  this  section  shall  be  construed  to  confer  jurisdiction  upon 
any  court  to  entertain  a  suit  against  the  United  States:  Promded  further. 
That  in  determining  the  net  losses  of  any  claimant  the  Secretary  of  the  In- 
terior shall,  among  other  things,  take  into  consideration  and  charge  to  the 
claimant  the  then  market  value  of  any  ores  or  minerals  on  hand  belonginjr 
to  the  claimant,  and  also  the  salvage  or  usable  value  of  any  machinery  or 
other  appliances  which  may  be  claimed  was  purchased  to  equip  said  mine  for 
the  purpose  of  complying  with  the  request  or  demand  of  the  agencies  of  the 
Government  above  mentioned  in  the  manner  aforesaid." 

The  Chairman.  That  is  the  so-called  Dent  Act? 

Mr.  Martin.  Yes. 

The  Chairman.  I  think  we  can  put  that  into  the  hearings.  Have  you  filed 
any  claims  under  that  law? 

Mr.  Martin.  No,  sir. 

Mr.  Dent.  It  was  not  necessary  to  file  any  claims  because  they  had  no  money 
demand  against  the  Government. 

The  Chairman.  Of  course  that  act,  as  I  recall  it,  was  passed  in  order  to 
validate  those  claims  that  had  been  entered  into  informally  and  not  in  accord- 
ance with  the  strict  letter  of  the  law. 

Mr.  Martin.  Yes. 

The  Chairman.  You  had  no  such  claims. 

Mr.  Martin.  If  there  was  any  informality  in  the  execution  of  the  contract— 
and  I  am  not  aware  of  it — this  law  would  reach  the  question. 

The  Chairman.  Then  it  may  not  be  necessary  to  put  that  in  the  hearings? 

Mr.  Dent.  I  do  not  know  that  it  is  necessary  to  put  it  into  the  hearings,  but 
a  reference  to  it  may  be  necessary  because  I  expect  to  use  it  in  what  I  have  to 
say  to  the  committee. 

The  Chairman.  Very  well.    Is  there  anything  else,  Mr.  Martin? 

Mr.  Martin.  I  will  be  very  glad  to  answer  any  questions  the  committee  may 
desire  to  ask  me. 

Mr.  McKenzie.  Mr.  Martin,  in  order  that  I  may  get  a  picture  of  this  whole 
thing  firmly  fixed  in  my  mind,  I  want  to  ask  you  a  few  questions.  As  I  under- 
stand your  testimony  your  company  in  the  fall  of  1917,  was  operating  a  plant 
known  as  the  Gorgas  plant,  on  the  Warrior  River  in  Alabama,  and  selling  your 
product  to  the  people  living  in  the  surrounding  towns  and  villages,  and  going  on 
about  your  business  practically  unmindful  of  the  fact  that  we  were  at  war? 
Is  that  true? 

Mr.  Martin.  No ;  I  do  not  put  it  that  way.  Of  course,  we  all  knew  we  were 
at  war,  because  every  plant  we  had  was  affected  and  this  Warrior  plant  was 
affected,  and  80  per  cent  of  our  entire  output  was  supplied  to  plants  in  the 
Birmingham  district  and  other  parts  of  our  State  engaged  in  the  manufacture 
of  war  material. 

Mr.  McKenzie.  Up  to  that  time,  as  I  understood  you,  Mr.  Martin,  you  had  not 
entered  into  any  negotiations  with  the  Government,  or  made  any  tender  of  the 
services  of  your  plant  to  enable  the  Government  to  better  prosecute  the  war? 

Mr.  Martin.  The  question  did  not  come  up  until  November,  1917.  The  ques- 
tion was  where  the  nitrate  plant  might  be  located,  and  it  only  came  up  in  No- 
vember, 1917. 

Mr.  McKenzie.  I  am  just  trying  to  get  this  picture  of  the  situation  down 
there.  So  far  as  your  corporation  was  concerned,  you  had  not  made  any  tender 
and  had  not  entered  into  negotiations  with  the  Government  to  assist  in  the 
prosecution  of  the  war,  so  far  as  this  particular  plant  was  concerned? 

Mr.  Martin.  We  had  notified  Col.  Joyes  that  that  plant  was  there  and  at 
his  service. 

Mr.  McKenzie.  Did  Col.  Joyes  reply  to  that? 

Mr.  Martin.  In  several  conversations  we  did  discuss  it,  and  we  acquainted 
him  with  the  situation.  Of  course,  we  told  Col.  Joyes  that  the  plant  was  there 
and  we  would  be  glad  to  do  anything  he  cared  to  have  us  do  about  it. 

Mr.  McKenzie.  You  stated  along  about  that  time,  however,  Mr.  Waslibnrn 
came  to  see  you,  or  came  to  see  the  ofllcers  of  your  company,  and  suggested  that 
the  plant  might  be  enlarged,  or  something  to  that  effect. 

Mr.  Martin.  I  think  he  just  telephoned  Mr.  Mitchell,  the  president,  to  take 
up  the  matter  with  Gen.  Crozier,  and  that  is  the  way  it  came  up. 

Mr.  McKenzie.  At  that  time  Mr.  Washburn  was  a  stockholder  in  the  Alabama 
Power  Co.,  was  he  not? 

Mr.  Martin.  He  was  a  stockholder. 


MUSCLE   SHOALS  PROPOSITIONS. 


661 


Mr.  McKenzie.  What  other  position  did  he  hold  in  connection  with  any  other 
company  or  corporation? 

Mr.  Martin.  Connected  with  us? 

Mr.  McKenzie.  Any  other  corporation  or  company. 

Mr.  Martin.  I  do  not  know  that — he  was  president  of  the  American  Cyanamid 
Co.,  but  he  was  not  connected  with  us  in  any  other  way. 

Mr.  McKenzie.  But  he  Was  a  stockholder  in  your  company. 

Mr.  Martin.  Yes. 

Mr.  McKenzie.  At  the  same  time  he  was  president  of  the  American  Cyanamid 
Co. 

Mr.  Martin.  Yes. 

Mr.  McKenzie.  And  the  American  Cyanamid  Co.,  as  has  been  testified  to 
here,  controlled  the  patent  under  which  the  fixation  of  nitrogen  of  the  air  is 
carried  on. 

Mr.  Martin.  I  only  know  what  the  record  states.  I  have  no  comments  to 
make  on  that,  because  I  only  know  what  is  in  the  record. 

Mr.  McKenzie.  Some  years  back,  of  which  you  perhaps  have  some  knowledge, 
Mr.  Washburn  and  those  connected  with  him  at  that  time,  in  1916,  and  prior 
to  that  time  had  endeavored  to  get  the  Government  to  begin  the  construction 
of  certain  plants  at  Muscle  Shoals  for  the  purpose  of  manufacturing  nitrate, 
or  adopting  a  system  of  the  fixation  of  nitrogen  from  the  air;  is  that  true? 

Mr.  Martin.  I  only  have  heard  it  mentioned  here ;  I  had  no  contiection  with  it. 

Mr.  McKenzie.  You  have  no  knowledge  of  it.  In  December,  I  think  you 
said  it  was,  you  had  your  first  consultation  with  the  representative  of  the 
Government  in  connection  with  this  matter,  and  the  representative  with  whom 
you  talked  was  a  Mr.  Williams? 

Mr.  Martin.  No,  sir;  Col.  Joyes,  representing  the  Ordnance  Department. 

Mr.  McKenzie.  Representing  the  Ordnance  Department? 

Mr.  Martin.  Yes. 

Mr.  McKenzie.  From  that  conversation  you  entered  into  a  sort  of  verbal 
agreement  as  to  what  you  were  to  do  down  on  the  Warrior  River  in  connection 
with  the  Muscle  Shoals  proposition.  Had  the  work  begun  at  Muscle  Shoals  at 
that  time? 

Mr.  Martin.  I  am  sure  I  do  not  know,  Mr.  McKenzie. 

Mr.  McKenzie.  You  are  not  sure  tbout  it? 

Mr.  Martin.  I  do  not  know. 

Mr.  McKenzie.  Do  you  know  what  company  contracted  with  the  Government 
for  the  construction  of  a  plant  by  the  Government  for  the  manufacture  of 
nitrates? 

Mr.  Martin.  The  contractors? 

Mr   j^pkenzie   Yes 

Mr.  Martin.  I  think  it  was  the  J.  G.  White  Co.  It  is  my  recollection  that 
they  were  the  contractors. 

Mr.  McKenzie.  I  mean  the  contractor  that  undertook  the  construction  of  the 
plant.    Was  it  the  Air  Nitrates  Corporation? 

Mr.  Martin.  I  have  heard  that  testimony  here. 

Mr.  McKenzie.  Do  you  know  whether  or  not  that  is  a  subsidiary  of  the 
American  Cyanamid  Co.? 

Mr.  Martin.  I  only  know  what  has  been  testified  to  here. 

Mr.  McKenzie.  You  do  not  know  that  as  a  fact? 

Mr.  Martin.  No,  sir ;  I  do  not. 

Mr.  McKenzie.  Up  to  that  time  there  had  not  been  any  work  performed  on 
Muscle  Shoals  on  that  proposition, 

Mr.  Martin.  I  can  neither  say  yes  or  no,  because  I  do  not  recall  anything 

about  it. 

Mr.  McKenzie.  There  was  no  activity  at  Muscle  Shoals  at  that  time,  as  I 
understand  it.  and  immediately  after  your  company,  or  the  representatives  of 
your  company,  had  this  conversation  with  the  representative  of  the  War  De- 
partment you  proceeded  to  buy  the  right  of  way,  as  I  understand  it,  for  the 
transmission  line  from  the  Gorgas  plant  to  Muscle  Shoals. 

Mr.  Martin.  No;  we  had  the  right  of  way,  and  for  about  one-third  of  the 
distance  we  had  service  lines  on  it,  serving  other  districts,  and  on  the  sugges- 
tion of  Col.  Joyes,  or  at  his  request,  we  had  to  purchase  the  remainder  of  the 

right  of  way. 
Mr.  McKenzie.  You  proceeded  to  purchase  the  right  of  way  up  to  Muscle 

Shoals? 
Mr.  Martin.  Yes. 


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MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


663 


Mr.  McICenzie.  That  was  prior  to  the  commencement  of  the  construction 
work  at  Muscle  Shoals,  was  it  not? 

Mr.  Maktin.  I  do  not  know, 

Mr.  McKenzie.  You  are  not  sure  about  it? 

Mr.  Martin.  No,  sir ;  I  am  not  sure  about  it. 

Mr.  McKenzie.  Did  you  purchase  that  right  of  way  with  the  funds  of  the 
Alabama  Power  Co.,  or  with  money  furnished  by  the  Government? 

Mr.  Martin.  With  the  funds  of  the  Alabama  Power  Co. 

Mr.  McKenzie.  You  own  that  in  fee? 

Mr.  Martin.  We  own  the  easement  in  fee ;  we  do  not  have  a  fee  title. 

Mr.  McKenzie.  The  right  of  way? 

Mr.  Martin.  The  right  of  way. 

Mr.  McKenzie.  And  over  that  right  of  way  you  proceeded  to  construct  the 
transmission  line  from  your  Gorgas  plant  to  Muscle  Shoals,  and  did  con- 
struct it. 

Mr.  Martin.  Yes,  sir;  and  it  was  in  operation  for  a  distance  of  88  miles 
within  five  months,  long  before  there  were  any  Warrior  extension,  and  we 
were  supplying  power  over  it  within  five  months  for  the  use  of  the  Govern- 
ment. 

Mr.  McKenzie.  Was  that  done  to  help  out  the  Government? 

Mr.  Martin.  That  is  what  we  did  it  for. 

Mr.  McKenzie.  Was  your  purpose  to  help  out  the  Government,  or  having  in 
mind  the  sale  of  power? 

Mr.  Martin.  Well,  we  did  it  because  the  Government  requested  us  to  do  it. 
The  question  of  the  sale  of  power — the  primary  question  was  that  the  Goverp- 
ment  wanted  the  power. 

Mr.  McKenzie.  Let  us  keep  this  in  mind.  Mr.  Washburn  came  to  see  you, 
and  after  Mr.  Washburn  came  to  see  you  you  had  this  interview  with  the 
representatives  of  the  Government  and  they  requested  you  to  build  this  trans- 
mission line  from  the  Gorgas  plant,  on  the  Warrior,  up  to  Muscle  Shoals, 
alleging  that  it  was  necessary  to  aid  the  Government  in  carrying  on  the  war. 

Mr.  Martin.  I  would  not  say  alleging;  I  can  only  speak  of  the  way  those 
gentlemen  treated  it. 

Mr.  McKenzie.  I  do  not  want  to  put  the  matter  in  a  false  light. 

Mr.  Martin.  Col.  Joyes  said  his  plan  was  to  construct  a  nitrate  plant  and  to 
have  the  first  unit  or  division  of  it  in  operation  in  six  months,  and  our  system 
furnished  the  only  available  means  of  getting  power  for  the  operation  of  the 
unit  in  that  time. 

Mr.  McKenzie.  Going  back  a  little,  Mr.  Martin,  when  you  constructed  the 
original  plant  on  the  W^arrior  River  at  Gorgas,  you  laid  the  foundation  for  a 
3-unit  plant,  as  I  understood  you? 

Mr.  Martin.  Yes.  t 

Mr.  McKenzie.  And  with  one  v/ater  intake.  You  only  completed  one  unit  of 
it  in  the  beginning? 

Mr,  Martin.  Yes. 

Mr.  McKenzie.  And  at  that  time  you  only  had  one  unit  completed  from  which 
you  were  selling  power? 

Mr.  Martin.  That  was  only  a  reserve  at  that  time.  Our  principal  station  at 
that  time,  Mr.  McKenzie,  was  the  water-power  plant  at  Lock  No.  12,  in  the 
Coosa  River.    This  Warrior  plant  was  the  reserve  station  for  our  system. 

Mr.  McKenzie.  Looking  to  the  future,  you  had  laid  the  foundation  for  a 
3-unit  plant? 

Mr.  Martin.  Yes,  sir. 

Mr.  McKenzie.  I  am  not  criticizing  that  as  a  business  proposition.  Then 
you  entered  into  this  contract  with  the  Government? 

Mr.  Martin.  After  we  had  ordered  our  second  unit,  in  the  latter  part  of  1917. 
At  that  time  we  had  plans  made  for  installing  a  second  unit  of  our  own,  which 
we  did  not  complete. 

Mr.  McKenzie.  You  had  not  undertaken  it  up  to  that  time? 

Mr.  Martin.  No. 

Mr.  McKenzie.  Then  you  went  into  this  arrangement  with  the  Government, 
and  under  that  contract  the  Government  was  to  pay  for  the  construction  of  this 
plant  with  the  transmission  lines? 

Mr.  Martin.  Of  this  section  of  the  plant ;  yes. 

Mr.  McKenzie.  Did  you  undertake  the  building  of  that — that  is,  your  com- 
pany? 

Mr.  Martin.  Yas. 


Mr.  McKenzie.  Did  you  have  a  cost-plus  contract  with  the  Government? 

Mr.  Martin.  Cost  plus  a  fixed  fee ;  yes. 

Mr.  McKenzie.  How  much  did  your  company  receive  as  a  fee  for  constructing 
that? 

Mr.  Martin.  It  is  stated  in  the  contract. 

Mr.  McKenzie.  I  wish  you  would  put  that  in  the  record. 

Mr.  Martin.  It  was  $225,000  plus  $60,000,  a  total  of  $285,000. 

Mr.  McKenzie.  Now,  then,  did  the  representatives  of  the  Government  at  that 
time  understand  you  were  building  this  plant  as  an  addition  to  your  own  plant, 
or  as  a  separate  unit? 

Mr.  Martin.  As  an  extension. 

Mr.  McKenzie.  Then,  as  a  matter  of  fact,  you  simply  dovetailed  onto  the 
property  you  then  owned  and  operated  at  Gorgas  another  addition  paid  for 
with  Government  money,  and  on  which  you  got  a  fee  for  the  construction? 

Mr.  Martin.  We  extended  our  plant,  that  was  the  effect  of  it ;  made  an  exten- 
sion of  it  for  the  purpose  of  supplying  the  Government  with  the  power  from 
our  system. 

Mr.  McKenzie.  The  Government  paid  all  the  bills  and  you  simply  con- 
structed it. 

Mr.  Martin.  Yes. 

Mr.  McKenzie.  Was  that  sort  of  a  plant  the  suggestion  of  the  Government 
officials  or  was  it  your  suggestion  that  it  be  done  in  that  way? 

Mr.  Martin.  I  do  not  recall  that.  The  main  point  was  this:  The  question 
arose  first  of  whether  the  Government  could  advance  the  funds  in  any  way 
to  us  to  enable  us  to  make  the  extension.  We  found  it  was  impracticable, 
upon  application  to  the  War  Credits  Board,  to  make  an  advance  of  those 
funds,  and  the  question  of  credits  on  all  kinds  of  propositions  such  as  ours 
was  a  very  serious  one.  The  granting  of  credits  on  such  propositions  was 
seriously  curtailed  and  the  Government  had  absorbed  all  the  credits  at  that 
time,  so  the  question  was  how  we  could  finance  this  extension.  That  was  the 
question. 

Mr.  McKenzie.  It  is  true,  is  it  not,  Mr.  Martin,  that  the  Government  could 
have  constructed  a  steam  plant  at  Muscle  Shoals  at  the  same  time  and  had  it 
at  no  greater  cost  than  for  constructing  this  one? 

Mr.  Martin.  Mr.  McKenzie,  coincidentally  the  Government  began  the  con- 
struction of  a  steam  plant  at  Muscle  Shoals,  and  completed  that  steam  plant  in 
the  year  1919,  long  after  the  war  was  over,  and  they  did  it  with  the  utmost 
speed.  But  they  had  to  start  from  the  ground  up,  and  the  Government  had 
power  six,  seven,  or  eight  months  before  the  steam  plant  was  constructed  at 
Sheffield. 

Mr.  McKenzie.  Before  the  nitrate  plant  was  completed,  too? 

Mr.  Martin.  Yes;  we  had  our  line  ready  and  waiting.  The  Government 
began  to  use  it  in  June  or  July. 

Mr.  McKenzie.  As  a  matter  of  fact,  you  had  your  plant  all  completed  and 
ready  for  operation  before  the  Government  had  any  use  for  it  at  all. 

Mr.  Martin.  Yes;  they  had  begun  to  use  our  power — the  line  was  ready  on 
May  15,  and  the  Government  began  to  use  the  power  about  the  1st  of  June  for 
construction  purposes,  and  for  operating  purposes  some  time  in  August. 

Mr.  McKenzie.  Now,  Mr.  Martin,  I  want  to  ask  you,  as  a  business  man,  are 
you  a  lawyer? 

Mr.  Martin.  Yes;  I  am  a  lawyer. 

Mr.  McKenzie.  And  as  a  lawyer  if  it  is  not  your  judgment  that  with  this 
particular  addition  hooked  onto  your  plant  in  the  manner  in  which  it  was 
hooked  on  and  constructed  that  you  practically  shut  out  any  other  purchaser 
than  the  Alabama  Power  Co.? 

Mr.  Martin.  You  ask  me  my  judgment? 

Mr.  McKenzie.  Yes;  as  a  practical  proposition. 

Mr.  Martin.  As  a  practical  question,  yes.  There  could  not  be  two  operations 
at  that  plant  in  the  very  nature  of  things ;  it  is  not  adapted  for  two  operations. 

Mr.  McKenzie.  But  in  order  to  be  doubly  secure  in  protecting  yourself — 
and  I  do  not  censure  you  for  that — you  entered  into  an  agreement  whereby 
you  tried  to  tie  the  hands  of  the  Government  with  a  proposed  option,  giving 
you  the  option  to  buy  the  plant.    Is  not  that  true? 

Mr.  Martin.  Mr.  McKenzie,  we  agreed  to  buy  on  the  demand  of  the  Govern- 
ment at  a  fair  value.  It  never  occurred  to  us  that  the  day  would  come  when 
this  Government  would  want  to  take  away  our  station  and  destroy  our  property 


664 


MUSCLE   SHOALS   PROPOSITIONS. 


!! 


J 


there  in  owier  to  give  it  to  some  one  else,  and  it  was  never  contemplated  that 
the  Government  wouhl  do  otherwise  than  realize  a  fair  value  out  of  what  it 
had  erected. 

Mr.  McKenzie.  Mr.  Martin,  you  have  stated  that  your  company  was  anxious 
to  serve  the  Government,  and  that  that  was  your  purpose  in  the  matter,  unmind- 
ful of  any  selfish  interests.  Did  you  have  a  reciprocal  provision  In  your  con- 
tract that  you  would  sell  to  the  Government  at  a  fair  value '^ 

Mr.  Mabtin.  The  land? 

Mr.  Mckenzie.  The  plant.  Did  you  have  a  reciprocal  proposition  that  the 
Government  could  buy  your  property  in  case  they  did  not  desire  to  sell  to  vour 
company  ? 

Mr.  Martin.  No;  in  the  first  place  we  had  a  general  mortgage  on  it  and  we 
could  not  agree  to  sell  it. 

Mr.  McKenzie.  You  could  sell  it  subject  to  the  mortgage,  could  you  not? 

Mr.  Martin.  I  do  not  suppose  that  there  would  be  a  very  good  title  to  a  piece 
of  property  with  a  $10,000,000  mortgage  on  it. 

Mr.  McKenzie.  You  could  have  sold  your  equity,  could  you  not? 

Mr.  Martin.  We  could  not  do  it. 

Mr.  McKenzie.  At  any  rate,  you  did  not. 

Mr.  Martin.  We  did  not. 

Mr.  McKenzie.  But  the  provision  was  in  there  that  if  the  Government  ever 
desired  to  sell  this  property  the  Alabama  Power  Co.  should  be  the  purchaser. 

Mr.  Martin.  Would  buy  at  a  fair  value. 

Mr.  McKenzie.  And  had  the  preference. 

Mr.  Martin.  I  think,  very  naturally,  being  on  our  land,  and  its  being  a  part 
of  our  system,  as  a  basis  on  which  we  were  performing  public  service. 

Mr.  McKenzie.  Being  a  lawyer,  you  understand  that  the  law  of  this  country 
has  been  in  time  of  peace  that  the  War  Department,  represented  by  Col.  Joyes. 
who  happened  to  be  our  representative,  apparently,  in  many  of  these  contracts, 
and  who  seemed  to  feel  that  he  had  authority  to  do  as  he  pleased  with  Govern- 
ment property — in  peace  times  the  War  Department  can  not  sell  real  estate 
belonging  to  the  Government  without  an  act  of  Congress  giving  them  authoritv. 
You  were  aware  of  that,  were  you  not? 

Mr.  Martin.  I  was  aware  of  that. 

Mr.  McKenzie.  Then  all  your  contention  is  based  on  the  war-time  legislation 
in  the  act  you  have  read  in  our  hearing  here  this  morning? 

Mr.  Martin.  Our  contention? 

Mr.  McKenzie.  Your  contention  that  the  contract  is  legal  is  not  founded  on 
the  general  law  of  the  country,  but  on  the  war-time  legislation  you  have  read 
to  us  this  morning. 

Mr.  Martin.  W^holly  aside  from  the  legislation,  the  Goveniment  bound  us  to 
buy  it  at  a  fair  value  on  its  demand;  and  when  the  legislation  came  into  being, 
then  it  was  that  the  Government  agreed  to  sell  to  us  on  our  demand. 

Mr.  McKenzie.  This  New  York  gentleman,  who,  at  that  time,  had  on  a  sol- 
dier's uniform,  I  presume,  and  was  connected  with  tlie  Ordnance  Department, 
agreed  with  you  that  that  contract  was  good,  and  that  the  Government  would 
be  bound  under  the  provisions  of  that  contract? 

Mr.  Martin.  I  am  sure  he  did,  or  he  would  not  have  executed  it,  if  he  hail 
doubted  the  legal  authority  to  do  so. 

Mr.  McKenzie.  Of  course,  I  am  not  going  to  enter  into  a  discussion  with  you 
about  the  legality  or  the  illegality  of  it,  except  that  I  simply  want  to  say  this, 
that  in  my  judgment  the  Government's  hands  are  just  about  as  effectively  tied 
in  the  manner  in  which  rhis  thing  was  done  as  they  could  possibly  be  tied  by 
any  legal  contract.  And  I  may  have  the  wrong  view  of  what,  the  aiding  of  th*' 
Government  consists  of.  But  I  ask  you  now,  to  have  it  go  into  the  record,  if 
it  is  .vour  view  of  the  matter  that  the  construction  of  the  plant  in  the  way  in 
which  this  plant  was  constructed  and  the  entering  into  the  character  of  con- 
tract which  is  in  evidence  is  a  propei*  evidence  of  supporting  the  Government'/ 

Mr.  Martin.  I  certainly  think  the  company  acted  fairly  and  justly  in  this 
matter.  We  have  agreed  to  purchase  this  property  at  the  demand  of  the  Gov- 
ernment at  a  fair  value.  We  have  complied  with  every  request  made  of  us  b.A 
the  Government ;  we  hold  ourselves  ready  to  carry  out  that  plan.  You  will  find 
many  contracts  made  during  the  war  by  which  extensions  and  enlargements  oi 
plants  were  made  on  the  property  of  others,  and  in  how  many  of  them  will  yon 
rind  a  provision  which  requires  the  owner  of  the  land  to  pay  fair  value  as  distin- 
guished from  junk  value?  W^e  think  we  are  in  a  position  to  protect  the  Gov- 
ernment.   Naturally,  this  plant  was  part  of  our  system,  a  system  on  which  nn*' 


MUSCLE   SHOALS  PROPOSITIONS. 


665 


had  built  up  public  service.  To  create  two  separate  and  distinct  operations 
there  would  vitally  interfere  with  our  whole  arrangement  and  our  whole  public 
service. 

Mr.  McKenzie.  Let  nie  ask  you,  How  do  you  arrive,  in  such  matters  as  this, 
at  a  fair  valuation? 

Mr.  Martin.  The  contract  provides  for  the  selection  of  arbitrators.     The 
Government  selects  one,   the  company   selects  one,   and  those  two  select   the 
third,  and  they  consider  the  question  of  fair  value  in  the  light  of  those  prin 
ciples  of  law  which  would  naturally  govern  a  court  in  determining  value. 

Mr.  McKenzie.  It  is  true  that  a  fair  valuation  is  such  a  valuation  as  the 
property  would  have  in  the  community  in  which  the  property  is  located,  as  a 
general  proposition.    Is  not  that  one  way  of  arriving  at  fair  valuation? 

Mr.  Martin.  Is  not  that  a  different  question?  I  doubt  wliether  that  would 
be  the  basis  here. 

Mr.  McKenzie.  That  is  the  general  rule.  But  the  general  rule  of  fair  valua 
tion  could  not  apply  in  this  case,  because  there  would  be  no  comiietition. 

Mr.  Martin.  Yes. 

Mr.  McKenzie.  No  one  could  bid  on  it 

Mr.  Martin.  If  you  ask  me  that  question,  I  do  not  believe  that  principle 
would  apply  here,  because  we  engaged  to  buy  it  at  a  fair  value,  which  means 
its  value  as  a  going  extension,  and  it  is  a  going  proi)erty. 

Mr.  McKenzie.  You  are  willing  to  do  that  now? 

Mr.  Martin.  Yes,  sir ;  we  are  willing  to  carry  out  our  contract  to  the  letter. 

Mr.  McKenzie.  Do  you  feel,  Mr.  Martin,  that  in  serving  the  Government  at 
this  time  you  made  any  great  sacrifice? 

Mr.  Martin.  I  have  explained  tx)  you  what  we  exjiended.  We  have  never 
had  any  of  it  paid  back. 

Mr.  McKenzie.  Are  you  operating  that  plant  at  the  present  time? 

Mr.  Martin.  Well,  not  at  this  moment,  because  the  rivers  are  full  now.  We 
are  not  operating  it  this  very  day. 

Mr.  McKenzie.  I  understand  you  are  paying  a  rental  to  the  Government? 

Mr.  Martin.  Yes ;  we  are  paying  a  rental  to  the  Government. 

Mr.  McKenzie.  How  much  are  you  paying? 

Mr.  Martin.  It  is  a  mill  and  a  half  per  kilowatt  hour  of  power  generated. 

Mr.  Hull.  What  are  you  receiving  for  power  at  the  present  time? 

Mr.  Martin.  What  are  we  receiving? 

Mr.  Hull.  Yes;  what  are  your  prices? 

Mr.  Martin.  Delivered? 

Mr.  Hull.  Yes. 

Mr.   Martin.  It  ranges  from   o  mills  up,   delivered  over  our   transmission 

system. 

Mr.  Hull.  I  mean  per  horsepower? 

Mr.  Martin.  It  averages  about  $25  per  horsepower  per  year,  delivered. 

Mr.  Huix.  How  does  that  compare  with  the  price  received  generally  by  power 
companies,  say  at  Niagara  Falls,  for  primary  power? 

Mr.  Martin.  I  have  some  records  of  comparison  here.  This  is  taken  from  a 
Department  of  Commerce  publication  dated  in  1920,  showing  the  cost  per  horse- 
power hour  to  the  consumer  of  light  and  i)ower  generated  at  central  electric 
stations,  based  on  the  use  of  3,000  hours  per  year.  For  Alabama,  the  price  per 
horsepower  hour  in  1907  was  2  cents.  In  1912  it  was  1.9  cents,  and  in  1917  the 
price  had  gone  to  7  mills.  There  was  a  reduction  from  2  cents  to  7  mills.  In 
10  years  it  went  from  $72  per  horsepower  to  $21,  and  that  is  the  average  in 

Alabama  to-day. 

In  Georgia  the  price  is  the  same  as  in  1907.  In  Mississippi  the  price  per 
horsepower  was  $96  in  1907,  and  $93  in  1917.  The  price  per  horsepower  hour  in 
Mississippi  was  3  cents  in  1907.  and  it  is  3  cents  now.  So,  ticking  the  lowest 
and  the  highest,  taking  Alabama  at  7  mills  and  Mississippi  at  3  cents  you  can 
get  an  idea  of  what  the  average  is,  and  the  same  thing  is  true  in  connection 
with  the  price  per  horsepower  per  year,  $21  for  Alabama  and  $93  for  Mississippi. 

Mr.  Hull.  Why  is  there  that  discrepancy? 

Mr.  Martin.  It  is  due  to  the  fact  that  there  is  no  hydroelecjtric  development 
in  the  Stxite  of  Mississippi.  There  are  no  large  central  stations  distributini: 
power,  and  hence  there  is  that  great  discrepancy. 

Mr.  Hull.  How  does  that  compare  with  the  price  you  are  paying  to  the 
Government  for  the  power  you  are  getting  from  the  Government? 

Mr.  Martin.  We  pay  the  Government,  but  we  are  supplying  all  the  fuel  and 
we  transmit  the  power. 

Mr.  Hull.  There  can  be  no  comparison  there. 


I 


I 


j 


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666 


MUSCLE  SHOALS  PROPOSITIONS. 


Mr.  James.  Who  drew  up  this  contract? 

Mr.  Martin.  I  have  explained  that  Col.  Williams  was  the  officer  representing; 
the  Government. 

Mr.  James.  Did  he  draw  it  up  or  did  you  draw  it  up? 

Mr.  Martin.  You  know  it  is  a  question  of  how  lawyers  work  together.  He 
drew  a  part  of  it  and  I  drew  a  part  of  it,  and  we  worked  together  until  it 
was  completed. 

Mr.  James.  Did  you  draw  up  section  22? 

Mr.  Martin.  I  do  not  recall  now. 

Mr.  James.  Was  it  your  suggestion  or  his  suggestion? 

Mr.  Martin.  As  to  what? 

Mr.  .Fames.  Section  22. 

Mr.  Martin.  Well,  I  could  only  say  it  was  drawn  up  in  a  mutually  satisfac- 
tory' form.  He  undoubtedly  drew  a  part  of  it,  and  undoubtedly  I  made  sug- 
gest'.ons  as  to  a  part  of  it. 

Mr.  James.  In  regard  to  the  suggestion  for  the  purchase  of  it  by  your  com- 
pany, was  that  your  idea  or  his  idea? 

Mr.  Martin.  I  can  not  say,  Mr.  James.  But  I  will  take  the  responsibility  of 
saying  it  was  ours. 

Mr.  James.  Did  you  consult  any  outside  attorney  in  regard  to  the  wording 
of  section  22? 

Mr.  Martin.  I  do  not  think  we  did. 

Mr.  James.  Why  was  there  a  delay  of  11  months  in  having  the  contract 
signed  ? 

Mr.  Martin.  I  was  living  in  Alabama  and  these  gentlemen  were  living  in 
Washington.  Capt.  Noble  died  in  the  midst  of  the  work.  There  is  no  particular 
reason  I  could  give.    It  was  one  of  the  many  contracts  not  completed. 

Mr.  James.  How  long  did  you  talk  with  Col.  Williams  when  you  saw  him 
in  New  York  City? 

Mr.  Martin.  I  met  him  several  times. 

Mr.  James.  I  mean  the  last  time. 

Mr.  Martin.  Probably  five  minutes. 

Mr.  James.  Did  you  see  Col.  Beames? 

Mr.  Martin.  No. 

Mr.  James.  How  much  of  a  bond  did  you  put  up  to  guarantee  the  faithful 
performance  of  the  contract  against  labor  liens,  etc.?    Was  it  $50,000? 

Mr.  Martin.  It  was  $50,000. 

Mr.  James.  When  was  it  put  up?  I  see  by  the  contract  you  had  a  year  to 
put  it  up. 

Mr.  Martin.  It  was  put  up  within  that  time. 

Mr.  James.  Within  a  year?  Was  there  not  a  bond  given  to  the  United 
States  before  a  year  after  you  first  started  negotiations  or  started  work? 

Mr.  Martin.  My  recollection  is  that  it  was  given  after  the  contract  was 
actually  executed. 

Mr.  James.  That  was  a  year  after  you  got  the  contract  for  the  station? 

Mr.  Martin.  Yes ;  while  the  contract  was  in  process. 

Mr.  James.  The  work  started  in  December,  1917,  and  you  did  not  put  up  a 
bond  until  December,  1918,  did  you? 

Mr.  Martin.  That  is  my  recollection. 

(Thereupon  a  recess  was  taken  until  2  o'clock  p.  m.) 

AFTER  RECESS. 

The  committee  met,  pursuant  to  recess,  at  2  o'clock  p.  m. 

STATEMENT  OF  MB.  THOMAS  W.  MARTIN — Resumed. 

The  Chairman.  Mr.  Martin,  we  will  proceed,  and  Mr.  Kearns  would  like 
to  ask  you  some  questions. 

Mr.  Kearns.  At  the  time  the  Government  entered  the  Warrior  plant,  how 
much  money  had  you  invested  in  that  plant? 

Mr.  Martin.  Ih  the  plant  and  in  services  and  stations  and  lines  leading  back 
to  our  system  we  had  invested  approximately  $3,000,000,  but  you  might  re- 
member this,  Mr.  Kearns,  in  building  a  steam  plant,  which  is  a  reserve,  for  a 
system  such  as  ours,  we  also  add  water-power  equipment,  and  then  add  steam 
to  balance  it  up,  so  that  you  can  not  segregate  the  investment  in  steam  from  the 
investment  in  the  main  system,  because  one  goes  to  balance  the  other. 


MUSCLE   SHOALS  PROPOSITIONS. 


667 


Mr.  Kearns.  Then  the  Government  has  no  interest  in  the  steam  system? 

Mr.  Martin.  No  ;  as  I  say,  this  $3,000,000  which  I  spoke  of  as  investment  in 
line  and  equipment  in  connection  with  the  Warrior  station  was  only  a  part 
of  our  whole  system  which  represented  some  $35,000,000  of  investment. 

Mr.  Kearns.  Since  this  contract  was  entered  into  between  your  company 
and  the  Government,  how  much  money,  by  virtue  of  the  contract,  has  the  Gov- 
ernment invested  there? 

Mr.  Martin.  Approximately  $5,000,000  was  invested  in  the  plant,  substation, 
and  the  transmission  line  to  Sheffield. 

Mr.  Kearns.  Does  that  include  the  extension? 
IV^ARTiN    Yes 
Kearns.  That  includes  the  extension,  the  substation,  and  transmissiou 


Mr. 
Mr. 
lines? 
Mr. 
Mr. 
Mr. 
Mr. 


Martin.  Yes. 

Kearns.  And  that  was  approximately  $5,000,000? 
Martin.  $5,000,000. 

Kearns.  Then  the  Government  has  invested  $5,000,000  and  your  com- 
pany has  invested  $3,000,000? 

Mr.  Martin.  We  have  $3,000,000  in  the  station;  $5,000,000  was  the  Govern- 
ment's investment  in  plant  and  line ;  in  the  plant  the  Government  had  approxi- 
mately $3,400,000. 

Mr.  Kearns.  Whatever  right  you  have  to  purchase  from  the  Government  is 
found  in  article — what  is  the  number  of  that  article? 

Mr.  Dent.  Article  22,  I  think  it  is. 

Mr.  Kearns.  Yes;  article  22  of  your  contract,  which  is  dated  December  1, 
1917;  is  that  right? 

Air  I^artin    Yes  sir. 

Mr.  Kearns.  I  am  now  reading  from  article  22 :  "At  any  time  subsequent  to 
three  years  after  the  terniiination  of  the  war  the  United  States  shall  have  the 
option  to  sell  to  the  contractor,  and  the  conractor  shall,  upon  writen  demand 
of  the  United  States,  buy  all  its  rights,  title,  and  interest,"  and  so  on.  If  the 
United  States  fails  to  exercise  its  option,  how  would  you  have  the  right  to  buy? 

Mr.  Martin.  Under  the  next  succeeding  provision,  Mr.  Kearns.  Under  sub- 
division 3  you  will  notice  this  language : 

"  The  contractor  may  also  at  any  time  demand  that  the  United  States  con- 
vey to  it  all  of  the  right,  title,  and  interest  of  the  United  States  in  and  to  the 
Warrior  extension  and  the  Warrior  substation  upon  payment  to  the  United 
States  of  any  excess  of  the  actual  cost  of  said  properties  over  the  amount  of 
said  accumulated  fund  then  in  the  possession  of  the  United  States." 

Mr.  Kearns.  If  the  United  States  entered  into  this  contract  with  you  in 
order  to  get  possession  of  your  plant  as  a  war  activity,  how  was  it  going  to 
avail  itself,  under  section  3  of  that  plant,  if  you  had  the  right  at  any  time  to 
buy  it  out? 

Mr.  Martin.  We  might  buy  the  title,  continuing  our  obligation  to  the  United 
States  to  deliver  power. 

Mr.  Kearns.  But  there  is  nothing  in  the  contract  saying  you  would  be  under 
any  further  obligation. 

Mr.  Mabtin.  Yes. 

Mr.  Kearns.  Where  is  that? 

Mr.  Martin.  You  will  find  that 

Mr.  Kearns  (interposing).  There  is  not  anything  in  section  22. 

Mr.  Martin.  You  will  find  our  obligation  that  we  shall  deliver  power  for 
a  period  of  10  years. 

Mr.  Kearns.  Then  what  do  you  mean  in  section  3  that  you  have  the  right, 
on  your  demand,  to  compel  the  United  States  to  turn  over  all  of  its  right, 
title,  and  interest  in  that  plant  to  you? 

Mr.  Martin.  Yes;  but  that  does  not  relieve  us  of  the  obligation  to  deliver 
power  by  another  provision  of  the  contract. 

]Vir.  Kearns.  This  contract  was  entered  into  on  December  1,  1917,  or  it  bears 
that  date. 

Mr.  Martin.  Yes,  sir ;  it  bears  that  date. 

Mr.  Kearns.  When  was  this  contract  actually  entered  into? 

Mr.  Martin.  On  the  date  of  the  false  report  of  the  armistice,  1918. 

Mr.  Kearns.  That  was  some  time  in  November? 

Mr.  Martin.  Yes,  sir;  November  9. 

Mr.  Kearns.  About  the  2d  or  3d  of  November,  was  it  not? 

Mr.  Martin.  November  9. 


668 


MUSCLE   SHOALS   PROPOSITIONS. 


\ 


The  Chairman.  The  date  of  the  actual  armistice  was  November  11. 

Mr.  Kearns.  Yes ;  but  he  refers  to  the  day  of  the  false  report. 

The  Chaibman.  That  was  about  three  or  four  days  before  that. 

Mr.  Kearns.  I  thought  it  was  earlier  in  November  than  that,  about  the  4th. 

The  Chairman.  No  ;  I  think  it  was  a  little  later  than  that. 

Mr.  Kearns.  At  that  time  this  statute  had  been  passed  that  would  authorize 
the  Secretary  of  War  to  sell  this  or  any  other  plants. 

Mr.  Martin.  Yes. 

Mr.  Kearns.  But  at  the  time  this  contract  bears  date — that  is,  on  December 
1,  1917 — that  statute,  of  course,  had  not  been  passed. 

Mr.  Martin.  That  is  true,  Mr.  Kearns. 

Mr.  Kearns.  And  were  it  not  for  this  enabling  statute,  you  would  not  have 
any  authority  to  enter  into  this  contract? 

Mr.  Martin.  The  United  States  could  not  bind  itself  to  agree  to  sell  to  us. 

Mr.  Kearns.  Yes ;  that  is  what  I  mean. 

Mr.  Martin.  That  is  correct,  Mr.  Kearns.  Of  course,  I  suppose  that  you 
gentlemen  who  have  been  on  this  committee  can  appreciate  the  position  in 
which  many  manufacturers,  many  producers  of  equipment,  and  many  con- 
tractors were  in  in  the  early  days.  There  were  thousands  of  people  who  went 
ahead  on  verbal  requests  or  requests  by  telephone  or  any  kind  of  request 
from  Government  officials  to  produce  equipment  or  what  not  for  the  purpose 
of  going  forward  with  the  war  program.  The  question  of  contract  rights 
and  obligations  were  secondary.  The  question  was  to  do  the  thing  that  the 
officials  of  the  Government  wanted.  The  question  of  terms  and  conditions  and 
obligations  of  the  contracts  remaine<l  to  one  side  while  we  were  doing  the 
work  the  Government  wanted. 

Mr.  Kearns.  Dt>es  your  company  claim  any  right  to  the  buildings  that  the 
Government  built  on  your  land,  aside  from  what  rights  you  are  given  under 
the  statute  that  was  passed  after  December  1,  1917? 

Mr.  Martin.  No. 

Mr.  Kearns.  What  is  your  answer? 

Mr.  Martin.  If  I  understand  your  question,  you  mean  do  we  claim  any  right 
by  virtue  of  the  fact  that  they  are  fixtures? 

Mr.  Kearns.  Yes. 

Mr.  Martin.  We  do  not.  We  simply  recognize  the  Government  has  the  right, 
title,  and  interest  in  that  property,  and  that  the  Government  has  agreed  to  sell 
it  to  us  at  a  fair  value,  and  whatever  that  property  appraises  at  as  the  fair 
value  under  this  contract  we  think  we  have  a  contract  with  the  Government  to 
purchase  it. 

Mr.  Kearns.  Let  me  see  if  I  understand  you.  Mr.  Martin.  Your  company 
is  not  claiming  any  interest  in  that  part  that  the  Government  erected  on  this 
land  except  what  rights  you  are  given  under  this  statute  passed  subsequent 
to  December  1,  1917? 

Mr.  Martin.  And  the  contract  entered  into,-  which  is  under  discussion  here. 

Mr.  Kearns.  Now,  let  me  understand  you.  Would  you  claim  any  right  be- 
cause the  Government  without  authority  entered  upon  your  premisas  and 
erected  buildings  on  your  land;  do  you  claim  a  right  to  retain  those  buildings? 

Mr.  Martin.  No  ;  Mr.  Kearns,  we  do  not. 

Mr.  Kearn.  You  do  not  claim  that? 

Mr.  Martin.  No. 

Mr.  Kearns.  All  the  rights  you  are  claiming  are  under  and  by  virtue  of  your 
contract  as  construed  under  the  statute  which  was  passed,  giving  the  Secretary 
of  War  authority  to  dispose  of  real  estate? 

Mr.  Martin.  You  say  as  construed  "by  the  Secretary  of  War.  We  can  not 
agree  with  the  construction  that  the  law  officers  of  the  Government  place  upon 
it.  We  claim  our  legal  rights  as  expressed  here  and  as  interpreted  by  ourselves 
under  this  contract. 

Mr.  Kearns.  Has  the  Government  taken  any  power  under  this  contract? 

Mr.  Martin.  Yes. 

Mr.  Kearns.  For  how  long  has  the  Government  been  using  i>ower  generated 
by  your  company? 

Mr.  ]Martin.  I  will  put  it  in  this  form :  The  Government  had  the  right  to  take 
energy,  making  payment  therefor  under  the  specific  terms  of  this  contract.  It 
might  suspend  the  taking  of  energy,  under  the  terms  of  this  contract,  for  a  time 
and  take  energy  from  our  system  on  a  different  basis.  It  suspended  the  taking 
of  energj'  under  this  contract  and  has  all  along  been  taking  energy  from  us 


MUSCLE   SHOALS  PROPOSITIONS. 


669 


under  a  separate  arrangement,  as  a  power  company,  because  it  did  not  need  the 
volume  of  power,  by  reason  of  the  armistice  coming,  that  was  contemplated  in 
the  making  of  the  contract. 
Mr.  Kearns.  Has  the  Government  each  month  been  paying  you  $30,000? 
Mr.  Martin.  Oh,  no,  sir  ;  it  never  has  paid  us  $30,000  a  month. 
Mr.  Kearns.  It  provides  for  that  in  this  contract. 

Mr.  Martin.  Yes,  Mr.  Kearns;  it  does  provide  that  the  Government,  so  long 
as  it  takes  power  under  this  contract,  shall  pay  $30,000  a  month  as  a  minimum 
charge.  It  never  did  pay  the  $30,000  a  month,  and  it  never  did  take  under  this 
contract.  You  will  see  that  the  very  next  section  says  that  the  Government 
may  suspend  the  taking  of  power  under  this  contract,  whereupon  its  obligation 
to  pay  $30,000  a  month  ceases,  and  we  got  formal  notice  from  the  Government 
that  they  desired  to  suspend  its  right  to  take  power  under  this  contract,  which 
we  accepted,  of  course,  and  thereupon  the  Government  arranged  with  us,  wholly 
independently,  to  serve  power  to  the  Government  from  our  system  in  a  very 
much  less  quantity,  paying  therefor  at  rates  in  effect  by  the  public  service 
commission. 

Mr.  Kearns.  Just  one  more  question,  Mr.  Martin:  Your  company  does  not 
claim  anything  at  Muscle  Shoals  except  the  Warrior  plant  and  its  connecting 
lines? 
Mr.  Martin.  At  Muscle  Shoals? 
Mr.  Kearns.  Yes. 

Mr.  Martin.  Yes;  we  have 

Mr.  Kearns.  I  mean  any  part  that  would  be  included  in  the  Ford  offer. 
Mr.  Martin.  Yes.    The  Alabama  Power  Co.  owns  in  fee  simple  the  abutment 
sites  at  the  proposed  Dam  No.  3,  which  the  Government  is  asked  to  construct 
under  the  Ford  offer. 
Mr.  Kearns.  And  that  is  included  in  the  Ford  offer? 

Mr.  Martin.  Yes,  sir ;  the  abutment  sites  and  some  other  lands  which  we  own 
in  fee  simple. 
Mr.  Kearns.  At  how  much  money  do  you  value  that  interest? 
Mr.  Martin.  I  could  not  answer  that  question,  Mr.  Kearns.    We  have  never 
placed  any  value  on  it.    We  have  owned  it  for  many  years. 
Mr.  Kearns.  Have  you  not  any  idea  of  what  the  value  of  that  property  is? 
Mr.  Martin.  I  could  not  undertake  to  express  any  opinion  on  that  question 
now.     The  property  has  been  in  our  possession  and  ownership  for  10  or  15 
years,  in  our  company  and  its  preceding  company. 

Mr.  Kearns.  Did  the  Government  ever  make  any  contract  with  you  for  that? 
Mr.  Martin.  No,  sir. 

Mr.  Kearns.  And  you  have  no  idea  what  that  interest  would  be  worth? 
Mr.  Martin.  No  ;  none  that  I  would  care  to  express  now,  Mr.  Kearns. 
Mr.  Kearns.  Then,  if  Congress  should  authorize  the  Secretary  of  War  to 
accept  the  Ford  offer,  then  it  would  be  transferring  to  Ford  a  part  of  your  prop- 
erty for  which  the  Government  never  had  any  kind  of  a  contract. 

Mr.  Martin.  That  is  correct,  Mr.  Kearns.  We  did  convey  to  the  Govern- 
ment, in  fee  simple,  several  years  ago,  the  site  at  which  the  Wilson  Dam  is 
being  erected.  We  also  owned  that  and  we  conveyed  that  to  the  Government  in 
1918  for  $1. 
Mr.  Kearns.  But  thai:  does  not  include  these  other  properties? 
Mr.  Martin.  No,  sir ;  that  land  which  constituted  the  abutment  sites  of  Dam 
No.  2,  the  Wilson  Dam.  we  had  expended  upward  of  $500,000  on  its  develop- 
ment, and  at  the  inception  of  the  war  we  were  asked  to  hasten  the  whole  pro- 
gram and  we  conveyed  that  title  to  the  Government  for  $1. 

Mr.  Kearns.  Was  there  a  provision  in  the  contract  or  in  this  conveyance 
whereby  the  Government  was  to  return  it  to  you? 
Mr.  Martin.  No,  sir ;  we  practically  donated  it  to  the  Government. 
Mr.   Kearns.  You  donated  $500,000  worth  of  property   to  the  Government 
for  $1? 

Mr.  Martin.  Yes,  sir.    I  have  in  my  hands  the  letter,  if  you  care  to  know 
about  it,  to  the  Government  officers,  tendering  it,  giving  our  reasons  for  it,  and 
the  answer  of  the  Secretary  of  War  acknowledging  it  with  thanks  and  appre- 
ciation, if  you  would  like  to  hear  it,  I  would  be  glad  to  read  it. 
Mr.  Kearns.  You  can  put  that  in  the  record. 

Mr.  Hill.  May  he  not  read  that,  Mr.  Chairman ;  I  would  like  very  much  to 
hear  it. 
The  Chairman.  Is  it  very  long,  Mr.  Martin? 


L 


670 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


671 


Mr.  Mab^n.  No,  sir. 

The  Chairman.  Then  you  might  read  both  the  letter  transmitting  the  offer 
and  also  the  letter  accepting  it. 
Mr.  Mabtin.  I  am  reading  from  a  letter  dated  February  18,  1918 : 

Alabama  Poweb  Co., 
Birmingham,  Ala.,  February  18,  1918. 
Col.  C.  Keller, 

Corps  of  Engineers, 

Office  of  the  Chief  of  Engineers,  United  States  Army, 

Washington.  D.  C. 

Sir:  Following  the  several  interviews  which  I  have  had  with  you  recently 
on  the  subject  of  the  desire  of  the  Government  to  acquire  him*  the  Muscle 
Shoals  Hydroelectric  Power  Co.  the  dam 'site  an;l  certain  other  properties  at 
Muscle  Shoals,  I  have  conferred  fully  not  only  with  the  directors  of  that 
company  but  also  with  the  representatives  of  the  securitv  holders  of  the  Ala- 
bama Traction,  Light  &  Power  Co.  (Ltd.).  As  I  believe  I  explained  to  you, 
the  last-mentioned  company  is  interested  by  reason  of  its  stock  holdings  m 
Alabama  Power  Co.,  which  latter  company  owns  the  stock  of  the  Muscle 
Shoals  Hydroelectric  Power  Co. 

The  properties  in  question  represent  a  very  heavy  investment  by  our  com- 
pany, and  have  occupied  an  important  position  in  our  plans  for  securing 
power  for  the  future.  For  several  years  we  have  worked  on  plan^  for  ulti- 
mately developing  these  water  powers  as  an  integral  part  of  the  hydroelec- 
tric system  which  will  be  required  by  our  companies  to  meet  the  needs  of 
the  comnmnities  which  they  serve.  Much  of  this  work  was  done  by  us  in 
collaboration  with  the  Army  engineers,  looking  toward  a  development  in  co- 
operation with  the  Government  on  some  such  plan  as  was  favorably  reported 
on  by  the  Army  engineers  in  House  Document  No.  1262,  Sixty-fourth  Con- 
gress, first  session. 

I  am  adverting  very  briefly  to  these  features,  as  I  .iudge  from  the  several 
interviews  which  I  have  had  with  you  and  with  other  representatives  of 
the  Government  that  you  are  fully  aware  of  what  the  company  has  done  in 
preparation  for  the  ultimate  development  of  this  water  power,  and  I  be- 
lieve you  appreciate  that  it  should  receive  consideration  in  the  disposition  of 
any  surplus  power  not  required  for  the  needs  of  the  Government. 

From  our  recent  interviews  it  is  obvious  that  our  respective  views  as  to  the 
value  of  our  property  and  the  price  which  you  would  agree  to  pay  are  quite 
irreconcilable.  As  directors  of  a  large  public-service  corporation,  we  have 
always  believed  that  in  addition  to  the  development  of  our  water  powers  at 
Muscle  Shoals  being  a  very  valuable  and  necessary  complement  to  our  system 
throughout  the  State,  the  large  industrial  community  which  would  grow  up 
at  Muscle  Shoals  would  add  a  special  value  to  that  power  plant.  In  times 
like  these,  however,  such  considerations  must  be  secondary  to  the  urgent  needs 
of  the  Nation  to  secure  these  properties  immediately  for  the  carrying  out  of 
the  Government  project  for  the  production  of  war  nitrates,  and  we  have  ac- 
cordingly determined  to  donate  our  lands  to  the  Government  for  this  purpose. 
I  have  already  given  instructions  to  the  company's  attorneys  for  the  prepara- 
tion of  the  necessary  deeds  of  conveyance. 

It  is  our  understanding  from  you  that  the  Governntent  only  desires  to  ac- 
quire the  site  at  Dam  No.  2  and  adjacent  properties,  with  flowage  easement 
on  such  of  our  other  properties  as  may  be  affected  by  this  development. 

I  need  hardly  assure  you  of  the  desire  of  the  company  to  cooperate  with  the 
War  Department  to  the  fullest  extent  in  placing  at  your  disposition  the  benefit 
of  all  our  engineering  studies  and  records  relating  to  the  projected  development. 

I  trust  that  this  disposition  of  the  matter  meets  with  your  views. 
Yours,  very  truly, 

James  Mpichell,  President. 

Then,  on  the  20th  of  February,  1918,  a  letter  from  the  Secretary  of  War: 

War  Department, 
Washington,  February  20,  1918. 

Mr.  James  Mitchell, 

President  Alabama  Poicer  Co.,  Birmingham,  Ala. 

Deab  Sib:  Referring  to  your  letter  of  the  18th  instant,  addressed  to  Col. 
Keller,  in  which  you  express  the  willingness  of  your  company  to  donate  to 
the  United  States  certain  properties  and  flowage  easements  needed  for  the 


f)ro|»()s^'d  PVderal   ixnvtM-  dcvoloimuMit   ;it  Muscl(»  SIiomIs,  I  beg  to  acknowledge 
with  thnnks  the  company's  generous  and  pT!hli<--si)irited  action. 

The  further  steps  necessary  in  reirard  to  the  matt^^r  will  be  given  immediate 
attention. 

Vei-y  truly,  yours, 

Nkwtox  I>.  1>akeu,  l^ecrctary  of  War. 

Then,  I  have  in  my  hand  a  photograph  of  the  check  which  we  received  from 
the  United  States  in  the  sum  of  $1  in  payment  for  these  lands. 

Mr.  Keabns.  And  that  was  land  connected  with  Dam  No.  2? 

Mr.  Mabtin.  Dam  No.  2,  the  Wilson  Dam. 

Mr.  Keabns.  Which  had  cost  your  company  $500,000? 

Mr.  Mabtin.  Yes,  sir;  slightly  less  than  $500,000  we  had  expended  in  con- 
nection with  that  development. 

Mr.  Keabns.  Would  the  other  land  which  you  have  at  Muscle  Shoals,  or 
other  property  of  whatever  character  that  is  included  in  the  Ford  offer,  either 
land  or  property,  or  land  and  property,  be  worth  as  much  as  the  land  at  Dam 
No.  2  that  you  transferred  to  the  Government  for  $1? 

Mr.  Mabtin.  Would  it  be  worth  as  much? 

Mr.  Keabns.  Would  it  be  worth  as  much  or  more? 

Mr.  Mabtin.  I  would  not  want  to  say  whether  it  was  worth  as  much  or 
more,  but  $500,000  does  not  measure  the  value  of  the  land. 

Mr.  Keabns.  The  value  of  the  land  you  still  have  there? 

Mr.  Mabtin.  Yes,  sir. 

Mr.  Keabns.  That  is  included  In  the  Ford  offer? 

Mr.  Mabtin.  Yes,  sir.  Of  course,  our  expenditures  in  that  connection  cover 
a  long  period  of  years,  investigations  and  studies  and  plans  and  what  not. 
We  had  some  engineering  and  borings  at  the  sites  and  we  carried  on  for 
years  civil  engineering  work  as  well  as  the  purchasing  of  land. 

Mr.  Keabns.  At  the  time  these  letters  were  written,  your  letter  offering 
your  land  at  Dam  No.  2  to  the  Government  for  $1,  and  the  Government's  ac- 
ceptance, was  that  before  or  after  you  had  entered  into  your  contract  for 
the  air  nitrates  plant? 

Mr.  Mabtin.  You  mean  whether  it  was  before  or  after  this  Warrior  situa- 
tion arose? 

Mr.  Keabns.  I  mean  before  or  after  you  had  donated  or  really  given  these 
rights  to  Dam  No.  2  to  the  Government. 

Mr.  Mabtin.  We  started  in  on  the  Warrior  extension  work  with  the  Gov- 
ernment late  in  December,  1917.  This  matter  of  donating  the  land  to  the 
Government  arose  in  February,  1918,  two  months  later. 

Mr.  Keabns.  Two  months  after  that. 

Mr.  Mabtin.  Approximately  two  months. 

Mr.  McKenzie.  If  you  will  pardon  me,  Mr.  Kearns,  following  your  question, 
the  point  which  it  occurs  to  my  mind  Mr.  Kearns  is  trying  to  arrive  at,  is 
whether  or  not  at  the  time  you  wrote  this  letter  to  the  War  Department  and 
they  replied,  whether  that  was  subsequent  to  the  date  of  the  contract  entered 
into  between  the  Air  Nitrates  Corporation  and  the  Government  of  the  United 
States  covering  the  plant  constructed  by  the  Air  Nitrates  Corporation. 

Mr.  Mabtin.  I  do  not  know  the  date  of  that  contract,  Mr.  McKenzie. 

Mr.  Keabns.  Whatever  land  you  own,  however,  at  Muscle  Shoals,  that  is 
to  be  included  in  the  Ford  offer,  you  realize  the  Government  would  have  the 
right  to  condemn? 

Mr.  Mabtin.  Of  course,  no  one  questions  the  right  of  the  Government  to 
condemn  property  for  governmental  purposes  in  accordance  with  the  Constitu- 
tion, Mr.  Kearns.    There  are  limitations  upon  those  questions,  possibly. 

Mr.  MiLLEB.  Prior  to  the  war,  the  Alabama  Power  Co.  was  engaged  in  this 
business  of  creating  and  distributing  power  generally  throughout  the  State 
of  Alabama  or  the  northern  portion  of  it,  and  in  the  progress  of  its  enter- 
prise it  installed  this  plant  on  the  Warrior  River. 

Mr.  Mabtin.  Yes,  sir ;  that  is  correct. 

Mr.  MiLLEB.  As  you  say,  a  relay  plant  or  a  reserve  plant 

Mr.  Mabtin.  A  reserve  plant ;  yes. 

Mr.  Milleb.  And  for  the  purpose  of  being  a  reserve  plant,  and  to  function 
as  such,  it  was  connected  up  with  your  distribution  system? 

Mr.  Mabtin.  Yes. 

Mr.  Milleb.  That  plant  is  south  of  a  point  called  Jasper,  is  it  not? 

Mr.  Mabtin.  Yes;  it  is  southeast  of  Jasper,  Mr.  Miller. 


92900—22- 


-43 


672 


MUSCLE   SHOALS   PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


673 


1  - 


*  Mr.  MiLLKR.  You  had  started  a  line  from  the  Warrior  steam  phuit  as  far 
north  as\lasper? 

Mr.  Maktin.  Yes;  and  as  I  recall  it  had  also  extended  somewhat  nortli- 
wt'sterly  from  Jasper  to  certain  coal  mines. 

]Mr.  Miller.  Now,  with  that  completed  before  the  war  and  in  operation,  as 
your  reserve  plant  or  a  part  of  it,  it  became  necessary,  then,  when  the  subse- 
quent arrangement  was  entered  into  between  you  and  the  War  Department  to 
complete  that  transmission  line  on  northward  from  Jasper  to  Muscle  Shoals? 

Mr.  Martin.  Yes. 

Mr.  Miller.  How  many  miles  is  it  from  the  Warrior  steam  plant  to  Jasper 
or  about  how  many? 

Mr.  Martin.  It  is  probably  about  20  miles. 

Mr.  Miller.  And  from  Jasper  on  to  Muscle  Shoals  is  approximately  how  far? 

Mr.  Martin.  About  68  miles. 

Mr.  Miller.  Then,  so  far  as  the  Government's  necessities  were  concerned,  the 
transmission  line  to  be  completed  to  comply  with  the  Government's  necessi- 
ties was  68  lUiles  from  Jasper  northwesterly  to  Muscle  Shoals? 

Mr.  Martin.  No,  sir.  You  see  this  line  from  the  Warrior  plant  to  Jasper  was 
a  44,000-volt  line.  It  was  therefore  of  small  capacity,  and  you  need  a  110,000- 
volt  line  to  transmit  power  a  distance  of  90  miles  efficiently. 

Mr.  Miller.  Then  you  had  to  practically  reconstruct  that  line? 

Mr.  Martin.  No,  sr;  we  did  not  reconstruct  that  line.  It  was  a  question  of 
build  ng  a  new  line  all  the  way  back  from  the  Warrior  plant. 

Mr.  Miller.  From  Jasper? 

Mr.  Martin.  No  ;  from  the  Warrior  plant. 

Mr.  Miller.  From  the  Warrior  plant  to  where? 

Mr.  Martin.  To  Sheffield. 

Mr.  Miller.  Then  you  built  two  transmission  lines. 

Mr.  Martin.  The  line  still  stands  serving  Jasper  and  other  places  in  that 
district,  on  the  same  right  of  way,  and  side  by  s.de  is  a  new  line  constructed 
from  the  Warrior  plant  90  miles  to  Sheffield. 

Mr.  Miller.  Now,  I  see  very  clearly  that  in  the  construction  of  the  Govern- 
ment's activities  there  they  utilized  your  foundations  at  the  Warrior  plant  to 
construct  add.tional  units,  and  so  on.  and  as  a  result  of  the  method  of  construc- 
tion, whether  the  most  practical  or  not,  the  Government's  activities  there  were 
inseparably  inerwoven  and  interlaced  with  your  activities  in  the  physical  con- 
struction of  the  Warrior  steam  plant. 

Mr.  Martin.  Yes,  sir;  that  is  right. 

Mr.  Miller.  They  were  not  capable  of  a  division  in  any  wise. 

Mr.  Martin.  That  is  true,  Mr.  Miller.  It  was  not  physically  possible  to  ex- 
tend the  plant  and  do  what  was  necessary  to  increase  that  plant  and  make  it  a 
separately  contaned  plant. 

Mr.  Miller.  Then,  preceding  this  time,  you  had  a  verbal  understanding  which, 
eventually,  ripened  into  a  contract,  which  was  s  gned  on  the  day  that  the  false 
report  of  the  armistice  was  circulated  in  the  United  States,  but  which  dated 
back  to  the  1st  day  of  December,  J917 ;  that  is  right,  is  it  not? 

Mr.  Martin.  Yes,  sir ;  that  is  correct. 

Mr.  Miller.  Now,  simultaneously  with  the  building  of  the  Government's  addi- 
tion to  the  Warrior  steam  plant,  or  very  closely  connected  with  it,  the  Govern- 
ment commenced  constructing  its  own  steam  plant  up  at  nitrate  plant  No.  2. 

Mr.  Martin.  Yes:  that  is  true. 

Mr.  Mill1':r.  Which  was  of  a  capacity  approximately  double  what  they  ha<^ 
put  in  at  the  Warrior  steam  plant. 

Mr.  Martin.  Yes. 

Mr.  Miller.  Now.  crottinjr  back  to  this  contract,  the  contract  was  drawn  to 
cover  the  very  contingency  that  has  now  arisen. 

Mr.  Martin.  It  was,  Mr.  Miller. 

Mr.  IVIiLLER.  And  the  condition  of  the  Government  and  the  condition  of  the 
Alabama  Power  Co.  is  just  in  that  status  to  which  your  contract  applies  so 
far  as  section  22,  I  believe,  is  concerned. 

Mr.  Martin.  Y^es,  sir;  neither  the  Government  nor  the  power  company  ever 
contemplated  that  the  United  States  would  desire  to  engage  in  the  power 
business,  but  the  Government  contemplated  that  it  would  desire  to  purchase 
power  from  us,  under  an  arrangement  which  would  insure  a  fair,  honorable, 
decent  way  for  the  Government  to  get  the  fair  value  out  of  the  property  't 
created.    That  was  the  basis  of  our  understanding. 

Mr.  Miller.  Now,  let  us  see  what  that  understanding  is.  You  were  to 
operate  not  only  for  your  use  there  at  the  Warrior  steam  plant  but  also  to 


operate    the   units 
the  Government. 

i\Ir.   Maktin.  Operate 
3'es,  sir. 

Mr.    MlLLEK. 

Martin. 
Miller. 
Martin. 
Miller. 
of  the 


installed   by   the   Government   or   that   portion    installed    by 


i!,    maintain   it,   and   insure   it   at   o\w   <'w:i   c  :rK    ;ie 
electric  current  to  the  Government? 


Mr. 
Mr. 
Mr. 
Mr. 

report 
which 

Mr. 

Mr. 


in  $4,978,0(X),  according  to  the 
!^5>y.  approximately,   .$5,000,00«), 


And  furnish 
Yes. 

At  6*  mills  pt»r  kilowatt  hour? 
At  (H  mills. 

Now,  the  Government  had  put 
Chief  of  Ordnance,  or  as  you 
is  correct,  T  dare  say,  Mr.  Martin. 
Martin.  It  is  slightly  under  $o,0(Xl,000. 

Miller.  Now,  you  say  .vou  had  put  hi  your  instalhition  at  the  Warrior 
steam  plant,  before  the  (Jovernment  made  any  additions  thereto,  approximately 
$3,000,000. 

IMr.  Martin.  Yes. 

Mr.  Miller.  Then  after  the  Government  had  embarked  jointly  with  you  the 
investment  stood  as  3  is  to  .">;  that  is  right,  is  it  not? 
Mr.  Martin.  Ah  3  is  to  5? 

Mr.  Miller.  You  say  that  before  the  Government  put  anything  in  there  yon 
had  an   investment  of  approximately  $3,000,000. 
Mr.  Martin.  Yes,  sir. 

Mr.  Miller.  And  the  Government  put  in  approximately  $5,(X)0,000. 
Mr.  Martin.  In  the  power  plant  and  transmission  line,  together. 
Mr.   Miller.  Yes. 

Mr.    Martin.  There   was   about   $3,500,000 

iVIr.  iNIiLLER  (interposing).  Then  your  respective  interests  in  the  money  paitl 
in  would  be  ai>proximately  as  3  is  to  5?  • 

Mr.  Martin.  In  station  equipment  it  is  about  3^  to  3. 

Mr.  Miller.  Tlie  Urdimnce  Department  tells  us  that  we  have  put  into  tlie 
Warrior  generating  plant  $3,337,000. 
Mr.  Martin.  That  is  correct. 

Mr.  Miller.  AVe  have  put  into  the  Warrior  substation  $384,<300,  and  we  have 
put  into  the  transmission  lines  $905,000,  and  then  they  have  included  the 
Drifton  Railway  with  which  we  are  not  concerned  just  now,  because  I  am 
simply  getting  at  the  comparative  sums  of  money  that  the  United  States  Gov- 
ernment and  the  Alabama  Power  Co.  put  in  there,  and  as  near  as  I  can  get 
the  figures,  it  is  about  as  3  is  to  5,  because  the  United  States  Government 
put  in  $5,000,000  and  you  put  in  $3,000,000. 
Mr.  Martin.  Now,  there  are  some  other  elements,  if  I  may  call  your  attention 

to  them. 

Mr.  Miller.  I  am  just  taking  your  word  that  you  have  put  in  approximately 
$3,000,000  there. 

Mr.  Martin.  Prior  to  that  time ;  yes. 

Mr.  Miller.  Yes;  prior  to  that  time,  and  at  the  time  the  Government  came 
into  your  activities. 

Mr.  Martin.  Yes. 

Mr.  Miller.  Now,  after  the  Government  came  into  your  activities,  it  put  in 
$5,000,000,  approximately? 

Mr.  Martin.  Yes. 

Mr.  Miller.  Now,  what  did  you  put  in  after  the  Government  came  in? 

Mr.  Martin.  We  put  in  by  way  of  investment,  and  certain  expenses  which  I 
enumerated  this  morning,  something  in  excess  of  $1,000,000,  and  in  addition  to 
that,  by  this  investment  in  tie  lines,  the  Government  was  enabled  to  draw  on 
our  entire  system  for  its  power  supply,  and  you  can  not  overlook  the  fact  of  the 
reserve  value  of  our  entire  system  in  connection  with  the  Warrior  station. 

Mr.  IVJiLLER.  What  I  was  getting  at  was  the  respective  amounts  of  money 
Involved. 

Mr.  Martin.  Yes. 

Mr.  Miller.  You  testified  this  forenoon,  I  believe,  that  your  expenses  in  con- 
nection with  the  matter  were  $1,016,000? 

Mr.  Martin   That  is  correct. 

Mr!  Miller.  Now,  we  will  take  $1,016,000,  which,  added  to  your  .$3,000,000  of 
previous  investment,  would  make  approximately  $4,000,000. 

Mr.  Martin.  Yes. 


1 


674 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


675 


l\ 


•i' 


^ 


mi 


Mr  Miller.  Then  your  relations  would  be  about  as  4  is  to  5? 

Mr.  Martin.  If  you  want  to  separate  the  Warrior  plant  from  the  rest  of  the 

system  *  ves. 

Mr  Miller.  No  ;  I  am  not  separating  it.  I  am  Iceeping  it  with  the  plant,  and 
what  I  am  getting  at  there  is  who  has  the  major  investment  there,  you  or  the 
United  States  of  America?  Now,  after  the  Government  had  put  in  approximately 
$5,000,000,  you  were  to  operate  this  plant  and  charge  the  Government  6i  mills 
per  kilowatt  "hour? 

Mr.  Martin.  Yes.  .    ^'  n      n 

Mr.  INIiLLER.  And  out  of  that  the  Government  was  to  retain  a  fund  ot  2  mills, 
which  was  to  be  put  into  a  fund  by  itself,  was  it  not?     « 

Mr.  Martin.  Yes ;  that  is  correct. 

Mr  Miller.  Now,  this  contract  further  provides  that  when  thjit  accumulatinR 
fund  of  2  mills  shall  have  reached  the  amount  of  the  Government's  investment, 
the  Government's  investment  should  be  turned  over  to  the  Alabama  Power  Co.? 

Mr.  Martin.  Yes.  .     ^  .  o^      m 

Mr  Miller.  In  other  words,  you  were  charging  the  Government  6*  mills  per 
kilowatt  hour,  and  there  was  2  mills  put  down  as  a  sinking  fund  and  retained 
bv  the  Government,  and  w^hen  those  2  mills  should  have  accumulated  into 
approximately  $5,000,000,  the  Alabama  Power  Co.  should  absorb  the  entire 
United  States  Government  holdings  there,  so  far  as  they  related  to  the  Warrior 

^  Mr!  Martin.  Now,  we  have  got  to  get  at  that  6^  mills  and  see  just  what  tho 

relations  of  the  parties  are. 
Mr.  Miller.  I  am  taking  the  terms  of  your  contract.  ,  «     •„ 

Mr.  Martin.  Yes ;  but  we  were  required  to  pay  to  the  Government  2  mills  as  si 

sinking  fund :  that  is  true.  .     ,  ^ 

Mr.  Miller.  Hold  on;  f^as  that  2  mills  that  you  were  required  to  pay  or  was 

that  taken  out  of  the  6^  mills? 

Mr  Martin.  I  was  going  to  say  that  the  result  is  just  the  same. 

Mr  Miller.  I  understand  that  the  result  mathematically  is  just  tlie  same; 
but  it  is  quite  different  from  the  Government's  angle  of  it.  Now,  look  at  your 
clause  18  or  19  and  give  me  your  construction  of  article  18,  on  page  lo4  of  part 
3  of  the  hearings.    Let  me  read  and  see  if  I  am  not  right :        ^     , ,  ^         „ 

"  The  United  States  shall  pay  to  the  contractor  [which  is  the  Alabama  Power 
Co  1  at  the  rate  of  6^  mills  for  each  k.w.h.  of  energy  actually  delivered  to  the 
United  States  at  the  Warrior  substation.  Said  rate  is  based  upon  the  po\yer 
factor  of  the  load  of  the  United  States  measured  at  the  Warrior  substation  bein? 
no  less  than  85  per  cent.  Energy  generated  at  the  Warrior  extension  or  the 
Warrior  substation  shall  be  measured  at  the  low  tension  side  of  the  step-up 
transformers  at  said  Warrior  substation."  „^fH««,  .,t 

The  balance  of  that  section  relates  to  the  voltage.  Now,  what  I  am  getting  at 
is  where  did  this  2  mills  come  from? 

Mr  Martin.  It  came  in  this  way ^  .  „ 

Mr.  MttLER  (interposing).  Let  us  get  the  provision  of  the  contract  governing 

***Mr.  Martin.  It  you  will  go  back  to  article  17  you  will  see  "  Payments  by  con- 
tractor." ,  .  ^  ^  ,  4.1   1      ^ft« 

Mr.  Miller.  Mr.  Martin,  is  this  not  covered  in  article  19?  ^ 

Mr.  Martin.  Yes ;  but  you  have  to  consider  17  and  19  together,  I  think,  to  get 

Mr.  Miller.  Yes ;  I  see  it  Is  referred  to  In  section  17. 

^BeeinnSg  at^he^termination  of  the  period  of  preliminary  operation  men- 
tioned In  article  14,  and  so  long  as  the  United  States  shall  require  the  contractor 
fo  supply  ene?^  to  the  United  States  for  the  operation  of  either  or  both  of  said 
nVrTplants'The  contractor  shall  pay  to  the  United  States  monthly  for  the  us 
of  the  Warrior  extension  and  Warrior  substation  interest  at  the  rate  of  6  per 
cent  per  annum  upon  the  actual  cost  to  the  United  States  of  said  extension  and 
substation,  less  the  amount  of  the  accumulated  fund  referred  to  In  article  19,  as 
thrsame  may  vary  at  each  monthly  computatien  of  such  interest.  In  computing 
such  costThJre  s?all  be  excluded  all  payments  by  the  United  States  for  ^P  r- 
vision  "  etc  "  *  *  ♦  The  contractor  shall  also  pay  to  the  United  Statesin, 
terest'monthly  at  the  rate  of  6  per  cent  per  annum  upon  the  sum  of  $30,(K)u 
ex^nded  In  the  Drlfton  extension.  Now  that  operated  In  this  manner:  There 
was  Invested  In  the  Warrior  extension,  $3,417,602.70. 

Mr.  Miller.  Where  do  you  get  those  figures? 


Mr.  Martin.  That  is  in  the  record. 

Mr.  Miller.  You  mean  that  is  the  Chief  of  Ordnance  estimate. 

Mr.  Martin.  Yes,  sir. 

Mr.  Miller.  You  are  taking  then  the  figures  of  the  Chief  of  Ordnance? 

Mr.  IMartin.  Yes,  sir.  And  (»ie  Warrior  substation,  $383,756.30;  Drlfton 
extension,  .$30,000,  or  .$3,831,496.06.  We  are  required  to  pay  6  per  cent  on  that, 
or  $229,887.54  a  year.  That  is  the  interest  charge.  You  have  got  to  take  that 
into  account  in  getting  at  the  question  to  which  you  are  leading. 

Mr.  Miller.  Well,  we  will  take  it  into  account.  Now,  return  to  paragraph 
19  of  your  contract  which  reads  as  follows: 

"  From  and  after  such  date  as  the  contractor  shall  begin  to  operate  the 
Warrior  extension  and  Warrior  substation  as  a  part  of  Its  own  system,  the 
United  States  shall  retain  2  mills  per  k.  w.  h.  from  the  amounts  payable  to 
the  contractor  by  the  United  States  under  article  18  hereof,  except  that  (a) 
in  no  case  shall  the  said  minimum  monthly  payment  by  the  United  States  be 
less  than  $30,000,  and  (6)  the  United  States  shall  retain  no  part  of  the 
payments  due  for  energy  delivered  by  the  contractor  at  a  rate  in  excess  of  the 
capacity  at  the  time  of  the  said  Warrior  extension." 

Now,  you  are  charging  there  only  on  the  Government's  own  property;  is 
not  that  true? 

Mr.  Martin.  Six  per  cent;  yes. 

Mr.  Miller.  They  pay  you  these  amounts,  then,  for  that  part  of  your  in- 
creased capacity,  the  United  States  putting  in  this  Investment  with  yours? 

Mr.  Martin.  The  Government  pays  us  6^  mills  for  power  and  we  contract 
to  pay  the  Government  interest  on  its  investment. 

Mr.  Miller.  But  according  to  exception  (&)  the  United  States  shall  retain 
no  part  of  the  payments  due  for  energy  delivered  by  the  contractor  at  a  rate  In 
excess  of  the  capacity  at  the  time  of  the  said  Warrior  extension,  provided  that 
said  2  mills  shall  no  longer  be  retJiined  by  the  United  States  when  the  accumu- 
lated fund  shall  equal  the  actual  cost  to  the  United  States  of  the  Warrior  ex- 
tension and  the  Warrior  substation,  computed  as  set  forth  In  article  11. 

Now,  when  this  accumulated  fund  reached  the  sum  of  $4,417,000,  the  entire 
property  investment  of  the  United  States,  so  far  as  it  was  connected  with  the 
Warrior  substation,  passed  to  the  Alabama  Power  Co. 

Mr.  Martin.  We  had  paid  for  It. 

Mr.  Miller,  But  you  operated  it  in  the  meantime. 

Mr.  Martin.  We  were  to  pay  a  certain  amount  for  it;  yes. 

Mr.  Miller.  How  much? 

Mr.  Martin.  Actual  cost. 

Mr.  Miller.  Actual  cost? 

Mr.  Martin.  Yes,  sir. 

Mr.  Miller.  Now,  where  in  your  contract  do  you  say  that  at  the  time  when 
this  accumulated  fund  should  reach  the  amount  of  the  Government's  Invest- 
ment, you  should  pay  the  Government  what  it  had  Invested? 

Mr.  Martin.  I  do  not  say  that. 

Mr.  Miller.  No;  that  is  not  there. 

Mr.  Martin.  You  see  the  theory  of  this  payment  of  2  mills  was  to  return  to 
the  Government  its  capital  Investment. 

Mr.  Miller.  You  returned  to  the  Government  its  capital  investment? 

Mr.  Martin.  Yes,  sir ;  we  simply  repaid  to  the  Government  this  $3,800,000. 

Mr.  Miller.  Now%  let  us  see  about  that.  We  will  take  up  that  contingency 
and  see  how  that  applies.  Let  us  look  at  article  22,  and  I  am  reading  now 
from  the  top  of  page  157,  subdivision  (&). 

"  If  the  value  so  fixed  be  greater  than  said  fund,  then  the  United  States  shall 
upon  payment  by  the  contractor  of  the  amount  by  which  such  value  Is  greater 
than  said  fund,  or  payment  thereof  being  secured  as  hereinafter  provided, 
convey  all  of  Its  rights,  title,  and  Interest  In  and  to  said  properties  to  the 
contractor  by  proper  instruments  in  writing  within  60  days  after  notice  of 
the  award,  retaining  In  payment  the  whole  of  said  fund." 

Mr.  Martin.  Yes. 

Mr.  Miller.  Now,  suppose  you  purchased  the  property  from  the  Government, 
do  you  take  the  fund? 

Mr.  Martin.  Do  we? 

Mr  I^iLList   Yes 

Mr.  Martin.  No,  sir.  That  was  In  the  event  of  an  arbitration  fixing  the 
value  of  the  property  at  any  given  figure,  whatever  might  be  in  this  accumulated 
fund  was  to  go  as  a  credit  on  that  value  thus  fixed. 


676 


MUSCa:.E  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


677 


Mr.  Millers  Suppose  that  accumulated  fund  is  equal  to  the  value  fixed  by  the 
arbitrators  as  the  value  of  the  plant. 

Mr.  Martin.  If  the  value  was  fixed  as  the  amount  in  the  fund? 

Mr.  MnxEB.  Yes. 

Mr.  Martin.  Then,  there  is  a  provision  for  conveying  the  title  to  the  company. 

Mr.  Miller.  Yes.    Now,  where  does  the  Government  get  any  money  out  of  it? 

Mr.  Martin.  By  the  payment  of  the  2  mills.    That  is  a  capital  payment. 

Mr.  Miller.  Then  you  construe  it  that  when  this  accumulated  2  mills  pay- 
ment should  have  reached  the  value  of  the  United  States  interest  there,  the 
United  States  retained  this  2  mills  constantly — did  you  say  you  paid  that  to 
the  United  States? 

Mr.  Martin.  Yes;  we  certainly  would. 

Mr.  Kearns.  May  I  ask  just  one  question,  Mr.  Miller? 

Mr.  Miller.  Yes. 

Mr.  Kearns.  I  understand  the  Government  was  to  pay  you  6i  mills  per 
kilowatt  hour  for  your  energy. 

Mr.  Martin.  Yes. 

Mr.  Kearns.  And  instead  of  paying  you  the  full  amount  of  6i  mills  it  would 
keep  2  mills? 

Mr.  Martin.  That  is  correct.  • 

Mr.  Kearns.  And  those  2  mUls  belonged  to  you? 

Mr.  Martin.  Yes,  sir. 

Mr.  Kearns.  And  when  the  2  mills  grew  into  a  sum  equal  to  the  amount  the 
Government  had  invested  in  your  property  it  was  to  transfer  the  property  to 
you;  is  that  it? 

Mr.  Martin.  Yes,  sir. 

Mr.  Miller.  Now,  that  is  one  element,  and  let  us  turn  to 

Mr.  Martin.  You  understand  that  6^  mills  was  fixed  as  the  base  price  for 
energy  based  on  coal  at  $2.30. 

Mr.  Miller.  Yes. 

Mr.  Martin.  Based  upon  that  figure  of  6^  mills  for  energy,  this  arranj^ement 
was  worked  out.  Now,  we  are  prepared  to  defend  and  show  any  figures  you 
want  and  any  data  you  want  as  to  the  fairness  and  correctness  of  that  figure 
of  6i  mills,  and  we  were  to  pay  the  Government  2  mills  into  that  accumulated 
fund  on  account  of  its  capital  investment  in  the  plant. 

Mr.  Miller.  I  think  I  understand  that.  Now,  you  say  you  were  willing  to 
take  that  plant  from  the  Government  as  a  going  concern  and  not  at  its  scrap 
value.  It  being  indivisible  and  incapable  of  physical  division,  this  contract  was 
so  drawn  that  you  would  have  no  competitor  in  undertaking  to  purchase  the 
holdings  of  the  United  States  Government  in  the  Warrior  steam  plant,  provided 
the  value  of  the  plant  or  the  investment  had  not  been  absorbed  by  this  fund 
of  which  we  have  been  speaking. 

Mr.  Martin.  You  assume  that  there  must  be  a  competitor  in  fixing  a  fair 
value. 

Mr.  Miller.  Yes. 

Mr.  Martin.  I  think  you  will  agree  with  me  that  under  the  principles  of 
law  which  govern  the  ascertainment  of  fair  value  they  are  as  well  defined  as 
any  principles  of  law.  Those  principles  of  law  are  read  into  this  contract,  and, 
competitor  or  no  competitor,  far  value  can  be  fixed. 

Mr.  Miller.  There  is  a  way  of  fixing  the  fair  value  by  what  an  article  would 
bring  in  the  market,  free  and  open,  where  the  purchaser  or  any  contemplated 
purchaser  would  get  property  capable  of  segregation  and  something  he  could 
use  himself,  but  no  human  being  who  was  a  bidder  on  this  property  in  com- 
petition with  you  could  ever  separate  his  property  from  your  property  down 

there. 

Mr.  Martin.  No,  Mr.  Miller;  but  on  a  reproduction  basis,  and  considering 
all  the  elements  that  must  enter  into  fair  value,  you  do  not  need  to  consider 
the  question  of  competition. 

Mr.  Miller.  And,  furthermore,  there  is  a  clause  in  this  agreement  that  in 
the  event  the  United  States  Government  should  sell  this  property  or  its  interest 
therein  to  any  other  person  except  the  Alabama  Power  Co.  the  plant  could  not 
be  operated. 

Mr.  Martin.  That  is  correct,  Mr.  Miller. 

Mr.  Miller.  Yes. 

Mr.  Martin.  And  It  was  put  in  there  because  the  situation  was  not  capable 
of  being  divided  into  two  operating  plants. 


Mr  Miller.  Then  the  whole  thing  was  shaped  so  that  the  Alabama  Power 
Co.  would  ultimately  absorb  the  United  States  interest  there,  and  no  other 
human  being  could  come  in  competition  with  the  Alabama  Power  Co. 

Mr.  Martin.  There  was  no  way  by  which  this  arrangement  could  be  worked 
out  except  on  a  basis  of  our  agreeing  to  purchase  the  property  at  a  fair  value, 
and  we  stand  ready  and  willing  to  do  it.  .  ,  ». 

Mr.  Miller.  I  understand  all  that,  and  I  have  had  it  deeply  impressed  here 
that  in  your  relations  with  the  United  States  Government  you  so  entwined  the 
Government's  investment  with  your  own  investment  and  laced  backward  and 
forward  until  ultimatelv  there  would  be  no  human  being  that  could  purchase 
or  come  in  competition  with  you  for  the  purchase  of  the  Government's  rights  in 

that  property.  ^,      ^,  ^         _ 

Mr.  Martin.  Mr.  Miller,  I  do  not  accept  your  premise.  The  Alabama  Power 
Co.  did  not  interlace  anything.  This  contract  was  made  by  Government  officials 
with  us  on  a  fair  basis,  and  it  was  understood  from  first  to  last  that  this  prop- 
erty was  to  be  developed  and  constructed  just  as  it  was  to  accomplish  the 
Government's  purposes,  namely,  the  sale  and  delivery  of  energy. 

Mr.  Miller.  I  understand;  but  there  are  different  ways  of  accomplishing 
the  same  result.  Now,  you  take  issue  with  me,  let  us  refer  to  subdivision  5,  of 
article  22,  on  page  157,  part  3,  of  the  hearings :  ^     ^  ^^ 

"In  the  event  that  the  contractor  [that  is  you]  shall  on  demand  of  the 
United  States  fail  or  refuse  to  purchase  the  Warrior  Extension  and  Warrior 
substation  under  any  of  the  foregoing  subdivisions  of  this  article,  the  United 
States  may  sell  the  same  to  another,  subject  to  the  conditions  that  said  prop- 
erties shall  not  be  operated  and  that  they  shall  be  removed  within  six  months 
after  the  sale  has  been  consummated.  Upon  the  consummation  of  such  a  sale 
with  another  purchaser,  the  United  States  shall  pay  over  to  the  contractor  the 
whole  of  said  accumulated  fund  [that  is,  this  2  mills  fund  we  were  talkiftg 
about  a  moment  agol  less  the  amount,  if  any,  by  which  the  actual  cost  of  the 
said  properties  shall  exceed  the  price  realized  from  such  sale." 

Mr.  Martin.  Yes,  sir. 

Mr.  Miller.  Now,  we  have  got  a  $5,000,000  investment  down  there,  and  we 
have  got  it  so  interlaced  and  stitched  up  with  the  Alabama  Power  Co.  that  If 
the  United  States  should  want  to  sell  it,  it  could  only  sell  it  to  some  person 
who  could  not  operate  it,  and  still  you  say  that  you  want  to  buy  it  as  a  going 
concern,  but  no  other  human  being  could  possibly  buy  it  on  the  basis  of  a  going 
concern.  That  gives  the  Alabama  Power  Co.  a  wonderful  advantage,  does  it 
not,  over  any  possible  competitor?  ,    ^  ^     j., 

Mr.  Martin.  The  very  inception  of  this  whole  arrangement  looked  to  the 
thing  which  is  done  now.  The  United  States  Government  appreciated  that  this 
extension  could  only  be  made  in  the  manner  in  which  it  was  made,  and  we 
obligated  ourselves  to  buy  it  at  a  fair  value  in  order  to  protect  the  Government 
in  the  situation  of  which  you  speak. 

Mr.  Mitxer.  And  in  buymg  it  at  a  fair  value  you  absolutely  bar  any  com- 
petitor. J.    ,    .    2.      J 

Mr.  Martin.  We  could  not  afford  to  have  our  plant  segregated  into  two 
parts.  We  could  not  afford  to  turn  our  plant  over.  That  was  the  funda- 
mental basis  of  this  whole  arrangement. 

Mr.  Miller.  You  are  not  transferring  any  plant.  You  turn  over  the  output 
of  a  part  of  your  plant,  but  you  did  not  turn  over  any  plant  to  the  United 

States? 

Mr.  Martin.  That  is  exactly  what  we  could  not  do. 

Mr.  Miller.  But  the  Government  turned  over  a  plant  to  you  which  bears  a 
relation  to  your  investment  of  5  to  4,  the  Government  being  the  major  holder 

of  interest  there. 

Mr.  Martin.  The  Government  advanced  funds  for  the  extension  of  property, 
and  we  agreed  to  buy  that  property  on  the  basis  of  fair  value. 

Mr  Miller.  And  the  Government  advanced  an  amount  one-fourth  more  than 
you  have  put  in  there,  but  still  this  thing  is  so  interwoven  that  when  the  time 
conies  when  the  war  shall  be  over  and  the  Government  shall  desire  to  dispose 
of  it,  which  time  is  now. 

Mr    T^I  VRTiN    Yes 

Mr!  Miller.  The  only  possible  people  that  the  Government  can  deal  with  will 

be  the  Alabama  Power  Co. ;  is  not  that  true? 

Mr.  Martin.  That  is  correct,  Mr.  Miller,  and  that  was  contemplated,  and  the 
contract  from  beginning  to  end  contemplated  that,  and  there  is  no  other  way 
by  which  this  extension  could  have  been  worked  out. 


Un 


m 


678 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


67^ 


WM-  '#9' 


i;    I 


Mr.  Miijj!:u.  I  see  very  plainly  what  the  contract  is,  but  I  have  been  wondering 
if  there  is  any  othei  human  being  that  would  put  a  dollar  into  an  enterprise  on 
such  a  basis  as  the  United  States  Government  put  its  money  in  with  you.  Can 
you  conceive  of  any  institution  in  the  world,  or  can  you  conceive  of  the  United 
States,  except  in  the  extremity  of  war,  making  such  a  contract? 

Mr.  Maktin.  This  was  the  extremity  of  war,  Mr.  Miller. 

Mr.  MiLLEB.  And  I  am  afraid,  Mr.  Martin,  that  I  am  forced  to  believe  that 
you  took  advantage  of  the  Government  in  its  extremity  of  war. 

Mr.  Martin.  We  resent  the  insinuation,  sir.  We  did  not.  We  made  a  fair, 
decent,  honorable  contract  with  the  United  States  Government. 

Mr.  MiLLEB.  I  have  the  right  to  my  interpretation,  I  think,  Mr.  Martin. 

Mr.  Mabtin.  And  I  have  the  right  to  mine,  too. 

Mr.  MiLUiR.  And  I  have  the  right  to  express  my  opinion. 

Mr.  Mabtin.  And  I  have  the  right  to  express  my  opinion,  and  I  will. 

Mr.  MiLLEK.  And  I  say,  sir,  that  it  looks  to  me  as  if  the  Alabama  Power  Go. 
had  ingeniously  interwoven  the  Government's  interest  along  with  yours  to  such 
an  extent  tliat  tliey  never  could  be  segregated  and  that  you  would  be  the  only 
man  that  could  become  the  purchaser. 

Mr.  M.\JiTiN.  And  I  resent  the  insinuation. 

Mr.  MiLLEB.  You  can  resent  it  all  you  please,  Mr.  Martin. 

Mr.  Mabtin.  Yes. 

The  Chaibman.  The  gentlemen  will  please  observe  order.  We  are  getting 
along  very  nicely  here,  and  there  is  no  use  losing  your  tempers. 

Mr.  Mabtin.  The  Government  could  have  gone  and  built  a  plant.  The  Gov- 
ernment came  to  us.  The  Government  officials  recognized  the  situation  and 
wanted  power,  and  this  was  the  way  that  the  Government  officials  had  of  get- 
ting power. 

Mr.  MiLLEB.  It  is  plain  tliat  they  got  the  power  and  I  see  the  end  of  the  horn 
the  Government  is  coming  out  in  this  thing,  too,  notwithstanding  the  great 
patriotism  that  you  suggested  to  the  committee  this  morning,  Mr.  Martin. 

Mr.  Mabtin.  Has  any  representative  of  the  Government  in  the  Ordnance  De- 
partment questioned  the  fairness  of  this  contract — Gen.  Williams  or  Col.  Burns? 

Mr.  MiLLEB.  We  will  take  that  up 

Mr.  Mabtin.  And  those  men  who  made  this  contract? 

Mr.  Milleb  (continuing).  When  we  come  to  it. 

Mr.  Mabtin.  They  know  it  is  a  fair  contract. 

Mr.  Milleb.  You  say  it  is  a  fair  contract. 

Mr.  Mabtin.  Yes,  sir. 

Mr.  Milleb.  In  opposition  to  that,  Mr.  Martin,  I  would  say  that  it  is  the  most 
unconscionable  contract  I  ever  saw  signed  by  people. 

Mr.  Mabtin.  We  nevertheless  have  our  opinion. 

Mr.  Milleb.  Now,  that  is  your  view  and  my  view. 

Mr.  Mabtin.  Yes,  sir. 

Mr.  Muxes.  I  have  no  hesitation  about  accepting  your  view  and  you  should 
have  none  in  accepting  my  view. 

Mr.  Mabtin.  I  do  not  accept  your  view. 

Mr.  Milleb.  And  I  dare  say,  from  my  reading  of  this  contract,  the  Govern- 
ment was  simply  overreached  under  the  terms  of  this  contract  or  else  it  was 
taken  advantage  of  by  the  exigencies  of  war. 

Mr.  Mabtin.  Neither  of  which  was  the  case. 

Mr.  Milleb.  Let  us  now  go  on  a  little  further.  I  am  referring  now  to  para- 
graph 6. 

"In  the  event  that  (a)  the  Warrior  extension  and  Warrior  substation  are 
not  sold  in  the  manner  herein  provided  to  the  contractor  or  to  another  within 
the  period  of  10  years,  referred  to  in  article  15,  or  (b)  said  properties  not  having 
been  so  sold,  the  United  States  or  its  said  successor  shall  cease  for  365  con- 
secutive days  to  take  any  energy  from  the  Warrior  extension ;  the  United  States 
shall,  upon  six  months'  notice  in  writing  from  the  contractor,  remove  the 
Warrior  extension  and  Warrior  substation  from  the  lands  of  the  contractor 
unless  it  shall,  within  90  days  after  receipt  of  such  notice,  proceed  to  exercise 
its  option  under  subdivision  1  on  this  article." 

Now,  there  is  another  contingency.  If  somebody  should  come  along  and 
should  be  induced  to  buy  the  United  States'  interest  in  it  he  could  not  operate 
the  plant,  and  if  the  United  States  should  hold  it  and  not  sell  it,  it  must  remove 
the  plant  from  your  property,  in  which  case  you  get  the  benefit,  likewise,  of 
this  two-mills  fund. 

Mr.  Mabtin.  There  is  not  a  cent  in  that  accumulated  fund. 


Mr.  Milleb.  I  understand  there  is  no  accumulated  fund  now. 

Mr.  Mabtin.  And  never  was. 

Mr.  Milleb.  But  suppose  the  war  had  continued,  as  you  were  preparing  for 
in  this  contract,  evidently,  and  a  great  deal  of  your  energy  had  been  absorbed, 
there  would  be  considerable  in  this  accumulated  fund,  would  there  not? 

Mr.  Mabtin.  That  is  possible. 

Mr.  Milleb.  Yes.  Now,  then,  let  us  take  the  power  extension  and  trans- 
mission line.    The  Alabama  Power  Co.  built  those,  did  they,  on  your  land? 

Mr.  Mabtin.  Yes,  sir. 

Mr.  Milleb.  Did  you  own  the  land  prior  to  the  time  the  United  States  Gov- 
ernment got  into  relations  with  you? 

Mr.  Mabtin.  We  had  owned  the  right  of  way  to  a  point  beyond  Jasper,  about 

20  miles. 
Mr.  Milleb.  Then  between  Jasper  northward,  for  approximately  68  miles 

Mr.  Mabtin.  Something  like  that. 

Mr.  Milleb  (continuing).  You  acquired  the  right  of  way? 

Mr.  Mabtin.  We  did. 

Mr.   Milleb.  Why   did   not   the   United   States   acquire   that   right   of   way 

itself? 
Mr.  Mabtin.  The  United  States  requested  us  to  acquire  and  pay  for  it. 
Mr.  Milleb.  And  then  why  did  you  not  acquire  it  for  the  United  States? 
Mr.  Mabtin.  We  were  requested  to  acquire  it  and  take  the  title  in  our 

name. 

Mr.  Milleb.  Who  made  that  request? 

Mr.  Mabtin.  Col.  Joyes. 

Mr.  Milleb.  Col.  Joyes  did  not  deem  it  worth  while  for  the  United  States 
to  have  anything  down  there  in  its  own  name,  but  everything  on  the  property 
of  the  Alabama  Power  Co. ;  every  dollar  of  this  $4,800,000  investment.  That 
is  right,  is  it  not? 

Mr.  Mabtin.  That  is  your  interpretation  of  it. 

Mr.  Milleb.  I  am  asking  you  if  it  is  not  your  interpretation? 

Mr.  Mabtin.  I  did  not  get  your  question. 

(The  stenographer  read  the  question  referred  to.) 

Mr.  Mabtin.  Col.  Joyes  considered  that  the  interest  of  the  United  States 
was  protected  when  the  contract  required  us  to  buy  the  property  at  fair  value. 

Mr.  Milleb.  I  will  ask  you  this  question :  As  a  matter  of  fact,  every  dollar 
of  the  $4,878,000  that  the  Government  has  put  in  there,  in  connection  with  the 
Warrior  Steam  Plant  and  the  transmission  line,  is  on  the  property  of  the 
Alabama  Power  Co.? 

Mr.  Mabtin.  It  is. 

Mr.  Milleb.  Then  we  have  this  condition:  We  have  an  investment  there 
which  is  heavier  than  yours,  bearing  the  relation  of  five  to  four,  and  that  is 
on  your  property,  and  we  can  not  sell  it  to  a  purchaser  who  can  operate  it, 
and  if  we  do  not  sell  it  to  you,  and  the  Government  keeps  It,  it  has  got  to  take 
it  off  of  your  land.  That  is  the  condition  of  the  United  States  Government, 
is  it  not? 

Mr.  Mabtin.  But  the  Government  is  protected  because  it  can  require  us  to 
buy  at  a  fair  value,  and  that  was  contemplated  from  the  first,  that  we  would 
stand  ready  to  buy  at  a  fair  value. 

Mr.  Milleb.  And  the  whole  thing  was  so  shaped,  was  it  not,  Mr.  Martin,  let 
us  be  frank,  that  when  the  Government  was  through  using  it.  there  could  be 
nobody  that  could  take  over  that  property  but  the  Alabama  Power  Co.? 

Mr.  Mabtin.  At  a  fair  value. 

Mr.  Milleb.  At  a  fair  value? 

Mr.  Mabtin.  Yes,  sir. 

Mr.  Milleb.  Now.  if  you  were  after  fair  value,  why  was  the  wording  of 
this  contract  so  twisted  around  that  nobody  could  compete  against  you? 

Mr.  Mabtin.  In  the  first  place,  we  had  the  Warrior  Station  and  it  was  an 
integral  part  of  our  hydroelectric  system.  If  that  station  was  to  be  extended 
and  we  were  to  obligate  ourselves  to  deliver  power  from  it,  and  if  we  were  to 
undertake  to  extend  it  for  the  account  of  the  Government,  we  could  not  under- 
take that  if  the  extension  should  be  separated  into  another  plant.  The  Gov- 
ernment might  take  the  whole  plant.  It  might  have  taken  it  all,  of  course, 
but  if  the  Government  undertook  to  take  it  all  there  were  other  obligations 
and  conditions  which  would  arise  by  reason  of  that.  The  Government  did 
not  undertake  to  do  that.    It  was  not  necessary  for  the  Government  to  take 


680 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITION'S. 


681 


fltti 


IL 


the  station.  Wv  could  not  part  with  a  part  of  the  station.  It  would  dis- 
arrange our  whole  hydroelectric  system. 

Mr.  Miller.  It  would  disarrange  your  whole  system? 

Mr.  Martin.  It  would  disarrange  our  whole  system  because  our  water- 
power  system  must  have  a  steam  reserve.  This  plant  was  built  for  that  steam 
reserve.  We  had  many  contracts  to  sell  power  based  on  our  ability  to  deliver 
power  throughout  the  year,  this  plant  supplying  the  deficiency. 

Mr.  Miller.  Mr.  Martin,  we  are  very  familiar  with  the  principle  of  steam- 
reserve  plants. 

Mr.  Martin.  And  that  accounts  for  the  fact  that  we  could  not  undertake 
to  separate  this  property  into  two  stations.  It  could  not  be  operated  as  two 
stations. 

Mr.  Miller.  The  plant  w^as  so  constructed  there,  physically,  that  it  could 

not  be  separated  from  your  plant. 

Mr.  Martin.  It  could  not  be,  because  the  very  location  of  it  is  such  that 
it  can  not  be  separated.  There  is  not  physically  enough  space  or  square  feet  of 
acreage  to  permit  of  two  plants  being  operated  there.  There  is  not  sufficient 
cooling  water.  That  was  a  part  of  the  whole  situation  which  the  Government 
officials  recognized. 

Mr.  Miller.  If  the  war  had  run  along  a  sufficient  amount  of  time,  Mr.  Martin, 
for  this  accumulated  fund  to  have  reached  the  value  of  the  plant,  you  say  you 
would  have  taken  over  the  entire  plant  and  have  paid  the  United  States  the 
value  of  it ;  is  that  right? 

Mr.  Martin.  If  we  had  paid  the  United  States  Government  the  cost  of  the 
property,  we  would  have  taken  the  title  to  it. 

Mr.  Miller.  I  will  ask  the  reporter  to  read  the  question  and  answer. 

(The  reporter  read  the  question  and  answer  referred  to.) 

Mr.  Martin.  My  answer  is  right. 

Mr.  Miller.  But  if  the  war  did  not  run  along  long  enough  for  this  accumu- 
lated fund  to  amount  to  anywhere  sufficient  to  meet  the  cost  of  the  plant,  the 
plant  then  was  to  be  in  such  a  position  that  it  could  not  be  sold  to  anybody  in 
the  world  except  you? 

Mr.  Martin.  At  a  fair  value. 

Mr.  Parker.  Mr.  Martin,  you  have  stated  that  this  contract  was  not  signed 
until  November,  1918. 

Mr.  Martin.  Yes,  sir.  ^    ^^.r- 

Mr.  Parker.  Col.  Hull,  on  page  129,  calls  it  a  contract  of  December  1,  191  <, 
and  refers  to  previous  statutes.  He  was  asked  when  that  contract  was  made 
and  answered  that  it  was  dated  December  1,  1917,  and  seems  not  to  have 
understood  that  it  was  made  in  November,  1918.  It  is  a  matter  of  some  im- 
portance. Have  you  any  correspondence  or  written  statements  which  show 
when  the  contract  was  really  executed? 

Mr.  Martin.  We  have. 

Mr.  Parker.  There  was  no  acknowledgment? 

Mr  Martin.  We  have,  Mr.  Parker.  I  have  before  me  the  minutes  of  the 
board  of  directors  of  the  Alabama  Power  Co.  of  November  4,  1918,  which  I 

will  give  you. 

Mr.  Parker.  That  is  already  in  the  record,  on  page  168,  or  the  motion  au- 
thorizing the  execution  of  the  contract.    There  may  be  something  else  in  the 

Mr  Martin.  Yes;  there  is  something  else  in  the  minutes  which  I  want  to 
read  to  you.    At  this  meeting  of  the  board  of  directors,  held  November  4,  1918, 

the  minutes  recite :  ^      ....   ^,      tt  -^^i 

"  The  Chairman  then  explained  the  proposed  agreement  with  the  United 
States  for  the  construction  of  the  Warrior  extension  and  transmission  Ine  to 
Sheffield  dated  December  1,  1917,  and  after  full  discussion  of  the  subject  il 
was  on 'motion,  resolved  that  the  president  and  vice  president,  or  either  ot 
them  is  separately  authorized  to  sign  and  execute  on  behalf  of  this  company 
any  and  all  proposals  which  may  be  submitted,  any  contracts,  bonds,  or  other 
documents  relative  to  any  work  which  is  or  may  be  awarded  by  the  United 
States  Government  to  this  company,  and  also  any  contracts  and  bonds  witli 
the  Government  concerning  such  work."  ,  .,    ,^. 

There  is  a  certified  copy  of  this  resolution  attached  to  the  contract  itseit. 

Mr.  Parker.  A  copy  of  the  resolution  but  not  of  the  recital. 

Mr.  Martin.  Yes ;  not  of  the  recital. 

Mr  Parker.  Have  you  any  correspondence  which  shows  that  the  Ordnance 
Department  at  that  time  asked  you  to  attend  to  the  execution  of  that  contrsut. 

Mr.  Martin.  As  late  as  November? 


Mr.  Parker.  In  November;  yes. 

Mr.  Martin.  I  think  we  have.    I  have  letters  to  and  from  Col.  Williams. 

Mr.  Parker.  They  are  not  here,  are  they? 

Mr.  Martin.  My  associate  has  just  handed  me  one  letter. 

The  Chairman.  This  morning,  I  think,  you  stated  that  you  had  correspondence 
regarding  this  matter  prior  to  the  time  when  the  formal  contract  was  ratified, 
and  that  you  agreed  to  put  into  the  hearings  those  letters,  as  I  recall. 

Mr.  Parker.  What  does  this  letter  say. 

Mr.  Martin.  It  is  just  a  letter  under  date  of  October  19,  1918,  to  me  from 
Col.  Williams  transmitting  to  me  certain  articles  of  the  contract  which  he  has 
rewritten,  from  articles  1  to  21,  with  the  exception  of  article  15.  He  trans- 
mits them  under  date  of  October  19,  1918.  Col.  Beames,  a  witness  to  the 
contract,  is  available  and  various  other  witnesses  are  available.  I  was  pres- 
ent myself  when  the  contract  was  executed,  and  both  witnesses  to  the  contract 
can  be  very  readily  had.  I  have  here  another  letter  from  Col.  Williams,  dated 
November  1,  1918,  addressed  to  me  at  our  New  York  office  relative  to  the  con- 
tract, sending  certain  pages  of  the  rewritten  contract.    It  is  dated  November 

1,  1918. 
The  Chairman.  But,  Col.  Williams,  you  said,  has  gone  to  Japan. 

Mr.  Martin.  Yes. 

The  Chairman.  So,  he  is  not  available  to  be  called  before  the  committee. 

Mr.  Martin.  No,  sir. 

The  Chairman.  Could  Col.  Beames  be  called? 

Mr.  Martin.  Yes,  sir.  . 

The  Chairman.  I   think  you  gave  us  his  address  when  you  testified   this 

morning? 

Ml*   Martin   Yes   sir 

Mr.  Parker.  Now,  Mr.  Martin,  you  have  stated  something  about  the  price  of 
water  power  in  Alabama  as  given  from  a  report  of  the  Department  of  Com- 
merce as  being  in  1917,  2  cents ;  and  in  1912,  1.9  cents  per  kilowatt ;  and  in  1917, 
7  mills  per  kilowatt.    What  was  it  in  1918  or  does  not  that  appear? 

Mr.  Martin.  That  does  not  appear  from  the  tabulation  I  have  here,   Mr. 

Parker. 

Mr.  Parker.  It  is  important  to  know  what  a  fair  price  was  and  I  want  to 
know  what  you  were  selling  power  in  large  quantities  for  in  1916,  1917,  and 

1918? 
Mr.  Martin.  The  average  price  was  between  8  and  9  mills  per  kilowatt-hour. 

Mr.  Parker.  To  everybody  except  the  Government? 

Mr.  Martin.  Yes. 

Mr.  Parker.  In  large  quantities? 

Mr.  Martin.  Yes;  that  was  the  average  return  we  received  over  our  entire 
system,  approximately  8  mills. 

Mr.  Parker.  What  was  the  lowest  you  sold  power  for  to  any  large  customer 
outside  of  the  United  States? 

Mr.  Martin.  I  would  have  to  look  that  up  to  see,  Mr.  Parker. 

Mr.  Parker.  I  wish  you  would  look  that  up  and  put  in  the  record  all  your 
sales  in  large  quantities.  I  do  not  care  about  any  of  your  small  sales  to  small 
factories,  but  this  contemplated  a  very  large  number  of  kilowatts. 

Mr.  Martin.  Yes ;  it  contemplated  the  sale  of  ix>wer  which  we  were  unable  to 
make  from  our  water-power  system  without  steam  addition. 

Rates  charged  by  Alabama  Power  Co.  for  hydroelectric  power  supplied  to  large 
consumers  with  service  requirements  comparable  to  those  of  the  United 
States  Government  at  nitrate  plant  No.  2,  (rates  are  based  on  hydroelectric 
and  not  steam-generated  power). 

1917,  1918,  and  1919. 

(1)  7,500  kilowatts,  50,000,000  kilowatt-hours  per  year,  6.32  mills  per  kilowatt- 

hour; 

(2)  15,000  kilowatts,  100,000,000  kilowatt-hours  per  year,  6.27  mills  per  kilo- 

watt-hour ; 

(3)  30,000  kilowatts,  200,000,000  kilowatt-hours  per  year,  6.26  mills  per  kilo- 

watt-hour ; 


682 


Mk 


'pll  ;rei|:: 


I' 


MUSCLE  SHOALS  PROPOSITIONS. 

1920   AND    1921. 


MUSCLE  SHOALS  PROPOSITIONS. 


683 


(1)  7,500  kilowatts,  50,000,000  kilowatt-hours  per  year,  7.24  mills  per  kilowatt- 

hour  ; 

(2)  15,000  kilowatts,  100,000,000  kilowatt-hours  per  year,  7.04  mUls  per  kilo- 

watt-hour. 

(3)  30,000  kilowatts,  200,000,000  kilowatt-hours  per  year,  6.92  mills  per  kilo- 

watt-hour. 

Mr.  Pabkeb.  Very  true;  but  I  want  to  know  what  was  a  fair  price  at  that 
time,  and  you  can  give  us  that  with  all  the  remarks  you  choose  to  make  about 
it.    Did  it  sell  in  1919  at  a  lower  or  higher  rate? 

Mr.  Martin.  Our  average  return? 

Mr.  Parker.  Yes. 

Mr.  Martin.  It  was  slightly  above.  It  went  probably  a  little  more  than  8 
mills,  but  was  still  between  8  and  9  mills. 

Mr.  Parker.  What  was  it  in  1920? 

Mr.  Martin.  There  was  practically  no  change. 

Mr.  Parker.  What  is  it  now? 

Mr  Martin.  It  is  practically  the  same.    There  is  very  little  change. 

Mr.  Parker.  The  price  you  named  to  the  Government  was  6^  mills,  was  it? 

Mr.  Martin.  Yes. 

Mr.  Parker.  Was  tJiat  price  higher  or  lower  than  the  price  you  get  from 
other  customers  who  buy  in  large  quantities? 

Mr.  Martin.  Considering  the  fact  that  it  was  based  on  steam,  it  was  lower. 

Mr.  Parker.  If  it  was  based  on  water  power,  how  is  it  in  comparison  with 
what  you  sold  power  for  to  other  people? 

Mr.  Martin.  Our  commercial  manager  tells  me  there  would  be  very  little 
difference.  It  would  work  out  between  6  and  6i  mills.  It  might  have  worked 
out  a  little  less  than  61  mills. 

Mr.  Parker.  You  mean  in  sales  to  other  people? 

Mr.  Martin.  You  asked  me  the  question  whether  this  quantity  of  power  if 
sold  at  our  standard  rate  would  be  less  than  6i  mills.  Based  on  our  water- 
power  systjem  it  might  have  been  a  little  less  than  61  mills.  I  will  have  to 
work  that  out  and  see. 

Mr.  Parker.  For  the  whole  year? 

Mr.  Martin.  Yes ;  but  would  not  have  been  less  than  6  mills. 

Mr.  Parker.  And  what  was  the  price  of  your  steam  power? 

Mr.  Martin.  We  had  no  other  contract  with  anyone  based  on  tlie  delivery 
of  steam  power. 

Mr.  Parker.  And  steam  power  is  more  or  less  expensive  than  \\'ater  povverV 

Mr.  Martin.  It  is  more  expensive.  We  could  not  deliver  steam  power  at  6| 
mills  except  on  a  very  high  load  factor. 

Mr.  Parker.  I  understand  that  the  tract  of  land  on  which  the  iwwor  plant 
was  erected  belonged  to  you. 

Mr.  Martin.  It  did. 

Mr.  Parker.  When  did  you  buy  it? 

Mr.  Martin.  Either  in  1915  or  1916,  before  we  began  the  erection  of  our  plant. 

Mr.  Parker.  Do  I  understand  your  i)osition  correctly  to  be  that  you  consid- 
ered the  money  spent  by  the  Government  as  advanced  to  put  the  plant  and 
lines  upon  your  property  which  should  become  yours,  if  you  wished  it,  and 
which  should  be  paid  for,  not  at  the  cost  of  construction,  but  at  a  fair  price 
as  a  working  plant  according  to  its  value,  when  you  finally  took  it  over,  and 
with  a  provision  that  meanwhile,  while  the  Government  got  the  benefit  of  the 
plant  and  paid  for  power,  they  should  pay  61  mills  a  kilowatt,  but  deduct  2 
mills  a  kilowatt,  and  you  should  pay  6  per  cent  interest  on  the  cost  of  the  whole 
plant? 

Mr.  Martin.  Yes,  sir. 

Mr.  Parker.  That  proposition  is  a  little  troublesome,  because  I  understand 
you  do  not  pay  interest  at  all  except  when  the  Government  takes  power  from 

you.  .    ^, 

Mr.  Martin.  If  the  Government  does  not  take  power  from  us  we  pay  m  the 
form  of  a  mill  and  a  half  a  kilowatt  hour,  generated  at  the  station. 

Mr.  Parker.  That  is  in  the  contract? 

Mr.  Martin.  Yes,  sir. 

Mr.  Parker.  That  is  to  say,  if  they  do  not  take  from  you  and  you  use  the 
plant,  you  pay  11  mills  per  kilowatt  hour,  you  furnishing  the  expense? 


Mr.  Martin.  Tlie  thought  being  that  the  mill  and  a  half  amounts  to  0  per 
oent  interest  on  the  investment. 

Mr.  Parker.  Is  that  what  you  are  paying  now? 

Mr.  Martin.  Yes. 

Mr.  Parker.  Then  the  payments  you  are  making  now  are  under  the  same 
original  contract? 

Mr.  Martin.  Yes,  sir. 

Mr.  Parker.  What  clause  is  that? 

Mr.  Martin.  That  is  subdivision  2  of  article  XVII. 

Mr.  Parker.  Are  you  using  the  plant  to  its  full  capacity? 

Mr.  Martin.  We  are  at  times. 

Mr.  Parker.  When  you  are  short  of  water? 

Mr.  Martin.  Yes;  that  is  right. 

Mr.  Parker.  How  will  a  temporary  use  of  that  sort  amount  to  anything  like 

6  per  cent  interest? 

Mr.  Martin.  How  would  it  amount  to  that? 

Mr.  Parker.  Yes;  a  temporary  use  of  that  sort.  How  much  di<l  you  i)ay  f«»r 
f\\Q  use  last  vear? 

Mr.  Martin.  During  the  year  1921  we  paid  the  Government  .$77,211.61. 

Mr.  Parker.  That  is  the  interest  at  6  per  cent  on  a  million  and  a  quarter? 

Mr.  Martin.  That  does  not  quite  equal  6  per  cent. 

Mr.  Crowther.  During  some  of  the  evidence  given  this  morning  a  condi- 
tion arose  which  was  rather  regretful,  to  my  mind,  inasmuch  as  it  gives  a  very 
faint  suggestion  of  some  collusion.  I  want  to  know  whether  anything  like 
that  existed.  During  the  long  period  that  elapsed  between  the  writing  of  this 
contract  and  the  final  signing  of  it,  was  the  legislation  you  quoted,  which  was 
passed  in  the  meantime,  for  the  purpose  of  validating  that  contract  because 
previous  legislation  did  not,  apparently,  measure  up  to  the  necessity? 

Mr.  Martin.  I  knew  nothing  about  the  legislation,  either  that  it  was  pend- 
ing or  passed,  until  after  it  passed. 

Mr.  Crowther.  It  was  true  that  during  that  period  two  other  acts  were 
passed,  between  the  original  writing  of  the  contract  and  the  final  signing  of 
the  contract? 

Mr.  Martin.  Yes,  sir. 

Mr.  Crowther.  What  was  the  necessity  of  hurryinir  it  up  and  then  coming  in 
and  getting  the  contract  signed? 

Mr.  Martin.  It  just  happened  that  the  contract  was  ready  for  execution  that 

day. 

Mr.  Crowther.  It  was  just  a  coincidence? 

Mr.  Martin.  It  just  happened  so ;  it  was  a  coincidence. 

Mr.  Crowther.  Do  you  know  anything  about  Col.  William  Williams?  What 
I  mean  is,  he  is  a  New  Yorker,  is  he  not?  Has  he  been  connected  with  this 
New  York  firm  of  lawyers  for  a  very  long  time? 

Mr.  Martin.  He  is  a  lawyer  of  distinction  at  the  bar  of  New  York  and  has 
practiced  there  for  30  years. 

Mr.  Crowther.  In  New  York? 

Mr.  Martin.  In  New  York ;  yes.  He  told  me  of  his  experience  as  counsel  for 
the  United  States  in  the  Behring  Strait  controversy  with  Great  Britain  many 
years  ago.  He  has  had  appointments  as  counsel  in  many  matters  of  im- 
portance that  he  mentioned  to  me.  I  do  not  recall  that  I  ever  had  any  relations 
with  him  before,  and  I  have  not  had  any  since. 

Mr.  Crowther.  Do  you  think  the  contract  would  be  as  binding  and  would  be 
sound  if  the  legislation  that  you  quoted  to-day  had  not  been  enacted? 

Mr.  Martin.  It  would  have  been  binding  on  us  to  buy. 

Mr.  Parker.  Would  it  have  granted  the  privilege  to  the  Government  or  its 
officers  to  sell? 

Mr.  Martin.  To  agree  to  sell? 

Mr.  Crowther.  Yes. 

Mr.  Martin.  I  do  not  think  it  would. 

Mr.  Crowther.  Not  until  legislation  was  passed? 

Mr.  Martin.  That  is  correct. 

Mr.  Hill.  Mr.  Martin,  Mr.  Henry  Ford  has  submitted  to  this  committee  a 
proposition  for  the  acquisition  of  the  Muscle  Shoals  property.  The  Alabama 
Power  Co.,  of  which  you  are  president,  has  submitted  another  proposition 
dealing  with  the  disposition  of  the  Muscle  Shoals  property.  The  questions  I 
propose  to  ask  vou  and  the  line  of  inquiry  I  am  interested  in  at  the  present 


684 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


685 


moment  have  nothinjr  at  all  to  <lo  with  the  war  activities  of  the  Alabama 
Power  Co.  or  of  Mr.  Henry  Ford,  nor  liave  they  auythinjr  to  do  with  anythinc 
except  the  bare  terms  of  the  contracts  or  the  offers — two  separate  offers — 
as  they  are  now  placed  before  this  committee. 

The  Chairman.  At  this  time  the  committee  decided  to  take  up  the  objection 
that  the  Alabama  Power  Co.  has  to  the  acquisition  of  nitrate  plant  No.  2  and 
the  transmission  line,  the  Waco  quarry,  etc.,  by  Mr.  Ford.  This  morning  1 
suggested — I  do  not  think  you  were  present 

Mr.  Hill.  I  was  not  present. 

The  Chairman.  The  matter  of  the  Alabama  Power  Co.  will  be  taken  up  w^hen 
the  Alabama  Power  Co.  has  answered  the  Ford  proposition. 

Mr.  Hill.  Then  it  is  not  intended  this  afternoon  that  the  committee  shouNl 
take  up  the  merits  of  the  Alabama  Power  Co.'s  proposition  as  bearing  on  tln> 
merits  of  the  Ford  proposition? 

The  Chairman.  No. 

Mr.  Hill.  Then  I  have  not  any  questions  at  all  to  ask  to-day. 

Mr.  Wttrzbach.  When  and  how  long  was  Mr.  Washburn  president  of  your 
ecmipany? 

Mr.  Martin.  He  became  president  of  our  company  some  time  in  1913;  that 
i«  my  recollection.  He  continued  as  presdent  until  the  annual  meeting  of  our 
directors  in  Febiniary,  1915.     He  was  president  two  years. 

Mr.  Wurzbach.  Was  he  connected  with  the  company  in  any  other  official 
capacity  before  1913  or  after  1915? 

Mr.  Martin.  Yes;  he  became  director  and  president  in  1913,  and,  as  I  say, 
he  resigne<l  as  president  in  the  early  part  of  1915,  but  c'ontinued  as  a  director 
until  he  resigned  in  the  early  part  of  1916. 

Mr.  Wurzbach.  Since  that  time  he  has  had  no  official  connection  with  your 
company  ? 

Mr.  Martin.  Not  as  a  director  or  in  any  capacity  with  our  company. 

Mr.  Wurzbach.  Is  Mr.  Duke  a  stockholder  of  your  company? 

Mr.  Martin.  No. 

Mr.  Wurzbach.  Has  he  ever  been? 

Mr.  Martin.  He  never  has  been. 

Mr.  Wurzbach.  You  stated  that  the  Alabama  Power  Co.  under  the  contract 
made  with  the  Government  acquired  the  easements  and  right  of  way  for  about 
67  miles  of  the  transmission  line ;  is  that  correct? 

Mr.  Martin.  Yes. 
•    Mr.  Wurzbach.  What  does  your  company  pay  for  those  rights? 

Mr.  Martin.  Those  rights  of  way  would  cost  us,  including  investigation  of 
titles,  etc.,  something  like  $400  or  $500  a  mile.  They  would  run  between  $400 
and  $500  a  mile. 

Mr.  W^urzbach.  That  would  be  how  much? 

Mr.  Martin.  For  the  whole  distance? 

Mr.  Wurzbach.  No;  just  the  rights  you  acquired. 

Mr.  Martin.  After  the  Government  began? 

Mr.  Wurzbach.  Yes. 

Mr.  Martin.  Somewhere  between  $40,000  and  $50,000  would  easily  cover  it. 

Mr.  Wurzbach.  You  stated  that  your  company  had  planned  to  put  in  a 
second  unit  at  Gorgas  and  had  placed  orders  for  that  purpose.  Why  did  not 
your  company  offer  to  put  in  this  unit  instead  of  requiring  the  Government  to 
do  it  and  pay  your  company  a  fee? 

Mr.  Martin.  Because,  in  the  first  place,  the  unit  was  not  of  the  capacity  the 
Government  wanted.  It  was  only  a  20,000-kilowatt  unit.  In  the  second  place, 
it  was  a  question  of  financing;  at  that  time  we  could  not  finance  it  except  on 
Government  credit  or  Government  aid.  We  applied  to  the  War  Credits  Board, 
through  Col.  Jones,  for  some  financing  to  aid  us  in  going  ahead  on  our  own 
account,  which  we  were  unable  to  get. 

Mr.  Wurzbach.  You  do  not  think  you  could  have  done  that  work  at  your 
own  expense,  with  your  own  financing? 

Mr.  Martin.  Not  under  those  conditions. 

Mr.  Wurzbach.  Could  you  have  done  it  up  to  the  present  time? 

Mr.  Martin.  Yes;  we  could  have  done  it. 

Mr.  Wurzbach.  Does  your  company  own  any  land  at  the  site  of  the  proposed 
Dam  No.  3? 

Mr.  Martin.  It  does.  Our  company  own*  the  abutment  sites  at  that  dani 
and  some  flowage  lands. 


Mr  Wurzhach.  In  case  of  the  acceptance  of  the  Ford  offer  you  would  be  re- 
(luired  to  convey  your  holdings  to  the  Government  in  order  for  the  Government 

to  give  good  title?  , ,        ^     .  ,      ^  -       4.u 

Ml-.   Martin.  I    assume   the   Government   would   undertake   to   acquire   the 

property  in  some  form.  ,    ,,. 

Mr  W^ur/bach.  About  what  is  the  value  of  your  holdings  there? 

Mr.  Martin.  I  have  not  expressed  any  opinion  as  to  the  value,  Mr.  Wurzbach. 
I  would  not  really  like  to  do  that. 

Mr  Wurzbach.  I  think  at  this  point,  Mr.  Martin,  I  want  to  ask  you  whether 
vour  engineers  or  vour  directors  had  in  mind  a  fair  value  of  the  property  in- 
volved in  this  contract  under  section  22.  I  think  that  is  the  provision  under 
which  you  claim  an  option  to  purchase  from  the  Government? 

Mr.  Martin.  Yes,  sir.  • 

Mr.  Wurzbach.  What  is  that  amount? 

Mr.  Martin.  As  to  what  a  fair  value  is? 

Mr.  Wurzbach.  Has  your  company  in  mind  any  amount? 

Mr.  Martin.  No;  we  have  not  fixed  upon  any  amount.     That  is  sub.iect  to 

arbitration.  ,  ^^  .  . 

Mr  Wurzbach.  I  understand  that;  but  I  suppose  you  and  the  members  of 
your  company,  your  officers,  have  thought  about  what  a  fair  value  for  the 
propertv  would  be;  have  you  not? 

Mr.  Martin.  Yes ;  very  naturally  we  have,  Mr.  Wurzbach. 

Mr.  Wurzbach.  Would  you  mind  stating  what  amount  you  had  in  mind  as  a 

fair  value  for  that  property? 

Mr  M\rtin.  Now,  you  see  that  question  is  one  which  would  have  to  come 
before  the  board  of  arbitration,  and  very  naturally  I  would  hesitate  to  go 
into  the  question  now  because  it  is  a  matter  which  would  naturally  come  before 
that  board,  and  I  would  not  care  to  express  an  opinion  about  it  now. 

Mr  Wurzbach.  How  does  the  cost  of  reproduction  at  this  present  time  com- 
pare with  the  cost  at  the  time  of  the  construction  of  this  work? 

Mr.  IMartin.  The  cost  of  reproduction  now,  our  chief  engineer  tells  me,  is 
nbout  70  per  cent  of  the  cost  at  that  period.  .     ^,,-,0    r  ^  ♦  i 

Mr.  Wurzbach.  Seventy  per  cent  of  the  cost  of  construction  m  1918— I  think 
that  is  when  it  was  constructed. 
Mr.  Martin.  In  1918 ;  yes.  ^       ^  . 

Mr.  Wurzbach.  After  deducting  your  fee,  or  the  fee  that  your  company  re- 
ceived, w^hat  would  be  a  fair  value,  in  your  opinion? 
Mr.  Martin.  I  would  not  like  to  express  an  opinion  on  that.    That  is  a  con- 
Mr    Wurzbach.  Is  not  that  the  only  fair  value  that  the  Government  could 
get  for  this  property,  there  being  no  other  possible  competitors  for  this  par- 
ticular property?  ^         ^      ^,  ,        ,  ^  j        i  ^ 
Mr  Martin.  Taking  into  account  all  the  elements  which  make  up  fair  value. 
its  cost  of  reproduction  is  one,  and  then  you  would  have  to  consider  the  ques- 
tion of  maintenance  and  depreciation,  and  life,  etc.    All  these  elements  enter 
into  it     Of  course,  the  original  cost  is  one  of  the  elements  to  be  taken  into 
account,  and  you  will  see  a  provision  in  the  contract  which  requires  us  to 

buv  it  at  a  fair  value. 
Mr.  Wurzbach.  And  the  production  cost  w^as  about  .$5,000,000? 

Mr.  Martin.  Yes.  ,         .      ^1.  ^ 

Mr.  Wurzbach.  Under  this  contract  you  would  be  forced  to  pay  the  price  that 

the  arbitrators  agree  upon? 

Mr  Martin.  We  would ;  that  is  our  intei-pretation  of  the  contract. 

Mr!  Wurzbach.  You  conveyed  some  rights  you  had  at  the  site  of  Dam  No.  2 
to  the  Government? 

Mr.  Martin.  We  did. 

Mr  Wurzbach.  What  was  the  date  of  that  conveyance? 

Mr  Martin.  The  date  of  our  letter  to  the  Secretary  of  War  w^as  in  February, 
1918  We  tendered  a  conveyance  to  the  Secretary  of  War  or  the  Chief  of  Engi- 
neers and  possibly  in  a  letter  we  were  asked  to  make  some  changes  in  that, 
and  we  did  make  changes  in  it,  and  the  deed  was  finally  delivered,  as  I  recall, 
some  time  in  1920.    I  have  not  the  exact  date  before  me,  but  I  can  get  it  for 

you. 
Mr.  Wurzbach.  Have  you  a  copy  of  the  deed? 
Mr.  Martin.  I  think  I  have  it  in  town ;  I  have  not  got  it  here. 
Mr.  Wurzbach.  About  how  many  acres  did  that  involve? 
Mr.  Martin.  I  do  not  recall ;  I  would  have  to  look  it  up. 


I 


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687 


Mr.  WuBXBACH.  Was  it  an  absolute  deed,  with  no  conditions  attached  to  it? 

Mr.  Mabtin.  No  conditions  attached  to  it. 

Mr.  WuBZBACH.  Mr.  Martin,  this  contract  that  is  dated  December  1,  1917, 
was,  in  fact,  not  signed  until  November  4,  1918. 

Mr.  Mabtin.  In  November,  1918. 

Mr.  WuBzBACH.  As  a  lawyer,  what  would  you  consider  the  true  date  of  that 
/contract? 

Mr.  Mabtin.  The  actual  date  of  its  execution  by  the  parties. 

Mr.  Wubzbach.  The  date  of  execution  and  delivery? 

Mr.  Mabtin.  Yes. 

Mr.  Wubzbach.  Most  of  the  obligations,  in  fact  all  the  obligations  involving 
the  construction  work,  the  performance  of  the  work,  the  actual  performance  of 
the  contract,  except  the  option,  had  already  been  performed  by  that  time? 

Mr.  Martin.  Yes;  they  had  practically  been  performed. 

Mr.  Wubzbach.  Did  you  draw  the  contract? 

Mr.  Mabtin.  No;  I  did  not.    It  is  Col.  Williams's  theory  of  the  contract. ^ 
Col.  Williams  redrafted  the  entire  contract  when  he  got  into  it. 

Mr.  Wubzbach.  You  got  together  and  discussed  the  contract  prior  to  De- 
rcember  1,  1917? 

Mr.  Mabtin.  Yes. 

Mr.  Wubzbach.  I  suppose  you  had  duplicate  drafts  of  that  contract? 

Mr.  Mabtin.  Yes — ^prior  to  its  execution? 

Mr.  Wubzbach.  Prior  to  its  execution. 

Mr.  Mabtin.  Yes ;  there  were  numerous  drafts  of  it. 

Mr.  Wubzbach.  Have  you  any  of  those  original  drafts? 

Mr.  Mabtin.  We  have  some  of  them.  I  do  not  know  whether  they  are  here  or 
not.    I  do  not  think  they  are  in  Washington. 

Mr.  Wubzbach.  Would  you  mind  incorporating  one  of  those  in  the  record? 

Mr.  Mabtin.  Yes;  I  would  be  glad  to  do* that. 

Mr.  Wubzbach.  Were  there  any  material  changes  made  in  that  contract  be- 
tween December  1,  1917,  and  November  4,  1918,  when  it  was  actually  s'gned? 

Mr.  Mabtin.  The  contract  as  it  was  signed  was  materially  different  from  the 
-contract,  naturally,  which  would  have  been  signed  on  the  1st  of  December, 
1917,  if  I  get  your  point.  There  was  no  completed  contract  drafted  in  1917. 
-The  first  time  there  was  any  completed  contract  drafted  was  some  time  in  1918. 

Mr.  Wubzbach.  On  November  4? 

Mr.  Martin.  No.  There  were  drafts  of  the  contract  prior  to  November  4  at 
-different  times.  You  asked  me  if  there  were  any  changes  between  those  dates— 
that  is,  between  December  1,  1917,  and  the  final  draft.    I  would  have  to  look 

^t  the  draft  to  see. 

Mr.  Wubzbach.  You  had  a  draft  of  the  contract  on  December  1,  1917,  did 

you  not? 

Mr.  Mabtin.  No,  sir.  ^    ^r^^„    . 

Mr  Wubzbach.  Then  why  did  you  date  this  contract  December  1,  1917,  in- 
stead of  November  4,  1918,  when  it  was  actually  signed  and  delivered? 

Mr  Mabtin.  We  began  the  negotiafons  with  Col.  Joyes  in  November,  and  all 
the  drafts  bore  the  date  of  December  1.  No  one  ever  thought  about  changing 
them  •  we  began  the  work  in  December.  It  never  occurred  to  me  but  that  the 
principle  of  law  that  applied  would  be  that  the  true  date  of  the  execution  of 
the  contract  would  always  be  proven,  and  I  never  questioned  the  matter  of 
dating  the  contract  at  all.  This  question  as  to  when  the  contract  was  executed 
was  never  discussed  in  so  far  as  dating  it  was  concerned.  So  far  as  the  legal 
effect  's  concerned,  of  course,  we  executed  the  contract  in  the  light  of  the  law 
as  it  existed,  but  none  of  us  thought  to  date  the  contract  without  reference  to 
the  law  as  it  then  existed.  . 

Mr.  Wubzbach.  You  had  negotiations  with  the  attorney  for  the  Government 

hefore  December  1,  1918? 

Mr.  Mabtin.  Oh,  yes;  frequently.  ^    ^    ^     _  *    «*o 

Mr.  Wubzbach.  And  you  drew  up  some  kind  of  a  draft  of  a  contract? 

Mr.  Mabtin.  Yes. 

Mr.  Wubzbach.  On  December  1,  1917?  ,    ^^^„ 

Mr.  Mabtin.  No ;  there  was  no  contract  drawn  in  1917. 
Mr!  Wubzbach.  I  thought  you  said  you  did  have? 

Mr  W^MACH.^  I  mean  December  1,  1917.    That  is  the  date  of  the  contract 
In  the  record  now? 
Mr.  Mabtin.  Yes. 


Mr.  Wubzbach.  That  is  the  date  it  bears? 

Mr.  Mabtin.  That  is  the  date  it  bears. 

Mr.  Wubzbach.  Although  it  was  signed  on  November  4,  1918? 

Mr.  Mabtin.  On  November  9,  1918. 

Mr.  Wubzbach.  When  was  the  contract  actually  signed? 

Mr.  Mabtin.  On  November  9,  1918. 

Mr.  Wubzbach.  And  the  contract  that  was  signed  on  November  9,  1918,  is 
dated  December  1,  1917? 

Mr.  Mabtin.  That  is  correct ;  yes. 

Mr.  Wubzbach.  And  you  did  have  some  form  of  a  contract  prepared  about 
December  1,  1917? 

Mr.  Mabtin.  No,  sir ;  there  was  no  contract  prepared  then. 

Mr.  Wubzbach.  When  did  you  first  prepare  a  draft  of  a  contract? 

Mr.  Mabtin.  Some  time  in  1918,  Mr.  Wurzbach ;  I  could  not  tell  you  when.  ' 
I  might  be  able  to  tell  you  by  looking  at  my  records. 

Mr.  Wubzbach.  Is  that  this  particular  contract  that  was  signed  on  November 
9,  1918,  that  you  say  was  prepared  some  time — you  thought  in  August,  1918? 

Mr.  Mabtin.  I  wonder  if  we  are  speaking  about  the  same  thing.  There  were 
various  drafts  of  this  contract,  beginning  in  the  early  part  of  1918,  at  d  fferent 
times,  with  Capt.  Noble,  the  first  law  officer  of  the  Government.  He  died  and 
his  work  was  taken  up  by  Col.  Williams.  Col.  Williams  changed  the  entire 
theory  of  the  contract.  It  was  first  drafted  in  two  or  three  parts,  according  to 
my  recollection,  separate  and  distinct  contracts.  Col.  Williams  changed  it  to 
one  contract  and  drafted  it  entirely  over  after  Capt.  Noble  died.  So  there  were 
drafts  and  drafts  of  the  contract.  Those  negotiat'ons  proceeded  until  the  final 
form  of  the  contract  was  agreed  upon  in  November,  1918. 

Mr.  Wubzbach.  At  that  time,  during  the  year  1918,  you  were  living  in  Bir- 
mingham, Ala.? 

Mr.  Mabtin.  Yes. 

Mr.  Wubzbach.  And  Col.  Williams  was  in  New  York? 

Mr.  Mabtin.  He  was  in  Washington  most  of  the  time. 

Mr.  Wubzbach.  I  suppose  you  had  considerable  correspondence  with  refer- 
ence to  this  contract  and  as  to  how  it  should  be  drawn  and  the  terms  which  it 
should  contain? 

Mr.  Martin.  Yes. 

Mr.  Wu-bzbach.  Would  you  have  any  objection  to  furnishing  this  committee 
with  that  correspondence  in  connection  with  that  contract  and  place  that  in  the 
record? 

Mr.  Mabtin.  I  shall  be  glad  to  do  it. 

Mr.  Fields.  Mr.  Martin,  on  what  date  did  Mr.  Washburn  resign  his  position 
as  d' rector  of  the  Alabama  Power  Co.? 

Mr.  Martin.  In  March,  1916. 

Mr.  Fields.  You  have  stated  that  prior  to  your  entering  into  this  contract 
with  the  Government  you  owned  part  of  the  right  of  way  of  the  transmission 
line  between  the  Gorgas  plant  and  nitrate  plant  No.  2.  How  long  before  you 
entered  into  your  contract,  Mr.  Martin,  did  you  acquire  the  title  to  the  land  on 
the  transmission  line? 

Mr.  Martin.  Probably  from  one  to  two  years  before.  We  owned  a  distribution 
system  in  the  city  of  Jasper.  We  had  service  to  cit'es,  towns,  and  coal  mines 
and  other  enterprises,  and  we  had  constructed  service  lines  from  the  Gorgas 
plant  location  to  those  communities,  and  this  right  of  way  was  acquired  on 
which  to  construct  those  lines.  I  would  have  to  look  up  the  records  to  give  you 
a  more  exact  date. 

Mr.  Fields.  You  have  stated  that  your  first  contract,  written  or  oral,  with 
the  Government  for  the  extension  of  this  plant  was  about  December  1,  1917? 

Mr.  Mabtin.  In  December,  1917.    There  was  no  written  contract. 

Mr.  Fields.  I  said  written  or  oral,  whichever  it  was. 

Mr.  Mabtin.  It  was  merely  a  verbal  authorizat'on  to  build  the  transmission 
line  as  quickly  as  we  could,  and  on  that  verbal  authority  we  began  the  work. 

Mr.  Fields.  I  suppose  you  had  a  good  many  letters  which  passed  between  the 
Alabama  Power  Co.  and  the  agents  of  the  Government? 

Mr.  Martin.  Yes. 

Mr.  Fields.  Which  contained  provisions  of  the  proposed  contract.  You  evi- 
dently had  something  to  start  your  operations  on? 

Mr.  Mabtin.  Yes ;  we  had  work  orders,  and  I  am  going  to  put  those  in  the 
record  at  the  request  of  the  chairman. 


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688 


MUSCLE  SHOALS  PROPOSITIONS. 


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689 


Mr.  FiKLi)^.  How  far  had  you  progressed  with  that  work  about  May  1,  191S, 
about  the  time  this  statute  was  enacted? 

Mr.  Martin.  The  transui:ssion  line  was  erected  and  in  operation. 
Mr.  Fip:lds.  How  far  had  you  progressed  with  the  construction  of  the  addi- 
tion to  that  plant?  ^       ,    ,  , 

Mr.  Martin.  The  plant  was  being  erected,  the  apparatus  was  contracted  for, 
and  the  steel  was  being  erected,  so  my  chief  engineer  says. 

Mr.  P'lEhDs.  I  believe  you  have  stated  that  because  of  the  nature  of  this  con- 
struction it  would  be  imi^ossible  to  unscramble,  so  to  speak,  the  interests  of  the 
GoTernment  and  the  interests  of  the  Alabama  Power  Co.  in  this  property  owned 
jointly  by  them.  If  I  remember  correctly,  one  engineer  before  the  committee 
has  stated  that  it  could  be  unscrambled.  Will  you  explain  for  the  benefit  of  the 
committee  just  why  it  could  not  be  separated?  j     ^^ 

Mr  ^lARTiN.  It  can  be  separated  in  the  sense  that  it  can  be  removed.  It  can 
not  be  separated  in  the  sense  that  it  can  remain  and  form  a  distinct  and  sepa- 
rate operat  on. 

Mr  FIEI.DS.  That  is  the  point  I  wanted  you  to  explain. 
Mr.  Martin.  Did  you  see  the  pictures  of  the  plant  this  morning? 
Afr   Fields    Yes 

Mr  Martin.  The  site  is  located  at  the  junction  of  Bakers  Creek  and  the  War- 
rior k  ver  The  Alabama  Power  Co.  owns  a  small  acreage  at  that  site  in  fee 
simple.  Immed  ately  adjo  ning  is  the  land  of  a  coal  company,  in  which  the 
power  company  owns  the  surface  interests. 

Then  we  have  one  water  intake,  having  in  view  when  we  constructed  the 
plant  that  we  would,  of  course,  own  the  plant  site.  We  had  no  purpose  in  mak- 
ing two  intakes,  so  we  have  one  intake  for  the  water  and  one  discharge  tunnel. 
The  water  comes  into  one  tunnel  into  the  power  house  and  serves  the  needs  of 
the  o-enerator  we  had  ^stalled,  and  then  serves  the  needs,  as  it  passes  through 
the  same  tunnel,  of  the  other  unit.  We  have  coal-handling  devices  coming  from 
the  same  common  source,  and  we  have  ash-handling  facilities  from  the  same 
source  We  have  one  common  substation,  and  the  switching  apparatus  is  on 
one  switchboard.  The  housing  facilities  are,  of  course,  located  in  a  village. 
There  is  no  separation ;  the  water  employed  operates  on  one  side  of  the  plant 
or  on  another.  We  have  a  small  village  of  houses  for  the  operatives.  With 
the  limited  acreage,  the  boiler  facilties,  the  cool  ng  waf^r,  and  other  facihties 
are  so  constructed  there  as  to  constitute  one  plant.  It  was  s.mply  made  as  an 
extension  of  an  existing,  going  plant.  You  can  not  have  two  operations  in  an 
area  so  restricted.  The  quest  on  of  conflicts  will  inevitably  arise  as  respects 
cooling  water,  as  afl'ect  the  use  and  handling  of  those  things  wh.ch  come  within 
a  closely  circumscr  bed  area.  .   ,     ^^  ^      4.-^    «* 

Mr  Fields  It  would  have  been  possible,  would  it  not,  in  the  construction  ot 
the  plant  to  have  constructed  it  so  it  could  have  been  separated  had  the  Govern- 
ment des.red  to  separate  it?  ^  *  i  Aif 
Mr.  Martin.  Not  at  that  location;  it  could  not  have  been  constructed  dif- 
ferently at  that  location.  ,  .  ^  .  i  ^u  n  .^„« 
Mr  Fields.  I  believe  you  state<l  that  you  were  ready  to  furnish  the  Govern 
ment  power  there  some  five  months  before  the  completion  of  the  steam  plant 
at  nitrate  plant  No.  2? 

Mr.  Martin.  Some  months  before. 

Mr.  Fields.  Did  your  company,  in  its  desire  to  help  the  Government,  propose 
at  any  time  to  construct  the  steam  plant  at  nitrate  plant  No.  2  instead  of  ex- 
tending your  own  plant? 

Mr  ^L\rtin.  We  had  nothing  to  do  with  nitrate  plant  No.  2.  -    ,    * 

Mr.  Fields.  You  did  not  tender  your  services  for  the  construction  of  that 
plant  instead  of  the  extension  of  your  plant? 

I^Ir.  Martin.  We  had  nothing  to  do  with  that  work. 

Mr  Fields.  Do  vou  not  believe  that  your  company,  with  its  intimate  knowl- 
edge of  this  chara'cter  of  construction,  might  have  constructed  the  steam  plant 
at  nitrate  plant  No.  2  with  greater  speed  than  it  was  constructed. 

Mr  M\rtin  I  would  not  like  to  pass  on  that  question.  The  contract  was  i» 
the  hands  of  the  J.  G.  White  Co.  They  were  among  the  l)est  engineers  in  this 
countrv.  and  thev  had  a  dilficult  problem  there.  They  had  to  begin  from  the 
foundation  up  and  create  a  situation.  We  had  six  months'  start  in  the  fact  tnai 
we  had  water  intakes,  had  the  foundaticms,  had  a  village,  had  power  lines,  ana 
evervthing  readv  to  immediately  start  construction  at  Warrior. 

Mr  Fields.  This  was  the  thought  that  struck  me  this  morning  when  you 
were  discussing  that  subje<t,  that  with  thr  country  at  wftr,  and  this  power 


available  88  miles  away,  which  required  not  only  the  addition  to  your  own 
I)lant  but  the  construction  of  a  transmissicm  line,  it  seems  to  me  a  little 
strange  that  your  company  did  not  first  suggest  the  construction  of  a  steam  plant 
at  nitrate  plant  No.  2.  It  seems  that  nobody  gave  that  matter  any  thought, 
but  the  whole  thought  was  to  extend  your  own  plant. 

Mr.  Martin.  Mr.  Fields,  the  question  of  constructing  the  entire  plant  there, 
the  entire  facilities  involved  not  only  months  of  time,  but  would  also  have 
involved  the  carrying  of  coal  from  the  very  fields  where  our  plant  is  erected,  90 
miles  over  a  single-track  road,  Avhich,  in  the  best  of  conditions  is  congested,  ami 
the  Government  officials  wanted  to  have  two  separate  plant  locations  on  which 
they  could  get  power.  If  they  had  followed  the  true  economics  of  the  situation 
they  would  have  erected  both  plants  in  the  Warrior  coal  field  instead  of  hauling 
coal  and  transmitting  the  power.  But  the  nature  of  the  conditions  was  such, 
the  transmission  lines,  etc.,  that  as  a  matter  of  war  protection  the  situation  was 
divided  into  two  plants.  The  idea  was  to  have  a  call  on  our  Warrior  station, 
and  also  have  a  plant  at  Sheffield,  We  had  nothing  to  do  with  the  policy  in 
connection  with  the  matter,  of  course.  That  was  entirely  beyond  our  province. 
It  might  interest  you  to  know  that  within  30  or  40  days  after  this  work  at 
Warrior  began,  we  received  orders  to  stop  the  construction.  We  did  not  know 
why,  but  it  was  then  developed  that  Mr.  Washburn  had  proposed  to  the  Govern- 
ment that  it  build  a  new  nitrate  plant  at  Kinsgport,  Tenn.,  and  that  the  Govern- 
ment transfer  this  entire  Warrior  equipment  to  the  plant  at  Kingsport.  We 
knew  nothing  about  it  and  had  nothing  to  do  with  it.  It  was  the  plan  of  Mr. 
Washburn  to  erect  a  plant  at  Kingsport,  Tenn.  He  carried  that  idea  forward 
and  succeeded  in  stopping  the  work.  Other  representat.ves  of  the  Government 
took  the  position  that  it  was  to  the  interest  of  the  Government  that  this  work 
at  Warrior  proceed,  but  that  delayed  it  for  ten  days  or  two  weeks.  That  hap- 
pened in  the  early  part  of  the  work.  Mr.  W^ashbum  had  no  connection  with 
our  situation  and  was  not  acting  for  us  directly  or  indirectly.  I  merely  mention 
that  so  that  you  can  understand  the  full  situation. 

Mr.  Frederick  Darlington  was  chairman  of  the  power  section  of  the  War 
Industries  Board.  He  is,  in  part,  my  authority  for  this  statement ;  Maj.  It.  D. 
(Toombs,  who  is  in  this  room  now,  is  also  authority  for  that  statement.  He 
was  one  of  the  officers  in  charge  of  this  work,  and  I  am  sure  he  would  be  glad 
to  answer  any  questions  you  would  care  to  ask  him  about  it. 

Mr.  Fields.  You  have  stated  that  ths  company  owned  the  land  abutting  dams 
2  and  3.  I  suppose  it  has  been  a  part  of  the  plan  of  your  company  to  develop 
the  power  at  Muscle  Shoals  as  your  needs  would  jusffy  that  being  don.e? 

Mr.  Martin.  We  did  own  a  site  at  dam  No.  2,  but  we  transferred  it  to  the 
(fovernment  for  $1.     We  siill  own  property  rights  at  dam  No.  3. 

Mr.  Fields.  I  say  I  suppose  that  in  connection  with  this  general  scheme 
you  entertained  the  hope  that  you  might  be  granted  a  franchise  under  which 
you  would  develop  power  at  dams  2  and  3,  as  you  developed  a  market  for  it? 

Mr.  Martin.  Of  course,  to  some  extent  that  -s  the  situation.  The  whole 
situation  at  Muscle  Shoals  was  one  of  hmg  years'  standing.  Mr.  Worthington 
was  in  charge  of  the  matter  in  behalf  of  our  company  for  many  years,  until 
his  resignation  from  our  company. 

Mr.  Fields.  <^f  course,  you  had  a  perfect  right  to  do  that.  Now,  if  in  order 
to  meet  a  great  public  need  or  the  demands  of  the  Government,  it  l»ecomes 
necessary  for  the  Government  to  develop  this  or  have  it  developed  under  some 
contract,  you  would  not  undertake,  or  you  would  not  regard  it  as  a  proper 
policy  to  disregard  the  needs  of  the  (Tovernment  because  they  conflict  with 
the  interests  of  your  own  cctnipany? 

Mr.  INIartin.  Air.  Fields,  wc  have  never  disregar<led  the  interes's  of  the  Gov- 
ernment. We  transferred  proi)erty  rights  at  dam  No.  2  to  the  Governmt^nt  for 
$1.  So  far  as  the  nterosts  of  the  (rovernment  go,  of  course,  those  ^n  erests 
are  paramount  in  the  consideration  of  every  patriotic  citizen.  When  that  ques- 
tion in  its  general  terms  is  applied  to  a  specific  s'tuafon,  you  have  to  «leal  with 
the  situation  to  which  it  is  applied.     I  prefer  to  answer  it  in  that  form. 

Mr.  Fields.  Your  agreement  with  the  (rOvernment  of  19iI7  was  entered  into  on 
the  part  of  the  Government  by  Col.  Joyes? 

Mr.  Martin.  Col.  Joyes  represented  the  Government. 

Mr.  Fields.  Then  any  alterations  of  or  a<lditions  to  the  contract  were  made 
by  other  officers? 

Mr.  INlARTiN.  Col.  Joyes  was  in  charge  of  the  work  of  constructon  from  first 
to  last.  These  gentlemen  to  whom  1  have  referred  were  undoubtedly  working 
*nther  with  him  or  under  his  supervisi<m  in  that  whole  situation. 


690 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


691 


Mr.  Fields.  Was  Capt.  Noble  an  emergency  officer? 
Mr.  Martin.  He  was  an  emerjjency  officer. 

Mr.  Fields.  What  was  his  business  before  he  went  into  the  Army? 
Mr.  Martin.  He  was  a  lawyer. 

Mr.   Fields.  Where?  ^ 

Mr.  Martin.  He  practiced  in  New  York  City. 

Mr.  Fields.  Was  Maj.  Coombs  a  Regular  Army  officer  or  an  emergency 
officer? 

Mr.  Martin.  He  came  into  the  service  as  an  Engineer  officer  during  the  war 

Mr.  Fields.  What  was  his  business  before  that? 

Mr.  Martin.  He  lived  :n  New  York.    He  was  an  engineer. 

Mr.  Fields.  And  Col.  Beames  was  an  emergency  officer? 

Mr.  Martin.  Yes. 

Mr.  Fields.  What  was  his  business  before  he  went  Into  the  Army? 

Mr.  Martin.  He  was  an  engineer,  too. 

Mr.  Fields.  Where  is  he  from? 

Mr.  Martin.  He  lives  in  New  York. 

Mr.  Quin.  Please  tell  us  something  about  the  stockholders  of  the  company 
of  which  you  are  president?    Where  is  the  majority  of  that  stock  owned? 

Mr.  Martin.  Mr.  Quin,  practically  all  of  the  preferred  stock  of  the  Alabama 
Power  Co.  is  owned  by  some  3,000  stockholders  residing  in  Alabama.  The 
common  stock  is  owned  by  the  Alabama  Traction,  Light  &  Power  Co.  (Ltd.), 
and  about  52  per  cent  of  the  Alabama  Traction,  Light  &  Power  Co.  stock  is 
held  in  this  country  and  Canada  and  48  per  cent  in  other  countries. 

Mr.  Quin.  What  countries  other  than  this  country? 

Mr.  Martin.  England,  Belgium,  the  Netherlands,  Norway,  Sweden — in  fact, 
many  of  the  foreign  countries  in  small  lots. 

Mr.  Quin.  How  much  of  the  stock  is  held  in  those  countries  across  the 
water? 

Mr.  Martin.  Approximately  48  per  cent. 

Mr.  Quin.  How  much  do  the  Canadian  interests  hold? 

Mr.  Martin.  My  recollection  is  approximately  10  per  cent. 

Mr.  Quin.  How  much  stock  does  the  Alabama  Traction,  Light  &  Power  Co. 
(Ltd.)  hold? 

Mr.  Martin.  That  is  the  stock  I  was  speaking  of. 

Mr.  Quin.  Then,  there  is  58  per  cent  held  outside  of  the  United  States  and 
48  per  cent  held  across  the  water,  10  per  cent  being  held  in  Canada — that  is, 
58  per  cent  outside  of  the  United  States.    Where  are  these  securities  floated? 

Mr.  Martin.  Are  you  speaking  of  stock  or  of  all  securities? 

Mr.  Quin.  I  am  speaking  of  stock. 

Mr.  Martin.  That  is  approximately  it. 

Mr.  Quin.  You  have  answered  in  reference  to  the  stock.  I  want  to  know 
about  your  other  securities.    You  issue  bonds,  do  you  not? 

Mr.  Martin.  Yes. 

Mr.  Quin.  What  percentage  of  your  bonds  are  held  outside  of  the  United 
States,  and  other  securities  or  evidence  of  indebtedness? 

Mr.  Martin.  Taking  it  as  a  whole,  there  is  about  63  per  cent  of  all  our 
securities  in  this  country  and  37  per  cent  out  of  this  country ;  that  is  approxi- 
mately correct. 

Mr.  Quin.  That  is  outside  of  the  United  States? 

Mr.  Martin.  Yes ;  63  per  cent  in  this  country  and  37  per  cent  abroad ;  that 
was  almost  a  complete  reversal  of  the  condition  which  existed  in  1914. 

Mr.  Quin.  You  stated  that  your  predecessor,  Mr.  Mitchell,  was  the  president 
of  this  company.    He  was  born  in  England,  was  he  not? 

Mr.  Martin.  No,  sir;  he  was  born  in  Canada.  He  was  a  citizen  of  Massa- 
chusetts from  his  early  boyhood  and  continued  to  be  until  his  death. 

Mr.  Quin.  Was  he  naturalized? 

Mr.  Martin.  Yes — he  was  either  naturalized  or  born  of  American  parents. 

Mr.  Quin.  You  are  a  native-born  citizen  of  Alabama? 

Mr.  Martin.  Yes,  sir ;  born  in  .Judge  Almou's  district  up  near  Muscle  Shoals. 

Mr.  Quin.  The  question  of  this  contract  being  dated  the  9th  of  November, 
1918,  is  purely  one  of  the  record  of  the  date  of  the  signing  of  that  instrument, 
is  it  not,  so  far  as  the  contract  is  concerned?  It  had  been  in  force  and  effect 
since  the  1st  day  of  December,  as  I  understand  it. 

Mr.  Martin.  We  had  been  operating  under  either  verbal  or  written  instruc- 
tions ;  they  did  not  rise  to  the  dignity  of  an  agreement.  But  letters  had  passed 
in  the  nature  of  work  orders,  modified  from  time  to  time  to  meet  the  progress 


of  I  he  work.     Those  umlerstandin.irs  or  relationsliips  culminated  in  this  con 
trart  in   November,  1918. 

Mr.  Quin.  Mv.  :Martin,  it  is  hardly  probable  that  a  contract  of  that  ma'mi 
tude  would  have  been  entered  into  by  your  company  without  an  undorstandin 
because  you  did  start  on  the  work  in  1917? 

Mr.  Martin.  To  the  contrary,  Mr.  Quin,  our  company  entered  upon  it  with- 
out any  specific  understanding,  simply  because  the  Government  wanted  us  to 
build  the  transmission  line  and  get  power  for  its  purposes.  The  question  of  a 
contract  was  naturally  one  to  come  up  later,  as  in  the  case  of  thousands  of 
I)eopIe  who  had  arrangements  with  the  Government  of  one  kind  or  another  to 
supply  it  with  efjuipmeiit  and  products  to  be  used  in  the  war.  The  question 
of  contra<?t  was  one  of  secondary  importance  and  so  considered  by  everyone. 
The  main  (piestion  was  to  do  the  work  and  get  the  results  the  officers  of  the 
Government  wanted. 

Mr.  Quin.  It  was  un<lerstood  that  the  Government  was  to  finance  that  work, 
and  a  fee,  as  stated  by  you,  was  to  be  paid  by  the  Government;  your  com- 
pany was  to  do  the  work.    That  was  clearly  understood,  was  it  not? 

Mr.  Martin.  The  two  fundamentals  were  that  the  Government  would  finance 
the  work  and  we  would  agree  to  buy  the  plant  upon  the  demand  of  the  Gov- 
ernment at  a  fair  value. 

Mr.  Quin.  Those  were  the  fundamentals  in  there  in  1917,  were  they  not? 

Mr.  ^Martin.  When   we  began,  yes,  sir. 

Mr.  Quin.  You  know  what  a  contract  is;  you  are  a  lawyer.  Your  minds 
were  bound  to  come  to  a  meeting  before  you  entered  upon  any  such  big  job 
as  that. 

Mr.  Martin.  To  that  extent,  yes;  as  to  how  it  should  be  worked  out,  that 
was  left  to  a  detailed  contract. 

Mr.  Quin.  State  exactly,  as  near  as  you  can,  all  that  was  understood  be- 
tween your  company  and  the  Government  at  that  time,  in  December,  1917. 

Mr.  Mabtik*.  Well,  in  the  first  place,  we  were  to  undertake  the  construction, 
immediately  and  in  a  Ivance  of  the  other  work,  of  the  transm  ssioii  line— and 
that  was  settled  first — a  transmission  line  over  which  the  Government  could 
obtain  power  at  Muscle  Shoals.  This  transmission  line  was  to  have  a  capacity 
of  30,000  kilowatts.  The  question  was  to  get  that  line  built,  leaving  to  the 
future  the  determination  of  how  much  power  the  Government  would  take  out 
of  our  system  to  meet  its  needs  at  that  location.  We  were  asked  to  expedite 
the  construction  of  that  transmission  line  with  all  speed.  We  did  undertake  at 
the  Government's  request  to  do  it,  and  we  started  our  men  working,  by  tele- 
graphic orders,  largely  at  our  own  expense,  before  there  was  any  definite  ar- 
rangement for  obtaining  money  from  the  Government,  and  we  financed  it  for 
a  considerable  period.  That  work  went  forw^ard  and  the  discussions  also  went 
forward  with  Maj.  Coombs  and  Col.  Joyes  as  to  what  could  be  done  to  give  the 
Government  a  source  of  power  amounting  altogether  to  30,000  kilowatts  from 
our  system.  There  was  no  authority  in  the  Government  at  that  time  to  agree 
to  sell  us  this  extension.  There  was  corporate  authority  in  our  company  to 
agree  to  purchase  on  the  demand  of  the  Government  at  a  fair  value.  So  the 
funlamentals  as  finally  accepted  were  that  we  would  purchase  at  a  fair  value 
on  the  demand  of  the  Government  and  the  Government  would  finance  the 
extension. 

Mr.  Quin.  That  was  understood  in  1917,  that  feature  of  it,  in  December,  1917. 

Mr.  Martin.  Yes,  sir ;  that  feature  of  it. 

Mr.  Quin.  And  alone  you  could  not  have  embarked  upon  such  a  proposition? 

Mr.  Martin.  We  could  not  have  embarked  upon  the  financing  of  it. 

Mr.  Quin.  You  couM  have  done  the  work  upon  the  cost-plus  plan,  but  you  do 
not  believe  the  Government  would  put  all  that  money  on  the  property  of  the 
Alabama  Power  Co.  without  an  understanding,  do  you?  And  they  did  not  do 
it  without  an  understanding,  and  that  understanding  was  in  December,  1917? 

Mr.  Martin.  Yes. 

Mr.  Quin.  And  when  that  understanding  was  brought  about,  was  there  any 
written  evidence  of  it? 

Mr.  Martin.  Simply  the  work  orders. 

Mr.  Quin.  Was  there  no  kind  of  a  drafted  document  of  the  War  Department, 
or  some  branch  of  the  War  Department? 

Mr.  Martin.  Not  in  December. 

Mr.  Quin.  No  kind  of  documentary  evidence  made  by  the  Government?  Were 
those  War  Department  officers  so  derelict  and  negligent  as  not  to  have  some 
kind  of  a  memorandum  or  writing? 


692 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


693 


in 


Mr.  Martin.  I  can  not  say  they  were  derelict  at  all.  They  wanted  the  re- 
sult.s;  they  wanted  tlie  power.  The  question  of  the  terniinolojry  of  a  contract 
was  secondary.  They  were  willinjf  to  uo  ahead  and  start  a  i)roo:iain  and  they 
were  willing  to  consider  our  aj^reenient  verbally  as  binding  us.  as  it  did  biuil 
us,  and  we  did  agree  upon  it  finally. 

Mr.  (^riN.  That  was  an  agreement  which  terminated  in  the  expenditure  oi 
about  $r»,(KM).000? 

Mr.  Martin.  Yes. 

Mr.  QiJN.  Without  any  kind  of  a  written  agreement  or  memoranduni  or  any- 
thing on  the  part  «>f  the  <iovernmentV 

Mr.  Martin.  Work  orders  and  our  acceptance  of  them. 

Mr.  Qri.N.  No  kind  of  a  written  instrument  or  memorandum  filed  in  the 
Alabama   I'ower  (Ws  ofHceV 

Mr.  Martin.  These  work  orders  nnd  our  acceptance  of  them. 

Mr.  (.^11 X.  Is  there  anything  stating  a  conclusion  reachetl  by  these  verbal  or 
telephonic  communications  of  record? 

Mr.  Martin.  There  may  be;  I  will  have  to  look  that  up  for  you. 

Mr.  (juiN.  If  3'ou  have  anything  of  that  kind  1  wish  you  wouhl  put  it  in  the 
record. 

Mr.  Maistin.  I  will  be  glad  to  do  so. 

Mr.  QuiN.  You  started  to  work  about  what  dateV 

Mr.  Martin.  December  14. 

Mr.  QuiN.  1917? 

Mr.  Martin.  Yes. 

Mr.  (}uiN.  How  much  of  tliat  work  was  completed  on  the  9th  day  of  No- 
vember, 1918? 

Mr.  Martin.  It  was  largely  completed.  The  transmission  line  had  long  been 
completed,  and  our  chief  engineer  reminds  me  that  95  per  cent  was  complete<l. 

Mr.  QuiN.  How  much,  approximately,  of  the  $5,000,000  had  been  expended? 

Mr.  Martin.  I  can  not  say  how  much  of  those  payments  had  been  made  at  that 
time.    You  would  have  to  get  that  from  the  Government  officials. 

Mr.  Quin.  Your  records  would  not  show  that? 

Mr.  Martin.  I  can  not  say  that  the  records  would  show  the  exact  expendi- 
tures because  there  was  a  disbursing  officer  of  the  Government  acting  under 
Maj.  Coombs,  who  controlled  that  question. 

Mr.  Quin.  At  the  time  of  the  signing  of  the  armistice  you  had  about  com- 
pleted the  build  ng? 

Mr.  Martin.  That  is  correct. 

Mr.  Quin.  You  did  not  have  the  machinery  installed? 

Mr.  Martin.  Yes ;  I  think  the  machinery  was  installed ;  it  was  practically 
ready  to  run. 

Mr.  Quin.  Before  you  began  the  Government  work  you  had  constructed  a 
building  about  100  by  several  hundred  feet? 

Mr.  :Martin.  I  do  not  remember  exactly ;  it  was  half  the  size  of  the  building 
you  saw  in  these  pictures. 

Mr.  Quin.  And  the  building  you  constructed  for  that  purpose  for  the  Gov- 
ernment was  the  same  size,  practically? 

Mr.  Martin.  It  is  a  little  larger. 

Mr.  Quin.  The  machinery  that  the  Government  unit  had  was,  of  course,  of 
a  stronger  type,  and  put  up  on  a  more  expensive  basis? 

Mr.  Martin.  It  was  a  larger  unit. 

Mr.  Quin.  And  was  worth  more  money? 

Mr.  Martin.  It  cost  more  money  than  ours  did. 

Mr.  Quin.  What  land  did  you  own  there  at  the  time  you  started  the  Gov- 
ernment work,  as  near  as  you  can  recollect? 

Mr.  Martin.  We  owned  20  or  30  acres  of  land  in  fee,  and  possibly  50  acres  or 
75  acres  of  surface. 

Mr.  Quin.  Do  you  own  any  more  than  that  now? 

Mr,  Martin.  Yes. 

Mr.  Quin.  When  did  you  acquire  it,  what  year? 

Mr.  Martin.  We  extended  our  surface  title,  I  think  we*  acquired  the  re- 
mainder— we  own  100  acres  of  surface  title;  that  is  my  recollection. 

Mr.  Quin.  About  what  year? 

Mr.  Martin.  Either  1917,  1918,  or  1919;  I  do  not  remember,  Mr.  Quin. 

Mr.  Quin.  It  must  have  been  after  this  contract  with  the  Government. 

Mr.  Martin.  It  is  very  likely. 

Mr.  Quin.  You  said  you  had  at  that  time  30  acres? 


Mr.  Martin.  We  had  20  or  30  acres  in  fee  simple,  and  we  had  the  surface 
title  on  50  acres  additional.  There  was  a  coal-mining  company  in  which  we 
had  an  interest,  and  there  were  other  interests  in  the  coal  mining  company, 
and  we  acquired  part  of  the  surface  title  from  the  coal  company,  and  later 
acquired  additional  surface  title  from  the  coal  company  to  enable  us  to 
properly  police  the  village  and  to  make  additional  improvements  in  the  camp. 
We  own  100  acres,  as  I  recollect  now. 

Mr.  Quin.  After  the  armistice  was  signed,  the  Government  constructed  some 
railway  or  electrified  some  railway,  did  it  not? 

Mr.  Martin.  From  the  very  first  there  was  a  program  of  constructing  what  is 
known  as  the  Drifton  Railroad  extension.  That  is  an  extension  of  the  Southern 
Railway  line  from  where  it  stopped  some  distance  from  this  plant  down  to  this 
plant,  the  idea  being  to  get  additional  sources  of  coal  supply  to  the  plant,  in 
case  there  should  be  an  interruption  of  a  supply  of  power  to  the  plant. 

Mr.  Quin.  That  was  constructed  after  the  armistice,  was  it  not? 

Mr.  Martin.  It  was  completed  after  the  armistice.  The  Government  agreed 
to  advance  $30,000  for  the  construction  of  that  road  and  we  advanced  the 
balance;  we  advanced  $105,000  over  the  $30,000  advanced  by  the  Government. 

Mr.  Quin.  Then,  after  the  armistice  was  signed  the  hammer  and  saw  were 
busy  until  the  spring  of  1919,  by  the  Government  and  with  the  Governments 

money? 

Mr  Martin.  I  do  not  recall  now.  There  were  some  men  there,  there  were  a 
few  men  there,  but  the  work  was  practiccUy  completed.  We  completed  the 
railroad  and  the  Government  simply  advanced  some  money.  That  was  an  ex- 
pensive operation,  .        ,  .  ^.  .       ., 

Mr,  Quin.  Did  you  not  complete  those  houses  after  the  armistice  was  signed; 
that  is,  for  the  offices  of  the  company,  and  for  the  men  to  live  in? 

Mr  Martin.  There  was  some  finishing  of  the  houses,  I  imagine.  I  <lo  not 
know  that  there  were  any  more  houses  built.  The  chief  engineer  tells  me 
there  were  not.    These  were  operatives'  houses,  of  course. 

Mr  Quin.  The  War  Expenditures  Committee  went  down  there,  did  they  not? 

Mr!  Martin.  No,  sir ;  I  am  very  sorry  to  say,  Mr.  Quin,  that  the  War  Exi>endi- 
tures  Committee  did  not  go  down  there.  I  think  they  would  have  handle^  this 
whole  situation  differently  if  they  had  gone.  They  would  have  seen  what  it 
was  and  would  have  been  better  able  to  appreciate  the  entire  situation  which 

confronted  us  down  there  at  that  time.  . ,  ,     .^  .  ^  ^v,  *.  •    ^ 

Mr  Quin.  Then  thev  were  in  error  when  they  said  in  their  report  that  irre- 
spective of  the  armistice  the  work  was  pushed  rapidly,  and  the  entire  installa- 
tion was  made  and  work  not  stopped  until  in  April,  1919?  m  ^v.  ^  ^  -  ^ 

Mr  Martin.  They  were  in  error  in  making  a  general  statement  of  that  kind. 
We  have  answered  that  statement,  all  of  those  statements,  in  a  written  memoran- 
dum, which  is  now  in  the  Congressional  Record.  This  Committee  on  War  Ex- 
penditures did  not  go  to  that  place,  and  gave  us  no  opportunity  to  appear 
before  it.  We  knew  nothing  of  their  report  until  it  was  filed,  and  I  asked 
Senator  Underwood  to  spread  our  answer  upon  the  Congressional  Record, 
and  now  that  vou  have  introduced  the  Graham  report.  I  am  going  to  ask  leave 
of  the  chairman  to  file  as  a  part  of  this  proceeding  our  answer  to  those  pro- 
ceedings and  to  that  report. 

Mr.  Quin.  You  say  it  is  already  in  the  record? 

The  Chairman.  Of  course,  this  committee  is  holding  its  own  investigation. 
Mr.  Graham's  committee  may  have  made  findings  about  your  company,  but 
I  do  not  think  this  committee  has  anything  to  do  with  that. 

Mr  Martin.  That  is  correct,  but  some  one  has  already  introduced  into 
these  hearings  the  Graham  report,  so  far  as  it  deals  with  this  company,  and 
it  is  now  a  part  of  this  record.  ^  ^  _* 

The  Chairman,  I  do  not  recall  that  the  Graham  report  was  made  a  part 

of  this  record,  ^      .  ,-    «  x*. 

Mr.  Martin,  Then  may  I  take  the  liberty  of  referring  specifically  on  the 
record  to  our  answer  to  those  charges  or  criticisms  in  the  Graham  report? 

The  Chairman.  I  frankly  do  not  believe  the  Graham  report  is  a  part  of 
the  record  of  this  committee.    Therefore,  there  is  nothing  to  answer. 

Mr.  Martin,  I  simply  wanted  to  refer  to  the  Congressional  Record,  wherein 

it  is  contained,  ,  ^  ^    ^  ,  ^.x,  j.       *.4. 

The  Chairman,  I  do  not  think  this  committee  ought  to  take  up  that  matter. 

Mr.  Dent.  Mr,  Chairman,  I  think  you  misunderstood  Mr.  Martin.  All  he 
wants  is  for  the  reporter  to  note  where  the  answer  to  the  Graham  report  ap- 
pears in  the  Congressional  Record,  giving  the  date  and  page  number  of  the 
Congressional  Record. 


694 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


695 


The  Chairman.  I  have  no  objection  to  that. 

Mr.  Martin.  The  answer  is  contained  in  the  Congressional  Record  at  page 
1275  and  following,  under  date  of  January  10,  1921. 

Mr.  Fields.  In  whose  remarks? 

Mr.  Martin.  They  were  offered  in  the  Senate  by  Senator  Underwood,  and 
they  were  offered  at  my  request  in  a  telegram,  which  is  also  set  out  in  this 
record. 

Mr.  QtJiN.  They  spoke  of  a  turbogenerator  being  furnished  at  a  cost  of 
approximately  $2,000,000,  installed  after  the  armistice? 

Mr.  Martin.  No;  it  was  installed  before  the  armistice;  95  per  cent  of  the 
work  was  completed  at  that  time. 

Mr.  QuiN.  When  was  it  tested?    They  say  it  was  tested  in  December,  1919. 

Mr.  Martin.  It  was  tested  on  Thanksgiving  Day,  1918,  and  the  test  went 
into  December  and  into  January.  Then  the  machine  was  not  found  satis- 
factory and  It  was  taken  down  and  some  of  the  parts  were  returned  to  the 
factory.  The  machine  remained  down  for  months.  Then  the  machine  was 
restored  to  its  original  condition  and  was  tested  again  and  more  trouble; 
developed,  and  it  was  not  until  May,  1919,  that  the  machine  was  pronounced 
in  order  and  all  testing  correct.  These  changes  were  made  by  the  manufac- 
turers. The  troubles  were  due  to  the  character  of  steel  which  they  were 
able  to  obtain  at  that  time,  and  it  was  not  of  sufficient  tensile  strength  to  meet 
the  severe  tests  of  that  character  of  operation. 

Mr.  QuiN.  Did  your  company  carry  on  the  supervision  of  the  work  by  the 
Government  after  the  armistice? 

Mr.  Martin.  The  supervision  of  the  work? 

Mr.  QuiN.  Yes;  or  did  you  do  it? 

Mr.  Martin.  The  Government  had  an  agent  there. 

Mr.  QuiN.  Your  company  did  the  work  and  the  Government  supervised  it? 

Mr.  Martin.  Yes. 

Mr.  QuiN.  They  had  officers  there  for  that  purpose? 

Mr.  Martin.  They  had  Maj.  Coombs,  Capt.  Stiles,  Capt.  Hemphill,  and  sev- 
eral other  officers  were  stationed  there. 

The  Chairman.  Were  they  emergency  officers  or  Regular  officers? 

Mr.  Martin.  They  were  all  emergency  officers. 

Mr.  QuiN.  What  work  was  done  with  Government  money  in  addition  to  this 
building,  and  equipping  the  building  and  putting  up  those  houses? 

Mr.  Martin.  There  was  the  equipment  of  the  stations. 

Mr.  QuiN.  Equipping  both  stations  or  only  one? 

Mr.  Martin.  No 

Mr.  QuiN   (interposing).  The  equipment  for  this  one  big  station? 

Mr.  Martin.  For  this  extension. 

Mr.  QuiN.  All  those  buildings  built  for  residential  purposes  and  the  comple- 
tion of  the  transmission  line? 

Mr.  Martin.  Yes;  the  transmission  line. 

Mr.  QuiN.  What  else? 

Mr.  Mabtin.  I  do  not  recall  anything  except  the  substations.  There  was  an 
extension  of  our  substation, 

Mr.  QuiN.  What  substations  were  finished  with  the  Government's  money? 

Mr.  Martin.  The  Warrior  station  was  enlarged  to  meet  the  requirements.  In 
order  to  transmit  this  power  we  have  to  generate  it  at  one  voltage,  6,600,  and 
we  step  it  up  to  110,000  volts  and  transmit  it,  and  to  step  it  up  you  have  to 
have  a  layout  in  a  substation  consisting  of  transformers  and  switches,  and 
things  of  that  kind. 

Mr.  Qihn.  Where  is  that  substation? 

Mr.  Mabtin.  Right  at  the  plant.  The  transmission  lines  run  out  of  the 
plant  into  the  station  and  go  through  transformers,  where  the  power  is 
stepped  up  to  the  transmission  voltage  and  transmitted  to  the  point  where  it 
is  to  be  used,  and  at  the  other  end  it  is  reduced  again  through  a  transforming 
station  to  the  voltage  required. 

Mr.  Qxhn.  How  many  dollars  were  invested  there  by  the  Government,  ap- 
proximately? 

Mr.  Martin.  At  this  location,  $3,500,000. 

Mr.  QuiN.  Where  was  that  other  money  spent? 

Mr.  Mabtin.  Part  of  it  was  in  the  transmission  line  to  Sheffield  and  the 
other  part  was  in  the  substation  at  Sheffield. 

Mr.  Quin.  Was  the  balance  of  the  $3,500,000  in  the  plant  itself? 


Mr  Martin  It  is  set  forth  in  the  statement  sent  to  this  committee  by  Sec- 
retary Weeks  That  shows  that  there  was  $3,400,000  in  the  Warrior  generating 
station,  $383,000  in  the  Warrior  substation ;  in  the  transmission  Ime— — 

Mr  Quin  (interposing).  That  is  the  transmission  line  to  Muscle  Shoals? 

The  Chairman.  Are  you  reading  from  one  of  the  statements  made  before 
the  committee? 

Mr.  Martin.  Yes. 

The  Chairman.  It  is  all  in  the  record.  .  .     .,       ,     ^       , 

Mr.  Quin.  I  want  to  get  the  amount  of  money  actually  put  m  the  plant  and 

transmission  line. 
The  Chairman.  That  is  in  the  record.  .     .^       ,     *       * 

Mr  Quin    I  wish  you  would  tell  me  what  amount  you  have  m  the  plant,  not 

counting  your  land,  in  the  buildings  and  equipment,  as  near  as  you  can  approxi- 

mate. 
Mr.  Martin.  I  think  I  stated  this  morning  it  was  $3,000,000. 
Mr.  Quin.  I  thought  that  included  your  land  holdings. 
Mr.  Martin.  You  can  not  separate  land  from  the  rest  of  it. 
Mr.  Quin.  You  have  approximately  $3,000,000  invested  at  that  point  in  your 

^^Mr™MABTiN.  Yes,  and  in  addition  to  that  we  have  various  properties  which 
we  acquired  in  connection  with  this  same  situation. 

Mr  Quin.  And  the  Government  has  in  all  $5,000,000  in  that  property  and  the 
transmission  line,  as  I  understand  it,  and  you  have  $3,500,000  in  those  plants? 

Mr  Martin.  No  ;  our  investment  there  in  connection  with  this  Warrior  plant 
is  a  part  of  the  system  which  represents  some  $35,000,000  of  investment  by  our 

^^Mr!^  Quin.  I  understand  that ;  but  I  want  to  get  into  the  record  the  exact 

amount  at  that  point.  ,  ^    ^  ^        .^    ^.,  ^„„ 

Mr  Martin.  In  addition  to  this  plant  forming  a  part  of  our  system,  if  you  can 
segregate  it,  which  I  do  not  believe  you  can,  because  the  system  has  to  be  bal- 
anced UP,  and  it  is  balanced  with  this  steam  plant  reserve,  the  steam  plant  re- 
serve represents  something  in  excess  of  $3,000,000.  In  addition  to  that  we  ex- 
pended approximately  $1,000,000  for  various  items  which  I  enmnerated  this 
morning  in  connection  with  this  work,  and  that  makes  more  than  $4,000,000,  but 
vou  can  not  segregate  that  from  the  system  because  there  are  other  investments 
in  the  system,  dependent  for  their  value  and  usefulness  upon  this  Warrior  sta- 

w'hen  you  get  into  that  question  as  to  the  investment  which  is  really  depend- 
ent upon  this  station,  you  get  into  a  very  large  question.    ^  .       ^^  ^  ,       .. 

Mr.  Quin.  What  is  the  matter  with  the  Government  taking  that  second  unit 
and  building  its  own  transmission  line  to  Muscle  Shoals? 

Mr.  Martin.  Why  can  not  the  Government  do  it? 

Mr!  Mabtin.  Vf  course  the  Government  can  do  it  if  it  does  not  want  to  carry 

out  its  contract  with  us. 
Mr.  Quin.  I  am  not  discussing  that  feature  of  it. 

Mr.  Martin.  Leaving  outside  the  contract?  i.     ,    ,        „• 

Mr  OuiN  Yes ;  I  am  taking  it  as  a  business  proposition.  As  a  physical  possi- 
bilitv*  the  Government  can  do  that.  There  is  a  big  building  and  equipment  there 
and  the  Government  could  complete  the  transmission  line  to  Muscle  Shoals  as 

well  as  you  could? 
iVTi*   TVIartin    Yes 
Mr*.  Quin.  You  built  68  miles  of  that  on  Government  money,  and  it  is  on 

^^Mr  Mmitin.  Yes ;  but  it  would  cost  the  Government  a  good  many  hundreds  of 
thousands  of  dollars  to  take  that  equipment  and  ere<t  a  new  station,  because 
the  Government  is  using  our  facilities,  foundations,  intakes  ash-handling 
facilities,  lands,  coal,  houses,  and  various  things,  substations  and  all 
those  things  have  to  be  taken  into  account  when  you  undertake  to  set  up  a 
new  layout  for  a  plant.  You  have  got  to  start  on  the  foundation  in  getting  a 
plant.    If  you  want  to  take  this  equipment,  I  do  no  know  how  much  more  it 

""  Mr^  QuiN.^Ts  a  matter  of  fact,  Mr.  Martin,  the  United  States  Government 
owning  a  majority  of  the  investment  there,  has  the  vested  right,  under  the 
Constitution,  under  condemnation  proceedings  to  acquire  your  interests  if  you 
could  not  arrive  at  an  amicable  adjustment ;  as  a  legal  proposition  it  could 
do  that;  could  it  not? 


696 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


()97 


Mr.  Martin.  I  can  not  accept  your  premise. 

Mr.  QuiN.  The  Government  has  the  right,  under  the  Federal  Constitution  to 
condenni   property. 

Mr.  Martin.  The  Government  has  the  right  to  take  private  property  fop 
public  use  upon  paying  just  compensation. 

Mr.  (}uiN.  Tlien  tlie  question  involved  is  purely  one  of  wliether  or  not  the 
Ford  proposition  is  pro  bono  publico,  and  what  the  value  of  tliat  property 
would  be,  so  far  as  the  Constitution  is  concerned?  I  would  lilvc  to  have  you 
answer  yts  or  no  to  that  question. 

IMr.  Martin.  I  can  not  answer  yes  or  no  on  that  hypothesis. 

Mr.  QuiN.  All  right ;  I  will  take  your  way  of  answering  it. 

Mr.  Martin.  When  you  come  to  treat  tliis  question  y6u  must  remember  that 
it  is  a  public  utility  engaged  in  serving  sixty-odd  towns  and  cities  in  Alabama. 
It  has  obligations  to  thousands  of  people.  We  have  20,000  direct  and  probably 
40,000  additional  consumers.  You  have  to  remember  the  service  you  are  dealing 
witli.  It  is  not  private  property  in  the  ordinary  sense  of  private  property,  and 
you  have  to  remember  that  this  station  is  a  part  of  a  big  hydroelectric  system 
for  the  purpose  of  enabling  that  company  to  better  serve  the  public  by  rendering 
service  throughout  the  year,  service  which  they  could  not  get  through  any 
other  hydroelectric  station  without  this  reserve.  A  large  part  of  this  business  is 
founded  on  the  delivery  of  power  throughout  the  year.  The  company  has  the 
riglit  to  make  those  contracts,  and  it  has  those  obligations  to  others  growing 
out  of  its  very  relationships.  When  you  come  to  consider  those  questions,  as 
to  what  the  compensation  will  be,  as  to  the  right  of  the  United  States  to  take 
property,  I  will  not  undertake  to  express  an  opinion  upon  that  question.  I  am 
merely  giving  you  the  facts.  You  are  a  lawyer;  you  can  draw  your  own 
conclusion. 

Mr.  QuiN.  I  have  a  very  definite  conclusion  on  that. 

Mr.  Martin.  I  simply  wanted  you  to  know  the  facts. 

Mr.  QuiN.  If  the  Government  exercised  the  right  of  eminent  domain  there 
would  be  no  physical  impossibility,  although  great  inconvenience  for  your 
company,  to  erect  another  plant  similarly  located  for  that  purpose. 

Mr.  Martin.  Mr.  Quin,  when  you  come  to  deal  with  that  question 

Mr.  Quin  (interposing).  Can  you  answer  that  question  yes  or  no?  You 
know  the  location  down  there? 

Mr.  Martin.  No;  it  is  not  physically  feasible  without  going  to  an  entirely 
new  location.  Then  you  have  to  build  a  new  transmission  line,  buy  new 
rights  of  way,  and  bring  this  power  from  a  new  station  to  load  centers;  you 
have  to  build  a  new  substation,  and  you  have  a  great  mdny  problems  which 
you  meet  with.  There  are  lines  that  radiate  out  of  this  station.  This  is  the 
coal  district  of  Alabama.  We  have  40  or  50  coal  mines  operated  with  electric 
power  from  our  company.  We  furnish  power  for  the  operation  off  industries 
of  various  kinds,  and  all  that  would  be  disarranged  and  would  have  to  be 
rearranged  if  you  say  we  must  close  this  station  and  build  another.  How 
are  you  going  to  do  it? 

Mr.  Quin.  You  can  operate  this  until  you  get  the  other  one  built.  There 
would  be  a  way  found  to  keep  you  from  losing  that.  There  would  be  no  trouble 
except  the  expense  the  Government  would  pay,  and  the  great  inconvenience 
to  your  company. 

Mr.  Martin.  And  to  the  public. 

Mr.  Quin.  Does  not  the  Government  sometimes  condemn  and  take  a  person's 
home?  Even  a  railroad  can  do  that,  and  you  have  the  right  under  the  law, 
as  a  public-service  corporation,  to  go  through  any  man's  field. 

Mr.  Martin.  We  have  certain  limitations  upon  the  right  to  condemn. 

Mr.  Quin.  Public-service  corporations  of  the  United  States  have  that  right, 
and  the  Government  certainly  reserves  that  right  which  it  has  against  public- 
service  corporations  or  private  individuals. 

Mr.  Martin.  Of  course,  the  Government  has  the  right  under  the  Constitution 
to  take  private  property  for  public  use  upon  paying  just  compensation.  But 
when  you  analyze  that  provision  and  apply  it  to  a  situation  like  this,  there 
are  presented  other  problems  which  appeal  to  you  as  they  do  to  me,  and  which 
I  will  not  attempt  to  pass  on  now. 

Mr.  Quin.  The  Ford  proposition  does  not  appeal  to  your  company,  as  I 
understand  it? 

Mr.  Martin.  I  think  that  is  a  oroblem  for  the  committee  to  pass  on.  if  yo" 

will  pardon  me. 


Mr.  Wright.  Mr.  Martin,  do  you  understand  that  there  is  any  difference 
between  the  term  *'  fair  value  "  and  the  term  "  fair  market  value,"  or  are  tliey 
synonymous? 

Mr.  Martin.  In  the  law  relating  to  such  situations  as  this,  I  think  tliere 
is  possibly  a  difference.  Fair  value,  Mr.  Wright,  you  will  find  is  the  basis 
or  term  used  in  the  decisions  of  the  Supreme  Court  of  the  United  States  when 
it  comes  to  fixing  value  in  rate-making  cases;  it  is  the  fair  value  of  the 
property.  You  may  consider  market  value,  although  I  am  not  prepared  to 
say  whether  the  question  of  market  value  enters  into  it.  "  Fair  value "  is 
the  term  used  in  the  rate  cases. 

Mr.  Wright.  Being  a  law-yer,  I  would  like  to  ask  you  what,  under  the  terms 
of  the  contract,  you  would  consider  the  term  "  fair  value  "  to  mean.  Suppose 
a  board  of  arbitration  should  be  appointed  under  the  terms  of  the  contract  to 
assess  a  fair  value  which  your  company  is  to  pay  for  this  development  there. 
What  measure  would  they  adopt,  what  elements  would  enter  into  it,  applying 
the  words  "fair  value"  to  this  peculiar  situation? 

Mr.  Martin.  One  of  the  questions  to  be  looked  at  is  the  original  cost,  and  the 
i|Uestion  of  the  reproduction  value.  Then  there  would  be  the  question  of  the 
condition  of  the  property  itself ;  then  tlie  question  as  respects  its  age,  the  very  na- 
ture of  the  property,  its  value  in  public  service — there  are  a  great  many  elements 
of  that  kind  to  be  considered. 

Mr.  Wright.  Fair  market  value  means  usually  what  a  given  piece  of  prop- 
erty would  bring  if  offered  by  an  owner  who  would  sell  but  was  not  obliged  to 
sell,  and  was  purchased  by  a  purchaser  who  would  purchase  but  was  under  no 
necessity  of  buying.     Is  not  that  a  fair  definition  of  fair  market  value? 

Mr.  Martin.  Possibly ;  a  willing  buyer  and  a  willing  seller. 

Mr.  Wright.  Yes;  with  no  necessity  on  the  part  of  e.ther  one.  The  owner 
would  sell  but  he  is  not  obliged  to  sell,  and  some  other  man  would  buy  i)Ut 
he  would  not  be  obliged  to  buy. 

Mr.  Martin.  In  this  contract  both  the  buyer  and  tlie  seller  are  named.  Each 
of  the  parties  lias  agreed  with  the  other,  one  to  buy  and  the  other  to  sell,  and  the 
only  problem  left  is  the  determinat.on  of  the  amount. 

Mr.  Wright.  I  want  to  get  at  wliat  elements  would  enter  into  that,  and 
you  have  told  me  that. 

Mr.  Martin,  the  fact  that  under  this  contract,  as  you  just  said,  there  can  be 
one  seller  and  one  purchaser  would  of  itself  limit  the  value  of  the  projierty, 
would  it  not? 

Mr.  Martin.  I  have  not  so  interpreted  it. 

Mr.  Wright.  In  other  words,  there  is  nobody  in  the  world  situated  like  your 
company  with  reference  to  this  property  down  there? 

Mr.  Martin.  That  is  why  we  use  the  term  fair  value.  That  insures  the  Gov- 
ernment a  fair  valuation  at  the  hands  of  the  arbitrators. 

Mr.  Wright.  Would  not  that  be  taken  into  consideration — that  is,  the  fact 
that  there  can  be  only  one  purchaser  and  only  one  company  or  individual  who 
can  use  the  investment  the  Government  has  made? 

Mr.  Martin.  I  do  not  believe  it  would,  under  the  terms  of  a  fair  valuation. 

Mr.  Wright.  Would  not  that  be  an  element  of  the  probable  use  to  which  the 
l)roperty  could  be  put? 

Mr.  Martin.  No  one  can  put  it  to  a  greater  public  service  use  than  a  company 
such  as  ours.    It  is  the  highest  form  of  use. 

Mr.  Wright.  Take  a  piece  of  real  estate.  It  might  be  a<lapted  to  the  construc- 
tion of  storeliouses  or  it  might  be  peculiarly  suited  for  residential  purposes. 
That  would  be  an  element  of  value.  One  piece  of  real  estate  might  be  adapted 
to  a  great  many  different  uses  which  would  enhance  the  commercial  value  of  it. 
Is  it  not  a  fact  that  the  uses  to  which  any  given  piece  of  property  could  be  put 
largely  affect  its  market  or  fair  value? 

Mr.  Martin.  It  might  affect  one  and  not  the  other. 

Mr.  Wright.  As  to  this  particular  piece  of  property,  it  is  so  developed  that  the 
Government  can  make  but  two  uses  of  it ;  one  is  to  sell  it  to  your  company  and 
the  other  would  be  to  move  it  away. 

Mr.  Martin.  That  was  inherent  in  the  situation  from  the  beginning. 

Mr.  Wright.  If  I  understand  your  contract,  it  is  limited  to  those  two  dements 
of  value. 

Mr.  Martin.  That  is  why  we  obligated  ourselves  to  buy  on  the  terms  men- 
tioned in  the  contract,  because  that  was  the  situation. 

Mr.  Wright.  So  it  stands  on  a  very  different  footing  from  an  ordinary  piece  of 
property  in  the  hands  of  the  (Government  or  anjone  else  when  it  conies  to  tiie 
matter  of  sale? 


698 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


699 


Mr.  WriGHT. 
Mr.  Martin. 
Mr.  Wright. 
Mr.  Martin. 


Mr.  MAR-rtN.  Tlie  Governnient  eitlu>r  ownt^d  pri>i)ertv  which  it  could  not  sell 
lo  some  one  else,  or 

Mr.  Wright  (interposing).  I  understand  the  contract;  I  want  to  ^et  the^ 
peculiar  situation. 

Mr.  Martin.  You  have  to  consider  all  the  elements  In  discussinj;  it. 

Mr.  Wright.  Mr.  Martin,  how  many  dam  sites  or  dams  does  your  comapny  own 
in  northern  or  westtrn  Alabama? 

Mr.  Martin.  We  simply  own  these  two  at  Muscle  Shoals.  I  think  we  have  tw(^ 
«»ii  a  small  creek  in  Jackson  County. 

Mr.  Wright.  How  many  have  you  developed? 

Mr.  Martin.  We  have  developed  in  our  system  one  at  a  point  known  ns 
.racks(»n  Shoals  and  another  on  the  Coosa  Kiver.  We  are  in  process  now  of 
ilevcloping,  and  we  are  actually  constructing  another  development,  on  the  Coosa 
River  to  have  110.000  horsepower  capacity.  That  is  beng  constructed  under  the 
terms  of  the  Federal  water  power  act.  That  is  in  course  of  construction  and 
will  be  in  service  at  the  end  of  the  year.  We  have  been  ready  and  waiting  on 
Congress  for  a  good  many  years  to  pass  legislation  under  which  we  could 
develop  water  powers. 

Mr.  Wright.  Are  there  very  many  desirable  water  powers  in  that  section 
aside  from  the  ones  you  own  ? 

Mr.  Martin.  There  are  a  great  many  water  powers  in  Alabama,  small  and 
large. 

Mr.  Wright.  I  mean  those  of  any  consequence.  The  one  on  the  Coosa  River 
ancf  the  one  on  the  Tennessee  River  are  the  principal  ones  in  that  section? 

Mr.  Martin.  Yes. 

Who  owns  those? 

We  own  the  ones  I  referred  to. 

Those  are  the  principal  dam  sites  or  power  sites? 

Those  t\NO  are. 

Mr.  Wright.  Mr.  Martin,  you  say  your  company  acquired  the  abutments  on 
dam  site  No.  2.    Was  that  property  acquired  at  one  time  or  in  separate  parcels? 

Mr.  Martin.  It  was  acquired  at  different  times.  The  Muscle  Shoals  Co. 
that  owned  the  title  was  organized  in  1906.  and  from  tlien  on  for  a  period  of  a 
good  many  years  the  company  acquired  rights  and  property. 

Mr.  Wright.  From  time  to  time? 

Mr.  Martin.  Yes. 

Mr.  Wright.  I  am  speaking  about  the  key  to  the  situation — the  dam-site 
property. 

Mr.  Martin.  Some  time  probably  In  1912. 

Mr.  Wright.  That  your  company  purchased? 

Mr.  Martin.  This  company  purchased?  The  people  who  now  own  or  con- 
trol the  situation,  the  present  stockholders,  had  no  interest  in  the  Muscle  Shoals 
Co.  prior  to  1912. 

Mr.  Wright.  You  mean  to  say  it  was  first  purchased  by  a  water  power  com- 
pany? 

Mr.  Martin.  By  some  citizens  of  Alabama. 

Mr.  Wright.  Called  the  Muscle  Shoals  Co.,  and  your  company  purchased 
from  them? 

Mr.  Martin.  Purchased  the  stock  of  the  Muscle  Shoals  Co. 

Mr.  Wright.  Which  carried  with  it 

Mr.  Martin  (interposing).  The  properties  it  had. 

Mr.  Wright.  That  was  in  1912? 

Mr.  Martin.  Yes.  We  took  over  the  stock  of  that  company  in  1912.  Mr. 
Worthington  had  been  in  active  charge  of  that  company's  work  for  many  years 
and  was  president  of  that  company  until  March,  1920. 

Mr.  Wright.  That  property  was  acquired — that  is,  the  site  and  the  flowage 
rights — at  an  expense  of  about  half  a  million  dollars? 

Mr.  Martin.  We  had  expended  about  half  a  million  dollars  on  the  No.  2  site. 

Mr.  Wright.  What  did  you  do? 

Mr.  Martin.  We  purchased  the  lands.  We  had  been  carrying  the  property 
from  1906  up  to  the  time  of  this  development. 

Mr.  Wright.  You  made  no  development ;  you  simply  own  the  property  ? 

Mr.  Martin.  Own  the  property. 

Mr.  Wright.  Now,  without  in  the  slightest  questioning  your  generosity  or 
patriotism,  Mr.  Martin,  will  you  tell  the  committee  just  the  consideration  which 
prompted  your  company  to  donate  this  site  to  the  Government?  Do  you  mean 
to  tell  the  committee  it  was  intended  purely  as  a  voluntary  gift  to  the  Govern- 


ment, just  an  outright  donation  to  the  Government,  without  any  return  to  your 
<:ompany  or  any  prospect  of  any  advantages  accruing  to  the  company?  I  Just 
want  to  know  about  that. 

Mr.  Martin.  That  letter  I  read  to  you 

Mr.  Wright  (interposing).  That  is  a  splendid  letter;  the  sentiment  is  fine 
and  well  expressed. 

Mr.  Martin.  I  did  not  write  it,  but  I  thank  you  for  that,  anyway. 

Mr.  Wright.  You  are  quite  capable  of  writing  one  as  good. 

Mr.  Martin.  The  letter  speaks  for  itself.  We  were  asked  by  numerous  citi- 
zens of  that  district  to  make  a  donation  to  encourage  development,  and  we  did. 
It  was  made  at  the  time  the  Government  was  engaged  in  a  war  program.  It 
was  not  an  industrial  program  upon  which  the  Government  was  engaged,  it 
was  a  war  program. 

Mr.  Wright.  Just  coming  down  to  this  proposition  as  man  to  man,  you  are 
an  Alabaman  and  I  am  a  Georgian;  of  course,  in  this  Great  War  there  were 
a  great  many  sacrifices  made  on  the  part  of  men  and  women,  even  to  the'  su- 
preme scrifice.  Women  all  over  the  country  deprived  themselves  almost  of 
the  necessities  of  life;  their  food  in  some  instances  was  short;  they  did  not 
have  enough  sugar  or  wheat  bread  all  the  time.  There  were  sacrifices  made 
and  deprivations  on  the  part  of  the  people  everywhere,  and  ultimately  a  great 
many  of  them  made  the  supreme  sacrifice.    We  all  understand  that. 

Do  you  know  of  any  companies  over  this  country  who  did  work  for  the  Gov- 
ernment in  the  construction  of  cantonments  or  any  other  enterprises  who  con- 
tributed those  things  to  the  Government? 

Mr.  Martin.  Contributed  what? 

Mr.  Wright.  Do  you  know  of  any  who  made  contributions? 

Mr.  Martin.  Of  property  such  as  this? 

Mr.  Wright.  Yes. 

Mr.  Martin.  I  think  it  was  very  rare. 

Mr.  Wright.  Does  not  your  case  stand  out  singly  and  alone  during  the  whole 
war  as  the  only  company  which  made  a  literal  donation  of  a  piece  of  property 
worth  half  a  million  dollars? 

Mr.  Martin.  I  will  go  further,  and  say  the  property  is  worth  a  great  deal 
more  than  half  a  million  dollars. 

Mr.  Wright.  It  cost  you  that? 

Mr.  Martin.  Its  value  is  more  than  that. 

**Ir.  Wright.  Then,  keeping  in  mind  the  fact  that  the  country  has  never  been 
•considered  insolvent,  but  has  always  been  able  to  pay  its  obligations,  and  did 
pay  handsomely  during  the  war,  there  was  no  limitation  upon  the  conduct  of  the 
war,  so  far  as  money  was  concerned — I  want  to  know  whether  you  tell  me, 
man  to  man,  that  your  company  simply  made  this  voluntary  (Ibnation  to  the 
Government  without  expecting  any  reward  or  hoping  for  any  development 
that  would  be  made  there,  but  just  parted  with  it  without  any  thought  of  any- 
thing like  that? 

Mr.  Martin.  I  mean  to  tell  you  we  made  the  donation  and  the  deed,  and  I 
mean  to  tell  you  also  that  in  the  making  of  the  deed  we  discussed  it  with  every- 
one who  had  any  interest  in  the  situation  in  Washington.  It  was  the  unanimous 
feeling  at  that  time  that  in  the  progress  of  this  development  there  should  be  a 
surplus  of  power  for  governmental  purposes,  which  would  reach  the  public  over 
transmission  lines  such  as  ours.  That  was  expressed  in  the  letter  I  read  this 
morning.    That  was  the  situation  on  one  side. 

Mr.  Wright.  The  further  fact  is,  Mr.  Martin,  that  the  Muscle  Shoals  Co. 
had  exploited  this  property  and  tried  to  finance  it  for  many  years. 

Mr.  Martin.  I  would  not  express  it  just  that  way. 

Mr.  Wright.  They  wanted  a  development  made  there,  they  sought  some  in- 
terests which  would  finance  it,  and  they  had  not  succeeded. 

Mr.  Martin.  It  was  not  financed ;  that  is  correct. 

Mr.  Wright.  Mr.  Martin,  it  is  no  secret,  is  it,  that  for  many,  many  years 
it  was  extremely  difficult  in  the  South  to  finance  a  water-power  proposition? 

Mr.  Martin.  Yes;  it  was  difficult,  but  at  the  same  time  our  company  was 
ready  to  act,  to  have  the  project  financed,  and  an  act  passed  Congress,  but 
President  Taft  vetoed  it.  At  different  times  since  then  our  company  has  been 
in  a  position  to  finance  water-power  development.  We  are  now  financing  a 
development  which  will  cost  us  about  $9,000,000. 

Mr.  Wright.  It  is  easier  to  finance  one  now  with  your  holdings  and  the  busi- 
ness you  have  worked  up,  than  it  would  be  for  a  pioneer? 


700 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


701 


Mr.  MAih-iN.  It  is  quite  diflferent  now. 

Mr.  Wright.  Mr.  Martin,  you  spoke  a  few  moments  ago  about  tliis  property 
being  conveyed  to  Mr.  Ford.  Of  course,  that  is  not  the  contention.  Under  the 
Ford  offer  the  property  goes  baclv  to  the  Government  at  the  end  of  100  years, 
if  he  should  lease  it  from  the  Government ;  that  is.  Dam  No.  2.  I  wanted  to  get 
the  record  straight  on  that.    It  would  not  be  conveyed  to  Mr.  Ford. 

Mr.  Martin.  I  do  not  know  what  the  situation  is  about  that. 

Mr.  Wright.  Speaking  about  your  contract,  the  work  under  the  contract  was 
practically  completed  before  the  contract  was  really  executed? 

Mr.  Martin.  It  was. 

Mr.  Wright.  I  think  you  have  explained  about  what  was  going  on  in  the 
meantime,  but  the  fact  remains  that  the  contract  was  not  executed  until  the 
work  was  completed? 

Mr.  Martin.  Yes. 

Mr.  Wright.  Mr.  Martin,  going  back  to  the  donation  of  the  dam  site,  when 
your  company  came  to  construct  this  Warrior  River  steam  plant,  you  did  not 
even  donate  your  services  in  doing  that,  did  you?  I  am  not  criticizing  you;  I 
think  you  ought  to  have  been  paid  for  it. 

Mr.  Martin.  If  you  examine  the  situation  first  and  last,  you  will  find  that 
we  came  out  rather  on  the  financial  bad  side  of  it. 

Mr.  Wright.  That  may  be  true  in  connection  with  the  matter  of  taxation.  But 
you  were  to  get  a  fee  of  $220,000,  and  did  get  it. 

Mr.  Martin,  Yes ;  but  it  did  not  cover  our  losses  or  our  expenses. 

Mr.  Wright.  The  Government  financed  it  all  the  way  through  ? 

Mr.  Martin.  Yes. 

Mr.  Wright.  In  addition  to  the  fee  you  received,  there  is  embodied  in  the 
contract  the  right  to  purchase? 

Mr.  Martin.  At  a  fair  value. 

Mr.  Wright.  You  said  the  only  two  rights  the  Government  would  have  would 
be  to  sell  the  property  or  move  it,  and  it  would  be  ruinous  to  the  Government 
to  undertake  to  move  that  investment. 

Mr.  Martin.  Yes ;  and  I  can  not  say  that  it  was  ever  contemplated. 

Mr.  Wright.  That  would  be  reckless? 

Mr.  Martin.  In  my  judgment,  it  would. 

Mr.  Wright.  In  other  words,  it  would  be  practically  a  loss  for  the  Govern- 
ment to  undertake  to  move  that,  including  the  buildings  and  machinery? 

Mr.  Martin.  I  am  sure  the  Government  would  come  out  better  if  it  under- 
takes the  arbitration  in  accordance  with  the  contract  and  permits  us  to  go 
forward  in  accordance  with  the  contract  and  buy,  than  if  it  undertakes  to  re 
move  the  property. 

Air.  Stoll,  'Is  it  not  a  fact,  Mr,  Martin,  that  the  people  of  Alabama  are  very 
hostile  to  the  Alabama  Power  Co.? 

Mr.  Martin.  Mr.  Stoll,  there  are  many  people  in  Alabama  who  take  the  view 
that  this  power  at  Muscle  Shoals  should  be  developed  and  distributed  by  the 
Alabjima  Power  Co.  There  are  thousands  of  people  who  believe  that.  There 
are,  on  the  other  hand,  thou.sands  of  people,  no  doubt,  who  think  Mr.  Ford 
would  succeed  in  his  undertaking.  We  have  in  Alabama  thousands  of  stock- 
holders. 

]Mr.  Stoll.  I  have  seen  a  statement  In  the  papers  from  prominent  citizens  of 
Alabama  that  99  per  cent  of  the  people  of  Alabama  are  against  the  Alabama 
Power  Co,    That  was  the  statement  that  was  made, 

Mr.  Martin.  I  think  that  is  a  very  exaggerated  .statement. 

Mr.  Stoll.  So  that  your  general  reputati<m  in  Alabama,  you  think,  is  good? 

Mr,  Martin,  I  think  it  is. 

Mr.  Stoll.  Who  made  the  plans  for  the  Gorgas  extension? 

Mr.  Martin.  They  were  made,  I  suppose,  by  Maj.  Coombs  and  Mr.  Thurlow : 
either  made  by  Maj.  Coombs  or  made  by  Thurlow,  the  chief  engineer  of  oui* 
company  and  approved  by  the  Government  engineer,  or  made  by  the  Government 
engineers  in  connection  with  our  engineers;  I  do  not  know  which  way  it  was. 

Mr.  Stoll.  Who  was  responsible  for  the  interlocking  of  the  Government  plant 
and  your  plant? 

Mr.  Martin.  The  inception  of  the  arrangement  Involved  the  operation  of 
the  station  as  one  plant, 

Mr.  Stoll.  It  was  necessary  to  do  that? 

Mr.  Martin.  It  could  not  have  been  operated  as  a  separate  station. 

Mr.  Stoll.  It  was  the  Alabama  Power  Co.'s  idea  to  tie  the  two  together? 


Mr.  Martin.  It  was  not  an  idea— it  was  our  idea  to  furnish  the  Government 
power,  and  there  was  no  other  way  to  furnish  the  Government  the  power 

Mr.  Stoll  (interposing).  Somebody  must  have  conceived  the  idea  of  having 
the  two  plants  interlocked. 

Mr.  Martin.  We  had  foundations ;  we  had  preparatory  work ;  there  was  six 
months'  advantage  gained  in  making  use  of  those  facilities  and  installing 
equipment  on  those  foundations.  That  was  in  the  minds  of  the  Government 
officials  and  ourselves.  It  was  not  a  question  of  benefiting  the  Alabama  Power 
Co, ;  the  time  element  was  a  very  great  factor. 

Mr.  Stoll.  At  that  time  was  it  the  intention  of  the  Alabama  Power  Co.  to 
take  over  this  plant  later? 

Mr.  Martin.  It  was  part  of  the  program;  the  Government  said  to  us  this 
plant  can  be  extended  to  meet  our  needs,  provided  you  will  agree  to  buy  it  at 
a  fair  value  on  our  denmnd,  and  we  agreed  to  that. 

Mr,  Stoll.  That  was  agreed  to  before  you  commenced  to  build? 

Mr.  Martin.  It  was  a  part  of  our  common  understanding. 

Mr.  Stoll.  Before  you  commenced  to  build  it? 

Mr.  Martin.  Yes. 

Mr,  Stoll.  I  think  you  testified  that  they  said  to  go  ahead,  and  you  went 

ahead? 

Mr.  Martin.  I  said  there  were  two  fundamentals,  Mr.  Stoll;  first,  the  trans- 
mission line  that  was  constructed.  We  were  told  to  construct  the  transmission 
line.  Three  weeks  passed  before  there  was  any  definite  understanding  with  re- 
gard to  the  extension.  The  transmission  line  would  enable  the  Government  to 
take  power  out  of  our  system.  When  it  came  to  the  extension  of  the  power 
station  there  were  two  fundamentals  involved.  One  was  that  the  Govern- 
ment would  finance  the  extension  and  the  other  was  that  we  should  agree  to 
buy  at  a  fair  value  on  the  demand  of  the  Government.  Col.  Joyes  and  Maj. 
Coombs  put  those  two  fundamentals  down,  and  on  those  two  fundamentals  we 
agreed  to  go  ahead. 

Mr.  Stoll.  This  transmission  line  furnishes  power  only  to  the  plant  at  Muscle 
Shoals? 

Mr.  Martin.  Yes ;  the  110,000- volt  line. 

Mr.  Stoll.  There  is  no  other  place  where  you  could  use  it  unless  it  was  used 
there,  unless  you  carry  the  line  somewhere  else? 

Mr.  Martin.  There  is  a  substation  at  the  Waco  quarry,  on  the  line. 

Mr.  Stoll.  I  mean,  however,  in  reference  to  the  power  used  in  the  Government 
development  in  making  nitrates  at  Muscle  Shoals,  there  is  no  other  purpose  it 
could  be  used  for,  is  there? 

Mr.  Martin.  Except  to  supply  power  in  the  community  for  distribution. 

Mr.  Stoll.  Is  there  any  demand  there  for  it? 

Mr.  Martin.  Yes. 

Mr.  Stoll.  A  sufficient  demand  to  use  it? 

Mr.  MARTIN.  To  use  this  Lne.  We  have  been  asked  many  times  by  the  com- 
mercial companies  to  serve  them  power  for  distribution  in  that  district. 

Mr.  Stoll,  In  your  contract,  I  believe,  you  stated  in  case  the  Government  let 
some  other  party  have  it,  that  certain  things  would  happen.  Is  it  optional  with 
you  to  take  over  this  property  under  your  contract? 

Mr.  Martin.  Under  our  interpretation  of  the  contract  the  Government,  if  it 
does  not  ask  us  to  buy,  is  under  contract  to  sell,  if  we  ask  the  Government  to 
sell. 

Mr.  Stoll.  Suppose  you  do  not  ask  them  to  sell  it. 

Mr.  Martin.  Provided  it  is  not  removed. 

Mr.  Stoll.  Could  they  remove  it  and  get  anything  for  it? 

Mr.  Martin.  That  is  a  problem. 

Mr.  Stoll.  In  your  opinion,  do  you  think  they  could  remove  the  property  and 

get  anything  for  it? 
Mr.  Martin.  Of  course   they  can  get  something  for  it,  but  I  could  not  esti-. 

mate  about  how  much. 

Mr.  Stoll.  Practically  nothing? 

Mr.  Martin.  I  would  not  put  it  that  way. 

Mr.  Stoll.  You  would  have  to  tear  it  all  down? 

Mr.  Martin.  You  have  the  equipment  there,  which  is  of  substantial  value, 
and  it  is  not  good  businer.s,  as  a  straight  question  of  taking  it  away,  when  some 
one  is  willing  to  buy  it  at  a  fair  value. 

Mr.  Stoll,  Do  you  nrc  think  that  was  a  contract  solely  for  your  benefit  in 
Darticular? 


702 


MUSCLE  SHOALS  PROPOSITIONS. 


i 


Mr.  Mabtin.  No,  sir ;  I  do  not,  because  we  agreed  to  buy  on  demand  of  the 
Government.    They  considered  tlie  two  fundamental  terms  before  they  would 

go  ahead. 

Mr.  Stoll.  Just  a  moment.  Unless  the  Government  sells  it  to  you  It  must 
be  torn  down:  no  one  else  can  have  it  under  that  contract;  that  is  true,  is 

it  not? 

Mr.  Mabtin.  That  is  true. 

Mr.  Stoll.  The  Government  could  not  sell  it  to  a  party  and  have  it  all 
torn  down  and  get  a  fair  profit  out  of  it? 

Mr.  Mabtin.  Not  a  profit ;  no. 

Mr.  Stoll.  Therefore  it  must  be  a  contract  where  you  get  the  best  side 

of  it? 

Mr.  Mabtin.  It  is  not  that  at  all.  The  Government  contemplated  that  this 
property  when  created  would  be  sold  to  the  Alabama  Power  Co.,  and  the 
Alabama  Power  Co.  contemplated  it  would  buy  the  property. 

Mr.  Stoll.  Why  did  they  put  this  provision  in  the  contract  then? 

Mr.  Martin.  Suppose  we  do  not  buy,  and  the  Government  does  not  make  the 
demand  of  us  to  buy ;  then  the  property  is  there. 

Mr.  Stoll.  If  the  Government  can  not  sell  it,  why  can  they  not  demand  of 

you  to  buy  it? 

Mr.  Mabtin.  I  do  not  know;  I  can  not  conceive  of  any  reason  why  the 
Government  should  not  demand  of  us  to  buy. 

Mr.  Stoll.  Why  would  they  put  that  Into  the  contract? 

Mr.  Mabtin.  That  is  one  of  the  safeguards  of  the  transaction. 

Mr.  Stoll.  You  do  not  think  it  protects  you? 

Mr.  Mabtin.  In  this  case  only 

Mr.  Stoll  (Interposing).  You  are  a  lawyer? 

Mr.  Mabtin.  I  am. 

Mr.  Stoll.  You  do  not  think  that  protects  you? 

Mr.  Martin.  It  protects  us  against  some  one  else  coming  in  or  buying  it,  and 
that  is  what  is  was  intended  to  do. 

(Thereupon,  at  5.15  o'clock  p.  m.,  the  committee  udjourned  to  meet  Monday, 
February  27,  1922,  at  10.30  o'clock  a.  m.) 


MUSCLE  SHOALS  PROPOSITIONS. 


Committee  on  Military  Affairs, 

House  of  Representatives, 
Monday,  February  27,  1922. 

The  committee  met  pursuant  to  adjournment  at  10.30  o'clock  a.  m.,  Hon. 
Julius  Kahn  (chairman)  presiding. 

The  Chairman.  Mr.  I)ent  and  Mr.  Martin,  are  you  ready  to  proceed? 

Mr.  Dent.  Yes ;  we  are  ready,  Mr.  Chairman.  We  have  present  here  to-day 
one  of  the  subscribing  witnesses  to  the  contract  between  the  Government  and 
the  Alabama  Power  Co.,  wIk)  Is  ready  to  testify  as  to  the  actual  date  of  the 
execution  of  the  contract,  if  the  committee  desires  to  hear  further  testimony 
on  that  subject. 

The  Chairman.  In  order  to  identify  the  contract,  we  will  be  glad  to  have  the 
witness  make  a  statement. 

STATEMENT   OF  MB.   F.  D.   MAHONEY,  ALABAMA  POWER  CO., 

BIBMINGHAM,  ALA. 

Mr.  Dent.  Mr  Mahoney,  were  you  connected  with  the  W^ar  Department  In 
any  capacity  during  the  war? 

Mr.  Mahonev.  I  was. 

Mr.  Dent.  In  what  capacity? 

Mr.  Mahoney.  I  was  consulting  engineer  along  electrical  lines  to  the  Ord- 
nance Department. 

Mr.  Dent.  Do  you  remember  the  contract  between  the  War  Department  and 
the  Alabama  Power  Co.  relative  to  the  so-called  Gorgas  steam  plant? 

Mr.  Mahoney.  I  do. 

Mr.  Dent.  Were  you  a  witness  to  that  contract? 

Mr.  MahonjJy.  I  witnessed  its  signatures;  yes,  sir. 

Mr.  Dent.  Where  was  it  signed? 

Mr.  Mahoney.  It  was  signed  on  the  twenty-ninth  floor  of  tlie  Equitable  Build- 
ing, in  the  office  of  Mr.  James  Mitchell. 

Mr.  Dent.  In  New  York  City? 

Mr.  Mahoney.  New  York  City. 

Mr.  Dent.  What  was  the  date  of  Its  actual  signature? 

Mr,  Mahoney.  The  date  was  the  day  of  the  false  report  of  the  armistice.  - 

Mr.  Dent.  Do  you  remember  what  date  that  was? 

Mr.  Mahoney.  November  7,  1918,  I  believe. 

The  Chairman.  The  testimony  has  been  that  It  was  November  9,  but  you  fix  it 
at  November  7? 

Mr.  Dent.  Mr.  Chairman,  Mr.  Martin  testified  that  It  was  on  the  day  of  the 
false  report,  which  he  thought  was  the  9th,  but  on  looking  up  the  record,  it 
appears  it  was  the  7th.  I  thought  myself  at  the  time  it  was  the  7th.  That  is  all, 
unless  the  committee  want  to  ask  Mr,  Mahoney  some  questions. 

Mr.  James.  Who  are  you  working  for  at  the  present  time? 

Mr.  Mahoney.  I  am  with  the  Alabama  Power  Co. 

Mr.  James.  In  what  position? 

Mr.  Mahoney.  Commercial  manager. 

Mr.  James.  How  long  since? 

Mr.  Mahoney.  I  went  to  work  with  the  Alabama  Power  Co.  In  February  of 
1919. 

Mr.  James.  In  February  of  1919? 

Mr.  Mahoney.  Yes,  sir. 

Mr.  James.  How  did  the  contract  happen  to  be  signed  In  New  York  City 
instead  of  here  In  Washington? 

Mr.  Mahoney.  I  do  not  know  anything  about  the  reasons  for  that,  Mr.  Con- 
gressman, I  am  sure. 


1  »-Jt»(K>    22- 


-45 


703 


704 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


705 


I 


Mr.  James.  Whom  did  you  go  up  to  New  York  with? 

Mr.  Mahoney.  I  was  stationed  in  New  York  at  the  time  and  was  called  over 
there,  I  believe,  by  Lieut.  Col.  Beames  to  assist  him  or  to  look  over  certain  par- 
ticular paragraphs  of  this  contract  which  was  all  ready  at  that  time  for  signa- 
ture, and  it  was  signed  on  that  day.  ^.         ^      4.0 

Mr.  James.  Is  that  the  only  time  you  know  anything  about  this  contract? 

Mr.  Mahoney.  No  ;  I  had  had  connection  with  it  prior  to  that  time,  but  not  in 
some  six  months  prior  to  that  time,  I  suppose. 

Mr.  James.  Whom  did  you  work  for  before  you  went  into  the  Army? 

Mr.  Mahoney.  I  was  with  the  American  Gas  Co.  of  Philadelphia. 

The  Chaibman.  Were  you  an  emergency  officer  during  the  war? 

Mr.  Mahoney.  I  was  not,  Mr.  Chairman.  I  was  attached  in  a  civilian  ca- 
pacity, as  a  consulting  engineer,  to  the  Ordnance  Department. 

The  Chaibman.  You  were  not  in  the  Army  at  all? 

Mr.  Mahoney.  I  was  not.  ,      «,    -rrr      ta 

Mr.  McKenzie.  Under  whose  employ  were  you  serving  in  the  War  Depart- 

Mr  Mahoney.  I  was  in  the  Ordnance  Department.  I  was  under  Col.  Joyes 
in  the  nitrates  division  up  until  about— I  think  the  date  was  July  or  August, 
when  I  went  over  to  New  York  under  Mr.  Frederick  L.  Cranford,  who  was  made 
director  of  construction  of  all  nitrate  plants,  and  was  an  assistant  to  Mr.  Fred*- 
erick  Cranford  from  that  time  until  I  left  in  February. 

Mr.  McKenzie.  How  did  you  happen  to  get  into  the  service  of  the  Govern- 
ment? ^.,11 

Mr.  Mahoney.  I  was  working  at  the  time  on  some  transmission  Ime  work 
up  in  New  York  and  up  in  the  anthracite  regions  of  Pennsylvania,  and  I  think 
my  first  knowledge  of  this  situation  came  through  Mr.  Edward  Wells,  chief 
engineer  of  the  J.  G.  White  Co.,  who  was  constructing  Nitrate  Plant  No.  1 
at  Sheffield.  I  was  naturally  desirous  of  getting  into  the  service  and  he  told 
me  about  this  work,  and  I  got  in  touch  with  the  Ordnance  Department  and 
went  on  to  this  nitrates  program. 

Mr.  McKenzie.  What  was  your  age  at  that  time? 

Mr.  Mahoney.  Twenty-eight.  _^       .  *  . 

Mr.  McKenzie.  When  did  you  enter  the  service?    That  is,  you  were  not  in 

the  military  service  at  all.  ,  t^  t 

Mr.  Mahoney.  No,  sir;  not  in  the  military  service,  in  a  sense.     It  was  in 

the  latter  part  of  1917.  ^^        ,„^  ,  ^_ 

Mr.  McKenzie.  Did  you  make  any  effort  to  get  into  the  military  service? 

Mr.  Mahoney.  Indeed  I  did. 

Mr.  ]^IcKenzie.  What  was  the  trouble,  physically  not  fit?  ^ 

3^Ir  Mahoney.  No,  sir.    Of  course,  I  went  in  with  the  thought  of  being  com- 
missioned an  officer.    At  that  time  there  was  some  question  about  commission 
ing  fellows  of  my  age  in  Ordnance  or  out  of  the  line  capacity,  because  1  was 
in  the  draft  age,  and  the  thing  went  up  and  back,  and  it  is  a  long  story  as  to 
how  it  came  out,  but  I  never  did  get  my  commission. 

Mr  McKenzie.  You  were  working  for  a  Philadelphia  electrical  company? 

Mr.  Mahoney.  I  was  working  for  the  American  Gas  Co.,  a  holding  com- 

panv,  in  Philadelphia.  ^  ^..,     ^f 

Mr  McKenzie.  But  after  your  service  with  the  Government  you  did  not 
return  to  your  former  company,  but  entered  the  employment  of  the  Alabama 
Power  Co.? 

Mr.  Mahoney.  Exactly.  ^  ^   ^  ^    ^u  *.  1^1 

Mr.  McKenzie.  Did  the  Alabama  Power  Co.  hold  out  inducements  that  ien 
vou  to  go  with  them  rather  than  with  your  former  company? 
*   Mr    Mahoney.  After  the  armistice  was  signed  we  in  Mr.  Cranford's  office 
were  engaged  in  winding  up  the  affairs  of  plants  3  and  4,  which  as  you  may 
recall  from  the  testimony,  were  salvaged,  and  I  had  a  portion  of  that  work; 
that  is,  gathering  all  the  data  and  arranging  for  the  cancellation  of  the  van- 
out  contracts  which  were  extant  on  plants  3  and  4  and  some  on  plant  - 
Naturally,  I  was  looking  to  my  future  after  that  work  should  wind  up.    I  hart 
several  offers  from  various  concerns,  among  them  the  company   I  had  lett. 
the  American  Gas  Co.,  and  one  of  them  from  Mr.  James  Mitchell,  of  the  Ala- 
bama Power  Co..  and  that  was  the  offer  which  I  finally  accepted. 
Mr   McKenzie.  What  are  your  duties  at  the  present  time? 
Mr    Mahoney.  I  have  change  of  matters  of  power  sales,  rates,  investiga- 
tions, valuations,  and  any  operation  in  the  smaller  towns  that  the  compan> 
owns  and  operates,  railway  plants  or  electric  systems. 


Mr. 
Mr. 
Mr. 
Mr. 


Mr.  McKenzie.  You  are  not  a  stockholder  in  the  companv,  I  take  it. 
Mr.  Mahoney.  I  am. 

Mr.  McKenzie.  You  are  a  stockholder  and  employee? 

Mr.  Mahoney.  Yes,  sir ;  as  practically  every  employee  of  the  Alabama  Power 
Co.  is. 

Mr.  Stoll.  When  did  you  acquire  that  stock  in  the  Alabama  Power  Co  *» 
Mr.  Mahoney.  When? 

Stoll.  Yes. 

Mahoney.  Within  the  last  year. 

Stoll.  Since  you  were  connected  with  them? 

Mahoney.  Oh,  yes. 

Mr.  Stoll.  Do  you  know  why  it  was  that  this  contract  was  dated  back  to 
December  1,  1917? 

Mr.  Mahoney.  I  do  not,  Mr.  Stoll ;  unless  it  was  to  validate  work  which  had 
been  done— more  as  a  ratification  than  anything  else.  I  never  heard  it  dis- 
cussed. I  do  not  believe  I  noticed  at  the  time  the  date  of  the  contract.  I  just 
happened  to  be  present  in  the  building  or  in  the  conference,  and  was  used  as 
a  witness. 

Mr.  Fields.  What  did  I  understand  you  to  say  your  duties  were  while  you 
were  with  the  Ordnance  Department? 

Mr.  Mahoney.  My  duties  were  maqj',  but  my  position  was  that  of  consulting 
electrical  engineer. 

Mr.  Fields.  Were  you  on  this  Muscle  Shoals  or  Gorgas  proposition? 

Mr.  Mahoney.  I  was  on  the  entire  program,  Mr.  Fields— Muscle  Shoals,  Gor- 
gas, nitrate  plants  3  and  4  at  Cincinnati  and  Toledo. 

Mr.  James.  Were  you  offered  a  position  by  the  Alabama  Power  Co.  ? 

Mr.  Mahoney.  Was  I  offered  one? 

Mr.  James.  Yes. 

Mr.  Mahoney.  Yes,  sir. 

Mr.  James.  While  you  were  in  the  employ  of  the  Government? 

Mr.  Mahoney.  It  was  about  the  middle  of  January,  1919,  when  Mr.  Mitchell 
tirst  discussed  with  me  the  matter  of  going  to  Alabama. 

Mr.  QuiN.  What  was  the  date,  as  near  as  you  can  recall,  that  you  were  con- 
nected with  the  construction  of  this  plant  at  Gorgas  and  the  Muscle  Shoals 
nitrate  plants? 

Mr.  Mahoney.  I  presume  it  was  in  January  of  1918  that  I  first  heard  of  this 
phase  of  the  situation,  Mr.  Quin,  the  Gorgas  phase  of  the  Muscle  Shoals  situa- 
tion; somewhere  in  January  of  1918. 

Mr.  Quin.  When  did  you  go  to  work  with  that  enterprise? 

Mr.  Mahoney.  About  that  time. 

Mr.  Quin.  And  that  was  under  the  contract  of  December  1,  1917,  that  that 
construction  was  going  on? 

Mr.  Mahoney.  Yes,  sir. 

Mr.  Quin.  Did  you  stay  with  that  branch  of  the  service  until  the  armistice 
was  signed? 

Mr.  Mahoney.  Not  directly  connected  with  the  Washington  office.  As  I  say, 
I  was  moved  over  to  New  York  in  July  or  August. 

Mr.  Quin.  I  meant  with  that  branch  of  the  service. 

Mr.  Mahoney.  Yes,  sir. 

Mr.  Quin.  Who  was  paying  you,  the  Government  or  the  contractor? 

Mr.  Mahoney.  The  Ordnance  Department. 

Mr..  Quin.  The  Ordnance  Department  was  paying  you,  not  as  an  officer,  but 
as  a  civilian? 

Mr.  Mahoney.  Yes,  sir. 

Mr.  Quin.  That  work  was  carried  on  under  the  contra<t  which  is  (late<I 
I>eceniber  1,  1917,  was  it  not? 

Mr.  Mahoney.  Yes.  sir. 

Mr.  Quin.  The  Alabama  Power  Co.  did  its  part  under  that  contract,  as  you 
understand  it? 

Mr.  Mahoney.  Yes,  sir. 

Mr.  Quin.  They  receivetl  their  pay  or  fee  under  that  contract? 

Mr.  Mahoney.  Yes,  sir. 

Mr.  Quin.  Do  you  know  anything  about  how  the  fees  were  paid? 

Mr.  Mahoney.  I  do  not.  sir. 

Mr.  Quin.  You  were  not  one  <»f  the  bookkeepers? 

Mr.  Mahoney.  No,  sir. 


Nv 


706 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


707 


The  Chairman.  If  there  are  no  further  <iue8tion8,  we  are  very  rauch  ol>Ii?e(l 

to  you,  Mr.  Mahoney.  ,  .     ^,  .  *.    ^    #>»  i 

Mrv  Dent.  Now,  Mr. -Chairman,  the  other  wrtne«8  to  this  contract.  Col. 
Beames  lives  in  New  York  City,  and  we  are  prepared  to  get  hhn  here,  hot  not 
to-day  and  if  the  committee  desires  any  further  testimony  we  will  bring  jiini 
down  here  just  simply  to  take  the  time  of  the  committee  to  prove  the  date 
of  the  actual  execution  of  the  contract.  We  have  a  telegram  from  him  to  the 
effect  that  he  remembers  distinctly  that  it  was  on  the  day  of  the  false  report  of 

the  armistice. 

The  Chairman.  You  can  file  the  telegram. 

Mr.  Dent.  The  telegram  from  Tiim  relative  to  his  recollection  as  to  when  the 
contract  was  executed? 

The  Chairman.  Yes. 

Mr.  Dent.  All  right.  ^     .     „      m^,o 

Mr  McKenzie.  As  1  understand  it,  CoL  Beames  was  an  Engineer  officer? 

Mr.  Martin.  He  was  an  Engineer  officer,  yes,  sir ;  Lieut.  Col.  Beames. 

The  Chairman.  And  what  is  his  full  name? 

Mr.  Martin.  C.  F.  Beames. 

(The  telegram  referred  to  follows:) 

[Telegram.  J 

^         Macon,  Ga..  February  J,  1922, 

Thos.  W.  Martin, 

Care  Hotel  Waldorf  Astoria,  New  York,  N.   ) . 
\s  n  witness  to  the  signing  of  contract  No.  T-^,  bearing  date  December  1, 
1917    I  confirm  vour  understanding  that  said  contract  was  finally  executed  by 
the  contracting  officer  and  the  late  Mr.  Mitchell  at  New  York,  on  November 

"'  ^^^^'  C.  F.  Beamks. 

Mr  Dknt  Mr.  Chuirniaii,  there  is  just  one  add  tional  statement  Mr.  IMartin 
would. like  to  make,  and  then  I  will  be  prepared  to  go  ahead  and  wind  up. 

ADDITIONAL  STATEMENT   OE   MB.    THOMAS   WM^TIN^   PBESI- 
DENT  ALABAMA  POWEB  CO.,  BIBMINGHAM,  ALA. 

The  Chaikjuan.  We  will  be  glad  to  hear  from  Mr.  Martin. 

Mr  M\RTi\  I  lust  want  to  make  an  additional  statement,  Mr.  Chairman, 
to  the  effect  that  no  one  connected  with  the  proposal  of  Mr.  Henry  Ford  in  any 
wav  has  taken  up  with  us  this  subject  of  our  property  rights;  and  no  one 
representing  the  Government  has  taken  up  with  us  the  subject  of  our  propeit.N 
rights  prior  to  the  hearings  before  this  committee,  and  we  would  h/jve  likeil 
to  have  had,  but  did  not  have,  an  opportunity  to  present  our  views  to  «ie  .Tiidse 
Advocate  General.  We  had  no  opportunity,  prior  to  the  time  the  matter  came 
before  this  committee,  to  present  our  case. 

Mr.  Dent.  In  other  words,  neither  party  to  the  conti-act  consulted  you  with 
reference  to  your  property  rights  at  all. 

Mr.  Martin.  No.    That  is  correct.  ,.  ^,     ,      •     -  „  ..f 

The  Chairman.  Then,  let  me  ask  you  these  questions.  At  the  beginning  >t 
.July,  say,  of  1921,  y«m  were  engaged  in  your  present  business  of  selling  iwwei . 

Mr.  Martin.  Yes. 

The  Chairman.  An<l  I  presume  also  electricity. 

All*    Af^RTix    We  were 

The  Chairman.  Did  y(*.u  receive,  from  the  Chief  of  Engineers  o^  the  War  De- 
partment, any  letter  suggesting  to  ^ou  to  make  an  offer  for  the  Muscle  Shoals 

property?  , 

Mr.  Martin.  We  did. 

The  Chairman.  Did  you  accept  that?  .    .  ,      ,  „;kiv 

Mr   Martin.  1  wcmld  be  glad  to  go  into  that  subject  but  that  leads  possil)l> 

into  another  branch  of  the  question,  but  if  you  wish  me  to,  I  will  go  into  it 

°**T^ie  Chairman.  I  think  it  would  be  well  to  go  into  it  because  fat  matter 
has  been  brought  to  the  attention  of  the  committee  by  the  Chief  of  Engineei.- 

The  Chmrman^  He  called  the  attention  of  the  committee  to  the  fact  that  h^ 
issued  probably  a  dozen  letters  to  people  who  were  in  that  business  at  tnai 


time,  and  said  that  the  Ford  offer  was  the  only  reply  received  favoralde  to 
this  proposition  that  we  are  considering. 

Mr.  Dent.  Mr.  ( -hairinan,  if  I  may  make  a  suggestion,  would  not  that  be 
l)ropeiiy  in  line  with  the  hearing  when  you  consider  the  bl<l  of  the  Alabama 
Power  Co.  rather  than  to  mix  it  up  with  this  proposition  which  we  are  contend- 
ing is  purely  the  assertion  of  their  legal  rights  under  the  Ford  proposition.  Of 
roiU'se,  we  are  ready  to  go  into  it  right  now. 

The.  Chairman.  There  is  no  particular  hurry  about  it.  If  you  intend  to  go 
into  it  when  you  present  your  other  matter,  that  is  time  enough,  I  take  it. 

Mr.  Martin.  Yes. 

The  Chairman.  But  I  think  we  ought  to  have  your  statement  completely 
regarding  the  answer  you  gave  Gen.  Beach. 

Mr.  Martin.  We  had  planned  to  go  into  that,  Mr.  Chairman. 

Mr.  Fields.  It  seems  to  me  that  might  have  some  bearing  on  the  legal  aspect 
of  the  proposition. 

Mr.  Qitin.  No;  it  could  not  do  that. 

The  (^hairman.  I  d^)  not  think  it  is  very  material  whether  it  goes  in  here  or 
whether  it  goes  in,  in  reference  to  their  own  proposition.  I  «lo  not  think  the 
place  it  goes  in  is  material. 

Mr.  Miller.  As  I  understand  it,  we  are  now  on  that  portion  of  the  hearing 
where  the  Alabama  Power  Co.  is  asserting  or  wants  to  point  out  its  legal  rights 
under  the  Ford  offer. 

Mr.  Dent.  Exactly. 

Mr.  Miller.  And  when  they  get  to  the  submission  of  their  own  proposition, 
then  it  seems  to  me  it  would  be  better  to  bring  up  the  matter  suggested  by 
Mr.  Martin. 

The  Chairman.  I  have  stated  that  the  committee  at  that  time  will  be  very 
glad  to  hear  him  on  the  proposition.  Mr.  Martin.  ^Ir.  James  would  like  to  ask 
you  a  question. 

Mr.  James.  What  percentage  of  this  work  was  done  by  subcontracts;  I  mean, 
the  work  at  the  Gorgas  plant. 

Mr.  Martin.  On  such  work  as  grading  we  employed,  I  think,  some  con- 
tractors who  had  teams  to  do  some  grading  work,  and  possibly  some  con- 
tractor to  supply  erectors  of  steel.     It  was  a  very  small  percentage. 

Mr.  James.  Did  you  pay  those  men  monthly? 

Mr.  Martin.  They  were  paid  on  the  pay  roll  twice  a  month,  so  the  Chief 
Engineer  states. 

Mr.  James.  Did  you  have  a  written  contract  with  those  contractors? 

Mr.  Martin.  Yes. 

Mr.  James.  Were  these  contracts  with  the  subcontractors  dated  before  or 
after  this  contract  was  signed  in  New  York  City. 

Mr.  Martin.  I  am  speaking  from  pure  recollection,  but  I  would  assume  they 
were  dated  subsequently.    I  have  nothing  to  fix  it  in  my  mind. 

Mr.  James.  As  a  good  business  proposition  you  figured  it  was  to  your  interest 
in  looking  after  the  interests  of  the  Alabama  Power  Co.  to  have  written  con- 
tracts with  your  subcontractors  signed  at  about  the  time  they  started  to  work. 

Mr.  Martin.  Those  things  emanated  in  the  form  of  a  letter  in  the  nature  of 
a  purchase  order  from  the  engineering  staff  of  the  Government  at  Birmingham. 

Mr.  James.  I  mean  the  work  of  your  subcontractors. 

Mr.  Martin.  I  do  not  know  that  I  have  any  definite  idea  one  way"  or  the 
other  about  that.  Our  chief  engineer  states  they  were  mostly  handled  on 
purchase  orders  approved  by  the  resident  engineer  of.  the  Government,  just  as 
in  the  case 

Mr.  James.  I  am  not  talking  about  that.  You  said  you  hired  men  to  do 
grading,  etc.,  as  subcontractors.  Did  you  have  a  written  contract  with  those 
subcontractors? 

Mr.  Martin.  I  assume  it  was  in  the  nature  of  a  purchase  order.  That  is 
the  way  the  work  moved  from  time  to  time. 

Mr.  James.  Will  you  put  in  the  record  the  dates  of  the  contracts  with  these 
subcontractors? 

Mr.  Martin.  We  can  not  furnish  the  dates  of  the  contracts  or  purchase 
orders  with  subcontractors  from  data  which  we  have  here  in  Washington. 
However,  as  these  contracts  or  purchase  orders  related  only  to  grading,  and 
as  all  grading  was  completed  on  or  before  November  1,  1918,  these  subcontracts 
or  purchase  orders  were  all  dated  prior  to  that  time. 

Mr.  Dent.  That  is  all  we  have  from  Mr,  Martin,  Mr.  Chairman,  unless  there 
are  some  further  questions. 


708 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


709 


Mr.  QuiJr.  Mr.  Martin,  who  designed  and  made  the  specifications  for  the 
work  you  did  down  there.    Did  the  Alabama  Power  Co.  do  that? 

Mr.  Mabtin.  In  the  first  instance,  Mr.  Quin,  the  Alabama  Power  Go.  had 
made  plans  for  the  enlargement  of  this  power  station.  On  those  plans  it 
had  arranged  to  purchase  equipment  or  had  placed  orders  for  some  equipment 
for  a  new  unit — a  second  unit.  Those  plans  were  practically  completed  for 
that  particular  size  unit  that  we  wanted.  When  the  Government  came  into  it, 
those  plans,  of  course,  were  available  to  the  Government.  They  had  to  be  changed 
from  time  to  time  to  meet  the  new  ideas  that  the  Government  engineers  had. 
Among  others,  the  Government  engineers  wanted  larger  equipment  than  the 
eiiuipment  we  had  planned.  From  time  to  time  additional  plans  were  made, 
either  made  by  our  own  engineering  staff  and  approved  by  the  Government 
engineers,  or  made  by  the  Government  engineers,  in  conjunction  with  our 
engineers. 

Mr.  Quin.  Then  you  mean  to  state  that  the  original  plan  of  this  Gorgas  plant 
and  transmission  line 

Mr.  Martin.  Not  the  transmission  line,  because  we  had  no  plans  on  the 
subject  of  the  transmission  line. 

Mr.  Quin.  Did  you  make  that  plan  for  the  continuation  of  the  68  miles  of 
transmission  line? 

Mr.  Mabtin.  We  did  make  that  plan ;  yes. 

Mr.  Quin.  Then  the  Gorgas  plant  was  designed  by  the  Alabama  Power  Co., 
was  accepted  with  certain  variations  by  the  Government,  and  whatever  changes 
were  made  in  it  were  made,  perhaps,  by  your  company  in  conjunction  with  the 
Government's  engineers? 

Mr.  Mabtin.  Yes,  sir ;  the  recital  in  the  contract,  in  the  opening  clause,  states 
that  the  company  had,  among  other  things,  in  connection  with  this  extension. 
Item  D  plans  and  specifications. 

Mr.  Quin.  That  is,  the  Alabama  Power  Co.? 

Mr.  Mabtin.  Yes,  sir ;  that  is  in  the  contract. 

Mr.  Quin.  Then,  that  part  of  the  contract  you  carried  out. 

Mr.  Mabtin.  We  did. 

Mr.  Quin.  You  carried  out  the  construction  of  it? 

Mr.  Mabtin.  Yes. 

Mr.  Quin.  Did  you  draw  your  fees  along  as  the  work  was  being  done,  or  wait 
until  it  had  all  been  completed,  before  you  drew  your  fees? 

Mr.  Mabtin.  I  am  sure  I  could  not  tell  you. 

Mr.  Quin.  I  presume  you  drew  it.  like  other  contractors,  as  the  work  went 
along? 

Mr.  Mabtin.  The  chief  engineer  advises  it  was  toward  the  end  of  the  job 
that  the  fee  was  paid. 

Mr.  Quin.  About  what  time,  if  you  have  any  evidence  on  that? 

Mr.  Mabtin.  It  was  late  in  the  work,  Mr.  Quin.  We  would  have  to  find  the 
records  to  tell  you. 

Mr.  Quin.  Will  you  find  out  about  that  and  put  it  in  the  record? 

Mr.  Mabtin.  Yes ;  we  will  undertake  to  find  mat  out. 

The  information  requested  is  as  follows : 

"  Tlie  payment  of  $60,000  to  the  company  by  the  United  States,  provided  for 
by  article  12  of  contract  T-69.  was  received  November  27,  1918.  The  con- 
tractor's fee,  provided  for  in  article  13  of  said  contract,  was  received  as  follows : 
November  27,  1918,  $100,000;  April  18,  1919,  $75,000;  May  26,  1919,  $50,000." 

Mr.  Quin.  The  work  from  starting  the  l)realving  of  the  ground  clear  on  t<> 
completion  had  to  be  paid  for,  did  it  not? 

Mr.  Mabtin.  Yes. 

Mr.  Quin.  And  the  Government  advanced  all  of  that  money? 

Mr.  Mabtin.  It  did  after  the  work  was  well  started ;  yes. 

Mr.  Quin.  And  you  paid  your  men  and  the  subcontractors  out  of  Govern- 
ment funds? 

Mr.  Mabtin.  No;  the  Government  took  over  the  pay  rolls  and  made  direct 
payments  for  the  work  after  the  job  was  well  advanced,  and  had  a  disbursing 
officer  on  the  job  and  handled  the  payments  direct. 

Mr.  Quin.  Mr.  Wurzbach  asked  you  the  other  afternoon  to  produce  the  let- 
ters and  written  memoranda  and  working  orders;  have  you  procured  those? 

Mr.  Mabtin.  Yes,  sir;  there  is  quite  a  batch  of  them  [indicating]. 

Mr.  Quin.  Will  you  put  those  in  the  record,  according  to  his  request? 

Mr.  Mabtin.  Yes. 


(The  letters,  work  orders,  and  written  memoranda  requested  are  as  follows : ) 

NOVEMBEB  6,  1917. 
Col.  J.  W.  JOYES, 

Ordnance  Department,  Washington,  D.  C. 

Deab  Sib:  In  a  conference  to-day  Mr.  Frank  S.  Washburn,  president  of  the 
American  Cyanamid  Co.,  asked  the  Alabama  Power  Co.  to  formulate  a  definite 
proposal  as  to  what  it  was  prepared  to  do  in  the  way  of  supply  of  power  to 
the  proposed  new  nitrate  works  at  Muscle  Shoals,  Ala.,  on  the  Tennessee  River. 

Until  such  time  as  there  shall  have  been  definitely  determined  the  details  of 
the  Government's  requirements  we  are  only  able  to  formulate  a  proposal  along 
general  lines,  and  one  which  may  be  considerably  modified  as  to  details  in 
carrying  it  out 

The  financing  of  such  an  installation  at  this  time  would  not  be  warranted 
by  the  present  needs  of  the  power  company,  but  it  is  prepared  to  cooperate  in 
every  possible  way  with  the  Government  in  the  undertaking  which  you  have 
in  view. 

We  estimate  that  the  necessary  additions  to  our  Warrior  River  steam  plant 
and  the  transmission  lines  and  substation  necessary  for  delivering  power  at 
Muscle  Shoals  will  cost  approximately  $2,250,000.  If  the  Government  will 
finance  the  undertaking  and  assist  in  deliveries,  the  power  company  will  be 
prepared  to  install  with  maximum  urgency  the  necessary  steam  plant,  substa- 
tion, and  transmission  lines.  The  company  will  supply  30,000  kilowatts,  deliv- 
ered to  the  Muscle  Shoals  substation  at  a  combined  energy,  and  demand  charge 
of  7  mills  ($0,007)  per  kilowatt-hour. 

The  power  company  will  undertake  to  set  aside  3  mills  ($0,003^)  per  kilowatt- 
hour  for  all  energy  supplied  under  this  proposal  until  the  Government  has  been 
reimbursed  for  all  sums  advanced  to  the  company  in  this  connection. 

We  understand  tne  power  requirements  of  the  proposed  nitrate  plant,  so  far 
as  this  company  is  now  concerned,  to  be  about  30,000  kilowatts,  which  must  be 
in  readiness  in  about  six  months.  The  company  can  be  in  readiness  with  this 
amount  of  power  within  the  time  required,  and  with  the  completion  of  the 
extension  above  referred  to  can  continue  to  furnish  this  amount  of  power  regu- 
larly. 

The  company  has  contracts  with  the  Gulf  States  Steel  Co.,  Tennessee  Coal  &■ 
Iron  Co.,  many  coal  mines,  the  Southern  Manganese  Co.,  and  various  graphite 
products  companies,  all  of  which  are  directly  connected  with  the  proper  con- 
duct of  the  war,  whose  continued  operations  will  not  be  affected  under  the 
plan  proposed  herein. 

The  Alabama  Power  Co.  has  available  considerable  apparatus  which  ordi- 
narily takes  a  long  period  to  obtain  and  which  might  be  used  in  connection 
with  the  proposed  work.  It  also  has  an  excellent  construction  and  operating 
organization  with  a  long  experience  with  local  conditions. 

Holding  ourselves  at  your  orders  for  further  treatment  of  the  subject,  we  are. 
Very  respectfully,  yours, 

Alabama  Poweb  Co., 
James  Mitchell,  President. 

"  suggested  basis  fob  CONTBACT  between  ALABAMA  POWEB  CO.  AND  UNITED  STATES 
FOB  POWEB  FOB   AIB  NITBATES  COBPOBATION   PLANT   AT  SHEFFIELD. 

"Whereas  the  United  States  desires  to  obtain  from  Alabama  Power  Co.  at 
as  early  a  date  as  possible  after  the  completion  of  the  nitrate  plant  on  or 
after  Jime  1,  1918,  about  35,000  kilowatts,  and  Alabama  Power  Co.  has  con- 
tracted for  all  the  power  from  its  existing  plants  that  are  economical  to  operate, 
and  can  not  finance  at  this  time  any  extensions  of  plants,  but  has  exist'ng  at 
its  Warrior  River  plant  certain  foundations  and  accessories  for  two  35.000- 
kilowatt  units  additional  to  what  is  now  installed ;  and 

"  Whereas  Alabama  Power  Co.  would  effect  some  economies  in  the  operation 
of  its  present  Warrior  plant  by  operating  therewith  other  units  and  would 
derive  benefit  from  the  use  of  such  quantity  of  power  as  might  be  available  after 
meeting  the  United  States  needs  from  additional  units  there  installed ;  and 

"  Whereas  the  United  States  would  likewise  derive  benefit  from  the  economies 
of  joint  operation  of  all  the  units — that  now  existing  and  those  now  proposed  to 
be  installed  at  "the  Warrior  plant — and  would  thereby  derive  the  further  benefits 
of  power  at  a  cost  probably  lower  than  elsewhere  obtainable  and  of  the  assurance 


710 


MUSCLE  SMOAI.S  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


711 


of  ample  power  for  its  neeils  by  the  guaranties  of  the  Alabiania  Power  Co.,  based 
upon  all  its  plants ; 

"Agreed  that  the  Ahibaina  Power  Co.  shall  acquire  at  its  expense  the  necessary 
rights  of  way  and  shall  build  a  transmission  line  from  its  Warrior  plant  to  the 
Air  Nitrates  Corporation  plant  at  Sheffield,  and  also  upon  its  existing  founda- 
tions at  Warrior,  so  far  as  suitable,  to  erect  suitable  temporary  buikiing  and 
procure  and  erect  therein  and  on  said  foundations  one  35,000-kilowatt  turbo- 
generator, with  battery  of  boilers  and  all  accessories  as  now  there  exist  and 
can  serve  such  unit  in  addition  to  that  now  installed  belonging  to  Alabama 
Power  Co..  and  also  procure  and  erect  ready  for  use  but  without  boilers,  etc.. 
therefor,  another  similar  35,000-kilowatt  turbo-generator  as  a  spare  generator 
available  in  the  event  of  temporary  un serviceability  of  the  aforesaid  one ; 

"The  United  States  to  pay  all  cost  of  the  foregoing  constructions  and  pro- 
curements, except  right  of  way.  and  in  addition  as  remuneration  for  its  services 
and  as  payment  In  full  for  whatever  of  its  existing  facilities,  etc.,  may  be  used 
to  aid  in  such  work,  a  basic  fee  of  —  per  cent  of  sucli  cost,  provided  such  fee 
is  understood  to  be  based  upon  completion  and  availability  for  use  of  the  trans- 
mission line  by  six  months  from  date  of  contract  and  of  the  first  power  unit 
complete  by  eight  months  frcmi  said  date,  and  that,  as  representing  the  estimated 
value  to  the  United  States  of  such  utilities,  a  sum  equal  to  1  per  cent  of  said  fee 
on  each  of  said  utilities  shall  be  added  to  the  o  per  cent  fee  thereon  for  each  day 
by  which  completion  shall  antedate  the  stipulated  date  of  completion,  and,  like- 
wise, 1  per  cent  of  said  5  per  cent  fee  shall  be  deducted  therefrom  for  each  day 
by  which  completion  shall  l)e  delayed  beyond  sudi  stipulated  date,  provided, 
however,  that  in  no  event  shall  the  fee  be  less  than  3  per  cent  nor  more  than 
7  per  cent,  the  Government  to  coopei*ate  in  securing  deliveries,  subject  to  delays 
beyond  control. 

"Also,  as  soon  as  transmission  line  and  nitrate  unit  shall  be  completed,  and 
upon  demand  of  contracting  officer,  Alabama  Power  Co.  to  stand  obligated  to 
furnish  10,000  kilowatts  and  to  furnish  as  much  more  <is  it  can  spare  without 
operating  Birmingham  i>Iant  or  depriving  other  customers  now  under  con- 
tract, at  rates  as  follows:  Demand  charge  of  $1.25  per' kilowatt  per  month,  plus 
energy  charge  for  current  used  according  to  scale,  which  shows  for  over  50.000 
kilowatt  hours  per  month  a  price  of  $0,004  per  kilowatt  hour — no  extras,  no 
constructive  basis  for  demand  rate,  which  shall  be  upon  10,000  kilowatt  hours, 
that  is,  $12.5(M)  r>er  month — and  this  arrangement  to  continue  in  force  until  the 
additional  iwwer-generating  equipment  (first  unit)  above  provided  to  be  in- 
stalled at  cost  of  United  States  shall  be  ready  for  operation. 

"  Thereafter,  Alabama  Power  Co.  to  operate  all  units  at  Warrior  plant — 
their  own  and  those  of  the  United  States — as  a  single  plant,  keeping  careful 
cost  record,  furnish  United  States  regularly  30,000  kilowatts  whenever  needed, 
whatever  other  customers'  demands  may  be,  supporting  this  guarantee  by  the 
entire  sj^stem  owned  or  controlled  by  it,  hydro  or  steam,  including  the  Birming- 
ham steam  plant;  and  the  Alabama  Po\^^er  Co.  to  have  the  privilege  of  using 
as  they  see  fit  in  their  general  business  such  portion  of  the  power  generated 
as  above  at  their  Warrior  plant  (including  the  United  States  owned  apparatus) 
as  the  United  States  shall  not  require;  and 

"  In  consideration  of  such  use  by  Alabama  Power  Co.  of  such  surplus  ixiwer, 
and  the  expectation  of  economies  of  such  joint  operation,  the  Alabama  Power 
Co.  agrees  to  accept  from  United  States  as  payment  in  full  of  all  obligation 
of  United  States  for  use  of  Alabama  Power  Co.  land,  foundations,  accessory 
apparatus,  right  of  way,  and  all  other  of  its  property  thus  used  in  the  joint 
operation  of  the  plant  or  in  the  transmission,  or  occupied  by  the  articles  be- 
longing to  United  States  and  of  all  services  whatsoever  by  Alabama  Power 
Co.,  and  any  of  its  agents,  employees,  etc.,  only  the  proportions  of  the  operat- 
ing costs  of  the  Warrior  plant  which  the  current  held  for  or  used  by  United 
States  bears  to  total  current  generated. 

"After  June,  1921,  or  later  date  of  cessation  of  United  State  participation 
In  present  war,  the  United  States  owned  transmission  line  and  i)ower  ap- 
paratus and  temporary  building,  etc.,  to  be  leased  or  sold  to  Alabama  Power 
Co.,  if  law  permits  and  if  satisfactory  agreement  on  price,  and  if  not,  all  prop- 
erty of  United  States  to  be  removed  within,  say,  six  months,  from  premises 
and  right  of  way  of  Alabama  Power  Co.  at  United  States's  expense.  The  Gov- 
ernment to  commandeer  power  from  Alabama  Power  system  when  necessary 
to  deprive  other  customers  in  order  to  supply  (jrovernment  under  any  provision 
hereof." 


Washington,  D.  C, 

December  7,  1917. 

Col.  J.  W.   JOYES, 

Colonel,  Ordnmive  DciJartment,  United  States  Annp, 

Washington,  1).  C. 

Sir:  This  company  acknowledges  receipt  of  your  purchase  order  (Ex.  Order 
No.  154)  of  date  December  7,  1917,  for  the  construction  of  a  transmission 
line  from  our  steam  plant  on  the  Black  WaiTior  River  to  the  site  of  the  pro- 
I)osed  ammonium  nitrate  plant  at  Sheffield.  Ala. 

In  acc<vrdance  with  your  instructions,  we  are  proceeding  to  book  this  order 
ns  a  definite  order  on  behalf  of  the  Ordnance  Department,  United  States  Army, 
and  will  proceed  as  speedily  as  possible  toward  carrying  out  your  instructions. 
Yours,  very  truly, 

Alabama   Power   Co., 
By  Thos.  W.  Martin, 
Viee  President  and  General  Counsel, 


War  Department, 
Office  of  the  Chief  of  Ordnance, 

Washington,  December  7, 1917. 
Alabama  Power  Co., 

Birmingham,  Ala.: 

By  authority  of  the  Chief  of  Ordnance  you  are  hereby  given  an  order  to  con- 
struct on  lands  owned  by  you,  or  rights  of  way  under  your  control,  from  your 
steam-power  plant  on  the  Black  Warrior  River  to  the  site  of  the  proposed  am- 
monium nitrate  plant  of  the  Air  Nitrates  Corporation  at  Sheffield',  Ala.,  for 
the  present  know^n  as  the  United  States  Nitrate  Plant  No.  2  a  transmission  line 
for  the  purpose  of,  and  of  proper  capacity  for  transmitting  electric  current  of 
3-phase.  60-cycle  and  about  110,000  volts.  This  line  to  be  built  as  economically 
as  possible,  being  for  the  temporary  use  of  the  United  States  in  transmission  of 
power  during  the  period  of  the  present  war,  or  thereabouts.  The  line  to  be  the 
property  of  the  United  States,  and  suitable  arrangements  to  be  made  as  already 
tentatively  agreed  upon  to  cover  the  payment  of  actual  cost  plus  a  percentage 
thereof,  to  cover  use  of  Alabama  Power  Co.'s  lands,  right  of  way,  construction 
forces,  and  other  facilities,  etc.,  and  profit.  All  these  conditions  to  be  embodied 
in  a  future  contract. 

Priority  class  A-1  has  been  requested  from  the  War  Industries  Board  for  the 
manufacture  of  this  material  (copy  of  which  is  inclosed)  so  that  delivery  may 
be  made  at  the  earliest  possible  date. 

Although  this  writing  is  in  letter  form,  please  book  it  as  a  definite  order  on 
behalf  of  the  Ordnance  Department,  United  States  Army,  by  the  undersigned, 
urn]  promptly  acknowledge  receipt  thereof. 
Very  truly,  yours, 

J.  W.  JOTES, 

Colonel,  Ordnance  Department,  United  Stmtes  Army. 


War  Department, 
Office  of  the  Chief  of  Ordnance. 

Washington,  December  7,  1917. 
Alabama  Power  Co., 

Birmingham,  Ala.: 

By  direction  of  the  Chief  of  Ordnance  you  are  hereby  given  an  order  to  fur- 
nish certain  electric  power,  as  specified  hereafter,  to  the  United  States  Nitrate 
Plant  No.  2,  being  constructed  for  the  Unitjed  States  at  Shefl^eld,  Ala.  (Muscle 
Shoals),  by  the  Air  Nitrates  Corporation  of  New  York,  viz: 

Upon  completion  of  the  transmission  line  from  your  W^arrior  plant  to  the 
TTnited  Statjes  Nitrate  Plant  No.  2,  at  SheflJield,  expected  to  be  by  or  soon  after 
•Tune  1,  1918,  which  you  are  to  construct  under  my  order  XOT-154,  you  to 
furnish  from  any  resources  of  your  system  a  guaranteed  10,000  kilowat  and 
as  much  more  as  may  be  available  without  interfering  with  your  present  signed 
f-ustomers,  or  requiring  operation  of  the  Birmingham  stjeam  plant,  and  as  the 
United  States  may  require,  at  certain  rates  tentatively  agreed  uix)n  and  to 
be  embodied  in  contract  to  be  signed  directly. 


712 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


713 


il 


1, 


Also,  upon  completion  of  the  addition  to  your  Warrior  steam  plant,  to  be 
built  by  you  for  the  United  States,  as  per  contract  to  be  signed  directly  and  as 
covered  by  ray  order  XOT-155,  which  completion  is  expected  to  be  about  Au^ist 
1,  1918,  you  to  furnish  from  said  Warrior  steam  plant  as  a  whole,  including 
your  present  plant  and  the  United  States  temporary  additions  thereto,  on  the 
S>*  ^  oVlJ^^^\^^^^  division  of  the  cost  of  operating  that  plant,  a  lirm  quan 
my  Of  d5,0(X)  kilowats,  or  so  much  thereof  as  may  be  needed  by  the  United 
Estates,  undertaking  to  assure  this  quantity  of  power  by  your  power  resources 
other  than  the  Warrior  steam  plant,  the  conditions  of  such  assurnnce  and  of 
the  basis  of  distribution  of  costs  to  be  more  particularly  set  forth  in  contract 
now  tentatively  agreed  upon  and  to  be  signed  directly. 

Priority  Class  A-1  has  been  requested  from  the' War  Industries  Board  for 
the  electrical  power  (copy  of  which  is  inclosed). 

K^H ^iS"""/*^*^!?  writing  is  in  letter  form,  please  book  it  as  a  definite  order  on 
behalf  of  the  Ordnance  Department,  United  States  Army,  by  the  undersigne<1 
and  promptly  acknowledge  receipt  thereof. 
Very  truly,  yours, 

Colonel,  Ordnance  Department,  United  sitates  Army. 

War  Depabtment, 
Office  of  the  Chief  of  Ordnance, 
ALABAMA  PowEK  Co.,  Washington,  December  7,  1917. 

Birmingham,  Ala.: 

onr/fnH^n«?«if /^^H^*?T^  ?5  ?^1°«"^^'  ^^^^  ^''^  h^^eby  given  an  order  to  pro- 
nnw..,.  jr  • "  7  }u%  ^""^i^^  ^^^*^'  ^^  ^  temporary  addition  to  the  steam 
power  producing  facilitiea  at  your  Warrior  River  plant  in  Alabama,  and  to 

!rSlir?H*^?^^I?'  *1^^^.  y^l^^  ^***^  "^^^^^^^  Pl«°t  No.  2,  being  constructed 
at  Sheffield,  Ala.,  by  the  Air  Nitrates  Corporation  for  the  United  States,  the 
supply  of  power  contemplated  by  a  separate  purchase  order  XOT-156  of  even 
date  herewith,  as  follows: 

1.  35,000-kilowatt  turbo-generator  unit,  with  suitable  accessories,  as  con- 
densers, switchboards,  battery  of  boilers,  etc.,  directly  necessary  to  its  service, 
and  such  auxiliary  accessories  as  may  be  needed  in  addition  to  what  you  now 
have  installed,  or  should  properly  put  in  for  the  portion  of  your  plant  now 
existing,  which  may  be  necessary  for  the  operation  of  this  plant  as  a  whole 
approved  by  the  undersigned. 

Spare  turbo-generator  of  approximately  35.000  kilowatts,  as  above,  with  the 
necessary  accessories,  not  including  steam-producing  equipment,  as  may  be  nec- 
essary to  enable  this  unit  to  take  the  place  of  the  first  unit  mentioned  above  in 
the  event  of  temporary  unserviceability  thereof,  as  recommended  by  you  and 
approved  by  the  undersigned. 

Also,  to  install  the  foregoing  upon  your  existing  land  and  foundations,  etc.. 
and  to  erect  thereover  a  temporary  building  for  the  production  of  such  appa- 
ratus. 

Provided,  That  all  of  the  foregoing  work  is  to  be  performed  by  vou  on  the 
basis  of  reimbursement  of  actual  cost  plus  a  construction  fee,  in  consideration 
of  which  you  will  allow,  without  special  rental  or  similar  charges  therefor, 
the  use  of  your  land,  foundations,  and  other  property  as  needed,  all  such  condi- 
tions* to  he  embodied  in  a  contract  now  tentatively  agreed  upon  and  to  be  signed 
directly. 

Priority  Class  A-1  has  been  requested  from  the  War  Industries  Board  for  the 
construction  of  this  temporary  addition  to  power  plant  (copy  of  which  is  in- 
closed ) . 

Although  this  writing  is  in  letter  form,  please  book  it  as  a  definite  order  on 
behalf  of  the  Ordnance  Department,  United  States  Army,  by  the  undersigned, 
and  promptly  acknowledge  receipt  thereof. 
Very  truly,  yours, 

J.  W.  JOYES, 

Colmiel,  Ordnance  Department,  Uwited  States  Arm  if. 

December  11,  1917. 
Memorandum  of  the  conference,  Saturday  afternoon.  December  8,  1917,  be- 
tween Col.  J.  W.  Joyes.  Ordnance  Department.  United  States  Army,  and  Messrs. 
James  Mitchell  and  Thomas  W.  Martin,  of  the  Alabama  Power  Co.  at  Col. 
Joyes's  office,  Washington,  D.  C. 


In  a  number  of  previous  conferences  we  discussed  the  various  questions  in- 
volved in  the  proposed  agreement  between  the  Alabama  Power  Co.  and  the 
United  States,  to  be  dated  December  1,  1917,  touching  the  supply  of  electric 
power  for  the  ammonium  nitrate  plant  at  Muscle  Shoals,  and  we  reached  cer- 
tain preliminary  agreements  substantially  embodied  in  the  final  draft  handed 
to  Col.  Joyes  at  this  interview. 

Mr.  Mitchell  explained  to  the  colonel  that  we  had  made  a  number  of  in- 
quiries of  manufacturers  of  equipment  and  apparatus  which  would  be  needed 
for  the  proposecl  extension  at  our  Warrior  plant  and  the  transmission  line, 
and  found  that  there  were  available  two  35,000-kilowatt  turbines,  one  of  which 
would  be  completed  in  January,  and  that  we  had  placed  an  order  with  the 
General  Electric  Co.  for  this  turbine  for  the  purpose  of  this  contract.  Mr. 
Mitchell  then  took  up  in  detail  with  the  colonel  the  various  apparatus  and 
equipment  which  would  be  needed,  and  the  colonel  said  that  he  would  at  once 
request  the  priority  committee  for  a  general  priority  order  for  this  material, 
and  took  down  the  following  general  items  to  be  covered :  One  35,000-kilowatt 
(reneral  Electric  turbine,  with  switchboard  and  transformers  and  other  equip- 
ment (in  connection  with  transformers,  we  discussed  the  question  whether  the 
Alabama  Power  Co.  would  purchase  the  stepdo\\ni  transformers  and  other  sub- 
station equipment  for  that  purpose  at  Muscle  Shoals  and  it  seemed  to  be  the 
view  that  the  Power  Co.  should  do  this,  but  this  was  left  somewhat  uncertain )  : 
Babcock  &  Wheeler  to  furnish  the  necessary  boilers,  probably  12  or  13,  anil 
stokers  (Mr.  Mitchell  pointed  out  that  the  manufacturers  of  boilers  usually 
furnished  stokers  with  the  boilers)  :  about  35,000  insulators  to  be  furnished 
by  the  Ohio  Brass  Co.,  if  it  can  handle  so  large  an  order,  otherwise  to  be 
divided  among  other  manufacturers,  also  the  necessary  stranded  copper  cable, 
to  be  either  400,000  circular  mills  for  one  circuit  only  or  the  equivalent  in  two 
circuits;  also  160  or  320  miles  of  7/16-inch  .steel  cable  for  ground  wire;  also 
ereosoted  poles  to  be  furnished  by  manufacturing  concems  at  Birmingham  and 
New  Orleans,  the  order  to  be  divided  between  them. 

We  also  discussed  the  proposed  8,000-foot  extension  of  one  Southern  Railway 
line  to  the  Warrior  plant,  but  Col.  Joyes  indicated  that  he  did  not  care  to  put 
this  in  the  contract  and  would,  if  necessary,  take  this  up  later  in  some  other 
way.  Meanwhile  he  requested  an  estimate  of  the  freight  business  which  this 
extension  might  bring  to  the  Southern  Railway  from  the  carriage  of  construc- 
tion equipment,  laborers,  etc.,  to  the  Warrior  plant;  also  permanent  business, 
such  as  the  carriage  of  coal. 

It  was  understood  that  Mr.  Thurlow  would  make  up  an  estimate  covering 
the  items  of  freight  mentioned. 

Col.  Joves  further  stated  that  he  would  issue  at  once  a  work  order  for  us 
to  proceed  with  the  construction  of  these  additions  to  the  Warrior  plant,  taking 
as  the  basis  of  his  action  the  draft  of  agreement  above  referred  to. 

Mr.  Mitchell  mentioned  that  we  would  probably  arrange  for  some  one  to 
remain  in  Washington  constantly  to  represent  us  in  the  various  matters  which 
would  arise  from  time  to  time  with  the  Ordnance  Department  in  connection 
with  this  contract  and  asked  the  colonel  whether  the  expenses  of  the  repre- 
sentative would  be  included  as  a  part  of  this  construction;  to  which  he  as- 
sented, but  suggested  that  it  would  probably  be  best  for  the  representative  to 
come  into  the  office  of  Col.  Joyes  and  there  take  a  desk,  as  will  be  done  by 
other  contractors,  as  this  would  lead  to  better  results  and  would  enable  him 
to  keep  in  closer  touch  with  us. 

Col.  Joyes  further  explained  that  he  was  leaving  Saturday  night  for  Sheffield, 
and  would  probably  arrange  to  visit  our  Warrior  plant  on  Wednesday  next  and 
would  then  return  to  Washington,  meeting  the  colonel  on  Friday,  the  14th 
instant,  to  further  complete  the  contract. 


Birmingham,  Ala.,  December  13,  1917. 

Col.  J.  W.  Joyes, 

Ordnance  Department,  Washington,  />.  C. 
Dear  Sir  :   We  beg  to  acknowledge  receipt  of  Ex.  (^rdor  No.   1.16  covering 
purchase  order  on  our  company  for  electr'c  power  to  be  delivered  to  the  Federal 
Government  after  the  completion  of  the  transmission  line  order  on  your  Ex. 

Order  T-154. 

Also  Ex.  Order  T-155  covering  temporary  addition  of  one  35,000  kilowatt 
turbo  generator  with  the  accessories  and  one  spare  turbo  generator  for  our 
Warrior  steam  plant.  * 


I 


I 


714 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


715 


Following  the  writer's  conservation  with  you  at  the  Warrior  steam  plant 
Wednesday,  we  are  holding  these  onlers  in  suspense  until  we  are  further  ad- 
vised bj'  you. 


Yours,  very  truy. 


Chikf  Engineer. 


Ill 


to 


SlTCCESTEl)   BASIS  FOR  l.EASE  OR   PUW^'HASE  OF   PROPOSED   STEAM    PLANT. 

The  Alabama  Power  Co.  lease  to  the  Government  free  of  charge  such  lands, 
cleariujf  .sites,  and  foundations,  tunnels,  and  other  contruction  work  which  it  may 
have  completetl  or  partially  conjpleted  as  may  be  ne<essary  for  the  foUowinj;": 

The  Govennnent  to  pay  for  the  con%;truction  and  equipment  of  a  power  house 
such  as  may  be  necessjiry  to  furnish  power  to  the  terminal  substation  of  the 
Sheffiehl  transmission  line,  and  to  consist  of  at  least  one  30,000  kilowatt  turbo 
generator.  an<l  correspond  in  j<  eciuipment. 

One  battery  of  boilers  for  operatinj?  the  above  plant  continuously  at  full 
capacit.v. 

One  spare  30.000  kilowatt  turbo  {generator  and  necesssiry  e(iuii)ment  excei»t 
boilers  and  ciirrespondinj;  ac(^-es8orles. 

All  arranjred  to  operate  interconne<-ted  with  existinj?  Warrior  steam  plant. 

The  i>ower  company  to  operate  the  combined  >\'arrior  plant  as  a  unit  separate 
from  the  rest  of  the  power  company's  system  and  charge  each  party  with  the 
power  actually  used  at  actual  power  house  cost ;  each  party  to  pay  such  costs, 
maintenance,  etc..  as  pertains  to  its  share  of  the  plant. 

The  ix)wer  company  to  agree  to  lease  or  buy  and  the  Government  to  lease  or 
sell  its  investment  at  Warrior  site  on  termination  of  its  need  for  war  purposes. 
Value  to  be  agree<l  upon  at  once  and  to  be  based  on  costs  prevailing  prior  to 
influence  of  war,  say  years  1914-15,  less  dei»reciation,  etc..  an<l  having 
view  its  permanent  value  to  the  Government  and  to  the  company. 

In  case  of  lease  comjiany  to  pay  H  per  cent  interest  and  sinking  fund 
amortize  in  12  years. 

(}v  contrjut  to  buy  on  installments  annually  with  interest  on  balance  due. 

In  making  price,  fact  of  company  operating  plant  at  no  cost  to  Government 
should  be  considered.  Company  to  have  right  in  meantime  to  use  surplus 
capacity  of  plant,  at  its  own  cost. 

If  it  be  said  that  the  Government  can  not  under  present  laws  bind  itself 
to  sell  or  lease  after  the  war — then  we  suggest  that  an  agreement  can  be  made 
which  will  be  binding  on  the  power  company  by  which  it  will  agree  to  buy 
or  lease  from  the  Government  on  certain  stated  terms,  within  a  certain  perio<l 
after  the  war — if  the  C<mgress  hereafter  vests  power  to  carry  out  such  an 
arrangement. 

December  19,  1917. 

War  Department, 
Office  of  the  Chief  of  Ordnance. 

Washington,  December  21,  1917. 
Alabama  Power  Co., 

Birmingham,  Ala. 

By  authority  of  the  Chief  of  Ordnance,  you  are  hereby  directed  to  make  the 
following  modifications  of  our  Order  XOT-154,  of  December  7,  1917: 

In  addition  to  the  transmission  line  proper  ordered  in  XOT-154,  as  originally 
drawn,  that  order  will  cover  also  suitable  transformer  station  for  step-up  to 
110,000  volts  at  the  Warrior  plant  end,  and  suitable  transformer  station  for 
step-down  from  line  voltage  to  12,000  volts  or  thereabouts,  as  to  be  more  par- 
ticularly specified  by  inspector,  and  both  these  stations  to  be  complete  outdoor 
stations  with  proper  oil  switches,  etc.,  details  to  be  approved  by  inspector. 

All  facilities  contemplated  will  be  of  ample  capacity  to  carry  35,000  kilowatts 
continuously  without  injury  and  without  excessive  energy  loss  and  volta.ge  drop. 
At  present  single  circuit  of  250,000  circular  mills,  hanl-drawn  stranded  cop|)er. 
regarded  as  most  suitable — this  to  be  definitely  decided  between  you  and  the 
undersigned. 

It  is  to  be  understood  that  every  effort  is  to  l>e  made  to  have  this  entire  lino 
with  the  two  substations  in  readiness  for  use  by  June  1,  1918,  and  that  what- 
ever temporary  arrangements  are  necessary  for  taking  the  current  (which  you 
will  then  have  to  take  from  your  own  lines,  instead  of  from  your  additional 


generating  cai>acity  which  we  expect  to  install)  must  be  provided  in  some 
manner  satisfactory  to  this  office. 

In  rtddi^ton  to  the  payments  i«e«tioned  in  the  original  order  foF-nat-Wftlt'est 
the  percentage  will  be  6  per  cent. 

Nothing  else  on  order  to  be  changed. 

.1.   W.   JOYES, 

Colonel,  Ordnance  Department,  United  ^aies  Army. 


War  Department. 
Office  of  the  Chief  of  Ordnance, 

Washington,  January  8,  19 18. 
Alabama  Power  Co., 

Birmingham,  Ala. 

By  direction  of  the  Chief  of  Ordnance,  Purchase  Order  XOT-155  and  letter 
rr-8277)  of  December  14,  1917,  are  hereby  cancelled,  and  you  are  hereby  given 
an  order  to  purchase  and  install  for  the  Unite<l  States  as  a  temporary  addition 
to  the  steam-power  producing  facilities  at  your  Warrior  River  plant  in  Alabama, 
and  to  enable  you  to  supply  to  the  United  States  at  Sheffleld,  Ala.,  the  supply 
of  iK)wer  contemplated  by  a  separate  purchase  order  XOT-156,  Mod.  No.  1, 
of  even  date  herewith,  as  follows: 

One  30,000-kilowatt  turbo-generator  unit,  with  suitable  accessories,  as  con- 
densers, switchboards,  battery  of  boilers,  etc.,  directly  neces-sary  to  its  service, 
in  addition  to  what  you  now  have  installed,  or  should  properly  put  in  for  the 
portion  of  your  plant  now  existing. 

Also  to  install  the  foregoing  upon  your  existing  land  and  foundations,  etc., 
and  to  erect  thereover  a  temporary  building  for  the  protection  of  such  appa- 
latus. 

1*rovidrd,  That  all  of  the  foregoing  work  is  to  be.  performed  by  .vou.  subject  to 
the  approval  of  the  undersigned  and  on  the  basis  of  reimbursement  of  actual  cost 
l)lus  a  c(>nstiiiction  fee  in  consideration  of  which  you  will  allow  without  special 
rental  or  similar  charge  therefor,  the  use  of  your  land,  foundations,  and  other 
property  as  needed — the  actual  amount  or  percentage  of  such  construction  fee 
to  be  embodied  in  a  future  contract ;  said  contract  to  be  nmtually  agreed  to  by 
your  company  and  this  office,  or  in  the  event  of  disagreement  to  be  referretl  to 
a  competent  and  authorizetl  board  for  settlement. 

Although  this  writing  is  in  letter  form,  please  book  it  as  a  definite  order  on 
behalf  of  the  Ordnance  Department.  United  States  Army,  by  the  undersigned, 
and  sign  below  the  acknowledgment  and  acceptance  on  the  part  of  your  company. 

J.   W.   JOYES. 

Colonel,  Ordnance  Department,  United  States  Army. 


We  accept  the  above  order. 


January'  8,  1918. 

Alabama  Power  Co.. 
By  James  Mitchell. 

President. 
Thomas  W.  Martin. 
Vice  President  and  General  Counsel. 


War  Department, 
Office  of  the  Chief  of  Ordnance, 

Washington.  .January  8,  t9l8. 
Alabama  Power  Co., 

B irm ingh am,  Ala. 

By  direction  of  the  Chief  of  Ordnance,  purchase  order  XOT-156  is  hereby 
canceled,  and  you  are  given  this  order  to  furnish  certain  electric  i>ower,  to  be 
specified  hereafter,  to  the  United  States,  at  Sheffield,  Ala.,  viz : 

Upon  completion  of  the  transmission  line  from  your  Warrior  plant  to  Sheffield, 
which  line  you  are  to  construct  under  my  order  XOT-154,  you  will  furnish  from 
any  resources  of  your  system  such  part  of  10,000  kilowatt  as  the  Ignited  States 
niay  require ;  and  in  excess  of  that  quantity,  if  available,  as  the  United  States 
may  require.    The  rates  of  payment  to  be  embodied  in  a  future  contract. 

Also  upon  completion  of  the  additions  to  your  Warrior  steam  plant  to  be  built 
by  you  for  the  United  States,  as  covered  by  my  order  XOT-156,  Mod.  No.  2,  which 


716 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


717 


completion  is  expected  to  be  about  August  1,  1918,  you  will  furnish  from  said 
additions  such  part  of  30,000  Ivilowatt  as  the  United  States  may  require,  and  in 
excess  of  that  quantity,  if  available,  from  your  system  as  the  United  States  may 
require. 

The  rates  for  power  and  other  terms  hereunder  to  be  embodied  in  a  future  con- 
tract;  said  contract  to  be  mutually  agreed  to  by  your  company  and  this  office, 
or  in  the  event  of  disagreement,  to  be  referred  to  a  competent  and  authorized 
board  for  settlement. 

Although  this  writing  is  in  letter  form,  please  book  it  as  a  definite  order  on 
behalf  of  the  Ordnance  Department,  United  States  Army,  by  the  undersigned, 
and  sign  below  the  acknowledgment  and  acceptance  on  the  part  of  your  company. 

J.  W.  JOYKS, 

Colonel,  Onlnance  Department,  United  States  Army. 


We  accept  the  above  order. 


January  8,  1918. 

AiABAMA  Power  Co. 
By  James    Mitchell, 

President. 
Thos.  W.  Martin, 
Vice  President  and  General  Counsel. 


War  Department, 
Office  of  the  Chief  of  Ordnance, 

Washington,  Jnnvnry  2.1,  1918. 

From:  Nitrate  Division  T,  Ordnance  Department. 
To:  Alabama  Power  Co.,  120  Broadway,  New  York, 
Subject:  Power  installation  at  Warrior. 

1.  Please  reserve  space  for  extending  power  house  so  that  an  additional  unit 
or  perhaps  units  might  be  installed.  This  would  not  involve  building  any  addi- 
tional foundations  or  superstructure,  but  would  indicate  the  use  of  a  perhaps 
somewhat  temporary  end  wall  and  the  preservation  of  the  necessary  ground 
beyond  the  limits  of  the  present  buildings, 

2.  Also  reserve  spiice  for  future  additions  to  transformer  station,  and  bear  in 
mind  that  a  duplicate  transmission  line  may  sometime  be  necessary. 

3.  Please  advise  if  this  introduces  any  extra  expense  or  difficulty, 

J.  W.  JOYES, 

Colonel,  Ordnance  Department,  United  States  Army. 

By  R,  D,  Coombs, 
Major,  Ordnance  Reserve  Corps. 


War  Department, 
OiTicE  OF  the  Chief  of  Ordnance, 

Washington,  February  28,  1918. 
Alabama  Power  Co., 

Birmingham,  Ala.: 

By  direction  of  the  Chief  of  Ordnance,  Purchase  Order  XOT-154  Model  No.  1 
of  December  21,  1917,  is  hereby  specifically  stated  and  agreed  to  be  an  agency 
contract  order. 

All  of  your  purchase  orders  will  continue  to  be  issued  "  For  the  account  (►f 
the  United  States  Ordnance  Department,  Nitrate  Division." 

All  contracts  with  venders  will  be  specifically  stated  therein  as  for  the  ac- 
count of  the  United  States  and  title  to  such  property  will  vest  in  the  United 
States, 

Direct  payments  for  labor  and  materials  will  be  made  by  the  United  States 
to  the  parties  furnishing  the  same. 

J.    W.    JOYES, 

Colonel f  Ordnance  Department,  United  States  Army. 

By  Alfred  H.  White, 
Lieutenant  Colonel,  Ordnance  Department,  National  Army. 

Alabama   Power  Co., 
By  James  Mitcheli., 

President. 

W.  N.  WALliSLEY, 

Oeneral  Manager. 
FxnuABT  28,  I9ia 


War  Department, 
Office  of  the  Chief  of  Ordnance, 

Washington,  February  28,  1918. 
Alabama  Power  Co., 

Birmingham,  Ala.: 

By  direction  of  the  Chief  of  Ordnance,  Purchase  Order  XOT-155  Model  No,  2 
of  January  8,  1918,  is  hereby  specifically  stated  and  agreed  to  be  an  agency 
contract  order. 

All  of  your  purchase  orders  will  continue  to  be  issued  "  For  the  account  of 
the  United  States  Ordnance  Department,  Nitrate  Division." 

All  contracts  with  venders  will  be  specifically  stated  therein  as  for  the  ac- 
count of  the  United  States,  and  title  to  such  property  will  vest  in  the  United 
States. 

Direct  payments  for  labor  and  materials  will  be  made  by  the  United  States 
to  the  parties  furnishing  the  same. 

J.    W.    JOYES, 

Colonel,  Ordnance  Department,  United  States  Army. 

By  Alfred  H.  White, 
Lieutenant  Colonel,  Ordnance  Department,  National  Army. 

Alabama   Power    Co., 
By  James  Mitchell, 

President. 
W.  N.   Walmsley, 

General  Manager. 


February  28,  1918. 

memorandum  in  re  instructions  for  disbursements  under  agency  contracts 
with  particular  reference  to  the  contract  with  the  alabama  power  co. 

Purchases. — The  agent — that  is,  the  Alabama  Power  Co, — will  issue  purchase 
orders  to  vendors  for  material  needed  in  the  discharge  of  the  contract  work. 
There  should  be  at  least  three  copies  of  these  purchase  orders,  one  for  the  con- 
tractor, one  to  accompany  the  vouchers  to  the  Auditor  for  the  War  Department, 
and  one  for  the  records  of  the  disbursing  officer  who  shall  make  the  payment 
thereunder. 

Invoices. — It  would  perhaps  be  wise  for  the  agent  to  prepare  a  particular  form 
of  invoice  to  be  issued  by  vendor  containing  such  data  as  the  agent  may  desire 
for  his  files.  These  invoices  should  be  at  least  three  in  number,  one  for  the 
agent,  one  to  accompany  the  voucher  to  the  Auditor  for  the  War  Department,  and 
one  to  remain  with  the  memorandum  voucher  in  the  office  of  the  disbursing 
officer  who  shall  make  the  payments.  The  invoice  which  shall  go  to  the  Auditor 
for  the  War  Department  along  with  the  original  voucher  should  contain  the 
following  certificate  signed  in  each  case  by  the  vendor : 

"I  (or  we)  certify  that  the  above  account  is  correct  and  just,  and  that  pay- 
ment therefor  has  not  been  received." 

When  the  invoice,  including  the  one  containing  the  certificate  above  indicated, 
shall  be  received  by  the  inspector  at  the  plant,  or  other  Government  officer,  he 
will  prepare  a  voucher  on  voucher  form  330-a  and  attach  thereto  a  certified 
copy  of  the  invoice  and  also  one  of  the  duplicate  copies  thereof. 

The  inspector  will  also  sign  the  certificate  on  the  public  voucher  to  the  effect 
that  the  material  has  been  received  and  that  the  quality  and  quantity  are  satis- 
factory, etc.  The  approval  form  on  the  voucher  should  also  be  signed  by  the 
proper  officer,  and  if  desirable  the  agent  may  also  approve  on  the  voucher  the 
amount  of  the  exi)enditures. 

Poi/wienf.— After  the  voucher  shall  have  been  prepared  in  the  manner  above 
indicated  it  will  be  presented  to  the  disbursing  otRcer  at  the  plant,  who,  if  satis- 
tied  that  the  account  is  correct  upon  comparing  it  with  the  purchase  order  in 
his  possession,  will  pay  the  voucher  directly  to  the  vendors;  that  is,  to  the 
l)ersons  who  have  filled  the  order  that  was  given  them  by  the  agent. 

Vouchers  for  the  agenVs  profit.— ¥xom  time  to  time  the  agent  can  state  a 
voucher  on  form  330-a,  signing  the  voucher  in  the  place  indicated  for  the 
creditor,  for  the  amount  of  his  profit  as  determined  in  the  contract.  He  will, 
of  course  be  in  a  position  to  obtain  the  proper  amount  upon  which  to  base  this 
profit  upon  consulting  his  records  as  to  orders  given  and  actually  filled.  The 
agent's  voucher  for  profit  will  also  be  certified  to  by  the  inspector  and  by  the 
I)roper  officer  and  will  be  paid  by  the  disbursing  officer  at  the  plant  in  the 
manner  above  indicated. 


718 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


719 


Vouchee's  for  pay  rolls  and  method  of  authenticating  payment  to  employees, 

Under  aa  agency  contract  the  employees  are  considered  as  employees  of  the 
Uniljed  Stftl^.  Tbi»  being  tbe  case,  the  .agent  will,  prepare  the  pay  roll  of  his 
employees  from  his  time  records,  and  will  certify  the  rolls  as  to  its  being  correct 
The  inspector  will  also  certify  the  roll  on  the  faith  of  tl»e  certification  of  the 
'agent  or  upon  sncli  independent  information  as  he  may  have,  and  the  disbursing 
officer  will  make  the  payments  to  the  employees  direct  in  whatever  mannei- 
that  may  be  the  most  convenient,  presumably  making  the  payments  in  cash. 

Under  recent  decisions  of  the  Comptroller  of  the  Treasury  the  payment  of 
these  employees  must  be  authenticated  in  the  following  or  similar  manner : 

On  the  morning  of  the  pay  day  there  shall  be  circulated  to  all  employees,  by 
means  of  the  paymaster,  a  form  of  receipt  for  the  payment ;  these  forms  wiil 
be  signed  immediately  by  the  employees,  and  all  such  employees  who  can  not 
write  will  sign  by  mark,  their  signature  to  be  witnessed  by  the  paymaster, 
w^ho  is  a  United  States  employee.  These  employees  will  also  have  an  identificji- 
tion  tag  of  some  sort,  and  when  they  appear  before  the  paymaster  for  their  pay 
they  will  exhibit  the  identification  tag  and  also  their  pay  receipt.  The  pay- 
master ^vill  then  take  up  the  pay  receipts,  and  they  will  be  filed  away  carefully 
as  supporting  papers  in  the  accounts  of  the  disbursing  officer  when  his  vouchers 
are  sent  to  the  Auditor  for  the  War  Department  for  settlement. 

Adraiwe  payments. — Se<'tion  3648  of  the  Revised  Statutes  expressly  prohibits 
the  payment  for  any  service  or  supplies  in  advance  of  the  actual  renderinj; 
of  the  service  or  the  receipt  of  the  supplies.  Under  this  statutory  provision, 
therefore,  you  would  not  be  authorized  to  make  a  payment  of  a  certain  per 
cent  of  the  purchase  price  of  an  artfcle  at  ttt^  time,  say,  when  the  order  was 
given,  and  further  payment  of  a  certain  per  cent,  when  the  shipment  began 
to  move  from  the  contractors  plant,  etc.  f)n  the  contrary  the  material  must 
actually  be  received  by  the  United  States  (although  this  receipt  may  be  at  the 
plant  of  the  contractor  if  an  insiJector  be  sent  there  to  receive  it)  before  the 
payment  may  lawfully  be  made ;  and  title  must  vest  in  the  United  States  at  the 
time  of  initial  payment. 

L.  W.  Blythe, 
Lieutenant  Colonel,  Ordnance  Department,  National  Armp. 
^  By  F.  J.  Keelty, 

Major,  Ordnance  Department,  National  Arnuh 


.July  8,  1918. 
Col.  J.  W.  Joyce, 

Division  T,  Office  of  the  Chief  of  (trdnance.  United  States  Army, 

Washington,  D.  C. 

Dear  Sir:  We  have  given  careful  consideration  to  the  contract  outline  suh- 
niitted  to  us  on  July  6  for  (^)erating  the  steam  plant  now  being  installetl  at 
the  Warrior  Plant  for  aci-ount  of  the  United  States  Government.  We  have  also 
ha«l  an  opportunity  to  consult  several  of  our  directors  on  the  subject  and  we 
are  of  the  view  that  the  contract  outline  is  acceptable  to  this  company  in  its 
major  points,  and  in  some  of  the  minor  points  it  is  a  matter  of  phraseoloK.v 
ratlier  than  meaning.  I  inclose  herewith  a  copy  of  the  memorandum  as  suh 
mitteil  to  us  under  date  of  July  6  and  beg  to  make  the  following  comments : 

Clause  1 :  In  our  original  discussion  on  the  subject  of  power  production  at  the 
Warrior  plant  we  calle<l  the  attention  of  your  Maj.  Coombs  to  the  fact  that  it 
was  possible,  although  hardly  probable,  that  some  minor  detail  of  installation 
essential  to  the  operation  of  the  plant  with  economy  and  reliability  might  have 
been  omitted  from  the  estimates,  and  that  in  such  a  case  anything  which  was 
deeme<l  reasonably  essential  to  the  highest  economy  of  the  plant  should  he 
furnished  by  the  Government  and  installed  under  the  terms  of  the  existiui-' 
understanding  between  yourself  and  the  Power  Co.  The  Power  Co.,  howevei', 
does  not  ask  that  it  shall  be  the  judge  as  to  what  is  or  is  not  essential  in  this 
respect,  but  would  willingly  leave  it  to  impartial  authority  on  steam  plant  con- 
struction. The  term  facilities  as  used  in  your  draft  we  shall  assume  therefore 
to  cover  this  broadened  interpretation 

Clause  2:  In  none  of  the  discussions  held  to  date  has  the  Power  Co.  con- 
sidered the  idea  of  paying  any  rental  for  the  equipment  and  facilities  sup 
plied  bv  the  Government.  Consequently  the  provision  for  6  per  cent  interest 
or  rental  charge  is  a  radical  innovation  involving  fixed  charges  of  some  $12.()[)" 
to  $15,000  per  month.  In  our  proposal  of  November  7  we  had  in  view  that  the 
Government  should  pay  for  the  installation  and  remain  owner  of  it  until  su<  n 
time  as  the  Power  Co.  might  recapture  it. 


Clause  3:  As  regards  the  terms  of  Clause  3,  this  is  identical  with  our 
original  proposition  which  we  submit  hereto.  It  should  be  made  clear,  how- 
ever, that  the  amount  of  energy  available  to  the  United  States  shall  be  limited 
to  the  amount  that  the  unit  installed  by  the  Government  is  capable  of  delivering 
under  the  operating  conditions  imposed  by  the  Air  Nitrates  Corporation  at 
Sheffield.  The  Power  Co.  is  willing  to  reinforce  such  energy  by  power  which 
it  may  have  available  from  other  sources,  provided  that  the  Air  Nitrates  Corpora- 
tion shall  conduct  its  operations  so  as  not  to  adversely  affect  the  service  of  our 
general  system.  This  can  easily  be  done  and  will  impose  no  hardship  other  than 
reasonable  care  in  the  design  and  operation  of  the  air  nitrates  plant. 

Clause  4.  This  clause  in  its  general  sense  is  acceptable. 

Clause  o.  For  reasons  fully  discussed  upon  the  occasion  of  our  last  interview 
the  power  company  can  not  stand  a  retention  by  the  United  States  of  3  mills 
per  kilowatt  hour  and  pay  the  interest  charge  mentioned  in  clause  2.  Under 
certain  conditions,  however,  the  company  can  possible  agree  to  a  retention 
of  2  mills  per  kilowatt  hour,  but  this  retention  not  to  commence  until  the  ex- 
perimental period  has  passed  and  the  plant  is  in  normal  operation,  let  us  say 
from  July  1,  1919. 

Clause  6.  The  terms  of  this  clause  are  generally  acceptable. 

Clause  7.  The  general  terms  of  this  clause  are  satisfactory  to  the  company, 
except  that  the  contract  should  be  mutual.  The  period  of  three  years  within 
which  the  option  is  to  be  erercised  should  be  extended  to  five  years,  and 
should  cover  so  far  as  the  company  is  concerned,  a  right  to  take  over  the 
transmission  line.  The  terms  under  which  the  appraisal  of  the  property  is 
to  be  made  are  satisfactory  to  the  company  but  the  report  of  the  appraisers 
should  also  determine  the  amount  and  period  of  the  deferred  payments. 

Clause  8.  This  clause  is  acceptable. 

Clause  9.  This  clause  is  acceptable. 

Clause  10.  This  clause  is  acceptable. 

Clause  11.  This  is  acceptable  so  far  as  it  goes.  It  should  be  stipulated, 
however,  that  adjustments  for  fuel  costs  are  to  be  made  when  and  as  the 
changes  in  fuel  cost  occur  and  we  suggest  a  figure  of  one-tenth  mill  per  kilo- 
watt hour  for  each  10  cents  change  in  the  price  of  fuel  as  determined  by  the 
Government.  To  this  clause  should  be  added  provisions  for  a  semiannual 
adjustment  to  meet  variations  in  the  cost  of  labor. 

Clause  12.  This  is  acceptable,  but  dpplies  only  to  power  delivered  at  the 
low  tension  side  of  the  company's  switchboard  at  the  Warrior  Plant. 

Clause  13.  At  no  time  has  there  been  any  proposition  on  the  part  of  the 
compaiiy  to  assume  the  cost  of  maintenance  of  the  transmission  line  and  it 
has  not  entered  into  the  company's  calculations.  The  company  is  willing,  how- 
ever, to  undertake  the  maintenance  of  the  transmission  line  for  a  fixed  fee. 

The  period  of  this  contract  shall  be  for  the  duration  of  the  war.  Should 
at  any  time,  however,  any  unforeseen  circumstances  beyond  the  control  of 
the  power  company  adversely  affect  the  cost  of  operations  the  power  company 
shall  have  the  right  to  ask  arbitration,  with  a  view  of  being  protected  against 
abnormal  and  unforeseen  increase  in  costs. 

Returning  to  clause  2,  the  proposition  to  pay  interest  is  going  to  be  a  severe 
burden  on  the  company  and  unless  satisfactory  load  and  power  factors  are 
maintained  by  the  Air  Nitrates  Corporation  the  company  will  be  unable  to  earn 
any  such  charge.  Under  the  circumstances  we  suggest  that  the  rental  be  com- 
muted into  a  certain  amount  per  kilowatt  hour  supplied,  and  in  any  case  not 
to  commence  prior  to  July  1,  1919. 

In  the  early  stage  of  our  discussions  you  will  remember  that  it  was  generally 
understood  that  the  company  should  be  entitled  to  use  about  10,000  kilowatts 
of  energy  out  of  the  unit  to  be  installed,  this  to  be  in  consideration  of  our 
investment  in  the  site,  the  right-of-way,  and  the  cost  of  connecting  our  general 
system  into  the  Warrior  Extension  direct  by  high  tension  line  so  that  any 
hydraulic  and  steam  plants  owned  by  the  power  company  may  be  available 
as  a  reserve.     This  investment  will  amount  very  closely  to  5600,000. 

This,  I  believe,  covered  our  views  as  to  the  outline  of  the  contract  for  the 
operation  of  the  plant  and  we  are  ready  to  proceed  at  once  with  the  definite 
contract. 

Very  truly,  yours, 

James  Mitchetx.  President. 


61 


92900—22- 


-4G 


720 


j: 


MUSCLE  SHOALS  PROPOSITIONS. 


ALABAMA    POWEB    CONTRACT    OUTLINE    BE    WABBIOB    POWER. 


MUSCLE  SHOALS  PROPOSITIONS. 


721 


July  6,  1918. 

(1)  Thirty  thousand  kilowatt  unit  and  other  facilities  to  be  installed  at  War- 
rior at  the  expense  of  United  States.  Also  transmission  line  to  Nitrate  Plant 
No.  2.    Both  on  property  and  right  of  way  of  Alabama  Power  Co. 

(2)  The  Power  Co.  shall  pay  the  United  States,  as  annual  rental  for  the  use 
of  the  facilities  provided  by  the  United  States  hereunder,  an  amount  equal  to 
6  per  cent  of  the  cost  to  the  United  States  of  the  proposed  facilities  (exclusive 
of  transmission  line)  during  such  periods  as  the  United  States  may  require 
from  the  Power  Co.  the  service  contemplated  under  this  agreement;  such 
rental  pavment  to  be  made  in  equal  monthly  installments. 

(3)  Power  Co.  to  operate  the  power  plant  at  Warrior  and  to  supply  cur- 
rent for  operation  of  United  States  Nitrate  Plants  No,  1  and  No.  2,  near  Shef- 
field, Ala.,  at  7  mills  per  kilowatt-hour,  delivered  at  the  switchboards  at  such 
plants ;  110,000  volts,  3-phase  A.  C.  The  amount  of  energj-  available  to  the  United 
States  for  such  operation  is  to  be  that  corresponding  to  the  capacity  of  such 
unit,  and  any  other  power  which  the  Power  Co.  may  have  available  for  such  use. 

(4)  During  such  periods  as  the  United  States  shall  require  the  service  from 
the  Power  Co.  above  provided  the  United  States  shall  guarantee  a  minimum 
payment  for  current  to  be  supplied  pursuant  thereto  of  $25,000  per  month. 

The  United  States  may  discontinue  the  demand  for  such  service  on  60  days' 
notice  at  any  time,  in  which  event  the  United  States  shall,  during  the  period 
of  such  discontinuance  of  demand,  be  relieved  of  the  obligation  as  to  minimum 
monthly  payments  hereunder,  and  the  Power  Co.  shall  correspondingly  be 
relieved  of  the  payment  of  rental  for  the  facilities  of  the  United  States  during 
the  period  of  such  discontinuance  of  demand  for  service,  unless  the  period 
of  any  such  discontinuance  of  service  exceeds  60  days,  there  shall  be  no  change 
in  the  minimum  paylnent  or  rental  charges. 

Such  service  to  be  restored  on  60  days'  written  notice  by  the  United  States, 
after  which  the  minimum  payment  and  rental  charges  shall  become  effective. 

(5)  The  30,000  kilowatt  unit  and  other  facilities  and  transmission  line  to 
remain  the  property  of  the  United  States,  but  of  the  above  payment  of  7  mills 
per  kilowatt-hour,  the  amount  of  3  (?)  mills  per  kilowatt-hour  is  to  be  retained 

by  the  United  States.  , 

(6)  When  the  amount  so  retained  by  the  United  States  aggregates  the  amount 
of  the  cost  to  the  United  States  of  the  30,000  kilowatt  unit  and  other  facilities 
provided  at  the  expense  of  the  United  States,  and  installation  expense  thereof, 
plus*  the  cost  to  the  United  States  (exclusive  of  the  transmission  line  to  nitrate 
plant  No.  2)  then  the  titie  to  the  30,000  kilowatt  unit  and  other  such  facilities 
(except  the  transmission  line)  to  pass  to  the  Power  Co. 

(7)  The  United  States  to  have  the  option  at  any  time  not  less  than  three 
years  after  the  termination  of  the  war  or  termination  of  the  supply  of  power 
hereunder,  whichever  may  be  the  later  date,  to  elect  that  the  Power  Co.  shall 
take  over  the  30,000  kilowatt  unit  and  other  facilities  provided  at  the  expense 
of  the  United  States  at  a  value  to  be  determined  by  appraisal,  such  appraisal 
to  take  into  consideration  the  value  of  the  property  to  the  Power  Co.  under 
the  then  conditions.  The  Power  Co.  to  have  a  reasonable  period  to  make  pay- 
ment of  the  amount  due  on  account  of  such  sale,  not  less  than  5  years  or 
more  than  10  years ;  deferred  payments  to  bear  interest  at  the  rate  of  5  per 
cent  and  title  to  property  to  remain  in  United  States  until  paid  for  in  full. 
Credit  to  be  given  Power  Co.  for  amounts  retained  under  provisions  of  (5). 

(8)  Power  Co.  to  assume  full  operating  responsibility  for  the  operation  of 
the  plant  and  to  maintain  apparatus  in  first-class  operating  condition,  and 
shall  make  good  any  damages  due  to  use,  accident,  or  otherwise. 

(9)  Power  Co.  to  agree  to  continue  to  supply  power  for  the  requirments  ot 
the  United  States  at  reasonable  prices,  taking  into  consideration  capital  in- 
vestment, operating  costs,  and  reasonable  depreciation  after  recapture  ot 
propertv  by  Power  Co. 

(10)  If  the  United  States  is  prepared  to  furnish  coal  to  Power  Co.  at 
a  price  lower  than  that  on  which  energy  rate  is  based,  under  adjustment 
clauses.  Power  Co.  will  accept  such  coal,  on  reasonable  notice  with  reference 
to  Power  Co.'s  obligations  to  accept  coal  from  other  sources.  Energy  rate  to 
be  adjusted  correspondingly  for  power  generated  by  coal  so  furnished  by  United 

States 

(11)  Energy  rate  based  on  standard  coal  at  $2.30  per  ton.    Adjustment  up 

and  down  for  variations  in  coal  cost. 


(12)  Contract  to  become  effective  on  30  days'  written  notice  by  the  United 
States,  such  notice  to  be  given  not  later  than  December  1,  1918,  provided  the 
pio;)Osed  facilities  at  Warrior  are  completed  for  operation  at  that  time. 

Temporary  power  to  be  furnished  in  the  meantime  on  basis  $12,5(X)  per 
month  per  1,000  kilowatt  maximum  demand,  plus  5  mills  energy  charge,  a* 
l)rovided  in  contract  draft  May  20,  1918. 

(13)  Transmission  line  to  be  maintained  by  Power  Co.,  but  policing  trans- 
mission line  to  be  at  expense  of  United  States. 


War  Department, 
Washington,  October  19,  lOlS. 

Thomas  W.  Martin,  Esq., 

Alabama  Power  Co.,  Birmingham,  Ala. 
Dear  Sir  :  I  send  you  a  revised  set  of  articles  1  to  21,  with  the  exception  of 
article  15,  of  proposed  contract  between  the  United  States  and  the  Alabama 
I'uwer  Go.  in  reference  to  electric  energj^  to  be  furnished  for  the  operation  of 
certain  nitrate  plants.  I  think  you  will  find  articles  1  to  14  in  almost  exactly 
(perhaps  in  exactly)  the  .shape  in  which  they  were  left  after  we  went  over 
them  together  on  the  night  of  the  17tli.  If  there  are  any  changes  you  will 
discover  them  upon  comparison  with  your  notes.  Article  15  I  am  not  yet 
ready  to  send,  for  I  have  been  unable  to  confer  with  Mr.  Burchar<l.  These 
articles  are  subject  to  further  modification  if  this  be  found  necessiiry. 

Some  of  the  articles  between  16  and  21  are  still  in  draft  form.     I  shall  be 
unable  to  send  a  revision  of  those  following  article  21  until  I  have  had  an 
opportunity  to  confer  with  Mr.  Burchard.    I  have  not  yet  learned  when  he  will 
W  in  Washington  again. 
Itespectfullj', 

William  Williams, 
Lieutenant  Colonel  Ordnance  Department, 

United  States  Army. 


October  30,  1918. 
Lteut.  Col.  William  Williams, 

Ordnance  Department  Building,  Washington,  D.  C. 

Dear  Sir  :  I  inclose  two  redraft  copies  of  the  following  articles : 

Article  24,  arbitration ;  article  25.  disputes  not  covered  by  article  24 ;  article 
26.  time  delays  due  to  causes  beyond  contractor's  control;  article  27,  cancella- 
tion and  termination  before  completion;  article  28,  measuring  instruments, 
testing ;  article  29,  approval  by  contracting  officer ;  article  30,  payments  not  sub- 
ject to  counterclaims ;  article  32,  bond ;  article  33,  revenue  from  housing,  stores, 
etc. ;  article  34,  contract  nonassignable ;  article  35,  service  of  notices ;  article  36, 
lien;  article  37,  definitions. 

I  hope  to  receive  your  suggested  article  31,  and  further  suggestions  that  may 
occur  to  you.  Possibly  then  we  can  meet  on  Saturday  or  Monday  next  for  a 
final  agreement. 

I  am  not  prepared  to  say  that  article  27  is  in  acceptable  form,  but  am  sending 
luy  redraft  for  your  consideration. 

I  also  inclose  your  manuscript  from  which  these  copies  are  made. 

There  may  be  some  other  few  changes  in  this  draft  which  I  will  suggest  at 
our  meeting. 

Very  truly,  yours, 

Thomas  W.  Martin, 
Vice  President  and  General  Counsel. 


[Telegram.] 

New  York,  October  SI,  1918. 
Lieut.  Col.  William  Williams, 

Roam  200,  Ordnance  Department  Building,  Washington,  D.  C. 

Further  conferences  seem  advisable  to  agree  upon  all  details  of  contract.    Can 
you  join  use  here  Saturday  or  Monday? 

Thomas  W.  Martin. 


722 


MUSCLE  SHOALS  PROPOSITIONS. 


"i 


^  War  Department, 

Washington,  November  1,  1918. 
Alabama  Power  Co., 

120  Broadioay,  New  York  City. 

Dear  Sirs:  I  wired  you  early  in  the  day  that  I  shall  be  in  New  York  on 
Monday  for  the  purpose  of  further  discussing  with  you  and  Mr.  Burchard  your 
proposed  contract  with  the  Grovernment  in  relation  to  the  supplying  of  electric 
energy  to  certain  United  States  nitrate  plants. 

I  acknowledge  receipt  of  articles  24  to  36  of  this  contract,  which  you  sent  me 
under  date  of  October  30. 

I  now  send  you  the  first  15  pages  with  a  few  minor  changes,  mostly  in  the 
interest  of  smooth  reading.  On  the  second  line  of  article  11  I  have  replaced  the 
single  subdivision  of  article  3  therein  referred  to,  by  two  subdivisions,  as  you 
will  see.  The  reason  for  this  is  apparent.  Subdivision  3  (formerly  G)  was  in- 
serted subsequent  to  the  first  draft  of  article  11  P.  If  you  are  in  accord  with 
these  corrections  I  have  to  suggest  that  you  have  these  pages  written  off  in 
final  shape.  I  should  like  to  have  as  many  copies  as  possible  made,  up  to  eight— 
this  upon  the  assumption  that  all  of  them  will  be  reasonably  clear. 
Respectfully, 

William  Williams, 
Lieutenant  Colonel,  Ordnance  Department,  United  States  Army. 


MUSCLE  SHOALS  PROPOSITIONS. 


723 


^Ir.  QuiN.  Under  what  statute  do  you  interpret  it  that  this  work  was  car- 
ried on? 

Mr.  Martin.  Tliere  were  two  statutes,  Mr.  Quinn,  passed  prior  to  the  execu- 
tion and  delivery  of  the  contract.  It  has  seemed  to  us  that  either  one  of  those 
statutes:  or,  in  fact,  both  of  them,  are  connected  with  the  authority  for  the 
execution  of  this  contract  in  behalf  of  the  Government. 

Mr.  QuiN.  The  act  of  1916,  under  which  this  work  was  authorized,  was  the 
one  on  which  the  work  contemplated  on  the  1st  of  December,  1917,  was  be?:un 
in  .Mccordance  with  your  understanding  with  the  Government? 

Mr.  Martin.  No. 

Mr.  QuiN.  Then,  what  act  was  that?     . 

Mr.  Martin.  The  act  of  1916  was  never  considered  ns  in  any  way  related  to 
this  work,  Mr.  Quin. 

Mr.  Quin.  Under  what  act  of  Congress,  then,  was  your  work  of  the  1st  of 
December,  1917,  begun?  , 

Mr.  3HARTIN.  I  only  know  what  was  stated  to  me  by  the  Ordnance  Depart- 
ment oflicials  to  be  their  position,  namely,  that  they  were  proceeding  under 
certain  provisions  of  the  general  statutes  appropriating  funds  for  armament  of 
fortifications. 

Mr.  Quin.  What  act  is  that?    Will  you  put  that  in  the  record  right  here? 

!^Ir.  Martin.  There  are  several  of  those  statutes,  and  here  is  a  memorandnm 
relating  to  them,  which,  I  understand,  was  the  authority  for  this  work. 

Mr.  QUIN.  Will  you  put  that  into  the  record? 

ilr.  Martin.  Yes,  sir;  I  will  be  very  glad  to. 

( The  statement  referred  to  follows : ) 

[65th  Cong.,  1st  sess.,  ch.  29.  1917,  p.  199,  .Tune  15,  1917,  40  Stat.  L.,  199.] 

AN  ACT  Making  appropriations  to  supply  urgent  deflci«-ncies  in  appropriations  for  Milij 
tarv  and  Naval  Establishments  on  account  of  war  expenses  for  the  fiscal  year  enmiiB 
.Tune  ."0.  1917,  and  other  purposes. 

"  For  purchase,  manufacture,  and  test  of  anmumition  for  mountain,  fieljl. 
and  siege  cannon,  including  the  necessary  experiments  in  connection  therewitii. 
and  the  machinery  necessary  for  its  manufacture  at  the  arsenals,  $367,000,()0i». 

[Appropriations  for  fiscal  year  ending  .Tune  30,   1918.  Oct.  6,   1917,  40   Stat.   L.,  367.] 

'•  For  purchase,  manufacture,  and  test  of  ammunition  for  mountain,  tieUL 
and  siege  cannon,  including  exi3eriments  in  connection  therewith,  machinery 
for  its  manufacture,  and  the  necessary  storage  facilities,  .$663,000,000:  propidc'- 
That  the  Chief  of  Ordnance,  United  States  Army,  is  authorized  to  enter  nito 
contracts  or  otherwise  incur  obligations  for  the  purpose  above  mentioned  not 
to  exceetl  .$777,182,750,  as  in  addition  to  appropriations  herein  and  heretofore. 


"Appropriation    for   armored    fortifications,    $80,725,000,   passed    March   28, 

1918,  in  the  same  language,  without  the  proviso  as  set  out  last  above,"     (40 
Stat.  L.,  482.) 

"Appropriation  of  $1,325,776,685,  passed  November  4,  1918  (40  Stat.  I..,  1019, 
at  1031),  in  the  same  language  as  last  above  for  fiscal  year  ending  June  30, 

1919,  including  necessary  experiments  in  connection  therewith,  the  machinery 
necessary  for  its  manufacture,  and  storage  facilities,"  etc. 

"Appropriation  of  $2,000,000,000,  passed  July  8,  1918  (40  Stat.  L.,  871),  prac- 
tically the  same  language  as  for  appropriation  for  fiscal  year  ending  June 
80,  1918. 

"  Note.— The  above  appropriations  were  by  the  act  designated  for  ordnance.. 
In  this  subdivision  of  the  above-mentioned  appropriations  the  acts  carry  with 
them  other  purposes  for  ordnancfe." 

Mr.  Quin.  All  this  money  appropriated  for  fortifications  for  nulitary  pur- 
[toses  was  money  that  was  appropriated  for  military  purposes? 

Mr.  Martin.  Yes,  sir. 

Mr.  Quin.  And  if  money  was  used  out  of  that  fund  it  was  military  money 
nuthorized  by  Congress? 

Mr.  Martin.  Yes,  sir. 

Mr.  Stoll.  Mr.  Martin,  you  are  familiar  with  the  act  of  1916  that,  provided 
fur  these  activities  at  Muscle  Shoals" by  the  Government? 

Mr.  Martin.  Yes,  sir ;  you  refer  to  section  124  of  the  national  defense  act. 

Mr.  Stoll.  The  one  that  provided  for  the  building  of  these  plant.s  and  the 
development,  of  Muscle  Shoals. 

Mr.  Martin.  I  am  familiar  with  that  section  of  the  act,  Mr.  Stoll. 

Mr.  Stoll.  Under  this  section  that  says,  "The  plant  or  plants  provided  for 
under  this  act  shall  be  constructed  and  operated  solely  by  the  Government.,  and 
not  in  conjunction  with  any  other  industry  or  enterprise  carried  on  by  private 
capital,"  do  you  think  the  Ordnance  Department  with  that  provision  of  law 
liad  any  authority  to  make  a  contract  with  you  to  carry  on  these  activities 
there? 

Mr.  Martin.  That  section  of  the  act  was  not  the  authority  under  which  (hose 
officers  proceeded.  Secretary  Baker  has  testified  to  that  effect  before  one  of 
the  committjeeg  of  Congress,  Gen.  Williams  has  so  testified.  Col.  Bums  has  so 
testified,  and  Col.  Joyes  has  so  testified,  the  officers  of  this  Government  wlio  were 
directly  responsible  for  this  work.  That  was  their  treatment  of  the  question 
throughout  with  us.    Now,  that  is  as  far  as  I  can  answer  the  question. 

Mr.  Stoll.  I  did  not  ask  you  what  they  thought  about  it,  but  what  you,  as 
a  lawyer,  thought.    What  was  that  put  in  that  act  for? 

Mr.  Martin.  I  do  not  know;  only  I  never  understood  that  act  had  anvthing 
to  do  with  this  question.    The  money  did  not  come  from  that  source  at  all. 

Mr.  Stoll.  What  does  this  refer  to,  then? 

Mr.  Martin.  The  President  was  given  the  authority  from  Congress  to  <lesig- 
nate  certain  plants  that  should  be  erected  for  the  purposes  of  that  act 

Mr.  Stoll.  This  is  a  part  of  the  act  that  provided  for  the  activities  at  Muscle 
Shoals. 

Mr.  Martin.  For  those  activities  designated  by  the  President. 

Mr.  Stoll.  But  I  say  this  is  a  part  of  the  act. 

Mr.  Martin.  Part  of  section  124  of  the  act ;  yes,  sir. 

Mr.  Stoll.  And  you  say  that  they  just  ignored  that  entirely? 

Mr.  Martin.  No,  sir ;  I  say  this  whole  question  we  are  considering  was  never 
<<ms:dered  as  in  any  way  having  anything  to  do  with  that  section  124 

Mr.  Stoll.  Why  not? 

Mr.  Martin.  Because  of  the  very  nature  of  the  situation.  The  President  did 
|i(  t  designate  Gorgas  as  a  part  of  that  nitrate  plant.  The  President  n^^ver 
initiated  the  authority  under  that  act  so  far  as  it  related  to  Gorgas.  The 
whole  authority  under  which  the  Ordnance  Department  proceeded 

^Ir.  Stoll  (interposing).  The  transmission  line  leads  right  into  plant  No  2. 
Jo^s  it  not? 

^Ir.  Martin.  Yes;  so  it  does. 

^Ir.  Stoll.  Was  not  that  designated  by  the  President? 

^Ir.  Martin.  Plant  No.  2? 

^Ir.  Stoll.  Yes. 

^Ir.  Martin.  I  think  not. 

^Ii*.  Stoll.  What  was  designateil  by  him? 

^Ir.  Martin.  Plant  No.  1  and  the  Wilson  Dam,  according  to  mv  understawl- 

ihK. 


724 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


725 


1 


Mr.  StolL  Tour  contention  is  tliat  this  had  nothing  to  do  with  what  the  Presi- 
dent designated? 

Mr.  Mabtin.  Yes ;  and  that  was  the  treatment  of  it  by  the  Government  offi- 
cials from  the  Secretary  of  War  down,  throughout.  No  one  ever  discussed  it 
opon  that  theory.  No  one  ever  discussed  the  legal  status  that  might  arise  by 
virtue  of  that  act,  whether  they  were  law  officers  or  not.  No  one  ever  consid- 
ered it  had  anything  to  do  with  the  question. 

Mr.  Stoll.  Did  you  consult  your  attorneys  in  that  respect  or  relative  to  that 
question? 

Mr.  Martin.  I  do  not  know  that  we  ever  discussed  the  question.  I  do  not 
recall  that  we  discussed  it. 

Mr.  Stoix.  You  just  ignored  that  section? 

Mr.  Mabtin.  Because  it  had  nothing  to  do  with  the  question.  The  officers 
of  the  Government  were  not  proceeding  under  that  section. 

Mr.  Gabbett.  Mr.  Martin,  who  were  your  attorneys  during  the  time  of  the 
negotiation  of  this  contract? 

Mr.  Mabtin.  I  was  general  counsel  for  our  company. 

Mr.  Gabbett.  You  were,  yourself? 

Mr.  Mabtin.  Yes. 

Mr.  Gabbett.  Are  you  the  general  counsel  now? 

Mr.  Mabtin.  Yes;  I  am  president  and  general  counsel.  I  do  not  have  very 
much  time  to  devote  to  the  legal  side  of  our  work,  but  I  am  still  general  counsel. 

Mr.  Gabbett.  Then,  the  company  was  being  advised  by  you? 

Mr.  Mabtin.  Yes,  sir. 

Mr.  Gabbett.  As  to  whether  it  had 

Mr.  Mabtin  (interposing).  And  we  had  other  counsel  who  came  in  at  difter- 
ent  times  in  this  situation ;  for  instance,  Mr.  Niel  A.  Weathers. 

Mr.  Gabbett.  Who  is  he? 

Mr.  Martin.  He  is  a  lawyer  who  has  been  connected  with  us  for  many  years. 

Mr.  Garrett.  Where  does  he  live? 

Mr.  Martin.  In  New  York. 

Mr.  Gabbett.  Did  you  have  any  Alabama  lawyers? 

Mr.  Mabtin.  None  outside  of  our  own  legal  staff. 

Mr.  Gabbett.  Is  the  Alabama  Power  Co.  a  New  York  corporation? 

Mr.  Mabtin.  No,  sir. 

Mr.  Gabbeti'.  Or  an  Alabama  corporation? 

Mr.  Martin.  An  Alabama  corporation. 

Mr.  Gabbett.  Where  is  its  headquarters? 

Mr.  Mabtin.  In  the  city  of  Birmingham.  ^    ,    ., 

Mr.  Garrett.  Why  was  this  contract  executed  in  the  city  of  ^ew  York  ir 
you  had  your  headquarters  in  Birmingham? 

Mr.  Martin.  It  was  because  the  Government  officials  who  were  conducting  it 
were  living  either  in  Washington  or  New  York,  and  the  president  of  the  com- 
pany at  that  time  lived  in  New  York.  ,     ^         «,„ 

Mr  G\BBETT.  Did  you  not  testify  here  two  days  ago  that  your  minutes  were 
prepared  and  this  authority  glvjen  your  directors  at  a  meeting  in  New  York? 

Mr  Mabtin.  That  is  correct,  Mr.  Garrett.  This  meeting  was  held  on  the  -Wli 
of  November  in  the  city  of  New  York.  Our  company  has  been  authorized  to 
transact  business  in  the  State  of  New  York. 

Mr.  Gabbett.  Where  did  you  get  that  authority? 

Mr.  Mabtin.  By  complying  with  the  laws  of  New  York.    We  have  an  office  iH 

New  York 

Mr.  Gabbett.  You  have  a  branch  office  of  the  Alabama  Power  Co.  in  Xe^v 

York? 

Mr.  Mabtin.  Yes.  ....,,.  .    ^^       ^-    i  ■> 

Gabbett.  Where  are  your  minutes  kept,  m  Alabama  or  In  ^ew  York.' 
Mabtin.  They  are  kept,  an  original  in  one  place  and  a  carbon  in  the 


Mr. 

Mr. 

ofther. 

Mr.  Gabbett, 
Mr.  Mabtin. 
Mr.  Gabbett 
Mr.  Mabtin. 
Mr.  Gabbett. 


Where  are  the  originals  kept? 

In  Alabama. 

And  the  carbons  are  kept  in  New  York? 

Yes. 

«*».  „^.«......  What  was  there  at  Muscle  Shoals  before  the  erection  of  Dams 

N<^.'i  and"2  or  before  any  activity  on  the  part  of  the  Government  for  war  pur- 
poses; what  phvsical  properties  were  at  Muscle  Shoals  before  that  time? 

Mr.' Mabtin.  Before  the  nitrate  plants  were  begun  in  1917? 

Mr.  Gabbett.  Yes. 


Mr.  Martin.  I  do  not  know  of  any  properties  that  the  Government  had  except 
its  navigation  canals,  in  connection  with  the  Muscle  Shoals. 

Mr.  GtikBBBTT.  Was  th€*fe  any  other  power  plant  there  at  that  time? 

Mr.  Martin.  Yes;  there  was  a  power  plant  and  distribution  system  serving 
those  communities  of  Sheffield,  Florence,  and  Tuscumbia. 

Mr.  Garrett.  That  plant  was  at  Muscle  Shoals. 

Mr.  Martin.  Yes. 

Mr.  Garrett.  Where  was  that  located? 

Mr.  Martin.  I  do  not  know.    We  have  no  connection  with  it. 

Mr.  Garrett.  Where  is  this  power  plant  located  with  reference  to  Dam  No.  2? 

Mr.  Martin.  I  do  not  know  where  that  plant  is  located.  There  is  a*  steam 
plant  located  in  the  the  city  of  Sheffield,  as  I  understand  it,  some  two  miles  from 
that  plant,  so  our  engineer  says. 

Mr.  Garrett.  There  is  no  water-power  plant  there? 

Mr.  Martin.  No,  sir. 

Mr.  Garrett.  There  was  nothing  of  that  kind  at  Muscle  Shoals  before  the 
Government  began  this  activity? 

Mr.  Martin.  That  is  my  understanding. 

Mr.  Garrett.  Then,  there  was  nothing  at  Muscle  Shoals,  either  steam  or 
power  plants,  or  any  other  activity,  before  the  Government  began  this  project 
of  establishing  nitrate  plants. 

Mr.  Martin.  There  was  a  steam  plant  and  distribution  system  supplying  the 
needs  of  those  communities  for  water  and  power. 

Mr.  Garrett.  You  mean  at  Muscle  Shoals? 

Mr.  Martin.  Muscle  Shoals,  you  understand 

Mr.  Garrett.  I  mean  anywhere  in  the  neighborhood  of  Plants  1  or  2.  * 

Mr.  Martin.  Yes,  sir;  Dam  No.  2  is  in  the  corporate  limits,  I  believe,  of 
those  communities.  Florence  is  on  one  side  and  Sheffield  on  the  other,  an<l 
Dam  No.  2  is  in  the  corporate  limits  of  one  of  those  towns  and  possibly  both, 
although  I  am  not  certain. 

Mr.  Garrett.  That  was  a  steam-power  plant? 

Mr.  Martin.  There  was  a  steam-power  plant  entirely  distinct,  of  course,  from 
Muscle  Shoals. 

Mr.  Garrett.  That  is  what  I  am  getting  at. 

Mr.  Martin.  It  was  a-  steam-power  plant  owned  by  the  SheflSeld  Co.  which 

was  engaged  in  the  generation  and  distribution  of  light  and  power  for  thoi^e 

communities,  and  having  a  street  railway  system. 

Mr.  Garrett.  But  you  had  no  connection  with  any  power  plant  there  of  anv 
kind?  t^         k'  . 

Mr.  Martin.  No,  sir. 

Mr.  Garrett.  You  now  own  or  your  company  owns  the  abutment  rights  o'\ 
Dam  No.  2,  do  they  not? 

Mr.  Martin.  No. 

Mr.  Garrett.  On  Dam  No.  3? 

Mr.  Martin.  Yes. 

Mr.  Garrett.  You  do  not  own  anything  down  at  No.  2? 

Mr.  Martin.  No;  we  conveyed  that  to  the  Government. 

Mr.  Garrett.  How  much  did  you  own  there  that  you  conveyed  to  the  Govern- 
ment? 

Mr.  ^lARTiN.  I  do  not  recall.  We  had  some  acreage  there  and  we  had  the 
abutting  sites  at  Dam  No.  2  together  with  some  of  the  flowage  lauds  and  we 
conveyed  that  to  the  Government  for  $1. 

Mr.  Garrett.  How  long  did  you  own  that?    When  did  you  acquire  it? 

Mr.  Martin.  Some  of  those  lands  were  acquired — they  were  acquired  at  dif- 
ferent times  between  1906  and  1915,  at  various  times;  I  could  not  tetll  you  with- 
out looking  at  the  records. 

Mr.  Garrett.  What  was  your  purpose  in  acquiring  those  lands  if  thore  was 
nothing  over  there  at  that  time? 

Mr.  Martin.  With  the  idea  of  water-power  development,  of  course. 

Mr.  Garrett.  You  intended  to  develop  that  at  some  future  day? 

Mr.  Martin.  Absolutely. 

Mr.  Gabbett.  And  that  was  your  idea  in  acquiring  this  land? 

Mr.  Mabtin.  Yes,  sir. 

Mr.  Gabbett.  Who  was  the  first  person#that  suggested  to  the  Alabama  Power 
Co.  about  the  extension  of  your  transmission  line  over  there  to  the  nitrate  plant? 

Mr.  Mabtin.  As  I  understand,  the  subject  came  up  through  conference  between 
Gen.  Crozier  and  Mr.  Washburn. 


m 

m 


726 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


727 


Mr.  Garrett.  Mr.  Washburn? 

Mr.  Martin.  Yes.     Mr.  Washburn  was  the  president  of  the  Cvanamid  Co 
which  had  the  patents  and  methods  for  making  air  nitrates.    The  question  was 
one  of  obtaining  power  in  the  event  the  Government  should  locate  a  nitrate 
plant  at  Sheffield. 

Mr.  Garrett.  Did  not  your  corporation,  the  Alabama  Power  Co.,  write  a  letter 
to  the  War  Department  making  inquiry  as  to  the  tievelopment  of  this  propertv 
and  the  desirability  of  its  development? 

Mr.  Martin.  No. 

Mr.  Garrett.  And  upon  that  letter 

Mr.  Martin  (interposing).  No;  it  was  thi#  way,  Mr.  Garrett:  Mr.  Wa'shburn 
and  Gen.  Crozier  discussed  the  subject,  and  Gen.  Crozier  asked  Mr.  Washburn 
to  get  in  touch  with  us  and  to  have  furnished  to  some  official  of  the  Government 
such  data  as  we  cared  to  submit  on  the  subject  of  a  temporary  power  supply  for 
the  nitrate  plant.  Thereupon  a  letter  was  written  by  the  Alabama  Power  Co.  to 
Col.  Joyes  submitting  various  information  and  data. 

Mr.  Garrett.  That  was  concerning  the  power  you  already  had  developed? 

^fr.  Martin.  Yes ;  concerning  a  supply  of  power  from  our  svstem  in  Alabama 
to  the  nitrate  plant  to  be  located  at  Muscle  Shoals. 

Mr.  Garrett.  Have  you  that  correspondence? 

^Ir.  Martin.  Yes ;  it  is  in  the  record. 

Mr.  Garrett.  I  believe  you  just  stated  that  Mr.  Washburn  was  president  of 
the  American  Cyanamid  Co.? 

^Ir.  :Martin.  That  is  correct. 

^Ir.  Garrett.  And  had  formerly  been  connected  with  tlie  Alabama  Power  Co.' 
I    Mr.  Martin.  That  is  correct. 

Mr.  Garrett.  When  did  he  sever  his  connection  with  the  Alabama  Power  Co.? 

Mr.  Martin.  He  resigned  all  connection  with  this  companv  in  March,  1916. 

Mr.  Garrett.  How  much  stock  did  he  own  in  the  Alabama  Power  Co.? 

Mr.  Martin.  He  owned  stock  in  our  holding  company.  I  think  it  was  1,000 
shares. 

Mr.  Garrett.  I  do  not  understand  your  answer.  AVhat  do  vou  mean  bv  "  hold- 
ing company"? 

Mr.  Martin.  That  was  the  stock  that  was  held  by  the  public  at  that  time. 
He  held  a  thousand  shares  of  stock  in  the  company  which  controls  this  situa- 
tion. 

Mr.  Garrett.  Did  he  have  common  stock  or  preferred  stock? 
Mr.  Martin.  Common  stock. 

What  company  is  that  which  controls  the  Alabama  Power  Co.? 

That  is  the  Alabama  Traction.  Light  &  Power  Co. 

Where  is  that  company  located? 
That  company  is  domiciled  in  the  Dominion  of  Canada. 

Does  not  that  company  own  the  common  stock  of  the  Alal>ania 


Mr.  Garrett, 
^Ir.  Martin. 

Mr.  irARRETT. 

Mr.  Martin, 

Mr.  Garrett, 
Power  Co.? 

Mr.  Martin. 

'Mr.  Garrett. 

Mr.  Martin. 

Mr.  Garrett 
corp<j  ration? 

Mr.  Martin. 


It  does. 

And  does  not  the  common  stock  control  the  Alabama  Power  Co.? 
Yes. 
Then,  the  Alabama  Power  Co.  is  controlled  by  this  Canadian 


Yes;  but  as  I  stated  to  you,  the  stock  holdings  of  this  Canadian 
comi>any  are  largely  held  in  America  now.  As  a  result  of  the  war  in  Europe  in 
1914  there  has  been  an  entire  change  in  the  security  status  situation  in  our  coui- 
pany^  and  the  largest  blocks  of  stock  are  held  in  America  to-day,  and  the  largest 
single  block  of  stock  i.s  held  in  Alabama  by  citizens  of  Alabama. 

Mr.  Garrett.  Is  that  common  or  preferred  stock? 

Mr.  Martin.  Preferred  stock,  and  all  the  preferred  stock  of  the  Alabama 
Power  Co.  outstanding,  of  course,  ranks  pari  passu  with  the  common,  and  is  all 
held  in  Alabama. 

Mr.  Garrett.  What  did  you  say  is  the  name  of  the  Canadian  corporation  that 
owns  this  stock  of  the  Alabama  Power  Co.? 

Mr.  Martin.  The  Alabama  Traction,  Light  &  Power  Co.   (Ltd.). 

Mr.  Garrett.  Does  it  not  still  own  a  majority  of  the  stock  ? 

Mr.  Martin.  It  owns  all  the  common  stock  of  the  Alabama  Power  Co. 

Mr.  Garrett.  And  the  common  stocjc  is  the  majority  of  all  the  stw'k,  common 
and  preferred? 

Mr.  Martin.  Oh,  yes. 


Mr.  Garrett.  Do  you  know  whether  Mr.  Washburn  owns  any  stock  in  the 
Canadian  controlling  corporation  or  not? 

Mr.  Martin.  He  does  not  now  own  any  stock  in  it. 

Mr.  Garrett.  Did  he  ever  ow^n  any  of  it? 

Mr.  Martin.  He  did,  as  I  have  stated  to  you. 

Mr.  Garrett.  He  owned  his  stock  in  that  company? 

Mr.  Martin.  Yes. 

Mr.  Garrett.  One  thousand  shares? 

Mr.  Martin.  Yes;  1,000  out  of  $18,000,000.  I  would  just  like  to  say  that  for 
many  years  the  Alabama  Power  Co.'s  board  of  directors  has  consisted  from  time 
to  time  of  varying  numbers,  but  at  the  present  time  we  have,  as  I  recall,  12 
directors,  10  of  whom  live  in  this  country,  and  the  majority  of  whom  live  in 
Alabama. 

Mr.  Dent.  How  many  live  in  Alabama? 

Mr.  Martin.  I  think  there  are  7  of  the  10  who  are  living  in  Alabama.  The 
directors'  meetings  are  usually  held  there,  and  all  the  policies  of  the  company 
are  fixed  by  this  board  and  have  always  been  fixed  by  this  board. 

Mr.  Garrett.  The  emergency  officer  who  made  the  contract  with  your  com- 
pany was  a  New  York  lawyer,  also,  was  he  not? 

Mr.  Martin.  Col.  Williams. 

Mr.  Garrett.  Before  entering  the  service? 

:Mr.  Martin.  Col.  Williams  was  a  New  York  lawyer ;  yes. 

Mr.  Garrett.  Do  you  know  whether  or  not  he  owned  stock  in  the  Canadian 
corporation  or  the  American  Cyanamid  Co.? 

Mr.  Martin.  I  know  that  he  did  not. 

Mr.  Garrett.  You  know  that  he  did  not? 

Mr.  Martin.  Yes. 

Mr.  Garrett.  Did  you  get  that  information  from  him? 

Mr.  Martin.  No,  sir.  I  never  heard  of  his  name  and  never  knew  the  gentle- 
man before  he  came  into  the  situation,  and  I  have  heard  nothing  from  him  since 
he  concluded  the  contract ;  but  if  he  had  had  any  stock,  I  would  have  known  it 
I  would  have  heard  something  of  it.  Of  course  I  can  not  speak  of  the  Cyanamid 
Co.  finally,  but  I  never  heard  of  his  having  any  stock  in  it,  and  I  do  know  he 
never  had  any  stock  in  our  company. 

How  long  has  your  company  maintained  offices  in  New  York? 
We  opened  an  office  there,  as  I  recall,  ina912  or  1913. 
In  1912  or  1913? 
Yes,  sir. 

And  you  have  those  offices  now? 
Yes,  sir. 

Who  is  in  charge  of  them? 

We  have  an  assistant  secretary  in  charge  of  them. 
What  is  the  purpose  in  maintaining  those  New  York  offices  now? 
Well,  our  banking  relations  are  conducted  in  New  York.  We 
constantly  must  have  touch  with  bankers  to  obtain  funds  with  which  to  make 
our  developments.  All  of  our  funds  are  raised  in  America  and  have  been  for 
many  years,  and  we  maintain  that  office  as  a  matter  of  convenience,  if  not  neces- 
sity, to  keep  in  touch  with  our  business  relations  in  New  York.  Formerly  Mr. 
James  Mitchell  was  president  of  our  company  until  his  death  two  years  ago,  and 
liveil  in  New  York,  and,  of  course,  that  was  an  additional  reason.* 

Mr.  Garrett.  Does  anybody  else  occupy  the  New  York  office  In  conjunction 
with  your  company  at  this  time? 

Mr.  Martin.  Yes ;  there  are  two  or  three  different  concerns  that  occupy  the 
office. 

Mr.  Garrett.  Have  they  any  connection  with  any  of  these  other  corporations? 

Mr.  Martin.  No;  none  at  all. 

Mr.  Garrett.  Then  as  general  counsel  for  the  Alabama  Power  Co.  and  as  its 
president  you  really  are  the  one  who  drew  this  contract? 

Mr.  Martin.  I  was  not  president  at  that  time.  Mr.  .Tames  ^litchell  was  presi- 
dent of  the  company. 

Mr.  Garrett.  You  were  the  general  counsel? 

Mr.  Martin.  Yes ;  I  was  the  general  counsel. 

Mr.  Garrett.  At  that  time? 

Mr.  Martin.  Yes. 

Mr.  Garrett.  And  you  were  the  one  who  drew  this  contract? 

Mr.  Martin.  Well,  in  behalf  of  our  company,  I  imrticipated  in  working  it  out. 


Mr.  Garrett. 
Mr.  Martin. 
Mr.  Garrett. 
Mr.  Martin. 
Mr.  Garrett. 
Mr.  Martin. 
Mr.  Garrett. 
Mr.  Martin. 
Mr.  Garrett, 
Mr.  Martin. 


I 


728 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


729 


i\ 


^ 

m 


Mr.  Garrett.  Now,  just  getting  right  down  to  between  us  boys,  right  across 
the  table  here,  you  are  the  man  who  wrote  this  contract  out  yourself,  are  you 
not? 

Mr.  Martin.  No,  sir;  I  am  not. 

Mr.  Garrett.  Well,  who  did  write  it  out? 

Mr.  Martin.  The  contract,  naturally,  was  evolved  from  time  to  time  from 
1917  to  its  execution.  You  have  got  to  go  back  to  the  beginning  to  get  the 
fundamental  basis  of  it. 

Mr.  Garrett.  I  understand  that,  and  am  going  back  to  the  beginning,  but 
you  were  operating  there  without  any  written  contract  executed. 

Mr.  Martin.  That  is  right. 

Mr.  Garrett.  Until  the  7th  of  November,  and  on  the  7th  of  November  you 
finally  got  this  contract  signed,  and  yet  during  all  this  time  your  company  had 
been  doing  over  $5,500,000  worth  of  work  that  the  Government  was  paying  for. 

Mr.  Martin.  Yes. 

Mr.  Garrett.  And  it  was  all  being  done  just  simply  by  a  common  under- 
standing after  the  1st  of  December 

Mr.  Martin  (interpos'ng).  Just  as  hundreds  of  others  were  done,  because 
we  were  doing  a  job  of  work  and  the  question  of  contract,  both  to  the  Gov- 
ernment officials  and  our  company,  was  of  less  importance  than  getting  the 
thing  done  that  the  Government  officials  wanted  done. 

Mr.  Garrett.  Then,  if  you  were  perfectly  willing  to  do  all  that  without  n 
<?ontract  up  to  the  7th  of  November,  why  did  you  not  say,  "  We  will  leave  it 
all  to  the  Government  unt'l  the  end  of  it,"  and  why  did  you  come  in  and  get 
your  contract  hurriedly  signed  in  the  State  of  New  York  away  from  the  resi- 
dence of  .your  company? 

Mr.  Martin.  It  was  not  hurriedly  signed  in  New  York.  The  engagement  was 
made  to  complete  the  contract  before  any  question  of  the  armistice  came  up. 
Col.  Williams  asked  us  to  come  to  New  York  and  execute  it.  That  is  where 
lie  was  working,  either  in  New  York  or  Washington,  and  the  armistice  had 
nothing  to  do  with  it.  Naturally,  the  contract  relations  had  to  be  defined. 
It  was  of  importance  to  the  Government  that  it  should  have  a  contract.  It 
was  of  importance  to  us  that  we  should  have  a  contract.  If  the  Government 
had  no  contract  with  us  by  which  we  were  to  buy  the  property  at  fair  value, 
the  Government's  only  right  was  to  remove  the  property  from  our  land,  and  it 
was  of  great  Importance  to  the  Government,  of  course,  to  have  a  contract. 

Mr.  Garrett.  I  fall  to  see  how  much  advantage  or  what  the  advantage  of 
th:s  contract  is  to  the  Government  when  they  signed  a  contract  there  to  con- 
struct five  and  a  half  million  dollars  worth  of  valuable  property  on  your  land 
and  then  agreed  with  you  that  you  should  be  the  only  purchaser. 

Mr.  Martin.  At  a  fair  value.  I  will  ask  you  this  question,  then :  How  was 
the  Government  going  to  adjust  its  rights  with  us  If  they  had  no  contract  and 
had  erected  fixtures  on  our  land? 

Mr.  Garrett.  In  the  first  place,  you  seem  to  forget,  Mr.  Martin,  that  the 
Government  had  a  right  at  the  time  of  the  war  to  go  down  there  and  put  this 
plant  wherever  It  pleased,  on  your  land  or  on  anybody  else's  land,  and  to  take 
your  land  for  that  purpose,  If  it  wanted  to? 

Mr.  Martin.  I  do  not  deny  that  at  all. 

Mr.  Garrett.  It  had  a  right  to  commandeer  you  and  commandeer  your  powei" 
company. 

Mr.  Martin.  Absolutely ;  and  the  Government  could  do  It,  of  course. 

Mr.  Garrett.  But  the  Government,  it  seems,  did  not  do  that,  but  sent  an 
emergency  officer  down  there  who  made  a  contract,  and  you  claim  now  that  the 
Government  is  tied  up 

Mr.  Martin  (interposing).  No;  I  do  not  claim 


Mr.  Garrett  (continuing).  So  that  it  must  sell  this  property  to  you  at  a 
fair  value,  whatever  your  fair  value  is,  and  if  It  does  not  do  that  it  must  tenr 
-down  $5,000,000  worth  of  stuff  and  move  it  somewhere  else. 

Mr.  Martin.  No,  sir;  the  contract  speaks  for  Itself. 

Mr.  Garrett.  With  what  bank  do  you  do  business  In  New  York? 

Mr.  Martin.  We  have  accounts  In  two  or  three  of  the  banks  there. 

Mr.  Garrett.  In  the  National  City? 

Mr.  Martin.  No;  we  have  no  account  with  the  National  City. 

Mr.  Garrett.  Did  you  have  during  this  time? 

Mr.  Martin.  No. 


,  Mr.  Garrett.  Through  what  banks  in  New  York  did  these  Government  funds 
pass? 

Mr.  Martin.  I  have  not  the  slightest  idea. 

Mr.  Garrett.  You  do  not  know  anything  about  that? 

;Mr.  Martin.  No,  sir. 

Mr.  James.  Your  minutes  show  that  under  date  of  November  9,  1918,  Lieut. 
<Jol.  Williams  designated  Col.  Joyes  to  act  in  his  place,  do  they  not? 

Mr.  Martin.  Our  minutes? 

Mr.  James.  Yes. 

Mr.  IMartin.  No;  I  think  there  Is  a  letter  or  memorandum  attached  to  the 
contract,  Mr.  James.  As  I  understood,  that  was  after  the  contract  was  exe- 
cuted on  the  7th  of  November,  as  I  recall,  and  was  made  by  Col.  Williams, 
who  surrendered  in  some  formal  way  his  connection  with  the  contract  to  Col. 
Joyes.  That  Is  my  recollection  of  it.  It  was  explained  to  me  that  whatever 
authority  he  had  in  connection  with  it  was  passed  along  to  Col.  Joyes  to 
administer. 

Mr.  James.  If  the  contract  was  signed  on  the  7th,  why  would  there  be  a  com- 
munication to  you  on  the  9th? 

Mr.  Martin.  There  was  no  communication  with  us  on  the  9th,  as  I  recall. 

Mr.  James.  Why  would  there  be  a  communication  from  Col.  Williams  to 
Col.  Joyes  designating  him  as  the  contract  officer  two  days  after  the  contract 
was  signed? 

Mr.  Martin.  I  think  that  was  a  formality  in  the  Army  circles  of  passing 
authority  for  either  contracting  or  administering  the  contracts  from  one  to 
another.    I  can  not  speak  of  that. 

Mr.  James.  I  was  wondering  wliether  the  contract  was  really  signed  on 
the  9th. 

Mr.  Martin.  I  think  it  was  on  the  7th.  for  the  reason  that  that  was  the  day. 
as  I  find  on  looking  It  up,  of  the  false  report  of  the  armistice.  Therefore  I 
think  it  was  the  7th  on  which  the  contract  was  executed.  That  Is  a  matter 
that  can  be  very  easily  verified  from  public  information  and  from  public 
records. 

The  Chairman.  Mr.  Martin,  can  you  tell  us  what  date  the  Dent  Act  was 
passed  validating  these  various  contracts? 

Mr.  Dent.  Yes,  sir ;  March  2,  1919.    I  have  the  act  here,  Mr.  Chairman. 

The  Chairman.  I  just  wanted  to  fix  the  date  that  law  was  passed  because 
there  was  a  great  many  contracts  that  the  Government  had  entered  into  with 
private  Individuals ;  the  officers  for  the  Government  or  the  private  Individuals 
failed  to  execute  the  contracts  under  the  laws  of  the  land,  and  It  was  held  by 
the  War  Department  that  not  having  been  properly  executed,  the  parties  could 
not  be  paid.  Therefore,  this  law  was  passed  so  as  to  allow  them  to  have  the 
•contracts  executed,  notwithstanding  they  had  not  been  properly  executed  before 
the  parties  entered  into  the  work. 

Mr.  Martin.  That  is  it. 

The  Chairman.  Your  contract  with  the  Government  seemingly  was  also  en- 
tered into  because  something  had  been  left  undone  that  should  have  been  done 
to  make  the  contract  valid;  is  that  your  recollection? 

Mr.  Martin.  There  was  no  contract,  Mr.  Chairman,  finally,  no  final  meeting 
•of  the  minds  of  the  parties  until  this  contract  was  signed  in  November.  That  Is 
about  the  best  way  I  can  express  It,  I  suppose. 

The  Chairman.  As  I  understand  you,  you  testified  here  that  although  the 
■contract  was  entered  into  on  the  1st  of  December,  1917,  It  was  In  the  nature 
of  letters  that  passed  between  your  company  and  the  officials  of  the  War  De- 
partment? 

Mr.  Martjn.  Now,  Mr.  Chairman,  I  have  collected  various  letters  and  data 
since  I  was  here  the  other  day,  and  I  would  just  refer  to  one  or  two  of  these 
things.  I  have  in  my  hand  a  written  memorandum  dated  December  3,  1917,  by 
Col.  Joyes. 

The  Chairman.  He  was  the  officer  of  the  War  Department. 

Mr.  Martin.  Yes,  sir.  This  memorandum  is  headed,  "  Suggested  basis  for 
contract  between  Alabama  Power  Co.  and  United  States  for  power  for  Air 
Nitrates  Corporation  plant  at  Sheffield." 

This  Is  at  the  top  of  the  memorandum,  which  I  will  hand  to  the  reporter.  It 
enta-s  Into  various  questions  which,  in  substance,  found  their  way  into  the 
c'ontract.    The  concluding  clause  of  the  memorandum  says : 


730 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS   PROPOSITIONS. 


731 


I! 


"After  June,  1921,  or  later  date  of  cessation  of  United  States'  participation 
in  present  war,  the  United  States  owned  transmission  line  and  power  apparatus 
and  temporary  building,  etc.,  to  be  leased  or  sold  to  Alabama  Power  Co.,  if  law 
permits  and  if  satisfactory  agreement  on  price,  and  if  not,  all  property  of  United 
States  to  be  removed  within,  say,  six  months  from  premises  and  right  of  way 
of  Alabama  Power  Go.  at  United  States  expense,  the  Government  to  com- 
mandeer power  from  Alabama  power  system  when  necessary  to  deprive  other 
customers  in  order  to  supply  Government  under  any  provision  hereof." 

You  will  note  it  says,  *'  if  law  permits,  and  if  .satisfactorj-  agreement  on 
l>rice,"  is  agreed  ui)on.  Before  any  work  was  <lone  that  was  the  suggested 
basis. 

^Ir.  GAKKFrrr.  Is  that  signed? 

Mr.  Maktix.  That  is  not  signed. 

The  Chaikman.  You  say  that  letter  was  sent  or  handed  to  youV 

Mr.  MakTin.  It  was  the  result  of  a  conference,  Mr.  Chairman,  between  Col. 
Joyes  and  our  president,  Mr.  Mitchell.  It  was  not  signed,  but  reference  was 
made  to  it  in  one  or  two  of  the  letters  which  shortly  followed  from  Col.  Joyes 
to  our  company,  directing  us  to  construct  the  transmission  line  and  to  construct 
this  Warrior  extension. 

The  Chairman.  To  whom  did  Col.  Joyes,  or  whoever  was  acting  for  the 
Government  at  that  time,  hand  that  letter? 

Mr.  Martin.  To  the  Alabama  Power  Co. 

The  Chaikman.  Which  one  of  the  Alabama  I'ower  Co..  or  who  representing 
the  Alabama  Power  Co.? 

^Ir.  Martin.  Mr.  James  ^Mitchell  represented  the  Alabama  Power  Co.  as 
president,  and  I  was  present  at  some  of  the  conferences  as  counsel. 

The  Chairman.  Were  you  present  when  that  letter  was  handed  to  the 
Alabama  Power  Co.? 

Mr.  Martin.  I  can  not  state  I  was  present,  specifically,  but  I  think  T  was. 
Mr.  Chairman.    It  has  been  so  long  ago — that  has  been  five  years  now. 

The  Chairman.  You  say  it  wjis  not  signed  l>y  any  repiesentative  of  the 
Government? 

Mr.  Martin.  No. 

The  Chairman.  But  you  began  to  act  on  it? 

Mr.  Martin.  Here  is  what  happenetl  on  the  7th  of  December. 

Mr.  Crowther.  I  wante*!  to  ask  about  that  phi-ase  which  s^ys  "if  the  law 
permits."    Diil  the  law  at  that  time  i)ermit? 

Mr.  Martin.  It  did  not,  and  it  is  uiy  understHiiding  that  there  was  no 
authority  at  that  time,  ox<'ept  his,  that  we  understood  there  was  some  such 
provision. 

On  the  7th  day  of  December  there  followed  this  order: 

"Alabama  Power  Co.,  Hinninyham,  Ala.: 

"By  authority  of  the  Chief  of  Onlnance  you  are  hereby  given  an  <»nler  to 
construct " 

Tlie  Chairman.  Pardon  me;  that  was  on  December  7? 

Mr.  Martin.  \>s,  sir. 

The  Chairman.  That  would  be  December  7.  1917? 

Mr.  Martin.  That  is  correct.  Mr.  Chairman.    It  says : 

"  By  authority  of  the  Chief  of  Ordnance  you  are  hereby  given  an  order  to  con- 
struct on  lands  owned  by  you  or  rights  of  way  under  your  control  from  your 
steam-pf>wer  plant  on  the  Black  Warrior  Uiver  to  the  site  of  the  proposed* am- 
monium nitrate  plant  of  the  Air  Nitrates  Corporation  at  Sheffield.  Ala.,  for  the 
present  known  as  tlie  United  States  Nitrate  Plant  No.  2,  a  transmission  line 
for  the  purpose  of,  and  of  proper  capacity  for  transmitting  electrit!  current  of 
3-pha.se,  60  cycle,  and  about  110,0(X)  volts.  Tliis  line  to  be  built  as  economically 
as  possible,  being  for  the  temporary  use  of  the  United  States  in  transmission 
of  iK)wer  during  the  iierioil  of  the  present  war,  or  thereabouts.  The  line  to  be 
the  proi)erty  of  the  United  States,  and  suitable  arrangements  to  be  made  as 
already  tentatively  agreed  upon  to  cover  the  payment  of  actual  cost  plus  a  per- 
centage thereof,  to  cover  use  of  Alabama  Power  Co.'s  lands,  right  of  way,  con- 
struction forces,  and  other  facilities,  etc.,  and  profit.  All  these  conditions  to 
be  embodied  in  a  future  contract. 

"  Priority  Class  A-1  has  been  requested  from  the  War  Industries  Board 
for  the  manufacture  of  this  material,  copy  of  which  is  inclosed,  so  that  delivery 
may  be  made  at  the  earliest  possible  date. 


"Although  this  writing  is  in  letter  form,  please  book  it  as  a  definite  order  on 
behalf  of  the  Ordnance  Department,  United  States  Army,  by  the  undersigned, 
and  promptly  acknowledge  receipt  thereof." 

That  was  signed  by  Col.  Joyes  under  date  of  December  7,  1917.  We  accepted 
that. 

The  Chairman.  You  accepted  it? 

Mr.  Martin.  Yes;  our  company  under  date  of  December  7,  acknowledged 
receipt  of  that  order  and  said,  "  In  accordance  with  your  instructions,  we  are 
proceeding  to  book  this  order  as  a  definite  order  on  behalf  of  the  Ordnance 
Department,  United  States  Army,  and  will  proceed  as  speedily  as  possible 
toward  carrying  out  your  instructions." 

The  Chairman.  As  I  recall  your  reading,  the  line  was  to  belong,  or  the  work 
you  were  to  do  there  was  for  the  United  States  Government,  and  it  was  to  belong 
to  the  United  States  Government. 

I^Ir.  Martin.  That  is  correct.  Mr.  Charman,  on  land  or  sites  that  are  owned 
by  us  or  under  our  control. 

The  Chairman.  You  accepted  that  and  proceeded? 

Mr.  Martin.  We  accepted  that  and  proceeded,  yes.  On  the  7th  of  December 
there  was  issued  another  order  to  us. 

The  Chairman.  December  7.  1917? 

Mr.  Martin.  Yes ;  the  same  date.  This  is  headed  "  Purchase  order  on :  "  It 
«ays : 

^'Alabama  Power  Co., 

''Birmingham,  Ala. 

"  By  direction  of  the  Chief  of  Ordnance  you  are  hereby  given  an  order  to 
furnish  certain  electric  power  as  specified  hereafter  to  the  United  States  Nitrate 
Plant  No.  2  being  constructed  for  the  United  States  at  Sheffield,  Ala.  (Muscle 
Shoals),  by  the  Air  Nitrates  Corporation  of  New  York,  viz: 

"  Upon  completion  of  the  transmission  line  from  your  Warrior  plant  to  the 
United  States  Nitrate  Plant  No.  2,  at  Sheffield,  expected  to  be  by  or  soon  after 
June  1,  1918,  which  you  are  to  construct  under  my  order  XOT-154,  you  to  fur- 
nish from  any  resources  of  your  system  a  guaranteed  10,000  kilowatts  and  as 
much  more  as  may  be  available  without  interfering  with  your  present  signed 
customers,  or  requiring  operation  of  the  Birmingham  steam  plant,  and  as  the 
United  States  may  re<iuire.  at  certain  rates  tentatively  agreed  upon  and  to  be 
embodied  in  contract  to  be  signed  directly. 

"Also,  upon  completion  of  the  addition  to  your  Warrior  steam  plant  to  be 
built  by  you  for  the  United  States,  as  per  contract  to  be  signe<l  directly  and  as 
covered  by  my  order  XOT-155,  which  com|>letion  is  exi)ected  to  be  about  August 
1,  1018.  you  to  furnish  from  said  Warrior  steam  plant  as  a  whole,  including 
your  present  plant  and  the  United  States  temporary  additions  thereto,  on  the 
basis  of  an  equitable  division  of  the  cost  of  operatiang  that  plant,  a  firm  quan- 
tity of  35,000  kilowatts  or  so  nmch  thereof  as  may  be  needed  by  the  United 
States,  undertaking  to  assure  this  quantity  of  power  by  your  power  resources 
other  than  the  Warrior  steam  plant,  the  conditions  of  such  assurance  and  of 
the  basis  of  distribution  of  costs  to  be  more  particularly  set  forth  in  contract 
now  tentatively  agreed  upon  and  to  be  signed  directly. 

"  l*riority  Class  A-1  has  been  requested  from  the  War  Industries  Board  for 
the  electrical  power  (copy  of  which  is  inclosed). 

"Although  this  writing  is  in  letter  form,  please  book  it  as  a  definite  order  on 
behalf  of  the  Ordnance  Department.  United  States  Army,  by  the  undersigned 
and  promptly  acknowledge  receipt  thereof."  , 

That  was  on  the  7th  of  December. 

The  Chairman.  That  was  another  case  where  you  were  to  do  certain  things 
for  the  oGvernment  of  the  United  States? 

Mr.  Martin.  Yes,  sir ;  which  we  accepted. 

The  Chairman.  And  you  proceeded  to  carry  that  out? 

]Mr.  Martin.  Y'^es,  sir;  we  carried  it  out. 

The  Chairman.  Did  the  Government  of  the  United  States  take  possession  of 
these  things? 

Mr.  Martin.  They  had  officers  there  who  were  directing  what  was  to  be  done 
under  this  contract,  but  we  proceeded  in  accordance  with  Col.  Joyes's  order. 

The  Chairman.  Col  .Toyes  in  this  communication  said  you  were  to  do  these 
things  for  the  United  States  Government? 

Mr.  Martin.  Yes. 


732 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


738 


The  Chaibman.  He  did  not  say  you  were  to  do  them  for  the  Alabama  Power 
Co..  but  you  were  to  do  them  for  the  Government  of  the  United   States? 

Mr.  Martin.  Yes. 

The  Chaibman.  And  you  proceeded  to  carry  that  out? 

Mr.  Mabtin.  We  proceeded  to  carry  that  out.  On  the  7th  of  December,  the* 
same  date  there  was  tlie  third  of  these  purchase  orders  which  had  to  do  with 
this  Warrior  extension,  in  the  same  phraseolojry,  substantially,  as  those  which 
I  have  already  read.    That  order  says : 

"Alabama  Poweb  Co., 

"Birmingham,  Ala.: 

"  By  direction  of  the  Cliief  of  Ordnance  you  are  hereby  given  an  order  to 
procure  and  install  for  the  I-nited  States  as  a  temporary  addition  to  the  steam- 
IK)wer  producing  facilities  at  your  Warrior  River  plant  in  Alabama,  and  to  en- 
able you  to  supply  to  the  United  States  nitrate  plant  No.  2,  being  constructel 
at  Sheffield,  Ala.,  by  the  Air  Nitrates  Corporation  for  the  United  States,  the 
supply  of  power  contemplated  by  a  separate  purchas-e  order  XOT-156  of  even 
date  herewith,  as  follows: 

"1.  Thirty-five  thousand  kilowatt  turbo-generator  unit,  with  suitable  acces- 
sories, as  condensers,  switchboards,  battery  of  boilers,  etc.,  directly  necessjiry  to 
its  service,  and  such  auxiliary  accessories  as  may  be  needed  in  addition  to  what 
you  now  have  installed,  or  should  properly  put  in  for  the  portion  of  your 
plant  now  existing,  which  may  be  necessary  for  the  operation  of  this  plant 
as  a  whole,  and  approved  by  the  undersigned. 

"  2.  Spare  turbo-generator,  of  approximately  35,000  kilowatts,  as  above,  with 
the  necessary  accessories,  not  including  steam-producing  equipment,  as  may 
be  necessary  to  enable  this  unit  to  take  the  place  of  the  first  unit  mentioned 
above,  in  the  event  of  temporary  unserviceability  thereof,  as  recommended  by 
you  and  approved  by  the  undersigned. 

"  Also  to  install  the  foregoing  upon  your  existing  land  and  foundations,  etc., 
and  to  erect  thereover  a  temporary  building  for  the  production  of  such 
apparatus. 

"  Provided,  That  all  of  the  foregoing  work  is  to  be  performed  by  you  on  the 
basis  of  reimbursement  of  actual  cost,  plus  a  construction  fee  in  consideration 
of  which  you  will  allow  without  special  rental  or  similar  charges  therefor,  the 
use  of  your  land,  foundations,  and  other  property  as  needed — all  such  condi- 
tions to  be  embodied  in  a  contract  now  tentatively  agreed  upon  and  to  be 
signed  directly. 

"  Priority  Class  A-1  has  been  requested  from  the  War  Industries  Board  for 
the  construction  of  this  temporary  addition  to  power  plant  (copy  of  which  is 
inclosed). 

"  Although  this  writing  is  in  letter  form,  please  book  it  as  a  definite  order 
on  behalf  of  the  Ordnance  Department  United  States  Army  by  the  undersigned, 
and  promptly  acknowledge  receipt  thereof." 

The  Chaibman.  That,  again,  I  take  it,  contained  instructions  to  your  com- 
pany to  build  a  transmission  line  for  the  Government  of  the  United  States? 

Mr.  Mabtin.  This  says,  "  by  direction  of  the  Chief  of  Ordnance,  you  are  hereby 
given  an  order  to  procure  and  install  for  the  United  States  as  a  temporary 
addition  to  the  steam  power  producing  facilities  at  your  Warrior  River  plant 
in  Alabama,  and  to  enable  you  to  supply  to  the  United  States  nitrate  plant 
No.  2  being  constructed  at  Sheffield,  Ala.,  by  the  Air  Nitrates  Corporation 
for  the  United  States,  the  supply  of  power  contemplated  by  a  separate  pur- 
chase order."    The  first  one  I  read  described  the  equipment. 

The  Chaibman.  You  carried  out  that  order? 

Mr.  Mabtin.  Yes,  sir. 

The  Chaibman.  I  understand  the  situation  now. 

Mr.  WuBZBACH.  Mr.  Martin,  I  understand  that  it  was  your  impression  that 
the  law  of  1916,  the  national  defense  act,  did  not  carry  with  it  any  authority 
to  enter  into  the  contract  that  was  signed  on  November  7,  1918. 

Mr.  Mabtin.  I  said  that  the  work  was  not  initiated  under  section  124  of 
the  national  defense  act. 

Mr.  Wubzbach.  Did  you  not  also  state,  and  will  you  not  state  now,  that  it 
is  your  opinion  as  a  lawyer  that  that  law  of  1916  did  not  give  any  authority 
for  this  contract,  which  you  are  claiming  under? 

Mr.  Mabtin.  Yes;  the  law  of  1916  did  not  have  anything  to  do,  one  way  or 
the  other,  with  this  question. 


Mr.  Wubzbach.  You  knew  that  in  1917,  when  you  first  began  this  matter? 
Mr.  Mabtin.  Yes,  Mr.  Wurzbach.  This  whole  question  of  authority  was,  as 
we  understood,  held  in  abeyance.  The  only  law  which  had  to  do  with  this 
question  was  an  act  of  1892,  under  which  the  Secretary  of  War  might  make 
temporary  leases  of  Government  property.  But  when  it  came  to  authority  for 
carrying  out  this  work  it  was  under  certain  provisions  of  acts  of  Congress  mak- 
ing appropriations  for  armament  and  fortifications.  Col.  Joyes  took  the  posi- 
tion that  under  that  there  was  the  authority  for  doing  this  work  and  there 
was  the  appropriation  for  paying  for  it,  as  I  understood  it. 

Mr.  Wubzbach.  But  I  am  asking  you  as  a  lawyer,  and  as  counsel  for  the 
Alabama  Power  Co.,  this  question:  You  yourselves  recognize  that  there  was 
no  legal  authority  for  this  contract  that  was  later  signed  in  November,  1918? 
Mr.  Mabtin.  To  this  extent,  that  at  that  time  Congress  had  not  conferred 
the  power,  as  we  understood  it,  upon  the  executives  of  the  Government  to  dis- 
pose of  property  created  during  the  emergency.  That  was  the  status  of  it  at 
that  time.    Later,  as  we  see  it,  two  acts  of  Congress  were  passed 

Mr.  Wubzbach.  I  want  to  come  to  those  acts  a  little  later.  Exclusive  of  the 
acts  of  May,  1918,  and  July,  1918— exclusive  of  those  two  acts,  and  keeping  in 
mind  only  the  existing  law,  in  December,  1917,  you,  as  a  lawyer,  recognized 
that  there  was  no  authority  for  entering  into  this  kind  of  contract  that  was 
later  signed  in  November,  1918? 

Mr.  Mabtin.  No;  I  will  go  this  far  with  that:  I  recognized,  as  a  lawyer, 
that  there  was  no  authority  in  the  Government  to  agree  to  sell  that  which  was 
created.  There  was  authority  in  the  Government,  first,  to  go  and  create  that 
which  was  necessary  to  supply  its  armament  of  its  fortifications,  and  tllat  was 
the  theory  on  which  Col.  Joyes  proceeded. 

Mr.  Wubzbach.  It  is  not  that  feature  of  the  contract,  as  pointed  out  by  the 
chairman  of  the  committee,  that  we  are  referring  to.  I  am  referring  to  the 
provisions  in  the  contract  under  which  you  are  claiming,  that  were  supposed 
to  put  obligations  on  the  Government  that  you  are  claiming  under.  I  recognize 
the  right  to  order  certain  work  in  the  military  department.  But  in  reference 
to  the  giving  of  your  company  an  option  which  you  are  now  claiming  under, 
you  recognize  that  there  was  no  law  in  December,  1917,  authorizing  that  kind 
of  a  contract. 

Mr.  Mabtin.  On  that,  Mr.  Wurzbach — as  I  read  to  you  in  the  very  initial 
draft  of  this  contract  by  Col.  Joyes,  he  so  expressed  it,  and  all  along  it  was 
treated  in  this  light,  that  if  the  law  permitted  the  property  to  be  disposed  of, 
as  proposed  at  first.    Later  on  this  provision  arose 

Mr.  Wubzbach  (interposing).  In  May  and  July,  1918? 

Mr.  Mabtin.  In  May  and  July. 

Mr.  Wubzbach.  I  will  ask  you  this  question  first :  Knowing  that,  did  you  not 
have  in  mind,  as  the  attorney  for  the  company,  the  necessity  for  further  legis- 
lation making  this  agreement  legal? 

Mr.  Mabtin.  I  did  not  give  any  consideration  to  that,  because  it  was  just 
the  natural  discussion  of  the  subject  at  that  time  that  Congress  would  have  to 
pass  legislation  of  some  character  because  this  was  one  of  thousands  of  cases, 
which  you  will  find  on  examining  the  records  of  your  committees,  which  came 
up.  There  were  hundreds  and  hundreds  of  contractors  for  equipment,  con- 
cerns who  manufactured  all  kinds  of  equipment,  who  proceeded  in  the  same 
M  ay,  erecting  property  for  the  account  of  the  Government  on  their  own  lands. 

Mr.  Wubzbach.  You  knew  the  necessity  for  further  legislation  in  order  to 
protect  your  rights  or  your  equity? 

Mr.  Mabtin.  Of  course,  it  .was  necessary  for  further  legislation  if  we  were 
to  buy  the  property,  but  the  Government  also  agreed  in  this  initial  memo- 
randum, or  Col.  Joyes  proposed  in  this  initial  memorandum,  that  if  the  law  did 
not  permit  the  Government  to  sell  it  to  us,  then  the  Government  would  re- 
move the  property  from  our  lands,  because  we  could  not  agree  to  sell  the 
lands  without  destroying  our  plant.  We  were  perfectly  willing  to  agree  to  buy 
on  the  demand  of  the  Government,  and  Col.  Joyes  recognized  the  fairness  of 
the  Government  agreeing  to  remove  the  property  if  the  Government  did  not  sell 
it  to  us. 

Mr.  Wubzbach.  I  think  you  stated  that  the  biggest  part  of  the  work  was 
completed  in  about  five  months  after  you  started  the  construction  of  the  trans- 
mission line?- 

Mr.  Mabtin.  The  transmission  line  was  completed  and  in  operation  in  the 
early  part  of  May,  1918.    The  turbo-generator  and  the  other  facilities  at  the 


i 


iht)  i  I 

r '  I 


734 


MUSCLE  SHOALS  PROPOSinONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


735 


Warrior  extension  were  completed  toward  the  end  of  the  year.  But  mean- 
time we  supplied  the  power  requirements  of  the  Government  over  this  line 
from  our  system  pending  the  completion  of  the  Warrior  extension.  That  was 
the  order  Col.  Joyes  gave  us. 

Mr.  WuRZBACH.  The  main  part  of  this  work  was  completed  before  these  acts 
of  Congress  of  May  and  July,  1918? 

Mr.  Mabtin.  No;  the  transmission  line  represented  about  one-fifth  of  the 
total  cost,  but  I  should  say  probably  40  per  cent  of  it  was  completed  when  these 
acts  were  passed. 

Mr.  WuBZBACH.  Did  you  know  when  this  legislation  was  enacted?  Were  you 
in  touch  with  any  Member  of  Congress  with  reference  to  this  legislation? 

Mr.  Martin.  No.  The  only  thing  I  knew  about  the  legislation  was  after  it 
was  passed  in  August.  Capt.  Noble  handed  me  a  copy  of  a  general  order 
issued  by  Gen.  Goethals  which  I  have  read  into  the  record,  and  which  I  under- 
stood was  founded  on  these  acts  of  Congress.  That  was  an  order,  or  a  bulletin, 
rather,  issued  by  Gen.  Goethals. 

Mr.  WuRZBACH.  You  did  not  find  that  out  until  August,  1918? 

Mr.  Martin.  August,  1918. 

Mr.  WuBZBACH.  You  testified  in  response  to  questions  just  asked  you  by  the 
chairman  of  the  committee  with,  reference  to  certain  letters  that  were  consid- 
ered by  you  as  part  of  the  contract  which  was  later  signed  in  November,  1918. 

Mr.  Martin.  These  work  orders  which  I  have  referred  to  were  issued  to  us 
and  formed  the  basis  upon  which  we  proceeded. 

Mr.  WUBZBACH.  Under  which  you  proceeded  to  do  certain  work  for  the  Gov- 
ernment. Have  you  any  correspondence  covering  any  of  the  other  provisions 
of  the  contract  as  it  was  finally  signed? 

Mr.  Martin.  I  have  a  lot  of  correspondence  here,  probably  50  sheets  of  it. 
and  they  do  cover  various  features  of  it. 

Mr.  WuRZBACH.  Do  they  refer  to  the  compensation  this  company  was  to 
receive? 

Mr.  Martin.  I  have  not  been  over  the  correspondence  to  see,  but  I  have  filed 
it  with  the  reporter. 

Mr.  WURZBACH.  Do  they  refer  to  the  provisions  of  the  contract  with  the  Gov- 
ernment that  gave  you  authoritj'  to  buy  this  property  from  the  Government 
at  a  fair  price? 

Mr.  Martin.  I  do  not  recall.  I  suppose  they  do  refer  to  that  question  in  some 
form,  of  course. 

Mr.  W^urzbach.  All  of  the  provisions  of  the  contract  were  verbally  agreed 
upon,  or  you  had  some  correspondence  about  them  before  November  7,  1918? 

Mr.  Martin.  Yes :  I  think  it  might  be  considered  in  that  way.  It  is  a  ques 
tlon  where  different  ofllcers  had  different  ways  of  expressing  it.  Capt.  Noble 
had' one  way  of  writing  the  contract  and  Col.  Williams  had  an  entirely  different 
way.  When  he  came  into  it  he  redrafted  the  contract.  Capt.  Noble  had  put 
it  into  two  contracts,  one  for  construction  and  one  for  operation,  and  Col. 
Williams  entirely  changed  the  theory  of  the  contract  and  made  an  entirely  new 
contract.    This  is  the  contract  which  was  signed. 

Mr.  Wurzbach.  I  suppose  you  had  considerable  correspondence  with  the  Ieg:al 
representatives  of  the  Government  with  reference  to  the  drafting  of  this 
contract? 

Mr.  Martin.  Yes;  there  was  one  as  recent  as  November  1,  1918.  inclosinjr 
certain  parts  of  the  contract,  and  another  one 

Mr.  Wurzbach  (interposing).  Have  you  included  in  that  all  the  correspond- 
ence and  the  data  which  would  throw  any  light  on  that? 

Mr.  Martin.  Here  is  another  of  October  19. 

Mr.  Wurzbach.  Together  with  copies  of  letters  which  you  read? 

Mr.  Martin.  Yes,  sir. 

Mr.  McKenzie.  Forgetting  the  contract  for  a  moment,  I  want  to  ask  you  n 
few  questions  at  this  time,  thinking  perhaps  I  may  not  get  another  opportunity, 
in  connection  with  the  practical  proposition  with  which  we  are  confronted, 
having  in  mind  that  the  Committee  on  Military  Affairs,  under  the  leadership 
of  our  chairman,  has  been  endeavoring  for  months  to  aid  the  War  Department 
in  disposing  of  what  we  might  call  surplus  proi)erty.  I  am  going  to  assume 
in  asking  these  questions  that  your  company  and  you  were  animated  at  the 
time  of  this  transaction  by  the  highest  and  most  patriotic  motives,  the  country 
being  in  war.  and  assuming  that  you  as  an  American  citizen  are  still  so 
animated,  :<o  far  as  tlie  interests  of  our  <  Jovernment  are  concerned. 

With  that  statement  I  want  to  a.sk  you  a  few  questions. 


What  was  the  cost  of  the  plant?  You  testified  to  that,  but  I  want  to  get  that 
here.    What  was  the  cost  of  the  plant  at  Gorgas? 

Mr.  Martin.  The  Government  extension? 

Mr.  McKenzie.  Outside  of  the  transmission  line.  If  you  have  not  those  fig- 
ures here  you  can  insert  the  cost  in  the  record. 

Mr.  Martin.  It  is  contained  in  the  Secretary  of  War's  memorandum,  which 
he  has  filed. 

Mr.  McKenzie.  It  was  something  over  .$3,000,000,  was  it  not? 

Mr.  Martin.  Yes. 

Mr.  McKenzie.  And  the  cost  of  the  transmission  line  was  about  how  much? 

Mr.  Martin.  The  cost  of  the  transmission  was  $905,000. 

Mr.  McKenzie.  The  cost  of  the  plant  was  between  three  and  four  million 
dollars? 

Mr.  Martin.  Yes. 

Mr.  McKenzie.  That  work  was  carried  on  under  very  abnormal  conditions,  and 
we  all  understand  that. 

Mr.  Martin.  Yes. 

Mr.  McKenzie.  It  was  a  cost-plus  contract  proposition.  What  would  you  say 
would  be  a  fair  discount  from  that  sort  of  cost  to  a  normal  cost? 

Mr.  INlARTiN.  As  I  stated  on  Fridiiy.  one  of  our  engineers  has  stated  that  the 
present  cost  of  repro<luction  is  about  70  per  cent  of  the  cost  in  1918. 

Mr.  McKenzie.  About  70  per  cent? 

Mr.  Martin.  Yes. 

Mr.  McKenzie.  Do  you  think  that  would  be  a  fair  estimate;  is  it  your  judg- 
ment that  there  was  not  more  than  80  per  cent  wasted  in  extravagance  during 
the  war  in  the  constructi<»n  of  these  various  plants? 

Mr.  ISIartin.  I  would  not  like  to  put  it  in  that  form. 

Mr.  McKenzie.  I  mean  under  the  conditions  that  seemed  to  be  necessary,  it 
seems  to  me  30  per  cent  would  be  a  very  fair  estimate  of  the  extra  charge.  I 
have  been  under  the  impression  it  was  more  than  that — ^perhaps  40  per  cent. 

Mr.  Martin.  You  can  not  call  30  per  cent  wastage,  for  you  must  remember 
there  was  an  abnormal  price  level  during  that  time,  and  we  worked  under 
military  supervision ;  that  we  had  guards  at  the  plant,  that  we  had  the  8-hour 
labor  law,  that  we  had  the  holidays  to  consider;  we  had  all  the  incidents  of 
governmental  supervision  and  work. 

Mr.  McKenzie.  I  had  all  of  that  in  mind. 

Mr.  Martin.  As  to  what  enters  into  that  30  per  cent 

Mr.  McKenzie  (interposing).  I  wanted  you  to  take  that  into  account,  to  keep 
in  mind,  or  to  consider  in  your  statement  the  very  liberal  amount  that  would 
be  what  we  might  call  an  overcharge  over  what  it  would  cost  in  ordinary 
normal  times. 

Mr.  Martin.  To  reproduce  that  plant  to-day  under  present  price  levels,  you 
could  probably  reproduce  it  for  70  per  cent  of  the  cost  in  1918;  that  is,  under 
private  operation,  under  private  construction,  without  Government  supervision, 
as  a  private,  going  concern  that  knew  its  business. 

Mr.  INIcKenzie.  Without  the  connection  with  Muscle  Shoals  the  transmission 
line  beyond  the  town  of  Jasper,  I  take  it,  would  be  of  little  use  to  your  com- 
pany? 

Mr.  Martin.  Mr.  McKenzie,  we  have  this  situation :  We  have  a  large  power 
distribution  in  the  northern  section  of  Alabama  in  the  Huntsville  and  Decatur 
districts;  we  have  a  single  line  serving  them  from  the  eastern  section  of  our 
State  from  a  point  known  as  Gadsden,  and  the  public  service  commission  of 
our  State  has  been  endeavoring  for  a  long  time  to  get  us  to  furnish  in  some  way 
ft  duplicate  service  to  these  two  districts,  and  we  have  stated  to  them  we  hopetl 
to  work  out  that  duplicate  service  over  this  transmission  line  from  Warrior 
to  Shefl^eld  and  over  to  Decatur.  It  will  add  very  substantially  to  that  public 
service  if  we  can  work  that  out.  and  it  has  been  our  purpose,  if  we  can  work 
out  an  arrangement  with  the  Government  to  have  this  duplicate  service  for 
the  northern  part  of  Alabama. 

Mr.  McKenzie.  It  would  be  of  value  to  your  company  ? 

Mr.  Martin.  It  would  be  of  value  to  our  company,  and  it  is  a  matter  that  has 
come  up  many  times  with  the  public-service  commission  of  the  State. 

Mr.  McKenzie.  Now,  Mr.  Martin,  your  company  is  engaged  in  the  manufacture 
and  production  and  sale  and  transmission  of  this  current  over  that  section  of  the 
State  of  Alabama? 

Mr.  Martin.  Yes. 

Mr.  McKenzie.  And  your  corporation,  as  I  understand  it,  is  a  going  one,  and 
at  Gorgas  you  had  laid  the  foundations  for  a  much  larger  plant  than  you  had 

92iX)0— 22 47 


11 


- 


I 


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MUSCLE   SHOALS   PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


737 


m 


at  the  time  of  the  breaking  out  of  the  war,  having  in  mind  the  (levt--^»nent  and 
increase  of  your  business;  is  that  not  true? 

Mr.  Martin.  That  is  true.    . 

Mr.  McKenzie.  Now,  I  want  to  ask  you,  having  in  mind  the  Government's 
desire  to  dispose  of  this  property,  having  in  mind  what  it  would  cost  to  replace 
that  property,  having  in  mind  your  desire,  as  an  American  citizen,  to  be  fair 


undertaking  to  unload  many  of  these  things  we  have  no  immediate  necessity  for, 
70  per  cent  of  what  this  plant  cost?  I  am  not  talking  about  the  contract ;  I  am 
not  talking  about  the  connection  of  Mr.  Ford  or  anybody  else.  I  am  just  talking 
to  you  as  the  representative  of  this  great  corporation,  dealing  with  the  Govern- 
ment, having  here  a  piece  of  property  that  has  a  value  to  you. 

Mr.  Martin.  Yes ;  it  has  a  value  to  us. 

Mr.  McKenzie.  Bearing  in  mind  the  equities  and  the  endeavor  to  do  justice, 
would  your  company  be  willing  to  take  over  this  plant  at  70  per  cent,  or  60  per 
cent — and  I  have  had  so  much  experience  in  investigating  cost-plus  contracts 
that  I  would  be  willing  to  say  right  off  if  you  took  off  40  per  cent  you  perhaps 
would  not  be  far  out  of  the  way — would  you  be  willing  to  give  the  Government 
60  per  cent  of  what  the  Government  has  invested  there,  which  would  be  for 
your  benefit?  . 

Mr.  Martin.  Mr.  McKenzie,  you  must  bear  this  in  mind:  We  have  a  con- 
tract 

Mr.  McKenzie  (interposing).  I  am  forgetting  that  contract. 

Mr.  Martin.  Can  we  forget  It,  when  we  are  here  under  an  agreement  to  pur- 
chase the  property  at  a  fair  value,  to  be  established  by  arbitration? 

Mr.  McKenzie.  Would  not  that  be  a  fair  value? 

Mr.  Martin.  If  the  arbitrators  set  up  that  value,  of  course,  w^e  would  have 
that  value. 

Mr.  McKenzie.  You  are  a  business  man.  ».        ... 

Mr.  Martin.  I  feel  that  question  is  one  which  now  must  be  settled  by  arbi- 
tration. You  and  I  are  not  arbitrating  the  price  at  which  this  property  would 
be  taken  over.  If  we  were  arbitrating  the  case  we  could  bind  the  Government 
and  the  company  to  do  a  certain  thing.  But  we  can  not.  You  are  asking  a 
question  which  goes  right  to  the  performance  of  the  arbitration  part  of  the 

contract.    But  we  are  willing  to .  ,     ,  i,         ^    i 

Mr  McKenzie  (interposing).  The  question  gets  right  down  to  brass  tacks. 
Mr   Martin.  We  will  carry  out  the  contract,  whatever  the  price  set  by  the 
arbitrators  may  be.    Furthermore,  you  have  raised  that  question,  and  it  is  also 
involved  in  the  proposition  we  have  made  to  the  Government  as  bearing  on  the 

whole  situation.  ^  ,  u  «.  •« 

Mr  McKenzi*:.  I  am  asking  these  questions  because  we  do  not  know  what  is 
going  to  be  the  outcome  of  this  proiwsition.  But  I  did  think  that  perhaps  you 
might  be  willing  to  make  a  statement,  as  a  business  man,  that  would  get  away 
from  that  haze  and  that  mist  which  you  involved  this  proposition  in  by  speaking 
of  a  fair  value.  I  think  it  has  been  brought  out  in  these  hearings  that  this 
propertv  has  absolutelv  no  value  to  anybody  except  the  Alabama  Power  Co 

Mr.  M\RTiN.  It  has  a  fair  value  to  us.  The  value  it  has  to  us  is  different  from 
the  junk  value ;  it  is  a  fair  value  which  not  every  competent  man  can  settle, 
and  that  is  the  basis  on  which  we  have  agreed  to  take  it.  I  would  not  like  to 
express  in  dollars  exactly  what  that  would  be  in  our  judgment,  because  it  is 
naturally  one  for  these  arbitrators  to  settle. 

Mr.  McKenzie.  I  can  not  speak  for  the  Government ;  I  am  only  one  citizen. 

Mr.  Martin.  That  is  true,  and  if  the  Secretary  of  War  is  given  the  authority 
to  speak  for  the  Government  we  will  deal  with  him. 

Mr.  McKenzie.  I  can  not  bind  the  Government,  but  viewing  this  situation  as 
I  do  I  would  be  glad  to  enter  into  some  proposition  to  sell  this  property  to  you 
if  I  had  the  power,  if  you  show^ed  a  disposition  to  pay  for  it  what  is  right  and 

Mr.  Martin.  We  certainly  have  a  disposition  to  pay  that  which  is  fair,  because 
we  are  under  contract  to  do  it.  . 

Mr.  McKenzie.  I  wish  you  would  think  about  that  60  per  cent  proposition. 

Mr.  Stoll.  In  case  the  Government  should  let  you  have  this  property  accord- 
ing to  your  contract,  have  you  any  set-offs  against  the  Government? 

Mr.  Martin.  Set-offs? 

Mr.  Stoix.  Yes. 

Mr.  Mabtin.  No. 


Mr.  Stoll.  under  the  contract? 

Mr.  Martin.  No  ;  not  growing  out  of  this  at  all.  We  have  $1,000,000  more  or 
less  of  investment  and  expenses,  but  it  is  not  our  purpose  to  make  any  claims  on 
that. 

Mr.  Stoll.  Under  these  sections  19  and  22,  is  not  some  set-off  contemplated 
there? 

Mr.  Martin.  I  do  not  know  of  any  set-off  we  have. 

Mr.  James.  In  response  to  a  question  by  Mr.  Crowther,  you  said  there  was  no 
law  at  that  time  but  you  were  told  there  was  going  to  be  legislation  to  lake 
care  of  it. 

Mr.  Martin.  That  was  the  general  feeling  among  the  officials,  that  this 
question  was  to  be  taken  care  of  in  some  way. 

Mr.  James.  Who  told  you  there  was  going  to  be  legislation  to  take  care  of 
that? 

Mr.  Martin.  I  can  not  say  that  there  was  any  declaration.  It  naturally  came 
up  in  discussion  with  Col.  Joyes,  because  the  very  words  of  his  letter,  "  if  the 
law  permits,"  would  naturally  provoke  a  discussion  in  regard  to  that  particular 
matter. 

Mr.  James.  Did  Col.  Joyes  ever  intimate  to  you  that  there  was  going  to  be 
legislation  along  those  lines? 

Mr.  Martin.  He  assumed  there  would  be. 

Mr.  James.  Did  he  tell  you  that  there  would  be? 

Mr.  Martin.  That  is  my  impression. 

Mr.  James.  Did  Col.  Williams  tell  you  that  also? 

Mr.  Martin.  No  ;  Col.  Williams  came  into  it  after  the  legislation  w^as  passed. 
Capt.  Noble  was  the  first  law  oflicer  of  the  Government  to  handle  it,  and  he 
handled  it  until  his  death.    He  died  after  these  acts  were  passed. 

Mr.  James.  You  did  not  know  anything  about  those  acts? 

Mr.  Martin.  No.    Capt.  Noble  handed  me  a  memorandum 

Mr.  James  (interposing).  When? 

Mr.  Martin.  In  August,  1918,  which  I  think  was  taken  from  one  of  the 
official  Government  reviews  in  Washington,  containing  Gen.  Goethals's  order, 
which,  as  I  understood,  was  founded  on  these  acts.  It  does  not  refer  to  them  in 
terms  but  was  founded  on  these  acts,  and  Capt.  Noble  and  I  discussed  the 
effect  of  that  order,  and  it  was  his  view  that  it  was  made  with  reference  to 
these  two  acts  of  Congress.  That  was  in  August,  1918.  The  bulletin  issued  by 
Gen.  Goethals  is  in  your  record. 

Mr.  James.  This  legislation  was  passed  in  May  and  July.  Was  that  legisla- 
tion along  the  same  line  that  Col.  Joyes  spoke  to  you  about? 

Mr.  Martin.  I  can  not  say  that  Col.  Joyes  spoke  about  any  specific  legis- 
lation. 

Mr.  James.  He  told  you  there  would  be  legislation  to  take  care  of  you,  to 
validate  the  contract? 

Mr.  Martin.  No;  to  take  care  of  the  general  program  of  the  Government. 
It  was  not  only  in  our  case,  but  there  were  numerous  concerns  that  were  doing 
that  kind  of  work.  There  were  transmission  lines,  connections  between  dif- 
ferent lines  built  in  the  State  of  Ohio,  and  there  was  an  extension  at  Pitts- 
burgh, another  at  Cleveland,  and  another  at  Cincinnati.  There  were  any  number 
of  situations  of  that  kind.  So  that,  considering  the  circumstances,  it  was 
simply  one  of  those  natural  assumptions  that  if  the  Government  created  prop- 
erty on  land  of  others  some  way  was  bound  to  be  worked  out  by  which  the 
Government  would  salvage  that  property.  But  as  to  the  form  which  the 
legislation  would  take,  we  did  not  have  any  idea. 

Mr.  James.  I  understood  you  to  say  the  other  day  that  you  did  not  know 
who  the  authors  of  the  bills  passed  in  May  and  July  were? 

Mr.  Martin.  No  ;  I  did  not  know  anything  about  it. 

Mr.  James.  You  understood  they  were  riders  on  appropriation  bills?  , 

Mr.  Martin.  I  have  understood  that  since. 

Mr.  James.  Do  you  know  who  the  author  of  the  amendments  was ;  did  you  ever 
look  it  up? 

Mr.  Martin.  No. 

Mr.  James.  Did  Mr.  Dent  look  it  up  for  you? 

Mr.  Martin.  No. 

Mr.  Dent.  I  can  explain  that,  Mr.  James,  when  I  make  my  statement. 

Mr.  Fields.  If  I  have  understood  you  correctly,  you  entered  into  this  contract, 
practically  every  phase  of  it,  before  this  legislation  was  enacted? 


I 


If 


738 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


739 


m 


Mr.  Martin.  Yes;  throujjh  work  orders  and  memoranda  and  letters;  substuu- 
tially  the  whole  proposition  was  agreed  upon. 

Mr.  Fields.  In  letters  and  work  orders? 

Mr.  Martin.  Yes. 

Mr.  Fields.  And  you  discussed  with  Col.  Joyes  and  among  yourselves  the 
desirability  of  legislation  to  legalize  the  several  phases  of  this  agreement? 

Mr.  Martin.  I  can  not  say  that  my  discussion  rose  to  the  dignity  of  saying 
it  was  desirable  to  pass  this  legislation.  When  we  undertook  to  find  a  source 
of  power,  there  ^^  as  not  a  thing ;  and  Col.  Joyes  says  in  his  memorandum,  "  if  the 
law  permits,'"  he  would  agree,  in  behalf  of  the  Government,  to  dispose  of  the 
property.  So  those  words  "  if  the  law  permits  "  were  put  in  there.  Nobody 
could  say  then — nobody  could  possibly  sa.v — what  it  would  be. 

Mr.  FiETJis.  The  question  has  been  asked  why  the  contract  was  not  signed 
until  the  7th  day  of  November,  1918.  Is  it  not  a  fact  that  the  signing  of  the 
contract  was  deferred  in  the  hope  that  legislation  would  be  enacted  that  would 
legalize  every  phase  of  the  contract? 

Mr.  Martin.  No  :  because  you  see  we  had  .agreed  to  buy.  if  the  Government 
demanded  of  us  to  buy.  at  a  fair  price.  I  can  not  say  that  the  question  of  the 
lack  of  legislation  delayed  the  contract  the  slightest.  I  do  not  think  it  delayed 
it  an  hour. 

Mr.  Fields.  You  state<l  awhile  ago  that  it  really  was  not  a  contract  prior  to 
November  7,  1918.  in  that  there  had  not  been  a  complete  meeting  of  minds 
between  the  agent  of  the  Goverament  an<l  the  representative  of  the  Alabama 
Power  Co.  How  long  did  it  take  the  agent  of  the  Government  and  the  repre- 
sentative of  the  Alabama  Power  Co.  to  effect  a  meeting  of  minds  when  they  met 
in  New  York  on  the  7th  day  of  November,  1918? 

]Mr.  Martin.  I  assume  before  that  time  all  those  points  had  been  disposed  of, 
Mr.  Fields. 

Mr.  Fields.  Is  it  not  a  fact  that  they  were  disposed  of— that  is,  all  but  the 
signing  of  it — at  the  time  they  were  entered  into,  from  time  to  time,  by  either 
verbal  or  written  agreements? 

Mr.  Martin.  As  the  matter  progressed  we  agreed  from  time  to  time  upon  per- 
haps all  of  the  contract,  of  course. 

Mr.  FTKr.DS.  All  was  done  but  the  signing,  which  was.  so  far  as  the  substance 
of  the  contract  croes.  but  a  matter  of  form? 

Mr.  Martin.  As  I  have  explained,  Col.  Williams  redrafted  this  contract,  and 
his  last  redraft  came  to  me  on  the  1st  of  November,  1918. 

Mr.  (}TTTN.  In  response  to  a  question  this  morning  you  said  that  the  Alabama 
Traction,  Light  &  Power  Co.  (Ltd.),  holds  all  of  the  common  stoi'k  of  the  Ala- 
bama Power  Co.? 

Mr.  Martin.  Yes. 

IVfr.  (,»i-TN.  In  response  to  my  question  the  other  day  I  understood  you  to  say 
that  the  Alabama  Traction,  f.ight  &  Power  C(».  (Lttl.)  owned  10  per  cent  of 
that  stwk? 

Mr.  Martin.  You  misun<lerstood  me. 

Mr.  Qttin.  And  that  48  per  cent  of  it  is  held  in  foreign  countries.  You  stated 
that  10  per  cent  was  held  by  the  (Canadian  corporation  and  48  per  cent  heUrin 
England.  France.  KelgiunL  and  other  countries. 

Mr.  Martin.  You  misunderstood  me.  The  stockholdings  of  our  comjiauy  aic 
represented  in  two  classes,  the  common  stock  and  the  prefen*ed  sto<'k. 

Mr.  QriN.  Was  this  preferred  stock? 

Mr.  Martin.  No  :  1  will  tell  y<ni  what  that  was.  We  have  some  15.000  or 
20.000  shares  of  preferred  stock  outstanding  of  the  Alabama  Power  Co.,  all  of 
which  is  practically  held  in  Alabama.  That  amounts  to  about  $2,000,000.  We 
have,  in  addition  to  that,  common  stock  amounting  to  about  .$18,000.0<K>.  all  of 
which  is  held  by  rhe  Alabauja  Tra«-tion,  Light  &  l*ower  Co.  (Ltd.).  But  now 
you  nuist  get  at  the  stockholders  of  the  Alabama  Traction,  Light  &  I*ower  Co. 
(Ltd.)  to  see  wherein  the  control  and  ownership  lies.  The  stock  of  that  com- 
pany was  originally  held,  the  large  majority  of  it.  abr(>ad,  and  since  the  war 
in  Europe  that  slock  has  been  sold  and  has  come  to  this  country  in  great 
volume,  and  the  hirgest  single  hohl'ngs  of  that  stock  are  in  this  country.  For 
instance,  in  the  Slate  of  Alabama,  there  is  one  single  group  of  people  who  hav(» 
the  larsrest  Mo<k  of  sto«k  of  any  one.  There  is  another  group  of  people  in  this 
c-ountrv  who  havp  a  large  group  of  holdings.  It  has  been  quite  widely  scattered 
and  held  since  1914.  The  very  fact  of  that  stock  emanating  from  a  company 
in  Canada  is  not  the  only  question  you  must  look  at,  but  where  the  stock  is 
hehl. 


^Ir.  Qlin.  In  an  answer  to  one  of  my  questions  you  said  that  10  per  ceiit  was 
held  bv  the  Dominion  of  Canada  corporation. 

Mr.  Martin.  No  ;  I  said  by  stockholders  living  in  Canada.  There  was  some- 
thing less  than  10  per  cent  held  by  citizens  living  in  Canada. 

Mr.  QuiN.  And  48  per  cent  across  the  Atlantic,  and  that  leaves  42  iier  cent 
in  this  country? 

Mr.  Martin.  In  this  country. 

Mr.  QuiN.  Y<m  stated  that  63  per  cent  of  the  securities  were  held  in  this 
country  and  37  per  cent  held  abroad. 

Mr.  Martin.  Of  our  total  securities ;  that  is  about  the  story. 

Mr.  Quin.  AVhat  is  correct?  Is  it  correct  to  say  that  58  per  cent  of  \\w  stock 
is  held  in  Canada  and  abroad? 

Mr.  Martin.  Something  less  than  58  per  cent. 

Mr.  Quin.  That  is  preferred  stock? 

Mr.  Martin.  No;  that  is  all  common. 

Mr.  Qi  IN.  You  stated  to  Mr.  Garrett  that  all  of  the  common  stock  was  held  by 
this  Dominion  of  Canada  corporation. 

Mr.  Martin.  But  what  I  am  speaking  of  is  the  stock  of  the  Canadian  com- 
pany. This  stock  has  been  widely  distributed  in  this  country,  and  that  is  the 
question  you  must  look  to.    Of  course,  that  is  not 

Mr.  QriN  (interposing).  What  bank  controls  the  outi)ut  of  the  securities  of 
your  company?    They  have  to  be  sold,  and  some  bank  sells  them,  I  presume. 

Mr.  Martin.  The  tirm  of  Harris,  Forbes  &  Co.,  and  the  tirm  of  Coffin  &  Burr, 
are  the  investment  bankers'  organization  through  which  we  operate. 

Mr.  Quin.  Where  are  they  located? 

Mr.  Martin.  One  tirm  is  locate<l  in  New  York  an«l  one  is  located  in  Bostjon. 
They  have  represented  our  company  for  many  years  in  the  sale  of  our  securi- 
ties, and  represent  our  company  to-day  in  the  sale  of  our  securities. 

Mr.  GARRFiTT.  I  did  not  quite  .get  the  identification  of  that  memorandum  of 
four  an<l  a  half  pages  which  you  referred  to.     Wlio  made  that,  memorandum? 

Mr.  Martin.  You  mean  the  one  of  the  3d  of  December? 

:Mr.  Garrett.  The  one  you  referred  to,  including  the  paragraphs  which  you 
read. 

Mr.  Martin.  That  was  written  by  Col.  Joyes. 

Mr.  Garrett.  It  did  not  bear  his  signature. 

Mr.  Martin.  No;  it  has  his  initials. 

Mr.  Garrett.  How  did  that  get  tjo  your  company? 

Mr.  Martin.  He  handed  it  to  us. 

Mr.  Garrett.  He  handed  it  to  you? 

Mr.  Martin.  Yes. 

Mr.  Garrett.  It  was  delivered  to  you  by  Col.  Joyes? 

Mr.  Martin.  Yes. 

Mr.  Garrett.  Mr.  Martin,  what  do  you  say  to  this  proposition :  I  understaml 
now  that  your  agreement  was  reached  by  correspondence,  befoi-e  the  work  l)e- 
gan,  virtually? 

Mr.  Martin.  Yes;  I  have  read  it  to  you  here. 

Mr.  GARRE-rr.  Then  what  do  you  say  to  this  proposition,  as  a  lawyer:  Where 
the  minds  of  the  parties  reach  an  understanding  as  to  what  shall  be  done  in 
the  future,  what  law  governs  that  ccmtract;  the  law  in  force  at  the  time  of 
the  agre'?'ment  of  the  parties  or  the  law  in  force  at  the  time  of  the  executi<m 
of  the  contract  at  some  later  dale? 

Mr.  Martin.  I  will  answer  you  by  saying  that  these  oiders  th.Jt  were  issued 
to  us,  Mr.  Garrett,  each  of  them  said  this,  "  All  these  conditions  to  be  embodied 
in  a  future  contract,"  and  also  "  suitable  arrangements  to  be  made  as  already 
tentatively  agreed  uix)n  to  cover  the  cost  of  actual  cost  plus,"  ct*'.  There  were 
conditions  in  each  of  these  letters  agreed  upon,  and  some  were  not.  These  con 
tlitions  tx)  be  embodied  in  a  future  contract,  necessarily  when  the  future  con- 
tract was  made  the  law  then  in  effect  controls  the  validity  of  the  contract. 

Mr.  Garrett.  What  kind  of  a  contract  do  you  call  this:  what  name  \v<ml(l 
you  give  it?    Would  you  call  it  a  continuing  contract? 

Mr.  Martin.  Growing  out  of  these  work  orders? 

Mr.  Gakkett.  Yes. 

Mr.  Martin.  I  can  not  say  that  I  can  call  it  a  continuing  contract,  or  desig- 
nate it  with  any  such  characteristic  as  that.  We  merely  received  work  orders 
and  were  tx)ld  to  proceed,  and  proceeded. 

Mr.  Garrett.  What  I  am  trying  to  get  at  is  the  legal  (iuesti<»n  inv<>lvci!.  You 
are  the  counsel  of  the  Alabama  Power  Co.,  an;!,  of  course,  you  know  the  law. 


II,  • 


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MUSCLE  SHOALS  PROPOSITIONS. 


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Thp  presumption  is  that  we  all  know  it.  l)ut  it  is  a  very  violent  presuuiotioir 
sometimes. 

Mr.  Martin.  Yes;  T  areept  that.  too. 

Mr.  Garrett.  I  am  tryinjr  to  ^et  at  the  le^al  pliMse  of  it.  I  understan-l  a 
^eat  deal  of  this  work  was  done,  but  there  is  a  (luestiim  involved  here  in  con- 
nection with  a  certain  option  that  you  are  claiming  as  a  matter  of  law  under 
this  contract.  When  did  that  take  effect,  at  the  time  you  made  the  contract, 
or  at  th9  time  you  executed  the  contract? 

Mr.  Martin.  I  will  answer  that  this  way.  An  agreement  to  make  an  agree- 
ment is  tlie  substance  of  these  work  orders,  and  we  affreetl  with  Col.  .Toyes  and 
he  aj;i*eed  with  us  that  we  woul.l  both  make  a  future  contract.  But  an  agree- 
ment to  make  an  agreement  is  not  a  contract,  in  the  technical,  legal  sense.  An 
agreement  to  make  an  agreement  is  unenforcible,  you  will  admit  that. 

Mr.  Garrett.  But  your  agreement  began  on  a  memorandum  and  on  corre- 
spondence. 

Mr.  Martin.  We  began  work  under  a  memorandum. 

Mr.  Garrett.  The  question  I  want  to  know  is:  When  did  your  riglits  begin, 
when  you  began  to  execute  and  perform  under  the  contract  by  oral  agre<^ment 
and  memoranda  agreement,  or  di;l  it  begin  several  months  later  wlien  it  was 
formally  executed? 

Mr.  Martin.  When  there  was  a  formal  execution  of  the  contract,  that  was  the 
fixing  of  the  rights  of  the  parties.    That  is  my  answer  to  your  question. 

Mr.  Garrett.  Tliere  were  no  rights  fixed  prior  to  that  time? 

Mr.  Martin.  No. 

lilr.  Garrett.  There  is  one  more  question  I  want  to  ask  you  in  reference  to 
Dam  No.  2,  under  section  124  of  tlie  National  Defense  Act.  I  notice  that  the 
President,  on  February  23,  1918,  wrote  a  letter  to  the  Secretary  of  War.  Is 
that  in  the  hearing? 

Mr.  T^lARTiN.  I  do  not  think  we  put  it  in  the  hearing,  but  the  Secretary  of 

War  did. 

Mr.  Garrett.  The  President  said  in  that  letter  "  I  refer  to  Section  124  of  the 
National  Defense  Act  of  June  3,  1916,  authorizing  the  President  to  determine 
the  best  means  and  adopt  the  most  advantageous  i)ro.1ects  for  the  production  of 
nitrates,  and  appropriating  the  sum  of  $20,000,000  for  that  purpose.  Of  this 
appropriation.     I  am  advise<l  that  there  is  jin  available  unaliotteil  b;d:ince  or 

$13,785,000. 

"The  completion  of  dam  and  power  house  No  2.  at  tbe  ^TusHm  S»'oji's  />-  tbe 
Tennessee  River,  as  designed  and  projected  by  your  department,  is,  in  my  judg- 
ment, of  vital  importance  in  accomplishing  the  purpose  of  the  law.  I  should  be 
pleaseil.  therefore,  to  have  you  allot  to  that  work  all  of  the  aforesaid  bah' nee. 
after  deducting  the  sum  of  $400,000.  which  I  understand  will  be  acquired  for 
the  purchase  of  land  required  in  connection  with  another  pro.iect." 

What  has  that  to  do  with  your  contract? 

Mr.  Martin.  It  has  not  anything  to  do  with  it. 

Mr  Garrett.  I  notice  in  Mr.  Graham's  report  of  his  investigation  in  connec- 
tion with  the  statement  of  Col.  .Toyes,  on  page  5,  it  says :  "  Under  a  project 
No.  12F  in  regard  to  land  for  the  United  States  nitrate  plant  No.  2  at  Muscle 
Shoals  there  was  charged  to  the  appropriations  for  this  fund  $350,000."  That 
was  under  the  national  defense  act,  section  124? 

Mr  Martin.  I  am  not  familiar  with  that.  I  am  only  familiar  with  what 
has  been  state<l  to  the  committee  by  Gen.  Williams  and  Maj.  Bums.  The 
Secretary  of  War  stated  that  none  of  that  appropriation  was  used  for  nitrate 

plant  No.  2.  ,      . ,  ^  «  ^     ,    », 

Mr.  Miller.  Mr.  Martin,  the  capital  stock  of  the  Alabama  Power  Co.  is  how 

much  ' 

Mr.'  Martin.  It  is  something  over  $18,000,000  and  about  $2,000,000  of  pre- 
ferred stock ;  that  is,  outstanding,  I  mean.  ^  .^     e.^  *.      * 

Mr.  Miller.  Your  company  is  incorporated  under  the  laws  of  the  State  of 

Alabama? 

Mr.  Martin.  Yes.  ^^  .^         .  .^  i 

Mr.  Miller.  What  do  your  articles  of  incorporation  specify  as  to  your  capital 

stock? 

Mr.  Martin.  Authorized? 

Mr.  Milleb.  Yes. 

Mr.  Martin.  $50,000,000.  ^        *.„..^.x^. 

Mr.  Miller.  And  out  of  that  there  has  been  issued  about  $18,000,000  m  com- 
mon stock? 


Mr.  Martin.  Approximately  $18,750,000  of  common  stock. 

Mr.  Miller.  How  much  preferred  stock? 

Mr.  Martin.  I  think  there  are  about  20,000  shares  outstanding,  about 
$2,000,000. 

Mr.  Miller.  Is  the  status  of  your  preferred  stock  as  distinguished  from  the 
status  of  your  common  stock  controlled  by  any  law  of  the  State  of  Alabama  or 
controlled  by  the  by-laws  of  your  company? 

Mr.  Martin.  I  suppose  by  both,  by  our  charter  and  by  the  laws  of  Alabama. 

Mr.  Miller.  Is  there  any  definition  of  the  status  of  the  preferred  stock  in 
the  laws  of  the  State  of  Alabama? 

Mr.  Martin.  Yes ;  preferred  stock  has  such  status  as  the  articles  of  incorpora- 
tion of  a  company  give  to  it. 

Mr.  Miller.  What  do  the  articles  of  incorporation  of  your  company  give  to 
the  preferred  stock? 

Mr.  Martin.  It  is  a  charge  on  the  earnings  of  the  company,  of  course:  the 
net  earnings  of  the  company — those  earnings  as  they  are  determined  after 
paying  the  operating  expenses  and  fixed  charges. 

Mr.  Miller.  Is  it  voting  stock? 

Mr.  Martin.  Yes ;  it  is  voting  stock. 

Mr.  Miller.  In  the  annual  meetings  of  the  directors? 

Mr.  Martin.  Yes ;  it  votes  pari  passu  with  the  common  stock. 

Mr.  Miller.  Did  I  understand  you  correctly  when  you  said  the  entire  com- 
mon stock  of  the  Alabama  Power  Co.  is  controlled  by  the  Alabama  Traction, 
Light  &  Power  Co.  (Ltd.)? 

Mr.  Martin.  It  is  owned  by  that  company  and  the  common  stock  of  that 
company,  in  equivalent  amount,  is  held  by  the  public. 

Mr.  Miller.  Then,  so  far  as  the  policy  of  the  Alabama  Power  Co.  is  con- 
cerned, it  is  controlled  by  the  Alabama  Traction,  Light  &  Power  Co.  (Ltd.)  ? 

Mr.  Martin.  By  the  stockholders  of  that  company. 

Mr.  Miller.  And  the  majority  of  stockholders  of  that  company  are  foreign 

stockholders? 

Mr.  Martin.  There  is  more  than  50  per  cent  of  them,  as  I  recollect,  who 
live  outside  of  the  United  States,  but  I  might  add  that  the  only  dividends  of 
any  sort  or  kind  that  have  been  paid  on  our  securities  have  gone  to  American 
security  holders. 

Mr.  Miller.  I  am  talking  about  the  stock. 

Mr.  Martin.  Our  preferred  stock  is  entirely  held  in  this  country. 

Mr.  Miller.  Mr.  Martin,  is  any  of  the  stock  of  the  Alabama  Power  Co.,  out- 
side of  the  20,000  shares  of  preferred  stock,  held  by  individuals? 

Mr.  Martin.  No.  The  stock  of  Alabama  Traction  Light  &  Power  Co.  (Ltd.), 
is  held  by  individuals. 

Mr.  Miller.  Then  there  must  be  a  pooling  contract? 

Mr.  Martin.  There  are  a  great  many  individuals. 

Mr.  Miller.  Then  there  is  a  pooling  contract,  is  there  not? 

Mr.  Martin.  There  is  one  pooling  arrangement,  yes. 

Mr.  Miller.  There  is  a  pooling  arrangement  by  which  all  of  these  indi- 
viduals   ^  .  - 

Mr.  Martin   (interposing).  Not  all  of  them,  just  among  a  certain  group  of 

individuals.  ^    ,  „ 

Mr.  Miller.  Just  the  minority  of  the  holders  of  the  common  stock? 
Mr.  Martin.  Yes ;  it  represents  a  minority. 
(Thereupon  the  committee  took  a  recess  until  2  o'clock  p.  m.) 

after  recess. 

The  committee  met  pursuant  to  recess  at  2  o'clock  p.  m. 

The  Chairman.  Mr.  Almon,  I  believe  you  desire  to  make  a  brief  statement. 

STATEMENT  OF  HON.   EDWABD  B.   ALMON,   A   REPRESENTATIVE 
IN  CONGRESS  FROM  THE  STATE  OF  ALABAMA. 

Mr.  Almon.  Mr.  Chairman,  I  want  to  make  a  very  brief  statement  to  correct 
what  I  think  is  an  erroneous  conclusion  drawn  by  Mr.  Martin  when  he  stated 
that  he  did  not  understand  that  nitrate  plant  No.  2  and  the  Gorgas  plant  were 
authorized  and  constructed  by  virtue  of  section  124  of  the  national  defense 
act.     The  national  defense  act,  section  124,  authorized  the  President  to  con- 


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MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


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struct  one  or  more  air  nitrogen  plants  to  be  operated  either  witli  steam  or 
hydroelectric  power,  one  or  both,  for  manufacture  of  munitions  in  time  of  war 
and  fertilizer  in  time  of  peace. 

I  have  been  somewhat  familiar  with  this  subject  and  have  given  it  some  at- 
tention by  virtue  of  the  Muscle  Shoals  being  in  my  district,  but  do  not  claim 
to  have  any  better  knowledge  of  it  than  others.  The  national  defense  act 
authorized  the  building  of  these  plants.  Plant  No.  1,  plant  No.  2,  and  plant*- 
Nos.  3  and  4  which  were  stopped  before  they  were  completed  in  the  State  of 
Ohio,  were,  all  four,  in  my  opinion,  authorized  by  the  national  defense  act. 
The  Wilson  Dam  is  authorized  by  the  national  defense  act.  It  was  so  under- 
stood by  the  President,  it  would  seem,  when  he  issued  an  order  on  the  23d  day 
of  February,  1918,  which  is  very  short,  and  I  will  read  it : 

"  My  Dh\r  Mb.  Secretary  :  I  refer  to  section  124  of  the  national  defense  act  of 
June  3,  1916,  authorizing  the  President  to  determine  the  best  means  and  adopt 
the  most  advantageous  projects  for  the  production  of  nitrates  and  appropriating 
the  sum  of  $20,000,000  for  that  purpose.  Of  this  appropriation  I  am  advised  that 
there  is  an  available,  unallotted  balance  of  $13,785,000.  The  completion  of  dam 
and  power  house  No.  2 — and  that,  of  course,  is  a  part  of  nitrate  plant  No. 
2 — at  the  Muscle  Shoals,  on  the  Tennessee  River,  as  designed  and  projected  by 
your  department  is,  in  my  judgment,  of  vital  importance  in  accomplishing  the 
purpose  of  the  law." 

The  Chairman.  That  letter  was  read  in  the  hearings  this  morning. 

Mr.  Almon.  Now,  I  want  to  make  one  further  statement,  that  the  records, 
if  not  in  evidence,  can  be  put  in  evidence,  to  show  that  $350,000  of  the  $20,- 
000,000  was  expended  on  nitrate  plant  No.  2. 

Mr.  Wmght.  $350,000,000. 

Mr.  Almon.  No;  there  was  only  $20,000,000  appropriated;  $350,000,  as  the 
undisputed  records  sliow,  was  used  out  of  that  $20,000,000  in  the  construction 
of  nitrate  plant  No.  2,  all  of  which  I  think  shows  conclusively  that  Mr.  Martin 
was  in  error  when  he  formed  the  conclusion  that  nitrate  plant  No.  2  and  the 
Gorgas  plant  were  not  constructetl  by  virtue  of  the  national  defense  act. 

I  would  like  also  to  call  attention  to  this  fact.  I  remember  last  February 
when  we  had  up  the  question  of  an  appropriation  of  $10,000,000  to  complete  the 
work  on  the  dam,  the  question  was  tirst  a  mooted  question  as  to  w^hether  it  was 
subject  to  a  point  of  order.  After  thorough  investigation,  Mr.  Graham,  who 
was  verj-  familiar  with  the  subject,  announced  in  the  open  House  of  Congress 
that  the  national  defense  act,  section  124,  authorize<l  this  $10,000,000  additional 
appropriation  to  complete  the  dam. 

I  just  wanted  to  make  those  statements  which,  I  think,  on  careful  study  by 
the  committee,  will  cause  them  to  come  to  the  conclusion  that  nitrate  plant 
No.  2  and  everything  connected  with  it,  such  as  tiie  Gorgas  plant,  the  Steam 
plant,  and  the  Wilson  Dam,  are  all  a  part  of  the  nitrates  program  provided  for 
in  the  national  defense  act. 

The  Chairman.  Mr.  Dent,  the  committee  will  be  pleased  to  hear  you. 

STATEMENT  OF  HON.  S.  HTTBEBT  DENT,  JB.,  ATTORNEY  FOB  THE 

ALABAMA  POWER  CO. 

Mr.  Dent.  Mr.  Chairman  and  gentlemen  of  the  conunittee,  I  confess  when 
I  first  appeared  before  this  conmiittee  in  the  attitude  of  an  attorney  I  felt 
a  little  queer  in  view  of  my  long  association  around  the  table  with  the  members 
of  this  conmiittee.  However,  I  am  very  glad,  very  nmch  pleased,  indeed,  to 
renew  my  acquaintance  with  the  members  of  this  conunittee,  with  whom  I 
have  served  so  long  and  so  cordially. 

I  wish  to  state.  Mr.  Chairman,  at  the  outset  that  I  apiiear  before  the  com- 
mittee simply  and  solely  for  the  purpose  of  presenting  the  legal  rights  of  my 
clients  in  the  property  involved  in  the  Ford  proposition.  I  am  not  concerned 
with  any  policy  that  the  committee  may  see  fit  to  adopt  relative  to  the  di!«- 
position  of  Muscle  Shoals.  That  is  a  matter  entirely  for  tlie  good  judgment  of 
this  committee,  and,  knowing  the  membership  of  this  conunittee  as  I  do.  I 
am  sure  that  this  committee  will  give  due  and  careful  consideration  to  every 
proposition  that  is  made,  looking  to  the  good  of  the  Government  and  of  the 
country  in  its  final  disposition  of  this  matter. 

So  far  as  Muscle  Shoals  itself  is  concerned,  many  members  of  this  committee 
know  that  during  my  service  in  Congress  I  was  quite  active  in  trying  to  have 
Muscle  Shoals  developed  in  some  way.  It  was  started  when  I  was  a  Member, 
and  the  chairman  was  also  a  member,  of  the  conference  committee  when  the 


national  defense  act  was  passetl  in  1916.  I  fought  for  that  proposition  up  to 
the  time  that  my  term  of  oftice  expired  as  a  member  of  (>)ngress  on  the  4th 
day  of  last  March. 

The  Ford  proposition  is  a  new  proposition  in  connection  with  Muscle  Shoals. 
It  is  a  proposition  that  has  arisen  since  I  retired  from  Congress.  It  was  never 
made  during  my  term  of  office  as  a  Member  of  Congress,  and  so  far  as  the 
Gorgas  plant  is  concerned,  and  that  is  the  property  in  which  I  am  interested 
as  an  attorney,  I  do  not  know  that  I  ever  heard  of  the  Gorgas  plant  i^ending 
the  various  propositions  that  were  made  to  develop  Muscle  Shoals  during  my 
term  of  service  as  a  Member  of  Congress,  and  while  we  were  trying  to  develop 
Muscle  Shoal  a  I  do  not  recall  that  the  Gorgas  plant  ever  entered  into  any  of 
our  deliberations  or  was  ever  considered  as  a  necessary  adjunct  to  the  devel- 
opment of  the  Muscle  Shoals  proposition.  As  a  matter  ot  fact  I  may  have 
heard  of  the  Gorgas  plant,  but  it  had  no  significance  to  me.  I  knew  not  where 
it  was  or  how  it  was  constructed,  and  when  we  were  endeavoring  in  the  last 
Congress  to  get  the  Government  to  continue  its  operations  at  Muscle  Shoals  I 
am  sure  that  the  Gorgas  plant  was  never  considered  as  necessary  in  order  for 
the  Government  to  develop  that  project.  So  that  the  Gorgas  plant  has  been 
put  into  the  Muscle  Shoals  project  by  Mr.  Ford,  and  since  the  4th  day  of  last 
March. 

Now,  let  it  be  remembered  that  the  Gorgas  plant  is  88  miles  south  of  Muscle 
Shoals ;  that  it  is  situated  out  in  the  coal  fields  of  Walker  County ;  that  the 
original  plant  was  constructed  by  the  Alabama  Power  Co.  as  a  reserve  plant 
in  order  to  effectuate  their  hydroelectric  system  in  the  State  of  Alabama,  to 
utilize  it  in  case  of  low  water. 

According  to  the  proof  the  Government  itself  came  to  the  power  company 
with  the  idea  of  utilizing  this  plant  pending  the  construction  of  its  Muscle 
Shoals  project,  after  the  Government  had  decided  to  undertake  the  manufacture 
of  nitrates  at  that  point.  ^ 

Now,  Mr.  Chairman,  the  examination  in  this  case  has  taken  a  wide  range. 
A  great  many,  it  seems  to  me,  immaterial  questions  have  been  asked  of  the 
president  of  this  company  in  his  testimony  before  the  committee,  undertaking 
to  present  his  legal  rights ;  and  let  it  be  remembered  right  here,  too,  that  this 
is  the  first  time  that  the  company  has  had  an  opportunity  to  be  heard  at  all. 
Notwithstanding  the  fact  that  everybody  concedes  that  it  owned  the  original 
plant  at  Gorgas;  notwithstanding  the  fact  that  everybody  concedes  that  it 
owns  the  land  upon  which  the  plant  is  located;  notwithstanding  the  fact  that 
everybody  concedes  that  it  owns  the  right  of  way  over  which  the  transmission 
line  up  to  Sheffield  runs,  yet  it  never  was  consulted  either  by  Mr.  B'ord  or  by 
the  War  Department  as  to  its  rights  in  the  matter  at  all,  and  this  is  the  first 
opportunity  it  has  had  to  present  those  rights  to  anybody. 

I  take  it  for  granted,  Mr.  Chairman,  that  it  is  an  immaterial  matter,  whether 
it  be  true  or  not,  that  the  i)eople  of  Alabama  are  hostile  to  the  Alabama 
Power  Co.  I  take  it  to  be  immaterial  whether  a  majority  of  the  stock  of  the 
Alabama  Power  Co.  is  owned  by  people  in  England  and  other  foreign  countries 
or  not.  I  take  all  of  these  things  to  be  absolutely  immaterial,  if  the  Alabama 
Power  Co.,  a  coiporation  duly  chartered  under  the  laws  of  Alabama,  has  a 
valid  contract  with  the  Government  of  the  United  States. 

Now,  of  course,  everybody  knows  that  there  is  some  prejudice,  some  hos- 
tility against  every  public-service  corporation  in  this  country.  It  is  sometimes 
a  little  difficult  to  understand,  because  I  do  not  see  how  we  can  get  along  with- 
out them,  myself;  but  still  that  hostility  exists  against  every  kind  and  char- 
acter of  public-service  corporations ;  but  I  do  know  this,  that  the  Alabama 
Power  Co.  is  chartered  under  the  laws  of  Alabama ;  that  it  is  subject  to  the 
jurisdiction  and  control  of  the  Public  Service  Commission  of  Alabama,  and  that 
conmiission  has  about  as  wide  powers  as  any  I  know  of  in  any  State  in  the 
Union ;  and  I  know,  furthermore,  that  Alabama  is  one  of  the  richest  States  in 
the  United  States  in  water  power,  and  during  all  of  its  existence  as  a  State 
that  water  power  had  been  going  to  waste  until  the  Alabama  Power  Co.  came 
to  our  assistance. 

But  that  is  neither  here  nor  there.  The  fact  is,  the  Alabama  Power  Co.  has 
a  contract  with  the  Government  of  the  United  States,  conceding  now  first  the 
validity  of  the  contract.  It  has  a  contract  with  the  Government  of  the  United 
States  by  which  the  Government  of  the  United  States  was  to  furnish  the 
Jnoney  to  increase  the  equipment  at  the  Gorgas  plant  and  at  the  end  of  a  cer- 
tain period,  or  at  a  particular  time,  we  may  say,  the  Government  has  the  right 
to  demand  of  the  Alabama  Power  Co.  that  it  purchase  the  property  whicli  was 


I. 

V 


I 


'    I 
f 


744 


MUSCLE  SHOALS  PBOPOSITIONS. 


MUSCLE   SHOALS   PROPOSITIONS. 


745 


placed  upon  its  land  and  in  connection  with  its  original  plant,  and  the  Alabama 
I  ower  Co.,  on  the  other  hand,  has  the  right  to  demand  of  the  Government  that 
it  sell  to  it  that  power  equipment. 

Now,  what  are  the  objections  to  that  contract?    First,  it  is  said  that  the 
contract  was  dated  on  December  1,  1917.     Second,  it  is  said  that  the  contract  is 
violative  of  the  spirit  and  intention  of  section  124  of  the  national  defense  act 
And  third,  it  is  said  that  it  is  a  hard  and  unconscionable  bargain 

Now  let  us  take  those  three  objections  up  in  the  inverse  order.  First  that 
It  is  a  hard  and  unconscionable  bargain. 

In  the  first  place,  let  me  call  the  attention  of  the  lawyers  on  this  committee 
to  the  fact  that  if  this  contract  is  unconscionable,  if  it  is  a  hard  bargain  it 
appears  on  the  face  of  the  instrument  itself.  It  has  not  been  developed  bv  any 
outside,  extraneous  testimony.  I  repeat,  it  appears  on  the  face  of  the  instrument 
Itself.  Now,  I  know  of  no  rule,  even  in  a  court  of  e<]uitv,  which  will  relieve 
against  a  contract  because  one  party  gets  an  unfair  advantage  over  the  other  if 
that  advantage  appears  on  the  face  of  the  contract  itself  and  the  contract  was 
executed  by  parties  competent  to  contract.  If  both  parties  had  the  mentality  to 
make  the  contract,  could  read  and  understand  the  contract,  no  court  on  God's 
green  earth  would  relieve  against  its  terms  because  on  the  face  of  it  it  appears 
that  one  party  got  a  little  advantage  of  the  other.  One  of  the  parties  must 
be  under  a  disability  or  there  must  have  been  some  outside  pen^etrated  fraud  or 
advantage  taken  before  a  court  of  equity,  even,  would  intervene  to  relieve 
against  a  contract  of  that  kind ;  but  let  us  see  if  the  contract  is  unconscionable 

The  mam  reason,  as  I  gather  it,  from  the  various  questions  asked  by  the 
members  of  this  committee,  that  it  is  a  hard  bargain  and  an  unconscionable 
contract,  is  because  the  only  party  that  can  purchase  the  Government's  in- 
terest m  the  contract  is  the  Alabama  Power  Co.  Now,  is  that  unusuaP  I 
again  ask  the  lawyers  on  this  committee  if  the  law  books  are  not  full  of  cases 
where  the  owner  of  land  has  entered  into  a  cootract  with  a  third  party  to  put 
improvements  on  his  land  and  to  use  those  improvements  for  a  stipulated 
period  of  time,  and  at  the  end  of  that  time  the  owner  to  pay  for  them  at  such 
a  price  as  may  be  agreed  upon  between  them,  or  if  not  at  such  price  as  may 
be  tixe<l  by  arbitration.  I  do  not  know  of  anything  that  could  be  fairer  thaii 
that.    How  else  could  you  have  made  the  contract. 

The  Government  might  have  gone  down  there  and  put  up  a  plant  of  its 
own,  but  I  dare  say  it  would  have  cost  more  than  it  will  cost  the  Government 
under  this  plan,  and  let  me  remind  this  committee  that  the  Government  did 
go  to  Nashville  and  put  up  a  powder  plant,  and  the  Government  went  .vcr 
here  to  Nitro,  Va.,  and  put  up  plants,  spending  millions  of  dollars  iipo" 
those  two  plants  with  the  result  that  when  the  Government  did  it  itself,  both 
of  them  were  sold  for  scrap  and  the  Government  only  got  a  few  thousand 
dollars  out  of  it,  whereas  under  this  contract  the  Government  has  the  right 
to  obtain  the  fair  value  for  the  property  that  is  put  upon  the  land  of  the  Ala- 
bama Power  Co.,  and  if  the  parties  themselves  can  not  agree  upon  the  terms, 
then  arbitrators  fix  the  value,  and  arbitrators,  Mr.  Chairman,  are  not  bound 
by  the  strict  rules  of  law  in  fixing  the  price  of  property. 

I  dare  say  they  would  take  into  consideration  the  original  amount  that  the 
Government  put  into  the  plant ;  I  dare  say  they  would  consider  how  much  it 
would  cost  to  reproduce  it  at  this  time,  if  they  were  entering  into  the  arbitra- 
tion now;  and  I  dare  say  they  would  consider  the  earning  capacity  of  the 
plant  as  it  is,  and,  of  course,  take  into  consideration  the  wear  and  tear  and 
the  use  of  the  property  for  the  time  that  it  has  been  used.  All  of  those  things 
l>eing  taken  into  consideration,  the  arbitrators  could  reach  a  fair  conclusion 
as  to  what  the  Alabama  Power  Co.  would  have  to  pay  for  this  property,  and 
under  the  contract  they  would  have  to  pay  that  price,  and  I  venture  the  as- 
sertion that  this  is  one  of  the  fairest  contracts  that  was  made  during  the 
war.  in  the  stress  of  war,  of  that  class. 

Now,  it  was  not  unusual  for  the  Government  to  make  contracts  of  this  kind ; 
in  fact,  the  Government  made  contracts  of  this  kind  all  over  this  country  from 
the  beginning  of  the  war  almost  up  to  the  end,  and  if  you  will  search  the 
records  of  the  various  departments  of  the  Government,  you  will  find  that  this 
character  of  contract  was  made  by  the  different  branches  of  the  Government 
in  various  parts  of  the  United  States  during  the  war,  and  the  only  difference 
that  I  have  found  is  that  in  most  of  the  contracts,  the  Government,  if  the  con- 
tractor did  not  pay  the  price  that  the  Government  thought  its  property  was 
worth,  could  remove  the  property  from  the  premises  at  its  own  expense, 
whereas  under  this  contract  the  Government  can  either  remove  it  if  it  wants 


to  or  it  can  make  the  Alabama  I»ower  Co.  pay  what  arbitrators  say  is  the  fair 

value  of  the  property.  ,     ^  v   f  ^^ 

Now,  just  let  me  call  attention  right  in  that  connection  to  the  hearings  before 
ihe  Naval  Affairs  Committee  of  the  United  States  Senate,  Sixty-fifth  Con- 
<vress,  third  session,  pursuant  to  Senate  resolution  404,  the  resolution  directing 
the  Committee  on  Naval  Affairs  to  investigate  the  so-called  motor  boats  and 
the  contracts  therefor  made  with  the  Ford  Motor  Co.  for  the  construction  of 

said  boats. 

Admiral  Tavlor  testified  before  the  committee.  I  ju-^^t  want  to  road  a  few  ex- 
tracts to  show  that  tliey  made  this  sort  of  contract  with  Mr.  Ford  and  they 
made  them  with  various  other  people  during  the  war,  and  put  money  on  prop- 
erty belonging  to  somebody  else,  with  the  understanding  they  could  move  it  off 
or  get  paid  for  it.    That  is  all  there  is  to  it.    Senator  Walsh  said : 

••  In  one  of  Senator  Poindexter's  questions  he  referred  to  the  fact  that  you 
had  spent  $3,500,000  on  property  which  belonged  to  the  Ford  Co.  I  understood 
you  to  say  you  had  spent  $35,000,000  on  property  owned  by  others  on  improve- 
inents  on* that  (their)  property." 

The  Chairman.  AVhat  page  is  that? 

Mr.  Dent.  Page  50. 

"Admiral  Taylor.  On  one  enterprise,  in  connection  with  the  150  destroyers, 
and  a  part  of  that  is  on  property  which  we  own.  A  part  of  it  is  upon  property 
belonging  to  the  city  of  Providence  and  the  rest  upon  property  of  various  ship- 
yards. Those  contracts  were  made  before  this  contract,  and  this  contract  fol- 
lows substantially  the  form  of  the  other  contracts. 

"  Senator  Walsh.  Can  you  designate  some  of  the  companies  with  which  you 
made  such  arrangements? 

"Admiral  Taylor.  Yes.  The  Bethlehem  Co.,  both  for  the  Fore  River  Ship- 
yard and  the  Union  Iron  Works ;  the  New  York  Shipbuilding  Co.,  Cramps,  and 
Newport  News.  If  I  am  not  mistaken,  that  advanct*  for  the  increasefl  plant  at 
the  yard  of  the  New  York  Shipbuilding  Co.  was  .$3,500,000,  in  connection  with 
the  destroyers. 

"  Senator  Poinuexter.  On  land  th&t  the  Government  did  not  own? 

"Admiral  Tayix)R.  On  land  that  the  Government  did  not  own.  That  was 
fully  understood  and  exi)lained  at  the  time  we  got  the  authorization ;  it  was 
fully  explained  to  the  Committee  on  Appropriations  of  the  House  and  they  were 
told  what  we  exi)ecte<l  to  do,  and  they  gave  us  the  money  and  they  gave  us  the 
.strongest  powers  that  have  ever  bet»n  put  into  a  bill. 

"  Senator  Pittman.  You  say  there  was  $3,500,000  Jidvanced  to  the  New  York 
Shipbuilding  Co.    We  built  a  plant  which  cost  that  amount? 

"Admiral  TayijOR.  We  have  advanced  them  working  capital  to  the  amount 
of  about  $5,000,000. 

"  Senator  Pittman.  You  gave  to  the  Fore  River  Co.  $25,000,000." 

Again,  my  attention  is  called  to  page  38  of  the  same  hearings. 

The  Chairman.  Have  you  identified  the  hearing  for  the  record? 

Mr.  Dent.  Yes,  sir.    On  page  38,  Senator  Lodge,  quizzing  Admiral  Taylor : 

"  Senator  Lodge.  That  leads  me  to  ask  another  question.  What  becomes  of 
the  plant  which  the  Government  built  on  the  River  Rouge? 

"Admiral  Taylor.  The  contract  provides  for  the  handling  of  that  plant  the 
Tsame  as  the  other  plants  which  we  have  provided.  That  contract  is  substan- 
tially the  same  in  that  regard  as  the  contract  made  for  the  destroyers,  with  the 
exception  that  it  is  slightly  more  favorable.  The  contract  provides  that  at  the 
end  of  the  contract  there  shall  be  an  ai>praisal  made  of  that  plant  by  the  com- 
pensation board,  which  handles  the  financial  matters,  and  if  the  contractor  is 
satisfied  with  our  appraisal  he  may  pay  the  price  for  the  plant.  If  he  does  not 
accept,  we  will  have  the  right  to  remove  the  portable  plant.  In  the  case  of  the 
other  plant,  we  have  the  right  to  wreck  the  buildings  for  their  scrap  value. 
Tln>se  are  the  standard  provisions  in  these  contracts." 

Now,  I  think,  Mr.  Chairman,  that  the  Alabama  Power  Co.,  when  that  was  the 
habit  of  the  (lovernment.  not  only  in  the  War  Department  but  in  the  Navy  De- 
partment and  in  the  other  branches  of  the  (tovernment.  shcmld  not  be  singled  out 
as  having  made  an  unconscionable  bargain  with  the  Government,  especially  when 
their  contract  was  a  little  different  from  the  others  and  provides  for  a  repay- 
ment to  the  Government  of  the  property  that  they  invest  in  their  plant  at  fair 
value,  to  be  fixed  by  three  arbitrators,  one  selected  by  the  Government,  the  other 
by  the  power  company,  and  the  two  selecting  a  third. 


746 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS   PROPOSinONS. 


747 


Now,  file  otlier  objecti»»ns  to  the  contract  are  the  date  and  the  fact  it  is  con- 
trary to  section  124  of  tlie  nati<>nal  defense  a<'t. 

I  take  it,  it  will  not  be  disputed  l»y  any  lawyer  on  the  coninilttiv  that  one  of  the 
well-estahlisheil  excei)tions  to  the  rule  that  parole  evidence  can  not  be  introduced 
to  vary  a  written  instrument  is  that  you  can  always  prove  the  true  date  of 
the  instrument.  That  rule  is  laid  down  in  all  the  lawbooks  without  any  single, 
solitary  exception,  and  the  un<lisputed  proof  in  this  case  shows  that  this  con- 
tract was  not  actually  executed  until  November.  1918,  some  months  after  the 
passaii:e  of  the  act  of  July  9,  1918,  authorizing  the  heads  of  the  various  depart- 
ments to  sell  pror)erty  of  the  Government  that  was  acquii*ed  during  the  war, 
just  as  this  was. 

Now.  l>efore  I  go  any  further  into  that,  the  question  has  been  raistnl  as  to 
whether  or  not  the  Alal>ama  Power  Co.  hud  anything  to  do  with  the  passage  of 
that  law.  I  would  like  to  make  a  brief  statement  in  regard  to  that,  because  that 
question  has  been  raise«l  by  some  questions  by  diflFerent  members  of  the  ooin- 
mittee. 

That  i)rovision  of  law  is  a  rider  on  the  Army  api)ropriation  bill  of  July  9, 
191S.  It  is  very  conqirehensive.  I  have  before  me  that  Army  appropriation  act 
on  page  497  of  this  volume,  which  the  committee  has,  of  "  Legislation  of  the 
war  Congress  relative  to  the  Army,"  which  was  compiled  shortly  after  the  war 
and  given  to  each  member  of  our  connnittee  at  the  time.  Ot  course,  the  act  can 
be  found  elsewhere.  On  page  G  of  the  act,  page  r»02  of  this  volume,  there  is  ii 
provision  headed,  "  Sale  of  war  supplies." 

The  Chairman.  Wjis  that  provision  put  in  by  the  Senate? 

Mr.  Dent.  No,  sir ;  I  «lo  not  think  that  was  put  in  by  the  Senate.  I  was  going 
to  explain  that  to  you,  ami  I  think  you  will  recall,  ^Ir.  Chairman,  when  I  make 
the  explanation,  how  this  all  occurred.  I  thought  I  would  read  it  to  the  com- 
mittee, as  it  is  verj*  brief,  to  show  how  comprehensive  it  is. 

The  Chairman.  Proceed. 

Mr.  Dent.  "  That  the  President  be,  and  he  hereby  is,  authorized,  through  the 
head  of  any  executive  department,  to  sell,  upon  such  terms  as  the  head  of 
such  department  shall  deem  expedient,  U>  any  person,  partnership,  associa- 
tion, corporation,  or  any  other  department  of  the  Government,  or  to  any  foreign 
State  or  Government  engage<l  in  war  against  any  Government  with  which  the 
United  States  is  at  war.  any  war  supplies,  material,  and  equipment,  and  any 
by-product  there<if,  and  any  building,  plant,  or  factory  acquired  since  April  6, 
1917,  including  the  lands  upon  which  the  plant  or  factory  may  be  s.tuated,  for 
the  production  of  such  war  supplies,  materials,  and  equipment  which,  durinji 
tlie  present  emergency,  may  have  or  may  hereafter  be  purchased,  at*quired,  or 
manufactured  by  the  United  States.    *    *     ♦  " 

Now,  I  want  to  refresh  the  memory  of  several  members  of  the  connnittee 
:»nd  particularly  the  chairman.  I  think  you,  Mr.  C!hairman,  will  recall  it  by 
reason  of  the  fact  that  you  and  I  served  on  the  conference  conmnttee  that 
hnally  worked  out  this  bill. 

The  Chairman.  It  went  to  conference? 

Mr.  Dent.  Yes,  sir. 

The  Chairman.  Then  it  must  have  been  put  in  in  conference,  ov  the  Senate 
may  have  offered  it  as  an  amendment. 

Mr.  Dent.  It  occurred  in  this  way,  as  I  recall  it,  Mr.  Chairman:  The  Sec- 
retary of  War  sent  to  me  at  that  particular  time,  and  for  some  months  before- 
hand, a  large  batch  of  bills  that  were  called  War  Department  measures,  that 
the  War  Department  wanted  to  get  through  Congress,  and  this  bill  was  amoug 
the  number.  The  Military  Affairs  Committee  met  and  favorably  reported  prac- 
tically all  of  these  W^ar  Department  measures,  measures  that  the  Secretary 
of  War  had  sent  down  to  me  as  chairman  to  present  to  the  conmiittee  and  had 
asked  for  their  passage.  Practically  all  of  these  bills  were  favorably  reported 
and  put  on  the  calendar,  but  the^calendar  was  so  crowded  we  could  not  get  auy 
day  to  consider  these  particular  bills,  so  we  decided  to  tack  them  on  to  tlit* 
Army  appropriation  bill  and  run  the  gtnUiet  of  a  point  of  order.  I  am  n<>t 
sure  whether  there  was  a  point  of  order  made  against  this  on  the  floor  of  the 
House  or  not ;  I  think  not.  My  recollection  is  that  this  was  incorporated  iu 
the  House  appropriation  bill  itself  and  went  through,  but  if  not  I  am  sure 
that  it  was  put  on  in  the  Senate  at  the  request  of  the  Secretary  of  War  and 
as  a  part  of  the  legislative  program  that  he  neeiled  during  the  war  to  carry 
out  war  purposes  and  contracts  that  had  already  been  made.  I  would  like  to 
send  this  act  up  to  you  to  look  at.  You  will  find  that  this  appropriation  bill 
of  July  9,  1918,  is  loaded  down  with  legislative  riders,  all  due  to  the  fact  that 


we  were  trying  to  put  through  the  legislation  that  the  War  Department  con- 
sidered as  absolutely  essential  in  order  to  carry  on  its  program.  Beginning 
on  page  36  of  the  bill  and  page  532  of  this  volume,  on  down  to  the  end  of  the 
hill,  page  58  of  the  bill,  and  page  554  of  this  volume,  are  the  riders.  There 
are  22  pages  of  riders  attached  to  the  appropriation  bill,  and  this  is  one  of  them. 
J  simply  show  you  that,  Mr.  Chairman,  in  order  to  explain  how  that  got  into 
the  Army  appropriation  bill.  It  was  a  request  of  the  Secretary  of  War  and 
vas  one  of  his  schemes  of  legislation. 

Now,  Mr.  Chairman,  coming  down  to  the  proposition  as  to  whether  or  not 
this  contract  is  violative  of  section  124  of  the  national  defense  act,  in  the  first 
I)lace  there  may  arise  some  question,  if  the  contract  between  the  Government 
and  the  Alabama  Power  Co.  violates  the  spirit,  the  purpose,  and  the  intent  of 
section  124,  whether  or  not  the  Government  itself  can  claim  any  right  in  the 
prendses,  and  whether  or  not  both  parties  are  not  in  pari  delicto,  and  the  law 
would  leave  them  where  they  stood.  Judge  Parker,  of  New  Jersey,  who  is  a 
member  of  the  conmiittee,  directed  attention  to  that  point,  when  Col.  Hull  was 
on  the  stand  testifying  as  to  this  contract.  However,  I  simply  mention  that 
because  it  is  not  the  disposition  of  our  people  to  take  any  such  technical  ad- 
vantage. We  are  standing  on  what  w^e  believe  to  be  substantial  rights,  but  our 
contention  is  that  this  se<-tion  absolutely  has  no  application  to  this  contract  for 
two  reasons:  First,  because  this  section  limited  the  appropriation  to  .$20,000,000, 
and  under  the  order  that  Judge  Almon  read  here  to-day,  which  is  the  same 
that  Mr.  Martin  read  to  the  committee  on  Friday,  it  was  provided  that  the 
unexpended  balance  of  that  money  should  be  used  for  the  construction  of  the 
dam,  so  that  there  was  nothing  left  by  way  of  appropriations  to  carry  on  any 
other  feature  of  section  124. 

Now,  section  124  gives  the  President  several  powers. 

In  the  first  place,  the  President  is  authorized  and  empowered  to  make  or 
cause  to  be  made  an  investigation  as  to  the  cheapest,  best,  and  most  available 
means  for  the  production  of  nitrate  and  other  munitions  of  war;  second,  he 
is  also  authorized  and  empowered  to  designate  for  the  exclusive  use  of  the 
United  States,  if  in  his  .iudgment  such  means  is  best  and  cheapest,  such  site 
or  sites  upon  any  navigable  or  nonnavigable  river  or  rivers  or  upon  the  public 
lands,  as  in  his  opinion  will  be  necessary  for  carrying  out  the  purposes  of  this 
act ;  and,  third,  he  is  authorized  to  construct,  maintain,  and  operate,  at  or  on  any 
Mite  or  sites  so  designated,  dams,  locks,  improvements  to  navigation,  power 
houses,  and  other  plants,  etc. 

So  that  the  President  under  this  order  simply  selected  and  designated  the 
site  and  expende<l  every  dollar  of  une3tpende<l  balance  of  that  .$20,000,000  in 
the  selection  and  improvement  of  the  site.  There  was  no  money  left  with 
which  to  build  any  nitrate  plants  under  that  section  of  the  law,  and  we  have 
got  to  look  somewhere  else  for  that  purpose. 

I  remember  distinctly,  as  I  recall  it,  asking  Secretary  Baker  on  one  occasion 
myself  where  they  got  authority  to  spend  the  $85,000,000  that  was  spent  down 
there  at  Muscle  Shoals,  and  he  answered  that  it  was  under  the  ordnance  and 
fortification  act  passe<l  during  the  war  that  this  money  was  expended;  but 
another  and  a  conclusive  reason  why  this  contract  is  not  governed  by  section 
124  or  that  portion  of  it  which  rjeads  that  "  the  plant  or  plants  provided  for 
under  this  act  shall  be  constructed  and  operated  solely  by  the  Government  and 
not  in  conjunction  with  any  other  industry  or  enterprise  carried  on  by  private 
capital,"  is  that  this  contract  is  not  either  for  the  construction  or  operation 
.loiutly  by  the  Alabama  Power  Co.  and  the  Government  of  the  nitrate  plant. 
The  contract,  at  most,  between  the  Government  of  the  United  States  and  the 
Alabama  Power  Co.,  in  so  far  as  it  relates  to  Muscle  Shoals,  is  nothing  more  nor 
less  than  the  purchase  of  energj'  by  the  Government  of  the  Unite<l  States  from 
the  Alabama  Power  Co.  for  the  purpose  of  supplying  them  with  light  and 
power  while  they  are  constructing  the  work  there  at  Muscle  Shoals. 

Why,  confessedly,  the  Alabama  Power  Co.  has  never  had  a  word  to  say  or  a 
thing  on  earth  to  do  with  the  construction  of  those  plants  at  Muscle  Shoals, 
and  the  mere  purchase  of  energy  under  this  contract,  the  mere  purchase  of  the 
right  to  acquire  power  from  a  plant  88  miles  away  so  that  they  might  have 
light  and  power  while  they  were  constructing  the  plant  can  not  in  any  form  be 
said  to  be  a  joint  contract  for  the  construction  of  the  nitrate  plant.  It  is 
straining  language,  Mr.  Chairman,  to  contend  otherwise. 

In  addition  to  that,  the  officers  of  the  Ordnance  Department  who  entered  into 
this  contract  for  and  on  behalf  of  the  Government  testify  distinctly  that  such 
is  not  the  case;  that  section  124  was  not  looked  to  for  the  purpose  of  making 


748 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


749 


this  contract  at  all.    For  instance,  during  Maj.  Gen.  Williams  s  testimony  be 
fore  this  committee,  part  2,  page  78,  Mr.  Miller  read  to  Gen.  AVilliams  that  por- 
tion of  the  act  of  June  3,  1916,  which  authorizes  the  President  to  erect  nitrate 
plants,  and  Gen.  Williams,  in  answer  to  the  question  propounded  by  Judge 
Miller!  after  reading  that  portion  of  the  section,  said :  ,  .     ^. . 

"Gen  Williams.  Not  a  cent  of  money  carried  in  that  act  was  used  in  this 
enterprise.  It  was  paid  for  out  of  the  appropriation  for  armament  and  forti- 
fications." 

Then  Mr.  Miller  said : 

"  Mr.  Miltj<:r.  Then  it  was  not  provided  for  under  this  act? 

"  Gen.  Williams.  No."  ,  ^  ^,  .,^ 

Now  that  is  the  construction,  ]Mr.  Chairman  and  gentlemen  of  the  committee, 
placed  upon  the  contract  by  the  officers  of  the  War  Department  themselves  who 
were  representing  the  Government  in  this  transaction. 

At  this  point  let  me  call  attention  to  the  fact  that  we  are  dealing  with  u 
peculiar  proposition  by  which  it  is  attempted  to  make  a  contract  on  the  part  of 
one  partv  with  another  for  the  disposition  of  the  proiierty  rights  of  a  third 
partv  All  we  are  asking  is  that  the  property  rights  of  the  third  party  should  be 
given  fair  and  just  and  due  consideration.  We  claim  that  m  order  for  the 
Government  to  carry  out  that  portion  of  the  contract,  if  the  Government  should 
enter  into  a  contract  with  Mr.  Ford  in  accordance  with  his  proposition,  the 
Government  must  condemn  our  contractual  rights  with  it,  as  well  as  the  land 
and  the  plant  which  confessedly  we  own  in  fee  simple.  In  order  to  do  that 
the  Government  must  surrender  about  $5,000,000  that  it  has  put  into  that 
Plant  and  in  addition  to  that  the  Government  would  be  required  to  pay  us 
whatever  the  courts  would  say  imr  property  rights  were  in  the  premises  down 
there,  amounting  at  least  to  some  three  or  four  million  dollars  In  other 
words,  if  the  Gorgas  plant  is  to  be  left  in  Mr.  Ford's  proposition  the  Govern- 
ment is  giving  to  Mr.  Ford  nine  or  ten  million  dollars,  free  gratis,  tor  absolutely 
nothing,  consisting  of  the  $5,000,000  that  they  have  already  expende<l  and  the 
something  like  $4,000,000  that  we  have  put  into  this  property 

The  Government  is  to  get  only  $5,(X)0,0(m  from  Mr.  Ford  for  the  two  b.g 
Plants  ;.t  Muscle  Shoals,  so  ths'.t  in  the  end  the  (ii.vernment  will  not  only  not  get 
a  nickel  for  its  plants  nt  Muscle  SIkkiIs  but  will  actually  have  to  go  down  in  its 
rK.ckets  in  order  to  carry  out  this  agreement  in  accordance  with  Mr.  Fords 
™^^^  why?     Is  it  ne<vssary  to  the  Muscle  Shoals  project?     Is  it  any 

Sart  of  it'  Is  it  not  88  miles  away  from  there?  Was  it  ever  considered  as  a 
part  of  the  Muscle  Shoals  project  when  we  undertook  to  get  the  (iovernment  to 
?on  i  ue  ts  operations?  Nobody  ever  heard  of  it  befoi^,  and  I  say  talk  about 
unconscionable  bargains,  talk  about  Imrd  bargains,  gentlemen  of  the  eommitte^ 
here  is  a  man  that  proposes  to  make  the  (Jovernment  go  down  in  its  pockets 
and  not  onlv  irive  up  the  $5,0<M^,0(H)  that  it  has  already  expended  uPon  this 
niaiit  but  to"  go  down  in  its  pockets  and  c«mdemn  the  private  property  of  an- 

0  1  er  p  rat  on  at  an  expanse  of  ut  Inist  three  or  four  million  dollars  m 
order  to  enable  Mr.  Ford  to  c.-.rry  out  his  Muscle  Shoals  pn»jei-t,  when  it  is 

^'*'^h!I^i<^'HIt^MlK  M^-M^iairman.     It  is  not  so  perfectly  clear-I  am  not  so  cock- 
sure  ns  mv  go<.d  friend.  Brother  (^lin,  is-that  the  Government  has  any  rig 
to  condemn  our  i»lant.  which  is  used  in  connection  with  another  purpose,  ami 
wh  ch  is  situateil  88  miles  nway  from  there.     The  right  to  condemn  is  a  poNNer; 
f,     riL'ht      It  is  a  verv  extensive  right  on  the  part  of  the  Government  of  tlv 
United  States,  but  that  right  to  condemn  is  limited  to  proi>erty  that  is  necessary 
and  essential  in  order  to  carry  out  the  fundamental  <Jovernment  imrpose;  ami 
if  it  can  be  shown  that  this  plant  is  not  necessary  in  order  to  effectuate  the 
nublic  mirpose  of  developing  Muscle  Shoals  so  that  we  can  make  nitrogen  frou 
fhe  air^  tl.I^  I  question  whether  any  court  in  this  land  will  take  our  proj^er 
nwav  from  us  and  give  it  to  Mr.  Ford  under  a  condemnation  proceeding.    At  an> 
rate'  if  you  make  this  contract,  nobody  could  blame  the  Alabama  Power  Co ,  a^ 
[he  owner  of  this  property,  from  asserting  its  rights  in  the  courts,  and  acceptance 
of  the  conrtact  in  its  present  form  would  mean  a  lawsuit. 
Now,  Mr.  Chairman,  I  do  not  intend  to  weary  the  committee  any  ^i^ore  than 

1  can  possiblv  help,  but  I  want  to  discuss  just  one  other  feature  of  this  proposi 

^'^Tiie'cHA^K^^  waift  to  'sat  Mr.  Dent,  that  you  are  not  wearying  the  com- 

mittee  but  the  committee  is  deeply  interested  in  what  you  are  saying. 
Mr.  Dent.  Thank  you  very  much.  Mr.  Chairman. 


Suppose  there  was  a  technical  advantage,  a  purely  legal  technical  advantage, 
that  tlie  Government  has,  tind  which  it  could  use,  in  order  to  take  advantage  of 
the  Alabama  Power  Co.  and  refuse  to  carry  out  the  terms  of  the  contract.  Let 
lis  come  right  down  to  that  point.  I  do  not  think  so,  because  I  think  we  have 
established  clearly  a  legal  right  in  the  premises  here  which  I  think  any  court 
of  the  land  will  uphold,  but  let  us  go  further  and  let  us  suppose,  jmst  for  a 
moment,  that  the  Government  could,  by  some  technical,  legal  question,  take 
advantage  of  the  Alabama  Power  Co.  jind  refuse  to  carry  out  this  contract 

Secretary  Weeks  stated  very  frankly  before  the  committee  that  he  was  sur- 
l>rised  at  the  opinion  of  the  Judge  Advocate  General  stating  that  this  contract 
was  void ;  but  even  if  it  were  void,  he  did  not  believe  that  a  great  Government 
like  this  ought  to  take  advantage  of  a  technicality  and  refuse  to  carry  out  it«? 
obligations,  and  thereby  set  such  an  example  to  the  entire  American  people 

The  Congress  of  the  United  States,  so  far  as  I  know,  representing  the  \ineri- 
can  people,  has  never  been  guilty  of  anything  of  that  kind.  On  the  contrary 
the  Congress  of  the  United  States  ha«  always  exhibited  just  the  opposite  spirit' 
That  was  well  illustrated  by  the  passage  of  what  somebody  has  seen  tit  to 
denominate  as  the  Dent  Act  of  March  2,  1919.  I  do  not  know  who  named  it 
the  Dent  Act,  because  we  all  worried  over  that  act  together  for  a  long  time 
and  we  had  a  great  deal  of  trouble  with  it.  You  will  remember  the  coini)trol- 
ler  brought  us  down  a  bill  which  we  did  not  like,  and  we  all  set  to  work  and 
wrote  one  ourselves,  and  finally  worked  it  out  among  ourselves,  but  at  any  rate 
that  act,  according  to  the  testimony  before  us,  as  I  recall,  at  that  tim'e  was 
said  to  have  involved  at  least  something  like  $1,600,000,000  worth  of  contracts- 
contracts  that  had  been  entered  into  over  the  telephone,  contracts  that  had 
been  entered  into  by  telegram,  contracts  that  had  been  entered  into  by  mere 
verbal  conversation  between  the  contracting  officers  and  the  contractor's.  Un- 
der the  ruling  of  the  comptroller,  it  was  held  that  not  a  single,  solitary  one 
of  those  contracts  could  be  enforced,  because  the  statute  required  that  all 
Government  contracts  should  be  signed  by  the  contracting  officer  and  attached 
to  the  contract  should  be  an  affidavit  to  the  effect,  as  I  recall  the  substance 
of  it,  that  the  contract  was  to  the  advantage  of  the  Government  and  that  he. 
the  officer,  had  no  personal  interest  whatever  in  it.  The  comptroller  ruled 
that  unless  all  three  of  those  conditions  were  complied  with— that  the  con- 
tract was  in  writing,  that  it  was  signed  by  the  contracting  officer,  and  this 
affidavit  attached  by  the  contracting  officer— that  the  contract  was  not  enforce- 
able. 

What  did  Congress  do  in  that  situation?  We  passed  the  so-called  Dent  Act 
correcting,  or  rather  validating,  so  to  speak,  every  bona  fide  contract  that  was  en- 
tered into  on  the  part  of  the  Government,  on  the  one  hand,  and  the  con- 
tractor, on  the  other,  regardless  of  its  form,  regardless  of  whether  it  was 
signed  by  the  contracting  officer  or  not,  regardless  of  whether  the  affidavit  was 
made  or  not ;  and  there  was  not  a  dissenting  voice,  as  I  recall  it,  on  the  floor 
of  the  House  against  the  passage  of  this  legislation.  We  did  have  some  con- 
troversy over  the  form  that  it  should  take.  Some  of  the  Members  wanted  a 
commission  to  pass  on  the  contracts,  whereas  the  bill  itself  authorized  it  to 
be  done  under  the  direction  of  the  Secretary  of  War,  as  reported  by  the  com- 
mittee, and  it  finally  passed  in  the  form  the  committee  reported  it.  But  there 
was  not  a  dissenting  voice,  as  I  recall  it,  on  the  floor  of  the  House  or  of  the 
Senate  against  the  passage  of  this  legislation.  Why?  Because  this  Govern- 
ment was  too  big  to  take  advantage  of  any  technicality;  and  if  the  contract 
had  been  entered  into  in  good  faith  and  it  had  been  performed  on  the  part 
of  the  contracting  party,  then  Congress  held  that  that  contract  should  be 
fulfilled. 

Now,  I  want  to  call  attention  briefly  in  that  connection  to  the  language  of 
this  statute.  As  I  construe  this  statute,  it  is  permanent  law.  It  is  the  law  of  to- 
day. The  time  provision  in  it  is  a  proviso  to  the  effect  that  this  act  shall 
not  authorize  payment  to  be  made  of  any  claim  not  presented  before  June  30. 
1919 ;  but  that  only  applies  to  cases  where  the  other  party  to  the  contract  has 
a  money  demand  agamst  the  Government.  The  Alabama  Power  Co.  has  no 
money  demand  against  the  Government  in  this  case,  but  is  simply  asking  that 
its  contract  be  fulfilled.  If  there  is  any  money  demand  at  all,  it  is  due  fix)m 
us  to  the  Government. 

Now,  that  statute  reads  as  follows : 

"  That  the  Secretary  of  War  be,  and  he  hereby  is.  authorized  to  adjust,  pay, 
or  discharge  any  agreement,  express  or  implied,  upon  a  fair  and  equitable 
basis  that  has  been  entered  into,  in  good  faith,  during  the  present  emergency 


750 


MUSCLE   SHOALS  PROPOSITIONS. 


and  prior  to  November  12,  1918,  by  any  officer  or  agent  acting  under  his  author- 
ity, direction,  or  instruction,  or  tliat  of  tlie  President,  with  any  person,  Arm, 
or  corporation  for  tlie  acquisition  of  lands  or  tlie  use  thereof,  or  for  damages 
resulting  from  notice  by  the  Government  of  its  intention  to  acquire  or  use  said 
lands  or  for  the  production,  manufacture,  sale,  acquisition,  or  control  of  equip- 
ment, materials,  or  supplies,  or  for  services,  or  facilities,  or  other  puiposes 
connecteil  with  the  prosecution  of  the  war,  when  such  agreement  has  been  per- 
formed in  whole  or  in  part,  or  expenditures  have  been  made  or  obligations  in- 
curred upon  the  faith  of  the  same  by  any  such  person,  firm,  or  corporation  prior 
to  November  12,  1918,  and  such  agreement  has  not  been  executetl  in  the  manner 
prescribed  by  law." 

Now,  I  say  that  that  statute  recently  passed  by  Congress  is  an  expression 
of  the  congressional  will  that  the  Government  of  the  United  States,  even  if  it 
had  the  opportunity  to  take  advantage  of  the  Alabama  Power  Co.  in  this  case, 
because  of  the  fact  that  perhaps  the  contract  may  be  in  violation  of  section  124 
of  the  national  defense  act,  that  under  no  circumstances  ought  the  Govern- 
ment, in  this  instance,  to  set  such  an  example  to  the  American  people. 

Mr.  Chairman,  in  simple  form,  that  presents  our  case.  Your  attention  has 
been  called  to  the  fact  that  we  also  own  the  abutting  property  at  dam  site  No. 
3  on  the  Tennessee  River,  which  is  involved  in  Mr.  Ford's  proposition.  Of  course, 
we  concede  that  if  the  Ford  proposition  should  be  accepted  by  the  Government, 
unquestionably.  Congress  could  authorize  that  property  to  be  condemned,  be- 
cause that  is  directly  in  connection  with  the  navigation  of  the  Tennessee 
River.  Tliere  is  no  question  about  that,  but  the  other  proposition  we  do  not 
by  any  means  concede.   . 

Our  contention  therefore  is  that  this  contract  is  really  fairer  than  most  of 
the  contracts  that  were  made  during  this  time ;  that  it  is  in  line  with  the  policy 
adopted  by  the  Government  during  the  war  in  making  such  contracts ;  that  it  is 
in  accordance  with  the  general  law  <m  the  subject,  that  the  owner  of  land  has 
a  right  to  make  a  contract  with  a  third  party  to  put  improvements  on  it,  he. 
the  owner,  to  purchase  the  improvements  at  the  end  of  a  certain  period,  either 
by  agreement  or  by  arbitration ;  that  the  date  of  the  contract  shows  that  it  was 
executed  after  (Congress  had  authorized  suoh  a  contract  to  be  executed,  and  I 
may  say  in  this  connection  that  the  right  to  make  a  sale  of  property  unques- 
tionably carries  with  it  an  incidental  right  to  make  a  contract  for  the  sale  of 
the  property;  and  that  it  is  not  in  violation  of  section  124  because  the  presi- 
dential order  and  the  testimony  of  the  Ordnance  Department  all  shows  that 
this  contract  was  made  under  the  authorizations  for  armament  of  fortiti- 
cati(ms;  and,  furthermore,  that  it  is  not  a  joint  undertaking  on  the  part  of 
the  Alabama  Power  Co.  and  nobody  can  contend  that  it  is  a  joint  undertaking 
to  build  and  construct  those  nitrate  plants  and  make  fertilizer  up  there  at 
Muscle  Shoals  on  the  part  of  the  Alabama  Power  Go.  and  the  Government 
simply  because  the  Alabama  Power  Co.  transmits,  for  a  distance  of  88  miles, 
a  little  power  in  order  to  light  the  grounds;  and,  lastly,  Mr.  Chairman,  we 
contend  that  even  if  you  have  the  right  to  take  a  technical  advantage  of  the 
Alabama  Power  Co.,  the  Government  of  the  United  States  is  too  big  and  Con- 
gress is  too  honest  to  justify  any  such  legislation. 

The  Chairman.  Mr.  Dent,  the  attention  of  the  committee  has  been  called  to 
two  laws  that  were  passed  in  1918,  one  of  which  you  have  already  explained. 

Mr.  Dent.  Yes. 

The  Chaieman.  Did  the  fii-st  law,  which  I  think  was  dated  in  May,  1918, 
have  anything  to  do  with  the  Alabama  Power  Co.  ? 

Mr.  Dent.  Mr.  Chairman,  I  have  heard  a  good  deal  of  reference  to  that  law. 
I  am  not  familiar  with  it.  I  am  not  basing  anything  on  that,  and  I  confess 
I  am  not  familiar  with  it.  I  am  basing  our  rights  upon  two  acts,  and  I  have 
called  your  attention  to  two  riders  in  that  Army  appropriation  bill.  You  will 
tind  in  the  appropriation  act  of  July  9,  1918,  in  addition  to  that  power  to  sell 
Government  property  acquired  since  the  beginning  of  the  war,  that  there  was 
also  a  provision  authorizing  the  Ordnance  Department,  in  addition  to  the  powers 
it  now  has,  to  purchase  ordnance  and  ordnance  supplies  and  materials  to 
the  extent  of  not  exceeding  $500,000,000,  so  that  they  would  have  been  author- 
ized under  that  clause  of  the  Army  appropriation  act  of  July  9.  1918. 

I  believe  there  was  one  other  proposition  I  wanted  to  bring  to  your  attention, 
but  to  me  it  is  so  simple  that  I  overlooked  it. 

The  Chairman.  Our  attention  has  been  called  to  the  act  of  May  10. 

Ml-.  Dent.  Mr.  Oliver  has  just  handed  that  to  me.  I  will  read  it  if  the  Chair- 
man wishes.    On  May  10,  1918,  an  act  was  approved  providing,  as  follows: 


MUSCLE   SHOALS   PROPOSITIONS. 


751 


•'  Be  it  enacted  ly  the  Senate  and  House  of  Representatives  of  the  United 
States  of  America  in  Congress  assembled,  That  during  the  existing  emergency 
the  President  be,  and  he  hereby  is,  authorized  in  his  discretion  and  upon  such 
terms  as  he  shall  deem  expedient,  through  the  head  of  any  executive  depart- 
ment, to  sell  any  supplies,  materials,  equipment,  or  othr  property  heretofore 
or  hereafter  purchased,  acquired,  or  manufactured  by  the  United  States  in  con- 
nection with  or  incidental  to  the  prosecution  of  the  war,  to  any  person,  part- 
nership, association,  or  coi-poration  or  to  any  foreign  State  or  Government 
engaged  in  war  against  any  Government  with  which  the  United  States  is  at 
war,  and  any  moneys  received  by  the  United  States  as  the  proceeds  of  such 
sale  shall  be  covered  into  the  Treasury." 

That  is  not  quite  as  comprehensive  as  the  act  of  July  9,  1918,  but  is  along 
the  same  lines.    Do  you  know  why  that  act  was  passed,  Mr.  Oliver? 

Mr.  Oliver.  I  do  not.    It  was  put  in  by  Mr.  Martin. 

The  Chairman.  Do  you  contend  that  under  the  provisions  of  that  law  the 
Alabama  Power  Co.  was  affected? 

Mr.  Dent.  Yes,  sir ;  I  do.  I  think  it  is  broad  enough  to  cover  that,  although 
I  think  the  act  of  July  9 

The  Chairman.  Will  you  kindly  state  wherein  you  think  it  is  broad  enough. 

Mr.  Dent.  "  During  the  existing  emergency,  the  President  is  authorized 
through  the  head  of  any  executive  department  to  sell  any  supplies,  materials, 
equipment  or  other  property  heretofore  or  hereafter  purchased,  acquired,  or 
manufactued  by  the  Ignited  States  in  connection  with  or  incidental  to  the  prose- 
cution of  the  war." 

Any  property  that  has  been  acquired  or  that  may  hereafter  be  acquired  and 
that  was  used  in  connection  with  the  prosecution  of  the  war,  I  think  that  is 
certainly  broad  enough  to  cover  it.  I  presume  we  followed  that  in  the  act  of 
July  9,  in  order  to  make  it  a  little  more  comprehensive. 

There  is  one  point  I  believe  I  did  overlook  that  was  suggested  by  a 
question  propounded  by  one  member  of  the  committee,  and  that  is.  If  the 
minds  of  these  parties  came  together  in  December,  1917,  upon  the  terms  of 
the  contract,  whether  or  not  the  law  then  in  existence  would  not  govern 
rather  than  the  law  in  existence  at  the  time  of  the  actual  execution  of  the 
written  instrument.  I  need  only  call  the  attention  of  the  committee  to  the 
well-established  rule  that  where  parties  enter  into  negotiations  and  they  are 
pending  for  a  long  time,  with  verbal  negotiations  and  written  memoranda,  etc.. 
that  all  previous  negotiations  are  merged  finally  into  the  execution  of  the  written 
instrument.    I  do  not  think  there  will  be  any  dispute  about  that  proposition. 

I  believe  that  is  all  I  have  to  submit,  unless  there  are  some  questions. 

Mr.  Oliver.  Mr.  Chairman,  I  would  like  to  make  a  statement,  purely  a  legal 
statement. 

The  Chairman.  After  we  finish  with  witness,  if  you  please,  Mr.  Dent, 
probably  some  of  the  members  of  the  committee  would  like  to  ask  you  some 
questions. 

Mr.  Dent.  I  will  be  very  glad  to  answer  them  if  I  can. 

Mr.  McKenzie.  There  is  only  one  question  I  desire  to  ask  my  old  colleague, 
and  that  is  in  connection  with  the  so-calletl  Dent  Act  and  the  struggle  which 
he  has  referred  to  that  took  place  in  our  committee  in  an  endeavor  to  rewrite 
that  law  as  it  now  stands,  I  want  to  ask  you  if  it  is  not  a  fact  that  when 
the  first  bill  was  submitted  to  the  Conmiittee  on  Military  Affairs,  it  practically 
gave  immunity  to  all  army  officers  for  violation  of  the  then  existing  law  of 
the  land  in  connection  with  contracts  entered  into  by  representatives  of  the 
War  Repartment  with  civilians? 

Mr.  Dent.  That  is  my  distinct  recollection. 

Mr.  McKenzie.  And  is  it  not  a  fact  that  the  Committee  on  Military  Affairs 
reasserted  in  this  law  and  put  in  a  provision  reasserting  the  law  and  holding 
those  officers  responsible,  regardless  of  anything  that  might  have  transpired 
during  the  war? 

Mr.  Dent.  That  is  very  true,  and  if  my  recollection  serves  me  right,  you  are 
the  author  of  that  amendment. 

Mr.  IMcKenzie.  I  do  not  know  about  that. 

Mr.  Dent.  Yes,  sir;  I  think  you  were  the  author  of  that  amendment. 

Mr.  McKenzie.  At*  least  I  was  one  of  the  members  of  the  committee  who 
insisted  that  the  rights  of  the  Government  should  at  least  be  safeguarded  to 
that  extent. 

Mr.  Dent.  I  think  you  suggested  the  amendment.    That  is  ray  recollection. 

Mr.  Miller.  Mr.  Dent,  as  I  remember  it,  there  arose  down  in  your  section 
92900—22 -48 


I 


752 


MUSCLE   SHOALS   PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


753 


a  case  on  this  very  point— on  the  right  of  the  Government  to  condemn— which  is 
a  point  that  you  liave  raised  here,  as  to  whether,  under  the  conditions,  the 
United  States  Government  would  have  the  right  to  condenm. 

Mr.  Dent.  I  suggested  that  point,  Mr.  Miller. 

Mr.  Miller.  A  case  arose  down  in  your  State  at  Montgomery,  was  it  not, 
that  got  into  the  Federal  courts? 

Mr.  Dent.  Yes,  sir ;  the  Forbes  case,  you  are  talking  about. 

Mr.  Miller.  Yes;  in  259  Federal.  ._  ^  ^  oi     ,  i  i,  u 

Mr  Dent.  Yes,  sir ;  that  grew  out  of  the  building  of  Camp  Sheridan,  which 
was  an  Army  camp  established  by  the  War  Department  in  Montgomery. 

Mr.  Miller.  If  I  remember  correctly,  the  Government  was  startmg  in  to 
condemn  some  property  of  a  man  by  the  name  of  Forbes. 

Mr.  Dent.  Yes,  sir ;  that  is  correct.  ^    ^        .  .  ^      ^^ 

Mr.  Miller.  The  Government  had  made  some  arrangements  by  which,  after 
these  condemnation  proceedings,  the  property  should  go  to  the  city  of  Mont- 
gomery, or  something  of  that  sort. 

"SIt  Dent    Yes  sir 

Mr*.  Miller.  And  the  Federal  court  held  that  the  interest  of  Mr.  Forbes  in 
what  the  Government  should  subsequently  do  with  that  property  was  no 
more  than  the  interest  of  any  other  citizen  of  the  United  States. 

Ml*   Dent   Yes   sir 

Mr*.  Miller.  Now,  in  the  absence  of  any  intervening  legislation,  would  not 
that  same  principle  of  law  apply  to  the  property  of  the  Alabama  Power  Co.? 

Mr.  Dent.  I  do  not  think  so.  Judge  Miller.  In  that  case  Mr.  Forbes  owned 
land  that  was  contiguous  or  was  a  part  of  the  property  upon  which  the 
military  authorities  had  selected  a  camp  for  the  training  of  a  division  of 
troops,  and  they  could  not  agree  with  Mr.  Forbes,  and  the  Government  filed 
condemnation  proceedings  against  him  to  condemn  those  lands,  and  incidentally 
the  question  arose — I  have  not  read  the  case  recently — incidentally  the  question 
arose  as  to  whether  or  not  the  Government,  as  I  understand  it,  having  decided 
TO  deed  this  property  to  the  city  of  Montgomery  after  the  war  could  offset  the 
proceedings — you  see  this  condemnation  proceeding  was  not  finished  until  after 
the  war  was  over.  It  was  begun  during  the  w^ar,  but  the  proceedings  were  not 
terminated  until  after  the  war,  and  Judge  Clayton,  who  was  the  judge  that 
presided  in  that  case,  a  former  Member  of  Congress  and  a  former  chairman  of 
the  Judiciary  Committee  of  the  House,  held  it  was  immaterial  to  Mr.  Forbes 
what  the  Government  was  going  to  do  with  it  after  they  condemned  it,  but  they 
had  a  right  to  condenm  at  the  time  they  instituted  the  proceedings  for  the  pur- 
pose of  establishing  a  military  camp  to  train  a  division  of  troops,  and  they 

actuallv  did  establish  It.  ,  .. 

Mr.  Milij:r.  You  claim  that  the  facts  under  which  that  condemnation  case 
was  carried  on  in  the  court  are  to  be  distinguished  from  the  one  in  question  here. 

Mr.  Dent.  Absolutelv,  because  here  I  contend  that  this  reserve  steam  plant 
of  the  Alabama  Power  Co.,  situated  out  in  the  coal  fields  of  Walker  County,  88 
miles  from  there,  can  not  of  necessity  be  essential  to  the  d-evelopment  of  the 
Muscle  Shoals  project. 

Mr.  Miller.  That  it  is  not  a  part  and  parcel  of  it. 

T^T  T^KNT    Yes   sir 

Mr.  Crowther!  Mr.  Dent,  I  have  twice  aske<l  this  question  of  two  different 
witnesses  as  to  whether  or  not  there  was  any  advantage  in  waiting  until  a  later 
date  in  signing  this  agreement ;  that  is,  any  advantage  in  waiting  for  legislation 
to  occur  during  the  Interim.  I  did  that  not  In  a  spirit  of  criticism,  but  merely 
for  information,  because  from  the  information  I  gleaned  from  my  many  legal 
friends,  from  whom  I  must  get  such  information,  being  just  a  layman  myself, 
they  all  differed  as  to  when  this  agreement  was  valid,  whether  on  the  date  of 
December  1,  1917,  or  the  date  when  It  was  signed. 

'M.T  Dent   Yes. 
-    Mr.  Crowther.  That  was  why  I  asked  that  question ;  that  Is  all. 

Mr.  WuRZBACH.  Mr.  Dent,  what  do  you  understand  by  the  words,  "  the  head  of 
any  executive  department."    What  kind  of  officers  do  you  understand  that  to 

Include  ? 
Mr.  Dent.  The  chiefs  of  bureaus,  Mr.  Wurzbach.    For  Instance,  In  this  case, 

Gen.  Williams,  the  Chief  of  Ordnance. 
Mr.  Wurzbach.  Gen.  Williams? 
Jkir  Dent   Yes  sir. 
Mr.  Wurzbach'.  Did  Gen.  Williams  sign  this  contract? 


Mr.  Dent.  Xo.  sir ;  but  he  authorized  the  man  who  did  sign  it  to  sign  it  for 
him     It  says.  "  through  the  heads  of  the  executive  departments." 

Mr.  Wurzbach.  Now,  do  you  not  think  that  the  wording  of  these  statutes 
means  that  the  contract  of  sale  must  be  entered  into  by  one  of  the  heads  of  de- 
partments, personally,  or  by  a  special  delegation  of  power  from  the  head  of  the 
department  to  do  that  particular  act? 

Mr.  Dent.  No.  I  do  not,  Mr.  Wurzbach.  I  think  when  It  says  through  the 
head  of  the  department,  thev  Intentionally  use  that  language  because  It  was  a 
physical  impossibility  for  the  head  of  the  department,  during  the  war,  to  sign 
nil  of  the  war  contracts  that  they  made. 

Mr.  Wurzbach.  You  think  that  any  Army  officer 

Mr  Dent  (interposing).  Designated  by  the  head  of  a  bureau. 

Mr.  Wurzbach  (continuing).  Could,  under  the  terms  of  these  acts,  bind  the 
Government  without  showing  any  special  authority  to  do  the  particular  acts 

done  by  the  officer.  ,     -  ^i. 

Mr.  Dent.  The  special  authority  is  shown  by  the  order  of  the  head  of  the 
department.  Gen.  Williams  authorized  this  particular  individual  to  sign  the 
contracts  for  and  in  the  name  of  and  on  behalf  of  the  Government. 

Mr.  Wurzbach.  What  evidence  of  that  authority  have  you? 

Mr.  Dent.  In  writing.    It  Is  In  the  record. 

Mr.  Wurzbach.  I  mean  authority  to  sign  this  contract.  The  contract  was  exe- 
cuted and  delivered  In  November.  .^    ,, 

Mr.  Dent.  Yes,  sir.  My  attention  is  called  to  the  fact  that  the  contract  itself 
recites  that  this  particular  officer  was  authorlze<l  by  Gen.  Williams,  the  head  of 
the  Ordnance  Department,  to  sign  the  contract,  for  and  in  the  name  and  on 
behalf  of  the  Government.  If  that  were  not  so,  I  still  contend  that  the  Dent  Act 
would  protect  this  contract  because  of  Its  Informal  execution. 

Mr.  Wurzbach.  I  had  reference  to  the  acts  of  May  and  July  1918. 

Mr.  Dent.  I  understood  that.  In  the  body  of  the  contract  there  is  this  recital : 
"This  agreement,  dated  December  1,  1917,  between  Alabama  Power  Co  (Inc.), 
a  corporation  organized  and  existing  under  the  laws  of  the  State  of  Alabama 
(hereinafter  called  the  "contractor"),  party  of  the  first  part,  and  the  United 
States  of  America,  by  William  Williams,  lieutenant  colonel,  Ordnance  Depart- 
ment, the  United  States  Army,  acting  as  contracting  ofl^cer  by  authority  of  the 
Chief  of  Ordnance  of  the  United  States  Army." 

Mr.  Wurzbach.  You  do  not  think  that  recital  would  be  conclusive,  do  you? 

Mr.  Dent.  Xo.  I  do  not  think  it  wouhl  be  conclusive,  but  (Jen.  Williams  has 
testified  that  he  authorizeil  the  contract  and  approved  it. 

Mr.  Wi  rzbach.  He  did  testify  to  that? 

Mr.  Dent.  I  so  understand. 

Mr.  WuKZBAi  H.  I  do  not  remember  that  testimony. 

Mr.  Dent.  The  effect  of  the  testimcmy  is  that,  and  1  am  sure  lie  will  testify 
to  that  effect,  be<ause  his  testimony  says  he  approved  this  contract,  an<l  he 
says  it  ought  to  be  carried  out,  as  does  also  Maj.  Burns  of  the  same  depart- 
ment. .      .     ,   . 

Mr.  Wirzbach.  Your  understanding  is  that  it  must  be  uuthorizetl  by  the 

head  of  the  department. 

Mr.  Dkxt.  Yes.  And  if  I  were  trying  this  case  in  court  I  would  have  Gen. 
Williams  as  a  witness  to  prove  the  authority  for  it,  if  I  was  called  upon  to 
make  technical  i)roof  that  I  would  have  to  make  in  a  court  of  justice. 

The  Chairman.  I  think  Gen.  Williams  did  state  that  at  least  in  hs  opin- 
ion the  Alabama  I'ower  Co.  had  a  moral  obligation  against  tlie  (ioveinnient.  or 
that  tbe  Government  had  a  moral  obligation  toward  the  Alabama  Power  ('o. 

Mr,  Dent.  Which  is  the  same  thing  as  approving  the  contract? 

The  Chairman.  As  I  remember  it.  that  is  the  express  language  he  used. 

Mr.  Wurzbach.  That  was  his  conclusion,  but  I  <lid  not  hear  liim  testify  that 
he  authorized  the  exec-ution  of  this  particular  contract. 

Mr.  Dent.  He  may  not  have  said  that  in  so  many  words,  hut  if  the  com- 
mittee wants  to  go  into  that  technical  proof.  I  am  prepared  to  prove  that.  I 
can  state  of  my  own  Dersonal  knowledge  that  I  can  prove  it  by  Gen.  Williams, 
because  I  have  talked  with  him  alxait  this  contract  myself. 

The  Chairman.  It  is  my  impression  that  he  statetl  before  the  coinniittee  that 
he  authorized  some  of  these  things  to  be  done. 

Mr.  Wurzbach.  I  do  not  dispute  that.  The  question  I  was  putting  was 
whether  or  not  he  authorized  the  execution  of  this  contract. 

The  Chairman.  I  think  that  was  his  testimony. 


754 


MUSCLE   SHOALS  PROPOSITIONS. 


Mr.  Dext.  In  connection  with  the  contract  itself  there  is  at  tlie  end  of  the 
contract,  after  Col.  William's  signature,  this  memorandum: 

"  From :  The  Chief  of  Ordnance,  United  States  Army,  November  12,  1918,  to 
Col.  J.  W.  Joyes,  Ordnance  Department,  United  States  Army. 

"  1.  In  accordance  with  the  terms  of  the  above-mentioned  contract,  dated  the 
1st  dav  of  December.  1917,  between  the  Alabama  Power  Co.  and  the  United 
States*  of  America,  by  Lieut.  Col.  William  Williams,  Ordnance  Department, 
United  States  Army,  therein  desi^iated  the  contracting  officer,  you,  as  Chief  of 
Nitrates  Division,  Ordnance  Department,  and  in  the  event  of  your  release  from 
that  position,  your  successor  therein,  are  hereby  designated  to  act  as  contract- 
ing officers  thereunder  in  all  respects  and  for  all  purposes  contemplated  by 
that  contract."  That  is  signed  by  C.  C.  Williams,  Major  (ieneral.  Chief  of 
Ordnance,  United  States  Army. 

Mr.  Crago.  As  I  understand,  Mr.  Dent's  argument,  it  is  not  so  much  an  argu- 
ment as  to  the  benefits  to  the  Government  growing  out  of  any  contract  they 
had  with  the  Alabama  I»ower  Co.  on  any  one  thing,  except  as  they  endeavor 
to  show  us  why  the  offer  from  Mr.  Ford  should  not  be  accepted  and  why  the 
Government  is  not  in  a  position  to  accept  that  offer. 

Mr.  Dent.  As  it  stands  now. 

Mr.  Ckago.  At  the  present  time. 

Mr.  Dent.  That  is  correct. 

Mr.  Crago.  You  are  going  on  the  old  law  which,  I  believe,  prevails  in  every 
State  in  the  Union  that  where  improvements  are  put  on  real  estate*  belonging 
to  another,  the  improvements  would  remain  there  at  tlie  disposition  of  the 
owners  of  the  real  estate  unless  it  is  expressly  stip\iiated  in  the  contract  that 
they  should  be  common  improvements. 

Mr.  Dent.  Exactly. 

Mr.  Fields.  I  do  not  desire  to  ask  any  questions  Mr.  Chairman,  but  right  at 
,  this  point,  my  recollection  of  these  two  acts  of  May  18.  and  July  18,  an<l  my 
conscience  and  sense  of  fairness  compel  me  to  make  a  little  statement  in  regard 
to  those  acts,  or  one  of  them  at  least. 

At  th»  time  when  Mr.  Dent,  now  api>earing  as  counsel  for  the  Alabama 
Power  Co.,  was  chairman  of  the  Committee  on  Military  Affairs,  and  I  as  the 
ranking  majority  njember  of  that  committee  had  a  share  in  the  perfecting  of 
legislation  that  was  enacted.  I  do  not  recall  whether  it  was  the  act  of  May  or 
the  act  of  July,  but  I  do  recall  that  when  the  Secretary  of  War  sent  his  draft 
to  the  committee  and  requested  that  it  be  enacted  into  law,  Mr.  Dent,  then  the 
chairman  of  the  connnittee,  did  not  approve  of  the  idea  of  it,  in  that  it  would 
confer  upon  the  War  Department  powers  that  he  thought  were  too  broad.  I  dif- 
ferred  with  him  and  took  the  view  of  the  Secretary  of  War,  and  the  committee, 
over  the  protest,  as  I  re<-all,  and  against  the  vote  of  the  chairman,  voted  out  the 
bill  I  am  referring  to.  Whether  it  was  the  act  of  July  or  the  act  of  May  I  do 
not  now  recall,  but  I  do  specifically  recall  that  the  chairman  of  the  oommittee 
opposed  the  legislation. 

Mr.  Dent.  I  had  forgotten,  Mr.  Fields;  you  are  probably  correct  about  it. 

Mr.  Fields.  Kemenibering  that,  I  thought  I  should  make  that  statement  at 
this  point. 

The  Chairman.  Of  course  at  that  time,  we  were  in  the  midst  of  war,  and  we 
were  sending  our  men  as  fast  as  we  could  get  them  across  to  the  other  side. 
During  the  month  of  July  300,000  soldiers  were  sent  across  the  water  to  join 
our  f(»rces  at  the  front.  We  were  moving  very  rapidly,  and  I  am  inclined  to 
believe  that  there  was  not  any  Member  of  Congress  in  those  days  that  was 
fearful  of  kicking  up  a  mare's  nest.  The  committee  tried  in  every  way  possible 
to  make  it  absolutely  certain  that  this  country  would  do  everything  it  could 
do,  and  as  speedily,  t(»  bring  about  a  successful  conclusion  of  the  war.  so  we 
could  get  our  soldiers  back  honu^  and  settle  down  once  again  to  peace. 

Mr.  Fields.  I  made  my  statement,  to  be  perfectly  frank,  remembering,  as  I 
did,  the  circumstances,  calling  attention  to  the  fact  that  Mr.  Dent,  who  now 
contends  for  the  legal  rights  of  his  client  under  this  law,  was  not  responsible 
for  the  enactment  of  the  law. 

Mr.  Dent.  I  am  very  nmch  obliged  to  you.     I  did  not  remember  how  I  stoo<l 

on  it.  ^   ^ 

Mr.  Fields.  I  remember  very  well,  and  I  felt  that  it  was  only  just  to  you  thai 

I  should  make  that  statement. 

Mr.  Dent.  Whether  that  was  true  or  not.  I  know  that  this  was  legislation 
recommended  by  the  Secretary  of  War  and  put  through  at  his  instance  by  the 
vote  of  the  committee. 


MUSCLE  SHOALS  PROPOSITIONS. 


755 


Mr.  QriN.  Mr.  Dent,  this  contract  starts  out  with  this  language:  "  This  agree- 
ment, dated  December  1,  1917.  between  Alabama  Power  Co.,  a  corporation 
organized  and  existing  under  the  laws  of  the  State  of  Alabama  (hereinafter 
called  tlie  'contractor'),  party  of  the  first  part,  and  the  United  States  of 
America,  by  William  Williams,  lieutenant  colonel.  Ordnance  Department, 
United  States  Army,  acting  as  contracting  officer,  by  authority  of  the  Chief  of 
Ordnance,  United  States  Army,  and  under  the  direction  of  the  Secretary  of 
War,  party  of  the  second  part,  witnesseth,"  etc.  And  then,  at  the  time  this 
contract  was  signed,  on  the  7th  day  of  November,  this  language  is  used :  "  You 
are  hereby  authorized  to  act  in  my  stead  as  contracting  officer  for  all  purposes 
and  in  all  respects  contemplated  by  the  contract  dated  the  1st  day  of  December, 
1917.  between  the  Alabama  Power  Co.  and  the  United  States  of  America,  by 
Lieut.  Col.  William  Williams,  Ordnance  Department.  United  States  Army." 
That  is  directed  by  Lieut.  Col.  William  Williams  to  Col.  J.  W.  Joyes. 

Under  the  option  of  that  contract  all  of  the  things  specified  to  be  done  by  the 
Alabama  Power  Co..  as  well  as  by  the  United  States,  are  set  forth  in  a  certain 
number  of  articles  of  agreement,  are  they  not? 

Mr.  Dent.  The  whole  contract  is  set  forth  in  the  agreement. 

Mr.  QuiN.  That  was  set  forth  in  the  agreement. 

Mr.  Dent.  Yes. 

Mr.  QuiN.  And  they  set  them  forth  and  dated  it  as  of  the  1st  day  of  Decem- 
ber, 1917? 

Mr.  Dent.  It  so  appears  on  the  face  of  it,  Mr.  Quin,  as  you  know. 

Mr.  QuiN.  All  of  this  obligation  on  the  part  of  the  Alabama  Power  Co.  to 
carry  out  this  agreement  was  practically  done  before  November,  1918? 

Mr.  Dent.  You  are  asking  me  something  about  something  I  do  not  know  any- 
thing about.  I  did  not  have  anything  to  do  with  the  making  of  the  contract. 
Mr.  Martin  testified  about  that.  I  knew  nothing  about  this  contract  until 
three  weeks  ago,  so  I  could  not  tell  you  how  much  work  was  done  under  it,  or 
anything  about  it. 

Mr.  Quin.  Then  this  contract  speaks  in  specific  language,  does  it  not? 

Mr.  Dent.  Certainly. 

Mr.  Quin.  There  is  no  doubt  about  that  in  my  mind. 

Mr.  Dent.  I  do  not  know  where  else  it  could  speak. 

Mr.  Stoll.  Do  the  Alabama  Power  Co.  and  the  United  States  Government 
own  any  property  as  tenants  in  common? 

Mr.  Dent.  Not  that  I  know  of,  Mr.  Stoll. 

Mr.  Stoll.  The  property  at  the  site  of  Dam  No.  3  is  owned  by  the  Alabama 
Power  Co.? 

Mr.  Dent.  That  is  my  understanding. 

Mr.  Stoll.  I  believe  you  concede  that  the  Government  has  a  right  to  condemn 
that? 

Mr.  Dent.  Yes. 

Mr.  Stoll.  Is  not  real  property? 

Mr.  Dent.  You  mean  that  in  connection  with  the  steam  plant? 

Mr.  Stoll.  Any  of  the  property  that  the  Government  and  the  Alabama  Power 
Co.  owned  together  and  operate  together  is  personal  property,  and  not  real 
property,  is  it  not? 

Mr.  Dent.  That  is  a  legal  conclusion. 

Mr.  Stoll.  I  am  asking  you. 

Mr.  Dent.  If  the  contract  is  valid  on  the  payment  of  the  amount  of  the  award 
to  the  Government  for  the  Government  expenditures  down  there,  all  the  prop- 
erty would  become  the  property  of  the  Alabama  Power  Co. 

Mr.  Stoll.  I  did  no^  ask  you  that.  I  say  the  property,  if  you  wish  to  term 
it  so,  in  dispute  is  personal  property,  or  is  it  real  property,  too? 

Mr.  Dent.  I  think  that  is  a  legal  question.    I  doubt  if  it  is  personal  property. 

Mr.  Stoll.  I  thought  you  were  testifying  as  a  lawyer. 

Mr.  Dent.  No;  I  am  not  testifying  as  a  lawyer;  I  am  simply  expressing  an 
opinion  as  a  lawyer.    If  you  want  my  opinion  as  a  lawyer,  I  think  it  is 

Mr.  Stoll  (interposing).  That  is  what  I  want. 

Mr.  Dent.  Part  of  the  realty. 

Mr.  Stoll.  Part  of  the  realty? 

Mr.  Dent.  Yes. 

Mr.  Stoll.  The  realty  is  vested  in  whom? 

Mr.  Dent.  The  realty  is  vested  in  the  Alabama  Power  Co. 

Mr.  Stoll.  Who  put  up  the  money  to  build  the  additional  buildings  that  were 
put  on  the  realty? 


756 


MUSCLE  SHOALS  PROPOSITIONS. 


Mr.  Dent.^  Y«m  kiuwv  as  imioh  about  that  as  I  <lo,  Mr.  Stoll.  and  I  only  know 
trom  the  testimony  tliat  the  Government  put  it  up. 

Mr.  Stoll.  That  was  put  up  by  the  Government. 

'M.T   Dent   Yes.  ' 

Mr  Stoll.  UnVler  the  national  defense  act  of  1916,  which  pr<»vide?J  for  these 
activities  at  Muscle  Slioals,  the  prime  object  of  that  legislation  was  to  develop 
nitrates  for  munitions  and  nitrates  for  fertilizer? 

Mr   Dent   Yes 

Mr.  Stoll.  That  requires  power,  and  the  dam  had  not  yet  been  completed; 

that  is  true,  is  it  not?  ,   ,    .  -^        ^  *  , 

Mc.  Dent.  I  do  not  know  whether  it  had  even  been  started,  but  it  certainly 

had  not  been  completed. 

Mr.  Stoll.  And  the  reason  why  the  power  of  the  Alabama  Power  Co.  was 
secured  was  for  the  purpose  of  operating  this  plant  as  speedily  as  possible. 

Mr.  Dent.  The  purpose  of  constructing  it  as  speedily  as  possible. 

Mr.  Stoll.  And  also  operating? 

Mr.  Dent.  Of  course,  the  operation  was  to  follow  the  construction. 

Mr.  Stolu  Then  it  became  a  vital  part  and  parcel  of  the  plant,  did  it  not? 

Mr.  Dent.  The  steam  plant? 

Mr.  Stoll.  Yes. 

Mr.  Dent.  I  think  not. 

Mr.  Stoll.  Whv?    It  was  used  in  connection  with  that,  was  it  not? 

Mr.  Dent.  No  ;  it  simply  furnished  power  while  the  construction  was  going 
on,  temporarily. 

Mr.  Stoll.  T  understand,  but  did  they  not  use  the  power  to  make  nitrates? 

Mr.  Dent.  In  this  plant  at  Gorgas? 

Mr.  Stoll.  Yes. 

Mr.  Dent.  No. 

Mr.  Stoli..  No;  at  plant  No.  2.  and  nitrate  plant  No.  1? 

Mr.  Dent.  Yes;  they  finally,  I  believe,  about  the  time  of  the  armistice,  were 
beginning  to  make  nitrates  at  one  of  those  plants  at  Muscle  Shoals. 

Mr.  Stoll.  Your  company  is  connected  up  with  nitrate  plant  No.  2  and  fur- 
nished power  to  it,  did  it  not? 

Mr.  Dent.  Yes. 

Mr.  Stoll.  Was  not  that  for  the  pui-pose  of  making  nitrate? 

Mr.  Dent.  I  think  not ;  it  was  for  the  purpose  of  enabling  them  to  construct 
the  plant,  furnishing  them  power  until  they  got  the  plant  into  condition  as  an 
operating  and  going  concern,  until  they  got  their  own  power. 

Mr.  Stoll.  But  they  still  had  not  gotten  the  power ;  that  is  the  point. 

Mr.  Dent.  They  had  gotten  the  steam  power,  the  same  as  we  have. 

Mr.  Stoll.  Is  that  all  that  is  necessary  to  operate  that  plant — the  steam  power 

thev  have  got? 

Mr.  Dent.  No  ;  I  think  it  is  absolutely  essential  that  they  should  have  water 
power  to  accomplish  the  purposes  that  they  set  out  to  accomplish. 

Mr.  Stoll.  I^t  me  put  it  this  way :  They  can  use  the  electrical  power  they 
get  from  the  Alabama  Power  Co.  on  this  plant  for  the  making  of  nitrates  for 
making  fertilizer? 

Mr,  Dent,  T  am  not  an  expert  on  that  subject,  Mr.  Stoll.     T  do  not  know. 

Mr.  Stoll.  If  that  is  a  fact,  that  they  can  utilize  the  power,  and  if  the  Gov- 
ernment built  or  caused  to  be  built  a  line  85  miles  long  that  must  have  been 
necessary,  then  that  nmst  be  part  and  parcel  of  this  plant,  must  it  not? 

Mr.  Dent,  That  is  purely  a  matter  of  argument. 

Mr.  Stoll.  Do  you  not  think  from  that  viewpoint  \t  is  a  part  and  parcel 
of  it? 

Mr.  Dent.  No;  I  can  not  agree  with  j'ou  about  that.  They  can  utilize  the 
power  from  Lock  No.  12  on  the  Coosa  River.  They  could  run  a  transmission 
line  up  there  and  they  could  utilize  that,  but  you  would  not  have  them  con- 
demn Lock  No.  12,  below  Birmingham,  on  the  Coosa  River. 

Mr.  Stoll.  This  is  a  project  where  the  Government  put  in  its  money  and 
built  this  line  for  some  purpose  under  the  national  defense  act,  and  that  pur- 
I>ose  was  to  make  nitrates.  If  the  Government  still  intends  making  nitrates 
or  fertilizers,  as  provided  for  in  the  act — and  they  need  it — why  can  they  not 
condemn  it  and  take  it? 

Mr.  Dent.  Because  I  do  not  think  it  is  necessary  in  order  to  accomplish  their 
purpose.  Of  course,  all  of  this  is  purely  a  matter  of  argument  between  you 
and  myself.    So  far  as  I  see  it,  I  can  not  see  the  absolute  necessity — the  esstMi- 


MUSCLE  SHOALS  PROPOSITIONS. 


Y57 


tial  necessity— of  having  to  use  this  plant  to  operate  the  nitrate  plant  at 
Muscle  Shoals,  which  ultimately  is  to  be  operated,  if  you  are  going  to  operate 
this  plant  at  all,  according  to  the  testimony  before  this  committee,  by  water 
power. 

Mr.  Stoll.  I  know  that,  but  I  am  talking  about  the  purpose  for  which  the 
United  States  Government  spent  this  money  to  get  this  transmission  line.  If 
the  Government  is  to  still  carry  out  this  purpose,  why  is  it  not  a  part  and 
parcel  of  it? 

Mr.  Dent.  I  think  I  can  answer  that  by  asking  you  a  question,  and  that  is. 
if  the  Government  intended  to  use  the  Gorgas  plant  in  connection  with  the 
further  development  of  nitrogen  from  the  air.  why  did  the  Government  con- 
tract to  sell  the  plant  back  to  the  Alabama  Power  Co.  if  the  Government  in- 
tended to  use  it  as  a  permanent  proposition? 

Mr.  Stoll.  They  had  a  very  foolish  officer  to  make  that  kind  of  a  contract, 

in  my  opinion. 

Mr  GxRRETT.  Mr.  Dent,  if  the  date  of  the  contract  between  the  Alabama 
Power  Co.  and  the  United  States  of  America,  as  shown  by  the  hearings,  or  if 
the  contract,  as  a  matter  of  fact,  was  executed  on  December  1.  1917.  what  law 
would  have  governed  the  rights  of  the  parties? 

Mr.  Dent.  The  law  then  in  existence,  if  there  was  any.  and,  as  I  recall, 
there  was  no  law  authorizing  the  contract  at  that  time.    If  that  was  the  true 

Mr.  Garbett  (interposing).  As  a  matter  of  fact,  I  understand  that  is  not 
the  true  date,  but  that  is  the  date  the  record  shows. 

In  the  statement  vou  made  a  moment  ago  you  said  that  the  conversation, 
the  correspondence,  and  the  memoranda  leading  up  to  a  written  contract  was 
the  controlling  thing,  and  that  is  generally  accepted  under  the  law  of  contracts. 
But  to  my  mind  that  is  not  the  thing  before  the  committee.  That  is  not  the 
question  involvetl  as  a  general  proposition. 

The  questicm  I  am  trying  to  get  at  now  is  this:  That  these  parties  did  reach 
bv  correspondence  and  memoranda,  as  shown  here,  an  agreement,  and  that  they 
began  to  operate  under  that  agreement ;  and  that  then  the  contract  was  finally 
executed  inNew  York  instead  of  Washington,  D.  C.  where  it  says  it  was  exe- 
cuted, and  that  practically  all  the  performance  had  b^n  had 

Now  comes  the  question  I  want  to  have  answered,  which  is  this  If  the 
minds  'of  the  parties  reached  a  sufficient  conclusion  so  that  they  could  begin 
to  operate  and  did  operate  under  the  contract  that  was  actually  executed  at 
some  future  date,  would  not  the  IriV  upon  the  date  upon  which  they  reached 
their  understanding  and  began  the  work  and  began  the  execution  of  "le  con- 
tract control  the  rights  of  the  parties  instead  of  the  law  that  happened  to  be 
in  force  at  the  time  of  the  actual  final  execution  of  the  agreement? 

Mr  Dent.  I  can  not  agree  with  that  as  a  legal  opinion.  I  am  expressing 
mvown  legal  opinion.  My  own  opinion  is  that  the  final  draft  of  the  contract, 
duly  excuted  by  the  parties,  is  the  controlling  evidence  of  the  contract  between 
the  parties,  and  that  all  previous  negotiations  are  merged  into  that  written 

instrument.  ^         , ,  ^  ^^  ,       . 

Mr.  Garrett.  But  that  is  only  the  evidence  of  the  contract. 

Mr    Dent   Sure 

Mr*.  Garrett.  The  contract  had  finally  been  executed  and  the  work  per- 
formed prior  to  its  execution. 

Mr.  Dent.  According  to  your  argument,  that  contract  does  not  amount  to 
anvthing  at  all ;  It  was  a  mere  useless  formality. 

Mr  Garrett.  I  am  not  expressing  an  opinion  upon  that,  but  I  am  trying  to 
get  at  what  the  facts  are.  As  a  matter  of  fact,  they  performed  all  of  the  work 
thev  had  to  do  without  a  written  contract ;  is  that  not  true? 

Mr  Dent  Most  of  it ;  I  understand  Mr.  Martin  testified  that  when  the  con- 
tract was  finally  executed  in  November,  1918,  95  per  cent  of  the  work  was  done. 
But  I  contend  that  the  fact  that  they  did  this,  even  under  mformal  arrange- 
ments between  them  and  the  Government  constituted  sufficient  consideration 
after  the  law  was  passed  for  the  execution  of  that  contract  m  Noveniber,  and 
that  contract  is  the  final  memorial  of  the  agreement  between  the  Parties. 

Mr  GABRErr.  As  a  lawyer,  let  me  ask  you  this  question:  If  they  performed 
work'  not  under  an  executed  contract,  but  under  an  agreement  which  was 
readied  bv  correspondence,  and  memoranda,  and  telegrams,  and  letters,  would 
not  their  rights  then  be  on  a  question  of  quantum  meriut  and  not  on  a  question 
of  specific  contract  execution? 


I-  I 


758 


MUSCLE  SHOALS  PEOPOSITIONS. 


Mr.  Deniv  That  would  be  involved  if  they  had  not  finally  put  the  contract 
into  written  form  and  duly  executed  it.  That  applies  as  between  individuals 
and  not  as  between  a  party  and  the  Government,  on  account  of  the  fact  that 
Government  contracts  must  be  executed  in  a  certain  way  or  otherwise  they  are 
void.    I  think  that  is  the  rule  of  the  Comptroller  of  the  Treasury. 

Mr.  Garrett.  If  this  contract  had  been  executed  on  the  date  that  it  is  pur- 
ported to  have  been  executed,  according  to  the  record,  then  the  law  on  the  1st 
day  of  December,  1917,  would  control  and  not  the  law  on  the  7th  dav  of  No- 
vember, 1918. 

Mr.  Dent.  That  is  very  true. 

Mr.  Hull.  Mr.  Dent,  as  I  understand  it,  you  believe  that  the  Government 
should  not  make  a  contract  with  Mr.  Ford,  owing  to  the  fact  that  the  Alabama 
Power  Co.  has  a  prior  right  on  the  Gorgas  plant;  is  that  correct? 

Mr.  Dent.  My  proposition,  Mr.  Hull,  is  that  the  Government  ought  not  to 
enter  into  a  contract  with  Mr.  Ford  in  accordance  with  the  proposition  as  it  is 
now  pending,  which  includes  the  farming  out,  so  to  speak,  of  our  proDertv  to 
Mr.  Ford ;  that  is,  the  steam  plant  at  Gorgas. 

Mr.  Hull.  Is  the  objection  addressed  to  the  steam  plant  or  the  transmission 
line? 

Mr.  Dent.  It  is  both ;  they  both  belong  to  us. 

Mr.  Hull.  The  Government  took  the  transmission  line,  did  it  not? 

Mr.  Dent.  No.  The  Power  Co.  built  it,  but  the  Government  loaned  them  the 
money  during  the  war  for  that  purpose. 

Mr.  Hull.  Who  owns  the  transmission  line?  * 

Mr.  Dent.  I  think  the  Alabama  Power  Co.  owns  it,  but  the  Alabama  Power 
Co.  was  under  contract  to  pay  the  Government  for  the  value  of  the  property 
that  was  put  in  there  with  its  money. 

Mr.  Hull.  The  transmission  line  was  not  there  before  the  war? 

Mr.  Dent.  No  ;  neither  was  the  addition  to  the  steam  plant. 

Mr.  HuLLi  But  the  steam  plant,  as  I  understand  it— and  I  do  not  know,  of 
course — was  so  built  that  you  can  not  take  over  one  without  taking  over  the 
other. 

Mr.  Dent.  That  is  true. 

Mr.  Hull.  But  the  transmission  line  is  not  in  that  shape,  as  I  understand  It. 

Mr.  Dent.  As  I  said  a  little  while  ago,  Mr.  Hull,  I  am  not  an  expert  In  mat- 
ters of  that  kind,  and  I  do  not  know  anything  about  it ;  I  suspect  that  that  is 
true.  It  may  be  they  could  take  over  the  transmission  line  without  the  plant, 
but  that  is  not  in  my  line,  and  I  am  not  aa  expert  on  that  subject. 

Mr.  Hull.  I  am  simply  trying  to  get  the  right  angle  on  the  proposition.  It 
is  very  hard  to  understand  it  without  seeing  it. 

Mr.  James.  Mr.  Dent,  will  you  turn  to  part  3  of  the  hearings,  at  page  168? 
At  the  bottom  of  the  page  you  will  see  what  is  marked  "1st  indorsement." 
When  Mr.  Quin  read  that  a  while  ago,  did  I  understand  you  to  say  that  that 
was  authority  given  by  Maj.  Gen.  C.  C.  Williams  to  Lieut.  Col.  William 
Williams  to  sign  the  contract? 

Mr.  Dent.  I  did  not  know  that  Mr.  Quin  read  this  to  me. 

Mr.  James.  You  were  asked  that  question. 

Mr.  Dent.  Mr.  Wurzbach  asked  me  some  questions  as  to  whether  there  was 
any  contract,  whether  the  contracting  officer  had  authority,  and  I  referred  to 
the  memorandum  at  the  bottom  of  the  contract  which  is  signed  by  Maj.  Gen. 
C.  C.  Williams,  Chief  of  Ordnance. 

Mr.  James.  Is  this  the  exact  language? 

Mr.  Dent.  And  I  notice  that  you  read  it  this  morning  to  Mr.  Martin. 

Mr.  James.  Do  you  think  that  is  the  authority  of  Gen.  Williams  given  to 
Lieut.  Col.  Williams? 

Mr.  Dent.  I  would  presume  that  is  a  written  authority. 

Mr.  James.  That  is  a  memorandum  from  the  Chief  of  Ordnance  to  Col. 
Joves. 

^Ir.  Dent.  Which  one  are  you  referring  to,  the  one  signed  by  C.  C.  Williams 
or  the  one  signed  by  William  Williams? 

Mr.  James.  The  one  marked  "  1st  indorsement" ;  that  is,  the  one  you  read  in 
response  to  the  question  asked  by  Mr.  Wurzbach  as  conferring  upon  Lieut.  Col. 
William  Williams  authority  to  sign  the  contract. 

Mr.  Dent.  Yes.  That  was  the  memorandum;  I  read  that  as  a  memorandum 
at  the  end  of  the  contract  showing  that  it  was  Qen.  Williams's  indorsement  of 
the  signing  of  the  contract  by  Lieut.  Col.  Williams. 


MUSCLE  SHOALS  PKOPOSinONS. 


759 


Mr.  James.  But  the  communication  is  not  to  Lieut.  Col.  Williams,  but  to  Col. 
Joyes. 

Mr.  Dent.  That  is  because  of  the  fact  that  Col.  Joyes  in  this  memorandum 
is  designated  as  the  contracting  officer  thereafter  to  carry  out  the  contract, 
and  that  was  signed  by  Gen.  Williams. 

Mr.  James.  I  asked  Mr.  Martin  this  morning  if  the  communication  just  above 
that  on  the  same  page  dated  November  9,  1918,  was  the  one  in  which  Col. 
Williams  gave  his  proxy  to  Col.  Joyes  to  sign  in  his  stead,  and  Mr.  Martin 
said  that  had  nothing  to  do  with  the  contract,  that  it  was  simpiy  a  matter  of 
form  followed  by  the  Army  officers,  and  if  that  is  true,  then  that  means  nothing 
else  except  that  Col.  Joyes  is  to  relieve  Col.  Williams  and  has  nothing  to  do 
with  the  contract,  as  Mr.  Martin  said  this  morning. 

Mr.  Martin.  That  is  my  impression,  that  at  the  time  Col.  Williams  concluded 
the  negotiations  he  was  relieved  so  far  as  the  performance  of  the  contract  was 
concerned,  passing  the  authority  to  Col.  Joyes. 

Mr.  James.  Then  that  brief  indorsement  does  not  confer  any  authority  upon 
Col.  Williams,  but  it  simply  means  he  was  relieved  by  Col.  Joyes,  and  it  had 
nothing  to  do  with  the  contract. 

Mr.  Martin.  The  communication  marked  "  1st  indorsement,"  as  Mr.  Dent 
points  out,  is  the  recognition  by  Gen.  Williams  of  the  fact  of  the  execution  of 
the  contract  by  Lieut.  Col.  Williams. 

Mr.  James.  But  it  is  not  an  order  from  Gen.  Williams  authorizing  Col. 
Williams  to  sign  any  contract. 

Mr.  Martin.  Undoubtedly  there  is  such  an  order. 

Mr.  James.  If  there  is  such  an  order,  I  think  it  must  be  in  some  other  place. 

Mr.  Dent.  If  any  question  is  raised  about  the  authority  of  Col.  Williams  to 
sign  the  contract,  I  should  like  to  produce  Gen.  Williams  to  make  proof  of  that. 

Mr.  James.  Mr.  Wurzbach  raised  that  question. 

Mr.  Dent.  It  would  be  a  question  of  but  a  short  time  to  prove  it.  I  thought 
it  was  in  the  record. 

The  Chairman.  I  had  the  impression  that  Gen.  Williams  did  testify  to  that 
effect. 

Mr.  Dent.  If  the  technical  point  is  going  to  be  raised  we  can  easily  over- 
come it  by  producing  a  witness  himself  who  can  testify  to  that.  He  has  told 
me  so  himself,  that  the  contract  was  properly  executed  and  it  ought  to  be 
carried  out. 

The  Chairman.  I  will  say  this,  that  to-night  I  will  read  Gen.  Williams's 
testimony,  and  if  I  find  the  testimony  does  not  show  affirmatively  what  he  said 
regarding  the  matter  we  will  give  you  notice  and  you  can  ask  Gen.  Williams 
to  appear  to  testify  In  that  regard. 

Mr.  Crowther.  Take  the  last  clause  of  the  contract.  I  would  like  to  ask 
whether  this  clause  has  anything  to  do  with  the  date.  It  says,  "  In  witness 
whereof  the  parties  hereto  have  caused  these  presents  to  be  executed  and  de- 
livered In  quadruplicate  at  Washington,  D.  C,  the  year  and  date  above  written." 

Mr.  Dent.  That  is  simply  a  repetition  of  the  first  clause.  The  parties,  in 
other  words,  can  adopt  any  date  they  want  to  when  they  sign  a  contract,  pro- 
vided it  is  not  signed  on  a  Sunday  or  some  day.  that  is  illegal.  They  can  adopt 
any  date  they  want  to :  but  when  it  comes  to  the  proof  of  the  actual  date  of 
execution  the  law  always  permits  the  proof  to  be  established  by  parole  evidence. 

Mr.  Crowther.  What  is  the  meaning  of  this  being  delivered  in  quadruplicate 
at  Washington? 

Mr.  Dent.  I  do  not  know. 

Mr.  Crowther.  That  was  executed  in  New  York,  was  it  not? 

Mr.  Dent.  Yes.  I  was  not  representing  the  power  company  at  that  time  and 
I  know  nothing  about  it.  I  presume  that  the  form  of  the  contract  was  prepared 
with  the  idea  that  it  would  be  signed  in  Washington,  and  written  that  way, 
and  the  parties  happened  to  meet  in  New  York  and  signed  it  there  without 
making  any  change  in  it.  They  can  also  adopt  the  place  as  well  as  the  time, 
hut  the  proof  as  to  the  time  can  always  be  established  by  parole  evidence. 

Mr.  Crowther.  Your  contention  is  and  you  would  hold  as  a  lawyer  that  this 
contract  dated  from  the  time  of  its  signature  in  New  York? 

Mr.  Dent.  And  delivery.  Without  that  no  contract  is  good.  It  has  not 
only  to  be  signed  but  delivered  before  it  has  any  vitality. 

Mr.  Crowther.  The  date  of  December  1, 1917,  does  not  mean  anything,  really. 

Mr.  Dent.  It  means  nothing,  except  that  the  parties  adopted  it  for  some  rea- 
son, I  know  not  what ;  it  may  be  because  that  was  the  date  when  the  original 
transaction  began. 


760 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


761 


Mr.  Cbowtheb.  You  glean  from  the  questions  that  have  been  asked  that  some 
of  the  lawyers  on  the  committee  do  not  agree  with  that  conclusion. 

Mr.  Dent.  Yes.  ^     ^,^       ^  4^, 

Mr.  Ckowther.  I  think  Mr.  Garrett  suggested  that  he  did  not  agree  with 

Mr  Dent   Yes ;  Mr.  Garrett  seemed  to  have  a  dil¥erent  opinion. 

Mr  Fields.  Mr.  Dent,  I  gather  from  following  you  that  your  contention  is 
that  the  Gorgas  steam  plant  does  not  come  within  the  provisions  of  the  na- 
tional defense  act,  because  it  is  not  a  part  of  plant  No.  2  for  the  production  ot 
nitrates  or  necessary  for  the  operations  of  plant  No.  2. 

Mr   Dent.  Yes 

Mr'  FiEi.DS.  If*  the  Government  had  continued  the  operation  of  plant  No.  '2 
from  the  time  it  operated  it  up  to  this  time  and  found  that  the  Gorgas  steam 
plant  was  essential  to  the  operation  of  plant  No.  2  there  would  be  no  question 
as  to  the  Government's  right  to  hold  It.  , ,  ,     .         w  .  ^i    *.         i^  i 

Mr.  Dent.  If  your  premise  is  conceded  that  would  be  true,  but  that  would  ])e 

begging  the  question. 

Mr.  Fields.  If  they  found  that  essential. 

Mr  Dent.  That  Is  the  very  question  we  raised,  that  it  Is  not  essential. 

Mr*  Fields.  I  am  trvlng  to  get  this  straight  In  my  own  mind.  It  has  been 
my  understanding— and  I  may  have  a  wrong  understanding— that  this  plant 
and  the  steam  plant  at  nitrate  plant  No.  2  were  both  constructed  with  a  view 
to  using  them  to  supplement  the  water  jwwer  at  the  time  of  low  water  in 
the  operation  of  the  nitrate  plant,  If  It  should  be  operated  by  hydroelectric 

power  in  the  future.  ,     ,    ^    ,  ^  ^    4.i.„4. 

Mr  Dent.  I  think  vou  are  mistaken  about  the  facts  in  regard  to  that. 

Mr  FiEiJ)S  I^t  us  *go  back  to  the  Government's  oiieration.  If  the  Government 
should  have  determined,  after  It  had  made  a  test  of  that  plant,  to  continue 
the  operation  of  that  plant  for  the  pro<luctlon  of  nitrogen  for  fertilizer,  am 
found  that  the  maintenance  or  the  retention  of  the  Gorgas  plant  was  essential 
to  the  continuous  operation  of  plant  No.  2,  evidently  there  would  have  been 
no  question  as  to  the  right  of  the  Government  to  hold  that  property? 

Mr  Dent.  That  might  be  true,  Mr.  Fields,  if  your  premise  is  conceded,  that 
they  found  it  absolutelv  essential  to  the  maintenance  of  the  plant.  But  you 
are  overlooking,  perhaps,  this  fact,  that  the  company  owned  this  plant  at  Gorgas 
prior  to  the  time  the  Government  went  In  there,  and  the  Government  simply 
Dut  up  the  monev  for  the  equipment  of  that  plant,  and  that  plant  still  belongs 
to  the  companv, 'subject  only  to  the  right  of  the  Government  to  obtain  power 

Mr  Fields.  I  base  my  premise  upon  the  fact  that  the  Government  realized 
that  it  would  need  this  power  for  the  operation  of  nitrate  plant  No.  2. 

Mr  Dent.  You  mean  the  permanent  development  at  Muscle  Shoals. 

Mr  Fields.  Whether  it  be  permanent  or  temporary,  because  the  line  has 
not  been  drawn  between  temporary  operation  and  permanent  operation. 
Indeed  It  was  for  the  operation  of  that  plant,  other\vlse  It  would  not  have 
invested  Its  money  and  built  the  transmission  line.  ,  ..    .|  ^,,  „,i,ip,i 

Mr  Dent.  I  do  not  think  that  is  correct.  As  I  understand  it,  they  added 
to  the  plant  at  Gorgas  and  loane<l  the  money  to  build  the  transmission  line  so 
thev  could  have  energy  i>ending  the  time  their  plants  were  under  construction. 

Mr  Fields.  Is  there  anything  In  the  contract  stipulating  the  time  when  the 
Government  shall  discontinue  the  use  of  the  Gorgas  plant  after  the  con.struction 

^  Mr^  Dknt.*  The  contract,  Mr.  Fields,  authorizes  the  power  company  at  any 
time  to  purchase  this  additional  equipment  from  the  Government,  even  before 
the  work  at  Muscle  Shoals  was  finished,  as  I  understand  Mr.  Martin. 
Mr.  Fields.  That  Is,  at  any  time  after  the  Government  determined  to  diseon- 

^r  Dent  No  ;  at  any  time  under  the  contract  the  Alabama  Power  Co.,  after 
the  construction  of  this  additional  equipment  and  this  transmission  line,  coiiin 
have  demanded  of  the  Government,  if  they  were  ready  to  pay  for  It,  that  tne 
iiroi^ertv  be  s<n<l  to  them  upon  the  i>ayment  of  the  value,  the  Government  resei  - 
ing  the"  right  to  demand  of  the  power  company  that  they  continue  to  suppi.^ 
nower  pending  the  construction  of  this  plant  at  Muscle  Shoals. 
Mr.  Fields,  I  have  read  the  contract,  and  I  am  frank  to  say  I  overlooked  tuai 

'^Mr  Dent.  That  Is  the  reason  I  asked  Mr.  StoU  that  question,  if  he  tNniil^j 
the  Government  Intended  to  use  this  permanently,  why  is  it  they  agreed  to  m'i 
it  to  the  Power  Co.? 


Mr.  Fields.  Here  is  the  point  that  has  been  in  my  mind,  if  this  plant  paid 
for  by  the  Government.  an<l  this  transmission  line  paid  for  by  the  Governmenr 
are  essential  to  the  continuous  operation  of  nitrate  plant  No.  2  they  might  neeil 
to  use  this  plant  all  the  time  and  use  It  in  time  of  low  water,  when  they  did 
not  have  sufficient  hydroelectric  power  at  Muscle  Shoals — why  it  was  not  a 
part  of  the  scheme  under  section  124  of  the  national  defense  act,  and  if  the 
Government  could  hold  it  as  such  in  the  event  the  Government  should  deter- 
mine to  continue  the  operation  of  nitnite  plant  No.  2.  what  would  bo  the  differ- 
ence between  the  Government  and  the  Government's  lessee? 

Mr.  Dknt.  There  would  not  be  any,  but  I  do  not  concede  your  premise,  becaus^ 
tlie  contract,  if  it  is  going  to  be  sustained,  if  It  is  valid,  between  the  Govern- 
ment and  the  company,  says  on  its  face  that  the  Government  could  not  utilizf 
this  steam  plant  at  Gorgas  in  connection  with  the  permanent  operation  at 
Muscle  Shoals,  because  it  provided  that  It  could  demand  of  the  power  company 
that  they  purchase  back  the  equipment  that  they  arlded  to  the  power  company's 
property ;  and  on  the  other  hand,  that  the  company  had  the  right  to  demand 
of  the  Government  that  they  sell  It  to  them. 

Mr.  Fields.  I  remember  that  language,  but  I  had  the  impression  that  that 
was  in  the  event  that  the  Government  should  determine  not  to  use  it. 

Mr.  Dent.  There  is  no  event:  that  is  absolute.  Those  provisions  are  absolute 
and  contain  no  condition  whatever. 

Mr.  Fields.  Going  back  to  the  contract  of  December  1.  1917,  I  am  the  mem- 
ber of  the  committee  who  referred  to  the  meeting  of  the  minds  prior  to  the  date 
of  the  signing  of  the  contract  to  which  you  referred  In  your  remarks  to  the 
committee.  I  am  not  a  lawyer,  as  my  former  chairman  well  knows,  and  as  a 
layman  I  get  mixed  on  these  things.  Here  is  one  thing  you  have  not  made 
clear  to  my  mind  yet.  If  that  agreement  of  December  7.  1917.  was  not  a  con- 
tract, a  legal,  valid  contract,  where  did  the  accounting  oflUcer  of  the  Government 
have  the  authorltv  to  pay  out  money  for  work  under  that  contract? 

Mr.  Dent.  The* only  authority  that  T  know  of.  Mr.  Fields.  Is  that  he  was  act- 
ing under  the  various  appropriations  passed  by  Congress  to  carry  on  the  war. 

Mr.  Field.  We  know  that  the  accounting  officers  are  very  particular  about 
contracts  as  they  relate  to  accounting  purposes. 

Mr.  Dent.  They  were  not  so  particular  during  the  war. 

Mr.  Fields.  Tlien.  there  is  another  thought  that  has  been  running  through 
my  mind.  This  act  of  July  9.  1918.  under  which  you  claim  legal  title,  author- 
izes the  Secretary  of  War  to  sell  property,  but  does  not  authorize  the  Secretary 
of  War  to  option  property  for  future  sale.  From  the  legal  point  of  view  would 
there  be  any  difference  between   the  sale  of  property  and  the  optioning  of 

property?  ,         , 

Mr.  Dent.  I  think  not.  The  greater  always  Includes  the  less,  and  in  law  the 
right  to  make  a  sale  carries  with  it  the  right  to  make  a  contract  for  sale. 

Mr.  Fields.  There  is  another  thing  that  is  not  exactly  clear  in  my  mind,  and 
that  is  whether  that  law  gives  the  heads  of  the  department,  or  vests  in  them,  the 
right  to  sell,  and  give  an  absolute  title  to  the  property,  or  to  sell  it  in  the  regular 
way  and  report  the  sale  to  Congress,  as  the  Secretary  of  War  has  done  in  the 
case  of  the  Ford  proT>osltion. 

Mr.  Di.:nt.  There  is  nothing  in  this  act  requiring  any  report  to  be  made  to 
Congress.  There  is  an  absolute  right  to  the  heads  of  the  department  to  make 
a  sale. 

Mr.  Fields.  To  give  an  absolute  title? 

Mr.  Dent   Absolutelv. 

Mr!  Wfhzbach.  I  calVvour  attention  to  article  32  of  this  contract.  I  suppose 
you  are  familiar  with  tlie  terms.  It  provides:  "The  contractor  shall,  prior  to 
December  1.  1918,  furnish  to  the  United  States  a  bond  In  the  sum  of  .$50,000. 
conditioned  upon  the  full  and  faithful  performance  by  the  contractor  of  all 
terms,  covenants,  and  conditions  hereof  in  relation  to  construction  work  and 
upon  the  prompt  payment  to  all  persons  suv>plying  labor  or  materials  in  the 
prosecution  of  the  construction  work  un<ler  this  contract." 

When  was  that  bond  given?  ^  .      ., 

Mr.  Dent.  You  will  have  to  ask  those  questions  of  Mr.  Martin.  T  am  not  famil- 
iar with  the  execution  of  this  contract  and  the  circumstances  surrounding  it.  I 
know  nothing  more  about  it  than  what  has  been  given  in  the  testimony  before 
the  committee.  ^        ^.  ,       ^ 

Mr.  WtTKZBACH.  I  want  to  ask  this  question :  It  is  claimed  that  this  contract 
was  executed  on  November  7,  1918.  At  that  time  practically  all  of  the  construc- 
tion work  had  been  completed. 


762 


MUSCLE  SHOALS  PROPOSITIONS. 


Mr.  DeNt.  That  is  what  the  testimony  shows. 

Mr.  WuRZBACH.  The  ^ving  of  a  bond,  or  the  provisions  for  the  giving  of  a 
bond  at  that  time — that  is,  in  November,  1918,  after  the  completion  of  the  work- 
is  a  manifest  absurdity  of  the  contract,  is  it  not? 

Mr.  Dent.  It  depends  altogether  on  the  bond.  The  terms  and  cond:tions  of 
the  bond  might  relate  back. 

Mr.  WuRZBACH.  Is  there  not  a  very  strong  circumstance  in  the  recital  in  that 
article  that  this  contract,  or  at  least  that  part  of  the  contract,  had  been  drafte«i 
a  long  time  prior  to  November,  1918? 

Mr.  Dent.  There  is  no  question  about  that.  As  I  understood  Mr.  Martin,  there 
had  been  a  number  of  drafts  of  this  contract  at  various  times. 

Mr.  WURZBACH.  I  did  not  get  that  very  clearly  from  Mr.  Martin.  I  think  be 
finally  suggested  that  this  contract  was  prepared  and  drawn  shortly  before  It 
was  actualy  signed,  in  November,  1918. 

Mr.  Dent.  This  particular  contract,  but  there  had  been  various  drafts  of  con- 
tracts involving  this  proposition,  prior  to  that  time.  That  is  something  I  can  not 
testify  about. 

Mr.  WURZBACH.  That  provision  in  the  contract  was  really  senseless,  under  all 
the  circumstances,  was  it  not? 

Mr.  Dent.  It  looks  to  me  like  it  might  be,  unless  it  was  retroactive.  Unless 
it  was  retroactive,  the  provisions  did  not  go  back  to  the  inception  of  the  work. 
That  would  depend  on  the  conditions  of  the  bond.  Mr.  Martin  might  answer 
that  better  than  I  can.    I  do  not  know  the  terms  of  the  bond. 

Mr.  WURZBACH.  How  many  drafts  of  this  contract  were  actually  made? 

Mr.  Martin.  I  could  not  tell  you. 

Mr.  WiTRZBACH.  Where  are  the  drafts? 

Mr.  Martin.  There  were  quite  a  number.  I  have  several  of  them  right  here. 
In  reference  to  the  bond,  the  bond  was  executed  after  the  execution  of  the  con- 
tract on  the  7th  of  November.  The  Government  had  a  disbursing  officer  on  the 
work,  and  the  Government  disbursing  officer  took  care  of  practically  all  the  dis- 
bursements. There  were  some  disbursements  which  we  were  undertaking  to 
take  care  of,  some  expenditures  we  did  take  care  of  in  completing  the  work, 
which  lasted  over  six  months.  We  assumed  certain  obligations  in  the  com- 
pletion of  the  work. 

Mr.  WuRZBACH.  When  was  the  bond  actually  given? 

Mr.  Martin.  Some  time  in  November. 

Mr.  WuRZBACH.  Between  the  execution  of  the  contract  and  December  1,  1918? 

Mr.  Martin.  Yes;  before  the  December  1  date. 

Mr.  WURZBACH.  In  reply  to  a  question  with  reference  to  the  authority  of 
Maj.  Gen.  C.  C.  Williams  for  the  signing  of  this  contract,  the  indorsement  made 
on  the  contract  which  was  read  was  the  same  indorsement  read  by  Mr.  James, 
was  it  not? 

Mr.  Dent.  I  think  it  is. 

Mr.  WURZBACH.  Did  you  notice  that  the  indorsement  is  dated  November  12, 
1918,  five  days  after  the  Power  Co.  claims  that  the  contract  was  actually  exe- 
cuted? 

Mr.  Dent.  I  did. 

Mr.  Wu-RZBACH.  Clearly  that  could  not  have  been  authority  to  Col.  Williams 
or  Col.  .Toyes. 

Mr.  Dent.  Not  original  authority ;  it  could  not  have  been  original  authority, 
but  could  have  been  treated  as  a  ratification  of  the  signing  of  the  contract. 

Mr.  WURZBACH.  If  that  is  the  true  date  of  the  order  of  Gen.  C.  C.  Williams. 

Mr.  Dent.  That  is  the  true  date. 

Mr.  WURZBACH.  Then  certainly  that  was  not  authority  to  anyone  to  sign  a 
contract  five  days  prior  to  that  date. 

Mr.  Dent.  That  is  true,  that  it  was  not  original  authority.  But  you  will 
notice  that  order  relieves  Col.  Williams  and  appoints  Col.  Joyes  to  carry  out 
the  provisions  of  the  contract  for  the  Government  as  contracting  officer,  and  I 
c-ontend  that  the  true  date  being  November  7,  1918,  that  the  naming  of  Col. 
Joyes  to  succeed  Col.  Williams  as  contracting  officer  to  carry  out  this  contract 
is  thereby  a  ratification  of  the  signature  of  Col.  Williams,  although  no  original 
authority  could  be  claimed  for  it. 

Mr.  Fields.  This  layman's  mind  of  mine  is  not  satisfied  about  this  contract, 
in  regard  to  the  question  that  it  does  not  become  a  contract  until,  the  date  on 
which  it  is  signed. 

Mr.  Dent.  And  delivered. 


'? 


MUSCLE   SHOALS  PROPOSITIONS. 


763 


!^Ir.  Fields.  All  right.  Your  company  entered  into  this  agreement  on  the 
1st  of  December,  1917.  Let  us  take  the  thing  backwards  and  see  how  it  will 
work.  Suppose  that  subsequent  to  the  date  of  the  original  contract,  but  prior 
to  its  signing,  a  law  had  been  enacted  that  would  have  deprived  your  company 
<»f  the  legal  rights  it  had  under  the  law  on  the  day  the  contract  was  entered 
into;  what  would  have  been  your  legal  status? 

Mr.  Dent.  You  can  not  deprive  a  party  of  vested  rights  by  subsequent  legis- 
lation. If  it  had  vested  rights  certainly  subsequent  legislation  would  not  de- 
prive it  of  those  vested  rights. 

Mr.  Fields.  I  understand  that.  It  seems  to  me  a  little  strange  that  you 
can  change  a  contract  by  just  simply  holding  it  open  and  enacting  legislation 
later  on,  to  change  the  terms  of  the  contract  as  entered  into. 

Mr.  Dent.  It  is  just  the  same  as  in  ordinary  life,  Mr.  Fields.  I  believe  you 
traveled  for  a  good  many  years.  You  perhaps  sometimes  were  in  a  iwsition 
where  you  had  to  assume  authority  for  your  principal.  You  did  not  have  any 
direct  authority. 

Mr.  Fields.  Yes. 

Mr.  Dent.  Subsequently  he  ratified  it.    That  is  exactly  the  case  here. 

Mr.  James.  Following  Mr.  Fields's  question,  the  way  I  understand  it  is,  if 
.any  legislation  was  passed  after  December  1,  1917,  that  took  away  any  rights 
from  the  Alabama  Power  Co.,  it  would  not  be  legal,  if  any  law  was  passed. 

Mr.  Dent.  I  said  you  could  not  take  away  vested  rights.  I  did  not  say 
the  Alabama  Power  Co.  had  any  vested  rights,  and  Mr.  Fields's  question  was 
predicated  upon  the  assumption  that  it  did  have  rights  on  the  1st  day  of 
December,  and  subsequently  Congress  undertook  to  take  away  those  rights. 

Mr.  James.  You  figure  that  the  minds  of  Col.  Williams  and  Mr.  Martin  met 
about  December  1,  do  you  not? 

Mr.  Dent.  No ;  I  do  not,  because  the  letter  that  Mr.  Martin  read  to  the  com- 
mittee this  morning  from  Col.  Joyes  giving  his  idea  of  what  the  contract  ought 
to  be,  in  which  he  stated  emphatically  that  the  contract  would  be  subsequently 
drawn  up  was  dated  December  7.  1917,  shows  that  the  contract  could  not  have 
been  executed  on  the  1st  day  of  December,  1917. 

Mr.  James.  Then  you  figure  that  their  minds  met  about  December  7,  1917? 

Mr.  Dent.  I  think  their  minds  met  for  the  purpose  of  the  power  company 
proceeding  to  go  ahead  with  this  work  under  instructions  from  the  War  De- 
partment. I  think  they  met  to  that  extent.  But  I  contend  that  when  the 
contract  was  finally  put  in  form  and  duly  executed  by  both  parties,  that  consti- 
tuted a  memorial  of  the  contract  which  can  only  be  looked  to,  all  previous 
transactions  being  merged  in  that  complete  written  instrument. 

Mr.  James.  If  any  legislation  was  passed  after  December  7  which  took  away 
the  rights  which  the  Alabama  Power  Co.  figured  they  had,  you  would  not  figure 
that  was  legal. 

Mr.  Dent.  They  did  not  have  any  rights.  If  you  feel  about  it  as  Mr.  Fields 
did,  that  the  Alabama  Power  Co.  had  the  right  to  enter  into  a  contract  on 
December  1,  and  the  Government  had  a  right  to  make  it  on  December  1,  and 
they  actually  made  it  on  that  day,  I  say  Congress  could  not  substniuently  de- 
stroy the  vested  rights  they  had  under  a  valid  contract. 

Mr.  Fields.  I  do  not  think  you  understood  my  question. 

Mr.  Dent.  Perhaps  I  did  not,  Mr.  Fields. 

Mr.  Fieij>s.  Let  us  say  that  on  the  7th  day  of  December,  1917.  the  officers  of 
the  War  Department  had  the  right  under  the  law  to  option  or  to  sell  this  prop- 
erty to  the  Alabama  Power  Co.,  to  enter  into  a  legal  contract,  which  you  claim 
you  have,  and  that  agreement  was  made  between  the  Government  and  the  Ahi- 
hania  Power  Co.  on  the  7th  day  of  December,  1917.  and  they  went  ahead  in 
performance  of  the  contract.  On  the  9th  day  of  July  following  Congress  en- 
acted a  law  which  tt>ok  away  from  the  War  Department  the  right  to  enter  into 
such  an  agreement  of  sale  or  option.  Then  you  come  with  a  contract  dated  the 
t>th  day  of  November,  1918,  which  provides  that  the  Alabama  Power  Co.  .shall 
liave  the  right  to  purchase  this  property.  You  have  a  contract  there  that  you 
say  is  valid  only  from  the  date  on  which  it  is  signed,  and  yet  on  that  date  there 
is  no  law  authorizing  that  to  be  done. 

Mr.  Dent.  Then  it  would  not  be  valid.  As  I  understood  your  question  origi- 
nally, Mr.  Fields,  you  assumed  that  on  the  1st  day  of  December,  1917,  both  the 
<Jovernment  and  the  power  company  had  the  right  to  make  a  contract,  and  that 
they  actually  made  a  contract  on  that  date.  I  said  that  if  subsequent  legis- 
lation undertook  to  destroy  that  right  it  would  be  destroying  vested  rights,  and 
that  can  not  be  done. 


764 


MUSCT^E  SHOALS  PROPOSITIONS. 


I  said  enter  into  an  unsigned  agreement. 
That  would  not  have  heen  valid  under 


Mr.  Fields. 

.Mr.  I>KNT.  That  would  not  have  heen  valid  under  the  law.  An  unsigned 
agreement  is  not  vali<l  against  the  Government,  because  of  the  statutory  form 
required  in  malting  contracts  with  the  Government. 

Mr.  McKkxzik.  We  are  very  much  obliged  to  you,  Mr.  Dent,  for  the  state- 
ment you  have  made  to  the  committee. 

Mr.  Dent.  I  am  very  much  oblige<l  to  you,  Mr.  Chairman  and  gentlemen. 

(Thereupon  at  4.3o  o'clock  p.  m.  the  committee  adjourned  to  meet  Tuesday^ 
February  28,  1922,  at  10.30  o'clock  a.  m.) 


COMillTTEE  ON    MILITARY    AFFAIRS, 

House  of  Represent atim^s, 

Tuesday,  February  28,  1922. 

The  committee  met  at  10.30  o'clock  a.  m.,  Hon.  John  C.  McKenzie  (acting 
chairman)  presiding. 

Mr.  McKenzie.  Gentlemen  of  tlie  connnittee,  Mr.  Oliver,  one  of  our  colleagues,, 
is  present  and  desires  to  make  a  brief  statement  this  morning.  We  will  now 
hear  Mr.  Oliver. 

STATEMENT  OF  HON.   "WILLIAM  B.  OLIVER,  A  REPRESENTATIVE 
IN  CONGRESS  FROM  THE  STATE  OF  ALABAMA. 

Mr.  Oliver.  I  appreciate  very  much,  Mr.  Chairman,  this  courtesy  you  extend 
me.  I  share,  in  common  with  the  committee,  a  very  high  and  sincere  regard 
for  our  fonner  distinguished  colleague,  IVIr.  Dent,  but  I  differ  very  widely  with 
Mr.  Dent  as  to  certain  l^al  phases  of  the  contract  set  up  by  the  Alabama 
Power  Co.,  and  under  which  the  company  claims  the  exclusive  right  to  purchase 
the  Gorgas  power  plant  and  transmission  lines  now  owiie<l  by  the  Government, 
and  my  purpose  in  requesting  the  conmiittee's  indulgence  for  a  few  minutes  is 
simply  to  present  some  contrary  views  on  the  legal  questions  discusse*!  by  Mr. 
Dent. 

I  will  state  in  this  connaction  that  it  is  the  punxjse  of  the  Alabama  delegation 
to  ask  the  connnittee  at  a  later  day,  when  the  hearings  have  l)een  concluded  on 
both  offers,  for  a  short  time  in  which  some  one  member  nmy  di.scuss  the  facts. 

(Mr.  Kahu  at  this  j)oint  came  into  the  committee  room.) 

Mr.  McKenzie.  Mr.  Oliver,  if  you  will  pardon  me,  I  wish  to  state  to  the  mem- 
bers of  the  committee  and  the  gentlemen  present  that  this  is  the  birthday  of  our 
honore<l  chairman,  ami  I  am  sure  you  will  all  join  with  me  in  wishing  him  many, 
many  happy  returns  of  the  day.     [Applause.] 

Mr.  Oliver.  I  wish  to  join  with  Mr.  McKenzie  in  extending  my  sincere  con- 
gratuhitions,  and  I  hope  that  the  distinguished  chairman  will  remain  with  us  in 
Congress  as  long  as  Uncle  Joe  Cannon  has. 

In  order  that  we  may  have  some  idea  as  to  the  power  of  the  Xatiomil  Govern- 
ment to  condemn,  from  a  viewi>oint  entirely  different  from  that  anuounc*ed  by  Mr. 
Dent,  I  will  state  that  my  study  of  the  authorities  leads  me  to  ctmclude  that 
there  can  really  be  no  two  opinions  as  to  the  i)ower  and  extent  of  the  Nationnl 
(Government's  power  to  condemn.  It  does  not  extend  alone  to  proi»erty  essential 
to  the  permanent  oiieration  of  a  Government  project  or  plant,  but  it  likewise  ex- 
tends with  etpial  force  to  any  proi)erty  that  may  be  economically  neces.sary  for 
the  construction  of  such  plant  or  project,  or  for  the  temporary  operation  therer>f. 
and  I  think  the  authorities  are  uniform  on  that  proposition. 

Aside  from  that,  the  question  was  suggested  by  Mr.  Martin  in  his  statement, 
and  also  by  Mr.  Dent,  that  in  all  comlemnation  proceedings  it  nuist  be  shown 
to  the  court  that  there  is  a  public  necessity  for  the  taking  of  the  property  souglit 
to  be  condemned. 

Now,  when  Congress  directs  that  any  property  be  taken  in  connection  with  a 
public  project,  such  action  by  Congress  precludes  all  further  inquiry,  gentlemen, 
into  the  question  of  necessity.  1  think  the  authorities  are  uniforn»  on  that 
proposition. 

In  other  words,  here  is  a  plant  at  Muscle  Shoals  constructed,  whether  with 
the  $20,000,000  appropriated  in  the  1910  national  defense  act  or  not  is  immaterisil. 
since  confessetlly  it  was  constructed  pursuant  to  the  purpose  and  declare<l  will 
of  Congress  as  expressed  in  the  1916  act.  It  was  to  serve  the  Government  both  in 
time  of  war  and  in  times  of  peace;  in  other  words,  it  was  not  a  plant  built  or 
authorized  for  a  war  emergency  alone,  but  was  a  plant  construcre*!  for  a  broad 


MUSCLE   SHOALS  PROPOSITIONS. 


765 


national  purpose,  continuing  in  war  as  well  as  in  peace,  and  the  steam-power 
unit  at  Gorgas  and  transmission  lines  therefrom  were  paid  for  and  acquired 
by  the  Government  for  the  purpose  of  economically  aiding  in  the  construction 
of  the  Muscle  Shoals  plant  and  for  the  operation  of  said  plant. 

You  may  say  that  perhaps  that  power  was  only  to  be  used,  as  the  officers 
thought,  during  the  time  that  the  locks  were  being  constructed  for  the  develop- 
ment of  hvdro-electric  power;  but  the  officers  cimld  not  determine  what  use  Con- 
gress or  the  Nation  might  later  determine  to  make  of  a  power  adjunct  to  the 
plant  at  Muscle  Shoals,  paid  for  and  constructed  for  the  Government. 

The  point  I  make  is  that  the  (iorgas  powder  unit  was  a  plant  to  supply  the 
electric  energv  and  power  to  operate  a  national  project,  selected,  set  apart,  and 
built  pursuant  to  the  directions  of  Congress,  as  expressed  in  the  national  defense 
act  of  1916,  and  if  now  Congress  should  accept  an  offer  providing  for  the 
maintenance  and  operation  of  that  plant,  so  as  to  conserve  the  two  national 
purposes,  as  expressed  in  the  1916  act,  and  in  that  connection  shouhl  direct  that 
this  Gorgas  plant  be  condemned  and  taken  over,  the  neceasity  for  thus  taking  it 
(.ver  could  not  arise  in  any  court ;  because  the  action  of  Congress  will  be  con- 
clusive on  that  point  as  to  any  court  inquiry  hereafter,  and  I  can  not  believe 
that  any  lawyer  will  assail  or  take  issue  with  that  proiwsition. 

You  gentlemen  are  familiar  with  that  line  of  authorities,  holding  that,  though 
valuable  private  or  public  rights  or  quasi  public  rights  may  have  been  acquired, 
if,  afterwards,  the  State,  in  its  wisdom  through  its  legislative  body,  sees  tit  to 
open  a  public  street  through  such  property ;  that  it  has  the  right  to  do  so.  The 
leading  case  on  that  subject  came  up  from  Illinois,  as  Mr.  McKenzie.  I  know,  will 
recall,  and  went  to  the  Supreme  Court,  and  the  court  decide<l  that  the  necessity 
was  to  be  determined  by  the  legislative  body,  where  they  saw  fit  to  act,  and  their 
action  was  conclusive  afterwards  on  any  inquiry  in  the  courts  as  to  the  neces- 
sity of  taking  the  property  designated  in  the  act  for  the  street. 

Coming  down  to  certain  acts  of  Congress  which  Mr.  Dent  seems  to  lay  stress 
(in,  and  on  which  Mr.  Martin,  as  I  understand,  bases  altogether  his  contention 
that  this  is  a  legal  contract,  lavish  to  call  your  attention,  before  discussing  the 
two  acts  of  May  10,  1918,  and  July  9,  1918,  to  that  clause  or  article  of  the  con- 
tract, which  they  insist  gives  the  Alabama  Power  Co.  the  exclusive  right  to  pur- 
chase this  property. 

It  is  article  22  of  the  contract,  and  you  will  note  that  it  only  gives  to  the  (Gov- 
ernment "  at  any  time  subsequent  to  three  years  after  peace  is  declaretl "  the 
right  to  call  upon  the  Alabama  Power  Co.  to  purchase  this  plant ;  note  the  lan- 
guage— "  three  years  subsequent  to  the  declaration  of  peace."  The  Government 
until  this  three  years  has  elapsed  is  denied  all  right  to  sell  the  proiierty,  but 
niav  after  such  time  call  on  the  Alabama  Power  Co.  to  purchase  the  plant.  It 
develops  from  that  article,  as  you  read  it,  that  the  evident  purpose  of  the  Ala- 
bama Power  Co.  in  thus  seeking  to  require  a  iwstponement  of  the  Government's 
right  to  sell  this  plant,  was  to  reserve  for  itself  the  right  to  enjoy  the  use  of  it 
during  such  time,  and  the  article  undertakes  to  provide  that  the  (Jovernment 
must  pay  a  large  amount  for  the  use  of  current  to  be  furnishe<l  the  Government 
or  its  assignees.  Thus  contemplating  that  the  Government,  pending  the  time 
the  power  companv  had  reserved  for  itself  the  use  and  possession  of  the  Gorgas 
plant,  might  dispose  of  the  plant  at  IMuscle  Shoals,  and  if  so,  this  article  under- 
takes to  fix  the  charge  that  the  assignee  shall  pay  for  current  supplieil  from  the 
Government  steam  plant  at  Gorgas,  and  which  the  Alabama  Power  Co.  claims 
the  exclusive  right  to  operate  or  purchase  until  three  years  after  peace  is  de- 
clared. 

In  a  subsequent  provision  of  that  article,  the  Alabama  Power  Co.  reserves 
the  right  at  any  time  during  this  i>eriod,  ending  three  years  after  i)eace  is  de- 
clared, to  call  upon  the  Government  to  sell  the  plant  to  it,  and  to  credit  as  part 
payment  on  the  value  of  the  plant  to  be  thus  fixed  by  arbitration,  if  not  agreetl 
on,  any  amount  to  its  (the  Alabama  Power  Co.'s)  credit  out  of  the  amount  the 
Government  or  its  assignee  is  required  to  pay  for  current  supplied  during  such 
option  period.  The  whole  plan  being  that  during  the  time  the  Government  is 
<leprived  of  its  right  to  sell  the  power  company  may  use  the  plant,  selling  cur- 
rent therefrom  to  the  Government  at  a  price  so  fixed  in  the  contract  that  it 
might  partly  or  wholly  amortize  the  value  of  the  plant,  during  the  time  the 
power  company  has  reserved  to  itself  the  right  to  purchase,  if  it  so  elects. 

But  that  is  not  the  only  remarkable  thing  in  article  22  of  the  alleged  con- 
tract. It  provides  that  in  the  event  the  Government  does  not  see  fit  to  call  on 
the  Alabama  Power  Co.,  after  this  delayed  time,  to  purchase,  or  in  the  event 


766 


MUSCLE  SHOALS  PROPOSITIONS. 


the  Alabamli  Power  Co.  fails  to  call  on  the  Government  to  sell,  that  then  the 
Government  shall  have  as  Its  only  right  the  authority  to  remove  the  build- 
ings, machinery,  transmission  lines,  and  other  property.  So  that  article  of  the 
contract  does  not  necessarily  show  a  complete  sale  at  all;  in  other  words,  it 
shows  that  there  may  never  be  a  sale  under  article  22  of  the  contract,  and 
that  the  Government  may,  in  future,  take  its  property  and  move  it  off  as  per- 
sonalty. 

When  that  statement  as  to  article  22  is  applied  to  the  two  acts  in  question, 
I  think  you  will  find  the  contention  of  Mr.  Martin  and  of  Mr.  Dent  to  be 
wholly  unsound,  no  matter  how  liberal  may  be  your  interpretation  of  the 
l>ower  conferred  by  Congress  on  the  President  or  the  head  of  an  executive  de- 
partment of  the  Government  to  sell. 

Let  me,  however,  call  your  attention  to  a  further  fact.  The  act  of  May  10, 
1918,  and  the  act  of  July  9,  1918,  relate  alone  to  property  acquired  by  the 
Government  or  purchased  by  the  Government  for  the  war  emergency.  These 
acts  never  had  in  contemplation,  if  you  will  read  them,  any  property  acquiretl 
by  the  Government  for  future  use  after  the  war  was  over,  as  the  plant  at 
Muscle  Shoals  was,  because  that  plant  was  to  be  retained  for  all  time  to 
serve  the  country  in  peace  as  well  as  in  war.  So  the  acts  of  May  10,  and 
.July  9,  1918,  conferred  no  authority  on  the  President  or  the  head  of  an  execu- 
tive department  to  sell  the  plant  at  Muscle  Shoals  or  its  power  unit  at  Gorgas. 

But  it  is  not  necessai*y  to  assume  that  in  order  to  show  the  absolute  fallacy 
of  the  contention  of  the  Alabama  Power  Co.  in  this  case.  Take,  for  instance, 
the  act  of  May  10,  which  Mr.  Dent  passed  loosely  over  and  said  perhaps  it 
did  not  apply,  or  he  thought  that  the  act  of  July  9  was  fuller  and  he  was  not 
insisting  so  much  on  the  May  act,  but  I  will  read  it  in  connection  with  the 
July  9  act : 

**  Be  it  enacted  hy  the  Senate  and  House  of  Representatives  of  the  United 
States  of  America  in  Congress  assembled.  That  during  the  existing  emergency 
the  President  be,  and  he  is  hereby,  authorized  in^his  discretion  and  upon  sucii 
terms  as  he  shall  deem  expedient,  through  the  head  of  any  executive  depart- 
ment, to  sell  any  supplies,  materials,  and  so  on." 

You  will  find  that  the  words  "  supplies,  materials,  and  so  on  "  relate  to  war 
emergency  supplies  and  could  not  by  any  stretch  of  the  imagination  relate  to 
a  plant  constructed  for  permanent  use  by  the  Government  in  war  as  well  as 
in  peace  time. 

Now,  evidently,  when  some  one  came  to  consider  this  act  of  May  10,  they 
found  that  Congress  had  vested  the  power  solely  in  the  President,  and  had 
used  the  words  "  in  his  discretion  and  on  terms  to  be  fixed  by  him."  The  act 
of  July  9  was  evidently  framed  with  a  view  to  somewhat  broaden  that  power, 
and  since  there  is  no  contention  on  the  part  of  the  Alabama  Power  Co.  that  the 
President  ever,  in  the  exercise  of  his  discretion,  fixed  the  terms  on  which  any 
property  was  to  be  sold,  Mr.  Dent  well  said,  "  We  will  pass  that  by."  But  he 
contends  that  under  the  act  of  July  9,  1918,  the  power  was  broadened  as 
follows : 

"That  the  President  be,  and  he  hereby  is,  authorized  through  the  head  of 
any  exetfutive  department  to  sell,  upon  such  terms  as  the  head  of  such  depart- 
ment shall  deem  expedient,  to  any  person,  partnership,  association,"  describ- 
ing likewise  war  emergency  property. 

I  wish  to  call  your  attention  first  to  the  fact,  and  doubtless  the  members 
of  the  committee  have  already  thought  of  it,  that  the  term  "executive  de- 
partment "  has  a  well-defined  meaning,  and  when  Congress  authorizes  the 
President  or  the  head  of  an  executive  department  to  do  an  act,  you  are  not 
at  a  loss  to  know  on  whom  Congress  is  conferring  authority,  and  the  changing 
heads  of  bureaus  and  of  bureau  establishments  when  such  language  is  em- 
ployed are  never  in  the  contemplation  of  Congress,  nor  can  there  be  found 
any  statute  or  any  decision  construing  the  words  "  head  of  an  executive  de- 
partment "  as  designating  a  bureau  or  any  subordinate  agency  of  any  of  the 
executive  departments. 

The  Revised  Statutes,  158,  159,  and  160,  define  an  executive  department  to  be 
1  of  the  10  departments  of  the  Government,  and  when  you  say  the  President 
or  the  head  of  an  executive  department,  of  course,  you  mean  the  President  cl- 
one of  the  Cabinet  officers  who  is  at  the  head  of  an  executive  department. 
We  have  but  10  executive  departments,  and  throughout  the  Revised  Statutes 
and  throughout  all  the  decisions,  whether  you  take  the  decisions  of  the-  courts, 
or  those  of  the  comptroller  in  the  past,  or  of  the  budget  oflUcer  at  present,  they 


MUSCLE  SHOALS  PROPOSITIONS. 


767 


have  all  uniformly  recognized  that  the  "head  of  an  executive  department" 
has  reference  alone  to  one  of  the  10  Cabinet  officers  of  the  Government.  Con- 
gress would  not  in  conferring  important  powers  upon  the  President  link  there- 
with the  words  "  or  a  bureau  head  "  and  thus  give  to  the  bureau  head  the  same 
power  given  to  the  President.  Of  course  the  only  department  Congress  linked 
with  the  President  in  the  conferring  of  important  powers  by  the  July  9  act 
was  a  Cabinet  officer,  who  alone  is  designated  as  the  head  of  an  executive  de- 
partment. 

So  this  discussion  by  Mr.  Dent  and  others  as  to  whether  Gen.  Williams,  of 
the  Ordnance  Bureau,  gave  any  written  authority  to  the  reserve  officer,  Lieut. 
Col.  Williams,  to  sign  this  alleged  contract,  is  wholly  irrelevant  and  immaterial, 
because  you  must  show,  if  your  contention  is  correct,  that  the  head  of  an 
executive  department  had  the  right  to  sell  this  class  of  property,  and  if  he 
delegated  such  authority,  that  it  was  properly  delegated  and  such  delegation 
confined  to  acts  not  involving  judgment  and  discretion  requiring  the  personal 
exercise  or  approval  by  the  head  of  an  executi^  e  department. 

Now  let  us  carry  the  analysis  of  this  act  of  July  9  a  little  further,  and  I  caU 
your  attention  especially  now  to  a  proviso,  important  indeed,  in  determining  the 
extent  of  the  authority  that  Congress  sought  to  confer  even  upon  the  President 
or  the  head  of  an  executive  department  in  the  sale  of  war-time  emergency-ac- 
quired property. 

Congress  did  not  when  it  passed  that  act,  Mr.  Chairman,  leave  it  simply  as  a 
broad,  unlimited  authority  conferred  for  all  time  to  make  sales,  but  it  placed 
an  important  qualifying  clause  on  the  authority  to  sell  in  the  act  of  July  9, 
1918.  The  reason  why  I  called  your  attention  to  what  section  22  of  the 
Alabama  Power  Co.  contract  provided,  as  to  the  postponement  of  the  Govern- 
ment's right  to  sell,  was  to  show  that  under  this  alleged  contract  with  the 
Alabama  Power  Co.  the  Government  is  absolutely  precluded  from  selling  the 
Gorgas  steam  plant  until  three  years  after  peace  is  declared.  Now  listen  to  the 
proviso  and  see  whether  that  proviso  has  been  or  can  be  complied  with  by  any 
officer  seeking  to  bind  the  Government  in  what  the  Alabama  Power  Co.  claims 
is  an  exclusive  right  given  it  to  purchase. 

''Provided  further''— this  is  from  the  act  of  July  9,  1^18— '' Provided  further, 
That  a  detailed  report  shall  be  made  to  Congress,  on  the  first  day  of  each  regu- 
lar session,  of  the  sales  of  any  war  supplies,  materials,  lands,  factories,  or  build- 
ings and  equipment  sold  under  the  authority  contained  in  this  or  any  other  act, 
except  sales  made  to  any  foreign  state  or  government  engaged  in  war  against 
and  government  with  which  the  United  States  is  at  war." 

Making  such  foreign  state  or  government  the  only  exception,  you  understand. 

"  Showing  the  character  of  the  article  sold,  to  whom  sold,  the  price  received 
therefor,  and  the  purpose  for  which  sold." 

How  could  an  agent  of  the  Government,  whether  the  head  of  an  executive 
department  or  fhe  President,  have  complied  with  that  proviso  if  the  alleged  con- 
tract of  the  Alabama  Power  Co.  is  valid?  The  Government  under  that  con- 
tract can  not  elect  to  say,  "  I  wish  to  sell  this  property  "  until  three  years 
have  elapsed  after  peace.  'The  Government  by  some  agent  has  tied  its  hands, 
and  yet  Congress  said  that  in  the  exercise  of  the  power  to  sell  emergency 
acquired  property  the  agent  on  whom  we  confer  authority  to  sell  shall  report 
to  the  next  regular  session  of  Congress;  in  this  case  that  happened  to  be 
December,  1918,  since  it  is  claimed  the  sale  was  made  in  November,  1918  •  and 
then  he  must  show  what?  The  property  sold,  the  party  to  whom  sold,  the  pur- 
pose for  which  sold,  and  the  amount  received. 

This  certainly  was  a  limitation,  and  served  notice  on  the  agent  and  on 
everyone  dealing  with  the  agent  that  the  Government  had  authorized  not  a 
sale  or  an  option  to  buy  property  three  years  after  peace,  but  if  any  sale  was 
made  before  December,  1918,  the  property  sold,  the  party  to  whom  sold  the 
purpose  for  which  sold,  and  the  amount  received  must  be  reported  to  the 
December  session  of  Congress.  If  that  be  a  binding  contract,  you  then  con- 
strue it  as  giving  to  the  Alabama  Power  Co.  the  right  to  say  to  an  emer- 
gency officer  named  Williams,  "You  need  not  sell  us  now  the  Gorgas  plant 
but  you  can  postpone  the  Government's  right  to  sell  it  at  aU  to  anyone  until 
three  years  after  peace,"  although  Congress  said  in  conferring  authority  to  sell 
that  the  President  or  head  of  an  executive  department,  as  to  all  sales  made 
must  report  the  purchaser  and  terms  of  said  sale,  including  price  received  to 
the  next  regular  session  of  Congress,  which  as  to  their  alleged  sale  would 
nave  required  a  report  in  December,  1918. 

92900—22 49 


768 


MUSCLE   SHOALS  PBOPOSITTONS. 


m 


But  thaf  is  not  all.  There  is  still  another  well  understood  and  well  recog- 
nized rule  of  law  that  would  prevent  an  unconscionable  contract  like  this  from 
taking  effect,  and  it  is  this : 

Assume  that  all  I  have  said  in  reference  to  the  limitation  of  the  agent  to 
sell  is  untenable.  I  do  not  think  it  can  be  assailed,  but  just  assume  for  the 
sake  of  argument  that  it  is  untenable,  what  more  do  we  find  has  been  attempted 
in  this  contract  to  violate  the  plain  language  of  the  act  of  July  9,  1918,  which 
it  is  claimed  confers  authority  upon  the  President  or  the  head  of  an  executive 
department  to  sell? 

Why,  when  Congress  conferred  authority  on  the  President  or  the  head  of 
an  executive  department  to  sell  by  the  July  9  act,  it  clothed  the  President 
and  the  head  of  such  executive  department  with  important,  personal  respon- 
sibilties  to  be  exercised  in  time  of  war,  involving  the  selection  of  property 
which,  without  hurt,  could  be  sold ;  the  suitability  of  the  party  or  Government 
to  whom  it  could  be  safely  sold;  the  price  to  be  paid;  and  the  purpose  for 
which  sold ;  yet,  lo  and  behold,  we  find  the  Alabama  Power  Co.  and  an  emer- 
gency Government  officer  entering  into  a  contract  whereby  the  Government 
has  not  reserved  to  the  President  or  to  the  head  of  the  executive  department, 
who  alone  were  clothed  with  authority  to  sell  at  a  fixed  price,  any  right  to  fix 
the  price  of  the  property ;  but  the  Government  has  postponed  its  right  to  sell 
for  three  years  after  peace  is  declared,  and  if  the  Alabama  Power  Co.  elects 
to  purchase  under  an  option  given  it  in  such  contract,  and  the  price  can  not 
be  agreed  on,  then  the  Alabama  Power  Co.  under  this  alleged  contract  may 
appoint  one  of  the  arbitrators  to  determine  the  value  of  the  property  at  such 
postponed  date  and  the  amount  to  be  paid  by  the  Alabama  Power  Co.  therefor. 
It  might  be  Mr.  Martin  himself,  the  man  who  helped  to  draw  the  contract, 
and  assuming  that  he  might  be  selected  by  the  Alabama  Power  Co.  to  sit 
on  this  tribunal  to  fix  the  price  the  Government  Is  to  receive  for  this  property, 
he  shall  have  voice,  equal  with  the  agent  to  be  appointed  by  the  Government, 
in  the  selection  of  a  third  party,  who  together  may  determine  the  price  the 
Alabama  Power  Co.  shall  pay. 

Is  there  any  man  who  ever  studied  law  for  a  day  that  would  for  a  moment 
contend  that  where  you  confer  authority  to  sell  large  and  valuable  property 
upon  an  agent  and  confer  it  upon  him  and  him  alone,  that  the  agent  has  the 
right,  in  the  exercise  of  that  authority  to  sell,  to  delegate  to  the  party  who  is 
to  buy,  the  right  to  appoint  some  one  to  fix  the  price?  That  is  perfectly  absurd, 
and  there  can  be  no  sane,  intelligent  insistence  that  this  anomalous  contention 
of  the  Alabama  Power  Co.,  either  through  its  president  or  its  attorney,  is  ten- 
able or  would  be  enforceable  in  any  court. 

I  thank  you,  gentlemen.  I  would  be  glad  to  answer  any  questions  the  com- 
mittee may  wish  to  ask. 

Mr.  MiLLEB.  Mr.  Oliver,  you  contend  that  in  the  act  where  it  designates  the 
President  or  the  head  of  any  executive  department,  that  the  head  of  the  execu- 
tive department  can  not  delegate  that  power  to  anybody  else? 

Mr.  Oliver.  I  do  not  think  he  could  delegate  the  ^ower  to  the  extent  of  hav- 
ing the  price  fixed,  the  property  to  be  sold,  the  purchaser  to  whom  sold  deter- 
mined by  a  subordinate. 

Mr.  MrLLEE.  That  is  what  I  mean. 

Mr.  Oliver.  But  even  if  that  be  incorrect  there  would  have  to  be  some  delega- 
tion of  that  power  regularly  shown.  I  am  very  glad  Mr.  Miller  asked  that 
question,  because  as  showing  that  even  the  Secretary  of  War  understood  that  this 
alone  confeiTed  authority  on  him,  and  that  before  anything  could  be  done  pur- 
suant to  it  there  would  have  to  be  an  order  issued  by  him.  I  refer  you  to  the 
order  of  Gen.  Goethals  which  Mr.  Martin  read  into  the  record  and  passed  over 
rather  hurriedly,  and  I  am  not  surprised  that  he  did  not  dwell  on  it,  because 
it  is  against  his  contention.  You  will  note  that  the  order  of  Gen.  Goethals  is 
"by  authority  of  the  Secretary  of  War,  Geo.  W.  Goethals,  major  general, 
Assistant  Chief  of  Staff,"  and  so  on.  So  if  there  could  be  any  delegation  of  this 
authority,  it  must  be  in  that  way  by  the  head  of  an  executive  department. 

There  was  evidently  no  difference  of  opinion  in  the  War  Department  as  to 
whom  the  head  of  the  executive  department  was.  Let  me  call  your  attention 
to  that  bulletin,  as  they  call  it,  issued  at  that  time,  which  was  August  3,  fol- 
lowing the  act  of  July  9,  and  so  far  from  conferring  upon  any  agent  the  right 
to  deny  to  the  Government  the  right  to  sell  this  property  until  three  years  after 
peace — and  you  will  remember  that  that  is  the  language  of  section  22— or  to 
confer  upon  any  purchaser  the  right  to  claim  the  exclusive  right  to  buy  it,  n 
he  so  elects,  let  us  see  what  Gen.  Goethals  said  in  that  order : 


MUSCLE   SHOALS  PROPOSITIONS. 


769 


'  Where  increased  manufacturing  facilities  are  constructed  at  the  expense  of 
the  Government  or  where  their  cost  is  amortized  in  the  price  paid  by  the  Gov- 
ernment, the  contract  shall  provide  that  title  to  such  facilities  shall  vest  in  the 
United  States.  The  contractor  may  agree  to  take  such  facilities  at  a  fair  value 
in  dimunition  of  the  profits  which  he  otherwise  would  make 

"  Where  title  to  increased  manufacturing  facilities  vests  in  the  United  States 
the  contract  shall  provide  that  the  contractor  may  make  written  offer  to  the 
Government  to  purchase  such  facilities,  whereupon,  if  the  Government  accepts 
such  offer,  the  contractor  shall  become  obligated  to  pay  for  such  facilities  at 
their  appraised  value  at  that  time." 

Is  there  any  insistence  here  that  this  contract  is  a  compliance  with  that 
and  let  us  read  further:  ' 

"  The  contract  shall  further  provide  that  if  the  contractor  does  not  make  or 
the  Government  does  not  accept  such  offer,  the  Government  shall  have  the  right 
to  remove  such  facilities  after  the  termination  of  the  contract  within  a  time 
reasonably  sufficient  to  effect  such  removal.  The  contract  may  provide  that 
the  Government  shall  have  an  option  at  the  termination  of  the  contract  to  pur- 
chase at  an  appraised  value  the  land  on  which  such  facilities  are  erected  " 

How  carefully  they  avoided  that,  you  understand,  and  certainly  the  contract 
they  set  up  does  not  meet  any  of  the  conditions  specified  in  the  bulletin  that 
I  have  thus  far  read. 

Now,  listen  further : 

"  If,  in  case  of  such  increased  manufacturing  facilities,  it  is  desired  to  make 
a  contract  along  lines  different  from  those  herein  established,  the  approval  of 
the  superior  board  of  review  shall  first  be  secured." 

Is  there  any  contention  here  that  that  was  ever  complied  with'    None  at  all 
But  the  emergency  officer,  the  lieutenant  colonel,  now  in  Japan,  seems  to  have 
been  the  officer  who  exercised  the  authority  that  Congress  conferred  upon  the 
Presid-ent  and  the  head  of  an  executive  department. 

Mr.  McKenzie.  Since  Mr.  Miller  has  asked  that  question,  I  would  like  to  ask 
you  one  question,  Mr.  Oliver.  As  I  understand  you,  one  of  your  contentious  is 
that  under  the  peculiar  conditions  surrounding  this  plant,  you  maintain  that 
the  Government  would  have  the  power  to  condemn  the  rights  of  the  Alabama 
Power  Co.  in  this  plant  and  take  over  the  entire  plant,  and'  then  the  Govern- 
ment would  be  in  position  to  sell  it  and  deliver  it  to  anybody  else. 

Mr.  Oliver.  Either  the  entire  plant  or  the  plant  the  Government  constructed 
there,  without  question,  and  I  go  further,  Mr.  McKenzie,  and  I  think  the  authori- 
ties are  not  hard  to  find  on  that  insistence,  that  where  a  party  situated  as  the 
Alabama  Power  Co.  was,  with  the  knowledge  that  they  were  impliedly  char^^ed 
with,  and  in  this  case  expressly  knew,  of  the  r.ght  of  the  Government  to  con- 
demn and  take  the  whole  property,  if  it  desired,  suffered-  or  permitted  money 
of  the  Government  to  be  expended  in  the  construction  of  a  plant  of  this  kind 
upon  its  property,  and  even  selected  the  site  or  suffered  it  to  be  selected-  that 
the  power  company  could  not  be  heard  in  condemnation  proceedings  to  set  ud 
;iny  claim  as  to  consequential  damages  to  the  adjacent  property 

Mr.  McKenzie.  If  I  understand  you,  and  I  think  I  do,  under  the  terms  of  the 
contract  entered  into  with  the  Alabama  Power  Co.,  there  can  be  no  sale  made 
until  three  years  have  elapsed  after  the  declaration  of  peace 

Mr.  Oliver.  Absolutely. 

Mr.  McKenzie.  And  your  contention  is  that  the  Government  can  condemn  and 
can  take  possession  of  at  least  that  part  of  the  plant  paid  for  bv  the  Government 
without  waiting  for  the  expiration  of  the  three-year  period      ' 

Mr.  Oliver.  Absolutely. 

Mr.  McKenzie.  And  in  addition  to  that,  if  the  plant  is  so  constructed  that  the 
CTOvernment  can  not  preserve  its  rights  :n  any  other  way,  then  on  the  basis 
^^^^^^^^^^  justice  to  the  Government,  they  can  condemn  the  whole  plant 

Mr.  Oliver.  I  do  not  question  it,  either  condemn  all  or  a  part.  I  want  how- 
oJ^^^il  ^"^V^y  ^y  answer  by  saying  that,  of  course,  I  do  not  think  that  Article 
-^  of  the  alleged  contract  is  a  binding  agreement  on  the  part  of  the  Govern- 

hnf  J' i?'^'^^^®:^^^'  ^"y^^'  unfortunately,  I  did  not  hear  all  of  your  argument 
but  following  the  question  of  Mr.  McKenzie  with  reference  to  the  condemnation 
proceedings  to  be  instituted  by  the  Government,  do  you  mean  to  say  that  the 
(government  could  exercise  the  right  of  condemnation  at  the  Warrior  plant 
mJ'nt  sf^'^'^^d  •^'?"''^^^  ^"^  ^^  Alabama  Power  Co.  prior  to  the  t.me  the  Govern- 


I       I 

li 


770 


MUSCLE   SHOALS  PROPOSITIONS. 


Mr.  Oliver.  They  could  do  it  if  Congress,  in  its  wisdom,  declared  that  that 
was  necessary  for  the  operation  of  the  plant  at  Muscle  Shoals,  and  the  action  of 
Congress,  as  I  read  the  decisions  on  the  question  as  to  the  necessity,  would  be 
conclusive. 

Mr.  Kearns.  I  am  quite  clear  in  my  own  mind  that  the  Government  would 
have  the  right  to  condenni  property  of  the  Alabama  Power  Co.  for  its  own  use. 
but  this  would  be  a  makeshift  or  a  makebelieve,  and  that  is  the  question  that 
is  in  my  mind.    Possibly  I  am  vrrong,  but  I  would  like  to  hear  about  that. 

Mr.  Olive*.  I  am  very  glad  you  have  asked  that  question. 

"Mr.  Kearns.  Could  the  Government  do  something  for  Mr.  Ford  that  Mr. 
Ford  could  not  do  for  himself:  that  is,  condemn  property  that  belongs  to  the 
Alabama  Power  Co.  for  Mr.  Ford?  The  question  in  my  mind  is  that  it  would 
not  be  exactly  for  governmental  use  and  would  be  whipping  the  devil  around 
the  stump. 

Mr.  Oliver.  That  is  a  very  interesting  and  important  question,  and  I  recog- 
nize the  pertinency  and  force  of  it. 

Let  me,  however,  call  your  attention  to  this  fact  before  making  answer,  that 
this  plant  at  Muscle  Shoals  is  to  serve  the  Government  for  the  next  100  years 
even  under  the  Ford  contract.  It  is  to  serve  the  Government  in  the  event  of 
war  and  it  is  to  serve  the  Government  in  time  of  peace  if  the  Ford  offer  before 
you  means  anything,  So  the  Goveniment  in  making  a  sale  to  Mr.  Ford  or  u 
lease  to  Mr.  Ford  of  this  power  and  of  these  plants,  and  in  authorizing  the 
taking  over  of  the  power  plant  at  Gorgas,  which  has  heretofore  been  used  in 
connection  with  nitrate  plant  No.  2.  is  doing  nothing  but  providing  the  necessary 
power  for  a  governmental  pui-pose,  the  governmental  purpose  having  been 
declared  in  the  national  defense  act  of  1916.  That  is  a  broad  governmental 
purpose,  declared  both  for  war  as  well  as  for  peace,  and  so  Mr.  Ford,  If  you 
accept  his  contract,  takes  it  sub.iect  to  those  national  pui-poses  fixed  on  the 
plant  for  the  next  100  years  or  longer. 

Mr.  Kearns.  And  that  fact  you  think  would  justify  or  would  give  the  Gov- 
ernment a  standing  in  court. 

Mr.  Oliver.  Yes:  and  Judge  Tyson  calls  my  attention  to  the  fact  of  the  Gov- 
ernment's interest  in  navigation  in  connection  therewith.  It  is  also  in  connec- 
tion with  that  important  public  use.    I  do  not  think  there  can  be  any  question 

about  it. 

Mr.  Kearns.  That  is  my  opinion. 

Mr.  Wurzbach.  Mr.  Oliver,  what  do  you  consider  the  legal  date  of  the  termi- 
nation of  the  war  under  the  provisions  of  this  contract? 

Mr.  Oliver.  The  legal  date  of  the  termination  of  the  war? 

Mr.  Wurzbach.  Yes;  when  peace  was  declared. 

Mr.  Oliver.  My  attention  has  been  called  by  Mr.  McDuffie  to  the  fact  that 
the  contract  itself  provides,  probably,  that  the  date  of  the  armistice  shall  deter- 
mine that.  I  have  not  examined  it,  however,  with  that  in  view.  That,  as  you 
know,  is  an  open  question,  and  in  the  absence  of  an  express  provision  declar- 
ing  the  date  of  the  armistice  to  be  the  date,  perhaps  it  might  not  have  been 
until  after  the  President  issued  his  proclamation  of  peace. 

Mr.  Wurzbach.  Do  you  consider  that  the  three-year  period  provided  for 
in  that  contract  has  passed? 

Mr.  Oliver.  Taking  their  contention  that  it  takes  effect  from  November. 
1918,  when  it  was  signed,  you  understand,  and  running  up  to  November,  1922, 
it  would  have  passed. 

Mr.  WuTizBACH.  The  armistice  was  signed  in  November,  1918. 

"Mt  Oliver   Yes. 

Mr!  Wurzbach.  Then  if  that  was  the  legal  date  the  three-year  period  would 

have  elapsed  at  this  time. 

Mr.  Oliver.  Yes.  , 

Mr.  Wurzbach.  Do  you  think  as  a  lawyer,  Mr.  Oliver,  that  assuming  that  tue 
Chief  of  Ordnance  or  an  agent  of  the  Government  had  power  to  act  under  this 
law  of  July,  1918,  or  May.  1918 

Mr.  Oliver  (interposing).  Unquestionably  not. 

Mr.  Wurzbach  (continuing).  Had  any  power  to  sell,  do  you  think  that  would 
include  the  power  to  provide  against  a  sale  or  to  prohibit  a  sale  during  a 

period  of  three  years?  ^  .„....,    i.  if 

Mr  Olh-er.  Unquestionably  not;  I  do  not  think  anyone  will  insist  that  n 
would  The  power  to  sell  would  certainly  not  confer  on  the  agent  the  powoi 
to  postpone  the  right  of  the  Government  to  sell  for  three  years  after  peace,  an«» 
this  is  what  this  contract  does.    In  other  words,  in  executing  the  power  to  sen, 


MUSCLE   SHOALS  PROPOSITTOXS. 


771 


taking  it  as  they  view  the  power  conferred  by  the  act  of  .July  9,  they  have  con- 
strued it  as  a  power  on  the  agent  to  postpone  the  right  of  the  Governmont  to  soil 
for  three  years  after  peace,  and  yet  Congress  said,  "  You  shall  report  the  sales 
at  the  next  term  of  Congress,  the  terms  of  sale  and  the  amounts  received,  etc." 

Mr.  Wurzbach.  That  3-year  period  having  elapsed— it  is  in  one  sense  not 
pertinent— but  do  you  think  that  provision  is  so  materially  a  part  of  the  entire 
section  of  the  contract  that  it  would  vitiate  the  entire  provisions  of  the  contract? 

Mr.  Oliver.  The  provision  I  refer  to,  of  course,  is  a  part  of  the  only  section 
which  seeks  to  confer  what  they  claim  is  an  option  on  them  to  purchase,  and 
the  right  on  the  part  of  the  Government  to  compel  them  to  buy  if  it  so  elects, 
and,  of  course,  if  you  take  out  that  part  of  it,  it  would  certainly  vitiate  the 
tilt  ire  section  relating  to  the  sale  of  this  plant. 

Mr.  Wurzbach.  That  is  what  I  wanted  your  opinion  on. 

Mr.  Miller.  May  I  make  a  suggestion?  The  contract  itself.  Mr.  Oliver,  be- 
tween the  United  States  Government  and  the  Alabama  Power  Co.  provides,  you 
will  observe,  in  section  22,  "  at  any  time  subsequent  to  three  years  after  the 
termination  of  the  war,"  and  in  the  closing  paragraph  of  the  contract  the  words, 
"  termination  of  the  war  "  are  defined. 

Mr.  Oliver.  Yes. 

Mr.  Miller.  As  the  time  when  the  President  of  the  United  States  shall,  by 
proclamation,  declare  the  war  terminated. 

Mr.  Oliver.  That,  then,  would  not  be  in  November.  1918.  When  was  that 
procl.-imation  issued?  I  think  it  was  last  November,  and,  of  course,  it  would  be 
three  years  from  that  time.  In  other  words,  the  Government  itself,  under  this 
contract,  if  valid,  would  be  postponed  in  its  right  to  sell  for  three  years  from 
November,  1921,  and  the  Alabama  can  use  it  and  hold  possession  of  it  during 
that  time. 

Ml-.  Wurzbach.  If  that  3-year  period  has  not  elapsed,  do  you  think  that  the 
(Jovernment  would  have  the  right  to  sell  this  property,  because  the  option  of  the 
Alabjuiia  Power  Co.  to  buy  only  begins  at  the  termination  of  the  3-year  period? 

Mr.  Oliver.  Not  if  the  contract  is  valid,  unless  needed  for  a  national  purix)se. 
So  unfair,  unreasonable,  and  overreaching  is  tliis  contract  in  favor  of  the 
Alabama  Power  Co.  that  while  it  postpones  the  right  of  the  Government  to  sell 
until  three  years  have  elapse<l  after  the  proclamation  of  peace,  the  Alabama 
Power  Co.  reserved  to  itself  the  right  to  call  on  the  Government  to  sell  to  them 
at  any  time  the  company  elected  to  buy,  and  did  not  even  fix  any  limitation 
when  the  company  could  exercise  such  right.  It  might  be  four  or  five  years 
after  peace,  you  understand. 

Mr.  Wurzbach.  But  liefore  the  lapse  of  the  three-year  periojl  after  i)eace  has 
been  declared  do  you  not  think  under  the  terms  of  this  contract  the  Govern- 
ment would  have  a  right  to  sell  this  property  to  anyone? 

Mr.  Oliver.  I  do  not  think  the  contract  is  valid,  for  the  reasons  stated,  and 
T  think  that  the  reasons  pointed  out  invalidate  thnt  contract  be.vond  question, 
but  if  you  assume  that  tlie  contr«-)ct  is  valid  and  that  section  22  is  a  valid  agree- 
ment, then  the  Government  would  be  postponed  in  its  right  to  sell  until  three 
years  have  elapsed  from  last  November,  unless  Congress  detei'uiines  it  should 
be  acquired  for  national  use. 

Mr.  Wurzbach.  But  I  think  you  stated  a  while  ago  that  that  provision 
attempting  to  prevent  the  Government  from  selling  during  the  three-year 
period  is  an  invalid  provision  against  public  policy. 

Mr.  Oliver.  Yes.  I  think  the  whole  clause  is  invalid,  and  ujy  answer  was 
based  on  a  very  violent  assumption,  and  that  was  that  w.'  would  assume  rhr.t 
this  was  valid.    I  think  that  is  a  false  assumption. 

Mr.  Wltizbach.  And  according  to  that  contrnct  the  Alabama  Power  Co. 
has  no  right  to  purchase  until  after  the  lapse  of  the  three-year  period.  Is  not 
that  true? 

Mr.  Oliver.  No.  Mr.  Miller  evidently  had  this  section  in  mind  when  he 
called  attention  to  ,the  fact  that  it  appeared  to  him  to  be  overreaching  and 
grossly  unfair  to  the  Government.  And  why?  The  Alabama  I'ower  Co.  sets 
up  51  contract  whereby  it  says  that  the  contr.ict  bus  postponed  the  right  of  the 
Government  to  sell  this  plant  to  anybody  until  three  years  elapse  from  the 
date  of  the  President's  proclamation  of  peace ;  in  other  words,  three  years  from 
hist  November,  as  we  now  understand  it. 

The  Chairman.  In  thinking  it  over  1  think  the  proclamation  was  issued  In 
October. 

]Mr.  Oliver.  Then  I  will  correct  that.  I  thank  you  very  much,  Mr.  Chairman. 
Anyhow,  three  j^ears  from  the  date  of  the  proclamation,  and  yet  in  that  same 


I 


772 


MUSCLE   SHOALS  PROPOSITIONS. 


clause  posfeponinfi:  the  Government's  right  to  sell  to  anyone,  the  Alabama  Tower 
Co.  reserves  the  right  to  use  that  plant,  and  further  reserves  the  right  to 
require  the  Government  before  the  expiration  of  that  three  years  to  sell  it  to 
them. 

You  see  the  difference  in  the  rights— one  postpones  the  Government's  right 
to  sell  at  all,  but  gives  the  power  company  the  right  to  purchase  at  once,  anci 
the  reason  IS  very  apparent.  They  say,  "  We  will  use  it,  and  if  it  is  profitable 
to  use  It  then,  under  this  contract,  article  22,  we  will  use  it  and  amortize  the 
amount  that  we  may  be  willing  to  pay  hereafter  for  it  with  what  the  Govern- 
ment pays  us  m  excessive  charges.  If,  however,  we  find  it  to  our  advantage 
to  buy  we  can  call  on  the  Government  at  any  time  to  sell,  and  they  must  sell " 
They  get  the  option  and  the  Government  gets  nothing,  and  yet  they  call  that  a 
fair  and  just  contract. 

.v}^^.\  Fields.  Mr.  Oliver,  granting  for  argument's  sake  that  the  contract  of 
the  Alabama  Power  Co.  is  valid. 

Mr.  Oliver.  Granting  that  it  is  valid  is  very  violent. 

Mr.  Fields.  Yes ;  granting  for  argument's  sake  that  it  is  valid  and  considering 
in  connection  with  that  the  fact  that  the  declaration  of  peace  was  issued  bv 
the  President,  as  the  chairman  has  called  attention  to,  last  October,  practicallV 
three  years  after  the  armistice  and  practically  three  years  after  the  Govern- 
ment ceased  to  use  this  property,  that  gives  the  Alabama  Power  Co.  the  right 
to  use  it  six  years  lacking  one  month. 

Mr.  Oliver.  Yes. 

Mr  Fields.  During  which  time  the  Government  can  not  sell  it  and  durin- 
which  time  the  value  of  the  property  may  depreciate  and  the  value  of  the 
earnings  of  the  Alabama  Power  Co.  upon  the  use  of  the  property  may  increase 
to  such  an  extent  that  those  earnings  will  pay  the  Government's  claim  on  the 
property. 

Mr.  Oliver.  Certainly.  That  was  their  purpose,  of  course  There  is  no 
question  in  the  world  about  that. 

Mr.  QuiN.  Mr.  Oliver,  taking  the  national  defense  act  of  1916,  if  this  contract 
bears  the  date  of  the  1st  of  December,  1917,  and  practically  all  the  work  was 
done  and  both  parties  lived  up  to  the  obligations  of  that  understanding,  is  not 
this  contract  void? 

Mr.  Oliver.  Not  for  that  reason,  Mr.  Quin.  I  heard  your  questions  yester- 
day seeking  to  elicit  when,  in  the  opinion  of  the  attorney  of  the  Alabama  Power 
Co.,  the  contract  became  effective.  I  am  of  the  opinion  that  he  answered  cor- 
rectly that  in  view  of  the  letters  and  other  memoranda  introduced,  and  assum- 
ing they  are  genuine  and  that  it  is  all  there  is  on  the  subject,  perhaps,  it  would 
be  effective,  if  effective  at  all,  from  the  date  when  it  was  actually  signed  for 
this  reason:  Ordinarily,  the  rule  is  that  where  there  are  acts  and  agreements 
that  rest  in  parole  or  by  letter  or  by  mutual  offers  and  counter  offers  ante- 
ceding  a  written  contract,  the  signing  of  the  written  contract,  if  it  be  dated 
back  to  the  time  when  those  negotiations  commenced,  becomes  effective  from 
that  date;  but  if  there  happen  to  be  any  facts  in  connection  with  these  inter- 
mediate agreements  showing  the  intention  of  the  parties  to  postpone  the  time 
when  the  contract  was  to  be  signed,  for  a  reason,  whether  it  be  good  or  bad, 
then  it  would  not  take  effect  back  in  contravention  of  the  plain  intention  of  the 
parties ;  and  one  memorandum  that  Mr.  Martin  introduced,  bearing  date,  as  I 
recall,  in  December,  1917,  stated  that  in  view  of  the  fact  that  there  is  now  no 
power  existing  on  the  part  of  any  ofl[icer  of  the  Government  to  sell  this  prop- 
erty, no  contract  in  reference  to  these  matters  will  now  be  entered  into,  and 
assuming  that  that  was  a  proper  paper,  I  do  not  think  it  would  date  back  to 
December,  1917,  so  as  to  cut  out  a  right  they  were  seeking  to  broaden  by  the 
postponement  of  its  execution.    Do  I  make  myself  clear  on  that? 

Mr.  Quin.  Yes;  I  understand  your  position.-  Then,  basing  the  contention, 
as  both  the  president  of  the  Alabama  Power  Co.  and  their  counsel,  Mr.  Dent, 
did  before  this  committee,  upon  the  act  of  May  and  the  act  of  July,  1918,  and 
with  the  language  of  those  two  acts  and  of  this  contract  construed  together, 
is  it  not  a  fact  that  this  contract  is  not  only  voidable  but  void? 

Mr.  Oliveb.  Absolutely  void. 

Mr.  Quin.  With  that  language  requiring,  as  it  does,  action  on  the  part  of 
the  agent  and  that  agent  specified  as  the  head  of  the  department,  who  was  the 
Secretary  of  War  in  this  case,  was  it  not? 

Mr.  Oliveb.  Yes. 

Mr.  Quin  (continuing).  The  contract  would  be  bound  to  be  a  nullity. 


MUSCLE  SHOALS  PROPOSITIONS. 


773 


Mr.  Olr'er.  I  do  not  think  there  is  any  question  about  that.  I,  perhaps,  an- 
swered that  too  hastily.  There  is  a  principle  of  law  that  where  an  agent, 
without  any  authority  makes  a  sale  for  his  principal,  exceeding  his  authority, 
and  the  principal  when  it  is  brought  to  his  attention,  expressly  ratifies  it,  then 
the  party  entering  into  the  contract  with  the  agent  is  estopped  from  denying 
to  the  principal  the  right  to  aflirm.  So  I  answer  with  that  qualification,  but 
that  would  be  purely  a  reservation  for  the  benefit  of  the  principal  which,  in 
this  case,  would  be.  Congress. 

Mr.  Quin.  The  fact  that  there  was  an  interlocking  interest  of  the  Alabama 
Power  Co.  with  the  Government's  power  plant,  making  it  a  partner  in  the 
operation  for  the  future,  under  the  language  of  the  act,  would  that  be  void? 

Mr.  Oliver.  I  do  not  think  there  is  any  question  but  what  it  would  not  be 
available  to  the  Alabama  Power  Co. 

I  have  no  doubt  but  what  Congress  has  a  right  to  condemn  that  plant  and 
that  these  fancied  damages  that  the  gentleman  has  alluded  to  will  appear 
as  myths.  There  is  nothing  to  them.  You  can  not  suffer  the  Government  to 
expend  $5,000,000  on  your  property,  at  a  place  you  consented  and  permitted 
it  to  be  spent,  and  then  come  in  and  threaten  the  Government  in  the  event  it 
institutes  condemnation  proceedings  so  as  to  acquire  and  utilize  that  property 
in  the  future  as  it  has  been  utilized  in  the  past  for  governmental  purposes, 
that  you  will  claim,  large,  consequential  damages.  There  could  not  be  any 
principle  of  law  sounder  than  that  the  Alabama  Power  Co.  will  be  limited  to 
very  small  consequential  damages  under  those  circumstances. 

Mr.  Fishek.  Do  I  understand  that  it  is  your  suggestion  that  the  proper  pro- 
cedure would  be  that  if  the  Congress  should  determine  to  accept  another  offer 
than  the  Alabama  Power  Co.,  that  the  Congress  should  pass  a  mandatory  pro- 
vision or  a  mandatory  law  directing  that  condemnation  proceedings  be  insti- 
tuted to  get  the  title  for  the  Government  to  the  property  upon  which  the  Gorgas 
plant  is  built? 

Mr.  Oliver.  Oh,  absolutely. 

Mr.  Fisher.  Separating  the  plant  as  built  after  the  Government  entered  into 
the  contract  with  the  Alabama  Power  Co.  from  the  plant  which  was  originally 
there. 

Mr.  Oliver.  You  have  the  description  here  and  you  can  get  that  very  clearly. 

Mr.  Fisher.  Have  you  any  idea  what  those  condemnation  proceedings  would 
cost? 

Mr.  Oliver.  As  I  said  a  few  moments  ago,  I  think  Congress  would  be  per- 
fectly justified  in  appropriating  a  reasonable  sum  Of  course,  I  know  you 
would  fix  a  fair  and  just  amount. 

Mr.  Fisher.  You  mean  at  the  same  time  they  passed  a  law  directing  the 
condemnation  they  would  pass  an  appropriation  limiting  the  amount  of  money 
that  could  be  paid. 

Mr.  Oliver.  If  you  desired  you  could  do  that  at  that  time,  but  if  the  assess- 
ment exceeded  the  appropriation  it  would  afterwards  be  provided. 

Mr.  Wright.  Taking  the  situation  as  we  find  it,  suppose  the  Government 
should  now  convey  to  somebcdy  perhaps  all  of  its  right,  title,  and  interest  in 
the  Gorgas  plant  and  transmission  line,  and  that  the  purchaser  was  subrogated 
to  all  the  rights  of  the  Government  in  the  premises;  what  kind  of  a  title  do 
ycu  think  the  purchaser  would  get? 

Mr.  Olin-er.  I  question  whether  or  not  that  would  be  acceptable  to  any  pur- 
chaser.   I  do  not  think  any  purchaser  would  take  it  that  way. 

Mr.  Wright.  As  a  matter  of  law,  I  wanted  to  get  your  opinion  as  to  what 
interest  the  purchaser  would  get. 

Mr.  Oliver.  I  would  not  like  to  answer  that  offhand.  I  am  afraid  it  might 
embarrass  him  in  the  proper  assertion  of  a  perfectly  proper  and  legal  right  and 
largely  postpone  the  enjoyment  of  the  property,  which  is  most  essential  to  the 
economical  operation  of  a  plant  to  be  used  for  an  important  governmental  pur- 
pose, if  you  elect  to  require  the  production  of  fertilizer.    That  is  my  opinion. 

Mr.  Stoll.  Mr.  Oliver,  the  acts  of  May  10  and  July  9,  to  which  you  referred, 
gave  the  executive  heads  of  the  departments  the  right  to  sell  certain  real  estate, 
and  so  on.  Did  they  give  them  the  right  to  option  property,  thereby  giving  one 
person  a  preferred  right  for  a  period  of  years  to  buy? 

Mr.  Oliver.  I  do  not  think  anyone  will  insist  they  do. 

Mr.  Stoll.  This  contract  of  the  Alabama  Power  Co.  is  not  for  a  sale,  but  it  is 
for  an  option  on  their  part  to  buy. 

Mr.  Oliver.  Absolutely. 


I 


774 


MUSCLE   SHOALS  PROPOSITIONS. 


Mr.  STOLt.  There  is  no  provision  in  these  acts  whereby  any  party  would  be 
given  a  preferred  right  to  buy  as  they  now  claim  under  this  contract. 

Mr.  Oliver.  I  think  that  statement  of  facts  is  conclusive  as  to  the  illegality 
of  that  clause  of  the  contract. 

May  I  make  one  further  statement?  There  has  been  some  adversion  to  an 
act  known  as  the  Dent  Act,  passed  in  1919.  It  is  not  necessary  to  discuss  that 
more  than  to  call  the  committee's  attention  to  it,  I  am  sure.  I  think  most  of 
the  members  of  the  committee  now  were  on  the  committee  at  the  time  that  act 
was  passed,  and  you  are  familiar  with  the  fact  that  the  purpose  of  that  act  was 
simply  to  authorize  the  adjustment  and  settlement  of  claims  against  the  Gov- 
ejnment,  and  you  very  wisely  fixed  a  limitation  on  the  time  when  they  could  be 
adjusted,  in  that  you  placed  a  proviso  in  the  act  that  the  Secretary  of  War  or 
the  heads  of  other  departments  on  whom  you  conferred  this  authority  to  adjust 
and  settle  should  make  a  full  report  of  all  the  claims  settled  and  the  terms  of 
the  same  to  the  next  session  of  Congress.  It  has  absolutely  no  effect  in  a 
matter  of  this  kind. 

The  Chairman,  As  I  understand  it,  the  law  has  expired  by  1  mitation. 

Mr.  Oliver.  Absolutely;  the  purpose  of  the  law  has  been  fully  met  and  com- 
plied with,  and  it  is  not  applicable. 

The  Chairman.  We  are  very  much  obliged  to  you. 

Mr.  Oliver.  I  appreciate  very  much  your  courtesy,  Mr.  Chairman. 

ADDITIONAL   STATEMENT    OF    MR.    THOMAS   W.    MARTIN,    PRESI- 
DENT ALABAMA  POWER  CO. 

The  Chairman.  Mr.  Martin,  would  you  desire  to  go  ahead  with  the  proposi- 
tion of  the  Alabama  Power  Co.  at  this  time? 

Mr.  Martin.  I  am  at  yonr  service,  Mr.  Chairman, 

The  Chairman.  The  committee  would  be  very  glad  to  hear  what  you  have  to 
say  about  the  purchase  or  delivery  of  this  property  to  you  under  the  terms  of 
your  agreement,  and  I  suggest,  in  the  first  place,  that  your  letter  to  the  Secre- 
tary of  War,  and  the  Secretary  of  War's  letter  to  the  Speaker  of  the  House 
transmitting  your  offer  be  inserted  in  the  record  at  this  point  and  that  they  be 
read  by  the  clerk  of  the  committee. 

Mr.  Martin.  May  I  ask,  Mr.  Chairman,  before  you  leave  the  other  branch  of 
the  question,  that  Mr.  Dent  might  be  heard  by  the  committee  on  one  or  two 
questions  which  have  been  presented  by  Mr.  Oliver?  Mr.  Dent,  who  is  acting 
as  our  counsel,  would  like  to  have  the  privilege  later  on  to  appear  and  make  a 
statement  in  reply  to  Mr.  Oliver. 

The  Chairman.  Is  Mr.  Dent  present? 

Mr.  ]Martin.  He  is  not  present  at  the  moment. 

The  Chairman.  When  do  you  think  it  will  be  possible  for  him  to  proceed?  I 
want  to  prevent  the  two  propositions  being  mixed.  We  ought  to  close  the  hear- 
ings on  one  entirely  before  we  take  up  the  other. 

Mr.  Martin.  I  will  say  this:  That  Mr,  Dent  is  not  here  now,  and  he  would 
have  to  read  Mr.  Oliver's  remarks  before  he  can  answer.  He  will  not  be  able 
to  get  them  until  this  afternoon.  If  the  committee  wishes  to  hear  him  in 
advance  of  my  statement,  he  will  not  be  able  to  make  his  reply  until  to-morrow 
morn'ng. 

The  Chairman.  The  committee  will  hear  Mr.  Dent  to-morrow  morning,  and 
his  statement  will  be  placed  in  the  printed  record  immediately  following  the 
statement  of  Mr.  Oliver. 

In  the  meantime  we  will  be  glad  to  hear  you  on  the  proposition  submitted  by 
the  Alabama  Power  Co..  and  I  will  ask  the  clerk  of  the  committee  to  read 
the  letter  of  transmittal  of  the  Secretary  of  AVar  and  also  your  offer  made 
to  the  Secretary  of  War. 

(The  clerk  of  the  conmiittee  read  as  follows:) 

A\'^AR  Department, 
Washington,  Fehruary  21,  1922. 

Dear  Mr,  Speaker:  I  forward  herewith  an  offer,  which  I  think  worthy  of 
consideration,  made  by  the  Alabama  Power  Co,,  proposing  to  complete  the 
dam  at  Muscle  Shoals  and  to  administer  the  Government's  property  at  that 
point,  which,  I  think,  should  be  referred  to  the  committee  having  jurisdiction 
over  this  subject.    This  offer  is  accompanied  by  a  letter  of  explanation. 

My  comments  on  this  offer  are  as  follows : 


MUSCLE   SHOALS  PROPOSITIONS. 


775 


1.  The  company  will  take  out  a  license  under  the  Federal  water  power  act  to 
complete  the  dam,  locks,  and  power  house,  at  its  own  expense,  with  initial 
installation  of  approximately  240,000  horsepower,  subsequent  installation  to  be 
made  as  required  by  the  Federal  waterpower  act  to  meet  market  demands.  This 
has  the  advantage  of  relieving  the  Government  of  all  further  expenditures  in 
connection  with  completing  these  structures. 

2.  The  company  offers  to  furnish  the  Government,  or  anyone  it  may  desig- 
nate, with  free  power  in  the  amount  of  100,000  secondary  horsepower  for  the 
production  of  fertilizer  and  munitions  of  war  and  research  in  connection  there- 
with ;  and  if  for  any  reason  this  use  of  the  power  is  discontinued  the  company 
will  purchase  same.  This  feature  of  the  offer  has  the  advantage  of  providing 
the  Government  a  return  on  the  $17,000,000  it  now  has  invested  in  the  water- 
power  project. 

3.  The  Government  has  an  interest  in  the  Warrior  extension  of  the  steam 
plant  of  the  power  company  and  certain  other  facilities,  and  it  owns  the  steam 
plant  at  nitrate  plant  No.  2,  all  of  which  the  company  offers  to  purchase  for 
.1^5,000,000,  less  an  amount  to  be  [igreed  on  to  cover  costs  of  locks  and  naviga- 
tion structures  at  the  Wilson  Dam,  which  would  be  approximately  $2,5(K),000, 
thus  realizing  a  substantial  sum  on  the  Government's  war-time  investment  in 
these  steam-plant  facilities  and  at  the  same  time  placing  them  in  the  public 
service. 

4.  It  is  important  here  to  note  that  the  effect  of  this  oft'er  is  to  leave  the 
Government  in  ownership  of  its  two  nitrate  plants  in  the  Muscle  Shoals  district, 
together  with  the  AVaco  quarry,  representing  a  war-time  investment  of  some 
.$7r»,(XK).000.  They  may  be  retained  or  they  may  be  disposed  of  bj  lease,  or 
otherwise,  for  the  manufacture  of  nitrates,  for  munitions  of  war,  or  fertilizer. 

5.  The  power  compa'ny  offers  to  operate  and  maintain  the  dam.  power  plant, 
and  gates.  There  is  a  distinct  advantage  to  the  Government  in  this  part  of  the 
offer.  In  the  period  of  50  years  there  may  be  occasion  for  substantial  repairs 
and  maintenance  to  the  dam  and  gates  as  well  as  the  power  plant. 

6.  By  the  terms  of  this  offer  the  Wils<m  Dsim  property  will  be  transt>rre<l 
to  the  licensee,  who  will  complete  the  construction.  The  locks  and  navigat'on 
structures,  when  completed,  are  to  be  conveyed  to  the  Government  in  fee.  This 
feature  of  the  offer  has  the  advantage  that  it  brings  the  entire  proi)erty,  repre- 
sented by  the  Wilson  Dam  project,  under  local  taxation  laws. 

7.  The  offer  contains  the  further  provision,  based  on  section  16  of  the  Federal 
water-power  act,  for  taking  over  and  operat  ng  the  water-power  projt'ct  by  the 
United  States,  whenever  the  safety  of  the  United  States  demands,  for  the  manu- 
facture of  nitrates,  explosives,  or  munitions  of  war,  or  for  any  other  purp(»ses 
involving  the  safety  of  the  United  States.  This  broad  provision  of  the  act 
is  of  special  importance  to  the  Unted  States  in  view  of  the  location  of  the 
nitrate  plants  at  this  conununity. 

8.  It  is  proposed  by  the  power  company  to  develop  this  project  under  the 
Federal  water-power  act,  which  limits  the  license  to  a  50-year  term.  There  is 
reserved,  by  section  14  of  the  act,  the  right  to  recapture  by  the  Government, 
at  the  end  of  that  period,  and  if  not  so  taken  over  by  the  Government,  then, 
the  State  and  municipalities  have  preference  over  others.  In  this  important 
respect  the  offer  conforms  to  our  national  policy. 

9.  The  company  agrees  to  begin  construction  promptly  and  to  complete  the 
same  within  a  reasonable  time.  The  construction  must  be  begun  and  com- 
pleted within  the  time  prescribed  in  the  license.  If  not  begun,  the  license  may 
be  terminated  upon  order  of  the  water  power  commission ;  and,  if  not  com- 
pleted, there  is  ample  provision  for  protecting  the  rights  of  the  Government  in 
the  situation.  In  addition,  however,  it  is  in  the  province  of  the  Federal  Power 
Connnission  to  require  such  assurances  and  guaranties  as  may  be  necessary 
as  to  the  financial  ability  of  the  licensee  to  complete  its  undertaking. 

10.  The  Alabama  Power  Co.  is  a  public  utility.  By  the  terms  of  the  Fed- 
eral water-ix)wer  act,  its  rates,  services,  and  security  issues,  are  regulated  by 
local  authority,  and  if  none  exists,  by  the  Federal  Power  Connnission.  These 
regulatory  laws  all  provide  for  s*vice  to  everyone  without  discrimination. 

11.  The  Acting  Judge  Advocate  General  has  expressed  the  opinion  that  the 
optioh  claimed  by  the  Air  Nitrates  Corporation,  under  its  contract,  is  not  a 
lawful  option.  If  valid,  it  is  an  option  on  the  plant  as  an  entirety.  It  is 
believed  that  nothing  in  the  option  prevents  substitutions  in  parts  of  the 
plant  believed  by  the  Government  to  be  desirable.  This  offer  substitutes  power 
in  amounts  sufficient  for  the  efficient  operation  of  the  plant  for  a  plant  to 


776 


MUSCLE  SHOALS  PROPOSITIONS. 


pro<Ui<e  tltis  power  and  no  injury  i«  done  to  the  nitrate  plant  as  a  whole. 
Moref>ver,  the  Air  Nitrates  Corporation  option  arises  only  in  case  the  United 
States  determines  to  dispose  of  the  plant  as  an  entirety.  Accordingly,  even  if 
the  option  is  valid,  it  would  seem  not  to  intetrfere  with  the  acceptance  of 
this  offer. 

12.  This  offer  makes  no  provision  for  Dam  No.  3.  To  provide  for  the  local 
requirements  there  is  probably  no  necessity  for  the  construction  of  this  dam 
at  this  time;  but,  in  case  the  local  demand  and  the  requirements  of  navigation 
develop,  there  would  be  no  difficulty  in  providing  for  the  financing  of  Dam 
No.  3  on  reasonably  fair  terms. 
Yours,  very  truly, 

John  W.  Weeks, 
Secretary  of  irar. 
Tlie  Speaker  of  the  House  of  Representatives. 


Alabama  Power  Co., 
Birmingham,  Ala.,  February  15,  1922. 
Hon.  John  W.  Weeks, 

Secretary  of  War,  Washington,  D.  C. 
Sir:  This  company  offers  to  carry  out   the  following  plan  by  which  the 
Wilson  Dam  at  IMuscle  Shoals  may  be  completed  and  the  nitrate  problem  of 
the  Government  in  connection  therewith  may  be  simplified  without  further 
advances  or  expenditures  by  the  United  States. 

1.  To  take  out  a  license  under  the  Federal  water  power  act  under  which  we 
will  complete  the  construction  of  the  dam,  locks,  and  powerhouse  at  Muscle 
Shoals,  known  as  Wilson  Dam,  or  Dam  No.  2,  at  our  own  expense,  with  initial 
installation  to  be  made  in  accordance  with  the  Federal  water  power  act  as 
may  be  necessary  to  meet  the  market  demands. 

2.  To  furnish  free  to  the  Government,  or  anyone  it  may  designate,  from 
the  hydropower  plant  100,000  horsepower,  as  required  for  the  production  of 
fertilizers  and  munitions  of  war  and  for  research  in  connection  therewith: 
and  if.  due  to  changes  in  the  art,  this  use  of  such  100,000  horsepower  is  dis- 
continue<l  by  the  Government,  the  Alabama  Power  Co.  to  purchase  and  pay 
for  the  same  in  accordance  with  a  schedule  to  be  set  forth  in  the  license.  This 
power  to  be  the  second  100,000  horsepower  at  any  time  available  from  the 
normal  flow  of  the  river. 

3.  To  purchase  the  Government's  interest  in  the  Warrior  extension  of  the 
steam  plant  of  Alabama  Power  Co.  and  facilities,  the  Warrior  and  Sheffield 
substations,  the  transmission  line  from  Warrior  to  Sheffield,  and  the  steam 
plant  at  nitrate  plant  No.  2,  together  with  the  necessary  rights  of  way,  lands, 
and  housing  facilities,  and  to  pay  therefor  in  five  equal  installments  and  the 
sum  of  $5,000,000,  less  an  amount  to  be  agreed  on  to  cover  the  cost  of  locks 
and  navigation  structures  at  Wilson  Dam,  the  first  payment  to  be  made  when 
license  is  granted,  the  remaining  payments  to  be  made  in  four  equal  annual 
instalments  with  interest  at  5  per  cent,  with  the  right  to  anticipate  any  part 
or  all  of  same. 

4.  To  operate  and  maintain  the  power  plant,  dam,  and  gates,  the  Govern- 
ment to  operate  and  maintain  the  locks,  for  which  the  power  company  will 
supply  the  necessary  power  without  expense  to  the  Government. 

5.  Tlie  Government  to  transfer  to  the  licensee  the  Wilson  Dam  property 
represented  by  its  investment  and  commitments  to  date,  free  of  liabilities  and 
unincumbered,  including  the  construction  plant.  The  locks  and  navigation 
structures  to  be  conveyed  to  the  Government  in  fee  on  completion  of  con- 
struction. 

6.  Whenever  the  safety  of  the  United  States  demands  the  United  States  shall 
have  the  right,  as  more  fully  provided  in  the  Federal  water  power  act,  to  take 
over  and  operate  the  project  covered  by  the  license  for  the  purpose  of  manu- 
facturing nitrates,  explosives,  or  munitions  of  war,  or  for  any  other  purpose 
involving  the  safety  of  the  United  States,  for  such  length  of  time  as  may  appear 
to  the  President  necessary  for  such  purposes.  « 

7.  The  project  covered  by  the  license  to  be  subject  to  recapture  by  the  Gov- 
ernment at  the  end  of  50  years  under  the  terms  of  the  Federal  water  power  act. 

8.  The  licensee  will  agree  to  begin  the  construction  promptly  upon  the  enact- 
ment of  the  necessary  legislation  and  granting  of  license  and  to  complete  the 
same  within  a  reasonable  time  thereafter. 


MUSCLE   SHOALS  PROPOSITIONS. 


777 


To  facilitate  the  carrying  out  of  this  plan,  we  niav  find  it  necessai-v  to 
organize  a  new  company  for  the  purpose,  in  which  case,  however,  the  obligations 
of  this  offer  shall  be  binding  upon  this  company  in  all  respects  as  if  it  were  the 
licensee. 

Very  respectfully, 

Alabama  Power  Co., 
ByTHos.  W.  Martin,  President. 


Alabama  Power  Co., 
Birmingham,  Ala.,  February  15,  1922. 
Hon.  John  W.  Weeks,  , 

Secretary  of  War,  Washington,  D.  C. 

Sir:  In  accordance  with  the  offer  which  we  have  to-dav  submitted  to  vou 
with  reference  to  completing  the  Wilson  Dam  at  Muscle  Shoals,  we  beg  to 
make  the  following  statement: 

For  many  years  the  Alabama  Power  Co.  has  been  serving  electricitv  to  the 
industries  and  the  public  in  Alabama.  It  is  an  Alabama  corporation,  having 
several  thousand  stockholders  in  Alabama.  It  has  now  more  than  17,000  cus- 
tomers and  serves  more  than  .50  municipalities.  It  has  more  than  1..500  miles 
of  transmission  lines,  an  installed  electric-generating  capacity  of  175.000  horse- 
power, and  is  engaged  in  constructing  a  new  hydroelectric  plant  on  the  Co<»sa 
River  of  110,000-horsepower  capacity  under  a  50-year  license  granted  bv  the 
Federal  Power  Commission.  Its  facilities  are  now  being  used  to  supplement 
the  power  supply  in  Tennessee,  Georgia,  and  South  Carolina,  and  even  as  far 
away  as  North  Carolina,  600  miles  distant,  and  can  be  used  in  even  more 
distant  localities. 

For  many  years  this  company  has  been  identified  with  the  ^Eiiscle  Shoals 
situation.  For  several  years  before  the  war  it  had  owned  the  site  of  the 
Wilson  Dam,  and  at  the  outbreak  of  the  war  it  was  actually  proceeding  with 
plans  for  a  power  development  at  this  point.  These  plans  were  made  with 
the  active  cooperation  of  the  engineers  of  the  War  Department,  and  their 
approval  appears  in  House  Document  No.  20,  Sixty-third  Congress,  second 
session,  and  House  Document  No.  1264,  Sixty-fourth  Congress,  first  session. 

After  this  country  entered  the  war  the  Government  desired  the  site  for  war 
purposes.  We  thereupon  donated  the  site  to  the  Government  and  transferreil 
to  it  for  $1  titles  and  rights  in  connection  with  which  we  had  already  spent 
jnst  under  $500,000. 

We  still  own  dam  site  No.  3  and  certain  lands  in  connection  therewith. 

The  Government  being  also  then  in  need  of  power  beyond  our  available 
capacity,  and  time  being  of  the  first  importance,  we  in  like  manner  turned 
over  to  the  Government,  upon  its  request,  the  use  of  foundations  and  under- 
water structures  then  in  reserve  for  our  own  use  and  enabled  the  Government 
to  build  thereon  a  30,000-kilowatt  extension  to  our  Warrior  River  steam  plant 
to  be  operated  in  conjunction  therewith,  and  at  the  same  time  we  placed  a 
right  of  way  owned  by  the  company  at  the  disposal  of  the  Government  for 
building  a  transmission  line  from  Warrior  to  Muscle  Shoals,  a  distance  of  some 
JK)  miles.  This  enabled  the  Gavernment  to  quickly  secure  the  large  amount 
of  power  required  for  constructing  and  operating  the  nitrate  plants  at  Muscle 
Shoals.  An  agreement  was  signed  between  the  Government  and  the  company 
in  November,  1918,  binding  the  company  to  purchase  this  property  from  the 
Government  after  the  termination  of  the  war  at  a  fair  value. 

When,  in  April,  1921,  the  War  Department  inquired  concerning  the  feasi- 
bility of  completing  the  Muscle  Shoals  development,  we  expressed  the  opinion 
that  the  project  was  an  economical  and  profitable  undertaking  and  promise«l 
til  at  when  the  Government  determined  to  complete  it  for  conmiercial  purposes 
the  Government  might  rely  upon  the  cooperation  of  this  company.  Recent 
(liscussions  in  Congress  indicate  that  the  Government  is  now  prepared  to  devote 
this  power  to  industrial  uses,  and  it  is,  therefore,  appropriate  for  this  company 
now  to  offer  its  suggestions. 

In  formulating  our  plan  we  have  sought  to  meet  the  requirements  of  the 
Government — first,  in  the  desire  to  produce  cheap  fertilizers ;  second,  to  have 
nitrates  available  in  time  of  war ;  third,  to  contribute  to  the  industrial  develop- 
ment of  the  region  both  by  bringing  in  new  industries  and  opening  up  naviga- 
tion on  the  Tennessee  River;  and,  finally,  to  complete  the  project  without 
further  expense  to  the  Government. 


J  m 


I 


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778 


MUSCLE   SHOALS  PROPOSITIONS. 


Financiat  conditions  have  so  far  improved  that  we  are  now  able  to  offer  to 
complete  the  Wilson  Dam  and  power  project  without  cost  to  the  Government, 
except  for  its  locks. 

We  are  assured  by  a  number  of  important  industrial  enterprises  that  if  the 
power  from  this  development  becomes  available  to  the  public  they  will  estab- 
lish new  plants  and  factories  in  this  locality.  This,  with  the  rapid  growth  of 
industries  in  the  region  which  may  be  economically  served — a  territory  larger 
than  New  England — is  such  that  we  are  confident  the  entire  power  output  will 
be  promptly  absorbed.  If  the  IMuscle  Shoals  power  can  be  made  available  for 
everybody,  we  believe  that  not  only  will  a  number  of  new  industries  be  estab- 
lished at  or  near  Muscle  Shoals  but  the  industrial  development  of  Alabama, 
Tennessee,  Georgia,  North  and  South  Carolina,  and,  indeed,  of  the  entire  South, 
will  be  promoted.  Hence  our  willingness  to  assume  the  large  responsibilities 
involved  in  our  offer. 

The  Government  has  invested  more  than  $70,000,000  in  the  two  nitrate  plants 
and  the  lime  quarry,  and  it  appears  that  one  or  both  of  these  plants  are  essen- 
tial for  the  production  of  nitrates  for  war  purposes  and  useful  for  fertilizer 
l>roduction.  Our  proposal  leaves  the  Government  in  full  title  and  possession  of 
these  plants  and  the  quarry,  to  give  it  lOO.OlX)  horsepower  and  from  two  to  five 
million  dollars  in  cash  for  the  operation  thereof  and  for  carrying  on  experime**'^^ 
in  connection  thereAvith.  The  Government  will  then  be  in  position  to  turn  ovRr 
the  two  plants,  with  power  and  money  for  the  operation  thereof,  to  anyon«^ 
capable  of  meeting  the  requirements  of  the  Government  and  the  farmers  for 
nitrates  and  fertilizers,  or  the  Government  may  retain  the  properties  and  itself 
carry  on  such  experiments  and  manufactures  as  it  sees  fit.  The  Govei'nment  can 
dispose  of  the  plants  in  perpetuity  for  a  long  period  of  years  or  for  a  short 
period  of  years,  and  it  should  be  able,  with  the  free  use  of  modern  plants, 
no  taxes,  no  power  charges,  and  even  with  the  free  use  of  working  capitnl,  to 
attract  the  best  skill  and  talent  to  be  found. 

The  art  of  producing  nitrates  is  still  in  its  infancy  and  may  so  develop  that 
in  a  few  years  these  plants  and  this  power  will  not  be  neede<l  for  producing 
either  nitrates  for  war  purposes  or  fertilizers.  Our  plan  provides  that  in  case 
the  use  of  100,(X)0  horsepower  is  discontinued  by  the  Government  we  will  pur- 
chase that  power  from  the  Government  and  the  proceeds  will  then  be  available 
for  any  use  desired  by  the  Government,  including  the  amortization  of  its  present 
investment  in  this  situation. 

We  propose  to  take  a  license  under  the  Federal  water  i>ower  act.  This  act 
provides  for  a  50-year  license  with  the  right  of  the  Govermnent  to  recapture 
the  property  at  the  end  of  the  license  period.  It  requires  the  licensee  to  operate 
and  maintain  the  power  plant,  dim,  and  gates  at  its  own  expense,  to  make  all 
ncessarj-  renewals  and  replacements,  and  it  permits  the  Government  to  oper-. 
ate  and  maintain  the  locks,  power  to  be  furnishe<l  free  for  this  purpose  by  the 
licensee.  Of  special  importance  in  this  situation  is  the  reciuirenient  that  the 
licensee  shall  contribute  to  the  cost  of  improvements  in  the  headwaters  of  the 
river  made  either  by  the  Government  or  by  another  licensee.  This  insures  our 
cooperation  in  opening  the  upper  reaches  of  the  river  to  navigation  and 
improvement. 

This  great  project  should  be  completed  and  at  the  earliest  possible  date  co- 
ordinated with  the  power  demands  of  the  very  extensive  territory  covering 
seven  States  within  the  reach  of  power  from  this  source.  The  maxinunn  value 
can  be  drawn  from  these  Tennessee  River  possibilities  only  through  their  co- 
ordination with  the  power  and  reservoir  opportunities  on  other  rivers  in  Ala- 
bama and  adjacent  States  now  in  process  of  progressive  development  in  the 
different  watersheds.  Such  is  the  conclusion  in  the  report  entitled  "  The  power 
situation  during  the  war,"  submitted  to  the  Secretary  of  War  in  1921,  through 
the  Chief  of  Engineers,  from  which  we  quote  as  follows : 

"150,  It  therefore  appears  that  a  broad  and  well-founded  judgment  would 
dictate  that  the  Muscle  Shoals  development  should  be  interconnected  for  ex- 
change of  power  with  tlie  existing  power  systeAs  of  the  Southern  States,  and 
that  this  interconnection  and  exchange  should  be  arranged  for  without  delay, 
so  that  future  construction,  both  at  Muscle  Shoals  and  elsewhere,  can  be 
directed  for  the  production  of  plants  which  will  supplement  each  other  for 
*»conomy  of  construction  and  operation." 
Very  respectfully, 

Alabama  Power  Co., 
By  Thos.   W.   Martin.   Presitlent. 

(Thereupon  the  committee  took  a  recess  until  2.30  o'clock  p,  m.) 


MUSCLE   SHOALS  PROPOSITIOXS. 


AFTKR  RECESS. 


779 


The  committee  met  pursuant  to  recess  at  2.30  o'clock  p.  m. 

The  Chairman.  The  committee  will  please  come  to  order. 

Mr.  Oliver.  Mr.  Chairman,  I  was  inaccurate  in  one  statement  this  morning 
as  to  the  law,  and  I  desire  to  ask  permission  to  withdraw  it.  It  was  a  state- 
ment which  I  rather  hurriedly  made,  I  think,  in  response  to  a  question  as  to 
fixing  a  limitation  on  the  anrouut  in  the  event  condemnation  proceedings  were 
begun.  I  do  not  think  it  wouhl  be  proper  to  fix  a  limitation,  and  I  simply  want 
to  withdraw  that  statement. 

The  Chairman.  If  there  is  no  objection,  Mr.  Oliver,  you  may  witlidraw 
that, 

Mr,  Oliver.  Thank  you. 


ADDITIONAL   STATEMENT   OF   MR,    THOMAS   W.    MARTIN, 
DENT  OF  THE  ALABAMA  POWER  CO. — Resumed. 


PRESI- 


Tlie  Chairman,  Mr.  Martin,  we  will  be  very  glad  to  hear  such  explanation  of 
your  offer  made  through  the  Secretary  of  War  as  you  desire  to  make,  and  you 
may  proceed  in  your  own  way  and  state  the  matter  as  you  think  best, 

Mr.  Martin.  Thank  you,  Mr,  Chairman.  I  stated  to  the  eomnrittee,  Mr. 
Chairman,  a  day  or  two  ago  that  in  1912  Mr.  James  Mitchell  arranged  to  take 
over  certain  undeveloped  power  situations  in  Alabama  which  at  that  time  were 
owned  by  citizens  of  that  State  principally. 

Among  those  situations  was  the  Muscle  Shoals  undeveloped  power.  There 
was  in  existence  at  that  time  a  company  known  as  the  Muscle  Shoals  Hydro- 
electric Power  Co,  This  company  was  organized  in  1906  by  citizens  of  Alabama, 
and  purchased  from  time  to  time  properties  along  the  Tennessee  River,  with 
the  view  of  their  ultimate  development.  Among  those  interested  in  that  com- 
pany prior  to  1912  was  Mr.  J.  W.  Worthington,  who  has  appeared  before  the 
committee.  Mr.  Worthington  sold  his  interests,  along  with  the  other  stock- 
holders, to  Mr.  Mitchell  and  associates,  but  continued  as  an  officer  of  that 
company  until  his  resignation  in  February,  1920.  Meanwhile  he  had  been 
connected  with  the  Alabama  Power  Co.  His  direct  connection  with  that  com- 
pany as  an  oflScer  of  the  company  was  terminated  some  time  in  the  fall  of 
1915,  but  he  continued  as  president  of  the  Muscle  Shoals  Co.  until,  as  I  stated, 
February,  1920. 

The  Chairman.  You  say  he  continued  as  president  of  the  Muscle  Shoals 
company  ? 

Mr.  Martin.  Yes,  sir ;  until  February,  1920, 

The  Chairman.  What  was  the  Muscle  Shoals  company?  Was  it  a  separate 
organization? 

Mr.  Martin.  Yes,  sir.  The  Muscle  Shoals  Hydroelectric  Power  Co.  was  a 
separate  and  distinct  corporation,  which  corporation  acquired  these  unde- 
veloped sites  on  the  Tennessee  River.  The  stock  of  that  corporation  was 
acquired  by  Mr.  Mitchell  and  associates  in  1912,  but  the  Muscle  Shoals  Hydro- 
electric Power  Co.  continued  as  a  separate  corporation,  having  its  own  organi- 
zation and  oflacers,  and  so  it  is  to-day  a  distinct  corporation. 

Now  that  corporation  had  its  activities,  but  they  were  limited  to  some  plan 
of  development  of  the  power  at  the  Muscle  Shoals,  and  as  president  of  that 
company  Mr.  Worthington  remained  in  charge  of  its  affairs,  or  practically  in 
charge  of  its  affairs,  until  his  resignation  in  February,  1920. 

The  plan  of  development  of  the  Muscle  Shoals  situation  was  somewhat  along 
this  line:  As  has  been  explained  to  you,  the  Tennessee  River  is  a  very  flashy 
stream.  The  water  flow  varies  from  a  minimum  of  7,000  cubic  feet  per  second 
at  certain  seasons  to  some  four  or  five  hundred  thousands  cubic  feet  per  second 
at  extreme  high  water.  The  result  of  that  was  to  cause  those  interested  in  this 
development  long  ago  to  feel  that  its  true  economic  development  lay  along  some 
lines  of  coordinating  this  Muscle  Shoals  development  with  some  large  storage 
development,  a  development  which  would  store  the  flood  waters  in  some  other 
watershed,  to  be  released  in  time  of  the  Tennessee  River  low  water,  supplement- 
ing, of  course,  that  low  water. 

Prior  to  1912  Mr.  Worthington  and  his  several  associates  not  only  became 
interested  in  the  Muscle  Shoals  Hydro  Electric  Power  Co.,  but  also  became  in- 
terested in  another  company  known  as  the  Birmingham,  Montgomery  &  Gulf 
Power  Co.,  a  corporation  organized  under  the  laws  of  Alabama,  and  this  Bir- 
mingham, Montgomery  &  Gulf  Power  Co.  acquired  a  site  on  the  Tallapoosa 


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MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


781 


River  in  Alabama  known  as  Cherokee  Bluffs.  Now,  the  Tallapoosa  River, 
of  course,  is  in  a  different  watershed  from  the  Tennessee  River.  The  Cherokee 
Bluffs  site  and  certain  reservoir  lands  were  acquired  with  the  view  of  develop- 
ing at  the  Cherokee  Bluffs  site  a  great  storage  project,  and  the  efforts  of  those 
interested  in  both  developments  then  was  to  create  this  storage  development  on 
the  Talapoosa  River,  to  build  dams  on  the  Tennessee  River,  and  to  connect 
these  two  developments  by  transmission  lines,  the  Tallapoosa  River  to  supple- 
ment the  development  on  the  Tennessee  River. 

This  Cherokee  Bluffs  reservoir  site,  if  developed  on  this  theory,  would  result 
in  a  storage  reservoir  of  a  capacity  of  approximately  50,000,000,000  cubic  feet 
of  water.  That  was  the  capacity,  50,000,000,000  cubic  feet  of  water,  a  very 
large  storage  project. 

There  was  a  smaller  project  along  lines  of  storage  on  what  was  known  as 
the  Little  River  in  Alabama,  capable  of  storing  some  approximately  5,000,- 
000,000  cubic  feet  of  water,  and  from  time  to  time  this  Muscle  Shoals  situation 
was  expanded  to  further  include  the  storage  which  might  be  made  at  the 
Little  River,  but  the  principal  theory  or  plan  was  to  connect  the  Tallapoosa 
River  and  Tennessee  River  developments  m  this  manner. 

Now,  this  Birmingham,  Montgomery  &  Gulf  Power  Co.  was  owned  by  more  or 
less  the  same  group  of  individuals  who  were  interested  in  the  Muscle  Shoals 
Hydro  Electric  Power  Co.  in  1912,  and  Mr.  James  Mitchell  and  associates  took 
over  this  Birmingham  Co.,  along  with  the  Muscle  Shoals  situation,  with  the 
view  of  its  development  along  some  line. 

A  great  deal  of  work  was  done  in  the  succeeding  two  years  on  a  plan  looking 
to  the  development  of  the  Muscle  Shoals  power  on  the  lines  I  have  stated. 

The  Chairman.  Excuse  me  just  one  moment.  Did  these  two  companies  that 
you  speak  of  become  subsidiary  companies  to  the  Alabama  Power  Co.  ? 

Mr.  Martin.  In  effect,  Mr.  Chairman,  that  was  true;  yes. 

There  was  a  great  deal  of  work  done  looking  to  the  development  of  the 
Muscle  Shoals  situation  in  1912  and  1913,  and  this  work  culminated  in  a  pro- 
posal to  the  Government  for  the  development  of  the  sites  2  and  3  on  the  Ten- 
nessee River,  that  proposal  being  dated  December  10,  1913,  and  supplemented 
by  a  letter  of  the  Muscle  Shoals  Hydro  Electric  Power  Co.  of  January  1,  1914. 

Of  course,  we  all  understood  that  any  developments  on  the  Tennessee  River, 
being  a  navigable  stream,  had  to  be  authorized  in  due  course  by  the  Congress, 
and  hence  the  whole  plan  of  working  this  situation  out  necessarily  involved  a 
proposal  to  the  Government. 

The  Chairman.  And  these  propositions  were  all  made  to  the  Government  be- 
fore the  war  had  even  started  in  Europe? 

Mr.  Martin.  Yes,  sir.  These  proposals  were  made,  as  I  have  stated,  in  De- 
cember, 1913,  supplemented  by  a  second  letter  of  January  1,  1914,  which  I  will 
ask  leave  to  file  in  the  record. 

The  Chairman.  You  may  file  them. 

Mr.  Martin.  Now,  that  proposal  was  considered  by  the  engineers  of  the 
Unitetl  States  for  some  months,  and  their  consideration  culminated  in  a  report 
from  the  Chief  of  Engineers.  Gen.  Dan  C.  Kingman,  to  Hon.  S.  M.  Sparkman, 
chairman  of  the  Committee  on  Rivers  and  Harbors,  House  of  Representatives, 
under  date  of  May  18,  1914;  and  this  report,  together  with  our  proposal,  is 
set  forth  in  Document  No.  20,  Sixty -third  Congress,  second  session,  a  document 
printed  for  the  use  of  the  Committee  on  Rivers  and  Harbors,  House  of  Repre- 
sentatives. 

The  Chairman.  Who  was  at  the  head  of  the  Corps  of  Engineers  at  that  time? 

Mr.  Martin.  Gen.  Dan  C.  Kingman. 

Tbe  Chairman.  I  remember  almost  all  the  Chiefs  of  Engineers  since  1900, 
but  I  can  not  remember  Gen.  Kingman. 

Mr.  Fields.  I  remember  him  very  well. 

The  Chairman.  You  say  you  remember  him,  Mr.  Fields? 

Mr.  Fields.  Yes,  sir ;  he  presided  at  a  meeting  of  the  engineers  in  my  district 
on  the  question  of  the  improvement  of  the  Big  Sandy  River. 

Mr.  Martin.  This  plan,  which  was  suggested  in  our  proposal  of  coordinating 
these  developments  on  the  Tennessee  River  and  the  Tallapoosa  River  was 
approved  and  highly  recommended,  as  you  will  see  on  an  examination  of  these 
reports  of  the  district  engineer  to  the  Chief  of  Engineers,  and  I  would  like  to 
(luote  just  a  sentence,  if  I  may  take  the  liberty,  from  that  report,  and  then 
I  will  pass  on  to  the  comment  I  wish  to  make. 

In  Gen.  Kingman's  letter  he  stated : 


'*  The  Board  of  Engineers  for  Rivers  and  Harbors  has  carefully  considered 
this  plan  and  is  in  general  accord  with  the  views  and  recommendations  of  the 
special  board,  though  believing  that  a  due  regard  of  public  interest  requires 
that  some  equitable  provision  should  be  made  whereby  the  United  States  may 
terminate  the  lease  at  any  time  after  the  end  of  50  years  in  case  it  should  be- 
come apparent  that  such  action  is  desirable." 

I  just  wanted  to  read  that  comment  in  passing,  and  then  there  is  a  further 
comment  upon  the  proposal. 

The  proposal  report  and  letters  referred  to  follow : 

[Rivers  and  Harbors  Document  No.  20.     Sixty-third  Congress,  second  session.] 

Tennessee  River  Between  Browns  Island  and  the  Railroad  Bridge  Below 
the  City  of  Florence,  Ala.   (Muscle  Shoals). 

report  of  the  board  of  engineers  for  rivers  and  harbors  on  tennessee  river 
between  browns  island  and  the  railroad  bridge  below  the  city  of  flor- 
ENCE, ALA. 

War  Department, 
Office  of  the  Chief  of  Engineers, 

Washington,  May  18,  1914. 
Sir  :  Referring  to  your  letter  dated  March  2,  1912,  inclosing  a  copy  of  a  reso- 
lution dated  Febiuai*y  24,  1912,  by  the  Committee  on  Rivers  and  Harbors  of 
the  House  of  Representatives,  requesting  the  Board  of  Engineers  for  Rivers 
and  Harbors  to  review  all  previous  reports  on  survey  of  the  Tennessee  River 
in  the  State  of  Alabama  from  Browns  Island  to  the  railroad  bridge  below  the 
city  of  Florence,  Ala.,  and  to  submit  certain  additional  information  and  esti- 
mates relative  to  the  coordination  of  proposed  improvements  for  navigation  and 
water  power  at  this  locality,  with  a  view  to  providing  for  an  Immediate  slack- 
water  navigation  of  6  feet,  capable  of  later  deepening  to  9  feet,  I  have  the 
honor  to  inclose  herewith  a  copy  of  the  report  of  the  board,  dated  May  5,  1914, 
in  response  thereto,  together  with  a  copy  of  a  report  dated  February  23,  1914, 
by  a  special  board  of  engineers  created  for  the  purpose  of  making  the  neces- 
sai*y  local  investigations. 

2.  Bids  were  invited  by  the  special  board  for  cooperation  by  water-power 
interests  in  the  proposed  development.  Two  bids  were  received,  that  of  the 
Muscle  Shoals  Hydro-Electric  l*ower  Co.,  being  deemetl  the  more  advantageous 
to  the  United  States.  The  cost  of  providing  G-foot  navigation,  under  a  plan 
contemplating  a  water-power  development,  satisfactory  to  this  company  is 
estimated  by  the  special  board  at  .$18,701,000.  Of  this  approximately  $8,575,000 
may  properly  represent  the  value  of  the  proposed  improvement  to  navigation, 
the  remainder  being  chargeable  to  power  development,  and  to  be  reimbursed  to 
the  United  States  with  interest  under  a  definite  schedule  of  payments,  the 
first  to  be  a  cash  payment  of  $3,000,000  upon  the  completion  of  the  structures  at 
site  No.  2,  to  be  followed  by  99  annual  cash  payments  in  amounts  which,  with 
the  first  payment,  will  return  the  entire  part  of  the  cost  chargeable  to  power 
development  with  compound  interest  at  3  per  cent.  In  addition,  the  company 
proposes  to  pay  each  year  an  amount  equivalent  to  35  cents  per  horsepower  of 
installed  capacity,  beginning  as  soon  as  this  exceeds  200,000  hoursepower.  and 
in  any  case  not  later  than  20  years  after  first  power  is  developed.  The  lease 
period  proposed  is  100  years. 

3.  The  Board  of  Engineers  for  Rivers  and  Harbors  has  carefully  considered 
this  plan  and  is  in  general  accord  with  the  views  and  recommendations  of  the 
special  board,  though  believing  that  a  due  regard  of  public  interests  requires 
that  some  equitable  provision  should  be  made  whereby  the  United  States  may 
terminate  the  lease  at  any  time  after  the  end  of  50  years  in  case  it  should  be- 
come apparent  that  such  action  is  desirable.  With  this  provision  the  board  is 
of  opinion  that  it  is  advisable  for  the  United  States  to  adopt  the  project  out- 
lined by  the  special  board  for  combined  navigation  improvement  and  power 
development  on  the  Tennessee  River  at  Muscle  Shoals,  Ala.,  in  cooperation  with 
the  Muscle  Shoals  Hydro-Electric  Power  Co.,  at  a  total  estimated  cos-t  of 
$18,701,000,  under  the  conditions  specified  by  the  special  board.  The  first  ap- 
propriation should  provide  at  least  $1,000,000  in  cash  and  contract  authoriza- 
tion for  the  balance,  with  a  view  to  completion  of  the  work  in  five  years.  In 
case  Congress  does  not  adopt  the  project  at  once,  the  board  recomniends  an 
appropriation  of  $150,000  to  provide  for  completion  of  the  detailed  surveys. 


a 


782 


MUSCLE   SHOALS  PROPOSITIONS. 


foimdation  borings,  and  preparation  of  plans,  so  that  there  need  be  no  unneces- 
sary delay  in  active  prosecution  of  the  work  whenever  it  is  authorized. 

4.  After  due  consideration  of  the  above-mentioned  reports,  I  concur  with  tlu- 
views  of  the  special  board  and  the  Board  of  Engineers  for  Rivers  and  Harbors. 
Attention  is  particularly  invited  to  the  general  comments  made  by  the  latter 
board  in  the  final  paragraph  of  its  report  relative  to  the  economic  questions 
involved  in  the  financing  of  joint  navigation  and  water-power  developments,  of 
which  the  one  herein  proposed  is  the  first  to  be  recommended  on  a  verv  large 
scale. 

Dan  C.  Kingman, 
Chief  of  Engineers,  United  States  Armjf. 
Hon,  S.  ]\r.  Sparkman, 

Choirman  Committee  on  Rivers  and  Harhors, 

House  of  Representatives.  , 


MiscLi:    Shoals    Hydro-Ele(  tkk^    Towkr    Co., 

NasfivilJe,  Tenn.,  Deremher  10,  1013. 
Col.  M  .  C.  Lanyfitt  and  Members  of  the  United  States  Engineer  Board  on  the 
Improvement  of  the  Muscle  Shoals  Seetion  of  the  Tennessee  River,  United 
States  Engineer  Office,  Nashville,  Tenn. 

Sirs  :  The  Muscle  Shoals  Hydro-Electric  Power  Co..  with  further  engineerin<r 
studies  and  investigations  of  the  joint  nav'gation-power  improvement  of  the 
Muscle  Shoals  section  of  the  Tenuessee  River,  conducted  during  the  past  s  \ 
months  of  extended  time  granted  by  your  board,  by  your  circular  datetl  25th 
of  June,  1913,  is  now  pleased  and  prepared  to  submit  to  your  board  the  follow- 
ing suggestions  and  proposals: 

Of  the  three  methods  named  'n  your  circular  as  acceptable  to  you  for  re- 
ceiving bids,  the  Muscle  Shoals  Hydro-Electric  Power  Co.  selects  arid  proposed 
upon  a  comb  nation  of  the  two  first  methods. 

The  following  bid  of  this  company  is  based  upon  a  lease  of  100  years,  and 
fur  the  following  reasons : 

1.  The  Muscle  Shoal^  Hydro-Electric  Power  Co.,  in  the  light  of  its  own 
experience,  feels  that  a  project  of  this  magnitude,  involving  such  large  financial 
negotiations,  can  not  be  financed  on  any  successful  basis  with  a  period  shorter 
than  100  years. 

2.  Hydroelectric,  more  than  any  other  class  of  industrial  investments,  must 
bear  a  trying  interest  burden  over  a  longer  nonrevenue  initial  period  of  con- 
struct'on. 

3.  The  hazards  of  a  hydroelectric  investment  are  greater  than  in  any  other 
class  of  investments. 

4.  In  proportion  as  the  lease  i)eriod  is  shortened,  in  like  proportion  bond 
issues  on  such  development  are  with  greater  difficulty  and  more  expensively 
negotiated. 

5.  Electrochem'cal  and  electrometallurgical  operations,  upon  which  power 
developed  at  Muscle  Shoals  must  rely  for  consumption,  require  and  must  secure 
power  at  extremely  low  rates  covered  by  long-period  contracts. 

In  the  final  preparation  of  this  proposal  the  Muscle  Shoals  Co  has,  at  it> 
expense,  added  to  the  earlier  engineering  investigations  and  reports  coverin: 
a  period  of  six  years  prior  to  your  circular  of  June  25,  1913,  further  studies,  sur- 
veys, soundings,  and  estimates,  and  transmits  the  result  thereof  to  your  board 
in  the  form  of  maps  anl  drawings,  tying  in  its  work  with  the  surveys  of  tli«^ 
Corps  of  Engineers.  United  States  Army,  wherever  prncticable.  The  rt^ult  "' 
the  engineering  studies  and  investigations  by  the  Muscle  Shoals  Co.  during  the 
past  six  months  has  confirmed  the  conclusion  suggested  to  your  board  on  June 
24,  1913,  that  the  most  feasible  and  economical  plan  for  the  joint  improvement 
of  navigation  and  development  of  power  at*  Muscle  Shoals  is  with  two  power 
dams  instead  of  three,  the  low^r  dam  being  located  on  the  site  designated  by 
your  board  as  "  No. ,2  "  and  the  upper  dam  on  the  site  designated  by  your  board 
as  "No.  4";  the  lower  dam  site,  No.  2,  to  have  a  crest  elevation  of  500.  with 
the  tail-water  at  400.5  the  upper  dam,  at  site  No.  4,  to  have  an  elevation  of 
540  for  the  top  of  the  movable  crest  and  528  for  the  top  of  the  fixed  portion  of 
the  dam. 

Our  engineering  studies  and  investigations,  now  running  over  six  years,  and 
especially  the  investigations  we  have  made  during  the  past  six  months,  sup- 
port the  estimate  which  we  have  made  that  the  cost  of  lands,  dams,  locks,  power- 


MUSCLE   SHOALS   PROPOSITIOiNS.  783 

house  substructures,   and  miscellaneous  and  engineering  expenses,  in  connec- 

M?  ^''  iM  o^fn  .'^™^'^^''^^"'^^  ^^'^^^  ^  C(mtingent  and  interest  fund  of  $1,000,000, 
will  be  $17,349,100.  Our  plans  are  based  on  the  gravity  dam,  sections,  adopted 
by  your  board  for  Dams  Nos.  2  and  4,  and  upon  unit  prices,  which  we  believe, 
in  the  light  of  our  recent  experience,  are  more  than  ample,  and  which  we  hope 
and  believe  will  commend  themselves  to  vou  as  safe. 

The  Muscle  Shoals  Hydroelectric  Power  Co.  respectfully  submits  to  vour 
board  the  following  proposals  based  ur)on  the  conditions  therewith  stated  •' 

1.  That  the  Government  shall  complete  the  dam  at  site  No.  2  and  the  appur- 
tenances thereto  mentioned  above  and  permanently  raise  the  waters  behind  the 
said  dam  to  the  level  of  the  spillway  thereof  within  four  vears  after  the  date 
of  the  first  appropriation  made  for  the  carrying  out  of  the  project  and  not 
later  than  the  1st  of  January,  1919,  and  for  a  sufficientlv  long  period  of  time 
prior  to  that  date  give  entrance  to  the  Muscle  Shoals  Co.  for  the  completion 
by  it,  at  its  expense,  of  the  power-house  sui>erstru(tuies  ;  n  1  the  v.itin]  li  .'r.ii- 
lic  and  electrical  equipment  by  that  t  nie. 

That  the  Government  shall  complete  the  dam  at  Site  Xo.  4  and  the  nnpurte- 
nances  thereby  mentioned  above  and  permanently  raise  the  waters  behind  the 
said  dam  to  the  level  of  the  spillway  thereof  within  five  vears  after 
the  date  of  the  first  appropriation  made  for  the  carrving  out  of  the  project  and 
not  later  than  the  1st  of  January,  1920,  and  for  a  sufficiently  long  period  of  time 
prior  to  that  date  give  entrance  to  the  Muscle  Shoals  Co.  for  the  completion  by 
it,  at  its  expense,  of  the  power-house  superstructures  and  the  initial  hvdrauli'c 
and  electrical  equipment  by  that  time. 

2.  The  Muscle  Shoals  Co.,  upon  the  completion  of  the  dam  at  Site  No.  2  and 
the  appurtenances  mentioned  above  and  the  permanent  raising  of  the  waters 
behind  said  dam  to  the  level  of  the  spillway  thereof,  will  pav  to  the  Govern- 
ment the  sum  of  $3,000,000  in  cash  as  its  first  contribution  to  the  cost  of  the 
lands,  docks,  dams,  and  substructures. 

3.  The  Muscle  Shoals  Co.,  within  a  i>eriod  of  100  years  from  the  completion 
of  the  dam  at  site  No.  2  and  appurtenances  theretx)  meiitione<l  above  and  the 
permanent  raising  of  the  waters  behind  the  said  dam  to  the  level  of  the  spill- 
way thereof,  will  repay  to  the  Government  as  its  second  contribution  for  lands, 
locks,  dams,  and  substructures  $7,000,000,  by  an  annual  payment  of  sinking 
fund  and  interest,  taken  at  the  approximate  rate  of  3  per  cent,  per  annum  and 
in  specific  amounts,  to  be  paid  as  follows: 

At  the  end  of  the  first  year  after  the  completion  of  the  dam  at  site  No. 
4  and  the  appurtenances  thereto,  mentioned  above,  and  the  permanent 
raising  of  the  water  behind  said  dam  to  the  level  of  the  spillway 

thereof *    $75,000 

At  the  end  of  the  second  year 125  000 

At  the  end  of  the  third  year ~ 150^000 

At  the  end  of  the  fourth  year "___  175' OOO 

At  the  end  of  the  fifth  year 20o]oOO 

And  each  year  thereafter  to  the  close  of  the  100-year  i^riod 240.000 

4.  The  Muscle  Shoals  Co.,  as  its  third  contribution  in  aid  of  navigation,  wiM 
pay  to  the  Government  each  year  an  amount  equivalent  to  30  cents  per  horse- 
power of  installed  capr.city  measured  on  the  switchboards  of  the  power  houses. 
Such  payments  shall  begin  at  the  end  of  the  first  vear  after  the  said  installed 
capacity  shall  exceed  200,000  horsepower,  but  not  later,  in  anv  event,  than  at 
the  end  of  20  years  from  the  beginning  of  the  said  100  vear  period,  and  shall 
continue  fjo  the  end  of  the  said  period. 

5.  The  IMuscle  Shoals  Hydro-Electric  Co..  upon  the  invitation  of  the  rnite<l 
States  Government,  at  any  reasonable  time  prior  to  the  expiniticm  of  the  said 
period  of  100  .vears  will  undertake  negotiations  with  the  Government  looking  to 
a  renewal  of  this  lease.  In  the  event  of  failure  to  agree  upon  terms,  this  lease 
shall  terminate  at  the  end  of  said  period  of  100  years,  and  the  Government 
shall  then  take  possession  of  all  the  property  of  the  iVIuscle  Shoals  Co.,  the 
value  of  which  may  be  dependent  upon  tlie  right  to  develop  water  power  under 
thi*  lease,  and  shall  pay  to  the  Muscle  Shoals  Co.  a  price  which  mav  have  been 
previously  agreed  upon  between  the  parties,  or  in  the  event  of  failure  to 
so  agree  the  Government  shall  pay  for  such  property  a  fair  value,  to  be  de- 
termined by  condemnation  proceedings  usual  in  the  States  wherein  the  property 
IS  located.  The  Government,  furthermore,  on  taking  posses.sion  shall  assume 
all  the  contract  of  obligations  of  the  Muscle  Shoals  Co.  that  have  been  pre- 
viously submitted  by  the  IMuscle  Shoals  Co.  to  the  Government  for  approval 

92900—22—^50 


I 


784 


MUSCLE  SHOALS  PROPOSITIONS. 


and  which,  \vithin  a  reasonable  time  after  such  submission  liave  not  been  dis 
approved  of  by  the  Government. 

6.  Repairs,  maintenance,  and  operation  of  dams,  power  houses,  substructures, 
superstructures,  machinery,  and  appliances  shall  be  at  the  expense  of  the 
Muscle  Shoals  Co.  during  the  100-year  period.  Repairs,  maintenance,  and  opera- 
tion of  the  locks  shall  be  at.  the  expense  of  the  United  States  Government 
during  the  100-year  period. 

7.  The  Muscle  Shoals  Co.  will  furnish  the  United  States,  free  of  charge, 
delivered  to  the  lock  grounds,  electric  power  not  to  exceed  100  horsepower. 

The  board  has  asked  that  each  bidder  shall  inclose  with  his  proposal  suffi- 
cient evidence  to  show  what  financial  backing  he  may  have  in  order  to  enable 
the  board  to  give  proper  weight  to  his  proposal.  The  financial  interests  which 
are  the  support  of  the  Muscle  Shoals  Hydro-Electric  Power  Co.  and  the  owners 
of  Its  securities  are  engaged  on  a  large  scale  in  the  development  and  operation 
of  water  povAcrs  in  South  America,  Mexico.  United  States,  and  Canada  and  as 
large  investors  in  industries  requiring  great  amounts  of  hydroelectric  energy. 
Their  developments  of  this  nature  going  forward  at  the  present  time  involve  an 
investment  of  about  $15,000,000.  Representatives  of  the  company  will  be 
pleased  to  state  verbally  to  your  board  on  presentation  of  this  proposal  such 
additional  definite  information  as  can  not  properly  be  conveyed  in  a  document 
of  more  or  less  a  public  nature. 

We  believe  it  is  proper  and  pertinent  to  call  the  attention  of  the  board  to 
what  we  conceive  to  be  the  three  factors  of  exceptional  strength  involved  in  this 
company's  proposal. 

1.  It  is  a  plan  by  which,  through  the  development  of  water  power,  the  United 
States  Government  is  repaid  all  of  its  expenditures  for  navigation  and  water- 
power  development  and  becomes  the  sole  possessor  of  all  the  things  for  which 
that  expenditure  was  made. 

2.  It  is  a  plan  by  which  the  normal  high-water  flow  of  the  stream  is  con- 
served to  an  extent' which  makes  feasible  the  development  of  two  or  three  times 
as  much  power  at  Muscle  Shoals  as  could  otherwise  be  developed.  This  is 
possible  onlv  through  combining  with  the  Tennessee  River  development,  subject 
each  hour  of  the  day  to  the  vagaries  of  the  flow  of  that  stream,  this  company's 
proposed  water-power  developments  on  the  Tallapoosa  and  Little  Rivers  with 
their  extraordinarv  storage  reservoirs.  It  is  estimated  that  the  maximum 
installed  capacity  practicable  by  these  combined  developments  will  be  approxi- 
mately 680.000  horsepower,  while  that  practicable  by  the  use  of  the  waters  of 
the  Tennessee  River  at  Muscle  Shoals  alone  would  be  approximately  200,000 
horsepower.  Under  this  plan  of  combination  the  normal  high-w^ater  flow  of  the 
Tennessee  River  at  Muscle  Shoals  is  conserved,  which  under  any  other  plan  of 
development  would  reduce  the  available  developed  power  to  dependence  upon 
the  low- water  flow. 

3  This  plan  contemplates  the  application  of  a  material  part  of  the  power  to 
be  thus  developed  to  the  manufacture  of  an  agricultural  fertilizer  through  the 
fixation  of  atmospheric  nitrogen,  an  industry  in  which  there  has  been  in  four 
years  of  commercial  life  approximately  .$60,000,000  invested  and  for  the  devel- 
opment of  which  the  fundamental  requirement  is  cheap  continuous  power  and 

plenty  of  it.  ,,      ,     «^     ,  .  _ 

If  the  joint  navigation-power  development  at  Muscle  Shoals  can  be  accom- 
plished so  that  there  will  result  a  large  volume  of  continuous  cheap  power,  the 
manufacture  of  agricultural  fertilizers  through  the  fixation  of  atmospheric 
nitrogen  should  be  possible  on  a  scale  adequate  to  afford  the  farmers  of  this 
great  countrv  advantages  comparable  to  those  enjoyed  by  European  farmers. 

If  the  board  feels  possibly  that  the  Muscle  Shoals  Hydro-Electric  Power  Co. 
has  in  its  proposal  gone  beyond  the  limitations  of  the  resolution  passed  by 
Congress,  under  which  the  board  is  working,  we  rest  our  excuse,  if  any  be 
needed,  upon  purpose  No.  2  of  the  joint  resolution  passed  by  Congress  authoriz- 
ing the  creation  of  your  board  by  the  War  Department. 
Respectfully  submitted. 

Muscle  Shoals  Hydro-Electric  Power  Co. 
J.  W.  WoBTHiNGTON,  President. 


MUSCLE   SHOALS  PROPOSITIONS. 


785 


*     Muscle  Shoals  Hydroelectric  Power  Co., 

NashviUe,  Tenn.,  Jammry  1,  191^. 
Col.  W.  C.  Langfitt, 

Nashville,  Tenn. 

Sir:  This  communication  is  proposed  to  your  board  as  an  addendum  to  the 
proposal  made  to  your  board  by  the  Muscle  Shoals  Hydroelectric  Power  Co. 
under  date  of  December  10  relative  to  cooperation  between  the  United  States 
Government  and  the  Muscle  Shoals  Hydroelectric  Power  Co.  for  the  joint 
navisration-power  improvement  of  the  Muscle  Shoals  section  of  the  Tennessee 
River. 

The  estimates  submitted  by  the  Muscle  Shoals  Hydroelectric  Power  Co.  accom- 
panying its  proposal  of  December  10  did  not  include,  and  we  did  not  intend  our 
proposal  to  include,  the  cost  of  the  navigation  dam  designated  by  your  board 
as  Dam  No.  1,  with  location  just  above  the  Florence  Bridge,  estimated  to  cost 
approximately  $1,000,000.  ^ 

In  submitting  this  amendment  to  our  proposal  of  December  10  the  Muscle 
Shoals  Hydroelectric  Power  Co.  proposes  as  follows : 

1.  That  if  Dam  No.  1  may  be  used  in  a  dual  capacity,  chiefly  and  necessarily 
for  navigation,  and  contingently  establish  a  regulation  pool  below  the  naviga- 
tion and  power  dam  at  site  No.  2,  the  Muscle  Shoals  Hydroelectric  Power  Co. 
may  have  the  right  to  use  such  regulating  pool. 

2.  In  consideration  of  the  use  of  the  pool  to  be  formed  behind  Dam  No.  1,  the 
Muscle  Shoals  Hydroelectric  Power  Co.,  as  its  third  contribution  in  aid  of  navi- 
gation, will  pay  to  the  Government  each  year  an  amount  equivalent  to  35  cents 
l)er  horsepower  of  installed  capacity  measured  on  the  switchboards  of  the 
power  houses,  instead  of  30  cents  per  horsepower  as  provided  in  our  original 
proposal  of  December  10.  , 

3.  The  Mwscle  Shoals  Hydroelectric  Powder  Co.  will  furnish  to  the  United 
States  free  of  charge,  delivered  to  the  lock  grounds  of  Dam  No.  1,  electric  power 
not  to  exceed  50  horsepower  for  the  operation  of  the  navigation  facilities  at 
Dam  No.  1.  All  repairs,  maintenance,  and  operation  of  Dam  No.  1  and  the 
lock  appurtenant  thereto  shall  be  at  the  expense  of  the  United  States  Govern- 
ment. 

In  all  other  respects  this  addendum  to  our  proposal  of  December  10  shall 
subscribe  to  all  of  the  conditions  set  forth  in  that  proposal. 

Respectfully  submitted. 

Muscle  Shoals  Hydroelectric  Power  Co., 
J.  W.  WoRTHiNGTON,  President. 

No  action  was  taken  upon  that  proposal  and  further  consideration  was  given 
by  the  engineers  to  a  plan  of  development  of  thffe  situation,  and  that  plan  of 
development  was  again  reported  in  a  Document  No.  1262,  Sixty-fourth  Con- 
gress, first  session,  a  letter  from  the  Secretary  of  War  to  the  House  of  Repre- 
sentatives transmitting,  with  a  letter  from  the  Chief  of  Engineers,  reports 
on  preliminalry  examination  and  survey  of  the  Tennessee  River  between  Browns 
Island  and  the  railroad  bridge  below  the  city  of  Florence.  I  will  file  this 
report  of  the  Secretary  of  War  and  the  Chief  of  Engineers  with  the  reporter. 

The  Chairman.  Do  you  wish  to  file  it  with  the  hearings? 

Mr.  Martin.  Yes,  sir. 

The  Chairman.  Very  well. 

Mr.  Martin.  In  this  report  there  was  again  expresse^l  by  the  Chief  of  Engi- 
neers approval  of  the  proposed  plan  for  the  development  of  this  project  in 
coordination  with  a  storage  reservoir  on  the  Tallapoosa  River,  and  it  was 
stated  by  the  engineers  that  this  was  the  most  feasible  plan  for  this  develop- 
ment, and  that  the  public  interest  was  such  that  such  a  plan  of  development 
should  be  made,  as  in  no  other  way  could  the  true  economic  value  of  this  power 
development  be  realized. 

In  the  course  of  the  report  upon  this  subject,  which  I  am  filing,  is  this 
statement : 

"  It  does  not  seem  reasonable  that  such  great  benefits  should  be  lost  for  the 
fear  of  possible  evils  to  result  from  large  power  combinations.  There  is  no 
doubt  that  either  the  United  States  Government  or  the  State  governments 
should  control  such  combinations  of  power  for  the  purpose  of  regulating  rates 
to  consumers,  but  combinations  that  produce  enormous  savings  of  energy  which 
would  otherwise  be  wasted  ought  to  be  encouraged  rather  than  forbidden 
True  conservation  requires  the  utilization  without  waste  of  all  natural  re^ 


■ 


786 


MUSCLE  SHOALS  PROPOSITIONS. 


sources,  awd  here,  at  Muscle  Shoals,  there  will  be. enormous  wastajje  if  this 
run-of-the-river  power  can  not  be  combined  with  plants  having  facilities  for 
storing  great  quantities  of  water  to  make  up  for  the  shortage  at  Muscle  Shoals 
during  times  of  low  water." 

This  report  was  concurred  in  by  Gen.  Lansing  H.  Beach,  then  division  engi- 
neer in  charge  of  this  section  of  the  country,  including  the  Muscle  Shoals. 

In  this  letter  from  the  Secretary  of  War,  to  which  I  have  last  referred, 
there  was  contained  the  recommendation  that  this  plan  of  development  should 
be  undertaken,  but  in  the  meanwhile  there  had  been  passed  section  124  of  the 
national  defense  act,  which  had  to  do  with  providing  a  nitrate  supply,  and 
the  suggestion  was  made  that  possibly  one  of  these  sites  might  be  selected  by 
the  United  States  Government  for  a  development  in  connection  with  the  nitrate 
project,  and  hence  action  on  this  proposal  was  suspended  pending  any  action 
Congress  or  the  executive  branches  of  the  Government  might  see  fit  to  take. 
Thus  the  matter  rested  with  that  proposal,  in  so  far  as  the  Muscle  Shoals  Hydro- 
electric Power  Co.  was  concerned. 

(The  report  and  letter  referred  to  follow:) 

mouse  of  Representatives.     Document  No.  1262.     Sixty-fourth  Congress,  first  session.] 

Tennessee  River  Between  Browns  Island  and  Florence,  Ala. 
>  • 

War  Department. 
Washington,  June  28,  1916. 
The  Speaker  of  the  House  of  Representatives. 

Sir:  I  have  the  honor  to  transmit  herewith  a  letter  from  the  Chief  of  Engi- 
neers. United  States  Army,  dated  26th  instant,  together  with  copies  of  reports 
from  :^Iaj,  H.  Burgess,  Corps  of  Engineers,  dnte<l  'April  5,  1915.  and  March  22. 
1916,  with  maps,  on  preliminary  examination  and  survey,  respectively,  of  Ten- 
nessee River  between  Browns  Island  and  the  railroad  brirlge  below  the  city  of 
Florence,  Ala.,  made  by  him  in  compliance  with  the  provisions  of  the  river  and 
harlK)r  act  approved  March  4,  1915. 
Very  respectfully, 

Newton  D.  Baker,  Secretary  of  War. 

War  Department, 
Office  of  the  Chief  of  Engineers. 

Washington,  June  .>6,  101  <i. 

Fn.m :  The  Chief  of  Engineers,  United  States  Army. 
To:  The  Secretary  of  War. 

Subject :  Preliminary    examination    and   survey    of   Tennessee   River   between 
Browns  Island  and  the  city  of  Fhn-ence,  Ala. 

1.  There  are  submitted  herewith,  for  traiism'ssion  to  Congress,  reports  date<l 
April  5,  1915,  and  March  22.  1916.  witli  maps,  by  Maj.  H.  Hurgess,  Corps  of 
Engineers,  on  preliminary  examination  and  survey,  iv.sijectively,  authorized  b.v 
the  river  and  harbor  act  approvetl  March  4,  1915,  of  "Tennessee  River,  between 
Browns  Island  and  the  railroad  bridge  below  the  city  of  Florence." 

2.  The  i>art  of  the  river  covered  by  these  reports  is  generally  known  as  the 
"  Muscle  Shoals "  sectioiL  The  improvement  of  this  section  by  the  United 
States  in  cooperation  with  water-power  interests  has  been  under  consideration 
for  some  years  and  an  exhaustive  report  publisheil  as  Committee  Document 
No.  20,  Sixty-third  Congress,  second  session,  contains  favorable  recommend:!- 
tions  for  such  an  improvement  at  an  estimated  cost  of  $18,701,000,  of  whicli 
approximately  .1;8,575,000  was  considered  as  representing  the  value  of  the  im- 
provement to  navigation,  the  remainder  being  chargeable  to  power  development 
and  to  be  reimbursed  to  the  United  States.  The  information  then  available  w:is 
considered  sufficient  for  a  general  estimate  of  cost  and  a  determination  of  tli»' 
advisability  of  the  United  States,  adopting  the  project,  but  was  not  sufhcieiit 
for  the  final  selection  of  sites  and  the  making  of  detailed  estimates  of  co.st.  As 
a  result  of  the  present  survey,  the  district  officer  suggests  a  few  minor  changes 
in  the  plans,  the  most  important  being  the  selection  of  a  new  site  for  Lock 
and  Dam  No.  2.  The  estimate  of  cost  is  increased  from  $18,701,000  to 
$19,000,000.  He  also  submits  an  alternative  plan  which  would  permit  the  de- 
velopment of  about  82  per  cent  of  the  power  that  would  be  available  under  the 
first  proposition.     This  plan  is  estimated  to  cost  $16,000,000,  but  is  not  favored 


MUSCLE   SHOALS   PROPOSITIONS. 


787 


by  the  district  officer  if  flowage  rights  for  the  original  plan  can  l)e  secured  at 
a  reasonable  cost    His  recommendations  are  as  follows: 

(1)  That  provision  be  made  by  Congress  for  the  improvement  of  the  Muscle 
♦Shoals  section  of  the  Tennessee  River  for  the  combined  purpose  of  providing 
suitable  navigation  facilities  and  for  the  development  of  power  in  cooperation 
with  the  Muscle  Shoals  Hydroelectric  Power  Co.;  (2)  that  a  cash  appropria- 
tion of  $5,000,000  be  made,  and  that  the  Secretary  of  War  be  authorized  to  con- 
tmct  obligations  for  such  material  and  work  as  may  be  necessary  to  complete 
the  proposed  improvement,  to  be  paid  for  as  appropriations  may 'from  time  to 
time  be  made  by  law,  not  to  exceed  in  the  aggregate  $11,000,000,  exclusive  of 
the  initial  appropriation  of  $5,000,000;  (3)  that  the  Secretary  of  War  be 
authorized  to  adopt  either  the  plan  of  improvement  first  de.scribed,  or  that 
designated  as  the  alternative  plan,  depending  upon  whether  satisfactory  terms 
ran  be  reached  with  the  riparian  owners  in  basin  No.  3;  (4)  that  the  Secretary 
of  AVar  be  authorized  to  enter  into  a  contract  with  the  Muscle  Shoals  Hydro- 
electric Power  Co.  for  cooperation  in  the  proposed  work  of  improvement  and 
for  a  lease  of  the  power  developable  at  the  proix)sed  power  houses,  under  term< 
proposed  by  the  company  in  its  offer  of  December  11,  1913,  or  under  such 
modified  terms  as  may  be  agreed  upon  which  are  equivalent  in  vahiue  to  the 
I  lilted  States  or  which  may  be  made  necessary  by  reason  of  the  selection  of 
the  alternative  plan;  (5)  that  the  Secretary  of  War  be  authorized  to  enter 
into  a  contract  with  the  Muscle  Shoals  Hydroelectric  Power  Co  under  such 
terms  as  may  be  agreed  upon,  or  to  do  the  work  bv  the  hired-labor  method- 
and  (6)  that  the  Secretary  of  War  be  authorized  to  retain  in  the  service  iintii 
the  completion  of  the  work  all  satisfactory  employees  who  inav  be  appointed 
because  of  lack  of  civil-service  eligibles  at  the  time  of  emploVment  without 
regard  to  the  subsequent  establishment  of  a  register  of  eligibles 

The  division  engineer  concurs  in  the  opinions  and  recommendations  of  the 
district  officer. 

3.  These  reports  have  been  referred,  as  required  by  law,  to  *the  Board  of 
Engineers  for  Rivers  and  Harbors,  and  attention  is  invited  to  its  report  here- 
with, dated  May  24,  1916.  The  board  states  that  while  the  results  of  the 
detailed  survey  and  the  further  study  based  thereon  suggest  .some  minor  modi- 
hcations  in  the  project  already  before  Congress,  the  report  is  in  all  essentials 
corroborative  of  the  earlier  one  and  presents  nothing  to  change  the  opinion 
expressed  therein  that  it  is  advisable  for  the  United  States  to  take  this  oppor- 
tunity of  entering  into  an  arrangement  w.th  the  Muscle  Shoals  Hvdro-Electric 
lower  Co.  whereby  this  serious  obstruction  to  navigation  on  the  Tennessee 
River  will  be  overcome  and  at  the  same  time  one  of  the  great  natural  resources 
of  the  country  will  be  conserved.  The  board  invites  attention,  however  to  the 
provisions  contained  in  section  124  of  the  act  to  increase  the  efficiencv  of  the 
Military  Establishment  of  the  United  States,  approved  June  3,  1916,  r^pecting 
the  establishment  of  nitrate  plants  to  supply  Government  needs  in  the  manu- 
tacture  of  explosives  for  military  uses,  and  in  view  of  this  legislation  it 
recommends  that  action  on  the  proposed  contract  with  the  Muscle  Shoals  Hvdro- 
Electric  Power  Co.  be  suspended  until  it  has  been  determined  whether  the 
Muscle  Shoals  power  will  be  utilized  for  such  a  nitrate  plant.  If  this  question 
IS  decided  in  the  negative,  the  board  is  of  opinion  that  the  proposed  improve- 
ment for  combined  navigation  and  the  power  purposes  is  advisable  substantially 
as  proposed  by  the  district  officer. 

4.  After  due  consideration  of  the  above-mentioned  reports,  I  concur  in  the 
views  of  the  Board  of  Engineers  for  Rivers  and  Harbors,  and  therefore  recom- 
niend  that  action  on  the  proposed  contract  with  the  Muscle  Shoals  Hydro-Electric 
1  ower  Co.  be  suspended  until  it  has  been  determined  whether  the  Muscle  Shoals 
power  will  be  utilized  for  a  nitrate  plant.  If  this  question  be  decided  in  the 
negative,  and  the  improvement  by  the  United  States  of  "Tennessee  River 
'•etween  Browns  Island  and  the  railroad  bridge  below  the  city  of  Florence" 
IS  deemed  advisable  in  cooperation  with  the  Muscle  Shoals  Hvdro-Electric  Power 
<  o.  at  a  total  estimated  cost  of  $19,000,000,  substantially  in  accordance  with  the 
recommendations  of  the  district  officer  as  given  above,  and  in  this  case  it  is 
recommended  that  the  first  appropriation  be  $5,000,000,  and  that  continuing 
contract  be  authorized  covering  the  balance  necessary  to  complete  the  project. 

W.  M.  Black, 
Chief  of  Engineers,  United  States  Army. 


788 


MUSCLE   SHOALS  PROPOSITIONS. 


Extract  from  report  on  preliminary  examination  of  Tennessee  River  between 
Browns  Island  and  Florence,  Ala.,  from  Maj.  H.  Burgess,  Corps  of  Engineers, 
district  engineer's  office,  Chattanooga  district,  to  the  Chief  of  Engineers.  United 
States  Army,  forwarded,  concurring  in  the  opinion  and  recommendations  of  the 
district  engineer,  by  Lansing  H.  Beach,  colonel.  Corps  of  Engineers,  division 
engineer : 

"82.  The  benefit  to  result,  then,  from  combining  the  Muscle  Shoals  power 
development  with  the  storage  plants  on  the  Tallapoosa  and  Little  River  sys- 
tems is  the  increase  of  primary  power  from  100,000  to  280,000  horsepower,  and 
of  10-month  secondary  power  from  115,000  to  210,000  horsepower ;  and  of  being 
able  to  use  of  the  potential  energy  at  Muscle  Shoals  a  total  of  about  3,330,000,000 
horsepower-hours  per  year,  as  against  a  probable  utilization  of  only  about 
2,020,000,000  horsepower-hours  per  year  for  the  independent  plants  (assuming 
that  9-month  secondary  is  developed). 

"83.  The  importance  of  the  combination  of  power  plants  may  possibly  be 
emphasized  by  showing  the  annual  expenditure  of  coal  required  for  producing 
an  equivalent  amount  of  electrical  energy.  The  latest  and  most  efficient  type 
of  steam-power  plants  show  a  consumption  of  coal  of  approximately  1^  pounds 
per  horsepower-hour.  It  may  be  assumed  that  improvements  will  reduce  this 
to  1  pound  per  horsepower-hour.  On  this  assumption,  the  annual  output  of 
electrical  energy  for  the  independent  development  of  Muscle  Shoals  is  equivalent 
to  the  consumption  of  1,010,000  tons  of  coal  per  year,  and  the  annual  amount 
of  potential  power  at  Muscle  Shoals  utilized  under  the  combination  of  power 
plants  is  equivalent  to  an  annual  consumption  of  1,665,000  tons  of  coal  per  year. 
The  waste  of  the  coal  supply  of  the  United  States  resulting  from  the  failure  to 
utilize  to  the  greatest  practicable  extent  the  potential  water  power  at  Muscle 
Shoals  would  therefore  be  approximately  650,000  tons  per  year. 

"  84.  It  does  not  seem  reasonable  that  such  great  benefits  should  be  lost  for 
the  fear  of  possible  evils  to  result  from  large  power  combinations.  There  is  no 
doubt  that  either  the  United  States  Government  or  the  State  governments 
should  control  such  combinations  of  power  for  the  purpose  of  regulating  rates 
to  consumers,  but  combinations  that  produce  enormous  savings  of  energy  which 
would  otherwise  be  wasted  ought  to  be  encouraged  rather  than  forbidden.  True 
conservation  requires  the  utilization  without  waste  of  all  natural  resources, 
and  here  at  Muscle  Shoals  there  will  be  enormous  wastage  if  this  run-of-the-river 
power  can  not  be  combined  with  plants  having  facilities  for  storing  great 
quantities  of  water  to  make  up  for  the  shortage  at  Muscle  Shoals  during  tmies 

^  "85  Another  great  benefit  from  the  combination  of  power  plants  which  is 
sometimes  lost  sight  of  is  the  elimination  of  duplications  of  expensive  trans- 
mission lines,  transformers,  and  other  equipment  necessary  for  distribution  of 
Dower  Since  interest  must  needs  be  paid  by  some  one  on  the  extra  capital 
invested  in  the  duplication  of  equipment,  it  follows  that  the  actual  cost  of  plac- 
ine  DOwer  on  the  switchboard  of  the  consumer  is  greater  for  separate  develop- 
ments than  for  combined  plants.  It  is  true  that  competition  may  result  in  the 
consumer  paying  less  for  power  under  the  supposition  of  separate  developments 
than  in  the  case  of  combinations,  and  it  is  for  this  reason  that  it  is  desirable  to 
so  re«Tilate  rates  of  power  combinations  that  most  of  the  benefit  of  cheap  pro- 
duction of  power  shall  revert  to  the  consumer  rather  than  to  the  stockholder 

^"^'^ 93  ^lUrnotT^ue^'conservation  of  natural  sources  which  forbids  their  develop- 
ment on  the  plea  that  the  State  or  General  Government  is  not  obtaining  full 
^alue  for  thi  grant  of  privileges.  There  is  little  doubt  that  franchises  for  power 
developments  should  be  for  limited  periods,  so  that  the  people  may  again  take 
over  their  property  and  provide  for  its  future  operation  under  conditions  suit- 
abll  to  the  time  when  the  limited  franchise  has  ended.  It  is  equally  certain 
that  the  interests  of  the  people  demand  a  regulation  of  rates  to  the  consumei, 
so  that  the  company  which  has  been  granted  the  franchise  for  operating  a  prop- 
ertv  belonging  to  the  people  may  not  obtain  an  undue  profit  at  the  expense  or 
the  owners.  Assuming  such  regulation,  it  is  unimportant  whether  or  not  ai> 
payment  is  required  to  be  made  to  the  State  or  General  Government,  or  what  tUt 
iize  of  such  payment  shall  be.  In  any  event,  under  the  assumed  regulation  ot 
rates,  whatever  amount  is  charged  to  the  power  company  is  paid  by  the  con 
sumer  and  the  collection  of  such  amount  is  merely  an  exercise  of  the  taxiWr. 
power'  of  the  Government.  It  seems  reasonable,  therefore,  that  the  Preseut 
plan  which  contemplates  the  navigation  improvement  of  this  section  of  the  iner 
and  a  more  complete  utilization  of  the  potential  power  than  seems  practical 


MUSCLE  SHOALS  PROPOSITIONS. 


789 


by  any  other  combination  of  plants,  and  which  can  be  secured  under  fair  and 
reasonable  terms,  ought  to  be  adopted,  rather  than  to  have  this  power  continue 
to  be  wasted  for  many  years  and  to  have  through  navigation  remain  obstructed 
by  these  shoals,  on  the  ground  that  delay  may  result  in  securing  somewhat 
better  terms  from  some  other  power  company  proposing  to  cooperate." 

Mr.  Mabtin.  As  I  have  stated  on  another  occasion  before  this  committee,  in 
1918  we  were  notified  that  this  site  No.  2  had  been  selected  by  the  President 
for  development  in  connection  with  a  nitrate  supply.  We  were  asked  to  donate 
this  site  and  we.  did  donate  the  site  No.  2  to  the  Government.  I  have  at  a 
previous  hearing  placed  in  the  record  a  letter  from  our  company,  under  date  of 
February,  1918,  addressed  to  Col.  Charles  Keller,  of  the  Corps  of  Engineers, 
making  the  offer  of  donation  and  the  reply  of  the  Secretary  of  War  accepting  it. 

Now,  the  next  situation  that  developed  w  as  this :  In  April,  1921,  the  Chief  of 
Engineers,  sent  out  his  letter  to  many  of  those  interested,  and  others  not  inter- 
ested, inviting  suggestions  in  regard  to  the  Wilson  Dam  project,  as  it  then  stood. 

The  Chairman.  Did  it  confine  Itself  simply  to  inviting  suggestions  or  did  it 
ask  the  tender  of  bids. 

Mr.  Martin.  I  will  be  glad  to  file  the  letter  of  the  Chief  of  Engineers. 

The  Chairman.  Very  well. 

Mr.  Martin.  The  letter  received  by  the  Alabama  Power  Co.  is  as  follows : 

War  Department, 
Office  of  Chief  of  Engineers, 

Washington,  April  2,  1921. 
Alabama  Power  Co., 

Birmingham,  Ala. 

Gentlemen  :  1.  The  Secretary  of  War  has  directed  me  to  ascertain  what  ar- 
rangements can  be  made  to  derive  a  reasonable  return  upon  the  investment  if 
the  United  States  completes  the  dam  and  hydraulic  power  plant  at  Muscle  Shoals, 
Tennessee  River. 

2.  If  you  are  interested  I  would  be  pleased  ot  discuss  the  matter  with  you 
at  this  office  at  the  earliest  date  that  may  be  mutually  determined. 

3.  It  is  desired  to  develop  the  matter  and  come  to  a  conclusion  at  as  early  a 
date  as  possible. 

Very  truly,  yours, 

Lansing  H.  Beach, 
Major  General,  Chief  of  Engineers. 

Now,  the  question  of  what  arrangements  might  be  made  to  derive  a  reason- 
able return  upon  the  investment,  if  the  United  States  completed  the  dam  and 
hydraulic  plant  presented,  of  course,  a  very  big  question  to  all  of  us,  and  our 
company  was  interested,  naturally,  in  the  question  because  of  its  long  connec- 
tion with  this  whole  situation. 

We  replied  to  that  letter  under  date  of  May  28,  1921.  Our  letter  has  been 
introduced,  but  not  certain  exhibits  which  were  attached,  and  I  will  take  the 
liberty  of  handing  to  the  reporter,  if  the  chairman  permits,  the  letter  with  the 
exhibits,  to  be  incorporated  in  the  record. 

The  Chairman.  Were  the  exhibits  presented  to  be  put  into  the  hearings? 

Mr.  Martin.  They  were  not  put  in  the  record  by  the  one  who  offered  the  let- 
ti?r.  The  exhibits  were  not  attached,  and  I  w^ould  like  to  have  them  in  the 
record. 

The  Chairman.  Very  well,  if  they  are  a  part  of  the  letter. 

Mr.  Martin.  Yes ;  they  .are  a  part  of  the  letter  and  are  referred  to  therein, 
and  in  order  to  get  the  letter  entirely  before  the  committee  it  might  be  better 
to  introduce  the  whole  letter  at  this  point.  In  this  letter  our  company  re- 
viewed the  situation  with  regard  to  the  Tennessee  River  and  the  Tallapoosa 
River  situations  to  which  I  have  referred,  and  in  the  course  of  the  third  para- 
graph of  our  letter  made  this  statement  with  regard  to  our  previous  proposal : 

"  Believing  that  this  was  an  economical  and  profitable  undertaking,  we  were 
prepared  under  the  conditions  then  existing  to  proceed  with  our  share  of  this 
undertaking,  and  if  this  recommendation  had  been  favorably  acted  upon  the 
project  would,  have  been  available  for  the  manufacture  of  nitrates  during  the 
war  period  and  many  millions  of  dollars  w^ould  have  been  saved." 

We  further  invited  attention  to  that  provision  of  section  124  of  the  national 
defense  act  which  provides  that  these  plants  should  be  constructed  or  operated 
solely  by  the  Government;  and  hence  there  was  no  authority  in  law  to  deal 
with  the  subject  at  that  time,  nor  any  indication  as  to  what  extent  the  Con- 


I 


W 


790 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


791 


I   ' 


■m§ 


gress  would  authorize  a  part  of  this  power  supply  to  be  devoted  to  conmiercinl 
or  industrial  uses;  but  we  did  state  that  if  those  conditions  and  difficulties 
were  cleared  up,  that  our  company  was  of  the  opinion  that  the  development 
could  go  forward  and  be  completed  with  the  view  of  the  sale  and  distribution 
of  a  sufficient  volume  of  power  therefrom  by  this  company  and  others  engaged 
in  the  public  service  in  the  territory  adjacent  to  the  development  to  enable  the 
United  States  to  derive  a  reasonable  return  upon  that  part  of  the  project  and 
the  investment  which  might  be  allocated  to  the  power  feature  of  the  project, 
and  that  we  were  prepared  to  cooperate  in  any  manner  desired  by  the  United 
States  in  working  out  the  project. 

(The  letter  and  exhibits  referred  to  above  are  as  follows:) 

Alabama  Power  Co., 
Birmingham,  Ala.,  Man  28,  lf)21. 
Maj.  Gen.  Lansing  H.  Beach, 

Chief  of  Engineers,  Washington,  1).  C. 

Dear  Sir:  We  duly  received  your  communication  of  April  2,  1921,  inquiring 
what  arrangements  can  be  made  to  derive  a  reasonable  return  upon  the 
investment  if  the  Government  completes  the  dam  and  hydraulic  power  plant 
at  Muscle  Shoals,  Tennessee  River,  and  you  invite  a  discussion  of  the  matter 
if  we  are  interested. 

We  hive  given  the  subject  of  your  letter  careful  consideration  since  its 
receipt  and  wish  to  make  a  reply  as  follows: 

1.  The  site  at  which  the^  dam  is  being  constructed  on  the  Tennessee  River 
was  purchased  by  our  company  in  1906,  and  from  that  time  until  1918,  a 
period  of  12  years,  we  expended  large  sums  of  money  in  making  studies,  ex- 
ploring foundations,  and  in  the  purchase  of  reservoir  lands,  with  the  view  of 
its  development  as  an  integral  part  of  the  hydroelectric  system  which 
would  be  required  to  meet  the  needs  of  the  communities  which  the  company 
proposed  to  serve  from  time  to  time..  It  was  our  plan  to  construct  storage 
reservoirs  and  to  connect  them  with  the  proposed  Muscle  Shoals  development 
to  make  up  the  deficiency  in  power  at  the  latter  place  during  seasons  of  low 
water.  This  fact  alone  would  have  enabled  this  company  to  plan  for  an 
ultimate  installation  at  Muscle  Shoals  largely  in  excess  of  the  installation 
that  should  be  made  as  an  indei)endent,  separate  development.  In  short,  our 
plans  were  adapted  to  fully  conserve  and  utilize  in  the  public  interest  the  navi- 
gation and  water  resources  of  the  region. 

2.  In  the  meanwhile  we  acquired  other  power  sites  in  Alabama,  and  under 
an  act  of  Congress  of  1907,  constructed  a  dam  and  power  plant  on  the  Coosa 
River,  a  smaller  hydro  plant  on  a  nonnavigable  stream,  and  several  steam 
plants  at  different  points  on  our  sysem.  with  a  total  capacity  of  177,400 
horsepower  (not  including  the  Government  steam  plant  at  Warrior).  This 
system  embraces  about  1,500  miles  of  high  tension  lines  over  which  we  are 
distributing  energy  to  the  public  in  more  than  two-thirds  of  Alabama,  includ- 
ing one  of  the  greatest  industrial  and  mining  districts  in  the  country. 

3.  During  the  same  period  the  engineers  of  the  United  States  were  investi- 
gating the  project  pursuant  to  the  direction  of  Congress.  A  special  board  of 
engineers  was  created  for  the  purpose  of  obtaining  information  and  estimates 
relative  to  the  cooperation  of  proposed  improvements  for  navigation  and  water 
power,  and  that  board  invited  bids  for  cooperation  by  water  power  interests 
in  the  proposed  development.  This  company,  through  its  subsidiary,  Muscle 
Shoals  Hydroelectric  Power  Co..  submitted  a  plan  in  response  to  that  invi- 
tation of  the  United  States  Engineers.  Plans  were  also  submitted  by  others, 
but  upon  careful  investigation  the  special  board  recommended  that  Congress 
undertake  the  improvement  in  cooperation  with  this  company,  and  that  recom- 
mendation was  concun-ed  in  by  the  Board  of  Engineers  for  Rivers  and  Harbors 
and  by  the  Chief  of  Engineers.  Believing  that  this  was  an  economical  and 
profitable  undertaking,  we  were  prepared  under  the  conditions  then  existing 
to  proceed  with  our  share  of  this  undertaking,  and  if  this  recommendation  had 
been  favorably  acted  upon  the  project  would  have  been  available  for  the 
manufacture  of  nitrates  during  the  war  period,  and  many  millions  of  dollars 
would  have  been  saved. 

4.  A  further  examination  and  survey  of  the  project  was  made  by  the  engineers 
of  the  United  States  in  compliance  with  the  provisions  of  the  rivers  and  harbors 
act  approved  March  4,  1915.  Recommendation  was  again  made  that  the  im- 
provements be  undertaken  in  cooperation  with  this  company,  but  the  engineers 
further  recommended  that  action  be  suspended  until  it  should  be  determined 


whether  the  Muscle  Shoals  power  would  be  utilized  for  a  nitrate  plant  under 
the  act  of  Congress  of  June  3,  1916  (Doc.  No.  1262,  64th  Cong.,  1st  sess.,  1916). 

5.  We  are  adverting  to  these  matters  in  order  that  you  may  see  that  we  were 
for  a  number  of  years  interested  in  working  out  a  feasible  plan  for  the  develop- 
ment of  the  Muscle  Shoals  power  for  general  industrial  use  on  lines  of  coordina- 
tion with  improvements  for  navigation.  However,  in  1918-19  this  particular 
site  was  selected  for  development  by  the  United  States  to  supply  power  for  a 
nitrate  plant ;  and  as  it  seemed  that  the  United  States  needed  to  go  forward 
quickly  in  its  war  program  to  make  provision  for  nitrates,  we  concluded,  as  the 
result  of  various  conferences  with  representatives  of  the  Government,  to  donate 
to  the  United  States  the  dam  site  and  other  lands  owned  in  fee  by  this  com- 
pany, leaving  entirely  to  the  Government  the  question  of  any  plan  for  future 
cooperation  with  the  United  States.  This  donation  wan  made,  and  we  received 
from-  the  United  States  its  voucher  for  the  sum  of  $1,  being  the  nominal  con- 
sideration expressed  in  the  deed.  As  you  may  recall,  the  donation  was  accepted 
in  behalf  of  the  United  States  by  the  Secretary  of  War,  under  date  of  Feb- 
ruary 20,  1918,  who  expressed  the  thanks  of  the  Government  for  the  company's 
action  in  so  donating  the  property.  The  property  thus  donated  represented 
on  our  books  a  total  investment  by  this  company  to  the  time  of  the  donation 
of  approximately  $476,000,  but  we  desired  to  be  helpful  to  the  Government  in 
its  war  program  and  made  the  donation  in  that  spirit.  From  that  time  until 
the  receipt  of  your  letter  we  have  taken  no  action  with  regard  to  the  Muscle 
Shoals  project  other  than  the  interest  common  to  every  patriotic  citizen  to 
encourage  the  progress  and  development  of  the  Tennessee  River  Valley  and  the 
contiguous  country. 

6.  We  do  not  wish  to  suggest  a  course  contrary  to  the  expressed  purpose  of 
Congress  that  all  of  the  Muscle  Shoals  power  shall  be  used  in  the  manufacture 
of  nitrates  or  other  products  needed  for  munitions  of  war  and  useful  in  the 
manufacture  of  fertilizer  and  other  useful  pro<lucts.  Practically  all  of  the 
electrical  power  used  in  industrial  and  mining  operations  in  Alabama  is  furnished 
by  this  company,  in  addition  to  which  we  supply  the  lighting  and  other  nmnicipal 
requirements  to  more  than  two-thirds  of  the  State;  and  if,  in  the  wisdom  of 
Congress,  all  of  the  power  at  Muscsle  Shoals  should  be  reserved  for  nitrate  pur- 
poses, or  applied  to  any  other  use  considered  to  be  of  greater  benefit  than  the 
public  service  rendered  by  the  company,  we  will  continue  our  program  to  develop 
other  water  power  as  the  public  needs  may  require. 

7.  We  therefore  wish  to  mention  the  following  difficulties  in  the  way  of 
making  any  suggestion  at  this  time  which  will  be  of  substantial  assistance  to 
the  Government  in  dealing  with  its  problem  at  Muscle  Shoals. 

(a)  Section  124  of  the  national  defense  act  of  June  3,  1916,  under  which  the 
Muscle  Shoals  dam  and  power  plant  are  being  constructed,  contains  the  fol- 
lowing clause : 

««*  *  *  The  plant  or  plants  provided  for  under  this  act  shall  be  constructed 
and  operated  solely  by  the  Government,  and  not  in  conjunction  with  any  other 
mdustry  or  enterprise  carried  on  by  private  capital    *     *     *." 

This,  of  course,  presents  a  serious  legal  question  as  to  the  authority  of  the 
Secretary  of  War,  the  Fe<leral  Power  Commission,  or  other  agencies  of  the 
Government  to  deal  with  the  project  witliout  further  legislation  bv  Congress. 
In  addition,  funds  must  be  provided,  and  the  delay  and  uncertainty  of  action  bv 
Congress  is  a  very  serious  element  in  any  proposal. 

(6)  This  company  is  not  advised  as  to  the  extent  to  which  the  Government 
is  disposed  to  consider  a  portion  of  the  investment  as  being  due  to  war 
emergency;  or  what  portion  may  properly  represent  its  power  supply  for 
nitrate  purposes,  in  addition  to  which  it  is  assumed  that  a  portion  will  be 
charged  to  the  improvement  of  navigation  of  the  Tennessee  River.  These  are 
vital  considerations,  inasmuch  as  excessive  costs  would  burden  the  entire 
future  of  the  power  development,  increase  the  cost  of  power  to  consumers  and 
tend  to  discourage  industrial  enterprises  which,  with  low  power  costs,  should 
supply  a  market  for  a  part  of  the  Muscle  Shoals  power. 

(c)  This  and  other  power  companies  engaged  in  public  service  are  in  duty 
bound  promptly  to  find  and  develop  sources  of  power  at  the  lowest  practicable 
cost  to  supply  the  rapidly  increasing  demands  of  the  communities  served.  These 
demands  are  at  this  very  moment  most  insistent.  To  fulfill  its  immediate  re- 
quirements this  company  has  applied  to  the  Federal  Power  Commissidn  for  a 
license  and*  is  about  to  construct  an  important  additional  hydroelectric  de- 
velopment on  the  Coosa  River.  While  it  is  true  that  the  power  thus  secured 
will  be  completely  absorbed  and  new  sources  required  by  the  time  the  Muscle 


I 


ii 


ii 


792 


MUSCLE  SHOALS  PROPOSITIONS. 


Shoals  danf  could  be  completed,  yet  the  difficulties  above  mentioned  and  the 
doubt  which  arises  from  the  apparent  reluctance  of  Congress  to  sanction  an 
agreement  of  cooperation,  as  shown  by  clause  of  the  act  of  1916  above  quoted, 
suggest  that  this  company  would  scarcely  be  justified  in  depending  upon  Muscle 
Shoals  to  take  care  of  even  more  remote  demands  which  are  certain  to  arise 
and  which  must  be  prepared  for  well  in  advance. 

8.  If  the  above  difficulties  and  uncertainties  can  in  any  manner  be  cleared 
up,  and  excessive  costs  avoided  by  fair  charges  to  war  emergency,  power  for 
nitrate  purposes,  and  improved  navigation,  this  company  is  of  the  opinion  that 
the  development  can  go  forward  and  be  completed  with  the  view  of  the  sale 
and  distribution  of  a  sufficient  volume  of  power  therefrom  by  this  company  and 
other  companies  engaged  in  public  service  in  the  territory  adjacent  to  this  de- 
velopment to  enable  the  United  States  to  derive  a  reasonable  return  upon  such 
part  of  the  investment  as  may  be  properly  allocated  to  the  power  feature  of 
the  project. 

9.  Our  company,  together  with  adjacent  power  companies,  possesses  the 
necessary  organization  for  the  distribution  of  the  power  to  the  public,  and 
while  the  principal  markets  in  the  South  are  now  served  by  these  companies, 
their  transmission  systems  would  have  to  be  supplemented  by  new  lines  and 
other  equipment  to  market  this  power.  The  power  systems  in^the  Southeastern 
States  are  now  interconnected  and  the  advantage  to  the  public  of  such  inter- 
connection was  the  subject  of  a  careful  survey  by  eminent  engineers  acting 
under  your  direction  and  the  subject  is  thoroughly  discussed  in  a  report  pre- 
pared in  the  office  of  the  Chief  of  Engineers  by  Col.  Charles  Keller  and  now 
printed  as  an  official  document  entitled,  "The  Power  Situation  During  the  War." 

We  are  inclosing  with  this  letter  further  excerpts  from  that  report  which 
discuss  at  length  the  Muscle  Shoals  development. 

10.  It  will  require  much  consideration  and  study  to  enable  us  to  present  any 
definite  commitment,  and  would,  furthermore,  require  a  more  definite  state- 
ment as  to  when  the  power  would  be  available  and  as  to  just  what  portion  of 
the  cost  would  be  accepted  as  the  investment  in  the  power  project ;  these  bein? 
elements  which  you  will  appreciate  are  vital  in  determining  a  course  in  the 
matter  so  far  as  our  ability  is  concerned  to  take  the  power  at  a  price  affording 
the  United  States  a  reasonable  return. 

We  may  add,  however,  that  during  our  connection  with  the  project,  as  shown 
by  our  formal  proposals  in  response  to  the  Government's  invitation  (Docs. 
Nos.  20  and  1262),  we  regarde<l  the  construction  of  a  power  dam  (at  reasonable 
costs  and  on  commercial  plans)  at  this  locality  as  both  a  practicable  and 
profitable  undertaking:  and  if  there  is  a  possibility  that  the  Government  will 
wish  to  have  any  part  of  the  power  used  in  a  practical  way  for  commercial 
purposes,  then  we  would  like  to  urge  now  that  some  disposition  of  the  matter 
be  made  as  early  as  possible,  as  you  can  appreciate  that  in  its  present  status 
it  is  a  disturbing  feature  in  the  industrial  situation  in  this  section. 

If,  therefore,  authority  is  conferred  by  Congress  to  conclude  a  contract  for 
the  use  of  any  part  of  the  power  by  power  companies,  we  wish  to  assure  you 
that  we  are  ready  to  work  out  a  mutually  satisfactory  arrangement  looking 
to  the  completion  of  the  dam  and  the  disposal  of  such  part  of  the  power  as 
Congress  wishes  to  place  in  commercial  use;  desiring  now,  as  at  all  times  in 
the  past,  to  cooperate  in  every  way  desired  by  the  United  States  in  working 
out  the  matter. 

Yours,  very  truly, 

Alabama  Power  Co., 
ByTHOs.  W.  Martin,  President. 

Appendix. 

excerpts  from  the  report  prepared  in  the  office  of  the  chief  of  engineers. 


MUSCLE   SHOALS  PROPOSITIONS. 


793 


ENTITLED   "  THE  POWER    SITUATION   DURING   THE   WAR 


»» 


The  following  is  from  Appendix  E,  entitled  "  Electric-Power  Problems  in 
the  Southern  States,"  pages  237-238  of  that  report. 

The  great  advantages  of  interconnection  and  joint  operation  of  power  sys- 
tems, and  the  economies  in  the  building  for  increase  in  operating  capacity, 
as  herein  stated,  apply  equally  to  a  combination  of  the  privately  owned  com- 
panies with  the  Government  powers  now  building  at  Muscle  Shoals..  The  char- 
acteristics of  this  Government  power  and  the  gain,  both  to  the  Government 
power  and  to  the  privately  owned  powers  that  would  result  from  intercon- 


nection and  exchange  of  faciities,  was  an  important  consideration  in  the  rec- 
ommendation of  the  Tallapoosa  River  project,  inasmuch  as  the  interstate 
combination,  with  other  power  substituted  for  Tallapoosa,  might  be  quite 
favorable  as  the  Tallapoosa  powers  is  a  combination  without  Muscle  Shoals. 

"21.  Under  the  present  laws  the  Government  Muscle  Shoals  hydro  power 
now  building  can  not  be  connected  to  or  operated  in  conjunction  with  private 
interests.    *    *    * 

"  25.  The  proposed  interstate  power  system  above  described,  including  the 
proposed  Tallapoosa  River  developments,  and  capable,  as  stated,  of  producing 
2,1(K),000,000  kilowatt  hours  of  prime  power  annually,  if  combined  and  operated 
in  conjunction  with  a  hydro  plant  at  Muscle  Shoals  with  300,000  kilowatts  ulti- 
mate installed  capacity  as  proposed,  would  be  capable  of  producing,  in  years 
of  normal  river  flow,  2,880,000,000  kilowatt  hours  annually  of  prime  hydro 
power  without  any  steam  generation." 

The  following  is  also  from  Appendix  E.  entitled  "  Electric  power  problems  in 
the  Southern  States,"  pages  264  to  267,  inclusive,  of  the  report  entitle<l  "  The 
power  situation  during  the  war  " : 

"  Past  5. 

"  government  hydroelectric  development  at  muscle  shoals,  ala. — 

recommendations  fob  its  utilization. 

"  140.  The  proposed  hydro  development  at  Muscle  Shoals  authorized  by  the 
Government  and  now  being  built  under  the  direction  of  the  Chief  of  Engineers, 
United  States  Army,  provides  for  a  high  dam  in  the  Tennessee  River  an<l  the 
installation  of  electric  machinery  for  the  generation  of  power.  The  river  flow 
and  other  natural  conditions  at  the  site  selected  will  permit  the  generation  of 
40,000  kilowatts  during  stages  of  low  water  to  an  extreme  low  year,  and  300,000 
kilowatts  can  be  generated  during  five  months  in  years  of  normal  river  flow. 

"  141.  By  act  of  Congress  (39  Stat.,  215)  it  is  provided  that  '  the  plant  or 
plants  provided  for  under  this  act  shall  be  constructed  and  operated  solely  by 
the  Government  and  not  in  conjunction  with  any  other  industry  or  enterpri.se 
carried  on  by  private  capital.'  The  terms  of  the  act  are  such  that  it  would  be 
unlawful  to  interconnect  this  plant  with  central  station  power  systems  of  the 
Southern  States  and  use  even  a  portion  of  this  power  for  other  than  Government 
industries. 

"  142.  This  report  on  the  power  resources  of  the  Southern  States  has  been 
prepared  to  point  out  the  most  economic  and  reliable  source  of  power  that  can 
be  utilized  for  serving  the  industries  of  the  South  with  a  view  to  securing  maxi- 
mum economy  in  generation,  and  the  resources  in  water  and  steam  power  thus 
far  considered  have  excluded  the  Muscle  Shoals  project,  by  reason  of  the  exist- 
ing law  prohibiting  the  use  of  this  power  for  private  purposes. 

"  143.  The  procedure  is  illogical  and  unreasonable,  because  in  order  to  pro- 
vide cheap  power  it  is  necessary  that  the  best  sources  of  power  be  used,  whether 
they  are  hydroelectric  development  using  the  natural  flow  of  the  river,  or 
whether  they  are  hydroelectric  powers  with  storage  reservoirs  that  conserve* 
the  water  during  the  high-water  stages  for  use  during  low-water  stages,  or 
whether  they  are  sources  of  steam  power,  and,  further,  it  is  necessary  to  operate 
these  powers  jointly  to  obtain  maximum  economy,  reliability,  and  conservation 
of  resources  in  fiiel,  labor,  and  materials. 

"  144.  The  best  economy  and  reliability  can  not  be  secured  by  any  one  develop- 
ment, whether  it  is  hydropower  by  flow  of  streams,  or  by  storage,  or  steam 
power,  but  will  be  obtained  by  a  suitable  combination  of  these  different  sources 
and  by  the  interconnection  of  the  systems  applied  by  theuL  Muscle  Shoals  has 
been  selected  by  the  Government  as  a  favorable  location  to  the  production  of 
cheap  power.  The  proposed  design  will  furnish  100,000  kilowatts  of  prime 
power  and  200,000  kilowatts  of  second-class  power  in  an  average  year.  The 
steam  plant  of  60,000  kilowatts  which  the  Government  has  installed  at  Muscle 
Shoals  is  capable  of  converting  a  portion  of  the  second-class  power  to  prime 
power.  But  this  combination  with  a  steam  plant  at  Muscle  Shoals,  regardless 
of  whatever  economy  may  result,  can  not  be,  broadly  speaking,  as  favorable  for 
all  interests,  either  the  Government  interests  or  private  interests,  as  a  com- 
bination of  the  Muscle  Shoals  steam  and  hydro  po^'ers  with  an  interconnected 
group  of  public-utility  systems  as  described  in  this  report.  To  segregate  the 
Muscle  Shoals  power  facilities  from  the  other  systems  of  the  country  is  contrary 
to  the  policy  recommended  and  strongly  advocated ;  that  is,  of  interconnecting 
all  of  the  efficient  going  power  systems  and  jointly  operating  them  for  maximum 


■  1 


^1 

'J 


794 


MUSCLE   SHOALS   PROPOSITIONS. 


MUSCLE   SHOALS   PROPOSITIONS. 


795 


economy.  The  same  principle  which  works  for  increased  economy  bv  intercon- 
necting the  public-utility  power  systems  of  the  Southern  States  apples  to  a 
further  interconnection,  including  the  Muscle  Shoals  plants,  and  in  the  interest 
of  cheai>  and  reliable  power  the  law  should  be  changed  and  the  interconnection 
and  joint  operation  of  all  the  developed  power  should  be  provided  for. 

"  145.  It  is  important  that  the  law  should  be  mollified  and  the  plants  per- 
fected at  as  early  date  for  the  joint  operation  of  all  southern  electric  utilities 
and  the  Muscle  Shoals  power,  since  the  reconnnended  future  construction  for 
the  development  of  power  facilities  for  the  scmthern  States  mtist  depend,  in  a 
large  measure,  on  whether  or  not  Muscle  Shoals  will  be  available  for  other 
than  (Jovernment  work.  For  instance,  if  Muscle  Shoals  power  is  to  constitute 
an  inii)ortant  source  of  the  generating  capacity  of  an  intercoiniecting  system 
for  the  s(»uthern  States,  the  logical  procedure  for  other  developments  hy  the 
public  utility  companies  will  be  to  build  hydro  plants  with  large  storage  reser- 
voirs and  steam  plants,  both  of  which  will  work  economi<ally  in  conjunction 
with  the  second-class  power  of  Muscle  Shoals,  instead  of  developing  ad<litional 
flow  of  stream  hydropower,  which  they  might  otherwise  d<»  if  Muscle  Shoals 
will  not  eventually  be  available  for  interconnection;  and,  on  the  other  hand, 
if  they  develop  flow  of  stream  power,  instead  of  storag*'  hydro  or  steam  power, 
the  hick  of  assurance  that  Muscle  Shoals  will  not  be  avalable  in  a  few  years, 
their  own  resources  will  not  be  of  a  nature  to  advantagtM>usly  sui>p!emenr  Mus- 
cle Shoals  and  turn  its  second-class  power  into  prime  power  should  the  (Gov- 
ernment i)olicy  later  be  changed.  Even  if  a  Government  demand  is  built  for 
the  entire  use  of  ^luscle  Shoals,  the  Government  would  be  handicai>i)ed  in  hav- 
ing a  large  amount  of  second-class  power,  which  is  not  so  valuable  as  prime 
l)ower.  and  for  which  it  would  not  have  the  most  effective  sonrc»»  of  conversion 
of  second  class  to  prime  jjower. 

'*  146.  It  is  especially  desirable  that  the  interconnection  to  the  conibined 
southern  i)ower  system  be  available  for  the  purpose  of  distr.buting  the  JIuscle 
Shoals  i)ower  immediately  urM)n  its  completion,  and  at  least  until  its  own 
market  can  be  obtained,  and  that  the  developments  for  the  next  •'»  to  10  years 
be  directed  toward  the  construction  of  such  plants  as  will  advantageously  sup- 
plement Muscle  Shoals.  By  this  is  meant  by  the  time  Muscle  Shoals  is  com- 
pleteil  it  is  perfectly  practicable  for  the  power  systems  of  the  s<mthern  States 
to  acquire  a  connected  load  that  will  absorb  a  large  part  of  the  Muscle  Shoals 
<mtput  ami  to  have  installed  such  plants  of  their  own  creation  as  will  be  use- 
ful to  turn  Muscle  Shoals  sec<md-class  power  into  prinje  power. 

'*  147.  It  is  argued  that  the  Government  steam  plant  can  be  used,  when  the 
hydro  plant  at  Muscle  Shoals  is  tinished,  to  turn  a  hu-ge  part  of  the  second- 
class  i>ower  into  prime  power.  This  is  true;  it  can  be  used,  but  it  is  not  the 
best  plan  available.  There  are  large  steam  plants  already  built,  and  others 
will  probably  l)uihl  before  Muscle  Shoals  is  completed,  which,  because  of  their 
more  a«lvantageous  location  for  fuel,  can  make  steam  i)ower  more  cheaply  than 
the  Government  steam  plant  at  Sheffield.  Also,  if  the  futiu-e  loa<l  for  Muscle 
Shoals  is  in  a  large  part  located  at  industrial  centers  in  Alabama  instead  of 
in  the  Muscle  Shoals-Sheffield  district,  the  existing  steam  plants  and  prospec- 
tive future  steam  plants  will  be  more  favorably  located  than  the  Muscle  Shoals 
steam  plants  for  joint  operation  with  Muscle  Shoals  hydro  power.  This  feature 
is  important  from  the  standpoint  of  reliability  of  service  and  transnnssion  cost 
as  well  as  in  economy  of  generation.  In  fact,  if  Muscle  Slioals'is  interconnected 
with  the  other  southern  power  systems  and  generally  operated  with  them  for 
maximum  economy,  the  steam  plants  in  the  industrial  section  of  Alabama,  and 
favorably  located  at  the  mines  for  cheap  fuel,  would  be  put  into  operation  in 
case  of  low  water  before  the  Muscle  Shoals  steam  plant  would  be  starte<l. 

'*  148.  If  interconnection  between  Muscle  Shoals  and  the  big  public  utilitv 
power  companies  of  the  Southern  States  is  not  planned  for  in  the  near  future 
and  eventually  carried  out  under  favorable  conditions,  the  CJovernment  develo])- 
ment  at  Muscle  Shoals  is  liable  to  result  not  in  cheapening  power  for  the 
industries  of  the  South  but  rather  in  increasing  the  cost.  It  is  a  matter  of  com- 
mon knowledge  that  one  of  the  large  private  interests  acquired  the  water- 
power  site  at  Muscle  Shoals  and  spent  a  large  sum  of  money  in  preparation 
for  a  hydro  development  similar  to  the  one  now  being  built  by  the  Government, 
with  the  intention  of  distributing  this  power  to  the  industries  of  Alabama, 
which  would  logically  later  on,  through  interconnections,  be  extended  to 
service  in  Georgia  and  Tennessee.  The  Government  has  come  into  the  situa- 
tion and  taken  over  this  source  of  power  and  is  building  the  plant,  as  pro- 
vided by  law,  exclusively  for  Government  use;  and  if  this  is  carried  out  it 


will  result 
by   reason 


in  i)rivate  industries  being  deprived  of  this  natural  resource,  which, 
of  the  (Jovernment's  own  action  in  neglecting  this  power  for  its 

use,  may  be  regarded  as  a  cheap  source  of  power. 
"  140.  We  have  no  figures  as  to  what  the  Gov< 

Muscle   Shoals   power   will   be,   either 


progress  m 
at  a  relativelv 
would  have  to 


to  another 
project  in  its 


ernment  estimates  the  cost  of 
primary  ix)wer  or  second-class  power. 
since  the  undertaking  at  this  place  is  for  the  joint  purpose  of  improving  navi- 
gation and  for  creating  power,  and  we  are  not  informed  as  to  the  proportionate 
charge  that  goes  to  these  two  ])urposes.  It  is,  however,  obvious  that  if  a  big 
power  load  is  to  be  built  up  about  Muscle  Shoals  it  must  be  done  either  by 
direct  Government  operatiotj  or  else  the  attraction  in  the  way  of  low-priced 
p<»wer  must  be  very  nmrked  to  divert  manufacturing  from  the  present  indus- 
tiial  C(Miters  and  favorable  location  for  raw  materials  and  transportation  to 
the  district  adjacent  to  Muscle  Shoals,  which  is  sparsely  develope<l  indus- 
trially. If  the  inducement  in  the  way  of  cheap  power  is  sufficient  to  overcome 
the  natural  conditions  as  established  by  the  sui)erior  industrial 
other  sections,  the  pf»wer  at  ^luscle  Shoals  must  be  available 
low  rate,  which  also,  without  modification  of  the  present  law, 
bo  wholly  for  Government  purposes. 

"loO.  It  therefore  appears  that  a  broad  and  well-founded  judgment  would 
dictate  that  the  Muscle  Shoals  development  should  l>e  interconnected  for 
exchange  of  power  with  the  existing  power  systems  of  the  Southern  States  and 
that  this  interconnection  and  exchange  should  be  arranged  for  without  delav, 
so  that  future  construction,  both  at  Muscle  Shoals  and  elsewhere,  can  be 
directed  for  the  production  of  plants  which  will  supplement  such  other  for 
economy  of  consti'uction  and  operation." 

I  would  like  at  this  point  to  invite  your  attention.  Mr.  Chairman, 
report  of  the  engineers  of  the  United  Statt^s  dealing  with  this 
micompleted  condition. 

There  was  a  rei>ort  prepared  in  the  office  of  the  Chief  of  Engineers  and 
transmitted  to  the  Secretary  of  War  in  1921,  entitled  "The  Power  Situation 
During  the  War"  reviewing  the  activities  of  the  Government  touching  various 
aspects  of  the  power  question  which  arose  during  the  war,  with  comments  upon 
the  efforts  made  to  coordinate  power  resources,  to  get  power  for  the  benefit 
of  war  industries,  and  containing  suggestions  for  the  coordination  of  power 
developments  in  every  section  of  this  country  looking  to  the  better  utilization 
or  greater  utilization  of  all  the  power  resources. 

There  is  a  large  part  of  this  rei>ort  devoteil  to  the  Muscle  Shoals  situation. 
The  gentlemen  who  made  this  report  in  behalf  of  the  (Joveniment  on  this 
Muscle  Shoals  project— that  is  to  say,  the  Dam  Xo.  2  and  the  Dan»  No.  3.  not 
then  started — considered  its  relation  to  this  proposed  Tallapoosa  development 
and  {igain  reconnnende<l  in  this  report  that  the  development  shouhl  proceed 
along  the  lines  of  the  previous  reports  of  the  Engineers  <»f  the  United  States. 

I  would  like  to  just  read  a  few  lines  from  this  report.  Theie  are  a  number 
of  pages  devoted  to  this  very  question  which  are  extremely  important  and 
extremely  interesting  and  we  trust  that  you.  Mr.  Chairman,  iiml  the  members 
of  the  committee  will  take  the  time  to  read  what  these  gentlenren  said  in  this 
report,  so  recently  filefl  and  printed  in  the  year  192;!. 

The  Chairman.  Do  you  desire  to  offer  the  whole  report  for  the  hearings? 

^Ir.  Martin.  No,  sir ;  but  excerpts  from  this  rejiort  were  attached  to  our 
letter  to  the  Chief  of  Engineers  of  May  28,  1921.  and  thus  there  will  be  in  the 
record  all  those  parts  which  have  to  <lo  with  this  development. 

This  report  iiroceeded  upon  the  theory  that  this  development  shouhl  i)roceed. 
this  jmwer  developed  and  this  great  power  station  interconnected  with  the 
power  developnient  in  other  watersheds  in  Alabama  and  other  States.  This  is 
from  page  237  of  the  report : 

"  The  great  advantages  of  interconnection  and  joint  operation  of  i>ower  sys- 
tems and  the  econonues  in  the  building  for  increase  in  generating  capacity 
as  herein  stated  apply  equally  to  a  combination  of  the  privately  owned  com- 
panies with  the  Government's  powers  now  building  at  Muscle  Shoals.  The 
characteristics  of  this  Government  power  and  the  gain  both  to  the  Government 
power  and  to  the  privately  owned  powers  that  would  result  from  intercon- 
nectifni  and  exchange  of  facilities  was  an  important  consideration  in  the  recom- 
mendation of  the  Tallapoosa  lUver  project,  inasmuch  as  the  interstate  com- 
bination, with  other  power  substituted  for  Tallapoosa,  might  be  quite  as  favor- 
able as  the  Tallapoosa  power  in  a  combination  without  IVIuscle  Shoals." 

The  Chairman.  How  many  pages  are  there  in  that  report? 

Mr.  Martin.  This  report  involves  about  300  pages.. 


\ 


m 


796 


MUSCLE  SHOALS  PROPOSITIONS. 


The  Chairman.  Would  you  kindly  refer  to  the  report,  so  that  it  may  be 
iden titled  in  the  record? 

Mr.  Martin.  It  is  entitled  "  The  Power  Situation  During  the  War,"  by  Col. 
Charles  Keller,  Corps  of  Engineers,  War  Department,  Office  of  the  Chief  of 
Engineers,  dated  December  13,  1919,  and  is  addressed  to  the  honorable  the  Sec- 
retary of  War,  through  the  Chief  of  Engineers,  United  States  Army,  Washing- 
ton, D.  C. 

The  Chairman.  The  reason  I  wanted  you  to  identify  the  report  was  that  in 
case  any  Member  wanted  to  look  it  over  he  would  know  just  what  document  is 
referred  to. 

Mr.  Martin.  It  is  not  described  by  a  document  number,  but  it  is  printed  as  a 
public  document. 

The  Chairman.  Do  you  wish  to  read  any  more  from  it? 

Mr.  Martin.  I  will  not,  except  to  say  that  in  our  proposal  submitted  a  day  or 
two  ago  to  the  Secretary  of  War  we  quoted  section  150  of  this  report,  as 
follows : 

"  It  therefore  appears  that  a  broad  and  well-founded  judgment  would  dictate 
that  the  Muscle  Shoals  development  should  be  interconnected  for  exchange  of 
power  with  the  existing  power  systems  of  the  Southern  States,  and  that  this 
interconnection  and  exchange  should  be  arranged  for  without  delay,  so  that 
future  construction,  both  at  Muscle  Shoals  and  elsewhere,  can  be  directed  for 
the  production  of  plants  which  w^ill  supplement  each  other  for  economy  of  con- 
struction and  operation." 

In  substance  that  is  the  recommendation  of  that  report. 

Our  attention  was  again  invited  to  this  question  by  Gen.  Beach  in  a  letter 
dated  June  18,  1921,  which  I  will  hand  the  reporter  to  be  made  a  part  of  my 
statement,  as  follows : 

War  Department, 
Office  of  the  Chief  of  Engineers, 

Washington,  June  18,  1921. 
.Air.  T.  W.  Martin, 

President  Alahama  Poicer  Co., 

Binmngham,  Ala. 

Dear  Sir  :  I  would  like  to  inquire  what  power  the  Alabama  Power  Co.  would 
desire  or  be  willing  to  take  from  Muscle  Shoals  two  years  from  this  date,  and 
also  three  years  from  this  date,  if  one  year's  advance  notice  of  actual  date  at 
which  power  could  be  delivered  could  be  given  and  a  satisfactory  price  is 
guaranteed. 

Very  truly,  yours, 

Lansing  H.  Beach, 
Major  General,  Chief  of  Engineers. 

Now,  we  replieil  to  that  letter  under  date  of  the  14th  of  July,  1921,  which  I 
would  also  like  to  place  in  the  record,  in  which  we  point  out  that  at  the  time  oi 
this  letter,  July,  1921,  we  were  engaged  in  the  construction  of  a  new  hydro  plant 
on  the  Coosa  River  in  Alabama,  under  a  50-year  license  from  the  Federal  Power 
Commission  which  would  give  us  approximately  100,000  horsepower;  that  that 
development  would  be  completed  by  the  end  of  the  year  1922,  but  that  the  power 
from  this  development  would  be  absorbed  immediately,  and  that  further  power 
would  be  needed  in  Alabama  in  our  own  situation,  and  that  we  would  be  im- 
pelled to  go  further  with  some  further  power  development  some  time  in  the 
present  year  to  meet  the  demands  in  the  State  of  Alabama  unless  we  could 
have  some  program  aranged  by  which  this  Muscle  Shoals  power  could  be  made 
available. 

Now,  I  would  like  to  make  it  very  clear  that  the  particular  power  develop- 
ment in  progress  in  the  year  1922  will  supply  only  the  market  which  exists 
to-day,  which  is  supplied  from  steam  power,  and  will  be  completely  absorbed, 
practically,  upon  its  completion.  We  stated  to  Gen.  Beach  that  a  study  of  the 
power  markets  in  our  territory  convinced  U8  that  the  demands  for  power  would 
require  further  sources,  which  should  be  available  by  1926  at  the  latest. 

We  are  still  in  the  position  stated,  and  it  is  now  quite  clear  that  our  anticipa- 
tion or  forecast  of  power  requirements  in  the  territory  which  is  immediately 
served  by  the  lines  of  our  company  and  in  the  territory  which  is  easily  adjacent 
to  this  development  are  so  large  that  there  can  be  no  doubt  that  this  entire 
development  would  be  absorbed  promptly  upon  its  completion. 

(The  letter  above  referred  to  follows:) 


MUSCLE   SHOALS  PROPOSITIONS. 


797 


Alabama  Power  Co., 
Birmingham,  Ala.,  July  1^,  1921. 

Maj.  Gen.  Lansing  H.  Beach, 

Chief  of  Engineers,  United  States  Army,  Washington,  D.  C. 

Dear  Sir  :  We  wish  to  acknowledge  receipt  of  your  letter  of  the  18th  ultimo, 
inquiring  what  power  this  company  would  desire  or  be  willing  to  take  from 
Muscle  Shoals  two  years  from  that  date,  and  also  three  years  from  that  date, 
if  one  year's  advance  notice  of  actual  date  power  could  be  delivered  could  be 
given  and  a  satisfactory  price  guaranteed. 

We  wrote  you  under  date  of  May  28  last  regarding  certain  aspects  of  this 
problem,  to  which  we  beg  to  refer  in  connection  with  our  answer  to  your  letter. 
As  therein  stated,  we  have  insistent  demands  for  power ;  that  to  fill  its  imme- 
diate requirements  this  company  has  applied  to  the  Federal  Power  Commis- 
sion for  a  license  to  construct  an  important  additional  hydroelectric  develop- 
ment on  the  Coosa  River,  and  added : 

"  While  it  is  true  that  the  power  thus  secured  will  be  completely  absorbed 
and  new  sources  required  by  the  time  the  Muscle  Shoals  Dam  could  be  com- 
pleted, yet  the  difficulties  above  mentioned  and  the  doubt  which  arises  from 
the  apparent  reluctance  of  Congress  to  sanction  an  arrangement  of  coopera- 
tion, as  shown  by  the  clause  of  the  act  of  1916  above  quoted,  suggest  that  this 
company  would  scarcely  be  justified  in  depending  upon  Muscle  Shoals  to  take 
care  of  even  more  remote  demands  which  are  certain  to  arise  and  which  must 
be  prepared  for  well  in  advance." 

We  concluded  our  letter  in  this  language : 

"  If,  therefore,  authority  is  conferred  by  Congress  to  conclude  a  contract  for 
the  use  of  any  part  of  the  power  by  power  companies,  we  wish  to  assure  you 
that  we  are  ready  to  work  out  a  mutually  satisfactory  arrangement  looking  to 
the  completion  of  the  dam  and  the  disposal  of  such  part  of  the  power  as  Congress 
wishes  to  place  in  commercial  use,  desiring  now,  as  at  all  times  in  the  past,  to 
cooperate  in  every  way  desired  by  the  United  States  in  working  out  the  matter." 

Since  that  letter  was  forwarded  to  you  the  Federal  Power  Commission  has 
issued  to  this  company  a  license  to  construct  the  Coosa  development.  We  are 
planning  to  install  60,000  horsepower  and  preliminary  construction  is  now  be- 
ginning. It  is  our  purpose  to  prosecute  the  work  with  all  diligence  with  the 
view  of  having  power  available  therefrom  in  the  spring  of  1923.  While  the 
initial  installation  as  now  planned  is  60,000  horsepower,  the  ultimate  installa- 
tion will  be  120,000  horsepower.  In  going  forward  with  this  development  we 
considered  that  we  were  in  duty  bound  to  proceed,  because  it  did  not  seem  at 
all  possible  that  the  Muscle  Shoals  hydro  development  could  produce  any  power 
during  1923  or  1924.  Our  power  demands  are  at  present  in  excess  of  our  water- 
power  capacity,  but  the  power  which  will  result  from  the  new  Coosa  develop- 
ment will  fulfill  our  immediate  requirements;  i.  e.,  will  enable  us  in  1923  to 
greatly  reduce  our  steam  running  and  we  will  thus  be  enabled  to  meet  the 
public  demands  during  1923  and  for  the  most  part  in  1924  with  the  output  of 
our  hydro  plants. 

However,  we  wish  to  say  that  study  of  the  power  markets  in  the  territory 
served  by  our  company  convinces  us  that  the  demands  for  power  will  require 
further  sources  which  should  be  available  during  1926  at  the  latest. 

We  must  make  our  plans  for  several  years  in  advance  of  actual  power  needs, 
and  longer  notice  than  one  year  in  advance  of  actual  date  at  which  the  Muscle 
Shoals  power  could  be  delivered  would  be  necessary  for  this  company  to  com- 
mit itself  for  the  taking  of  definite  amounts  of  power ;  and  unless  a  commitment 
can  be  made  not  later  than  March,  1922,  by  the  United  States  Government  for 
the  delivery  of  definite  amounts  of  power,  we  will  find  it  necessary  to  proceed 
with  another  hydro  development  in  Alabama  to  meet  our  requirements.  We  will 
he  glad  meanwhile  to  discuss  the  subject  with  you  in  a  definite  way  if  desired. 

Awaiting  your  further  suggestions,  we  are. 
Yours,  very  truly, 

Alabama  Power  Co.. 
By  Thomas  W.  Martin, 

President. 

During  the  year  1921  financial  conditions  which  would  enable  a  company  such 
as  ours  to  finance  the  Wilson  Dam  to  completion  were  not  satisfactory,  and  it 
it  only  resulting  from  the  financial  conditions  of  very  recent  weeks,  or  the  last 
two  months,  that  have  made  it  practicable  for  a  company  engaged  in  such 
service  as  our  company  to  make  a  proposal  that  will  undertake  the  financing 
of  this  project. 


I 


798 


MUSCLE   SHOALS  PROPOSITIONS. 


The  financial  conditions  liave  improved,  have  substantiallv  improved,  in  so  far 
as  concerns  the  sale  of  long-term  securities,  within  the  past  60  or  90  davs  or 
four  months,  and  the  conditions  are  such  that  we  are  prepared  to,  and  can  go 
forward  with  a  program  such  as  we  have  outlined  in  our  proposal. 

I  would  like  to  say  just  a  word  or  two  on  the  question  of  the  power  market 
which  exists  for  the  power  from  this  development. 

The  present  iK)wer  and  lighting  load  which  is  carried  on  the  system  of  the 
Alabama  Power  Co.  is  approximately  135,000  horsepower.  We  have  established 
what  we  call  the  maximum  peak  load  of  our  system,  which  is  as  high  as  160  000 
nin^^^^i^'^^' '  ^^^^^  ^*'  ^^'^  ^'^^'^  carried  at  recent  times,  within  re<^ent  months 
]bO,000  horsepower  for  short  periods.  With  a  return  to  normal  business  durin- 
the  present  year,  and  having  regard  to  applications  for  service  which  have  been 
made  to  our  company,  the  service  within  our  own  State  will  increase  our  iwwer 
load  to  a  definite,  day-to-day  program  of  160,000  horsepower. 

As  we  go  along  in  the  power  business  we  find  there  is  a  certain  natural 
growth  of  load  due  to  the  increased  demand  of  existing  customers. 

There  are  also  new  industries  normally  coming  into  a  system  such  as  ours 
which  we  assume  to  be,  from  our  experience,  approximately  10  per  cent  ner 
annum.  '  * 

That  will  carry  us  by  the  1st. of  January,  1926,  we  will  say.  just  on  the 
system  we  have  to-day  without  any  extension  of  the  system  at  all,  to  210,000 
horsepower. 

In  addition  to  that  there  is  service  very  near  our  line,  exclusive  of  railway 
electrification,  of  160,000  horsepower,  which  is  now  served  from  isolated  plants 
or  plants  which  would  be  discontinued  and  which  would  be  very  glad  to  have 
central  station  service  if  and  when  available. 

Now,  that  is  within  the  State  of  Alabama  alone.  We  have  made  investiga- 
tions into  various  sections  of  the  South.  Inquiries  have  been  made  to  us  from 
various  sections  of  the  South. 

I  would  like  to  take  the  liberty  of  calling  the  attention  of  the  committee  now 
to  a  map  which  we  have  prepared,  as  probably  you  can  see  from  there,  Mr.  Chair- 
man. With  Muscle  Shoals  as  a  center,  there  are  lines  drawn  at  intervals  of 
50  and  100  miles— the  light  lines  are  50  miles  from  Muscle  Shoals  and  the 
heavier  dark  lines  are  100  miles.  In  a  radius  of  150  miles,  we  will  say,  there 
is  Memphis,  which  has  no  hydro  service,  of  course ;  Jackson,  Tenn.,  which  has 
none;  Nashville,  Tenn.,  has  hydro  service,  but  should  have  additional  service: 
Columbia,  Tenn.,  the  same ;  and  you  will  also  see  Meridian,  Miss.,  and  in  the 
next  line  you  will  see,  150  miles  away,  Little  Rock  and  Vicksburg.  You  will 
see  that  Jackson  is  within  200  miles.  I  was  mistaken  about  Little  Rock  and 
Vicksburg.  They  are  within  a  radius  of  200  miles.  Going  farther,  we  have  at 
300  miles  Natchez,  Mobile,  and  at  a  farther  distance  of  slightlv  over  350*  miles 
New  Orleans,  Baton  Rouge,  Pensacola,  and  at  400  miles  the  city  of  Shreveiwrt. 

We  have  for  a  long  time  been  asked  to  consider  the  extension  of  transmis- 
sion lines  from  power  developments  in  Alabama  to  New  Orleans,  to  Mobile,  to 
Pensacola,  to  Little  Rock,  to  Memphis,  to  Meridian,  and  in  fact  to  all  the 
towns  and  cities  that  you  see  in  that  circle,  and  you  will  notice  that  Paducah  is 
within  easy  transmission  distance  of  this  Muscle  Shoals  development. 

I  would  also  like  to  mention,  Mr.  Chairman,  that  whereas  this  circle  shows  a 
400-mile  radius  from  Muscle  Shoals,  when  you  come  to  actually  transmit  power 
to  places  such  as  Mobile,  Pensacola,  and  New  Orleans,  the'  logical  program 
would  be  to  develop  jwwers  in  or  near  Montgomery,  Ala.,  or  northeast  of 
Montgomery,  in  the  rivers  in  that  section,  running  transmission  lines  from 
there  down  to  New  Orleans,  transmitting  the  power  that  is  generated  in  that 
district  southeast,  and  Muscle  Shoals,  of  course,  supplementing  the  whole 
situation.  But  there  can  be  no  development  and  no  transmission  of  power  to 
meet  anywhere  near  the  approximate  needs  of  the  communities  southwest  and 
south  unless  the  Mnscle  Shoals  development  is  made  available  in  this  whole 
situation. 

It  is.  of  course,  the  largest  water  power  in  the  ^outh,  and  without  it  the 
developments  which  exist  in  this  immediate  territory  are  not  suflficient  to 
supply  these  markets  In  the  States  of  Mississippi  and  Louisiana,  and  even  as 
far  away  as  Memphis. 

It  is  interesting,  as.  of  course^,  you  gentlemen  know,  that  when  we  reach  the 
end  of  the  Appalachian  chain  in  the  State  of  Alabama  there  is  no  water  power 
after  you  pass  Alabama  until  you  get  beyond  the  Mississippi  River,  hundreds 
of  miles  away.  That  whole  development  of  water  power  in  Alabama,  then,  is 
the  last,  and  the  last  opportunity  the  public  will  have  south  and  southwest  tc 


MUSCLE   SHOALS  PROPOSITIONS.  799 

»  ^o'^r'^themTvpr  to  nM^-^'^H  ^"^'^  '^^  ^"^^^^  '^'''^'^^  "^^^e  is  no  oppor- 
that  even  thP^^vl/J''  ''^l^'''  ^^^''^  P^^^^'  ^^  ^^  possible,  but  only  poss^le, 
drfwr  If  that^n^^^  °'^'^  obtain  hydro  power  if  Muscle  Shoals  is  with- 

board   is  devotPd  i^  tl?v  .n  t*""^^^  ^^^  ^^^^  announced  by  others  on  this 

Xs  to  obtafn  hvnrn  V  ^^''^^^  development,  then  there  is  no  chance  for  Mem- 
through  the  StatP^nf  i£nnf  ^""^^^  ^J  ^^^^^sively  long  transmission  lines 
wS^sl'^douSful^  '^"™  developments  hundreds  of  miles  away, 

ruPnTon'/fn^^^i''  'V"''^  ^  ^'''''^  referred  and  which  are  within  transmission 

^!SS5Yo^4'^p"^^^^^^  '^""  ^  '''^'  P^^^'^^  '^-^  to-day  of  app;olSe" 

In  addition  to  that,  the  existing  companies  in  the  States  of  Tennessee  md 

Theie  IS  then  a  possible  power  load,  inclusive  of  the  present  load  on  our 
system  plus  this  prospective  load  by  1926,  of  880,000  hors^^wer. 
P^«L/??'"^''^,/' -^^^1^'  without  any  further  power  developments,  the  Alabama 

Tf  nfp  i-^i.^H^^^'r^^'''  ^""''^  ^^'^  horsepower,  sufficient  alone  for  the  neeSs 
of  the  limited  circles  we  are  now  serving  in  Alabama 

,.   'i"*®/.^"/t  of  this  whole  calculation,  which  I  will  put  in  detail  in  the  record 

\q9r'^.i"'^'^  '-iP^  ^^^^t**  ""PP^y  ^^'^^^  "^^"'•^1  ™«rket  demands  bv  Januarv 
1,  1926.  theie  will  be  a  shortage  or  a  deficit  of  approximatelv  500,000  hoS- 
power  ,n  the  territmy  to  which  I  have  referred  and  which  shouldbe^upS 
logically  from  the  Muscle  Shoals  development  sui»piiea 

A  large  part  of  this  Muscle  Shoals  power,  undoubtedly,  will  in  any  case  be 
consumed  at  the  place  of  development.  It  is  the  natural  thing  to  exp^Hhaf 
hat  will  be  done.  It  is  also  natural  to  expect  that  a  part  of  this  poVer  that 
IS  available  or  can  be  developed  in  Alabama  will  reach  other  sections  of  the 
South  to  which  I  have  referred.  I  will  hand  to  the  reporter  the  detailed 
statement  which  I  have  used  in  my  explanation  of  the  poxv^er  demands  in  tliS 
seccion. 

(The  statement  referred  to  follows:) 

General   statement   concerning   power  situation  in   Alahama   and   contiguous 

territory. 

IxorsPDowpi' 

(1)  The  present  power  and  lighting  load  of  Alabama  Power  Co   can 

be   considered   as ^ jg-  q^ 

(2)  The  maximum  load  established  in  December,  1921,  due  to  urgent        ' 

needs  for  power  in  Georgia  and  Carolina,  was 160  000 

i3)  With  a  return  to  normal  business  conditions  in  coal  iron  and 
textile  industries  in  1922,  the  power  and  lighting  load  exclu- 
sive  of  requirements  in  Georgia  and  Carolina,  will  be_L  * 160  000 

(4)  Assuming  10  per  cent  per  annum  as  a  measure  of  natural  growth 

of  load  due  to  increased  use  by  present  customers,  plus  new  in- 
dustries that  will  be  attracted  into  the  State  bv  low-priced 
power,  the  load  in  1926  will  be 1 ^lo  OOO 

(5)  There  is  an  available  power  load  in  territory  adjacent  to  present  "    ' 

transmission  lines  of  Alabama  Power  Co.,  exclusive  of  railway 
electrification,    of _.  j^q  ^jqq 

(6)  There  is  a  power  load  available  to  Alabama  Power  Co.  by  exten- 

sion of  lines  to  Memphis,  New  Orleans,  Mobile,  Meridian,  etc., 

of '  200  000 

(7)  The  Tennessee  Power  Co.,  the  Georgia  Railway  &  Power  Co    the 

Columbus  Power  Co.,  the  Central  Georgia  Power  Co.,  in  order 

to  supplement  existing  plants,  will  absorb 70  oOO 

(8)  Railway  electrification  in  Alabama  alone  offers  a  potential  mar- 

ket for 240  000 

(9)  The  total  load  in  1926,  inclusive  of  present  load  plus  prospective  "     ' 

load,  may  reasonably  be 880,000 

(10)  Alabama   Power  Co.  present  generating  capacity 190  000 

(11)  Additional  generating  capacity  from  Muscle  Shoals  steam  plant'    So'oOO 

(12)  Additional  generating  capacity  from  Mitchell   Dam llo'oOO 

(13)  Total  generating  capacity  available  under  present  program  with- 

out Muscle  Shoals  in  1926  will  be 330  oOO 

(14)  Deficit  to  be  supplied  by  Muscle  Shoals I_I_Z  500,' 000 

92900—22 51 


» 


800 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


801 


■ 


The  map  Vhicli  has  just  been  handed  to  the  members  of  the  committee,  Mr. 
Chairman,  is  an  illustration  of  the  power  situation  in  the  South  and  of  the 
industries  which  now  exist  in  or  near  power  lines.  Of  course,  the  striking 
thing  about  this  map  is  the  industrial  development  of  the  States  with  water 
power  and  the  development  in  those  States  that  have  no  water  power,  which  is> 
most  strikingly  shown  in  each  of  the  States  that  have  such  power. 

I  would  like  to  mention  here  that  in  addition  to  service  to  districts  south  and 
west  of  Alabama,  there  has  developed  in  recent  years  a  program  of  inter- 
connecting the  lines  of  power  companies,  with  the  view  of  assistance  one  to 
the  other  in  time  of  trouble  and  difficulty. 

There  arose  within  the  past  six  months  a  serious  shortage  of  power  at 
Raleigh,  N.  C,  and  the  district  surrounding,  which  is  shown  on  the  map^ 
which  has  just  been  handed  to  you.  That  district  is  served  by  a  power  com- 
pany. I  believe  it  is  the  Carolina  Power  &  Light  Co.  Their  water-power 
plants  were  down  and  their  steam  plants  could  not  operate  because  of  the 
low  water.  The  drought  was  so  extreme  that  the  water  was  needed  for 
domestic  use.  Water  was  hauled  by  train  to  keep  steam  plants  going  even 
for  part  of  the  time  for  house  lighting.  The  industries  were  down.  New 
connections  were  completed  at  certain  points  so  that  our  system  could  render 
pome  service  to  relieve  that  situation.  None  of  the  intermediate  companies 
r'ould  do  so.  Our  company  having  this  whole  Warrior  station,  having  a  better 
condition  as  to  water  at  that  time  so  far  as  the  Coosa  River  goes,  was  en- 
abled then  to  transmit  some  power  to  the  Georgia  Railway  &  Power  Co.,  and 
that  company  to  the  next  company,  and  so  on,  with  the  result  that  cities  and 
towns  600  miles  away  were  directly  benefited,  industries  were  started,  ami 
public  service  began,  as  a  direct  result  of  our  sending  power  to  Georgia,  and  so 
on,  by  a  system  of  relaying  to  the  Raleigh  district. 

It  was  in  that  connection  that  we  then  applied  to  the  Secretary  of  War  for 
a  lease  upon  the  Sheffield  steam  plant  at  nitrate  plant  No.  2,  a  temporary  lease 
for  that  plant,  to  further  aid  this  whole  power  situation  in  those  States,  tO' 
meet  the  conditions  of  last  fall  and  the  conditions  which  we  anticipate  will 

arise  this  year. 

The  Secretary  of  War  investigated  the  power  conditions  in  this  territory  and 
had  an  Army  officer  go  throughout  the  territory  and  spend  some  days  there, 
and  he  concluded  that  there  was  then  a  power  shortage,  and  that  there  would 
be  a  power  shortage  this  year,  so  that  the  Secretary  of  War  Teased  the  Shef- 
field steam  plant  to  the  Alabama  Power  Co.  for  a  period  of  one  year,  under  a 
lease  subject  to  termination  at  any  time,  for  the  relief  of  this  whole  power 

situation.  ...        .  :  i,*.    •     *u„<. 

I  might  say  in  passing  that  we  claim  no  property  interest  or  rights  m  that 
steam  plant.  It  is  not  an  issue  here,  although  I  do  regret,  Mr.  Chairman,  that 
some  one  has  confused  the  Sheffield  steam  plant  in  our  own  State  with  the 
Gorgas  plant,  and  has  complained  to  the  committee  that  we  had  leased  the 
Sheffield  steam  plant  under  this  terminable  lease,  and  are  claiming  rights 
under  it  We  are  not,  but  there  was  a  confusion  on  the  part  of  some  whom 
I  know  have  confused  it  in  telegrams  sent  to  this  committee.  We  claim  no 
rights  under  that  lease  except  to  operate  it  from  day  to  day  until  the  Secre- 
tary of  War  sees  fit  to  terminate  it,  and  he  reserves  the  right  to  terminate  it 
in  the  event  Congress  authorizes  the  disposition  of  this  property  in  some  other 

wav. 

That  planf  did  not  get  into  service  in  time  to  meet  the  needs  of  this  section 
last  fall.  Many  difficulties  arose  due  to  the  fact  that  the  plant  had  been  idle 
for  some  two  vears.  The  plant  is  now  ready  to  operate.  Of  course  the  river 
is  running  now.  but  we  will  have  serious  need  for  that  plant  this  year,  and 
so  will  other  companies  in  this  section,  supplementing  existing  power  supplies. 

During  the  vears  1923  and  1924  there  will  be  several  power  developments  in 
this  section  which  will  be  completed.  We  have  every  reason  to  fieel,  however, 
that  that  steam  plant  will  be  very  important  for  the  present  year,  but  we  cl.unv 
no  property  rights  in  it.  It  is  absolutely,  of  course,  in  the  control  of  the 
Secretary  of  War  to  terminate  that  lease  at  any  time. 

Mr.  Chairman,  I  would  like  to  refer  to  two  other  points,  and  then  I  will  close 

my  statement. 

In  our  plan  proposed  to  this  committee  through  the  Secretary  of  War  there 
is  involved  the  financing  of  the  Wilson  Dam  and  the  power-house  development. 
We  will  agree  to  take  care  of  that  completion.  We  will  agree  to  pay  $5,000,000 
for  the  Sheffield  steam  plant  and  the  Government's  interest  in  the  Warrior 


plant,  and  in  addition  give  the  Government  100,000  secondary  horsepower  for 
its  uses  at  these  nitrate  plants. 

Now,  the  Alabama  Power  Co.,  of  course,  is  a  power-producing  company. 
We  manufacture  and  sell  power.  We  are  not  in  the  fertilizer  business.  We 
feel  we  are  creating  here  a  very  important  and  vital  situation,  one  that  the 
Government  can  take  advantage  of,  having  power  with  the  nitrate  plant,  and 
can  interest  those  who  wish  to  manufacture  nitrates. 

Of  course  this  does  not  settle  the  question  of  who  shall  manufacture  nitrates. 
We  have  all  been  told  that  the  art  of  producing  nitrates  by  artificial  methods 
is  changing  from  time  to  time.  Only  last  Sunday  there  was  a  very  interesting 
technical  article  as  to  the  present  state  of  the  art  in  Germany.  '  The  Haber 
process  is  advancing  there  rapidly.  It  may,  and  undoubtedly  will,  come  to 
this  country.  There  will  doubtless  be  other  processes  come  to  this  country. 
The  result  of  this,  it  s  oiws  to  us,  will  be,  Mr.  CJhairnian.  with  power  available 
and  with  these  plants,  there  will  be  opportunity  for  first  (»ne  and  then  another, 
as  the  Secretary  of  War  more  or  less  suggests,  to  undertake  the  manufacture 
of  fertilizer  and  to  undertake  the  manufacture  of  nitrates  by  any  process  or 
methods  that  commercial  or  other  conditions  for  the  moment  may  make 
available. 

We  only  wish  to  say  that  since  this  whole  question  has  been  under  discussion 
we  have  been  approached  by  those  interested  in  the  manufacture  of  nitrates  by 
some  other  methods,  indicating  a  desire  to  go  forward  with  the  manufacture 
of  nitrates  in  some  way  at  these  plants ;  people  who  are  not  now  engaged  in  the 
fertilizer  business,  people  who  have  not  appeared  before  you  at  all,  and  who 
have  no  connection  with  any  of  the  companies  or  interests  which  have  come 
into  the  situation.  I  can  not  speak,  of  course,  in  the  sense  that  these  gentlemen 
are  ready  to  do  business  on  a  basis  or  on  what  basis;  I  can  only  say  that  in 
my  judgment,  if  the  Government  of  the  United  States  has  power  and  a  plant,  it 
will  find  people  who  are  ready  and  willing  to  go  forward  and  manufacture 
nitrates. 

It  has  been  suggested  here  by  one  gentleman  that  secondary  power  could  not 
he  used  for  this  purpose.  I  wish  to  go  into  that  for  a  little  while,  Mr.  Chairman, 
although  I  do  not  undertake  to  speak  as  an  expert. 

One  gentleman  who  has  appeared  in  that  connection  is  Mr.  Bower  and  the  other 
is  Mr.  Swann.  Mr.  Swann,  who  is  the  president  of  the  Federal  Phosphorus  Co., 
took  the  definite  position,  you  will  recall,  that  secondary  power  could  be  used, 
and  that  in  the  course  of  his  own  development  he  planned  to  use  secondary  power 
because  that  was  cheaper,  naturally,  and  it  would  be  of  interest  to  the  public  to 
use  secondary  power  because  in  that  way  they  would  get  this  fertilizer  product 
cheaper. 

The  other  gentleman  was  Mr.  Bower.  Mr.  Bower  took  the  view,  as  I  under- 
stood, that  this  secondary  power  could  not  be  used.  Now,  Mr.  Chairman,  I  do  not 
want  to  take  issue  with  Mr.  Bower,  but  -I  would  like  to  hand  to  the  reporter  Mr. 
Bower's  own  statements  on  this  subject  before,  a  subcommittee  of  the  House 
Committee  on  Appropriations  February  15,  1921,  found  in  the  hearings  on  the 
sundry  civil  appropriation  bill  for  1922,  page  119  et  seq. 

Tlje  substance  of  that  is  this  (Mr.  Magee  was  asking  the  questions)  : 

"  Mr.  Magee.  Then,  if  you  are  going  to  use  the  secondary  power,  there  would 
lie  certain  seasons  when  you  could  not  operate  the  plant? 

"  Mr.  Bower.  Yes ;  at  certain  seasons. 

"  Mr.  Magee.  And  you  would  have  to  shut  down  and  throw  out  of  work  2,000 
or  2,500  men? 

"  Mr.  Bower.  No  ;  you  would  not  shut  down  altogether  and  throw  out  2.500 
or  account  of  the  drop  in  horsepower,  because  your  horsei>ower  requirements  at 
that  plant  are  at  the  carbide  furnaces. 

"  Mr.  Magee.  You  would  have  to  cut  down  the  number  of  your  men? 

"  Mr.  Bower.  Some  of  them,  for  a  little  while. 

"  Mr.  Magee.  What  proportion  would  you  cut  down — 50  per  cent? 

*'  Mr.  Bower.  Oh,  no,  sir.  It  would  simply  be  the  men  employed  around  the 
<iirbide  furnaces,  which  wcmld  be  closed  temporarily  only. 

"  Mr.  Magee.  You  would  have  to  disorganize  your  organization. 

**  Mr.  Bower.  My  thought  would  be  this :  You  figure  your  total  labor  cost  on 
<yaiiam;d  over  the  year,  and  you  would  run  10  months  of  the  year  and  have  a 
<*Ttain  amount  of  labor  cost,  and  then  for  two  months  suppose  they  were  idle. 
It  would  pay  to  keep  those  men.  It  might  add  50  to  75  cents  a  ton  to  your  cost. 
'•nt  that  would  be  so  much  cheaper 


I; 


802 


MUSCLE  SHOALS  PROPOSITIONS. 


■  ^ 

•'  Mr   MAGEE.  When  you  figure  on  using  the  secondary  power,  when  you  did 
not  get  that  power,  then  you  would  not  operate  the  plant? 

"Mr  Bower.  Not  the  total  plant;  absolutely  not.  ^  ,,      ,        5.,,,  K^:„<r 

This'coUoquv  continued  over  a  long  period,  the  theory  of  the  hearing  being 
that  f  the  Government  would  undertake  to  complete  the  developnienttle  Gov- 
ernment would  be  in  position  to  sell  100,000  primary  Prf^/^XalL^^^^^ 
oneratine  in  this  section,  leaving  the  secondary  power  for  the  operation  ot  in  is 
XateplaSt  and  that  was  the^lan  or  theory  advanced  in  .t^e^e  hearings  b^^ 
these  gentlemen  who  were  then  interested  in  this  project.  I  will  take  the  liberty 
of  imndiig  these  excerpts  to  the  reporter  for  insertion  in  the  record. 

in  l^^ve  said  Air  Swann,  of  the  Federal  Phosphorus  Co.,  has  taken  the 
TK>^tion  that  tie  second^  power  should  be  used.  As  to  whether  it  can  be 
S7s  a  matter  for  this  committee  to  determine,  in  its  own  .ludgment  after 
baring  those  who  are  capable  of  advising  the  committee.  Of  course,  if  mon^ 
rwiwpr  is  needed  it  is  always  there  and  can  be  purcliasea. 
^rThe  ex^^s  from  the  Statement  of  Mr.  Bower  referred  to  above  follow:) 

"PRIMARY   AND   SECONDARY    HORSEPOWER. 

"  Mr  MAGEE.  Unless  you  use  the  primary  and  secondary  horsepowers  for  this 

same  purpose,  how  are  you  going  to  keep  your  ^^J^J^f^^^^^^'   ^^^^^^^  f^^nace, 

"Tvit^   Rowkr   The  nower  consumed  in  this  plant  is  in  tne  caiume  luiim^^, 

using  ibfr^onJary'^^ower,  but   the   whole   100.000  secondary   power  is   not 

""^mTmagee  (interposing).  Unless  you  use  the  primary  power  you  can  not 

run  the  year  round. 

"  Mr  Bower.  That  is  the  point. 

:^  ^ow^-.  no"  I?"  yon  can  not  run  the  total  capacity  of  the  plant. 

.4  TIT,.  ■vTArii'ir   ThPii  von  woiild  liave  to  use  steam?  ,    ^  .  1. 

-Mv  Bowt^.  TXe  come  to  that  a  little  later.    Then  the  second  statement 

"^.Tlle  CHlmM'^roWTposing).  You  may  proceed  to  make  your  statement 
I  relme«fat  there  harb^n  interruptions,  and  we  will  try  not  to  ask  qu.-st.on. 

until  vou  have  finished.  .  ^    « 

"  Mr  BOWER.  I  do  not  object  to  questions  at  all. 

::l,'r  Bo"wrThat'  is-tSond  thing  that  con,es  to  our  attention-the  c.^. 

subm^tteTr,he  ^^^^^^^^^^ 

nunistry  of  munitions  of  7^'."''™°^^tPirthe  record  the  names,  but  this  was 

r<.ha"r  r^th^^  meniU'of'Sii'commlttee  [exhibiting].     I  am  referring 

deUnds  upon  the  cheapness  of  the  power  sold? 

cost  at  Muscle  Shoals.  .    ,        ., 

"Mr.  BOWER.  It  is  very  low-not  so  much  lower. 


MUSCLE  SHOALS  PROPOSITIONS. 


803 


"  The  Ch  A.1RMAN.  When  you  bring  in  reports  of  that  kind  bearing  upon  povver 
I  can  not  myself  bring  my  judgment  to  the  conclusion  that  it  if,^^'^"/;;!"!;^^^- 
tive— I  do  not  believe  that  it  has  any  bearing  at  all.  \ou  would  first  have  to 
'hoVme  what  a  power  plant  that  would  produce  100,000  horsepower  :i  >H^ar 
woidd  cost,  what  the  operation  of  it  would  cost,  and  then  what  you  have  read,  it 
seems  to  me,  would  have  some  force. 

"Mr   Bower.  We  have  Col.  Cooper's  estimate  that  the  secondary  power  can 

'^"  ThVcnTiRMAN.  I  understand  in  Norway  the  cost  to  produce  hydroelectri^ 
Dower  is  from  $2  to  $12  per  kilowatt  year,  whereas  at  Muscle  Shoals  it  costs  ?.>0 
a  kilowatt  year.    So  the  comparison  you  have  given  is  one  that  it  seems  to  me 

«»f  itself  fails  of  its  own  weight.  ,  x.         1  1 

"Air  Bower.  Mr.  Good,  the  cost  of  1.2  mills  per  kilowatt  hour  as  hgnie<l  by 
Col' Cooper  and  submitted  to  your  committee— I  know  it  was  submitted  to  the 
Senate  committee  at  the  hearing,  and  I  presume  that  the  same  statement  was 
made  here— 1.2  mills  for  the  secondary  power  at  Muscle  Shoals  figured  on  IfH) 
per  cent  power  factor.  I  think  it  is  $7.58  a  horsepower  year. 

^  "  Mr  MAGEE.  I  shoild  like  to  get  some  idea  of  this  if  I  can.  Col  Cooper  gave 
us  a  veiv  clear  statement  of  his  position.  If  I  understood  him  rightly,  and  I  do 
ot  wish  to  make  any  statement  which  does  not  agree  with  the  statement  he 
L-aveThis  position  is  this,  that  he  is  in  favor  of  completing  this  project  solely  as 
a  light  and  power  proposition. 

it  Wy  TiowFR    Yes  sir 

"  Mr"  Magee'.  He  figured  that  it  could  cost  s(»  much  to  complete  this  l>r<>J^^<;t 
that  it  could  be  completed  in  from  three  to  five  years,  and  that  at  the  end  ot  10 
vears  more  the  Government  could  lease  this  plant  for  a  light  and  power  proposi- 
tion without  even  distributing  the  power,  but  selling  it  at  the  plant? 

"  Afi*  BowFR    Yes  sir 

"Mr  M\gee'  And  get  a  rental  of  two  and  a  half  million  dollars  a  year,  or  .5 
per  cent  net  on  the  amount  of  money  which  he  estimated  it  would  cost  to  com- 
plete this  project.  I  would  like  to  know  if  you  concur  in  that  view,  or  whether 
it  is  your  idea  the  Government  should  complete  this  project  solely  as  a  fertilizer 

^'''"X.^BowER.  No,  sir;  I  do  not  claim  so.  Our  thought  is  that  with  these  im.s- 
sibilities,  Mr.  3^Iagee,  held  out  to  us  in  the  way  of  future  production  of  fertilizer 

materials  by  the  electric  furnace .  ^   ^.  r        ^  ^ 

"Mr.  MAGEE  (interposing).  Then  if  you  do  not  f;;>n^"^^'th  him  as  I  umh^^^ 
stand,  the  statement  shows  that  there  can  be  produce<l  here  about  88,000  pri- 
mary'horsepower  ;  is  that  right,  Maj\  Burns? 

"Mai   Burns.  In  round  numbers  Col.  Cooper  gave  it  as  100,000. 

"Mr  M\GEE.  Eichtv-eight  thousand,  I  think,  is  the  amount  stateil  in  some 
hearing  or  approxhnately  100,000  primary  horsepower.  Do  you  propose  in  the 
fertilizer  business  to  use  this  primary  power? 

«  Mr  Bower.  No,  sir ;  we  would  be  ridiculous  to  come  in  and  take  power  for 
$28  or  whatever  that  figures  out,  with  power  available  at  $7.58. 

"  Mr.  Magee.  Then,  if  you  are  going  to  use  the  secondary  power,  there  would 
be  certain  seasons  when  you  could  not  operate  the  plant? 

"Mr.  Bower.  Yes;  at  certain  seasons.  ,   onon 

"  Mr.  ]Magee.  And  you  would  have  to  shut  down  and  throw  out  of  work  2,000 

or  2,500  men  ?  ,        .,  ,  ^1.  i.  .^  ru^r, 

"Mr  Bower.  No;  vou  would  not  shut  down  altogether  and  throw  out  2.i>00 
on  account  of  the  drop  in  horsepower,  because  your  horsepower  requirements 
at  that  plant  are  at  the  carbide  furnaces. 

"  Mr.  Magee.  You  would  have  to  cut  down  the  number  of  your  men? 

••  Mr.  Bower.  Some  of  them,  for  a  little  while. 

"Mr.  Magee.  What  proportion  would  you  cut  down— 50  per  cent? 

"  Mr.  Bower.  Oh,  no,  sir.  It  would  simply  be  the  men  employed  around  the 
carbide  furnaces,  which  would  be  closed  temporarily  only. 

"Mr.  Magee.  You  would  have  to  disorganize  your  organization? 

"Mr.  Bower.  My  thought  would  be  this:  You  figure  your  total  labor  cost 
on  cyanamid  over  the  year,  and  you  would  run  10  months  of  the  year  and  have 
a  certain  amount  of  labor  cost,  and  then  for  two  months  they  were  idle. 
It  would  pay  to  keep  those  men.  It  might  add  .50  or  75  cents  a  ton  to  your 
cost,  but  that  would  be  so  much  cheaper 

"  Mr.  Magee.  When  you  figure  on  using  the  secondary  power,  when  you  did 
not  get  that  power,  then  you  would  not  operate  the  plant? 

*"  Mr.  Bower.  Not  the  total  plant ;  abs(^lutely  not. 


804 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


805 


"  The  dHAiRMAN.  Why,  Mr.  Bower,  I  am  amazed  that  the  farm  bureaus  are 
interested  in  building  this  plant  to  sell  100,000  primary  horsepower  to  a  British 
corporation. 

"  Mr.  BowEE.  Oh,  no,  sir. 

"  The  Chairman.  That  is  practically  what  this  means.  I  supposed  that  you 
were  coming  here  and  wanting  to  use  the  primary  horsepower  to  manufacture 
fertilizer. 

•"  Mr.  Bower.  If  it  does  not  cost  too  much.  If  it  were  not  for  that  we  would, 
but  it  is  uneconomical  to  do  that. 

"  The  Chairman.  Why,  Col.  Cooper,  who  is  one  of  the  best  engineers  in  the 
world,  said  that,  considering  the  erratic  flow  of  the  Tennessee  River,  it  would 
be  uneconomical  to  manufacture  fertilizer  at  this  plant  if  you  sold  all  of  your 
100,000  primary  horsepower. 

"  Mr.  Bower.  And  Col.  Cooper  stated  before  the  Senate  committee 

"The  Chairman  (interposing).  On  that  matter  you  are  putting  your  judg- 
ment as  a  representative  of  farmers  against  the  judgment  of  one  of  the  best 
hydroelectric  engineers  in  the  world. 

"  Mr.  Bower.  I  am  not  criticizing  his  standpoint  as  a  hydroelectric  engineer, 
but  I  wish  to  put  in  the  hearing  Col.  Cooper's  own  statement* 

"  The  (.'hairman.  I  can  not  understand  why  the  farmers 

"Mr.  Bower  (interposing).  Just  a  moment, .  Mr.  Chairman.  Col.  Cooper 
testified  before  the  Senate  committee :  •  I  have  put  it  in  on  that  basis.  It  is 
the  basis  I  know  something  about.  The  fertilizer  business  I  do  not  know 
anything  about.' 

"  Mr.  Byrns.  That  is  what  he  said  here, 

"The  Chairman.  Col.  Cooper  was  here  yesterday  and  testified  positively 
that  you  would  have  to  sell  this  primary  horsepower  at  Muscle  Shoals  at  the 
point  of  production,  and  that  if  you  were  going  to  use  it  for  fertilizer  you 
would  have  to  use  it  at  a  basis  of  cost  of  4.4  mills  per  kilowatt  hour. 

"  Mr.  BowETi.  He  said  himself  before  the  Senate  committee  that  he  knows 
nothing  about  the  fertilizer  business. 

"  COST  OF   secondary   POWER. 

"  The  Chairman.  And  that  if  you  sold  it  for  commercial  purposes,  as  you 
have  proposed,  then  you  could  not  use  the  secondary  power  and  keep  2,000 
or  2,500  men  there  at  work. 

"Mr.  Bower.  Our  thought  has  never  been  to  use  that  big  primary  power 
unless  it  is  cheap  enough.  We  might  agree  with  Col.  Cooper  that  that  is  too 
valuable  for  fertilizer  production  purposes. 

"Mr.  Byrns.  Let  me  say  that  I  think  Col.  Cooper  and  Geri.  Taylor — and 
when  the  record  is  published  it  will  be  shown — made  their  statements  in  reply 
to  hypothetical  questions,  assuming  certain  facts,  put  to  them  by  the  chair- 
man, and  both  of  them  especially  disclaimed  any  knowledge  whatsoever  of 
fertilizer  or  its  manufacture. 

"  The  Chairman.  I  can  see  Bow  representatives  of  these  power  companies 
down  there  would  take  your  attitude,  but  why  a  representative  of  a  farmers' 
organization  should  take  this  attitude  is  something  I  can  not  understand. 

"  Mr.  Bower.  Because  we  have  got  to  get  that  cheap  power  to  get  our  results. 

"The  Chairman.  But  look  at  that  power  as  shown  by  plate  No.  2.  After 
you  have  taken  100,000  primary  horsepower,  as  shown  by  the  War  Depart- 
ment's plates,  which  Col.  Cooper  states  are  correct,  then  your  power  falls  off 
so  rapidly  that  for  more  than  40  per  cent  of  the  year  you  will  have  to  run  a 
steam  plant,  which  you  say  you  can  not  run  and  produce  cheap  power. 

"Mr.  BowEB.  Oh,  not  for  40  per  cent  of  the  year,  Mr.  Good. 

"  The  Chairman.  Yes ;  for  40  per  cent  of  the  year  after  you  take  off  your 
primary  power. 

"Mr.  Bybns.  Col.  Cooper  did  not  agree  with  that  statement,  Mr.  Chairman. 
He  said  that  that  statement  was  based  on  only  a  few  years,  whereas  he  liad 
taken  22  years. 

"Mr.  Magee.  Col.  Cooper  absolutely  stated,  Mr.  Byrns,  as  I  understand, 
that  you  could  not  run  this  plant  as  a  fertilizer  plant  unless  you  used  the 
primary  horsepower. 

"  Mr.  Byrns.  Oh,  no ;  I  beg  to  differ  with  you.  Col.  Cooper  especially  dis- 
claimed any  information  about  that,  and  any  reply  he  made  was  in  response 
to  hypothetical  questions  put  to  him  by  the  chairman. 


"  Mr.  Magee.  Of  course,  his  statement  will  show  about  that ;  but,  as  I  under- 
stand, that  was  his  absolute,  unqualified  statement. 

"Mr.  Byrns.  He  further  stated  that  he  would  work  out  and  file  with  his 
statement  the  results  of  his  investigations  with  reference  to  the  flow  of  water 
covering  a  period  of  22  years,  and  he  especially  disclaimed  any  knowledge  of 
that  plate  to  which  the  chairman  has  referred. 

"  Mr.  Bower.  I  say  that  we  want  cheap  power,  the  secondary  power,  for  the 
fertUizer  production.  Along  that  line,  let  me  show  you  what  the  limitation  Is 
in  this  power.  This  is  the  testimony  of  Mr.  Milton  Whitney,  Chief  of  the 
Bureau  of  Soils,  before  the  Senate  Agriculture  Committee,  with  reference  to  the 
production  of  phosphate: 

" '  The  first  thing  we  tried  was  the  electric  furnace.' 

"  This  was  with  reference  to  the  production  of  phosphoric  acid  by  some  new 
method  instead  of  using  sulphuric  acid. 

" '  We  put  in  a  mixture  of  phosphate  rock,  coke,  and  sand  and  fused  it  witn 
electrodes  and  electric  current.  When  this  rock  was  in  a  molten  condition, 
dense  white  fumes  of  phosphoric  acids  were  given  off,  and  reaction  taking  place 
and  silicate  of  lime  being  formed,  the  phosphoric  acid  was  set  free.  Those  gases 
were  put  through  a  cottrell  precipitator  and  we  obtained  phosphoric  acid  in 
a  very  pure  form.  We  entered  into  negotiations  with  a  commercial  firm  in 
Hoboken  and  made  a  run  of  six  months,  and  at  the  end  of  that  time  we  found 
that  the  cost  of  the  current  was  so  great  that  the  cost  of  producing  phosphoric 
acid  by  this  method  was  about  three-fourths  of  a  cent  more  than  by  the  sul- 
phuric-acid method.  We  felt,  therefore,  that  unless  we  could  get  cheap  water 
power  the  electric  method  could  not  be  used.  As  a  matter  of  fact,  our  calcula- 
tions were  based  upon  electric  power  at  $25  per  horsepower  per  year.  If  you 
could  get  electric  power  for  $6  to  $10  per  horsepower  per  year  you  could  use  an 
electric  furnace  and  get  phosphoric  acid  out  cheaper  than  you  can  by  the  sul- 
phuric-acid method.' 

"  Now,  of  course,  if  you  are  going  to  take  Col.  Cooper's  position  that  you  can 
not  run  this  plan  on  anything  except  the  selling  price  of  primary  power,  then 
we  have  not  got  anything  in  this  proposition,  but  we  have  never  even  thought 

about  that.  ^  ^     ,     - 

"  Mr.  Magee.  It  looks  to  me  that  you  can  not  make  flesh  of  one  and  fowl  of 
the  other.  If  the  Government  is  going  into  this  business  you  have  either  got 
to  make  it  an  electric  light  and  power  proposition  or  you  have  got  to  make  it 
a  fertilizer  proposition,  and  you  can  not  get  away  from  that  conclusion. 

"The  Chairman.  Mr.  Bower,  in  making  your  computation,  what  did  you 
figure  you  would  have  to  get  the  secondary  power  for? 

"  Mr.  Bower.  Well,  I  have  here  Mr.  Whitney's  statement.  Of  course,  I  have 
not  made  any  computation  on  this.  I  am  not  capable  of  doing  that;  but  Mr. 
Whitney's  computation  was  that  if  he  could  get  electric  power  for  $6  or  $10 
per  horsepower  per  year  *  you  could  use  an  electric  furnace  and  get  phosphoric 
acid  out  cheaper  than  you  can  by  the  sulphuric-acid  method.' 

"  Col.  Cooper's  cost  of  the  secondary  power  is  1  and  2  mills,  which,  I  think, 
figures  out  $7.58  per  horsepower  per  year. 

"  Mr.  Magee.  His  idea  was,  if  you  will  read  his  statement,  that  you  should 
«ell  all  the  power,  not  distribute  it  but  sell  it,  the  primary  and  secondary  power, 
for  use  in  the  localities. 

"Mr.  Bower.  I  would  not  be  surprised  if  the  Government  adopted  that 
method,  that  this  secondary  power  possibly  could  bring  a  higher  price  for  other 

purposes. 

"  The  Chairman.  Col.  Cooper's  figure,  as  I  recall,  was  1.3  mills  per  kilowatt 
hour,  or  perhaps  it  was  1.2  mills.  As  I  read  the  hearings  here  the  department 
has  figured  0.75  mill. 

"  "M-V    Bower   Yes 

"The  Chairman.  So  that  if  you  had  to  have  power  at  0.75  mill,  then  the 
Government  would  l)e  losing  the  difference  between  0.75  mill  and  1.2  mills, 
which  Col.  Cooper  says  the  secondary  power  could  be  sold  for. 

"  Mr.  Rower.  And  tliat  would  increase  the  cost  of  cyanamid.  as  I  gave  it, 
on  page  95  referred  to  before.  I  think  it  would  make  it  $23.04  instead  of  $21.97, 
by  taking  Col.  Cooper's  cost  of  the  secondary  power.  That  is  the  difference 
between  0.75  mill  and  1.2  mills. 

"  The  Chairman.  Give  that  increase  again. 

"  Mr.  Bower.  It  is  on  page  95.  I  simply  multiplied  2,808  kilowatt  hours  at 
f  of  a  mill,  which  would  figure  out  $2.10.    At  1.2  mills,  it  would  be  2,808  kilowatt 


806 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


807 


hours  times  one  and  two-tenths.     I  made  that  computation,  but  unfortunately 

I  did  not  k^p  it.    That  would  increase  the  price 

"The  Chairman   (interposing).  About  $1.25. 

"Mr   Bower.  It  would  be  $3.37  instead  of  $2.10,  an  increase  of  $1.27  a  ton  '^ 
Mr.  Martin.  I  would  like  to  sa.y  just  a  word  about  the  water  power  act     Our 
coinpany  is  one  of  many,  gentlemen  of  the  committee,  which  is  niakn<'  de- 
velopments under  the  water  i)ower  act. 

It  is  true  that  there  are  some  16,000,000  horsepower  of  applications  pending, 
but  applications  for  the  development  of  well  in  excess  of  1,000,000  horsepower 
have  been  grantetl  and  work  is  in  progress  on  over  1,000.000  horsepower  to 
be  developed  under  the  terms  of  the  Federal  water  power  act  in  various 
parts  of  th:s  country.  ' 

As  you  gentlemen  know,  of  course,  there  is  a  limit  of  50  vears  on  the  tenure 
of  the   iK-ense.     That,  coupled  with  one  other  verv  important  feature    as  I 
recall,  were  the  two  principal  debatable  questions  before  the  Congress   the  50 
year  tenure  plus  the  basis  on  which  the  development   might  be  taken   over 
at  the  end  of  the  license  peri<Kl. 

There  was  presented  one  of  the  most  vital  controverses  in  the  whole  history 
of  the  water-power  development,  and  the  position  was  taken  by  representatives 
of  the  Government  and  by  the  Congress  that  water  power  shoulil  be  so  developed 
that  at  the  end  of  the  50-year  period,  the  Government  of  the  United  States  might 
take  them  over  on  paying  what?  Simply  the  actual,  legitimate  cost  of  develop- 
ment, not  fair  value,  not  just  compensation,  mind  vou,  but  just  simplv  the 
actual,  legitimate  cost  of  the  development  described  in  the  bill  as  the  net 
investment  in  the  project ;  that  is.  the  net  investment  in  the  project  further 
limited  that  it  should  not  exceed  fair  value.  So  that  the  Government  has  the 
right  under  this  act  to  take  over  the  project  at  the  end  of  the  50-vear  period 
on  refunding  to  the  owner  or  developer  simply  his  net  investment,  not  exceed- 
ing fair  value,  which  again  is  sul»ject  to  decluction  bv  such  amount  if  anv 
as  the  development  has  earned  in  excess  of  a  fair  return  on  his  investmenV 
m  the  meanwhile.  And  there  is  reserved  further  in  the  interven'ng  50  vears 
the  right  to  the  United  States,  to  the  State,  or  to  any  municipality  to  condemn 
and  take  over  the  development  on  the  payment  of  just  compensation,  which 
involves,  naturally,  elements  of  value  which  are  not  included  in  the  term 
"net  investment." 

Now.  as  to  a  possible  renewal  of  the  license  at  the  end  of  50  years  there  is  no 
preference  to  the  licensee,  which  was  one  of  the  debatable  questions  is  Vou 
will  recall,  in  Congress.  If  the  Ignited  States  d(»es  not  take  over  the 'develop- 
ment then  there  arises  the  right  of  the  State  or  municipality  to  take  it  over 
and  then  there  is  that  natural  competiticm  which  would  come  between  those  who 
wishe<l  to  succeed  to  that  license  over  the  then  existing  licensee,  or  others 

Now,  as  you  gentlemen  know  the  water  power  act  undertakes  to  regulate 
the  rates,  service,  and  security  issues  of  the  licensee,  first  by  the  State  or  local 
authorities,  and  if  none  exist,  by  the  Federal  Water  Power  Commission,  and  in 
case  the  power  enters  into  interstate  commerce,  then  in  case  the  regulating 
bodies  of  two  or  more  States  can  not  agree  the  question  is  referred  to  the 
Federal  Water  Power  Commission. 

Throughout  the  act  there  are  many  forms  of  regulations  of  every  kind  as 
you  gentlemen  know,  regulation  and  control.  The  question  of  extra  profits,  not 
only  by  actually  taking  any  excess  profits,  and  also  by  regulating  rates,  and 
many  other  features  of  which  you  are  aware. 

As  to  the  development  of  water  powers,  public  utilities  are  undertaking  to 
proceed  under  this  act,  and  others  are  undertaking  to  proceed  under  this  act 
now.  We  are  ready  and  willing  to  proceed  under  the  terms  of  this  act  if  Con- 
gress sees  fit  to  permit  the  development  to  take  place  in  this  way.  Now,  Mr. 
Chairman,  I  am  ready  to  submit  myself  to  the  committee  for  any  questions  the 
members  may  desire  to  ask. 

Mr.  McKenzie.  Mr.  Martin,  were  you  connected  with  the  Alabama  Power  Co. 
in  the  year  1916? 

Mr.  Martin^  I  was,  Mr.  McKenzie. 

Mr.  McKenzie.  I  take  it  you  are  familiar  with  the  development  and  final 
enactment  of  the  legislation  known  as  section  124  of  the  national  defense  act? 

Mr.  Martin.  Yes. 

Mr.  McKenzie.  Were  you  present  in  Washington  during  the  consideration  of 
that  legislation? 


Mr.  Martin.  I  do  not  think  I  was — I  may  have  been  present  for  a  short  while, 
but  I  do  not  recall.  I  did  not  have  anything  to  do  in  any  w^ay  with  that  legisla- 
tion. 

Mr.  McKenzie.  You  were  at  least  aware  of  the  fact  that  at  that  time  the  sup- 
porters of  that  legislation  were  divideil  into  two  general  classes,  first,  the  mem- 
bers of  Congress  who  ardently  believed  in  national  preparedness  in  time  of 
peace,  and  who  supported  the  legislation  on  the  ground  that  it  was  going  to 
give  to  the  Government  certain  elements  of  national  defense  should  we  ever 
require  the  use  of  the  same.  The  other  class  of  supporters  was  made  up  of 
representatives  in  Congress  who  were  not  so  particularly  interested,  perhaps,  in 
the  matter  of  national  defense,  and  who  believed  that  the  agricultural  interests 
of  the  country  were  entitled  to  some  specific  consideration,  which  they  believed 
this  legislation  would  give  to  them  in  supplying  the  fertilizer  to  make  up  for 
the  depletion  of  the  soil,  etc.  That  was  the  situation  in  1916,  as  I  remember  it. 
Is  not  that  your  recollection? 

Mr.  Martin.  I  think  so,  Mr.  McKenzie;  yes. 

Mr.  McKenzie.  Then  the  legislation  had  two  governmental  purposes  back  of 
it,  did  it  not,  national  defense  and  the  encouragement** of  the  manufacture  of 
fertilizer  for  the  benefit  of  the  agricultural  interests  of  the  country. 

Mr.  Martin.  That  is  true,  Mr.  McKenzie,  I  think. 

Mr.  McKenzie.  And  on  that  basis  that  legislation  was  enacted.  You  have 
called  our  attention  this  afternoon  to  a  mai)  which  very  clearly  demonstrates 
to  my  mind  that  so  far  as  a  power  proposition  is  concerned  the  Alabama  Power 
Co.  is  splendidly  located  and  undoubtedly  has  a  brilliant  future  ahead  of  it, 
and  if  you  can  get  control  of  Muscle  Shoals  and  the  power  that  may  be  gen- 
erated there  it  will  add  to  the  expansion  and  success  of  your  company. 

Mr.  Martin.  And  to  the  public  welfare. 

Mr.  McKenzie.  But  I  can  not  refrain  from  stating  that  as  I  view  the  matter 
it  occurs  to  me  that  your  contention  and  your  proposed  plan,  while  it  would  take 
into  consideration  the  interests  of  the  industrial  people  of  that  section  of  the 
country,  and  those  living  in  the  cities  and  towns  of  Alabama  and  Mississ.ppi, 
and  neighboring  States,  is  wholly  unmindful,  it  seems  to  me,  of  any  suggestion 
that  would  be  a  benefit  to  the  hundreds  of  thousands  of  people  living  in  the 
homes  scattered  over  that  section  of  the  country  and  known  as  agriculturists. 

Now,  the  proposition  that  the  Government  entered  upon,  as  we  understand  it, 
was  having  those  people  in  mind,  and  not  only  having  the  people  of  Alabama, 
Mississippi,  and  the  neighboring  States  in  mind,  but  even  those  of  the  far  West 
in  putting  into  effect  a  plan  that  would  propose  to  reduce  the  cost  of  agri- 
cultural  products  to  the  country,  and  which  would  benefit  the  people  of  the 
whole  United  States;  is  that  not  correct? 

Mr.  Martin.  Yes. 

Mr.  McKenzie.  And  the  other  other  proposition 

Mr.  Martin  (interposing).  I  want  to  qualify  my  answer  to  your  question 
by  saying  that  I  can  not  altogether  accept  your  hypothesis.  I  would  like  to 
answer  you  when  you  get  through,  Mr.  McKenzie. 

Mr.  McKenzie.  All  right.  That  was  the  argument  at  that  time,  as  I  recall  it, 
and  the  conclusion  that  Congress  came  to  was  the  enactment  of  this  legislation, 
that  it  would  provide  for  two  things,  first,  the  national  defense,  in  the  interests 
of  all  the  people;  and  second,  that  it  would  provide  means  whereby,  perhaps, 
fertilizer  could  be  produced  at  a  cheaper  cost  to  the  farmer,  and  thereby  indi- 
rectly benefit  all  the  people  of  the  United  States.  Now,  time  has  passed  on  since 
that  legislation  provided  that  the  Government  should  enter  into  this  program 
of  manufacture ;  the  Government  failed  to  do  it.  Now  we  are  confronted  with 
the  situation  of  either  the  Government  building  and  completing  Dam  No.  2 
and  proceeding  with  this  as  a  governmental  activity,  or  turning  it  over  to  some 
private  interests,  and  that  is  what  we  have  before  us  to-day  to  determine,  if 
we  can,  as  a  committee.  On  that  proposition  we  have  a  number  of  offers  but 
we  have  yours  before  us  at  the  present  time.    We  have  Mr.  Ford's  offer. 

The  Chairman.  And  we  have  just  received  one  from  Mr.  Engstrum. 

Mr.  McKenzie.  And  we  have  just  received  this  offer  from  Mr.  Engstrum ;  and 
I  think  it  is  fair  to  say  that  in  Mr.  Ford's  offer  he  does  assume,  at  least  in  a 
way,  to  carry  out  the  original  intention  of  the  Congress  of  the  United  States 
in  connection  with  this  matter.  Whether  he  will  or  not  is  a  debatable  question 
that  is  not  before  us  to  discuss  at  his  time.  Your  company  comes  forward  with 
a  proposition  that  is  entirely  different. 

Mr.  Martin.  It  is  entirely  different  from  Mr.  Ford's. 


808 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


809 


Mr.  MqKenzie.  It  is  entirely  different,  as  I  understand  it,  and  I  presume  us 
^ou  understand  it.     Is  that  correct? 

Mr.  Martin.  Well,  it  is  different;  yes.    I  think  it  is  entirely  different. 

Mr.  McKenzie.  Your  proposition  is  more  in  the  nature  of  a  proposition  to 
buy  the  property  that  the  Government  has  to  sell  and  dispose  of  certain  rights 
without  assuming  any  obligation  to  carry  out  the  original  intention  of  Con- 
fess so  far  as  this  proposition  is  concerned. 

Mr.  Mabtin.  We  do,  Mr.  McKenzie,  in  this  way :  We  undertake  to  make  a 
development  to  provide  the  Government  with  power  making  a  water-power 
development  to  provide  power  for  the  operation  of  the  plants.  We  undertake 
to  provide  the  Government  with  power  with  which  to  operate  the  plants  or 
which  it  may  lease  or  sell  to  others  to  be  used  in  the  operation  of  a  plant.  The 
very  purpose  of  building  up  this  water  power  is  to  provide  power  for  that  pur- 
pose, and  we  propose  to  provide  the  Government  with  the  power,  and  it  is  a 
very  large  volume  of  power,  which  we  believe  is  a  very  large  contribution  to  the 
program  of  fertilizer  development. 

Mr.  McKenzie.  I  think  it  is  fair  to  state  at  this  point  that  so  far  as  Congress 
is  concerned,  or  many  of  us,  at  least,  when  we  entered  upon  this  proposition 
that  the  governmental  activities,  so  far  as  manufacturing  is  concerned,  were 
to  be  only  experimental,  and  that  it  was  not  to  be  a  fixed  policy  of  the  Govern- 
ment to  continue  in  the  manufacturing  business.  As  I  understand  your  propo- 
sition, you  are  after  the  water  power ;  it  is  a  power  proposition  so  far  as  your 
company  is  concerned,  with  the  other  matters  incidental. 

Mr.  Martin.  We  propose  to  give  the  Government  100.000  horsepower,  which 
prior  to  the  present  hearings  was  sufficient,  in  the  judgment  of  those  who  were 
very  much  interested  in  this  project. 

Mr.  McKenzie.  But  that  is  a  secondary  proposition,  so  far  as  your  proposi- 
tion is  cdticerned. 

Mr.  Martin.  That  is  a  secondary  power  proposition. 

Mr.  McKenzie.  That  is  a  secondary  proposition.  You  do  certain  things  and 
you  give  to  the  Government  100,000  secondary  horsepower. 

Mr.  Martin.  It  will  be  a  charge  on  the  development  as  to  make  it  always 

available. 

Mr.  McKenzie.  In  that  way  your  offer  differs  from  Mr.  Ford's.  Mr.  Ford  in 
his  offer  makes  that  the  primary  purpose.  He  does  not  say  he  will  use  sec- 
ondary power,  but  he  says  he  will  use  primary  power ;  he  does  not  say  so  in  so 
many  words,  but  that  is  what  the  proposition  means,  that  he  will  proceed  to 
t!hange  those  plants  and  engage  in  the  manufacture  of  nitrates  to  the  amount 
of  110,000  tons  of  ammonium  nitrate. 

Mr.  Martin.  Mr.  McKenzie,  if  you  will  permit,  I  want  to  ask  you  a  question 
there. 

Mr.  McKenzie.  All  right. 

Mr.  Martin.  There  is  a  difference  between  primary  power  and  secondary 
power.  Primary  power  has  a  market  value ;  it  is  of  more  value  than  secondary 
power. 

Mr.  McKenzie.  I  understand  that. 

Mr.  Martin.  Is  anyone  going  to  use  primary  power  for  a  purpose  such  as  the 
manufacture  of  fertilizer,  or  for  any  other  industrial  use,  when  he  can  put  it 
to  a  greater  use  and  to  greater  advantage?  And,  on  the  other  hand,  using  sec- 
ondary power  produces  the  same  result.  Side  by  side  we  have  the  two  classes 
of  power;  with  either  one  you  can  produce  the  same  result.  As  a  matter  of 
pure,  true  economics  you  are  going  to  use  the  secondary  power  in  the  manu- 
facture of  fertilizer,  because  it  can  be  done  with  secondary  power;  according 
to  the  people  who  have  studied  it,  primary  power  can  be  put  to  other  uses  for 
which  secondary  power  can  not  be  used. 

Mr.  McKenzie.  I  presume  your  statement  is  correct,  but  if  a  man  has  an 
option  to  buy,  and  in  entering  into  a  contract  to  use  this  power  he  had  to  do 
certain  things,  he  would  probably  use  both  primary  and  secondary  power,  or 
use  primary  power  entirely  at  certain  times  and  other  times  secondary  power. 

Mr.  Martin.  Of  course,  there  is  no  agreement  that  any  particular  power  will 
be  used,  or  what  power,  in  other  proposals. 

Mr.  McKenzie.  Let  us  see  what  you  offer  to  do  in  connection  with  this  offer 
of  yours.  You  offer  to  buy  the  Warrior  plant.  The  cost  of  that  was,  as  I  have 
it.  $4,676,000,  including  the  plant  and  transmission  line.    You  desire  to  buy  that? 

Mr.  Martin.  Yes,  sir. 

Mr.  McKenzie.  Then  you  desire  to  buy  the  steam  plant  at  No.  2,  which  cost 
$12,326,392 ;  you  want  to  buy  that.    Then  you  want  to  take  over  the  dam,  on 


which  $17,000,000  have  been  expended.     That  makes  $34,200,392,  at  war  cost. 
If  you  deduct  40  per  cent,  which  I  spoke  about  yesterday,  for  war-time  dis- 
counts, that  will  leave  $20,401,434  worth  of  property  as  a  going  value,  would 
it  not? 
Mr.  Martin.  You  are  coining  down  to  what  you  say  is  the  reproduction  cost. 
Mr.  McKenzie.  Yes.    Taking  off  40  per  cent  from  the  whole  cost. 
Mr.  Martin.  Assuming  that  the  entire  development  could  have  been  produced 
for  60  per  cent  up  to  date,  that  it  would  require  60  per  cent  of  the  original 
<iost  to  produce  the  power  development — I  have  not  compared  your  figures. 

Mr.  McKenzie.  You  are  buying  this  property  as  a  going  property.    The  steam 
plant  is  certainly  in  condition  to  be  operateil. 
Mr.  Martin,  It  is  now;  yes. 

Mr.  McKenzie.  The  Government's  addition  to  your  own  plant  is  in  good  con- 
dition? 

Mr.  Martin.  Of  course,  the  water-power  development,  in  so  far  as  it  has 
progressed  is  not  going;  it  is  just  standing  idle  until  it  is  completed. 
Mr.  McKenzie.  I  am  speaking  of  these  plants. 

Mr.  Martin.  Yes.     The  plants 

Mr.  McKenzie  (interposing).  Then  you  would  get  the  advantage  of  th<^  $17,- 
000,000  expended  on  the  dam. 
Mr.  Martin.  That  is  quite  true. 

Mr.  McKenzie.  Then,  that  would  make  $20,401,434  of  what  we  might  con- 
sider as  actual,  fair  value,  would  it  not?  We  could  consider  it  in  that  way, 
could  we  not? 

Mr.  Martin.  We  will  assume  that  for  the  purpose  of  your  question. 
Mr.  McKenzie.  For  that  you  offer  to  pay  the  Government  $5,000,000,  less 
whatever  it  may  cost  to  build  the  locks  at  Dam  No.  2,  which  you  want  to  de- 
duct from  the  $5,000,000,  as  I  understand  it.    If  I  am  wrong,  I*  want  to  be  cor- 
rected on  that. 

Mr.  Martin.  And  then  the  100,000  horsepower. 

Mr.  McKenzie.  I  understand;  I  will  come  to  that  in  a  moment.  But  for 
the  $20,401,434  worth  of  proi)erty,  as  a  fair  value,  you  propose  to  give  the  Gov- 
ernment $5,000,000,  and  then  you  propose  to  deduct  from  the  $5,000,000  what- 
ever the  lock  may  cost ;  and  the  Army  engineers,  as  I  understand  it,  estimate 
the  cost  of  that  lock  to  be  $4,500,000. 

Mr.  Martin.  No;  my  understanding  is  that  the  Secretary  of  War  estimates 
it  to  be  $2,500,000. 

Mr.  McKenzie.  That  is  the  Secretary  of  War's  statement,  but  the  engineers 
have  estimated  the  cost  of  the  lock  as  $4,500,000. 

Mr.  Martin.  I  have  not  seen  any  such  figures,  and  I  believe  you  find  the 
figures  of  $4,500,000  include  the  locks  at  two  developments. 
Mr.  McKenzie.  I  will  not  stop  to  argue  that  now. 
^tr.  Fields.  Col.  Cooper  stated  that. 

Mr.  Martin.  I  am  not  prepared  to  say  it  would  not  cost  that  at  the  two  de- 
velopments, at  Locks  2  and  3,  but  I  think  you  will  find  that  the  cost  of  the  locks 
at  Dam  No.  2  would  be  $2,500,000. 

Mr.  McKenzie.  In  case  it  should  cost  $4,500,000,  then  you  would  pay  to  the 
Government  the  sum  of  $500,000. 

Mr.  Martin.  No;  we  pay  this  actual  money  that  goes  into  the  locks.    But, 
of  course,  whether  the  locks  cost  $2,000,000  or  $3,000,000  or  $4,000,000,  we  pro- 
pose to  pay  $5,000,000  to  the  Government. 
Mr.  McKenzie.  If  I  read  your  proposition  correctly,  you  deduct  that  amount. 
Mr.  Martin.  That  is  in  effect  the  payment  to  the  Government,  though. 
Mr.  McKenzie.  Now,  then,  in  addition  to  that,  you  propose  to  give  to  the 
Government  what  else? 

Mr.  Martin.  100,000  horsepower. 
Mr.  McKenzik.  Secondary  horsepower? 

Mr.  Martin.  Well,  100,000  secondary  horsepower  and  power  for  the  operation 
of  the  locks,  and  to  maintain  and  operate  the  dam,  the  gates,  and  the  power- 
house during  the  license  period. 
Mr.  McKenzie.  And  to  furnish  power  necessary  to  do  that? 
Mr.  Martin.  For  operating  the  locks,  yes.    That  is  quite  incidental,  or  quite 
small,  but  those  are  considerations  which  are  also  involved. 
Mr.  McKenzie.  What  do  you  say  the  primary  power  is  at  Dam  No.  1? 
Mr.  Martin.  You  mean  Dam  No.  2? 
Mr.  McKenzie.  Yes ;  Dam  No.  2. 


810 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


811 


Mr.  MART4N.  My  chief  engineer  says  that  it  is  somewhere  between  80,000  and 
100.000  horsepower. 

Mr.  McKenzie.  In  what  portion  of  the  yeai  do  you  estimate  under  that  state- 
ment there  would  be  100,000  horsepower  to  turn  over  to  the  Government? 

Mr.  Martin.  Approximately  82  per  cent  of  the  time  the  power  will  be  avail- 
able, according  to  the  stream-flow  records  which  have  been  calculated  for  a 
period  of  40  years. 

Mr.  McKenzie.  Getting  right  back  to  your  plan,  X2"  propose  to  pay  the 
amount  of  money  which  has  been  stated  for  the  property  which  I  have  men- 
tioned, and  to  give  the  Government,  when  you  have  it,  100,000  secondary  horse- 
power, with  which  the  Government  will  be  permitted  to  operate  the  nitrate 
plant,  or  any  lessee  of  the  Government  will  be  permitted  to  operafe  itV 

Mr.  Mabtin.  That  is  correct. 

Mr.  McKenzie.  And  the  100.000  primary  horsepower  you  would  sell  to  the 
industrial  interests  of  the  surrounding  country? 

Mr.  Martin.  For  lighting,  power,  and  industrial  purposes ;  yes. 

Mr.  McKenzie.  As  a  business  man,  Mr.  Martin,  could  you  be  induced  to  take 
out  a  lease  to  operate  that  nitrate  plant  under  those  conditions? 

Mr.  Martin.  I  have  statetl  to  you  that  it  has  been  freiiuently  stated  before 
other  committees  that  this  very  class  of  secondary  power  can  be  used.  Mr. 
Swann  of  the  Federal  Phosphorus  Co.  is  prepared  to  undertake  the  develop- 
ments in  his  own  particular  work,  using  secondary  power.  Mr.  Bower  has 
testified  before  another  committee  of  Congress  that  this  very  class  of  secondary 
power  can  be  useil. 

Mr.  McKenzie.  Then  you  think  that  the  Government,  with  those  two  splendid 
plants  standing  there,  on  which  it  has  spent  so  many,  many  millions  of 
dollars,  would  be  getting  a  good  bargain  to  simply  retain  them,  and  then 
await  the  pleasure  of  the  Alabama  Power  Co.  to  give  them  some  secondary 
horsepower  with  which  they  might  operate?  You  think  that  is  a  fair 
proposition. 

Mr.  Martin.  Not  in  the  way  you  have  expressed  it,  Mr.  McKenzie. 

Mr.  McKenzie.  Is  not  that  about  the  fact? 

Mr.  Martin.  It  is  not  awaiting  our  pleasure;  it  is  awaiting  the  completion 
of  this  development,  and  we  simply  propose  to  do  that  which  those  interested  f 
in  this  development  have  from  the  beginnnig  down  to  the  past  few  week» 
insisted  should  be  done,  namely,  that  this  very  class  of  secondary  power  re- 
ferrcd  to  in  our  proposition,  should  be  usetl  in  the  manufacture  of  fertilizer. 

:^h'.  McKenzie.  I  will  say  this,  if  the  Government  sees  fit  to  go  into  a  propo- 
sition of  this  kind,  I  would  be  the  last  man  to  ever  criticize  it  afterwards.  But 
so  far  as  my  own  point  of  view  on  the  matter  is  concerned,  I  want  to  say  that 
I  can  not  see  where  the  Government  would  get  off  under  such  a  proposition 
as  this.  It  .*<eems  to  me  it  would  not  be  a  very  profitable  deal  for  the  Govern- 
ment, if  it  ever  had  any  idea  of  manufacturing  anything. 

But  I  do  not  want  to  take  up  the  time  of  the  committee  any  further,  so  I 
will  call  on  Mr.  Greene. 

Mr.  Greene.  Mr.  Martin,  you  are  proceeding  on  the  general  theory  that  if 
there  is  a  public  advantage  in  this  thing  at  all,  it  is  probably  more  largely  to 
be  through  the  experience  in.  the  dispersion  of  power  through  a  great 
area  and  for  heating  and  lighting  and  industrial  purposes  than  to  be  con- 
centrateil  at  Muscle  Shoals  for  the  manufacture  of  fertilizer.  I  am  trying 
to  get  at  your  idea  about  it.  In  other  words,  your  idea  of  public  policy— 
because,  if  you  will  permit  me  we  are  more  likely  concernetl  here  with  public 
policy  first  than  with  the  varying  details  of  the  proposition — is  as  I   have 

stated 

Mr.  J^Iartin.  Let  me  suggest  this:  It  has  been  stated  in  these  hearings  within 
the  past  week  or  two  that  100,000  horsepower  would  be  used  as  a  maximum  in 
the  manufacture  of  fertilizer  at  this  development.  The  plans  which  are  being 
considered  provide  that  the  Government — that  is.  other  plans — shall  finance 
and  complete  a  t(»tal  of  8r)0,000  horsepower,  100,0(X)  primary  power,  and  750,000 
secondary  horsepower.  It  has  never  been  suggested  here  that  that  750,000  horse- 
power be  devoted  to  the  fertilizer  business.  It  has  been  my  understanding 
from  these  hearings,  and  it  is  my  understanding  now,  that  a  very  small  part 
of  this  power  development  of  850,000  horsepower  would  be  used  in  the  manu- 
facture of  fertilizer,  and  therefore  I  believe  that  this  plan  of  ours  makes  avail; 
able  for  the  manufacture  of  fertilizer  that  power  and  all  the  power  which 
by  any  other  plan  will  be  used  in  the  manufacture  of  fertilizer. 


Mr  Greene.  That  is  your  interpretation  of  the  c(»niparison  of  the  two  propo- 
.sitions,  Mr.  Ford's  and  yours.  But  we  are  assuming— and  I  hope  altogetlier 
with  confidence-that  as  citizens,  either  members  of  the  <*onnnittee  or  wit- 
nesses before  it,  we  nuist  ai)proach  this  proposition  with  the  idea  ot  its  enecw 
as  a  public  policy  for  the  future. 
Mr.  Martin.  That  is  quite  correct. 

Mr  Greene.  Regardless  of  the  private  interests  (»f  any  peoi>le  who  make 
proposition  to  us,  anticipated  or  real.  You  hold,  therefore,  as  I  understand  it, 
that  this  I^Iuscle  Shoals  power  might,  consistent  with  good  bus.ness  and  eco- 
nomics, be  emploved  first  as  a  preliminary  to  the  <listribution  of  power  through- 
out this  great  area  for  home  light.ng,  for  incidental  municipal  uses,  and  for 
industrial  purposes,  and  still  reserve  power  at  Muscle  Shoals  that  (-(mid  be 
employed  in  the  first  instance  for  fertilizer  production,  and,  as  a  matter  of 
public  policy,  it  is  better  so  to  distribute  that  power  than  to  concentrate  in 
one  hand  at  Muscle  Shoals,  ostensibly  for  fertilizer  puriM)ses. 

Mr.  Martin.  I  think  I  am  correct  in  this  statement,  that  in  the  manufacture 
of  fertilizer  you  have  to  bear  in  mind  that  when  manufactured  it  must  be 
transported  to  tho  locality  of  use.  It  has  inner  been  suggested  here  that  at 
Muscle  Shoals  or  at  Ke<»kuk  or  in  the  West,  all  fertilizer  to  be  used  in  this 
country  should  be  manufactured.  To  the  contrary,  it  has  been  suggested  to 
you  th*at  vou  have  to  get  down  to  this— that  is.  nianafacture  all  the  fertilizer 
at  different  points,  so  that  the  question  of  freight  rates  to  the  i)oints  of  use 
will  be  equalized.  You  could  not  manufacture  all  the  fertilizer  at  one  place 
and  ship  it  throughout  the  United  States,  because  by  the  time  you  get  it  there 
the  freight  charges  woud  be  prohibitive.  That  is  my  understanding  or  sug- 
gestion, first. 

In  the  next  place,  if  p(nver  is  gouig  to  be  used  in  the  manufacture  of 
fertilizer,  a  limited  amount  of  power  is  going  to  be  used,  a  certain  amount  is 
going  to  be  used,  and  no  more.  Therefore  we  present  a  plan  by  which  this 
limited  amount  of  power  is  available  and  can  be  used,  and  at  the  same  time 
the  balance  of  that  power  may  be  devoted  to  public  use,  and  any  class  of  public 
use  that  may  arise,  industrial  or  otherwise,  here  in  this  locality  or  in  other 
localities. 

Mr.  Greene.  You  are  basing  your  idea,  then,  on  the  amount  of  pow<'r  that 
may  be  api)ropriated  to  the  fertilizer  production  upon  the  evident  intent  of 
section  124  of  the  national  defense  act,  which  clearly  sets  out  that  the  (Jov- 
ernment  did  not  then  intend  to  set  up  a  fertilizer  manufacturing  proposition 
for  distribution  purposes,  as  I  understand  it;  because  that  act  starts  off  with 
this  introductory  phrase: 

"  The  President  of  the  United  States  is  hereby  authorized  and  empowered 
to  make,  or  cause  to  be  made,  such  investigation  as  in  his  judgment  is  neces- 
sary to  determine  the  best,  cheapest,  and  most  available  means  for  the  pro- 
duction of  nitrates  and  other  products  for  munitions  of  war  and  useful  in 
the  manufacture  of  fertilizers  and  other  useful  products  by  water  power  or 
any  other  power,  as  in  his  judgment  is  the  best  and  cheapest  to  use." 

You  are  basing  it  on  the  idea  that  this  law  did  not  contemplate  the  estab- 
lishment at  Muscle  Shoals  of  a  great,  centralized  fertilizer-producing  factory, 
but  an  experimental  station. 

Mr.  Martin.  Probably  both ;  but  simply  as  a  matter  of  pure  economics  I 
suggest  to  you  that  you  can  not  build  a  single  plant  at  any  place  in  the  United 
States  to  supply  all  the  fertilizer  needs. 

Mr.  Greene.  What  is  your  interpretation  of  that  law?  What  was  the  inten- 
tion there  in  the  first  place? 

Mr.  Martin.  As  to  establishing  a  plant? 

Mr.  Greene.  Yes. 

Mr.  Martin.  It  is  very  evident  that  a  plant  was  to  be  established  which 
would  be  available  for  the  manufacture  of  munitions  of  war  and  fertilizer. 

Mr.  Greene.  Did  you  understand  it  was  to  be  a  commercial  proposition  or 
that  it  was  to  be  a  matter  of  investigation  and  experiment? 

Mr.  Martin.  In  the  law? 

Mr.  Greene.  Yes. 

Mr.  Martin.  I  see  what  your  idea  is.  I  did  not  understand  the  point  you 
were  making  at  first. 

Mr.  Greene.  It  would  make  a  great  difference  in  the  amount  of  water  power 
to  be  consumed,  or  that  the  Government  was  under  any  obligation  to  employ 
there.    The  interpretation  of  that  act  would  make  a  great  difference  as  to  that 


I 

}  I 


812 


MUSCLE   SHOALS   PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


813 


proposition,  as  to  whether  you  could  separate  the  power  fairly,  so  as  to  toinijly 
with  the  terms  of  the  act,  and  at  the  same  time  employ  the  great  residue  of 
that  power  for  other  purposes  equally  useful. 

Mr.  Martin.  As  a  matter  of  engineering,  or  a  business  matter,  there  would 
be  no  difficulty  in  defining  the  status,  practically,  as  between  primary  and  se<*- 
ondary  power.  That  is  a  matter  that  can  be  worked  out  as  between  the 
different  uses,  as  to  the  broad  question  of  whether  the  entire  development 

should  be  devotetl  to  fertilizer — of  course,  if  that  is  the  cast» 

Mr.  Greene  (interposing).  What  I  am  getting  to  is  this:  It  seems  to  me  that 
possibly  there  is  a  confusion  occasionally  in  the  application  of  the  argument, 
because  Mr.  Henry  Ford  has  introduced  the  idea  of  the  establishment  of  a 
great  fertilizer  factory,  with  general  distribution,  and  constant  reference  is 
being  made  to  this  act,  which  I  never  read  in  that  way.  It  was  introduced 
into  the  law  on  the  pretext  that  it  would  be  a  demonstration  and  an  experi- 
ment proposition  and  an  investigating  thing.  This  site  was  not  even  estab- 
lished at  Muscle  Shoals  at  that  time. 

Mr.  Martin.  If  it  is  merely  an  experimental  station,  of  course.  100,000 
horsepower  is  a  great  deal  more  than  will  ever  be  needed  for  an  experimental 
station.  If  that  is  the  intent  of  the  law,  it  will  be  easily  complietl  with.  On 
the  other  hand,  if  there  is  to  be  a  plant  there  to  supply  those  things  which  the 
plant  should  supply,  having  regard  to  the  question  of  railroad  freight  rates 
again,  the  100,000  horsepower  would,  as  I  understand  the  subject,  be  sufficient. 
Mr.  Greene.  Then  we  are  to  understand  that  you  first  differ  from  Mr.  Henry 
Ford's  proi)osition  o;i  the  theory  that  you  can  employ  the  greater  part  of  this 
power  for  better  uses  for  the  general  public  benefit  than  to  co.ncenti-ate  its  use 
more  or  less  locally  in  the  production  of  fertilizer  or  in  the  production  of  such 
things  as  he  may  need  for  his  automobile  business?  That  is  vour  first  propo- 
sition? 

Mr.  Martin.  I  say  if  part  of  this  i)ower  is  to  be  used  industrially,  then  it  is 
better  for  it  to  be  distributed  to  the  public  at  large  by  a  public-service  com- 
pany than  to  confine  it  to  a  single,  private  use. 

Mr.  Greene.  Passing  to  the  next  proposition — the  economics  of  the  thing — 
wherein  do  you  maintain  that  your  proposition,  in  money  and  finance,  is  more 
to  the  advantage  of  the  Government  than  INIr.  Ford's  proposition?  You  have 
covered,  of  course,  discursively,  that  same  thing,  but  if  you  can  concentrate  it 
in  something  that  we  can  remember,  it  will  help  us  very  nnich,  because  we 
will  have  to  make  these  comparisons  later  ourselves. 

Mr.  Martin.  First  of  all,  it  is  a  question  of  how  nnich  money  the  Govern- 
ment will  have  to  appropriate  first  and  last  for  these  two  power  developments. 
On  the  one  hand,  it  has  been  variously  estimated  that  $50,000,000  of  capital, 
plus  whatever  interest  there  may  be  during  construction,  will  increase  that 
amount.  None  of  the  money  is  to  be  appropriate<l  under  the  plan  we  propose. 
That  is  one  advantage. 

In  the  second  i)lace.  the  Government  will  dispose  of  these  two  nitrate  plants, 
including  the  steam  plant  and  e(piipment,  for  $r),000,0(X),  under  another  offer, 
whereas  we  suggest  that  the  Govermhent  sell  simply  the  stenm  plant  and 
equipment  and  retain  the  nitrate  plants.  I  believe  some  one  stated  that  the 
two  nitrate  plants  represent  some  $7.'>,000,0(M)  of  (iJovernment  investment.  That 
the  Government  retains,  umler  imr  propcvsition.  In  a<ldition,  we  have  the  (lOv- 
eniment's  investment  of  .$17,000,000  presently  made  in  the  incomplete  Wilson 
Dam.  No  one  has  suggested  that  the  Government  get  any  return  upon  that 
$17,000,000,  except  by  way  of  an  annual  amortization  fund.  We  propose  to 
give  the  Government  this  HK),0<X)  hoisepower.  plus  $r).0()0,000  for  the  work  that 
has  been  done  at  the  Wilson  Dam  and  the  steam  plant  and  ecpiipment,  and  to 
finance  the  Wilson  Dam  to  its  completion.  The  obligation  to  finance  this  prop- 
erty to  its  completion,  the  obligation  to  pay  $5,000,000,  the  obligation  to  deliver 
the  Govenuuent  ](X),000  horsepower—  that  is  included  in  our  offer — and  in  addi- 
tion to  that,  as  a  fourth  contribution  to  tlrs  situation,  we  undertake  to  maintain 
the  dams  and  the  gates  throughout  the  50-year  lease  period.  All  those  things 
you  have  got  to  look  to. 

There  has  been  testimony  brought  to  you  here,  I  believe,  which  is  already  in 
the  record,  as  to  the  obligation  the  Government  would  assume  under  another 
offer  for  tlie  m.-iintenance  of  the  dams  and  gates.  That  is  a  very  substantial 
obligation,  which  I  believe  the  Secretary  of  War  referred  to  in  his  letter  in 
regard  to  the  maintenance  of  the  dams  and  gates  throughout  the  50-year  period. 
We  undertake  to  meet  that  obligation.  Under  another  offer  the  Government 
meets  that  except  for  certJiin  annual  payments  fixe<l  in  amount,  and  whatever 


balance  there  may  be  by  way  of  maintenance  of  those  two  items  the  Government 
is  to  take  care  of.  Our  obligation  runs  for  50  years,  and  under  another  proposal 
the  obligations  of  the  Government  and  of  the  licensee  or  purchaser  would  rua 
for  100  years. 

Mr.  Greene.  That  is  your  statement  of  the  advantages  you  urge  in  your  propo- 
sition over  Mr.  Ford's  proposition? 

Mr.  Martin.  Of  course,  there  is  the  great  question  of  the  right  of  recapture  at 
the  end  of  50  yetirs  on  the  payment  of  the  net  investment.  No  one  can  to-day 
calculate  the  value  of  a  water  power  50  years  from  now.  Where  there  is  no 
light  of  recapture,  where  it  runs  for  100  years  or  more,  in  perpetuity,  who  i& 
there  to-day  who  can  calculate  the  capital  value  of  that  lease-hold  or  proi)erty 
right  at  the  end  of  50  years. 

On  the  other  hand,  whatever  net  dollars  go  into  this  project  in  the  intervening 
50  years,  that  is  the  basis  on  which  the  Government  may  take  it  over  less  any 
return  there  might  be  in  excess  of  a  fair  return  in  the  public  service.  It  is  not 
likely  there  will  be  anything  in  excess  of  a  fair  return.  I  do  not  .see  how 
there  can  be  anything  in  excess  of  a  fair  return  because  the  Government  or 
public  authorities  regulate  the  rates  on  the  one  hand  and  the  Government  will 
take  by  exappropriation  annually  anything  over  a  fair  return  under  the  present 
rules  and  regulations  of  the  Federal  Water  Power  Commission. 

Mr.  Greene.  Then  that  presents  in  a  more  or  leas  succinct  manner  your  con- 
tention in  regard  to  the  advantages  of  your  proposal  over  Mr.  Ford's  proposal. 

Mr.  Martin.  That  presents  the  viewpoint  of  our  proposition. 

There  is  one  other  thing,  Mr.  Greene :  The  Federal  water  power  act  contains 
a  |>rovision  refered  to  by  the  Secretary  of  War  with  regard  to  taking  over  an<I 
operating  water-power  projects  during  time  of  war.  That  is  a  very  broad  pro- 
vision which  the  Secretary  refers  to  in  the  water  power  act,  and  it  is  broader 
in  its  terms  than  the  provision  contained  in  the  proposition  of  Mr.  Ford — very 
much  broader.  That  provision  and  its  full  scope,  by  virtue  of  the  water  power 
net,  is  read  into  and  becomes  a  part  of  every  license  issued  under  the  terms  of 
thnt  act. 

Mr.  Grfjqne.  I  wanted  the  record  to  show  about  ^^•hat  you  hold  to  be  the 
advantages  of  your  olfer. 

Mr.  Hull.  Your  proposition  is  for  Dam  No.  2? 

Mr.  Martin.  Yes. 

Mr.  Hull.  You  do  not  propose  to  develop  Dam  No.  3  or  Dam  No.  1? 

iMr.  Martin.  Not  now.  When  industrial  or  commercial  conditions  require- 
power  from  Dam  No.  3,  it  can  be  developed. 

Mr.  Hull.  If  you  develop  Dam  No.  3,  you  w<mld  increase  the  development 
at  Dam  No.  2? 

Mr.  Martin.  We  would  increase  the  power  at  Dam  No.  2. 

Mr.  Hull.  Yes;  you  would  increase  the  power  to  some  extent — the  primary 
power  at  Dam  No.  2 — as  I  understand  it. 

Mr.  Martin.  To  some  extent;  but  you  will  remember  that  Dam  No.  3  is- 
not  a  storage  development. 

Mr.  Hull.  It  would,  however,  to  some  extent? 

Mr.  Martin.  It  will  help ;  still,  simply  as  a  matter  of  regulation 

Mr.  Hull  (interposing).  Would  the  development  you  propose  make  the  river 
Jiavigable? 

Mr.  Martin.  No,  sir;  it  will,  however,  make  the  river  navigable  to  the  ex- 
tent of  the  pool  created  by  Dam  No.  2. 

Mr.  Hull.  Putting  in  the  lock  would  be  useless  without  a  further  develop^ 
ment  at  Dam  No.  3  and  Dam  No.  1? 

Mr.  Martin.  Further  development  at  Dam  No.  3 ;  then,  of  course,  there  are, 
I  believe,  five  or  six  other  dams  to  be  built  after  you  built  Dam  No.  3,. 
between  that  point  and  Hales  Bar  before  the  development  for  navigation 
•>n  the  river  is  complete.    This  is  one  end  of  that  proposition. 

Mr.  Hull.  If  we  accepted  your  proposition  there  would  be  no  positive  as- 
surance that  in  the  future  we  would  have  nitrates  for  war  purposes,  because- 
.vou  do  not  propose  to  maintain  plant  No.  2  in  condition  to  produce  nitrates? 

Mr.  Martin.  No  ;  we  do  not  undertake  any  obligations  with  respect  to  plant 
^<>.  2;  but  we  undertake  to  give  the  Government  power  and  money. 

Mr.  Hull.  You  propose  to  give  the  Government  secondary  power? 

-Mr.  Martin.  Y'es. 

Mr.  Hull.  At  plant  No.  2? 

Mr.  Martin.  Yes. 

Mr.  Hull.  Now,  there  are  several  different  kinds  of  secondary  power,  as  T 
"iiderstand  this  proposition,  especially  in  a  flow  of  water  as  variable  as  that 


814 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


815 


■ 


in  the  Tennessee  River.  Secondary  power  mijjht  be  very  inefiicient  or  it  might 
be  very  good  power.  What  is  there  to  assure  us  that  we  will  get  tirst-class 
secondary  power? 

Mr.  Martin.  The  contract  you  make  would  insure  it. 

Mr.  Hull.  You  propose  to  give  us  tirst-class  secondary  power? 

Mr.  :Martin.  Yes,  sir:  that  is  the  stipulation.  Our  offer  says,  "This  power 
to  be  the  second  1(K).<KX)  horsej)ower  jit  any  time  .Mvaihible  from  the  normal  tiov. 
of  the  river."     That  is  the  secon.l  1(XX()0(>. 

I^Ir.  HvLL.  The  second  100,0(X)? 

Mr.  Martin.  Yes:  it  is  a  matter  of  engineering;  that  is  ascertainable. 

Mr.  Hill.  Is  there  any  mention  of  plant  No.  1  in  your  proposition? 

Mr.  Martin.  No.  sir. 

Mr.  Hill.  That  you  do  not  propose  to  buy  at  all? 

Mr.  Martin.  No.  sir. 

I^Ir.  Hill.  That  would  remain  in  the  possession  of  the  Government? 

INlr.  Martin.  Yes.  sir. 

Mr.  Mtllkr.  Ky  tlie  acquisiti<»n  of  the  Muscle  Shoals  property,  as  you  hav«' 
oxplaine<l  it — that  is,  the  Muscle  Shoals  hydroelectric  power — the  Alabama 
Tower  Co.  would  have  almost  the  entire  hydroelectric  output  of  the  southeast 
portion  of  the  United  States ;  that  is  the  idea  you  are  procee<ling  on? 

Mr.  Martin.  No;  there  are  a  great  many  developments  in  other  States,  other 
sections  of  the  South,  which  we  have  no  interest  in. 

Mr.  Miller.  I  understood  from  your  preliminary  statement  that  in  connec- 
tion with  these  other  projects  you  liad  surveyed  and  hooked  them  up  with  the 
Muscle  Shoals  proposition? 

Mr.  Martin.  Yes:  in  Alabama. 

Mr.  Miller.  In  Alabama? 

Mr.  Martin.  Yes.  It  was  our  suggestion  that  this  Tallapoosa  River  project, 
which  has  been  associated  with  this  Muscle  Shoals  proposition  in  our  own  plans, 
can  be  developed  as  a  storage  proposition,  and  in  connection  with  this  property, 
prmluce  power  in  greater  volume  than  Muscle  Shoals  can  produce  alone.  Of 
course  the  Tallapoosa  River  project  as  a  storage  project  is  not  economical ;  it 
is  not  of  value:  it  can  not  be  mnde  of  value  except  as  a  storage  development 
in  conne<tion  with  some  large  development.  That  is  the  plan  we  are  pro- 
ceeding on. 

Mr.  Miller.  Then,  generally  speaking,  it  is  your  plan  to  use  the  power  plant 
at  nitrate  phint  No.  2  as  a  reserve  stntion? 

Mr.  Martin.  The  steam  plant? 

Mr.  Miller.  The  steam  plant. 

Mr.  Martin.  As  a  further  reserve  station. 

Mr.  Miller.  In  connection  with  the  Warrior  steam  plant;  that  is  what  you 
have  in  mind? 

Mr.  Martin.  In  conne<tion  with  the  entire  development? 

Mr.  Miliar.  Your  proposition  leaves  the  entire  property  of  the  Government's 
enterprise  at  ]ilus<-le  Shoals  in  the  hands  of  the  United  States ;  that  is,  the  title 
^o  it — with  the  exception  of  the  steam  plant  at  nitrate  plant  No.  2  and  the 
Warrior  steam  plant,  whatever  interest  you  will  have  there. 

Mr.  Martin.  Yes ;  and  the  Wilson  I>am  development,  of  course. 

Mr.  Milleb.  To  develop  this  Dam  No.  2  under  the  Federal  water  power  net, 
and  subject  to  all  the  provisions  tliereof  ? 

Mr.  Martin.  Yes. 

Mr.  MiLiJCR.  I  notice  a  little  provision  here  in  your  bid,  Mr.  Martin.  I  do 
not  want  to  be  technical  in  connection  with  the  matter,  at  all,  but  in  the  second 
clause  on  page  3  of  the  Secretary  of  War's  report — that  is,  the  second  paragraph 
of  your  offer — you  provide,  "  To  furnish  free  to  the  Government,  or  anyone  it 
may  designate,  from  the  hydro  power  plant  100,000  hoursepower  as  rWiuired 
for  the  production  of  fertilizers  and  munitions  of  war  and  for  research  in  con- 
nection therew^ith;  and  if,  due  to  changes  in  the  art,  this  use  of  such  100()0<> 
horsei^ower  is  discontinued  by  the  Government,  the  Alabama  Power  Co.  to  pur 
chase  and  pay  for  same  in  accordance  with  a  schedule  to  be  set  forth  in  the 
license.  This  power  to  be  the  second  100,000  horsepower  at  any  time  avail- 
able from  the  normal  flow  of  the  river." 

Now,  suppose  a  system  should  be  organized  there  and  installed  at  nitrate 
plant  No.  2  by  which  the  maximum  production  of  that  plant  may  be  put  out 
"  ith  less  than  100,000  horsepower? 

^tr.  :\Iartin.  That  is  quite  likely. 


Mr.  Milleb.  Suppose  that  in  the  future — and  we  are  looking  far  into  the 
future  in  connection  with  this  proposition — the  manufacture  of  fertilizer  should 
so  go  forward  in  its  evolutionary  stage  that  it  would  become  necessary  and 
might  be  desirable  to  greatly  extend  the  present  nitrate  plant  No.  2  in  its  an- 
nual producing  capacity  of  fertilizer.  Would  that  100,000  horsepower  be 
available  for  any  such  expansion  that  the  United  States  Government  may  make, 
or  is  it  limited  to  the  present  capacity  of  the  present  plant? 

Mr.  Martin.  I  did  not  have  in  view  any  limitation  of  that  kind. 

Mr.  Miller.  I  know,  and  I  do  not  want  to  be  over  nice  in  these  things ;  but  I 
wondered  what  was  in  your  mind,  and  would  it  cover  a  contingency  of  that 
character? 

Ml-.  Martin.  Of  course  the  Government  would  have  it,  and  the  contract  in 
connection  with  this  whole  matter  would  undoubtedly  cover  it. 

Mr.  Miller.  In  other  words,  100,000  horsepower  would  be  available  for  such 
uses  as  th6  Government  desired  to  put  it  to.  Suppose  the  Government  wanted 
to  establish  an  arsenal  there,  or  some  other  industry  entirely  apart  from  the 
manufacture  of  ammonium  nitrate.  Would  the  100,000  horsepower  you  agree 
to  furnish  free  of  charge  be  available  for  such  governmental  uses  and  purposes 
as  the  Government  might  desire  to  establish  there? 

Mr.  Martin.  We  had  in  mind  that,  in  general,  the  production  of  fertilizer  and 
munitions  of  war  would  be  carried  on  there ;  whatever  that  might  be  is  a  matter 
we  have  made  no  point  about. 

]Mr.  Miller.  My  attention  was  attracted  to  this  language  that  I  read  to  you, 
and  I  did  not  know  whether  that  was  a  limitation  of  the  use  of  the  horsepower. 

Mr.  Martin.  No,  sir ;  we  simply  meant  to  say  that  if  the  Government  did  not 
use  this  power 

Mr.  Miller  (interposing).  That  is  what  I  am  getting  at. 

Mr.  Martin.  Then  we  would  purchase  it,  whether  due  to  changes  in  the  art 
or  any  other  reason,  if  the  Government  w^ants  to  sell  it. 

»Ir.  Miller.  So  you  propose  to  furnish  the  Government  100,000  horsepower 
for  such  purposes  as  the  Government  needs  it  for,  and  if  the  Government  does 
not  use  all  of  it,  then  you  would  purchase  what  the  Government  does  not  use? 

Mr.  Martin.  Yes;  we  had  in  mind  that,  in  a  general  way,  these  puriK)se.<? 
would  be  governmental  purposes.  We  did  not  think  the  Government  would  go 
into  the  business  of  selling  this  power;  but  we  would  hold  the  power  available 
for  the  Government  for  these  general  purposes. 

Mr.  Miller.  Your  proposition  for  the  Muscle  Shoals  enterprise — that  is,  the 
operation  of  the  hydroelectric  end  of  it  under  the  Federal  water  power  act — is 
really  attractive ;  it  conforms  to  the  governmental  policy. 

Mr.  Martin.  We  feel  that  it  does. 

Mr.  Miller.  That  portion  of  it;  and  I  want  to  say  the  proposition  is  very 
tersely,  comprehensively,  and  briefly  put  forward.  You,  of  course,  are  to  re- 
ceive the  benefit  of  what  money  the  Government  has  already  put  in  dam  No.  2. 

Mr.  Martin.  Yes ;  that  goes  as  a  part  of  the  project. 

Mr.  Miller.  And  give  a  free  and  full  title  to  it? 

Mr.  Martin.  Yes. 

Mr.  Miller.  Would  that  fund  that  is  in  there  now  cut  any  figure  in  the 
recapture  clause,  or  would  it  be  simply  on  your  investment? 

Mr.  Martin.  On  our  investment. 

Mr.  Miller.  It  would  cut  no  figure  in  the  recapture  clause? 

Mr.  Martin.  I  do  not  see  how  it  would.  It  is  a  matter  of  bookkeeping.  The 
Government,  through  the  Federal  Water  Power  Commission,  keeps  books 
against  us  in  all  these  matters  now,  according  to  a  prescribed  method,  and 
our  net  investment  is  ascertainable  at  any  time. 

Mr.  Miller.  This  proposition  of  yours  is  to  build  an  enterprise  under  the 
Federal  water  power  act  within  a  reasonable  length  of  time.  What  have  your 
engineers  advised  you  would  be  the  probable  length  of  time,  if  there  has  been 
any  such  advice  given  to  you? 

Mr.  Martin.  From  30  to  36  months. 

^Ir.  Miller.  You  are  figuring  then  on  the  completion  of  the  entire  proposi- 
tion within  three  years,  or  at  least  by  the  end  of  three  years'  time? 

Mr.  Martin.  Yes ;  installing  240,000  horsepower.  Of  course,  so  far  as  sub- 
sequent installations  are  concerned,  the  Federal  water  power  act  provides  that 
installations  shall  be  made  from  time  to  time  in  any  project  to  meet  the  power 
demands.  We  simply  suggest  that  the  power  demands  for  that  period  will  be 
at  least  240,000  horsepower,  and  we  assume  that  obligation.     There  may  be 

92900—22 52 


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MUSCLE   SHOALS   PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


817 


much  more  as  the  work  progresses,  in  which  case  we  would  go  forward  and 
meet  whatever  status  the  public  demand  requires. 

Mr.   MiLLEB.  Two   hundred   and   forty    thousand   horsepower   includes   both 
primary  and  secondary  power? 

Mr  Martin.  Yes. 

Mr!   Miij.ER.  To  generate   240,000   horsepower,  how   high,   according   to   the 
present  phu.s  and  specifications  would  the  dam  be  constructed? 

Mr.  Martin.  Ninety-two  feet. 

Mr.  Miller.  The  completed  dam  is  a  94^foot  fall  of  water? 

Whatever  the  completed  dam  is;  whatever  the  present  levels^ 


Mr.  Martin 
may  require. 
Mr.  Miller. 


Mr.  Martin. 
Mr.  Miller. 
Mr.  Martin. 
Mr.  Miller. 
Mr.  Martin. 


Is  it  your  idea  to  go  ahead  and  complete  this  dam? 
Mr.  Martin.  Yes. 
Mr.  Miller.  To  complete  it  entirely? 

Yes. 

According  to  the  plans  that  now  exist  there  for  it? 

Yes. 

With  a  94i-foot  fall  of  water?  , 

„i  x,x^«x.x,.  Yes.  Under  the  Federal  water  power  act  rules  and  regulations 
no  development  is  made  on  a  navigable  river  except  according  to  plans  ap- 
proved by  the  Chief  of  Engineers,  the  Secretary  of  War,  and  the  Federal  Power 
Commission.  Therefore,  of  course,  we  assume  the  obligation  to  complete  this 
development  according  to  the  plans  of  the  engineering  department  of  the  War 
Department,  the  Secretary  of  War,  and  the  Federal  Power  Commission, 

Mr.  Miller.  Then  your  proposition  is  to  complete  the  dam  under  the  specifi- 
cations now  existing  in  the  War  Department? 

Mr.  Martin.  Yes,  sir.  ,    ,      .  ^^ 

Mr.  Miller.  On  which  work  has  progressetl  about  30  per  cent .' 

Mr.  Martin.  Yes.  . 

Mr.  Miller.  When  you  complete  that  dam  it  will  generate  much  more  than 

240,000  horsepower,  will  it  not?  .,.       .  ,     •     ^  n 

Mr.  Martin.  There  will  be  the  water  there,  but  we  will  not  necessarily  install 

large  wheels  in  the  power  house. 

Mr.  Miller.  I  see.  You  will  complete  the  (lam,  but  the  machinery  you  will 
install  will  depend  upon  the  demand  for  the  power? 

Mr  Martin.  Yes,  sir.  We  have  to  provide  at  once  for  all  the  equipment. 
You  have  to  create  your  foundations  for  your  machinery  and  for  the  entire 
layout  •  vou  have  to  make  provisions  for  those  things.  We  do  not  necessarily 
instairthe  entire  equipment  at  one  time.  We  will  install  equiinnent  and  ma- 
chinery in  the  space  left  for  the  additional  units  when  the  additional  business 

reouires 

Mr.  Miller.  By  the  completion  of  the  dam  the  power  will  be  available  any 
time  you  desire  to  expand  the  power-house  equipment? 

Mr.  Martin.  Yes,  sir.  „.   i       i        .ir      i 

(Thereupon  the  committee  adjourned  to  meet  to-morrow,  Wednesday,  March 

1,  1922,  at  10.30  o'clock  a.  m.) 


Committee  on  Military  Affairs, 

House  of  Representatives, 

Wednesday,  March  1,  1922. 

The  committee  met  at  10.30  o'clock  a.  m.,  Hon.  John  C.  McKenzIe  (acting 
chairman)  presiding. 

ADDITIONAL  STATEMENT   OF   HON.    S.    HUBERT    DENT,   JR., 
ATTORNEY  FOR  THE  ALABAMA  POWER  CO. 

Mr.  Dent.  Mr.  Chairman  and  gentlemen  of  the  committee,  I  feel  like  ai)olo- 
gizing  to  the  committee  for  taking  up  any  more  of  its  time  in  discussing  the 
legal  aspects  of  the  rights  of  the  Alabama  Power  Co.  in  connection  with  the 
Gorgas  plant,  and  would  not  ask  the  committee  to  indulge  me  again,  were  it 
not  for  the  fact  that  my  friend,  Mr.  Oliver,  of  Alabama,  I  understand,  addresseil 
the  committee  on  the  legal  aspects  of  that  proposition  and  announced,  to  my 
mind,  some  rather  startling  propositions  of  law. 

In  the  first  place.  I  understand  he  raises  the  question  that  under  the  act 
of  July  9,  1918,  the  contract  must  be  made  by  the  heads  of  the  various  depart- 
ments, and  that  the  heads  of  the  departments  are  the  Cabinet  officers. 


Well,  I  will  not  take  issue  with  him  on  that  proposition,  and  if  the;  com- 
mittee takes  that  view  of  the  matter  we  would  ask  the  further  indulgence  of 
the  committee  to  introduce  the  testimony  of  Maj.  Booten,  of  the  Ordnance 
Department,  who  has  the  records  of  that  department  in  reference  to  Ordnance 
contracts.  I  intervieweil  Maj.  Booten  yesterday  afternoon  at  his  ofiice  an<l 
saw  the  records,  and  his  testimony  will  disclose  that  the  Secretiiry  of 
War  authorized  Maj.  Gen.  Williams,  Chief  of  Ordnance,  to  make  contracts 
in  his  departjnent  in  the  name  of  the  Secretary  and  to  nominate  officers  in  his 
department  as  contracting  officers,  and  that  Lieut.  Col.  William  Williams,  who 
signed  this  contract,  was  one  of  the  contracting  officers  nameil  by  Maj.  Gen. 
Williams,  Chief  of  Ordnance.  I  understand  that.  Maj.  Booten  is  ready  to  come 
before  the  committee  with  these  records  at  any  time  that  suits  the  convenience 
of  the  committee.  So  the  facts  that  will  be  disclosed  by  Maj.  Booten's  tjesti- 
mony  will  completely  cover  the  argument  of  Mr.  Oliver  that  the  head  of  tJie 
department  means  the  Cabinet  oflicer. 

Mr.  McKenzie.  If  I  understand  you,  it  is  your  contention  that  one  of  the 
heads  of  departments,  such  as  a  Cabinet,  officer,  would  have  the  power  under 
the  law  to  redelegate  authority  delegated  to  him  by  Congress? 
Mr.  Dent.  Surely. 

Mr.  McKenzie,  In  a  matter  of  this  kind? 

Mr.  Dent.  Yes;  in  view  of  the  language  of  the  act,  which  does  not  .«ay  it. 
iinist  be  done  by  the  head  of  the  department,  but  through  the  heads  of  the 
departments,  and  that  otherwise  any  other  construction  would  render  the  act 
impractical,  because  it  would  have  been  a  matter  of  physical  impossibility 
for  the  Secretary  of  War  himself  to  have  signed  every  war  contract  that  was 
made.    That  would  have  been  absurd  on  its  face. 

Now,  so  much  for  that  proposition,  which  will  be  answered,  as  I  state<l,  by 
the  facts. 

Mr.  Fisher.  I  would  like  to  ask  you  a  question  before  you  branch  off  from 
that  point- 
Mr.  Dent.  All  right,  Mr.  Fisher. 

Mr.  Fisher.  I  would  like  to  know  who  was  the  lawyer  for  the  Alabama 
Power  Co.  through  all  these  proceedings  leading  up  to  the  signing  of  the  con- 
tract on  the  day  of  the  fake  announcf^ment  of  the  armistice.  We  had  testi- 
mony from  the  Air  Nitrates  Corporation  that  the  lawyer  representing  them — 
who  is  now  dead — reached  the  conclusion  that  they  could  not  take  an  option: 
that  it  would  be  illegal  to  take  an  option  from  the  Government  to  sell  aftjer 
the  war;  and  that  they  consulted  other  counsel,  but  that  that  counsel  was  now 
out  of  the  city,  and  I  would  like  to  know  whether  or  not  there  was  a  law  firm 
or  any  other  lawyer,  other  than  Mr.  Martin  himself,  who  was  negotiating  for 
the  Alabama  Power  Co.  in  drafting  the  terms  of  the  contract. 

Mr.  Dent.  Of  course,  I  could  not  answer  that  myself.  Mr.  Fisher,  personally, 
because  I  was  not  connected  with  the  Alabama  Power  Co.  at  that  time,  but 
Mr.  Martin  can. 
Mr.  Fisher.  Then  I  will  ask  Mr.  Martin  when  he  goes  on. 
Mr.  Dent.  As  I  understand  Mr.  Oliver's  argument,  he  contends  that  when 
Congress  by  legislative  action  declares  that  certain  property  is  necessary  for 
a  public  use,  that  that  is  binding  upon  the  courts  and  that  the  courts  can  not 
go  behind  that  declaration  of  Congress.  That  is  his  first  and  his  main  piopo- 
sition.  Second,  that  the  head  of  a  department  must  be  a  Cabinet  oflicer,  which 
I  have  already  answered.  Third,  that  the  right  to  sell  does  not  include  the 
right  to  postpone  the  date  of  the  sale  or  to  agree  to  arbitration.  F«»urth.  that 
the  act  of  July  9,  1918.  does  not  apply  to  property  to  be  used  subseipient  to 
the  war,  whatever  that  means.  And  fifth,  that  the  proviso  to  the  act  of  July 
t),  1918,  which  he  (piotes  in  his  remarks,  expired  by  its  own  limitafon  a  few 
nionths  after  the  passage  of  the  act,  by  reason  of  the  fact  that  the  Secretary 
of  War  was  required  to  make  a  report  to  Congress. 

I  believe  that  those  are  the  main  and  principal  propositions  that  my  friend, 
Mr.  Oliver,  asserted  before  the  committee  on  yesterday. 

It  is  rather  difficult,  Mr.  Chairman,  and  I  consider  it  absolutely  unnece.ssaiy, 
to  go  into  any  extended  argument  before  this  committee  on  the  right  of  Con- 
gress to  declare  certain  property  necessary  and  essential  for  public  use  and 
l»ind  the  courts.  The  fact  is  I  have  not  had  a  chance  to  run  down  the  authorities 
niysclf,  but  even  if  I  had  them  I  would  not  weary  this  committee  with  a  long 


I 


I 


818 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


819 


dtation  o£^  authorities  upon  the  subject,  but  I  will  call  the  attention  of  the 
committee  to  one  case  which  occurs  to  me,  because  I  have  read  it  recently, 
having  a  condemnation  case  now  pending  in  the  Federal  court  at  Montgomery, 
and  that  is  the  case  of  the  United  States  v.  The  Gettysburg  Electric  Railroad 
Co.,  in  160,  U.  S. 

Congress  a  number  of  years  ago,  in  one  of  the  appropriation  bills,  provided 
an  appropriation  and  enacted  legislation  as  a  rider  on  the  bill,  providing  for 
the  establishment  of  Gettysburg  Park,  the  establishment  of  the  battle  lines  of 
the  Union  and  Confederate  forces  there  and  the  marking  of  the  grounds  and  the 
preservation  of  the  battlefield  as  a  Government  park. 

The  Gettysburg  Electric  Railroad  Co.  had  certain  rights  of  way  in  that 
property  and  they  contested  the  power  of  Congress  to  take  away  their  rights. 
The  case  went  to  the  Supreme  Court  of  the  United  States,  and  in  a  very 
elaborate  opinion  by  Mr.  Justice  Peckham,  which  was  the  unanimous  opinion 
of  the  court,  the  court  held  that  it  was  a  public  use  and  as  a  matter  of  law 
and  as  a  matter  of  fact  Congress  had  the  right  to  do  this  because  the  dedi- 
cation of  this  battlefield,  which  was  the  deciding  battle,  perhaps,  of  the 
Civil  War,  was  a  public  use  and  was  a  matter  that  Congress  certainly  was 
authorized  to  hand  down  to  posterity  as  a  lesson. 

Now,  just  let  me  for  a  moment  call  your  attention  to  one  or  two  paragraphs 
in  this  opinion  which  absolutely  settle  the  law  just  exactly  to  the  contrary  of 
what  my  friend  Mr.  Oliver  contended.    Mr.  Justice  Peckham  said: 

"  The  really  important  question  to  be  determined  in  this  proceeding  is 
whether  the  use  to  which  the  petitioner  desires  to  put  the  land  described  in 
the  petition  is  that  kind  of  public  use  for  which  the  Government  of  the  United 
States  is  authorized  to  condemn  land.  It  has  authority  to  do  so  whenever 
it  is  necessary  or  appropriate  to  use  the  land  in  the  execution  of  any  of  the 
powers  granted  to  it  by  the  Constitution.  The  question  then  is,  is  the  proposed 
use  to  which  the  land  is  to  be  put  a  public  use  within  this  limitation.  In 
these  acts  of  Congress  and  in  the  joint  resolution  the  intended  use  of  this  land 
is  plainly  set  forth.  It  is  stated  in  the  second  volume  of  Judge  Dillon's  work 
on  municipal  corporations  that  when  the  legislature  has  declared  the  use  or 
purpose  to  be  a  public  one,  its  judgment  will  be  respected  by  the  court  unless 
the  use  be  palpably  without  reasonable  foundation." 

This  opinion  conclusively  shows  that  Congress  can  not  arbitrarily  declare 
that  certain  property  is  necessary  for  a  public  use  and  bind  the  courts  by  that 
declaration. 

Why,  otherwise,  Mr.  Chairman,  no  man's  property  would  be  protected ; 
the  owner  of  property  would  never  have  his  day  in  court  if  the  legislative  body 
can,  by  a  mere  declaration  of  its  own,  take  a  man's  property  away  from  him 
without  giving  him  a  right  to  be  heard. 

After  quoting  Judge  Dillon,  Mr.  Justice  Peckham  says : 

"  Many  authorities  are  cited  in  the  note,  and  indeed  the  rule  commends 
itself  as  a  rational  and  a  proper  one." 

Then,  going  on  further,  he  says: 

"As  just  compensation,  which  is  the  full  value  of  the  property  taken,  is  to  be 
paid  and  the  amount  must  be  raised  by  taxation  where  the  land  is  taken  by  the 
Government  itself,  there  is  not  much  ground  to  fear  any  abuse  of  this  power. 
The  responsibility  of  Congress  to  the  people  will  generally,  if  not  always,  result 
in  a  most  conservative  exercise  of  the  right.  It  is  quite  a  different  view  of  the 
question  which  courts  will  take  when  this  power  is  delegated  to  a  private  cor- 
poration. In  that  case  the  presumption  that  the  intended  use  for  which  the 
corporation  proposes  to  take  the  land  is  public  is  not  so  strong  as  where  the 
Government  Intends  to  use  the  land  itself." 

Now,  I  am  perfectly  confident,  Mr,  Chairman,  that  I  could  multiply  authori- 
ties from  the  Supreme  Court 

Mr.  Kearns  (interposing).  May  I  ask  you  a  question  there,  Mr,  Dent? 

Mr.  Dent,  Certainly,  Mr.  Kearns, 

Mr.  Kearns.  Your  contention  is  that  the  right  of  the  Government  to  condemn 
land  is  founded  on  a  constitutional  provision  and  not  upon  a  declaration  of 
Congress? 

Mr.  Dent.  How  is  that,  Mr,  Kearns? 

Mr,  Kearns.  That  any  right  that  the  Government  has  to  condemn  land  is 
granted  by  a  constitutional  provision  and  not  by  a  declaration  of  Congress? 

Mr,  Dent,  It  arises  primarily  from  the  Constitution,  but,  of  course,  the  specific 
right  in  any  particular  instance  would  require  legislation  by  Congress  to  enforce 
the  constitutional  right. 

Mr.  Kearns.  But  the  declaration  of  Congress 


Mr.  Dent  (interposing).  The  declaration  of  Congress  itself  is  not  bimling 
upon  the  courts.  The  question  of  whether  the  property  is  necessarv  for  public 
use  is  a  judicial  and  not  a  legislative  question. 

Mr.  Kearns.  Your  position  is,  then,  that  if  Congress  had  the  right  to  declare 
that  certain  lands  were  needed  for  a  goveriunental  purpose,  and  if  that  would 
finally  settle  the  question,  the  owner  of  that  land  would  not  have  his  dav  in 
court. 

Mr.  Dent.  No  ;  my  position  is  just  the  contrary. 
Mr,  Kearns,  Then  I  do  not  understand  your  arguinont, 

^Ir,  Dent,  You  were  not  present,  Mr,  Kearns,  when  I  started  my  statement 
Mr.  WuRZBACH.  Mr.  Dent.  I  think  you  misunderstood  Mr.  Kearns 
Mr.  Kearns.  Your  claim  is  that  if  Congress  by  passing  a  law  that  would  de- 
clare certain  lands  necessary  for  governmental  purposes  could  settle  the  ques- 
tion, and  the  courts  could  not  go  back  of  that  declaration,  then  the  owner  of 
that  land  would  not  have  the  right  to  appear  in  court  and  defend  his  title  to 
the  land. 
Mr.  Dent.  Yes ;  I  understood  you  at  first. 
Mr.  Kearns.  That  is  your  position. 

Mr.  McKenzie.  If  you  will  permit  me,  Mr.  Kearns,  Mr.  Dent  is  attemi»ting 
at  this  time  to  answer  the  argument  made  by  Mr.  Oliver  on  vesterday. 
Mr.  Kearns.  I  understand  that. 

Mr.  McKenzie.  And  is  taking  the  entirely  opposite  view  of  the  law  as  stated 
by  Mr.  Oliver. 
Mr.  Kearns.  I  understand  that,  too. 

Mr.  Dent.  Mr.  Kearns,  let  me  state  in  my  own  language  just  what  niv  posi- 
tion is. 
Mr.  Kearns.  Yes. 

Mr,  Dent,  Or  let  me  put  it  in  this  way :  Mr,  Oliver  contends  that  when  Con- 
gress by  legislative  act  declares  that  certain  property  is  necessary  for  public 
use.  that  that  is  final  and  conclusive, 
Mr.  Kearns.  Yes ;  that  is  his  contention. 

Mr.  Dent.  My  contention  is  that  it  is  not;  that  the  owner  of  the  land  still  has 
the  right  to  contest  that  question  in  the  courts. 
Mr.  Kearns.  That  is  what  I  thought  to  be  your  position. 
Mr.  Dent,  Then  I  misunderstood  you. 

Mr,  Miller.  If  I  understand  you  correctly,  you  contend  that  condemnation 
proceedings  on  behalf  of  the  Government  constitute  a  judicial  question, 
Mr.  Dent.  Yes,  sir. 

Mr,  Miller,  That  is  Mr.  Oliver's  contention. 

Mr,  Dent.  No  ;  Mr.  Oliver's  contention  is  that  it  is  a  legislative  question  aud 
mine  is  that  it  is  a  judicial  question. 

Air.  Miller.  Hov^^  would  you  handle  that  practically  in  court?  Suppose  that 
Congress  should  provide  for  condemnation  proceedings  and  should  declare  the 
acquisition  of  the  Warrior  steam  plant  a  public  use,  do  you  claim  that  the 
Alabama  Power  Co.  can  come  in  and  contest  that  on  the  ground  that  it  is  not  a 
public  use? 
Mr.  Dent.  Certainly. 

Mr,  Miller,  And  make  it  a  question  of  fact? 
IVIr,  Dent,  Yes ;  that  was  done  in  the  Gettysburg  case ;  exactly. 
Mr.  Miller,  Then  if  it  was  a  question  of  fact  to  be  decideil  by  a  jury  the 
jury  would  decide  whether  it  was  a  public  use, 
Mr,  Dent,  No,  Mr,  Miller,  I  think  it  is  a  question  of  law. 

Mr,  Miller.  Have  you  any  case  in  mind  where  in  a  condemnation  proceeding 
on  behalf  of  the  Government  the  question  of  public  necessitv  is  a  question 
of  fact? 

Mr.  Dent.  It  is  a  question  of  law.    It  is  a  judicial  question.    The  very  case 
I  read,  the  Gettysburg  case,  is  a  case  in  point.    Of  course,  the  law  must  be 
based  on  the  facts, 
Mr.  Miller.  Then  do  you  claim  you  could  go  into  the  question  of  facts? 
Mr.  Dent.  As  to  the  character  of  the  land  and  the  necessity? 
Mr.  Miller.  As  to  the  purpose  of  the  land? 
Mr.  Dent.  Certainly;  undoubtedly. 
Mr.  Miller,  Have  you  any  cases  to  sustain  that  position  ? 

Mr.  Dent.  The  Gettysburg  case.    I  think  if  you  will  read  that  case 

Mr.  Miller  (interposing).  I  tried  to  pay  very  close  attention  to  it,  but  I 
could  not  get  that  idea  from  it,  Mr.  Dent.  I  never  personally  have  known  of  a 
condemnation  proceeding  on  l^ehalf  of  the  Government  for  any  governmental 


■I 


ti\ 


820 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


821 


use,  whether  for  fortifications  or  wlmt  not  where  tlie  question  of  governmental 
use  was  a  judicial  question  and  you  could  go  into  that  and  introduce  testimony 
as  to  whetlier  or  not  it  was  a  public  use, 

Mr.  Dent.  Why,  of  course,  if  land  were  sought  to  be  condennied  for  military 
purposes,  for  fortifications  or  for  a  camp 

Mr,  IVIiLLER.  Or  for  a  post  office  or  anything  else. 

Mr.  Dent.  Or  for  a  post-office  building  or  anything  of  that  kind  that  is  settled 
on  the  face  of  it.  You  can  condemn  any  land  for  that  purpose;  any  land  would 
be  appropriate  and  necessary  for  the  purposes  of  a  thing  of  that  kind. 

Mr.  MiLLEK.  How  do  you  distinguish  between  different  governnrental  uses? 
Suppose  here  is  a  pie<'e  of  land  we  want  for  a  post  office  and  suppose  here  is  a 
piece  of  land  we  want  for  an  electric  light  plant 

Mr.  Dent  (interposing).  As  I  said  a  little  while  ago,  any  property  may  be 
used  for  a  post-office  building  or  any  property  might  be  utilizeil  for  fortifica- 
tions if  it  was  along  the  coast  or  in  some  place  where  fortification  was  neces- 
sary ;  but  suppose  that  Congress  sliould  order  a  fortification  to  lie  put  at  a  place 
where  nobody  would  ever  contend  that  a  fortification  was  necessary,  do  you 
not  tliink  that  question  would  be  gone  into? 

Mr.  :Miller.  Frankly,  not. 

Mr.  Dent.  I  do. 

Mr.  :Millek.  And  I  was  much  interested  in  the  decision  you  read  from,  but 
I  can  not  get  that  idea  from  that  decision  that  you  pointed  out,  Mr.  Dent. 

Mr.  Dent.  Well,  let  us  read  this  again.     This  is  a  quotation  from  Judge 

Dillon :  .  .  .  »     , 

"It  is  stated  in  the  second  volume  of  Judge  Dillon's  work  on  municipal 
corporations  that  when  the  legislature  has  declared  the  use  or  purpose  to  be 
a  public  one,  its  judgment  will  be  respected  by  the  courts  unless  the  use  be 
palp.nbly  without  reasonable  foundation." 

It  is  not  clear  from  this  expression  that  the  courts  can  go  Into  the  question; 
let  us,  for  instance,  just  to  make  an  absurd  illustration,  suppose  that  Congress 
should  declare  that  Niagara  Falls  was  necessary  in  order  for  Mr.  Ford  to 
effectuate  his  Muscle  Shoals  project  and  shouhl  condenm  the  American  side  of 
Niagara  Falls,  do  you  not  think  the  courts  could  go  into  that  as  an  absurd 
proposition? 

Mr.  Miller.  I  think  your  analog>'  is  an  impossible  condition,  because 

^Ir.  Dent.  Of  course,  that  makes  it  absurd,  but  it  illustrates  the  point.  At 
any  rate,  that  authority,  in  my  opinion,  is  in  point,  and  I  do  not  hesitate  to 
say  that  if  the  conunittee  is  not  satisfied  with  that,  I  am  sure  I  can  supply 
them  with  abundant  authorities  on  the  proposition. 

I^Ir.  :Mn.LER.  If  you  are  through  with  that  decision,  will  you  pass  it  down 
to  me? 

Mr.  Stoll.  Right  there,  may  I  ask  a  question?  Mr.  Dent,  who  declares  the 
national  policies,  the  courts  or  the  Congress? 

Mr.  Dent.  Congress. 

Mr.  Stoll.  AVell.  has  not  Congress  declared  the  development  of  nitrates  for 
nmnitions  in  time  of  peace  to  be  a  national  policy? 

Mr.  Dent.  Yes,  sir ;  I  think  so,  in  a  way. 

Mr   Stoll.  And  did  they  not  stipulate  that  it  should  be  at  INIuscle  Shoals? 

Mr.    Dent.  Ccnigre.ss   never   did;    no,   sir.     Congress   never   has    mcnt  oned 

Musr-le  Shoals. 

Mr.   Stoll.  But  it  was  under  Executive  order  of  the  President,  who  was 

given  authority  to  do  that. 

Mr.  Dent.  The  President  hxated  plants  there  during  the  war. 

Mr.  Stoll.  Under  authority  given  by  the  Cimgress? 

Air   Dent    Yes   sir. 

Mr!  Stoll.  Anil  having  declared  that  a  national  policy,  do  y<m  think  the 

courts  can  say  it  is  not?  .,     ,    ^  . 

]Mr  Dent.  No,  sir ;  I  never  have  contended  that,  Mr.  Stoll,  at  all :  but  in 
the  execution  of  that  policy  Congress  can  not  take  every  piece  of  pniperty  in 
the  land  in  order  to  effectuate  it.  The  owner  of  the  property  has  got  a  right 
to  go  into  c(mrt  and  have  the  court  say  whether  his  particular  land  is  necessary 
in  order  to  carry  that  policy  into  effect.    That  is  the  distinction  I  have  tried  to 

Mr  WuRZBACH.  Mr.  Dent,  I  think  your  position  is  that  when  there  is  a 
legislative  declaration  that  certain  property  is  taken  for  public  use,  that  it 


creates  a  presumption,  and  the  burden  of  proof  would  be  upon  the  contestant 
to  show  that  it  was  not. 

Mr.  Dent.  That  is  it  absolutely. 

Mr.  Wi'RZBAcn.  It  is  really  a  question  of  the  burden  of  proof. 

Mr,  Dent.  That  is  exactly  what  Justice  Peckham  says  in  this  case. 

Mr.  Kearns.  Then  the  question  of  fact  would  enter  into  it? 

Ml*.  Dent.  Surely. 

Mr.  WuRZRAcH.  And  it  must  be  shown  that  it  was  palpably  necessary? 

Mr.  Dent.  Palpably  necessary  for  the  governmental  policy. 

Mr.  WuRznAcn.  And  the  legislative  declaration  constitutes  a  prima  facie  case? 

Mr.  Dent.  That  is  it  exactly.  In  other  words,  the  courts  will  respect  the 
declaration  of  Congress,  but  they  are  not  bound  by  the  declaration. 

Mr.  ]McKenzie.  Mr.  Dent,  niay  I  ask  you  a  question  right  there? 

Mr.  Dent.  Yes,  sir. 

Mr.  McKenzie.  I  take  it  you  are  willing  to  concede  that  there  is  a  govern- 
mental activity  at  Muscle  Shoals. 

Mr.  Dent.  Yes,  sir. 

Mr.  McKenzie.  And  that  it  is  such  an  activity  that  the  Government  would 
be  warranted  in  condemning  all  necessary  property  at  that  point  or  adjacent 
thereto  to  carry  out  this  public  activity. 

Mr.  Dent.  That  is  exactly  correct. 

Mr.  McKenzie.  But  your  further  contention  is  that  the  Warrior  Plant,  being 
located  so  far  distant  from  this  point,  can  not  be  coupled  up  with  the  Muscle 
Shoals  plant  by  any  stretch  of  the  imagination  as  a  necessary  adjunct  to  suc- 
cessfully conduct  the  plant  at  Muscle  Shoals. 

Mr.  Dent,  You  have  stated  my  position  exactly  correct,  Mr.  McKenzie. 

Mr.  McKenzie.  Now,  you  further  contend  that  even  if  Congress  should  pass 
Ji  law  asserting  that  it  is  necessary  to  have  the  Warrior  Plant  to  successfully 
carry  on  the  work  at  Muscle  Shoals,  that  that  act  could  be  contested  in  the 
■courts  and  tried  out  as  u  question  of  fact  of  whether  ov  not  it  was  necessany 
for  carrying  out  the  Government's  intention? 

Mr.  Dent.  As  a  question  of  law,  I  will  put  it,  based  on  the  facts. 

Mr.  McKenzie.  Yes;  as  I  understand,  you  would  go  into  the  courts  and 
you  would  hear  the  testimony,  and  all  that  sort  of  thing,  and  then  the  court 
would  decide  and  «letermine  whether  or  not  this  act  of  Congress  should  be 
supreme  or  whether  the  decision  of  the  court  should  prevail. 

Mr.  Dent.  Yes,  sir. 

Mr.  Fields.  Following  that  question,  Mr.  Dent,  your  contention  then  is  that 
if  the  Government,  when  it  started  nitrate  plant  No.  2  had  attempted  to  con- 
<iemn  the  property  of  the  Alabama  Power  Co.  at  Gorgas  for  its  use  in  the 
operation  of  this  plant,  that  they  would  have  had  the  right  to  have  gone  into 
court  and  contested  the  question  of  the  necessity  of  that  land  for  the  operation 
of  this  plant. 

Mr.   Dent.  That  is   right. 

Mr.  Fields.  That  is  your  content  on. 

Mr.  Dent.  Yes.  sir;  except  1  wouhl  not  say  that  the  Alabama  Power  Co. 
would  have  had  the  right  to  go  into  court  because  necessarily  the  (Jovernment 
must  lie  the  party  plaintiff  in  the  condemnation  proceedings,  and  we  would 
have  been  the  defendant  in  that  proceeding,  and  we  wouhl  assert  our  rights. 

Mr.  Fields.  And  you  wouhl  have  your  right  in  court. 
Mr.  Dent.  Yes,  sir. 

Mr.  Fields.  Since  they  entered  into  this  contract  with  the  Government  and 
the  Government  spent  its  money  there,  what  wcmld  you  say  to  the  question  that 
they  waived  their  rights  to  be  heard  in  court  by  letting  the  Government  take 
possession  of  it  and  put  its  investments  on  it,  thereby  recognizing  themselves 
the  necessity  of  this  property  for  the  operation  of  the  plant. 

Mr.  Dent.  You  have  not  got  the  facts  straight.  Mr.  Fields.  The  Government 
has  never  been  in  possession  of  the  property.  We  have  been  in  possession  of 
the  property  all  along.  We  have  not  waive<l  any  rights,  because  under  this  con- 
tract we  have  the  right  to  purchase  this  proi)erty  from  the  Gov<»rnment  at  any 
time.  We  expressly  reserved  our  rights  in  that  particular  by  the  contract. 
Mr.  Fields.  Then,  it  is  y(mr  contention  that  you  reserved  your  rights? 
Mr.  Dent.  The  contract:  shows  that  on  its  face.  The  contention  of  some  of 
the  members  of  the  committee  and  others  is  that -that  contract  is  invaUd.  but 
conceding  the  validity  of  the  contract,  we  have  reserved  all  our  rights  in  the 
property,  and  have  been  in  possession  of  the  property  all  along.  The  Govern- 
nient  could  not  get  possession  of  that  propertv  uow     It  could  not  sue  in  eiect- 


822 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


823: 


ment  for  it  |)ecaiise  it  has  no  title.  The  only  way  the  Government  wonhl  jret 
it  would  be  for  Congress  to  pass  a  condemnation  act,  and  then  for  the  Govern- 
ment to  proceed  in  the  Federal  courts  to  institute  condemnation  proceedings, 
and  in  that  case  we  would  assert  our  rights  to  the  property. 

Mr.  Fields.  Granting  the  validity  of  the  contract,  that  is  your  contention ;  but 
taking  it,  on  the  other  hand,  and  granting  for  argument's  sake  that  the  con- 
tract is  not  valid,  then  you  would  admit,  I  judge,  that  you  did  lose  your  right 
to  be  heard  by  allowing  the  Government  to  go  ahead  and  put  its  money  on  that 
land  without  contesting  that  right. 

Mr.  Dent.  No,  Mr.  Fields :  but  that  brings  on  a  discussion  of  another  propo- 
sition of  law.  The  law  of  the  place  where  the  land  lies  is  the  law  that  governs 
this  contract,  and  I  have  not  the  slightest  doubt  in  the  world,  under  the  law 
of  Alabama,  that  if  this  contract  is  held  invalid,  then  the  Government  has  put 
property  on  our  land  and  the  property  belongs  to  us,  and  the  Government  has 
lost  the*  money  it  has  put  in  there.    I  have  not  any  doubt  in  the  world  about  that. 

Mr.  Greene.  Mr.  Dent,  I  suppose  the  law  with  respect  to  the  condemnation  of 
private  property  for  Goveniment  use  is  clear  enough  and  has  been  settle<l  by 
this  time? 

Mr.  Dent.  Yes,  sir. 

Mr.  Greene.  What  do  you  say  to  the  idea  that  might  be  involved  in  this  propo- 
sition of  Mr.  Ford's  offer,  that  in  order  to  permit  the  Government  to  make  a 
contract  with  a  third  party  for  some  uses  of  his  own,  the  Government  had  to 
resort  to  condemnation  proceedings  in  order  to  get  certain  property  to  turn 
over  to  that  third  person?  Is  there  any  doctrine  of  the  courts  established 
about  that  or  settled  about  that?  I  am  a  layman,  you  know,  and  am  askng  for 
information. 

Mr.  Dent.  Mr.  Greene,  if  I  understand  you.  putting  the  proposition  in  con- 
crete form,  if  Congress  should  accept  Mr.  Ford's  offer,  of  course.  Congress  would 
have  to  provide  some  means  and  method  of  taking  our  proiierty  away  from  us 
and  turning  it  over  to  Mr.  Ford.  I  do  not  know  of  any  way  they  can  do  that 
except  by  an  act  of  condemnation  of  that  property,  declaring  that  it  is  necessary 
for  this  particular  public  use,  and  in  that  condemnation  proceeding  we  wouM 
necessarily  be  the  defendant,  and  we  would  assert  our  rights  under  this  contract, 
and  we  would  deny  that  this  property  was  necessary  for  Mr.  Ford's  purp«»ses 
at  Muscle  Shoals  as  a  public  use. 

Mr.  Greene.  In  the  last  sentence  you  have  brought  up  exactly  the  point  I 
wanted  to  suggest.  Is  the  giving  of  property  to  a  private  individual  or  corpora- 
tion for  their  own  employment  such  a  thing  as  a  public  use? 

Mr.  Dent.  I  do  not  think  so,  as  an  ordinary  proposition.  Of  course.  Congress 
and  the  legislatures  of  the  States  have  the  right  to  autbori/.e  and  have  author- 
ized public  service  and  public  utility  corporations  to  exercise  the  right  of  con- 
demnation. 

Mr.  Greene.  But  they  are  quasi  public  corporations. 

Mr.  Dent.  They  are  quasi  public  con^orations.  I  do  not  know  of  any  au- 
thority that  would  authorize  a  private  corporation  to  condemn  land  for  a  man's 
private  use ;  no ;  if  that  is  what  you  are  driving  at. 

Mr.  Greene.  That  would  certainly  be  an  interesting  question  to  be  determined 
in  the  courts,  as  to  whether  the  Government  in  order  to  complete  a  contract 
with  a  man,  the  contract  running  simply  to  the  advantage  of  the  man  in  his 
private  uses,  the  Government  might  have  authority  to  condemn. 

Mr.  Dent.  Yes.  And  all  those  questions,  of  course,  we  would  raise  if  Con- 
gress should  undertake  to  take  our  property  away  from  us  by  a  condemnation 
proceeding. 

Mr.  Stoll.  Mr.  Dent,  did  I  uderstand  you  to  say  in  response  to  Mr.  Fields' 
question  that  under  the  law  of  Alabama  where  a  party  gives  permissive  use  of 
its  land  for  the  placing  of  personal  property  on  it  or  for  the  placing  of  im- 
provements on  it,  that  that  party  loses  its  rights  and  can  not  recover  for  the 
improvements  made? 

Mr.  Dent.  No.  sir.  I  d*d  not  say  that,  Mr.  Stoll,  not  where  they  gave  permis- 
sive authority  to  do  it.    I  said  if  the  contract 

Mr.  Stoll  (interposing).  Did  not  the  Alabama  Power  Co. 

Mr.  Dent.  Let  me  answer  your  question,  please.  I  said  that  if  the  contract 
between  the  Alabama  Power  Co.  and  the  Government  is  declared  invalid  and 
void,  of  no  effect  whatever,  fhen  the  Government  is  in  the  attitude  of  having 
gone  involuntarily  and  without  our  consent,  and  put  improvements  on  our  land, 
and,  under  the  laws  of  Alabama,  if  I  put  improvements  on  your  property  without 


any  contract  with  you  as  the  owner  you  get  the  benefit  of  my  work  and  my 
improvements,  and  they  belong  to  you. 

Mr.  Stoll.  But  this  was  all  put  on  there  before  any  contract  was  entered 
into. 

Mr.  Dent.  Sure  it  was ;  most  of  it  was. 

Mr.  Stoll.  It  must  have  been  by  permissive  use.  Did  the  Alabama  Power  Co. 
try  to  enjoin  anybody  from  going  on  there  or  to  stop  them? 

Mr.  Dent.  Not  at  all,  and  we  are  not  claiming  that. 

Mr,  Stoll.  Then  it  nnist  have  been  permissive  use. 

Mr.  Dent.  I  was  simply  suggesting  what  might  result  if  this  committee  and 
Congress  should  hold  that  this  contract  was  absolutely  void  and  had  no  force 
and  effect  whatever.  In  my  opinion  the  natural  consequence  of  that  would  be 
to  give  to  the  Alabama  Power  Co.  all  the  improvements  which  the  Government 
has  put  on  that  land. 

Mr.  Stoll.  Did  not  the  Alabama  Power  Co.  build  those  improvements  for  the^ 
Government  itself? 

Mr.  Dent.  They  did,  but  they  did  it  under  a  contract.  All  the  way  through 
the  correspondence  it  is  shown,  as  you  will  recall,  that  the  Government  officials 
say  that  this  contract  will  hereafter  be  put  in  writing.  I  am  not  quoting  the 
exact  language,  but  that  is  the  substance  of  it.  Now,  as  a  lawyer,  Mr.  Stoll, 
I  am  sure  you  know  that  where  parties  engaged  for  a  long  period  of  time 
in  negotiations  and  pending  the  negotiations  there  is  an  understanding  that 
it  is  finally  to  be  written  into  a  contract  signed  by  the  parties,  that  the  final 
execution  of  that  contract  is  the  final  evidence  and  memorial  of  the  entire 
transaction. 

Mr.  Stoll.  My  opinion  is,  Mr.  Dent,  you  will  never  find  any  court  that  will 
give  the  Alabama  Power  Co.  that  property  to  the  exclusion  of  the  Government. 
Now,  another  question 

Mr.  Dent  (interposing).  I  do  not  think  so,  either,  because  I  think  the  court 
is  going  to  hold  this  contract  valid. 

Mr.   Stoll.  I    mean   even    if   the   contract    is  held   invalid.     Now,    another 
question,  Mr.  Dent,  as  to  condemnation  proceedings.    The  Alabama  Power  Co. 
built  this  transmission  line  and  sold  power  or  agreed  to  sell  power,  did  they  not». 
to  the  Government  for  use  at  Muscle  Shoals  in  its  projects  fhere? 

Mr.  Dent.  Yes,  sir ;  while  they  were  engaged  in  construction. 

Mr.  Stoll.  By  doing  that  did  not  the  Alabama  Power  Co.  admit  that  tlie- 
project  at  Gorgas  was  necessary  for  the  carrying  on  of  the  project  at  Muscle 
Shoals? 

Mr.  Dent.  I  think  not,  and  I  think  that  the  language  of  the  contract  bv 
which  the  Alabama  Power  Co.  had  the  right  at  any  time  to  purchase  that 
property  from  the  Government  shows  exactly  the  contrary  intent. 

Mr.  Stoll.  Do  you  think  they  would  have  built  a  transmission  line  88  miles 
to  furnish  power  that  the  Government  did  not  need? 

Mr.  Dent.  Oh,  no ;  the  Government  need  it,  of  course. 

Mr.  Stoll.  For  what  purpose? 

Mr.  Dent.  The  Government  also  needed  coal  after  it  got  its  steam  plant 
there. 

Mr.  Stoll.  But  I  am  speaking  of  the  other  situation.  What  did  they  need 
the  power  for? 

Mr.  Dent.  They  needed  the  power  to  light  the  premises  and  for  other  pUriMises. 
I  do  not  know  what  all  those  purposes  were. 

Mr.  Stoll.  And  for  making  nitrates,  too,  did  they  not? 

Mr.  Dent.  No,  sir;  not  that  I  know  of. 

Mr.  Stoll.  Did  they  not  need  the  power  for  that  purpose? 

Mr.  Dent.  No  ;  as  I  understand  the  nitrates  proposition,  Mr.  Stoll,  all  the  way 
t.irough,  every  advocate  of  whatever  process  for  making  nitrogen  from  the 
air  stated  to  this  committee  as  long  as  I  was  a  member  of  the  committee 
that  unless  you  had  cheap  water  power  you  could  not  make  nitrates  in  thi.^ 
<*ountry,  and  the  water  power  was  to  be  used  for  that  purpose. 

Mr..  Stoll.  I  understand  that,  but  the  water  power  was  not  developed,  and 
the  fact  that  the  Alabama  Power  Co.  entered  into  an  agreement  with  the  Gov- 
ernment to  carry  this  power  there  showed  that  it  was  needed  for  some  purpose- 
by  the  Government  in  its  development  of  Muscle  Shoals. 

Mr.  Dent,  Oh,  yes ;  that  it  was  needed  for  some  purpose,  unquestionably. 

Mr,  Stoll,  Therefore,  if  it  was  needed,  it  would  be  part  of  the  procedure  to 
condemn  it  to  use  it,  would  it  not? 

Mr.  Dent.  There  is  where  you  and  I  widely  differ,  Mr.  Stoll. 


m 


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MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


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1^ 


Mr.  Stoll.  Do  you  not  think  the  Alabama  Power  Co.  is  estopped  from  now 
coming  in  a\id  saying  it  was  not  part  and  parcel  of  it? 

Mr.  Dent.  No,  sir ;  there  is  nothing  in  this  contract  that  raises  any  estoppel, 
and  I  challenge  Jinyone  to  point  to  any  section  of  the  contract  that  raises 
any  estoppel  against  the  Alabama  Power  Co. 

Mr.  Garrett.  Mr.  Dent,  in  the  event  Mr.  Ford's  proposition  should  be  ac- 
cepted and  he  should  organize  the  company  referred  to  in  his  proposal  and 
that  company  should  proceed  to  the  construction  and  erection  and  completion 
of  a  water-power  plant  to  develop  power  and  to  sell  power  to  the  public,  would 
)iot  that  company  be  impressed  with  the  same  quasi-public  service  of  any  other 
public  utility  company? 

?,Ir.  Dent.  I  think  so,  Mr.  Garrett,  in  so  far  as  any  property  is  absolutely 
necessary  and  essential  to  carry  out  the  main  purpose. 

Mr.  Garrett.  Then  if  that  company  was  engaged  in  that  character  of  public 
service,  the  same  right  of  eminent  domain  that  is  vested  in  any  other  public 
utility  concern  would  be  vested  in  that  company? 

Mr.  Dent,  I  think  Congress  could  vest  it. 

Mr.  Garrett.  I  mean  in  the  absence  of  any  act  of  Congress  and  speaking 
generally.  Railroads  get  their  power  of  eminent  domain,  of  course,  from  Con- 
gress or  from  the  laws  of  the  States. 

Mr.  Dent.  Let  me  see  if  I  understand  you,  Mr.  Garrett. 

Mr.  Garrett.  Here  is  what  I  mean :  If  the  company  that  Mr.  Ford  organizes 
operates  the  power  plant  for  the  purpose  of  selling  power  to  the  public  as  well 
jis  consuming  it  itself,  would  not  that  be  a  quasi-public  servic-e  coi*poration? 

Mr.  Dent.  Yes;  I  think  so. 

Mr.  Garrett.  Then  if  it  is  a  quasi-public  service  corporation,  and  that  is  what 
most  of  them  are.  Congress  could  enact  a  law  vesting  it  with  the  power  of  emi- 
nent domain  just  as  any  other  pu]>lic  service  corporation. 

Mr.  Dent.  I  think  the  Fetleral  water  power  act  would  give  such  a  corpora 
t'on  the  right  of  eminent  domain, 

Mr.  Garrett.  But  in  the  absence  of  that.  Inasmuch  as  this  is  kind  of  inter- 
twined with  a  public  interest  to  start  with,  and  has  a  sort  of  governmental 
charge  on  it  now,  wcmld  not  that  be  true  as  to  tlie  i)ro))erties  down  there?  Be- 
fore asking  any  furtTier  questions,  1  would  like  tt)  inquire  if  Mr.  Martin  has  been 
dismissed  from  the  stand? 

Mr.  McKenzie.  He  h^s  not  concluded ;  no,  sir. 

Mr.  Garrett.  Then  I  will  reserve  the  question  I  wanted  to  ask,  to  ask  it  of 
Mr.  Martin, 

Mr.  Greene.  Mr.  Dent,  may  I  follow  my  former  ciuestions  with  this  qui^stion. 
to  make  a  distinction  between  rights  which  may  be  vested  in  m  quasi-puhlic  cor- 
poration and  the  oiierations  of  the  Government  itself  in  making  a  contract  with 
some  pun^ose,  would  the  (Jovernment  be  within  its  powers  to  exercise  the  right 
of  eminent  domain  for  the  sake  of  getting  property  together,  s«)  that  it  might 
subsequentlv  turn  it  over  to  a  privnte  corporation  for  its  own  uses. 

Mr.  Dent.  I  think.  Mr.  (Jreene,  that  perhaps  the  <Jovernment  could  exercise 
the  right  of  eminent  domain  as  to  juoperty  absolutely  necessary  nnd  essential 
in  order  to  carry  out  this  project  at  Muscle  Shoals. 

Mr.  Greene.  The  Government's  own  project? 

Mr.  Dent.  Yes,  sir:  or  if  it  sells  the  i)roject  to  somebody  else,  I  think  it  couhl 
authorize  a  public  service  corporation  that  was  going  t^  build  this  project  and 
sell  i)Ower  to  the  public,  authorize  it  to  condemn  lands  absolutely  necessary  ami 
essential  to  carry  that  project  into  effect. 

Mr.  Greene.  In  other  words,  as  to  the  property  it  is  to  turn  t)ver  to  some 
private  corporation,  it  might  exercise  its  own  right  of  eminent  domain  to 
gather  that  property  together. 

Mr.  Dent.  I  rather  think  it  could  do  that. 

Mr.  QuiN.  Mr.  Dent,  reverting  back  to  the  question  of  the  delegation  of  au- 
thority, the  act  of  July,  1918.  gives  from  the  Congress  certain  powers  to  the 
heads  of  departments,  as  I  understand  it. 

Air  Dent   Yes 

Mr.  QuiN.  Then,  the  iM)wer  that  was  vested  in  the  (\>ngi-ess  had  to  be  dele- 
gated through  that  act  to  some  one,  and  they  delegated  it  to  the  hea<l  of  the 
dejiartment  and  in  this  instance  the  Secretary  of  War,  of  course,  was  in- 
tended. What  is  the  difference  between  that  act  and  a  private  party  giving  a 
power  of  attorney  to  some  agency  or  to  some  party  to  act  for  the  principal? 

.Mr.  Dent.  In  legal  etTe<t,  I  do  nut  see  any  difference. 


Mr.  Quin.  Do  you  contend  that  the  party  delegated'  with  such  i>ower  of 
attorney  could  transmit  that  authority  for  the  principal  to  some  other  party? 

Mr.  Dent.  Under  the  terms  of  this  act,  Mr.  Quin.  as  I  have  repeatedly  stated 
to  the  committee,  the  act  does  not  say  that  the  contracts  must  be  signed  by  the 
heads  of  the  departments,  but  says  that  these  contracts  nmst  be  made  through 
the  heads  of  the  various  departments,  and  that  language  was  used  intentionally, 
because  it  would  have  been  absurd,  it  would  have  been  ridiculous,  it  would  have 
been  a  physical  impossibility  for  Congress  to  have  stated  that  the  Secretary 
of  War,  and  the  Secretary  of  War  alone,  should  sign  all  the  millions  of  dollars 
worth  of  contracts  that  the  War  Department  made  during  the  war.  That  would 
be  .'ibsurd. 

Mr.  QiiN.  So  you  do  not  think  that  that  statute  should  be  construed  stri<tly. 

Mr.  Dent.  I  certainly  do  not.  I  think  it  is  perfectly  manifest  that  tlu'  Con- 
gress intended  that  these  contracts  should  he  made  in  this  way,  and  1  will  go 
further  and  say  I  do  not  think  ('ongress  would  be  fair  and  just  to  itself  if  it 
took  advantage  of  anv  technicalitv  like  that,  and  I  do  not  believe  Congress  will 
do  it. 

Mr.  Hill.  On  the  question  of  condenmation,  ;Mr.  Dent,  suppose  the  Govern- 
ment has  in  a  city  a  post-oftice  building  which  it  is  going  to  abandon,  and  it  owns 
a  whole  block  of  land  with  the  exception  of  one  corner  of  the  block,  which  be- 
longs to  private  individuals.  The  Government,  if  it  acquired  that  corner  of  the 
block,  could  sell  the  whole  block  for  twice  as  much  as  it  could  sell  otherwise, 
would  you  consider  that  the  Government,  having  merely  in  mind  the  increaseil 
price  that  it  would  get  for  its  iwst-oflice  building,  could  condemn  that  extra  part? 

Mr.  Dent.  No,  sir;  I  would  not. 

Mr.  Hir.L.  That  is  an  illustration  I  had  in  mind  ami  I  wanted  to  ask  you 
about  it. 

Mr.  Dent.  Yes;  and  I  would  like  to  say  that  in  answering  Mr.  Greene's  ques- 
tion a  moment  ago  I  was  simply  expressing  an  offhand,  tirst-biush  opinion,  be- 
cause I  have  not  investigated  that  question,  an<l  it  may  be  that  the  authorities 
would  not  permit  the  Government  to  go  out  and  condenni  property  to  cai'ry  a 
private  c<mtract  into  effect.    That  is  a  proposition  I  have  not  investigated. 

Mr.  (tKf:i<:ne.  If  you  will  permit  me.  Mr.  Hill,  may  I  ask  a  question  to  clarify 
the  situation?  What  I  had  in  mind  was  to  <listinguish  the  so-called  public  use 
for  which  property  hiight  be  condemned,  and  the  mere  advantage  whieh  might 
arise  to  the  Government  from  collecting  property  by  condenmation  in  order  to 
put  it  to  a  private  use. 

Mr.  Dent.  The  illustration  that  Mr.  Hill  made  points  that  out  very  c  early, 
and  I  agre*'  with  that. 

Mr.  HiTX.  It  seems  to  me  that  is  a  very  simple,  every-day  illustration,  .ind  I 
think  that  would  npply. 

Mr.  Dent.  Yes;  because  that  is  not  a  public  purpose. 

Mr.  Hill.  No  ;  it  is  not. 

Mr.  Garrett.  I  would  like  to  ask  this  further  questi<»n  in  connection  with  that 
matter,,  Mr.  Dent.  The  question  involved  here  is  that  the  property  involved  is 
already  charged  with  a  public  use,  and  the  contemplation  of  all  the  parties  is 
that  if  the  Ford  proposition  is  accepted  that  the  Crovernment  is  to  have  main- 
tained for  it  for  100  years  a  plant  for  governmental  purposes  and  for  national- 
defense  purposes;  and  furthermore,  just  as  public-service  corporations  like 
mills  are  established  to  manufacture  food-^or  the  people,  this  jilant  also  is  to  be 
chargefl  with  the  use  of  making  fertilizer  for  the  public;  and,  furthermore,  there 
is  power  to  be  generated  there  and  sohl  to  the  pubic.  In  other  w<»rds,  in  this 
case  there  is  one  distinct  governmental  use,  and  that  is  that  this  power  plant 
.*<hall  be  maintained  for  the  purpose  of  manufacturing  nitrate  of  annnonia  an<l 
to  be  k'pt  in  condition  continually  during  the  life  of  the  contract,  ready  \o  be 
turned  over  to  the  (lovernment  in  any  emergency. 

Mr.  Dent.  Yes. 

Mr.  Gakrett.  Do  you  not  think  that  that  would  take  this  case  entirely  cut  of 
tlie  hypothetical  case  as  propounded  by  the  gentleman? 

^Ir.  Dent.  1  have  already  stated  in  answer  to  a  question  you  i)ropountled  t<» 
Uie  befiU'e,  Mr.  (Jarrett  that  I  think  that  so  far  as  the  property  on  land  Innne- 
diately  adjacent  to  Muscle  Shoals  is  c«)ncerned,  the  right  to  construct  a  dam 
for  the  purpose  of  getting  power  for  making  nitrates  from  the  air,  the 
right  to  construct  buildings  adjacent  to  that  dam,  the  right  to  condenm  any 
land  in  that  neighborhood  for  the  purjjose  of  carrying  out  this  great  public  use. 
would  carry  with  it  the  right  of  eminent  domain. 

Mr.  Garrett.  That  is  it  exactly. 


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MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


827 


Mr.  Dext\  But  my  contention  is  that  you  can  not  go  88  miles  away  from 
there  and  condenm  property  belonging  to  somebody  else,  which  is  not  abso- 
lutely necessary  antl  essential  to  carry  that  project  into  effect.  In  other 
words,  to  illustrate,  the  Government  has  a  steam  plant  down  there.  It  built 
this  steam  plant  in  connection  with  its  nitrate  plant.  I  suppose,  for  the  purpose 
of  utilizing  it  when  the  water  was  low  and  they  could  not  get  water  powder. 
The  (Joveniment  needs  coal  for  that  purpose.  It  made  a  contract  with  the 
Montevallo  Coal  Co.,  way  down  in  Shelby  County,  south  of  Birmingham, 
to  furnish  coal  for  it,  just  like  it  made  a  contract  with  us  to  furnish  power. 
You  would  not  contend  that  because  coal  is  necessary  to  operate  that  plant 
the  Government  could  go  down  in  Shelby  County  and  condemn  the  mines  of 
the  Montevallo  Coal  Co.?  Now,  that  illustrates  the  proposition,  as  I  under- 
stand it. 

Mr.  Greene.  Will  you  permit  just  one  more  question?  In  the  exercise  of 
its  right  of  eminent  domain  for  the  purpose  of  carrying  out  its  contract  would 
not  the  Government  be  confined  to  those  parts  of  the  contract  that  were  mani- 
festly a  public  use? 

Mr.  Dent.  Exactly. 

Mr.  Greene.  That  is.  they  could  not  go  outside  and  condemn  other  bits  of 
property  to  turn  over  to  Mr.  Ford  that  related  to  that  part  of  the  plant  that  h« 
wanted  to  use  for  the  manufacture  of  automobile  parts? 

Mr.  Dent.  No,  sir;  not  at  all. 

So  much,  Mr.  Chairman,  for  that  proposition.  At  any  rate,  I  have  given  the 
committee  the  benefit  of  my  judgment  and  my  opinion  on  this  proposition,  and 
as  I  have  said,  if  the  committee  wishes  other  and  additional  authorities  I  am 
satisfied  I  can  nuiltiply  them  many  times! 

Now,  Mr.  Oliver  further  contends  that  the  right  to  sell  property  acquired 
during  the  war  under  the  act  of  July  9,  1918,  does  not  carry  with  it  the  right 
to  postpone  the  date  of  the  sale,  and  he  refers  particularly  to  that  clause  of 
the  contract  which  provides  that  the  Government's  right  to  sell  the  property  to 
the  Alabama  Power  Co.  must  not  be  exercized  within  the  period  of  three 
years,  and  he  further  contends  that  the  power  to  sell  does  not  carry  with  it  the 
power  to  arbitrate  the  price. 

All  I  have  to  say,  Mr.  Chairman,  in  reply  to  that  is  that  whenever  any  party 
is  given  the  ab.solute  right  to  sell  property  it  necessarily  carries  with  it  every 
incidental  and  implied  power  that  is  necessary  to  effectuate  the  general  pur- 
l)0se  of  the  authority.  In  other  words,  the  power  to  sell  carries  with  it  the 
lesser  power  to  make  a  contract  for  a  sale.  It  necessarily  carries  with  it  the 
power  to  fix  the  terms  of  the  sale.  It  necessarily  carries  with  it  the  time 
when  the  sale  shall  take  place.  All  of  those  things  are  mere  incidents  of  a 
general  power.  That  is  Hornbook  law,  Mr.  Chairman.  I  can  not  understand 
how  any  lawyer  can  contend  that  the  absolute  and  unequivocal  right  to  sell 
property  does  not  carry  with  it  the  implied  and  incidental  power  to  do  any- 
thing that  is  necessary  to  carry  into  effect  the  contract  of  sale. 

Mr.  McKenzie.  :May  I  ask  you  a  question  right  there  which  is  not  exactly  in 
point,  but  I  would  like  to  know  your  view  if  you  have  not  already  expressed  it? 
Do  you  hohl  that  the  property  placed  on  the  land  of  the  Alabama  Power  Co.. 
including  the  transmission  line,  is  in  the  nature  of  personal  property  rather 
than  real  proi)erty? 

Mr.  Dent.  Mr.  McKenzie.  my  position  is  this:  That  if  the  contract  between 
the  Alabama  Power  Co.  and  the  Government  is  a  valid  contract,  then  that 
property  is  in  the  nature  of  pei-soual  property ;  but  if  the  contract  is  declared 
to  be  void,  then  the  Government  would  be  in  the  attitude  of  having  gone  upon 
our  lantl  without  any  authority  or  without  any  agreement  whatever  with  us 
and  erected  improvements,  and  those  improvements  under  the  law  wouM  natu- 
rally go  with  the  title  and  the  ownership  of  the  land. 

Mr.  McKenzie.  My  reason  for  asking  you  that  question  is  to  ask  you  another 
one.  It  is  upon  that  view  that  you  made  the  statement  that  the  laws  of  May 
and  July.  1918,  covering  the  sale  of  personal  property  belonging  to  the  Govern- 
ment was  applicable  to  tliis  property. 

Mr.  Dent.  Yes,  sir. 

Mr.  McKenzie.  And  that  the  law  of  1892,  I  think  it  was,  covering  the  sale 
of  real  estate  and  the  leasing  of  real  estate  by  the  War  Department,  does  not 
apply  to  this  character  of  property? 

Mr.  Dent.  I  do  not  know  that  I  have  read  that  law  of  1892  very  recently. 


Mr.  ^IcKenzie.  It  was  put  in  at  the  beginning  of  the  hearings,  and  provides 
that  the  Government  or  the  War  Department  can  only  lease  for  a  term  of  five 
years. 

Mr.  Dent.  Yes ;  at  any  rate,  you  have  my  view,  whatever  it  is  worth :  an<l 
Mr.  Weathers  calls  my  attention  to  the  fact  that  the  act  of  July  9  includes 
real  estate  as  well  as  personal  property.    I  believe  it  does  say  plants. 

Mr.  McKenzie.  But  under  the  contract  the  former  statutes,  it  seems  to  me, 
would  apply,  but  that  is  a  matter  not  to  be  taken  up  at  this  time. 

Mr.  Dent.  Now,  the  same  principle  I  have  just  asserted,  it  seems  to  nie, 
applies  to  the  right  to  arbitrate.  Wherever  parties  enter  into  a  contract 
involving  the  sale  and  purchase  of  property  it  is  conmion,  and  it  is  an  ordinary 
feature  of  such  a  ccmtract  that  if  they  can  not  agree  upon  the  terms,  that 
they  shall  be  fixed  by  arbitration.  The  law  itself  favors  such  contracts.  The 
law  favors  arbitration  as  a  means  of  settling  differences  between  i)arties  rather 
then  resorting  to  the  machinery  of  the  courts,  and,  necessarily,  if  the  price  of 
the  property  is  involved,  some  method  of  fixing  that  price  and  of  ascertaining 
that  price  is  an  incidental  power  to  the  right  to  sell.  Therefore,  I  .say  the 
right  to  fix  this  price  by  means  of  arbitration  necessarily  follows  the  ab.solute 
power  to  sell  the  property. 

Mr.  McKenzie.  Y'our  contention  is  based  on  the  peculiar  character  of  the 
property  in  this  case,  is  it  not,  Mr.  Dent?  You  would  not  contend  that  the 
Government  should  provide  for  arbitration  to  sell  a  piece  of  property  that  was 
not  involved  with  some  one  else's  property,  would  you? 

Mr.  Dent.  Oh,  no;  not  at  all.  I  am  addressing  myself,  Mr.  McKenzie,  of 
<'ourse,  to  this  particular  transaction. 

Mr.  McKenzie.  Having  in  mind  the  situation  on  the  Warrior  River. 
Mr.  Dent.  Surely.  Let  me  call  attention  to  that  arbitration  clause  to  show 
how  fair  it  is.  Mr.  Oliver  seems  to  think  it  is  a  horrible  proposition  that  the 
Alabama  Power  Co.  has  the  right  to  name  an  arbitrator.  He  seems  to  take 
the  position  that  it  is  a  queer  provision  in  the  contract  that  one  of  the 
parties  to  the  contract  has  the  right  to  name  his  arbitrator.  Why,  that  is 
done  every  day  in  the  world  in  this  land.  Whenever  arbitration  contracts  are 
made,  this  is  the  form  they  take  and  each  party  names  his  own  arbitrator,  and 
if  they  can  not  agree  the  two  select  a  third.  The  arbitration  provision  in 
this  contract  goes  further  and  states  that  if  the  two  arbitrators,  selected  on  the 
one  hand  by  the  power  company  and  on  the  other  by  the  Government,  can  not 
agree  upon  the  third  man,  then  the  presiding  judge  of  the  Court  of  Appeals 
of  the  Fifth  Circuit  of  the  United  States  shall  select  the  third  man.  Nothing 
could  be  fairer  than  that  in  providing  the  ways  and  means  of  fixing  the  fair 
price  that  the  Alabama  Power  Co.  should  pay  the  Government  for  this  property. 
Mr.  Garrett.  The  general  law  of  arbitration,  in  selecting  arbitrators,  would 
require  that  they  should  be  disinterested  parties. 
Mr.  Dent.  Yes. 

Mr.  Garrett.  And  not  anybody  who  was  interested,  either  a  Government 
official  or  a  person  interested  in  the  Alabama  Power  Co. 
Mr.  Dent.  They  should  be  disinterested  parties,  certainly, 
Mr.  GARRhTPT.  I  would  like  to  submit  this  quest  on  in  regard  to  the  matter 
of  the  contract  referred  to  by  Mr.   Dent.     In  the  event   this  contract  should 
fail,  what  do  you  say   to   th  s   proposition.   Mr.   Dent:    Suppose   this  contract 
has  failed  of  execution,  instead  of  being  executed  on  the  7th  day  of  November, 
nearly  a  year  after  the  operati<uis  had  l^egun  it,  and.  as  a  matter  of  fact,  had 
never  been  executed,  and   that  at  the  sgning  of  the   armi.stice  the  Govern- 
ment of  the'  United  States  had  owed  the  Alabama  Power  Co.  .$2r>0.rKX)  as  a 
balance  due  on  construction,  on  its  fee  for  constructing.    On  what  would  they 
recover?    What  would  be  the  status  in  that  case? 
Mr.  Dent.  They  could  not  recover. 

Mr.  Garrett.  They  would  have  no  claim  against  the  Government? 
"Slv.  Dent.  No  legal  claim. 
^Ir.  Garrett.  Because  there  was  no  contract? 
Mr.  Dent.  Because  there  was  no  contract ;  yes. 

Mr.    (tArrett.  Do   you    not   think    they   would   have   a    rght   to    it'cover   on 
quantum  meruit? 

Mr.  Dent.  Not  against  the  Government.     If  the  contract  had  been  a  contract 
between  individuals,  they  would  have,  but  not  aga'iist  the  Government. 

Mr.   Garrett.  When  they  wetit   ahead  and   <lid   this  work  upon   an   under- 
stiinding  with  the  officials  of  the  Government,  by  letters  and  telegrams  and 


828 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SH0ATJ3  PROPOSITIONS. 


829 


|i 


memoranda  VubmitttHl  to  them,  and  they  did  perform  it,  although  no  contract 
was  ever  executed,  would  not  the  AUibama  Power  Co.  have  any  recourse  aj?a:nst 
the  iJovernment.  in  the  event  the  Government  sliould  owe  tlie  company  a  fee? 

Mr.  Dkxt.  I  do  not  think  so,  as  ajra  nst  the  (Jovernment  itself.  That  was  the 
opini<»n  of  the  Comptroller  of  the  Treasury,  and  the  opinion  of  this  com- 
mittee, and  the  opinion  of  Congress  which  resultetl  in  the  passage  of  the  so- 
called  I>eut  Act.  That  act  was  passed  for  the  very  purpose  of  takng  (-are 
of  contiacts  that  had  not  been  executed  in  accordance  with  the  terms  prescribetl 
by  the  statute. 

Mr.  (Jakkktt.  Then  I  understand  your  pos  tion  to  l>e  that  if  this  contract 
failed,  thei'e  is  no  contractural  relationship  existing  between  the  Alabama  Power 
(Sk  and  the  I'nited  States  for  any  jmrpose? 

Mr.  Dkxt.  Ves.  sir;  that  !s  ujy  position. 

Mr.  (fARRETT.  And  that  although  the  Alabama  Power  Co..  representing  the 
(iovernment.  dd,  as  a  matter  of  fact,  take  (Jovernment  funds  and  con- 
struct this  property  upon  its  real  estare,  and  re<*eive  compensation  for  con- 
struct ng  it  upon  its  real  estate,  a  good  fee.  and  all  of  the  funds  necessary 
for  the  complet On  of  the  work  were  furnished  by  the  (Iovernment,  still,  that 
they  <ou!d  be  heard  to-day  that  they  had  not  consented  to  this  property  being 
constructed   ui)on   their  real   estate,   when   they  did  it  with   heir  own  hands? 

Mr.  I>KNT.  In  the  tirst  place,  Mr.  Garrett,  the  Alabama  Power  Co,  never 
receved  any  money  from  the  CJovernment.  The  Government  disbursed  its  own 
funds  on  its  construction  work  down  there  by  its  own  disbursing  officer. 

Mr.  (JAUKFrrr.  Who  d  d  this  work? 

Ml*.  Dknt.  It  was  done  under  the  supervision  f»f  the  Alabama  Power  Co. — 
that  is,  the  construction — but  the  disbursements  and  the  payment  for  it  were 
made  through  Govermnent  officers  and  by  Government  officers. 

Mr.  (tARrett.  Did  not  the  Alabama  Power  Co,  have  a  contract  to  construct 
this  work? 

Mr.  Dent.  The  only  one  tliey  had  was  the  one  of  November,  1918. 

Mr.  Garrett.  As  to  the  actual  construction  work,  did  they  have  the  con- 
tract, or  some  other  corporation? 

Mr.  Dent.  I  believe  some  of  the  work  was  sublet. 

Mr.  Martin.  On  the  minor  part,  such  as  grading,  some  contractors  were  em- 
ploye<l,  having  teams,  merely  to  do  some  grading  work ;  but  practically  all 
of  that  was  done  in  the  name  of  the  Alabama  Power  Co. 

Mr.  Garrett.  Though  the  Alabama  Power  Co.  was  the  company  that  did  do 
the  construction? 

Mr.  Martin.  Yes,  sir. 

Mr.  Garrett.  The  Alabama  Power  Co.  constructed  this  building  upon  its 
property,  and  for  that  construction  it  received  a  fee.  a  cost-plus  fee.  Do  I 
understand  you  to  say  that  if  this  contract  should  fail,  although  the  Alabama 
Power  Co.  made  a  contract  with  the  Government  to  construct  this  property 
upon  its  real  estate,  and  did.  as  a  matter  of  fact,  construct  it  and  receive<l  a 
good  fee  for  consructing  it,  it  can  then  be  heard  to-day  that  it  did  not  give 
its  consent  for  this  property  to  be  placed  upon  its  real  estate? 

Mr.  Dent.  You  say  if  this  contract  failed,  and  that  the  Alabama  Power  Co. 
had  a  contract  with  the  Government.  You  first  state  that  the  contract  failed, 
and  then  you  go  on  and  assume  that  they  had  a  contract. 

Mr.  Garrett.  No;  I  am  assuming  that  they  actually  performed  as  though 
there  was  a  written  contract,  although  the  contract  may.  for  some  reason,  be 
declared  null  and  void.     I  am  now  speaking  on  that  question. 

Mr.  Dent.  Of  an  implied  contract? 

Mr.  Garrett.  On  the  question  of  the  Alabama  Power  Co.  having  a  continuous 
right  to  hold  this  property  by  virtue  of  the  fact  that  the  Government  had  put 
it  upon  its  real  estate,  under  the  laws  of  Alabama. 

Mr.  Dent.  I  will  repeat  what  I  have  rei>eatedly  stated  to  the  committee  in 
answer  to  your  question,  because,  of  course,  it  is  my  opinion,  which  I  give 
for  what  it  is  worth,  that  if  this  transaction  had  taken  place  between  private 
parties  or  between  private  corporations  that  the  law  would  imply  a  contract, 
and  that  there  could  be  a  recoverj-,  at  least  upon  quantum  meruit.  provide<l 
no  valid  written  c<mtract  was  made.  But  there  is  a  difference  wiien  a  contract 
is  made  with  the  Government.  We  went  through  all  of  that  at  the  time  of  the 
passage  of  the  Dent  Act. 

Mr.  Garrett.  I  understand  that.  You  evidently  do  not  catch  my  point,  or 
I  failed  to  make  myself  understood.  I  was  rather  astounded  at  your  state- 
ment that  under  the  law  of  Alabama,  in  the  event  thjit  this  contract  should 


fail,  that  the  Alabama  Power  Co..  under  the  law  of  Alabama,  would  have  a 
right  to  hold  all  this  property  as  a  part  of  its  realty,  having  been  put  upon 
its  property  in  the  absence  of  a  written  contract. 

Now  then,  would  the  laws  governing  property  rights  in  Alabama  be  different 
in  a  case  where  thte  Government  is  involved  than  one  where  private  individuals 
or  private  corporations  are  involved? 

Mr.  Dent.  The  laws  of  Alabama  wouhl  not  be  different  on  that  sub.ie<t. 
but  the  right  to  contract  is  different.  If  you  have  no  contract  at  all,  if  the 
Government  is  in  the  attitude  of  being  absolutely  without  any  contract  an«l 
has  gone  ahead  and  erected  improvements  without  the  consent  or  permission 
of  the  Alabama  Power  (X.  the  general  law  of  the  land  is  that  the  owner  of  the 
lands  gets  the  benefit  of  the  improvements  under  those  circinnstance.s. 

Mr.  Garrett.  My  point  is  that  that  would  be  an  impossible  condition  to  arise 
in  this  case  because  the  Alabama  Power  Co.  put  up  these  improvements. 

]Vrr.  Dent..  I  thnik  myself  it  would  be  an  inqmssible  condition  to  arise,  l)ecau.se 
I  think  the  contract  is  valid.  * 

Ml".  Wttrzhach.  W^ould  you  be  willing  to  make  a  broad  statement  that  an 
agent  with  power  to  .sell  could  enter  into  an  optional  agreement  binding  ui)on 
the  principal,  without  reference  to  the  reasonableness  of  the  terms  of  the 
optional  agreement? 

Mr.  Dent.  I  do  not  know  that  I  exactly  understand  that  (juestion  put  in  such 
a  general  form. 

Mr.  Wurzrach.  In  other  words,  an  opti<mal  agreement  implies,  from  its  very 
terms,  a  sale  to  one  person  as  contradistinguished  from  a  sale  to  any  person 
willing  to  pay  the  iirice.     It  limits  the  possible  purchasers  by  the  very  terms, 
does  it  not? 
Mr.  Dent.  Yes. 

Mr.  WuRZBAcH.  That  is.  the  usual  optional  agreement?  I>o  you  think  that 
an  agent,  under  a  power  to  .sell,  would  be  permitted  to  nuike  an  optional  agree- 
ment, say,  that  no  .sale  couhl  be  made  except  to  one  particular  person,  say, 
for  a  per.otl  of  six  years  after  tlie  power  of  sjile  was  granted  to  the  agent? 

Mr.  Dent.  I  will  answer  that  in  this  way,  by  stating  the  fact  in  conne<,*tion 
with  this  contract. 

Mr.  W^URZBACH.  That  is  a  hypothetical  ca.se? 

Mr.  Dent.  Yes:  and  it  is  rather  a  moot  question.  But  the  facts  in  th  s  case 
are  that  under  the  terms  of  this  contract  the  Government  had  the  right  to 
denmnd  that  the  Alabama  Power  Co.  purchase  this  property,  on  the  one  hand, 
an<l  the  Alabama  I*ower  Co.  had  the  right  to  demand  of  the  Government  that 
it  sell  the  property.  I  do  not  see  any  retison  why  an  agent,  having  authority 
to  sell,  can  not  go  ahead  and  select  the  party  to  purchase  the  property,  includ- 
ing that  party  in  the  agreement,  at  a  certain  specified  time  and  stating  that 
that  party  shall  buy  the  proi)erty.  I  do  not  think  the  time  limit  has  any  effect 
upon  the  authority  of  the  agent. 

Mr.  WuRZBACH.  I  asked  the  question  having  in  mind  the  acts  of  May  ami 
of  July,  1918.  I  think  you  admit  that  is  the  only  authority  for  the  executi<m 
of  this  contract? 

Mr.  Dent.  Yes,  sir;  that  is  true. 

Mr.  WuRZBACH.  You  claim  that  that  act  gives  authority  to  certain  agents  of 
the  Government  to  sell  Government  property? 
Mr.  Dent.  Yes,  sir. 

Mr.  WURZBACH.  There  was  no  sale  of  the  property  made  in  this  contract, 
but  it  is  at  most  an  option  conferred  upon  the  Alabama  Power  Co.  to  buy  at 
a  future  date? 

Mr.  Dent.  I  do  not  agree  with  you  that  it  is  at  most  only  an  option.  It  is 
an  absolute  right  on  the  part  of  the  Government  to  demand  that  the  Alabama 
Power  Co.  purchase  this  property ;  on  the  other  hand,  the  Alabama  Power  Co , 
as  the  other  contractor,  has  the  absolute  right  to  demand  of  the  Government 
that  it  sell.  There  is  no  option  in  that. 
Mr.  WURZBACH.  But  the  price  was  not  agreed  upon  at  that  time. 
Mr.  Dent.  No ;  the  price  was  not  agreed  upon  at  that  time,  but  the  methml 
was  provided  in  the  contract  by  which  a  price  could  be  ascertained. 

Mr.  WURZBACH.  According  to  the  terms  of  the  contract,  if  it  is  a  legal  con- 
tract, no  one  else  could  bid  for  the  property  except  the  Alabama  Power  Co.? 
Mr.  Dent.  No,  sir. 

Mr.  WURZBACH.  Do  you  think  the  agents  of  the  Government  had  the  power 
under  the  authority  of  the  acts  of  Congress  of  1918  to  make  that  kind  of  a 
contract? 


«30 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


831 


Mr.  Den't.  I  certainly  do.  I  think  it  is  necessarily  implied  within  the  terms 
of  the  absolute  power  of  sale.  It  was  a  contract ;  it  was  an  absolute  contract 
to  sell  this  property  at  a  fixed  period  of  time.  I  do  not  see  any  legal  objec- 
tion to  that.    There  is  no  option  in  it  that  I  can  see. 

Mr.  WuRzBACH.  In  any  kind  of  an  optional  agreement,  a  usual  optional  agree- 
jnent,  it  means,  in  effect,  that  no  one  else  can  buy  except  the  person  with  w^hom 
the  agreement  is  made? 

Mr.  Dent.  That  is  true. 

Mr.  WuRZBACH.  And  it  is  inconsistent  with  an  open  sale,  is  it  not? 

Mr.  Dent.  It  is  not  a  sale  at  that  particular  time;  it  is  a  sale  at  a  future 
'date,  so  far  as  this  contract  is  concerned.  I  repeat  that  this  ccmtruct  is  not, 
«trictly  speaking,  an  option  contract. 

Mr.  WURZBACH.  Except  as  to  the  price  that  is  to  be  paid? 

Mr.  Dent.  Except  as  to  the  price  that  is  to  be  paid,  but  the  sale 

Mr.  WURZBACH.  You  think  it  is  a  binding  agreement? 

Mr.  Dent.  A  binding  agreement  to  sell  at  the  time  it  was  made,  and  the  terms 
•of  sale,  and  the  date  of  the  sale  were  agreed  upon,  and  the  price  of  the  property 

was  to  be  fixed  at  a  later  time.  ,       .  , 

Mr.  Garrett.  Under  the  law,  Mr.  Dent,  has  the  Government  the  right  as  yet 
to  demand  the  purchase  of  this  property  by  the  Alabama  Power  Co.? 

Mr   Dent.  Yes   sir. 

Mr!  Garrett.  What  did  tlie  contract  provide  about  three  years  subsequent? 

Mr  Dent.  The  Government,  as  I  recall  the  terms  of  the  contract,  could  not 
make  a  demand  until  the  expiration  of  three  years  after  the  war.  Anybody 
who  studies  the  matter  can  understand  why  that  provision  was  put  m  the  con- 
tract. At  that  time  neither  the  Alabama  Power  Co.  nor  any  other  corporation 
<!ould  borrow  anv  large  sums  of  money,  during  the  war,  and  nobody  knew  how 
long  that  financial  condition  was  going  to  last  after  the  war ;  and  it  was  put 
in  there  so  that  the  Alabama  Power  Co.  would  not  be  caught  in  such  a  con- 
<lition  when  the  eompanv  was  in  such  a  financial  plight  after  the  war  so  that 
it  could  not  obtain  money  to  carry  out  a  contract;  and  that  is  a  very  fair  and 
reasonable  provision  in  the  contract.  i   4.1  „|.  +v,« 

Mr  Garrett.  You  mean  that  the  Government  could  not  demand  that  the 
Alabama  Power  Co.  buy  this  property  before  three  years  subsequent  to  the 
conclusion  of  peace? 

Mr.  Dent.  I  think  that  is  the  term.  .  .v.     „      -^     i.     c     ^u^^^  ,-« 

Mr  Garrett.  According  to  the  proclamation  of  the  President.  So  there  is 
yet  to  run  about  two  years,  during  wliich  the  Government  can  not  get  it.  al- 
though the  war  has  actually  been  over  about  six  months. 

Mr.  Dent.  That  is  the  fault  of  Congress  and  the  President  that  peace  wa^ 
not  declared  any  earlier.     It  is  not  our  fault.    ^      ^    .      ^,        ..^  ,,     .,. 

Mr  G\RRETT.  But  it  is  provided  in  the  contract,  on  the  other  hand,  that 
the  company  may  <lemand  that  the  Government  sell  it  at  any  time? 

Mr   Dent.  Yes. 

Mr.  Garrett.  That  the  Government  sell  to  you? 

Mr.  Dent.  Yes.  .  ^  ^f 

Mr.  Garrett.  But  that  the  Government  has  to  wait  for  a  fixed  period  or 
years  before  it  can  demand  the  purchase? 

IVIr    Dent   Yes    sir. 

Mr!  Garrett.  Do  you  tliink  that  is  sauce  for  the  goose  as  well  as  sauce  for 

the  gander? 

Mr  Dent.  I  think  that  is  a  fair  proposition,  and  the  reason  was  that  if  the 
Alabama  Power  Co.  found  itself  in  such  a  financial  condition  at  any  time  that 
it  could  pay  the  Government  for  the  property,  the  sooner  it  bought  it  the  bet- 
ter off  both  the  Government  and  the  Alabama  Power  Co.  would  be,  and  the 
three-year  clause  was  put  in  there  because  of  the  financial  condition  that  nec- 
essarilv  follows  every  war. 

Mr.  Garrett.  Do  you  not  think  the  three-year  clause  was  put  in  there  be- 
cause the  Alabama  Power  Co.  expected  to  pay  for  the  plant  in  three  years  out 
of  its  sinking  fund  which  the  Government  was  to  pay  for  the  power? 

Mr.  Dent.  Of  course,  if  the  contract  had  run  on  and  the  Government  liad 
paid  for  the  power,  it  would  have  come  out  of  the  sinking  fund.    But  it  was 

our  property. 

Mr.  Garrett.  It  was  your  property,  created  by  the  Government.  You  have 
a  situation  of  the  Government  building  your  plant  out  of  its  own  money,  and 
then  you  fix  it  so  the  Government  can  not  demand  that  you  sell  it,  and  then 
you  create  a  sinking  fund  under  which  the  Government  could  pay  to  you  the 


cost  of  the  plant  at  the  end  of  three  years,  which  you  expected  it  would  do, 
and  it  would  have  done,  if  the  plant  had  been  operated  to  i^full  capacity  1 
do  not  see  where  the  Alabama  Power  Co.  is  inc^ring  any  liability     In  other 

TiN  o^^%f„d«"^'"H'^^"'"  '""^  Government  built  a  plant^id  paid  for  i?  ou 
of  Its  OH n  funds,  and  gave  your  company  a  commission  for  buildine  it    and 
then  you  tie  up  the  Government  so  you  can  demand  that  voumavbuv  it 
such  a  length  of  time  so  that  you  would  have  been  able  to  my  f^r  the  cost  of 

for  fllr^wer''  '"'  '^"'^"^  '""^  '''''''''  '^  *^«  amount '^hrSov'exnmen^^^^^^^^^^^ 

the'^n'iS  in  'tMt'way  f"  ''^  ^^-""-^  o^-^,  you  would  not  have  written 

Mr.  Garrett.    No,  I  would  not. 

Mr.  Dent.  But  the  contract  is  written  that  way,  and  the  question  is  whefh^r 
you  are  going  to  carry  out  its  obligations  quesrion  is  v^hether 

Mr.  WuTtzBACH.  Coming  back  along  the  same  line  of  questions  I  oronoiinilpd 
to  you  awhile  ago.  section  5  of  article  22  of  the  CH>ntract  ha?this  nrovS 

In  the  event  that  the  contractor  shall  on  demand  of  the  Unt^StZ^^  fail 
or  refu^  to  purchase  the  Warrior  extension  and  Warrior  substS  nndpr  III 
of  the  foregoing  subdivisions  of  this  article,  the  United  States  mav  til  ^fZ 
same  to  another,  subject  to  the  conditions  that%aid  properi^^^^^ 

Erns^mUYell^J^^^  ^'^"  ''  '''^''^'  ^^^^  «^^  mo^ntr^/fertrsaTe^^s 

but  a  tim  and  binding  agreement,  on  the  face  orthe  contract  i?  is  stUl  on 

IS  prid^e'd^  inhTaVee";^er  ^^  "^^  ^^^^  '^  ^"^  ^^t^'^  Z 

Mr.  Dent.  I  think  they  do,  Mr.  Wurzbach.     I  think  that  clause  von  h«xv» 

Mr.  Wurzbach.  Could  not  or  would  not' 

Mr.  Dent.  Could  not  or  would  not  cariy   out  this  contract    and   th«t  tho 

^r/r^Ai  r"'^  li^^"  ^^^  alternative  right  to  sell  this  propertrr^^ 
suing  the  Alabama  Power  Co.  for  a  breach  of  the  contract 

Mr.  Wurzbach.  Of  selling  it  to  some  one  else' 

Mr.  Dent.  Yes. 

Mr.  Garrett.  Selling  it  to  some  one  who  would  operate  it' 

b;<.„  a,.  „„„„  .SSSld^tr™,  Sr'i  bS.o'^^.ST'.S  s 

Mr'  WrrT;  J^^'  \  ^'''    ^^^'"^  ^^  ^  Privilege  on  the  part  of  the  Government 
Ml    WURZBACH.  I  can  not  agree  with  you  on  that.  government. 

^L^J' nv!""^  "^'^^  K^""^  *^  construe  the  whole  section  together 
that  respect,  because  the  President  located  this  plant  there  ns  «   wn.  .^ 


832 


MUSCLE  SHOALS  PROPOSITIONS. 


ment  As  to  what  has  been  done  down  there,  it  was,  strictly  speaking,  no  more 
or  no  less  than  a  war  measure,  which  the  President  by  his  order  mad-e  in  order 
that  we  might  be  protected  in  tlie  event  that  we  could  not  get  nitrates  from 

Chile.  .      ^  .      .     ^1, 

The  last  proposition  is  this :  Mr.  Oliver  calls  attention  to  a  prov.so  in  the  act 
of  July  9  1918.  and  contends  that  that  proviso  shows  that  the  act  had  its 
limitations,  and  that  by  reason  of  the  fact  that  the  Secretary  of  War  should 
make  a  detailed  report  to  Congress  of  the  sales  of  war  materials,  lands,  fac- 
tories, or  build. ngs  and  equipment  sold  under  authority  contained  in  this  act. 
Now  Mr.  Oliver  states  in  his  argument,  after  quoting  that  proviso  in  the  lan- 
guage in  which  it  is  written  in  the  law,  that  they  had  to  report  to  Congress  the 
terms  of  the  sale,  the  price  received,  and  so  on,  at  the  next  regular  session 
of  Congress,  which  occurred  within  eight  or  nine  months  after  the  act  was  passed. 
I  am  sure  my  good  fr.end  and  former  colleague  from  Alabama  did  not  intend 
to  mislead  the  committee.  I  know  he  would  not  do  anything  of  that  kind ;  but 
he  overlooked  the  fact  that  the  language  of  that  proviso  reads  this  way,  that 
a  detailed  report  shall  be  made  to  Congress  on  the  first  day  of  each  regular 
session  of  the  sales  of  such  war  supplies.  It  was  not  limited,  Mr.  Oliver,  to  the 
next  regular  session ;  it  provides  expressly  that  a  report  must  be  made  on  the  first 
day  of  each  regular  session  following  the  sale  under  this  authority.  That  is  the 
language  of  the  act  itself,  so  the  proviso  can  not  be  construed  as  my  friend 
has  contended.    He  evidently  overlooked  the  word  "  each  "  in  that  proviso. 

I  believe  that  covers  practically  everything  except  one  little  paragraph  that 
1  want  to  call  attention  to,  the  closing  paragraph  in  Mr.  Oliver's  remarks,  the 
very  last  sentence,  where  he  says  by  way  of  peroration,  "  Is  there  any  man  who 
ever  studied  law  for  a  day  that  would  for  a  moment  contend  that,  where  you 
confer  authority  to  sell  large  and  valuable  property  upon  an  agent  and  confer 
it  upon  him  and  him  alone,  the  agent  has  the  right  n  the  exercise  of  that 
authority  to  sell  to  delegate  to  the  party  who  is  to  buy  the  right  to  appoint  some 
one  to  fix  the  price?" 

You  would  conclude  from  reading  that  statement— that  is.  anybody  who  was 
nut  familiar  with  the  terms  of  the  contract— that  Mr.  Oliver  intended  to  convey 
the  idea  that  this  contract  gave  to  the  Alabama  Power  Co.  the  right  to  fix  the 
price  of  this  property.  I  am  sure  Mr.  Oliver  did  not  intend  that.  But  yet  that 
is  the  way  his  language  reads.  I  am  sure  when  my  good  friend  comes  to  revise 
Ills  remarks  he  will  change  that  somewhat,  because  there  is  absolutely  nothing 
in  the  contract  which  authorizes  the  Alabama  Power  Co.  to  fix  the  price  of 
that  property.    We  have  already  shown  you  that. 

In  conclusion — and  I  am  sorry  I  have  taken  up  so  much  of  the  time  of  the 
committee— we  contend  that  this  property  is  not  necessary  for  the  public  use 
at  Muscle  Shoals,  and  that  we  have  a  legal  right  which  we  can  assert  in  the 
courts.  We  contend  that  the  right  to  make  an  absolute  sale  carries  with  it 
the  right  to  fix  the  time,  the  terms,  and  conditions  of  sale,  all  the  details  neces- 
sarv.    Those  are  the  two  main  propositions  asserted  by  my  friend  here. 

We  contend  that  under  this  contract  we  have  the  right,  the  absolute  right,  to 
purchase  this  property  at  a  fair  value  to  be  fixed,  if  it  can  not  be  agreed  upon, 
by  arbitration ;  and  we  furthermore  contend  that  under  the  law  of  Alabama,  if 
the  contract  between  the  Governmeut  and  the  Alabama  Power  Co.  is  held  to  be 
absolutely  void,  and  that  there  is  no  contract  whatever  between  the  parties, 
tlieu  under  the  law  the  property  which  the  Government  has  placed  upon  our 
land  belongs  to  us. 

Mr.  Garrett.  On  the  question  of  sale,  under  the  contract  that  provides  for 
sale  but  does  not  fix  the  terms.  Does  not  the  law  in  the  respective  States  and 
does  not  the  law  in  Alabama  provide  that  where  you  have  a  contract  for  sale, 
but  the  terms  and  conditions  of  the  sale  are  not  fixed  in  the  contract,  there  is  a 
statute  which  provides  that  it  shall  be  sold  as  under  execution?  Usually  the 
States  have  such  a  statute,  that  where  you  have  a  contract  providing  for  the 
disposition  of  property,  as  in  this  contract,  but  it  does  not  fix  the  time  or  the 
terms,  is  there  not  generally  a  statute  that  provides  that  where  there  is  no 
time  fixed  or  no  terms  fixed  in  the  contract  that  it  shall  be  sold  as  under  exe 
cution? 

Mr.  Dent.  There  is  no  such  statute  in  Alabama. 

Mr.  Chairman,  let  me  call  your  attention  to  a  daily  news  letter  issued  by  the 
War  Department  on  Tuesday,  August  18,  1918.  I  just  want  to  have  this  go  in 
the  re<-ord.  showing  that  the  action  of  the  Government  in  furnishing  money  to 
increase  manufacturing  facilities  during  the  war  was  not  limited  to  the  Ala- 
bama Power  Co.    That  was  an  ordinary  form  of  contract  that  the  Government 


MUSCLE  SHOALS  PROPOSITIONS. 


833 


entered  into  yvith  various  manufacturing  industries  during  the  war.  This  cir- 
cular issued  by  Gen.  Goethals  contains  this  language  • 

"  The  increased  manufacturing  facilities  that  have  been  created  by  the  War 
Department,  exclusive  of  the  new  industries  serving  the  Navy  and  the  Emer- 
SofS^^  Corporation,  from  April  7,  3917,  to  July,  1918,  cost  approximately 

;f T^^  .  •  ?v?.  ^"""^  \f  ^"^^  ^  peculiar  contract ;  that  was  the  ordinarv  form 
or  contract  m  this  case. 

.MS'''J^''i^'^^ir"^""  ^  ^,™  ^/''^^^^  ^^^*  ^^»^-  ^^^ten,  of  the  Ordnance  Depart- 
ment, who  has  the  records  of  the  department  in  reference  to  this  contract  is 
here  and  prepared  to  give  the  testimony  which  I  stated  we  could  establish  to 
s-how  that  the  Secretary  of  War  himself  did  authorize  the  making  of  th  s  con> 
tract.     Are  you  ready  to  hear  him  now? 

Ill'  rlll^^'  J  ^':?^^^^^;if.  *^e  committee  would  give  me  a  few  moments? 
Mr  GRKI..NE  (acting  chairman).  What  is  the  committee's  pleasure'     Without 
oluectiori,  IMr.  Oliver  may  proceed.  piensuie.     ^vitnout 

ADDITIONAL  STATEMENT  OF  HON.  WILLIAM  B    OLIVEB   A  RPPHir 
SENTATIVE  IN  CONGBESS  FROM  THE  STATE  OF  ALAKAmI 

Mr.  Oliver.  Mr.  Chairman,  I  appreciate  the  indulgence  of  the  committee  and 
will  endeavor  not  to  impose  long  on  your  valuable  time.  ^o^nniircee,  and 

.u  u  E?"^.^°^  i  ^^'^  ^^^  exceptions  to  the  ordinary  lawyers  who  drift  into 
the  habit  of  confidently  asserting  the  correctness  of'^ourTes^ctive  positions 
fn  1  \^JT'  ^«^,^.^?«tely  for  me,  I  think  Mr.  Dent  has  referrS  the  committ^ 
nnw  t.1^''^''°  r^^''*^'  '^  ^'^'^  "^"^  carefully  read,  fully  answers  the  positSn  hi 
now  takes,  and  is  an  unquestioned  authority  in  support  of  the  position  taken 
by  me  on  yesterday.  It  is  not  unusual  for  two  lasers  to  think  ?hat  one  anS 
the jame  decision  constitutes  an  authority  for  the  positions  taken  by  Xh  of 

Mr.  Dent.  Or  to  think  they  have. 

r.at^I'  ?^'J*-  ^f  to  "^y  remarks  on  yesterday,  I  had  no  opportunity  to  pre- 
pare a  brief,  and  my  statement  was  made  in  an  impromptu  way,  but  the  au^ 
ions  of  Jaw  involved  were  simple  and  well  and  thoroughly  sett^?  and  I  cfn 
but  fee   that  the  committee  will  agree  as  to  the  correctness  of  my  posUion 

I  stated  that  since  the  Government  had  a  national  project  at  Muscle  Shoals 
devoted  and  to  continue  to  be  devoted,  to  a  public  use,  that  Congress  had  the 
unquestioned  right  to  determine  what  property  was  n^essary  to  bTtaken  by 
condemnation  for  the  enjoyment  or  furtherance  of  such  national  project,  and 
that  vvhen  Congress  directed  what  property  was  necessary  and  should  be 
acquired  by  condemnation,  that  the  necessity  for  the  taking  of  such  Drooertv 
was  a  matter  of  legislative  decision  and  not  open  to  the  courts  for  review     I 

.n!Jl5^.'^^^*'ll^^*^  ^^  l*"^  ^*''i  ^"""^  ^^^  ^»«®  <^*t^  ^y  M**-  J^ent  is  the  highest 
authority  for  the  correctness  of  my  position. 

In  the  case  he  refers  to,  two  questions  were  raised :  First,  whether  a  battle 
ground  could  be  acquired  and  set  apart  for  public  use,  and  second,  whether 
Congress  had  the  right  to  determine  what  property  should  be  taken  in  con- 
nection therewith  for  such  public  use  and  enjoyment.  In  that  case  a  railroad 
company  contested  the  right  of  the  Government,  through  Congress,  to  first  de- 
clare that  the  battle  ground  could  be  maintained  and  set  apart  for  public  use 
and  second  even  though  the  court  should  hold  that  such  was  a  proper  public 
use  that  the  righth  of  way  of  the  railroad  company,  which  Congress  had 
directed  should  be  condemned,  was  in  no  way  necessary  to  the  use  and  en- 
joyment of  the  battle  ground.  The  court  held  that  Congress  had  properly  de- 
clared a  public  use  by  seeking  to  preserve  the  j^attle  gi-ound  at  Gettysburg,  and 
tliat  since  It  had  declared  a  public  use  at  such  place,  the  question  as  to  what 
property  should  be  taken  for  that  public  use  was  altogether  a  legislative  ques- 
tion, and  the  necessity  for  the  taking  of  such  property  as  Congress  might  de- 
termine should  be  taken  could  not  be  inquired  into  by  any  court  The  court 
simply  held  that  courts  could  inquire  into  the  public  use  sought  to  be  de- 
clared by  Congress,  but  when  a  proper  public  use  was  found  that  then  the 
action  of  (Jongress  in  declaring  what  property  should  be  taken  for  the  en- 
joyment of  that  public  use  was  a  legislative  and  not  a  judicial  question 

I  read  in  support  of  my  decision  ths  excerpt  from  the  decision  citetl  bv  Mr 


834 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


835 


"  It  is  also  objected  that  the  exception  below  is  valid,  wherein  it  is  stated 
that  all  of  the  land  of  the  railroad  company  ought  to  be  taken,  if  any  were  to 
be  taken.  The  use  for  which  the  land  is  to  bo  taken  having  been  determined 
to  be  a  public  use,  the  quantity  which  should  be  taken  is  a  legislative  and  not 
a  judicial  question,"  citing  the  case  of  Shoemaker  v.  The  U.   S.,  147  U.  S. 

These  are  the  decisions  that  Mr.  Miller,  a  member  of  the  committee,  had  in 
mind  when  he  asked  Mr.  Dent,  "  Have  you  any  authority  holding  that  where 
a  public  use  has  been  properly  fixed  and  declared,  that  it  is  then  a  matter  of 
judicial  determination  as  to  the  necessity  for  taking  property  to  carry  out 
such  public  use,  where  Congress  had  declared  the  taking  of  such  property  a 

necessity  *'" 

Mr  Dent  had  no  authority  which  he  could  cite  Mr.  Miller  to,  and  I  submit  he 
can  find  none.    The  very  authority  he  reads  to  the  committee  denies  the  position 

hp  asserts 

On  yesterday  the  committee  will  recall  that  I  stated  that  since  the  Govern- 
ment owned  a 'nitrate  plant  at  Muscle  Shoals,  which  was  to  serve  the  Govern- 
ment in  war  and  in  peace  for  a  public  use,  and  since  the  question  now  before  the 
connnittee  was  whether  the  power  plant  at  Gorgas  and  the  transmission  line 
leading  therefrom,  constructed  with  Government  money,  on  land  of  the  Alabama 
Power  Co ,  and  which  supplied  electric  enerj?y  and  power  to  the  nitrate  plant  at 
Muscle  Shoals,  was  ne<-essary  for  the  use  and  enjoyment  of  such  nitrate  plant, 
if  Ccm'^ress  decided  that  it  was,  and  ordered  the  acquirement  of  the  land  on 
which  the  Government  property  was  situated,  by  condemnation,  that  the  action 
of  Cou'^re*;*;  w(mld  be  conclusive  on  the  question  of  necessity,  and  could  not  be 
inquired  into  by  any  court.  The  rereading  of  my  remarks  on  yesterday  will 
show  to  the  committee  that  that  was  the  position  I  took. 

Mr.  B^iELDs.  You  meant  the  power  plant  at  Gorgas?  .,,.., 

Mr  Olivkr  Yes  In  conclusion,  1  do  not  think  my  distinguished  tnend  and 
former  colleague,.Mr.  Dent,  will  be  able  to  supply  the  committee  with  any  author- 
ity to  sustain  the  position  he  announces  as  to  the  law  of  agency.  I  have  read  the 
law  of  agency  to  no  effect,  if  Mr.  Dent's  remarkable  dec:aration  of  what  a  simple 
power  to  sell,  with  the  qualifjing  proviso,  which  I  called  attention  to  cm  yester- 
div  can  be  construed  into  an  authority  for  the  agent  to  postpone  the  right  of 
the  principal  to  sell  his  property  for  six  years,  and  further  authorize  an  option 
on  the  property,  delivering  possession  to  the  optionee  with  the  right  to  use  the 
property  during  such  term  of  six  years,  when  the  right  of  the  principal  has 
been  postponed  to  sell,  the  optionee,  however,  having  the  right  to  purchase  dur- 
ing such  time  if  he  so  elects,  and  should  he  elect  at  the  expiration  of  said  six 
years  to  purchase  and  the  price  and  value  of  the  property  at  that  time  could  not 
be  agreed  on,  that  then  the  optionee  should  have  the  right  to  appoint  an  arbitra- 
tor and  the  Government  an  arbitrator,  and  these  two  the  right  to  select  a  third 
to  ascertain  and  fix  the  value  of  the  property  at  such  postponed  time.  Surely 
mv  friend  will  not  insist  that  the  President  or  head  of  an  executive  department, 
authorized  by  the  Julv  9  act  to  sell  war  emergency  property,  requiring  that 
where  a  sale  was  made  that  a  report  should  be  submitted  to  the  next  ensuinji 
regular  session  of  Congress,  showing  the  property  sold,  to  whom  sold,  for  what 
purpose  sold,  and  the  price  received,  would  authorize  the  President  or  head  of 
an  executive  department,  one  or  both,  to  enter  into  a  contract  which,  according 
to  its  terms  would  postpone  the  right  of  the  Government  to  sell  the  propert.v 
to  anyone  for  six  years,  giving  to  the  Alabama  Power  Co.  during  this  time  the 
use  of  the  property  and  the  right  to  purchase  if  they  so  elected,  and  if  the  price, 
when  its  election  to  purchase  was  so  exercised,  if  ever,  could  not  be  agreed  on, 
that  then  the  power  company  mi|:ht  appoint  one  arbitrator,  the  Government  one. 
and  these  two  a  third,  could  by  any  stretch  of  the  imagination  be  construed  as 
a  proper  exercise  of  authority  by  the  President  or  the  head  of  an  executivt^ 
department  under  the  said  act.  If  he  can  find  any  authority  to  sustain  him  in 
that  contention,  I  am  sure  the  lawyers  on  the  committee  will  be  glad  to  read  it. 
Mr  Wurzbach  properly  called  attention  to  the  absurdity  of  such  an  insistence. 

There  is  no  law  so  well  understood  as  that  the  agent  must  get  his  authority 
absolutely  from  the  principal,  and  all  reasonable  intendments  against  the  im- 
proper exercise  of  it  are  mdulged  in  favor  of  the  principal,  and  the  party  deal- 
ing with  an  agent  must  himself  consult  the  authority  under  which  the  agent 
seeks  to  act,  and  is  chargeable  with  notice  of  every  limitation  placed  on  the 
agent.  Surelv,  in  the  power  given  by  Congress  to  the  President  or  to  the 
head  of  an  executive  department  to  sell  property,  no  authority  was  given  to 
anyone,  whether  President  or  head  of  an  executive  department,  much  less  to 


a  subordinate,  to  postpone  the  right  of  the  Government  to  dispose  of  that 
property  for  three  or  six  years  and  to  grant  to  a  prospective  purchaser  an 
option  on  and  the  free  use  of  it  during  such  postponed  period,  or  to  exercise 
a  right  which  he  might  or  might  not  claim,  to  call  for  an  earlier  sale. 

I  am  astounded  that  the  gentleman  could  read  into  any  law  of  agency  so 
broad  an  interpretation  as  that. 

Now,  in  reference  to  his  criticism  of  my  statement  of  the  proviso  in  the  act 
of  July,  if  he  had  read  just  a  little  further  on  in  the  speech,  he  would  have 
found  that  it  was  subject  to  this  limitation,  that  the  agent  must  report  sales 
made  prior  to  the  next  session  of  Congress.  Of  course,  that  is  what  I  meant. 
In  other  words,  if  the  President,  or  head  of  an  executive  department,  under- 
took, in  the  exercise  of  the  authority  to  sell,  granted  by  the  act  of  July,  to 
sell  before  the  next  regular  session  of  Congress,  then  as  to  the  sales  he  under- 
took to  make,  he  was  to  report  the  purchaser,  the  purpose  of  the  sale,  and 
the  price  received.  In  this  case  it  so  happened  that  the  power  company  claimed 
that  there  was  a  sale  to  it  before  the  December  session  of  1918.  Then,  under 
the  provisions  of  the  act  of  July  9,  the  agent  had  to  report  that  sale  to  the 
December,  1918,  session  of  Congress.  And  in  doing  so  he  had  to  report  the 
name  of  the  purchaser,  the  purpose  for  which  he  bought  it,  and  the  price  re- 
ceived. Pray  tell  me  how  the  agent  in  this  case,  granting  that  he  had  authority 
to  sell,  could  have  reported  those  facts,  since,  lo  and  behold,  we  find  no  price 
is  fixed,  or  even  is  to  be  considered,  until  after  three  years  from  the  date  when 
the  proclamation  of  peace  is  issued  by  the  President.  That  proviso  of  itself 
served  notice  on  all  prospective  purchasers  that  if  you  undertake  to  buy 
property  from  the  Government  under  act  of  July,  1918,  you  must,  before  the 
next  session  of  Congress,  in  so  far  as  to  that  which  you  now  seek  to  buy, 
agree  definitely  on  the  terms  of  the  sale,  because  the  agent  of  the  Govern- 
ment is  only  authorized  to  sell  when  he  can  report  that  fact  ba<*k  to  Congress. 

How  could  this  requirement  of  Congress,  as  set  out  in  the  proviso  of  the 
July  9  act.  have  been  complied  with? 

I  thank  you,  Mr.  Chairman  and  gentlemen. 

Mr.  Hull.  I  would  like  to  ask  you  one  question.  Probably  I  do  not  under- 
stand the  matter.  I  understand  from  your  argument  that  yon  claim  that  deci- 
sion gives  Congress  the  right  to  take  this  property  away  from  the  Alabama 
Power  Co.  and  at  the  same  time,  pracf.cally,  to  make  a  Contract  with  Henry 
Ford  for  its  purchase.  In  other  words,  I  have  not  any  doubt  that  we  have 
the  right  to  take  it  for  our  own  use,  but  there  is  a  question  in  my  mind  as  to 
whether  we  have  the  right  to  take  this  property  from  the  Alabama  P(»wer  Co. 
and  transfer  it  to  Henry  Ford. 

Mr.  Oliver.  That  question  was  asked  on  yesterday  in  your  absence. 

Mr.  Hull.  Do  you  claim  that  the  decision  you  quoted  g  ves  us  that  rght? 
It  is  not  clear  in  my  mind  that  it  does. 

Mr.  Oliver.  I  stated  on  yesterday  in  reply  to  a  similar  question  that  thi^ 
property,  as  I  understood,  if  you  should  order  it  taken  by  the  Government, 
is  to  be  used  in  connection  with  a  governmental  purpose  which  you  in  the 
1916  act  had  declared  to  be  a  national  project,  to  wit,  the  maintenance  of  the 
nitrate  units  at  Muscle  Shoals,  and  they  were  to  be  kept  by  the  party  to 
whom  you  might  sell  or  lease,  if  the  proposition  now  before  you  is  accepted, 
for  100  years  in  a  stand-by  ready  condition,  and  I  thought  that  if  the  Gorgas 
Power  Plant  was  taken  to  supply  electric  current  to  Nitrate  Plant  No.  2,  that 
would  be  in  connection  with  the  use  and  permanent  operation  of  a  national 
project,  and  on  that  hypothesis  unquestionably  had  the  right  to  acquire  and 
condemn  the  Gorgas  plant. 

Mr.  Hull.  I  agree  with  you  as  to  plant  No.  2,  and  that,  fundamentally,  is 
what  we  are  after,  the  preservation  of  plant  No.  2.  But  if  we  do  it  under 
that  power,  then  we  have  got  to  establish  in  a  court  that  this  plant  at  Gorgas, 
8S  miles  away,  was  essential  to  plant  No.  2. 

Mr.  Oliver.  No. 

Mr.  Hull.  I  think  you  would. 

Mr.  Oliver.  This  decision  holds,  Mr.  Hull,  I  think  you  will  find  if  you  read  it 
carefully,  that  since  you  have  declared  a  public  use  which  is  recognized  as  a 
public  use,  at  Muscle  Shoals,  for  a  national  project,  then  you  have  the  right  to 
condemn  property  to  be  used  in  connection  therewith,  and  Congress  deter- 
mine the  necessity  of  what  property  is  necessary  for  the  operation  of  that 
plant  at  Muscle  Shoals.    That  is  a  legislative  question  and  not  a  judicial  one. 


836 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


837 


h 


Mr.  HuvL.  But  there  Is  nothing  in  the  Ford  contract  as  to  the  preservation 
of  this  transmission  line  to  the  Gorgas  plant  for  the  use  of  the  Government  in 
the  future,  is  there? 

Mr.  Oliver.  That  is  the  way  I  read  it,  Mr.  Hull;  that  is  my  understanding 
of  it. 

Mr.  Greene.  We  are  very  much  obliged  to  you,  Mr.  Oliver. 

Mr.  Oliver.  I  appreciate  the  courtesy  of  the  committee  very  much. 

(Thereupon,  the  committee  adjourned  to  meet  to-morrow,  Thursdav,  March  2 
1922,  at  10.30  o'clock  a.  m.)  '  ' 


COMiflTTEE  ON    MILITARY   AfFAIHS. 

House  of  Representatives. 

Thursday,  March  2,  1922. 

The  committee  met  at  10.30  o'clock  a.  m.,  Hon.  Julius  Kahn  (chairman)  pre- 
siding. 

The  Chairman.  I  have  before  me  two  letters  asking  that  certain  statements 
be  put  in  the  record  so  as  to  correct  other  statements  that  have  bf*en  made 
here.  One  is  from  Mr.  Waldo,  calling  attention  to  a  telegram  from  Mr.  Swann. 
and  the  other  letter  is  from  Mr.  Bower,  and.  if  there  is  no  objection,  the  letters 
will  be  put  in  the  record. 

( The  letters  referred  to  follow : ) 

Washington,  D.  C,  February  27,  1922. 
Hon.  JULIUS  Kahn, 

Chairman  Committee  on  Militarn  Affairs, 

House  of  Representatives,  Washington,  I).  C. 
Dear  Mr.  Kahn  :  In  order  to  meet  the  representations  made  by  Mr.  Hammitt 
regarding  the  limitations  of  the  Swann  process  for  the  manufacture  of  phos- 
phoric acid,  I  wired  Mr.  Swann  advising  him  of  their  statement  regarding 
his  process  and  have  received  the  attached  reply. 

Will  you  kindly  read  this  into  the  record  and  verv  much  oblige, 
Respectfully, 

W.  G.  Waldo. 
r  Telegram.] 

Birmingham.  Ala.,  February  20,  1922. 
W.  G.  Waldo, 

No.  203  Third  Street,  SE..  ^\'a.<ihi)lgtoll.  I).  C: 

American  Cyanamid  Co.  representatives  have  no  definite  knowledge  of  our 
operations.  Their  statements  are  incorrect.  Phosphoric  acid  can  be  mado 
in  large  quantity  by  our  process  without  producing  tonnage  of  ferrophosphorus 
in  excess  of  market  requirements.  We  have  made  every  effort  to  produce  larg- 
est tonnage  possible  of  ferrophosphorus  because  price  was  higher  per  unit  of 
phosphoric  acid  than  in  fertilizer. 

Theodore  Swann. 

Farm  Bureau,  Ameuican  Federation. 

Washington.  D.  C.   }farfh  1,  1922. 
Hon.  Julius  Kahn, 

Chairman  Committee  on  Militarii  Affairs. 

House  of  Representatives.  Washington,  D.  C. 

Dear  Mr.  Kahn:  In  the  hearings  of  yesterday.  February  28,  Mr.  Martin, 
president  of  the  Alabama  Power  Co.,  called  the  attention  of  the  committee  to 
a  seeming  contradiction  between  testimony  I  gave  before  the  subcommittee 
of  the  Appropriations  Committee  of  the  House,  February  15.  1921.  and  the  tes- 
timony I  presented  to  your  committee  February  23,  1922.  This  seeming  con- 
tradiction being  that  before  the  Appropriations  Conmiittee  I  stated  that  his 
nitrate  plant  could  operate  on  secondary  power  and  before  your  conmiittee 
that  it  could  not. 

I  desire  to  call  to  your  attention  the  fact  that  in  1021  it  was  a  Government 
corporation  not  operating  for  profit  which,  in  addition  to  operating  the  nitrate 
plant,  had  the  control  of  and  could  sell  all  the  power  generated  by  the  Wilson 
Dam,  by  the  steam  plant  in  connection  with  No.  2  nitrate  plant,  and  also  the 
power  from  the  Gorgas  River  plant.  A  single  corporation  operating  both  the 
nitrate  plant  and  all  this  power,  I  submit,  might,  in  order  to  sell  a  complete 


block  t)f  100,000  primary  horsepower,  operate  the  nitrate  plant  on  secondary 
horsepower  by  at  least  two  methods. 

First.  As  suggested  to  the  Appropriations  Committee,  during  periods  of  low 
water  the  carbide  furnaces  might  be  temporarily  closed  but  the  balance  of  the 
plant  kept  in  operation.  This  could  only  be  done  by  the  utilization  of  the 
additional  secondary  horsepower — over  and  above  the  secondary  horsepower 
required'  for  the  operation  of  the  nitrate  plant — which  is  available  from  the 
flow  of  the  river  during  the  periods  of  high  water  for  the  operation  of  stand-by 
carbide  furnaces — 2  of  the  12  are  so  designated — to  accommodate  sufficient  car- 
bide to  continue  the  operation  of  the  balance  of  the  plant  during  the  time  it  was 
shut  down.  This  is  based  on  having  sufficient  primary  power  to  operate  con- 
tinuously all  of  the  nitrate  plant  except  the  carbide  furnaces.  These  furnaces 
use  approximately  90  per  cent  of  the  power  consumed  in  operating  No.  2  plant. 
Of  course,  this  would  entail  considerable  expense  which  such  a  corporation, 
however,  might  well  charge  against  the  cost  of  selling  the  block  of  1(X),000 
primary  horsepower  at  commercial  prices. 

Second.  It  might  operate  the  nitrate  plant  on  secondary  power,  and  in  periods 
of  low  later  utilize  the  steam  power  plant  at  nitrate  plant  No.  2  for  the  opera- 
tion of  this  plant  during  low-water  periods.  Again,  in  this  case  the  extra  cost 
entailed  in  the  using  of  the  steam  power  during  the  low-water  period  could 
properly  be  charged  as  cost  against  the  sale  of  this  100,000  primary  horsepower. 

I  wish  to  submit,  however,  that  under  the  present  situation  a  company  leas- 
ing nitrate  plant  No.  2  under  the  terms  of  the  Alabama  Power  Co.'s  lease  could 
not  avail  themselves  of  either  of  these  two  methods,  and  consequently  my  belief 
is  that  it  could  not  bear  the  expense  of  closing  down  the  plant  during  low- water 
periods. 

Testimony  of  Mr.  Swan,  as  you  will  remember,  dealt  with  the  production  of 
phosphoric  acid  in  electric  furnaces.  This  does  not  necessitate  the  expensive 
air  liquefication  of  a  nitrate  fixation  plant  and  is  simply  an  electric  furnace 
operation  in  which  the  phosphate  rock  is  treated  directly  in  the  furnace 
phosphoric  acid  obtained  and  utilized  in  treating  more  phosphate  rock  in  the 
production  of  double  superphosphates.  I  do  not  desire  to  differ  with  Mr.  Swan 
that  such  operation  as  this  might  be  operated  on  secondary  power  and  close 
flown  diirinj'  low-water  £)eriods>  but  this  is  not  analogous  to  the  operation  of 
the  nitrate  plant  No.  2  with  the  large  investment  In  machinery  required  for  the 
air-fixation  feature  of  it,  which  is  the  question  when  you  consider  operating 
nitrate  plant  No.  2  with  such  secondary  horsepower  as  would  be  provided  by 
the  Alabama  Power  Co. 

I  would  greatly  appreciate  it  if  you  would  bring  this  statement  to  the  atten- 
tion of  the  committee  and  allow  it  to  be  printed  in  the  hearing  directly  follow- 
ing the  testimony  of  the  Alabama  Power  Co.,  and  I  wish  to  say  in  fairness  to 
Mr.  Martin,  that  had  he  analyzed  the  situation  as  above  set  out  I  do  not  believe 
he  would  have  called  the  attention  of  the  committee  to  the  so-called  contra- 
diction. 

Very  truly,  yours, 

American  Farm  Bureau  Federation. 
R.  F.  Bower,  Special  As^sistant. 

STATEMENT  OF  MB.  THOMAS  W.  MABTIN,  PBESIDENT  ALABAMA 

FOWEB  CO. — Besumed. 

The  Chairman.  Mr.  Martin,  we  will  now  proceed  from  where  we  left  off. 
Mr.  Miller  was  asking  you  some  questions,  but  he  tells  me  he  has  concluded, 
and  Mr.  Hill  would  like  to  question  you. 

Mr.  Hill.  Mr.  Martin,  thanks  very  largely  to  some  of  the  senior  membei-s  of 
this  committee,  the  United  States  has  a  definite  national^defense  policy  at  this 
time.  The  Fourth  Army  Corps  Area  takes  in  North  Carolina.  South  Carolina, 
Tennessee,  Mississippi,  Florida,  Georgia,  and  Alabama.  It  has  been  recom- 
mended by  this  committee  that  Camp  McClellan,  which  is  near  Anniston,  be 
retained  as  the  headquarters  training  area  for  that  corps.  I  have  before  me 
here  the  map  of  the  Alabama  Power  Co.'s  distributing  system,  which  you 
furnished  the  committee,  and  I  want  to  ask  you  if  I  am  correct  in  these  esti- 
mates of  mileages  which  I  have  made,  using  the  scale  that  you  have  on  this  map. 
As  I  see  it  from  this  map,  nitrate  plant  No.  2  is  120  miles  from  Anniston  on  a 
straight  line. 

Mr.  Martin.  That  is  approximately  correct. 


838 


MUSCLE  SHOALS  PBOP0SITI0N8. 


MUSOLE  SHOALS  PROPOSITIONS. 


839 


Mr.  Martin.  That  is  about  right,  Mr.  HilL 
r^erv^^mp^a^'^'^  ^^^"*  ^'*'  ^  ^''  ^^^^^^^^  '^^  ™"^«  ^^«™  ^he  Warrior 

Mr.  Martin.  As  the  transmission  line  .is  constructed,  which  I  think  is  really 
the  nearest  route,  it  is  nearer  90  miles.  ^ 

Mr,  Stoll.  Eighty-eight  miles. 

Mr.  Hill.  The  transmission  line,  I  understand,  is  88  miles.  I  was  sinmlv 
hgiiring  this  on  air-line  distances  for  purposes  of  comparison 

^nf'i'Jl^Sir'J''l.^''^V^^''^  *^^*  *"  building  a  transmission  line  you  have 
got  to  build  It  with  reference  to  contours,  railroads,  supplies,  and  in  some 
instances  they  can  not  be  directly  on  an  air  line  because  mountains  or  vaHe^'s 
or  marsh  conditions  may  slightly  change  the  direction.  ^ 

are  mountainlis.*  '"  ^  ""^"^  ^'"•''  ''''"''*^'  *^''''"^*'  ^^^""^  ^""^  '^"'^  P^^^"  «^  '^ 

contouJ'of  Th'l'  lYnd"^^^^  **"  ^^'^^  ^^^  '**'"*^  ^'^  '''''"^  ^""^^"^  '''•**'  reference  to  the 
^//iT"  ^"'^U?"!?'^  McClellan  is  situated,  roughly,  in  approximately  the  center 
Anni^^?on,Ts  i?  ifot?''  ^''^^'    ^'''''*  ^'''^^''^^''  ^^^^^^^  ^^^"^  ^^^  ^'^^'^  ^^^^  ^o 

^Ir.  ]Martin.  Yes.  sir;  about  30  miles  from  Anniston. 

Mr.  Hill.  During  the  war  your  company  furnished  the  American  Oovernment 
light  and  power  for  the  Camp  McClellan  situation,  did  it  not' 

Mr.  Martin  Yes,  sir;  we  furnished  the  light  and  power  at  Camp  McClellan 
MKi^lInan'*''  '^"PP^^*'^^'  <^^  ^^^^^s^'  the  light  and  power  that  is  used  at  Camp 

or^^^^n  ^V^^''  ^"  «^her  words,  your  company  during  the  war  supplied  what  power 
and  light  was  needed  at  Camp  McClellan  and  is  still  doing  so  for  Go^-ernment 

Mr.  Martin.  That  is  correct,  Mr.  Hill. 

Mr.  HiTx.  And  your  company's  network  of  plants  and  lines  runs  all  through 
through'thele?*'        "'  McClellan,  Talladega,  and  all  that  region  down 

Mr.  Martin.  That  is  correct,  Mr.  Hill. 

Mr.  Htlt>.  That  is  a  very  rough,  mountainous  country  through  there' 
Mr.  Martin.  Some  parts  of  it  are  quite  mountainous, 
^fr.  Hill.  And  especially  near  Camp  McClellan. 
Mr.  Martin.  Yes 

Mr.  Hill.  But  it  was  considered  by  the  War  Department  one  of  their  verv 
best  southern  training  camps?  ' 

Mr.  Martin.  Undoubtedly  it  is.  Mr.  Hill,  because  the  country  is  very  healthv 
and  there  are  many  advantages,  of  course,  which  vou  understand  because  I 
understand  you  were  there  for  a  while. 

Mr.  HiLT^  Yes;  I  was  there  for  nearly  a  year,  and  I  know  that  general 
countr>'.  A\e  maneuvered  all  around  that  Gadsden  countrv  and  Talladega 
countrj^  with  the  division.  ' 

Mr.  Martin.  Yes. 

Mr.  Hill.  Were  you  here  during  most  of  these  hearings,  Mr.  Martin' 

Mr.  Martin.  I  was  not  in  the  room.  I  was  in  Washington  during  all  of 
these  hearings;  yes. 

Mr.  Hill.  I  want  to  call  your  attention  to  page  374  of  the  hearings  Have 
you  that  volume  before  you?    It  is  part  7. 

Mr.  Martin.  Mr.  J.  W.  Worthington's  statement. 

Mr.  Hill.  Yes ;  this  is  Mr.  J.  W.  Worthington's  statement  given  on  Thursday, 
February  16.  Mr.  Worthington  appeared  as  chairman  of  the  executive  com- 
mittee of  the  Tennessee  River  Improvement  Association.  I  asked  him  certain 
questions  and  a  would  like  to  read  a  portion  of  that  page  in  order  to  bring 
the  matter  up  again.  We  were  discussing  the  guaranties  offered  by  the  Ford 
proposition  for  the  production  of  fertilizer,  and  I  suggested  a  different  method 
of  measuring  the  guaranteed  power  that  was  to  be  put  in  fertilizer.  There 
had  been  some  question  about  how  much  finished  fertilizer  would  be  the 
equivalent  of  110,000  tons  a  year  of  nitrate,  and  there  was  some  uncertainty 
about  it.    I  said  thii: 

"  Mr.  Hill.  In  connection  with  your  expression  in  reference  to  the  allotment, 
whether  there  would  be  any  allotment  of  a  definite  amount  of  horsepower  for 


the  use  of  the  fertilizer  plant  and  the  nitrate  plant,  what  would  that  be  In 
value? 

"Mr.  Worthington.  In  that  particular  case,  measuring  the  production  of 
nitrate  plant  No.  2  in  ammonium  nitrate,  it  would  be  about  110,000  horse- 
power. 

"  Mr.  Hill.  You  spoke  of  its  being  from  100,000  to  110,000  horsepower. 
"Mr.  Worthington.  Stating  the  production  in  terms  of  ammonium  nitrate. 
"  Mr.  Hill.  Would  it  be  a  thing  for  us  to  consider  here  in  connection  with 
section  14,  concerning  which  there  has  been  a  good  many  questions — you  prob- 
ably recollect  that  the  Secretary  of  War  testified  that  he  was  not  clear  as  to 
the  guaranty  for  the  production  of  fertilizer,  so  we  have  been  particularly 
interested  in  section  14.  Suppose  we  added  to  section  14,  in  the  third  line, 
after  the  words  '  ammonium  nitrate  per  annum '  something  to  this  effect : 
'And  that  the  company  would  promise  to  devote  to  the  said  production  100,000 
of  primary  horsepower  from  dams  Nos.  2  and  3,  or  from  the  steam  plant  at 
Gorgas,  or  the  steam  plant  at  nitrate  plant  No.  2  throughout  the  lease  period.* 
That  is  providing  that  there  would  be  a  devotion  of  a  certain  amount  of  horse- 
power to  that  production  of  fertilizer. 

"Mr.  Worthington.  That  section  absolutely  carries  that  amount  of  power 
that  Nitrate  Plant  No.  2  is  operated  to  the  capacity  production  of  llOyOOO  tons 
of  ammonium  nitrate  or  its  equivalent. 

"Mr.  Hill.  I  so  understood  from  you.  Would  there  be  any  objection  to  put- 
ting that  in  as  an  amendment  to  the  provisions  of  the  section — that  they  devote 
a  minimum  of  100,000  horsepower  to  the  production  of  fertilizer? 

"  Mr.  Worthington.  You  will,  I  am  sure,  appreciate  how  one  in  my  position 
is  situated  right  now ;  that  I  could  not  answer  whether  Mr.  Ford  would  agree 
to  that. 

"Mr.  Hiix.  Would  .vou  mind  talking  that  over  with  Mr.  Ford? 

"  Mr.  Worthington.  I  will  discuss  it  with  Mr.  Mayo,  and  we  will  see  what 
can  be  done." 

Now,  I  am  much  interested  to  see  that  in  your  offer  you  have  measured  your 
annual  rental,  as  you  might  say,  or  your  annual  return  to  the  Government,  in 
power  on  that  horsepower  basis.  Now  I  hold  in  my  hand  the  printed  copy  of 
your  offer  furnished  by  the  Secretary  of  War.  You  offer,  in  the  first  place, 
to  take  out  a  license  under  which  you  will  complete  the  dam,  locks,  and  power 
house  at  Dam  No.  2,  which  is  the  Wilson  Dam.  Second,  you  offer  to  furnish 
free  to  the  Government,  or  anyone  it  may  designate,  from  the  hydro-power 
plant  100,000  horsepower  as  required  for  the  production  of  fertilizer  and  the 
munitions  of  war  and  for  research  in  connection  therewith,  and  if,  due  to 
changes  in  the  art,  its  use  of  as  much  as  100,000  horsepower  is  discontinued 
by  the  Government,  the  Alabama  Power  Co.  is  to  purchase  and  pay  for  the 
same  in  accordance  with  the  schedule  set  forth  in  the  license.  This  power  to 
be  the  second  100,000  horsepower  at  any  time  available  from  the  normal  flow 
of  the  river.  Then  you  speak  of  purchasing  the  Government's  interest  in  the 
Warrior  extension. 

Now,  as  a  member  of  this  committee,  I  am  looking  at  this  proposition  from 
the  point  of  view  primarily  of  national  defense. 

Mr.  Martin.  Yes. 

Mr.  Hill.  But  also  having  in  mind  tlie  great  demand  on  the  part  of  the  public 
for  cheaper  fertilizer;  but  to  me  this  is  primarily  a  national-defense  proposi- 
tion. This  corps  area  here — the  Fourth  Corps  Area — has  always  been  a 
mobilization-camp  section  in  every  war  we  have  had. 

Mr.  Martin.  Yes;  that  is  my  understanding. 

Mr.  Hill.  As  I  understand,  Huntsville  was  a  very  important  mobilization 
center  in  the  Spanish- American  War,  was  it  not  Mr.  Chairman? 

The  Chairman.  I  do  not  recall. 

Mr.    Martin.  That   is   correct,   sir. 

The  Chairman.  I  recall  there  was  a  very  big  camp  at  Chattanooga. 

Mr.  Hill.  Yes.  Now,  Mr.  Martin,  can  you  tell  us  what  other  big  camps 
there  were  in  what  is  now  the  Fourth  Army  Corps  Area  during  the  past  war? 
There  was  Camp  Greene,  in  North  Carolina,  was  there  not? 

Mr.  Martin.  Yes ;  and  there  was  a  camp  at  Columbia,  S.  C,  one  at  Atlanta, 
one  at  Columbus,  Ga. ;  Camp  Benning,  I  believe,  is  the  name  of  that  camp. 

Mr.  Hill.  That  is  a  permanent  camp? 

Mr.  Martin.  Yes. 

Mr.  Hill.  How  far  are  you  from  Camp  Benning? 


840 


MUSCLE  SHOALS  PBOPOSITIONB. 


Mr.  MAftTiN.  You  will  see  that  our  lines  on  the  eastern  border  of  Alabama 
run  to  a  point  called  Opelika,  the  extreme  southeastern  point  of  our  line. 

Mr.  Hill.  How  near  is  Benning  to  your  power-transmission  line? 

Mr.  Mabtin.  We  go  to  a  point  known  as  Opelika,  in  Alabama,  and  Columbus, 
Ga.,  where  this  camp  is  located,  is  about  20  miles  to  the  eastward  of  Opelika. 

Mr.  Hill.  Then  you  are  within  serving  range  of  Camp  Benning,  are  you  not? 

Mr.  Mabtin.  We  are,  Mr.  Hill;  and  it  has  been  in  discussion  between  our 
company  and  the  Columbus  Light  &  Power  Co.  that  we  would  connect  our 
lines  at  Opelika  with  the  Columbus  company  to  better  serve  the  needs  of  that 
section  of  Alabama  and  Georgia,  giving  assistance  to  each  company  when  it 
needs  it,  from  one  system  to  another;  in  fact,  we  are  under  an  arrangement 
with  them  to  go  forward  with  that  connection. 

As  you  know,  during  the  war,  there  was  a  very  large  camp  at  Montgomery, 
Camp  Sheridan.  Our  company  now  has  extended  its  lines  and  is  serving  power 
to  the  Montgomery  district.  We  do  not  distribute  there,  but  it  is  distributed  by 
anotber  company,  the  Montgomery  Light  &  Water  Power  Co.,  and  that  com- 
pany furnished  all  the  requirements  for  lighting  and  power  service  at  Camp 
Sheridan  during  the  war. 

Mr.  Hill.  Then  your  company  during  the  war  and  at  the  present  time  is 
within  serving  distance  of  the  majority  of  the  great  training  centers  in  what  is 
now  the  Fourth  Army  Corps  Area? 

Mr.  Mabtin.  Yes.  Chattanooga  is  within  easy  distance.  We  have  a  tie-line 
connection  with  the  Tennessee  Power  Co.  which  easily  enables  power  to  pass  to 
Cbattanooga  for  any  purpose  that  might  be  required  there. 

Mr.  Hill.  Now,  I  am  not  entirely  clear  as  to  the  difference  between  primary 
and  secondary'  horsepower.  In  my  questions  that  I  asked  Mr.  Worthington  I 
had  in  mind  primary  horsepower,  because  I  had  in  mind  that  if  the  Government 
did  not  need  all  of  this  100,000  horsepower  for  purposes  of  developing  ferti- 
lizer it  could  use  it  in  this  corps  area  for  lighting  and  for  other  purposes.  Now, 
can  you  light  lamps,  etc.,  with  this  secondary  horsepower? 

Mr.  Mabtin.  Yes;  of  course. 

Mr.  Hill.  What  is  the  difference,  in  plain  words,  between  primary  and  sec- 
ondary horsepower?    Is  there  any  difference  except  the  steadiness  of  flow? 

Mr.  Mabtin.  That  is  all. 

The  Chaibman.  Mr.  Hill,  that  has  been  explained  in  the  record,  but  I  have 
no  objection  to  having  it  repeated  at  this  time. 

Mr.  Hnx.  I  wanted  it  in  this  connection  because  my  understanding  of  it 
is 

The  Chaibman.  It  is  already  in  the  record,  but  I  think  it  is  probably  fair 
that  Mr.  Martin  should  again  explain  what  the  difference  is. 

Mr.  Hill.  Then  for  all  practical  purposes  primary  and  secondary  horsepower 
are  the  same  except  in  the  flow? 

Mr.  Mabtin.  Absolutely.    It  is  just  a  question  of  river  flow. 

Mr.  Hill.  If  the  United  States  had  available  during  the  term  of  this  arrange- 
ment 100,000  horsepower  a  year,  that  power  could  be  used  for  lighting  and 
heating  or  for  any  other  purposes  in  these  various  camps,  could  it  not? 

Mr.  Mabtin.  Yes,  Mr.  Hill. 

Mr.  Hill.  During  the  war  you  furnished  electric  power  to  Camp  McClellan? 

Mr.  Mabtin.  Yes. 

Mr.  Hill.  Now,  at  war  prices  how  much  would  100,000  secondary  horsepower 
be  worth  a  yenr?  Is  that  a  fair  question  or  is  it  the  kind  of  question  that  could 
be  properly  answered? 

Mr.  Martin.  Well,  you  would  have  to  take  into  the  question  so  many  assump- 
tions as  to  the  place  of  delivery,  the  hours  of  use 

Mr;  Hill.  Let  us  take  Camp  McClellan  as  an  illustration. 

Mr.  ;Martin.  And  the  place  of  its  delivery,  etc.  I  might  express  it  in  this 
form :  In  times  of  war  this  power  would  be  very  useful,  but  you  would  want  in 
addition  to  this  power  steam  power  or  some  other  power  to  make  it  permanent. 
You  would  not  want  to  be  dependent  necessarily  on  the  flow  of  the  streams  in 
times  of  war.  What  would  happen  would  be  that  you  would  exercise,  or  the 
President  would  exercise,  some  part  or  all  the  power  vested  in  him  under  the 
terms  of  the  Federal  water  power  act  and  direct  us  to  deliver  any  amount  from 
Lock  12  or  Mitchell  Dam  or  the  Tennessee  River  that  might  be  needed  for  any 
of  those  locations. 

The  Chairman.  Mr.  Hill,  will  you  allow  me  to  ask  a  question  there? 

Mr.  Hill.  Certainly. 


MUSCLE  SHOALS  PROPOSITIONS. 


841 


The  Chaihman.  As  I  understand  it,  primary  i)ower  is  power  that  is  always 
on  tap. 

Mr.  Mabtin.  Yes. 

The  Chairman.  And  secondary  power  depends  upon  the  amount  of  water  in 
the  river,  as  to  whether  it  is  available  or  not. 

Mr.  Martin.  Yes,  sir. 

The  Chairman.  Sometimes  it  is  available  for  seven  months,  sometimes  only 
for  three  months,  and  so  secondary  power  changes  in  volume  according  to  the 
amount  of  water  on  hand,  is  not  that  the  case? 

Mr.  Mabtin.  That  is  true. 

Mr.  Hill.  And  am  I  correct  in  my  recollection  that  you  said  under  these 
circumstances  there  would  be  about  82  per  cent  of  secondary  power  available 
at  most  times  in  your  testimony  the  other  day? 

Mr.  Mabtin.  Yes ;  that  is  correct.  This  100,000  horsepower  is  available  for 
82  per  cent  of  the  time,  taking  an  average  period  of  30  years,  Mr.  HilL 

Mr.  Hill.  That  was  my  understanding. 

Mr.  Mabtin.  There  have  been  very  fine  and  complete  records  made  of  this 
Tennessee  River  flow,  as  complete  as  any  river  in  the  United  States,  and  they 
have  been  plotted. 

Mr.  Hill.  Let  me  ask  you  this  further  question  in  that  connection :  Can  you 
give  the  committee  any  estimate  of  about  how  much  the  value  of  this  100,000 
secondary  horsepower  would  be  delivered,  say,  right  at  the  nitrate  plant,  per 
year,  because  you  have  offered  this  as  a  sort  of  permanent  payment  per  year? 

Mr.  Martin.  It  depends  altogether  on  how  the  Government  would  wish  to 
set  it  up.  The  Government  might  set  it  up  at  once  price  or  another  and  might 
charge  one  price  or  another  to  its  licensee.  I  noticed  in  some  testimony  which 
was  offered  and  which  I  placed  in  the  record  the  other  day,  that  in  former 
hearings  before  this  committee  one  of  the  Government's  consulting  engineers 
placed  a  value  in  fertilizer  production  at  this  point  on  this  power  of  $7.53  per 
horsepower  per  year 

Mr.  Hill.  That  woufd  be  .$753,000  per  year. 

Mr.  Martin.  .$753,000  a  year.  That  was  the  average  of  the  entire  secondary 
)iower.    Of  course,  this  is 

^Ir.  Hill  (interposing).  From  your  testimony  the  other  day  this  is  prac- 
tically all  the  secondary  power  that  would  exist  at  present. 

Mr.  Martin.  It  would  be,  with  the  equipment  which  we  would  initially  put 
in,  240,000  horsepower,  but  there  will  be  additional  equipment  until  we  finallv 
reach  600,000  horsepower,  the  full  installation,  and  everj'thing  above  100,000 
horsepower  is  secondarj-,  and  the  Government  gets  the  first  100,000  horsepower. 

Mr.  Hill.  The  first  100,000  of  the  secondary  power. 

Mr.  Martin.  Yes. 

Mr.  Hill.  Your  proposition  divides  this  up  into  a  power  proposition  which 
in  my  opinion  it  is  essentially. 

Mr.  Martin.  Yes. 

Mr.  Hill.  But  it  also  takes  care  of  the  fertilizer  end  by  setting  apart  not  so 
much  nitrate,  but  by  setting  apart  so  nmch  power  which  can  be  converted  into 
nitrate. 

Mr.  Martin.  Yes, 

Mr.  Hill.  Or  sulphate,  or  whatever  is  necessary. 

Mr.  Martin.  That  is  correct. 

Mr.  Hill.  You  offer  therefore  this  guaranteed  supply  of  power,  which  can 
be  used  for  fertilizer,  expressing  it  not  in  terms  of  nitrate  production  but 
in  terms  of  power. 

Mr.  Martin.  Yes. 

Mr.  Hill.  And  am  I  to  understand  that  the  value  of  that  would  be  about 
$7.53,000  a  year? 

Mr.  Martin.  The  testimony,  Mr.  Hill 

Mr.  Hill.  Or  would  you  prefer  to  go  into  that  further  and  file  a  further 
report  on  that? 

Mr.  Martin.  Well,  I  am  not  saying  myself  what  the  value  would  be  for  ferti- 
lizer production,  but  I  am  taking  the  testimony  which  is  before  the  committee, 
and  that  was  very  exhaustively  gone  into  at  one  of  the  earlier  hearings, 
a  hearing  last  year,  and  the  value  of  $7.53  was  placed  on  that  power  during 
that  hearing,  and  by  $7.53  I  mean  this  entire  block  of.  secondary  power.  That 
which  we  offer  the  Government  is  82  per  cent  of  the  time,  then  it  reduces  and 
goes  down  to  70  per  cent,  50  per  cent,  40  per  cent,  and  30  per  cent.  The 
gentleman  who  made  the  calculation  as  to  the  value  of  $7.53  included  all 


''wiev 


a42 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


84a 


I 


of  the  secohdary  power  over  and  above  $100,000,  and  placed  the  value  of 
$7.53  on  it.  Now,  if  you  segregate  the  first  100,000  of  secondary  power  from 
that  volume  you  no  doubt  will  find  it  has  a  very  much  better  value  than  $7.53. 

Mr.  Hux.  Am  I  right  in  this  interpretation  or  in  this  comparison  of  your 
offer  and  Mr.  Ford's  offer?  Mr.  Ford  offers  to  take  over  this  plant,  the  Gov- 
ernment financing  the  completion  of  the  dam. 

Mr.  Mabtin.  You  say  our  offer  does  that? 

Mr.  Hnx.  No ;  Mr.  Ford's  offer.  Your  offer  contemplates  your  financing  the 
completion  of  the  dam. 

Mr.  Mabtin.  Yes;  that  is  correct. 

Mr.  Hill.  Mr.  Ford's  offer  contemplates  taking  over  the  title  to  Nitrate  Plant 
No.  1  and  Nitrate  Plant  No.  2,  subject  to  certain  reservations  as  to  No.  2. 

Mr.  Mabtin.  Yes. 

Mr.  Hill.  You  contemplate  leaving  that  with  the  Government? 

Mr.  Mabtin.  That  is  correct 

Mr.  Hill.  And  you  contemplate  furnishing  the  Government  power,  which^ 
translated  into  fertilizer,  would  perhaps  be  worth  as  much  as  $753,000? 

Mr.  Mabtin.  Or  might  be  worth  $10  per  horsepower  or  $1,000,000  a  year.  It 
depends  on  the  times  and  conditions  and  tlie  price  at  which  the  Government 
sees  fit  to  pass  it  on  to  its  assignees.  I  have  no  doubt  you  would  find  that  the 
Government  could  realize  $10  per  horsepower. 

Mr.  Hill.  Then  under  your  offer  you  finance  the  water  power  development 
under  the  general  water  power  act? 

Mr.  Mabtin.  Yes. 

Mr.  Hill.  And  you  leave  to  the  Government  its  nitrate  plants  and  guarantee 
it  power?  I 

Mr.^   ^Martin.  Yes. 

Mr.  Hill.  Whereas  under  the  Ford  offer,  he  takes  the  whole  th'ng  personally 
:in«l  the  Government  finances  it. 

Mr.  :Makti.\.  That  is  my  underistaiuling.  Mr.  Hill.         ^  ' 

Mr.   Hill.  Thank  you  :  that   is  all. 

Mr.  Martin.  As  to  this  100,000  secondary  horsepower,  under  the  calcula- 
tions which  have  been  nia<le  as  to  values  heretofore  by  representatives  of 
the  Government,  it  might  easily  be  expressed  in  terms  of  .$10  for  the  fertilizer 
business,  wlrch  means  $1,()0().(K)0  a  year,  and  over  the  period  of  years  you  have 
$50,000,000  return  to  the  Government  in  the  form  of  power. 

Mr.  Hill.  When  is  tliis  .secondary  power  more  available,  in  the  summer 
or  in  the  winter? 

Mr.  Martin.  Of  course,  durinj;  the  winter  months  and  the  spring  months  the 
river  runs  high  and  the  water  is  very  high,  and  the  low  season  months  are 
September,  October,  and  November. 

Mr,  Hill.  Then  suppose  the  Government  should  make  this  arrangement  and 
sliould  want  this  secondar.v  p(>wer  for  use  at  Camp  McClellan.  it  would  be 
more  needed  in  the  winter  months  for  lighting  and  heating  than  in  the  summer 
months. 

Mr.  Martin.  Yes. 

Mr.  Hill.  And  naturally  would  be  more  available  din*ng  tliat  season  of 
the  year ;  is  not  that  right? 

Mr.  Martin.  That  is  correct. 

Mr.  Hill.  In  other  words,  umler  this  proposition  the  Government  would 
have  available  in  th's  Fourth  Corps  Area  this  secondary  power  as  its  own 
and  tben  would  have  the  reserves  of  your  company  behind  it  for  use  in  case  of 

emergency. 

Mr.  Martin.  Yes,  sir.  They  would  have  all  of  those  reserves,  not  only  as  a 
matter  usually  connected  with  the  conduct  of  war  but  as  a  matter  of  contract, 
by  virtue  of  the  fact  that  we  will  have  two  licenses  issued  under  the  terms  of 
tile  Federal  water-power  act,  which  impose  that  specific  obligation  upon  the 
licensee. 

Mr.  Hill.  As  T  understand  Mr.  Ford's  offer,  if  a  scheme  could  be  devised 
by  which  the  fertilizer  equivalent  r)f  110,000  tons  of  nitrate  could  be  made  out 
of  25.000  sectmdary  horsepower  a  year,  Mr.  Ford  would  get  all  the  remaining 
horsei)ower;  in  other  words,  his  contract  does  not  dedicate  a  specific  amount 
of  horsepower  to  this  proposition,  and  I  do  not  think  his  representatives  have 
yet  filed  an  answer  as  to  whether  Mr.  Ford  would  be  willing  to  do  that. 

Mr.  Martin.  I  have  not  seen  it,  Mr.  Hill. 

Mr.  Hill.  And  as  the  case  now  stands,  yours  is  in  terms  of  horsepower  and 
his  is  in  terms  of  nitrate. 

Mr,  Martin.  Yes. 


Mr.  Fields.  Mr.  Martin,  I  would  like  to  get  a  little  more  information  with 
regard  to  the  two  local  development  companies  that  you  referred  to  earlier  in 
your  testimony  upon  this  subject.  I  believe  you  said  there  was  a  wmpany 
organized  at  Muscle  Shoals  and  a  Birmingham  companv  whose  object  it  was 
to  develop  Cherokee  Bluffs. 

Mr.  Martin.  Yes,  sir ;  that  is  correct,  Mr.  Fields. 

Mr.  Fields.  And  those  companies  were  taken  over  bv  the  Alabama  Power  Co  ' 

Mr.  Martin.  Yes,  Mr.  Fields. 

Mr.  F1E1.DS.  By  whom  was  the  principal  stock  in  those  companies  owned. 
Mr.  Martin,  before  they  were  taken  over  by  the  Alabama  Power  Co.? 

^Ir.  Martin.  I  would  have  to  go  back  to  the  old  records,  Mr.  Fiehls.  There 
were  a  number  of  people  owning  them.  Shall  I  go  into  all  the  details?  I  would 
be  glad  to,  so  far  as  my  recollection  carries  me,  Mr.  Fields. 

Mr.  Fields.  Was  Mr.  Washburn  connected  with  those  companies? 

Mr.  ]Martin.  He  was  interested  in  both  the  Muscle  Shoals  Co.  and  the 
Cherokee  Bluffs  Co. 

Mr.  Fields.  Was  he  a  large  stockholder  in  them? 

Mr.  ;Martin.  Yes ;  he  was  a  considerable  stockholder. 

Mr.  Fields  It  is  a  fact  that  Mr.  Washburn  inanipuhited  the  transaction  wliich 
resulted  in  the  Alabama  Power  Co.  taking  over  those  companies,  is  it  not? 

Mr.  Martin.  Well,  I  would  not  put  it  just  in  that  form.  I  think  Mr.  Washburn 
was  one  of  the  principals  in  those  negotiations.  The  negotiations  with  Mr. 
Mitchell  came  up  first  through  others  than  Mr.  Washburn.  Those  negotiations 
came  up  through  a  Mr.  Paul  Brady,  who  lives  in  the  city  of  New  York.  He  is 
the  gentleman  who  initiated  the  program  with  ]Mr.  Mitchell,  and  he  was  inter- 
ested in  the  matter  at  the  instance  of  some  of  his  friends  who  owned  some  in- 
terest in  the  Alabama  Power  Co.  at  that  time.  Then  Mr.  Mitchell,  having 
looked  into  the  situation  of  the  Alabama  Power  Co,,  became  interested  in  these 
two  other  situations  in  a  few  weeks  afterwards.  Mr.  Washburn  was  one  of  the 
principals  in  the  negotiations  in  transferring  the  interests  to  Mr.  Mitchell; 
Mr.  Washburn  and  Mr.  Henry  C.  Jones,  of  Montgomery;  Mr.  .Tames  S.  Pink- 
hardt,  of  Montgomery ;  Mr.  W.  P.  Lay,  of  Gadsden ;  and  Mr.  Hohenburg  and 
Mr.  J.  W.  Worthington  and  Mr.  Charles  H.  Baker.  They  were  the  gentlemen, 
principally,  with  whom  the  transactions  were  conducted. 

Mr.  Fields.  Mr.  Worthington,  to  whom  you  have  referred,  did  not  own  a 
majority  of  the  stock  or  a  great  percentage  of  it,  did  he?  He  was  only  a  light 
stockholder,  was  he  not? 

Mr.  Martin.  I  do  not  recall  just  what  his  stock  interests  were.  I  do  not  recjill 
that,  and  would  have  to  look  it  up  to  see. 

Mr.  FiEij)S.  Have  any  other  local  power-development  companies  been  taken 
over  by  the  Alabama  Power  Co.  or  the  Alabama  Light  &  Traction  Co.  in  the 
Southeast? 

Mr.  iMARTiN.  Yes ;  there  were  a  number  of  companies  operating  in  small  towns 
and  in  the  larger  towns  of  Alabama,  selling  light  and  power  to  communities. 
We  operate  in  about  60  different  towns  in  the  State,  and  at  different  times  our 
company  has  taken  over  lighting  systems  in  various  parts  of  the  State,  and  we 
have  brought  into  those  communities  hydroelectric  service  and  made  available 
power  for  lighting  and  industrial  use  where  it  never  existe<l  before. 

Mr.  Fields.  Was  Mr.  Washburn  connected  with  any  of  those  companies  before 
they  were  taken  over  by  the  Alabama  Power  Co.  or  the  Alabama  IJght  &  Trac- 
tion Co.? 

Mr.  Martin.  None  except  those  I  have  mentioned. 

^Ir.  Fields.  You  mean  the  two  you  mentioned  a  while  ago  before  you  mentionetl 

the  others.  '  ,  ,   «,    ^,       t, 

Mr.  T^Iartin.  Only  the  Muscle  Shoals  Co.  and  the  Cherokee  Bluffs  Co.     He 

was  c(mnected  with  those  companies. 

Mr  Fields.  Earlier  in  your  testimony  y<m  stated  it  would  be  inadvisable  to 
attempt  to  manufacture  all  the  fertilizer  of  the  country  in  one  place,  and  I 
realize  the  wisdom  of  your  suggestion,  but  you  will  agree,  will  you  luft,  that 
unless  the  manufacture  of  fertilizer  by  this  process  is  started  somewhere  the 
farniei-s,  if  thev  are  suffering  by  the  prices  now  imposed  upon  them  by  the 
Fertilizer  Trust,  will  continue  to  so  suffer  unless  this  is  started  somewhere. 

Mr  Martin.  In  answer  to  your  question  I  would  say  that  it  is  my  under- 
standing of  the  testimony  before  this  committee  that  this  nitrate  plant  No.  2 
can  not  manufacture  a 'nitrate  fertilizer  and  compete  with  either  Chilean 
nitrate  or  the  by-product,  coke-oven  ammonium  nitrate.  I  can  not  undertake 
to  speak  as  an  expert,  because  I  have  not  studied  the  question  and  am  not 
an  expert  on  the  question.     I  am  simply  restating  what  has  been  mentioned 


844 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


845 


here.     It  is%a  matter  for  3011  gentlemen  as  to  wbetlier  there  can  be  any  real 
competition  between  nitrate  phmt  No.  2  and  those  other  sources. 

Mr.  Fields.  There  has  been  testimony  which  claimed  that  it  could  be  done 
more  cheaply,  and  that  testimony  called  attention  to  the  fact  that  even  a  duty 
was  asked  in  the  last  tariff  bill  against  German  nitrates,  and  our  attenticm 
was  further  called  to  the  fact  that  Sweden  is  now  shipping  plant  food  around 
through  the  canal  and  selling  it  to  the  fanners  of  California,  and  that  is  plant 
food  manufactured  in  Sweden  by  the  same  process. 

Mr.  Martin.  I  think  you  will  find,  though,  Mr.  Fields,  particularly  in  Ger- 
many, that  it  is  the  Haber  process  that  is  being  used.  I  have  in  my  hands  a 
review  of  that  question  from  Berlin  under  date  of  the  25th  of  February  appear- 
ing in  the  New  York  Times,  in  which  this  statement  is  made  with  regard  to 
the  great  Krupp  plant: 

"  But  it  was  particularly  interesting  to  note  that  all  these  giant  gun  lathe.s 
were  being  operated  to  capacity  on  straight  peace  production.  Instead  of  guns 
they  were  turning  huge  long  seundess  steel  tubes  for  Germany's  nitrate  in- 
dustry. The  famous  Haber  process  of  employing  nitrogen  from  the  air  in 
manufacturing  nitrates  requires  these  great  steel  tubes  as  long  as  the  biggest 
extant  ship's  guns.  .Tust  how  they  function  is  n  closely  guarded  secret  of  the 
nitrate  industrj-.  They  are  set  up  perpendicularly  in  pairs  connecteil  by  shorter 
cross  tubes,  but  beyond  this  even  Krupp's  experts  profess  to  know  no  more 
about  the  synthetic  nitrate  industry." 

All  the  information  which  I  have,  and  speaking  purely  as  a  lavman,  is  to 
the  effect  that  that  is  the  process  whi(;h  is  going  to  be  the  real*  process  by 
which  the  nitrate  industry  is  going  to  succeed  in  this  country  and  abroad. 

Mr.  FiEiDs.  Are  you  informed  as  to  which  process  Sweden  uses? 

Mr.  Martin.  I  understand  it  is  the  arc  process. 

Mr.  Fields.  That  pro<'ess  is  most  like  the  Haber  or  the  cyanamid  process? 

Mr.  Martin.  The  difference,  as  I  undeistand,  between  the  Haber  process  and 
the  cyanamid  process  is  in  the  use  of  power.  The  Haber  process  uses  very  little 
power  and  the  cyanamid  process  uses  a  great  deal  of  power. 

Mr.  Fields.  How  is  the  process  used  in  Sweden  as  compared  with  tho 
cyanamid  process? 

Mr.  Martin.  The  arc  process? 

Mr.  Fields.  Yes. 

Mr.  Martin.  The  arc  process  uses  the  most  power  of  them  all,  and  in  point 
of  units  of  production  to<lay,  you  will  find  the  arc  process  is  the  least  used. 

Mr.  Fields.  But  even  that  being  true,  Sweden  is  using  that  process  and  is 
shipping  its  products  to  the  United  States  around  through  the  Taiiama  Canal 
and  selling  it  to  the  farmers  and  fruit  gr(>wers  of  California. 

Mr.  Martin.  Yes ;  and  they  have  practically  no  power  cost,  due  to  the  excep- 
tional conditions  under  which  power  development  is  made  in  Sweden. 

Mr.  F1EI.DS.  Of  course,  they  are  situated  like  we  are  with  regard  to  Muscle 
Shoals  and  many  other  splendid  water  powers.  They  have  very  splendid  water 
Iiowers  there. 

Mr.  Martin.  With  high  heads  and  great  rivers  tliey  are  able  to  develop  their 
powers  at  verj-  much  less  cost  than  we  can  ever  develop  ours,  at  at  least  some 
of  them.  ' 

Mr.  Fields.  It  has  aiiparently  been  the  policy  of  the  Government  for  several 
years,  beginning  with  the  consideration  of  the  national  defense  act  of  191G 
to  provide  some  place  for  the  prmluction  of  nitrates  for  war  puriioses  in  times 
of  stress  and  for  fertilizer  in  times  of  peace,  and  it  apiiears  further  that  the 
Goveniment  settled  upon  Muscle  Shoals  as  the  place  to  carry  on  that  produc- 
^**!?i:  ^«^  l\  ^^H**  **^  '"®'  ^•^"sidering  the  proposition  of  the  Alabama  Power  Co. 
in  the  light  of  the  opinion  expresseil  by  the  Secretarv  of  War  in  his  letter  to 
the  Congress  accompanying  the  offer  of  the  Alabama  Power  Co ,  that  we  s«v» 
the  finish  of  this  policy,  if  the  offer  of  the  Alabama  Power  Co.  is  accepted  and 
the  recommendations  of  the  Secretary  of  War  as  expresse<l  in  par.igranh  *>  of 
his  letter,  to  which  I  have  referred,  are  carried  out.  1      - 

Mr.  Martin  ()n  the  contrary,  it  would  seem  to  me,  Mr.  Fields,  that  it  makes 
ft  more  practicable. 

Mr   FiEiDS.  In  paragraph  2  of  the  letter  referred  to,  the  Secretary  sjivs  • 

"The  coinpany  offers  to  furnish  the  Government,  or  anv  one  it  mav  desi- 
•late  with  free  power  in  the  amount  of  100,000  secondary 'horsepower 'for  the 
'Jit1^"''nn V  -r  J**''*"*''^*^^  »""^  munitions  of  war  and  res*.arch  in  connection  there- 
uith,  antl  if  for  any  reason  this  use  of  the  power  is  discontinued  Hip  ff»ni. 
imny  will  purclutse  same.    The  feature  of  the  offer  1ms  thTa'w^^^^^^^ 


viding  the  Government  a  return  on  the  $17,000,000  it  now  has  invested  in  the 
water-power  project." 

So  I  understand  from  the  Secretary's  letter  that  he  is  looking  at  the  return 
that  would  come  to  the  Government  by  the  Alabama  Power  Co.  purchasing 
this  project  and  paying  for  it,  which  payment  would  be  applied  as  a  return 
upon  the  $17,000,000  invested  in  the  dam. 

Mr.  Martin.  The  Government  gets  a  return,  may  I  suggest,  Mr.  Fields,  in 
that  it  receives  100,000  horsepower,  whether  it  puts  it  into  fertilizer  production, 
munitions  of  war,  or  sells  it;  in  either  case,  the  Government  gets  a  return. 
Now,  I  do  not  know  just  in  what  sense  it  was  intended  here,  but  it  seems  to 
us  that  the  Government  is  definitely  getting  a  return  on  its  wartime  invest- 
ment, whether  it  converts  that  power  into  fertilizer  or  sends  it  out  for  com- 
mercial or  other  uses. 

Mr.  Fields.  That  might  be  your  construction  of  that  paragraph  of  the  Sec- 
retary's letter,  but  I  am  frank  to  say  that  it  is  not  my  construction  of  it. 

Now,  in  order  to  try  to  arrive  at  a  conclusion  as  to  where  the  Government  is 
getting  on  and  off  in  these  two  propositions.  I  have  tried  to  figure  out.  as  best  I 
could,  the  return  that  the  Government  would  get  under  each  one,  and  in  that 
calculation  I  have  been  more  liberal  than  you  were  in  vour  estimates  made  in 
reply  to  the  questions  of  Mr.  Hill  a  while  ago.  I  took  the  estimate  of  Col 
Cooper  on  the  value  of  power  at  Muscle  Shoals.  I  believe  he  placed  an  estimate 
of  1.2  mills  per  kilowatt  hour,  which  would  amount  to  $7.80  per  horsepower. 

Mr.  jNIarttn.  For  secondaiy  power. 

:Mr.  FiEiJ)s.  Yes ;  for  secondai\v  power. 

.Mr.  Martin.  What  load  factor  do  you  use? 

Mr.  Fields.  I  have  figured  it  out  on  100  per  cent  load  factor,  and  also  upon 
what  the  testimony  shows  is  the  average  load  factor  used  in  the  United  States. 
If  the  flow  of  the  river  would  provide  continuous  power  at  $7.80,  that  would 
amount  to  $780,000  a  year,  and  I  believe  you  suggested  a  while  ago  that  the 
flow  of  the  river  would  afford  that  power  about  80  per  cent  of  the  time. 

Mr.  Martin.  Eighty-two  per  cent  of  the  time. 

Mr.  Fields.  In  the  calculation  which  I  made  last  night  and  have  roughly 
revised  here,  for  10  months,  that  would  amount  to  $650,000  on  a  100  per  cent 
load  factor,  and  on  a  51  per  cent  load  factor,  which  the  testimony  shows  is  the 
average  load  factor  in  all  operations  of  this  character,  it  would  amount  to 
$331,500,  and  comparing  your  contract  with  the  life  of  the  Ford  lease,  the  Gov- 
ernment would  get  a  return  there  of  $33,150,000.  Now.  what  other  return  does 
the  Government  receive  under  your  offer? 

Mr.  Martin.  We  will  have  to  go  back  to  your  hypothesis  a  moment.  The 
very  price  of  $7.80  per  horsepower  per  year  is  predicated  on  the  secondary  class 
of  power  and  does  not  vary,  due  to  the  question  of  load-factor  use.  All  of  those 
factors  you  have  taken  into  account,  if  I  may  suggest,  Mr.  Fields,  when  you 
reached  the  figure  of  $7.80  per  horsepower  per  year  were  taken  into  account 
and  taking  your  basis  of  $7.80,  that  becomes  $780,000  a  vear.  rather  than 
$330,000  a  year. 

Mr.  Fields.  All  right :  I  will  admit  my  inability,  with  my  limited  knowledge 
of  the  power  business,  to  figure  out  in  a  few  minutes  or  to  take  into  consideration 
all  these  things  to  which  you  refer,  but  let  us  take  it  on  the  broadest  po.ssible 
basis  that  we  can  make  it  and  put  it  on  12  months  a  vear.  with  100  per  cent  load 
factor ;  that  would  be  $780,000  a  year,  or  $78,000,000  for  the  life  of  the  contract 
using  the  same  length  of  time  as  is  contemplated  in  the  Ford  contract. 

Mr.  IMartin.  Yes,  .sir. 

Mr.  Fields.  And  that  is  as  broad  as  you  can  possibly  make  it,  and  that  Is 
giving  you  every  advantage  and  is  conceding  that  the  river  flows  12  months  out 
of  each  year  for  the  100  years? 

Mr.  Martin.  Oh,  no. 

Mr.  Fields.  So  as  to  furnish  this  100,000  horsepower,  giving  vou  a  load  factor 
of  100  per  cent. 

Mr.  Martin.  We  can  not  concede  that  it  will  flow  100  per  cent  of  the  time 

Mr.  Fields.  I  know  we  can  not,  but  I  am  giving  you  the  advantage  of  that. 
I  am  conceding  that  only  for  argument's  sake  and  am  giving  vou  that  advan- 
tage. 

Mr.  Martin.  We  do  not  want  the  advantage,  and  we  do  not  need  the  ad- 
vantage. We  do  not  need  that  assumption.  We  take  82  per  cent  of  the  time 
and  that  fixes  the  basis,  and  that  is  all  we  can  assume.  We  go  by  the  records 
of  30  years,  and  if  you  will  go  into  the  power  business  you  will  find  that 
these  records  of  30  years  are  going  to  work  out  in  practice,  and  the  gentlemen 


f 


846 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROt»OSinONS. 


847 


who  figure  out  this  power  situation  on  the  Tennessee  River  do  so  upon  those 
same  recoVds.  Now,  taking  that  basis  as  a  starting  point,  without  any  ad- 
vantage given  to  us— and  we  do  not  think  we  are  entitled  to  any  advantage — 
82  per  cent  is  the  basis.  Then  you  have  the  question  of  50  times  $780,000  in 
the  50-year  period,  or  $39,000,000,  and  in  a  100-year  period  you  have  $78,000,000. 
That  is  the  advantage  to  start  with. 

Mr.  Fields.  That  is  on  a  100  per  cent  load  factor  for  continuous  power? 

Mr.  Mabtin.  No. 

Mr.  Fields.  I  beg  your  pardon. 

Mr.  Mabtin.  No;  that  is  secondary  power. 

Mr.  Fields.  I  think  if  you  will  look  into  it  you  will  find  that  is  at  $7.80  per 
liorsepower,  and  I  am  basing  my  calculation  upon  the  figures  given  by  Col. 
Cooper  for  continuous  flow. 

Mr.  Martin.  I  do  not  know  of  anyone,  Mr.  Fields,  in  the  United  States  that 
would  sell  you  continuous  horsepower  at  $7.80  per  horsepower  per  year. 

Mr.  Fields.  You  think  that  is  too  high? 

Mr.  Mabtin.  No,  sir ;  it  is  too  low. 

Mr.  Fields.  That  is  the  figure  that  Col.  Cooper  gave. 

Mr.  Martin.  That  is  for  secondary  power? 

Mr.  Fields.  Yes;  for  secondary  power,  and  I  say,  granting  that  the  flow  of 
the  river  is  so  continuous  that  it  will  furnish  this  secondary  100,000  horse- 
power continuously 

Mr.  Martin  (interposing).  For  82  per  cent  of  the  time. 

Mr.  Fields.  But  if  it  does  that  for  100  per  cent  you  can  not  figure  out  more 
than  $780,000  a  year,  which  would  be  $78,000,000  for  a  period  of  100  years, 
which  is  equal  to  the  period  of  the  Ford  lease. 

The  Chairman.  Mr.  Fields,  will  you  allow  me  to  ask  a  question  there,  and 
maybe  I  can  clarify  the  situation?  If  power  is  furnished  100  per  cent  of  the 
time,  it  is  no  longer  secondary  power. 

Mr.  Martin.  That  is  correct,  Mr.  Chairman,  and  that  is  the  answer. 

^Ir.  Fields.  I  understand  that  thoroughly,  but  I  was  just  making  it  as  broad 
and  as  much  in  favor  of  the  Alabama  Power  Co.  as  I  could,  to  show  what  the 
maximum  could  possibly  be.  Then  at  the  end  of  the  contract  you  own  the 
property  under  the  terms  of  your  contract,  as  I  understand,  with  the  right  of 
the  Government  to  recapture? 

Mr.  Martin.  Yes:  Mr.  Fields,  at  the  end  of  50  years,  or  during  the  50-year 
period,  the  licensee  owns  the  property.  If  it  greatly  increases  in  value,  and  it  is 
bound  to  increase  in  value,  jit  the  end  of  this  50-year  period  the  Government 
may  come  in  and  take  it  over  on  paying  the  licensee  his  original  cost,  whatever 
in  dollars  that  project  has  cost  to  the  end  of  the  50-year  period,  without  any 
increment  or  anything  representing  this  increase  in  value,  and  even  the  lands, 
rights  of  way,  water  rights,  and  intangibles  of  that  character,  going  value, 
good  will,  all  of  those  elements,  by  the  terms  of  the  Federal  water  power  law 
are  excluded,  except  the  actual,  reasonable  cost  of  those  things  to  the  licensee, 
so  you  come  back  at  last  to  the  net  dollars  the  licensee  has  in  the  project,  and 
that  is  the  basis  on  which  the  Government  may  take  it  over. 

Mr.  Fields.  But  the  Government  must  pay  the  license  the  value  of  the 
property  as  defined  by  you  in  your  statement. 

Mr.  Martin.  I  would  not  say  value,  but  the  cost. 

Mr.  Fields.  Yes;  the  cost. 

Mr.  Martin.  Yes;  what  is  known  in  the  Federal  water  power  act  as  "net 
investment." 

Mr.  Fields.  Then  in  arriving  at  just  how  the  Government  is  going  to  come 
out,  we  would  deduct  that  cost  from  the  Government's  income  from  the  Alabama 
l*ower  Co.  during  the  life  of  the  contract. 

Mr.  Martin.  No;  because  the  Government  has  not  suffered  that  at  all.  We 
do  not  ask  the  Government  to  put  up  that  net  investment.  We  advance  that 
net  investment  you  see.  It  is  not  a  deduction.  The  Government  has  saved  tlu' 
net  investment. 

Mr.  Fields.  But  the  point  I  am  getting  at  is  that  the  Government  would  own 
the  property  at  that  time  with  its  income  from  the  Alabama  Power  Co.  during 
the  life  of  the  contract,  less  the  cost  of  the  construction  which  the  Government 
would  have  to  pay  back  to  the  Alabama  Power  Co. 

Mr.  Martin.  Yes;  in  the  intervening  period  the  Government  is  better  oft 
because  it  has  saved  this  investment  itself.  It  has  saved  the  annual  interest 
charge  on  that  investment,  which  you  can  calculate  very  easily,  and  at  the  end 
'^f  this  period,  the  Government  may  do  exactly  what  it  may  do  to-day,  without 


any  added  cost,  namely,  come  in  and  pay  the  net  investment  to  the  licensee 
and  take  it  over. 

Mr.  Fields.  I  understand,  but  you  are  not  contending— I  hope  that  the  Gov- 
ernment could  recapture  the  property  and  own  it  in  fee,  and  at  the  same  time 
have  all  the  income  that  it  gained  from  the  Alabama  Power  Co.  during  the  life 
of  the  contract. 

Mr.  Martin.  Yes. 

Mr.  Fields.  It  would  have  to  pay  the  Alabama  Power  Co.  for  the  property 
which  would  naturally,  in  the  final  balance,  be  deducted  from  the  amount  the 
Government  had  gotten  from  the  company. 

Mr.  Martin.  It  would  only  pay  that  which  the  Alabama  Power  Co.  had  con- 
tributed in  the  meantime  toward  the  capital  cost  of  the  project. 

Mr.  Fields.  But  you  will  not  claim  that  it  would  own  the  property  and  still 
have  all  the  income  that  it  received. 

Mr.  Weathers.  The  property  now  there. 

Mr.  Fields.  Of  course,  it  would  own  the  property  now  there.  It  owns  it  any- 
how, but  with  the  improvements  put  on  by  the  Alabama  Power  Co. 

Mr.  Martin  (interposing).  The  Government  would  take  over  the  improve- 
ments and  everything  we  put  there. 

Mr.  Fields.  And  pay  you  for  putting  them  there? 

Mr.  Martin.  And  pay  our  net  investment. 

Mr.  Fields.  If  it  had  $78,000,000,  which  I  reach  by  allowing  you  100  per  cent 
time  and  100  per  cent  load  factor,  it  would,  of  course,  deduct  whatever  amount 
that  was,  and  the  Government  would  say  that  I  have  the  contract  and  have 
so  many  dollars  that  I  have  acquired. 

Mr.  Martin.  That  is  one  way  of  looking  at  it ;  in  other  words,  if  the  Govern- 
ment has  realized  this  income  of  $40,000,000,  we  will  say,  from  power  in  the 
meantime  it  may  turn  back  and  use  the  $40,000,000  income  in  paying  the  net 
investment  and  take  it  over  without  any  cost,  if  that  is  what  you  mean. 

Mr.  Fields.  And  I  have  figured  all  the  advantage  that  could  come  to  the 
Alabama  Power  Co.  by  reason  of  the  100  per  cent  time  and  100  per  cent  loa<l 
factor.  Now,  taking  it  on  the  other  hand,^  for  100  years  on  10  months'  time 
and  51  per  cent  load  factor,  and  I  figure  on  100  years,  because  that  is  the 
period  equal  to  the  perio<l  of  the  Ford  lease — the  Government  would  receive 
from  you  $33,150,000. 

Mr.  Martin.  No;  we  can  not  agree  as  to  how  the  question  of  load  factor 
applies.    I  think  we  misunderstand  each  other  there. 

Mr.  Fields.  I  am  taking  the  benefit  of  each  extreme.  It  would  come  some- 
where between  those  figures,  and  would  be  somewhere  between  $33,150,000  and 
$78,000,000.    It  could  not  go  outside  of  those  two  limits. 

Mr.  Martin.  I  do  not  quite  understand  your  figure  of  $33,000,000. 

Mr.  Fields.  That  is  the  lowest  it  could  possibly  go,  as  I  see  it;  and  the 
other  is  the  highest  it  could  possibly  go,  granting  you  100  per  cent  time  and 
100  per  cent  load  factor. 

Mr.  Martin.  No;  you  must  remember  that  the  price  of  power  is  increasing, 
too.  The  value  of  power  is  increasing;  and,  whereas  it  mav  be  worth  $7.53 
to-day,  it  may  be  worth  twice  that  amount  50  years  from  now. 

Mr.  Fields.  Of  course,  we  can  not  figure  what  the  price  of  power  will  be  50 
years  from  now,  and  we  have  to  figure  it  on  the  price  to-day.  For  argument's 
sake,  I  shall  no*  refer  further  to  the  10  months'  flow  and  51  per  cent  load 
factor,  I  am  going  to  make  it  100  per  cent  time  and  100  per  cent  load  factor. 

Mr.  Martin.  Then  your  power  is  worth  $25  per  year,  because  vou  get  primarv 
power  then,  Mr.  Fields. 

Mr.  Fields.  But  we  must  take  into  consideration  here  the  element  of  second- 
ary power,  because  that  is  what  we  are  figuring  on. 
Mr.  Martin.  Then,  we  will  go  back  to  $7.80  per  horsepower  per  vear. 
Mr.  Fields.  That  will  cut  you  below  $78,000,000  a  year. 
Mr.  Martin.  I  do  not  see  how  it  can. 

Mr.  Fields.  Because  you  are  paying  the  Government  in  secondary  power. 
You  are  not  paying  the  Government  in  primary  power.  I  onlv  gave  vou  that 
advantage  of  100  per  cent  time  and  100  per  cent  load  factor  in  order  "to  go  to 
the  very  last  limit  that  could  be  reached  in  your  favor,  and  upon  that  basis,  in 
the  life  of  the  contract  of  100  years,  the  Government  would  recover  from  the 
Alabama  Power  Co.  $78,000,000,  and,  then,  would  have  to  pay  the  Alabama 
Power  Co.  for  what  it  has  put  into  the  construction  work,  which  would  be  de- 
ducted from  that  amount. 


92900—22- 


-54 


848 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS   PROPOSITIONS. 


84a 


¥':i,?V*^^'''-  ^'^^^''  w®  wil*  ^ake  your  assumption  of  100  pei-  cent  river  flow 
and  tills  power  being  available  100  per  cent  of  the  time;  that  is,  this  100,000 
horsepower. 

Mr.  Fields.  Yes. 

Mr.  M^TiN.  Then  you  are  dealing  with  power  which  to-day  has  a  market 
value  of  $25  per  horsepower  per  year  or  $2,500,000  a  year,  and  in  100  years 
«2500000(W  ^""  ^*'^  ^^^^^  dealing  with  figures  which  carry  you  to 

Mr.  Fields.  Then  let  us  deal  with  figures  which  can  not  possiblv  carrv  us 

•?.^"VJ.^^  ^^"^  ^^  secondary  power.    Let  us  take  it  at  10  months  in  the  year 

S^  JJi^^^'a.S^^*  J"*.*"^  ^*'^*'''*'  ^^^^  ^^"1<^  amount  to  $650,000  a  year,  or 
*bo.000,000.  That  brings  us  within  the  limits  of  secondary  horsepower  I 
will  meet  you  on  that  proposition.  At  the  end  of  100  years  the  Government 
will  have  recoveretl  from  the  Alabama  Power  Co.  $65,000,000.  Now,  if  it  re- 
captures the  property,  it  must  pay  for  what  you  have  put  into  the  propertv. 
which  would  be  deducted  from  the  $65,000,000. 

Mr.  Martin.  That  is  a  matter  of  bookkeeping,  of  course. 

Mr.  Fields.  And  the  Government  would  stand  then  with  one  dam,  losing  the 
use  of  navigation  on  the  Tennessee  River  for  the  100  years,  because  Dam  No  3 
IS  not  completed  and  not  contemplated  in  the  contract  upon  which  we  are 
basng  these  figures.  The  Government  would  have  $65,000,000  from  the  Ala- 
baina  Power  Co.  less  what  the  Alabama  Power  Co.  put  into  the  construction 
of  Dam  No.  2.  and  the  Government  has  $17,000,000  in  there  now,  and  it  has 
had  that  amount  in  there  during  all  of  this  time  we  are  speaking  of 

Tender  the  Ford  offer,  we  put  in  $42,000,000  additional  and  we  recover  from 
Bord  the  amortization  fund  of  $49,000,000  and  $161,000,000  in  interest  or  a 
total  of  $260,000,000  as  against  $65,000,000.  init*re.sr,  oi   a 

eo^I'JLLiSJ^^.'^'^  ^^  ^^*^"^*  $65,000,000,  and  we  get  from  Mr.  Ford 
,>2(>(),000.000  and  own  Locks  2  and  3,  and  the  benefits  we  have  had  of  a  navigable 
river  for  a  hundred  years. 

Mr.  Martin.  Yes;  but  how  much  are  you  out  in  doing  that? 

Mr.  Fields.  Forty-two  million  dollars,  in  addition  to  what  we  would  l)e  out 
in  supplying  the  Alabama  Power  Co. 

Mr.  Martin.  No;  you  are  out  $1,275,000,000  on  your  basis  of  calculation,  on 
100  years,  in  doing  that. 

Mr.  Fields.  No  ;  if  we  go  back  that  far  you  want  4  per  cent  on  the  $17,000  000 

Mr.  Martin.  We  are  willing  to  balance  figures  on  that,  and  the  Government 
must  credit  itself  with  the  annual  savings  which  it  otherwise  be  out  to  the 
bondholders,  because  the  Government  does  not  have  any  additional  money  to 
put  out  in  the  100  years  under  our  program. 

Mr.  Fields.  It  has  the  $17,000,000  in  the  dam? 

Mr.  Martin.  We  will  let  you  make  that  calculation  and  give  the  Government 
credit.  The  Government  must  charge  itself  this  annual  return  in  the  form  of 
the  value  of  this  power.  It  has  that  income,  and  it  has  no  outgo  bv  way  of 
interest  charges  or  any  further  investment  in  it.  It  is  saving  to  the  Govern- 
ment over  the  perio<l  of  its  net  annual  charge  for  maintaining  and  operating 
these  dams  and  gates  as  is  not  done  in  the  case  of  another  proposition 

Mr.  Fields.  Mr.  Ford  provides  for  payment  of  $55,000  a  vear,  so  that  those 
two  things  balance  one  against  the  other. 

Mr.  Martin.  If  you  will  look  at  Col.  Cooper's  estimate,  y©u  will  see  that 
that  amount  is  vastly  insufllcient  to  take  care  of  those  annual  charges 

Mr.  Fields.  Right  there,  since  you  have  referred  to  Col.  Cooper's  estimate 
of  course,  I  understand  you  are  basing  your  calculation  on  the  same  premise 
that  Col.  Cooper  uses,  that  the  Government  should  charge  4  per  cent  interest 
on  everything  it  puts  into  those  charges. 

Mr.  Martin.  You  are  doing  that. 

Mr.  Fields.  Would  you  apply  that  to  all  irrigation  and  river  and  harbor 
projects?  The  Government  has  not  yet  adopted  that  policy.  It  seems  to  me 
that  any  calculation  we  can  make  must  be  based  upon  the  policy  of  the  Govern- 
ment at  this  time,  and  the  Government  has  no  such  policy  at  this  time. 

Mr.  Martin.  I  will  accept  your  premise  and  answer  you  by  saying  that  if 
that  is  not  the  policy  of  the  Government,  neither  can  you  say  that  an  annual 
fund  of  $55,000  could  be  credited  with  an  annual  interest  of  4  per  cent  for 
100  years.  If  you  are  going  to  adopt  that  policy,  then  apply  it  consistently. 
How  can  you  create  an  amortization  fund  and  put  it  on  the  books  of  the  Gov- 
ernment at  4  per  cent  and  say  in  100  years  it  is  going  to  amortize  the  principal 
unless  you  have  the  policy? 


Mr.  Fields.  Under  the  Ford  contract  we  would  have  navigable  water  on  the^ 
lenuessee  River  for  100  years,  and  that  would  be  worth   something,  would 

T.,'^^^i.-^fV^'^'^-,^^  ^^''"  ^^  ^**^"^  something,  and  we  will  go  ahead  right  now. 
Mr.  Fields,  and  pay  you  more  interest  than  you  would  otherwise  get  if  you 
would  put  up  the  money  to  build  Dam  No.  3,  and  we  will  take  it  over  and  main- 
tain It  and  operate  and  pay  you  more  interest  than  anybodv  else  has  offered 
to  pay  you.  " 

Mr.  Fields.  It  is  strange  you  did  not  include  that  in  this  offer 

Mr.  Martin.  We  have  not  asked  for  Government  money,  but  we  are  willing 
to  privately  finance  it  whenever  business  conditions  in  this  territory  will  jui 
tify  the  private  financing  of  this  project.  In  the  course  of  10  vears  it  will  be 
built,  and  in  another  program,  which  is  before  you,  it  is  not  going  to  be  built 
Within  6  or  7  years ;  you  will  not  get  around  to  it  under  6  or  7  vears,  and  in 
10  years  it  can  be  privately  financed. 

Mr.  Fields.  The  only  way  you  can  discredit  the  comparison  I  have  drawn 
is  to  charge  4  per  cent  interest  for  100  years  on  all  the  money  the  Government 
puts  into  the  proposition. 

Mr.  Martin.  I  am  not  discrediting  that  at  all,  Mr.  Fields,  I  am  merely  say- 
nig  let  us  be  consistent.  If  you  are  going  to  say  the  Government  has  an 
annual  outgo,  and  there  is  a  balance  against  the  Government  annually— is  not 
that  true?  There  is  a  balance  against  the  Government  every  vear  between  its 
income  and  outgo? 

Mr.  Fields.  Yes ;  I  assume  that  is  true. 

Mr.  Martin.  We  propose  that  the  Government  shall  not  have  any  outgo 

Mr.  Fields.  It  already  has  an  outgo  of  $17,000,000. 

I\Ir.  >lARTiN.  We  propose  to  give  you  a  return  on  that,  and  we  stop  right 
tliere  with  the  outgo. 

Mr.  Fields.  If  we  charge  you  that  4  per  cent  interest  on  the  $17,000,000  that 
will  result  m  quite  a  different  figure  so  far  as  concerns  what  the  Government 
receives  from  the  Alabama  Power  Co.  at  the  end  of  100  years 
r.^-^'' J'Jo)^!^'  ^''^^'^^  y^"r  figure  at  $7.80,  what  is  4  per  cent  on  $17,000,000? 
It  is  $680,000  a  year,  and  according  to  the  figures  you  have  used,  the  $7  80 
the  Government  will  get  o\et  4  per  cent  out  of  this  $17,000,000  annuallv  Yoii 
have  over  $100,000  more  than  your  annual  interest  charge.  You  have  got  to 
give  the  whole  situation  that  credit  as  you  go  along. 

.v^^-  ^P^^®-  ^P^^  ^^^  ^^™®  proposition,  by  putting  in  the  additional  $42,000,- 

000  received  from  Mr.  Ford,  we  will  get  there,  from  you,  on  a  10-month's  flow 
and  a  100  per  cent  load  factor,  which  I  am  only  conceding  for  the  sake  of  the 
nrgnment— we  would  get  $650,000  a  year,  and  that  would  be  $65,000,000  during 
the  period  of  100  years,  and  that  is  all  we  would  get  from  you,  and  if  we  re- 
capture the  property  we  must  deduct  from  that  the  amount  you  have  put  into 
tlie  property^  Then  we  have  been  giving  you  the  benefit  of  a  Government  con- 
V-,%^AJ?LJr9  y?^*"^'  whereas  under  the  Ford  proposition  we  have  alreadv  got 
$17,000,000  in  the  plant,  and  by  putting  in  $42,000,000  we  would  have  a  navi- 

i?^^^"*  ^^^  ^^  ^^^^®  ^^^  *^®  nitrate  plant  maintained  at  an  expense  of 
.15^,500,000  a  year;  that  is,  a  deterioration  of  5  per  cent,  and  an  account  for 
maintenance,  which  the  War  Department  figures  at  $200,000  a  year,  and  $260,- 
000,000  from  Ford  m  interest  and  amortization  fund.  So  it  looks  to  me  like 
there  is  a  wide  difference  between  the  two  propositions,  if  I  am  correct      \nd 

1  want  to  be  correct  on  this  proposition ;  I  want  the  facts. 
Mr.  Martin.  Let  us  take  navigation. 

Mr.  Fields.  That  is  not  accounted  for  in  the  Ford  proposition 
Mr.  Martin.  When  we  come  to  the  question  of  navigation,  it  is  more  com- 
F   ?•  mP^L^*  ^^  important.    In  oinier  to  get  the  navigation  complete  vou  have 
to  build  Dam  No.  1 ;  that  is,  below  the  Wilson  Dam. 
Mr.  Fields.  It  has  been  estimated  it  will  cost  $1,400,000  to  do  that 
Mr.  Martin.  That  is  not  involved  in  this  situation  at  the  moment     That  is 
an  appropriation  which  you  must  make  independent  of  this  matter     Then  vou 
have  the  Wilson  Dam  as  a  part  of  the  navigation  scheme.     It  will  carrv  \he 
water  back  17  miles.    Then  you  have  to  build  Dam  No.  3  to  carry  that  naviga- 
tion back,  I  think,  65  miles.    Then  you  have  to  build  from  five  to  seven  more 
oains  in  the  next  stretch  of  the  river  between  the  headwaters  of  Dam  No  3  and 
iiales  Bar  on  the  Tennessee  River  to  make  your  all-round  navigation     I  do  not 
Know  what  those  estimates  are;  perhaps  they  amount  to  ten  or  flftetMi  million 


850 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


851 


dollars. '  You  have  all  those  things  to  do.  What  I  say  is  that  then  Dam  No.  2 
can  be  taken  care  of  by  financing  in  the  usual  business  way^  of  inviting  capital 
to  come  in  to  do  it.  Dam  No.  3  can  be  taken  care  of  in  the  same  way.  The 
Government  probably  will  find  it  necessary  to  finance  these  other  dams  on 
that  river  because  the  water  power  does  not  justify  privately  financing  other 
water  powers  on  that  river. 

When  you  come  into  the  question  of  navigation  you  have  to  consider  it  as  a 
whole.  By  building  Dam  No.  2  and  Dam  No.  3  you  do  not  complete  the  scheme 
of  navigation,  but  it  would  be  a  matter  of  millions  of  dollars  which  would  have 
to  be  put  into  those  other  dams. 

Mr.  Fields.  While  it  does  not  appear  in  the  Ford  offer.  Mr.  Ford's  engineer 
has  stated  that  it  is  Mr.  Ford's  intention  to  build  these  dams  in  the  upper  reaches 

of  the  river. 

Mr.  Martin.  I  am  not  speaking  of  the  upper  reaches ;  I  am  speaking  of  the 
stretch  from  Chattanooga  to  Muscle  Shoals.  You  will  find  you  have  to  do  a  great 
deal  of  river  improvement  in  that  stretch. 

Mr.  Fields.  But  Dams  Nos.  2  and  3  will  put  us  into  the  heart  of  the  raw- 
material  regions  there,  will  they  not? 

Mr.  Martin.  No;  it  will  improve  a  stretch  of  the  river,  just  as  Dam  No.  2 
improves  a  part  and  also  Dam  No.  3  will  improve  a  part. 

Mr.  Fields.  Dam  No.  2  would  put  the  water  back  14.7  miles  and  Dam  No.  3 
would  put  it  back  63  miles. 

Mr.  Martin.  Then,  you  have  to  build  the  other  dams  before  the  navigation 
scheme  is  completed. 

Mr.  Fields.  It  is  fair  to  say  that  the  completion  of  Dams.  Nos.  2  and  3  will 
make  quite  an  improvement  in  the  navigation  of  the  river  by  carrying  it  over 
Muscle  Shoals,  which  has  always  been  a  great  impediment  to  the  river. 

Mr.  Martin.  You  will  find  on  examining  the  profile  of  the  river  as  shown 
in  Document  1262,  Sixty-fourth  Congress,  first  session,  plate  No.  1,  that  the 
scheme  of  improvement  requires  several  dams  between  Dam  No.  3  and  Hales 
Bar.    Hales  Bar  is  the  large  dam  built  just  below  Chattanooga. 

Mr.  Fields.  How  far  is  it  from  Dam  No.  3  to  Hales  Bar? 

Mr.  Martin.  About  150  miles. 

Mr.  Fields.  How  many  locks  are  recommended  by  the  Government  engineers 
from  Dam  No.  3  to  Hales  Bar? 

Mr.  Martin.  They  are  Hobbs  Island  Dam,  Buck  Island  Dam,  Mink  Creek  Dam. 
Belief onte  Dam.  and  Widows  Bar  Dam— that  is  five  dams  in  that  stretch,  and 
that  will  carrv  the  water  level  to  the  Hales  Bar  Lock  and  Dam. 

Mr.  Fields.*  It  will  provide  for  a  6-foot  draft.  But  the  river,  in  the  absence  of 
these  dams,  is  navigable  a  great  portion  of  the  year,  or  would  be  navigable 
a  great  portion  of  the  year  if  Muscle  Shoals  were  supplied  with  Locks  2  and  3, 

would  it  not? 

Mr.  Martin.  Yes ;  that  is  correct,  if  you  also  add  Lock  No.  1.  I  believe  the 
Widows  Bar  Dam  is  now  under  construction,  or  at  least  one  of  those  dams  is 
now  under  construction.  Of  course,  the  navigation  question  is  itself  important 
and  if  the  Wilson  Dam  is  completed,  somewhere  along  the  lines  we  have 
suggested,  bv  a  licensee  under  the  Federal  water  power  act,  in  the  course  of 
five  years'  private  capital  will  be  ready  to  undertake  the  next  one,  because  of 
the  power  feature  of  the  proieot.  and  if  the  Government  wants  to  undertake 
that  one  to-day,  on  a  basis  which  is  better  than  anything  that  has  been  pro- 
posed, the  Government  can  do  it  to-day.  All  of  those  interest  charges  that  the 
Government  is  now  proposing  to  meet  on  this  $50,000,000  of  new  capital;  yon 
have  to  bear  in  mind  you  have  to  balance  that  in  the  whole  equation  to  see  where 
the  Government  comes  out. 

Mr.  FiKT.Ds.  Of  course,  if  we  follow  the  figures  suggested  by  you  and  Col. 
Cooper  the  Government  has  got  to  depart  from  its  policy. 

Mr.  Martin.  I  am  speaking  of  the  $.")0,000,()00  of  new  money ;  excluding  the 
amount  of  interest  you  have  $50,000,000  of  new  capital  to  put  into  these  two 
developments  now. 

1  would  like  to  say  the  completion  of  the  Wilson  Dam  with  a  lock  restores 
navigation  upon  that  river  as  it  existed  before  the  dam  was  constructed;  in 
fact,  it  improves  the  condition  of  things.  There  is  a  canal  which  has  long  been 
.  in  existence,  and  which  goes  around  the  remainder  of  the  Muscle  Shoals  (lis 
trict.  Carrvincr  the  improvement  then  from  the  upper  river  into  the  pool 
created  bv  the  Wils(m  Dam  you  get  exactly  the  same  navigation  with  the 
Wilson  Dam  completed;  in  fact,  you  get  greatly  improved  navigati(m  with  the 
Wilson  Dam  completed  over  that  which  existed  before  the  dam  was  begun. 


Mr.  Fields.  You  have  a  pool  for  14  miles  above,  and  when  you  get  up  there 
you  are  no  better  off. 

Mr.  Martin.  There  is  a  Government  canal  there. 

Mr.  Fields.  Your  statement  suggests  another  question.  I  believe  in  your 
I)roposition  you  propose  to  operate  the  l(>cks  during  the  period  of  your  contract, 
whereas  Mr,  Ford  proposes  to  make  a  cash  allwance  to  the  Government  of 
.$55,000  a  year  for  the  operation  of  the  locks. 

Mr.  Martin.  No.  Here  is  the  situation :  We  do  not  propose  to  operate  the 
locks,  and  neither  does  Mr.  Ford.  We  propose  to  furnish  power  to  operate  the 
locks,  and  so  does  Mv.  Ford.  We  propose  to  maintain  the  jjower  house  and 
dam.  In  the  cjise  of  the  Ford  proposal,  he  propf)ses  to  operate  the  power 
house  and  maintain  the  power  house.  Our  proposal  goes  further,  and  we 
undertake  to  operate  and  maintain  the  dam  gates  in  addition.  Mr.  Ford  pro- 
poses to  give  you  a  fixed  sum  of  $55,000  a  year.  We  propose  to  undertake  the 
full  burden  and  the  hazard. 

Mr.  Fields.  But  the  difference  there  is  this :  The  expense  of  oi>erating  these 
gates  with  Dam  No.  2  only  constructed  would  not  be  as  great  as  if  Dam  No.  3 
were  also  constructed,  would  it? 

Mr.  Martin.  I  do  not  know  that  it  makes  any  great  difference  as  to  the  risk. 
It  is  a  matter  of  risk.     Do  you  mean 

Mr.  Fields  (interposing).  I  mean  the  actual  expenses  of  operation,  of 
doing  it. 

Mr.  ^Iaktin.  I  can  not  see  that  it  makes  very  much  difference. 

Mr.  Fields.  There  would  not  be  very  much  navigation. 

Mr.  Martin.  We  are  speaking  of  two  different  things,  are  we  not?  The 
expense  of  oi)erating  a  lock  is  in  any  case  an  expense  for  the  Government  to 
take  care  of.  The  expense  of  oi)erating  and  maintaining  the  dam  and  the  gates 
on  the  dam,  not  the  lock  gates,  is  a  thing  which  is  wholly  outside  of  the  ques- 
tion of  navigation  whether  No.  3  is  in  or  out. 

Mr.  QuiN.  Mr.  Martin,  these  questions  I  am  going  to  ask  you  are  based  on 
the  fact  that  we  are  considering  you  as  an  outsider,  the  same  as  Mr.  Ford,  in 
this  proposition.  This  is  an  affirmative  offer  of  yours,  and  of  course  the  ques- 
tion of  the  contract  would  be  irrelevant  here.  But  I  think  it  is  necessary  for 
the  record  to  show  who  your  company  is  for  the  benefit  of  our  colleagues  who 
are  not  here. 

You  admit,  and  Poor's  Manual  shows,  that  the  Alabama  Power  Co.  is  owne<l  by 
that  Camidian  corporation  callwl  the  .\labama  Traction.  Power  &  Light  Co. 
(Ltd.)  ;  is  that  correct? 

Mr.  Martin.  Not  expressed  just  in  that  language.  The  ownership  of  a  <om- 
pany  is  represented  by  its  securities,  whether  they  be  stock  or  whether  they  be 
bonds.  We  have  ontstanding  large  is.sues  of  bonds  and  .stock.  Taking  th(»se 
security  issues  as  a  whole,  there  are  largely  more  outstanding  bonds  and  obli- 
yfations  of  that  character  than  of  stock,  and  about  65  i>er  cent  of  our  company 
is  owned  in  America  and  35  per  cent  abroad,  as  I  stated  the  other  day. 

Mr.  QuiN.  Poor's  Manual  on  public  utilities  shows  that  all  of  the  commcm  st<K?k 
and  the  votng  stock  of  the  Alabama  Power  (^o.  is  owned  by  this  Canadian 
corporation  I  mentioned. 

Mr.  Martin.  I  do  not  think  it  is  exactly  expressed  in  that  way,  because  it  is 
not  quite  correct. 

Mr.  QuiN.  Wherein  have  I  misstated  it? 

Mr.  Martin.  We  have  some  15,000  or  20,000  shares  of  7  per  cent  preferred 
stock,  which  ranks  pari  passu  with  the  common  stock,  which  ranks  in  all  other 
resixtts  with  other  stock  except  that  it  is  preferred  in  dividends.  There  is  a 
very  large  part  of  our  preferred  stock  held  by  the  public  in  Alabama.  It  ranks 
along  with  the  conunon  stock.  In  addition  to  that  you  will  find  in  Poor's  Manual 
information  about  our  other  security  issues,  other  than  stock. 

Mr.  QuiN.  What  stock  votes? 

Mr.  Martin.  The  preferred  and  the  common  stock  votes.  I'ndei-  our  chaiter 
the  preferred  stock  votes  identically  with  the  common. 

Mr.  Qi'iN.  How  much  common  stock  have  you  out.standing? 

Mr.  Mahtin.  Our  common  stock  outstanding  amounts  to  $18,751,000. 

Mr.  QiriN.  How  much  preferred  stock? 

Mr.  Martin.  It  is  about  $2,000,000. 

Mr.  QuiN.  Then  y<m  have  about  $16,000,(X)0,  approximately,  more  in  common 
stock  than  in  i)referre<l  stock? 

Mr.  Martin.  Yes. 


852 


MUSCLE  SHOALS  PROPOSITIONS. 


Mr.  QtiiN.  With  that  iinderstaiKliug- 


Mr.  Maktin  (interposing).  Tliat  common  stock  is  vote<l — the  direction  is  given 
for  toting  that  stock,  Mr.  Quin,  by  a  board  of  directors  of  the  Canadian  company, 
although  as  I  recall,  Mr.  Quin,  either  9  or  10  of  thera  live  in  this  country  and  3 
live  abroad.  So  it  is  entirely  in  the  control,  or  three-quarters  of  the  menibership 
of  the  board  who  control  this  stock  are  American  citizens.  A  majoritv  of  the 
directors  of  the  Alabama  Power  Co.  live  in  the  State  of  Alabama. 

Mr.  Quin.  What  is  the  function  of  the  Canadian  corporation  mentioned ;  what 
does  it  do ;  what  line  of  activities  is  it  engaged  in? 

Mr.  Martin.  It  came  about,  Mr.  Quin,  because  when  we  began  this  work  in 
1912  we  could  not  get  the  American  investor  to  put  his  money  into  the  enter- 
prise. We  had  to  get  money  to  go  forward.  Then  we  organized  a  company  in 
Canada  which  might  Issue  its  securities,  and  its  securities  would  be  issued  in 
a  form  to  appeal  to  an  English  or  foreign  investor,  wherever  he  might  be.  But 
it  was  a  vehicle  through  which  we  were  to  obtain  funds,  anyone  who  might 
desire  to  invest  In  those  securities.  Those  securities  were  issued  and  sold 
and  funds  obtained  for  that  purpose  by  that  Canadian  company  down  to  the 
outbreak  of  the  World  War.  At  the  outbreak  of  the  World  War,  or  after  the 
outbreak  of  the  war,  we  had  to  entirely  change  our  program,  because  we  could 
not  get  money  from  abroad  for  American  enterprises.  After  the  World  War 
we  reorganized  the  position  of  the  companies  so  far  as  it  involved  the  obtaining 
of  funds,  and  our  securities  since  then  have  been  entirely  sold  in  America,  so 
that  to-day  the  situation  is  just  the  reverse  of  the  situation  as  it  existed  in  1914. 

Mr.  Quin.  What  other  function  does  this  Canadian  corporation  I  have  re- 
ferred to  perform? 

Mr.  Martin.  None.  It  is  really  a  company  which  has  no  function  in  the 
situation  at  the  moment. 

Mr.  Quin.  It  is  a  holding  corporation? 

Mr.  Martin.  It  was  organized  with  that  view,  and  with  the  view  of  obtaining 
funds  with  which  to  make  these  investments  In  Alabama. 

Mr.  Quin.  Coming  to  your  proposition,  you  start  out  with  an  offer  of 
$5,000,000  for  the  Government's  equity  in  the  Gorgas  transmission  line,  erected 
at  a  cost  of  $4,670,000,  for  the  steam  plant  No.  2,  which  cost  $12,326,392,  and 
for  the  $17,000,000,  which  was  the  amount  the  Government  expended  on  Dam 
No.  2,  or  the  Wilson  Dam.  That  aggregates  a  cost  to  the  Government  of 
$34,002,392.  To  take  that  over  you  offer — and,  by  the  way,  there  is  more  in 
that.  You  include  the  construction  plant,  and,  of  course,  include  the  equipment 
the  Government  has  at  Dam  No.  2. 

Mr.  Martin.  That  is  part  of  the  $17,000,000. 

Mr.  Quin.  That  Is  a  part  of  that,  and  is  not  aside  from  it? 

Mr.  Martin.  No. 

Mr.  Quin.  The  Government  figures  two  or  three  million  dollars  worth  of 
tools  and  equipment  in  that  plant  in  the  $17,000,000? 

Mr.  Martin.  Yes. 

Mr.  Quin.  There  is  no  doubt  about  that? 

Mr.  Martin.  The  record  shows  everything  the  Government  has  expended  in 
that  situation  as  represented  by  $17,000,000.  whether  it  be  the  construction 
plant  or  a  permanent  property,  wherever  it  is.  You  spoke  of  $4,000,000  repre- 
senting the  cost  of  the  transmission  line. 

Mr.  Quin.  I  said  the  Gorgas  plant  and  transmission  line,  the  Government's 
equity  in  that.    That  is  what  they  say. 

Mr.  Martin.  I  accept  your  figures  of  $34,000,000  as  representing  the  Govern- 
ment's investment,  or  the  Government's  war-time  investment  in  those  pro.iects. 
Let  us  see  on  the  other  side  what  you  get.  You  get  $5,000,000  In  money ;  you 
get  100,000  horsepower. 

Mr.  QriN.  Let  me  bring  that  out.  because  T  want  the  record  to  show 

Mr.  Martin  (interposing).  Then  I  can  not  answer  your  question. 

Mr.  Quin.  But  I  am  going  to  be  fair  with  you.  I  want  to  analyze  It  In  my 
own  way.  That  represents  the  outlay  the  Government  made;  whether  it  is 
worth  it  or  not.  we  are  not  passing  on  at  this  moment. 

Then  you  are  to  construct  at  the  Government's  expense  a  lock  at  Dam  No.  2, 
according  to  your  offer? 

Mr.  Martin.  Yes. 

Mr.  Quin.  Col.  Cooper  estimated  that  to  be  $4,.i00,000.  Let  us  assume  that  Is 
correct.     It  may  take  the  whole  $5,000,000. 

Mr.  Martin.  If  you  are  willing  to  agree  on  what  it  will  cost,  I  will  agree 
with  you  that  it  will  cost  less  than  $4,.50r,000. 


MUSCLE  SHOAI^  PROPOSITIONS. 


853 


Mr.  Quin.  Let  us  t^ke  the  estimate  to  which  he  testified.  Was  he  not  the 
epgineser  who  deigned  the  dam? 

Mr.  Martin.  '1  do  not  know ;  but  that  possibly  Included  the  locks  at  both 
No.  2  and  No.  3. 

Mr.  Quin.  No;  we  have  another  lock  up  there,  and  whatever  the  estimate 
was  as  to  what  It  would  cost  for  navigation,  Is  immaterial  here. 

Mr.  Martin.  I  think  you  will  find  that  the  estimate  of  the  Secretary  of  War 
is  $2,500,000,  as  I  recall. 

Mr.  Quin.  I  think,  of  course,  that  Mr.  Cooper  was  rather  extreme  in  his 
figures. 

Mr.  Martin.  We  are  willing  to  trade  on  your  figures,  but  we  think  the  Gov- 
ernment would  come  out  a  lot  better  if  you  would  leave  that  to  the  engineers. 
I  think  you  will  find  it  will  be  nearer  the  Secretary  of  War's  figures  of 
$2,500,000. 

Mr.  Quin.  I  hope  it  would ;  but  Mr.  Cooper  was  very  positive  In  his  statement 
before  the  committee.  If  he  Is  correct,  then  there  would  be  $500,000  which  the 
Alabama  Power  Co.  would  owe  the  Government.  When  would  you  start  to  pay 
that?  The  natural  presumption  is  it  would  be  after  the  completion  of  the 
lock,  would  it  not? 

Mr.  Martin.  I  think  it  Is  most  likely  we  would  pay  the  whole  amount  im- 
mediately, because  that  is  the  way  we  would  have  to  finance  It. 

Mr.  Quin.  You  mean  before  you  started? 

Mr.  Martin.  Yes. 

Mr.  Quin.  You  would  be  doing  an  entirely  new  thing  in  finnacing,  would  you 

not? 

Mr.  Martin.  I  think  that  Is  the  way  It  would  work  out. 

Mr.  Quin.  That  would  not  be  a  good  business  way  to  proceed,  would  It,  when 
you  can  not  tell  definitely  what  It  would  cost  for  the  lock? 

Mr.  Martin.  My  Idea  Is  we  will  agree  with  the  engineers  on  what  the  cost 
would  be,  what  really  represents  the  cost  of  the  locks.  The  Government  en- 
gineers say  the  cost  Is  $2,500,000,  and  If  we  agree  on  that  cost  of  $2,500,000, 
that  settles  the  question.  We  would  pay  the  balance  as  soon  as  we  undertook 
the  work. 

Mr.  Quin.  Then  the  Government  would  be  required  to  give  you  title  to  all 
Its  equity  in  the  Gorgas  steam  plant,  the  Warrior  plant,  and  the  transmission 
line  to  Muscle  Shoals.  It  would  be  required  to  give  you  title  to  the  steam  plant 
No.  2  at  the  nitrate  plant  at  Muscle  Shoals.  It  would  be  required  to  give  you 
title  to  Dam  No.  2,  or  tfte  Wilson  Dam,  would  It  not? 

Mr.  Martin.  No;  Mr.  Quin.  As  a  matter  of  good  business,  I  am  sure  the 
Government  engineers  and  Its  counsel  would  not  transfer  the  title  until  the  pur- 
chase money  was  completely  paid. 

Mr.  Quin.  I  am  not  speaking  of  that ;  that  is  your  proposition. 

Mr.  Martin.  But  the  title  will  pass  only  from  the  Government  on  payment 
of  $5,(X)0,000,  or  the  balance  that  may  be  due. 

Mr.  Quin.  This  Is  what  you  say  In  section  5  of  your  offer,  on  page  4 :  "  The 
Government  to  transfer  to  the  licensee  the  Wilson  Dam  property  represente<l 
by  its  investment  aqd  commitments  to  date,  free  of  liabilities  and  unincum- 
bered, including  the  construction  plant.  The  locks  and  navigation  structures  to 
be  conveyed  to  the  Government  In  fee  on  completion  of  construction.  That 
same  language  applies  to  these  other  plants,  does  It  not? 

Mr.  Martin.  No.  You  will  find  here,  that  while  it  Is  not  expressed  In  terms 
of  the  legal,  final  terms,  unquestionably  the  Government  wouUl  not  c<mvey  its 
property  under  paragraph  3,  the  steam  plant  property,  until  the  full  purchase 

money  Is  paid. 

Mr.  Quin.  I  am  assuming  you  are  going  to  pay  the  money ;  that  is  a  re- 
quirement In  the  Alabama  Power  Co.'s  proposition. 

Mr.  Martin.  We  do  not  ask  for  any  title  until  we  pay. 

Mr.  Quin.  I  am  assuming  you  are  paying  cash,  and  when  that  cash  Is 
paid — — 

Mr.  Martin  (interposing).  Then  we  take  the  title. 

Mr.  Quin.  You  have  the  title  to  all  these  properties  I  named,  and  the  im!y 
thing  the  Government  has  left  Is  nitrate  plant  No.  2;  Is  that  not  true? 

Mr.  Martin.  No.  1  and  No.  2. 

Mr.  Quin.  If  Col.  Cooper's  assumption  is  correct,  the  Government  would  get 
$500,000  in  cash  and  you  would  get  all  those  properties,  and  In  addition  to  that 
you  would  give  the  Government  100,000  secondary  horsepower  for  the  term  of 
50  years.    That  Is  your  proposition? 


854 


MUSCLE   SHOALiS  PROPOSITIONS. 


Mr.  Martin.  No.  In  the  first  place,  you  have  to  remember— I  believe  if  you 
will  look  at  Mr.  Cooper's  testimony ;  I  do  not  recall  one  w  ay  or  the  other,  but  I 
do  not  think  it  is  possible  that  his  testimony  shows  that  the  locks  at  Wilson 
Dam  will  cost  $4,500,000. 

Mr.  QuiN.  I  may  be  wrong  about  that;  but  if  I  am  wrong,  I  will  assume 
that,  anyway. 

Mr.  :Martin.  Why  not  assume  it  to  be  $10,000,000  or  $15,000,000? 

Mr.  QuiN.  There  is  no  testimony  of  that  kind. 

]Mr.  Martin.  The  testimony  of  the  Secretary  6f  War  is  that  it  will  be 
$2,500,000. 

Mr.  QiTiN.  He  is  like  us,  he  is  a  layman,  and  he  must  have  gotten  his  in- 
formation somewhere  else. 

Mr.  Martin.  If  the  Government  does  not  want  to  put  in  the  lock  the  Gov- 
ernment  gets  the  full  $5,000,000 ;  that  is  all.  The  Government  does  transfer  the 
title  to  this  steam  plant  and  equipment  on  the  payment  of  $5,000,000,  or  the 
balance  of  $5,000,000.  It  does-  trnnsfer  also  the  Wilson  Dam  property;  but  1 
would  like  for  you  to  take  into  account  at  this  moment  section  13  of  the  Fed- 
eral water  power  act  of  June  10,  1920,  which  fixes  the  liabilities  and  condi- 
tions under  which  a  licensee  shall  conmience  and  complete  construction  of  a 
project.  I  will  hand  that  section  to  the  reporter  so  that  it  mav  be  set  out  in 
the  record. 

(The  .section  referred  to  is  as  follows.) 

"  Sec.  13.  That  the  licensee  shall  commence  the  construction  of  the  project 
works  within  the  time  fixed  in  the  license,  which  shall  not  be  more  than  two 
years  from  the  date  thereof,  shall  thereafter  in  good  faith  and  with  due  dili- 
gence prosecute  such  construction,  and  shall  within  the  time  fixed  in  the  license 
complete  and  put  in  operation  such  part  of  the  ultimate  development  as  the  com- 
mission shall  deem  necessary  to  supply  the  reasonable  needs  of  the  then 
available  market,  and  shall  from  time  to  time  thereafter  construct  such  iwrtion 
of  the  balance  of  such  development  as  the  comndssion  may  direct,  so  as  to  sup- 
ply adequately  the  reasonable  market  demands  until  such  development  shall 
have  been  completed.  The  periods  for  the  commencement  of  construction  may 
be  extended  once,  but  not  longer  than  two  additional  years,  and  the  period 
for  the  completion  of  construction  carried  on  in  good  faith  and  with  rea.sonable 
diligence  may  be  extended  by  the  commission  when  not  incompatible  with  the 
public  interests.  In  case  the  licensee  shall  not  commence  actual  construction 
of  the  project  works,  or  of  any  specified  part  thereof  within  the  time  prescribed 
in  the  license,  or  as  extended  by  the  commission,  then,  after  due  notice  given, 
the  license  shall,  as  to  such  project  works  or  part  thereof,  be  terminated  upon 
written  order  of  the  con  mission. 

"  In  case  the  construction  of  the  i)roject  works,  or  of  any  specified  part  thereof, 
have  been  begim  but  not  completed  within  the  time  prescribed  in  the  license, 
or  as  extended  by  the  commission,  then  the  Attorney  General,  upon  the  request 
of  the  commission,  shall  in.stitute  proceedings  in  equity  in  the  district  court 
of  the  Ignited  States  for  the  district  in  which  any  part  of  the  project  is  situated 
for  the  revocation  of  said  license,  the  sale  of  the  works  constructed,  and  such 
other  equitable  relief  as  the  case  may  demand,  as  provided  for  in  section  26 
hereof." 

Mr.  Martin.  The  Secretary  of  War  very  correctly  calls  attention  to  those 
provisions.  If  we  do  not  commence  construction  of  that  project  within  the  time 
fixed,  the  Federal  Water  Power  Commission  has  to  write  us  a  letter  stating 
that  the  license  is  canceled,  and  it  is  canceled,  and  if  we  do  not  complete  the 
ccmstruction  in  the  time  fixed,  unless  there  is  good  cause  shown,  the  Attorney 
(Jeneral.  upon  the  re<juest  of  the  power  commisgioner,  may  take  the  whole 
property  away  from  us  before  we  go  on  it. 

I  also  call  attention  to  other  provisions  of  the  Federal  water-power  law  safe- 
guarding the  public  interest. 

1.  Excess  profits  from  the  water  power  must  be  paid  to  the  United  States, 
whether  they  are  profits  of  a  public  utility  or  a  private  user.  (Reg.  18,  sec. 
lOd.) 

2.  The  franchise  is  limited  to  50  years  (sec.  6),  conditioned  upon  acceptance 
t>f  all  the  terms  and  conditions  of  the  act. 

(a)  The  right  of  the  United  States  or  any  State  or  municipality  is  expressly 
reserved  to  take  over  by  condemnation  proceedings  and  maintain  and  operate 
tli*^  project  at  any  fme  during  the  50  years  license  period  upon  payraeht  of 
just  compensation  to  the  licensee  therefor.    (Sec.  14.) 


MUBCLE  SHOALS  PROPOSITIONS. 


855 


(6)  At  the  end  of  the  period  the  right  is  reserved  to  the  Government  to  take 
over  the  project  upon  payment  of  net  investment  by  the  licensee,  but  not  to 
exceed  its  fair  value.     (Sec.  14.) 

(c)  At  the  end  of  50  years,  in  event  the  Government  does  not  exercise  the 
right  to  take  over  the  project,  preference  is  given  to  applications  by  States  or 
municipalities.     (Sec.  7.) 

id)  No  preference  right  for  renewal  of  the  franchise  or  any  proprietary  claim 
for  power  is  secured  to  the  licensee.  If  a  license  is  renewed,  it  must  be  under 
the  then  existing  law  and  regulations.    (Sec.  15.) 

3.  The  licensee  can  not  execute  a  transfer  of  any  right  secured  under  the 
license  or  of  property  under  the  license  without  the  written  approval  of  the 
power  commission.  All  transfers  or  assignments,  whether  by  judicial  sale  or 
foreclosure,  must  be  subject  to  the  conditions  of  the  act.  This  is  construed  by 
the  present  power  commission  to  extend  to  a  lease  of  any  property  under  license. 

(Sec.  8.) 

4.  The  licensee  is  required  at  its  own  expense,  under  the  supervision  of  the 
power  commission  at  all  times,  to  maintain  the  project  adequate  for  purposes  of 
navigation  and  efficient  operation  in  the  development  and  transmission  of 
power,  must  make  necessary  renewals  and  replacements  and  maintain  adequate 
depreciation  reserves.     (Sec.  10c.) 

5.  The  licensee  is  required  to  provide  free  of  cost,  power  for  operation  of  all 
navigation  facilities  (sec.  lie),  and  authority  is  reserved  in  the  Government  at 
all  times  to  prescribe  regulations  governing  control  of  the  pool  level  and  other 
regulations  in  the  interest  of  navigation,  including  maintenance  of  operation  of 
necessary  lights  and  signals.     (Sec.  18.) 

6.  All  power  sold  from  the  project  by  the  company  regarding  the  service  ren- 
dered its  customers  and  its  lates  and  charges  of  payment  therefor  are  at  all 
times  subject  to  regulation  by  duly  constituted  public  authority.     (Sec.  19.) 

All  power  sold  in  public  service  entering  into  interstate  commerce  must  be 
"reasonable,  nondiscriminatory,  and  just  to  the  customers,  and  all  unreason- 
able discrimination  and  unjust  rates  or  services  are  hereby  prohibited  and  de- 
clared unlawful." 

7.  After  20  years  of  operation,  amortization  reserves  are  required  out  of  sur- 
plus earned  thereafter,  if  any,  not  in  excess  of  a  .specific  reasonable  rate  of 
return  upon  the  actual,  legitimate  investment  to  be  applied,  in  the  discretion 
of  the  power  commission,  in  reduction  of  the  net  investment  of  the  licensee. 
(Sec.  9tl.)  This  rate  has  been  fixed  by  rules  and  regulations  of  the  power  com- 
mission. 

8.  The  licensee  is  reciuired  to  make  e^iuitable  contribution  for  benefits  accru- 
ing to  it  from  headwater  improvements  either  by  storage  reservoirs  or  other- 
wise, whether  done  by  other  licensees  or  by  the  Government.     (Sec.  lOf.) 

9.  "  Combinations,  agreenients.  arrangements,  or  understandings,  expressed 
or  implied,  to  limit  the  output  of  electrical  energy,  to  restrain,  direct  or  to  fix, 
maintain  or  increase  prices  for  electrical  energ>'  or  service  are  prohibite«l." 

(Sec.  9h.) 

10.  The  right  is  expressly  reserved  to  the  United  States  at  any  time,  in  the 
opinion  of  the  President,  to  take  over,  when  the  safety  of  the  United  States 
demands,  the  project  for  manufacturing  nitrates  for  "manufacturing  nitrates, 
explosives,  or  munitions  of  war  or  for  any  other  purpose  involving  the  safety 
(►f  the  United  States,"  but  involving  a  liability  only  for  just  and  fair  compensa- 
tion for  use  of  the  property  taken,  to  be  determined  by  the  Power  Commission 
upon  a  basis  of  a  reasonable  profit  to  the  licensee  in  peace  time,  plus  the  cost 
of  restoring  the  property  to  as  good  condition  as  when  taken,  less  a  reasonable 
value  for  improvements  made  by  the  United  States  that  are  serviceable  and 
valuable  to  the  licensee.     (Sec.  16.) 

One  of  the  other  pending  offers  requires  the  Government  to  protect  the  com- 
pany from  losses  by  such  use  and  to  return  the  property  in  as  good  condition  as 
received,  plus  reasonable  compensation  for  the  use  thereof. 

11.  The  United  States  is  vested  with  authority  to  revoke  the  "  license  or  to 
reme<ly  or  correct  by  injunction,  mandamus,  or  other  process  any  act  of  eom- 
nussioii  or  onnssionin  v  olation  <»f  the  act  or  lawful  regulation  issue<l  there- 
under." 

Mr.  QuiN.  I  am  assunung  you  are  going  to  do  all  these  things.  As  between  the 
Government  and  the  Alabama  Power  Co.,  the  title  to  everything  except  the  Wilson 
Dam  is  given  when  tou  comp'ete  the  construction  mentioned  there,  with  the  ex- 
ception that  the  Alabama  Power  Co.  is  to  furnish  100,000  secondary  horsepower 


856 


MUSCLE  SHOALS  PBOPOSITIONS. 


to  the  Gwernnient  for  any  purpose  the  (lovernment  mav  see  tit  to  use  it  for    That 
is  true,  is  it  not? 

Mr.  Martin.  Yes. 

Mr.  QuiN.  As  to  the  value  of  that  to  the  Government  no  man  could  sav,  except 
problematically.  Then,  under  your  proposition,  you  skim  off  the  cream  and  leave 
the  Government  the  whey,  do  you  not,  in  plain  language? 

Mr.  Martin.  No,  sir ;  the  Government  gets  a  lot  of  cream,  because  it  saves  at 
least  $2,000,000  a  year  in  the  form  of  an  outlay  in  interest  which  it  would  other- 
wise pay;  it  saves  its  annual  losses  by  way  of  maintaining  and  upkeeping  the 
dam  and  the  gates.  You  have  to  remember  those  things  in  a  hundred  years  would 
amount  to  a  great  deal  of  money.    Then  it  has  the  two  nitrate  plants,  also. 

Mr.  QuiN.  And  the  Government  would  be  at  the  expense  of  msiintaining  and 
keeping  up  the  nitrate  plant  in  stand-by  condition.  You  do  not  pretend  in  vour 
olTer  to  have  anything  to  do  with  that. 

Mr.  Martin.  The  Government  is  going  to  get  this  $5,000,000,  and  4  per  cent 
interest  on  that  is  $200,000  a  year,  and  you  will  find  that  is  practically  a  sufficient 
sum  to  maintain  the  nitrate  plants  forever. 

Mr.  QuiN.  With  that  nitrate  plant  being  shut  off  from  the  coal  fields,  88  miles 
away,  and  with  the  steam  plant,  the  reserve  power  which  would  be  right  there 
on  the  ground,  that  is  given  to  you,  do  you  not  think  it  would  be  a  rather  ridicu- 
lous attitude  for  the  Congress  to  practically  abandon  the  real  intent  and  purpose 
for  which  that  plant  was  constructed  by  accepting  the  offer  of  the  Alabama  Power 
Co.?  I  am  not  talking  from  any  other  viewpoint  but  that  <me  viewpoint.  It  has 
been  state<l  what  the  purposes  were,  and  you  know  them  as  well  as  the  com- 
mittee. 

Mr.  Martin.  No  :  to  the  contrary,  you  would  be  realiziuf  the  purpose  for  which 
the  development  was  undertaken ;  namely,  to  get  waterpower  for  the  operation 
of  this  plant.  You  have  the  two  nitrate  plants,  and  we  propose  to  you  to  keep 
them.  We  say  to  .vou  keep  the  nitrate  plants  and  we  will  deliver  to  you,  in  lieu 
of  the  steam-plant  equipment,  power  which  will  be  sufficient,  and  which  you 
may  use  in  the  manufacture  of  fertilizer,  and  that  power  you  have  in  lieu  of 
your  steam  plant  equipment,  and  with  that  you  may  operate  these  nitrate  plants. 

Mr.  QuiN.  Yes:  and  they  would  be  handicapped  to  the  extent  of  knowing  that 
they  could  not  get  any  primary  power  and  that  they  would  be  in  the  hands  of 
the  Alabama  Power  Co.  for  the  procurement  of  the  secondary  horseix>wer.  which 
you  say  is  procirrable  about  82  i)er  cent  of  the  year. 

Mr.  Martin.  Mr.  Quin,  no  one  is  in  the  hands  of  a  public  utility.  Its  rates 
are  regulated  by  a  public  service  commission,  and  if  no  public  service  com 
mission  exists  in  a  State,  then  they  are  regulated  by  the  Federal  Power  Com 
mission.  We  have  no  voice  except  to  initiate  rates.  The  public  authorities 
themselves  fix  the  rate.  With  this  great  steam  plant,  with  these  other  hydro- 
electric plants  in  the  immediate  vicinity,  and  in  many  other  portions  of  the 
State,  you  have  a  direct  call  on  all  the  primary  power  that  anyone  would  ever 
need  at  rates  that  are  reasonable. 

Mr.  QriN.  Mr.  Martin,  according  to  the  evidence  produced  here,  the  Alabama 
Power  Co.  has  practically  all  of  the  available  sites  there,  outside  of  this  site 
and  site  No.  3. 

Mr.  Martin.  I  do  not  know  that  that  is  the  evidence,  but  I  am  speaking  of 
whatever  power  there  may  be  developed.  Whatever  power  is  developed  and 
transmitted  to  the  user  is  transmitted  at  rates  which  by  law  must  be  fair  and 
reasonable. 

Mr.  Quin.  That  is  true,  but  the  evidence  shows  that  your  company  has  al- 
ready, through  lease  or  acquirement,  gained  control  of  practically  all  of  the 
available  water  power  in  that  State  or  territory. 

Mr.  Martin.  Whatever  developments  we  have  made  in  this  situation  have 
reduced  the  cost  of  the  power  to  the  user  from  3  cents,  which  prevails  in  your 
State,  Mr.  Quin,  to  about  8  mills  in  ours,  and  if  you  take  the  powers  whicli 
exist  in  Alabama,  Georgia,  and  Tennessee,  producing  as  they  do  a  billion  and 
a  half  kilowatt  hours  a  year,  what  would  it  cost  if  we  had  those  rates  pre- 
vailing in  Mississippi?  It  would  cost  the  consumer  $45,000,000  a  year. 
Mr.  QuiTn.  But  they  have  no  water  power  there. 

Mr.  Martin.  That  is  true,  and  at  these  same  sites  the  public  industries  are 
going  to  pay  approximately  $12,000,000  for  that  same  power,  a  net  saving  to  the 
public  in  those  States  over  the  rates  which  prevail  in  your  own  State  of  over 
$30,000,000  a  year.  You  have  no  water  power.  The  effect  x)t  these  water  powers 
which  have  been  developed  is  to  reduce  the  rates  to  the  public  and  to  create  for 
the  public  a  great  advantage  which  realizes  itself  in  industrial  development 


MUSC'LE   SHOALS   PROPOSITIONS. 


857 


P 


-ami  your  State  will  realize  it,  and  other  States  will  realize  it  in  proportion 
^8  the  water  power  industry  is  developed,  and  the  lines  are  built  to  carry  power 
Into  the  different  States. 

Mr.  Quin.  Do  you  believe  any  representative  of  the  Government  ought  to 
recommend  a  monopoly  of  a  great  public  utility  like  that ;  that  is,  a  natural  re- 
rsource  of  that  kind? 

Mr.  Martin.  It  is  a  resource  that  can  be  developed  and  can  be  transmitted 
to  the  public,  and  it  can  best  be  developed  in  great  units  and  a  great  system 
combining  the  water  powers  in  different  water  sheds  can  give  the  public  ad- 
vantages which  come  from  low  seasons  in  one  place  and  flood  seasons  in  an- 
other in  such  a  way  as  you  can  not  otherwise  realize  those  great  advantages 
lor  the  public. 

Take  first  your  cwn  Army  engineers.  The  Engineer  board,  heade<l  by  Col. 
K<^ller,  have  tnmsmitted  a  rep(>rt  to  C<»n;rress.  which  I  read  to  vou.  in  \vhich 
tliey  have  told  you  that  the  only  way  in  whicli  Musele  Shoals  will  <»vcr  realize 
its  tru«^  economic  value  is  by  the  connection  of  that  water-power  development 
with  the  development  in  other  watershefls. 

Mr.  Quin.  But  they  do  not  reconnnend  tliat  one  corporation  shtmld  <^>wii 
them  all? 

Mr.  Maktin.  No;  one  company  can  not  own  them  all.     That  rerK)rt  recow 
mended  TJio  interconnecticm  of  this  system,  this  development,  with  the  svstem 
•of  all  the  companies,  if  you  please. 

Mr.  (^uiN.  There  are  several  of  them  down  there,  and  five  of  those  concerns 
"Avrote  a  letter,  dated  June  24, 1921,  to  Gen.  Beach,  the  f  ^hief  of  Engineers. 

Mr.  Martin.  Several  of  them  did. 

Mr.  Quin.  They  said  this  secondary  hors?power  would  be  of  no  i)ractical 
value.    Were  they  correct  in  that  statement  to  the  War  Department? 

^Ir.  Martin.  I  do  not  put  it  that  way.  I  do  not  think  they  made  just  that 
statement,  Mr.  Quin. 

Mr.  Quin.  Here  is  their  language. 

Mr.  Martin.  Whatever  statement  they  made. 

Mr.  Quin.  This  is  what  they  say :  "  The  10  months'  secondary  power  which 
it  is  possible  to  produce  at  Muscle  Shoals  has  little  or  no  conunercial  value." 
What  do  you  say  about  that? 

Mr.  Martin.  Our  views  are  expressed  in  our  letter  of  May  6,  1921,  in  which 
we  take  the  view  that  this  development  has  a  commercial  value  and  had  its  true 
economic  place  in  southern  affairs,  and  if  the  Government  desired  to  go  ahead 
with  that  development  in  a  way  to  make  some  of  the  power  available  to  the 
public,  we  were  prepared  to  go  forward  with  it.  We  know  that  power  has 
great  value  in  connection  with  the  systems  of  other  companies  in  that  part  of 
the  country. 

Mr.  Quin.  You  take  issue  with  those  other  water-power  companies  in  that 
part  of  the  country  who  wrote  that  letter  I  referred  to? 

Mr.  Martin.  We  stand  on  the  letter  we  wrote  to  the  Chief  of  Engineers. 
We  have  stated  the  situation ;  we  know  that  our  letter  is  correct ;  we  know 
there  are  great  public  advantages  which  will  come  from  carrying  out  projects 
;along  the  lines  of  that  letter. 

Mr,  Quin.  You  do  not  indorse  that  letter  those  other  gentlemen  wrote? 

Mr.  Martin.  We  stand  en  the  letter  we  wrote,  and  as  I  explainwl  to  von. 
our  letter  expresses  our  views.  If  those  gentlemen  expressed  those  views,  thev 
•do  not  know  enough  about  the  situation  down  there. 

Mr.  Quin.  All  I  know  is  that  it  was  presented  to  the  connnlttee  and  apiRuirs 
•on  page  114  of  the  hearings, 

Mr.  Martin.  If  those  views  are  in  conflict  with  our  views,  we  stand  on  our 
positirn,  and  we  show  our  good  faith  by  telling  you  that  we  are  ready  to  pro- 
•(•ure  the  money  to  complete  the  development  without  any  Government  expens*-. 
That  is  the  best  guaranty  that  we  can  give  you. 

Mr.  Quin.  Since  you  have  mentioned  that,  Mr.  Martin — it  will  naturally 
( t)me  up  on  the  floor  of  the  House— therefore  I  will  ask  you  how  the  Alabama 
Power  Co.  will  be  able  to  do  this?  This  ig  a  pretty  big  undertaking,  as  pro 
posed  in  your  offer.    How  are  we  going  to  answer  that  question? 

^Ir.  Martin.  We  realize  that  it  is  a  big  undertaking,  Mr.  Quin,  but  as  :\ 
<*onipany  that  is  established  as  a  going  company  and  is  selling  p<»wer  to  the 
public,  having  60,000  consumers  of  their  energy,  dire<-t  and  indirect,  that  has 
a  fixeil  position  in  the  money  market,  has  a  fixed  position  by  which  it  can  g«» 
•<»ut  and  sell  its  securities  to  most  of  the  public.    We  have  a  power  development 


858 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


859 


III'  S^''""  ("iterpasinir).  Wl.at  time  of  the  year  did  voii  ^ell  tho^e^ 

Mr.  Martin    No  other  enterprises  are  connected  with  us     There  is  no  ntilifv 
fn  fin.iT    \''"V''f^'*'^'^^'  '"  ^'^^  ^^^'^^'i"-  husiness.  who  a^  r;adv  to   ,iist    IS 

Air.  Af'^JON.  The  canal  that,  was  pnt  in  there  has  been  there  for  mnnv  vp«r« 

thi"  n,ornir«?  '  ""^  "*''*'■  '"•"""  """^  ""o^"  «•«'  ><>"  motioned 

Mr   ?f.T;5T'^T;Jr,i  """  r"i"  ^'o.-  1-    That  is  .lownstreain  from  Pan.  No.  -> 

Mr.  Martin.  Approximately. 
River?^'^^'''*  ''^^^"^  ^«^'  ^«''  ^^^"'  ^^^^'^  i«  it  that  It  turns  back  toward  the  (^hio 

Mr.  Martin.  Thirty  or  forty  miles:  it  groes  in  a  northwesterly  direction 

The  Chairman   The  hour  of  half  past  12  has  arriyecl,  wl  en    ir  usu^ 
take  a  rec-ess,  and  if  you  will  come  ba<k  at  2  o'clock   Mr   Martr,     we  u ill      f 
preciate  it.    You  Imye  been  yery  patient  and  yery  kind  '  '"  ''^ 

Chairman.""'''  '   '^'"^'   ^*'''  eonmiittee  has  been   yery   patient    with    n.e,  Mr. 

(Thereupon  a  recess  was  taken  until  2  o'clock  p.  m.) 

AFTER  RECESS. 

The  committee  met,  pursuant  to  recess,  at  2  o'clock  p.  m. 

ADDITIONAL   STATEMENT    OF   MB.    THOMAS   W     MARTIN     PH.EST 

DENT  ALABAMA  POWEB  CO.-Besumed  ' 

quSlons^^'''''^''-  ^''  ^^''"^^'  ^'-  ^"^"  ^^"^^^  "'^^  t«  ««^'  J-^"  «  f^w  more 

Mr.  QuiN.  Mr.  Martin,  you  stated  that  for  the  purpose  of  carrvin-  out  your 

proposition  to  the  Goyernment  you  would  raise  the  money  through  f^nth^  yo  r 

Mr'^MlkTiN^^YVs    "''''""'  "''^"'  ^""^'  '^  adoptX  >o;fr\"oCny 
ina'Je  tKte^esri  ''^  ''"^'^^"^^  '^^'^  ^^^^^^  ^«  ^^  "'^--^  --'<^ 


Mr.  Mabtin.  We  liaye  not  those  figures  anyway  definitely,  Mr.  Quin.  You 
understand  that  all  those  things  depend  u£>on  the  preyailing  market  conditions, 
and  the  conditions  that  preyailed  a  year  or  so  ago  are  not  the  conditions  that 
preyail  now,  and  the  conditions  that  preyail  now  may  not  be  the  conditions  that 
will  preyail  six  months  from  now. 

Mr.  QuiN.  What  did  you  haye  to  pay  for  money  in  January  of  this  year? 

Mr.  Martin.  The  securities  were  retailed  to  the  public  at  a  little  oyer  6  per 
cent.  We  do  not  know  what  the  conditions  will  be  six  months  from  now.  We 
hope  they  will  be  better,  but  our  plan,  of  course,  is  the  same  as  that  of  all  other 
public  seryice  companies,  to  go  into  the  market  and  obtain  money  on  the  most 
fayorable  terms  and  the  best  terms  that  preyail  at  the  time,  and  I  belieye  that 
our  company  is  in  position  to  obtain  funds  on  just  as  fayorable  a  basis  as  any 
public  utility  in  the  country. 

Mr.  QuiN.  Mr.  Martin,  the  big  packing  plants  paid  8  per  cent,  their  statement 
shows. 

Mr.  Martin.  Oh,  undoubtedly  there  haye  been  securities  sold  on  an  8  per 
cent  basis  within  the  past  12  months,  and  eyen  on  higher  rates,  Mr.  Quin, 
within  two  years,  when  yery  extrayagant  rates  of  interest  were  paid,  but  you 
will  appreciate  that  long-term,  good  inyestments  in  securities  of  this  kind  appeal 
to  the  public.  For  instance,  take  the  past  year.  In  the  past  12  months  there 
were  securities  of  light  and  power  companies  sold  amounting  to  $472,500,000, 
of  which  $145,493,000  were  issued  and  sold  by  hydroelectric  companies,  most 
of  them  within  the  past  60  or  90  days,  and  there  is  an  established,  good  going 
market  for  high-grade  securities  based  on  hydroelectric  properties ;  and  further- 
more. Mr.  Quin,  when  you  consider  the  demands  that  are  going  to  arise  from 
year  to  year,  the  natural  and  normal  demands  of  the  lighting  and  power  indus- 
try of  this  country  will  require  approximately  $733,000,000  a  year  for  a  number 
of  .yeai-s  to  meet  the  public  demand.  A  great  deal  of  that  will  be  deyoted 
directly  to  the  manufacture  and  distribution  of  hydroelectric  energy.  Part  of 
it  will  be  for  other  seryices  relating  to  lighting  and  power.  When  you  go  into 
tile  question  of  financing  public  utilities  of  this  class,  you  must  remember  that 
tl»e  Uoyernnient's  program  of  financing  some  part  of  the  public  utility  situa- 
tion in  the  South  inyolyes  not  alone  that,  but  if  the  Goyeninient  undertakes 
the  financing  of  hydroelectric  properties  at  all  .you  are  going  to  run  into  the 
policy  of  financing  them  generally,  inyolying  yolumes  of  money  here  that  >ye 
can  not  foresee  by  any  sort  of  a  guess,  this  great  industry  requiring,  as  it  does, 
over  $700,000,000  a  year  to  meet  public  demands,  and  where  will  you  come  out 
if  you  do  not  meet  those  demands? 

Mr.  Quin.  You  state^l  that  you  expecteil  to  develop  through  the  completion 
of  the  Wilson  Dam.  with  the  aid  of  the  steam  plant,  240,000  horsepower:  is  that 
correct  ? 

Mr.  Martin.  No  ;  not  through  the  use  of  the  steam  plant.  Our  suggestion.  Mr. 
Quin.  is  simply  that  as  this  construction  and  development  goes  forward  we 
would  install  240,000  horsepower  by  the  time  the  dam  is  completed  and  the 
power  house  ready  for  initial  service. 

Mr.  Quin.  You  mean  that  would  all  be  water  power? 

^Ir.  Martin.  Yes,  sir ;  240,000  horsepower  would  be  the  installation. 

Mr.  Quin.  There  would  be  240,000  horsepower  installed,  of  which  100,000 
horsepower  would  be  primary  power? 

Mr.  Martin.  Yes,  sir:  and  as  the  business  grew  in  that  territory,  then  the 
licensee  or  company  would  install  further  equipment  until  the  complete  installa- 
tion in  this  power  house  is  made ;  that  is,  assuming  600,000  horsepower  as  the 
complete  installation,  a  company  situated  as  ours,  for  instance,  would  install 
further  units  from  year  to  year.  We  have  a  plant  on  the  Coosa  River,  lock  12, 
where  we  have  six  units  totaling  110,000  horsepower.  We  first  installed  three, 
and  within  another  year  or  two  we  installed  another,  and  then  another,  and 
then  finally  we  reached  the  sixth  unit,  the  sixth  unit  being  installe«l  about  six 
years  after  the  first  three  were  installed,  and  that  is  the  way  this  industry 
grows,  and  that  is  the  way  the  installation  is  made  to  meet  the  demands  as  they 
arise. 

Mr.  Quin.  The  question  of  the  rate  of  interest  and  all  overhead  charges  and 
costs  would  be  bound  to  be  taken  into  consideration  by  the  public-utilities  com- 
mission in  the  matter  of  rates,  would  they  not? 

Mr.  Martin.  Oh,  yes;  the  question  of  rates,  the  question  of  service,  and  the 
question  of  securities  issues  are  all  under  the  control  of  the  public-service  com- 
missions in  the  South.  In  our  own  State  all  those  questions  are  under  the 
control  of  the  commission. 


860 


MUSCLE  SHOALS  PROPOSITION'S. 


ifci'' 


Mr.  QuiN.  If  you  have  to  pay  a  high  interest  rate,  that  comes  out  of  tliP- 
.us  oiuer^  under  the  rate  allowed  by  the  public-utility  commission' 

Mr.  Martin    Of  course,  the  company  is  entitled  to  a  fair  return. 

Mr.  QuiN.  And  that  is  what  the  utility  commission  bases  the  rate  on? 

Mr.  MARTIN  It  bases  the  rates  not  necessarily  on  the  cost  of  monev,  but  thev 
are  based  on  the  variety  of  elements  that  enter  into  that.  ^ 

Mr.  QuiN.  And  that  is  one  of  the  elements,  because  a  man  is  bound  to  be 
allowed  a  profit  or  he  can  not  run. 

Mr.  Martin.  Of  course ;  and  you  must  bear  in  mind  that  nowadays  the  verv 
purpose  of  the  public  authorities  in  controlling  security  issues  is  to  prevent  an 
abnormal  charge  being  made  on  the  public  through  rates,  and  that  is  the  situa- 
tion now. 

Mr.  QuiN.  You  stated  and  showed  by  your  map  the  territory  that  could  be 
served  by  power  there.    That  is  also  the  main  territory  that  uses  connnercial 
fertilizer,  is  it  not,  all  those  States  around  there— Alabama,  Georgia,  Mississippi 
Arkansas,  and  the  Carolinas? 

Mr.  Martin.  Yes ;  that  territory,  of  course,  uses  a  great  deal  of  commercial 
fertilizer. 

Mr.  QuiN.  Then  that  place  is  located  practically  in  the  center  of  the  real 
fertilizer  community,  is  it  not? 

Mr.  Martin.  It  is  well  located  for  that  purpose. 

^Ir.  QuiN.  Do  you  not  think  that  for  the  whole  good,  the  question  of  cheap 
fertilizer  being  given  to  those  conununities  amounts  to  a  good  deal  more 
than  the  power  consumed? 

:Mr.  :Martin.  In  the  first  place,  Mr.  Quin,  we  do  not  interfere  with  that  ques- 
tion. According  to  the  statements  which  have  been  made  to  this  committee 
by  Mr.  Worthington  and  by  others,  100,000  horsepower  should  be  used  in  the 
cyanamid  process  in  manufacturing  nitrates  at  plant  No.  2.  We  propose  that 
the  Government  shall  have  that  free.  Now,  when  you  get  into  the  question 
of  fertilizer,  as  to  the  advantage  which  comes  from  one  or  the  other,  we  say 
that  we  are  giving  the  Government  a  definite  volume  of  power  for  that  pur- 
pose. Now,  when  it  comes  to  the  balance  of  the  power,  whether  it  is  used  in 
industries  locally,  and  a  lot  of  it  will  be,  or  elsewhere,  it  is  distributed  by  a 
concern  engaged  in  public  service.  Your  own  State  needs  power,  and  needs  it 
very  much.  You  need  only  look  at  the  industrial  development  in  those  States 
of  the  South  which  have  great  systems  such  as  this  and  those  which  have  not 
to  see  the  relative  advantages. 

Mr.  Quin.  We  think  we  need  fertilizer  much  more  than  we  need  that  power. 

Mr.  Martin.  Well,  undoubtedly  you  do,  and  you  should  get  them  both. 

Mr.  Fisher.  How  many  directors  are  there  in  the  Alabama  Power  Co  ' 

Mr.  Martin.  There  are  12  as  I  recall,  Mr.  Fisher. 

Mr.  Fisher.  Could  you  give  the  ones  who  are  American  citizens  and  the  ones 
who  are  aliens? 

Mr.  Martin.  They  are  all  American  citizens  but  two.  In  Alabama  there 
reside  the  following — shall  I  give  the  names? 

Mr.  Fisher.  If  you  will,  if  you  remember  them. 

Mr.  Martin.  I  will  try  to  remember  them.  These  live  in  Alabama:  Mr 
Mitchell,  Mr.  Weatherley,  Mr.  Hobbie,  Mr.  Moody,  Mr.  Hassinger,  Mr  Walmslev 
Mr.  Hood,  and  myself.  These  live  in  different  parts  of  the  North:  Another 
Mr.  Mitchell,  Mr.  Dahl,  Mr.  Swan,  who  is  not  related  to  the  Mr.  Swann  who  has 
testified  here,  and  Mr.  Grosbeck;  and  outside  of  this  country,  living  in  Mon- 
treal, Canada,  there  are  Mr.  McFarland  and  Mr.  Henderson. 

Mr.  Fisher.  Can  you  give  us  the  percentage  of  the  stock  In  the  Alabama 
Power  Co.  that  is  held  in  this  country  by  American  citizens? 

Mr.  Martin.  The  stock  of  the  power  company  and  the  stock  of  the  holding 
company  is  held  in  this  country  something  in  excess  of  40  per  cent,  consisting 
of  the  Alabama  Power  Co.'s  preferred,  and,  of  course,  that  votes  along  with 
the  common,  and  the  common  stock  of  the  holding  companv,  which  is  largely 
held  in  this  country,  as  I  stated,  those  holdings  amount  to  something  in 
excess  of  40  per  cent,  and  the  largest  single  holdings  of  the  stock  of  the  holding 
company  are  in  this  country,  and  the  largest  single  holdings  is  by  citizens  of 
Alabama. 

Mr.  Fisher.  Are  you  stating  that  from  a  careful  examination  of  the  stock 
books  of  the  Alabama  Power  Co.  ? 

Mr.  Martin.  Yes.  I  have  not  seen  the  stock  books  for  some  time,  Mr.  Fisher 
but  I  keep  up  with  it,  naturally,  from  contact  witli  the  secretarv  of  the  com- 
pany. 


MUSCLE  SHOALS  PROPOSITIONS. 


861 


Mr.  Fisher.  As  I  understand  the  history  of  the  contract  with  the  United 
States  Government,  you  formed  a  tentative  agreement  a  year  before  the  final 
contract  was  signed;  is  that  correct? 

Mr.  Martin.  Yes.    May  I  go  back  to  your  former  question  just  a  moment? 

Mr.  Fisher.  Yes. 

Mr.  Martin.  As  ^I  stated  to  Mr.  Quin,  taking  our  securities,  both  bonds  and 
stocks,  about  65  per  cent  of  all  our  securities  are  held  in  America,  and  all  the 
securities  of  our  company  which  carry  any  interest  charge  at  all  or  any  divi- 
dend charge,  practically  all  of  them,  are  held  in  this  country.  We  have  never 
paid  any  dividend  on  the  common  stock,  and  all  of  our  dividends  and  earnings 
have  practically  gone  to  American  citizens.  I  am  very  sorry  to  say  that  be 
cause  people  abroad  who  invested  in  our  securities  have  been  disappointed,  and 
disappointed  because  of  the  reorganization  which  had  to  take  place  in  our  com- 
pany in  1914,  due  to  the  changing  conditions  brought  about  by  the  late  war. 

Mr.  Fisher.  As  you  understand,  this  nitrates  proposition  is  one  of  national 
defense,  and  you  can  understand  why  this  matter  is  of  interest  to  Congress  and 
to  the  country. 

Mr.  Martin.  Yes. 

Mr.  Fisher.  Now,  referring  again  to  the  date  of  the  tentative  contract  which 
you  had  with  the  Government  and  the  final  contract,  what  transpired  through 
all  that  period  of  time  to  delay  a  contract  on  so  large  a  job?  You  were  spend- 
ing millions  of  dollars  for  the  Government  each  month,  were  you  not? 

Mr.  Martin.  No;  not  each  month. 

Mr.  Fisher.  Within  a  few  months'  time. 

Mr.  Martin.  These  expenditures,  of  course,  ran  over  a  period  of  12  to  15 
months.  We  did  not  spend  the  money.  The  Government  had  a  disbursing 
ofl'icer  there.  It  was  spent  directly.  As  you  probably  know,  all  the  purchases 
were  made  for  the  account  of  the  Government,  on  its  approval,  and  the  moneys 
were  paid  direct  by  the  disbursing  officer  from  funds  which  he  had  to  his 
credit  arranged  in  some  way  through  the  Treasury  Department  of  the  United 
States.    We  did  not  control  any  of  the  funds. 

Mr.  Fisher.  Who  were  the  officers  in  the  Ordnance  Department  that  you 
negotiated  with  in  this  contract? 

Mr.  Martin.  I  believe  I  stated  to  you  that  at  different  times  we  had  negotia- 
tions with  Col.  Joyes,  Col.  Beamcs,  and  there  was  a  Col.  White,  who  had  some- 
thing to  do  with  our  contract,  and  Maj.  Coombs.  At  one  time,  in  its  inception, 
the  question  was  before  the  Wai"  Industries  Board,  Power  Section,  and  Gen. 
Keller  had  a  great  deal  to  do  with  the  whole  subject  of  the  location  of  power 
facilities;  Gen.  Charles  Keller,  of  the  United  States  Army.  Then  there  was 
<  'apt.  Raymond  Hull  Noble,  who  was  the  counsel  for  the  Government  in  the  be- 
ginning of  the  negotiations,  and  who  died  in  the  summer  of  1918;  and  there 
was  Lieut.  Col.  William  Williams;  and  at  another  time  Maj.  Burns  had  some 
l»art  in  it;  and  Capt.  Gaillard  was  another  officer;  and  Maj.  Runcie  was  another 
officer  of  the  Government;  and  Maj.  Gen.  Williams,  who  is  the  Chief  of  Ord- 
nance. 

Mr.  Fisher.  Which  one  of  those  officers  is  the  officer  who  had  the  final  say 
as  to  the  approval  of  the  items  of  the  contract? 

Mr.  Martin.  Well,  I  am  not  able  to  say.  In  its  beginning  Col.  Joyes  initiated 
the  program.  It  was  approved,  however,  by  the  power  section  of  the  tSTar 
Industries  Board,  and  in  carrying  out  the  contract  at  some  points  the  negotiations 
were  taken  up  and  concluded  by  Col.  William  Williams.  Now,  just  who  had 
the  authority  I  can  not  say.    I  can  only  say  who  I  discussed  it  with. 

Mr.  Fisher.  Were  you  in  Washington  the  day  the  fake  armistice  notice 
came  out? 

Mr.  Martin.  No,  sir. 

Mr.  Fisher.  Was  the  contract  signed  in  Washington? 

Mr.  Martin.  No,  sir;  it  was  signed  in  New  York.  I  was  present  when  the 
contract  was  signed. 

Mr.  Fisher.  Was  there  anything  about  the  fake  news  story  that  produced  the 
signing  of  the  contract? 

Mr.  Martin.  No. 

Mr.  Fisher.  Did  that  have  anji:hing  to  do  with  it? 

Mr.  Martin.  Not  a  thing. 

Mr.  Fisher.  You  had  expended  millions  of  dollars  for  the  Government  over 
the  period  of  a  year  with  no  contract,  and  news  of  the  armistice  came  or  of 
the  end  of  the  war,  and  the  contract  was  signed.  That  was  just  a  coincidence. 
Is  that  your  interpretation  of  It? 


862 


MUSCLE   SHOALS  PROPOSITION'S. 


MUSCLE  SHOALS  PROPOSITIONS. 


863 


Mr.  M^BTiN.  Col.  Williams  asked  us  to  meet  in  New  York  for  the  signing  of 
the  contract,  and  we  met  there  in  pursuance  of  his  request. 

Mr.  Fisher.  It  was  always  understood,  was  it  not,  that  this  was  a  war 
contract? 

Mr.  Martin.  Yes,  sir. 

Mr.  FiSHf^B.  Would  you  kindly  tell  the  committee  just  when  you  stopped 
work  on  this  contract? 

Mr.  Martin.  We  did  some  work  at  our  own  expense  some  time  in  the  spring 
of  1919.  We  stopped  work  in  the  spring  of  1919.  The  Government's  expendi- 
tures stopped  very  soon  after  the  contract  was  made  and  we  took  it  up  and 
completed  the  work. 

Mr.  Fisher.  Did  the  Government  ever  get  any  power  from  the  extension  to 
your  plant  that  was  erected? 

Mr.  Martin.  No;  it  was  this  way,  Mr.  Fisher:  The  Government  had  the 
right  to  take  power  from  this  extension,  or,  rather,  from  our  company,  say, 
30,000  kilowatts.  The  Government  also  had  the  right  to  suspend  the  taking  of 
energy  under  the  terms  of  the  contract.  If  the  Government  took  power  under 
that  contract,  it  meant  a  very  large  volume,  and,  of  course,  a  very  large  use 
for  power,  with  a  minimum  monthly  charge  of  $30,000,  because  we  had  to 
provide  a  staff  and  coal  and  men  to  furnish  that  power.  Now,  there  never 
was  a  minimum  charge  of  $30,000  a  month  paid,  because  when  the  armistice 
came  the  use  of  power  in  large  volume  was  unnecessary.  So  Col.  Joyes  or 
Maj.  Burns,  I  have  forgotten  who  it  was  now,  gave  us  an  order  suspending  the 
right  to  take  energy  under  the  contract  and  electing  to  take  energy  from  our 
system  as  any  user  of  power  would.  So  our  company  supplied  power  to  the 
Government,  not  under  the  contract  but  at  rates  prevailing  for  such  service 
fixed  by  the  public  service  commission  of  Alabama,  and  from  that  time  on  we 
have  supplied  the  Government  with  power  for  the  needs  at  Muscle  Shoals,  for 
construction  needs  around  the  Wilson  Dam,  for  lighting  and  policing,  and  such 
operating  as  took  place  at  the  nitrate  plant.  Of  course,  before  the  Warrior 
extension  was  completed  and  during  the  period  of  the  war,  we  supplied  the 
Government  with  power  in  varying  amounts  from  10,000  kilowatts  to  30.000 
kilowatts  for  its  uses,  and  that  was  from  our  system  before  the  extension  was 
completed. 

•  Mr.  FisHiat.  Was  any  work  done  down  at  Gorgas  under  this  contract  other 
than  the  completing  of  the  extension  of  the  powerhouse?  Was  there  not  some 
work  done  on  a  railroad  after  the  armistice? 

Mr.  Martin.  Part  of  that  was  done  before  and  most  of  it  afterwards.  Our 
company  expended  in  completing  the  railroad  $105,000  and  the  Goveniment 
expended  $30,000.    All  the  money  we  spent  was  entirely  after  the  armistice. 

Mr.  FisiiER.  The  war  was  over,  and  when  did  you  begin  to  take  steps  to  bring 

'   about  an  adjustment  of  your  differences  which  the  Government  and  a  settlement? 

You  had  this  enormous  extension  to  your  plant  which  was  the  property  of  the 

Government :  when  did  you  begin  to  take  steps  to  bring  about  a  settlement  with 

the  G(»vernnient.  or  did  you  take  any  steps? 

Mr.  Martin.  You  mean 

Mr.  Fisher  (interposing).  Under  the  contract,  did  you  take  any  steps  at  some 
time  after  the  armistice,  or  how  soon  after  the  armistice  did  you  take  steps  to 
brinsr  about  a  settlement? 

Mr.  Martin.  The  whole  matter  was  adjusted  within  90  days  after  the  armi- 
stice, we  taking  over  the  completion  of  various  work  at  our  expense,  and  the 
GoveriuDent's  advances  stopped. 

Mr.  FisHEK.  Has  anything  been  done  in  the  last  year  by  the  Government  or 
by  you  toward  bringing  about  a  settlement? 

Mr.  Martin.  You  mean  taking  over  the  property? 

Mr.  Fisher.  Yes. 

Mr.  Martin.  We  discussed  the  question  several  times,  and  we  were  preparing 
to  start  this  arbitration  last  summer,  and  the  Ford  proposal  came  in,  involving 
this  property,  and  the  Ordnance  Department  wore  unwilling  to  go  any  further 
until  the  Secretary  of  War  disposed  of  that.  We  were  in  active  negotiation 
looking  to  the  arbitration  and  settlement  of  the  whole  matter  last  summer  and 
last  fall. 

Mr.  FisHEK.  Until  tlie  Ford  offer  was  made  last  summer  you  took  no  further 
interest  in  Muscle  Shoals,  did  you?  You  had  no  interest  in  the  development 
of  Muscle  Shoals? 

Mr.  Martin.  Yes;  of  course;  our  letter  of  May  showed  our  interest. 

Mr.  Fisher.  P.ut  not  in  the  near  future? 


Mr.  Martin.  Yes;  in  the  immediate  future,  because  we  had  to  have  power  to 
meet  the  public  demands. 

Mr.  Fisher.  Would  you  have  made  an  offer  for  the  Muscle  Shoals  project  if 
Ford  had  not  included  in  his  offer  the  Gorga.s  power  plant  and  the  transmission 
line? 

Mr.  Martin.  We  have  always  felt,  Mr.  Fisher,  that  this  Muscle  Shoals  devel- 
opment should  be  made  in  such  a  way  as  to  interconnect  with  power  systems  of 
the  southeast,  and  our  letter  of  May  showed  exactly  how  we  felt  about  it,  and 
we  stand  on  the  terms  of  that  letter. 

Mr.  Fisher.  Who  was  the  lawyer  for  the  Alabama  Power  Co.  in  all  the 
negotiations  leading  up  to  the  signing  of  the  contract?  Did  you  represent 
them  as  their  general  counsel  at  that  time? 

Mr.  Martin.  I  was  general  counsel,  and  the  only  other  lawyer  we  had  was 
Mr.  Weathers,  the  gentleman  right  here  I  indicating]. 

Mr.  AVright.  Mr.  Martin,  I  understood  you  a  day  or  two  ago,  in  response  to 
a  question  from  Mr.  Miller,  to  state  that  this  100,000  secondary  horsepower 
mentioned  in  section  2  of  your  offer  would  be  available  to  the  Government  or 
the  Government's  assignee  for  the  puriK)se  of  the  production  of  fertilizers  at 
Muscle  Shoals  or  munitions  of  war,  and  for  making  experiments  in  the  pro- 
duction of  fertilizer  or  for  any  other  purposes  for  which  the  Government  might 
want  to  use  this  power.     Did  I  understand  you  correctly? 

Mr.  Martin.  If  I  understand  your  question;  yes.  We  proposed  to  furnish 
the  100,000  horsepower,  as  rwiuired,  for  the  production  of  fertilizer  and  muni- 
tions of  war  and  for  research  work. 

Mr.  Wright.  But  if  I  understood  your  response  to  Mr.  Miller,  if  the  Gov- 
ernment (lid  not  see  tit  to  use  it  for  that  puri>ose,  it  would  be  available  to  the 
Government  for  any  other  use  it  might  want  to  put  it  to? 

Mr.  Martin.  Substantially  so.  I  assume  the  (Jovernment,  if  it  did  not  want 
to  use  it  for  these  purposes,  would  want  to  sell  it.  I  do  not  suppose  the  Gov- 
ernment would  want  to  engage  in  public  service.  That  is  the  only  thing  I  have 
in  mind. 

Mr.  Wright.  Have  you  your  offer  before  you? 

Mr.  Martin.  Yes,  sir. 

Mr.  Wright.  I  call  your  attention  to  section  2.    Let  us  read  that  carefully : 

"  To  furnish  free  to  the  Government,  or  anyone  it  may  designate,  from  the 
hydropower  plant  100,000  horsei)ower,  as  required,  for  the  production  of  fer- 
tilizers and  munitions  of  war  an<l  for  research  in  connection  therewith ;  and  it, 
<lue  to  changes  in  the  art,  this  use  of  such  100,000  horsepower  is  discontinued 
by  the  Government,  the  Alabama  Power  Co.  to  purchase  and  pay  for  same  in 
iiccordance  with  a  schedule  to  be  set  forth  in  the  license,  this  power  to  be  the 
second  100,000  horsepower  at  any  time  available  from  the  normal  flow  of  the 
river." 

Of  cour«e,  Mr.  ^Martin,  it  is  very  proper  we  should  understan<l  what  a  proper 
construction  of  that  section  is,  as  it  may  be  practically  applied.  That  is  a 
very  clear  statement,  as  I  read  it,  and  there  is  no  ambiguity. 

Mr.  Martin.  No,  sir ;  there  was  none  intended. 

Mr.  Wright.  And  can  that  section  mean  anything  except  that  this  100,000 
secondary  horsepower  shall  be  available  to  the  Government  or  to  anyone  it 
may  designate  for  the  sole  purpose  of  the  production  of  fertilizers  or  muni- 
tions of  war  and  for  making  experiments  or  for  research  work  in  connection 
therewith,  or  if  due  to  any  changes  in  the  art.  the  Government  or  its  assignees 
do  not  so  use  that  100.000  secondary  horsepower,  can  any  other  use  be  made  of 
it  than  to  sell  it  to  you  under  the  terms  of  that  section? 

Mr.  Martin.  What  other  use  could  there  be,  Mr.  Wright? 

Mr.  Wright.  I  am  just  asking  you  the  question.  I  understood  you  to  say  the 
other  day  that  the  Government  could  use  it  for  any  purpose. 

Mr.  Martin.  If  you  want  to  modify  it  and  make  it  available 

Mr.  Wright.  No;  does  not  the  secti<m  itself  modify  it?  Does  it  not  limit  it 
by  the  very  language  of  the  section  to  its  use  for  the  production  of  munitions  of 
wnr  and  fertilizers  in  the  operation  of  these  plants? 

Mr.  Martin.  We  did  not  have  in  mind  any  limitation,  and  if  you  want  to 
expand  the  scope  of  those  words,  that  is  all  right. 

Mr.  Wright.  I  am  not  trying  to  expand  its  meaning.  I  am  trying  to  suggest 
what  it  means  as  it  is  written  here. 

Mr.  Martin.  We  were  all  dealing  with  a  quesfon  of  fertilizers  and  nmnitions 
of  war. 

92900—22 55 

/ 


864 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PEOPOSITTONS. 


865 


Mr.  W^RKiiiT.  I  understaiKl  that:  Imt  I  think  it  is  material.  !Mr.  Martin,  in 
tlie  lijrht  of  what  has  develoiied  here,  that  we  slioukl  understand  that ;  that  is  all. 

Mr.  ^Iaktin.  Any  expansion  in  nieaninjr  you  want  is  entirely  satisfactory  to 
us.    All  of  th  s  proposal  douhtless  will  ^e  the  basis  of  some  contract  or  license. 

Mr.  Wright.  You  agree  with  me.  then,  that  under  the  terms  of  this  section 
that  would  be  the  proper  construction? 

Mr.  Martin,  Yes, 

Mr.  Wright.  So  that  it  would  not  be  available  to  the  Government  to  light 
the  camp  at  Anniston  or  Camp  Bemi  ngV 

Mr.  Martin.  I  thnk  it  would,  as  drawn. 

Mr.  Wright.  You  think  so? 

Mr.  Martin.  Yes.  I  did  not  have  in  mind  that  precise  use,  but  I  do  not 
think  it  would  be  a  very  extreme  construction,  and  certainly,  so  far  as  we  are 
concerned,  if  you  want  to  modify  it  in  any  way,  it  is  entirely  satisfactory  to  us. 

Mr.  Wright,  I  notice  you  wind  that  section  up  with  this  language: 

*'  This  power  to  be  the  second  100,000  horsepower  at  any  time  available  from 
the  normal  flow  of  the  river." 

Is  there  any  particular  significance  about  the  words  "  from  the  normal  flow 
of  the  river  "?  Does  that  mean  that  the  Government  gets  the  very  first  100,000 
sec(mdary  horsepower  at  this  plant? 

Mr.  iMARTiN.  That  is  what  we  intended  to  express,  Mr.  Wright, 

Mr,  Wright.  You  have  said  that  that  100.000  second  horsepower  would  be 
available  for  82  per  cent  of  the  period,  and  that  is  based  on  the  average  taken 
for  the  past  30  years. 

Mr.  Martin.  Yes;  those  records,  Mr.  Wright,  you  know,  have  been  very  care- 
fully kept. 

>Ir.  Wright.  Of  course,  you  have  to  have  some  basis  for  that,  and  you  have 
carefully  compiled  this  from  the  records  for  the  past  30  years. 

Mr.  Martin.  And  the  United  States  Geological  Survey  has  had  its  gauge 
readers  on  ths  river  for  30  or  40  years,  and  on  the  Chattahoochee  River  and  the 
Alabama  and  the  Coosa,  and  the  records  of  those  rivers  are  in  splendid  condi- 
tion, and  we  have  compiled  our  figures  from  those  records. 

Mr.  Wright.  I  understand  that,  and  I  do  not  challenge  the  statement  at  all, 
and  I  assume  you  are  correct  in  saying  that  the  average  for  the  past  30  years 
would  be  82  per  cent. 

Mr.  Martin.  Yes,  sir. 

Mr.  Wright.  That  is  the  best  information  available. 

Mr.  Martin.  Based  on  daily  stream  flow  on  records  taken  for  30  years. 

Mr.  Wright.  There  is  no  difference  l>etween  us  about  that,  but  what  I  do 
want  to  ask  you  about  is  whether  you  have  any  records  or  statistics  to  show 
in  this  period  of  30  years  what  the  least  production  would  have  been. 

Mr.  IVIartin.  Yes,  sir;  those  records  all  show  that. 

Mr.  Wright.  Wliat  is  that?  What  is  the  least  it  would  have  produced  in 
any  one  year,  or  the  year  when  the  flow  was  lowest? 

Mr.  Martin.  You  mean  the  100,000  secondary  horsepower? 

Mr.  Wright.  Yes,  sir.  So  that  you  may  understand  me  fully,  as  I  under- 
stand, the  average  during  the  30  years  would  have  been  about  10  months  in  the 
year?  » 

Mr.  Mabtin.  Yes;  something  like  that. 

Mr.  Wright.  Now,  I  want  to  know  the  year,  if  there  was  a  year,  during  the 
30  years  when  it  was  less  than  10  months  a  year,  and  how  much  less. 

Mr.  Martin.  If  you  will  look  at  this  map  and  follow  me  here,  I  can  show 
you  that. 

Mr.  Wright.  But  I  want  to  get  the  figures  in  the  record.  That  is  a  beauti- 
ful map.  but  I  doubt  if  they  can  get  that  in  the  record. 

Mr.  Martin.  No;  they  probably  can  not.  There  are  6  years  out  of  the  20 
here  when  none  of  this  power  would  be  available  for  certain  months  of  the 
year. 

Mr.  Wright.  What  proportion  of  the  year  is  that?  That  is  what  I  want 
to  get  at. 

Mr.  Martin.  For  instance,  in  1899  the  river  flow  was  such  that  there  were 
two  months. 

Mr.  Wright.  Two  months  when  it  was  available? 

Mr.  Martin.  When  it  was  not  available.  In  1903,  there  were  two  months; 
in  1904.  there  were  two  months;  and  in  1913.  there  were  three  months.  Nine- 
teen hundred  and  thirteen  is  the  longest  continued  interruption  in  the  history 
of  the  river. 

\ 


Mr.  Wright.  So  that  during  that  year  this  power  would  have  been  available 
for  nine  months? 

Mr.  Martin.  Yes.  During  1914.  one  month,  and  if  you  will  notice  in  some 
oi  these  years  the  power  is  available  for  every  month  in  the  vear.  You  can 
see  how  this  chart  will  give  you  a  better  idea  of  the  real  value  of  this  i^ower 
and  its  availabilit.v 

Mr.  Wright.  I  will  be  very  glad  to  examine  the  map,  but  I  want  to  get 
these  figures  in  the  recoi-d.  Wlujt  tliree  months  do  the  records  sliow  that  that 
power  was  not  available? 

Mr.  Martin.  In  1899  the  months  of  October  and  November;  September  and 
October  of  1903 ;  October  and  November  of  19<M ;  and  September,  October  and 
November  of  1913;  and  November  of  1914.  It  is  all  in  the  same  period  of  the 
year. 

Mr.  Wright.  Now,  Mr.  :Martin,  when  you  spoke  about  the  average  being  82 
per  cent,  or,  in  round  numbers.  10  months  in  the  year,  that  does  not  necessarily 
mean  that  you  would  get  that  power  for  10  consecutive  months  in  the  year 
but  It  would  vary,  perhaps,  each  month,  would  it  not?  You  would  get  a  cer- 
lain  quantity  one  month,  say.  July,  and  probably  a  larger  quantity  in  August 
or  a  less  quantity  in  August,  and  it  would  not  be  uniform  because  then  it 
would  be  primary. 

Mr.  Martin.  For  certain  months  of  the  year  it  would  be  uniform,  of  course 
\ou  can  look  at  this  map  and  see  how  it  runs, 

Mr.  Wright.  In  other  words,  to  get  that  clear,  if  a  plant  was  in  operation 
tl)at  required  a  steady  current  of  power  12  months  in  the  vear  or  say  10  months 
in  the  year,  it  would  not  get  an  equal  amount  of  this  secondary  power  each 
month. 

Mr.  Martin.  What  you  would  do  would  be  just  as  one  of  the  witnesses  ex- 
plained here;  you  would  plan  those  operations  of  your  plant  which  required 
the  full  100,000  horsepower  for  those  months  in  the  vear  when  you  would  "'et 
this  power.  The  records  of  that  district  are  such  that  that  power  will  be  avail- 
able, according  to  any  human  calculation,  for  certain  months  in  the  year  or 
certain  parts  of  the  year.  Then  the  plant  would  be  adjusted  to  manufacture 
to  its  highest  capacity  during  those  months,  reducing  it  to  meet  the  stream 
flow  conditions  at  other  months.  That  is  exactly  what  has  been  explained  so 
fully  by  Mr.  Bower  in  his  former  testimony. 

Mr.  Wright.  I  just  wanted  fo  explain  that  some  one  who  operated  that 
plant  utilizing  secondary  horsepower  could  not  figure  they  would  run  10 
months  in  the  year  with  that  horsepower  because  it  would  not  mean  that  they 
would  get  an  equal  quantity  of  it  during  each  of  the  10  months 

Mr.  Martin.  They  would  not  get  an  equal  quantity  of  it  during  each  of  the 
10  months,  but  you  could  adjust  your  operations  to  meet  what,  according  to  the 
history  of  the  river,  would  be  the  result  there. 

Mr.  Wright.  But  if  you  wanted  to  run  uniformly,  of  course  you  could  not 
do  that,  because  it  would  deiiend  on  the  flow  of  the  river  as  to  how  much  vou 
got  each  month. 

Mr.  Martin.  Of  course,  during  the  fertilizer  season,  when  the  demand  is  the 
greatest,  this  record  shows  you  that  the  power  is  available  and  alwavs  has 
been  available. 

Mr.  Wright.  Now,  Mr.  Martin,  I  note  from  your  offer  that  in  case  the  Gov- 
ernment should  not  make  use  of  this  100,000  secondarv  horsepower  it  will  sell 
It  to  your  company  at  rates  to  bt-  fixed  in  the  license  which  may  be  granted 
you  by  the  Water  Power  Commission,  and  that  is  a  matter  about  whicii  the 
connnission  would  have  some  discretion,  is  it  not? 

Mr.  Martin.  Oh,  yes. 

Mr.  Wright.  That  power  is  vested  in  the  commission  and  Congress  would 
have  nothing  to  do  with  that. 
Mr.  Martin.  That  depends  on  your  legislation,  of  course. 
Mr.  Wright.  I  mean  as  it  stands  now. 

Mr.  Martin.  Having  authority  to  deal  with  that  question.  I  presume  thev 
would  deal  with  it.  * 

Mr.  Wright.  But  the  matter  of  the  price  of  that  power  would  be  a  matter 
of  negotiation  between  your  company  and  the  Federal  Water  Power  Com- 
imssion. 

Mr.  Martin.  Yes,  sir. 


866 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS   PROPOSITIONS. 


867 


Mr.  Vright.  There  is  also  some  (lis<retion  vested  in  the  commission  as  to 
the  time  yon  sliail  commence  the  worlv— not  to  exceetl  two  years,  I  believe  it  is. 

\f\'   Al\RTi\    Yes 

Mr.  Wright.  And  the  commission  might  have  the  power  to  extend  the  time 
for  an  additional  two  years. 

Mr.  Martin.  I  will  have  to  look  at  the  law  to  get  tho.se  exact  terms. 

Mr.  Wright.  I  think  that  is  corre<*t. 

Mr.  Martin.  We  must  begin  the  construction  within  tbe  time  fixed  in  tlie 
license,  not  more  than  two  years  from  the  date  herein,  and  if  the  conunission 
wants  to  fix  it  in  30  days,  we  will  begin  with  30  days  after  the  license  is 
issued.  That  is  a  matter  entirely  in  the  hands  of  the  commission.  There  is 
no  difficulty  in  fixing  that,  and  that  matter  and  the  period  for  completing  the 
construction  are  matters  entirely  in  the  hands  of  the  commission. 

Mr.  Wright.  Of  course,  under  your  offer  the  work  might  be  <lelayed  for  four 
years  if  the  commission  granted  you  two  .vears  to  begin  work  and  then  granted 
you  an  extension  of  two  years  more,  which  they  would  have  authority  to  do 
under  this  Federal  water  power  act. 

Mr.  :Martin.  Actng  in  the  utmost  good  faith,  as  we  are,  Mr.  Wright,  there  is 


saying  that  that  could 


of   various   kinds, 
be  a  verv   limited 


no  reason  why  there  should  be  any  such  periml  of  time 

Mr.  Wright.  I  am  not  inquiring  about  that.     I  am      .     ^ 

happen. 

Mr.  Martin.  That  is  possible  to  hapi^en,  but  unless  there  is  a  catastrophe 
or  a  world  emergencv  of  some  kind,  there  is  no  reason  to  suspect  any  such 
condition  as  that  arising.    If  we  had  the  license  to-day,  we  could  begin  next 

week,  so  fjir  as  that  goes. 

Mr.  Wright.  Mr.  Martin.  Mr.  Hill.  I  believe,  asked  .vou  about  the  current 
necessarv  for  these  Government  posts  at  Anniston  and  Benning  and  several 
other  points.  As  a  matter  of  fact,  there  is  very  little  current  retiuired.  fom- 
parativelv  speaking,  for  those  activities  of  the  Government,  is  there  not? 

Mr.  iMARTiN.  Now,  I  could  not  answer,  Mr.  AVright.     I   am  not  pei-sonally 
familiar  with  just  what  the  requirements  are. 
Mr.  Wright.  It  is  prncipally  lighting,  is  it  not? 
Mr.    :Martin.  Lighting   and   pumping  and    small    motors 
There  is  a  variety  of  uses  always  at  those  places. 

Mr.  Wright.  But.  comparatively  speaking,  there  would 
quantitv  required.  ,  ,  ^,  , 

Mr  Martin.  Of  course,  it  depends  on  the  activities  there  and  the  number 
of  men.  There  is  an  aviation  camp  at  Montgomery,  where  there  are  machuie 
shops  that  emplov  a  number  of  men  who  are  engaged  in  repair  work,  and  I 
suppose  that  single  shop  will  use  as  much  power  as  a  large  camp  where  men 
are  emploved.    Those  things  depend  on  the  uses  and  the  number  of  people. 

Mr.  ^Martin,  you  were  asked  about  the  power  ni  and  around 

near  Columbus. 

Yes. 

That  is  right  on  the  Chattahoochee  River. 

Yes.  sir ;  that  is  in  your  district.  I  believe. 

That  is  quite  a  river,  is  it  not.  Mr.  Martin? 

Yes :  although  I  do  not  know  very  much  about  it. 

So  far  as  power  is  concerned. 

Yes 

Ami  the  community  there  at  Columbus  speak  of  themselves  as 

a  place  wVth  the  push  and  the  power,  do  they  not? 
Mr.  Martin.  I  think  they  do. 

And  they  have  power  there,  have  tliey  not .' 
They  have  power  developments  there. 
Do  you  know  how  many  dams  tliere  are  near  Columbus? 
I  do" not  know.    I  think  there  are  two  or  three. 
Three,  are  there  not? 
Yes. 

Right  near  Columbus? 
Air    mvrtin    We  have  been  for  years  trying  to  work  out  a  plan  of  connecting 
our  lines  Irom  Opelika  to  Columbus  and  from  La  Fayette  to  ^\est  Pomt  w'tb 
a  view  to  supplementing  our  own  situation  down  there  and  supplementing  the 

~  WmGHrVoTMi-.  Martin,  there  is  another  power  about  18  miles  north 
of  Columbus  known  as  Goat  Rock  Dam,  is  there  not? 
Mr.  Martin.  Yes. 


iMr.  Wright. 
Camp  Benning, 
Mr.  Martin. 
Wright. 
Martin. 
Wright. 
Martin. 
Wright. 
Martin. 
AVright 


Mr. 
Mr. 
IMr. 
Mr. 
Mr. 
Mr. 
Mr 


Mr.  Wright. 
Mr.  Martin. 
Mr.  Wright. 
Mr.  Martin. 
Mr.  Wright. 
Mr,  >L\RTiN. 
Mr.  Wright. 
Mr.  :Martin. 


Mr.  Wright.  That  is  owned  l>y  the  Columbus  Power  Co.? 

Mr.  Martin.  Yes;  although  I  have  never  been  there. 

Mr.  Wright.  That  is  quite  an  extensive  plant,  is  it  not? 

Mr,  Martin.  Yes:  I  think  so. 

Mr.  Wright.  Thev  run  to  Columbus  and  north  of  Columbus? 

Mr.  Martin.  Yes';  they  have  a  large  plant  of  50,000  or  60.000  horsepower. 

Mr.  Wright.  And  then  at  Xewnan.  Ga.,  the  Columbus  Power  Co.  and  the 
Georgia  Railway  &  Electric  l*ower  Co.  each  c<n»nect,  do  they  not? 

Mr.  Martin.  Yes,  sir;  their  lines  connect  there. 

^Ir.  Wright.  X«>w.  as  a  water-i>ower  man — I  am  speaking  of  you  as  a  water- 
]K)wer  man— the  Columbus  l*ower  Co.  does  not  really  need  the  current  of  the 
Georgia  Railway  &  Power  Co..  and  the  CJeorgia  Railway  &  Power  Co.  does  not 
really  need  tbe  current  of  the  Columbus  Power  Co.  except  in  cases  of  breakdown 
or  something  like  that.    Is  not  that  the  reason  they  connect  up? 

^Ir.  Martin.  Yes.  :Mr.  Wright:  but  you  will  remember  that  those  two  rivers, 
the  Chattahoochee  and  the  Tugaloo  are  in  different  watersheds,  and  that  very 

fact 

Mr.  Wright  (interposing).  I  just  wanted  to  know  about  those  two  companies. 

Mr.  Martin  (continuing).  Aiid  there  is  quite  a  fluctuation  in  the  river  flow 
of  the  Chattahoochee  watershed  and  the  Tugaloo  watershed,  and  in  the  nature 
of  things  you  are  going  to  have  water  in  one  watershed  when  there  is  not 
water  in  the  other,  and  the  fa<t  f»f  being  connecte<l  as  they  are  makes  it  possible 
for  them  to  u.'^e  tbe  water  of  the  Chattahoochee  to  greater  public  advantage  than 
if  they  did  not  have  this  connection.  Inevitably  that  is  the  result.  We  find  it 
so  with  our  connection  on  the  Coosa.  We  have  a  power  on  the  Coosa,  and  so 
have  the  (Jeorgia  Railway  &  Power  Co.  on  the  Tugaloo.  We  carried  their  entire 
system  for  several  weeks  in  the  month  of  January.     We  had  rainfall  and  they 

had  none. 

Mr.  Wright.  I  can  see,  Mr.  Martin,  wliy  it  would  be  very  <lesirable  to  link 
these  various  systems  together.     I  can  understand  that. 

IMr.  Martin.  Yes. 

Mr.  Wright.  But  the  point  I  want  to  get  back  to  is  that  they  do  not  need 
any  iilditional  power  in  and  around  Columbus.  Ga.,  now.  do  they? 

Mif.  Martin.  I  think  if  you  will  ask  those  gentlemen  down  there  they  will  tell 
you  they  do. 

Mr.  Wright.  You  think  they  do? 

^Ir.  Martin.  And  if  we  ccmld  give  them  20,000  horsepower,  I  think  you 
would  find  they  would  be  glad  to  take  it. 

Mr.  Wright.  Do  you  get  any  power  from  them? 

Mr.  J^Iartin.  iXot  a  b  t;  no. 

]Mr.  Wright.  You  do  not  get  any  from  the  Georgia  Railway  and  Power  Co.? 

Mr.  Martin.  No. 

Mr.  Wright.  That  is  a  wonderful,  big  system,  is  it  not? 

Mr.  IklARTiN.  Yes,  sir ;  and  we  carried  all  the  load  of  that  system  with  (uir 
big  Warrior  plant  and  our  surpbis  that  we  had  in  our  own  system  for  nearly 
60  days  because  they  did  not  have  the  waterflow,  and  they  did  not  have  a 
reserve  steam  plant. 

Mr.  Wright.  Are  you  acquainted'  with  numerous  sites  along  the  Chatta- 
hoochee River  which  could  now  be  developed? 

Mr.  Martin.  No  ;  I  am  not. 

Mr.  Wright.  You  are  not  familiar  with  the  one  at  Franklin,  Ga.? 

]Mr.  Martin.  I  do  not  believe  I  am. 

iMr.  Wright.  That  would  produce  100.000  horsepower,  would  it  not? 

Mr.  Martin.  I  really  am  not  familiar  with  that,  ]Mr.  AV right. 

Mr.  Wright.  Does  your  conqiany  use  the  steam  plant  at  nitrate  plant  No.  2. 

Mr.  Martin.  Yes:  we  have  leased  it. 

Mr.  Wright.  I  know  you  have  it  leased,  but  do  you  actually  use  any  power 
from  that  plant? 

iMr.  Martin.  We  are  not  using  it  at  the  present  time,  but  we  have  a  force  of 
men  there,  and  it  is  in  a  condition  to  operate  on  very  short  notice. 

Mr.  Wright.  I  think  you  leased  that  plant  last  November? 

iMr.  ]Martin.  Yes.  sir. 

Mr.  Wright.  But  you  have  not  used  it  up  until  now? 

Mr.  Martin.  No;* we  took  it  over  and  it  took  us  about  90  days 


to 


fet 


the 
plant  in  readiness  to  operate.  It  was  very  carefully  put  away  and  we  very 
carefully  had  to  set  the  plant  in  motion  again.    It  is  now  ready  to  operate  and 


868 


<  t 


MUSCLE   SHOALS  PROPOSITIONS. 


undwiUtedly  will  operate  during  the  year  to  the  capacity  of  the  line  from  War- 
rior to  this  plant,  which  is  30,000  kilowatts. 

Mr  Stoll.  Mr.  Martin,  a  good  deal  has  been  said  about  load  factor,  and  I  will 
have  to  confess  my  ignorance.    What  do  vou  mean  by  load  factor' 

Mr.  Martin.  That  is  a  term  expressing  use  of  power.  It  is  the  ratio  of  average 
use  to  the  maximum  use.  For  instance,  there  are  8.700  hours  in  a  vear-  the 
v^hime  of  power  used  during  those  hours  is  integrated  and  divided  by  8  760  • 
th.s  gives  the  average  use.  This  average  use  is  some  percentage  of  the  inaxi- 
mum  use.    This  percentage  is  called  load  factor. 

Mr.  Stoll.  The  amount  of  current  consumed,  you  mean' 

Mr.  Martin.  It  is  the  amount  consumed. 

Mr  Stoll.  You  and  Mr.  Fields  had  quite  a  discus.sion  about  the  load  factor 
and  I  was  not  able  to  follow  that. 

Mr.  Martin.  Will  you  allow  me  to  ask  Mr.  Thurlow  to  express  it  as  an  engi- 
neer  m  terms  that  you  can  get  in  the  record? 

Mr.  Stoll.  I  wish  you  would. 

IVIr.  Thurlow.  it  is  the  ratio  of  the  average  consumption  to  the  peak  demand : 
tnat  IS,  the  ration  of  the  average  horsepower  demand  to  the  maximum  instan- 
taneous  horsepower  demand  during  any  given  period. 

Mr.  Stoll.  When  did  your  directors  meet  to  make  this  offer? 

Mr.  Martin.  February  15. 

The  Chairman.  What  year? 

Mr.  Martin.  1922. 

The  Chairman.  About  two  or  three  weeks  ago? 

Mr.  :Martin.  Yes. 

Mr.  Stoll.  The  minutes  of  your  concern  show  the  fact  that  vou  met  and 
authorized  this  offer? 

Mr.  Martin.  Yes,  sir.  « 

^Ir.  Stoll.  Your  offer,  as  I  understand  it,  is  that  if  the  Government  will  give 
you  Dam  No.  2  as  it  stands  you  will  complete  it? 

Mr.  Martin.  Yes. 

^Ir.  Stoll.  And  that  you  will  give  them,  we  might  terra  it.  as  a  rental  for  it 
100.000  secondary  horsepower.  What  is  that  100,000  secondary  horsepower 
worth  a  year  in  dollars? 

o?Ir  ^V^^'^j;^-  -^"  I  ^^^  <^o  is  just  to  express  what  I  did  this  morning,  Mr. 
btoll.  AAe  had  quite  a  discussion  of  that.  Mr.  Fields  and  I  discussed  that 
very  fully  this  morning. 

Mr.  Stoll.  I  know  you  did,  but  I  never  did  catch  it.  You  had  too  much 
"  factor  "  in  it  for  me. 

Mr.  Martin.  A  year  ago  there  were  figures  which  were  used  in  the  hearings 
then  of  $7..50  per  horsepower  per  year. 

Mr.  Stoll.  Let  me  ask  you  this  question :  Can  you  express  in  dollars  what 
that  would  be  worth? 

Mr.  Martin.  Per  horsepower  per  year  there  were  two  figures  used  this  morn- 
ing, .$7.58  and  .$7.80.  Mr.  Fields  suggested  $7.80  and  a  vear  ago  the  figure 
was  used  in  the  hearings  of  $7..53  per  horsepower  per  year.' 

Mr.  Stoll.  Then  it  would  be  between  $7  and  $8  a  year? 

Mr.  Martin.  We  will  say  that  between  $7  and  .$8  "is  a  fair  value  for  it  used 
in  this  fertilizer  industry,  which,  of  course,  would  be  from  $700,000  to  $800,000. 

Mr.  Stoll.  Now,  you  offer  to  buy  certain  property.  That  is  property  you 
now  claim  to  have  a  contract  for  the  purchase  of,  I  believe? 

Mr.  Martin.  Part  of  it. 

Mr.  Stoll.  Not  all  of  it? 

Mr.  :Martin.  Part  of  the  ]iroperty  covered  by  that  conti-act.  of  course,  is 
Included. 

^Ir.  Stoll.  Do  you  not  include  it  all? 

^Ir.  Martin.  All  the  property  on  which  we  have  a  contract. 

Mr.  Stoll.  You  offer  to  buy  thai? 

Mr.  Martin.  We  offer  to  buy  that ;  yes. 

Mr.  Stoll.  For  $5,000,000? 

Mr.  Martin.  Plus  the  other  proiierty  mentioned  in  this  offer. 

^Ir.  Stotl.  Wh:!t  other  property? 

Mr.  Martin.  The  other  steam  plant. 

Mr.  Stoll.  The  one  at  nitrate  plant  No.  1? 

Mr.  Martin.  The  one  at  nitrate  plant  No.  2,  at  Sheffield. 

]Mr.  Stoll.  You  want  to  buy  that,  too,  outright? 

Mr.  Martin.  Yes.  ' 


MUSCLE  SHOALS  PROPOSITIOlirS. 


869 


I 


Mr.  Stoll.  Is  that  $5,000,000  less  the  value  of  the  steam  plant,  what  you  term 
the  fair  value  in  your  contract? 

Mr.  Martin.  Mr.  Stoll,  that  $5,000,000  plus  the  100,000  horsepower  together 
with  our  obligation  to  complete  this  construction  is  a  very  fair  contract,  is  more 
than  a  fair  contract  to  the  Government. 

Mr.  Stoll.  Oh,  Mr.  Martin,  the  Government  is  giving  you  $17,000,000,  I  be- 
lieve it  is,  worth  of  work  already  done. 

Mr.  Martin.  Yes,  sir. 

Stoll.  Provided  you  go  ahead  and  complete  it.    They  give  you  the  whole 


Mr. 

thing. 

Mr. 

Mr. 


Martin.  And  we  are  giving  the  Government  things  of  great  value,  too. 
Stoll.  Do  you  think  that  the  Government  should  be  under  obligations  to 
you  after  they  give  you  this? 

Mr.  Martin.  I  am  not  saying  the  Government  is  under  any  obligations  to  us, 
but  I  am  saying  we  are  offering  the  Government  a  very  fair  contract. 

Mr.  Stoll.  But  that  is  not  my  question.  My  question  was,  do  you  consider 
the  $5,000,000,  less  the  value  of  the  steam  plant,  which  is  a  going  concern,  the 
fair  value  you  placed  upon  this  property  in  your  contract? 

Mr.  Martin.  You  have  got  to  take  the  situation  as  a  w^hole.  We  have  not 
expressed  it  in  terms  of  fair  value  of  plant,  or  in  terms  of  fair  value  of  w^ater 
power.  We  have  expressed  it  as  a  whole.  We  offer  the  Government  100,000 
horsepower  and  $5,000,000  for  these  properties. 

Mr.  Stoll.  I  understand  that,  Mr.  Martin;  but  when  we  had  your  contract 
up  for  consideration  several  members  of  the  committee  asked  you  what  you 
meant  by  the  fair  value,  and  you  would  not  say.  Now,  you  make  an  offer  in 
which  you  offer  to  buy  this  particular  property  over  which  you  claim  to  hold 
an  option,  adding  to  that  the  steam  plant. 

Mr.  Martin.  We  can  not  separate  the  two  things. 

Mr.  Stoll.  Now,  I  ask  the  direct  question :  Here  is  an  offer  you  have  made 
fixing  a  fair  value  for  the  steam  plant,  do  you  consider  that  to  be  the  difference 
between  the  value  of  the  steam  plant  and  other  property  mentioned  in  your 
contract  ^ 

Mr.  Martin.  All  I  can  say  is  this :  In  presenting  this  offer  we  balanced  those 
situations  and  the  values  in  one  and  the  values  in  the  other,  and  we  have  con- 
cluded that  this  is  the  basis  on  which  we  can  make  a  reasonable  proposal  to 
the  Government.    That  is  the  best  answer  I  can  make  to  you,  Mr.  Stoll. 

Mr.  Stoll.  So  you  still  decline  to  give  an  expression  of  that  fair  value? 

Mr.  Martin.  I  do  not  decline ;  I  .iust  tell  you  the  basis  on  which  we  proceeded. 

Mr.  Stoll.  But  you  do  not  do  it.  Now,  referring  to  this  map  you  have  here 
showing  this  radius  of  400  miles,  what  States  are  included  in  that  radius? 

Mr.  Martin.  Alabama,  part  of  Georgia,  part  of  Tennessee,  part  of  Arkansas, 
part  of  Louisiana,  and  part  of  Florida. 

IMr.  Stoll.  Does  it  go  into  the  Carolinas? 

Mr.  Martin.  I  think  it  does.     I  think  it  does  get  to  South  Carolina. 

I^Ir.  Stoll.  And  part  of  North  Carolina? 

Mr.  ^lARTiN.  No ;  of  course,  it  der)ends  upon  the  situation. 

IMr.  Stoll.  That  is  sufficiently  definite.  Have  you  listed  the  water  powers 
in  that  territory? 

iMr.  Martin.  No. 

Mr.  Stoll.  You  do  not  know  the  iiinnber  of  waters  powers  in  tliat  territory? 

Mr.  Martin.  No;  I  can  only  give  you  the  United  States  Geological  Survey's 
recent  report  on  it.    If  you  would  like  to  have  that  I  can  put  that  in  the  re<'ord. 

Mr.  Stoll.  No  ;  that  is  all  right.  In  that  territory,  how  many  water  powers 
do  you  own? 

^Ir.  Martin.  We  are  only  interested  in  powers  in  Alabama,  ;Mr.  Stoll. 

Mr.  Stoll.  You  have  no  options  for  any  power  outside  of  Alabama? 

Mr.  Martin.  Not  at  all. 

Mr.  Stoll.  How  many  do  you  own  in  Alabama? 

Mr.  Martin.  We  have  two  developed  and  a  third  in  process  of  development, 
and  there  are  several  sites  that  sooner  or  later  we  hope  we  can  develop  in 
Alabama,  depending  upon  the  action  of  the  Inderal  Po\ver  Commission.  We 
have  no  sites  of  any  consequence  except  those  that  may  be  developeil  under 
license  of  the  Federal  Power  Commission. 

Mr.  Stoll.  With  those  you  own,  if  you  got  control  of  Muscle  Shoals,  you 
would  have  pretty  much  of  a  monpoly  of  the  water  power  in  that  territory, 
would  you  not? 


f 


870 


MUSCLE   SHOALS  PROPOSITIONS. 


water  iH)\vers,  of  coni'se,  and  Mr.  Wright 
y<m    would    practically    have    a 


Mr.  Martin.  No:  there  are  many 
has  referred  to  some  of  them. 

Mr.  Stoij..  I  know    tliat.  hut    I    said  tliat 
monopoly. 

Mr.  ALvRTix.  No;  there  are  a  great  many  water  powers  in  Alahama  in  which 
we  have  no  interest.  St)nie  of  tlie  most  important  water  powers  on  the  rivers 
tliere  we  have  no  interest  in  at  all. 

Mr.  Stoll,  I  understand  that,  hut  I  asked  if  you  would  have  a  practical 
monopoly. 

Mr.  :Martix.  We  wo\dd  have  several  large  water  powers,  of  course. 

Mr.  Stoix.  But  yoil  do  not  think  it  would  he  a  monoiM>ly? 

Mr.  Martin.  I  do  not  think  it  would  he  a  monopoly  in  the  sense  you  are 
si)eaking  of,  and  I  just  want  to  sjiy  this:  You  are  faiiiiliar  with  the  Federal 
water  i>ower  act? 

Mr.  Stoll.  Somewhat,  although  I  am  not  an  expert  on  it  hy  a  goo<l  deal. 

Mr.  Martin.  I  want  to  direct  your  attention  to  one  provision  of  the  Federal 
water  power  act,  section  7.  wliich  contains  this  provision  with  reference  to  the 
power  commission : 

"Sec.  7.  That  in  issuing  preliminary  permits  hereunder  or  licenses  where 
no  preliminary  permit  has  heen  issued,  and  in  issuing  licenses  to  new  licensees 
under  section  15  hereof,  the  comnnssion  shall  give  preference  to  applications 
therefor  by  States  and  municipalities,  provided  the  plans  for  the  same  are 
deemed  hy  the  connnissiim  eciually  well  adapted,  or  shall  within  a  reasonable 
time  to  be  fixed  by  the  commission  be  made  equally  well  adapteil,  to  conserve 
and  utilize  in  the  public  interest  the  navigation  and  water  resources  of  the 
region;  and  as  between  other  applicants,  the  comnnssion  may  give  preference 
to  the  applicant  the  plans  of  which  it  finds  and  <letei'mines  arV  best  adapted  to 
develop,  conserve,  and  utilize  in  the  public  interest  the  navigation  and  water 
resources  of  the  region." 

Now,  my  point  in  that  connection  is  that  the  whole  theory  of  the  Federal 
water-power  act  is  to  develop  to  the  maximum  use  all  water-power  resources 
with  the  idea  of  combining  in  one  operation  water  powers  in  different  water- 
sheds, interconnecting  them  so  that  the  greatest  possible  use  can  be  made  of  the 
waters  in  different  watersheds.  It  is  the  entire  region,  which,  viewed  from  the 
standpoint  of  public  interest,  is  involved. 

^Ir.  Stoll.  Oh,  yes :  but  that  could  be  done  without  one  company  owning  prac- 
tically the  greater  portion  of  the  water  power  in.  a  given  territory. 

Mr.  Martin.  And  the  engineei-s  of  the  United  States,  who  haveexamined  this 
most  closely,  have  concluded  that  the  greatest  possible  advantage  that  could 
result  to  the  public  in  this  territory  would  be  the  development  of  this  Muscle 
Shoals  property  and  its  interconnection  with  our  system,  with  the  Tennessee 
system,  and  with  other  systems  in  Tennessee  and  Georgia,  and  other  Southern 
States.  In  no  other  way  can  you  realize  the  greatest  advantage  from  this  de- 
velopment. As  I  explained  to  ^Ir.  Wright,  it  is  a  question  of  diversity  of  stream 
flow,  diversity  of  use  between  different  sections  of  the  South,  and  the  time 
ought  to  come  when  all  the  water  that  flows  in  the  Tennessee  kiver  will  generate 
power  up  to  the  600.000  horsepower  every  day  in  the  year  and  pass  over  these 
lines  to  points  of  use.  You  can  not  do  that  throughout  the  year  unless  powers 
are  interconnected  in  a  gre-at  big  system  ;  otherwise,  you  lose  a  great  part  of  the 
value. 

Mr.  Stoll.  But  that  could  be  done  without  the  Alabama  Power  Co.  owning 
]Muscle  Shoals,  could  it  not? 

Mr.  IMartin.  It  can  be  done,  provided  the  power  is  interconnected. 

Mr.  Stoll.  I  know,  and  I  say  it  can  he  interconnected  by  other  companies 
owning  it. 

^Ir.  Martin.  Y>s  :  hy  any  one  who  develops  it  with  that  theory,  but  I  have  not 
seen  any  program  here  which  indicates  that  any  one  is  looking  to  that  u.se,  and, 
furthermore,  there  is  a  program  pending,  the  very  pui*pose  of  which  is  to  con- 
solidate this  entire  water-power  situation  into  one  hand,  not  for  public  use  but 
for  private  use,  and  I  will  ask  you  the  question,  if  that  does  not  create  a  real 
monopoly,  a  monopoly  where  there  is  no  regula^^ion  as  to  rates,  as  to  service, 
as  to  security  issues,  or  as  to  anything  else. 

Mr.  Stoll.  It  does  not  do  that  because  he  is  only  getting  one  water  power, 
and  you  have  a  great  deal  of  other  water  powers, 

Mr.  Martin.  You  spoke  of  the  question  of  monopoly.  There  is  a  monopoly 
of  the  greatest  water-power  situation  in  the  South. 

Mr.  Stoll.  An  individual  water  power. 


MUSCLE   SHOALS  PROPOSITIONS. 


871 


f 


Mr.  Martin.  These  two  water  powers,  without  any  public  regulation  of  any 
sort  and  made  not  upon  the  basis  of  interconnecting  it  and  getting  the  greatest 

use  out  of  it. 

Mr.  Stoll.  Would  you  not  have  a  bigger  mono])oly  if  you  owned  what  you 
now  owned  and  you  owned  Muscle  Shoals  in  addition  than  Mr.  Ford  w(mld 
have  if  he  merely  owned  ^luscle  Shoals?  You  would  have  a  bigger  monopoly 
then,  would  you  not? 

Mr,  Martin.  No. 

Mr.  Stoll.  With  what  you  have  now  and  with  :\Iuscle  Shoals  in  addition? 

Mr.  Martin.  Of  c<mrse  it  would  be  a  gi-eater  system,  but  it  would  be  inter- 
conne<'ted  with  othei-  sy.stems  with  a  view  to  getting  the  greatest  value  out  of  it 
for  the  public.  There  is  just  a  limited  profit  or  return  to  those  who  put  their 
money  in  this.  It  goes  to  the  imblic  to  serve  industries  an<l  individuals  in  their 
homes  and  in  their  industries  in  this  great  section. 

Mr.  Stoll.  Mr.  J^Iartin,  I  think  I  asked  you  somewhat  this  same  question 
before:  If  the  Ahd>ama  Power  ('o.  is  so  very,  very  anxious  to  serve  the  iieople 
down  there,  why  is  it  that  so  many  people  in  Alabama  are  so  hostile  to  them? 
Why  is  it  that  the  boards  of  trade  and  those  who  represent  Alabama  in  Con- 
gress and  everyone  seems  so  much  interested  in  the  Alabama  Power  Co.  not 
getting  this  project?  If  you  are  such  a  concern  that  your  sole  desire  is  to 
serve  the  people,  why  would  they  not  be  for  you? 

Mr.  Martin.  I  agiee  that  there  are  a  good  many  people  who  at  the  moment 
take  another  vi(»w  of  this  situation. 

Mr.  Stoll.  Yes,  sir. 

Mr.  Martin.  But  there  are  also  thousands  of  people  who  look  upon  it  just 
exactly  as  I  am  stating  it  to  you — thousands  of  them — and  that  situation  you 
are  going  to  see  expressed  in  Alabama  first  and  last.  You  will  see  it  expressed 
now  bvjndividuals,  by  newspapers,  and  by  many  members  of  the  public  at  large. 

Mr.'  Stoll.  You  heard  the  statement  of  the  governor  of  Tennessee  made 
before  this  conunittee.  did  you  not? 

Mr.  Martin.  No:  I  did  not.     I  heard  of  it. 

Mr.  Garrett.  Mr.  :Martin,  when  did  your  board  of  directors  meet  and  change 
their  minds  and  decide  they  wanted  to  take  over  this  Muscle  Shoals  proposition? 

Mr.  Martin.  They  did  not  change  their  minds  at  all  about  anything  that  is 
here  expressed,  Mr.  Garrett? 

Mr.  Garrktt.  Did  you  iK)t  write  a  letter  to  the  Secretary  of  War,  or  rather 
your  company,  some  time  ago,  saying  you  were  not  inteivste<l  in  the  project  at 
Muscle  Shoals? 

Mr.  Martin.  No,  sir. 

Mr.  Garrett.  I  mean  a  letter  to  the  Chief  of  Engineers? 

Mr.  Martin.  'So,  sir.  On  the  contrary,  we  wrote  him  and  told  him  we  were 
Interested  and  were  prepared  to  go  ahead  and  cooperate  in  its  development 
jilong  commercial  lines. 

Mr.  Garrett.  But  you  made  no  proposition  to  do  so  definitely. 

Mr.  Martin.  If  the  C?ongress  was  concerned  in  its  development  and  use  in 
public  service,  we  told  the  Chief  of  Engineers  we  would  be  prepared  to  submit  a 

plan. 

Mr.  Garrett.  What  guaranty  is  there  in  your  proi^osition.  Mr.  Martin,  that 
your  company  will  fulfill  its  contract  and  the  offer  it  has  made  here? 

Mr.   Martin.  What  guaranty   is  tliere? 

Mr.    Garrett.  Yes. 

Mr.  Martin.  In  the  first  place,  we  have  property  and  assets  engageil  in  the 
public  service  to-day  which  are  substantial.  We  have  exjdained  to  the  com- 
mittee that  there  is  a  great  demand  for  the  further  p(»wer  in  the  southeastern 
section,  and  there  undoubtedly  will  be  a  market  for  a  sufticient  volume  of 
this  power  before  the  dam  can  be  completed  to  jusffy  its  development. 

Mr.  Garrett.  I  understand  that,  but  suppose  the  Government  accepts  your 
proposal  and  enters  into  an  agreement  such  as  you  have  outlined  here  in  your 
eight  propositions,  and  you  take  out  your  license  under  the  water-power  act 
referred  to,  and  then  you  do  not  do  anything,  what  recourse  has  the  Govern- 
ment of  the  United  States? 

Mr.  Martin.  To  take  the  property  back. 

Mr.  Garrett.  Yes:  they  can  take  the  property  back.  We  can  always  do  that. 
Then  how  nuich  better  off  are  we  then  than  we  are  now? 

Mr.  Martin.  Well,  you  will  not  be  any  worse  off,  will  you? 


872 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


873 


Mr.  G4KKKTT.  \\'o  may  not  be  any  worse  off,  hut  we  have  not  gotten  anvwhere. 
Is  that  the  puiimse  of  your  offer  here,  that  you  are  plaving  with  the  Gov- 
ernment  for   time?  *     .     &  ^  v.w» 

Mr.  Maktin.  No,  sir ;  we  are  not  playing  with  the  Government  for  time. 
Mr.  Garrett.  Wliat  guaranty  do  you  offer. 

*-^r^^jA^^'^'^l..l^A'"^"\"'"^'^-  ^"^  '*'  >'^"  ^^'^"t  us  to  give  a  bond  to-day  of 
$0,000,000  or  $10,OOtK).000,  we  will  be  glad  to  do  it.  We  are  not  plaving  with 
the  Government. 

Mr.  Garrett.  But  you  do  not  say  that  in  your  proposal. 

Mr.  Martin.  No,  sir;  because  the  law  under  which  we  propose  to  act  carries 
with  It  the  right  of  the  Federal  Power  Commssion  to  exact  guaranties  as 
to  the  tinaiic.al  responsibility  of  the  proposeil  licensee,  and  you  will  notice 
tliat  not  only  in  the  act,  but  the  Secretary  of  War  refers  to  it  and  says : 

It  is  m  the  province  of  the  Federal  Power  Commission  to  require  such 
assurances  and  guaranties  as  may  be  necessary  as  to  the  financial  ability 
of  the  hcensee^  to  complete  its  undertaking."  We  will  comply  with  any  request 
or  demand  made  by  the  Federal  Power  Commission  as  to  our  financial  abilitv 
to  complete  this  undertaking. 

Mr.  Garrett.  That  is  very  commendable,  and  what  I  want  to  know  is  this  • 
This  propos  tion  of  :Mr.  Ford's  has  been  pending  since  the  8th  of  July,  1921 
and  after  the  hearings  had  been  going  on  here  for  a  week  on  his  proposition' 
which  was  the  only  proposition  that  had  ever  come  before  Congress,  vou  come 
forward  now  and  show  great  anxiety  to  get  this  property,  and  you  are  willing 
to  do  anything  the  Government  wants  you  to  do  in  order  to  get  hold  of  this 
plant.    Why  d  d  you  not  do  something  before  that? 

Mr.  Martin.  Now,  let  us  get  the  record  straight.  I  think  this  proposal  is 
dated  some  time  in  January. 

Mr.  Garrett.  No;  Mr.  Ford's  first  proposal  is  dated  July  8. 

Mr.  Martin.  Yes ;  but  his  last  proposal  is  dated  in  January. 

Mr.  Garrett.  Yes;  that  was  his  first  propostU.  but  I  am  referring  to  the 
last  proposition  he  has  submitted. 

^Ir.  Martin.  The  one  that  is  pending  before  the  Congress  is  dated  in  January, 
as  I  recollect. 

The  Chairman.  January  25.  1922. 

Mr.  Martin.  Yes.  We  submitted  our  ideas  on  the  subject  in  a  letter  to  the 
Chief  of  J:ngineers  in  May.  We  again  took  it  up  with  the  Chief  of  Engineers  by 
letter  dated  in  July. 

Mr.  Garrett.  Now,  let  us  keep  the  record  straight  as  we  go  along.  In  those 
letters  that  j'ou  refer  to  did  you  make  any  definite  proposition  to  the  Govern- 
ment for  the  taking  over  of  Muscle  Shoals  and  carrying  out  the  purposes  for 
which  the  original  project  was  started? 

Mr.  Martin.  We  stated  in  those  letters  that  if  the  Government  was  pre- 
pared to  consider  a  plan  by  which  a  part  of  the  power  would  be  devote^J  to 
public  service,  we  were  prepared  to  deal  with  it.    As  you  know,  of  course — — 

The  Chairman.  Pardon  me,  in  what  year? 

Mr.  Martin.  In  the  year  1921,  and  those  letters  point  out  the  inhibition 
against  proceeding  now,  that  clause  in  section  124  of  the  national  defense  act, 
and  hence  there  was  not  authority  or  power  in  the  Government  oflicers  to  deal 
with  it  at  the  time. 

Mr.  Garrett.  I  did  not  catch  that. 

Mr.  Martin.  There  was,  as  of  course  you  know,  the  provision  in  section  124 
of  the  national  defense  act,  which  provided  that  the  plants  or  plant  should  be 
constructed  and  operated  solely  by  the  Government,  and,  of  course,  that  made 
it  impossible  for  us  or  anyone  to  make  any  arrangement  or  agi-eement. 

Mr.  Garrett.  Now,  what  I  want  to  do  is  to  get  right  down  to  the  bottom  of 
your  proposition  here,  so  far  as  the  manufacture  of  fertilizer  is  concerned,  to 
supply  the  agricultural  interests  of  the  country,  and  so  far  as  the  manufacture 
of  nitrate  of  ammonia  is  concerned  for  ammunition  purposes.  You  do  not 
propose  to  have  anything  to  do  with  that  except  to  turn  over  to  the  Govern- 
ment 100,000  secondary  horsepower,  and  the  Government  is  to  do  that,  if  any- 
body does  it,  or  name  somebody  to  do  it. 

Mr.  Martin.  That  is  correct. 

Mr.  Garrett.  That  is  your  position.  So  that  under  your  proposition,  so  far 
as  maintaining  the  nitrate  plant  No.  2  for  munition  purposes  at  all  times  for 
the  use  of  the  Government  and  keeping  a  force  there  and  everything  of  that 
sort  is  concerned,  and  so  far  as  making  any  fertilizer  for  agricultural  purposes 
is  concerned,  you  are  not  interested  in  that.  You  are  going  to  leave  that  to  the 
Government,  if  it  can  find  somebody  that  will  do  that  and  your  proposition 


when  stripped  of  everything  else,  including  the  100,000  secondary  horsepower,  is 
a  water  right  that  you  get  for  50  years  and  nothing  else. 

Mr.  Martin.  We  propose  to  give  the  Government  the  100,000  horsepower  and 
$5,000,000  and  the  Government  retains  its  nitrate  plant. 

Mr.  Garrett.  The  Government  already  has  that. 

Mr.  Martin.  And  you  have  enough  money  out  of  this  deal  which,  at  4  per 
cent,  will  maintain  your  nitrate  plant  in  a  state  of  efficiency. 

Mr.  Garrett.  Now,  when  you  have  done  that  and  wound  it  all  up,  you  have 
got  the  extension  of  your  plant  that  the  Government  paid  for  with  its  own 
money 

!^Ir.  Martin  (interposing).  And  which  we  pay  for. 

Mr.  Garrett.  I  say  you  are  going  to  pay  for  that  which  the  Government  has 
nlready  paid  for,  but  you  will  have  that  and  you  will  have  dam  No.  2,  and  that 
will  be  yours  absolutely. 

Mr.  Martin.  No:  I  do  not  accept  that. 

Mr.  Garrett.  I  mean  subject  to  the  right  of  the  Government  to  recapture 

Mr.  Martin.  Subject  to  the  right  of  the  (government  at  the  «nd  of  50  years 
by  paying  the  n(4  investment  and  not  any  added  value  by  reason  of  any  in- 
crease in  value  in  the  interim,  but  simply  the  net  investmtnt  in  the  project. 

Mr.  Garrett.  But  you  have  that  for  50  years. 

Mr.  Maktin.  Yes. 

Mr.  Garrett.  Absolutely? 

Mr.  Martin.  Y'es,  sir. 

Mr.  Garrett.  And  l>oth  the  steam  plants,  and  all  you  have  paid  the  Govern- 
ment will  be  $5,000,000? 

Mr.  Maetin.  Plus  the  100,000  annual  horsepower. 

Mr.  Garrett.  Plus  the  100.000  secondary  horsepower. 

Mr.  Martin.  Yes.  In  addition  to  that  we  pay  the  Goveniment  anotlier  very 
substantial  item  in  tha4;  we  relieve  the  Government  of  the  obligation  to  main- 
tain the  dam  and  gntes, 

]Mr.  Garrett.  I  understand  that. 

Mr.  Martin.  Yes. 

Mr.  Garrett.  But  that  is  the  only  thing  except  maintaining  the  dam  and 
gates  and  giving  the  Goveniment  the  right  to  go  through  them  for  50  years, 
and  that  is  nil  the  Government  really  has  left  under  your  proposition  after 
you  pay  the  $5,000,000. 

Mr.  Martin.  And  we  relieve  the  Government  of  the  obligation  of  putting  up 
from  $50,000,000  to  $80,000,000  more  money  in  tlie  project. 

Mr.  Garrett.  But  you  are  putting  that  up  with  the  idea  of  making  a  whole 
lot  more  out  of  it.  I  am  speaking  now  from  the  Government's  viewpoint,  and 
you  take  out  f<n'  fixing  up  the  locks  and  dam.  You  deduct  out  of  that  total 
the  amount  for  fixing  those  locks  and  dams ;  you  deduct  that  from  the  $5.000.(XK), 
do  you  not? 

Mr.  Martin.  Of  course,  we  can  not  make  a  lot  of  money  out  of  it,  hccausp 
we  are  subject  to  the  reguhition  of  rates,  and  under  the  terms  of  the  Federal 
water  power  act  there  is  a  provision  limiting  the  terms  and  providing  that  if 
any  earnings  are  made  over  and  above  that  rate  of  return  they  are  amortized 
to  the  United  States  Treasury. 

Mr.  Garrett.  AVhat  rate  of  return  are  you  allowed  under  the  Federal  water 
power  act  on  your  investment? 

Mr.  Martin.  The  rate  of  return  is  fixed  by  the  Alabama  Pulilic  Service  Com- 
mission. 

Mr.  Gakkktt.  That  is  another  one  of  those  "  how  old  is  Ann  "  ju'opositions. 
What  interest  on  your  capital  investinient  are  you  allowed  to  make? 

Mr.  Martin.  It  is  not  fixed  that  way. 

^Ir.  Garrett.  Let  us  see  if  we  can  get  at  it  this  way.  This  is  an  awful  big 
proposition  you  have  submitted  to  the  Government,  and  evidently  your  experts 
have  it  all  figured  out  where  your  company  would  come  out  in  the  end. 

IMr.  Martin.  We  know  it  is  a  big  proposition,  ]Mr.  Garrett,  and  a  big  respon- 
sibility; we  appreciate  that. 

Mr.  Garrett.  What  do  you  figure  your  company  is  to  make  out  of  this  in  50 
years,  after  you  have  done  everything  .vou  propose  to  do? 

Mr.  Martin.  We  did  not  figure  it  that  way,  Mr.  Garrett. 

Mr.  Garrett.  You  do  not  know  whether  it  is  a  good  proposition  or  a  bad 
proposition? 

Mr.  Martin.  We  figured  that  we  can  sell  power  to  the  public  at  a  rate  de- 
pending upon  what  it  will  cost  us  to  maintain  the  project  and  what  money  will 
cost  us. 


874 


MUSCLE   SHOALS   PUOPOSITTOXS. 


MUSCLE   SHOALS   PROPOSITIONS. 


875 


Mr.  Garrett.  The  conclusion  of  your  company  is  that  the  proposition  you 
make  to  the  Government,  if  you  can  get  hold  of  Muscle  Shoals  for  50  years^  in 
connection  with  your  other  holdings  which  you  have  in  that  section  of  the 
country,  which  will  almost  if  not  quite  give  you  a  monopoly  of  power  in  all  of 
those  circles  you  have  on  that  map— you  figure  you  can  dispose  of  so  much  of 
it  so  that  as  a  business  proposition  it  will  be  a  tremendously  good  thing  for  you? 

Mr.  Martin.  If  we  were  in  a  manufacturing  business  I  would  like  to  have  it 
without  regulation,  because  we  really  could  make  some  money  out  of  it. 

Mr.  Garrett.  The  regulations  allow  you  to  make  some. 

Mr.  Martin.  But  not  much. 

Mr.  Garrett.  You  have  made  a  whole  lot  of  it? 

Mr.  :Martin.  No;  we  have  made  enough  money  out  of  it  to  pay  the  fixed 
charges  on  our  obligations,  with  a  modest  surplus. 

Mr.  Garrett.  Have  you  your  financial  arrangements  all  made  to  handle  this 
proposition? 

Mr.  Martin.  Substantially;  we  have  an  understanding  with  our  bankers,  and 
we  think  we  will  be  able  to  find  the  necessary  money. 

Mr.  Garrett?  You  think  you  have  an  understanding.  You  do  not  guess  at 
those  things.     You  know  you  have,  do  you  not? 

Mr.  Martin.  We  have  an  understanding. 

Mr.  Garrett.  What  bankers  have  told  you  they  would  finance  this  propo- 
sition? 

Mr.  Martin.  Not  banks;  they  are  concerns  whose  business  it  is  to  <lo  this 
very  kind  of  work— investment  bankers.  Harris,  Forbes  &  Co.  and  Coflin  & 
Bun-  aie  the  two  firms.  They  make  a  business  of  finding  money  for  high-grade 
public  service  institutions  such  as  ours. 

Mr.  Garrett.  Have  they  told  you  they  thought  they  could  find  it,  or  that  thev 
could  find  it? 

Mr.  ^Martin.  That  is  our  agreement  with  them. 

Mr.  Garrett.  You  will  have  to  bond  those  concerns?  * 

Mr.  Martin.  Certainly. 

Mr.  Garrett.  And  sell  those  securities? 

Mr.  ;Martin.  Yes. 

Mr.  Garrctt.  You  do  not  know  whether  you  will  have  to  sell  them  at  home 
or  abroad,  do  they  know? 

Mr.  Martin.  No.  sir:  but  I  think  they  will  sell  some  in  your  State  and  some 
in  mine.  an<l  sell  some  throughout  this  Nation. 

:Mr.  :Miller.  :Mr.  Martin,  you  are  acquainted,  of  course,  with  the  actual  con- 
dition now  of  the  Warrior  extension. 

Mr.  Martin.  Yes,  sir;  I  think  so. 

^Ir.  :Miller.  You  are  acquainted  with  it  perhaps  as  well  as  any  living  man, 
as  to  its  present  value,  its  position,  its  preservati<m,  and  perhaps  you  are  the 
l>est  acquainted  man  as  to  its  value  as  a  going  concern,  and  as  a  part  of  your 
organization.    Your  company  is  the  lessee  of  it  now? 

Mr.  :Martin.  In  a  technical  sense  we  are  not  the  lessee,  we  are  In  possession 
of  it,  under  the  terms  of  the  contract,  and  operate  it  under  that  contract. 

Mr.  Miller.  Under  the  contract  of  December  1,  1917? 

;Mr.  Martin.  Yes,  sir;  that  contract  requires  us  to  maintain  and  operate  it 
as  a  part  of  our  system. 

Mr.  Miller.  How  much  rental  do  you  pay? 

Mr.  :Martin.  We  pay  a  mill  and  a  half  a  killowatt  hour  produced. 

Mr.  Miller.  AVhat  does  that  amount  to  in  a  year. 

Mr.  ;Martin.  It  dejiends  upon  the  production. 

Mr.  Miller.  What  has  it  amounted  to? 

^Ir.  Martin.  Last  year  it  was  something  in  exce.ss  of  .$7o,(XX).  This  year  it 
will  probal)ly  be  twice  that  amount. 

Mr.  Miller.  Last  year  you  paid  something  on  a  basis  of  1*  per  cent  on 
the  construction  cost,  amounting  to  $4.800.()0().  On(>  and  one-lialf  per  cent  of 
that  would  be  approximately  $74,80(),  so  that  you  paid  approximately  1*  per 
cent. 

Mr.  Martin.  Yes.  And  we  have  also  maintained  it.  That  is  based  on  the 
investment  in  the  plant  and  substations.  The  Government  takes  power  from 
us  now  at  the  station  and  hence  carries  the  investment  in  the  line. 

Mr.  INIiLLER.  You  are  also  acquainted  with  the  power  plant  at  nitrate  plant 
No.  2. 

Mr.  Martin.  I  do  not  know  very  much  about  that. 

Mr.  Miller.  But  your  men  do. 

Mr.  Martin.  Our  people  do,  of  course. 


^iv.  :Milleij.  Are  you  the  lessee  of  that? 

Mr.  Martin.  Yes. 

Mr.  Miller.  What  are  you  paying  for  that,  alxmr  how  much? 

Mr.  Martin.  Ten  thousand  dollars  a  month  plus  the  energy  charge  for  the 

energy  generated.  .  ,     , 

Mr.  Miller.  It  is  very  clear  to  observe  from  your  offer  that  you  have  pKked 
out  surh  units  of  the  Government  property  in  and  about  Muscle  Shoals  as  will 
fit  in  with  youi-  business  as  a  manufacturer  of  power. 
Mr.  Martin.  Yes,  sir. 

]Mr.  Miller.  And  have  rejected  those  which  are  not  and  coidd  not  be  made  a 
part  of  your  system. 

Mr.  MARTIN.  Supplving  the  Government  in  lieu  of  those  units 

Mr  Miller  (Interposing).  I  am  not  talking  about  that.  We  will  get  back  to 
that  in  a  little  bit.  So  this  is  a  good-sized  bill— .$5,0(M),00(>— you  are  going  to 
pay  for  those  units  and  also  the  transmission  lines  fr<mi  Warrior  to  Muscle 
Shoals  By  the  wav.  mv  curiosity  has  been  Jiroused  over  that  contract  of  De- 
cember 1,  1917.     Why  wer*»  you  so  particular  for  the  Alabama   Power  Co.  to 

own   that   right   of   way?  ,      .  ..      m, 

Mr  M\RTiN.  I  do  not  know  that  I  was  particular  about  it-  llieiv  was  an 
officer  advising  the  (Government  in  the  beginning  that  it  di<l  not  have  the 
power  at  that  time  to  yairchase  land.  .,    ^  ^, 

Mv.  Miller.  Who  in  the  world  gave  such  ccmiforting  informati«m  that  the 
United  States  (J«)vernment  had  no  right  to  own  lands? 

Mr  :^r\RTiN.  Later  on  there  was  a  statute  passed  under  which  the  Govt^rn- 
ment Could  acquiie  land  for  its  various  military  and  public  purposes. 

Mr  MiiLER.  .fust  on  that  point— and  I  do  not  mean  to  get  away  from  the 
Doint  I  was  asking  about,  referring  to  ycnir  contract  of  December  1.  1917,  you 
provided  in  that  contract  that  in  building  the  Warrior  extension,  the  Warrior 
substation  you  acted  as  the  agent  of  the  Government? 

Mr.  Martin.  Yes.  .     .  . 

Mr  Miiier  And  considering  the  building  of  the  transmissKvn  as  part  of 
the  Warrior  substation  profect.  in  order  to  get  the  benefit  out  of  that,  I  notw-e 
this  verv  significant  language  is  there,  in  artcle  8  of  y<air  contract  of  r>ecember 
1  1917 -""The  contractor  s>hall,  subfect  to  the  approval  of  the  contracting  ottiier, 
at  the  sole  expense  of  the  contractor."  That  is  the  only  time  that  expression 
has  been  use<l  in  vour  contract  of  December  1.  1917,  from  beginning  to  end. 
I  iiave  wondered  whv  vou  were  so  careful  to  get  title  to  that  riglit  of  way  m 
the  Alabama  Power  Co.     Why  not  let  the  Government  have  the  right  of  wayr 

Mr  ]\L\rtin.  I  think  it  imposed  a  burden  upon  us. 

Mr  Milter  That  is  not  for  us  to  say.  'I  am  asking  you  as  a  lawyer,  who 
drew' this  agreement,  or  was  intereste<l  in  it,  or  as  president  of  the  power  coni- 
panv   or  as  one  of  the  gentlemen  who  signed  the  agreement,  why  you  did  that? 

Mr.  Martin.  I  expect  you  will  find  those  words  were  inserted,  and  that 
language  was  inserted  by  the  Government  officer  himself. 

Mr  Miller.  You  want  to  buy,  for  the  language  is  at  your  sole  consent  the 
right"  of  way,  but  you  were  to  build  tl*  transmission  line  as  the  agent  of  the 
United  States  Government.    That  is  right,  is  it  not? 

»Ir.  Martin.  Yes.  ^      ,     ,  ,    , 

Mr  MILI.ER.  That  is  compatible  with  what  I  asked  you  several  days  ago  a.> 
to  the  interlocking  and  lockstitching  this  thing  altogether,  is  it  not?  Suppose 
the  transmission  line,  both  the  right  of  way  and  the  title  to  the  power  line, 
belonged  to  the  United  States. 

Mr.  Martin.  We  had  30  miles  of  it,  and  had  lines  on  it. 

Mr   Miller   That  went  as  far  as  Jasper,  and  from  Jasper  on  it  is  88  miles. 

Mr*  MARTIN.  Sixtv-eight  miles.  You  have  to  weigh  the  question  of  time. 
Having  20  miles  of  the  wav  cleared,  you  could  begin  to  build  the  transmission 
line  the  next  dav,  but  when  you  have  to  buy  a  clear  title  through  an  unde- 
veloped district  it  is  a  very  different  problem.  This  transmission  line,  or  the 
construction  of  the  transmission  line,  was  begun  within  a  week  after  the 
Government  asked  us  to  undertake  it.  There  was  20  miles  clear.  That  was 
worth  a  great  deal  in  the  emergency ;  it  enabled  us  to  get  power  to  Sheffield 
at  a  verv  much  earlier  date  than  otherwise. 

Mr.  Miller.  That  is  not  answering  my  question.  You  could  have  bought 
the  right  of  way  as  an  agent  of  the  United  States  from  Jasper  to  Muscle 
Shoals  as  cheaply  as  you  could  have  bought  it  for  yourselves. 

Mr.  Martin.  You  mean  from  Jasper  to  Muscle  Shoals? 

Mr.  Miller.  Yes ;  from  Jasper  to  Muscle  Shoals. 


876 


MUSCLE   SHOALS  PROPOSITIONS. 


the   United   States  Government,   as 


the  officers  of 


Mr.  M.viTm.  Of  course,  we  could  have. 
Mr.    Miller.  As   cheaply   as   agents   of 
you  could  have  bought  it  yourselves? 

Mr.  ^lARTiN.  Just  as  cheaply.    But  we  were  asked  to  buv  it  bv 
the  Government  themselves,  or  by  one  of  the  officers. 

Mr.  :Miller.  Who  was  that  gentleman  who  gave  you  that  advice •> 
That  was  Maj.  Runcie. 
What  is  his  first  name? 
I  have  forgotten  his  name  now. 

AVas  he  a  Regular  Army  officer  or  an  emergencv  gentleman  "^ 
He  was  an  officer  of  the  Government  at  that 'time.     I  do  not 


Mr. 
Mr. 
Mr. 
Mr. 
Mr. 
think 
Mr. 
Mr. 
Mr. 


Martin. 

]Miller. 

Martix. 

IMlLLER. 

Martix. 


he  was  in  the  service. 

Miller.  He  was  not  in  the  service? 

Martin.  He  was  a  civilian  adviser  in  the  department  at  that  time 
K..  KATHERs    :May  I  say,  Mr.  Miller,  he  was  a  retired  Armv  (.fficer  who  had 

been  engaged  in  the  practice  of  law  for  manv  years'? 

that?'  ^'"''™-  ^''"  '"'^  "^^  ^^"'^  t^  S«  ^«  a  lawyer  to  get  advice  on  a  question  like 

i,.n^  H  ^^'^:\'^"^.«'^-  J^^  Government  officials  naturally  brought  their  law  talent 
into  this  situation  from  the  very  start.    In  the  initiation  of  the  negotiations  Mai 
I  uncie  was  the  lawyer  in  charge  of  the  interests  of  the  (Government      Ma" 

m  Inv  vP^'l^     whf    ir ^'"^'''"  t"''-''  ^'"''^''  ""'^  ^^^  ^'^^^^^'^  «"'^  practiced  law  for 
"•'  "•   ^^"^""^J^^'f}'  ^^'^  ^^"i*  began  he  evidently  returned  to  the  service  and  was 
statMuied  in  AA  ashmgton  in  charge  of  this  particular  negotiation  at  the  start 
Mr.  Miller.  I  wonder  where  he  can  be  found  now 

Mr.  Weathers.  I  heard  yesterday  that  he  is  now  librarian  at  West  Point 
MrMiLLER^  He  is  the  gentleman  who  advised  you  that  it  was  quite  unneces- 
sary for  the  Government  of  the  United  States  to  buv  the  right  of  waV 
of  .1    ;\P'^«P«-  ^^  ^'«s  »>e  gentleman  who  raised  the  question  as' to  whether 
J!.i  rVV"^     ^^""^  7.^^  ^"-^  ^^^""^  authority  for  the  United  States  to  acquire  this 
aTlvis^fVlTalTcouMir  '""'  ""'  ^'"^''    '  ""'^^  "^^  ^«-^'  that  he 'definitely 
Mr.  Miller.  I  am  wondering,  if  there  was  ever  such  a  limitation,  how  we  ac- 
quired any  lan<l  to  build  these  nitrate  plants  on  or  do  anything 
Mr.  Weathers.  This  was  in  November,  1917? 
Mr.  M1LI.ER.  Yes. 

Mr.  Weathers.  We  had  been  in  the  war  only  a  little  while 
Mr.  MTLTjiiR.  We  had  been  in  the  war  for  several  months,  since  April  1917 
Mr.  Weathers.- Most  of  the  legislation  came  after  that  I  think 
Mr.  Miller.  But  such  a  thing  is -perfectly  consistent  with  everv  other  inter- 
lo<-king  proposition  connected  with  the  interlocking  of  the  United  States  nron- 
erty  with  the  property  of  the  Alabama  Power  Co  ^  ^     ^ 

Mr.  Weathers.  Perfectly  consistent. 

Miller.  And  fits  in  very  nicely  with  that  situation 
Weathers.  That  is  right. 
MiLiJCR.  If  anyone  has  that  pur^pse  in  view*? 
WE.VTHERS.  That  is  right. 

Milter.  Let  us  go  back  to  the  other  proposition.  Let  me  read,  if  vou 
please,  Mr.  Martin,  paragraph  3  of  your  offer.  It  says,  "  To  purchase  the  Gov- 
ernments interest  in  the  Warrion  extension  of  the  steam  plant  of  Alabama 
Power  Co.  and  facilities."  What  particular  facilities  have  you  reference  to^S 
the  use  of  the  Warrior  facilities  in  that  connection'        ^  '^^  ^""  leierence  to  m 

Mr.  Miller.  You  mean  the  Drifton  Railroad? 
Mr.  Martin.  Y'^es. 

Mr.  MiLLERW'hat  becomes  of  your  25-year  easement  you  have  on  that? 
Mve'you'no??        '  ""    ^^<^emlyer  1,  1917,  you  have  a  2o-year  easement  on  that; 

Mr.  Martin.  I  really  do  not  remember  about  that. 

Mr.  Miller.  You  know  your  o\mi  contract,  do  you  not? 

Mr.  Martin.  I  do  not  recall  that  particular  question 

Mr.  Martin.  It  is  in  here.  I  am  getting  back  to  the  sienificance  nf  fhA 
word  "facilities,"  following  this  Warrior  extension  and  steam  plaSro^ono^t 
tioD.    You  say  that  includes  the  Drifton  Railroad?  propoffl- 

Mr.  Martin.  That  is  the  only  thing  I  recall. 


MUSCLE   SHOALS  PROPOSITIOiNS. 


877 


Mr. 
Mr. 
Mr. 
Mr. 
Mr. 


Mr.  Miller.  What  connection  has  that  Drifton  Railroad  with  the  general 
scheme  down  there?     It  runs  out  to  what  property? 

Mr.  Martin.  It  runs  from  this  plant  to  what  was  previously  the  end  of  the 
Southern  Railroad  line. 

Mr.  :Mtller.  It  furnishes  a  railroad  connection  into  your  Warrior  steam  plant? 

Mr.  Martin.  Yes;  the  Southern  Railroad  had  a  line  running  out  from  its 
main  line  to  a  mining  district,  and  this  was  an  extension  of  one  of  those 
branch  lines  to  this  plant. 

3Ir.  Miller.  That  would  carry  the  Drifton  Railroad? 

Mr.  Martin.  Whatever  that  interest  is. 

Mr.  Miller.  Let  us  see  how  much  we  put  into  the  Dr;fton  Railroad.  Accord- 
ing to  the  report  of  the  Secretary  of  War  it  was  $50,421.  There  has  been 
more  money  than  that  \Ahich  has  gone  into  railroad,  has  there  not? 

Mr.  Martin.  We  put  $105,000  into  it. 

Mr.  Miller.  Let  us  take  the  next  part  of  this  paragraph,  "  the  Warrior  and 
Sheffield  substations":  we  know  what  they  are.  Then  there  is  the  "  transmis- 
si<m  line  from  Warrior  to  Sheffield."  That  is  the  same  transmission  line 
concerning  which  it  was  considered  illegal  for  the  Government  to  go  in  and 
acquire  it,  so  you  took  it.  Then  there  is  the  steam  plant  at  nitrate  plant  No  2 
How  much  land  goes  with  that?  Was  it  merely  the  land  on  which  the  plant 
stands,  or  is  there  any  considerable  acreage  there? 

Mr.  Martin.  You  Mould  have  to  look  at  the  map  to  see.  It  was  .lust  enough 
acreage  to  maintain  the  plant,  and  then  there  is  the  substation  and'  some  hous- 
ing facilities. 

Mr.  Miller.  It  has  some  rather  extensive  dumping  facilities,  coal  bunkers, 
and  things  of  that  kind,  some  of  which  are  built  of  concrete  and  very  valuable* 
All  of  that  stuff  goes  with  it?  ^  - 

Mr.  Martin.  No;  just  the  things  necessary  to  make  the  plant  an  operatinff 
plant. 

Mr.  Miller.  You  can  see  how  a  dispute  could  arise  between  the  Government 
and  yourselves  in  determining  what  you  shall  get.    % 

Mr.  Martin.  We  will  assume  that  when  the  time  comes  to  make  arrangements 
of  this  kind  there  will  be  a  definite  marking  of  the  things  included  and  those 
not  included  in  this  arrangement.     That  is  a  matter  verv  easilv  determined 

Mr.  Miller.  Then  you  say.  "  together  with  the  necessarv  rights  of  wav  lands 
and  housing  facilities."    What  are  the  housing  facilities? 

Mr.  Martin.  You  have  to  have  a  staff  at  a  plant  like  this.  Those  are  for 
operatives.  There  are  a  number  of  houses  around  this  plant  luiilt  for  the  men 
who  will  operate  the  plant. 

Mr.  Miller.  On  whose  pront'i-ty  do  those  houses  stand  ? 

Mr.  Martin.  The  United  States  Government's. 

Mr.  Miller.  The  property  of  the  United  States  Government?  How  could  we 
acquire  property  on  which  to  build  houses  if  we  could  not  aciiuire  propertv  on 
which  to  build  a  transmission  line? 

Mr.  Weathers.  That  was  six  months  Inter. 

Mr.  Miller.  Did  this  same  gentleman  advise  you  that  the  United  States  could 
acquire  property  on  which  to  build  houses  but  could  not  acquire  property  on 
which  to  build  transmission  lines?    Is  that  what  we  are  to  understand? 

Mr.  Martin.  All  I  know  is  what  happened  in  connection  with  the  Warrior 
situation. 

Mr.  Miller.  Was  this  same  gentleman,  Mr.  Runcie,  down  there  when  the 
houses  were  built ;  were  they  built  before  or  after  the  transmission  line  was 
acquired? 

Mr.  Martin.  I  do  not  remember  that. 

Mr.  Miller.  Then  the  housing  facilities  were  on  the  land  of  the  United  States 
I  did  not  know  we  owned  any  land  around  the  Warrior  station.  Are  these 
housing  facilities  there  or  at  Muscle  Shoals? 

Mr.  Martin.  Both. 

Mr.  Miller.  Did  we  buy  some  land  down  there  around  the  Warrior  steam 
plant  to  build  houses? 

Mr.  Martin.  No.  Those  were  some  temporary  houses  on  land  of  ours  covered 
or  leased  from  the  power  company  in  this  contract. 

Mr.  Miller.  No  houses  were  built  on  the  land  of  the  Alabama  Power  Co.,  were 
they? 

Mr.  Mabtin.  Yes ;  some  housing  facilities  for  the  operatives. 

Mr.  Miller.  Are  those  housing  facilities  that  were  passed  by  title  to  you? 

Mr.  Mabtin.  You  would  have  to  look  at  the  laap  to  see. 


878 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


879 


Mr.  Miller.  Would  they  take  the  land  with  them? 

Mr  ^lARTiN    I  suppose  they  would— you  mean  at  nitrate  plant  No.  2  or  at 
the  Warrior  plant? 
Mr.  Miller.  At  the  Warrior  steam  plant. 

Martin.  The  Government  does  not  own  the  land. 

Miliar.  It  owns  no  land  there ;  that  is  what  I  was  getting  at  a  little  bit 

But  the  houses  were  built  or  constructed  by  the  United  States  Govern- 


Mr 
Mr 

ago. 
ment. 

Mr. 

Mr. 


Martin.  This  investment  is  included  in  the  $4,900,000 
IMiLLER.  Then  your  contract  says  "  and  to  pay  therefor  in  five  equal  in- 
stallments the  sum  of  .$5,000,000,  less  an  amount  to  be  agreetl  on  to  cover  the 
cost  of  locks  and  navigation  structures  at  Wilson  Dam."     What  is  vour  infor- 
mation as  to  what  deduction  that  will  be? 
Mr.  Martin.  Two  million  five  hundred  thousand  dollars 
Mr.  Miller.  Then  that  leaves  $2,500,000  for  you  to  pay? 
Mr.  Martin.  Yes,  that  is  right ;  to  pay  the  Government. 

Mr.  Miller.  Then  you  are  getting  for  $2,500,000  the  Warrior  steam  plant 
extension  and  substation,  the  transmission  line,  the  substation  at  Muscle  Shoals 
and  the  steam  plant  at  Muscle  Shoals,  and  the  Drifton  Railroad? 
Mr.  Martin.  No;  we  are  getting  them  for  $5,(KH1,(H)0,  plus  ] 00.000  horsepower. 
Mr.   Miller.  I   nm   not  talking  about  horsepower;    I   am   talking  about   the 
money  transaction. 

Mr.  Martin.  You  can  not  separate  them. 

Mr.  Miller.  Yes;  we  can  .separate  those  all  right:  we  will  separate  them. 
Mr.  Martin.  You  can  not  separate  them  as  a  business  proposition. 
Mr.  Miller.  You  are  getting  them  for  a  money  consideration  of  $2,500,000. 
Mr.  Martin.  If  the  (Government  wants  to  accept  our  proposition  as  a  whole 
that  is  part  of  it. 

Mr.  IMiLLER.  Now,  you  ffet  the  steam  plant  in  which  we  put  $4.0S7.000  at 
the  Warrior  plant,  and  approximately  $12,000,000  at  nitrate  plant  No.  2;  is  that 
not  about  right? 

Mr.  ^L\RTIN.  Whatever  the  record  shows. 

Then  it   would  amount   to  api)roximately  $17,0(H),(X)0  worth   of 
war-time   prices,   of   course,    of   electric   power    pnxlucing   ma- 


No;  you  understand,  Mr.  Miller,  that  the  dam  is  only  partially 


]Mr.  Miller. 
machinery,  at 
chinery  ? 

Mr.  Martin. 
completed. 

Mr.  IMiLLER.  I  am  not  talking  about  the  dam;  I  did  not  mention  the  word 
"  dam."  I  say  you  are  getting  the  $12.000,0(H)  we  put  in  at  nitrate  plant  No.  2. 
the  steam  plant,  and  $5,0(K>,000  in  the  Warrior  steam  plant,  which  makes  ap- 
proximately $17,000,000  worth  of  equipment  of  steam-producing  energy  for 
«?— ,>>00,(KM) ; 

Mr.  Martin.  I  can  not  accept  your  premise. 

Mr.  Miller.  I  am  talking  about  the  money  consideration.  Of  course,  we  have 
differed  in  many  things,  but  that  is  the  cold,  God's  honest  truth  so  far  as  what 
you  pay  is  concerned,  is  it  not? 

Mr.  :Martin.  Suppose  we  do  not  get  the  lock. 

Mr.  Miller.  That  is  what  you  pay  in  cash? 

Mr.  Martin.  If  we  pay  that  much  cash  we  build  the  lock,  which  is  $2,500,000. 
and  give  it  to  the  Government. 

Mr.  Miller.  You  do  what? 

Mr.  Martin.  We  build  the  lock  and  convey  it  in  fee  to  the  Government  on 
the  comjiletion  of  its  coitstruction  ;  we  agree  to  convev  it 

]Mr.  Miller.  You  build  the  h)ck? 

Air.  Martin.  Yes;  and  we  agree  to  convey  to  the  Government  in  fee  the 
lock  on  completion.  Then  that  money  which  goes  into  the  lock  is  part  of  the 
money  which  we  put  up  and  must  be  taken  into  account  as  a  part  of  the 


$5,000,000. 

Mr.   IMlLLER. 

Mr.  ]Martin 
Mr.  Miller. 
and  $2,500,000 


And  be  deducted  therefrom? 

Yes;  we  convey  to  the  Government  that  equipment. 

You  pay  to  the  Government  $2.500,0(X>  in  the  cost  of  the  l<K'k 

in  cash.     Let  us  take  it  that  way.    The  steam  plants  we  are 


turnnig  over  to  you  cost  the  Government  approximately  $17,000,000,  which  yon 
are  paying  for  partly  in  a  lock  and  partly  in  cash  to  the  Government? 
Mr.  Martin.  And  power. 


Mr.  Miller.  That  would  leave  it  this  way:  Taking  into  consideration  the 
$2,500,000  deduction  for  the  lock,  you  then  very  clearly  have  figured  that  the 
balance  of  $2,500,000  shall  be  the  payment  for  these  other  things. 

Mr.  Martin.  No. 

Mr.  Miller.  How  do  you  figure  it.  or  did  you  figure  it  in  reference  to  that? 

Mr.  Martin.  We  just  figured  the  money  which  we  could  afford  to  pay,  plus 
the  100,000  horsepower. 

Mr.  Miller.  You  did  not  figure  it  as  completely  at  random  as  that,  did  you? 
Your  men  figured  out  this  thing,  did  they  not?  Did  they  not  appraise  the  value 
of  the  Warrior  steam  plant  to  you  in  carrying  out  your  purposes? 

Mr.  Martin.  I  can  only  answer  what  I  stated,  that  we  have  presented  it  as 
a  whole.  We  propose  to  give  the  Government  100,000  horsepower  and  $5,000,000 
for  the  property.  That  is  the  way  we  figured  it  out,  and  that  is  the  best  answer 
1  can  make  to  you. 

Mr.  Miller.  You  can  not  give  us  any  idea  at  what  your  company,  in  figuring 
this  thing  out  so  that  you  could  make  this  proposition  to  the  Government,  valued 
the  steam  plant  at  the  Warrior  substation? 

Mr.  Martin.  I  have  given  you  the  best  answer  I  can. 

Mr.  Miller.  What  did  you  say? 

Mr.  Martin.  The  whole  proposition  you  have  to  take  together.  It  is  a  ques- 
tion of  financing  the  whole  situation  to  completion,  of  raising  the  money  and 
providing  the  Government  with  100,000  horsepower  and  paying  the  Government 
$5,000,000.  You  have  to  recognize  all  those  things  as  balancing  one  against  the 
other. 

Mr.  Miller.  But,  Mr.  Martin,  I  presume  every  man  around  this  table  has  more 
or  less  figured  in  propositions  of  this  kind  and  he  has  brought  in,  in  making  up 
his  figures,  all  the  items  in  connection  with  various  things  all  the  way  down, 
and  then,  taking  a  complete  schedule  and  making  the  proposition  based  on  that. 
Is  not  that  the  way  it  is  done? 

Mr.  Martin.  Mr.  Miller,  I  have  told  you  over  and  over  again  that  all  we  did 
was  to  consider  this  situation  as  a  whole.  We  have  made  a  proposition  to  give 
the  Government  power  and  complete  the  financing  and  construction  of  this  job 
and  pay  $5,000,000  in  money.  We  can  not  separate  one  from  the  other  because 
we  did  not  make  our  calculations  that  way.  and  here  we  are. 

Mr.  Miller.  Is  there  any  electrical  energy  generating  machinery  at  nitrate 
plant  No.  2  that  would  be  included  in  this  transfer  to  you? 

Mr.  Martin.  There  is  the  steam  plant. 

Mr.  Miller.  All  of  the  generating  machinery  there  and  at  the  Warrior  River 
extension — all  of  that  machinery  is  in  good  condition,  and  you  are  paying  a 
rental  of  $10,000  a  month  for  that  extension? 

Mr.  Martin.  Yes ;  it  is  located  90  miles  from  our  Warrior  plant. 

Mr.  Miller.  It  is  a  permanent  form  of  construction,  brick  buildings,  and  all 
those  things? 

Mr.  Martin.  Yes. 

Mr.  Miller.  What  did  you  or  your  engineers  figure  was  included  in  the  steam 
plant  at  nitrate  plant  No.  2?  You  certainly  had  some  idea  as  to  whether  there 
was  1  acre  or  10  acres  of  land? 

Mr.  Martin.  I  do  not  know  that  it  was  figured  as  a  matter  of  acreage.  It 
would  be  whatever  is  reasonable  and  necessary  to  maintain  a  phmt  and  operat- 
ing facilities  and  facilities  for  the  men. 

Mr,  Miller.  Is  that  as  close  as  you  can  come  to  it? 

Mr.  Martin.  No,  sir.  If  you  were  preparing  a  deed,  and  it  was  a  question  of 
making  a  deed  ready  for  signature  and  execution,  we  would,  of  course,  be  more 
exact.  All  of  those  things  are  easily  adjusted,  because  I  assume  we  would  so 
into  it  more  carefully  than  we  could  do  it  here  to-day.    It  has  to  work  itself  out. 

Mr.  Miller.  That  more  than  excites  my  curiosity.  That  contract  of  December 
1,  1917,  is  so  very  much  in  detail  and  every  possible  thing  covered  that  could 
po.ssibly  be  included  in  a  contract,  and  then  when  it  comes  to  this  transaction 
you  are  so  very  general.  That  excites  my  curiosity.  I  do  not  mean  any  reflec- 
tion on  you.  I  wondered  if  you  had  not  figured  things  down  to  the  same  nicety 
in  this  proposition  you  are  making  now  that  you  figured  on  the  contract  of 
December  1,  1917. 

Mr.  Martin.  I  do  not  suppo.se  we  devoted  five  minutes  to  the  question  of 
how  much  acreage  was  involvetl  in  the  Sheffield  steam  plant. 

Mr.  Miller.  Then  it  is  a  mere  matter  of  indifference  as  to  how  much  it 
involves? 


92900—22- 


-56 


880 


MUSCLE   SHOALS  PROPOSITIONS. 


f-ioiViViVs  Inv  Kv'Jr^^  ^^v"'  -"."  '^-^  *^^'l^^-^'^«^<i  »s  SO  "i"c]i  land  and  housing 
fadi  ties.  An>  two  men  fannliar  with  steam-plant  operation  could  agree  in  aii 
hour  s  time  on  what  is  necessjiry  and  what  is  not  necessary  ^ 

corporitkm^r  ^^^  Alahama  Traction,  Light  &  Power  Co/ (Ltd.)  is  a  Canadian 

Mr.  Martin.  Yes,  sir. 

Mr.  James.  What  is  the  capital  stock  of  that  company? 

Mr.  Martin.  I  think  it  is  $17,000,000  in  common  stock 

Mr.  Martin.  Limited  in  that  relation. 
P^\^'a^2!Z  Po7er"^o:f '  '"""'  '''''  P-position,  the  Canadian  com- 

Mr.  Martin  The  Alabama  Power  Co.  The  Canadian  company  is  no  longer 
a  business  factor  in  the  situation  because  it  came  into  it  prior  to  1914  simnlv 
as  a  company  through  which  we  could  raise  money  abroad.  The  conditions  haye 
entirely  changed  since  1914.  and  that  company  is  not  in  such  relation  to  our 
company  or  to  tlie  public  as  that  it  can  command  money  on  its  securities 

Tr^c^ion: lS./&  plerVc^^  '*"^'"*  ^"   ''  ^"^^'^^'^''^  ^^  «^«  ^'^^^-^^^ 

Mr.  Martin.  Yes ;  I  haye  explained  that  at  great  length. 
Mr.  James.  How  long  haye  you  had  your  home  office  in  Birmingham' 
Mr.  ^L\rtin.  Since  1912.  "fe"ui"  . 

Mr.  James.  How  do  you  account  for  the  people  down  there  considering  your 
company  a  foreign  corporation— that  is.  the  people  of  Birmingham' 

Mr.  >LvRTiN.  Propaganda  which  emanates  from  people  who  are  opposed  in 
^>  ash ington  to  our  proposition.  n    ^ 

Mr.  James.  Did  they  not  haye  a  mass  meeting  down  there  the  other  night 
%yith  about  3.(XK)  representatiye  people  present,  an<l  adopt  resolutions  statin<^ 
that  your  company  was  a  foreign  coi-poration  ?  '^ 

Mr.  Martin.  When? 

Mr.  James.  About  a  week  or  ten  days  ago. 

Mr.  Martin.  T  think  there  was  a  meeting  held  there  and  the  man  or  one  of 
the  men.  who  had  the  most  to  do  ^yith  getting  it  up  is  one  of  the  men  who  has 
been  in  this  yery  hearing  adyocating  another  proposition  as  opposed  to  ours— 
Mr.  J.  AV.  Worthington.  He  had  more  to  do  with  getting  up  that  meeting  than 
anybody  else. 

Mr.  James.  There  were  about  3,000  people  there,  as  I  umlerstand  it. 

Mr.  :^L\RTIN.  I  do  not  kmny  how  many  there  were. 

Mr.  James.  The  resolution  states  that  this  is  a  f<>reign  corporation. 

Mr.  Martin.  And  the  resolution  is  untrue :  the  Alabama  Power  Co  was  oi- 
ganized  under  the  laws  of  the  State  of  Alabama. 

^Ir.  James.  How  huig  since  Mr.  Washburn  was  president  of  the  Alabama 
Power  (  o.? 

Mr.  Martin.  T  haye  answered  that  before:  he  resigned  as  president  of  our 
company  in  the  year  ]9ir). 

^Ir.  James.  Do  you  know  when  he  was  president  of  the  American  Cyanamid 

Mr.  :Martix.  I  think  the  record  shows  that.  too. 

Mr.  James.  He  was  president  of  both  companies  at  the  same  time,  was  he  not 
/or  a  while? 

Mr.  ^L\rtin.  I  think  he  was  prior  to  the  year  3915. 

:vir.  James.  President  of  both  companies? 

Mr.  Martin.  For  one  or  two  years  about  that  time. 

Mr.  James.  Do  you  consider  Mr.  Ford's  ofler  as  dated  January  26  1922' 

Mr.  ]\L\RTiN.  The  offer  which  as  I  understand  it  is  being  considered  by  the 
committee  is  so  dated. 

The  Chairman.  It  is  dated  January  25.  1922. 

Mr.  James.  He  started  to  deal  with  the  Goyernment  about  last  July 

Mr.  Martin.  Yes,  sir ;  and  we  started  to  deal  with  the  Goyernment  in  1913. 

Mr.  James.  Really  his  offer  is  the  offer  of  last  July,  modified' 

Mr.  Martin.  Yes,  sir. 

Mr.  Fields.  Mr.  Martin,  I  would  like  to  follow  Mr.  Miller's  inquiry  a  little 
further  in  reference  to  Maj.  Runcie.  You  say  he  had  been  practicing  law,  that 
he  was  retired  from  the  Army  and  was  practicing  law? 

Mr.  Weathers.  Yes. 


MUSCLE   SHOALS  PROPOSITIONS. 


881 


Mr.  Fields.  Wliere  did  he  practice  law? 

Mr.  Weathers.  1  knew  of  him  practicing  law  in  Cuba.  1  know  he  also  prac- 
tice<i  law  in  this  country. 

Mr.  Fields.  Do  you  know  what  city  in  this  country? 

^Ir.  Weathers.  I  do  n<>t  know. 

Mr.  Fields.  Do  you  know  whether  or  not  he  practiced  law  in  New  York? 

;Mr.  Weathers.  Xo;  I  do  not. 

Mr.  Fields.  You  couhl  not  n:iiiie  any  city  in  this  country  in  which  he  prac- 
ticed law? 

Mr.  Weathers.  No. 

(Mr.  Fields.  I  am  asking  you  these  questions  because  it  is  a  little  strange  to 
me,  unless  this  officer  was  nor  froni  New  York,  that  each  of  the  emergency 
odicers  who  liad  to  do  with  this  <(»ntract  came  from  the  c  t.y  of  New  York,  two 
of  tliem  from  one  institution,  and  I  am  just  wondering  if  this  man — I  do  not 
know  how  tliey  ha])i)ened  to  be  <lerailed  there — was  from  New  York,  too. 

Air.  Weathers.  Alaj.  Runcie  was  as  punctilious  a  man  as  you  eyer  saw.  He 
had  all  the  traditions  of  the  Regular  Army. 

]Mr.  Fields.  I  just  wanted  to  know  whei-e  he  was  from. 

Air.  Weathers.  I  do  not  know  where  he  was  from  originally. 

Mr.  Martin.  I  would  like  to  correct  the  record  there.  I  do  not  know  of  any 
two  men  from  the  same  institution  in  New  York. 

Mr.  Fields.  It  was  stated  that  Lieut.  Col.  WJliams  and  Lieut.  CoL  AIcRoberts 
were  both  from  the  National  City  Bank.  That  was  deyeloiied  at  different  times, 
I  think. 

Mr.  Martin.  There  was  a  question  asked,  and  I  will  correct  it  here,  so  far 
as  anything  I  know  is  concerne<l.  Lieut.  Col.  William  Williams  was  a  lawyer, 
practicing  in  New  York  City.  If  he  eyer  had  any  connection  with  I)anks  I 
know  nothing  of  it.  I  knew  nothing  about  h  m  until  he  came  into  these  negotia- 
tions as  a  lawyer  representing  the  Goyernment.  His  office  is  in  New  York,  at  15 
Rroad  Street. 

Mr.  Fields.  I  belieye  he  is  in  Japan  at  the  present  time? 

Mr.  Martin.  He  has  nothing  to  do  with  any  bank  that  I  know  anything  about. 
So  far  as  Mr.  McRoberts  is  concerned,  I  neyer  heard  of  a  Mr.  McRoberts  in 
connection  with  this  contract,  and  I  do  not  think  his  name  appears  in  any  con- 
nection with  any  of  the  contracts. 

Mr.  Feilds.  Possibly  he  was  connected  with  the  Air  Nitrates  Corporat  on  con- 
tract. 

Mr.  Martin.  Tliat  may  be. 

Mr.  Fields.  I  think  what  I  haye  referred  to  was  brought  out  in  a  question  pro- 
Ijounded  by  Mr.  Quin.  He  asked  a  question  if  that  bank  was  not  a  Rockefeller 
bank,  and  that  is  the  reason  why  I  remember  that  particular  proposition. 

Mr.  Martin.  Of  course,  questions  oftentimes  are  asked  with  the  idea  of  leav- 
ing an  impression  on  the  record  which  the  witness  can  not  answer  and  does 
not  answer,  and  the  question  is  left  on  the  record.  That  has  been  the  case  with 
many  questions  asked  here. 

Mr.  P^ields.  No;  I  think  most  questions  asked  here  haye  been  asked  in  a 
spirit  of  fairness,  and  they  haye  been  asketl  in  an  effort  to  get  information  that 
the  comm.ttee  was  entitled  to. 

I  would  like  to  get  a  little  more  information  about  this  lock  you  are  to  build 
in  Dam  No.  2.  which  you  estimate  will  cost  $2,500,000.  Of  what  yalue  will  that 
be  to  the  Goyernment  without  the  completion  of  the  nay  gation  project  on  the 
Tennessee  Riyer?    Will  it  be  of  material  yalue  to  the  Government? 

Mr.  Martin.  It  will  be  just  as  valuable  to  the  Government  as  are  the  present 
canals  in  that  stretch  of  the  river;  it  will  be  just  as  valuable  to  the  Govern- 
nient  as  would  the  lock  facilities  at  Dam  No.  3. 

Air.  Fields.  But  the  lock  at  each  dam  would  be  more  valuable  if  both  dams 
were  built. 

Mr.  AIarti'n.  Yes ;  and  they  would  all  be  more  valuable  if  you  built  the  other 
fiye  dams   n  the  other  stretch  of  the  river,  which  needs  improvement. 

Air.  Fields.  The  lock  would  not  be  as  valuable  if  only  one  dam  was  con- 
structed as  it  would  be  if  No.  3  and  possibly  the  other  dams  were  constructed. 

Air.  AIartin.  It  will  not  serve  with  real  usefulness  until  Dam  No.  1  is  built, 
then  Dam  No.  2,  and  then  you  have  to  build  Dam  No.  3,  and  then  the  five  other 
dams  referred  to  this  morning.  When  all  these  eight  dams  are  built  the  dam 
will  serve  its  full  usefulness. 


882 


MUSCLE   SHOAE^S   PROPOSITIONS. 


MUSCLE   SHOALS   PKOPOSITIONS. 


883 


Mr.  Fields.  It  will  not  serve  its  full  usefulness  or  be  of  very  much  service 
to  the  Goveniuient  unless  Dam  No., 3  is  constructe*!,  which  wiil  enable  traffic 
to  jret  over  the  shoals. 

Mr.  Martin.  That  is  true.  It  will  not  renlly  serve  its  full  usefulness  as  I 
Siiy.  until  the  entire  sti*etch  of  river  is  improved. 

Mr.  Fields.  I  am  trying  to  find  what  return  the  <;overnment  will  get  from  the 
$2,.»()(>.()0()  which  you  estimate  it  will  cost,  and  whi<h  Col.  Cooper  estinuited  at 
$4,r)00.000. 

Mr.  Martin.  I  think  you  will  find  that  the  $4,r)<1«),000  includes  other  lockaije 
facilities.  Of  course,  as  a  matter  of  engineering,  it  is  desirable  to  complete 
the  work  while  it  is  in  progress. 

Mr.  Fields.  I  believe  it  was  your  contention  that  your  company  needs  the 
Muscle  Shoals  power  to  supply  the  country  that  you*  are  now  supplying,  the 
country  contiguous  thereto,  which  could  be  supplied  with  the  kind  of  service 
the  iniblic  now  gets? 

Mr.  Martin.  Yes,  sir;  we  think  we  are  rentlering  there  a  verv  high  <legree 
of  public  service. 

^Ir.  Fields.  In  the  last  few  days  I  have  been  reading  a  b(>ok  entitle<l  "  Water 
Powers  of  the  World."  from  which  I  find  that  I\tuscle  Shoals  is  the  greatest 
source  of  water  power  east  of  the  Mississippi  River,  and  possibly  in  the  Missis- 
sippi Valley,  and  also  possibly  greater  than  any  in  the  United  States  outsido 
of  the  Columbia  River  in  the  West.  I  als«»  find  that  in  this  territoiy  where  you 
are  operating  there  is  yet  a  great  deal  of  undeveloped  power.  I  realize  the 
necessity  of  an  ample  supply  of  t.lie  character  of  service  you  are  giving,  but 
it  has  occurred  to  me  that  the  whole  public  would  be  better  served  by  the  de- 
velopment of  these  lesser  sources  of  supply  for  that  character  of  ser\-ice,  an(« 
that  we  should  have  the  development  of  one  of  the  greatest  assets  in  water 
power,  in  whole  or  at  least  in  part,  for  the  production  of  fertilizer. 

Coming  down  to  that  point,  the  difference  I  see  between  your  offer  and  Mr. 
Ford's  offer  is  this:  He  binds  himself  to  operate  that  plant,  at  its  maximum, 
which  would  possibly  require  primary  liorsei)ower.  would  it  not,  if  he  oi>erates 
it  continuously?    He  can  not  depend  ui>on  secondary  power  to  do  so. 

Mr.  Martin.  I  do  not  so  understand  it.  Mr.  Fields. 

:dr.  Fields.  If  that  be  tnie,  he  is  to  devote  100,000  primary  horsepower, 
which,  on  the  basis  of  cost  presented  to  the  con)nnttee  by  Col.  Cooper,  wouhi 
be  S2S7.300  a  year,  where  your  1<X).000  se<*ondary  horsepower  would  be  worth, 
ar  the  maximum.  $78,000. 

Mr.  Martin.  If  you  are  goinc:  to  put  the  primary  power  in  that  position, 
where  do  you  come  out  on  fertilizer? 

Mr.  Fields.  The  thing  that  has  been  worrying  me  all  the  time,  with  the  great 
plant  like  nitrate  i)lant  No.  2  at  Muscle  Shoals,  with  the  steam  power  sold 
away  from  it,  which  your  proposition  would  do,  and  left  solely  dependent  upon 
10O.(¥)  secondary-  horse|)ower — I  am  wondering  whether  anybody  in  the  United 
States  would  take  hold  of  it  under  a  handicap  of  that  kind. 

Mr.  Martin.  Let  us  take  your  idea  of  using  primary  power  in  the  manufac- 
ture of  fertilizer.  When  it  comes  to  the  question  of  setting  up  your  costs  on 
tin-  manufacture  of  fertilizer,  what  are  you  going  to  charge  primary  power  in 
for?  It  h;is  a  .sale  value  of  .>;2.'»  per  lu^rsepower  per  year.  If  you  put  primary 
power  in  at  $2."'»  per  h<u-sei»ower  per  year  you  will  find  you  can  not  give  away 
your  nitrates,  nnich  less  sell  them.  I)e<'au.se  the  price  for  ix)wer  will  make  the 
ultimate  cost  prohibitive. 

Mr.  Fields.  I  see  tlie  advantage  of  having  it  altogether  instead  of  having  it 
separate.  Having  it  altogether,  it  would  be  operated  in  the  main  by  secondary 
power,  or  possibly  secondary  i>ower  supplemented  by  steam  power. 

Mr.  Maktin.  If  you  want  to  juit  it  on  that  basis,  here  is  a  steam  plant 
capable  of  generating  steam  ]>ower.  and  we  will  sell  anybody  who  wants  to 
make  fertilizer  there  all  the  steam  jjovver  he  wants  or  needs  chea|>er  than  he 
can  manufacture  it  himself.  That  plant  is  there,  always  subject  to  public 
regulation  and  an.vbody  can  buy  the  steam  power. 

^Ir.  Fii:i.DS.  The  Government  or  the  lessee  would  have  to  buy  it,  and  the 
th'ng  that  has  been  runm'ng  through  my  mind  is 

]\Ir.  Ma!:ti.\   (inten)osing).  How  mucli  .steam  power  you  want. 

Ml-.  Fields.  Would  an.vbody  lease  this  plant  under  limitations  of  that  char- 
acter?    I  fear  they  would  not. 

Mr.  Martin.  You  can  buy  all  the  steam  power  ,vou  want:  that  is  to  say,  you 
can  buy  the  coal  or  so  mucli  power  for  this  plant  for  as  many  days  and  months 
as  you  want  it  for  the  manufacture  of  fertilizer  or  anything  else  and  not  be 


or 


under  any  obligation  for  the  maintenance  and  upkeep  of  the  plant  That  i* 
the  business  of  a  public  service  company,  :Mr.  Fields.     With  the  steam  plant 

^  n *^  l\}  .  ¥"^^^  ^^  ^  ''"'^^'^'  '^^^'^'^^'^  company  that  can  alwavs  resiK)nd  to  a 
call  of  that  character,  with  seamdary  power  there  at  any  price  the  Govern- 
ment sees  fit  to  make  it,  available  for  n<^thing.  if  you  want  it,  everv  facilitv  is 
n.ade  jnailable  for  whoever  wants  to  go  there  and  manufacture  fertilizer    ' 

Mr.  Fields.  But  viewing  it  in  my  mind  from  the  standpoint  of  the  agricul- 
tural interests  of  the  country,  there  is  a  great  difference  between  making  the 
production  of  nitrogen  the  first  consideration  and  operating  the  whole  thiiio' 
combined  and  developing  it.  and  making  the  production  of  nitrogen  the  second 
and  last  consideration. 

Mr.  Martin.  Let  me  suggest  this  to  you :  Take  the  case  of  coal  mines  down 
m  Alabama  or  somewhere  else.  In  Alabama  the  coal  industry  has  develoi>ed 
leinarkably  in  recent  years.  Our  company  is  supplying  power  to-dav  to  40 
or  oO  c-oal  mine.s,  large  and  small,  with  which  to  operate  the  trollev  cai-s  with 
which  to  pump  the  water  in  and  pump  the  water  out,  and  to  conduct  all  of  the 
direct  and  incidental  operaticms  around  the  plant,  in  lieu  of  what?  In  lieu 
ot  the  steam  power  which  the  mines  had  been  accustomed  to  use  in  the  past 
and  we  are  selling  that  power  to  those  mines  cheaper  than  thev  can  manufac- 
ture steam  power  at  their  own  mines  and  with  their  own  coal  right  at  their 
miiips,^  delivering  it  hundreds  of  miles  away  to  mines  for  use  in  the  mining 

There  is  another  instance  where  we  are  selling  a  cotton  mill  in  our  State 
one  of  the  largest  in  the  United  States,  this  power.     It  bought  its  coal  and 
set  up  its  plant  at  the  mouth  of  the  coal  mine.    That  plant  is  closed  down  and 
vve  are  generating  and  delivering  power  to  that  cotton  mill  for  the  operation  of 
its  entire  facilities  much  cheaper  than  it  can  manufacture  power  from  its  own 

r!fil  ^  h^u''''^  """!u  Y"*  '-'''''  ^"^^'^-^^  ^^^^'^"^  P^^^'^i*  for  «^»  the  cotton  indus- 
tries in  Alabama,  with  the  exception  of  two  plants,  north  and  south  everv 
company ;  serving  them  pow^r  frcmi  a  central  station.  Whv  do  thev  take  it'-^ 
Because  they  can  get  it  cheaper.  *      u  t  c.v   lane  ii . 

Mr.  Fields.  You  stated  that  if  the  operator  of  plant  No.  2,  whether  the  Gov- 
ernment or  a  lessee  of  the  Government,  should  need  steam  power  to  sup  lenient 
secondary  power  which  you  are  to  furnish,  you  are  to  furnish  it  to  that  open  to  • 
I  believe  you  have  stated  that  the  price  of  power  would  probablv  continue  to  go 
higher,  so  If  there  should  be  an  increase  in  the  price  of  power  from  time  Vo 
time  he  would  have  to  pay  the  market  ju-ice  at  the  time  he  used  the  power  Do 
you  think  that  any  man  would  enter  into  a  contract  with  the  Government  as  a 
lessee,  or  do  you  not  think  the  very  fact  that  if  he  wante«l  to  operate  this  plant 
continuously  he  would  have  to  depend  a  iK)rtion  of  the  time  upon  steam  power 
which  he  must  purchase  from  you.  not  knowing  what  the  price  might  be  in  the 
future— that  he  would  con.sider  that  an  item  of  verv  great  concern  *>  Would 
not  you  as  a  business  man,  or  any  other  man,  so  consider  it? 

Mr.  Martin.  No  ;  when  you  get  into  this  question  of  power  there  are  certain 
fixed  determined  elements  involved. 

Mr.  Fields.  Based  upon  present-day  conditions. 

Mr.  Martin.  Take  the  water-power  development. 

Mr.  Fields.  We  do  not  know  what  it  will  be  25  or  40  years  hence. 

Mr.  Martin.  That  is  very  true,  and  when  you  come  to  fix  the  price  for  iwwer 
the  value  of  power  40  years  hence,  that  question  goes  back  in  part  to  the  original 
cost  of  the  property. 

Mr.  Fields.  You  are  referring  to  hydroelectric  power;  you  are  not  referring 
to  steam  power. 

Mr.  Martin.  Your  question  is 

Mr.  Fields  (interposing).  With  this  additional  cost. 

Mr.  Martin.  Your  steam  power  to  be  used  to  supplement  water. 

Mr.  Fields.  Yes.  You  can  realize  that  there  may  be  in  the  future  a  very 
great  difference  in  the  cost  of  power. 

Mr.  Martin.  Nevertheless,  when  you  come  to  your  question  of  additional  cost, 
if  you  please,  of  steam  power,  in  percentage  of  the  whole  cost  it  would  be  very 
><njall,  that  is  the  mere  additional  cost,  in  the  total  cost  of  the  fertilizer  to  the 
public,  and  it  may  be  an  element  or  it  may  not  be  an  element.  Relatively,  there 
would  be  very  little  steain  power  used.  You  are  going  to  find  before  you  get 
through  with  these  investigations  that  the  idea  of  making  this  nitrate  fertilizer, 
following  the  cyanaraid  process,  is  not  going  to  be  the  process  that  is  going  to 
survive.  It  is  going  to  be  a  process  which  is  going  to  use  a  less  volume  ot 
l»ower  with  greater  efliciency. 


884 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


885 


IVIr,  FIELDS.  Repirdless  of  the  amount  of  power  used,  if  it  is  desired  to  operate 
continuously,  and  you  can  secure  hydroelectric  power  for  only  10  months  out 
of  the  year,  they  nuist  supply  themselves  with  steam  power  for  2  months  out 
of  the  year.  That  is  one-sixth  of  a  year,  and  it  would  become  a  very  great  ele- 
ment in  the  operation  of  the  plant  and  in  the  cost  of  the  product. 

The  Chairman.  Gentlemen  of  the  coniniittee.  Mr.  Dent.  1  understand,  is  stay- 
ing here  to-day  to  allow  an  Army  officer  to  be  heard  to  establish  some  facts 
that  Mr.  Dent  desires  to  establ  sh,  and  I  hope  we  can  let  him  jret  away  by 
half  past  4. 

]Mr.  McKknzik.  Mr.  Martin,  your  propostion.  of  course,  means  that  you  will 
construct  the  dam  under  the  Federal  wafer  i)ower  act? 

]Mr.  Martin.  Yes.  sir. 

]Mr.  McKenzik.  That  beinj;  true,  will  you  l)e  oblijiated  to  pay  to  the  (Jovern- 
ment  any  fees,  sucli  as  license  fees,  or  will  there  be  any  exi)ense  to  you  in  that 
connection? 

Mr.  Martin.  I  am  veiy  glad  you  mentioned  that.    That  is  true. 

Mr.  McKenzie.  You  have  taken  that  into  consideration? 

Mr.  Martin.  Yes;  that  has  been  taken  into  consideration.  There  is  a  large 
site  fee,  based  on  the  horsepower  capacity  of  the  stream. 

Mr.  McKenzie.  The  items  you  are  to  purchase  and  the  cost  have  l>een  gone 
over  many  times,  and  I  do  not  care  to  go  into  them  in  detail  at  this  time,  but 
I  w;iiit  to  ask  you  whether  or  not  it  is  a  fact  that  the  primary  horsepower  you 
expect  to  get  from  this  development  is  the  main  consideration  leatling  you  to 
make  the  proposition  which  is  now  before  us? 

JMr.  Martin.  That  is  so,  of  course. 

IMr.  McKenzie.  In  coming  to  a  conclusion  in  ths  matter  have  .vou  taken  into 
cons  deration  what  effect  it  may  have  upon  the  stocks  of  the  Alabama  l*ower 
Co.? 

Mr.  Martin.  I  can  not  say  that  we  have. 

Mr.  McKenzie.  I'ou  did  not  take  into  consideration  the  fact  that  this  plant 
being  the  greatest  water  power  in  the  South  and  iocate<l  ;is  you  have  indicated 
it  on  the  map.  perm  tting  greatly  increased  l>usiness  by  your  c(unpany,  wouhl 
have  a  very  great  effect  upon  your  stock? 

JMr.  Martin.  It  does  naturally  have  an  effect  in  a  business  way  upon  the 
securities  of  a  company  of  this  kind,  but  I  do  not  know  to  what  extent  it  will 
affect  the  secur.ties  of  our  company. 

]Mr.  WuRzBACH.  What  property  would  your  company  acquire  in  fee  if  your 
order  was  accepted  that  would  not  include  property  in  fee  acquired  by  the  Ford 
company  if  their  offer  was  accepted? 

IMr.  Martin.  We  do  not  purchase  or  un<lertake  to  purchase  nitrate  plant  No. 
1.  We  do  not  undertake  to  purchase  nitrate  plant  No.  2.  with  the  exception  of 
the  steam  plant  at  that  location,  nor  the  Waco  quarry.  So  the  Government  is 
jilone  in  its  position  as  the  owner  of  the  two  nitrate  plants  and  the  Waco 
<iuarry,  except  that  we  take  the  steam  plant  at  No.  2.  There  is  a  marked  d  ffer- 
«nce  between  this  proposition  and  the  other  proposition  you  ai*e  considering,  as 
respects  the  No.  2  development.  We  proi)ose  to  the  (Joveniment  to  take  the 
title  by  deed  from  the  Government  of  the  Wilson  Dam  property  and  go  forward 
and  complete  it. 

Mr.  WrRZBACH.  I  understand  that. 

Mr.  Martin.  The  effect  of  that  has  a  very  important  aspect  locally,  because 
it  brings  that  proi>erty  under  local  taxation  laws,  and,  you  see,  the  project 
will  tlien  bear  its  local  burden  of  taxation,  and  at  the  same  time  the  Govern- 
ment has  its  right  of  recapture  of  that  project  at  the  end  of  50  years.  As 
res|x^cts  a  lease,  of  course,  if  the  Government  would  want  to  retain  the  title 
and  lease  the  project  and  finance  it.  that  has  a  very  different  aspect. 

]Mr.  WrRZBACH.  With  reference  to  the  two  nitrate  plants,  is  it  contemjilated 
that  Mr.  Ford  would  get  title  in  fee  to  the  two  nitrate  plants;  is  that  your 
understanding  of  the  Ford  offer? 

Mr.  WuRzBACH.  That  is  my  undersea nding  of  the  project,  Mr.  Wurzbach. 

Mr.  Wurzbach.  In  section  5  of  your  offer  it  is  provided  "  The  Government 
is  to  transfer  to  the  licensee  the  Wilson  Dam  prrperty  represented  by  its  invest- 
ment and  commitments  to  date,  fret*  of  liabilities  and  unencumbered,  inclu.l- 
ing  the  construction  plant."  What  do  you  understand  as  being  include<l  within 
the  construction  plant  of  the  property? 

Mr.  Martin.  Those  derricks  and  tracks  and  dumping  facilities  and  camps 
that  are  there  now,  to-day — whate^er  is  there  constituting  a  construction  plant. 


Mr.  Wurzbach.  That  would  net  be  included  in  the  Ford  title  as  passing  title 
in  fee  to  Mr.  Ford. 

Mr.  Mart[n.  I  do  not  recall.  However,  it  is  included  in  the  .$17,000,000 
already  invested  in  the  dam. 

Mr.  Wurzbach.  You  are  familiar  enough  with  the  Ford  offer  to  know  whether 
or  not  it  is  to  be  included,  whether  Mr.  Ford  would  receive  title  to  the  con- 
struction plant  under  his  offer,  are  you  not? 

Mr.  Martin.  I  do  not  understand  that  he  asks  for  title  to  anv  of  that  nron- 
erty.  but  I  do  not  recall  that  matter. 

Mr.  Wurzba(;h.  If  Mr.  Ford  is  not  to  receive  that  property  and  your  companv 
IS  to  receive  it.  the  value  of  that  i»roi)erty  would  be  the  difference  between 
your  offer  and  Mr.  Ford's  offer,  would  it  not? 

Mr.  Martin.  It  is  all  there  available  for  use  to  whoever  undertakes  t()  com- 
plete this  construction,  whether  our  company  or  some  one  else  will  use  that 
plant.    At  the  end  of  its  use  it  has  a  salvage  value,  but  not  much. 

Mr.  Wurzbach.  Is  it  not  a  fact,  Mr.  Martin,  that  at  the  present  time  that 
property  has  a  book  value  of  $4,740.807 ;  that  is,  nearly  $5,000,000 

Mr.  Martin.  The  construction  plant? 

Mr.  Wurzbach.  Yes. 

Mr.  Martin.  I  really  do  not  know.  We  are  treating  the  question  on  the  basis 
of  «p  17,000,000. 

Mr.  Wurzbach.  I  have  been  informed  by  Army  officers  that  that  is  the  book 
valu'.\  and  that  the  est-mated  value  at  the  present  time  is  about  $2,900.4.^.^. 
If  that  is  true,  and  if  it  is  also  true  that  you  are  to  receive  this  proiierty  under 
your  offer  and  ^Ir.  Ford  is  net  to  receive  it  under  his  offer,  then  there  is  that 
mnch  difference  in  favor  of  the  Ford  offer  over  your  offer. 

Mr.  Martin.  No.  Mv.  Ford  gets  the  nitrate  plants  and  Waco  quarrv,  in  which 
the  Government  has  an  investment  of  $87,000.0(K).  Let  us  follow  that  a  step 
further.  In  its  present  position,  under  the  other  offer  to  which  you  refer  the 
licensee  or  the  lessee  will  go  forward  with  that  construction.  Rv  the  time  he 
uses  it  in  the  Wilson  Dam  construction,  and  then  moves  it  to  Dam  No  3  and 
gets  through  with  it  there,  it  will  be  junk  anyway,  so  it  will  all  be  used  or 
consumed  in  tliat  construction  and  at  the  end  of  six  vears  it  is  not  worth 
anything.  I  think  you  will  find  that  to  be  the  stuation  upon  investigation.  There 
is  a  great  deal  of  that  construction  plant.  There  is  a  temporary  concrete  highway 
constructed  entirely  across  this  river.  It  represents  many  thousands  of  dollars. 
It  is  worth  nothing  except  for  that  inunediate  use.  Y'ou  will  find  a  great  deal 
of  this  construction  plant  has  no  recoverable  value. 

Mr.  Wurzbach.  I  understand  that  amount  of  .$4,740,807  is  made  up  of  the 
following  items:   Material  and  supplies,  .$.o00,480:   plant  and   equipment,  $2,- 
331,097;    main-line   railroad   and    equipment,    .$801,110;    camps,    housing,    etc'./ 
$1,108,120.    The  plant  and  equipment  is  worth  about  the  book  value,  is  it  not, 
or  very  near  the  book  value? 

Mr.  Martin.  I  can  not  say  that  any  camp  or  equipment  purchased  during 
the  war  period  is  worth  its  book  value  now. 

Mr.  Wurzbach.  Under  the  Ford  offer  at  this  time  the  Government  would 
have  the  right  to  sell  this  proi>erty. 

]Mr.  Martin.  Of  course. 

^Ir.  Wi^RZBACH.  And  salvage  this  property  without  in  anv  wav  affecting  the 
offer  of  Mr.  Ford. 

Mr.  Martin.  I  do  not  know ;  I  can  not  answer  that  question.  I  would  have 
to  reserve  the  right  to  answer  it  at  another  time. 

The  Chairman.  We  are  very  much  obliged  to  you  Mr.  Martin.  You  have 
been  very  patient.  We  will  now  call  upon  the  military  officer  whose  evidence 
Mr.  Dent  desires  to  introduce. 

STATEMENT  OF  MAJ.  JOHN  G.  BOOTON,  ORDNANCE  DEPARTMENT, 
IN  CHARGE  OF  CONTRACT  SECTION,  ORDNANCE  DEPARTMENT, 
AND  CUSTODIAN  OF  THE  RECORDS  OF  THE  CONTRACT  SECTION. 

The  Chairman.  Will  you  state  to  the  reporter  your  name  in  full,  your  rank, 
and  also  the  position  you  occupy  in  the  War  Department? 

Maj.  BooTON.  Maj.  John  G.  Booton ;  Ordnance  Department ;  in  charge  of  the 
contract  section  of  the  Ordnance  Department  and  custodian  of  the  records  of 
the  contract  section. 

The  Chairman.  How  long  have  you  been  in  the  War  Department? 


886 


MUSCLE   SHOALS  PBOPOSITIOXS. 


Jlaj.  tJooTox.  As  an  officer  of  the  War  Department? 

The  Chairman.  Yes. 

Mai.  BooTON.  Since  1911. 

The  Chairman.  Were  you  a  private  before  you  became  an  officer? 

Maj.  BooTON.  I  was  a  graduate  of  the  United  States  Military  Academy, 
entering  in  1906. 

The  Chairman.  Mr.  Dent  wants  to  ask  you  a  few  questions,  and  he  will 
kindly  propound  them  now. 

^Ir.  Dent.  Major,  you  say  you  are  the  keeper  of  the  records,  contracts, 
orders,  and  regulations  by  the  Secretary  of  War  in  the  Ordance  Department? 

Maj.  BooTON.  Yes,  sir. 

Mr.  Dent.  Has  your  attention  been  called  to  the  contract  relative  to  the 
Oorgas  plant  between  the  Government  and  the  Alabama  Power  Co.? 

Maj.  BooTON.  Yes,  sir;  within  the  past  three  or  four  days. 

Mr.  Dent.  Are  you  familiar  with  the  act  of  July  9,  1918,  authorizing  the 
sale  of  war  materials,  supplies,  and  so  forth? 

Maj.  BooTON.  Yes,  sir.  ' 

Mr.  Dent.  Did  the  Secretary  of  War  make  any  order  or  regulation  relative 
to  that  act;  and,  if  so.  when,  and  will  you  please  produce  It? 

Maj.  BooTON.  The  Secretary  of  War  on  August  31.  1918,  issued  Bulletin  No. 
50,  headed  "  War  Department,  Washington.  August  31,  1918,"  article  5  of  which 
quotes  an  extract  of  the  act  of  Congress  on  the  sale  of  war  supplies;  that  is, 
the  act  approved  July  9,  1918,  and  further  provides  that — 

"2.  (a)  Bureaus  of  the  War  Department  desiring  to  sell  supplies  embraced 
within  the  provisions  of  this  act,  the  cost  price  of  which  is  in  excess  of  $5,000, 
shall  secure  the  approval  of  the  Director  of  Purchase.  Storage  and  Traffic  Divi- 
sion, General  Staff,  except  in  the  Philippine  and  Hawaiian  Departments,  where 
the  authority  of  the  department  commanders  is  sufficient. 

"(h)  Upon  receipt  of  such  approval  from  the  Director  of  Purchase,  Storage 
and  Traffic,  such  supplies  which  are  intended  for  sale  to  persons,  partnerships, 
associations,  and  corporations  will  then  be  disposed  of  unless  otherwise  directed 
by  the  Director  of  Purchase,  Storage  and  Traffic,  for  cash  at  auction,  or  to 
the  highest  bidder  on  sealed  proposals,  on  due  public  notice,  and  in  such  market 
as  the  public  interests  may  require.  The  officer  making  the  sale  will  suspend 
it  when  in  his  opinion  better  prices  can  be  obtained.  The  auctioneer's  certified 
detailed  account  of  the  sale,  and  the  vouchers  for  the  expenses  attending  it, 
will  be  reported  on  the  proper  forms  to  the  chief  of  the  bureau  to  which  the 
property  pertained.  Such  supplies  as  are  intended  for  sale  to  any  other  de- 
partment of  the  Government  or  to  any  foreign  State  or  Government  engaged  in 

Var  against  any  Government  with  which  the  United  States  is  at  war  shall  be 
at  not  less  than  the  invoice  price,  including  cost  of  inspection  and  transporta- 
tion. 

"(c)  The  proceeds  of  sales  shall  be  deposited  to  the  credit  of  that  appropria- 
tion out  of  which  was  paid  the  cost  to  the  Government  of  the  property  thus 
sold,  and  the  same  shall  immediately  become  available  for  the  purposes  named 
in  the  original  appropriation." 

Mr.  Dent.  Was  any  order  made  relative  to  contracts  of  this  character  by  the 
Purchase,  Storage  and  Traffic  Division  of  the  General  Staff? 

Maj.  BooTON.  There  was  Supply  Bulletin  No.  13,  headed  "  War  Department, 
Purchase,  Storage  and  Traffic  Division,  General  Staff,  Purchase  and  Supply 
Branch,  Washington,  August  3,  1918,"  reading  as  follows : 

"  Subject :  Contract  provisions  regarding  increased  manufacturing  facilities. 

"  1.  Where  increased  manufacturing  facilities  are  constructed  at  the  expense 
of  the  Government  or  where  their  cost  is  amortized  in  the  price  paid  by  the 
Government,  the  contract  shall  provide  that  title  to  such  facilities  shall  vest  in 
the  United  States.  The  contractor  may  agree  to  take  such  facilities  at  a  fair 
value  in  diminution  of  the  profit  which  he  otherwise  would  make. 

"2.  Where  title  to  increased  manufacturing  facilities  vests  in  the  United 
States,  the  contract  shall  provide  that  the  contractor  may  make  written  offer  in 
the  Government  to  purchase  such  facilities,  whereupon,  if  the  Government  ac- 
cepts such  offer,  the  contractor  shall  become  obligated  to  pay  for  such  facilities 
at  their  appraised  value  at  that  time.  The  contract  shall  further  provide  that 
if  the  contractor  does  not  make  or  the  Government  does  not  accept  such  offer, 
the  Government  shall  have  the  right  to  remove  such  facilities  after  the  termina- 
tion of  the  contract  within  a  time  reasonably  sufficient  to  effect  such  removal. 


MUSCLE  SHOALS  PROPOSITIONS. 


887 


The  contract  may  provide  that  the  Government  shall  have  an  option  at  the 
termination  of  the  contract  to  purchase  at  an  appraised  value  the  land  on 
which  such  facilities  are  erected. 

"3.  If,  in  any  case  of  such  increased  manufacturing  facilities,  it  is  de- 
sired to  make  a  contract  along  lines  different  from  those  herein  established,  the 
approval  of  the  Superior  board  of  review  shall  first  be  secured." 

That  was  signed  by  authority  of  the  Secretary  of  War  by  George  W.  Goethals, 
major  general.  Assistant  Chief  of  Staff,  Director  of  Purchase,  Storage  and 
Traffic.  The  last  paragraph  refers  to  the  superior  board  of  contract  review  in 
the  General  Staff. 

Mr.  Dent.  Have  you  any  record  of  the  action  of  the  Chief  of  Ordnance  in 
appointing  contract  officers  to  execute  contracts  for  the  department,  and  any 
records  relative  to  this  particular  contract? 

Maj.  BooTON.  I  have  an  office  order,  No.  157,  of  1918;  which  appoints,  among 
others,  William  Williams,  lieutenant  colonel,  Ordnance  Department,  National 
Army,  as  a  contracting  officer. 

Mr.  Dent.  What  was  the  date  of  that? 

Maj.  Booton.  This  is  order  No.  157.  No.  156  is  dated  February  26,  1918, 
and  No.  158  is  dated  March  5,  1918,  and  in  looking  up  some  other  records  I 
find  March  2  given  as  the  date  of  the  appointment  of  Lieut.  Col.  Williams. 

Mr.  Dent.  Who  signed  this  contract? 

Maj.  Booton.  Who  signed  this  contract,  and  whose  name  appears  on  this 
order.    This  office  order  for  some  reason  is  not  dated. 

Mr.  Dent.  Have  you  a  record  showing  that  the  board  of  review  approved 
this  contract? 

Maj.  Booton.  The  office  order  157,  to  which  I  just  referred,  reads  as  follows : 

War  Department, 
Office  of  the  Chief  of  Ordnance, 

Washington,  March  3,  1918. 

Office  order  No.  157  (authority  to  execute  contracts). 

1.  Office  order  No.  145,  relating  to  officers  authorized  to  execute  contracts, 
is  hereby  rescinded,  and  the  following  substituted  therefor : 

"  1.  Contracts  with  private  manufacturers  to  meet  the  schedules  of  require- 
ments for  ordnance  and  ordnance  stores  and  supplies  will  be  executed  only  by 
the  procurement  divisions  of  the  Ordnance  Office.  The  following  officers,  but 
no  others,  are  hereby  authorized  to  execute  such  contracts :  Samuel  McRoberts, 
colonel,  Ordnance,  N,  A. ;  Charles  N.  Black,  lieutenant  colonel,  Ordnance,  N.  A. ; 
R.  P.  Lament,  lieutenant  colonel,  Ordnance,  N.  A. ;  William  WMlliams,  lieuten- 
ant colonel.  Ordnance,  N.  A. ;  C.  F.  Cook,  major.  Ordnance,  N.  A. 

"2.  Paragraph  A  of  section  6  of  officer  oMer  No.  104  is  hereby  amended  to 
the  extent  necessary  to  give  effect  to  the  foregoing." 

C.  B.  Wheeler, 
Brigadier  General,  Ordnance,  N.  A., 

Acting  Chief  of  Ordnance. 
Official : 

W.  S.  Peibce, 
Brigadier  General,  Ordnance,  N.  A. 

Copies  sent  to :  Chiefs  of  bureaus  and  divisions,  heads  of  sections,  and 
arsenals. 

I  find  by  examination  of  the  records  that  William  Williams,  lieutenant 
colonel.  Ordnance  Department,  National  Army,  was  contra(:ting  officer  until 
February  4,  1919,  continuing  from  March  2,  1918. 

Mr.  Dent.  I  asked  you  about  the  board  of  review  approving  this  contract. 

Maj.  Booton.  There  is  attached  to  the  retained  copy  of  the  contract  in  the 
nitrate  division  an  approval  carrying  the  signature  of  the  officers  approving 
the  contract,  and  the  statement  "  approved  by  Board  of  Contract  Review  of 
Procurement  Division,  November  8.  W.  Arthur  Babson,  secretary."  That 
board  was  an  ordnance  function,  a  committee  appointed  by  the  order  of  the 
Purchase,  Storage  and  Traffic  Division  of  the  General  Staff. 

Mr.  McKenzie.  Are  the  names  of  the  officers  attached  there? 

MAj.  Booton.  Yes,  sir. 

Mr.  McKenzie.  Will  you  please  read  those  names? 

Maj.  Booton.  They  are  J.  W.  Joyes,  colonel.  Ordnance,  United  States  Army; 
C.  F.  Beames,  major,  Ordnance  Department,  United  States  Army;  E,  V.  Pren- 


888 


MUSCLE  SHOALS  PROPOSITIONS. 


tiss.  major.  Onlnance  Department,  United  States  Army;  G.  U.  Alexander, 
captain,  (Ordnance  Department,  United  States  Army ;  Dale  Bnmstead,  lieutenant. 
Ordnance  Department,  United  States  Army.  Then  there  is  typed  an  oflicer's 
signature,  R.  H.  Swartwont,  which  is  in!tlale<l  "  K.  H.  S." 

Mr.  Dent.  What  is  this  memorandum  here  fhanding  paper  to  witness.] 

Maj.  BooTox.  I  do  not  know  the  significance  of  that. 

Mr.  Dent.  You  had  better  put  that  in  the  record. 

Maj.  BooTox.  On  the  side  is  written  in  handwriting  "  I  concur  in  the  approval 
of  this  contract.    A.  W.  Burchard." 

Mr.  McKexzie.  Col.  Joyes  was  chairman  of  the  board  of  review,  I  take  it. 

Afaj.  Bf)OTox.  He  was  the  senior  officer:  there  were  six  initiators,  each  of 
whom  was  responsible  for  his  separate  detail.  Col.  Joyes  was  senior  and  in 
charge  of  the  nitrate  <livision.  so  he  was  the  one  most  interested. 

IMr.  McKexzie.  Have  you  found  anything  in  your  records  down  there  in  look- 
ing this  thing  up  to  indicate  that  the  Secretary  of  War  gave  any  directions  in 
connection  with  this  matter. 

Maj.  BooTox.  Xo,  sir;  nothing  at  all. 

Mr.  McKexzie.  You  have  not  found  anything  in  the  records  at  all  to  indicate 
the  approval  of  the  Secretary  of  War. 

aiaj.  BooTON.  Except  the  approval  by  authorize<l  agencies  of  his. 

Mr.  McKexzie.  Those  agencies  were  all  subordinate  oflicers  to  the  Chief  of 
Ordnance. 

Maj.  BcK)Tox.  Xo,  sir;  there  is  also  the  approval  of  the  clearance  committee 
of  the  Purchase.  Storage  and  Trafllc  Divis'on  of  the  General  Staff. 

Mr.  McKexzie.  He  was  a  subordinate  ofllcer. 

^laj.  BcK)Tox.  To  the  Secretary  of  War. 

Mr.  McKexzie.  And  also  to  the  chief  of  the  Purchase,  Storage  and  Trafllc 
Division. 

Maj.  BooTox.  Yes,  sir;  the  chief  of  the  Purchase,  Storage  and  Trafllc  Divi- 
sion was  at  that  time  in  charge  of  all  ucti\ities  of  the  staff  purchasing  depart- 
ments. 

Mr.  McKexzie.  AVas  that  Gen.  Goethals? 

^laj.  BooTox.  That  was  Gen.  Goethals ;  yes,  sir. 

Mr.  McKexzie.  Does  his  name  appear  in  any  way  connected  with  this  matter 

Maj.  Bixrrox.  Xo.  sir;  the  approval  was  made  by  a  comndttee  of  the  Purchase 
Storage  and  Traffic  Division,  acting  I  suppose  in  his  name.     The  only  thing 
I  was  able  to  find  was  a  certificate  in  handwriting  by  Maj.  Beames  that  this 
project  was  approved  under  clearance  X'o.  128.")  on  Xovember  9,  1918. 

Mr.  McKexzie.  Then  the  officer  of  the  highest  authority  connected  with  this 
whole  proceeding  was  the  Chief  of  Ordnance,  Cien.  William's. 

Maj.  B<K)Tox.  His  name  does  not  appear  directly  as  an  initiator  or  as  signing 
the  contract. 

Mr.  McKexzie.  He  delegated  to  the  various  officers  the  authority  to  act  in  the 
capacities  in  which  they  did  act. 

Maj.  BooTox.  Yes,  sir. 

Mr.  McKexzie.  You  have  not  anything  beyond  the  Chief  of  Ordnance  that 
would  indicate  that  the  Secretary  of  War  had  anything  to  do  with  it. 

Maj.  BooTON.  He  delegateil  his  authority  to  the  Purchase,  Storage  and  Traffic 
Division  to  approve  forms  and  individual  contracts,  which  is  the  reason  for  the 
approval  by  the  clearance  committee,  and  the  Chief  of  Ordnance  gets  his  general 
authority  directly  from  the  acts  of  Congress.  In  the  Revised  Statutes,  .section 
1164,  it  is  prescribed  "  it  shall  be  the  duty  of  the  Chief  of  Ordnance,  under  the 
direction  of  the  Secretary  of  War,  to  make  contracts  of  purchase  for  procuring 
necessary  supplies  and  ordnance  stores  for  use  of  the  ar;nies  of  the  United 
States." 

Mr.  McKexzie.  That  is  true ;  but  there  is  not  anything  whatever  before  the 
committee  up  to  date  that  indicates  that  the  Secretary  of  War  had  anything  to 
do  with  either  directing  or  procuring  or  preparing  this  contract. 

Mr.  Dext.  Mr.  Chairman,  if  I  may  interpose  at  this  point  the  first  document 
we  offereil  was  a  general  order  issued  by  the  Secretary  of  War  authorizing  con- 
tracts in  the  various  departments  to  be  made  in  this  way.  There  was  no  specific 
authority  for  this  particular  contract,  but  general  authority  for  contracts  of  this 
nature.     That  is  the  first  document  we  put  in  the  record  this  afternoon. 

Mr.  WuRZBACH.  That  was  with  regard  to  the  sale  of  supplies. 

Mr.  Dext.  In  conne<-*tion  with  the  act  of  Julv  9. 


MUSCLE   SHOALS  PROPOSITIONS. 


889 


Mr.  Milieu,  ^fajor,  did  T  understand  von  correctly  when  you  said  this  contract 
with  the  Alabama  I'ower  Co.  was  approved  by  the  board  of  review  on  Xoveml)er 
8,  1918? 

Maj.  BooTox.  That  is  what  is  set  down  here. 

Mr.  Miller.  The  contract  was  not  signed  until  the  9th ;  how  do  vou  figure  that 
out? 

Maj.  BooTox.  It  was  approved  prior  to  the  signing.  The  approval  was  sup- 
posed to  be  before  the  signatures.  Sometimes  it  was  before  the  contracts  were 
sent  out  and  before  the  contractor  was  allowed  to  sign  or  before  the  Government 
relea.««ed  it. 

Mr.  Miller.  Then  the  board  of  review  simply  approved  the  phraseologj*  of  the 
contract? 

Maj.  BooTox.  Approved  the  phraseology  in  general.  That  was  a  legal  board 
of  review.  The  practical  board  of  review  were  the  negotiators,  ami  the  negotia- 
tors looked  out  for  the  business  end  of  the  contract.  The  board  of  review  l<K>ked 
after  the  legal  rights. 

Mr.  ]MiLLER.  Was  that  customary? 

Maj.  B<K)TOX.  It  was  customary  during  the  war. 

air.  QuiN.  Have  you  the  original  drafts  along  with  this  contract? 

Maj.  BooTox.  This  is  the  original  signed  copy ;  yes,  sir. 

Mr.  QuiN.  Are  you  the  keeper  of  the  records?  Have  you  the  correspondence 
between  the  parties  at  interest? 

Maj.  BooTox.  I  have  not  got  it  here ;  but  I  can  get  It. 

Mr,  Quix.  Who  is  the  keeper  of  that? 

]\Iaj.  BooTox.  It  is  either  in  the  general  records  or  in  the  contract  records. 

Mr.  QriN.  What  officer  would  be  tlie  proi>er  officer  for  us  to  call? 

Maj.  BooTox.  I  can  get  it  for  you,  and,  usually,  1  would  be  the  one  to  get  it 
eventually. 

Jfr.  QriN.  Please  let  me  see  the  original  draft. 

Maj.  B(X>Tox.  Those  are  the  signatures.  , 

Jlr.  (^uiN.  Is  that  the  same  one  that  is  printed? 

5Iaj.  BooTox.  So  far  as  I  know  it  is  is.  That  is  one  of  the  office  copies. 
Then,  there  is  a  lot  of  miscellaneous  data  attache<l,  interoffice  letters  and  in- 
structions, etc. 

Mr.  Qi'ix.  The  evidence  shows  that  there  was  correspondence  and  then  memo- 
randa, which  we  have  not  seen.    Is  that  in  here? 

Maj.  BooTox.  Xo,  sir:  it  is  not  in  there.  This  is  more  or  less  the  final  draft, 
rather  than  the  preliminary  negotiations.  If  you  want  those  we  can  get  them 
for  you. 

Mr.  Qt'ix.  Mr.  Chairman,  this  gentleman  is  not  the  direct  keeper  of  those 
things,  but  he  says  he  can  produce  them — all  of  the  documents  and  communi- 
cations and  memoranda  in  regard  to  this  contract  the  1st  of  December,  1917 — 
from  the  beginn  ng*  up  to  ultimate  signing  of  it.  Should  we  not  call  some 
other  officer  and  get  this  information? 

Mr.  McKenzie.  I  suppose,  if  the  members  of  the  committee  would  like  to  have 
those  matters  presented,  it  might  be  well  to  have  them  brought  up  here. 

Mr.  Dent.  M<»st  of  it  has  been  put  in  the  record  already  by  Mr.  Martin. 

Mr.  McKexzie.  IMajor,  we  are  very  much  obliged  to  you  for  coming  up  here 
and  giving  us  the  information  you  have  put  in  the  record. 

(Thereupon  the  committee,  nt  4.45  o'clock  p.  m.,  adjourned  until  to-morrow, 
Friday,  March  3,  1922,  at  10.30  o'clock  a.  m.) 


LIST  OF  MEMBERS  or  NATIONAL  FERTILIZER  ASSOCIATION, 


HONORARY   MEMBERS. 


George  Braden,  Louisville,  Ky. 
Gustav  Jarecki,  Cincinnati,  Ohio. 
William  Prescott,  Cleveland,  Ohio. 
J.  Rice  Smith,  Augusta,  Ga. 
William  T.  Wuichet,  Dayton,  Ohio. 


890 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


891 


:,  ACTIVE  MEMBERS. 

Acme  Manufacturing  Co.,  Wilmington,  N.  C. 

Adair  &  McCarty  Bros.  (Inc.),  A.  D.,  Atlanta,  Ga. 

Alabama  Chemical  Co.,  Montgomery,  Ala. 

Ani.-ince  Fertilizer  Co.,  Alliance,  Ohio. 

American  Agricultural  Chemical  Co.,  New  York  City 

American  Cotton  Oil  Co..  The,  New  York  City. 

American  Fertilizer  Co.,  Savannah,  Ga. 

Anaconda  Copper  Mining  Co.,  Chicago,  111. 

Anderson  Phosphate  &  Oil  Co.,  Anderson,  S.  C. 

Apothecaries  Hall  Co.,  Waterbury,  Conn.  ' 

Arkansas  Fertilizer  Co.,  Little  Rock,  Ark. 

Armour  Fertilizer  Works,  Chicago,  111. 

Baltimore  Pulverizing  Co.,  Baltimore,  Md. 

B.itesburg  Cotton  Oil  Co.,  Batesburg,  S.  C. 

Baugh  &  Sons  Co.,  Philadelphia,  Pa. 

Berkshire  Fertilizer  Co.,  Bridgeport,  Conn. 

Blackshear  Manufacturing  Co.,  Blackshear,  Ga. 

Blackstone  Guano  Co.,  Blackstone.  Va. 

California  Fertilizer  M^orks,  San  Francisco,  Calif. 

Calumet  Fertilizer  Co.,  New  Albany,  Ind. 

Camp,  William  H.  (Inc.),  Petersburg,  Va. 

Canton  Fertilizer  Co.,  Canton,  Ohio. 

Capital  Fertilizer  Co.,  Montgomery,  Ala. 

Caraleigh  Phosphate  &  Fertilizer  Works,  Raleigh,  N.  C. 

Central  Chemcal  Co.,  The,  Hagerstown,  Md. 

Chamberlain  &  Barclay,  Cranbury,  N.  J. 

Chicago  Feed  &  Fertilizer  Co.,  Chicago,  111. 

Contentnea  Guano  Co..  Wilson,  N.  C. 

Cope  &  Baffin  (Inc.),  Savannah,  Ga. 

Cotton  States  Fertilizer  Co.,  Macon.  Ga. 

Darling  &  Co.,  Union  Stock  Yards,  Chicago. 

Dainippon  Jinzo  Hiryo  Kaisha  (Ltd.),  Tokyo,  Japan. 

Davison  Chemical  Co.,  Baltimore,  Md. 

Diaujond  Fertilizer  Co.,  The,  Sandusky,  Ohio. 

Dixie  Guano  Co.  (Inc.),  Suffolk,  Va. 

Drovers'  Packing  Co.,  Kansas  City,  Kans. 

Empire  Cotton  Oil  Co.,  Atlanta,  Ga. 

Empire  State  Chemical  Co.,  Athens,  Ga. 

Etiwan  Fertilizer  Co.,  Charleston,  S.  C. 

Exchange  Supply  Co.,  Tampa,  Fla. 

Farmers'  Fertilizer  Co.,  The,  Columbus,  Ohio. 

Farmers  &  Planters'  Co.,  The.  Salisbury,  Md.         ' 

Federal  Chemical  Co.,  Louisville,  Ky. 

(Georgia  Fertilizer  &  Oil  Co.,  Valdosta,  Ga. 

Graselli  Chemical  Co.,  Cleveland.  Ohio.  " 

Griffith  &  Boyd  Co.,  Baltimore,  Md. 

Groves  Fertilizer  Works,  Cincinnati,  Ohio. 

Gulf  Fertilizer  Co.,  Tampa.  Fla. 

Gulfport  Fertilizer  Co.,  Gulfport,  Miss. 

Gunns  (Ltd.),  Toronto,  Ontario,  Canada. 

Hafleigh  &  Co.,  Philadelphia,  Pa. 

Hamm  Co.,  The  M.,  Washington  Courthouse,  Ohio. 

Hawaiian  Fertilizer  Co.  (Ltd.),  Honolulu,  Hawaii. 

Higgins,  A.  W.,  Westfield.  Mass. 

Home  Fertilizer  &  Chemical  Co.,  Baltimore,  Md. 

Home  Guano  Co.,  Dothan,  Ala. 

Hopkins  Fertilizer  Co.,  New  Albany,  Ind. 

Hubbard  Fertilizer  Co.,  Baltimore,  Md. 

Huston,  Darbee  &  Co.,  Seaford,  Del. 

International  Agricultural  Corporation,  New  York  City. 

Jackson  Fertilizer  Co.,  Jackson,  Miss. 

Jarecki  Chemical  Co.,  Cincinnati,  Ohio. 

Lebanon  Fertilizer  Works,  Lebanon,  Pa. 

Lowell  Fertilizer  Co.,  Boston,  Mass. 

Macmurphy  Co.,  Charleston,  S.  C. 


Manning  Oil  Mill,  Manning,  S.  C. 

Mapes  Formula  &  Peruvian  Guano  Co.,  New  York  City. 

Martin  Fertilizer  Co.,  Philadelphia,  Pa. 

McCabe  Fertilizer  Co.,  Charleston,  S.  C. 

Meadows,  E.  H.  &  .1.  A.,  New  Bern,  N.  C. 

Meridian  Fertilizer  Co.,  Meridian,  Miss. 

Miller  Fertilizer  Co.,  Baltimore,  Md. 

Morris  Fertilizer  Co.,  Atlanta,  Ga. 

Mutual  Fertilizer  Co.,  Savannah,  Ga. 

New  Bern  Cotton  Oil  &  Fertilizer  Mills,  New  Bern,  N.  C. 

Nitrate  Agencies  Co.,  New  York  City. 

Ober  &  Sons  Co.,  G.,  Baltimore,  Md. 

Olds  &  Whipple,  Hartford,  Conn. 

Ontario  Fertilizer  (Ltd.),  Toronto,  Ontario,  Canada. 

Pacific  Guano  &  Fertilizer  Co.,  Honolulu,  Hawaii. 

Painter  Fertilizer  Co.,  E.  O.,  Jacksonville,  Fla. 

Pamlico  Chemical  Co.,  Washington,  N.  C. 

Pelham  Oil  &  Fertilizer  Co.,  Pelham,  Ga. 

Phosphate  Mining  Co.,  Savannah,  Ga.,  and  New  York  City. 

Piedmont-Mount  Airy  Guano  Co.,  Baltimore,  Md. 

Pierce,  William  M.,  Milford,  Del. 

Pittsburgh  Provision  &  Packing  Co.,  Pittsburgh,  Pa. 

Planters'  Fertilizer  &  Phosphate  Co..  Charleston,  S.  C. 

Pocahontas  Guano  Co.,  Lynchburg,  Va. 

Porter  Fertilizer  Co.,  Atlanta,  Ga. 

Price  Chemical  Co.,  Louisville,  Kv. 

Priddy  &  Co.,  Charles  W.  (Inc.),  Norfolk,  Va. 

Ramsburg  Fertilizer  Co.,  Frederick,  Md. 

Raisin-Monumental  Co.,  Baltimore,  Md. 

Rauh  &  Sons  Fertilizer  Co.,  E.,  Indianapolis,  Ind. 

Read  Phosphate  Co.,  Nashville,  Tenn. 

Reading  Bone  Fertilizer  Co.,  Reading,  Pa. 

Reliance  Fertilizer  Co.,  Savannah,  Ga. 

Richmond  Guano  Co.,  Richmond,  Va. 

Robertson  Fertilizer  Co.,  Norfolk,  Va. 

Rogers  &  Hubbard  Co.,  Middletown,  Conn. 

Royster  Guano  Co.,  F.  S.,  Norfolk,  Va. 

Scholze,  H.  A.,  Chattanooga,  Tenn. 

Scott  Fertilizer  Co.,  Elkton,  Md. 

Smith  Agricultural  Chemical  Co..  Columbus,  Ohio. 

Southern  Agricultural  Chemical  Corporation,  Atlanta,  Ga. 

Southern  Fertilizer  &  Chemical  Co.,  Savannah,  Ga. 

S.  States  Phosphate  &  Fertilizer  Co.,  Augusta,  Ga. 

Stadler,  J.  L.  and  H.,  Cleveland,  Ohio. 

Standard  Chemical  &  Oil  Co.,  Troy,  Ala. 

Stone  Sons,  William  (Ltd.),  Woodstock,  Ontario,  Canada. 

Swift  &  Co.,  Union  Stock  Yards,  Chicago,  111. 

Tennessee  Chemical  Co.,  Nashville,  Tenn. 

Thomas  &  Son  Co.,  I.  P.,  Philadelphia,  Pa. 

Tilghman  Co.,  William  B.,  Salisbury,  Md. 

Tomlinson  Guano  Co.,  Wilson,  N.  C. 

Tunnell  &  Co.,  F.  W.,  Philadelphia,  Pa. 

Tupelo  Fertilizer  Factory,  Tupelo,  Miss. 

United  Chemical  &  Organic  Products  Co.,  Chicago,  111. 

Virginia-Carolina  Chemical  Co.,  Richmond,  Va. 

Welch  Chemical  Co.,  Columbus,  Ohio. 

West  Coast  Fertilizer  Co.,  Tampa.  Fla. 

Whitman  &  Pratt  Rendering  Co.,  Boston,  Mass. 

Wilcox  Fertilizer  Co.,  Mystic.  Conn. 

Wilcox,  Ives  &  Co.,  Savannah,  Ga. 

Wilson  &  Co.,  Chicago,  111. 

Wilson  &  Toomer  Fertilizer  Co.,  Jacksonville,  Fla. 

Woodruff  Oil  &  Fertilizer  Co.,  Woodruff,  S.  C. 

Wuichet  Fertilizer  Co.,  Dayton,  Ohio. 

Wulbern  Fertilizer  Co.,  Charleston,  S,  C. 

York  Chemical  Works,  York,  Pa. 


J 
I 


892 


-fff^H 


MUSCLE  SHOALS  PROPOSITIONS. 


ASSOCIATE  MEAIBERS. 


MUSCLE   SHOALS  PROPOSITIONS. 


803 


American  Trona  Corporation,  New  York  City. 

American  Cyanamid  Co.,  New  Yorlv  (^ity. 

American  Limestone  Co.,  Knoxville.  Ten'n. 

American  Potash  Co.,  Lincoln.  Xebr. 

Anthony,  Carl  H.,  Baltimore,  Md. 

Ashcraft-Wilkinson  Co..  Atlanta,  Ga. 

Atlanta  Utility  Works,  East  Point,  (ia. 

Austin  Co.,  Cleveland,  Ohio. 

Automatic  Weighinjr  Machine  (^o..  Newark,  N.  J. 

Baker  &  Bro.,  H.  J.,  New  York  Citv. 

Barrett  Co.,  New  York  City. 

Bixby  &  Marshall,  Baltimore,  Md. 

Brode  &  Co.,  F,  W..  Memphis,  Tenn. 

Brown,  W.  W..  Atlanta,  Ga. 

Buckeye  Cotton  Oil  Co.,  Cincinnati.  Ohio. 

Charleston  Lead  Works,  Charleston,  S.  C 

Consolvo  &  Lyle,  Norfolk,  Va. 

Coronet  Phosphate  Co.,  New  York  City. 

Cottman  &  Co..  J.  H.,  Baltimore,  Md.  ' 

Crafts  &  Co.  (Inc.),  James  ii..  Savannah,  Ga 

Cudahy  Packing  Co,  Chicago,  111. 

Fairbanks  Co.,  Baltimore,  Md. 

Floyd,  P.  C,  St.  Louis,  Mo. 

Foster  &  Co.,  Chas.  T.,  Baltimore,  Md. 

Freeport  Sulphur  Co.,  New  York  City. 

Fridley  Commission  Co.   (Inc.),  Chicago,  111. 

Fuller-Lehigh  Co.,  Fullerton,  Pa. 

Garrigues  Co.,  Chas.  F..  New  York  City. 

Gascoyne  &  Co.,  Baltimore,  Md. 

<4eneral  Chemical  Co.,  Chicago,  III. 

Gibbs  &  Co.,  Antony,  New  York  City. 

Gilchrist.  Peter  S.,  Charlotte,  N.  C. 

<ioldsmith,  Simon  M.,  New  York  City. 

Grace  &  Co.,  W.  R.,  New  York  City. 

Graffin  Co.,  J.  C.  Baltinjore.  Md. 

Guarantee  Construction  Co..  New  York  City. 

Hardinge  Co.,  New  York  City, 

Hayward  Co,,  New  York  City, 

Hollingshurst  &  Co.   (Inc.).  New  York  City. 

Hoover  &  Mason  Phosphate  Co.,  Mount  Pleasant,  Tenn. 

Howe  Chain  Co.,  Muskegon,  Mich. 

Jeffret  Manufacturing  Co.,  Columbus,  Ohio. 

Johns-Manville  Co.,  H.  W.,  New  York  Citv. 

Kent  Mill  Co.,  Brooklyn,  N.  Y. 

King.  M.  C,  Atlanta,  Ga. 

Knight,  Maurice  A.,  East  Akron,  Ohio. 

Lang  &  Co.,  J.  M.,  Savannah,  Ga. 

Law  &  Co.,  Atlanta,  Ga. 

Link-Belt  Co.,  Philadelphia,  Pa. 

Manito  Chemical  Co.,  Peoria,  111, 

Marden,  Orth  &  Hastings  Corporation,  New  York  City. 

McCandless  Laboratory,  Atlanta,  Ga, 

Mclver  &  Son,  Alexander  M.,  Charlestcm,  S,  C. 

^IcKoin  &  Co.,  Atlanta,  Ga. 

Meeker,  Edward  P.,  New  York  City. 

Mente  &  Co.  (Inc.),  New  Orleans,  La. 

Mitsui  &  Co.,  New  York  City. 

Molony  &  Carter  Co.,  Charleston,  S.  C. 

Morgan  Bros.,  Richmond,  Va. 

Myers,  William  S.,  11  Madison  Avenue,  New  York  City. 

National  Lead  Co.,  New  York  City. 

Naylor  &  Co.,  New  York  City. 


Neville,  iMcIver,  Barnes  &  Co,,  Savannah,  Ga. 

Nothern,  W.  C,  Memphis,  Tenn. 

Norfolk  Tallow  Co.,  Norfolk,  Va. 

Pacific  Manure  &  Fertilizer  Co.,  San  Francisco,  Calif. 

Palmer-Murphy  Co.,  Atlanta,  Ga. 

Parker  Laboratory,  Charleston,  S.  C. 

Parsons  &  Pettit,  New  York  City. 

Peeples  &  Fields,  Atlanta,  Ga. 

I'eters  Co.  (Inc.),  C.  B.,  New  York  City. 

Peters,  White  &  Co.,  New  York  Citv. 

Philadelphia  Bag  Co.,  Philadelphia,  Pa. 

Potash  Reduction  Co.,  Omaha,  Nebr. 

Pratt  Engineering  &  Machine  Co.,  Atlanta,  Ga. 

Pringle,  A.  F.   (Inc.),  Charleston,  S.  C. 

Pyrite  Co.  (Ltd.),  New  York  City. 

Raymond  Bros.,  Impact  Pulverizer  Co.,  Chicago,  111. 

Rice,  Charles  W.,  Columbia,  S.  C. 

Riegel  Sack  Co.,  New  York  City. 

Rielly-Edwards  Co.,  Baltimore,  Md. 

Robertson  &  Cohen,  Charleston,  S.  C. 

Robertson  Lead  Co.,  James,  Baltimore,  Md. 

Robinson  &  Co.  (Inc.),  Dwight  P.,  New  York  City. 

Sackett,  A.  J.,  Baltimore,  Md. 

Schmaltz,  Joseph  H.,  Chicago,  111. 

Shuey  &  Co.   (Inc.),  Savannah,  Ga. 

Smith  &  Kelly  Co.,  Savannah,  Ga. 

Snelling,  William  M.,  Norfolk,  Va. 

Societe   Commerchaile  des   Potasses   d'Alsace,   25   West   Forty-third   Street, 

New  York  C'ity. 
Southern  Phosphate  Corporation,  New  York  City. 
Southern  Supply  Co.,  Norfolk,  Va. 
Standard  Potash  Co.,  Omaha,  Nebr. 
Starnes  Co.,  Birmingham,  Ala. 

Stedman's  Foundry  &  Machine  Works,  Aurora,  Ind. 
Stiles  &  Seaman   (Inc.),  Savannah,  Ga. 
Struven  &  Co.,  Charles  M.,  Baltimore,  Md. 
Sturtevant  Mill  Co.,  Boston,  Mass. 
Suter  &  Co.,  Eugene,  New  York  City. 
Taylor  Commission  Co.,  G.  F.,  New  York  City. 
Texas  Gulf  Sulphur  Co.,  New  York  City. 
Thew  Automatic  Shovel  Co.,  Lorain,  Ohio. 
Tyler  Co.,  W.  S.,  Cleveland,  Ohio. 
Union  Sulphur  Co.,  New  York  City. 
United  Fertilizer  Co.,  Milwaukee,  Wis. 
United  States  Industrial  Chenrcal  Co.,  Curtis  Bay,  Md. 
Utah-Salduro  Co.,  Salt  Lake  City,  Utah. 
Walker  &  Elliott,  Wilmington,  Del. 
Walter  Co.,  Edw.  J.,  Baltimore,  Md. 
Ware  Bros.  Co.,  Philadelphia,  Pa. 
Wedge  Mechanical  Furnace  Co.,  Philadelphia,  Pa. 
Werthan  Bag  Co.,  New  York  City. 
Wessel,  Duval  &  Co.,  New  York  City. 
White  &  Co.,  Thomas  H.,  Baltimore,  Md. 
Wiley  &  Co.,  Baltimore,  Md. 
Wisner  &  Stetson,  New  York  City. 
Wood,  Henry  H.,  New  York  City. 
Young  Commission  Co.,  Memphis,  Tenn. 


It 


MUSCLE  SHOALS  PROPOSITIONS. 


Committee  on  Military  Affairs, 

House  of  Representatives. 

Friday,  March  S,  1922. 

The  committee  met  at  10.30  o'clock  a.  m.,  Hon.  Julius  Kahn  (chairman)  pre- 
siding. 

The  Chairman.  Gentlemen  of  the  committee,  this  morning  the  committee  will 
take  up  the  offer  of  Frederick  E.  Engstrum  for  the  Muscle  Shoals  property,  and 
the  clerk  of  the  committee  will  first  read,  for  the  purpose  of  getting  it  into  the 
record,  the  letter  from  the  Secretary  of  War  transmitting  the  offer  of  Mr.  Eng- 
strum for  the  Muscle  Shoals  property. 

(The  clerk  read  as  follows:) 

[House  of  Representatives.     Document  No,  193,  Sixty-seventh  Confess,  second  session.] 

Wab  Department, 
Washington,  February  24,  1922. 
Dear  Mb.  Speaker:  I  inclose  herewith  an  offer  for  the  Muscle  Shoals  prop- 
erties submitted  by  Frederick  E.  Engstrum  which,  I  think,  should  be  consid- 
ered in  connection  with  the  investigations  now  being  made  by  Congress. 
Yours  very  truly, 

John  W.  Weeks, 
Secretary  of  War. 
The  Speaker  of  the  House  of  Representatives. 


Frederick  E.  Engstrum. 
Washington,  D.  C,  February  23,  1922. 
Hon.  John  W.  Weeks, 

Secreiary  of  War,  Washington,  D.  C. 

Sir  :  I  submit  herewith  amended  proposal  for  the  completion,  lease,  and  opera- 
tion of  the  Muscle  Shoals  project. 

The  declared  policy  of  the  United  States  as  expressed  in  the  national  defense 
act  of  June  3, 1916,  is  to  develop  water  power  at  the  best  location  for  the  genera- 
tion of  electricity  for  the  production  of  nitrates  needed  for  the  manufacture  of 
explosives  and  fertilizer,  and  also  to  construct  locks  or  lifts  at  such  location  as 
may  be  necessary  for  the  improvement  of  navigation. 

At  that  time,  in  the  midst  of  war,  tlie  primary  purpose  was  to  make  nitrates 
needed  for  explosives,  while  the  making  of  the  kind  of  nitrates  needed  for 
fertilizers  and  the  improvement  of  navigation  were  of  secondary  importance. 

To-day,  in  time  of  peace,  the  matter  of  primary  importance  is  the  making 
of  the  kind  of  nitrates  needed  for  fertilizers.  But  to  be  prepared  to  make 
nitrates  neetled  for  munitions  of  war  is  still  a  matter  of  great  importance, 
because  the  end  of  the  supply  of  Chilean  nitrates  is  already  in  sight,  and  be- 
sides the  United  States  can  not  afford  to  be  dependent  upon  any  other  country 
for  an  adequate  supply  of  nitrates  for  explosives. 

The  Chief  of  Ordnance  of  the  United  States  Army,  in  an  official  report  to 
the  Secretary  of  War  on  the  advisability  of  completing  the  Muscle  Shoals 
project  in  the  interest  of  "nitrogen  preparedness,"  under  date  of  January  22, 
1922,  says: 


(i 


NITROGEN    PREPAREDNESS. 


'*  The  main  objective  of  the  Ordnance  Department  in  the  matter  of  nitrogen 
compounds  is  to  make  the  United  States  able  to  be  self-sustaining  in  their 
supply  in  time  of  need.     It  believes  that  such  ability  can  only  be  achieved 

92900—22 57  895 


896 


MUSCLE   SHOALS  PROPOSITIONS. 


through  the  fixation  of  atmospheric  nitrogen  by  one  or  more  processes,  and  it 
further  believes  that  the  most  economical  and  enduring  metho<l  of  developing 
nitrogen  fixation  is  its  establishment  on  a  commercial  basis." 

Thus  it  is  held  that  tlie  development  of  nitrogen  fixation  from  the  air  is  now 
necessary  as  a  measure  of  nitrate  preparedness  to  keep  the  country  self-sus- 
taining in  time  of  neetl.  and  that  the  best  way  to  develop  the  nitrogen  fixation 
process  is  its  establishment  on  a  commercial  basis. 

My  proposal  is  designed  to  accomplish  this  very  purpose  and  no  other.  I 
propose  to  devote  the  whole  Muscle  Shoals  project  to  fixation  of  nitrogen  from 
the  air  by  the  best-known  process  for  making  the  best  kind  of  nitrates  needed 
for  fertilizers,  and  to  keep  in  readiness  the  best-known  process  for  making  the 
kind  of  nitrates  needed  for  explosives,  and  also  to  operate  a  research  plant  for 
the  development  of  better  processes  for  the  fixation  of  atmospheric  nitrogen. 
I  al^>«o  provide  for  the  development  <»f  navigation  at  Muscle  Shoals  as  fast 
as  the  power  dams  are  completed. 

These  objects  can  now  be  obtsiined  by  the  completion  of  Dam  Xo.  2.  The- 
expenditure  of  the  money  necessary  to  build  Dam  No.  3  can  not  at  this  time 
be  justified  on  any  grounds.  I  agree,  however,  that  when  required  to  do  so  by 
the  <Jovernnient.  to  build  Dam  No.  8  and  to  lease,  and  operate  the  same  on 
the  same  terms  as  Dam  No.  2.  als-o  t«»  build  storage  reservoirs  and  other  power 
l>lants  when  reijuired  by  the  growing  needs  for  nitrates. 

I  subm  t  that  to  accomplish  the  public  purpose  in  view  the  nitrate  plants  ami 
the  i)owei-  to  be  develoi>ed  should  be  leased  to  the  same  parties.  The  success 
of  nitrate  maunfacture  which  can  be  (^ononiically  used  for  fertilizer  is  depend- 
ent entirely  on  sale  of  power;  without  th*'  support  of  the  power  development 
and  sale  of  excess  power  to  finance  the  nitrate  plants  it  w(ndd  not  be  possible 
to  manufacture  and  .sell  such  nitrates.  The  power  end  of  the  industry  is  to 
be  solely  developed  for  the  benefit  of  the  nitrate  plants  and  fertilizer  factory. 
The  separation  of  such  plants  and  factory  from  the  power  woidd  destroy  tlie 
unity   and  purpose  of  the  industry. 

The  other  outstanding  features  of  my  proposal  may  be  sunnnarized  as  follows: 

1.  The  United  States  is  not  divested  of  title  to  any  of  its  pro]>erty,  but  retains 
ownership  and  preserves  assets  of  approximately  $141,000,000. 

2.  Returns  from  investment  on  a  basis  of  4(M).000  kilowatts  g)-oss  <levelopment 
under  my  lease  will  pay  to  the  Government  approximately  .$8..">00.000  per  year 
for  .')()  years,  or  a  total  at  compound  interest  at  4  iier  cent  of  approximately 
$r)87.0<K).000.  which  cjish  will  be  used  to  produce  cheap  nitrates  for  fertilizer 
or  will  be  turned  into  the  Treasury  at  the  option  of  the  (4ovei-nment.  This  is  a 
liberal  return  for  investment  of  the  Government  to  produce  the  indicated 
po^^'er. 

3.  I  propose  to  devote  the  entire  power  development  to  the  fixation  of  nitrogen 
from  the  air  and  to  the  manufacture  of  fertilizers,  including  the  oi>eration  of  a 
research  plant  for  the  development  of  the  improved  metluxls  for  the  reduction 
of  the  cost  of  producing  such  nitrates. 

4.  The  method  projwsed  to  finance,  by  the  sale  of  excess  power,  the  manufac- 
ture of  nitrates  is  the  only  possible  method  by  which  nitrates  can  be  produce<l 
under  present  known  methods,  an<l  sold  to  the  American  farmer  at  a  price 
le.ss  than  the  Chilean  products.  The  quantity  of  nitrates  and  fertilizers  annually 
produced  will  be  limited  only  by  the  amount  of  excess  power  sohl  and  the  price 
at  which  the  nitrates  may  be  sold. 

Kespectfully  submitted. 

»  Fkei)p:ki(K  E.  En(;stkim. 


PKOPOSKD   CONTRACT    FOR   COMPLETION    AND   LEASE   OF    iflSCLE    SHOALS    H\ 

E.   ENGSTKUM. 


1.  Parties. — Memoranda  of  contract  made  this 


day  of 


FKEDERK  K 


1922.  by 


and  between  the  Government  of  the  United  States,  party  of  the  first  part,  and 
hereinafter  referred  to  as  tlie  Government,  and  Frederick  E.  Engsti'um,  of  the 
city  of  Washington,  D.  C.  for  and  in  behalf  of  a  corporation  to  be  formed  by 
him  to  cjirry  out  the  provision  of  this  contract  and  to  be  governed  by  a  board 
of  seven  directors,  one  to  be  selected  by  the  Secretary  of  War.  one  by  the  Secre- 
tary of  Agriculture,  and  the  remaining  five  by  i^roponent,  paity  of  the  second 
part,  and  hereinafter  referred  to  as  the  lessee. 

2.  Lease. — The    lessee    hereby    leases    all    the    proi)erty — real,    personal,    or 
mixed — now  owned  or  hereaftei-  acquired  by  tlie  (Jovernment  in  connection  with 


MUSCLE   SHOALS  PROPOSITIONS. 


897 


or  forming  part  of,  or  the  possession,  use,  construction,  maintenance,  operation, 
or  extension  of  the  :Muscle  Shoals  project,  or  any  part  or  appurtenance  thereof, 
including  the  steam  plant,  located  at  Gorgas,  Ala.,  on  the  Warrior  Itiver,  to- 
gether with  transmission  lines.  Said  property  is  included  or  intended  to  be 
included  in  the  maps,  deeds,  descriptions,  invoices,  lists,  and  schedules  fur- 
nished to  the  lessee  by  the  (xovernment  and  receipted  for,  and  such  maps,  deeds, 
descriptions,  invoices,  lists,  and  schedules,  together  with  the  receipts  for  same, 
hereinafter  referred  to  as  the  schedule,  shall  be  a  part  of  this  agreement  and 
shall  bind  both  parties  as  truly  as  if  they  were  written  herein. 

3.  Term. — This  lease  is  to  continue  in  full  force  for  a  period  of  50  years  from 
date  the  lessee  acquires  possession  of  the  property.  The  lessee  shall  return 
said  property  at  the  termination  of  this  lease  to  the  (Jovernment  in  good 
operating  condition,  subject  to  damage  beyond  fault  or  control  of  the  lessee. 

4.  Plans  and  speoifications. — It  is  mutually  agreed  by  both  the  Government 
and  the  lessee  that,  for  and  in  consideration  of  the  lease,  construction,  operation, 
rights,  privileges,  payments,  and  other  considerations  liereinafter  mentione<l 
or  otherwise  provided  for  in  this  agreement,  that  the  lessee  will  construct  Dam 
No.  2,  power  station,  and  such  other  structures  now  under  construction  or 
agreed  to  be  constructed  at  Muscle  Shoals,  on  the  Tennessee  River,  in  the  State 
of  Alabama,  and  hereinafter  referred  to  as  the  "Property,"  as  are  set  forth  and 
described  more  particularly  in  the  maps,  plans,  specifications,  photographs,  and 
other  engineering  data  (hereinafter  referred  to  as  the  plans),  copies  of  which 
have  been  delivered  to  lessee  and  duly  receipted  for  by  lessee,  and  such  plans 
thus  receipted  for  are  hereby  made  an  essential  part  of  this  contract  and  are 
as  binding  on  both  parties  as  if  they  were  fully  set  forth  and  written  herein. 
When  the  Government  shall  require  the  construction  of  Dam  No.  3,  for  whicli 
there  is  no  complete  engineering  plans,  the  lessee  agrees  and  is  to  bu'ld  the  same 
on  plans  and  .si)ecifications  to  be  prepared  by  the  Government  and  on  a  locati<>n 
to  be  approved  by  the  Government,  and  the  lessee  will  lease  the  same  under  the 
terms  of  this  contract. 

5.  Locks  or  lifts. — It  is  further  agreed  that  the  lessee  will  c«»nstruct  for  the 
Government  the  locks  or  lifts  for  the  purpose  of  maintaining  navigation  over 
the  dam  or  dams  to  be  constructed  at  Muscle  Shoals. 

6.  Manufacture  of  nitrate^s. — The  lessee  agrees  to  operate  the  ntrate  plants, 
now  a  part  of  the  property  (which  have  an  estimated  capacity  of  120.000  tons 
per  annum),  together  with  other  plants  that  may  hereinafter  be  built,  to  manu- 
facture such  fertilizer  compounds  or  mixtures  and  complete  fertilizers  as 
approved  by  the  Secretary  of  Agriculture,  and  to  conunence  oi^eration  of  one 
plant  within  one  year  after  it  acquires  possession,  and  as  soon  as  sutticient 
power  is  generated  by  the  hydroelectric  plants  belonging  to  the  property,  it 
will  operate  at  full  capacity  all  the  plants  that  can  be  operated  from  the  re- 
ceipts of  the  sale  of  the  fertilizer  compounds,  together  with  the  receipts  from 
one  mill  per  kilowatt-h<»ur,  from  sale  of  all  power  generated  in  excess  of  that 
required  to  operate  the  plants. 

7.  Alterations  of  nitrate  plants. — It  is  also  agreed  that  the  le.ssee  will  make 
such  alterations,  additions,  or  changes  in  the  nitrate  plants  as  may  be  required 
to  produce  the  nitrates  or  other  fertilizer  compounds  approvetl  by  the  Secretary 
of  Agriculture,  and  to  be  completed  within  the  time  require<l  to  produce  hydro- 
electric power  at  Dam  No.  2.  After  the  plants  have  been  put  in  operation  umler 
this  lease  the  lessee  shall  nmke  such  additions  or  changes,  from  time  to  time, 
as  may  be  necessary  to  produce  the  required  fertilizer  or  fertilizer  comp(unids 
approved  by  the  Secretary  of  Agriculture,  and  such  changes,  .Mud  the  cost  of 
producing  complete  fertilizers,  are  to  be  made  as  an  oijerating  charge  from  the 
funds  on  hand  derived  from  the  sale  <»f  fertilizer  compounds,  and  the  power  not 
required  to  operate  the  plants. 

8.  Plans  of  alterations. — It  is  agreed  that  the  lessee  will  furnish  the  Secretary 
of  War  copies  of  the  plans  and  specifications  of  the  proposed  changes  to  be  made 
in  the  nitrate  plants  to  fit  them  to  produce  the  fertilizer  compounds  approve<l 
by  the  Secretary  of  Agriculture.  Such  alterations  are  to  be  so  designed  as  to 
keep  the  nitrate  plant  No.  2  in  condition  to  produce  explosive  compounds  with 
the  least  delay  and  expense. 

9.  Research. — Tlie  lessee  agrees  to  maintain  and  operate  i'  research  depart- 
ment in  cooperation  with  the  Agriculture  Department  of  the  Government,  f«^ 
the  purpose  of  developing  the  processes  for  the  fixation  of  atmospheric  nitrogen, 
the  cost  of  research  work  to  be  charged  to  operating  expenses  ot  the  nlant. 


898 


MUSCLE   SHOALS  PROPOSITIOXS. 


10.  Oonstructixyn. — Lessee  agrees  to  begin  construction  within  60  daj's  from 
the  time  it  is  given  possession  of  the  property  and  to  continue  such  construction 
in  a  diligent,  busine&-s,  and  workmanlike  manner  until  all  construction  work 
provided  for  under  this  contract  shall  be  completed,  according  to  terms  herein- 
after  set  forth,  within  three  years  from  the  time  of  possession,  reasonable  ex- 
tension of  time  to  be  granted  for  delays  over  which  the  lessee  has  no  control. 

11.  Changes. — It  is  further  agreed  that  at  any  time  during  the  construction, 
if,  in  the  opinion  of  either  party  herein,  the  structures  provided  for  in  the  plans 
have  become,  or  are  liable  to  become,  weak,  dangerous,  uncertain,  or  inefficient 
they  may  request  changes,  extensions,  or  additions  to  be  made  in  the  plans  for 
the  purpose  of  Increasing  the  strength,  stability,  duty,  endurance,  or  efficiency 
of  the  dams,  locks,  ]iower  stations,  or  other  structures  to  be  built  by  lessee 
under  provisions  of  this  contract,  such  changes,  extensions,  or  additions  shall  be 
submitted  to  the  engineer  representing  the  other  party  and  to  the  surety  com- 
pany furnishing  the  bond  of  the  lessee,  and  if  such  changes,  extensions,  or  addi- 
tions shall  be  approved  by  the  engineer  representing  the  other  party  and  the 
surety  company  they  are  to  become  a  part  of  this  contract  and  become  as  bind- 
ing on  both  parties,  and  the  bonds  of  the  lessee,  as  if  originally  wTitten  herein. 

12.  Arbitration. — It  is  also  provided  that,  in  event  a  request  of  either  party 
for  changes,  extensions,  or  additions  in  the  plans  for  any  of  the  purposes  set 
forth  in  the  foregoing  paragraph  of  this  contract  has  been  approved  by  the 
surety  on  the  bond  of  the  lessee,  and  has  not  been  approved  by  the  engineer 
representing  the  other  party,  then  the  questions  of  endurance  or  strength  or 
such  material  or  members  as  can  be  determined  by  physical  test  shall  be  sub- 
mitted to  the  United  States  Bureau  of  Standards  for  final  determination,  and 
all  questions  as  to  the  eflPect  of  the  proposed  changes,  extensions,  or  additions 
upon  the  increase  of  strength,  stability,  duty,  endurance,  or  efficiency  of  the 
dams,  locks,  power  stations,  or  other  structures  to  be  built  under  this  agree- 
ment, the  plans  for  the  changes  as  requested  shall  be  submitted  to  the  engineer- 
ing faculty,  or  such  members  thereof  who  will  undertake  the  work,  of  one  or 
both  of  the  following-named  universities  or  schools  of  technology:  Massachu- 
setts Institute  of  Technology,  Cambridge,  Mass. ;  Cornell  University,  Ithaca, 
N.  Y. ;  and  the  report  of  such  faculty  or  faculties,  if  submitted  to  more  than  one, 
together  with  the  report  of  the  Bureau  of  Standards,  shall  be  final ;  and  if  such 
report  of  the  Bureau  of  Standards  and  faculties  of  technical  schools  mentioned 
herein  show^  that  the  proposed  changes,  extensions,  or  additions  will  materially 
increase  the  strength,  stability,  duty,  endurance,  or  efficiency  of  the  structures 
affected  by  the  changes,  extensions,  or  additions,  then  such  changes,  exten- 
sions, or  additions  shall  become  a  part  of  the  working  plans  of  this  contract,  the 
same  as  if  they  were  originally  written  herein  or  had  been  approved  by  the 
engineers  of  both  parties  and  the  surety  bond. 

13.  Costs  of  tests. — It  is  also  understood  and  agreed  that  the  cost  of  testing, 
consulting,  or  other  expenses  caused  by  the  request  for  changes  in  the  plans 
as  provided  for  shall  be  a  part  of  the  construction  cost  provided  herein. 

14.  Representatives. — It  is  understood  and  agreed  that  during  the  time  of 
construction  that  both  parties  hereto  shall  designate  an  engineer  to  represent 
them  on  the  work,  and  the  acts  of  such  engineer  shall  be  binding  as  to  the  party 
designating  him  as  a  representative. 

15.  Investment. — It  is  agreed  that  the  lessee  will  not  be  required  to  invest  in 
the  manufacture  of  nitrates  or  other  fertilizer  compounds  any  money  other  than 
that  received  from  the  sale  of  the  products  of  the  nitrate  plants,  plus  1  mill  per 
kilowatt-hour  received  from  the  sale  of  power  in  excess  of  that  required  to 
operate  the  plant. 

10.  ^ale  of  prodtietft. — It  is  further  agreed  that  the  lessee  will  sell  all  ferti- 
lizer and  fertilizer  compounds  produced  by  the  plant  at  prices  and  on  conditions 
and  terms  approved  by  the  Secretary  of  Agriculture. 

17.  Additional  plants. — It  is  further  agreed  that  in  event  the  development  of 
power  for  use  and  sale  from  this  plajit,  together  with  the  receipts  from  the  sale 
of  products,  should  be  insufficient  to  produce  the  amount  of  fertilizer  compounds 
required  tjo  supply  the  demands,  the  lessee  agrees  to  construct,  under  the  terms 
of  this  agreement,  other  power  plants  or  storage  reservoirs,  upon  sites  owned 
by  the  Government  and  selected  by  the  Secretary  of  War  and  itself,  said  plants 
or  storage  reservoirs  to  be  constructed  and  operated  under  the  general  terms  of 
this  agreement  for  the  purpose  of  enabling  it  to  provide  the  fertilizer  coni- 
IX)unds  to  meet  growing  needs. 

18.  Profits  from  nitrates. — It  is  also  further  agreed  that  when  nitrates  can 
be  made  at  a  profit  or  when  the  cost  of  the  same  has  been  so  reduced  that  the 
funds  arising  from  the  sale  of  excess  power  and  fertilizer  compounds  are  not 


MUSCLE   SHOALS   PROPOSITIONS. 


899 


needed  in  whole  or  in  part  for  financing  such  productions  as  hejein  provided, 
the  sai<l  fnnds  shall  be  pnid  hv  the  It^ssee  into  the  Treasurv  of  the  United 
States. 

19.  Consideration. — In  consideration  of  the  performance  of  the  foregoing  pro- 
posals and  conditions  the  Government  shall  agree  to  pay  to  the  lessee  the  cost 
plus  5  per  cent  of  the  completion  of  Dam  No.  2,  the  initial  alterations  of  nitrate 
plants  No.  1  and  No.  2,  and  the  completion  of  the  locks  at  D.ini  No.  2.  and  when 
required  by  the  Government  to  build  Dam  No.  3  and  the  locks  at  Dam  No.  3 
and  additional  plants  and  storage  reservoirs,  on  the  same  terms,  in  monthly 
pnyments,  as  per  estimates  of  the  engineers  upon  schedules  of  work  performed. 

20.  Payments. — It  is  agreed  herein  that  the  engineer  representing  the  Gov- 
ernment will  on  the  first  of  each  month  give  the  lessee  an  estimate  of  the  work 
performed  and  a  statement  of  the  amount  earned  by  it  during  the  preceding 
month. 

21.  stores,  stock,  and  equipment. — All  stores,  supplies,  equipment,  including 
engineers'  supplies,  files  and  instruments,  and  other  loose  personal  property 
now  on  or  about  the  premises,  whether  or  not  required  for  construction  pur- 
poses, but  not  including  subsistence  stores,  shall  become  the  property  of  the 

*  lessee  upon  the  execution  of  this  contract. 

22.  Compensation. — It  is  further  agreed  that  as  a  part  of  the  compensation 
for  the  performance  of  this  contract  the  lessee  will  retain  the  proceeds  from  the 
sale  of  power  not  required  to  operate  the  plant  or  plants,  and  locks  or  lifts,  over 
and  above  the  1  mill  per  kilowatt-hour  required  for  financing  the  production  of 
fertilizer  compounds,  or  to  be  paid  into  the  United  States  Treasury  as  set  forth 
in  this  agreement. 

23.  Power  for  locks.— ^The  lessee  agrees  to  furnish  to  the  Government,  free  of 
charge,  all  power  required  to  operate  the  locks  or  lifts  which  are  to  be  operated 
by  the  Government. 

24.  Emergency  provision. — The  lessee  agrees  to  place  the  property  or  any  part 
thereof  at  the  disposal  of  the  Government  in  the  event  of  war  or  any  other 
public  emergency,  or  to  operate  the  same  for  the  Government  to  manufacture 
nitrates,  explosives,  or  munitions  of  war  or  for  other  purposes  necessary  for  the 
safety  of  the  United  States,  as  the  Government  may  require. 

25.  Bond, — The  lessee  agrees  to  protect  the  Government  for  the  full  and  faith- 
ful performances  of  the  contract  by  giving  a  good  and  sufficient  surety  bond,  to 
be  approved  by  the  Government. 

26.  Inspection. — It  is  agreed  that  the  Government  experts,  inspectors,  and 
accountants  can,  at  all  reasonable  times,  examine  the  books,  papers,  accounts, 
meters,  and  such  other  accessories  of  the  plant  necessary  to  satisfy  them  whether 
or  not  the  lessee  is  executing  this  contract  in  good  faith. 

27.  Repairs. — It  is  also  agreed  that  should  the  foundation  of  Dam  No.  2  be 
found  defective  or  show  excessive  leakage,  the  Government  will  pay  to  the 
lessee  the  expense  of  the  necessary  repairs,  including  a  reasonable  allowance 
for  overhead. 

In  witness  whereof,  the  United  States  of  America  has  caused  these  presents  to 
be  executed  by  the  Secretary  of  War,  pursuant  to  the  authority  conferred  upon 

him  by  act  of  Congress,  approved  the day  of ,  1922.  entitled  "An  act 

to  provide  for  the  lease  and  completion  of  Muscle  Shoals,  and  other  purposes," 
and  the  said  Frederick  E.  Engstrum  has  set  his  hand  on  the  day  and  year  first 
herein  above  set  forth. 

United  States  of  America, 

By ,  S^ecrctarif  of  War. 

,  Frederick  E.  Exgstrttm. 

The  Chathmax.  I  understand  that  Senator  Butler  is  here  for  Mr.  Engstrum, 
and  the  conunittee  would  be  very  glad  to  hear  any  statement  that  he  de-^ires 
to  Hiake  regarding  this  matter. 

Mr.  BiTLER.  Mr.  (Miairnian,  Mr.  Engstrum  is  })resent  and  I  would  like  for  him 
to  appear  and  make  a  brief  statement  before  I  begin. 

The  Chairman.  That  is  perfectly  agreeable.  T  thonulit.  as  attorney,  you 
would  desire  to  be  heard  first. 

STATEMENT  OF  MR.  FREDERICK  E.  ENGSTRUM,  WASHINGTON,  D.  C. 

The  Chairman.  Mr.  Engstrum,  the  committee  will  be  glad  to  hear  from  you 
what  you  desire  to  say  regarding  the  matter  of  your  office.  Will  you  kindly 
state  for  the  record  your  name  in  full,  your  present  address,  and  occupation? 


i^ 


900 


MUSCLE   SHOALS  PROPOSITIONS. 


Mr.  Engstrum.  Mr.  Ch<-iiruiaii  and  members  of  the  committee,  to  many  of 
you  I  am  a  stranjrer.    I  am  president  of  the  Newport  Shipbuilding  Corporation 
My  name  is  Frederick  E.  I^higstrum.     I  have  been  engaged  in  construction  work- 
tor  the  last  2o  years  following  my  engineering  course  at  the  University  of  Cali- 
fornia.    I  was  brought  up  in  California.     I  engaged  with  my  father  in  the  con- 
struction of  the  then  largest  beet-sugar  factory  in  the  world  at  Oxiiard.  an<l 
have  been  engaged  in  various  construction  of  railroads,  canals,  concrete  tire- 
l»root  hotels  and  theaters  and  office  buildings.     In  1908  I  invented  the  system 
of  pouring  concret*'  l)y  the  gravity  system,  which  is  commonlv  called  "  shooting 
concrete."  which  you  Imve  an  example  of  here,  fully  developed,  in  the  concrete 
bridge  on  the  Potomac,  which  is  a  model  plant  for  the  shooting  of  concrete 
3Iy  shipbuilding  comi)any  has  just  completed  some  19  concrete  ships  for  the 
War  Department,  used  in  the  Quartermaster's  Department— the  smaller  tvpe 
with  Diesel  engine  installation,  used  on  the  rivers  and  harbors    and   the'  oil' 
tankers  serving  the  fuel  supply.     I  have  a  shipyard  in  Wilmington,  X.  C.,  with 
a  residence  there,  and  my  office  and  business  address  in  Washington  is  08'> 
Southern  Building. 

In  offering  my  proposal  for  the  lease  and  completion  of  Muscle  Shoals  I  luive 
associated  with  me  Senator  Butler,  whom  I  would  like  to  present  the  offer  Mr* 
Chairman,  and  I  will  l)e  very  ghid  at  that  time  to  answer  anv  quesrions  oi- 
make  any  changes  possible  that  the  committee  sees  fit,  or  do  whatever  I  cjin 
to  meet  the  desires  of  the  Government  in  respect  to  entering  into  a  lease  of 
this  kind. 

The  CHAuarw.  You  want  Senator  Butler  to  explain  the  proposition  more  in 
detail? 

Mr.  Engstrum.  If  you  please,  Mr.  Chairman. 

The  Chairman.  We  will  be  very  glad  to  hear  from  Senator  Butler.  Senntor 
Butler  was  formerly  a  Member  of  the  United  States  Senate  and  is  well  known 
by  reputation,  at  least,  to  all  of  you. 

STATEMENT   OF  HON.   MARION  BUTLER,  ATTORNEY  FOR  MR 

FREDERICK  E.  ENGSTRUM. 

Mr.  BuTLEK.  IMr.  Chairman  and  gentlemen  of  the  committee:  This  great  water 
rM»wer  has  been  a  matter  of  more  than  ordinary  interest  to  everv  American  citi- 
zen who  has  given  any  attention  to  the  water  powers  of  this  country,  their  devel- 
opment and  their  possibilities— even  before  the  passage  of  the  national  defense 
:ict  of  .Tune  3,  1910.  Indeed,  the  possibilities  at  Muscle  Shoals  had  the  serious 
.•ittention  of  our  (Jovernment  long  before  that  time;  under  congressional  author- 
ity the  War  Department  had  made  extended  investigations  and  borings  and 
orticial  reports  to  Congress  with  a  view  to  developing  this  power,  without  any 
regard  to  the  immediate  approach  of  war,  for  the  general  public  welfare. 

The  question  of  producing  cheap  and  sufficient  nitrates,  I  think,  was  seriously 
considered  at  that  time,  before  the  shadow  of  war  was  upon  us,  because  even  theii 
we  knew  that  there  was  a  serious  scarcity  of  nitrates  in  the  world,  and  especiallv 
in  this  country.  The  chemical  world  has  been  studying  the  question  for  years 
and  progress  had  been  made,  even  at  that  time,  that  led  to  the  well-founded  hope 
that  there  were  great  possibilities  in  the  fixation  of  nitrogen  from  the  air  when 
we  could  develoi)  cheap  hydroelectric  power. 

When  war  came  Congress  at  once  decided  to  develop  this  great  water  power 
for  the  immediate  needs  for  the  production  of  nitrates  for  exph)sives,  and  that 
led  to  the  passage  of  tlie  national  defense  act.  in  which,  right  in  the  midst  of  war. 
Congress  did  not  lose  sight  of  the  resultant  peace  advantages  that*  would  come 
from  making  lutrates  for  fertilizer  when  the  war  wjis  over:  while  Muscle  Shoals 
was  not  named  in  the  act,  yet  everybody  had  it  in  mind,  and  it  was  selected  by 
the  President  as  the  best  location  and  the  best  powei-  to  develop  to  make  nitrates 
needed  for  explosives  in  time  of  war,  and  for  the  further  declared  purpose  of 
using  this  same  development  for  making  nitrates  fit  for  fertilizers  in  time  of 
peace. 

Of  CMUirse,  at  that  time  nitrates  for  explosives  was  the  overshadowing  idea; 
in  the  same  way  to-day,  the  making  of  nitrates  for  fertilizers  is  the  overshadow- 
ing inirpose  for  peace  time,  together  with  nitrogen  preparedness  for  war  for  all 
time  in  the  future. 

Now,  ^n  the  light  of  that  declared  purpose  of  the  Government,  and  in  the 
face  of  a  great  need  for  more  nitrogen  and  cheaper  fertilizers,  this  proposal  has 
been  prepared  to  meet  that  sentiment  and  that  need.  Of  course,  we  prepared  it 
from  a  purely  business  standpoint,  but  in  making  the  proposition  it  has  been 


MUSCLE   SHOALS  PROPOSITIONS. 


901 


shaped  to  meet,  as  we  understand  it,  the  declared  public  i)urpose  ami  public 
need ;  therefore,  our  proposition  is  to  devote  this  entire  development  to  the 
making  of  nitrates  ami  to  developing  the  art.  The  hearings  before  this  com- 
mittee show  the  interest  of  the  country  in  the  making  of  more  nitrogen  and 
cheaper  fertilizers  and  the  development  of  this  art  of  taking  and  using  this  most 
valuable  element  from  the  air,  which  is  unlimited  in  quantity,  for  both  national 
defense  and  the  general  public  welfare  in  peace.  It  is,  indeed,  a  great  govern- 
mental purpo.se,  and  the  present  depression  in  agriculture  has  accentuated  it,  if 
possible. 

The  need  for  fertilizer  is  keenly  felt  in  every  part  of  the  country,  probably 
more  keenly  to-day  than  ever  before,  not  only  because  we  are  learning  more  the 
need  and  value  of  fertilizer  but  also  because  the  parts  of  our  country  that  had 
stored  up  fertilizer  values  in  the  soil  that  nature  put  there  from  the  beginning 
are  beginning  to  realize  the  need  of  fertilizer.  The  South  has  always  needed 
it  more  than  the  West,  but  we  are  approaching  the  time,  indeed  it  is  here, 
when  every  part  of  this  country,  in  the  development  of  agriculture  and  its  suc- 
cess in  feeding  and  clothing  the  Nation,  will  depend  upon  an  adequate  supply 
of  fertilizer,  cheap  enough  to  enable  the  farmers  to  produce  cheaply  and  to 
enable  the  consumers  to  consume  at  prices  that  are  not  prohibitive.  So  when, 
we  face  the  proposition  of  a  cheap  fertilizer  we  are  facing  a  basic  question  that 
aftects  the  prosperity  of  agriculture  and  the  cost  of  living  to  the  great  consuming 
world. 

It  is  wise  for  us  as  individuals  and  also  as  a  Nation  occasionally  to  stop 
and  take  our  bearings,  our  prospective  as  to  other  individuals  and  as  to  the 
other  nations  of  the  world.  This  great  country  is  behind  in  the  vital  matter 
of  giving  proper  attention  1o  the  production  of  food  and  clothing.  This 
great  country  is  using  less  fertilizer  material  than  the  small  country  of 
Germany,  which  we  could  put  in  one  corner  of  this  country  and  forget  it 
was  there.  We  are  starving  our  soil.  We  did  it  from  necessity  during  the 
war,  but  we  did  it  before  the  war  and  we  are  again  doing  it  now.  Germany 
nsed  last  year  500,000  tons  of  nitrates  for  fertilizer.  This  country,  with  its 
enormous  acreage,  needing  such  fertilizers  more  than  Germany — hungry  for 
it,  calling  for  it,  impotent  without  it,  with  over  half  of  the  labor  and  toil 
of  our  wealth  producers  thrown  away  without  this  fertilizer  to  give  nature  a 
chance  to  respond  to  human  efforts — used  last  year  less  than  175,000  tons, 
and  at  least  half  of  that  we  imported  from  Chile. 

I  submit,  Mr.  Chairman,  that  these  figures,  which  are  correct,  are  staggering, 
and  we  should  not  lose  any  time  in  correcting  this  mo.«5t  serious  situation. 

Now,  what  is  the  trouble?  To  begin  with,  we  are  not  producing  sufficient 
nitrogen  in  this  country  and  therefore  we  are  not  in  a  position  to  furnish 
ourselves  in  time  of  war  or  in  time  of  peace.  Germany  produced  last  year 
over  300,000  tons  of  nitrogen  from  the  air  by  a  process  they  have  invented, 
called  the  Haber  process.  That  is  cheaper  and  more  efficient  than  the  cyanamid 
process,  which  she  is  using  to  only  a  limited  extent.  But  Germany  can  not 
produce  nitrogen  from  the  air  by  either  process  as  cheaply  as  we  can,  because 
she  has  no  great  water  powers  by  which  she  can  develop  cheap  hydroelectric 
uower.    But  we  have  got  it  to  burn  and  we  are  burning  it — we  are  not  using  it. 

Talk  about  conservation,  we  are  the  most  prodigal  sons  in  the  world  with 
watrt*  power,  because  the  only  wa.v  you  can  conserve  water  power  is  to  use 
it.  What  has  gone  over  the  (lam  an  hour  ago  never  will  go  over  it  again;  it 
:s  gone.  The  trouble  is  it  did  not  go  over  a  dam,  it  went  down  the  run  or 
over  the  rapids:  the  only  way  we  can  conserve  it  is  to  use  it  and  use  all  of  it 
ever.v  minutt\  lint  we  are  not  conserving  our  water  power  and  we  are  most 
prorligal  sons  in  that  respect.  We  have  everything  in  this  country  to  enable  us 
to  outstrip  the  rest  of  the  world  in  furnishing  ourselves  with  everything  we 
need,  but  we  are  not  using  it. 

Germany  produced  last  year  by  the  cyanamid  process  100,000  tons  of  nitrogen, 
in  addition  to  the  300,000  tons  produced  by  the  Haber  process.  They  are  using 
both  iirocesses.  but  they  find  the  Haber  process  the  most  valuable,  the  cheapest 
and  the  most  etticient.  and  they  are  bending  all  their  energies  to  developng  it 
still  further,  and  to  perfect  it.  That  country  does  not  waste  anything,  and 
so.  in  addition  to  using  these  two  scientific  methods  for  taking  the  nitrogen 
from  the  air,  they  have  saved  every  ounce  of  ammonia  or  nitrogen  from  the 
coke  ovens.  The.v  saved  in  that  way  100,000  tons  last  year,  and  that  is  the 
way  they  got  the  500.000  tons — 300,000  tons  from  the  air  by  the  Haber  process. 
100.000  tons  from  the  air  by  the  cyanamid  process,  and  100,000  tons  from  the 
coke  ovens. 


I 


I 


902 


MUSCLE   SHOALS  PROPOSITIONS. 


,um  ';./^nn^t>f^«•  k"--^  ^'■'^  "^^^  Pi-ocmcmg  commercially  one  pound  of 
I^i  >  "Tk  T  ^^^  ^'''  by  either  process.  We  are  dependent  on  what  we  save 
trom   the  coke  ovens      Every  fertilizer  factory   in   this  country   has  To  l^ok 

0  rhnpT'f  ''''  the  by-product  they  can  get  there,  and  then  they  Save  to  go 
IL  1.  I  I?  ^"""'^  ''^^^''  ^«"nti'.V  which  is  manufacturing  it,  in  order  to  get 
the  rest  of  the  nitrates  that  they  use  for  fertilizer.  The  result  is  that  it  i J 
IVZ'  '^^  '.tf"i''"'  companies  do  not  use  as  much  nitrogen  in  fertilTzer  as  hey 
should,  and  the  farmers  do  not  buy  half  the  fertilizer  that  they  know  they  need 

>mv,    that   brings   us,   Mr.    Chairman,   concretely    to   why    Mr     Engstrum's 
^;Tl%Kr'''^^V''''  "'^t   ^^^mn^  Nitrate  Plant  No.  1   at  Muscle   ShoSs 
>Mi.ch  IS  the  Haber  process.     I  believe  no  other  offer  vou  have  before  vou 
proposes  to  utilize  Nitrate  Phmt  Xo.  1.  "eiore  >ou 

The  Chairman.  Not  for  manufacturing  nitrates. 

Mr.  Butler.  But  to  scrap  it  as  a  nitrate  plant  and  to  use  it  for  general  niann 
f:K-turmg  purposes,  for  making  automobile  parts  or  dolls  or  something  else" 

imra'tes.  ""^  ^^  '    ^^^  ^'^^'''^  ^^  "'^  ^""^^  "^^"«^^  plants  for  Snaking 

Now,  Mr.  Chairman  and  gentlemen  of  the  committee,  if  vou  will  pardon  me 
for  a  moment.  I  want  to  say  that  I  am  Interested  in  this  'question  more  than 
as  counsel  I  was  born  and  raised  on  a  farm  and  have  been  largelvTnteresteS 
m  agriculture  as  a  business  all  my  life;  I  own  and  am  operating  one  of  the 
largest  farms  in  my  State,  and  therefore  I  know  the  situation  intXtelv  as 
a  practical  farmer.  I  am  a  little  more  than  an  agriculturist:  I  am  a  rell 
farmer  I  spend  much  time  on  that  plantation  in  person.  During  the  war  T 
devoted  my  whole  time  to  it:  when  my  boys  went  to  the  front  to  shoot  bTillets 

LT  w-H '"  ^^  *^  ^r"  ^''  ".^^^^^  ^*^"*^«'  «»^  I  ^^^y^^  Personallv  Xring  the 
1T>;  /  * '  "^y  plantation  stripped  of  its  best  labor  I  tried  to  supplv  its  place 
^^^S^J^^'J''  machinery,  but  the  most  serious  problem  was  fertilizers 

This  fertilizer  proposition  I  have  faced  and  studied  from  everv  angle  and 
1  IS  the  worst  handicap  I  have  had  to  face  as  a  wealth  producei  ;  that  ?s 
to  find  a  way  to  buy  enough  fertilizer  to  make  my  machinerv  and  mv  abot^ 
and  my  land  and  my  own  efforts  produce  the  results  that  should  have  b^n 
produced  I  have  found  it  impossible  for  me  to  produce  what  that  effort  a^S 
Sness    ^^^""'^  ^'"''^  produced  and  would  have  produced  in  any  other 

1  have  niixed  my  own  fertilizers:  T  was  forced  to  do  it:  and  everv  farme- 
should  do  It  until  he  can  buy  them  compounded  cheaper,  because  we  nav  too 
much  for  the  mixing.  So  I  have  dealt  W.th  the  fertilizer  ingredients  and  have 
searched  the  world  to  try  to  get  them  cheap  and  then  mix  theL  mvS^ 
I  mix  different  combinations  to  suit  each  field  and  each  crop,  not  onlv  from 
an  analysis  of  the  soil  but  also  from  experience,  which  has  proved  to  be  a 
better  gu.de  than  soil  analysis.  Therefore,  gentlemen  of  the  committee  this 
question,  that  you  are  considering,  would  apix'al  to  me  lust  as  stronclv  if 
I  were  not  counsel  in  this  case,  but  simply  as  a  citizen :  and  I  trust  vou  will 
pardon  me  for  thus  qualifying  myself  from  experience  to  testifv  in  this  matter 
as  an  expert.  *  "muci 

I  have  watched  and  followed  the  proposed  development  of  Muscle  Shoals 
from  the  very  beginning;  I  have  read  and  kept  up  with  everv  report  and 
everything  you  have  done,  never  with  any  idea  at  that  time  of  appearing  here 

.InnHnn 'ni  '^''^y*'  ^"^^  ^^  ^^  American  citizen  deeply  interested  in  the  pro- 
duction of  a  sufficient  supply  of  nitrogen  to  meet  the  serious  question  of 
nitrogen  preparedness  for  both  war  and  peace.  I  am  as  much  delighted 
to-day  as  any  American  citizen  can  be,  at  this  interest  vour  committee  is 
now  showmg  in  this  matter.  No  one  was  more  disappointed  than  m7self 
when  Congress  failed  to  make  the  appropriation  after  the  war  to  continue  the 
development  of  this  project.  It  now  looks  as  if  we  were  going  to  do  it  and  it 
is  a  glad  message  of  cheer  to  all  of  the  American  people,  not  only  to  the 
farmers  but  to  all  of  the  consumers,  for  it  means  much  to  them 

Now,  Nitrate  Plant  No.  1  is  the  only  plant  in  this  countrv.  outside  of  the 
one  small  plant  that  has  been  built  at  Syracuse  since  the  war    that  is  built 

ri"if«i^n^  ?^^''  P^^^^^^J  ^^i\  t«  «^«'  it  i«  a  shocking  proposition  to  abandon 
the  use  and  development  of  that  process  at  Muscle  Shoals,  and  to  go  back 

\'''^^^'  ^"""iJ?"  the  cyanamid  plant  there,  which  is  more  expensive  and 
which  has  not  the  same  future  posibilites  of  development.  It  is  not  possible 
to  meet  our  needs  for  nitrogen  by  the  cyanamid  process  alone,  and  when  I 
say  that  I  think  I  am  speaking  from  the  composite  wisdom  of  the  scientists 
and  the  experts  who  have  studied  the  question  of  the  fixation  of  nitrogen 


MUSCLE  SHOALS  PROPOSITIONS. 


903 


from  the  air,  because  that  process  is  more  expensive  and  has  not  the  possi- 
bilities in  it  for  development  that  the  Haber  process  has.  They  all  expect 
the  progress  to  be  made  in  improving  the  methods  for  the  fixation  of  at- 
mospheric nitrogen  to  be  along  the  lines  of  the  Haber  process;  and,  if  that 
is  true,  then  we  should  not  scrap  Nitrate  Plant  No.  1,  which  is  the  Haber 
process. 

It  is  true  that  during  war  times  and  without  full  knowledge  of  what  the 
Haber  process  was  we  did  not  make  a  success  of  Nitrate  Plant  No.  1.  I  do 
not  criticize  anybody.  I  think  it  was  done  the  best  that  could  have  been  done 
at  the  time — with  the  information  we  had — but  we  know  to-day  that  we 
can  redesign  that  plant  and  run  it  perfectly  by  the  Haber  process.  The  one 
serious  defect  in  that  plant  is  the  need  of  an  efficient  catalyst,  which  is  es- 
sential in  forcing  the  nitrogen  and  the  hydrogen  to  join  to  make  ammonia. 
The  Germans  keep  the  composition  of  their  catalyst  a  secret,  but  we  have 
succeeded  since  the  war  in  making  a  catalyst  which  is  better  than  the 
one  used  by  the  Germans.  Therefore,  we  can  to-day  make  Nitrate  Plant  No.  1 
a  better  plant  than  anyone  in  Germany — as  far  as  we  know;  and  we  can  <lo 
it  at  a  cost  that  will  be  so  good  an  investment  that  we  can  not  afford  to 
fail  to  do  it.  The  highest  estimate,  I  think,  which  General  Williams.  Chief 
of  the  Ordnance  Department,  gave  was  $4,000,000  to  make  Nitrate  Plant  No.  1 
a  successful  plant  by  the  Haber  process.  An  investment  of  $4,000,000,  there- 
fore, will  make  that  plant  a  successful  going  concern.  We  should  not  scrap 
what  is  there,  but  we  should  use  it — when  we  scrap  things  we  are  throwing 
them  away. 

Under  the  Engstrum  proposal  you  will  conserve  the  value  of  that  plant 
by  redesigning  it  so  as  to  do  economically  what  we  know  can  be  done  with 
it.  This  plant  has  already  cost  $13,000,000,  and  there  is  no  other  way  that 
Congress  can  spend  $4,000,000  to  develop  this  art  that  will  be  worth  as  much 
to  the  country,  both  in  times  of  peace  and  in  times  of  war,  as  by  redesigning 
that  plant  and  making  it  a  going  concern. 

I  appeal  to  you  as  a  citizen,  rather  as  an  attorney,  not  to  scrap  that  plant, 
but  to  redesign  it  and  put  it  to  work  making  nitrogen.  The  War  Department 
and  the  Agricultural  Department  know  how  to  do  it.  General  Williams  and 
Major  Burns,  who  is  the  nitrate  expert  of  the  War  Department,  told  you  on  the 
stand  that  they  had  already  worked  out  plans  and  they  knew  exactly  how  to 
do  it.  Doctor  Tolman,  the  nitrate  exi>ert  of  the  Agricultural  Department,  told 
you  that  we  know  now  how  to  make  nitrate  plant  No.  1  the  best  and  most  etfi- 
cient  Haber  process  plant  in  the  world.  Therefore,  by  spending  $4,000,000  more 
on  that  plant  we  have  a  plant,  which  will  be  taking  more  nitrogen  from  the 
air  at  less  cost  than  any  other  plant  in  existence. 

Now,  if  this  water  power  is  going  to  be  used  for  the  great  purposes  declared 
in  the  national  defense  act,  then  we  should  not  scrap  anything  we  have  there, 
but  we  should  run  both  nitrate  plants  and,  as  we  develop  the  power  further, 
we  should  build  more  nitrate  plants.  That  is  exactly  the  vision  that  we  had, 
Mr.  Chairman,  when  we  prepared  this  proposal. 

Mr.  Engstrum's  proposal  does  not  require  the  building  of  Dam  No.  3  at  this 
time,  but  it  does  provide  for  doing  it  later.  We  all  know  that  a  succes.sion  of 
dams  and  reservoirs  can  and  will  be  built  up  that  river.  There  is  no  public 
need  for  Dam  No.  3  at  the  present  time,  but  under  our  proposal  we  stand  in 
readiness  any  minute  that  the  Government  decides,  as  a  matter  of  ix)licy  to 
proceed  with  it.  to  build  it  under  our  contract.  The  Government  should  use 
the  same  ordinary  common  sense  that  you  and  I  use  in  our  own  business  or 
that  we  would  use  in  this  matter  if  this  was  our  water  power  and  we  were 
spending  our  money.  We  would  take  what  we  have  there  now  and  use  it  to 
the  best  advantage  to  develop  this  art  to  make  cheap  nitrates ;  we  would  rede- 
sign the  two  plants  there  to  meet  present  needs,  and  we  would  not  spend,  prob- 
ubly,  any  more  money  in  building  any  more  dams  after  finishing  Dam  No.  2 
until  there  was  need  for  more  power  and  until  we  had  developed  the  art  a  lit- 
tle further  and  learned  to  make  nitrogen  cheaper.  Everybody  expects  some 
morning  to  wake  up  and  find  that,  if  we  have  not  learned  it  ourselves,  some- 
hody  else  has  discovered  some  cheaper  method  or  some  better  process.  The 
whole  world  is  seeking  for  it,  and  we  are  sure  soon  to  find  a  cheaper  method ; 
it  wi)l  come. 

Then  we  should  not  scrap,  but  we  should  conserve  what  we  have  and  use  it, 
and  also  run  a  research  plant  there  in  connection  with  these  two  nitrate  plants, 
until  either  we  or  somebody  else  discovers  how  we  can  make  the  nitrates  for 
fertilizers  cheaper;  then  we  should  build  Dam  No.  3  at  once  and  at  the  same 


i 


904 


MUSCLE   SHOALS  PROPOSITIONS. 


J  VI 


time  put.  Ill  additional  nitrate  plants  and  do  it  at  once,  and  as  fast  as  neoessarv 
utilize  all  of  that  tremendous  water  power  in  making  cheap  nitrates  for  cheap 
fertilizers.    When  that  time  comes,  we  will  build  the  extra  dams— Dam  No.  3 

■  '  mu.^'  ^"^  ^'^*  ^'  ^^*^  storage  dams— way  up  to  the  headwaters  of  that 
river.  This  is  what  our  proposal  contemplates,  and  further  to  use  all  this  de- 
velopment in  producing  cheaper  nitrates. 

In  this  connection,  I  wish  to  point  to  the  fact  that  the  Haber  process  as  now 
operated  in  a  small  wa.v  at  Syracuse,  and  as  designed  during  the  war  to  be  used 
at  Muscle  Shoals,  did  not  contemplate  producing  a  nitrate  suitable  for  fer- 
tilizer but  a  nitrate  for  explosives,  and,  therefore,  if  we  had  finished  plant 
No.  1  and  had  operated  it  successfully,  it  would  now  be  necessary  to  make 
certain  changes  or  additions  in  order  to  make  the  nitrates  needed  for  ferti- 
lizers. It  is  perfectly  simple  and  easy  to  make  the  necessary  changes  to  pro- 
duce a  nitrate  fit  for  fertilizers.  We  know  now  how  to  make  a  soluble  nitrate 
that  is  fit  for  fertilizers  at  both  of  the.se  plants  by  redesigning  them,  and  that 
can  be  done  within  the  cost  I  have  given  you. 

Indeed.  Mr.  Chairman,  we  have  learned' a  number  of  things  we  <lid  not  know 
when  we  built  those  two  plants.  For  instance,  we  ^et  our  hydrogen  in  nitrate 
plant  No.  1  by  passing  water  over  heated  coke:  the  oxygen  is  absorbed  out  of 
the  water  and  that  leave*;  the  hydrogen.  That  is  a  well-known  process  now 
u.sed  in  Germany  and  also  used  at  Syracuse  and  that  part  of  it  was  successful 
down  there  during  the  war:  and,  in  redesigning  the  plant,  we  probably  would 
leave  that  part  of  the  pro(  ess  in  for  the  present :  but  it  is  not  as  successful  as 
another  process  that  we  have  improved  since  the  war  for  getting  the  hydrogen 
out  of  the  water.  Rut  this  improved  process  I  am  speaking  of  is  one  you  can 
not  use  economically  unless  you  have  cheap  hydroelectric  power,  and  therefore 
in  redesigning  that  plant  we  would  keep  the  coke  an«l  water  method  for  the 
present,  because  wc  would  use  the  steam  plant  until  Dam  No.  2  is  completed. 
I  do  not  know  whether  it  has  been  brought  out  before  the  committee  or  not, 
but  there  is  a  complete  steam  plant  not  only  at  plant  No.  2  but  at  plant  No.  1. 
stan<ling  there  ready  to  operate  now.  As  soon  as  plant  No.  1  can  be  redesigned 
with  the  new  catalyst,  we  can  start  it  up  with  that  steam  plant  and  begin  to 
produce  agricultural  fertilizers  before  we  can  get  the  dam  completed  for  making 
hydroelectric  power:  but  the  minute  we  have  got  the  hydroelectric  power,  it 
wouhl  be  economical  and  desirable  to  still  modify  plant  No.  1  by  putting  in  an 
electric  process  by  which  you  can  separate  the  hydrogen  from  the  water  without 
passing  it  over  heated  coke.  Our  Government  has  built  the  longest  and  most 
efficient  electrolytic  cell  known  since  the  war  for  this  very  purpose. 

But  it  requires  a  good  deal  of  electric  power,  and  when  we  have  cheap  power 
it  is  done  better  by  electricity  than  it  can  be  done  by  the  other  process.  When 
the  electrolytic  cell  is  put  in.  then  we  can  use  the  liquid  air  method  for  taking 
the  nitrogen  from  the  air.  which  is  cheaper  than  the  method  used  by  Germany 
and  also  being  used  at  Syracuse.  N.  Y.  I  am  simply  mentioning  that  to  show 
the  progress  the  art  is  making.  Even  to-day  in  redesigning  that  plant  to  run 
by  steam  power  we  would  not  change  it  as  much  as  we  will  when  we  finish 
the  dam,  in  order  to  get  the  best  results:  but  when  the  dams  are  finished,  we 
can  have  a  perfect  plant  operated  according  to  the  latest  methods  of  getting  the 
hydrogen  out  of  the  water  and  the  nitrogen  out  of  the  air,  which  methods  we 
can  not  use  with  a  steam  plant.  So  all  of  these  things  can  be  done  by  the  time 
Dam  No.  2  is  finished. 

Now,  when  we  come  to  plant  No.  2,  it  is  a  sinii)le  matter  to  redesign  that 
plant.  The  pnx-ess  for  making  a  nitrate  for  explosives  and  a  nitrate  for 
fertilizer  is  exactly  the  same  under  the  cyanamid  process  down  to  the  last  step 
you  take. 

When  you  get  to  that  step,  if  you  want  to  make  a  nitrate  for  explosives,  you 
treat  it  with  nitric  acid,  and  if  you  want  to  make  that  nitrate  for  fertilizers, 
you  treat  it  with  sulphuric  acid,  which  is  cheaper  than  the  other  method,  so 
that  you  can  produce  the  sulphate  of  ammonia  cheaper. 

That  is  the  only  difference,  therefore  we  would  have  at  nitrate  plant  No.  2. 
by  simply  adding  the  sulphuric  acid  equipment,  a  plant  re,ady  to  make  both 
kinds  of  nitrates  at  all  times,  and  at  the  highest  estimate,  as  given  here.  I 
think,  by  both  General  Williams  and  Major  Burns,  of  $3,000,000. 

So  with  these  two  plants  redesigned  we  would  be  in  the  iwsition  where  we 
would  be  producing  this  nitrate  for  fertilizer,  ready  at  any  minute  to  make  a 
nitrate  for  explosives,  by  two  thethods.  Then  by  operating  a  research  plant 
for  the  development  of  the  Haber  process  we  are  in  the  best  possible  position, 
Mr.  Chairman  and  gentlemen,  to  have  a  chance  to  go  over  the  top  before  any 


MI'SC'LE   SHOALS   PROPOSITIONS. 


905 


•other  country,  in  discovering  a  still  better  and  a  cheajier  method,  l)ecau^'e  the 
Tiest  way  to  learn  to  walk  is  by  walking,  and  the  best  way  to  develop  this  art 
IS  by  doing  it  and  working  upon  it. 

We  have  learned  someth'ng  in  every  war  we  have  been  in,  and  then  we  go 
Tiack  and  rust  and  do  not  learn  anything  more  until  an  emergency  forces  us 
to  do  something.  It  is  time  we  were  learning  to  be  progressing  all  the  time 
and  not  when  dire  necessity  or  a  gun  is  in  our  faces.  This  young  Jonathan 
has  been  so  intoxicated  with  the  wealth  of  his  continent,  wh-'ch  nature  stored 
ui>  here  for  us  during  all  these  years  since  creation,  that  we  have  spent  it  and 
wasted.it — been  like  a  drunken  sailor:  nationally,  we  have  not  thought  except 
when  we  were  pinched:  we  are  getting  old  enough  to  quit  that  and  begin  to 
think,  conserve,  and  develop  every  hour  in  peace  as  in  war,  as  all  high-class 
nations  must  do  if  they  are  going  to  keep  up  in  the  world  procession.  If  we 
liad  not  been  of  that  go-lucky  temperament  we  would  not  have  been  caught  in 
the  last  war  where  we  couhl  not  get  enough  nitrates  even  for  explosives;  we 
found  our  supply  from  Chile  in  danger  any  minute  of  being  cut  off:  we  did 
not  have  enough  for  explosives,  and  none  for  agriculture.  I  was  forced  to 
make  two  crops  without  nitrogen  and  exhausted  my  soil  so  that  I  now  nee<l 
more  than  I  have  ever  needed  before.  Now,  that  was  the,  bullet  and  the  bis- 
cuit fix  we  were  caught  in,  and  that  is  the  reason  Ave  ought  to  develop  this 
art. 

In  drawing  up  this  proposal.  Mr.  Chairman,  we  knew  that  no  one  could  to- 
day produce  these  nitrates  for  fertilizers  and  make  a  profit  by  any  known 
process  to-day.  but  we  all  expect  it  can  be  done  very  soon.  The  art  is  just  in 
its  infancy.  We  know  how  to  make  these  nitrates  and  we  are  going  to  learn 
how  to  make  them  at  a  profit,  but  we  do  not  know  that  yet.  Now.  how  are  you 
going  to  begin  making  on  a  commercial  basis  nitrates  for  fertilizers  if  you 
can  not  make  them  cheaper  to-day  than  you  can  get  Chilean  n'trates  or  buy 
them  elsewhere?  Are  we  to  sit  down  and  wait  and  do  nothing  and  let  the 
lest  of  tl^e  world  discover  that  for  us  and  then  probably  have  to  buy  the  secret 
from  them  or  find  it  out  by  accident? 

It  was  to  meet  this  situation  that  we  have  tried  to  work  out  a  plan  by  which 
we  could  begin  at  once  producing  these  nitrates  at  both  plants  by  both  meth- 
ods, and  continue  to  produce  without  asking  the  Government  for  a  subsidy. 
The  only  way  the  Government  could  do  it  would  be  by  a  subsidy,  .iust  like  we 
will  have  to  vote  a  subsidy  for  our  merchant  marine.  Congress  ought  to  subsi- 
dize the  making  of  these  nitrates  if  we  can  not  make  them  in  any  other  way; 
cheap  fertilizer  is  even  more  important  than  a  merchant  marine.  Now.  in- 
stead of  Congress  being  called  upon  constantly  to  subsidize  the  making  of  these 
nitrates  until  we  learn  how  to  make  them  cheaper,  we  have  worked  out  a  plan 
embodied  in  this  proposal  by  which  we  will  make  the  water  power  finance  the 
making  of  these  nitrates  from  the  beginning  no  matter  what  the  cost  may  be. 
You  heard  the  statements  about  the  cost  of  makinir  nitrogen  from  the  air  in  the 
form  of  ammonium  sulphate,  which  was  placed  all  the  way  from  $48  to  $90  a 
ton.  Now,  regardless  of  what  that  cost  may  be.  we  ought  to  begin  making 
them  by  both  processes  at  once ;  therefore  we  propose  that  we  use  a  part  of 
this  power  for  running  these  plants  and  then  we  sell  a  part  of  it  at  wholesale, 
and  use  part  of  the  profits  to  subsidize  the  making  of  nitrates,  even  at  a  loss. 
In  this  way  the  plant  will  finance  itself. 

There  is  a  market  to-day  for  a  certain  amount  of  power.  I  think  the  state- 
ments have  been  made  to  you  that  there  is  probably  a  market  to-day  for  more 
than  100,000  horsepower  without  having  to  look  for  it  or  to  create  Industries  to 
use  it,  and  that  is  probably  about  correct.  The  demand  for  this  power  will 
grow.  We  have  learned  that  wherever  we  have  started  any  hydroelectric  de- 
velopment. 

But  there  Is»  a  market  to-day  for  tfiis  power;  we  can  wholesale  it  to  other 
companies  that  are  In  the  power  business — that  is,  wholesale  enough  of  it  so 
that  we  can  take  a  certain  part  of  the  profits  from  its  sale  and  finance  the 
making  of  these  nitrates;  and,  as  we  say  in  the  proposal,  the  limitation  to 
the  amount  of  nitrates  that  we  will  make  will  depend  upon  how  much  money 
we  can  raise  from  the  sale  of  power  and  the  price  at  which  we  sell  the  nitrates 
to  the  farmers,  as  fixed  by  the  Secretary  of  Agriculture.  We  feel  that  the 
nitrates  produced  ht  Muscle  Shoals  should  he  sold  to  the  farmers  at  a  price  to 
be  approved  by  the  Secretary  of  Agriculture. 

The  very  purpose  of  developing  this  water  power  and  the  governmental  pur- 
pose as  declared  in  the  national  defense  act  would  .iustify  the  Government  in 


906 


MUSCLE   SHOALS  PROPOSITIONS. 


KM 


regulating  the  price  at  wliich  it  should  be  sold.  Besides,  it  is  Government 
money  that  goes  into  the  building  of  these  dams  and  the  purpose  is  to  help 
the  public  and  promote  the  success  of  agriculture;  you  do  not  want  the  prod- 
ucts produced  by  this  water  power  held  at  a  price  that  is  entirely  for  private 
profit. 

If  the  Muscle  Shoals  project  is  to  be  used  to  benefit  agriculture,  then  the 
nitrates  produced  there  must  be  sold  at  a  price  below  the  present  selling  price 
of  Chilean  nitrates.  Now,  since  we  can  not,  until  the  processes  for  the  fixation 
of  atmospheric  nitrogen  are  improved,  make  nitrates  at  a  cost  less  than  the 
present  selling  price  of  Chilean  nitrates,  it  is  necessary  to  subsidize  the  mak- 
ing of  nitrates  by  the  sale  of  a  part  of  the  power  developed,  as  I  have  already 
explained.  But  possibly  I  can  make  that  plainer  by  stating  it  in  another  way : 
We  propose  to  use  as  much  of  the  power  developed  at  Dam  No.  2  as  may  be 
necessary  to  run  both  nitrate  plants ;  then  we  propose  to  sell  the  remainder  of 
the  power  to  other  power  companies  or  to  the  public,  but  at  wholesale;  we 
propose  to  set  aside  1  mill  for  each  kilowatt-hour  of  power  sold,  to  be  paid  into 
the  Treasury  of  the  United  States  as  rental  for  the  lease  of  the  property. 
Now,  if  the  Secretary  of  Agriculture  should  think  that  the  nitrates  made  at 
Muscle  Shoals  should  be  sold  to  the  farmers  at  $10  a  ton  less  than  it  may  cost 
to  produce  them,  in  order  to  furnish  nitrates  at  a  price  below  the  selling  price 
of  Chilean  nitrates,  then  this  loss  of  $10  a  ton  is  to  be  taken  out  of  the  sum 
arising  from  the  1  mill  per  kilowatt-hour  of  the  power  sold  before  that  sum 
is  paid  into  the  Treasury  of  the  United  States.  It  is  only  by  this  kind  of  a 
subsidy  that  nitrates  can  now  be  made  from  the  air  and  sold  at  a  price  less 
than  Chilean  nitrates. 

But  everybody  expects  that  improvements  will  soon  be  made  in  the  Haber 
process  by  which  we  can  make  nitrates  cheaper  than  the  present  selling  price  of 
Chilean  nitrates.  When  that  time  comes,  we  then  agree  to  pay  all  of  the  1  mill 
per  kilowatt  hour  of  the  power  sold  into  the  United  States  Treasury.  Our 
profits  will  come  entirely  from  what  we  may  be  able  to  sell  this  power  for 
above  the  1  mill  per  kilowatt-hour,  all  of  which  goes  to  the  Government.  We 
do  not  propose  to  ever  make  any  profit  from  the  manufacture  and  sale  of 
nitrates  and  fertilizers.  Under  an  estimateil  development  of  440,000  kilowatts 
the  1  mill  per  kilowatt-hour  will  produce  $3,500,000  a  year,  and  everv  dollar 
of  that  will  under  our  lease  go  either  into  the  United  States  Treasury  or  be 
used  in  financing  the  making  and  selling  of  cheap  nitrates  and  fertilizers,  at 
the  option  of  the  Government.  This  is  certainly  a  handsome  income  to  the 
Goverment  on  the  investment,  and  the  benefits  to  agriculture  and  to  the  con- 
sumers will  be  nianyfold  greater. 

When  Dam  No.  3  is  built  and  another  nitrate  plant  is  in  operation  there, 
then  the  income  to  the  Government  and  the  benefit  to  the  farmers  and  to  the 
public  will  be  proportionately  increased,  and  so  on  with  all  the  other  develop- 
ments on  that  river  during  the  50  years  of  this  lease.  This  is  what  our  pro- 
posal means. 

We  also  want  the  Secretary  of  Agriculture  to  regulate  the  amount  of  nitrates 
to  be  offered  for  sale  and  also  the  amount  of  commercial  fertilizers.  The  three 
elements  necessary  in  fertilizers  are  the  nitrogen,  the  potash,  and  the  phosphoric 
acid.  Now,  we  can  sell  the  nitrogen  alone  direct  to  the  farmers,  or  we  can 
also  sell  them  all  of  the  ingredients  separate,  or  we  can  put  them  together  in 
the  proper  proportions  and  sell  them  as  a  complete  commercial  fertilizer;  but 
it  is  best  that  that  work  shall  be  done  under  regulations  made  by  the  Secretary 
of  Agriculture.  Why?  I  hope  to  see  the  time  come — and  even  now  many  of 
the  farmers  are  doing  it— when  the  farmers  will  buy  all  their  ingredients  un- 
mixed and  mix  them  themselves,  and  they  will  all  come  to  it  soon.  Therefore 
a  complete  fertilizer  is  not  the  ideal  thing.  But  there  should  be  some  of  the 
complete  fertilizers  prepared  and  ready  'to  sell  and  to  be  used  by  farmers  wha 
have  not  yet  learned  to  mix  their  own  fertilizers. 

Then,  too,  there  are  people  who  would  be  glad  to  buy  cheap  nitrates  from  us 
and  then  compound  a  complete  commercial  fertilizer,  cheap  enough  to  sell  it  to 
the  farmers  as  cheap  as  we  could  compound  it.  If  that  can  be  done  by  private 
enterprise,  then  there  is  no  need  for  us  to  do  it.  for  we  could  then  devote  all 
of  our  energies  to  making  cheap  nitrates.  So  it  seems  to  me  that  we  should  be 
permitted,  under  regulations  formulated  by  the  Secretary  of  Agriculture,  to 
either  .sell  these  nitrates  to  fertilizer  factories  or  direct  to  the  farmers.     Ib 


MUSCLE   ^HOALS  PROPOSITIONS. 


907 


other  words,  in  that  part  of  our  proposal  we  have  provided  for  doing  what 
seemed  to  us  to  be  the  best  thing.  This,  however,  is  a  detail,  but  I  wanted  you 
to  get  the  idea  of  how  we  had  this  thing  worked  out  on  that  basis. 

Now,  Mr.  Chairman,  I  feel  like  apologizing  for  taking  this  much  of  your 
time  and  for  saying  as  much  as  I  have  said  to  a  committee  which  has  heard 
so  much  about  this  question  from  every  angle,  but  our  proposition  is  entirely 
different  in  scope  and  purpose  from  the  others  before  you. 

I  have  set  it  forth  in  this  proposal  as  plainly  and  as  simply  as  we  could 
write  it,  without  having  our  attention  called  to  anything  that  might  seem  to 
be  obscure.  So  I  would  rather  explain,  in  answer  to  any  questions,  what  may 
appear  to  be  obscure. 

While  I  think  I  have  explained  all  of  the  vital  points  contained  in  this  pro- 
posal, yet  I  will  ask  your  attention  to  paragraphs  11  and  12. 

You  may  be  curious  to  know  why  we  put  them  in  and  why  they  are  so 
worded.  It  is  done  out  of  an  abundance  of  caution  from  the  standpoint  of 
prudent  business  men  and  experienced  engineers.  We  do  not  want  to  be 
connected  with  anything  that  would  be  a  failure.  Governments  often  waste 
money  because  there  is  not  any  chance  to  stop  and  think  while  the  work  Is 
being  done  and  the  money  is  going  out. 

We  are  asking  for  a  lease  for  50  years.  We  expect  to  operate  this  property 
successfully  for  50  years,  and  we  do  not  want  any  construction  on  this  project 
that  is  not  going  to  last  50  years  and  more.  We  do  not  want  to  be  a  party 
to  the  money  being  spent  and  not  get  the  best  results ;  besides,  faulty  construc- 
tion will  seriously  affect  the  value  of  our  lease,  if  not  destroy  it.  This  is 
true  not  only  as  to  the  building  of  the  d>ims  and  the  rest»rVoirs  but  also  as 
to  the  remodeling  of  the  nitrate  plants  and  the  construction  of  new  nitrate 
plants.  We  want  the  closest  inspection  both  by  the  Government  engineers 
and  by  our  engineers  or  inspectors,  so  that  if  there  should  be  a  difference  of 
opinion  we  could  stop,  before  another  dollar  is  spent,  and  have  the  highest 
authorities  pass  upon  the  work.  We  consider  that  as  important  to  us  as  if 
we  were  spending  our  own  money.  This  matter  of  the  best  possible  construc- 
tion is  so  important  that  we  have  already  arranged  for  the  services  of  one 
of  the  greatest  engineers  in  this  country  to  take  charge  of  supervising  and 
directing  this  construction  if  we  shall  be  awarded  this  lease. 

In  drafting  section  17  we  looked  ahead  to  the  time  when  more  dams  and 
more  power  will  be  needed  to  make  more  nitrates  and  more  fertilizers. 

In  drafting  section  18  we  again  looked  ahead.  Our  idea  is  in  the  beginning 
to  finance  the  making  of  the  nitrates  and  to  use  every  dollar  of  the  1  mill  per 
kilowatt-hour  from  the  sale  of  power,  if  necessary,  in  making  nitrates  even  at 
a  loss.  It  will  not  be  long,  however,  before  we  will  be  making  those  nitrates 
at  cost  or  a  profit.  When  that  time  comes  every  dollar  which  has  gone  into 
financing  the  making  of  nitrates  will  go  into  the  Treasury.  So  we  are  offering 
to  the  Government  a  handsome  return  for  the  investment,  which  goes  either 
into  the  financing  of  the  production  of  nitrates,  or,  when  it  is  not  needed  for 
that,  which  goes  into  the  United  States  Treasury.  Therefore  it  becomes  a  trust 
fund,  which  goes  sacredly  to  one  purpose  or  the  other. 

Now,  a  word  in  regard  to  section  19;  after  this  proposal  was  printed  it  oc- 
curred to  us  that  further  words  might  have  been  put  into  or  added  to  that 
section  in  order  to  clarify  the  meaning  as  to  how  the  cost  of  construction  is  to 
be  determined.  The  word  "  cost "  with  a  percentage  to  be  paid  thereon,  it  has 
occurred  to  us  might  be  construed  to  mean  cost  such  as  we  had  unfortunate 
experiences  about  during  the  World  War.  We  have  fresh  in  mind  the  fact  that 
if  a  percentage  is  to  be  paid  on  costs,  human  nature  often  does  not  limit  the 
cost,  but  the  tendency  is  to  make  the  cost  run  higher  than  it  ought  to.  We 
had  in  mind,  when  we  wrote  that  section,  that  the  cost  would  be  a  matter  to  be 
determined  by  the  lowest  bid  and  to  be  approved  by  the  Government.  So  we 
have  prepared  this  amendment,  which  we  wish  to  go  into  the  record  and  which 
we  want  to  be  considered  as  a  part  of  section  19.  The  amendment  reads  as 
follows :  "  The  cost  in  each  case  to  be  determined  by  the  lowest  responsible  bid 
resulting  from  a  public  offer  by  lessee,  and  by  the  contract  awarded  by  lessee  to 
«uch  bidder,  subject  to  approval  by  the  Secretary  of  War." 

This  makes  it  perfectly  clear  and  certain  that  the  work  will  be  done  at  the 
lowest  possible  cost ;  and  it  will  also  be  done  in  the  most  eflicieijt  manner,  be- 
cause, as  I  have  said,  we  will  have  there  in  charge  one  of  the  best  engineers  in 
the  country  to-day.    Our  idea  has  been  always  that  we  would  submit  all  the 


!l 


A 


i 


908 


MUSCLE  SHOALS  PROPOSITIONS. 


coiistrucUon  work  to  public  bidding,  because  we  can  in  this  way  get  responsible- 
contractors  with  their  complete  equipment  and  in  the  business,  who  can  unqiest 
tionably  do  this  construction  work  cheaper  than  we  could  by  forming  an  organi- 
zation to  do  It,  or  cheaper  than  the  Government  can  do  it,  because  thev  are  en- 
gaged in  that  kind  of  work  all  the  time.  because  iney  are  en 

There  are  resi>onsible  concerns  for  doing  such  work,  who  go  from  one  job  to 
another  and  tlieir  organizations  are  at  the  highest  state  of  efficiency  and  equip- 
ment iUi  the  time.  So  we  would  have  all  that  work  done  by  contract  and  let  it 
out  to  the  lowest  bidder,  always,  of  course,  subject  to  the  approval  of  the  Secre- 

i^'L  •"*.  .  ^*'-  "^^^^^  *®  ^^^^  ^^''^'^'  ^^  would  be  done,  even  if  there  was  no  languaire 
ot  this  kind  added  to  section  19.  B""fet^ 

In  reading  over  this  proposal  many  times  I  did  not  see  any  other  changes  or 
additions  that  I  could  suggest  to  clarify  it,  because  the  language  is  very  plain 
and  direct ;  but,  of  course,  a  person  who  writes  a  thing  may  not  see  its  defects 
because  you  have  in  mind  when  you  write  it  what  you  mean,  and  you  may  fail 
to  express  it  m  words ;  so  that  is  the  only  change  or  addition  I  could  see  that  was 
necessary  to  clarify  its  meaning. 

Now,  Mr.  Chairman,  I  think  it  would  conserve  time,  if  it  is  the  pleasure  of  the 
committee,  for  me  to  answer  questions  that  may  occur  to  any  members  of  the 
committee. 

The  C'HAiBMAN.  Senator,  as  I  caught  the  reading  of  your  proposition,  the  Gov- 
ernment puts  up  the  money? 

Mr.  Butler.  Yes;  the  amount  necessary  to  tinish  Dam  No.  2  and  to  make  the- 
,    initial  changes  necessary  in  nitrate  plants  No.  1  and  No.  2. 

The  Chairman.  For  the  various  things  that  are  to  be  done,  and  Mr.  Engstrum. 
is  to  be  the  contractor  to  carry  out  those  things. 

Mr.  Butler.  Yes ;  and  also  to  operate  the  plant  as  lessee.  As  such  lessee,  under 
his  bond,  he  will  superintend  the  completion  of  Dam  No.  2  and  the  redesigning 
of  both  nitrate  plants  and  then  put  it  into  practical  operation  under  a  50-year 
lease.  I  want  to  say  that  the  matter  of  completing  these  jobs  is  secondary  to 
us.  We  are  willing  for  the  Government  to  do  that,  and  then  lease  us  the  com- 
pleteil  plant ;  but  somebody  has  to  linish  Dam  No.  2  and  redesign  these  nitrate 
plants  before  you  can  ever  use  them. 

The  part  of  it  that  we  are  interested  in  primarily,  and  that  appeals  most  to 
me,  and,  I  think,  to  the  public,  is  the  operation  of  this  property  as  provided 
in  the  national  defense  act.  We  have  made  what  we  think  is  a  fair  and  just 
business  offer  to  the  Government  for  this  incidental,  initial  stage  of  necessary 
work  to  get  ready  to  do  business.  The  lease  under  our  proposal  covers  the 
whole  business,  and  if  it  is  given  to  us  in  that  shape  we  will  put  the  property 
in  operating  condition  and  then  operate  it.  >Ve  are  not  buying  anything; 
we  are  not  taking  the  Government's  title.  We  are  simply  offering  to  carry  out, 
as  we  see  it,  the  declared  governmental  purpose  in  connection  with  this  prop- 
erty, and  then  to  turn  it  back  at  the  end  of  50  years  if  the  lease  is  not  renewed, 
in  as  g<Kxl  condition,  or  in  better  condition  than  we  get  it.  because  under  our 
bond  it  must  be  in  good  operating  condition  at  the  end  of  50  years. 

Mr.  McKknzie.  llie  idea  of  your  proposition  is  that  the  Government  shall 
carry  out  these  various  projects  that  were  contemplated,  with  the  lessee  gettin 
a  finished  plant,  and  it  will  do  certain  things. 

Mr.  BVTLER.  As  we  understand  it,  the  Government  now  intends  to  carry  out 
the  puri)oses  of  the  national  defense  act,  but  the  purpose  of  the  Government 
now  seeming  to  be.  instead  of  doing  it  as  a  Government  project,  as  was  started 
in  time  of  war,  to  do  it  through  a  contract  in  ijeace  times,  with  some  individual 
or  corporation.  So  we  offer  now  to  carry  out  for  the  Government  that  purpose 
declared  in  the  national  defense  act. 

Mr.  Mckenzie.  I  see  your  position  on  that  very  clearly. 

Mr.  Butter.  We  offer,  if  the  contract  is  awarded  to  us,  to  go  ahead  on  a 
business  basis  to  carry  out  that  purpose.  The  necessary  tij-st  step  is  to  com- 
plete the  project  and  next  to  operate  it — we  offer  to  do  either  or  both.  The 
lease  and  oi>eration  of  the  property  is  the  important  thing  but  the  necessary 
construction  work  to  get  it  ready  to  operate  must  be  done  by  some  one. 

Mr.  McKenzie.  Senator,  you  are  here  representing  Mr.  Engstrum,  who,  by 
the  way,  is  representing  a  corporation  to  be  hereafter  formed,  but  which  is 
not  now  in  being,  and  which  under  you  plan  will  become  the  lessee  of  the  Gov- 
ernment for  the  purpose  of  carrying  out  the  conditions  set  forth  in  the  contract? 
Mr.  Bitttjcr.  Yes. 


or 


MUSCLE   SHOALS  PROPOSITIONS. 


901^ 


Mr.  Mckenzie.  Now,  Senator.  I  think  it  would  be  very  beneficial  for  us  and 
help  us  out  very  much  if  you  would  give  us  a  brief  analvsis  of  just,  exactiv  what 
you  expect  to  give  to  the  Government  and  what  you  expect  to  get  in  returfi, 
and  then  we  can  ask  you  some  questions  about  that.  You  can  tell  us  what  vou 
expect  to  give  to  the  Government  as  a  consideration,  and  then  what  you  expect 
ill  return.     I  think  we  can,  perhaps,  get  along  better  in  that  way. 

\\^^.  ^™'^^-  }Ve  tried,  primarily,  I  will  say,  to  figure  out  ii  proposition  on 
a  different  basis,  to  agree  to  finish  this  unfinished  work  for  a  fixed  sum  so 
as  not  to  have  any  question  of  the  amount  of  the  cost  to  the  Government  •  but 
we  found  great  difficulty  in  offering  you  such  a  lump-sum  proposition,  as  we 
could  look  you  m  the  face  and  say  it  was  absolutelv  fair,  that  it  was  as  low  a 
figure  as  we  could  do  it  for  and  make  a  living  profit,' and  feel  that  we  were  safe 
under  a  bond,  and  not  go  into  bankruptcy.  There  was  a  wide  diversitv  of 
opinions  between  our  own  engineers  and  the  Government  engineers  as  to  what 
it  would  cost  to  do  the  necessary  construction  work.  We  do  not  want  and  we 
felt  confident  that  the  Government  did  not  want,  anv  cheap  work  done  on  this 
great  project.  This  is  a  great  proposition  and  the  work  should  be  as  durable 
if  possible,  as  the  eternal  rocks  on  each  side  of  the  stream. 

Every  time  we  put  on  pai^er  a  fixed  amount  that  we  felt  would  be  safe 
tor  our  bondsmen  and  for  ourselves,  we  had  to  put  tlie  figure,  in  order  to  be 
safe,  higher  than  w^»  believed  it  would  cost,  because  if  we  did  not  do  that  we 
nught  go  broke.  And  finally,  as  a  matter  of  good  conscience  and  a  matt^>r  of 
good  business,  we  came  around  to  this  proposition,  as  stated  in  section  19  to 
imt  it  as  a  cost  proposition.  ' 

Now,  as  to  the  advantages  to  the  Government :  AVell,  broadly  speaking  this 
proposal  will  give  the  Government  exactly  what  it  has  declared  it  wants  '  The 
only  question  is,  are  we  offering  to  do  it  on  a  fair  business  basis  and  on  the- 
best  basis  on  which  a  responsible  individual  can  do  it.  That  is  the  point,  and 
that  IS  where,  finally,  the  question  is  directed  as  to  what  we  are  offering  to 
the  Government  and  what  we  are  expecting  to  set  out  of  it  ourselves 

first,  we  propose  to  finish  Dam  No.  2  and  to  redesign  both  nitrati  plants  in 
a  way  which  will  guarant(>e  the  best  possible  construction,  and  at  a  cost  which 
we  believe  will  be  less  than  the  Government  can  do  it.  We  will  be  lucky  if 
we  m.nke  any  profit  on  that 

Next,  we  propose  to  lease  the  whole  propertv  and  to  devote  it  entin»lv  to  the 
making  of  nitrates ;  and  we  all  know  thaf  when  you  htive  devoted  the  wbole 
thing  to  that  one  object  you  will  produce  more  nitrates  and  get  greater  progres.s 
m  the  art  of  the  fixation  of  atmospheric  nitrogen  than  if  vou  d'vidtHl  up  tlu^ 
proposition  and  leave  the  making  of  nitrates  as  a  minor  consideration  We 
will  devote  the  whole  Muscle  Shoals  project  to  this  one  purpose  We  will 
operate  both  of  those  nitrate  plants.  There  is  a  steam  plant  at  nitrate  plant 
Jjo.  1,  and  also  a  steam  plant  at  nitrate  plant  No.  2.  We  would  liave  also  the 
Wari-ior  steam  plant,  which  we  proteose  to  lease  alontr  with  this  propertv 
Ihe  (Government  has  them  there,  all  built  for  this  purpose.  We  would  be-iii 
to  operate  at  once  with  that  power.  When  we  get  Dam  No.  2  liidshed  we  figure 
to  keep  the  steam  plants  in  a  standby  condition  to  increase  the  amount  of 
primary  power  when  necessary.  Say  that  we  produce  100,000  kilowatts  of 
primary  power,  we  could  add  another  100,000  primarv  power  by  ')peratiii<- 
those  ste^m  plants  for  10  or  15  per  cent  of  the  year,*  during  the  low-wate? 
period.  But  we  can,  of  course,  run  these  steam  plants  for  a  longer  period  or 
all  the  time,  if  necessary.  That  would  make  a  peak  load  all  the  time  if 'we 
did  that,  of  440,000  kilowatts.  ,  "  ^^^- 

Now,  we  would  do  that  if  there  was  a  market  for  it  and  we  could  sell  it 

We  propose  to  sell  power,  as  much  as  we  can  make  to  sell,  above  what  is 
required  to  run  the  two  nitrate  plants,  and  it  is  to  our  interest  to  sell  all  we 
can  at  a  profit,  and  to  devote  one  mill  per  kilowatt  hour  of  the  power  sold  to 
nnancmg  tlie  production  of  these  nitrates,  because  we  are  going  to  begin  at 
a  loss:  everybody  knows  that.  We  set  that  aside  as  n  trust  fund,  to  be  given 
as  rental  for  the  lease,  in  addition  to  the  power  that  is  necessarv  to  run  the 
two  plants.  Then  we  agree  to  sell  the  products  that  we  produce  and  add  to 
tnat  fund,  it  being  a  fund  which  belongs  to  the  Government  to.  go  into  the 
iieasury,  or  into  the  financing  of  nitrates.  We  figured  with  the  one  mill  per 
Kiimvatt  hour  on  the  power  sold,  based  on  a  development  of  440,000  kilowatts 
Vi  -/vl'^'*^-  -'  ^^^^  ^*^^  income  to  the  Government  will  be,  in  round  numbers, 
^J,ouo,000  a  year  during  the  whole  length  of  the  lease  from  Dam  No.  2  alone  • 


^    • 


i* 


910 


MUSCLE  SHOALS  PROPOSITIONS. 


and  it  either  goes  in  cash  Into  the  Treasury,  or  it  goes  into  the  produclSion 
of  nitrates.  That  much  is  certain.  We  are  giving  the  Government  the  certain 
end  of  the  proposition. 

Our  proposal  also  provides  that  when  there  is  a  need  for  more  power  and 
more  nitrates  that  we  will  build  Dam  No.  3  and  put  a  nitrate  plant  there  also. 
Thus  the  return  to  the  Government  and  the  benefits  to  the  farmers  will  be 
increased  in  proportion  to  the  increased  power  developed  there;  and  so  on 
until  all  the  water  power  is  developed. 

The  next  part  of  the  question  is,  What  are  we  going  to  get  out  of  it?  It 
depends  on  the  amount  of  power  we  are  able  to  sell  and  the  price  we  can  get 
for  it.  We  reserve  whatever  we  get  for  that  power  above  1  mill  per  kilo- 
watt hour  for  our  compensation,  and  that  is  the  only  compensation  we  get 
I  say  to  you  frankly  that  it  is  a  proposition  on  which  we  were  taking  the 
chances,  and  on  which  we  were  giving  the  certain  end  to  the  Government. 
That  is  about  as  definitely  as  I  can  answer  your  question.  Does  that  answer 
your  question? 

Mr.  McKenzie.  In  a  way  it  does.  You  have  answered  it  in  a  way,  but  not 
entirely  to  my  satisfaction.  I  want  to  say,  Senator,  that  vour  statement  on 
the  general  proposition,  in  my  judgment,  was  a  splendid,  enlightening  state- 
ment. That  is  a  matter  we  are  all  interested  in,  generally.  But  what  we  ara 
interested  in  at  the  moment  is  the  proposed  contract  or  offer  by  Mr.  Engstrum 
Mr.  Butler.  That  is  why  I  stopped  talking;  I  knew  you  were  interested  iii 
the  details  of  this  proposal. 

Mr.  McKenzie.  You  have  come  to  this  committee  emptv  handed,  to  begin 
with— without  a  dollar? 
Mr.  Butler.  Yes ;  so  far  as  putting  our  money  into  completing  this  project 
Mr.  McKenzie.  The  first  proposition  is  that  hereafter  there  will  be  a  corpora- 
tion formed? 
Mr.  BUTT.ER.  Yes. 

Mr.  McKenzie.  Will  that  corporation  own  stock? 

Mr.  Butler.  I  will  tell  you  frankly  what  we  have  in  mind.  We  will  form 
a  corporation,  but  we  have  not  yet  agreed  on  any  amount  of  capitalization,  be- 
cause we  are  giving  a  bond,  and  we  did  not  think  it  was  necessary  to  guarantee 
a  large  paid-up  capital. 

Mr.  McKenzie.  You  have  not  thought  of  the  amount  of  capital  stock? 
Mr.  Butler.  We  have  considered  that  entirely  immaterial  since  we  are  giving 
a  bond.  But  if  it  is  desirable,  if  it  cuts  any  figure,  we  are  ready  to  meet  anv 
suggestions  the  committee  may  make  along  that  line.  But  It  never  occurred 
to  me  that  it  would  be  considered  essential,  if  you  thought  you  were  dealing 
with  responsible  people,  as  individuals,  regardless  of  how  much  wealth  we 
might  have.  But  we  are  ready  to  give  any  bond  which  may  be  required— with 
a  sufllcient  bond  the  personnel  of  the  company  is,  of  course,  important  to  insure 
the  greatest  results— that  will  produce  the  greatest  good.  I  want  to  say  in 
this  connection  that  I  have  given  that  matter  a  great  deal  of  consideration 
because  I  will  be  one  of  the  directors  of  that  company  myself.  This  subject 
has  gripped  me  so  that  I  have  decided  to  stay  with  this  company  as  a  director 
and  as  general  counsel ;  I  do  not  know  of  anything  that  has  ever  appealed  to 
me  so  much;  and,  if  you  give  us  this  contract,  the  rest  of  my  life  will  be 
devoted  to  developing  this  proposition.  I  shall  devote  my  best  efforts  to  de- 
veloping this  great  water  power  in  a  way  to  be  a  credit  to  this  administration 
and  to  the  Government,  and  to  producing  the  most  beneficent  results  for  agri- 
culture and  the  public  good— I  intend  to  devote  my  whole  life  and  time  to  it 
Mr.  McKenzie.  My  question  was  not  prompted  by  any  idea  that  I  had  anv 
fear  that  the  Government  might  lose  out.  But  it  was  in  connection  with  my 
question  as  to  what  you  expect  to  get  out  of  this  contract. 

Mr.  Butler.  The  organization  of  the  company  is  purely  a  question  of  busi- 
ness. Of  course,  Mr.  Engstrum  or  I  could  seek  this  contract  as  an  individual 
and  go  ahead  and  do  it,  but  we  all  know  from  business  experience  that  it  is 
much  more  desirable  to  form  a  corporation  to  carry  out  such  a  program  for  a 
term  of  50  years.  We  expect  to  bring  men  into  the  company  who  will  be  worth 
something  not  only  for  their  means  but  also  because  of  their  experience  and 
standing,  selected  with  the  same  care,  almost,  as  you  would  select  an  engineer 
of  the  greatest  ability  and  reputation.  And,  of  course,  we  expect  to  make  money 
operating  this  plant. 

Mr.  McKenzie.  Let  me  put  it:  in  another  way.  As  I  have  said,  you  come  to  us 
empty-handed,  not  proposing  to  finance  any  proposition.  You  form  a  corpo- 
ration to  become  a  lessee  of  the  Government,  and  then  as  lessee  you  proceed  to 


MUSCLE   SHOALS   PROPOSITIONS. 


911 


do  certain  construction  work  for  the  Government  to  carrv  out  the  purposes  of 
the  Government,  the  Government  furnishing  all  the  money,  the  company  gettin<' 
a  fee  as  compensation  for  the  construction  of  those  various  plants  necessary 
to  complete  the  project. 

Air.  Butler.  We  are  willing  to  accept  a  contract  from  the  Government  to-day 
to  finish  the  work  on  a  fair  basis,  and  then  lease  it  when  it  is  finishe<l  The 
construction  part,  however,  is  incidental. 
Mr.  McKenzie.  As  the  proposition  stands,  that  Is  the  first  things 
]Mr.  Butler.  Yes ;  because  it  is  the  first  thing  to  be  done.  Somebodv  had  it 
to  do,  and  as  I  understood  it,  the  Government  was  looking  for  somebody  to 
take  the  whole  thing  off  its  hands,  both  the  construction  and  the  operation  of 
the  whole  project. 

Mr.  McKenzie.  That  would  be  your  first  consideration,  the  first  part  of  vour 
performance? 

Mr.  Butler.  Yes ;  the  first  part  is  to  make  the  plant  a  going  concern 
Mr.  McKenzie.  You  would  put  up  the  structures? 
Mr.  Btjtler.  Yes. 

Mr.  McKenzie.  And  the  Governnient  would  pay  vou  5  per  cent  in  addition 
to  the  cost;  that  would  be  the  consideration? 
Mr.  Butler.  Yes. 

Mr.  McKenzie.  Now,  you  start  to  operate  the  plant.  Do  you  pav  the 
expenses  of  operation? 

Mr.  Butler.  We  pay  the  expense,  as  operating  expense,  out  of  the  proceeds 
from  the  plant. 

Mr.  McKenzie.  Where  do  you  get  the  proceeds? 

Mr.  Butler.  We  propose  to  begin  the  sale  of  some  power  at  once,  and  we  pro- 
pose to  begin  to  operate  those  nitrate  plants,  or  one  of  them,  very  soon.  We 
have  the  steam  power,  and  as  soon  as  we  can  redesign  this  plant  we  will  be 
making  nitrates.  We  will  be  able  to  sell  steam  power,  no  doubt,  because  the 
Government  Is  selling  It  now.  We  will  be  a  going  concern  long  before  Dam 
No.  2  is  finished. 

Air.  McKenzie.  You  have  stated  you  could  not  manufacture  that  at  the  steam 
plant  without  being  compelled  to  sell  it  at  a  loss? 

Mr.  Butler.  We  hope  to  be  able  to  sell  enough  power  from  these  plants  while 
we  {lie  redesigning  the  nitrate  plants  to  help  out  our  operating  expenses*  we 
would  utilize  everything  possible  while  we  are  redesigning  those  plants.  We 
will  make  up  the  remainder  of  the  operating  expenses  from  our  own  funds 

Mr.  McKenzie.  You  can  probably  see  the  purpose  of  mv  question  about  the 
corporation  and  your  capital  stock.  If  you  organize  without  capital  stock  or 
without  funds,  you  would  not  probably  operate  very  long,  if  vou  were  compelled 
to  sell  this  product  at  a  loss. 

Air.  Butler.  We  have,  of  course,  foreseen  all  of  that  and  have  our  arrange- 
ments made,  so  that  we  will  not  be  living  from  hand  to  mouth  each  day  until 
we  have  a  live,  going  concern  that  will  be  making  a  profit  for  us  and  also  for 
the  Government. 

Air.  McKenzie.  Let  us  go  a  step  further.    The  dam  is  completed 

Air.  Butler  (interposing).  Of  course,  we  all  know  that  we  must  have  the 
requisite  amount  of  capital  to  do  anything. 

Air.  AIcKenzie.  You  get  the  dam  completed,  and  the  use  of  the  waterpower. 
and  then  you  take  a  certain  portion  of  that  power,  as  I  understan<l  it,  and 
utilize  it  in  the  operation  of  these  plants? 

Air.  Butler.  Yes. 

Air.  AIcKenzie.  What  do  you  do  with  the  balance? 

Air.  Butler.  We  sell  it;  we  will  wholesale  it. 

Mr.  AIcKenzie.  Now  then,  out  of  those  sales  you  get  a  certain  income? 

Air.  Butler.  Yes.  We  get  all  above  1  mill  per  kilowatt  hour  for  all  Dower 
sold. 

Air.  AIcKenzie.  What  is  your  purpose  regarding  the  use  of  that  imoine.  dis- 
posing of  the  income? 

Mr.  BuTLEit.  The  first  thing  we  do  is  to  set  aside  the  rental  which  we  will 
pay  the  Government ;  that  is  made  up  of  1  mill  per  kilowatt  hour,  no  matter 
at  what  price  we  sell.  If  we  only  sell  the  power  for  1  mill  per  kilowatt 
iiour,  it  all  goes  to  the  Government.  That  much  goes  to  the  Government  cer- 
tainly, whether  we  get  any  more  or  not ;  and  that  sum  goes  into  the  Troa.surv 
^r  IS  used  for  financing  the  making  of  nitrates ;  that  Is  a  certain,  definite,  con- 
tinuous rental,  to  be  Increased  as  the  sale  of  power  Is  Increased.  Our  profits 
are,  in  a  way,  speculative ;  we  get  for  our  own  use  all  that  we  may  be  able 
92900—22 58 


\l 


■ 


912 


MUSCLE  SHOALS  PROPOSITIONS. 


'ill 

rfHp 


■| 


to  sell  power  for  above  the  1  mill  per  kilowatt  hour.  We  have  tried  to  base 
it  on  a  live  and  let  live  proposition,  giving  the  Government  the  certain  end  of 
it ;  our  end  being  speculative,  more  or  less. 

Mr.  McKenzie,  What  would  be  the  proportion  of  the  income  that  would  go 
to  the  corporation? 

Mr.  BuTLEK.  That  would  depend  entirely  at  what  we  could  sell  the  power  for. 

Mr.  McKenzie.  You  intend  to  sell  the  power  immediately  in  order  to  get  a 
working  fund,  as  I  understand  it? 

Mr.  Butler.  Yes ;  what  is  not  needed  for  the  plant. 

Mr.  McKenzie.  After  you  have  the  two  plants  in  operation,  about  what  would 
be  the  proportion  that  would  go  to  your  company?  I  understand  you  can  not 
state  that  exactly. 

Mr.  Butler.  It  will  take  only  about  100.000  horsepower,  or  less,  to  run  both 
nitrate  plants.  We  can  produce  about  650,000  horsepower,  or  about  440,000 
kilowatts,  by  running  the  steam  plants  also.  But  we  would  not  run  the  steam 
plants  to  supplement  the  water  power  unless  we  could  do  it  at  a  profit;  but 
we  exriect  to  be  able  to  produce  at  least  200,000  horsepower  continuously  by 
running  the  steam  plants  only  about  15  per  cent  of  the  time,  and  we  ought 
to  be  able  to  make  more  power  than  that  at  a  profit.  We  may  not  be  able 
to  do  it ;  but  we  expect,  as  time  goes  on  and  as  the  country  down  there  develops, 
that  our  profits  will  be  larger  than  they  will  be  to  beg  n  with,  figuring  the 
demand  for  power  and  the  price  for  power.  Of  course,  the  price  of  coal  has 
a  lot  to  do  with  it. 

We  all  know  that  this  property,  when  we  have  run  it  for  you  for  50  years, 
is  going  to  be  worth  many  times  more  than  when  it  starts.  We  expect  the  time 
to  come  when  we  can  build  more  dams  and  nitrate  plants,  all  these  storage 
dams,  and  largely  increase  the  output.  These  things  are  not  justified  to-day 
because  we  can  not  now  make  money  by  doing  it.  So  the  fme  will  come  when 
the  returns  to  us  and  to  the  Government  will  be  nmch  increased. 

Mr.  McKiNziE.  You  would  expect  at  once  to  enter  into  competition  Avith 
the  Alabama  Power  Co.  in  the  sale  of  current,  would  you  not? 

Mr.  Bt?tler.  We  have  no  idea,  unless  forced  to  do  it,  to  go  into  the  com- 
mercial sale  of  power  by  reta  1.  We  hope  to  be  able  to,  and  we  think  we  can. 
sell  at  wholesale  to  all  the  power  companies  around  us.  All  we  have  to  do 
is  to  tie  in  with  them,  and  they  will,  no  doubt,  want  to  do  that.  We  know 
enough  about  the  business*,  about  the  people  in  the  surrounding  country, 
and  about  their  demands  to  know  that  we  can  not  produce  cheap  power  there 
without  it  being  to  the  interest  of  the' power  companies  to  buy  and  distribute 
it  around  to  the  cotton  mills  and  factories  who  want  it.  The  Alabama  Power 
Co.  has  shown  you  that  they  want  to-day  about  100,000  of  this  horsepower; 
that  they  have  a  market  for  it,  as  I  un<lerstand  the  testimony.  I  think  we 
would  have  customers  right  there  for  all  of  it.  if  we  would  let  them  have  it 
all.  I  think  every  power  company  around  us  will  want  to  tie  in  with  us.  and 
I  think  they  would  build  connecting  lines  to  get  some  of  it.  We  believe  that 
we  will  be  able  to  dispose  of  all  of  that  power  to  advantage,  and  it  would  be 
an  increasing  amount.  It  will  not  be  10  years,  or  probably  5  years,  before  the 
Government  itself,  without  our  urging  it,  would  want  us  to  build  Dam  No.  3. 
and  then  after  that  other  dams,  and  then  storage  dams.  All  of  that  is  going 
to  come  to  pass. 

Mr.  McKenzie.  You,  in  your  opening  statement,  drew  us  a  beautiful  picture 
of  the  growth  and  development  of  the  industry,  of  the  manufacture  of  fertilizer, 
and  said  that  in  tijne  possibly  all  the  power  produced  there  could  be  utilized  in 
that  way? 

Mr.  Butler.  Yes. 

Mr.  McKenzie.  When  that  day  comes,  where  will  you  get  your  profits? 

Mr.  Butler.  We  agree  to  furnish  the  power  necessary  to  serve  both  nitrate 
I>lants  from  the  power  to  be  developed  at  Dam  No.  2,  and  to  sell  the  remainder, 
giving  the  Government  1  mill  per  kilowatt  hour  on  all  power  sold  and  keep  the 
remainder  for  our  profits.  When  more  dams  are  built  and  more  nitrate  plants 
are  erected  by  them  then  we  must  have  the  proportion  between  the  power  pro- 
duced and  the  capacity  of  the  nitrate  plants  the  same,  or  there  would  have  to  be 
a  new  adjustment  as  to  our  profits.  Of  course,  we  will  always  be  forced  to  sell 
a  certain  amount  of  power  or  there  will  be  no  profits.  We  can  never  use  it  all 
in  making  nitrates  without  changing  the  contract. 

Mr.  McKenzie.  Then  I  misunderstood  you  as  to  your  plan.  Your  plan,  as  you 
have  it  in  vour  mind  is  that  you  will  furnish  sufficient  power  to  operate  these 
two  plants  at  Muscle  Shoals,  and  whatever  surplus  there  is  you  want  to  sell. 


MUSCLE   SHOAI^   PROPOSITIONS. 


913 


Mr.  Butler.  Yes. 

Mr.  McKenzie.  I  got  the  idea  that  it  was  your  hope  at  Icjist  that  while  this  is 
a  matter  of  experiment,  up  to  this  stage,  that  the  (Joveiimient  will  go  (ni  ex- 
perimenting and  as  this  develops  that  in  time  all  this  vast  power  at  Muscle 
Shoals  could  be  utilized  in  the  production  of  fertilizers  for  the  farmers  of  this 
country.    I  got  that  idea  from  your  statement. 

Mr.  Butler.  What  I  intended  to  say  is  that  we  devote  all  the  power  necessary 
from  Dam  No.  2  to  the  making  of  nitrates  at  these  two  plants  and  sell  the 
remainder  of  the  power  to  finance  the  operation,  1  mill  of  each  kilowatt  hour 
sold  going  to  the  Government  and  the  remainder  to  us  for  our  profits.  Now, 
that  is  what  we  will  do  with  the  one  dam  and  the  two  nitrate  plants. 

Of  course,  when  Dam  No.  3  is  built  we  will  put  in  another  nitrate  plant,  and 
if  its  size  is  in  the  same  proportion  to  the  output  of  the  dauL  then  our  i)n»- 
posal  will  apply  to  it  the  same,  and  if  not,  the  difference  can  then  be  adjusted : 
and  so  on  with  the  whole  development  of  the  river.  But  when  we  can  make 
nitrates  at  a  profit,  then  the  returns  to  the  Government  will  be  greater. 

Mr.  McKenzie.  My  reason  for  asking  about  your  profit  in  case  you  utilized 
all  the  water  power  in  the  production  of  fertilizer,  is  because  in  your  contract, 
as  you  have  submitted  it,  you  would  then  be  dependent  upon  the  will  of  the 
Secretary  of  Agriculture  as  to  the  amount  of  your  profit;  is  that  not  true? 

Mr.  Butler.  We  can  never  sell  nitrates  under  our  proposition  at  a  price 
higher  than  he  would  approve  of. 

Mr.  McKenzie.  If  all  the  power  was  going  into  the  manufacture  of  fertilizer 
and  you  were  not  selling  any,  for  general  use,  then  you  would  be  dependent, 
under  your  contract,  for  any  income  or  profit  upon  the  will  of  the  Secretary 
of  Agriculture? 

Mr.  Butler.  We  had  thought  of  that,  and  that  is  why  we  do  not  propose  to 
make  any  profit  from  the  sale  of  nitrates  and  fertilizera,  and  this  is  the  only 
sure  way  to  guarantee  cheaper  fertilizers  to  the  farmers ;  it  is  not  our  idea  that 
any  of  the  fertilizers  will  be  sold  at  a  profit. 

(Thereupon,  the  committee  took  a  recess  until  2  o'clock  p.  m.) 

after  recess. 

The  committee  met  pursuant  to  recess  at  2  o'clock  p.  m. 

STATEMENT  OF  HON.   MARION  BTTTLER,  ATTORNEY  FOR  MR. 
FREDERICK  E.  ENGSTRITM — Resumed. 

The  Chairman.  Senator,  Mr.  McKenzie  this  morning,  when  we  adjourned, 
had  finisdied  asking  you  such  questions  as  he  desired  to  ask,  and  we  will  con- 
tinue, if  you  please.    Mr.  Hull  would  like  to  ask  you  a  few  questions. 

Mr.  Hull,  Senator,  I  am  considerably  impressed  with  some  features  of  your 
proposition,  and  especially  with  the  preservation  of  nitrate  plant  No.  1.  I 
think  that  should  be  done  in  any  case.  What  is  your  estimate  as  to  the  capac- 
ity of  that  plant,  if  it  is  made  available  as  at  present  planned. 

Mr.  Butler.  The  statement  of  the  Chief  of  Ordnance  is  that  if  modified  and 
made  an  operating  plant,  according  to  the  plans  they  had  in  view,  the  capacity 
would  be  30  or  more  tons  per  day  of  ammonia. 

Mr.  Hull.  It  is  a  very  small  plant,  then,  in  comparison  with  No.  2. 

Mr.  Butler.  Oh,  yes.  You  see,  when  they  built  that  plant  on  the  Haber 
process,  we  did  not  know  all  of  the  process;  it  was  an  experiment,  so  we  were 
not  going  into  it  on  as  big  a  scale  as  on  the  cyanamid  process,  which  we 
thoroughly  knew.  We  built  it  as  far  as  we  knew  how  to  build  it  by  the  Haber 
process,  experiment  on  the  remainder;  it  was  built  small  with  a  view  to  try- 
ing to  work  out  that  process,  feeling  that  we  ought  to  have  both  processes. 
The  idea  was  to  enlarge  it,  if  it  was  a  success.  We  know  now  how^  to  equip 
and  run  the  best  Haber  process  plant  in  the  world.  What  we  consider  now  to 
be  the  most  economical  thing  to  do,  is  to  complete  it  by  the  improved  methods 
which  we  have  worked  and  put  it  to  work  at  once.  It  would  be  better  to  build 
a  larger  plant,  if  we  were  starting  out  initially,  but  the  sensible  thing  to  do 
now  is  to  complete  it  as  it  was  started.  There  is  a  complete  steam  plant 
standing  by  it,  so  we  could  begin  to  operate  this  plant  before  Dam  No.  2  is 
finished. 

Mr.  Hull.  And  that  plant,  as  I  understand  you.  would  make  about  10.000  tons 
per  year  or  about  one-tenth  the  capacity  of  plant  No.  2. 


m^ 


914 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


915 


Up 

m 


Mr.  Bl^lek.  a  little  more  than  that.  It  is  three  times  as  large  as  the  Haber 
plant  at  Syracuse. 

Mr.  Hull.  Yes;  just  a  shade  more.  Have  you  any  estimate  as  to  the  cost 
under  that  system  compared  with  the  cost  under  the  cyanamid  process? 

Mr.  Butler.  Germany  and  the  Syracuse  plant  have  proven  that  it  is  much 
cheaper  and  it  will  be  very  much  cheaper  when  we  can  make  the  changes  and 
improvements  which  I  indicated  this  morning,  the  new  catalyst  and  the  new 
electrolytic  cell  for  getting  the  hydrogen  instead  of  passing  the  water  over 
coke  to  separate  it.  When  we  can  use  the  hydroelectric  power,  it  will  be  much 
cheaper,  and  that  is  the  line  of  development  along  which  the  world  expects 
to  see  great,  progress  made  in  the  fixation  of  atmospheric  nitrogen.  The  new 
ratalyst,  which  is  the  most  efficient  in  the  world  for  joining  the  hydrogen  and 
the  nitrogen  we  will  put  in  at  once.  The  electrical  process  for  producing  the 
hydrogen  we  will  put  in  when  the  hydroelectric  power  is  available;  and  then 
we  will  also  i)ut  in  the  liquid-air  method  for  getting  the  nitrogen  from  the  air, 
which  is  also  nnich  cheaiier  than  the  method  now  used  at  Syracuse  and  also 
now  used  in  Germany.  When  that  is  done  we  can  produce  nitrogen  for  fer- 
tilizers much  cheaper  than  anyone  else  is  doing  it,  and  very  much  cheaper  than 
it  can  be  done  by  the  cyanamid  process. 

Mr.  Hull.  You  say  it  will  be  much  cheaper;  how  much  cheaper,  propor- 
tionately? 

Mr.  BuTTJCR.  That  is  diflScult  to  say. 

Mr.  Hull.  Yes. 

Mr.  Butler.  We  do  not  know  until  we  do  it.  Germany  is  the  only  people 
wlio  are  doing  that.  At  Syracuse  they  are  simply  going  to  the  point  of  mak- 
ing the  ammonia,  and  they  stop  there,  but  they  are  doing  it  cheaper  than  they 
thought  they  could  when  they  started  and  are  making  progress.  So  we  are 
on  the  edge  of  development;  it  is  an  undeveloped  art  with  great  possibilities 
si>  far  as  we  know.  Germany  is  very  successful  with  the  Haber  process,  but 
she  is  experimenting  all  the  time.  She  made  300,000  tons  by  that  method  and 
is  gradually  dropping  the  cyanamid  process.  Germany  made  only  100,000  tons 
by  the  cyanamid  process  last  year,  and  she  is  now  pushing  the  Haber  process 
because  it  is  much  cheaper. 

Mr.  Hull.  You  incorporate  in  your  proposition  the  purchase  or  the  turn- 
ing over  to  you  of  the  Warrior  or  the  Gorgas  plant. 

Mr.  Butler.  Yes ;  we  lease  it ;  it  is  necessary  at  present.  We  might  develop 
enough  power  so  that  it  would  not  be  necessary  later,  but  we  need  it  for  the 
construction  work  and  to  operate  the  plant  successfully  until  we  get  the  dam 
built;  it  is  the  cheai>est  power  we  can  get.  It  is  cheaper  to  get  it  over  the 
transmission  lines  from  the  Warrior  plant  than  from  the  two  stand-by  steam 
l>lants  that  are  there  now,  therefore  it  is  very  desirable.  If  the  Government 
wanted  to  sell  it  later,  that  would  be  a  question  for  negotiation;  but  it  is 
needed  for  the  economical  use  of  the  property  for  the  present,  certainly. 

Mr.  Hull.  I  am  rather  uncertain  in  regard  to  that  Gorgas  plant.  Perhaps 
if  I  was  down  there  and  could  look  it  over,  I  could  get  the  proper  angle.  You 
all  seem  to  want  that  Gorgas  plant.    It  is  80  miles  away  from  Muscle  Shoals. 

Mr.  Butler.  Y'es. 

'Mr.  Hull.  And  it  is  simply  a  duplication,  so  far  as  your  plant  goes,  of 
the  steam  plant  you  already  have,  or  would  have. 

]yir.  BuTLEK.  It  is  right  at  the  coal  mines.  You  see,  it  is  cheaper  to  trans- 
mit electricity  tlmn  it  is  to  haul  coal. 

Mr.  Hi'i.L.  Yes;  but  you  do  n<>t,  any  of  you,  figure  you  would  need  it  after 
you  get  the  dam  completed. 

Mr.  Butler.  Well  now,  frankly,  we  could  use  it  all  the  time  in  this  way: 
In  making  more  than  100,000  primary  horsepower  from  the  water  power  for 
the  365  days'  peak  load,  we  could  increase  that  primary  power  by  supplement- 
ing it  with  steam  power  and  do  it  cheaper  from  that  plant  than  from  the  two 
stand-by  plants,  and  to  that  extent  it  is  a  matter  of  continuing  importance; 
just  to  that  extent,  and  that  extent  only. 

Mr.  Hull.  I  presume  you  think,  then,  that  the  Government  would  have  the 
right  both  legally  and  morally  to  take  that  plant  away   from  the  Alabama 

Power  Co.? 

Mr.  Butijjr.  We,  of  course,  do  not  desire  to  become  a  party  to  that  con- 
troversy, and  it  does  not  enter  into  our  proposition  at  all.  You  see  that  con- 
troversy is  in  case  the  Government  was  to  sell  it.  Our  offer  is  the  use  of 
it  under  a  lease  that  would  come,  as  we  take  it,  within  that  contract  which 
the  Government  has  with  them. 


Mr.  Hull.  But,  if  we  should  accept  your  proposition,  you  certainly  would 
become  a  party  to  the  taking  over. 

Mr.  Butler.  We  take  it  over  as  lessee.  We  would  simply  operate  it  just 
Is  it  has  been  operated  by  the  Government,  and  for  the  same  purix)ses. 

Mr.  Hull.  And,  assuming  it  costs  five  or  six  millions  of  dollars,  that  cost 
would  go  in  against  the  proposition,  would  it  not? 

Mr.  Butler.  Certainly.  But  the  Government  owns  the  larger  part  of  that  plant 
already;  and,  as  I  have  stated,  it  is  essential  until  we  build  the  dams  and  is 
desirable  afterwards.  We  could  sell  the  Alabama  Power  Co.  all  the  power  that 
they  need  for  their  customers,  and  that  is  all  the  need  they  have  for  that  plant. 
So,  there  should  be  no  litigation  about  it  under  our  lease. 

Mr.  Hull.  Now,  there  is  another  part  of  your  proposition  that  I  want  t<» 
ask  you  about,  and  that  is,  you  do  not  have  any  capitalization  or  any  paid-up 
capital  in  your  proposed  company.  That  was  gone  over  this  morning  by  Mr, 
McKenzie. 

Mr.  Butler.  Yes;  we  have  not  yet  stated  the  amount  of  our  capitalization 
for  the  reasons  given,  and  because  the  bond  covers  faithful  performance. 

Mr,  Hull.  Now,  what  kind  of  a  bond  do  you  think  could  be  executed  that 
would  cover  a  proposition  of  this  kind? 

Mr,  Butler.  It  is  for  the  faithful  performance  of  everything  we  agree  to  do 
as  lessee,  and  it  is  to  be  approved  by  the  Government.  So  far  as  we  are  con- 
cerned, a  bond  can  not  be  made  too  strict  or  go  too  much  in  detail,  because 
people  who  expect  to  live  up  to  their  contracts  do  not  object  to  binding  them- 
selves under  a  good  and  sufficient  bond. 
Mr.  Hull.  But  what  kind  of  a  company  could  guarantee  the  proposition? 
Mr.  Butler.  When  we  have  given  a  bond,  of  course,  the  bonding  company 
is  liable.  If  our  company  were  absolutely  penniless  and  was  not  responsible 
for  damages  at  all  the  bond  would  be,  and  besides  our  company  will  be  com- 
posed of  men  of  some  standing  and  respon.sibility,  and  also  men  of  a  good  deal 
of  means,  but  the  bond  is  the  important  thing.  I  should  take  it  that  if  we 
were  worth  an  aggregate  of  one  thousand  million  dollars,  you  would  want  us 
to  give  a  bond,  because  our  assets,  in  case  of  death,  are  wound  up  in  a  year, 
and  money  can  disappear,  but  a  bond  is  good  for  the  whole  period.  So,  the 
bond  is  the  thing  that  the  Government  needs,  no  matter  if  the  five  richest 
men  in  the  United  States  were  our  stockholders  and  directors. 

Mr.  Hull,  Then,  the  bond  you  contemplate  is  your  own  personal  bond  an<l 
not  the  bond  of  a  surety  company,  is  that  it? 

Mr,  Butler.  We  can  make  the  bond  either  way ;  but  the  best  way,  of  course, 
is  for  the  bond  to  be  given  by  a  bonding  company.  We  pay  for  the  bond. 
The  bonding  company  is  responsible  in  damages.  Now,  it  does  not  make  any 
difference  whether  it  is  an  individual  or  a  company,  we  pay  for  the  bond,  and 
we  are  able  to  do  that. 

Mr,  Hull.  Y'es;  but  is  there  a  bonding  company  that  could  guarantee  a  con- 
tract the  size  of  which  this  will  be? 

Mr.  Butler.  We  think  so.  We  have  looked  into  that  and  we  are  assured 
that  we  can  give  the  bond,  otherwise  we  would  not  be  here  with  an  offer, 

Mr.  Hull,  Well,  I  do  not  know,  but  I  rather  doubt  it,  because,  if  I  remem- 
ber correctly,  there  is  a  law  somewhere  that  prevents  the  Government  from 
taking  a  bond  from  a  surety  company  for  over  10  per  cent  of  their  entire 
capital  stock.  , 

Mr.  Btjtler.  I  am  not  familiar  with  such  a  law, 

Mr.  Hull.  T  do  not  think  there  is  any  company  in  this  country  large  enough 
to  guarantee  this  contract  under  that  rule.    I  may  be  mistaken. 

Mr.  Butler.  As  for  that  matter  we  could  give  several  bonds  in  different 
bonding  companies.  Besides  a  bond,  I  take  it,  would  cover  the  faithful  perform- 
ance, not  in  a  blanket  way.  but  would  be  divided  into  sections,  and  any  failure 
to  perform  would  be  a  forfeiture  under  that  section  of  the  bond  at  once,  so 
that  if  we  failed  at  all,  it  would  not  be  a  question  of  going  on  indefinitely  and 
continuing  to  fail,  but  we  would  be  responsible  under  the  bond  the  very  first 
time  the  Government  would  call  upon  our  company  under  any  clause  of  the 
bond  for  any  part,  or  for  our  first  failure  to  perform;  and,  of  course,  if  we 
have  defaulted  on  the  bond  in  one  respect,  we  would  be  called  to  account  at 
once  in  damages;  so  T  can  not  see  how  the  bond  would  be  required  to  be  as 
enormous  or  as  large  as  if  we  agreed  to  build  the  dam  and  do  all  the  construc- 
fion  for  a  specific  sum;  because  in  that  event,  we  would,  of  course,  have  to 
have  a  bond  big  enough  to  cover  a  fixed  amount  of  money.    However,  we  made 


916 


MUSCLE  SHOALS  PROPOSITIONS. 


> 
no  conditions  about  the  liind  of  bond,  and  we  feel  entirely  confident  that  we 
can  satisfy  the  Government  with  a  bond,  and  can  give  any  reasonable  bond  that 
is  asked 

Mr.  Huix,  If  I  understand  your  proposition  correctly,  in  a  way,  it  is  a  profit- 
sharing  proposition  for  the  Government  on  the  entire  project,  the  Govern- 
ment to  furnish  the  money  to  complete  the  project  and  to  pay  a  certain 
amount,  I  think,  5  per  cent  on  the  cost,  and  then  to  share  in  different  ways 
in  the  profits  therefrom ;  is  not  that  it? 

Mr.  Butler.  Well,  we  pay  a  rental  for  the  lease  and  it  is  based  on  profits, 
but  it  had  not  framed  itself  in  our  minds  in  just  that  way.  This  proposal  has 
been  drawn  as  a  result  of  trying  to  find  some  practical  business  method  on 
which  we  could  undertake  this  great  proposition  and  do  it  in  a  way  that  would 
produce  the  results  that  the  Government  expects,  and,  at  the  same  time,  be  safe 
for  us  to  do  it  from  a  business  standpoint.  It  is  a  difficult  problem  to  draw  a 
lease  contract  to  operate  over  a  period  of  50  years,  and  we  have  had  great 
difficulty  in  doing  it;  we  have  changed  the  form  of  it  a  number  of  times, 
trying  to  simplify  it,  and  that  has  been  a  very  difficult  thing  to  do.  Now, 
we  have  done  the  best  we  could,  and,  as  Mr.  Engstrum  stated  to  you,  we  are 
ready  to  modify  it  within  any  limits  that  would  leave  it  a  decent,  sound, 
business  proposition,  because  the  purposes  .that  are  set  forth  here  we  intend 
to  carry  out,  if  given  the  contract,  and  we  are  willing  to  be  bound  in  the 
greatest  detail  to  carry  out  these  purposes. 

This  is  not  a  philanthropic  offer  any  further  than  the  results  to  be  ac- 
complished will  be  of  the  greatest  public  benefit,  and  the  Government  will  get 
a  handsome  return  on  the  investment,  while,  at  the  same  time,  we  will  make, 
not  an  immense  fortune,  but  a  good  and  a  reasonable  profit.  We  propose  to 
carry  out  a  great  public  purpose  to  result  in  great  public  good,  and  we  guarantee 
the  Government  a  definite  rental  for  the  lease,  that  rental  to  increase  as  more 
power  is  developed. 

Mr.  Hull.  As  I  understand  it 

Mr.  Butler  (continuing).  And  we  could  not  see  any  better  way  to  do  it  than 
to  guarantee  to  the  Government  a  certain  definite  income  from  the  sale  of 
power  not  needed  to  run  the  two  nitrate  plants.  Our  profits  are  to  come  from 
the  same  source ;  the  nitrates  are  to  be  sold  at  cost  or  less— no  one  is  to  make 
a  profit  on  that.    This,  I  submit,  is  a  simple  proposition  and  a  fair  and  just 

one. 

Mr.  Hull.  You  would  not  object  seriously  if  convinced  that  certain  parts 
of  your  contract  should  be  changed  in  order  to  make  it  a  better  contract  for 
the  Government,  if  we  saw  fit  to  ask  you  to  change  it,  and  you  would  agree 

to  that?  .      . 

Mr.  Butler.  No;  and  we  so  stated  this  morning;  and,  while  that  point  is 
up,  I  will  say  right  now  that  I  have  been  asked  since  the  morning  session 
for  a  further  explanation  about  that  amendment  which  we  offered  to  section 
19.  The  question  is :  What  profit  would  that  mean  to  us,  and  what  do  we  do 
to  earn  it.    I  will  answer  that  now : 

Under  what  were  known  as  cost-plus  contracts  during  the  war  there  was  no 
limit  to  cost  and  really  an  inducement  to  increase  the  costs.  Under  section  19 
of  our  proposal,  as  amended  this  morning  on  our  own  motion,  all  this  work  will  be 
done  by  the  lowest  bidder,  and  the  lowest  bid  will  determine  the  basic  cost,  but 
that  does  not  include  overhead  or  any  engineering  charges,  and  the  percent- 
age fee  of  5  per  cent  paid  to  us  for  superintendence  and  for  engineers  and 
for  all  that  sort  of  thing  is  a  most  modest  sum.  We  are  offering  to  do  that 
just  as  cheap  as  we  feel  it  is  possible  to  do  it  and  employ  the  highest-class 
men  in  the  country,  men  who  are  fit  to  handle  such  a  proposition.  That  is 
what  section  19  means,  and  if  it  is  not  clear  as  worded  we  will  make  it  so. 

Mr.  Hull.  Then  this  fee  that  the  Government  would  pay  would  go  directly 
to  you  personally  or  to  the  proponents  of  the  proposition. 

Mr.  Butler.  Yes,  of  course ;  and  we  will  be  very  modestly  paid  for  the  service 
that  we  must  render  on  so  Important  an  undertaking.  We  must  not  only  em- 
ploy the  very  highest  class  engineers  and  the  best  experts  for  redesigning  the 
nitrate  plants,  but  the  administration  there  and  every  kind  of  overhead  charge 
and  expense  in  seeuig  that  the  contractors  do  their  work  in  good  faith,  will 
fall  on  us.  The  Government  will  hold  us  to  our  bond.  All  of  those  things  we 
have  figured  out,  as  far  as  we  could,  from  every  angle.  The  Government  is 
not  responsible  for  anything,  and  we  are  responsible  for  everything  under  our 
bond  and  if  we  can  not  do  this  and  have  a  profit  left,  then  we  do  not  get  any 
profit.    It  is  a  very  small  fee. 


MUSCLE   SHOALS  PROPOSITIONS. 


917 


Mr.  Hull.  Of  course,  under  the  estimated  cost  of  Dam  No.  2,  this  5  per  cent 
would  practically  mean  .$150,000  as  a  fee  for  the  finishing  of  the  job. 

Mr.  Butler.  Out  of  our  fee  we  will  have  to  pay  all  expenses  ov^r  and 
above  the  bid  of  the  contractors. 

Mr.  Hull.  And  you  will  pay  the  overhead,  etc.,  out  of  that  and  not  out  of 
the  capitalization  of  the  company. 

Mr.  Butler.  Yes;  if  the  5  per  cent  fee  will  cover  it;  if  not,  then  we  will 
have  to  pay  it  out  of  the  capitalization  of  our  company.  We  will  have  to  pay 
it  from  some  source,  or  our  bond  will  be  responsible  for  it. 

Five  per  cent  is  the  usual  engineering  fee  by  itself,  and  we  have  employed 
already  one  of  the  greatest  engineers  in  the  country,  who  will  carry  out  this 
construction  for  us.  As  I  said  this  morning,  but  I  say  it  again,  if  the  Govern- 
ment will  finish  this  work  and  then  lease  it  to  us,  we  are  ready  to  make  such  a 
lease.  The  construction  part  of  this  proposal  is  an  incident  only,  but  it  must 
be  done  by  somebody.  Now,  we  are  willing  to  do  it,  and  do  it  as  cheap  as 
it  can  be  done  on  any  decent,  business  basis.  The  finishing  of  the  dam  does  not 
interest  us  much,  but  we  do  desire  to  redesign  the  nitrate  plants  if  we  are  to 
be  given  the  lease  to  operate  them. 

Mr.  Hull.  I  made  a  mistake,  did  I  not,  in  saying  it  would  be  $150,000? 

Mr.  Butler.  You  meant  $1,500,000. 

Mr.  Hull.  Yes;  that  is  quite  a  difference. 

Mr.  Butler.  But,  as  I  say,  it  is  the  usual  engineering  fee. 

Mr.  Hull.  It  appears  to  me  as  though  that  was  a  rather  large  fee  for 
simply  the  superintendence  of  the  job. 

Mr.  Butler.  And  to  cover  all  of  the  expenses. 

Mr.  Hull.  The  plans  are  all  there  and  you  know  just  what  you  are  going 
to  do. 

Mr.  Butler.  That  amount  of  money  will  not  go  very  far  during  the  period 
It  will  take  to  do  all  of  this  work,  and  I  fear  that  we  will  be  digging  into  our 
capitalization  before  we  get  through.  But  we  say  to  you,  have  the  Govern- 
ment finish  the  dam,  if  you  think  it  can  be  done  cheaper  that  way.  What  I 
am  interested  in  is  the  lease,  and  in  doing  the  things  that  I  know  we  can  do 
to  add  to  the  prosperity  of  this  country.  Besides  the  development  of  the  art 
of  the  fixation  of  atmospheric  nitrogen  is  a  most  fascinating  proposition. 

Mr.  MoRiN.  Is  it  necessary  to  build  Dam  No.  3  in  order  to  produce  fertilizer 
or  fertilizer  compounds? 

Mr.  Butler.  No;  not  for  the  two  nitrate  plants  we  have  there  now,  and 
there  being  no  market  now  for  that  much  power,  and  the  art  of  making  the 
nitrates  being  so  undeveloped,  we  felt  there  was  not  justifiable  reason  to  build 
Dam  No.  3  at  this  time.  No  business  man  would  do  it  on  his  own  hook,  and 
therefore,  we  have  not  made  any  offer  asking  the  Government  to  do  it  now. 

Mr.  MoRiN.  Is  it  necessary  to  complete  Dam  No.  2? 

Mr.  Butler.  Yes;  otherwise  your  property  there  will  deteriorate  and  go  to 
wrack.  It  will  only  be  two  or  three  years  until  what  has  been  done  there  on 
that  dam  alone,  at  a  cost  of  between  sixteen  and  seventeen  million  dollars, 
will  be  gone  and  all  the  other  property  is  standing  idle  and  deteriorating. 
If  you  are  not  going  to  complete  Dam  No.  2  you  ought  to  blow  it  up  and  get 
it  out  of  the  river.  It  is  just  a  hindrance;  you  must  either  throw  the  whole 
thing  up  or  complete  it.  Now,  when  you  complete  it  you  have  two  nitrate 
plants  there  with  a  modest  outlay  compared  with  what  they  cost  originally 
to  redesign  them,  which  will  be  a  going  concern,  that  will  render  great 
public  service  and  will  finance  itself  under  our  proposition  without  any  more 
expense  to  the  Government:  and  it  should  soon  be  a  money-making  proposi- 
tion— that  is  what  everybody  hopes  and  believes. 

Mr.  MoRiN.  As  I  understand  you,  plant  No.  1  and  plant  No.  2  in  operation 
will  produce  all  the  fertilizer  that  will  be  marketable  throughout  the  country 
at  the  present  time. 

Mr.  Butler.  No;  we  can  produce  about  230,000  tons,  roughly  speaking,  of 
ammonium  sulphate  there.  You  understand  you  can  make  more  ammonium 
sulphate  than  you  can  ammonium  nitrate.  It  is  about  120,000  tons  of  ammonium 
nitrate.  This  would  make  between  2,000,000  and  3,000,000  tons  of  fertilizer, 
and  our  consumption  of  fertilizer  is  now  about  5,000.000  tons  and  ought  to  "be 
over  10,000,000  tons.  So  it  would  make  about  one-third  of  the  fertilizer  needed. 
That  river  will  be  developed  some  time,  and  we  can  and  will  go  on  and  finish 
developing  it,  if  we  have  this  lease,  until  we  furnish  all  the  nitrates  for  fertilizers 
needed  in  this  country,  or  practically  so,  by  building  Dams  No.  3  and  No.  4 
and  No.  5  and  No.  6,  and  storage  dams  up  the  river,  conserving  all  the  water ; 


918 


MUSCLE  SHOALS  PROPOSITIONS. 


iiiul  the  time  will  tome  when  we  will  <h»  that.     We  feel  it 
i)   business  proposition,  to  develop  tluit  whole  river  to-day, 


was  not  wise,  as 
, ,  for  two  reasons  :. 
First,  we  have  not  the  art  of  tixinj?  nitrogen  from  the  air  to  a  point  wiiere  it 
is  a  proven  eonnnercial  success;  that  is,  where  it  can  be  done  profitablv,  and 
we  have  enough  invested  there,  by  complefng  it,  to  go  on  and  develop  the 
art;  and,  second,  there  is  not  now  sufficient  demand  for  power  to  justify  it. 
There  will  come  a  tine  in  a  few  years  when  business  will  grow  up;  manu- 
facturing enterprises  and  these  power  companies  around  us  will  want  more 
power  and  will  buy  it  from  us;  but  just  at  present  that  situation  does  not  exist, 
and  so  the  conunon-sense  thing  to  do,  from  every  standpoint,  is  to  save 
what  we  have  investe<l  there  and  use  it  in  the  most  economical  way,  and 
continue  the  development  when  called  tor.  We  can  produce  enough  nitrates^ 
there  now  to  have  a  beneficial  effect  upon  the  price  of  Chilean  nitrates. 

Mr.  Mown.  Then  in  your  judgment  !t  is  not  necessary  to  build  Dam  No.  3 
either   for  feitilizer  purposes  or  power  purposes  there  at  the  present  time. 

Mr.  BrT7j:K.  Not  at  the  present  time.  If  Dam  No.  3  was  tinished  to-day, 
mid  it  was  to  l>e  lea.sed  to  us.  the  tiling  we  would  start  doing  to-morrow  would 
be  going  out  looking  for  s«»niebody  who  would  invest  capital  and  come  there 
and  start  small  manufacturing  enterprses  around  there  to  be  customers.  We 
would  bave  to  start  out  and  develop  that  business,  and  it  does  not  appeal  to 
us  as  business  men  to  do  it ;  and  we  have  not  the  face  to  ask  the  Government 
to  invest  that  money  and  build  another  dam  n<m'.  There  is  Jio  public  reason 
that  will  justify  such  expend  tn re  of  public  money  at  this  time. 

Mr.  James.  Senator,  is  there  anything  in  the  contracts  between  the  United 
States  and  the  Air  Nitrates  Co.  and  the  United  States  and  the  Alabama  Power 
Co.  that  would  interfere  with  your  proposition? 

Mr.  BuTLEK.  We  think  not. 

^Ir.  .Tames.  About  how  nuich  do  you  think  it  will  cost  to  buihl  Dam  No,  3? 

jVIr..  Butler.  There  are  no  plans  and  sjiecitications. 

Mr.  .Tames.  You  have  not  figured  on  that? 

Mr.  Blt-ler.  It  is  just  a  guess.  The  borings  are  not  finished.  The  Government 
itsejf  has  put  down  about  90  borings  there,  but  they  would  not  start  the  Govern- 
ment engineers  to  building  a  dam  at  No.  3  without  finishing  those  borings  and 
examining  thoroughly  the  condition  of  the  river  underneath.  It  is  a  treacherous 
rock,  and  while  they  feel  they  can  master  it  and  handle  it,  you  never  know 
when  you  are  dealing  with  limestone  and  put  on  pressure,  that  the  water  will 
not  find  a  hole  somewhere  and  come  out  underneath  your  dam.  That  is  a  thing 
you  have  to  be  very  careful  about  in  a  limestone  C(»untry.  We  know  generally 
that  the  dam  will  be  more  exi)ensive  for  the  power  produced  than  Dam  No.  2, 
because  of  the  formation  of  the  hills.  You  will  have  to  have  a  very  long  dam 
and  the  hills  are  not  high  and  are  not  close  together,  and  you  will  have  to  build 
a  very  long  dam  and  get  less  power  than  you  get  from  Dam  No.  2.  So  it  is 
not  as  economical,  a  dam  and  will  not  produce  as  much  power.  An  ordinary 
citizen  standing  aroiuid  there,  as  well  as  an  engineer,  can  look  at  the  river  and 
see  that. 

Mr.  Kearns.  I  have  not  heard  the  iirevious  testimony  of  this  witness  but  I 
would  like  to  have  the  stenographer  lead  the  first  question  asked  by  Mr.  .Tames 
and  the  answer. 

^The  stenographer  read  as  follows:) 

"  Mr.  .Tames.  Senator,  is  there  anything  in  the  contracts  between  the  United 
States  and  the  Air  Nitrates  Co.  and  the  United  States  and  the  Alabnma  Power 
Co.  that  would  interfere  with  your  i)roposition? 

"Mr.  Butler.  We  think  not." 

Mr.  Kearns.  That  is,  you  mean  that  under  your  contract  you  would  not  need 
the  holdings  of  the  Alabama  Power  Co.  or  the  Air  Nitrates  Co.? 

Mr.  Butler.  The  contract  with  the  Air  Nitrates  Co.  is  only  in  the  event  the 
Government  sells,  and  we  are  simply  leasing.  In  the  case  of  the  Alabama 
Power  Co.  the  Government  could  lease  that  property  just  as  the  Government  is 
using  it  now.  The  Govenmient  is  exercising  title  over  it  and  using  it,  and  can 
continue  do  it;  and  in  leasing  it  to  us,  would  simply  be  continuing  to  exercise 
authority  over  it  as  is  now  being  done.  Selling  and  leasing  are  very  dillerenl 
things.    Besides  the  Government  owns  the  majority  interest  in  that  plant. 

Mr.  Kearns.  Then  I  misunderstood  the  question  and  answer.  You  would 
require  the  holdings  of  the  Alabama  Power  Co.  if  your  contract  should  be  ac- 
cepted. In  other  words,  your  contract  covers  the  holdings  of  the  Alabama 
Power  Co.? 


MUSCLE   SHOALS  PROPOSITIONS. 


919 


might 


Mr.  Butler.  I'es;  the  contract  covers  that,  and  for  this  reason,  that  until 
we  complete  the  Dam  No.  2,  we  will  have  to  use  steam  power.  The  steam 
power  from  the  Warrior  plant  can  be  utilized  cheaper  than  from  the  two  steam 
plants  at  the  property.  It  is  at  the  mouth  of  the  coal  mines ;  that  is  the  reason 
it  was  built  there;  the  loss  over  the  transmission  line  is  small  compared  with 
the  cost  of  hauling  coal ;  it  is  the  most  valuable  power  for  use  to  use  in  operat- 
ing the  plants  that  are  there  and  in  finishing  the  construction  of  Dam  No.  2, 
and  therefore  is  most  desirable.  It  is  the  power  that  the  Government  would 
certainly  use  if  the  Government  was  going  to  complete  this  project  itself.  It 
would  certainly  bold  that  plant  until  they  completed  the  dam,  if  not  longer. 

Mr.  Miller.  Senator,  I  have  been  much  interested  in  your  talk  this  morn- 
ing.    As  I  understand  it,  you  and  your  associates  bave  organized  what 
be  termed  an  operating  company. 

Mr.  Butler.  Yes. 

^Ir.  Miller.  To  carry  out  the  peace-time  purp«»ses  indicated  by  the  original 
legislation  ? 

INIr.  Butler.  And  to  carry  out  the  war-time  purposes  when  calletl  upon.  A\'e 
stand  in  readiness  in  that  event  to  either  turn  over  the  whole  plant  or  operate 
it  under  the  direction  of  the  Government. 

Mr.  :Mtller.  It  strikes  me.  Senator,  that  the  principal,  practical  obstacle  in 
the  way  of  your  plan  is  that  it  presupposes  doing  exactly  what  the  Congress 
at  the  last  Congress  refused  to  do ;  that  is,  much  to  the  regret  of  some  of  us, 
the  Congress  refused  to  complete  the  dam. 

Mr.  Butler.  Much  to  my  regret,  as  I  stated  this  morning. 

Mr.  Miller.  Your  plan  presupposes  a  complete  reversal  of  the  attitude  of 
the  Congress  as  last  expressed.  The  unfortunate,  the  very  unfortunate  situ- 
ation, that  confronts  the  Muscle  Shoals  project  is  the  enormous  cost  of  the 
development  of  the  water  powder. 

Mr.  Butler.  Yes. 

Mr.  Miller.  It  seems  like  whoever  located  it  there  has  chosen  to  locate  it 
at  a  place  where  the  development  of  the  water  iwwer  necessarily  creates  a 
power  five  or  six  times  larger  than  the  requirements  of  the  plant,  and  there- 
fore, five  or  six  times  as  expensive,  l^our  plan  is  to  have  the  (Government 
complete  this  dam  on  the  cost  plus  o  per  cent  plan. 

Mr.  Butler.  We  have  used  those  words  in  section  19.  but  the  words  have 
been  so  misunderstood  and  have  .acquired  such  different  meanings  during  the 
late  war,  that  really  we  ought  to  bave  tried  to  find  some  other  words:  but 
those  are  the  words  that  came  into  our  minds,  and  unfortunately,  we  have 
used  them. 

IMr.  IMiLLER.  Yes ;  it  is  a  bad  word  to  use. 

^Ir.  Butler.  It  was  unfortunate,  because  our  contract  is  not  a  "  cost  plus  " 
one,  as  understood  during  and  since  the  war.  We  fix  cost  by  the  lowest  bid- 
der and  simply  ask  a  5  per  cent  fee  on  that  low  and  fixed  cost. 

Mr.  ^Iiij.ER.  I'es:  we  had  a  lot  of  exi^erience  with  these  cost  i»lus  patriots 
during  the  war.  The  Nation  was  full  of  them,  and  a  very  peculiar  class  of 
patriots  they  are. 

Mr.  Butler.  There  was  no  protection  to  the  Government  about  the  cost, 
and  that  is  why  I  offered  the  amendment  this  morning  to  try  to  make  it  ab- 
solutely clear  that  the  Government  would  be  protected  under  our  contract. 

Mr  Miller,  And  your  amendment  was  very  lucid  and  covered  what  I  would 
have  called,  and  what  I  think  yon.  yourself,  realize,  a  rather  awkward  clause 
in*  the  contract. 

Mr.  Butler.  Yes. 

Mr.  ^Miller.  It  was  very  clearly  the  intenticm  of  Congress,  as  I  get  it,  al- 
though the  legislation  was  passed  when  I  was  not  a  member  of  this  commit- 
tee, that  some  such  policy  as  you  have  outlined  here  should  he  carried  out; 
that  is,  some  sort  of  an  operating  company  was  clearly  in  the  congressional 
mind  when  this  legislation  originally  passed. 

Mr.  Butler.  Yes;  I  have  so  understood. 

"3VIr.  Miller.  And  you  are  undertaking  now 

Mr.  Butler  (interposing).  Yes;  we  are  oft'ering  to  form  a  company  to  carry 
out  the  declared  purpose  in  the  national  defense  act. 

Mr.  :Miller.  As  distinguished  from  the  offer  of  the  Alabama  Power  Co.,  which 
was  exclusively  a  power  proposition,  your  offer  is  in  the  nature  of  an  operat- 
ing company. 

Mr.  Butler.  Yes. 


f 


Pt 


i> 


I 

•I 


920 


MUSCLE  SHOALS  PROPOSITIONS. 


Mr.  MiLL*ai.  To  carry  out  the  peace-time  purposes  and  also  to  stand  by  for 
war  emergencies. 

Mr.  BuTLEB.  Exactly. 

Mr.  MiLLEB.  Senator,  now,  let  us  see  just  a  moment,  what  kind  of  propo- 
sition we  can  outline  to  our  colleagues  on  the  floor  of  the  House.  In  the  first 
place,  this  proposition  of  yours  will  require  a  complete  Congressional  reversal 
of  what  was  its  policy  last  year.  You  then  take  hold  of  the  completed  plant  as 
an  operating  company  and  there  is  possibly  a  bond  for  the  faithful  performance 
of  your  duties. 

Mr.  Butler.  Yes. 

Mr.  Miller.  I  do  not  suppose  the  bond  would  guarantee  that  your  proposi- 
tion would  be  a  financial  success. 

Mr.  Butler.  It  would  bind  us  to  do  what  we  agree  to  do,  and  the  Govern- 
ment would  get  a  certain  income  or  rental  regardless  of  what  we  got.  That 
much  of  it  the  bond  would  cover,  because  that  is  definite  and  specific. 

Mr.  Miller.  And,  as  you  said  to  Mr.  McKenzie,  your  corporation  now  is  with 
empty  pockets.  It  has  no  operating  fund  to  commence  to  operate  this  plant. 
You  are  hopeful,  however,  under  economical  and  good  business  management,  to 
make  the  surplus  power  establish  a  fund  for  the  operation  of  your  plant. 

Mr.  Butler.  Yes;  but  pockets  not  entirely  empty. 

Mr.  Miller.  Operate  it  under  the  steam  power  until  your  hydroelectric  power 
comes  into  production. 

Mr.  Butler.  Yes ;  but  we  are  not  entirely  without  means,  and  our  company 
will  have  a  sufficient  .capital  for  an  operating  company. 

Mr.  Miller.  And  your  plan  is  further,  aside  from  calling  upon  the  Govern- 
ment to  complete  this  dam  at  Government  expense,  which  will  be  in  the  neigh- 
borhood of  $32,000,000,  is  it  not,  Mr.  Chairman? 

The  Chairman.  No  ;  the  Government  said  $25,000,000. 

Mr.  Miller.  $50,000,000  for  both  dams. 

Mr.  Butler.  From  $22,000,000  to  $27,000,000  have  been  the  various  figures 
submitted  before  the  committee  to  complete  Dam  No.  2. 

The  Chairman.  Of  course,  Mr.  Ford's  people  proposed  to  complete  both  dams 
for  $42,300,000.  The  Government  engineers  first  agreed  that  the  amount  would 
be  $28,000,000  apiece  or  $56,000,000,  but  when  prices  began  to  fall,  they  finally 
said  that  both  dams  could  be  completed  for  $50,000,000. 

Mr.  Miller.  And  then  again  they  gave  us  figures  of  $32,000,000  and  $19,- 
000,000  at  some  place  in  the  hearings.  You  provide  then  that  the  Government 
shall  also  expend  approximately  $7,000,000  for  the  rearrangement  of  these 
nitrate  plants. 

Mr.  Butler.  Yes. 

Mr.  Miller.  Then  that  would  call  upon  the  Congress  for  $7,000,000  more  in 
addition  to  what  it  would  take  to  complete  the  dam. 

Mr.  Butler.  Yes. 

Mr.  Miller.  Now.  by  the  expenditure  of  these  respective  sums  on  the  re- 
construction of  these  nitrate  plants,  it  would  be  your  idea  to  follow  out  the 
complete  Haber  formula  of  construction  in  nitrate  plant  No.  1? 

Mr.  Butler.  Yes;  we  know  how  to  do  it.  We  can  make  it  a  going  concern 
and  a  successful  one.     We  can  make  it  the  best  Haber-process  plant  in  the 

world. 

Mr.  Miller.  And  its  product  is  the  direct  synthetic  ammonia. 

Mr.  Butler.  Yes. 

Mr.  Miller.  Do  I  understand  that  it  is  your  plan  to  reconstruct  nitrate  plants 
so  as  to  use  the  arc  system? 

Mr.  Butler.  We  will  much  improve  the  Haber  process  with  a  new  catalyst 
and  with  an  electrolytic  cell  and  the  liquid  air  method  as  soon  as  we  have  power 
from  Dam  No.  2. 

Mr.  Miller.  Or  to  leave  nitrate  plants  under  the  cyanamid  process. 

Mr.  Butler.  Plant  No.  2  is  a  perfect  plant  for  making  nitrates  for  explosives, 
ammonium  nitrates,  and  we  would  not  interfere  with  that  plant  at  all,  except 
to  add  a  sulphuric  acid  unit. 

Mr.  Miller.  You  would  go  part  way  with  the  plant  as  it  is  now. 

Mr.  Butler.  The  processes  are  exactly  the  same  down  to  a  certain  i)oint, 
until  the  last  step  where  you  use  either  sulphuric  acid  or  nitrate  acid  in 
treating  the  ammonia.  We  would  put  in  the  machinery  and  the  unit  necessary 
to  take  up  the  process  at  that  point  and  make  the  nitrates  for  fertilizers,  leaving 
the  remainder  of  it  just  as  it  is,  ready  at  any  minute  to  make  nitrates  for  ex- 
plosives for  war  purposes. 


MUSCLE   SHOALS  PROPOSITIONS. 


921 


Mr.  Miller.  Now,  you  spoke  of  the  electric  arc  process  originally. 

Mr.  Butler.  You  mean  the  Haber  process? 

Mr.  Miller.  The  electric  arc  is  not  the  Haber  process. 

Mr.  Butler.  The  electric  process  to  which  I  referred  is  an  electrolytic  cell 
for  taking  the  hydrogen  from  the  water.  This  with  the  liquid  air  method  and 
the  new  catalyst  with  all  the  improvements  on  the  Haber  process.  I  am  not 
sure  that  I  understand  your  question. 

The  Chairman.  I  think  the  arc  process  has  been  referred  to  before  this  com- 
mittee as  the  French  process. 

Mr.  Miller.  I  am  frank  to  say  that  there  is  a  nitrogen  products  company  for 
manufacturing  nitric  acid  by  the  electric-arc  process  in  my  State,  and  it  is 
the  only  factory  of  the  kind  in  the  United  States,  but  its  product  is  direct  nitric 
acid  as  distinguished  from  ammonium  nitrate  or  anything  of  that  kind.  They 
simply  get  the  nitrogen  out  of  the  air  and  the  hydrogen  out  of  the  water. 

Mr.  Butler.  Yes. 

Mr.  Miller.  Then  the  proposition  which  we  would  have  to  lay  before  our 
<-olleagues  on  the  floor  of  the  House  would  be  that  the  Government  is  to  furnish 
the  money  to  complete  the  dam,  furnish  the  money  for  the  reconstruction  of 
these  two  nitrate  plants,  and  then  to  lease  it  to  your  company  for  its  operation. 

Mr.  Butler.  Yes.  But  the  consideration  being  the  rental  offered  and  the 
beneficial  results  to  agriculture  and  the  general  public 

Mr.  Miller.  Under  the  terms  and  conditions  specified  in  your  offer  here? 

Mr.  Butler.  Exactly. 

Mr.  Miller.  I  think  that  is  all. 

Mr.  Butler.  Please  pardon  me  to  say.  Mr.  Miller,  that  I  am  sure  that  you 
<lid  not  intend  to  put  us  in  a  false  position,  and  Mr.  McKenzie,  I  think,  used 
the  same  words  also,  that  we  "  come  empty  handed  to  the  Government."  Well, 
we  are  not  coming  to  buy  something  or  to  take  title  from  the  Government.  If 
we  were,  we  would  pay  for  it. 

Mr.  Miller.  I  did  not  mean  that  expression,  "  empty  handed  "  in  an  offensive 
way,  Senator.  I  mean  to  say  that  your  company  is  not  organized  and  has  no 
working  capital. 

Mr.  Butler.  We  are  business  men  enough  to  know  that  we  are  going  to 
give  a  bond  to  carry  out  this  contract,  and  that  until  we  make  something  from 
it,  we  are  going  to  have  to  carry  it  out  at  our  own  expense.  We  will  be  able 
to  do  that 

Mr.  Miller.  That  is  the  interesting  part  of  it  nnd  that  will  offset  what  I  may 
have  intimated  by  saying  "  empty  pockets."  What  working  fund  has  your 
company  that  we  can  assure  our  colleagues  on  the  floor  of  the  House  will  be 
put  in  as  showing  the  financial  basis  of  this  operating  company? 

Mr.  Butler.  We  are  going  to  give  a  bond  to  spend  whatever  is  necessary  to 
become   an   operating  concern. 

Mr.  Miller.  The  bond  is  for  the  faithful  performance  of  your  duty  and  not 
the  financial  responsibility  of  your  concern. 

Mr.  Butler.  We  will  specify  in  the  bond  everything  that  we  agree  to  do  in 
this  proposal.  We  specify  the  time  when  we  will  begin  to  operate  one  nitrate 
plant,  and  when  we  will  operate  both.  W^e  have  got  to  begin  to  make  nitrates 
and  we  will  have  to  furnish  the  money  if  we  have  not  made  a  profit  sufficient 
on  the  sale  of  power.  Now,  just  how  long  and  just  how  much  we  will  have  to 
finance  it,  we  do  not  know,  but  we  know  we  are  in  a. position  to  take  care 
of  it,  whatever  it  may  be.  We  are  not  offering  to  do  something  which  requires 
very  large  capital  from  us,  but  offering  a  service ;  offering  to  perform  a  function 
that  the  Government  has  declared  it  wants  performed,  and  we  are  offering  it 
as  reliable,  responsible,  respectable  citizens  to  be  backed  by  such  a  bond  as 
the  Government  will  ask  to  carry  out  in  good  faith  this  Government's  purpose, 
as  set  out  in  our  proposal. 

Mr.  Miller.  There  is  no  doubt  about  the  responsibility  of  the  citizens  and 
about  their  good  faith. 

Mr.  Butler.  Yes. 

Mr.  Miller.  But  you  know  that  in  dealings  with  people  and  with  institutions, 
the  first  inquiry  usually  is,  and  you  and  I  have  experienced  it  as  men,  the 
responsibility  of  the  company  you  are  doing  business  with. 

Mr.  Butler.  Yes. 

Mr.  Miller.  That  is  one  of  the  first  things  asked,  and  doubtless  will  be 
asked  by  our  colleagues  on  the  floor  of  the  House,  and  what  I  was  getting  at 
was  what  responsibility  this  company  has.  Now,  you  say  its  responsibility 
will  be  underwritten  by  a  bond.    I  have  never  myself  seen  that  method  ear- 


\ 


II 


922 


r'wi\ 


musc:le  shoals  propositions. 


out,  aiifl  I  am  wondorinj;  how  it  can  be  done.  I  have  had  a  good  deal 
to  do,  as  we  all  have,  with  alnjost  all  kimls  of  surety  undertakings,  but  I 
have  never  seen  a  bond  That  was  givni  guaranteeing  the  tinancial  success  of 
an  institution.  If  there  is  no  guaranty  of  the  tinancial  success  of  the  institu- 
tion, and  the  institution  itself  is  not  organized  and  we  have  no  conception 
of  its  tinancial  responsibility,  you  can  see  in  what  an  impotent  position  we 
are  in  to  explain  to  our  colleagues  on  the  flm)r  of  the  H(mse  the  technique  of 
this  offer. 

Mr.  BuTLKK.  Frankly,  we  have  gone  on  the  a.ssum])tion  that  the  bond  wouhl 
answer  those  questions.  We  have  not  as  yet  discussed  among  ourselves  just 
what  capital  we  w»nild  I'ut  into  the  company  or  how  nnich  we  would  need  tt> 
reach  the  point  when  this  will  be  a  self -opera  ting  proposition,  excei)t  in  a 
general  way.  Of  course,  if  our  proposition  appeals,  (mtside  of  that,  we  will 
put  our  heads  together  and  meet  that  situation.  We  can  anrl  we  will  do  it 
to  the  satisfaction  of  the  committee. 

Mr.  Miller.  I  will  say  this,  that  no  offer  hns  ever  been  made  nor  has  any 
suggestion  ever  been  made  to  the  Congress  along  the  lines  of  your  offer. 

Sir.  Butler.  It  is  because  we  have  proposed  to  render  a  great  public  pur- 
pose which  needs  a  subsidy,  and  we  liav^  worked  out  a  way  to  make  this 
project  subsidize  itself.  We  have  also  worked  out  a  profit  for  ourselves  and 
for  the  Government,  and  we  do  not  come  to  you  either  as  paupers  or  as  phi- 
l.Tiitropists. 

.Mr.  Miller.  I  understand  that. 

'Sir.  BuTLEK.  We  come  r<»  you  with  a  business  proposition.  We  :ire  wonder- 
fully interested,  as  you  nre,  in  what  can  be  done.  It  appeals  to  the  imagina- 
tion. It  would  api)eal  to  us  as  citizens,  but  we  are  trying  to  make  a  sound 
business  proposition  to  do  what  we  conceive  to  be  the  Government's  purpose 
and  a  great  public  service,  ami  to  do  it  at  a  reasonable  charge  for  that  service. 
Somebody  must  reiider  this  service  an<l  somebody  (mght  to  get  a  reasonable 
compensation. 

Mr.  Millek.  But  you  will  ai)pre<*iate  this  angle  of  it.  Senator:  The  Gov- 
ernment will  have  to  invest  something  over  .$30,000.(XK). 

Mr.  Butler.  Yes. 

]Mr.  Miller.  And  iv  ties  itself  up  with  your  enterprise  if  we  accept  your 
olTer.  and  the  very  first  thing  that  any  sound  business  man  wcmld  ask  about 
a  proposition  based  upon  such  a  substantial  appropriation  would  be  the  re- 
sponsibility of  the  contracting  party,  and  that  is  the  first  thing  that  every 
Member  of  the  Congress  will  ask,  What  about  the  responsibility  of  this  party 
to  whom  we  are  leasing  this  very,  very  valuable  property? 

Mr.  Butler.  We  had  not  gotten  ready  to  announce  the  organization  of  our 
company.  We  all  know  that  when  we  go  into  a  business  enterprise  we  talk  the 
matter  over  and  have  our  negotiations,  etc..  and  announce  it  when  we  get 
to  a  certain  point.  There  are  several  reasons  why  we  have  not  yet  completed 
the  organization.  But  Mr.  Engstrum.  who  signs  this  proi)osition,  is  alone 
financially  responsible  for  all  the  capital  that  we  will  need  until  we  will  be- 
come an  operating  conceriL  He  is  a  man  of  means  and  has  been  successful  in 
what  he  has  done.  Mr.  Eng>trum  does  not  pay  .$75,000,000  of  income  tax,  but 
he  pays  a  very  big  one. 

Mr.  Miller.  Doubtless  ^Mr.  Engslium  is  able  and  his  associates  are  able, 
amply  able,  to  organize  a  company  that  is  jimply  able  to  satisfy  the  Congress 
of   its   financial   responsibility. 

Mr.  Bi'TLER.  There  is  no  trouble  about  doing  that. 

Mr.  MiLLPiR.  If  that  was  <lone.  and  we  could  impart  that  assurance  to  <mr 
colleagues  on  the  floor  of  the  House,  that  we  are  <]ealing  here  with  an  institution 
that  had  .$1,000,000  or  $1,500,000  or  .$5,000,000  of  paid-up  capital,  and  they  had 
enough  faith  to  put  up  their  money,  then  we  could  say.  "  Now,  Mr.  Congress, 
you  go  ahead  and  carry  out  the  original  intention  as  expres.sed  in  this  act  and 
lease  it  to  this  company  an<l  we  then  will  operate  it  according  to  our  contract.'* 
It  was  something  of  that  character.  Senator,  that  I  had  in  mind. 

Mr.  Butler.  Mr.  Miller,  we  will  endeavor  to  meet  that  suggestion. 

Mr.  Miller.  I  just  make  those  suggestions  because  I  know  something  of  the 
temper  of  our  colleagues  on  the  floor  of  the  House. 

Mr.  Butler.  Yes. 

Mr.  WuRZBACH.  Senator,  at  the  present  time  Mi*.  Engstrum,  who  makes  this 
offer,  is  the  only  man  that  is  draling  with  the  Government. 

Mr.  Butleb.  Yes. 


MUSCLE   SHOALS    PROPOSITIOXS. 


923 


Mr.  Wt'Rzuacii.  But  it  is  contemplated  Inter  to  organize  a  corporation  to  take 
this  OTer? 

]Mr.  Butler.  Yes. 

Mr.  WuRZBACii.  What  assets  would  the  proposed  cf>nipany  have  upon  which 
to  incorporate,  outside  of  the  prospective  profits  that  wouhl  accrue  from  this 

<ontract  ? 

Mr.  BiTTLER.  I  tried  to  answer  that  in  response  to  Mr.  Miller's  question. 

Mr.  Wi  RZBACH.  I  understood  your  answer  but  I  was  just  wondering  how 
:jou  could  organize  a  corporation  and  how  you  could  get  your  charter,  and  if  you 
iot  your  charter,  how  you  could  sell  stock,  mdess  the  corporation  had  either 
tauirible  property  or  had  valuable  rights  upon  which  stock  could  be  based. 

Mr.  Butler.  Of  course,  we  can  form  a  corporation  iin<l  have  its  capital  stock 
paid  into  the  treasury,  if  necessary. 

Mr.  Wurzbach.  But  unless  there  was  some  use  for  the  money  that  would  be 
7^aid  into  the  corporation. 

Mr.  Butler.  It  will  simply  be  to  meet  any  expense  until  we  get  to  operating, 
because  the  plant  will  be  self-sustaining,  as  we  figure  it,  from  the  time  we 
begin  to  operate.  Of  course,  the  profits  will  increase  when  we  have  the  dams 
t)uilt  and  have  the  hydroelectric  power. 

Mr.  Wurzbach.  Have  you  any  reasonable  assurance,  Senator,  that  men  would 
take  stock  in  that  kind  of  a  corporation,  paying  in  cash  without  having 
assurance  of  a  return ;  that  is,  just  to  pay  the  cash  into  the  Treasury  without 
any  contemplated  use  for  the  money  that  they  are  paying  in,  because  you  do 
not  need  any  considerable  amount  of  money  because  the  Government  is  ad- 
vancing all  the  money  to  make  these  improvements.  I  was  just  wondering 
Avhat  you  would  do  with  the  money  that  was  paid  into  the  treasury  of  the 
corporation  and  whether  men  would  be  willing  to  go  into  that  kind  of  a 
proposition. 

Mr.  Butler.  We  will  not  need  a  large  capitalization ;  it  might  be  more  prac- 
ticable for  the  personnel  of  the  company  to  become  personally  responsible  in 
Addition  to  the  bond,  and  that  might  answer  the  question,  and  be  better  than 
putting  up  a  lot  of  idle  money. 

Mr.  Wurzbach.  I  think  it  would  amount  to  that  in  the  end. 

Mr.  Butleb.  It  would  amount  to  that  in  the  end,  and  that  would  settle  the 
•question. 

Mr.  Wurzbach.  Now,  I  should  like  to  ask  you  one  more  question 

Mr.  Butleb   (interposing).  And  that  is  a  matter  we  will  consider. 

Mr.  Wubzbach.  I  want  to  ask  you  just  one  question  along  a  different  line: 
I  understand  you  are  not  only  a  practical  farmer  but  also  a  scientific  farmer 
and  have  made  some  study  in  the  matter  of  soil  conservation. 

Mr.  Butleb.  I  have  had  much  experience,  and  I  have  given  the  whole  ques- 
tion much  study. 

Mr.  Wubzbach.  I  have  heard  a  great  deal  during  the  hearings  about  the 
impoverishment  of  the  soil  due  to  a  lack  or  scarcity  of  commercial  fertilizer. 
Now,,  is  it  not  a  fact,  Senator,  that  the  main  cause  of  the  poverty  of  the  soil 
on  land  that  has  been  cultivated  for  a  considerable  number  of  years  is  due 
to  the  lack  of  humus  in  the  soil? 

Mr.  Butleb.  Yes;  but  you  have  got  to  have  a  certain  state  of  fertility  to 
be  able  to  get  the  humus  in  the  soil.  You  have  to  use  a  commercial  fertilizer. 
For  instance,  you  can  not  grow  even  soya  beans,  which  is  a  leguminous  plant, 
without  some  commercial  fertilizer  to  begin  with.  All  leguminous  plants  will 
take  nitrogen  from  the  air  and  manufacture  it  and  put  it  into  nodules  on  the 
roots,  and  then  if  you  turn  it  under,  when  it  rots,  it  gives  you  a  humus.  Every 
time  you  do  that  you  have  gotten  another  step  up  to  increasing  the  condition 
of  your  soil  for  holding  fertilizers  so  that  it  will  produce  successfully.  Every 
step  builds  up.  You  can  not  begin  successfully  without  commercial  fertilizer, 
and  it  is  wise  to  supplement  the  turning  under  of  these  green  crops  like  peas 
and  soya  beans  with  commercial  fertilizers.  In  fact,  any  successful  farmer  is 
planting  and  turning  under  these  leguminous  plants  all  the  time,  but  then  he 
supplements  that  with  commercial  fertilizers,  for  then  the  fertilizers  will  pay 
best. 

Mr.  Wurzbach.  There  is  a  temptation,  is  there  not.  Senator,  on  the  part  of 
some  farmers  to  depend  too  much  on  commercial  fertilizer? 

Mr.  Butler.  Oh,  yes;  unfortunately,  with  our  rack-rent  system  in  the  South, 
especially,  it  is  terrific,  because  it  is  so  difficult  to  get  a  tenant  to  be  willing 
to  plant  any  crop  except  a  money  crop.  To  plant  a  crop  that  is  going  to  be 
turned  back   into  the  soil  means   that  he  must  be   interested  in  that  farm 


iHl  i 


024 


MUSCLE  SHOALS  PROPOSITIONS. 


enough  to  ^tay  there  for  years  and  have  a  long  lease;  everybody  who  is  on  a 
rack-rent  system  ought  to  go  to  a  long-lease  system  and  improve  the  class  of 
their  tenants  as  quickly  as  possible.  There  is  great  depletion  of  the  soil  from 
planting  just  money  crops  like  tobacco  and  cotton. 

Mr.  WuEZBACH.  And  unless  the  importance  of  turning  plant  life  back  into 
the  soil  is  kept  in  mind,  or  if  we  depend  too  much  on  commercial  fertilizers, 
the  extensive  use  and  the  increased  use  of  such  commercial  fertilizers  would 
do  more  harm  than  good  in  the  end,  would  they  not? 

^Ir.  Butler.  Of  course,  you  are  depleting  your  soil  if  you  do  not  add  humus 
and  use  only  commercial  fertilizer  and  less  than  the  plant  needs.  A  plant 
only  partially  stimulated  by  fertilizer  becomes  a  leach  on  the  soil.  Of  course, 
every  year  there  is  a  little  decomposition  of  soil  material  that  will  produce  a 
little  plant  food  anyhow,  but  if  you  stint  your  commercial  fertilizer,  the  plant 
after  drawing  up  all  the  plant  food  from  the  commercial  fertilizer  you  have  put 
in,  draws  anything  else  from  the  soil  and  leaves  it  thoroughly  exhausted.  Of 
course,  that  is  what  you  have  in  mind,  and  that  is  the  way  land  gets  poorer. 
It  is  not  the  fertilizer  that  makes  it  poorer,  but  it  is  the  plant  life  seeking  some 
more  food  besides  what  you  have  put  in.  That  is  what  makes  it  poorer.  You 
can  continue  to  make  some  sort  of  a  crop  on  any  soil  as  long  as  there  is  a 
particle  of  plant  food  left.  You  can  not  make  it  so  poor  that  you  can  not  make 
it  produce  by  adding  enough  fertilizer,  but  the  valuable  way  of  using  com- 
mercial fertilizer,  and  the  way  to  produce  the  best  results  is  to  turn  under  this 
plant  food  so  that  a  certain  amount  of  commercial  fertilizers  will  produce  twice 
as  large  a  crop  with  that  humus  in  there  as  it  would  if  you  did  not  have  it 
there.  There  is  the  key  to  the  whole  business,  and  those  of  us  who  can  control 
our  tenants  do  that.  I  will  not  have  a  tenant  who  does  not  plant  these  legumi- 
nous plants  every  year  and  turn  them  under. 

Mr.  WuRZBACH.  I  understood  you  were  posted  on  those  matters  and  I  thought 
it  would  be  proper  to  get  this  information  in  the  record. 

Mr.  Fields.  Senator,  you  are  acting  upon  the  prnciple  or  holding  to  the  theory 
that  the  production  of  plant  food  at  Muscle  Shoals  should  be  given  hrst  con- 
sideration and  anything  else  is  secondary  to  that. 

Mr.  Butler.  During  peace  times. 

Mr.  Fields.  I  was  speaking  of  peace  times. 

Mr.  Butler.  But  I  think  we  should  also  have  in  mind  keeping  these  plants 
available  in  times  of  war. 

Mr.  Fields.  My  question  would  have  covered  both  angles  of  the  proposition  if 
I  had  said  nitrogen  instead  of  plant  food. 

]Mr.  Butler.  Yes ;  we  need  more  plant  food.  There  is  great  need  for  it.  We 
will  soon  be  without  any  Chileah  nitrates. 

Mr.  Fields.  What  duty  are  we  paying  on  Chilean  nitrates? 

Mr.  Bi'TLER.  ,$11  a  ton,  I  think,  is  the  export  duty  which  we  pay  as  a  bounty 
to  the  Chilean  people.  That  is  a  tax  on  our  farmers  amounting  to  $11  a  ton, 
and  it  is  a  frightful  tax. 

Mr.  Fields.  What  is  the  present  cost  of  the  Chilean  nitrates  to  the  fertilizer 
industry  of  the  country. 

Mr.  Butler.  It  has  been  fluctuating  very  much  in  price.  I  should  say  that 
it  is  now  something  like  $48  or  $50  a  ton.  Of  course,  during  the  war  it  was 
over  $100.  It  was  $65  a  ton  a  little  while  ago;  I  have  bought  it  all  the  way 
from  $45  to  $110.  I  think  it  is  now  $48  or  $50.  It  fluctuates  all  the  time  and 
really  fluctuates  without  any  cause  whatever.  It  can  be  put  up  or  down 
because  it  is  a  monopoly. 

Mr.  Fields.  At  any  rate,  the  price  is  now  somewhere  around  $40  a  ton,, 
and  practically  one-fourth  of  that  is  a  duty  paid  to  the  Chilean  Government. 

Mr.  Butler.  Yes.  I  have  known  it  to  go  up  in  price  without  any  apparent 
cause  $5  or  $10  in  a  week.  It  is  an  arbitrary  figure.  I  think  they  figure  how 
much  we  can  pay  for  it  and  still  live  and  keep  buying  it.  It  is  a  question 
of  what  the  traflic  will  bear.    That  is  all  there  is  to  it.    We  are  just  held  up. 

Mr.  Fields.  The  question  of  your  proposed  bond  has  been  discussed.  Have 
you  discussed  with  the  Secretary  of  War  the  amount  or  character  of  bond  that 
he  would  require  or  the  amount  of  bond  that  he  feels  should  be  required  in 
the  case  of  a  contract,  such  as  you  are  now  proposing? 

Mr.  Butler.  Yes;  we  had  two  hearings  with  him  on  this  proposal.  He 
noted  and  made  comment  on  the  fact  that  we  had  agreed  to  give  a  bond 
satisfactory  to  the  Governement.  And,  furthermore,  that  no  matter  how  much 
capital  we  had  or  how  wealthy  we  were,  it  was  the  proper  thing  to  require  a 


MUSCLE   SHOALS  PROPOSITIONS. 


925 


bond.     We  will  not  object  to  any  kind  of  bond  required;  it  can  not  be  to«j 
technical  or  strict  for  us,  because  we  can  carry  out  w^hat  we  agree  to  do. 

Mr.  Fields.  After  discussing  the  matter  with  the  bonding  companies  you 
determined  that  you  could  meet  any  requirements? 

Mr.  Butler.  Yes. 

Mr.  Fields.  If  I  have  followed  you  correctly,  your  income  in  this  proposi- 
tion is  to  be  derived  from  three  sources :  First,  from  the  sale  of  power ;  and 
second,  from  the  sale  of  the  products ;  and,  then,  from  your  cost-plus  fee  on  the 
construction  ? 

Mr.  Butler.  The  fee  is  limited  to  the  period  of  construction;  under  the 
lease  our  income  is  derived  entirely  from  the  sale  of  power  after  paying  the 
Government  a  rental  of  1  mill  per  kilowatt  hour  on  all  power  sold. 

Mr.  Fields.  As  I  understand  you,  it  is  immaterial  to  you  whether  or  not  tho 
GoA-^rnment  employs  you  under  that  method  to  complete  the  construction  or 
completes  the  construction  itself? 

Mr.  Butler.  Exactly.  But  we  are  interested,  if  we  are  to  have  the  plant, 
that  the  construction  work  shall  be  first  class  in  every  respect.  We  have  made 
a  special  point  on  that,  because  we  want  the  highest  kind  of  construction, 
the  most  durable  construction  possible,  and  we  will  probably  be  more  insistent 
on  that  particular  point  than  the  Government  itself. 

Mr.  Fields.  You  would  be  insistent  on  that  point  whether  the  work  was  done 
by  you  or  by  the  Government? 
^  Mr.  Butler.  Yes. 

Mr.  Fields.  Eliminating  the  fee  for  construction,  you  have  two  other  sources 
of  income  from  this  proposition.  Let  us  take  up  the  first  one,  the  income 
from  the  sale  of  powder.  Have  you  made  an  estimate  as  to  what  your  income 
would  be  on  the  sale,  say,  of  100,000  horsepower  per  annum,  what  would 
accrue  to  the  Government  and  how  nnich  to  yourselves? 

Mr.  Butler.  We  have  not  beeu  able  to  do  that  with  any  more  accuracy 
than  this  committee  has  been  able  to  determine  from  the  testimony,  for  in- 
stance, which  I  heard  yesterday  and  the  day  before  from  some  gentlemen  that 
are  in  the  business,  as  to  what  they  expect  to  sell  their  power  for.  We  know^ 
generally  what  power  is  being  sold  for,  to  the  different  kinds  of  industries; 
we  have  had  to  figure  on  what  we  think  we  can  sell  this  power  for  as  a  mini- 
mum, and  we  will  have  for  our  customer  these  companies  that  are  now  dis- 
tributing it.     We  are  wholesalers  of  powder. 

Mr.  Fields.  There  is  no  other  information  upon  which  you  could  figure  at 

this  time? 

Mr.  Butler.  Certainly  not;  there  was  no  other  way  in  which  to  draw  this 
proposal  with  that  kind  of  information.  We  think  we  can  come  out  w^hole  on 
it,  after  paying  a  decent  and  liberal  rental  to  the  Government.  We  have  done 
the  best  we  could. 

Mr.  Fields.  I  realize  most  thoroughly,  Senator,  the  disadvantage  at  which 
you  were  placed  in  estimating  in  order  to  make  a  calculation  of  that  char- 
acter. 

Mr.  Butler.  It  has  been  very  difllcult  to  do  it. 

Mr.  Fields.  From  such  estimates  as  you  were  able  to  make,  about  what 
amount  do  you  figure  would  go  to  the  Government  on  the  sale  of  100,000  horse- 
power, and  about  what  per  cent  would  go  to  your  company?  I  wish  you 
would  tell  us  that  so  we  will  have  some  knowledge  as  to  what  per  cent  of 
the  income  would  go  to  you  and  what  per  cent  to  the  Government. 

Mr.  Butler.  Let  us  suppose  that  we  sell  power  for  a  mill  and  a  half  per  kilo- 
watt hour,  which  is  one  figure  named  by  the  Alabama  Power  Co.  on  yes- 
terday; the  Government  gets  1  mill  and  we  would  get  the  remaining  half 
mill.  There  you  are.  It  is  just  a  question  of  what  you  can  sell  the  power  for. 
In  that  case  the  Government  gets  $2  for  every  $1.    We  get 

Mr.  Fields.  By  the  terms  of  your  contract  the  Government  gets  1  mill? 

Mr.  Butler.  Absolutely.  If  we  do  not  sell  it  for  more  than  1  mill,  the 
Government  gets  all  of  it,  but  under  the  provisions  of  our  bond  we  have  to 
go  ahead,  without  any  profit  on  it  at  all. 

Mr.  Fields.  What  you  get  above  1  mill 

Mr.  Butler  (interposing).  Is  our  profit.  We  state  in  one  of  the  para- 
graphs of  the  contract  that  our  compensation  shall  come  entirely  from  that 
source. 

Mr.  Fields.  And  on  the  price  fixed  by  the  Alabama  Power  Co..  or  on  that 
figure  that  we  would  regard  as  the  price,  from  the  testimony  of  the  president 


Hi 


W" 


926 


MUSCLE   SHOALS  PROPOSITIONS. 


of  the  Alabama  Power  Co.,  you  would  make  your  calculation  at  1  mill  to  the 
Government  and  i  mill  to  yourselves? 

Mr.  Butler.  On  one  estimate  he  made  yesterday.  I  hoped  that  we  would  do 
better  than  that,  and  I  must  say  I  was  not  very  comfortable  to  hear  him  figur- 
ing that  way.  The  sale  depends  very  largely  upon  the  bids  which  will  come 
from  the  other  companies  around  there,  in  bidding  against  each  other.  In 
fact  when  there  is  the  greater  demand  for  the  power  it  will  be  bid  up,  and 
as  the  development  of  the  country  increases,  and  the  sale  of  power  increases 
of  course,  the  money  profit  will  go  up.  The  power  companies  will  soon  be 
bidding  against  each  other  for  the  power  that  we  are  producing.  Thev  will 
want  to  deal  with  us,  and  they  will  be  bidding  against  each  other,  and  so  we 
will  be  m  an  advantageous  position. 

Mr.  Fields.  You  can  not  suffer  by  reason  of  the  competition  among  the 
other  companies?  &      ^ 

^i^/u^^^I^*  ^**'  ^^'^  ^'^"  P^^^*  ^y  it— and  the  whole  countrv  around  will 
profit  by  It.  Some  of  this  power  should  be  sold  to  the  people  and 'the  industries 
in  a  circle  around  Muscle  Shoals.  So  we  expect  to  wholesale  this  power  to  those 
who  most  need  it. 

Mr  Fields.  Roughly  speaking,  about  what  percentage  of  the  power  would 
you  figure  you  would  put  into  the  production  of  nitrates  and  what  percentage 
would  you  market? 

Mr  BvTLEB.  No  one  can  tell  until  we  finished  them  just  exactly  the  number 
y  ^^^  1^  7^]i  require  to  keep  them  going,  but  we  estimate  anywher? 
from  75,000  to  100,000  kilowatts,  and  the  rest  of  it  would  be  for  sale.  But 
how  much  we  can  sell,  and  at  what  price,  is  yet  to  be  determined. 

-.K  o/?^^*^^®^  *^^"^'  ^®  ^^"^^  ^^^®  *<>  r""  tb^  steam  plants  for  at  least 
15  or  20  per  cent  of  each  year  in  order  to  have  much  power  to  sell,  after 
.  running  both  nitrate  plants.  If  we  have  contracted  to  sell  power  at  a  certain 
price  we  may,  in  some  years,  have  to  run  the  steam  plant  longer  than  in  other 
years,  and  that,  of  course,  would  cut  down  our  profit. 

Mr.  Fields.  With  dam  No.  2  completed  and  supplemented  during  low  water 
periods  by  the  steam  plants,  what  do  you  figure  you  could  make  from  the 
maximum  production  of  power  there? 

Mr.  Butler.  It  is  possible  to  make  440,000  kilowatts  if  we  were  to  run  all 
tlic  steam  power  to  supplement  the  water  power  to  its  full  capacitv  except 
during  flood  water.  We  can  produce  the  440,(K)0  kilowatts  for  everV  dav  in 
tl)e  year,  if  it  will  pay.  But  you  can  understand  that  we  will  reach  a  point 
when  it  will  not  be  profitable  to  run  the  steam  plants. 

Mr.  Fields.  When  you  supply  the  market  you  have  to  quit^ 

Mr.  Butler.  Exactly.  When  we  reach  the  point  when  it  does  not  pav.  we 
have  to  stop.  It  depends.  If  it  would  pay.  we  could  make  440.000  kilowatts 
every  day  in  the  year. 

Mr.  Fields.  What  iiercentage  of  the  440.000  kilowatts  would  be  require<l  to 
operate  the  two  nitrate  plants? 

Mr.  Butler.  From  75.000  to  100,000,  is  the  estimate. 

Mr.  Fields.  Your  next  source  of  income  is  from  the  sale  of  vour  ])ro(luct. 
Will  you  explain  briefly— and  you  may  have  explained  it  alreadv,  but  I  di.l 
not  get  it  very  clearly  in  my  mind— just  how  you  figure  out  theGoveriinient 
is  going  to  have  an  a<lvantage  on  that  proposition? 

Mr.  Butler.  It  is  this  way:  How  to  protect  the  public  from  having  the 
products  going  into  the  hands  of  a  trust  after  the  (Jovernmeiit  si)ends  its 
money,  was  one  of  the  difliculties  we  had  to  face.  So,  finally,  we  provided 
that  the  nitrates  shall  be  sold  at  a  price  subject  to  the  approval  of  the  Secre- 
tary of  Agriculture. 

Mr.  Fields.  You  were  willing  to  leave  the  amount  of  your  profit  to  the  de- 
cision of  the  Secretary  of  Agriculture? 

Mr.  Butler.  No;  our  profit,  comes  from  the  sale  of  power  not  needed  to 
run  the  nitrate  plants,  and  the  1  mill  per  kilowatt  hour  to  be  paid  to  the 
Government  is  to  be  first  used  to  finance  the  making  (jf  nitrates  as  long  as 
they  are  made  at  a  loss.  Now  if  the  selling  price  of  nitrates  is  fixed  too  low, 
we  will  not  be  able  to  finance  the  maximum  output  of  the  plants.  We  would 
be  forced  to  run  on  .short  time.    This  is  a  serious  phase  of  the  matter. 

Mr.  Fields.  Instead  of  fixing  a  maximum  profit  that  you  shall  not  exceed, 
you  leave  the  matter  open  and  in  the  hands  of  the  Secretary  of  Agriculture? 

Mr.  Butler.  Yes,  sir;  just  leave  it  right  open,  except  that  we  are  to  make 
no  profit  on  nitrates.  I  will  tell  you  how  it  will  work.  We  have  provided 
that  we  are  going  to  make  all  of  the  nitrates  tliat  can  be  made,  and  that  the 


MUSCLE   SHOALS  PROPOSITIONS. 


927 


money  that  comes  from  the  sale  of  this  power  is  to  be  used,  if  necessary,  to 
the  extent  of  1  mill  per  kilowatt  hour,  in  financing  any  loss  on  the  sale 
of  nitrates.  Therefore,  if  the  Secretary  was  to  fix  the  price  so  low  as  to 
exhaust  this  financing  fund,  then  we  would  have  to  stop  when  it  was  ex- 
hausted. To  this  extent  we  will  be  affected  bv  the  price  which  the  Secretary 
of  Agriculture  may  fix. 

Mr.  QuiN.  Senator  Butler,  this  proposition,  from  my  analysis,  appears  to 
be  twotold.  Ihis  supposed  corporation  and  lessee  named  by  Mr.  Engstrum 
is  to  be  in  the  position  of  a  contractor  doing  construction  work  and  fin'shin*' 
the  dam  and  changing  the  plants,  first.  After  that  is  done  and  the  Govern- 
ments expends  that  profit  of  5  per  cent,  which  it  gives  to  the  contractor 

Mr.  Butler  (interposing).  Not  a  profit;  that  is  to  cover  the  overhead  charges. 

Mr.  QuiN.  The  Government  Is  bound  to  pay  this  5  per  cent  above  the  actual 
cost  of  the  work. 

Mr.  Butler.  The  Government  pays  in  all.  simply  5  per  cent  above  what 
the  lowest  bidder  bids  to  do  each  piece  of  work  for. 

Mr.  QuixN'.  That  is  not  the  way  I  understand  it. 

Mr.  Butler.  If  he  bids  to  do  it;  we  w:ll  say,  for  $100,  and  he  carries  out 
hs  contract  and   the  work   is  done,   the  Government  pays  in  all  onlv  $105 
That  is  all  there  is  to  it. 

Mr.  QuiN.  The  other  function  of  this  lessee  would  be  to  operate  the  nitrate 
plants  as  stated  in  here. 

Mr.   Butler.  Yes. 

Mr.  QuiN.  And  to  dispose  of  all  the  power  generated  either  by  the  hydroelectric 
method  or  by  the  steam  plant.  That  is  what  I  understand  the  function  of 
this  lessee  would  be. 

Now,  it  is  not  disclosed  ht^re  who  this  lessee  :s.  You  have  been  a  Member 
of  the  United  States  Senate,  and  you  know  the  responsibility  which  is  upon 
this  committee.  Suppose  th  s  committee  were  to  report  to  the  House  that 
the  proposition  of  Mr.  Engstrum  be  accepted.  Do  you  not  think  that  the 
first  question  that  would  be  asked  by  the  Members  of  the  House  and  in- 
terested people  in  the  United  States  would  be:  Who  is  Engstrum.  and  who  is 
the  unnamed,  unchartered  corporation  that  is  the  lessee?  That  is  the  natural 
inference,  is  it  not? 

Mr.  Butler.  Yes. 

Mr.  QuiN.  We  could  not  answer  that  question.  There  is  not  in  this  proposi- 
tion a  single  line  that  would  bind  Mr.  Engstrum,  and  this  unchartered,  un- 
known corporation,  named  as  the  lessee  of  course,  could  not  be  bound.  In 
order  to  bind  it  it  would  have  to  have  a  domicile  and  a  suflicient  capitalization. 
Then  we  would  be  gone  there.  Do  you  not  think  you  ought  to  disclose  to  this 
committee  who  these  organizers  will  be  and  something  about  the  amount  that 
the  capital  of  such  a  lessee  corporation  may  be,  in  order  that  this  committee 
may  make  any  kind  of  an  intelligent  report? 

Mr.  Butler.  We  have  agreed  to  meet  that  point. 

Mr.  Qu^N.  You  admit  that  it  is  simply  a  matter  of  dealing  up  in  the  air 
as  to  that  proposition,  as  to  who  make  up  this  corporation,  and  what  its 
financial  responsibility  is. 

Mr.  Butler.  I  again  make  the  same  answer. 

Mr.  QuiN.  You  can  readily  see,  Senator,  as  a  lawyer,  that  if  this  proposition 
were  accepted  by  the  Congress  and  passed,  there  is  nothing  to  bind  anybody  and 
no  financial  damage  would  result  to  anybody,  and  if  Mr.  Engstrum  were  in  the 
rOle  of  a  speculator  looking  to  somel)ody  to  finance  this  proposition,  or  to  form 
a  corporation  to  go  into  it,  and  he  failed,  then  under  the  law  he  would  not  be 
liable  for  a  dollar,  and  this  unknown  institution  could  not  be. 

Mr.  Butler.  I  see  your  point  and  realize  its  force.  That  is  the  same  point, 
however,  that  has  been  raised  before  several  times,  and  my  answer  is  the  same 
as  before. 

Mr.  QuiN.  I  take  it  you  must  be  a  pretty  big  business  man  to  be  able  to  con- 
duct this  big  farm  you  have  through  all  these  yeai*s  and  nut  go  broke. 

Mr.  Butler.  I  admit  that  it  has  put  some  grey  hairs  in  my  head,  to  be  able 
to  run  that  farm  and  not  go  broke:  and  I  agree  that  it  requires  considerable 
business  capacity,  because  I  have  been  able  to  succeed  at  everything  else  I  have 
undertaken  much  better  than  I  have  been  able  to  succeed  at  that. 

Mr.  Wright.  I  do  not  know  that  I  understand  yet  just  the  terms  of  this 
proposition,  as  to  what  the  lessee  will  derive  from  the  lease  and  what  the  Gov- 
ernment will  get. 


I 


J 


I 


92900—22- 


59 


928 


MUSCLE  SHOALS  PROPOSITIONS. 


Mr.  Butter.  First  we  will  use  enough  power  to  serve  both  nitrate  plants,  and 
then  we  will  sell  the  remainder. 

We  will  devote  1  mill  per  kilowatt  hour  and  put  it  in  a  trust  fund,  if  you 
please,  for  that  is  what  it  amounts  to,  to  be  used  in  financing  the  making  of 
these  nitrates  now,  because  you  can  not  make  them  at  a  profit  now,  and  we 
want  to  begin  selling  it  at  once  even  at  a  loss.  Somebody  has  to  pay  for  the 
difference  until  we  can  make  them  at  a  profit,  and  then  we  will  turn  the  whole 
sum  into  the  Treasury;  and.  afterwards  if  we  make  fertilizer  at  a  profit,  the 
profit  on  the  fertilizer  goes  into  the  Treasury  along  with  1  mill.  We  did 
not  attempt  to  figure  the  income  to  the  Government  or  what  the  return  from 
the  fertilizer  would  be  because  that  can  not  now  be  determined.  But  everybody 
can  see  that  if  we  were  to  run  along  and  finally  make  fertilizer  at  a  profit  of  $5 
a  ton  or  more,  that  under  this  provision,  the  revenue  from  that  fertilizer  and 
the  1  mill  per  kilowatt  hour  will  all  go  into  the  Treasury,  because  we  provide 
specifically  that  we  do  not  take  any  profit  from  the  fertilizer.  Our  profit  will 
come  entirely  from  what  we  may  be  able  to  sell  power  at  over  the  1  mill  per 
kilowatt  hour. 

Mr.  Wright.  As  I  understand  the  general  proposition  is  that  the  lessee  will 
be  carrying  out  the  pui-poses  and  intentions  of  the  Government  as  originally 
expressed  in  the  national  defense  act,  instead  of  the  Government  doing  that 
itself  as  a  Government. 

Mr.  Butler.  Yes. 

Mr.  Wright.  It  would  be  doing  it  through  the  lessee,  and  you  propose  that 
this  company  shall  be  the  lessee. 

Mr.  Butler.  Yes. 

Mr.  Wright.  That  being  done  under  the  terms  of  this  proposition  would 
not  the  whole  thing  be  a  venture*  so  far  as  any  profit  to  the  lessee  or  any 
dollars  going  into  the  Treasury  of  the  Government  would  be  concerned?  It 
would  depend  altogether,  would  it  not,  on  the  success  of  the  venture? 

Mr.  Butler.  There  is  no  possible  chance  for  us  to  fail  under  this  proposal. 
We  will  use  only  a  part  of  the  power  to  run  both  nitrate  plants ;  the  remainder 
of  the  power  we  will  sell;  1  mill  per  kilowatt  hour  of  that  sum  goes  to  the 
Government  and  all  we  get  above  that  goes  to  us.  How  can  anybody  fail  at 
that?  Now,  as  long  as  we  have  to  make  nitrates  at  a  loss,  then  the  1  mill 
will  be  used  to  finance  such  loss. 

Mr.  Wright.  Do  you  not  propose  to  devote  the  entire  income  from  the  water- 
ix)wer  to  the  production  of  fertilizer? 

Mr.  BUTI.ER.  No ;  we  propose  to  devote  1  mill  per  kilowatt  hour,  and  anything 
that  we  can  sell  i)ower  for  in  excess  of  that  is  our  compensation  for  acting  as 
the  lessee  of  the  Government  carrying  out  its  purpose. 

Mr.  Wright.  So  that  part  the  waterpower  may  produce  will  be  limited  to  1 
null  per  kilowatt,  in  so  far  as  aiding  the  production  of  fertilizer  is  concerned. 

Mr.  Butler.  We  use  all  the  power  needed  to  run  the  two  plants,  but  1  mill 
per  kilowatt  is  used  to  finance  any  loss  on  the  fertilizer.  Suppose  the 
Secretary  of  Agriculture  says  sell  it  for  $10  a  ton  less,  because  of  the  export  bonus 
on  the  Chilean  nitrate.  We  would  have  1  mill  per  kilowatt  hour  to  finance 
that  loss.  When  we  are  a  going  concern,  it  finances  itself;  we  have  worked 
out  a  scheme  to  do  it,  to  make  the  fertilizer  at  a  profit  sooner  or  later.  We 
will  not  be  able  to  make  the  fertilizer  by  this  process  at  a  profit  now  unless  we 
called  on  Congress  to  subsidize  the  loss.  So  I  felt  that  we  had  to  work  out 
a  scheme  under  which  this  power  would  finance  this  proposition. 

Mr.  Wright.  It  is  not  really  contemplated  that  the  Government  would  make 
a  profit  out  of  this  enterprise,  unless  1  mill  per  kilowatt  hour  was  not  utilized 
or  required  to  go  into  the  production  of  fertilizer. 

Mr.  Butler.  If  it  is  not  required  for  this  pui*pose,  then  it  goes  directly  into 
the  treasury. 

Mr.  Wright.  If  it  is  required  for  the  fertilizer  the  Government  would  not  get 
anything. 

Mr.  Butler.  If  the  Government  wants  to  make  nitrates  for  the  farmers  re 
gardless  of  cost,  then  we  say  the  only  way  you  can  do  it  is  either  by  using 
this  money  from  the  sale  of  power  for  this  purpose,  or  else  make  an  appropria- 
tion from  which  to  subsidize  the  business. 

Mr.  Wright.  From  your  viewpoint  the  Government  would  have  this  gigantic 
plant  operated  to  carry  out  the  original  purpose,  whether  it  meant  any  dollars 
to  the  Government  or  not. 

Mr.  Butler.  Yes;  but  with  the  almost  certain  prospect  of  soon  doing  it 
at  a  profit. 


MUSCLE  SHOALS  PROPOSITIOKS. 


929 


Mr.  ^^  right.  And  the  source  of  the  Government's  revenue  would  be  derived 
from  this  1  mill  per  kilowatt  hour,  that  is,  if  this  1  mill  per  kilowatt  hour 
was  not  needed  to  go  into  the  production  of  fertilizer  it  would  go  into  the 
Treasury  of  the  Government. 

Mr  Butijr  Yes ;  of  course  in  addition  you  have  that  plant  there  producing 
nitrates  and  fertilizers  for  the  benefit  of  agriculture  and  also  a  plant  readv 
for  the  national  defense  in  time  of  war;  and  that  is  one  of  the  important 
features  of  this  proposition. 

Mr.  Wright.  It  is  a  very  vital  element  in  this  proposition 

Mr.  Butmr.  It  is  a  very  vital  element  and  it  is  a  service  which  we  are 
rendering.  If  we  reach  a  time  when  fertilizer  can  be  sold  at  a  profit  then  the 
revenue  goes  to  the  Government,  too,  because  we  do  not  take  any  of  the  profits 
that  would  be  made  on  that;  that  would  go  into  this  trust  fund,  and  it  goes 
SnTtfpW  ^i,-**"!-!-^  mill  into  the  treasury.  It  is  a  part  of  the  trust  fund  for 
hnancmg  this  thing.  AVe  use  that,  along  with  the  1  mill,  for  operating  expenses 
until  we  can  make  a  profit,  and  then  the  surplus  goes  into  the  Treasury,  what- 
ever It  comes  from.  "" 

Mr.  Wright.  Having  furnished  the  power  necessary  to  operate  the  plants 
there  may  be  some  doubt  about  getting  the  1  mill  per  kilowatt  hour,  and  then 
cduld'it?  ^  *^^"^^  "*^^  ^^  profitably  and  economically  produce*!, 

Mr.  Butler.  Unless  we  subsidized  it  with  1  mill 

Mr.  Wright.  I  am  counting  that,  Senator. 

Mr.  Butler.  We  can  do  it  from  the  start  from  the  sale  of  power. 

i.J^^'I^^l''^'^'J''''  ""^^'^  '^  y^""  ^^^  ^^®  P^wer  to  operate  the  plants  from  this 
hydroelectric  steam  power.  */  «  lo  xxum  mi& 

Mr.  Butler.  Yes. 

Mr.  Wright.  That  goes  into  the  cost  of  the  production  of  fertilizer^ 
Mr.  Butler.  Yes. 

Mr.  Wright.  Then  you  add  this  1  mill  per  kilowatt  hour'^ 

Mr.  Butler.  We  know  we  can  sell  it  for  that  and  more 
vn»  ;a^^^'''''i'-  ^^t  qjestioi,  is  whether,  under  those  conditions,  vou  are  sure 
jou  can  produce  it  at  such  cost  that  it  can  be  sold  at  a  price  at  which  the 
American  farmer  can  afford  to  buy  it' 

o«^^^?J'''''^^  J^f  "^"^  ''l'^'^^'^  ^^"  **  ^^^0^^  t^^  present  cost  of  Chilean  nitrates 
and  make  up  the  loss  as  long  as  may  be  necessary  from  this  1  mill  per  kilowatt 
hour,  which  we  will  have  for  this  use  from  the  Lie  of  all  pou^r  This  rnXs 
cheap  nitrates  and  cheaper  fertilizers  sure.  P">ver.    j.nis  manes 

Mr.  Wright.  You  were  speaking  about  the  cost  of  nitrates     I  am  a  sm«ii 
'TI^Ttolf:  rZr'""'  *'"*  '"''  *'"'='"^*''^'  *•"*  *^  >ast  quotaUoS;  ?  thTnk. 

Mr.  Butler.  It  has  fluctuated  much  recently 

Mr.  Wright.  You  think  there  is  no  doubt  that  the  lessee  could  nroduce  ni 
trates  there  at  a  very  much  less  price  than  that  to  the  farmer  ^ 

Mr.  Butler  We  can  not  by  the  present  process,  with  Chilean  nitrates  around 
!!.''/'''''  Z'^^""']^  a  subsidy.    But  our  proposal  provides  to  furaVsh  that  sub 
feidy  from  the  sale  of  excess  power  as  long  as  may  be  necessarv     We  pv^a^^ 

nroV^'^^'T'.'^.^l"^^"  *^  ^^^^  "^t^^t^«  ^t  ^  cost  iess  tha^XTost^f  ChS 

mmemU«^^^^  ^  P'^^*'     ^'^^'^^^^y  «^Pects  this  to  come  from  im 

piovements  in  the  Haber  process. 

Mr.  Wright.  Have  you  considered  the  far-reaching  results  that  misht  como 
fiom  the  operation  of  this  great  plant  on  the  production  of  fertilizer ?^^ 
Mr.  Butler.  It  is  simply  staggering. 

crop^^'"'"''-  ^'""^  ^^^"^  '*  "^^"^^  "^*  ^"^-^^  ^^«bl^  the  farmer  to  produce  more 

Mr.  Butler  (interposing).  But  cheaper. 

it  1'^  )T  v?^'^'.  -"^t  cheaper  prices  than  he  can  afford  to  sell  them  for  now  and 
It  \yould  likewise  lower  the  cost  to  the  consumer'  '  *^  " 

Mr.  Butler.  Yes ;  the  benefits  will  be  Nation  ^vlde 
Mr.  Wright.  It  is  not  for  the  benefit  of  any  particular  section? 

-achinTt"  eveJy  p^son'^n  ^^^^^^^^^^^  ^  ^^^"^^"^^"^  governmental  function, 

Mr.  Wright.  Of  great  national  scope? 

Mr  W^R^rrl"!;  V^""^  ^"t""^  national  scope  that  it  is  a  governmental  function. 
Air.  VV  right.  It  almost  reaches  into  world-wide  scope? 
Mr.  Butler.  Yes;  to  an  extent. 


|i 


J 


930 


MUSCLE  SHOALS   PROPOSITIONS. 


Mr.  Stoll.  You  state<l,  tins  iiiorninc:.  that  you  are  one  of  five  directors  of 
this  proposed  company? 

Mr.  Butler.  Yes. 

IVIr.  Stoll.  Wlio  are  the  other  four  directors?  .     . 

Mr  Butler   Mr.  Engstrum  will  he  one.    We  have  not  asked  the  permission  of 
•our  associates  to  announce  the  full  directorate.     There  would  be  three  others. 
Two  would  be  named  by  the  Government  and  the  other  three  by  the  company- 
there  will  be  7  in  all.  ..^  .^^ 

Mr  Stoll.  Is  INIr.  Duke  to  be  connected  with  it?  rru^^ 

Mr  Butler.  Not  unless  some  arrangements  are  made  from  now  on.  ihere 
is  no  understanding  with  him  now,  direct  or  indirect,  in  regard  to  the  matter. 

Mr.  STOLL.  Is  the  Virginia-Carolina  Chemical  Co.  to  be  connected  with  it? 

Mr  Butler.  No.  In  regard  to  Mr.  Duke,  I  say  to  you  frankly,  I  do  not 
wnn^'to  be  putin  the  position  of  saying  that  I  am  glad  that  he  is  not  con- 
neSed  withTe  company,  because  I  have  respect  for  him  as  a  business  man; 
but  I  have  made  no  effort  to  be  associated  with  him  and  he  has  made  no 
effort  to  bl  Associated  with  us,  and  he  is  not  associated  with  Mr.  Engstrum  or 
mX^ereZs\ey^^  ^^^''  ^^^  communication  between  us  about  this  matter 

'%flZ.^^lTllv.  Engstrum  is  a  contra  ctor-that  :s  his  business? 

^.  S^I  b^nU^^U^SXt  the  5  per  cent  that  you  provide  for  in 

^^^^^^Vi^r^TlS^is^^?!^^  an  engineer  is  10 

per  cent. 

Mr.  Stoll.  Well,  he  is  an  engineer. 

Mr.  Butlee.  Yes.  ,  , 

Mr    Stoll.  Did  von  not  state  tliat  is  the  usual  price? 

Mr   Rt^ttfti   That  is  the  usunl  engineer's  mininnim  price. 

Mr!  ItJ^mT  Enl^rrum  is  an  en.ineor.  WouUl  it  not  be  «/«««  ^here 
tlon  for  Mr  Engstnini  i(  lie  <oulfl  set  tl.is  work  oonipleteil.  on  wh  ch  there 
would  be  an  expe.  -Uture  of  sonu'tUn^-  like  twenty  or  twenty-flve  million  do - 
lfl?rwlth  a  fee  of  r,  per  eent?  Would  that  not  be  a  good  proposition  for  hiiu 
to  geTlha?  M,  even  ff  none  of  the  other  part  of  the  thing  was  eyer  earned 

'"Mr^Btm,™.  T  say  frankly  that  we  are  interested  less  In  the  construction 
than  we  are  in  the  lease. 
7r  lt"^'^>  haletuJ";;  Tthe  construction  as  well  as  the  operation 

''\VVr  ?'did"n^Tsk  i::'lC^^T\  asked  you  the  direct  ques- 
tion w™ld  it  not  be  a  good  proposition  for  Mr.  Engstrum,  he  being  an  en- 
efn^rW  he  could  get  "he  5  per  cent  provided  for  in  section  19  on  a  conti^ct 
f"Zk  size?  ^d  then  after  it  was  done  the  other  part  could  go  to  the  bow- 

^™Mr'  rTX.rHe1ould"ro-ibrmrknmnrproflt  out  of  the  construcHon 
He  ou^Ho   b"  he  can  make  more  out  of  the  leases,  and  his  bond  would 

'Tr'sToS.  If XaT U  Z  :^t  etTneer-s  fee.  it  must  be  a  good. proposition 
^l'  TUTTTFiT  Yes-  but  I  sav  to  you  frankly  that  in  our  figuring  out  this 

'"Mr'Toi^i'Xflhe  fact  remains  that  Mr.  Engstruni's  business  is  that  of 

*'Vr"t.1^."lfTe'wrnot  responsible  and  could  not  give  a  bond,  he  could 

"llfVo"!  TTtThlsTu'sTnels  and  it  would  be  a  good  business  proposition 

'"m'^But^^  No"  ns  good  as  some  that  he  1ms  had.  or  as  the  lease  under  this 

"'^Rrtori,   One   million   two   hundred    and    fifty   thousand   dollars    sounds 

"'^'J  g^'Hrhas  bin  Sng  l^Itt^r-  than  that.    But  then  let  the  Goveriv 
M'  BUTLEB.  He  ""?»**"  "      i*  jf  jj^   Government  will  finish  that  dam.  then 
rar;;ia^Tto  ?ease  ;td%re  the  ^a'n?  under  the  terms  of  this  proposal. 


MUSCLE   SHOALS  PROPOSITIONS. 


931 


Mr.  Stoll.  I  want  to  direct  your  attention  to  section  15  wliich  says :  "  It  is 
agreed  that  the  lessee  will  not  be  required  to  invest  in  the  manufacture  of 
nitrates  or  other  fertilizer  compounds,  other  than  that  received  from  the  sale 
of  the  products  of  nitrate  plants  plus  1  mill  per  kilowatt  hour  received  from 
the  sale  of  power  in  excess  of  that  required  to  operate  the  plant." 

Under  this  agreement  you  can  not  be  required  and  it  is  understood  that 
you  are  not  going  to  put  1  cent  of  money  into  it.     That  much  is  understood. 

Mr.  Butler.  It  has  to  be  a  going  concern  and  we  agree  to  begin  work 
within  60  days,  and  we  give  a  bond  to  cover  that. 

Mr.  Stoll.  It  says  you  are  not  to  put  anything  into  it  except  what  you  get 
from  that. 

Mr.  Butler.  We  are  not  called  upon  to  spend  our  money  to  complete  Gov- 
ernment property.  We  offer  to  finish  it  or  let  the  Government  finish  it.  and 
then  to  lease  and  operate,  giving  a  greater  rental  than  any<me  else  has  offered. 
I  said  to  Mr.  Engstrum  when  he  wrote  that,  "  Wliy  do  y(»u  put  that  in?"  He 
said,  "I  did  not  want  to  appear  to  be  giving  something;  this  is  a  plain  busi- 
ness proposition ;  there  is  no  philanthropy  in  it." 

Mr.  Stoll.  That  is  a  definite  statement  there  that  you  are  not  going  to 
put  any  money  in  it  except  what  you  are  going  to  get  out  of  it  after  it  has  been 
put  in  operatin.  I  want  to  call  your  attention  to  section  18,  which  reads  as 
follows:  "It  is  also  further  agreed  that  when  nitrates  can  be  made  at  a 
profit  or  when  the  cost  of  the  same  has  been  so  reduced  that  the  funds  so 
arising  from  excess  power  and  fertilizer  compounds  are  not  needed  in  whole 
or  in  part  for  financing  such  productions  as  herein  provided,  the  said  funds 
shall  be  paid  by  the  lessee  into  the  Treasury  of  the  United  States." 

What  do  you  mean  by  that?     I  do  not  exactly  catch  the  significance  of  that. 

Mr.  Butler.  We  propose  to  finance  the  making  of  nitrates  while  we  make 
them  at  a  loss,  and  we  will  do  that  out  of  the  proceeds  of  the  sale  of  power 
not  necessary  to  run  the  nitrate  plants ;  that  is.  we  will  use  one  mill  per  kilo- 
wntt  hour  of  power  we  sell  to  cover  any  deficit.  When  that  time  passes  we 
will  pay  the  whole  sum  into  the  Treasury. 

Mr.  Stoll.  How  in  the  world  can  you  do  that  when  you  have  already  stated 
that  you  are  not  going  to  invest  one  cent  in  the  manufacture  of  nitrates  or 
compounds  as  set  forth  in  section  15.  Are  not  those  two  sections  contradic- 
tory? 

Mr.  Butler.  No;  because  we  will  begin  selling  power  the  very  minute  we 
begin  to  operate,  and  there  will  be  an  income  from  the  ])ower  we  do  not  need 
for  the  manufacture  of  nitrate.  We  will  set  aside  that  amount  to  finance  the 
making  of  the  nitrates  as  long  as  we  have  to  make  them  without  profit. 

Mr.  Stoll.  That  section  contemplates  your  having  had  to  make  them  without 
a  profit,  because  it  says  "  when  the  nitrates  can  be  made  at  a  profit." 

Mr.  Butler.  As  soon  as  we  get  1  mill  from  the  power  we  sell  we  use  that 
to  cover  the  difference  in  the  cost  of  the  manufacture  of  nitrates  that  we  are 
making  at  a  loss,  because  we  are  practically  subsidizing  it  out  of  the  power  we 
sell,  and  this  is  the  source  from  which  we  get  the  funds  to  finance  it. 

Mr.  Stoll.  How  can  you  get  away  from  this,  "  when  the  cost  of  the  same 
has  been  so  reduced  that  the  funds  arising  from  the  sale  of  excess  power  and 
fertilizer  compounds  are  not  needed  in  whole  or  in  part  for  financing  such  pro- 
ductions as  herein  provided?"  To  what  extent  will  it  be  needed  to  finance; 
when  will  it  commence  to  go  into  the  Treasury  of  the  United  States? 

Mr.  Butler.  Whenever  we  can  make  nitrates  and  fertilizer  without  loss, 
then  all  of  that  1  mill  per  killowatt  hour  goes  into  the  Treasury  as  rental  on 
the  lease. 

Mr.  Stoll.  Where  do  your  profits  come  from? 

Mr.  Butler.  That  comes  from  the  sale  of  the  power  above  the  1  mill. 

Mr.  Stoll.  You  give  all  the  profits  from  this  to  the  Goveniment? 

Mr.  Butler.  No  and  yes.  We  are  financing  this  whole  thing  by  the  sale  of 
power  not  needed  to  run  the  nitrate  plants.  Whenever  we  sell  a  kilowatt  hour 
of  power  we  set  aside  in  a  tmst  fund  1  mill,  no  matter  what  we  sell  it  for. 
We  may  only  sell  it  for  1  mill,  and  then  the  Government  would  get  it  all.  We 
may  sell  it  for  a  mill  and  a  half.  One  mill  is  set  aside  for  the  Government 
and  we  take  the  balance.  We  do  not  take  anj^thing  from  the  sale  of  fertilizer. 
We  put  it  back  into  the  operation,  and  we  do  not  use  the  1  mill  except  whenever 
it  is  needed  to  finance  the  making  of  nitrates  at  a  loss.  It  goes  into  the  Treas- 
ury. Our  books  are  open  to  inspection.  Whenever  we  can  make  fertilizer 
without  a  loss,  then  the  1  mill  goes  to  the  United  States  Treasury. 


f 


Ml 


932 


MUSCLE  SHOALS  PROPOSITIONS. 


I 


Mr.  Stoll.  You  do  not  get  any  of  that. 

«rp^«hi?'fj^'tf;i^if  ^"^  "^'^^^^  T^^  ^^  ^^'^  1  "^"1-  ^^'^  «^^y  get  whatever  we 
nhLtnJ!,  fi  ^^^  P.r'^'*  ^'''*  ^^^^^  ^^^  1  "^i"-  ^^'^at  the  Government  gets  is 
absolutely  fixed  by  the  contract ;  what  we  get  varies  according  to  what  we 
may  be  able  to  get  for  power. 

Mr.  Stoll.  Your  profit  is  in  the  selling  of  the  power  *> 

Mr.  BuTLEB.  It  is  in  the  excess  above  the  1  mill, 

Mr.  Stoll.  You  get  no  profit  from  the  nitrates  or  from  the  fertilizer  •> 

Mr  Butler.  Absolutely  none.  The  price  is  subject  to  the  regulation  of  the 
Secretary  of  Agriculture.  We  hope  and  believe  this  plant  will  in  the  near 
future  be  making  nitrates  for  fertilizer  at  a  profit. 

Mr.  Stoll.  If  you  can  not  make  fertilizer  at  a  profit 

Mr.  BuTLEB  (interposing).  We  can  not  when  we  begin. 

Mr  Stoll  If  you  never  do  all  the  revenue  the  Govei-nment  will  get  will  be 
1  mill  per  kilowatt-hour  for  the  sale  of  the  power. 

Mr.  Butler.  That  will  go  into  the  financing  of  the  making  of  fertilizer  as 
long  as  It  IS  needed  ;  and  then  it  will  go  into  the  Treasury. 

Mr.  Stoll.  That  is  all  the  Government  would  get  if  the  fertilizer  was  not 
successful? 

Mr.  Butler.  Yes. 

Mr.  Stoll.  If  you  did  not  sell  very  nmch  power  the  revenue  to  the  Go\-- 
emment  would  be  very  small? 
Mr.  Butler.  Certainly. 

^y.^^l\  ?™^^-  ^^  y^^  ^ot  think  you  would  have  pretty  stiff  competition  from 
the  Alabama  Power  Co.  in  selling  power  in  that  section  of  the  country  *> 

Mr.  Butler.  No.  The  fact  is,  it  will  no  doubt  be  one  of  our  be.^t  customers 
We  are  not  going  to  be  retailing  power.    We  will  be  wholesalers. 

Mr.  Stoll.  That  is  purely  conjecture  on  your  part ;  that  the  Alabama  Power 
Co.  IS  going  to  take  your  power. 

Mr.  Butler.  Certainly ;  but  somebody  will  take  it. 

Mr.  Stoll.  You  have  seen  Mr.  Martin  on  the  stand  here,  or  at  least  I  have 
and  he  is  not  a  man  who  throws  up  his  hands  and  quits  verv  easilv  He  has 
a  great  concern  down  there. 

Mr.  Butler.  Yes. 

Mr.  Stoll.  That  is  their  business? 

Mr.  Butler.  Yes. 

Mr.  Stoll.  Do  you  think  he  will  quietly  take  ix)wer  from  vou  and  not  start 
to  fight  you? 

Mr.  Butler.  How  could  he  fight  us  if  we  are  furnishing  power  to  him 
cheaper  than  anyone  else? 

Mr.  Stoll.  Is  he  after  power  to  sell? 

Mr.  Butler.  He  testified  here,  and  I  am  satisfied  it  is  true,  that  he  has  a 
demand  for  more  than  he  can  furnish. 

Mr.  Stoll.  Mr.  Martin  is  in  the  power  business. 

Mr.  Butler.  So  are  we,  but  we  are  wholesalers. 

Mr.  Stoll.  That  is  all  conjecture;  you  ha-e  to  develop  that  business. 
.  Mr.  Butler.  We  can  sell  it  if  we  offer  it  on  better  terms  than  they  can  make 
it  or  get  it  from  some  one  else.    After  paying  1  mill  to  the  Government,  we  figure 
we  can  get  out  whole  on  the  average  and  have  enough  to  make  us  safe,  and  w*^ 
know  that  the  demand  foi-  power  will  increase. 

Mr.  Stoll.  If  the  fertilizer  proposition  proves  a  failure  so  far  as  producing 
it  on  an  economic  basis  is  concerned  and  you  fail  to  get  a  ready  market  for 
it  and  do  not  get  a  ready  market  for  your  current,  the  Government  will  get  no 
revenue  whatsoever  and  your  concern  will  get  .$1.2r)0,aX)  for  building  this  dam 
on  a  5  per  cent  contract.    That  is  true,  is  it  not? 

Mr.  Butler.  If  we  are  going  to  begin  by  supposing  something  which  will 
never  happen,  then  you  can  end  by  concluding  anything  you  desire.  There  i^ 
there  now  a  market  for  100,000  horsepower,  and  this  will  finance  the  running  of 
both  nitrate  plants  on  full  time,  with  nitrates  sold  at  a  loss  of  at  least  $5  a  ton  or 
more. 

Mr.  Stoll.  I  just  wanted  to  see  if  my  idea  of  your  contract  was  correct. 

Mr.  Butler.  We  can  not  start  to-morrow  making  nitrates  nt  a  profit,  hnt 

we  can  sell  enough  power  to  finance  the  making  of  it  at  a  loss. 

.  Mr.  Stoll.  The  only  thing  that  is  certain  is  that  ^Ir.  Engstrum,  who  is  n 

contractor  and  an  engineer,  and  his  company  will  get  $1,250,000  for  building 

this  dam,  and  then  if  the  other  proposition  pro\es  a  failure,  that  is  the  fer- 


MUSCLE  SHOALS  PROPOSITIONS. 


933 


tilizer,  and  there  is  no  special  market  for  your  current,  the  whole  thing  falls 
down  and  is  back  on  the  hands  of  the  Government  and  you  liave  not  investt*d 
one  cent  in  it ;  that  is  true,  is  it  not? 

Mr.  Butler.  But  it  can  not  be  a  failure.  We  give  a  bond  to  run  those  nitrate 
plants  and  we  can  do  it  by  the  sale  of  power,  no  matter  if  the  nitrates  are  sold 
below  cost.  The  plant  finances  itself,  pays  us  a  profit,  and  it  pays  the  Gov- 
ernment a  profit,  and  it  produces  cheap  nitrates.  This  is  plain,  simple,  and 
certain.    How  much  more  can  anyone  want  us  to  do? 

Mr.  Stoll.  Who  drew  this  contract? 

Mr.  Butler.  Well,  it  has  been  the  result  of  the  thoughts  of  a  number  of 
people.  There  is  no  one  person  who  drew  it.  It  has  been  worked  over  many 
times.  Mr.  Engstrum  has  written  some  paragraphs  and  has  changed  some; 
I  have  writen  some  and  changed  some;  and  several  other  people  have  had  a 
part  in  it.  We  have  conferred  with  everybody  whom  we  have  been  associated 
with;  it  is  a  composite  production. 

Mr.  Stoll.  Have  you  ever  been  in  the  electrical  business? 

Mr.  Butler,  No  ;  not  as  an  expert,  but  I  know  much  about  it. 

Mr.  Stoll.  Has  Mr.  Engstrum  ever  been  in  the  electrical  business? 

Mr.  Butler,  No  ;  he  is  a  contractor  and  an  engineer. 

Mr.  Engstrum.  I  have  built  power  plants  for  the  Edison  people  in  southern 
California,  also  the  industrial  plants  for  the  production  of  potash  for  the 
American  Trona  Potash  Corporation. 

Mr.  Stoll.  Those  were  built  according  to  specifications  that  had  been  drawn. 
He  has  not  been  engaged  in  the  marketing  and  selling  under  competition  of 
electrical  current  or  engaged  in  the  business  of  making  fertilizer  from  nitrogen 
from  the  air,  or  any  of  those  things ;  had  no  experience  in  that ;  you  have  no 
experience  to  offer  and  you  are  putting  up  no  money. 

That  is  all,  Mr.  Chairman. 

Mr.  Cbowther.  Mr.  Fields  asked  you  a  question,  and  I  am  sure  that  he  did 
not  quite  mean  it  as  he  stated  if,  perhaps,  and  you  did  not  mean  to  answer 
to  the  effect  that  the  tonnage  charge  on  Chilean  nitrate  was  $11.50,  or  the 
export  charge.  Then  he  said  that  in  the  $45  a  ton  there  was  about  25  per 
cent  charge  on  fertilizer  due  entirely  to  that  fact.  Of  course,  he  does  not  mean 
that,  because  there  is  not  a  ton  of  Chilean  nitrate  in  a  ton  of  fertilizer. 

Mr.  Fields.  I  meant  25  per  cent  of  the  nitrate  in  the  fertilizer. 

Mr.  Crowther.  That  has  been  the  idea  carried  all  through  these  hearings, 
that  about  one-quarter  of  a  ton  of  fertilizer  was  spent  entirely  for  the  Chilean 
export  fee.    That  is  not  so,  is  it? 

Mr.  Butler.  No. 

Mr.  Crowther.  That  is  15  per  cent  nitrogen,  is  it  not? 

Mr.  Butler.  Sixteen  per  cent  is  what  it  ought  to  be ;  16  per  cent  of  nitrogen. 

Mr.  Crowther.  If  it  was  very  heavy  fertilizer,  there  would  be  10  per  cent 
of  nitrogen,  and  if  it  was  only  nitrogen  it  would  be  $1.50,  would  it  not? 

Mr.  Butler.  The  usual  formula  of  fertilizer  is  to  take  this  Chilean  nitrate, 
which  has  16  per  cent  nitrogen,  and  put  in  3  or  4  per  cent  of  it  and  about 
the  same  of  potash  and  from  8  to  10  per  cent  of  phosphoric  acid,  and  make  it 
up  in  the  usual  proportion  in  a  ton  of  commercial  fertilizer.  In  that  ton  of 
commercial  fertilizer  three-quarters  of  it  is  made  up  of  these  products  and 
the  other  is  the  filler.  There  is  a  certain  amount  of  binder  or  rather  holder 
required.  There  is  about  25  per  cent  of  ammonia  in  the  sulphate  of  ammonia 
and  the  remainder  is  holder,  not  filler. 

Mr.  Crowther.  That  is  where  a  great  error  has  occurred  in  much  of  the 
discussion.    The  word  filler  has  been  used  when  it  should  not  have  been  used. 

Mr.  Butler.  The  filler  is  only  the  thing  which  is  finally  put  in  the  fertiUzer 
by  the  fertilizer  man  to  add  to  the  weight.  When  you  have  the  ammonia 
ready  for  mixing  there  is  25  per  cent  ammonia  and  the  rest  of  it  is  the  binder 
or  holder.  Then  you  have  the  nitrate,  of  which  16  per  cent  is  nitrogen,  and 
the  phosphoric  acid  which  is  16  per  cent  phosphoric  acid,  and  the  rest  of  it  is 
holder  or  binder.  This  makes  three-quarters  of  the  ton;  then  25  per  cent 
of  filler  is  added  to  that  to  make  the  ton  of  weight. 

Mr.  Crowther.  The  statement  has  been  made  that  there  is  only  320  pounds  of 
fertilizer  to  1,680  pounds  of  filler. 

Mr.  Butler.  That  is  incorrect.  On  the  average,  there  is  three-quarters  of 
every  ton  of  fertilizer  that  is  plant  food  in  the  best  form  in  which  we  can  now 
make  it.  We  do  hope,  however,  that  this  development  will  add  to  the  world's 
supply,  which  everybody  has  been  looking  forward  to,  and  will  at  the  same  time 


934 


MUSCLE  SHOALS   PROPOSITIONS. 


show  us  the  way  to  concentrate  these  ingredients,  so  that  instead  of  having  100 
pounds  of  sulphate  of  ammonia  of  which  only  23  per  cent  is  annncmia  and  the 
rest  of  it  holder,  that  we  can  get  a  holder  that  would  be  half  that  s'ze;  that 
would  be  a  great  improvement.  There  has  been  some  progress  along  that  line, 
and  when  wo  make  nitrates  by  the  Haber  process  there  will  be  less  of  the 
holder  than  is  in  the  nitrates  that  come  from  Chile.  We  possibly  will  get  to 
the  point  where  we  can  combine  these  three  ingredients  to  make  \vhat  is  now 
in  a  ton  to  equal  not  more  than  350  or  360  pounds. 

Mr.  Crowtiier.  In  reference  to  the  question  Mr.  Stoll  asked  you,  as  tt>  your 
knowledge  or  Mr.  Engstrum's  knowle<lge,  you  have  heard  the  evidence  in  the 
previous  hearings.  I  v.ant  to  ask  you  whether  there  has  been  any  evidence  given 
to  the  effci't  that  Mr.  Ford  was  ever  in  the  electrical  business  or  sold  electric 
power,  or  manufactured  fertilizer,  or  knows  anything  about  things  of  that  sort, 
except  in  connection  with  his  automobile  business.  Has  tliere  been  any  evi- 
dence presented  here  showing  that  he  knows  any  more  about  these  things  than 
your  people? 

Mr.  Bi  TLKR.  Certainly  not. 

Mr.  Crowther.  Mr.  Stoll  suggests  that  Mr.  Ford  has  a  large  sum  of  money 
in  it,  or  proposes  to  put  a  large  sum  into  it.  But  he  is  borrowing  money  from 
the  Government  at  4  per  cent,  computing  it  at  compound  interest  against  the 
Government,  and  paying  out  an  amortization  fund. 

]Mr.  Butler.  I  do  not  claim  to  be  an  expert  any  further  than  I  have  told  you 
frankly,  from  my  general  knowledge  and  experience ;  but  I  do  know  this :  I  know 
what  we  can  do  down  there,  and  if  you  give  us  this  contract,  that  we  will 
succeed.  I  feel  so  confident  about  it  that  I  am  going  to  devote  the  rest  of  my 
life  to  doing  it ;  I  do  not  want  any  better  monument  than  to  do  a  thing  of  this 
kind  for  the  prosperity  of  agriculturists  and  for  the  welfare  of  our  people 
generally.  All  this  can  be  done  with  a  proper  utilization  of  that  great  water 
power.  It  appeals  to  a  man's  imagination  as  well  as  to  his  sound  business  sense. 
It  is  a  great  thing  to  do.  It  is  not  a  philanthropy,  because  we  expect  to  make 
money,  and  the  Government  will  make  money  and  will  get  a  vast  benefit  from  it. 
The  results  you  are  going  to  get  from  this  water  power  depend  on  w^hat  it  is 
going  to  be  used  for.  You  can.  of  course,  have  this  tremendous  power  used  in  a 
way  that  would  be  a  great  disappointment. 

Now,  I  feel  that  we  should  avoid  the  mistake  which  has  been  made  with  the 
power  at  Niagara.  It  is  being  used  for  the  development  of  one  kind  of  busi- 
ness or  industry.  What  has  been  the  result?  It  was  allowed  to  be  monopolized 
for  the  development  of  one  special  thing,  which  gives  practically  no  general 
public  benefit  or  good,  and  does  not  give  any  special  benefit  to  the  community 
around  there.  To-daj-  everybody  in  New  York  is  up  in  arms,  and  the  governor 
of  the  State  is  trying  to  find  some  way  to  get  around  the  great  mistake  they  have 
made  in  allowing  this  water  power,  which  should  have  been  used  to  serve 
the  general  public  and  not  for  the  benefit  of  a  special  private  industry. 

It  would  be  a  great  mistake  to  do  that  sort  of  thing  here.  I  have  had  that 
in  mind  in  drawing  this  proiK>sal.  We  provide  for  selling  a  certain  amount  of 
power,  and  it  will  be  sold  and  distributed  to  conserve  the  needs  of  that  sur- 
rounding and  growing  connnunity.  If  you  are  ever  going  to  use  any  one  great 
power  at  any  one  place  for  one  thing,  then  heaven  knows  that  fertilizer  is 
the  most  justifiable  thing  for  which  you  could  use  it — nitrates,  both  for  peace 
and  in  war.  Such  a  water  power  should  never  be  turned  over  to  private  use 
and  profit. 

This  proposition  uses  a  large  part  of  the  power  in  making  fertilizer  and 
leaves  still  a  large  amount  to  be  sold  to  the  public,  not  to  any  one  enterprise, 
not  to  any  one  farmer,  but  to  the  whole  circle  of  people  and  industries  around. 
So  we  are  doing  two  things  if  we  develop  it  on  this  line.  We  get  the  greatest 
results  for  the  production  of  nitrates  for  preparedness,  for  i>eace,  and  war; 
we  are  furnishing  an  enormous  amount  of  power  for  sale  to  the  surrounding 
country  that  will  help  every  individual  and  every  industry  as  their  needs  re- 
quire. 

I  have  had  a  kind  of  glowing  feeling  of  pride  and  satisfaction  that  we  had  been 
able  to  work  out  a  proposal  which  from  every  angle  will  serve  the  public  good 
and  will  never  serve  any  special  or  i)rivate  interest  above  the  public  interest. 
It  is  to  have  the  opportunity  to  develop  this  great  property  along  the  lines  of 
this  proposal,  because  we  have  a  real  desire  to  see  these  beneficent  puri^oses 
materialized  and  to  help  do  it. 

Mr.  Chairman,  if  w^e  are  given  this  contract  we  will  have  the  best  engineer- 
ing talent  available  in  this  country.    Mr.  Engstrum  is  an  engineer  of  a  good 


MUSCLE   SHOALS   PROPOSITIONS. 


935 


deal  of  experience,  but  we  felt  that  in  a  great  proposition  like  this  we  ought 
to  have  the  best  engineer  who  could  be  gotten  in  the  world.  We  also  wanted 
to  get  a  man  whose  name  and  work  is  known  to  you,  and  who  would  carry 
confidence.  So  we  have  taken  this  matter  up  with  General  Goethals,  and 
have  been  fortunate  enough  to  secure  his  services.  Of  course,  we  wanted  first 
to  get  his  approval  and  to  know  that  it  appealed  to  him  and  we  wanted  to  em- 
ploy him  and  have  the  benefit  of  his  advice  if  we  were  given  this  contract.  So 
we  have  reached  a  contract  agreement  with  him  to  sei*ve  as  the  engineer 
named.  We  have  provided  in  this  agreement  that  there  shall  be  an  engineer 
representing  our  company,  and  he  will  serve  as  our  engineer  to  do  the  work 
under  this  contract.  He  is  not  now  in  New  York;  he  has  had  a  number  of 
engagements  on  the  Pacific  coast,  but  is  now  on  his  way  e;ist.  We  hope  lie 
can  appear  before  your  committee. 

The  Chairman.  Will  he  be  ready  to  come  here  Monday? 

Mr.  Butler.  Mr.  Engstrum  says  he  has  just  heard  from  his  ottice  in  Ncv 
York  and  they  tell  him  General  Goethals  will  not  be  ba<-k  until  Wednesdn.v 
or  Thursday.  If  the  committee  desires  to  close  the  hearings  before  that  tinu', 
we  may  desire  some  one  from  his  office  to  appear.  Of  course  he  has  some  very 
able  engineers  in  his  office. 

The  Chairman.  Of  course,  the  committee  has  been  working  Aery  hard,  and 
it  is  the  desire  of  every  member  of  the  comm  ttee  that  we  get  through  with 
these  hearings  as  speedily  as  possible.  We  will  have  to  take  up  the  hearings 
in  executive  session,  and  it  will  probably  be  a  full  week  before  we  can  agree 
on  a  report.  It  is  very  des  rable  that  we  get  through  with  the  hearings.  If 
you  can  have  a  representative  of  General  Goethals  here  on  Monday  we  will 
hear  him. 

Mr.  Butler.  We  will  have  a  representative  of  his  here  on  Monday. 

The  Chairman.  We  thank  you  very  much  for  your  can<lid  explanatory 
statement.  It  has  been  very  interesting.  We  will  have  no  meeting  to-morrow; 
we  will  meet  again  on  Monday  morning  at  10.30  o'clock. 

(Thereupon,  at  4.30  o'clock  p.  m.  the  committee  adjourned  to  meet  Monday, 
March  6,  1922,  at  10.30  o'clock  a.  m.) 


Committee  ox  ^Military  Affairs, 

House   of   Representatives. 

Monday,  March  6,  W2>. 

The  committee  met  at  10.30  o'clock  a.  m.,  Hon.  Julius  Kahn  (chairman) 
presiding. 

STATEMENT  OF  MR.  FBEDERICK  E.  ENGSTBUM — Resumed. 

The  Chairman.  Mr.  Engstrum,  when  we  closed  on  Friday,  Senator  Butler 
siiid  that  you  would  be  ready  to  go  again  this  mornng.  He  intimated  you 
would  have  an  engineer  here  from  General  Goethals's  office  in  New  York.  I 
understand  he  has  not  come  and  therefore  you  would  Ike  to  go  on  with  the 
hearing? 

Mr.  Engstrum.  Yes,  Mr.  Chairman.  I  telephoned  to  our  engineers  iu  New 
York,  General  Goethals's  office,  and  General  Goethals's  colleagues  or  his  en- 
gineers there  did  not  feel  they  would  like  to  step  in  front  of  the  General 
in  this  matter  because  he  personally  was  more  familiar  with  it,  having  built 
the  old  canals  down  at  this  point  and  having  been  stationed  at  th  s  point,  and 
being  thoroughly  familiar  with  the  project,  more  than  any  of  the  other  engineers 
in  the  office.  The  General  is  returning  from  the  coast  and  will  not  be  back 
in  the  New  York  office  unt  1  Wednesday  night.  He  could  not  be  here  until 
Thursday.  I  regret  very  nmch  we  can  not  have  his  testimony  unless  we  could 
have  it  transcribed  and  transmitted  to  the  connnittee  as  a  matter  of  a  letter 
later  on,  in  case  the  hearings  were  closed.  AVe  want  to  give  all  the  informa- 
tion to  the  committee  that  we  can  and  d<i  not  want  to  inconvenience  the  com- 
mittee or  keep  them  waiting  in  any  respect.  For  any  delay  on  our  i^art  we 
will  have  to  bear  our  own  responsibility. 

I  would  like  to  make  a  short  statement,  Mr.  Chairman,  regarding  the  offer 
which  we.  presented  on  Friday.  I  believe  that  Senator  Butler  presented  it 
very  clearly.  He  presented  it  in  almost  every  particular  we  had  considered 
before  the  presentation,  and  there  is  very  little  I  can  add  to  his  explanation. 
I  would  like  to  say  in  this  respect  that  we  have  here  two  nitrate  plants,  one 


936 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


937 


having:  cdst  $13,000,000  and  the  other  $67,000,000,  both  of  which  can  be  put  to 
work  in  a  high  state  of  efficiency  for  about  $7,000,000,  and  the  greatest  dam 
in  the  world,  partly  constructed  at  a  cost  of  $17,000,000,  which  will  soon  be 
worthless  unless  completed. 

Obviously  it  is  economy  and  good  business  to  finish  this  dam  in  order  to 
harness  this  great  water  power  now  going  to  waste  and  make  it  pull  these 
two  plants  and  produce  the  nitrates  and  the  fertilizers  for  which  there  is  a 
crying  need  that  is  nation  wide.  It  is  admitted  that  these  things  should  be 
done,  and  that  their  accomplishment  will  greatly  promote  the  general  welfare. 
Indeed,  such  an  accomplishment  will  do  more  than  any  other  one  thing  to 
promote  the  success  of  agriculture,  contribute  to  general  prosperity,  and  abso- 
lutely proWde  for  the  national  defense. 

I  submit  that  my  proposal  provides  for  doing  these  things  in  the  most  effi- 
cient manner,  at  the  least  possible  cost,  and  also  guarantees  a  most  liberal  cash 
return  to  the  Government  after  the  investment. 

The  testimony  of  Major  J.  H.  Burns  before  the  committee  was  taken  very 
much  into  consideration  in  our  analysis  of  the  project,  for  the  reason  that 
Major  Burns  is  considered  throughout  the  entire  country  as  the  foremost  ex- 
pert on  nitrate  manufacture,  and  his  consideration  of  the  nitrate  plant  No.  1 
was  particularly  along  the  lines  of  our  proposal  for  the  conservation  of  that 
plant,  the  remodeling  of  that  plant,  and  bringing  both  processes  into  operation. 

In  considering  our  offer  along  the  lines  of  the  advisability  of  nitrate  plant 
No.  1,  if  the  committee  feels  that  it  is  important  to  make  any  further  expert 
investigation  regarding  this  nitrate  plant  No.  1  and  the  practicability  and 
economy  which  it  will  serve,  we  would  suggest  that  further  hearing  of  Major 
Burns  on  the  subject  might  be  of  considerable  practical  interest. 

I  do  not  know  of  anything  more  that  I  have  to  advance  in  the  way  of  ex- 
planation unless  the  committee  has  some  questions  that  they  desire  to  ask  me 
regarding  our  offer  that  have  not  been  touched  upon. 

The  Chairman.  As  I  understand  your  offer,  you  propose  that  the  Govern- 
ment shall  finance  this  thing  entirely.  You  will  simply  act  as  a  sort  of  agent 
to  carry  out  the  plans  that  the  Government  engineers  were  to  put  into  effect, 
and  will  not  put  up  any  money  in  doing  it,  but  will  expect  pay  from  the  Gov- 
ernment for  doing  your  share  of  the  work. 

Mr.  Engstrum.  That  is  practically  correct,  Mr.  Chairman.  The  only  return 
that  we  expect  to  get  whatsoever  is  what  we  are  able  to  conserve  or  to  save 
from  the  excess  power  and  the  practical  utilization  of  that  excess  power  in 
utilizing  the  high-peak  load,  utilizing  the  secondary  power  to  its  utmost  ad- 
vantage, holding  all  of  the  power  intact  and  keeping  the  standby  steam  plants 
available  to  make  up  the  gap  where  the  secondary  power  falls  of,  and  the 
practical  and  economical  usage  of  all  of  the  assets  which  are  there  and  which 
will  be  there  upon  the  completion  of  the  project,  not  offering  to  purchase  any 
of  the  property,  but  all  of  the  property  remaining  intact  and  in  the  ownership 
of  the  Government. 

Mr.  McKenzie.  I  would  like  to  ask  you  just  one  question,  Mr.  Engstrum: 
Of  course,  any  returns  you  might  get  under  this  proposition,  in  a  sense,  are 
prospective  rather  than  definite,  is  not  that  true? 

Mr.  Engstrum.  Yes;  absolutely  prospective.  They  depend  entirely  upon  the 
ability  of  our  company  to  make  a  profit  out  of  the  excess  power.  It  must  neces- 
sarily depend  upon  the  successful  operation  of  the  whole  property,  including  the 
nitrate  plants. 

Mr.  ;^IcKENzlE.  It  is  speculative  in  a  sense. 

Mr.  Engstrum.  Entirely. 

Mr.  McKenzie.  I  take  it,  however,  that,  in  submitting  the  proposal,  you  have 
gone  into  this  th?ng  to  some  extent  and  have  undoubtedly  made  some  estimates. 
What  estimates  have  you  finally  concluded  would  probably  be  a  possible  return 
to  your  company  in  case  this  project  was  carried  out?  What  would  be  the 
annual  return? 

Mr.  Engstrum.  As  stated  before,  that  is  entirely  speculative  and  would  be 
only  based  upon  the  power  that  we  would  possibly  be  able  to  conserve  for  sale 
over  the  1  mill — the  1  mill  all  going  to  the  Government.  This  might  be  con- 
sidered as  a  basis  on  which  we  would  figure  our  compensation — a  fraction  of 
a  mill  averaging  it  throughout,  taking  the  good,  bad,  and  indifferent,  and  the 
high-peak  load,  and  the  moments  when  there  would  be  no  demand  for  the 
power,  and  the  fraction  would  be  a  very  small  fraction  of  1  mill  which  would 
come  to  the  operating  company. 


Mr.  McKenzie.  However,  in  a  sense,  you  would  be  in  this  sure  position  that, 
not  having  invested  any  money,  if  you  did  not  receive  any  returns,  you  would 
not  he  out  anything  except,  perhaps,  some  of  your  time? 

Mr.  Engstrum.  We  would  be  out  considerable  expense  of  organization  and 
expert  service,  which  we  engage  and  pay  for.  We  would  be  out  our  engineerini; 
compensations. 

Mr.  McKenzie.  Viewing  it  from  your  standixiint,  is  it  not  what  we  might 
term  a  rather  "  safe  bet "  ? 

Mr.  Engstrum.  Yes;  we  tried  to  make  it  safe. 

Mr.  McKenzie.  Yes. 

Mr.  Engstrum.  We  did  not  want  to  take  any  element  of  chance 

Mr.  McKenzie  (interposing).  I  do  not  ask  that  question  in  a  spirit  of  criti- 
cism. 

Mr.  Engstrum.  No  ;  we  tried  to  make  it  safe. 

Mr.  Hull.  Mr.  Engstrum,  this  may  be  a  little  outside,  but  you  said  you  were 
building  ships  for  the  Government  now. 

Mr.  Engstrum.  We  are  just  completing  the  last  contract.  We  had  two  con- 
tracts with  the  department. 

Mr.  Hull.  Whom  were  they  with? 

Mr.  Engstrum.  With  the  War  Department. 

Mr.  Hull.  With  the  War  Department  or  the  Shipping  Board?  * 

Mr.  Engstrum.  With  the  Quartermaster's  Department. 

Mr.  Hull.  For  what  kind  of  ships? 

Mr.  Engstrum.  They  were  harbor-and-river-service  vessels  for  serving  the 
posts ;  a  special  type  of  small  vessel — 1.50-foot  concrete  vessels — with  two  Diesel 
engines.  There  is  one  of  them  here  on  the  Potomac  River,  serving  between  here 
and  Fort  Washington.  There  is  one  in  service  on  the  Cape  Fear  River,  between 
Wilmington  and  Fort  Caswell.  They  are  the  most  economical  type  of  Diesel- 
engine  vessels  that  is  operating  in  this  country  to-day.  They  operate  a  600-ton 
vessel,  carrying  500  men,  at  a  cost  of  about  1*  gallons  of  crude  oil  per  mile. 
That  is  almost  as  cheap  as  running  an  automobile. 

Mr.  Hull.  How  fast  do  they  go? 

Mr.  Engstrum.  They  run  this  trip  from  here  to  Fort  Washington,  which  is 
a  little  over  12  miles,  in  about  50  minutes. 

Mr.  Hull.  How  many  of  those  vessels  did  you  build? 

Mr.  Engstrum.  We  built  seven  of  that  type  and  three  tankers  to  serve  the 
various  harbor  vessels. 

Mr.  Hull.  You  are  not  building  any  seagoing  vessels. 

Mr.  Engstrum.  No,  sir. 

Mr.  Hull.  And  you  did  not  build  any? 

Mr.  Engstrum.  No  ;  we  did  not  build  any  seagoing  vessels. 

Mr.  Miller.  Just  one  question,  Mr.  Engstrum.  As  Senator  Butler  said  on 
Friday,  your  company  is  merely  an  operating  company  or  exclusively  an  operat- 
ing company? 

Mr.  Engstrum.  Yes. 

Mr.  Miller.  Now,  what  argument  can  we  put  forward  from  your  point  of 
view  to  our  colleagues  on  the  fioor  of  the  House  on  the  principle  of  paying  your 
company  a  5  per  cent  cost-plus  on  the  completion  of  that  dam  when  we  have 
our  own  organization  composed  of  Army  engineers  ready  to  take  hold  of  that 
dam  and  complete  it  without  paying  this  cost-plus  percentage  to  your  company. 
What  argument  would  you  suggest  to  this  committee  to  make  ro  our  colleagues 
on  the  floor  of  the  House  to  overcome  that  suggestion. 

Mr.  Engstrum.  It  is  a  well  established  principle,  I  think,  that  private  con- 
tractors or  private  operators  are  able  to  do  work  cheaper  than  the  Government. 
That  has  been  my  experience  in  contracting  for  25  years  and  in  handling  it 
under  private  engineering  we  divide  it  up  into  what  we  consider  the  most  prac- 
tical divisions  for  the  letting  of  the  contracts.  We  prepare  all  the  additional 
data  necessary  other  than  that  which  is  already  provided  by  the  Pjiigineers.  The 
Engineers  of  the  Government  have  very  complete  plans  for  the  construction 
of  the  dams,  but  the  plans  which  we  will  have  to  provide  and  submit  to  the 
War  Department,  with  our  engineers  and  experts,  are  regarding  the  revisions 
of  the  two  plants.    They  have  not  yet  been  provided. 

Mr.  Miller.  I  was  limiting  my  question  to  the  completion  of  the  dam. 

Mr.  Engstrum.  Yes. 

Mr.  Miller.  Now,  you  maintain,  do  you,  that  the  Government  can  complete 
that  dam  at  less  expense  by  the  cost-plus  method  with  your  company  than 
they  could  complete  it  themselves  through  the  Amy  engineers. 


938 


MUSCLE   SHOALS  PROPOSITIONS. 


Mr.  ENjGSTBum.  We  would  not  call  this  a  cost-plus  method,  Mr.  Congress- 
man. This  method  is  not  what  is  known  as  a  cost-plus  method,  because  in  this 
5  per  cent,  the  overhead  which  always  goes  into  the  cost  of  a  project,  is  under 
the  plus,  in  this  condition. 

Mr.  MiLLEB.  The  cost-plus  was  a  misuse  of  the  word  on  my  part. 

Mr.  Engstbum.  It  does  not  fit  this  occasion  exactly. 

Mr.  MiLLEB.  But  what  I  am  getting  at  is  that  you  maintain  you  can  take 
hold  of  that  dam  and  by  the  Government  paying  you  5  per  cent  you  can  com- 
plete it  under  what  the  Army  Engineers  could  complete  it  without  the  5  per 
cent. 

Mr.  Engstbum.  I  thoroughly  believe  that  I  can,  in  the  light  of  my  experi- 
ence. 

Mr.  Wbight.  Mr.  Engstrum,  you  did  some  shipbuilding  during  the  war  for 
the  Government? 

Mr.  Engtbum.  The  harbor  and  river  type  vessels  I  mentioned. 

Mr.  Wbight.  How  many  did  you  say  you  built? 

Mr.  Engstbum.  We  built  nine  of  the  early  type  during  1919  and  we  finished 
seven  of  the  Diesel  engine  type  during  the  year  1921,  and  we  are  just  finish- 
ing the  tankers  which  supply  these  vessels  with  their  fuel,  burning  heavy  oil. 

Mr.  Wbight.  Under  what  character  of  contract  was  that  work  done? 

Mr.  Engstbum.  That  was  open  bidding,  awarded  to  the  lowest  bidder — a 
lump-sum  contract. 

Mr.  Wbight.  And  you  are  now  just  completing  that  work? 

Mr.  ENGSTBUif.  .Just  completing  the  service  vessels,  the  tankers  for  carrying^ 
the  oil. 

Mr.  Wbight.  Did  the  contract  turn  out  agreeably  t<»  you  and  to  the  Gov- 
ernment?    Was  there  any  friction  about  it? 

Mr.  Engstbi^e.  There  was  not  a  particle  of  fricticm.  The  vessels  were 
all  tested  and  are  performing  more  than  was  expected  in  the  way  of  economy 
of  operation  and  speetl. 

Mr.  Stoll.  Mr.  Engstrum,  you  spoke  of  the  overhead  in  your  construction 
of  this  dam  under  the  5-per-cent  clause;  what  is  the  overhead  you  refer  to? 

Mr.  Engstbi^m.  The  overhead  is  the  accounting  system  necessary  to  carry 
on  the  business  and  the  engineering  cohipanies  which  operate  together  with 
our  company  and  all  the  expenses  entirely  outside  of  the  lump-sum  contracts 
which  are  let.  All  contracts  will  be  let  as  lump-sum  contracts.  Now,  to 
carry  on  those  lump-sum  contracts,  all  the  other  expen.se  falls  on  the  operating 
company. 

Mr.  Stoll.  Your  work  will  be  solely  seeing  that  the  contractors  do  the 
work  according  to  the  specifications,  will  it  not? 

Mr.  Engstbi-m.  Not  entirely.  We  prepare  in  conjunction,  certain  specifica- 
tions that  are  not  yet  completed,  and  submit  and  divide  the  contract  into  its 
various  and  most  economical  parts  from  excavation  to  the  cribbing  or  the 
water  work,  and  then  into  the  concrete  and  machinery  and  the  installation 
machinery,  and  all  the  various  subdivisions  which  run  into  quite  a  large 
number. 

Mr.  Stoll.  It  would  not  run  to  anything  like  $1 ,2r)0,000,  would  it? 

Mr.  Engstbum.  In  the  expense? 

Mr.  Stoll.  Yes. 

Mr.  Engstbum.  The  usual  expense  of  the  engineering  fee  alone,  which 
does  not  cover  all  the  operating  expense  of  the  company,  is  customarily  5 
per  cent  on  any  engineering  project,  and  you  will  see  estimates  all  the  way 
through  providing  in  the  cost  of  construction  of  these  various  projects  the 
engineering  fee,  and  you  will  notice  that  they  are  very  large  fees. 

Mr.  Stoll.  But  this  is  to  be  done  under  the  plans  of  the  Engineers  of  the 
War  Department? 

Mr.  Engstbum.  The  plans  that  are  now  completed,  not  the  specifications 
which  are  yet  to  be  completed,  and  the  divisions  of  those  specifications.  It 
requires  our  engineers  to  take  it  up  where  the  War  Department  has  brought 
it  up  to  this  time,  and  in  conjunction  with  the  engineers  of  the  War  Department 
to  complete  the  contract.  Taking  the  expense  over  three  years,  I  do  not  figure 
there  is  any  profit  to  speak  of.  It  is  barely  an  equal  proposition.  If  the 
Government  desires  to  segregate  that  part  from  our  contract,  it  would  be 
agreeable  to  us,  providing  we  see  that  the  maximum  amount  of  machinery 
installation  is  provided,  because  there  is  so  much  discussion  regarding  whether 
200,000  kilowatts  shall  be  installed  or  416,000.  In  a  200,000  kilowatt  installa- 
tion, it  would  not  make  the  operation  of  the  plant  profitable  or  possible  or 
economical. 


MUSCLE   SHOALS  PROPOSITIONS. 


939 


Mr.  McKenzie.  That  is  all,  Mr.  Engstrum,  and  we  are  much  obliged  to  y<m. 

Mr.  McKenzie.  Is  Mr.  Levering  present? 

Mr.  Levebing.  Yes,  sir. 

Mr.  McKenzie.  You  may  make  such  statement  as  you  desire. 

STATEMENT  OF  MR.  J.  H.  LEVERING,  WASHINGTON,  D.  C. 

Mr.  McKenzie.  Mr.  Levering,  before  making  your  statement,  will  you  state 
for  the  record  your  business? 

Mr.  Levebing.  I  am  a  civil  engineer.  I  have  been  in  the  practice  of  the  pro- 
fession for  over  30  years.  My  resic^nce  is  in  Los  Angeles,  Calif.  I  came  here 
in  connection  with  the  power  bill;  that  is,  the  Federal  power  act,  and  I  got 
interested  for  some  other  parties  in  the  Muscle  Shoals  project.  I  have  been 
there  twice  as  an  engineer  and  have  examined  it  very  carefully  and  helped  to 
draw  up  the  present  contract  or  tender  that  is  made  by  Mr.  Engstrum.  How- 
ever, the  tender  was  changed,  contrary  to  my  judgment,  and  I  feel  that  I  ought 
to  show  this  committee  the  effect  of  those  changes.  I  could  not  conscentiously 
stand  by  the  project  now,  and  I  do  not  believe  the  committee  has  yet  seen  the 
contract  as  I  look  at  it. 

Mr.  Engstrum,  first,  wants  a  cost-plus  contract.  He  lets  the  contract  to  a 
contractor  whom  he  states  will  have  to  have  10  per  cent ;  then  he  gets  his  5  per 
cent  on  top  of  that,  which  makes  it  a  15  per  cent  contract,  and  that  in  itself 
is  15  per  cent  more  than  there  is  any  reason  to  pay. 

I  was  at  Muscle  Shoals  when  the  Army  engineers  were  placing  4,000  cubic 
yards  of  concrete  per  day  in  that  dam,  at  a  cost  of  less  than  $25,000 ;  that  is  to 
say,,  less  than  $7  per  cubic  yard ;  and  I  do  not  believe  that  all  the  engineers  in 
the  world  could  do  that  work  any  cheaper  or  better  than  the  Army  engineers 
are  now  doing  it. 

Now,  I  want  to  say  that  15  per  cent  would  only  be  a  starter  for  his  profits. 
The  chairman  seemed  to  be  a  little  bit  uneasy  about  whether  Mr.  Engstrum  was 
going  to  make  any  money  or  not,  and  I  want  to  show  where  the  money  would 

come  in. 

"  Sec.  21.  Stobes.  stocks,  and  equipment. — All  stores,  supplies,  equipment, 
including  engineers'  supplies,  files,  and  instruments,  and  other  loose  personal 
property  now  on  or  about  the  premises,  whether  or  not  required  for  construc- 
tion purposes,  but  not  including  subsistence  stores,  shall  become  the  property 
of  the  lessee  upon  the  execution  of  this  contract." 

He  would  then  acquire  $3,500,000  of  property  immediately  upon  signing  this 
contract.  That  $3,500,000  would  include  the  derricks,  the  engines,  the  motive 
power  of  that  work,  and  if  you  let  it  to  a  contractor,  he  could  sell  it  back  to 
him  at  a  cost  of  at  least  $5,000,000,  or  rent  it  to  him.  So  that  Mr.  Engstrum 
would  not  be  short  of  money  anywhere  during  the  construction. 

I  want  to  call  attention  to  another  statement.  The  alterations  of  the  plant 
are  estimated  at  about  $7,000,000.  Such  alterations  are  to  be  made  at  the 
expense  of  the  contract.  There  is  a  trust  fund  created  of  one  mill  for  each 
kilowatt  hour  of  current  sold ;  the  mill  and  the  cost  of  the  nitrates  becomes  a 
trust  fund  in  the  hands  of  the  lessee  to  make  up  the  deficit  in  the  manufactur- 
ing of  nitrates  and  also  for  the  purpose  of  making  the  alterations  from  time  to 

time  in  the  plant. 

Mr.  McKenzie.  Did  you  write  that  provison— did  I  understand  you  to  say? 
Is  that  one  of  the  provisions  you  prepared? 

Mr.  Levebing.  No.  These  are  the  ones  they  change<l  on  me,  antl  I  came  here 
to  explain  that  to  this  committee,  that  I  was  not  guilty  of  it.  I  knew  it  was 
known  by  the  committee  I  had  prepared  the  plan  and  I  wanted  to  make  an 
explanation. 

When  busines-s  gets  dull  with  them  all  they  have  to  do  is  to  tinker  with  the 
plant  and  use  up  all  the  money  in  the  hands  of  the  trust  fund.  They  do  not 
have  to  do  a  thing  about  making  nitrates. 

I  do  not  make  any  refiections  upon  these  gentlemen:  that  is  their  idea  of 
business,  but  not  mine. 

When  the  war  was  declared  on  the  morning  of  the  6th  of  April,  our  family 
was  my  wife,  my  son,  and  myself,  and  between  breakfast  time  and  noon  the 
boy  enlisted  in  the  Navy  and  I  went  out  to  help  the  Government  for  a  dollar 
a  year.  I  got  the  promise  of  a  dollar  a  year  but  I  have  not  got  the  dollar  yet ; 
I  was  to  sell  bonds.  They  made  me  vice  chairman  of  the  committee  in  Los 
Angeles,  to  sell  bonds,  and  when  I  went  around  to  the  people  that  made  n 


940 


MUSCLE  SHOALS  PROPOSITIONS. 


sacritice  to  get  the  money  to  keep  the  men  in  the  field  and  keep  them  supplied 
with  amnftmition,  I  just  felt  it  was  wrong  that  this  plant  should  be  made  the 
football  for  a  lot  of  speculators,  and  I  come  here  as  an  American  citizen  to 
protest  against  it. 

Now,  tlie  construction  pUint  would  be  owned,  as  I  say,  by  the  lessee,  and  he 
could  let  it  out  to  liis  contractors;  he  might  get  25  per  cent  more;  you  will 
ha\c  25  per  cent  going  to  the  contractor  and  engineer,  and  25  per  cent  to  the 
lessee  for  his  equipment,  which  wouhl  make  it  break  about  50-50;  that  is  to 
say,  if  you  give  Air.  Engstrum  $3,  all  his  bond  does  is  to  guarantee  that  he 
will  spend  ij;2  and  keep  the  other  dollar,  and  you  can  look  it  over  until  your 
eyes  are  sore  and  yim  can  not  find  any  q|her  responsibility  under  that  bond. 
It  he  tails  to  keep  that  dollar  the  bonding  company  would  be  liable. 

Now,  Mr.  p:ngstrum  has  no  contract  to  sell  that  power  and  he  tellsi  you 
fairly  and  honestly  that  he  has  not.  The  Alabama  Power  Co.  hay  a  contract 
to  sell  that  power  if  they  can  get  it.  All  they  have  to  do  is  to  sit  around  and 
tell  Mr.  Eugstrum  what  they  will  do,  and  he  will  have  to  hand  it  over  to  them. 
lie  will  never  have  to  make  a  pound  of  nitrate.  Anybody  who  could  go  into 
that  plant  with  a  transmission  line  could  control  the  sale  of  that  power.  He 
has  no  way  of  using  it  and  would  have  to  sell  it,  and  there  is  only  one  bidder 
in  that  country  for  power,  and  that  is  the  Alabama  Power  Co.  I  do  not  be- 
lieve that  this  is  an  auxiliary  of  the  Alabama  Power  Co.  I  do  not  claim  that 
at  all. 

Now.  I  am  going  to  make  a  personal  explanation  to  this  comndttee,  and  I 
ho]>e  you  will  rweive  it  in  the  same  spirit  in  which  it  is  made.  As  foolish  as 
this  contract  is,  as  absurd  as  I  think  it  is,  it  is  a  better  contract  io-day  than 
the  Alabama  Power  Co.  or  the  Ford  contract. 

Tho«e  contracts,  if  you  examine  them  carefully,  are  about  as  bad  as  a  con- 
tract could  be;  in  fact,  neither  one  of  the  three,  in  my  opinion,  is  a  contract. 
I  am  not  a  lawyer,  but  I  «lo  clann  that  neither  of  these  three  contracts  raised 
to  the  dignity  of  a  contract,  but  are  simply  well  worded  appplications  for  a 
hand-out. 

I  want  to  make  this  fui'ther  explanation.  .\s  the  Engstrum  proposition  was 
first  drawn  1  thought  it  was  an  honest  and  fair  one.  and  I  do  not  say  it  is  dis- 
honest now.  because  the  ambiguities  are  so  plain  that  nobody  could  accuse  him 
of  trying  to  get  anything  under  false  pretenses.  It  is  right  out  in  print,  but 
the  proposition  that  I  took  up  with  the  general  contractors  of  America,  one  of 
their  members,  or  several  of  their  members,  have  now  got  a  proposition  that  is 
in  the  hands  of  the  printer  and  will  be  out  in  about  two  hours,  and  which  will 
go  to  the  Secretary  of  War,  which  I  think  will  meet  all  the  conditions  that  fail 
in  the  Ford,  in  the  Engstrum.  or  the  Alabama  Power  Co.  offers.  It  will  beat 
either  one  of  them  as  a  producer  of  nitrates  at  cheap  rates  and  with  less  money 
to  the  Government.  They  are  putting  in  quite  a  sum  of  the  money  themselves 
and  they  have  taken  care  of  it  in  a  businesslike  way. 

I  do  not  care  to  review  the  other  two  contracts — the  Ford  or  the  Alabama 
F*ower  Co.  I  had  nothing  to  do  with  them,  but  they  are  just  about  on  a  par 
with  the  Engstrum  contract. 

I  thank  you. 

Mr.  KcKenzie.  Let  me  ask  you  this  question?  Will  this  new  contract  you 
speak  of  contain  any  element  of  chance  to  be  taken  on  the  part  of  the  con- 
tractor? 

Mr.  Levering.  They  take  care  of  their  own  iwwer  and  they  use  their  own 
power,  and  they  take  all  the  elements  of  chance.  They  put  up  a  part  of  the 
money  for  the  construction  of  the  dam — their  share  of  it.  They  start  right. 
It  will  at  least  save  the  Government  $20,000,000  over  the  Ford  offer  and 
$15,000,000  over  either  the  Engstrum  or  the  Alabama  Power  Co.  offer  in  money. 
It  is  a  business  proposition.  The  men  have  been  here  for  years  and  know  a 
fair  contract  when  they  see  it. 

Mr.  McKenzie.  If  I  understand  your  position,  in  analyzing  these  contracts, 
the  Ford  contract  is  the  worst  one  of  all. 

Mr.  IjE\^ering.  I  believe  it  is. 

Mr.  McKenzie.  And  the  Alabama  Power  Co.  is  second  in  Iniquity? 

Mr.  Lea^ering.  Yes. 

Mr.  McKenzie.  And  Mr.  Engstrum's  proposition,  while  you  think  it  is  in- 
equitable and  unjust  to  the  Government,  you  still  feel  it  has  some  elements  of 
virtue  in  it? 


MUSCLE   SHOALS  PROPOSITIONS. 


941 


Mr.  Levering.  It  has  not  so  much  harm  in  it ;  that  is  all.  The  fangs  are  not 
so  long. 

Mr.  McKenzie.  And  you  are  quite  certain  it  is  a  safe  proposition,  so  far  as 
the  company  is  concerned? 

Mr.  Levering.  Yes ;  so  far  as  the  company  is  concerned.  Yes ;  it  is  all  right 
for  the  lessee. 

Mr.  McKenzie.  In  other  words,  you  have  no  apprehension  about  the  coniininy 
going  broke? 

Mr.  Levering.  Not  at  all. 

Mr.  Greene.  I  would  just  like  to  ask  you  a  question — whether  you  took  out 
burglary  insurance  before  you  began  negotiations  with  these  gentlemen? 

Mr.  Levering.  I  have  known  Mr.  Engstrum  all  his  life,  and  I  do  not  think 
Mr.  Engstrum  has  intended  to  rob  the  GoTernment.  He  has  been  led  by  his 
friends,  and  they  all  hope  to  make  some  money.  They  have  brought  Mr.  Goethals 
here  to  throw  dust  in  the  eyes  of  this  committee — there  is  no  question  about  it — 
or  to  try  to,  because  the  Government  engineers  are  doing  that  work  con- 
scientiously and  well.  They  have  Hugh  Cooper,  of  New  York,  who  has  made 
more  dams  than  any  of  them,  as  their  consulting  engineer.  There  is  no  call  for 
Mr.  Goethals  to  change  or  perfect  the  plans. 

Mr.  Greene.  You  say  you  were  in  the  employ  or  service  of  Mr.  Engstnim? 

Mr.  Levering.  I  helped  him  on  this  matter  after  I  came  here. 

Mr.  Greene.  Was  it  a  matter  of  compensation  and  employment? 

Mr.  Levering.  Well,  to  a  certain  extent. 

Mr.  Greene.  Was  it  a  matter  of  compensation  and  erflployment.  Were  your 
services  engaged  by  him? 

Mr.  Levering.  I  went  to  Muscle  Shoals  for  him,  and  while  there  I  spoke  before 
the  chamber  of  commerce  and  connected  myself  with  the  proposition,  and  I  felt 
that  after  they  changed  it  it  was  not  fair. 

Mr.  Greene.  I  simply  want  to  get  at  the  question  of  whether  you  were  engaged 
in  the  hire  of  Mr.  Engstrum. 

Mr.  Levering.  Well,  I  was  to  have  a  sort  of  working  interest  in  the  thing; 
that  is  all. 

Mr.  Greene.  That  does  not  answer  the  question. 

Mr.  Levering.  Will  you  repeat  the  question,  please? 

Mr.  Greene.  Were  you  in  the  hire  and  pay  of  Mr.  Engstrum? 

Mr.  Levering.  He  was  paying  the  expenses ;  that  is  all. 

Mr.  Greene.  Was  this  a  voluntary  association  on  your  part,  in  the  sense  that 
you  went  and  tendered  your  services,  or  did  he  seek  to  engage  you? 

Mr.  Levering.  I  think  I  brought  the  matter  up  to  him.  I  thought  there  was 
a  chance  there  to  get  a  good  contract. 

Mr.  Greene.  Have  you  ever  had  any  definite  sundering  of  your  relations  with 
Mr.  Engstrum? 

Mr.  Leverinq.  After  we  talked  with  Mr.  Weeks,  and  I  left  Mr.  Weeks's  office 
and  I  thought  everything  was  satisfactory,  when  I  got  to  their  ofiice  and  found 
these  changes  were  made  I  dropped  them  right  there. 

Mr.  Greene.  Did  you  drop  it  or  did  Mr.  Engstrum  drop  you? 

Mr.  Levering.  I  dropped  it.    I  walked  out  of  the  office. 

Mr.  Greene.  Was  there  anything  coming  to  you  from  Mr.  Engstrum? 

Mr.  Levering.  I  would  say  not.    I  guess  not.    No ;  I  am  through  with  it. 

Mr.  Greene.  All  right ;  so  am  I. 

Mr.  Hull.  You  have  told  us  about  the  iniquities  of  the  Engstrum  contract, 
and  you  have  said  that  the  Ford  contract  was  worse. 

Mr.  Levering.  I  think  so. 

Mr.  Hull.  Will  you,  in  your  own  words,  explain  to  us  in  what  way  the  Ford 
contract  is  w^orse  than  the  Eugstrum  contract? 

Mr.  Levering.  I  would  like  to  ask  you  if  you  will  allow  me  to  get  the  Ford 
contract  and  read  it  over  again  and  return  after  dinner,  and  then  I  will  go  into 
it  again  carefully? 

Mr.  Hull.  You  have  read  it,  have  you  not? 

Mr.  Levering.  Yes ;  but  I  could  not  refer  to  it  as  thoroughly  as  I  could  if  I  had 
it  before  me. 

Mr.  Hull.  We  can  give  you  a  copy  of  it. 

Mr.  Levering.  But  I  would  have  to  go  over  it  and  fix  the  places,  and  I  will  be 
here  after  dinner  again  and  will  explain  it  to  you. 

Mr.  Hull.  You  need  not  come  back,  but  simply  put  it  in  the  record. 


r 


942 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


943 


Defects  in  the  Ford  Tender. 

1.  It  limits  the  production  of  nitrates  to  the  present  capacity  of  plant  No.  2, 
whicli  does  not  produce  fertilizer  compounds.  Should  the  plant  be  refitted  to 
make  fertilizers  it  could  meet  but  a  small  part  of  the  demands. 

2.  Plant  No.  2  will  consume  most  of  the  primary  power  of  Dam  No.  2.  To  pro- 
vide for  the  interest,  sinking  fund,  maintenance,  and  other  charges  it  will  be 
necessary  to  build  Dam  No.  3  on  the  site  owned  by  the  Alabama  Power  Co.  This 
is  an  uncertainty  and  may  require  years  of  time  and  large  expenditures. 

n.  The  Ford  tender  is  "  in  whole  and  not  in  part."  The  burden  of  construction 
rests  on  the  Government.  This,  with  the  delay  incident  to  the  litigation  now  in 
prospect,  leaves  but  one  dependable  feature  in  the  tender;  that  is,  Mr.  Ford  will 
be  given  $16,000,000  worth  of  property  for  $5,000,000. 

The  maintenance  and  renewal  charges  necessary  to  keep  the  dams  in  efficient 
condition  should  Dam  No.  3  be  built  on  present  plans  may  exceed  the  allowance 
provided  for  interest,  sinking  fund,  and  maintenance. 

4.  Tliere  is  no  guarantee  that  the  nitrate  production  will  be  increased  to  meet 
the  growing  demands.  Should  large  industries  be  established  there,  to  use  the 
power,  it  would  preclude  further  development  of  the  nitrate  plant.  The  Govern- 
ment, after  bearing  the  burden  of  the  investment  and  maintenance  charges, 
would  become  a  subsidiary  of  the  Ford  interests. 

.^>.  Have  the  Ford  undertakings  been  such  a  success  as  to  warrant  the  Govern- 
ment in  irrevocably  giwng  to  them  our  one  supply  of  nitrates  that  is  essential  to 
our  agricultural  interests  in  peace  and  may  become  vital  to  our  national  life  in 
time  of  war?  Henry  Ford  has  made  a  success  of  light  automobile  construction. 
When  he  usurped  the  functions  of  Congress  and  undertook  to  adjust  the  rights  of 
nations  he  made  our  country  appear  weak,  impotent,  and  ridiculous.  Was  that  a 
success?  Does  any  one  put  faith  in  his  promise  of  a  75-mile  town?  Or  the 
Mississippi  River  dams?     Or  the  self-propelling  boats? 

Mr.  Ford  has  commenced  operating  a  railroad.  At  the  inception  the  Ford 
propaganda  startled  us  with  claims  of  enormous  profits.  Now  we  hear  less  of  it. 
Mr.  Ford  may  learn  the  railroad  business,  but  so  far  his  proficiency  seems  to  be 
in  ringing  the  bell  and  blowing  the  whistle.  It  is  to  be  hoped  that  the  noise  will 
not  mislead  the  Government.  Would  it  be  good  business  judgment  to  place  our 
vital  interests  under  the  management  of  persons  responsible  for  these  visionary 
projects? 

6.  When  the  country  decided  to  provide  an  ample  and  dependable  supply  of 
nitrates  it  wrote  the  final  paragraph  in  our  Declaration  of  Independence  of  all 
other  nations.  With  this  promise  realized  w^e  could  compete  with  the  world  in 
times  of  peace  and  defy  it  in  times  of  war. 

7.  This  great  plant  should  be  completed  and  kept  in  action,  otherwise  it  will 
be  a  source  of  expense  and  soon  become  obsolete. 

8.  There  are  two  contenders  for  the  ownership  of  this  publid  necessity — one 
a  corporation  controlled  to  some  extent  by  foreign  owners.  This  company,  at 
a  time  when  action  was  more  important  than  language  and  when  during  the 
emergencv  of  war  the  representatives  of  the  Government  depended  largely  on 
the  support  and  patriotism  of  our  citizens,  secured  a  contract  affecting  the  value 
of  this  project.  I  am  impres.sed  that  the  Alabama  Power  Co.  should  either 
modify  its  contract  or  meet  the  charge  that  it  is  an  enemy  corporation  and  its 
contract  is  against  public  policy. 

9.  The  great  dam  across  the  Tennessee  River  distinguishes  it  as  a  permanent 
improvement,  not  a  temporary  war  measure.  The  Ford  tender  asks  for  a  deed 
to  the  greater  part  of  this  property  and  a  perpetual  lease  for  the  remainder, 
for  the  avowed  purpose  of  converting  it  to  an  automobile  factory  or  other 

Ford  uses.  ,    ^  .    ,.  ,  .       ^ 

The  Alabama  Power  Co.  ask  it  as  a  gift  to  make  it  a  part  of  their  light  and 
power  plant.  Under  the  laws  of  Alabama  they  would  be  in  a  position  to  compel 
its  citizens  to  pay  interest  on  this  large  investment  that  cost  them  nothing. 

SUMMARY. 

t 

I    The'  Ford  tender  requires  the  completion  of  Dam  No.  3,  which  is  uncertain. 

2.  It  requires  the  Government  to  litigate  the  title  to  Gorgas  steam  plant  and 
transmission  lines  before  it  becomes  operative.    This  means  delay  and  the  ruin 

of  nitrate  plant  No.  2.  .       .^       .x    ^  i       mu« 

3.  The  Ford  tender  does  not  provide  for  increasing  the  nitrate  supply,  ihe 
first  right  to  the  power  would  be  vested  in  the  Ford  industries. 


4.  Under  the  tender  the  Government  would  bear  the  burden  of  maintenance. 

5.  This  tender  will  cost  the  Government  more  than  $50,000,000,  and  if  Dam 
No.  3  is  not  successful  there  would  be  little  chance  of  recapturing  the  property 
or  amortizing  the  investment. 

6.  Mr.  Ford  makes  this  tender  as  a  dear  friend  of  the  farmers,  from  whom 
he  has  acquired  millions  of  dollars.  Should  he  get  possession  of  their  fertilizer 
supply  they  will  realize  that  he  is  the  "  dearest  friend  "  they  ever  had. 

Respectfully, 

.7.  H.  Levering. 

Mr.  Levering.  All  right ;  I  will  do  that ;  but  1  don't  want  it  to  go  in  the  record 
without  somebody  to  answer  me.    I  don't  want  to  put  anything  over  in  the  dark. 

Mr.  Hull.  This  is  simply  for  our  information. 

Mr.  Levering.  Yes. 

Mr.  Hull.  And  I  think  we  are  entitled  to  have  the  information. 

Mr.  Levering.  You  shall  have  it,  Mr.  Hull,  on  siny  terms  you  say ;  but  I  want 
it  understood  that  I  am  perfectly  willing  to  meet  Mr.  Ford's  people  here  when  I 
make  that  statement.  I  am  not  trying  to  hide  or  put  it  in  the  record  in  the  dark ; 
but  just  as  you  say.    I  will  do  just  exactly  as  you  say.    I  am  at  your  service. 

Mr.  Hull.  We  would  also  like  to  have  your  ideas  about  the  offer  of  the  Ala- 
bama Power  Co. 

Mr.  Levering.  Yes,  sir;  they  are  here,  and  I  can  go  into  that  nny  time.  I  do 
not  wnnt  to  attack  anybody  behind  their  backs.    That  is  the  way  I  feel  about  it. 

Mr.  McKenzie.  They  have  representatives  here. 
Levering.  Yes ;  they  have  representatives  here. 
Hull.  Well,  give  us  your  idea  of  the  Alabama  Power  Co.  offer. 
Lev'ering.  Sure. 
Hull.  We  want  to  have  it  all. 

Levering.  I  do  this  at  the  request  of  the  committee,  of  course, 
volunteering  it.    Have  you  a  copy  of  the  Alabnma  Power  Co.  offer? 

Mr.  Fields.  Here  is  a  copy  of  their  offer  you  may  use. 

Mr.  Levering.  Now,  in  the  first  place,  to  start  in.  the  Alabama  Power  Co.,  under 
their  proposition,  take  over  the  wires  between  Muscle  Shoals  and  Gorgas.  One 
of  the  essential  things  to  work  that  nitrate  plant  is  the  quarry  at  Waco.  There 
would  be  no  chance  to  get  power  down  there  without  you  hired  or  bought  the 
wires  back  again  from  the  Alabama  Power  Co.  That  is  one  point.  They  would 
have  your  lime  tied  up  forever. 

Another  thing  is  that  the  100,000  kilowatts  that  they  give  you  to  operate  your 
plant  they  take  from  you  the  right  to  go  on  that  dam  or  make  any  repairs  if  it 
does  not  keep  up  to  standard  output;  you  can  not  help  it. 


Mr. 
Mr. 
Mr. 
Mr. 
Mr 


I  am  not 


It  goes  under  the 


jurisdiction  of  another  department,  under  their  offer,  and  this  second  100,000 
kilowatts  would  be  worthless  in  a  nitrate  plant  that  was  using  the  furnace 
method :  now  I  want  to  explain  to  you  in  a  little  way  about  the  manufacture  of 
nitrates,  and  it  will  be  very  little,  because  I  don't  know  but  little  myself;  but 
there  are  two  processes  there,  one  is  the  furnace  process  or  the  carbide  process 
and  the  other  is  the  synthetic  process.  As  a  matter  of  fact  the  synthetic  process 
is  now  the  most  satisfactory  one  to  oi)erate.  The  carbide  procoss  is  practically 
out  of  date ;  but  they  leave  you  tho.se  two  plants  and  they  put  in  250,000  horse- 
power and  give  you  the  second  100.000  l.orst  ])()wer.  wnicii  you  would  get  inter- 
mittently throughout  the  year.  They  say  82  per  cent  of  the  time.  As  a  matter 
of  fact,  it  would  not  be  82  per  cent  of  the  time,  for  this  reason,  that  if  the 
excess  power  was  multiplie<l  by  the  kilowatt-hour  and  divided  by  the  number 
of  months  it  would  be  about  82  i)er  cent;  but  part  of  the  time  you  will  have 
more  than  100,000  horsepower  there.  It  won't  start  up  just  100,000  and  run 
even  100,000  for  eight  months  and  then  stop;  but  it  will  vary,  and  a  great  deal 
of  the  time  your  plant  will  not  be  in  full  operation,  not  nearly  in  full  operation, 
and  at  <.ther  times  they  will  crowd  that  power  on  to  you  when  you  can  not  use 
it.  The  result  would  be  you  would  have  to  have  the  employees  there  half  of 
the  time  idle,  and  vour  nitrates  would  cost  you  more  than  it  would  be  possible 
to  sell  them  for.  They  will  take  that  power,  however,  off  your  hands,  because 
you  can  not  operate  the  plant  with  it,  and  the  result  is  that  the  plant  will  de- 
preciate; that  is,  it  will  require  all  the  returns  from  the  nitrate  plant  to  keep 
up  the  depreciation  so  that  it  would  be  impracticable,  and  you  might  as  well— 
and  it  would  be  cheaper  and  better  for  the  Government  to  include  in  the  Ala- 
bama Power  Co.  offer  a  deed  for  the  entire  property.  You  will  be  out  of  It 
easier  and  cleaner. 


I  \ 


i 


92900—22- 


-60 


944 


MUSCLE   SHOALS  PROPOSITIONS. 


Now,  with  that  proposition,  tliey  would  pay  yen  for  tliat  100.000  secondary 
power.  1  do  not  know  whjit  pay,  bnt  from  Mr.  Martin's  testimony  before  the 
committee  I  imagine  it  would  be  a  fair  price,  the  same  as  he  is  going  to  pay 
for  the  plant  at  Gorgas.  I  think  it  would  mean  the  building  that  dam  under 
another  jurisdiction,  and  possibly  not  as  high  as  it  is.  There  is  another  thing 
involved.  If  they  finish  No.  2  Dam  at  the  present  height  exactly,  they  have 
got  you  tied  up  so  they  can  not  build  No.  3  without  doing  business  with  the 
Alabama  Power  Co.  again.  The  height  of  No.  2  would  back  up  the  water  to 
practically  where  the  No.  3  is  designed  to  be  built.  In  my  opinion,  that  dam 
should  be  raise<l  about  6  or  8  feet  and  the  water  driven  back  to  a  better  loca- 
tion, but  that  would  ruin  the  prospect  of  the  Alabama  Power  Co.  selling  that 
dam  site  at  No.  3.  but  the  foundation  is  not  good  and  it  should  be  put  either 
farther  up  or  farther  down  the  stream;  but  with  Dam  No.  2  built  by  them 
they  would  hold  you  so  you  would  have  to  buy  their  holding  for  No.  3  at  any 
price  they  could  get  for  it.  and  if  you  do  not  build  it,  of  course,  they  could 
build  it  themselves  and  get  the  extra  power.  It  would  be  their  power  then, 
and  not  yours.  For  instance,  it  would  then  increase  their  primary  power  quite 
considerably,  and  if  they  did  increase  their  primary  power  it  would  not  increase 
>ours.  You  would  still  have  secondary  power  under  their  tender.  There  is  no 
assurance  there,  if  they  increased  their  primary  power,  you  would  get  any 
benefit  of  it.  and  they  would  then  own  the  Gorgas  plant,  which  is  worth,  I 
should  say,  five  or  six  million  dollars,  the  transmission  line  which  you  have 
practically  built,  and  the  steam  plant  at  nitrate  plant  No.  2  which  you  have 
built.  Those  three  plants  would  cost,  well,  in  the  neighborhood  of  $20,000,000. 
Then  they  have  the  $17,000,000  you  have  in  Dam  No.  2,  which  they  take  over, 
and  they  get  at  least  $35,000,000  with  which  to  finance  themselves  to  finish 
Dam  No.  2  and  give  them  a  power  equipment  that  will  pay  interest  on  $50,000,000. 
That  is  to  say,  they  talk  about  financing  themselves;  they  are  not  financing 
themselves  at  all ;  the  Government  is  financing  them,  just  as  much  as  they 
would  Mr.  Engstrum,  be<.'ause  you  are  turning  over  to  them  property  that  you 
can  go  out  into  the  market  and  borrow  the  money  im  to  complete  Dam  No.  2, 
and  it  is  not,  in  my  opinion,  a  fair  proposition.  You  might  as  well  simply  give 
them  a  bill  of  sale  for  the  whole  thing  and  let  them  have  it,  and  you  will  save 
a  lot  of  trouble  hereafter. 

Mr.  Fields.  Mr.  Levering,  how  did  you  say  you  happt^ned  to  come  to  Wash- 
ington V 

Mr.  Levering.  I  was  interested  in  a  power  project  in  Califoinia,  and  under 
the  law  we  could  not  get  any  action,  and  this  power  bill  was  iiending  a  long 
time,  and  I  came  here  originally  to  help  if  I  could,  to  see  if  we  could  not  get  the 
bill  over.  We  got  the  bill  over,  but  it  was  in  such  shape  that  it  never  has 
done  us  any  good,  but  we  got  the  bill  over,  however. 

Mr.  Fields.  How  did  you  happen  to  become  interested  in  the  Muscle  Shoals 
proposition? 

Mr.  Levering.  I  made  a  set  of  plans,  if  you  will  remember,  for  the  Govern- 
ment or  for  the  power  board  for  Great  Falls,  and  while  that  was  up  I  got 
interested  in  the  discussion  of  that  kind  of  work,  and  I  went  down  and  looked 
over  Muscle  Shoals.  I  knew  the  Government  was  going  to  stop  the  appropria- 
tion, and  I  thought  maybe  we  could  see  if  there  was  a  chance  to  get  some  of  my 
friends  interested  in  the  prfjject,  and  maybe  we  could  get  to  work,  because  that 
would  not  be  built  under  the  power  act.  and  it  was  simply  a  straight  business 
proposition. 

Mr.  Fields.  And  that  was  before  you  were  connected  with  Mr.  Engstrum? 

Mr.  Levering.  Well,  that  was  about  the  time.  I  talked  with  him  often  off 
and  on  for  quite  a  while. 

Mr.  Fields.  That  was  the  trip  you  made  at  the  expense  of  Mr.  Engstrum? 

Mr.  Levering.  He  paid  part  of  that  expense;  not  all  of  it.  There  was  an- 
other power  company  that  paid  part  of  the  expense. 

Mr.  Fields.  What  power  company  was  that? 

Mr.  Le\'ering.  The  Arkansas  Light  &  Power  Co..  an  Arkansas  corporation. 

Mr.  Fields.  Have  you  been  associjited  with  any  other  power  companies  other 
than  INIr.  Engstrum  in  formulating  plans  for  the  lease  of  Muscle  Shoals? 

Mr.  Levering.  Not  until  after  I  withdrew  from  the  Engstrum  proposition. 
I  had  a  talk  with  General  Marshall,  of  the  Associated  Contractors,  and  he 
thought  that  it  would  be  worth  while  to  see  some  of  their  members  who  possibly 
were  in  a  po.sition  to  finance  an  offer  in  a  businesslike  way.  I  said  that  I 
felt  I  had  done  so  nmch  work  on  it  I  did  not  like  to  see  it  wasted,  and  we 


MUSCLE   SHOALS  PROPOSITIONS. 


945 


finally  made  a  proposition,  and  within  a  couple  of  hours  it  will  be  ready  to  be 
delivered  to  the  Secretary  of  War.    It  is  probably  ready  now. 

Mr.  Fields.  And  you  will  be  interested  in  that  proposition? 

Mr.  Levering.  Yes,  sir;  and  I  want  it  up  here  and  if  there  is  anything 
wrong  with  it  I  want  you  to  kick  me  out  right  away.  I  think  I  have  covered 
the  objections  of  the  other  three. 

Mr.  Stoll.  Your  principal  objection  to  these  offers  is  that  you  are  not  in 
on  them? 

Mr.  Levering.  No,  sir;  I  am  sure  that  these  offers  are  not  fair  to  the  Gov- 
ernment, and  I  would  not  go  into  any  of  them.  I  might  if  they  were  changed 
somewhat,  of  course. 

Mr.  Stoll.  When  did  you  get  out  with  Mr.  Engstrum — when  Senator  Butler 
got  in? 

Mr.  Levering.  No;  Senator  Butler  and  Mr.  Engstrum  and  I  all  called  on 
Mr.  Weeks  and  we  had  what  I  thought  was  a  fair  understanding  with  Mr. 
Weeks.  After  we  got  back  to  the  office  Mr.  Butler  and  Mr.  Engstrum  or  some- 
body— I  think  it  was  both  of  them — changed  from  a  lump  sum  to  a  cost  plus 
and  put  in 

Mr.  Stoll.  I  do  not  care  for  the  details  about  that.  You  are  not  in  on  that 
contract  now? 

Mr.  Levering.  No;  I  don't  want  to  be  in  with  it. 

Mr.  Stoll.  You  are  not  in  on  the  Ford  contract? 

Mr.  Levering.  Not  at  all. 

Mr.  Stoll.  And  you  are  not  in  on  the  Alabama  Power  Co.  contract? 

Mr.  Levering.  Not  at  all. 

Mr.  Stoll.  And  you  are  against  all  of  those.  Now,  this  fourth  one  you  will 
be  in? 

Mr.  Levering.  Yes,  sir. 

Mr.  Stoll.  So  you  are  for  that? 

Mr.  Levering.  Yes,  sir;  and  I  hope  you  will  be,  too,  and  I  think  you  will 
when  you  see  it.    I  think  you  will ;  I  hope  you  will. 

Mr.  Stoll.  From  whom  is  it  coining? 

Mr.  Levering.  The  tender  is  signed  by  Thomas  Hampton,  one  of  the  largest 
producers  of  bauxite  in  the  country.    He  has  been  selling  his  bauxite. 

Mr.  Stoll.  Where  is  he  Irom? 

Mr.  Levering.  The  deposits  are  in  Georgia. 

Mr.  Stoll.  Is  it  capitalized? 

Mr.  Levering.  Yes;  it  is  capitalized. 

Mr.  Stoll.  I  mean  is  your  company  going  to  capitalize? 

Mr.  Levering.  I  am  not  in  the  company.  I  am  simply  an  engineer  for  them. 
They  have  business  there  and  are  established.  Mr.  Hampton  is  going  to 
Texas;  they  have  some  oil  fields;  and  he  is  going  at  3  o'clock.  I  can 
bring  him  here  between  2  and  3  o'clock  if  you  want  to  talk  with  him. 

Mr.  Stoll.  I  do  not  want  to  talk  with  him'. 

Mr.  Levering.  They  are  business  men  and  ready  to  put  the  proposition  over. 

Mr.  Stoll.  Who  first  drew  your  attention  to  Muscle  Shoals? 

^Ir.  Levering.  The  Muscle  Shoals  came  up  in  the  discussion  of  the  Great  Falls 
matter. 

Mr.  Stoll.  And  you  drew  Mr.  Engstrum's  attention  to  it? 

Mr.  Levering.  I  drew  Mr.  Engstrum's  attention  to  it,  I  think. 

Mr.  Stoll.  And  now  he  has  left  you  out  in  the  cold.  Did  you  draw  this 
other  man's,  Mr.  Hampton's,  attention  to  it? 

Mr.  Levering.  Now,  I  do  not  know  that  I  did.  Mr.  Hampton  was  figuring 
on  it.  I  have  done  Mr.  Hampton's  consulting  work  for  quite  a  while.  I  think 
he  spoke  of  it  himself  to  me.  I  do  not  think  that  I  did.  He  asked  me  if  I 
had  data  enough  so  I  could  make  up  the  estimates  for  him,  which  I  have  done. 
I  have  done  Mr.  Hampton's  work  off  and  on  for  more  than  a  year. 

Mr.  Stoll.  Who  is  in  it  besides  you  and  Mr.  Hampton? 

Mr.  Le\'ering.  I  am  not  in  it  at  all. 

Mr.  Stoll.  Who  is  in  it  besides  Mr.  Hampton? 

Mr.  Levering.  I  do  not  know  the  names  of  the  members  of  his  association. 
I  can  find  out  for  you  and  let  you  know  at  2  o'clock. 

IVIr.  Stoll.  Did  you  not  put  him  up  to  make  the  bid? 

Mr.  Levering.  No  ;  I  talked  w^ith  him  about  it  just  a  few  days  ago.  I  think 
it  was  Saturday.  Yesterday  was  the  last  time  I  talked  with  him,  and  we  got 
the  proposition  in  shape  and  sent  it  to  the  printer  and  had  it  printed,  and  we 


946 


MUSCLE   SHOALS   PROPOSITIONS. 


are  ^ohyx  to  send  it  to  the  Secretary  of  War  to-day.  I  am  not  a  pnrtner  in 
the  one  that  is  coming.  They  have  their  own  capital  and  their  own  organiza- 
tion,    I  was  told  hy  General  Marshall,  who  had  charge 

Mr.  Stoll  (inteiposing).    What  part  do  you  play  in  it? 

Mr.  Lkvkrino.  I  was  simply  as  an  engineer  to  do  this  work. 

Mr.  Stoll,  That  is  all,  Mr.  Chairman, 

Mr.  McKenzie.  We  are  much  obliged  to  you,  Mr,  Levering. 

FURTHER  ADDITIONAL  STATEMENT  OF  MR.  THOMAS  W.  MARTIN, 

PRESIDENT  ALABAMA  POWER  CO. 

Mr.  :McKenzie.  Mr.  Martin  is  present  this  morning  and  wants  to  make  some 
additional  statement,  as  I  understand  it. 

Mr,  Martin.  Mr.  Chairman,  I  will  take  only  a  short  time,  not  over  five  minutes 
of  the  committee's  time  this  morning. 

I  have  been  asked  whether  our  company  is  interested  in  propaganda  which  is 
coming  to  the  committee,  for  or  against  other  ofl'ers,  propaganda  which  is  com 
ing  to  Members  of  Congress  for  or  against  other  offers.  I  have  been  asked 
Miiether  any  other  company  is  interesteil  in  the  proposition  of  the  Alabama 
Power  Co,  in  connection  with  this  matter.  T  wish  to  state  that  our  company 
is  in  no  way  concerned  with  or  responsible  for  any  propagan<la  of  any  kind 
which  is  coming  to  members  of  this  connnittee  or  to  ^lembers  of  Congress,  and 
that  no  other  c<»mpany  engaged  either  in  the  power  business  or  any  other 
business  is  in  any  way  interested  in  our  proposition  in  th's  matter,  nor  in  any 
way  concerned  with  any  financing  of  our  projjosition  :  that  it  is  solely  and  alone 
the  propr»sltion  of  the  Abibama  Power  Co. 

Now,  I  wish  also  to  state  that  the  papers  contain  resolutions  which  appear 
to  have  been  adt»pted  by  college  fratei'nit'es.  by  chur<*bes,  by  lodges,  and  by  in- 
stitutions which  ordinarily  are  quite  remote  from  matters  of  this  knd,  ap- 
parently interested  in  one  of  the  pending  offers :  that  is  conunonly  called 
propaganda.  I  just  want  to  mention  thsit.  It  can  not  be  otherwise  than  in- 
terested parties  who  are  Concerned  in  going  nation  wide  and  creating  a  situa- 
tion. Our  company  has  been  in  no  way  concerned  in  one  or  the  other  of  those 
situation."^.  In  so  far  as  its  fairness  is  concerned,  in  some  respects,  I  wish 
to  direct  the  committee's  attetion  to  one  point.  A  telegram  has  appeared  upon 
the  conunittee's  record  which  refers  to  the  offer  of  the  Alabama  Power  Co.,  and 
which  refers  to  our  company  having  obtained  a  lease  on  a  steam  plant  by  tricky 
methods,  and  then  having  set  up  rights. 

The  gentleman  who  sent  the  telegram  was  told  that  our  company  had  pre- 
sented a  claim,  or  statement  to  this  connnittee  cla-ming  the  right  to  hold  tlu' 
Shetlield  steam  plant  under  a  lease  which  was  made  by  the  Secretary  of  War 
last  fall.  I  have  state<l  to  the  cimnnittee  in  answer  to  <lirect  questions,  that 
our  conq>any  has  made  no  such  claim,  and  the  connnittee  knows  our  company 
has  made  no  such  claim.  The  Secretary  of  War  leased  that  particular  steam 
])lant  under  a  lease  which  is  subject  to  rev<K-ation  at  any  time  by  the  Secretary 
of  War.  and  we  recognize  it.  Our  rights  are  solely  in  connection  with  the 
Warrior  steam  plant. 

Nevertheless.  IMr.  Chairman,  that  very  lease  was  nuule  the  basis  of  a  new.s- 
papers  .story  emanating  from  stmrces  interested  in  one  of  the  offers  here,  and  was 
circulated  as  an  attack  against  <mr  company  and  formed  the  basis  of  the 
telegram  to  which  I  have  referred.  When  the  gentleman's  attention  was  called 
to  it  he  apologizeil  for  it,  btit  said  that  the  opinion  was  exj)ressed  by  the  man 
who  took  it  up  with  him  that  he  would  not  corrwt  it,  as  the  Ford  supporters 
and  the  Farm  Kiireau  people  w<mld  not  permit  him  to  do  so. 

I  mention  that  as  an  example  of  the  propaganda  which  is  ba.sed  upon  a  mis 
statement  of  facts. 

In  so  far  as  our  obligations  are  concerned  as  a  i)ublic  service  company  and 
<nir  relations  to  the  whole  matter,  we  stand  on  the  record  of  our  performance  in 
Ahibama  and  our  development  of  water  powers  up  to  date  and  the  distribution 
of  power  at  fair  and  reasonable  rates.  Our  relationshii)s  with  the  public  in  the 
State  develop  naturally — questi(»ns  which  we  work  out  in  due  course.     ' 

That  is  all  I  care  to  state.  Mr.  Chairman. 

Mr.  McKenzie.  If  there  are  no  questions  any  member  of  the  committee 
desires  to  ask  Mr.  Martin,  we  are  very  much  obliged  to  you. 

Mr.  ^Martin,  Mr.  Chairman,  Mr.  Frothingham  wishes  to  make  a  brief  state- 
ment in  connection  with  matters  related  to  our  offer  which  is  before  the 
committee, 

Mr,  McKenzie.  The  committee  will  be  glad  to  hear  Mr.  Frothingham. 


MUSCLE   SHOALS   PROPOSITIONS. 


947 


STATEMENT  OF  MR.  FRANCIS  E.  FROTHINGHAM,  OF  COFFIN  & 

BURR,  BOSTON,  MASS. 

Mr.  Frothingham.  Mr.  Chairman  and  gentlemen,  I  wanted  to  make  a  state- 
ment about  this  whole  situation  as  it  appealed  to  me,  because  it  has  been  my 
fortune  to  visit,  in  connection  with  my  business,  every  State  in  the  Union  and 
I  rovince  of  Canada;  so  I  have  had  a  particularly  good  opportunity  to  see  and 
study  hydroelectric  propositions  and  public  utilitv  situations  in  general 

In  doing  so  it  has  always  been  my  effort  to  discover  the  facts,  as  far  as  I 
could,  and  to  draw  the  deductions  that  swmed  necessarily  to  follow^  from  those 
facts  so  far  as  in  my  power  lay,  and  I  think  I  can  safel'y  say  that  nowhere  in 
North  America  is  there  a  hydroelectric  situation  where  the  possibilities  in  them- 
sel\-e.s  are  more  interesting  or  where,  if  they  are  connected  together,  intercon- 
nected and  coonlinated  in  a  complete  fashion,  rhey  can  perforin  a  greater  serv- 

imiatiim'ai'l  see  it^^'  ^  '"''*'''  ^  ''''"''^  ^'''''  ^"  '^'"'''''  ''  '''*'*''^  ^^''^''''^  ^^  ^'"^ 
North  of  Florida  the  Allegheny  Mountains  parallel  the  Atlantic  coast  of 
North  America  thnmgliout  its  entire  length.  These  mountains  run  out  into  the 
lowlands  in  northeastern  Alabama  at  their  southwestern  extremitv  This  is  i 
very  simple  statement,  but  it  is  a  fact  that  is  directly  responsible  for  the  possi- 
bilities to  which  I  shall  refer.  Off  tlie  flanks  of  the  Alleghenv  Mountains  flow 
many  power  streams,  with  many  hydroelectric  powers  developed  but  «Jtill  with 
many  opportunities  left  for  devel<»pment,  but  the  powers  on  the  .streams  that 
low  on  of  this  .southwestern  flank  of  the  mountains  are  the  onlv  source  of 
hy(lroe^.tric  power  t  uit  are  available  for  the  entire  State  of  Alabama  the 
entire  State  of  Mississippi,  western  Tennes.see.  eastern  Arkansas,  and  Louisiana 
These  are  tact_s  determined  by  nature,  and  I  would  like  to  indicate  what  these 
natural  conditions  are.  "nm  me^e 

In  prehistoric  times  the  Atlantic  c(,ast  was  not  where  it  -s  ,m»w  but  w- s 
.some  distance  inland.  In  those  ancient  times  the  coast  of  the  Atlantic  O.-ean 
and  the  Gulf  of  Mexico  follownl  a  line  which  approxiinateTl  t^!{^^'.^^:^ 
the  healwaters  of  navigation  of  the  navigable  streams  fl(»wing  into  the  \tlant  c 
Mild  the  (Julf,  and  wouhl  roughly  pass  through  the.se  points  in  the  ivgio^,  of 
which  I  am  speaking:  (^olumbia,  S.  C. :  Augusta,  Mac.m.  and  (%»luml>u;  Ja 
then  westward  through  Montgomery.  Ala.,  and  then,  turning  northward,  fh'nmgh 
Tuscaloosa  Ala.  and  still  north  through  SheflieM.  and  then  in  a  wide  iwin'^ 
to  the  north  and  west,  crossing  Tennessee,  the  Mississippi  River  aiul  retunr 
ing  to  the  Gulf  some  distame  west  of  the  present  location  of  the  Mississippi 
Uiver.    Those  facts  absolutely  determine  the  conditions  of  which  I  am  speakin- 

On  the  sea  side  of  that  line,  except  for  the  navigable  rivers  of  which  I  hax,'^ 
spoken,  there  are  no  streams  except  of  small  size  and  very  minor  importance 
lliere  can  be  in  this  area  no  hydroelectric  developments  except,  very  small  ones 
at  small  falls  on  these  local  streams,  which,  in  the  aggregate,  as"  against  the 
povvers  we  are  speaking  of,  amount  to  nothing.  Those  are  the  facts  as  nature 
made  them,  and  there  is  no  hydroelectric  power,  speaking  in  general  terms  in 
Mississippi,  none  in  western  Tennessee,  none  in  Louisiana,  none  in  eastern 
lexas,  almost  none  in  Oklahoma,  and  in  Arkan.sas  onlv  a  verv  small  .unount 
west  and  northwest  of  Little  Rock.  *  .unounu 

That  means  that  this  entire  region,  if  it  is  tx)  have  electric  power,  ean  onlv 
ffet  It  from  these  powers  on  the  southwestern  flank  of  the  Alleghenv  Mountains 
1011  have  had  a  map  laid  before  you,  and  if  you  will  draw  a  circle  with  the 
center  on  Birmingham  and  a  radius  of  300  miles,  it  would  include  New  Orleans 
La.,  and  Little  Rock,  Ark.     Mobile  is  200  miles  away,  and  ^^lemphis  and  Nash- 

^^^.  M^'^v  ''..^^*'?Pl'^*''"^*'-    ^^^  ^""^^  ^^^^^  ^^  Mississippi  is  inside  of  that 
.iUU-mile  limit.    If  these  powers  I  shall  speak  of  are  coordinated  and  brought 
together  in  the  only  way  that  will  enable  them  to  realize  to  the  maximum  their 
potentialities,  it  will  be  possible  for  this  region  to  be  served  from  such  a  source 
«»nd  I  really  think  it  will  not  be  possible  otherwise. 

fv.  II.*^,*,^^^^  ^^*^^^  I^^^^'^'*  streams  of  Alabama  are  the  Tennessee,  the  Coosa  and 
rne  lallaiioosa  Rivers.  It  has  already  been  explained  to  von  that  the  Tennessee 
IS  a  river  of  very  rapid  and  extreme  variations  in  flow,  varying  from  a  mini- 
'r^'^^  ^'"''?S  ^^""''^^  ""^  something  like  7,000  second-feet  to  a  maximum  of 
•>w,uoo  second-feet.  That  means  the  number  of  cubic  feet  of  water  that  passes 
a  given  point  in  the  river  in  one  second, 

I  might  compare  this  river  with  a  couple  of  other  rivers  that  we  all  know 
ine  Colorado  River  at  Glen  Canyon  in  northern  Arizona  has  a  drainage  areji 
or  .some  100,000  square  miles.     The  Tennessee  River  at  Muscle  Shoals  has  a 


948 


MUSCLE   SHOALS  PROPOSITIONS. 


h 


drainage  area  of  30,000  square  miles.  But  the  Colorado  River  has  a  minimum 
flow  of  3,500  second-feet  and  a  maximum  flow  of  only  approximately  hn!f  of 
that  of  the  Tennessee.  The  Mississippi  River  at  Keokuk,  with  u  draina^'e  area 
of  approximately  110,000  to  120,000  square  miles,  has  a  minimum  recorded  flow 
of  about  12,000  second-feet,  and  a  maximum  which  is  only  three-quarters  of  that 
of  the  Tennessee.  That  means  that  the  Tennessee  River  is  chronically  an 
irregidarly  flowing  stream.  From  Knoxville  to  the  Ohio  River,  with  the  ex- 
ception of  the  falls  at  Hales  Bar  and  at  Muscle  Shoals,  the  river  is  what  is 
called  a  sluggish  stream,  and  the  topography  of  the  country  is  such  that  there 
is  no  opportunity  for  reservoir  capacities  that  relatively  have  any  particular 
consequence.  If  you  use  the  7,000  second-feet  of  \^'ater  in  the  Tennessee  River 
over  the  head  to  be  developed  at  Muscle  Shoals  you  will  get  from  60,000  to 
70.000  horsepower.  But  that  is  a  misleading  figure  to  use,  because  the  average 
minimum  flow  of  the  river  is  not  so  small  over  a  considerable  period  of  time ; 
the  average  minimum  flow  will  produce  from  100,000  to  125,000  horsepower. 
I  am  speaking  now  about  continuous  power.  If  the  capacity  of  those  stream 
flows  is  used  in  12  hours  of  the  day,  inst.ead  of  24  hours,  those  figures  wouhl 
be  approximately  doubled.  I  think  that  shows  that  if  advantage  is  to  be  taken 
of  the  power  in  the  Tennessee  River  that  is  available  for  less  than  all  the  year, 
so  tJiat  it  can  be  available  all  the  time,  it  must  be  supplemented  by  power  from 
some  other  sources ;  you  can  not  make  use  of  the  less  than  all  the  year  flow  of 
the  Tennessee  River  otherwise. 

This  means  that  the  Tennessee  River  is  in  itself,  as  an  independently  power- 
producing  stream,  disappointing  and  of  very  little  availability. 

The  problem  is  how  to  make  use  to  the  advantage  of  the  greatest  number  of 
people  in  all  sorts  of  ways  these  less  than  all  the  year  flows  of  the  river,  which 
amount  to  a  great  deal. 

It  so  happens  that  on  the  Coosa  and  the  Tallapoosa  Rivers  there  are  not 
(.nly  large  h^'droelectric  development  possible  in  certain  places,  but  nature  lias 
so  designed  the  topography  of  their  drainage  areas  that  there  can  be  created 
exceptionally  large  storage  reservoirs.  That,  in  turn,  means  that  if  those 
capacities  are  tied  together  by  transmission  lines  and  in  every  way  known  to 
science  interconnected,  the  greatest  value  that  is  in  the  Tennessee  River  may 
be  realized.  Under  such  an  interconnected  system  as  markets  grow  to  demand 
its  fullest  power  possibilities,  the  results  are  very  impressive.  Under  such  a 
scheme  of  full  and  complete  development  the  Muscle  Shoals  plant  might  be 
developed  economically  to  500,000  or  600,000  horsepower,  and  the  aggregate 
of  hydroelectric  installed  capacity  which  might  be  created  within  a  90-mille 
radius  of  Birmingham  is  in  the  neighborhood  of  1,500,000.  And  the  Muscle 
Shoals  power  will  have  reached  the  full  of  its  usefulness  because  it  is  one 
limb  of  a  whole  live  functioning  body. 

Now,  the  problem  is  so  to  develop  those  capacities  that  they  can  be  made 
progressivelv  available  in  the  most  complete  way  possible.  When  I  say 
one  million* and  a  half,  gentlemen,  I  am  mentioning  an  approximate  figure, 
and  I  do  not  mean  power  that  is  available  from  hydroelectric  sources  all  the 
time.  No  installations  are  made  in  that  way.  Power  is  used  by  the  ordi- 
nary public  less  than  all  the  time,  and  the  storage  reservoir  and  pondage 
capacities  mean  that  the  water  maj,'  be  held  back  during  the  night  and  used 
during  the  day ;  so  the  figures  I  have  mentioned  are  the  figures  showing  the 
approximate  ultimate  hydroelectric  installation.  But  those  figures  can  only 
be  realized  and  full  advantage  taken  of  them  if  coordinated,  as  I  have  uuli- 
cated,  by  some  single  agency.  No  combination  of  agencies  can  accomplish  the 
equivalent  results  that  a  single  agency  can,  if  every  advantage  is  to  be  taken 
of  the  diversity  factor  which  such  a  combination  can  realize. 

Now,  by  diversity  factor  I  mean  this— and  I  speak  of  it  because  it  is  an 
exceedingly  important  element  for  the  public  to  take  advantage  of  in  its  own 
interest.  With  a  combined  system  widely  scattered  loads  may  be  averaged,  so 
that  the  average  aggregate  demand  is  much  less  than  the  sum  of  the  individual 
demands  That  means  that  there  is  less  requirement  for  installation  of  power 
producing  and  distributing  capacity  and  a  correspondingly  less  investment  to 
take  care  of  that  same  business.  It  means  also  that  the  shortcomings  of  one 
source  of  power  may  be  offset  by  the  availability  of  another  source,  and  that 
whatever  power  is  generated  at  one  source  or  another  may  find  its  way  to  the 
market  by  the  most  direct  and  most  eflicient  route.  That  is  applying  the  pnn- 
ciple  of  load  factor  to  all  the  various  portions  and  to  the  whole  of  such  ;» 
jiroperty. 


MUSCLE  SHOALS  PROPOSITIONS. 


949 


Now,  the  Alabama  Power  Co.  has  been  devoting  itself  to  the  development  of 
these  resources  along  these  lines.  Until  the  Alabama  Power  Co.  brought  money 
into  the  State  and  began  work  there  was  no  money  available  for  such  a  pur- 
pose. It  is  confining  itself  to  the  manufacture  of  power.  The  old  adage  says, 
"  Shoeman,  stick  to  your  last."  If  you  apply  yourself  to  the  manufacture  of  a 
single  product  you  become  proficient  and  expert  at  it ;  and  this  electric  business 
is  a  most  highly  technical  and  highly  specialized  business.  I  think  that  I  have, 
perhaps,  misused  the  word  power,  and  I,  perhaps,  should  not  have  used  it  in 
this  connection.  I  should  have  said,  rather,  that  the  Alabama  Power  Co. 
manufactures  electricity  because  we  think  of  ijower  rather  in  connection  with 
industrial  uses.  Electricity  is  a  universal  medium;  it  is  used  for  many  pur- 
poses. Wherever  transmission  lines  or  electric  wires  may  go  electricity  is  made 
available,  and  it  can  immediately  be  either  used  for  light,  heat,  or  for  power. 
It  is  the  same  electricity  that  turns  the  1  inch  in  diameter  armature  of  a  little 
motor  that  stirs  the  drinks  in  the  soda-water  shop  and  that  turns  the  10  foot  in 
diameter  armature  of  the  20,000  horsepower  motor  that  turns  the  rolling  mills 
of  the  big  steel  plants  at  Bessemer  or  turns  the  motors  under  the  street  cars. 
It  is  the  same  electricity  that  performs  a  thousand  and  one  miscellaneous  serv- 
ices of  our  everyday  life,  and  which  we  can  scarcely  get  along  without.  In  the 
butcher  shop  it  runs  the  meat-cutting  and  meat-chopping  machine;  in  the 
grocer's,  the  coffee  grinder.  In  our  homes  it  is  used  in  a  thousand  ways — to 
heat  water,  to  warm  the  bathroom,  to  run  the  sewing  machine,  to  run  the  wash- 
ing machine,  the  dishwasher,  to  cook  our  food,  to  keep  the  fan  going  in  hot 
weather.  Its  uses  are  so  manifold  and  so  widespread  that  they  simply  can  not 
be  enumerated.  For  the  farmer  the  use  of  electricity  is  very  important,  in 
the  difficulties  under  which  he  works.  With  electricity  he  cuts  corn  for  his 
silo  and  relieves  the  onerous  duties  of  farm  life  in  many  ways,  to  say  nothing 
of  substituting  electric  light  in  house  and  barn  for  the  dangerous  oil  lamp  and 
lantern. 

And  though  not  so  large  in  amount  as  the  power  use.  electricity  is  put  to  a 
much  more  important  use  in  adding  to  community  health  and  safety.  There  is 
nothing  more  effective  as  a  health  or  police  officer  than  electric  lights  in 
otherwise  dark  rooms  and  passageways  and  in  the  streets,  alleys,  and  public 
places  of  towns,  large  and  small.  So  the  Alabama  Power  Co.  is  in  the  business 
of  making  electricity  for  general  use  and  for  needful  service. 

There  are  many  towns,  gentlemen,  which,  until  the  coming  of  this  company 
with  its  service,  never  had  any  electricity,  or  had  it  for  only  part  of  the  da.v. 
If  any  of  these  lines  reach  out  in  tentacle  fashion  into  the  country  to  a  towii, 
that  town  not  only  has  service  24  hours  a  day,  but  it  has  it  in  unlimited  quan- 
tities, and  it  can  advertise  for  industry  to  come  to  it  to  increase  its  population 
and  business — advertising  it  has  an  abundance  of  cheap  power.  It  offers  thur 
town  an  opportunity  to  make  the  most  of  any  location  or  other  favoring  con- 
dition it  ma.y  have. 

When  this  is  said,  I  think  it  may  go  through  the  minds  of  some  of  you 
gentlemen  that  this  is  simply  building  up  a  great  monopoly,  and  that  monopol.v 
is  contrary  to  public  policy.  Let  us  look  at  th«t  proposition  a  moment  and 
see  what  it  means. 

I  think  when  we  think  of  monopoly  we  usually  imagine  some  industrial 
concern  manufacturing  a  product,  and  that  it  manages  in  some  way  to  exclude 
everybody  else  and  charge  the  consumer  all  the  traffic  will  bear  and  we  do 
not  like  it  and  we  want  to  avoid  it.  And  why  should  we?  But  does  that  con- 
dition apply  in  this  case?  Evidently  and  absolutely  not.  The  Alabama  l*ovver 
Co.  is  carrying  on  its  business,  and  will  have  to  continue  to  carry  on  its  busi- 
ness under  public  regulation,  either  the  regulations  of  the  State,  of  the  Con- 
gress, or  of  the  Federal  Water  Power  Commission.  There  is  no  twilight  zone 
between  those  jurisdictions;  where  one  does  not  apply  the  other  does.  What 
does  that  mean?  It  means  that  that  company  is  allowed  to  earn  only  a  fair 
return  on  the  money  actually  used  in  the  public  service. 

That  return  anybody  is  entitled  to.  Who  determines  all  those  questions? 
The  public  authority.  It  determines  what  money  shall  be  spent;  whether  or 
not  it  is  right  and  proper  to  raise  it  at  a  given  time,  and  what  the  rates  for 
service  shall  be.  As  the  Secretary  of  War  has  stated  here  "  these  regulating 
laws  all  provide  for  service  to  everyone  without  discrimination."  That  means, 
then,  not  that  the  Alabama  Power  Co.  is  building  up  a  monopoly  hostile  to 
the  interests  of  the  public,  but  that  the  public  has  decided  that  it  will  regulate 
that  monopoly  in  its  own  interests.  In  other  words,  that  it  will  be  the  monopo- 
lizer and  not  the  Alabama  Power  Co.  or  anyone  else.     It  simply  elects  who  it 


i 


|l 


950 


MUSCLE  SHOALS  PROPOSITIONS. 


will  allow  to  run  that  business.  And  by  doing  so,  and  by  allowing  private 
con<'erns  to  conduct  the  business,  it  takes  advantage  of  private  initiative, 
which  has  been  at  the  base  of  all  the  growth  and  prosperity  that  this  country 
has  experienced.  The  question  is,  how  that  private  initiative  can  be  harnessed 
in  the  public  interest.  The  public  decided,  in  effect,  that  it  will  monopolize 
this  business,  and  it  determines  how  it  shall  be  run  for  itself.  But,  you  may 
sav,  the  law  of  Alabama  requires  that  a  certificate  of  convenience  and  neces 
sitv  shall  be  granted  by  the  commission,  after  a  hearing,  before  a  competitor 
may  engage  in  business  in  any  town  which  the  company  is  already  serving. 
True;  it  protects  the  Alabama  Power  Co.  or  any  other  public  utility  from 
unfair  comiietitlon.  But  in  whose  interest  is  that  protection?  It  is  in  the 
public's  interest,  because  the  public  has  determined  that  it  will  not  be  sub- 
jected to  the  annoyances  and  the  expenses  of  competition  in  a  service  so  un. 
versal,  necessary,  and  vital  as  this  is.  It  will  not  stand  for  duplication  of 
poles  and  wires  in  the  streets,  for  two  power  stations,  where  one  is  sufficient,  or 
for  any  other  duplication  of  expense,  all  of  which  must,  sooner  or  later,  no 
matter  how  we  may  try  to  avoid  it,  be  absorbed  by  the  public. 

May  I  illustrate  the  results  of  competition,  by  the  experiences  a  number  of 
years  ago  in  La  (Crosse,  Wis.  Competition  started  against  the  local  electric 
light  company.  As  a  result  of  it  there  was  a  reduction  of  rates  and  price 
cutting  until  the  inevitable  happened,  and  one  company  failed  and  the  other 
took  it  over,  and  it  got  back  again  onto  its  feet  by  making  charges  and  rates 
which  would  take  care  of  all  expenses.  That  company  had  scarcely  gotten 
on  its  feet  when  there  was  another  case  of  competition,  with  the  same  result. 
Then  that  company  had  hardly  gotten  under  way  again  when  chere  was  more 
competition  of  the  same  kind.  It  happened  four  times  in  the  city  of  La  Crosse, 
and  finally  the  Public  Service  Commission  of  Wisconsin  rightly  decideil  that 
when  that  sort  of  thing  went  on  it  was  an  injury  to  the  city,  and  that  the 
protection  of  the  community  requlretl  that  a  certificate  of  public  necessity  and 
convenience  be  secured  before  competition  could  be  inaugurated.  Now,  so  far 
as  the  public  is  concerned  that  simply  stimulates  iTrivate  operation,  because 
private  management  knows  that  if  it  does  not  perform  its  duties  properly  and 
competently,  and  some  other  agency  can  come  into  its  territory  and  perform 
those  duties  better,  the  power  of  control  which  lies  in  the  public  will  say  that 

the  other  agency  can  do  it.  .  v,,.    ^i,  ^ 

In  other  words,  I  come  around  to  this  conclusion,  that  it  is  the  public  that 
controls  the  situation  in  its  own  interests  absolutely,  and  that  in  allowing  the 
Alabama  Power  Co.,  or  any  other  private  agency  to  make  developments  along 
the  lines  I  have  indicated,  which  insure  the  maximum  of  service  at  the  least 
cost  to  the  greatest  number  of  people,  they  are  taking  advantage  of  private 

initiative  to  its  own  gain.  ^      .„  .     .^.         ,       x  ^  , 

Now,  may  I  touch  upon  one  more  point,  and  then  I  will  be  through.  I  take 
it  that  what  the  Government  of  the  United  States  wants  in  connection  with 
Muscle  Shoals,  leaving  words  aside  for  the  moment,  is  that  it  shall  be  put 
to  the  maximum  possible  use  in  the  best  interest  of  the  people,  as  it  sees  it 
That  maximum  possible  use,  as  I  have  very  briefly  tried  to  explain,  can  only 
be  had  if  there  is  interconnection,  full  and  complete,  and  every  advantage 
taken  of  the  resources  available,  so  that  no  development  will  be  made  which  , 
only  realizes  part  of  the  possibilities,  and  may  be  in  the  way  of  future  and 
larger  possibilities.  The  fact  that  the  Alabama  Power  Co.  can  develop  no 
hydroelectric  powers  without  the  consent  of  the  Federal  Power  Commission  or 
of  Congress,  insures  that.  Now,  the  Government  has  taken  its  position,  partly 
as  a  result  of  its  experiences  in  the  war  and  partly  realizing  that  the  farming 
industry  is  at  the  base  of  our  national  prosperity.  It  has  said  that  we  want, 
first,  to' be  sure  that  the  power  at  Muscle  Shoals  is  available  for  emergency  in 
case  of  war,  for  the  manufacture  of  nitrates. 

Let  us  see  how  the  Alabama  Power  Co.'s  proposition  answers  that  require- 
ment It  leaves  the  nitrate  plants  and  the  quarry  which  supplies  them  in  the 
possession  of  the  Government,  and  it  gives  to  the  Government,  free  of  cost, 
too  000  horsepower,  so  that  the  Government  not  only  has  the  plants  Which  it 
has  built  for  the  production  of  explosives,  but  the  free  power  with  which  to  run 
them  And  not  onlv  that,  but  if  the  Alabama  Power  Co.  is  allowed  to  finish 
the  Muscle  Shoals  plant,  it  has  started  a  great  power  system  on  its  way  so  that 
a^  time  goes  on  and  the  markets  increase,  there  will  be  developed  such  an 
a^'gregate  of  power  in  that  territory  that  in  the  event  of  war  the  Government 
\\ill  have  more  power  available,  because  it  has  the  right  to  reach  out  and  take 
it,  than  it  can  conceivably  use.  In  other  words,  as  I  see  it,  the  Alabama  Power 
Co 's  proposal  answers  that  requirement  of  the  Government  100  per  cent. 


MUSCLE   SHOALS   PROPOSITIONS. 


951 


The  second  thing  that  the  Government  wants  is  that  :Mus(le  Shoals  shall  be 
available  for  the  manufacture  of  fertilizer.  You  gentlemen  know  that  in  the 
West,  where  water  is  scarce  in  the  arid  regions,  the  highest  use  of  water  is 
the  irrigation  use.  The  power  use  of  water  is  second,  and  power  permits  are 
always  granted  subject  to  the  superior  rights  of  irrigation.  In  a  similar  way, 
if  you  choose,  the  Government  wants  to  be  sure  that  there  is  always  power 
available  for  the  manufacture  of  fertilizer.  The  Alabama  Power  Ck).  offer 
leaves  the  nitrate  plant  in  the  hands  of  the  Government  and  provides  100,000 
horsepower  without  cost  to  the  Government,  or  to  any  other  agency  that  the 
Government  \Vants  to  specify,  in  its  own  discretion,  to  manufacture  fertilizer, 
and  the  Government  is  at  liberty  to  give  any  additional  subsidy  it  cares  to  give 
beyond  the  100,000  free  horsepower  to  whomever  it  chooses  to  selei-t  as  its  lessee. 

May  I  say  in  that  connection,  I  doubt  very  much,  having  human  nature  in 
mind  as  I  have  seen  it.  if  a  manufacturer  does  not  concentrate  on  the  manu- 
facture of  fertilizer  that  it  will  be  successfully  done.  If  anybody  manufactures 
fertilizer  and  also  goes  into  the  general  manufacturing  business,  one  or  the  other 
is  going  to  be  more  successful,  and  the  less  successful  business  is  bound  to  re- 
ceive less  attention  and  to  fall  by  the  wayside.  In  other  words,  I  think  the 
Alabama  Power  Co.'s  proposal  meets  the  second  demand  of  the  Government 

completely. 

With  regard  to  the  balance  of  the  power,  so  long  as  these  two  requirements 
are  taken  care  of  the  Government  is  concerned  only  that  the  i>ower  shall  be  put 
to  its  maximum  use  for  the  greatest  number  of  people  over  the  greatest  extent 
of  territory  possible.  That  can  only  be  accomplished— and  I  say  "only"  ad- 
visedlv,  because  the  war  has  taught  us  that  to  squeeze  the  last  bit  of  power  out 
of  existing  power  facilities  there  must  be  interconnecting  transmission  lines 
and  every  advantage  taken  of  the  diversity  factors  and  the  loa<l  factors  I  have 
spoken  of— that  can  only  be  accomplished  by  opening  the  way  for  the  possibili- 
ties in  Alabama  to  be  taken  advantage  of  to  their  maximum. 

The  Alabama  Power  Co..  bv  virtue  of  its  experience,  by  virtue  of  the  far- 
sightedness it  showed  in  working  with  the  Government  engineers,  develoi>ed  in 
coniunction  with  them  a  plan  which  was  approved  ])y  them,  for  the  <levelopment 
of  Muscle  Shoals,  which  would  have  been  a<-complished  but  for  the  intervention 
of  the  war,  is  in  the  best  position  to  do  this.  The  company  is  ready  now  to 
go  on.  as  it  might  have  done,  had  the  war  not  intervened,  and  that  power  will 
be  put  to  public  use  and  service  wherever  markets  retpiire  the  extension  of  its 
lines  in  Alabama  and  within  a  radius  of  300  miles,  and  gradually  within  a  radius 
of  400  miles  and  more,  bringing  cheaper  power  to  many  comnuinit'es  than  they 
could  otherwise  get.  As  time  goes  on  and  these  facilities  are  coordinated,  one 
after  another,  the  result  will  be  that  the  cost  of  jn-oduction  will  inevitably 
come  down.  And  as  it  goes  down,  the  jurisdiction  which  the  public  authorities 
have  over  the  operation  of  this  company  or  of  any  other  company  doing  a 
similar  business,  is  complete  and  final,  and  limits  that  company  to  a  fair  return 
on  the  monev  which  the  public  authorities  have  agreed,  after  investigation, 
is  spent  in  the  public  service.  So  I  think  the  power  company  in  its  offer  to 
complete  the  work,  without  further  cost  to  the  Government,  meets  this  demand 
of  the  Government  for  the  most  complete  general  use  of  Muscle  Shoals.  100 

per  cent. 
Now,  gentlemen,  I  have  tried  to  say  nothing  that  I  would  not  have  said  had 

1  been  a  manufacturer,  we  will  say,  of  broom  handles,  but  with  an  interest  in 
public  matters  and  a  desire  to  serve  the  connnon  weal.  But  I  happen  to  be  a 
member  of  the  firm  of  Coffin  &  Burr,  a  banking  house  in  Boston,  and.  as  I  have" 
indicated  to  you.  my  business  is  to  keep  in  touch  with  these  situations.  I 
have  studied  this  one  thoroughly,  and  I  pass  ah>ng  to  you  what  seem  to  me 
to  be  the  facts  in  the  case  and  the  deiluctions  that  imist  inevitably  be  drawn 
therefrom. 

I  thank  you  for  your  patience. 

The  Chairman.  It  is  about  (luarter  past  12  o'clock:  to-day  is  unanimous- 
consent  dav  in  the  House,  and  many  of  the  members  of  the  committee  want  to 
be  present  in  the  House  for  a  while  at  least.     Can  you  come  back  at  half  past 

2  o'clock  this  afternoon,  so  that  the  members  of  the  committee  may  ask  you 
such  questions  as  they  desire? 

Mr.  Frothingham.  I  am  at  your  service,  sir. 

The  Chairman.  If  you  can  do  that,  we  will  appreciate  it  very  much.  We  will 
take  a  recess  until  half  past  2,  and  then  the  members  of  the  committee  will  ask 
you  such  questions  as  they  desire. 

(Thereupon  the  committee  took  a  recess  until  2.30  o'clock  p.  m.) 


952 


MUSCLE   SHOALS  PROPOSITIONS. 


AFTER   RECESS. 


The  committee  met  pursuant  to  recess  at  2  o'clock  p.  m. 

STATEMENT  OF  MR.  FRANCIS  E.  FROTHINGHAM,  OF  COFFIN  & 

BURR,  BOSTON,  MASS. — Resumed. 

Mr.  FROTHINGHAM.  Mr.  Chairman.  I  wonder  if  I  may  have  permission  of  the 
committee  to  add  a  word  to  what  I  was  saying  this  morning  that  I  did  not 
quite  get  around  to. 

The  Chairman.  Yes;  you  may  finish  your  statement. 

Mr.  FROTHINGHAM,  J  Wanted  to  refer  to  another  nspe<'t  of  the  proposition  of 
the  Alabama  Power  Co. 

All  through  the  congressional  discussion  which  finally  resulted  in  the  Federal 
water  power  bill,  in  which  it  was  determineil  that  the  Government  should 
retain  control  over  those  hydroelectric  powers  and  possibilities  that  in  Its 
jurisdiction  in  the  public  domain  and  on  navigable  streams,  I  was  throughout 
in  sympathy  with  that  position  of  the  Government.  Many  of  my  associates, 
or  at  least  some  of  my  associates,  in  the  business,  were  not.  I  am  not  referring 
to  anybody  here,  but  to  those  with  whom  I  generally  come  in  contact.  I  think 
now  all  are  agreed  as  to  the  wisdom  of  that  policy. 

The  Chairman.  How  many  months  did  it  take  to  come  to  an  agreement  upon 
that  policy?    It  was  pending  a  long  time  in  Congress,  was  it  not? 

Mr.  FROTHINGHAM.  It  was  a  matter  of  several  years,  sir;  and  during  that 
period  the  Government  in  very  deliberate  nmnner  matured  its  policy  with  regard 
to  the  handling  of  the  powers  in  the  public  domain  and  on  navigable  streams, 
and  it  deliberately,  if  I  understand  it,  took  the  position  of  nongovernmental 
operation  but  of  licensing  to  others  the  developments  and  uses  of  these  powers 
under  carefully  laid  down  restrictions,  among  which  were  a  gi-ant  of  50  years 
only  with  the  right  of  recovery  by  the  Government  if  it  wanted  to,  and  the 
development  and  operation  under  very  carefully  prescribed  tei*ms  to  be  laid 
down  by  the  Federal  Water  I'ower  Commission,  so  that  whatever  was  done 
under  the  bill  was  under  the  most  careful  and  complete  regulation,  and  I  sub- 
mit that  the  proposition  of  the  Alabama  Power  Co.  completely  complies  with 
that  policy,  and  that  if  the  war  had  not  intervened  undoubtedly  this  Muscle 
Shoals  and  the  other  Tennessee  River  proposition  would  now  be  included  in 
the  jurisdiction  of  the  Federal  Water  Power  Connnission,  so  that  all  these 
matters  would  have  come  up  before  that  body.  So  not  only  does  the  power  com- 
pany's proposition  comply  with  that  deliberately  chosen  ix)licy  of  the  Govern- 
ment, but  under  present  conditions,  where  the  utmost  governmental  economy  is 
sought,  the  fact  that  the  company  completes  the  development  at  its  own  cost 
is  no  slight  consideration. 

The  Chairman.  Do  you  believe  that  that  provision  in  the  act  of  the  3d  of 
June.  1916.  which  authorized  the  beginning  of  the  water-power  project  and 
which  contemplated  that  no  private  party  shcmld  be  joined  with  the  Govern- 
ment in  i>erforming  this  work,  would  have  been  altered  if  we  had  not  gone 
into  the  war? 

Mr.  FROTHINGHAM.  My  personal  feeling  is,  sir,  it  would  not  have  been 
brought  forward  if  we  had  not  gone  into  the  war.  I  think  it  was  entirely 
prompted  by  the  thought  that  the  Government  must  itself  have  control  against 
any  other  during  the  emergency. 

The  Chairman.  That  was  the  reason,  as  I  recall,  why  that  language  was 
put  in. 

Mr.  FROTHINGHAM.  That  was  my  impression,  sir. 

The  Chairman.  But  when  we  got  into  the  war,  of  course,  those  outside  com- 
panies were  asked  through  our  War  Department  officials  to  help  the  Govern- 
ment in  carrying  out  these  various  provisions. 

Mr.  Fbothingham.  Yes,  sir. 

Mr.  Miller.  Mr.  Frothingham,  your  idea  is  that  it  is  to  the  best  interest  of 
the  people  of  the  southern  States  that  this  Muscle  Shoals  property  be  given, 
or  rather  that  the  offer  of  the  Alabama  Power  Co.  be  accepted. 

Mr.  Frothingham.  Yes,  sir. 

Mr.  Miller.  Now,  you  are  looking  at  that  from  the  standpoint  or  as  one 
element — the  stability  of  the  securities  of  the  Alabama  Power  Co.? 

Mr.  Frothingham.  I  think  not.  Mr.  Miller. 

Mr.  Milleb.  If  you  had  no  interest  in  the  Alabama  Power  Co.  and  your  firm 
had  no  interest,  and  you  never  expected  to  have  any  interest,  would  you  have 
appeared  here  in  the  same  interested  manner  that  jou  have,  Mr.  Frothingham'/ 


MUSCLE   SHOALS  PROPOSITIONS. 


953 


Mr.  Frothingham.  I  should  have  been  glad  to,  IMr.  Miller. 
Mr.  Miller.  Of  course,  that  is  an  old  idea  of  dividing  tlie  country  up  an<l 
having  certain  localities  where  some  interest  is  paramount  and  there  are  no 
competitors.  We  have  that  in  the  West  and  have  had  it  for  years,  but,  never- 
theless, we  are  in  this  position,  Mr.  Frothingham :  While  the  Alabama  Power 
Co.  has  been  in  business  in  the  State  of  Alabama,  I  think,  in  the  neighborhofxl 
of  17  years,  it  has  never  improved  the  Muscle  Shoals  water  power.  Nobody 
has  improved  it.  The  United  States  Government  has  attempted  to  and  did 
go  ahead  there.  Now,  after  the  United  States  Government  has  started  in  and 
put  $17,000,000  into  the  enterprise,  the  Alabama  Power  Co.  expresses  a  willing- 
ness to  go  and  complete  the  enterprise,  making  use  of  the  $17,000,000  that  the 
Government  has  put  in.  That  is  the  proposition,  as  I  understand  you. 
Mr.  Frothingham.  Not  at  all,  sir. 

Mr.  Miller.  Are  you  sure  you  have  the  Alabama  Power  Co.'s  proposition 
correct? 
Mr.  Frothingham.  I  think  so. 

Mr.  Miller.  And  you  say  the  Alabama  Power  Co.  does  not  and  will  not  al)- 
sorb  this  $17,000,000  we  have  put  in  and  get  the  use  of  it  without  paying  any- 
thing to  the  Government? 

Mr.  Frothingham.  Mr.   Miller,   is   it  permissible  for  me  to  answer  these 
questions  in  my  own  way. 
The  Chahiman.  Why,  certainly. 

Mr.  Frothingham.  I  think,  Mr.  Miller,  you  have  asked  several  questions  in 
one,  so  to  speak. 

Mr.  Miller.  I  did  not  intend  to ;  I  intended  to  ask  that  last  question  and  I 
will  ask  the  reporter  to  read  it  and  see  if  there  is  more  than  one  question 
involved. 

(The  stenographer  read  the  question  referred  to  as  follows:) 
"  Mr.  Miller.  And  you  say  the  Alabama  Power  Co.  does  not  and  will  not 
absorb  this  $17,000,000  we  have  put  in  and  get  the  use  of  it  without  paying 
anything  to  the  Government?  " 

Mr.  Frothingham.  The  Alabama  Power  Co.,  as  I  understan<l  the  situation, 
long  before  the  war,  took  steps  to  see  what  could  be  done  with  the  develoj'- 
ment  at  Muscle  Shoals.  Now,  it  is  apparent,  I  think,  that  the  anuamt  of 
money  involveil  before  any  power  could  be  deliverable  from  the  Muscle  Shoals 
development  was  such  that  it  was  absolutely  imi)erative,  as  ti  matter  of  busi- 
ness and  sound  progress,  to  make  other  p<»wer  developments  first,  to  load  those 
developments  and  gradually  increase  the  business  wliich  was  available,  until 
the  time  arrived  when  an  expenditure  of  mone.v  on  Muscle  Shoals  would  make 
it  possible  for  that  expenditure  to  earn  a  return. 

Now,  in  following  that  policy,  which  I  think  you  will  agree  is  an  eminently 
sound  policy,  the  Alabama  Power  Co.  reache<l  a.  point  where  it  believe<l  it 
could  go  ahead  with  that  proje<*t,  if  it  could  get  the  necessary  authority.  That 
authority  could  only  conle  from  Congress  at  the  time.  There  was  no  Federal 
Water  Power  Commission.  The  Alabama  Power  Co.  studied  this  situation 
with  the  utmost  care,  in  complete  cooperation  with  the  (rovernment  engineers, 
who  represented  solely  the  interests  of  the  Government,  and  it  was  apparent 
to  both  parties  that  unless  this  development  could  be  made  in  coordinati«.n 
with  the  others  which  I  have  spoken  of,  it  was  an  imi)racticable  proi>osition. 
but  that  in  such  coordination  there  was  a  basis  on  which  the  project  could 
be  entered  upon,  and  accordingly,  a  report  was  made  to  the  United  States 
Government,  as  I  understand  it,  in  the  hope  that  when  Congress  duly  looked 
into  it,  it  would  give  the  necessary  authority ;  and  at  that  time  the  war  inter- 
vened and  everything  took  an  entirely  different  coui-se. 

Now,  the  war  has  come  to  an  end  and  the  question  is  whether  or  not,  as  I 
see  it,  sir,  the  Government  will  revert  to  its  former  policies  or  whether  it  will 
not. 

In  the  meantime  the  business  of  the  Alabama  Power  Co.  has  grown  so 
that  by  the  time  the  Muscle  Shoals  jn'oject  can  be  conqUeted  to  the  propose<l 
installation,  there  ought  to  be  a  sulRcient  market  to  absorb  its  then  cmtput 
as  a  result  of  that  expenditure,  so  that  the  undertaking  will  be  tinanciall.v 
successful  and  not  financially  a  failure. 

I  wanted  to  make  that  statement,  if  I  might,  to  answer  your  questicm  t^at 
the  Alabama  Power  Co.  had  done  nothing;  that  the  situation  hm\  been  left 
unattended  to,  so  to  speak.    The  reasons,  I  think,  are  as  I  give  them. 

With  regard  to  the  $17,000,000,  the  original  plan  contenqjlated.  as  I  under- 
stand it,  that  the  Government  would  carry  its  i)ortion  of  the  expense  or  that 


l» 


!»: 


954 


MUSCLE  SHOALS  PROPOSITIONS. 


portion  of  the  exitense  which  had  to  do  parti4*uhirly  with  the  capitalization  of 
the  river.  I  understand  it  is  still  askeil  of  the  <^ovennnent  that  it  shall  do 
that. 

Now,  the  exigencies  of  the  war  liave  carried  the  proposition  as  far  as  it  is. 
If  the  Federal  Water  Power  Commission  gives  authority  to  go  ahead  under 
such  jurisdiction,  the  right  of  recovery  exists,  and  when  the  right  of  recovery  is 
exercised,  that  expenditure  all  returns  to  the  (Jovernnient.  and  if  I  under- 
stand the  proposition,  in  the  meantime,  the  1(X),000  of  free  horsepower  may 
be  translated  into  terms  of  interest  on  that  investment  by  the  Government. 
Do  I  meet  your  question,  sir? 

Mr.  Miller.  Then  I  understand  that  your  answer  to  mv  question  is  in  the 
altirmative,  that  it  does? 

Mr.  Frothingham.  Does  what? 

Mr.  Miller.  Gets  the  benefit  of  the  .$17.<X)0,0(M)  we  have  put  into  the  dam 

Mr.  Frothixgham.  On  paying  interest  for  it :  yes,  sir. 

Mr.  :Miller.  Where  do  they  pay  us  interest? 

Mr.  Frothingham.  I  just  said  that  if  the  100.000  horsepower  may  be  trans- 
lated into  terms  of  interest,  the  value  of  the  power 

Mr.  Miller  (interposing).  That  is  not  interest.  Let  us  talk  franklv.  Let  us 
not  juggle  with  words.  They  are  paying  us  no  interest  on  the  .$17,000.(X)0  that 
is  already  in  the  dam.  Is  not  that  the  fact,  under  the  offer  of  the  Alabama 
Power  Co.? 

Mr.  Frothingham.  I  think,  sir,  it  dei^ends  a  good  deal  upon  how  von  look 
at  it. 

Mr.  Miller.  You  know  what  interest  is,  and  I  know  what  interest  is.  so  let 
us  not  juggle  with  the  word  "  interest." 

Mr.  Frothingham.  And  what  is  interest? 

Mr.  Miller.  You  know  what  it  is,  do  you  not? 

]Mr.  Frothingham.  It  is  a  return  on  an  investment,  and  the  return  of  100,000 
horsepower 

Mr.  Miller  (interposing).  Interest,  according  to  its  legal  definition,  is  a  cer- 
tain amount  of  money  paid  for  the  use  of  money.    That  is  what  interest  is. 

Mr.  Frothingham.  Money  or  its  equivalent,  is  it  not? 

Mr.  Miller.  No,  sir ;  there  is  no  equivalent  about  it.  There  can  be  no  equiva- 
lent inherently.  Now,  we  have  got  $17,000,000  in  the  dam.  The  Alabama  Power 
Co.  gets  the  use  of  the  $17,000,000  throughout  the  period  of  the  50  years  that 
it  takes  this  lease,  and  I  am  asking  you  if  under  the  contract  or  offer  of  the 
Alabama  Power  Co.  the  United  States  gets  any  interest  on  its  investment  put 
in  the  dam? 

Mr.  Frothingham.  Mr.  Miller,  I  am  not  in  the  employ  of  the  Alabama  Power 
Co. 

Mr.  Miller.  No  ;  but  you  are  interested  in  it. 

Mr.  Frothingham.  I  was  not  a  party  to  the  framing  of  that  contract,  and  I 
came  here  to  speak  on  the  broad,  general  grounds  of  the  whole  proposition. 
I  think  Mr.  Martin  has  answered  that  question  or  similar  questions. 

Mr.  Miller.  I  was  simply  asking  the  question  of  you,  and  if  you  do  not  care  to 
answer  it,  Mr.  Frothingham,  of  course,  you  need  not. 

Mr.  Frothingham.  I  will  say,  with  frankness,  sir.  my  impression  is  that 
100,000  horsepower  has  an  equivalent  money  value,  and  perhaps  I  may  be  mis- 
taken in  thinking  it.  but  I  did  think  that  that  eijuivalent  monev  valiie  might 
be  taken  as  an  interest  on  the  investment. 

Mr.  Miller.  It  is  not. 

Mr.  Frothingham.  If  you  do  not  want  to  allocate  it  in  that  way  in  your 
mind 

Mr.  Miller  (interposing).  No:  I  would  never  allocate  it  in  that  way  in  figur- 
ing interest,  and  I  do  not  think  your  banking  firm  does  either. 

Now,  let  me  ask  you  this  question  about  another  angle  of  the  proposition.  I 
believe  you  said  the  flow-  of  the  Tennessee  River  was  what — 7,000  second-feet? 

Mr.  Frothingham.  I  said  that  I  understood  the  extreme  minimum  flow  had 
been  7,000  second-feet. 

Mr.  Miixer.  How  many  horsepower  will  that  generate? 

Mr.  Frothingham.  Under  the  head  to  be  developed,  I  think,  between  sixty 
aad  seventy  thousand  horsepower. 

Mr.  Miller.  Now,  we  get  the  second  100,000  horsepower. 

Mr.  Frothingham.  Yes,  sir. 

Mr.  Miller.  Then  it  is  very  clear  that  there  is  a  part  of  the  time  of  the  year 
that  the  United  States  Government  will  get  nothing. 


MUSCLE   SHOALS   PROPOSITIONS. 


955 


Mr.  Frothingham.  Yes,  sir. 

Mr.  Miller.  Now,  what  portion  of  the  year,  have  you  figured,  out,  will  the 
United  Statse  get  no  horsepower  and  no  power  whatever  under  the  Alabama 
Power  Co.  contract? 

Mr.  Frothingham.  The  100,000  horsepower  of  secondary  power;  that  is, 
the  second!  100,000  horsepower,  is  a  matter,  I  think,  Mr.  Miller,  of  exact  calcu- 
lation. That  calculation  is  based  on  the  records  of  the  stream  flow  of  the  river 
as  kept  by  the  United  States  Government  over  a  long  term  of  years. 

Mr.  Miller.  Yes. 

Mr.  Frothingham.  And  those  records  show  in  a  definite  way  that  that  second 
100,000  horsepower  is  available  82  per  cent  of  the  time. 

Mr.  Miller.  Eighty-two  i3er  cent. 

Mr.  Frothingham.  Yes,  sir. 

Mr.  Miller.  Now,  there  is  18  per  cent  of  the  year,  then,  when  we  get  no  horse- 
power whatever  under  the  Alabama  Power  Co.  contract ;  that  is,  approxi- 
mately, one-fifth  of  the  year. 

Mr.  Frothingham.  Mr.  Miller,  when  I  say  that  wiien  it  comes  to  that  amoiuit 
of  power,  I  have  no  knowledge  of  the  matter  one  way  or  the  other,  other  than 
what  has  been  stated,  and  I  understood  that  there  had  never  been  any  state- 
ment to  the  effect  that  there  was  required  to  operate  the  nitrate  plants  for 
fertilizer  more  than  the  first  100,000  horsepower  of  secondary  power.  Now, 
that  is  a  matter  for  somebody  else  to  discuss  and  to  pass  upon,  and  not  for  me. 

Mr.  Miller.  I  fully  appreciate  that,  Mr.  Frothingham,  but  .vou  are  appear- 
ing here  and  recommending  the  offer  of  the  Alabama. Power  Co. 

Mr.  Frothingham.  Yes. 

Mr.  Miller.  And-  with  just  this  little  fundamental  questioning  we  have  de- 
veloped the  fact  that  there  is  approximately  one-fifth  of  the  yeay  when  there 
will  be  no  power  available. 

Mr.  Frothingham.  Yes,  s*r. 

Mr.  Miller.  Which  is  quite  a  factor  in  the  manufacture  of  nitrates  or  in 
the  manufacture  of  anything  else  that  has  to  have  a  steady  outflow. 

Mr.  FROTHiNGHAif.  Except,  sir,  that  those  who  have  been  studying  these 
questions,  and  the  (Tovernment  officials,  as  I  understand,  have  said  that  the 
second  100,000  horsepower  was  all  that  was  necessary  for  the  proper  oi^eration 
of  the  plant.    Now.  if  they  are  mistaken 

Mr.  Miller  (interposing).  That  is,  the  Government  engineers  have  said  so? 

Mr.  Frothingham.  Do  not  let  me  make  any  mistake  about  that.  I  had  under- 
stood that  the  technical  experts  who  had  looked  into  the  matter  had  stated 
that  the  second  100,000  horsepower  was  sufficient  for  the  purpose.  If  it  is  not, 
that  is  a  factor,  sir,  that  I  have  nothing  to  do  with.    I  am  not  passing  on  that. 

Mr.  Miller.  I  will  just  correct  you  a  little  about  that.  The  experts  have 
advised  us  that  the  nitrate  plant  No.  2  has  an  annual  capac.ty  of  110,000  tons 
of  ammonium  nitrate  and  that  means  running  the  plant  to  its  full  capacity 
12  months  in  the  year.  Now,  not  82  per  cent  of  the  time  or  75  i)er  cent  or  any 
other  fraction  of  time,  but  that  is  the  nuiximum  capac.ty  of  the  plant,  run  to  its 
full  capacity. 

I  realize,  Mr.  Frothingluini.  the  same,  as  I  think  all  of  us,  that  we  are  all 
interested  in  the  facility  of  financial  investment.  It  ail  leads  to  the  stability 
of  our  financial  institutions,  but  very  clearly,  from  your  point  of  view,  in  the 
interest  of  the  Alabama  Pc>wer  Co.,  y<»u  do  not  think  it  advisable  for  a  com- 
petitor to  get  in  the  field  down  there. 

Mr.  Frothingham.  Not  at  all,  Mr.  Miller. 

^Ir.  Miller.  You  do  not  think  It  is  advisable? 

Mr.  Frothingham.  T  do  not  think,  if  I  may  so  put  it,  that  frcmi  our  point 
of  view,  as  bankers  who  have  handled  the  securities,  the  bonds  of  the  Alabama 
Power  Co.,  that  it  will  make  any  difference  to  the  Alabama  Power  Co.  whether 
this  proposition  is  handled  in  one  way  or  another. 

Mr.  Miller.  It  will  not  make  any  difference? 

Mr.  Froth ix(iHAM.  What  I  thiidv  with  equal  sincerity  Is,  as  an  American 
citizen  who  has  studied  these  question  the  country  over,  that  the  best  interests 
of  the  public  are  served  by  putting  that  situation  into  the  hands  of  the  agency 
which  is  prepared  and  has  demonstrated  its  ability  to  serve  the  public  already. 
I  am  speaking  in  that  respect  in  the  public  interest. 

Mr.  Miller.  Well,  of  course,  if  that  philosophy  is  true,  Mr.  Frothingham, 
there  is  nothing  in  the  philosophy  of  municipal  or  State  enterprises,  where 
municipalities  develop  their  own  water  power  and  supply  their  own  municipal 
needs. 


956 


MUSCLE   SHOALS  PKOPOSITIONS. 


Mr.  JRIOTHINGHAM.  My  theory  is  based  on  the  principle,  Mr.  Miller,  that 
the  greatest  progress  is  made  where  private  initiative  is  taken  advantage  of. 
That  is  simply  my  theory. 

Mr.  :Mili.er.  I  am  quite  familiar  with  that  angle  of  it.  I  have  been  mixed 
up  with  it  for  a  good  many  years  and  with  all  kinds  of  philosophies  in  that 
direction,  but  nevertheless  if  anyone  should  get  this  property  besides  the  Ala- 
bama Power  Co.  it  may  be  possible  that  there  will  be  a  competitor  in  the  field 
down  there,  right  in  their  territory,  which  you  say  would  have  no  effect  what- 
ever on  the  securities  of  the  Alabama  Power  Co.? 

Mr.  Frothingham.  Pardon  me,  sir;  I  do  not  think  I  said  that. 

"Sir.  Miller.  I  understood  you  to  say  that. 

Mr.  Frothingham.  No;  I  said  I  did  not  think  that  the  development  of  the 
Muscle  Shoals  situation  by  anyone  other  than  the  Alabama  Power  Co.  would 
affect  the  Alabama  Power  Co.  If  there  was  somebody  who  went  in  in  direct 
competition  and  some  authority  gave  them  permission  to  compete  in  every 
town  and  hnmlet  in  which  the  Alabama  Power  Co.  is  doing  business,  there  un- 
doubtedly would  be  disturbance. 

Mr.  Miller.  Undoubtedly  would  be  what? 

Mr.  Frothingham,  Disturbance,  but  that  is  not  a  condition  which  I  think 
it  is  fair  to  contemplate.  There  is  in  the  State  of  Alabama  a  public-service  com- 
mission, and  it  requires  that  a  certificate  of  public  convenience  and  necessity 
be  secured  before  competition  is  allowed.  That  is  a  provision  in  the  safety 
of  the  public,  and  I  can  not  conceive,  Mr.  Miller,  that  the  public  w^ouhl  allow 
needless  duplication  of  transmission  lines,  needless  buiding  of  steam  stations, 
needless  duplication  of  expense,  in  order,  deliberately,  to  injure  an  activity 
which  has  always  been  its  good  servant. 

Mr.  Miller.  Of  course,  that  opens  up  another  field.  We  are  all  acquainted 
with  these  certificates  of  necessity  and  these  public  utility  corporations.  Some 
of  us  have  lived  in  States  before  they  had  them  an<l  after  they  have  had 
them,  and  some  of  us  have  helped  to  organize  them  in  some  of  the  States. 

Mr.  Frothincjham.  I  think  better  afterwards  than  before. 

^Ir.  :Millek.  Now.  the  Alabama  Power  Co.  has  a  transmission  line  88  miles 
long  hooked  up  and  lined  up  right  toward  one  of  the  greatest  consumers  of 
electrical  power  in  that  whole  locality,  and  that  is  the  city  of  Birmingham. 

Mr.  Frothix(jham.  Mr.  Miller,  the  cost  of  distributing  electricity  after  you 
have  mnde  it  at  the  point  of  producfon  is  anywhere  from  two  to  three  times 
the  cost  of  generating  it.  Those  things  are  all  possible,  surely,  if  anybody 
wishes,  recklessly  and  improvidently  to  do  something:  but  I  am  assuming  that 
the  (Jovernment  will  make  its  decision  on  what  seems  to  me  to  be  s<mnd  and 
heli>ful  lines  to  the  public  it  wishes  to  serve, 

Mr.  Miller.  The  question  is,  AVhat  are  sound  and  helpful  lines?  That  has 
to  be  viewed  from  so  many  different  angles, 

Mr,  Frothingham.  That  is  it.  precisely. 

Mr.  Miller.  I  see  very  clearly,  Mr.  Frothingham,  and  so  do  you,  and  you  saw 
it  before  I  did,  that  if  Mr.  Ford's  proposition  should  be  accepted,  and  he  should 
go  in  there  and  develop  i)ower  and  should  sell  his  power,  he  would,  in  the 
first  place,  have  an  institution  free  from  the  financial  government  of  the  bankers ; 
that  is,  hs  securities  would  never  get  on  Wall  Street  or  in  Boston.  He  has 
enough  money  to  put  it  in  there  himself.  Now.  suppose  he  goes  to  distributing 
power  right  in  the  same  locality,  granting  that  a  certificate  of  necessity  will 
be  given  by  the  State  of  Alabama,  because  we  have  had  it  before  us  that  the 
Alabama  Power  Co.  is  a  very  unpopular  institution  in  the  State  of  Alabama, 
and  so  suppose  that  a  certificate  should  be  given  him  and  he  should  enter  into 
the  distribution  and  sale  of  iiower  in  the  very  center  now  touched  by  the 
Alabama  Power  Co.,  we  would  have,  first,  an  institution  free  from  banker 
control  of  the  large  financial  centers  of  the  East:  second,  you  would  have  a 
(•oini)etitor  right  'n  the  field  competing  against  the  securities  you  are  interested 
In,  and  I  can  see  very  clearly  why  you  would  ndvocate  that  such  a  condition 
be  not  brought  .nbout.  can  not  you? 

]Mr.  Frothingham.  Mr.  Miller,  I  sui>pose  that  all  soits  of  things  are  possible. 

^Fr.  Miller.  Let  us  figure  on  probnbilities  and  not  possibilities. 

Mr.  Frothingham.  If  Mr.  Ford  should  go  into  that  business,  Mr.  Ford  would 
become  a  public  utility. 

Mr.  Miller.  His  company  would. 

Mr.  Frothingham.  And  have  to  submit  to  the  same  regulation  that  the  Ala- 
bama Power  Co.  does,  and  being  a  public  utility  Mr.  Ford  would  have  to  go 
to  the  expenses  in  connection   with  such  service,  which  he  would   be  quite 


MUSCLE   SHOALS  PROPOSITIONS. 


957 


unwilling  in  all  probability  to  go  to.  Now,  the  Alabnma  Power  Co.  or  any 
other  power  company  is  in  the  business  of  collecting  and  distributing  power  in 
the  most  economical  and  the  cheapest  way,  and  if  ^Ir.  Ford  should  develop 
this  project  and  should  have  power  for  sale  cheaper  than  tlie  Alabama  Power 
Co.  in  that  respect  would  not  be  injured  by  the  existence  of  that  power  devel- 
oped by  somebody  elsp;  but,  on  the  contrary.  Mr.  Miller,  if  1  do  not  gauge  it 
wrongfully,  the  public  would  be  greatly  injured,  because,  instead  of  retaining 
the  monopoly  control  which  it  has  over  the  situation  as  it  is  to-day,  it  would 
deliberately  create  a  monopoly  control  as  against  itself  in  the  hsinds  of  a 
private  owner  beyond  the  reach  of  governmental  regulation,  and  I  think  that 
would  be  very  much  the  graver  of  the  two  evils  to  the  public. 

And,  Mr.  Miller,  you  have  spoken  about — is  it  proper  for  me  to  ask  Mr. 
Miller  a  question?    I  do  not  want  to  if  it  is  not. 

The  Chairman.  Does  Mr.  Miller  want  to  answer  the  question? 

Mr.  Miller.  I  have  no  objection.  I  do  not  know,  though,  that  it  is  very 
interesting  to  the  discussion.  I  have  been  over  this  so  many  times  with 
different  power  companies  and  bankers  and  everyone  else  I  think  I  understand 
all  the  angles  to  it.  I  would  not  hesitate  at  all  to  go  into  a  discussion  with  the 
gentleman,  but  I  do  not  know  that  it  would  be  vei-y  beneficial  to  my  brethren  <»n 
the  committee. 

Mr.  Frothingham,  I  wanted  to  ask  you  this  question.  ^Nlr.  Miller  referre<l 
to  the  banker  control.  Could  Mr.  IMiller  tell  me.  please,  what  is  the  nature 
of  the  banker  control  that  either  Harris,  Forbes  &  Co.  or  Coflfin  &  Burr 
exercise  over  the  policies  or  the  operations  of  the  Alabama  Power  Co.? 

Mr.  Mitxer.  Oh,  I  have  no  knowledge  of  that,  of  course. 

Mr.  Frothingham.  I  can  tell  you. 

Mr.  Miller.  But  you  say  you  are  interested  in  that  firm  and  you  are  here 

Mr.  Frothingham.  I  can  tell  you  exactly,  sir.  The  Alabama  Power  Co. 
wants  to  get  money  for  its  enterprises,  and  it  comes  and  sits  down  with  Harris, 
Forbes  &  Co.  and  Coffin  &  Burr  and  says,  "  We  w\ant  to  do  so  and  so ;  can  we 
get  some  money?"  and  we  ask  them  questions  and  discuss  the  matter,  and  we 
say,  "  We  can  get  the  money  for  you  ;  but,  in  our  judgment,  market  conditions  are 
such  that  it  may  cost  you  so  and  so  much."  The  Alabama  Power  Co.  buys  that 
money  in  that  w^ay,  in  precisely  the  same  way  that  it  buys  a  30,000-kilowatt 
generator  or  buys  the  copper  for  a  transmission  line,  and  buys  that  money  where 
it  can  buy  it  cheapest  and  get  the  best  service;  and  that,  sir,  is  the  complete 
extent  to  which  either  Harris,  Forbes  &  Co.  or  Coffin  &  Burr  exercise  any 
banker  control  over  the  Alabama  Power  Co.  or  any  other  public  utility  whose 
bonds  we  have  distributed. 

Mr.  Miller.  Then  your  firm  is  simply  a  distributor  of  bonds,  and  not  invest- 
ment bankers. 

Mr.  Frothingham.  The  terms,  I  think,  are  foolish  terms,  sir.  We  are  called 
investment  bankers.  We  simply  buy  bonds  with  our  own  money  and  own  them, 
just  as  a  dry-goods  merchant  does  the  cotton  on  his  shelf,  and  then  sell  them. 

Mr.  Miller,  And  you  deal  in  securities  to  the  point  of  purchasing  and  sell- 
ing them, 

Mr,  Frothingham.  We  deal  in  securities  in  the  way  I  mentioned  only,  not 
as  brokers, 

Mr.  Miller,  You  subscribe  to  issues  of  bonds,  do  you? 

Mr,  Frothingham,  We  purchase  them  outright  if  we  are  satisfied  that  it  is 
a  good  loan,  W^e  handle  only  bonds.  We  do  not  handle  the  equity  securities  of 
companies. 

Mr,  Parker.  Mr.  Frothingham,  these  two  plants,  nitrate  No.  1  and  nitrate 
No.  2,  both  include  steam  plants,  do  they  not? 

Mr.  Frothingham.  There  has  been  a  steam  plant  built  by  the  Government  at 
^fuscle  Shoals.    I  do  not  understand  the  expression  "  both  include  steam  plants." 

Mr.  Parker,  Well,  there  is  a  steam  plant  at  No.  2,  ^ 

Mr.  Frothingham.  In  that  vicinity, 

Mr.  Parker.  With  a  capacity  of  90,000  horsepower. 

Mr.  Frothingham.  Eighty  thousand  horsepower,  sir, 

Mr,  Parker,  Eighty  thousand  horsepower  or  80,000  kilowatts. 

Mr,  Frothingham,  Eighty  thousand  horsepower  or  60,000  kilowatts. 

Mr,  Parker.  Is  there  another  steam  plant  at  nitrate  No.  1,  a  few  miles 
down  the  river? 

Mr.  Frothingham.  I  believe  not,  sir. 

Mr.  Martin.  Yes ;  there  is  a  small  plant  there. 


958 


MUSCLE   SHOALS   PROPOSITIONS. 


MUeCLE   SHOALS  PROPOSITIONS. 


959 


Mr.  F80THIN6HAM.  I  was  not  aware  of  it ;  pardon  me. 

Mr.  Parker.  This  proposition  proposes  to  leave  tliose  nitrate  plants  with  the 
Government  but  to  take  over  and  to  take  away  from  those  plants  their  steam 
power,  does  it  not? 

Mr.  Frothingham.  I  should  not  have  put  it  in  that  way.  I  did  not  so  under- 
stand it.  The  nitrate  plants  must  have  power  to  run  them,  and  the  Government 
wants  to  be  sure  it  gets  that  power. 

Mr.  Parker.  Yes ;  and  the  Government  had  a  reserve  for  the  time  when 
secondary  power  failed  in  these  steam  plants;  and  the  steam  plants,  I  under- 
stand, this  proposition  proposes  that  the  Alabama  Power  Co.  shall  take  over. 

Mr.  Frothingham.  I  believe  so. 

Mr.  Parker.  So  as  to  take  away  from  the  Government  their  reserve  of  power 
for  the  operation  of  those  steam  plants  when  the  water  power  fails. 

Mr.  Frothingham.  May  I  say,  again,  I  do  not  want  to  evade  any  question 
in  any  way  that  I  am  competent  to  answer  or  know  about,  but  I  am  not  fa- 
miliar with  the  details  of  the  nitrate  situation.  All  I  know  is  that  I  have  been 
informeil  by  those  who  are  supposed  to  know  that  the  second  100,0(X)  horse- 
power was  what  was  needetl. 

Mr.  Paiskkk.  I  had  not  asked  about  the  nitrate  situation.  I  have  spoken  of  a 
plant  or  two  plants,  each  of  which  when  running  might  use  continuous  power. 

•Mr.  Frothingham.  The  plant  at  nitrate  No.  1,  if  that  is  the  one,  is  not  con- 
cerned in  this  proposition  at  all,  as  I  understand  it.  That  is  left  with  the  Gov- 
ernment just  where  it  is. 

Mr.  Parker.  So  is  nitrate  plant  No.  2. 

Mr.  Frothingham.  I  am  talking  about  the  steam  plant  that  is  at  nitrate 
plant  No.  1.     That  is  not  concerned  in  this  proposition  at  all. 

Mr.  Parker.  There  is  not  nmch  of  a  steam  plant  there.  \ou  take  the  steam 
plant  away  from  nitrate  plant  No.  2. 

Mr.  Frothingham.  Yes ;  if  you  consider  that  the  steam  plant  at  nitrate  No.  2 
and  nitrate  No.  2  are  one  and  inseparable. 

Mr.  Parker.  No ;  I  do  not  so  consider  them. 

Mr.  Frothingham.  It  is  taken  away  from  it  in  the  sense  in  which  you  .siieak 
of  it ;  yes,  sir. 

Mr.  Parker.  Do  you  know  anything  about  how  intimately  that  steam  plant 
is  connectetl  with  nitrate  No.  2,  whether  it  is  inside  of  the  Government  grounds 
or  inside  the  Government's  buildings,  and  so  on? 

Mr.  Frothingham.  I  have  been  there,  but  I  can  not  tell  you  that.  The  plant 
is  physically  separate  from  the  nitrate  plant  but  is  connected  with  it  by  cables 
for  the  transmission  of  current  through  some  sort  of  semiunderground  conduit 
passageway. 

Mr.  Parker.  Y'^our  previous  contract  with  the  Government  for  the  building  of 
transmission  lines  did  not  cover  either  these  plants  or  the  steam  plants  in 
them? 

Mr.  Frothingham.  No  ;  it  did  not,  because,  may  I  say 

Mr.  Parker  (interposing).  I  did  not  want  to  know  the  reason,  but  if  you 
would  like  to  give  it 

Mr.  Frothingham.  That  is  all;  pardon  me. 

Mr.  Parker.  I  did  not  mean  to  interrupt  you. 

Mr.  FROTHiNGHAjkf.  I  do  not  want  to  more  than  answer  the  questions;  ex- 
cuse me. 

Mr.  Parker.  And  that  agreement  covered  improvements  which  were  made  on 
the  lands  of  the  Alabama  Power  Co.  only? 

Mr.  Frothingham.  You  are  speaking  of  the  installaticni  at  the  Gorgas  plant? 

Mr.  Parker.  Yes ;  that  is  the  only  i)revious  agreement. 

Mr.  Frothingham.  Yes ;  I  believe  so. 

Mr.  Parker.  That  included  the  transmission  lines  and  the  original  plant — 
the  Gorgas  plant — and  nothing  else? 

Mr.  Frothingham.  I  understand  it  included  the  30,000-kilowatt  unit  at 
Gorgas,  the  necessiiry  substation  apparatus  in  connection  with  it.  and  the  trans- 
mission line  north  to  the  Muscle  Shoals  plant. 

Mr.  Parker.  It  did  not  include,  did  it,  the  delivery  stations  or  the  substations 
or  power  stations  which  were  put  on  the  Government  property  at  Muscle 
Shoals? 

Mr.  Frothincham.  I  can  not  answer  that  question.  Mr.  Martin  tells  me  it 
did  not,  sir. 

Mr.  Parker.  So  that  this  new  contract  proposes  that  the  Government  shall 
transfer  and  not  merely  carry  out  the  contract  of  transferring  to  you  the  plant 


and  transmission  lines  on  your  own  land,  but  likewise  transfer  other  sections, 
delivery  stations,  and  power  stations  on  Government  land. 

Mr.  Frothingham.  As  I  had  understood  the  proposition,  sir,  it  was  a  propo- 
sition to  acquire  from  the  Government,  for  what  was  proper  compensation,  the 
rigiits  to  de'velop  Muscle  Shoals  and  its  appurtenant  property  under  a  50-year 
Federal  water-power  grant. 

Mr.  Parker.  I  would  like  for  the  reporter  to  read  the  question. 

(The  reporter  read  the  question  referred  to,  as  follows:) 

•'  Mr.  Parker.  So  that  this  new  contract  proposes  that  the  Government  shall 
transfer  and  not  merely  carry  out  the  contract  of  transferring  to  you  the  plant 
and  transmission  lines  on  your  own  land,  but  likewise  transfer  other  stations, 
delivery  stations,  and  power  stations  on  Goveroment  land." 

Mr.  Frothingham.  Yes. 

Mr.  Parker.  You  do  say  that  the  Government  had  stations  at  which  it  could 
take  powef  from  the  Gorgas  plant  or  any  part  of  the  Alabama  Power  Co.  for 
its  own  use  in  its  own  factories,  and  although  it  retains  those  factories  it  gives 
up  those  terminals? 

Mr.  Frothingham.  Yes.  sir ;  for  1(X),000  free  horsepower. 

Mr.  Parker.  For  100,000  secondary  horsepower,  please? 

Mr.  Frothingham.  Yes,  sir ;  for  the  second  100,000  horsepower  and  $5,000,000. 

Mr.  Parker,  This  power  becomes  therefore  entirely  second,  instead  of  being 
hacked  up  by  a  reserve  of  steam  power? 

Mr.  FROTHiNGiiAi^r.  Under  the  proposition,  as  I  understand  it,  sir,  the  offer 
is  the  second  100,000  horsepower  which  is  available  82  per  cent  of  the  time, 
and  which  I  have  been  led  to  understand  was  what  was  required  to  operate 
the  plant. 

Mr.  Parker.  And  for  that  the  Government  gives  up  its  reserve  of  steam 
j)Ower  which  would  have  hatched  out  this  secondary  water  power? 

Mr.  Frothingham.  If  you  choose.   , 

Mr.  Parker.  Is  not  that  what  you  understand? 

Mr.  Frothingham.  Yes. 

Mr.  Parker.  I  do  not  mean  to  confuse  you,  but  I  am  trying  to  find  out  what 
(he  contract  says. 

Mr.  Frothingham.  Pardon  me  for  putting  It  in  that  way.  What  I  had  in 
mind  was  that  the  power  which  the  Government  would  have,  if  it  retained 
entire  possession  of  the  steam  plant  to  supplement  the  hydroelectric  power 
and  maintained  it  idle  for  82  per  cent  of  the  time,  it  would  have  to  pay  money 
to  generate,  and  if  it  wants  to  buy  it  instead  from  the  Alabama  Power  Co., 
it  is  there  in  superabundance.  So  that  it  would  make  little  difference  in  the 
cost  to  the  Government  whether  it  paid  the  operating  expenses  of  its  own  station 
to  make  it  or  bought  the  power  from  the  Alabama  Power  Co.  It  would,  in  fact, 
buy  it  cheaper. 

Mr.  Parker.  There  is  no  contract  in  this  proceeding  to  sell  power  to  the 
Government? 

Mr.  Frothingham.  Not  as  I  understand  it. 

Mr.  Parker.  No.  No  proposition  that  it  should  be  sold  at  the  lowest  whole- 
sale rate. 

Mr.  Frothingham.  I  should  assume 

Mr.  Parker  (interposing).  There  is  no  such  proposition  in  the  contract.  I 
asked  a  simple  question.    You  did  not  see  any  such  provision  in  there? 

Mr.  Fbothingham.  There  is  not,  in  the  contract,  but  it  is  inherent,  I  think, 
sir,  from  the  very  nature  of  Government  control. 

Mr.  Parker.  I  doubt  that,  sir.  I  say  there  is  no  statement  in  that  proposi- 
tion that  the  Alabama  Power  Co.  will  reserve  and  be  able  to  sell  the  Govern- 
ment enough  power  to  make  their  secondary  power  primary  power. 

Mr.  Frothingham.  I  recall  no  such  statement. 

Mr.  Pabkeb.  And  that  might  be  essential  to  the  operation  of  the  plants 
throughout  the  year. 

Mr.  Frothingham.  No;  I  think  not. 

Mr.  Paekee.  That  you  do  not  speak  of  as  an  expert,  you  say? 

Mr.  Frothingham.  Not  as  an  expert;  no.  sir. 

Mr.  Parker.  You  spoke  of  your  general  study  of  water  power  in  the  United 
States;  how  far  has  your  study  gone? 

Mr.  Frothingham.  Coffin  &  Burr  have  handled  bonds  on  hydroelectric  prop- 
erties all  over  the  United  States  and  in  Canada. 

Mr.  Parker.  You  spoke  of  the  uncertainty  of  the  Tennessee  River  and  of 
other  rivers  of  the  Appalachian  chain? 

Mr.  Frothingham.  Yes. 

92C00— 22 61 


^ 


f 


960 


MUSCLE  SHOALS  PROPOSITIONS. 


Mr.  Pabkkb.  This  uncertainty  does  not  exist  to  the  same  extent  as  to  Cana- 
dian rivers,  does  it,  where  the  rivers  come  from  snow  mountains? 

Mr.  Frothingham.  Not  as  a  rule,  because  the  Canadian  rivers  of  the  East, 
particularly,  come  from  a  very  extended  region  of  bogs  and  muskeags,  where 
the  water  soaks  in  and  is  naturally  collected  and  runs  off  more  slowly. 

Mr.  Pabker.  And  they  have  a  better  flow  throughout  eastern  Canada  than 
we  have  here? 

Mr.  Frothingham,  I  think  that  is  so,  sir ;  a  more  regular  flow. 

Mr.  Parker.  Now,  going  to  the  West,  where  they  have  a  very  large  flow  in 
some  of  their  rivers. 

My.  Froxhingham.  In  Canada? 

Mr.  Parker.  Yes.  • 

Mr.  Frothingham.  Oh,  yes ;  some  are  very  powerful  streams. 

Mr.  Parker.  And  some  are  very  much  more  powerful  than  this  river? 

Mr.  Frothingham.  Yes,  sir. 

Mr.  Parker.  How  mnch  more  powerful? 

Mr.  Frothingham.  I  do  not  know  that  I  could  say  exactly. 

Mr.  Parker.  Twice  as  great,  some  of  them? 

Mr.  Frothingham.  Oh,  yes;  and  more  than  that.  The  St.  Lawrence,  for 
instance,  has  one  million  and  a  half  horsepower  at  one  place. 

Mr.  Parker.  I  was  talking  of  such  rivers  as  the  Ottawa. 

Mr.  Frothingham.  I  suppose  the  Ottawa  River  at  its  mouth  might  develop, 
perhaps,  200,000  or  300,000  horsepower. 

Mr.  Parker.  That  would  run  during  the  year  and  not  be  so  uncertain  during 
the  summer. 

Mr.  Frothingham.  Not  so  uncertain,  but  still  uncertain. 

Mr.  Parker.  Now,  when  you  get  west  of  the  Rockies,  into  the  Sierras,  where 
there  are  snow  mountains,  take  the  Columbia,  for  example,  is  not  that  very 
much  larger  and  much  more  certain? 

Mr.  Frothingham.  No;  it  is  not,  sir. 

Mr.  Parker.  It  is  not? 

Mr.  Frothingham.  Did  you  say  the  Colorado? 

Mr.  Parker.  No ;  the  Columbia. 

Mr.  Frothingham.  The  Columbia  is  a  very  much  larger  river.  I  am  not 
familiar  with  the  maximum  variation  in  its  flow,  but  it  is  considerable. 

Mr.  Parker.  Has  it  not  a  larger  flow  in  the  summer  than  in  the  winter? 

Mr.  Frothingham.  That  is  because  of  the  melting  of  the  snow  in  the  moun- 
tains. 

Mr.  Parker.  Well,  has  it  a  larger  flow  in  the  summer? 

Mr.  Frothingham.  It  has  a  larger  flow  later  in  the  year  than  most  rivers. 
I  do  not  know  that  it  is  largest  in  the  summer  or  the  spring  or  the  fall. 

Mr.  Parker.  My  information  is  that  instead  of  being  short  in  the  summer  it 
is  overfull  in  the  summer. 

Mr.  Frothingham.  The  snows  melt  in  the  mountains  of  British  Columbia 
in  the  summer  time  and  that  flow  comes  down  to  the  United  States  at  that 
season  of  the  year,  and  it  has  a  peculiar  flow  record  in  consequence  of  that. 

Mr.  Parker.  And  it  has  millions  of  horsepower? 

Mr.  Frothingham.  There  is  a  great  deal  of  horsepower  on  the  Columbia 

River. 

Mr.  Parker.  Has  it  not  millions  of  horsepower? 

Mr.  Frothingham.  My  impression  is  that  at  Priest  Rapids,  on  the  Co- 
lumbia, the  estimates  show  there  might  be  some  300,000  continuous  horse- 
power. 

Mr.  Parker.  At  that  single  point? 

Mr.  Frothingham.  At  that  point. 

Mr.  Parker.  And  there  are  many  others,  are  there  not? 

Mr.  Frothingham.  Not  a  great  many,  sir. 

Mr.  Parker.  Now,  as  t<»  the  Sierra,  I  understand  that  the  streams  run- 
ning from  the  Sierras,  the  snow  mountains  of  Colorado,  are  not  very  large, 
but  they  have  a  tremendous  fall,  so  that  the  amount  of  horsepower  in  many 
cases  is  very  large. 

Mr.  Frothingham.  Yes. 

Mr.  Parker.  And  they  have  a  summer  flow  from  the  melting  of  the  snow, 
just  as  you  have  indicated. 

Mr.  Frothingham.  Yes. 

Mr.  Parker.  And  some  of  them  are  much  larger  m  their  horsepower  than  tne 
Tennessee  because  they  have  thousands  of  feet  of  fall,  is  not  that  true? 


MUSCLE  SHOALS  PROPOSITIONS. 


961 


Mr.  Frothingham.  I  think  I  would  scarcely  say  that.  sir.  The  streams 
in  the  California  moimtains  are  in  th(Mnselves  of  comparatively  little  hydro- 
electric consequence  unless  they  can  be  associatod  with  storage  reservoirs, 
which  will  retain  thes(»  intermittent  flows.  Some  of  the  situations  in  Cali- 
fornia are  such  that  with  those  storage  reservoirs  developed  and  with  col- 
lateral streams  which  normally  would  not  flow  into  the  main  streams  diverted 
through  tunnels  into  it  and  one  thing  and  another  of  that  s(»rt  done  there 
are  large  ;•  mounts  of  power  that  can  be  developed. 

Mr.  Parker.  Your  answer  then  is  that  when  they  come  from  snow  moun- 
they  do  not  have  a  strong  summer  flow  at  the  very  time  that  you  need 


tains 
them. 
Mr. 
when 
there 
flow. 


Frothingham.  I 
the  snow  melts, 
is,  of  course,  in 


did  not  mean  to  say  that.    The  flow  comes  at  the  time 

whenever  that  is,   and  there  is  very   apt  to  be,   and 

those  .streams  a  summer  flow  larger  than   the  winter 

lii  those  streams  the  minimum  flow  is  in  the  winter  when  the  cold  comes 

and  they  freeze  solid  and  there  is  no  water. 

Mr.  Parker.  Have  you  studied  the  water  powers  of  the  world  at  all? 
Mr.  FROTHixoHAM.'Only  in  a  very  general  way,  sir. 

Mr.  Parker.  I  suppose  you  will  agree  with  me  that  on  the  Western  Contment 
the  greatest  water  powers  of  the  world  are  within  the  Tropics,  on  the  tributa- 
ries of  the  Amazon,  as  they  flow  from  the  Andes. 

Mr,    Frothingham.  There   are    some    enormous    iwwer    possibilities    m    tne 
Tropics,  both  in  South  America  and  in  Africa. 
Mr,  Parker,  And  also  in  India? 
Mr.  Frothingham,  I  am  not  familiar  with  India.     I  could  not  say.    There 

may  be.  ,    ,       ^.  ^     ».     ^ 

Mr,  Parker.  Have  you  ever  heard  of  the  fall  of  the  Indus  River  of  about 

10,000  feet  in  about  50  miles— a  large  river? 

^Tr.  Ftiottttngitam.  I  have  not  heard  of  that,  sir. 

Mr.  Parker,  Or  of  the  fall  of  the  Brahmaputra  River  of  tlie  same  sort? 

Mr,  P'rothingham.  I  have  not  heard  of  it. 

Mr.  Parker,  Or  of  the  fall  of  the  Yangstekiang  and  other  rivers  of  China 
coming  also  from  those  snow  mountains? 

Mr.  Frothingham,  Yes,  sir ;  but  those  high  falls  are  always  where  the  river 

flow  is  small.  * 

Mr,  Parker,  Even  when  they  come  from  those  snow  mountains? 
Mr.  Frothingham,  Yes.    Large  fall  and  high  heads  do  not  often  happen  in 

nature  together.  .    ,«,.,x.  ^   -. 

Mr.  Parker,  Is  that  true  where  you  have  a  large  plateau  like  in  Thibet,  from 

which  several  large  rivers  flow? 
Mr.  Frothingham.  Yes ;  but  the  individual  rivers  do  not  hold  a  large  amount 

of  water,  ^  ^    ^       ^      . 

Mr.  Parker,  You  can  not  speak  with  certainty  as  to  the  amount  of  water  in 

the  Indus? 

Mr.  Frothingham,  I  could  not  answer  as  to  that. 

Mr.  Parked,  You  spoke  of  Africa.    What  part  of  Africa  did  you  refer  to? 

Mr.  Frothingham.  I  understand  that  on  some  of  the  inland  streams  there  are 
some  high  heads. 

Mr.  Parker,  Do  you  mean  in  the  south  or  in  the  north  of  Africa? 

Mr,  Frothingham.  In  central  Africa. 

Mr,  Parker,  Wliere  the  Nile  flows? 

Mr.  Frothingham,  For  instance  from  the  Big  Cataract  to  the  Nile. 

Mr.  Parker.  Coming  from  the  ruins  along  the  Nile? 

Mr.  Frotingham.  Coming  from  the  interior  plateau. 

Mr,  Parker.  What  we  used  to  call  the  Mountains  of  the  Moon? 

Mr,  Frothingham.  Very  likely. 

Mr,  Parker,  In  Switzerland  and  in  Italy,  especially  perhaps  in  Italy,  the 
streams  that  flow  from  the  Alps  into  the  Po  have  tremendous  flows  with 
tremendous  water-power  possibilities. 

Mr.  Frothingham.  Thev  have  very  large  flows,  but  not  such  tremendous 
horsepowers.  You  take  the  Po  River,  It  lies  in  the  valley  bottom  all  across 
the  northern  portion  of  Italy,  and  its  tributaries  come  down  from  the  mountain 
sides,  and  each  tributary  is  a  comparatively  small  one,  and  when  it  is  coupled 
with  a  high  head  and  the  possibility  of  storage,  then  a  considerable  power  can 
be  developed. 


962 


MUSCLE   SHOALS   PROPOSITIONS. 


Mr.  INaukkk.  Have  you  heard  of  their  plans  and  the  millions  of  horsepower 
they  expect  there? 

Mr.  Frothingham.  I  have,  in  the  aggregate,  understood  that  it  was  a  great 
deal. 

Mr.  Parker.  How  much  do  they  figure  on? 

Mr.  Frothinham.  I  do  not  remember,  sir. 

Mr.  Parker.  Many  millions? 

Mr.  Frothingham.  I  do  not  remember,  sir.    It  is  very  large. 

Mr.  Parker.  Then,  I  gather  from  you,  if  I  am  right,  that  while  the  Tennessee 
River  is  the  best  of  our  rivers  in  the  Temperate  Zone,  in  the  eastern  range  of 
mountains,  it  is  not  large,  compared  with  the  rivers  of  the  world,  and  is  much 
more  uncertain  and  smaller  than  the  rivers  either  of  Canada  or  the  extreme 
West  of  the  United  States,  and  these  are  all  smaller  than  the  tremendous  falls 
of  the  rivers  of  the  Tropics. 

Mr.  Frothingham.  In  general,  I  should  say  so;  yes,  sir. 

Mr.  Fields.  :>Ir.  Frothingham,  if  I  understood  correctly  your  statement  before 
noon,  it  is  your  contention  or  your  belief  that  the  pawer  at  Muscle  Shoals 
will  be  necessary  to  meet  the  requirements  of  that  section  for  the  municipali- 
ties, factories,  etc.,  which  the  Alabama  Power  Co.  is  now  supplying. 

Mr.  Frothingham.  I  think  I  would  say,  Mr.  Fields,  that  for  several  years  to 
come  the  market  requirements  of  Alabama  can  be  taken  care  of  without  the 
use  of  the  Tennessee  River  at  all.  It  is  simply  a  question  of  getting  the  Ten- 
nessee River  harnessed  as  soon  as  market  conditions  make  that  a  justifiable 
proposition  in  the  public  interest,  and  that  time  has  come.  In  a  few  years 
it  would  in  any  case  be  demanded. 

Mr.  Fields.  Would  you  apply  the  power  produced  at  Muscle  Shoals  to  the 
uses  of  the  industries  now  supplied  by  the  Alabama  Power  Co.  entirely,  to  the 
exclusion  of  the  production  of  fertilizer? 

Mr.  Frothingham.  The  Alabama  Power  Co.  is  an  electric  current  making 
company.  It  does  that  business  only,  and  it  does  not  want  to  go  into  any 
other  business,  as  I  understand  it. 

Mr.  Fields.  Under  your  theory,  there  would  be  no  water  power  in  that  sec- 
tion devoted  to  the  production  of  fertilizer  products,  except  the  100,000  sec- 
ondary horsepower  under  the  proposition  of  the  Alabama  Power  Co.,  unless, 
perhaps,  it  is  possible  to  successfully  operate  nitrate  plant  No.  2  with  that  power! 

Mr.  Frothingham.  As  the  proposition  stands  at  the  moment,  although,  of 
course,  should  other  development  of  the  fertilizer  business  take  place  and  addi- 
tional power  be  required,  I  should  be  inclined  to  say  that  nowhere  in  the  United 
States  could  it  get  more  abundant  or  cheaper  power  than  from  a  combination 
•of  these  various  resources  which  I  have  spoken  of. 

Mr.  Fields.  But  you  are  making  the  production  of  fertilizer  the  secondary 
consideration  and  giving  it  secondary  consideration.  You  would  take  care  of 
everything  first,  and  then,  if  there  is  power  to  produce  fertilizer  compounds, 
you  would  produce  them,  but  you  would  not  do  so  until  all  these  other  needi 
or  requirements  are  supplied. 

Mr.  Frothingham.  No;  I  think  not,  Mr.  Fields.  My  thought  was  that  the 
Government  wanted  to  have  this  100,000  secondary  horsepower  to  operate  the 
nitrnte  plants  with,  either  for  munition  purposes  or  for  the  manufacture  of 
fertilizer;  and  as  I  understand  the  proposition  of  the  Alabama  Power  Co., 
It  sets  that  aside  as  the  primary  claim  of  that  business  upon  the  capacity  of 
the  Muscle  Shoals  plant. 

Mr.  Fields.  But,  it  being  secondarj-  power,  that  makes  the  production  of 
fertilizer,  when  we  come  down  to  the  meat  in  the  coconut,  a  secondary  propo- 
sition. The  other  is  to  be  supplied  first ;  and  we  make  fertilizer,  if  we  can  do 
so,  with  secondary  horsepower. 

Mr.  Frothingham.  Perhaps  my  mind  is  confused  about  it,  Mr.  Fields,  but 
I  had  understood— mind  you,  I  have  had  no  hand  in  working  these  phases  out 
at  all — but  I  have  understood  that  what  was  wanted  to  operate  that  plant 
was  the  second  100,000  horsepower,  and  that  that  is  being  provided.  Now,  if 
that  is  not  what  is  wanted,  then,  that  is  something  which  somebody  else  must 
take  up  and  discuss. 

Mr.  Fields.  This  being  the  greatest  water  power  in  the  Southeast  and  possi- 
bly the  greatest  one  east  of  the  Mississippi  River  in  the  United  States,  from  my 
point  of  view,  what  is  wanted  is:  First,  the  production  of  fertilizer  compounds; 
and,  then,  if  there  is  any  available  power,  it  might  go  to  the  other  Industries. 

Mr.  Frothingham.  But,  Mr.  Fields,  it  is  the  greatest  power  in  the  Southeast 
only  if  it  is  coordinated  with  the  other  power  and  storage  reservoir  possibilities 


MUSCLE  SHOAI^S   PROPOSITIONS. 


963 


in  the  vicinity.  Otherwise,  it  is  of  comparatively  little  value.  That  is  the 
point  which  I  would  like  particularly  to  bring  out.  That  alone,  as  a  separate 
proposition,  unconnected  in  any  way  it  is  a  comparatively  uninteresting  proiK)- 
sition. 

Mr.  Fields.  But  properly  harnessed  it  is  the  greatest? 

Mr.  Frothingham.  Properly  harnessed  it  is  the  greatest  single  point  of 
power  production  that  there  is  in  eastern  United  States,  with  the  exception  of 
the  Niagara  River  and  the  St.  Lawrence  River. 

Mr.  Fields.  You  have  stated  that  your  institution  sells  the  securities  of  the 
Alabama  Power  Co.,  I  believe? 

Mr.  Frothingham.  Yes ;  sells  its  bonds,  sir. 

Mr.  Fields.  If  the  Government  should  accept  the  proposition  of  the  Alabama 
Power  Co.,  now  before  the  committee,  that  company  would  doubtless  sell  a 
great  many  more  bonds,  would  it  not? 

Mr.  Frothingham.  Probably. 

Mr.  Fields.  And  your  firm  doubtless  would  get  its  share  of  the  business? 

Mr.  Frothingham.  We  should  hope,  Mr.  Fields,  that  if  that  condition  came 
about,  that  Mr.  Martin  would  ask  us  if  we  could  supply  the  money,  and  we 
should  try  to  supply  the  money ;  and,  if  we  could  not,  Mr.  Martin  would  seek 
for  it  elsewhere.  But  we  have  told  Mr.  Martin  that  we  believe  that  in  the 
face  of  what  he  has  told  us  of  the  growing  markets  and  the  business  which  is 
expected  to  absorb  the  initial  output  of  this  plant  when  it  is  completed,  that 
we  believe  his  proposition  can  be  financed  and  that  we  could  probably  supply 
the  money. 

Mr.  Fields.  In  view  of  the  interest  you  have  manifested  in  this  company,  and 
the  very  forceful 'presentation  that  you  have  made  here  in  support  of  his  offer, 
he  would  be  very  ungrateful  if  he  did  not  give  you  the  business,  all  other 
things  being  equal. 

Mr.  Frothingham.  I  confess  I  might  feel  that  way. 

Mr.  FiEiJiS.  That  is  all,  Mr.  Chairman. 

Mr.  Frothingham.  But,  Mr.  Fields,  we  are  in  the  business  of  handling  public 
utility  bonds  in  the  United  States  and  Canada,  and  there  is  a  good  deal  of  busi- 
ness that  we  would  like  to  get  that  we  do  not  get,  and  if  we  did  not  get  the 
business  here  we  would  get  some  other  business. 

Mr.  Fields.  That  reminds  me  to  ask  another  question.  You  are  not  ex- 
pecting to  handle  any  bonds  for  the  development  of  Muscle   Shoals   if  Mr. 

Ford  should  get  it? 

Mr.  Frothingham.  I  can  imagine  that  if  Mr.  Ford  should  come  to  us  and 
jffer  us  the  right  securities,  and  want  to  borrow  some  money,  we  would  lend  him 
money  as  well  as  we  would  anybody  else. 

Mr.  Fields.  Yes ;  but  you  are  hardly  expecting  him  to  come. 

Mr.  Frothingham.  I  am  not  anticipating  that ;  no,  sir. 

Mr.  Wright.  Mr.  Frothingham,  are  you  acquainted  with  the  water-power 
situation  in  Georgia? 

Mr.  Frothingham.  A  while  ago  I  was  intimately  acquainted  with  it,  although 

I  am  a  little  rusty  now. 

Mr.  Wright.  What  :ire  the  principal  rivers  of  Georgia? 

Mr.  Frothingham.  The  power-producing  streams? 

Mr.  Wright.  The  principal  power-producing  streams ;  yes. 

Mr.  Frothingham.  The  Chattahoochee,  the  river  which  flows  down  the  middle 
of  the  State,  the  Flint  River,  I  think,  north  of  Macon;  the  Etowah  River, 
and  the  Savannah,  or  the  upper  tributaries  of  the  Savamiah,  namely,  the  Tal- 
lulah  and  the  Tugaloo.     I  think  those  are  the  major  power  streams  in  Georgia. 

Mr.  Wright.  Now,  can  you  tell  us  the  amount  of  horsepower  being  produced 
(►n  any  of  those  streams? 

Mr.  Frothingham.  Only  very  roughly.  On  the  Tallulah  River  there  is  a 
90,000-horsepowx^r  development,  I  think. 

Mr.  Wright.  At  Tallulah  Falls? 

Mr.  Frothingham.  Yes,  sir;  operating  under  one  of  the  highest  heads  in 
East. 

Mr.  Wright.  That  is  a  very  splendid  development  there,  is  it  not? 

Mr.  Frothingham.  It  is  a  fine  development.  On  the  remaining  stream,  the 
Tugaloo,  I  believe  they  are  starting  a  development  which  is  to  have  something 
of  the  same  horsepower. 

Mr.  Wright.  And  that  is  being  done  by  the  same  company? 


964 


MUSCLE  SHOALS  PROPOSITIONS. 


Mr.  Fhothingham.  By  the  same  company.  I  should  roughly  say  that  on  the 
upper  reaches  of  the  Etowali  there  might  be  forty  to  fifty  thousand  horsepower 
in  two  or  three  developments. 

Mr.  Wright.  The  Etowah  is  a  wonderful  stream,  so  far  as  waterpower  de- 
velopment is  concerned,  is  it  not? 
Mr.  Frothingham.  It  is  a  very  interesting  stream. 

Mr.  Wright.  Do  you  know  of  any  river  in  the  United  States  which  has  more 
natural  dam  sites  and  places  for  power  development  than  the  Etowah? 

Mr.  Frothingham.  The  topography  of  the  country  in  northern  Georgia  does 
provide  reservoir  capacities  of  importance. 

Mr.  Wright.  Now,  about  the  Chattahoochee;  how  many  developments  are 
there  on  the  Chattahoochee? 

Mr.  Frothingham.  I  am  afraid  I  do  not  remember.     The  Stone  &  Webster 
people  have  a  development  just  above  Columbus. 
Mr.  Wright.  That  is  at  Goat  Rock,  is  it  not? 

Mr.  Frothingham.  Yes ;  I  do  not  remember  how  large  it  is.  I  suggest  about 
twenty-five  or  thirty  thousand  horsepower,  although  I  may  be  100  per  cent  wrong 
about  it. 

Mr.  Wright.  There  are  about  three  developments  right  at  the  city  of  Columbus, 
are  there  not? 

Mr.  FROTftiivGHAM.  I  think  there  are  several  developments  or  that  there  can 
be  several  developments  made  there.    I  have  never  studied  it  myself. 

Mr.  Wright.  Then  there  is  one  at  what  is  known  as  Bull  Sluice  near  Atlanta, 
Ga.,  on  the  Chattahoochee. 
Mr.  Frothingham.  Is  Bull  Sluice  on  the  Chattahoochee  or  the  Etowah? 
Mr.  Wright.  On  the  Chattahoochee. 
Mr.  Frothingham.  Perhaps  it  is.    I  do  not  remember. 
Mr.  Wright.  That  formerly  furnished  the  current  for  the  city  of  Atlanta  and 
operated  their  street  railway,  etc. 

Mr.  Frothingham.  I  had  been  under  the  impression  it  was  on  the  Etowah, 
perhaps  it  is  on  the  Chattahoochee. 

Mr.  Wright.  Then  up  near  Gainesville  there  are  two  or  three  developments  on 
the  Chattahoochee. 
Mr.  Frothingham.  I  do  not  remember  the  details  of  that,  sir. 
Mr.  Wright.  Mr.  Frothingham,  the  water-power  development  on  the  Chatta- 
hoochee is  just  in  its  infancy,  is  it  not?    The  river  has  not  been  developed? 

Mr.  Frothingham.  I  do  not  know,  Mr.  Wright,  what  the -possibilities  of  the 
Chattahoochee  River  are.  I  have  never  had  occasion  to  study  them  in  detail.  I 
do  know  it  is  one  of  the  streams  which  takes  its  source  in  the  Allegheny  range 
and  so  is  a  stream  that  has  water  enough  to  have  water-power  possibilities.  The 
extent  of  them  I  do  not  know. 

Mr.  Wright.  Did  you  ever  hear  of  the  site  at  Franklin,  Ga.,  on  the  Chatta* 
hoochee  River? 
Mr.  Frothingham.  No.  sir. 

Mr.  Wright.  That  produces  100.000  horse  power. 
Mr.  Frothingham.  I  have  never  heard  of  that. 

Mr.  Wright.  The  point  I  am  making  is  that  the  power  is  not  nearly  all  devel- 
oped in  Georgia  on  these  power-producing  streams. 

Mr.  Frothingham.  It  is  not  nearly  all  developed  on  any  of  the  streams  that 
flow  from  the  Appalachian  Mountains. 
Mr.  Wright.  In  other  words,  it  has  just  commenced. 
Mr.  Frothingham.  It  has  just  begun. 

Mr.  Wright.  Do  you  think,  Mr.  Frothingham,  that  in  the  next  1,000  years  there 
will  be  any  dearth  of  water  power  in  the  Southeast,  even  if  Muscle  Shoals  was 
eliminated  entirely? 

Mr.  Frothingham.  My  vision  has  not  gone  as  far  as  that.  I  have  been  think- 
ing in  terms  of  the  more  immediate  present. 

Mr.  Wright.  You  do  not  want  to  impress  the  committee  with  the  idea  that 
unless  this  Muscle  Shoals  proposition  is  developed — I  mean  the  hydroelectric 
power  there  on  the  Tennessee  River,  and  coordinated  and  interwined  and  inter- 
linked with  all  the  systems  in  the  Southeast — that  there  is  going  to  be  a  scarcity 
of  electric  current  down  there,  do  you? 

Mr.  Frothingham.  Not  in  the  immediate  future,  if  the  Federal  Water  Power 
Commission  gives  permits  at  other  points. 

Mr.  Wright.  What  you  do  mean  to  say  is  that  the  power  at  Muscle  Shoals  on 
the  Tennessee  River  could  be  better  utilized  and  the  highest  development  could  bo 
reached  provided  it  was  coordinated  with  other  systems  throughout  that  section. 


MUSCLE  SHOALS  PROPOSITIONS. 


965 


Mr.  Frothingham.  Not  that  it  can  be  better  utilized,  but  that  it  can  only  be 
utilized  to  its  maximum  by  such  coordination. 

Mr.  Wright.  In  other  words,  you  figure  that  the  maximum  could  not  be 
utilized  unless  it  was  coordinated  with  these  other  systems. 

Mr  Frothingham.  Not  with  economy.  The  maximum  could  be  utilized  by 
building  steam  stations  sufficient  to  provide  all  of  the  secondary  power  that 
was  necessary  to  offset  a  shortage  in  the  stream  flow  of  the  Tennessee  River, 
but  that  is  an  expensive  way  of  supplying  that  shortage  if  you  can  get  it 
cheaper  from  hvdroelectric  sources,  as  you  can,  in  that  region. 

Mr  Wright. 'But  the  point  I  want  to  get  at  is  that  if  you  eliminate  the 
Muscle  Shoals  proposition  and  concede  for  the  moment  that  every  kilowatt 
that  can  be  produced  there  would  be  utilized  in  the  manufacture  of  nitrates 
there  would  still  be  enough  water  power  in  the  southeast  to  supply  the  demands, 
so  far  as  any  human  vision  can  now  foresee,  would  there  not? 

Mr  Frothingham.  In  my  judgment,  there  is  power  there,  under  those  cir- 
cumstances, to  last  for  a  great  many  years ;  but  this,  I  think,  is  the  thought 
in  that  connection :  That  it  does  not  mean  that  in  every  locality  there  will  be 
an  abundance  of  power.  There  may  be  a  shortage  of  power  for  one  reason 
or  another  There  may  be  a  shortage  of  power  in  Mississippi,  for  instance, 
that  can  only  be  supplied  in  some  particular  way.  I  refer  to  aggregate  markets 
and  aggregate  supplies.  I  should  not  have  said  "A  great  many  years,  as  I 
d"d  lust  now,  but  rather  as  a  few  moments  ago  I  said  to  Mr.  Fields.  That  for 
several  years  the  capacities  of  Muscle  Shoals  could  be  dispensed  with,  if  other 
permits  were  granted.  But  the  markets  in  the  Alabama  territory  are  growing 
so  fast  that  in  a  few  years  Muscle  Shoals  will  have  to  be  called  on  and  must  be 
available.    The  wise  plan  is  to  incorporate  it  now  and  add  the  other  oppor- 

tunities  later 

Mr.  Wright.  I  have  just  one  other  question.    You  have  made  a  very  inter- 
esting statement  here,  Mr.  Frothingham. 
Mr.  Frothingham.  Thank  you,  sir.  ^  ^t.     *  n  ^*  rUffot.nt.f 

Mr  Wright.  You  have  been  asked  about  the  flow  and'  the  fall  of  different 
rivers,  do  you  anticipate  that  the  fact  that  the  country  may  be  denuded  of 
its  forests  will  decrease  the  flow  of  the  rivers  in  that  section  and  lessen  the 

^"^MrFROTHiNGHAM.  It  is  uot  likely,  probably,  to  decrease  the  total  water  that 

in  the  course  of  a  year  runs  through  the  river. 
Mr    W^right.  I  understand  that,  but  I  mean  the  average  of  the  >ear 
Mr!  Frothingham.  Some  people  have  said  that  the  ^^^^Z^J^'f^TolTt 

to  atmospheric  changes  which  result  in  less  precipitation     Whether^^^^^ 

borne  oyt  by  facts  or  not  I  do  not  know,  but  the  denudation  of  the  hill  slopes 

does  result  in  a  faster  run-off  of  the  water  that  falls. 

Mr!  Wright.  That  is  the  point  I  had  in  mind.     There  is  nothing  left  to 

""^ Mr 'frothingham  (continuing).  Whether  it  falls  as  water  or  whether  it 
falls  as  Xow.  It  means,  correspondingly,  that  there  must  be  proportionately 
larger  storages  to  accomplish  the  same  results.       ^^     ,     ^  ,      -..u  4.^^^ 

Mr  Wright.  In  other  words,  when  you  leave  the  lands  covered  with  trees 
and  brush  and  leaves  and  undergrowth,  the  water  instead  of  flowing  9^ 
rapidly  from  a  rainfall  is  largely  stored  there  and  flows  gradually,  but  if  the 
land  is  denuded  of  brush  or  growth  or  leaves,  it  flows  off  lmmedlateb^ 

Mr.  Frothingham.  There  is  not  room  for  argument  on  that.  IJ, o?^^^  lojoks 
up  a  hill  slope  the  bottom  of  which  is  an  open  field,  the  open  field  has  lost 
its  snow  when  there  are  still  signs  of  the  snow  up  above  in  the  forests. 

Mr.  Wright.  And  the  reason  that  the  stripping  of  the  country  «/  f  f  ffjf  *» 
might  affect  the  water  power  would  be  because  it  would  caiise  the  v^ater  to 
all  flow  off  at  one  time  ^fter  a  rain  and  not  gradually  flow  on-  . 

Mr  Frothingham.  It  would  make  the  erratic  flow  of  the  Tennessee  River 
still  more  erratic.  That  is  the  effect  it  would  have  Since  w  are  speaking  of 
that,  one  reason  why  the  Tennessee  River  has  such  ^n^^^^^ic  flow  is  that  it> 
headwaters  are  in  the  Allegheny  Mounta  ns.  which  is  ^^^  ^l^^'^'^.f,^^'^ J''^^^^ 
precipitation  in  the  United  States,  outside  of  the  mountains  n  the  ext  erne 
northwest  of  the  United  States  on  the  Pacific  coast,  so  tj^at  the  rain  faUs  m 
great  quantities  and  falls  suddenly,  and  runs  off  m  a  corresponding  way 

Mr  Wright  Mr  Frothingham,  you  have  also  gone  into  the  very  interesting 
field  of  nTonopolfes.  Of  coulse,  you  are  familiar  with  the  old  adage  that  com- 
petition  is  the  life  of  trade. 


H 


I  * 


966 


MUSCLE  SHOALS  PROPOSITIONS. 


i 


U 


Mr.  Fbothingham.  Yes. 

Mr.  Wright.  We  Americans  have  always  believe<l  in  that,  liav(«  we  nof' 

Mr.  Frothingham.  Yes. 

Mr.  Wright  Now,  if  you  carried  your  theory  into  all  the  ditterent  avenues  of 
business,  would  it  not  relate  just  the  same  to  a  merchant  as  to  a  man  furnish- 
ing water  power.  Of  course,  I  understand  the  difference  that  we  srwak  of  rail- 
road and  water-power  companies  as  being  public  utilities.  Thev  are  quasi- 
public  institutions,  but  suppose  you  adopt  the  same  plan  about  the  supply  of 
foo<lstuffs  of  the  people  of  the  United  States  and  provide  that  we  will  cut  the 
country  up  into  zones  and  the  Government  will  take  control,  and  anybodv  who 
wants  to  enter  the  mercantile  field  can  do  so,  but  they  must  do  so  under  regula- 
tions prescribed  by  the  Government.  Under  that  arrangement,  it  would  be 
better  to  have  just  one  institution  in  each  zone,  would  it  not,  so  that  vou  would 
cut  down  the  overhead? 

*i,^^«  J'ROTHiNGHAM.  I  would  scarcely  think  so,  because  you  are  now  getting  into 
tne  held  of  miscellaneous  private  production  on  more  or  less  a  small  scale. 

I  was  speaking  of  a  business  in  which  the  power  resources,  hvdroelectrically 
speaking,  are  limited  and  defined  by  nature,  and  are  (mlv  so  manv  and  so  large 
no  matter  who  handles  them.  I  think  the  element  of  competition  is  not  alto- 
gether absent,  because  if  the  Alabama  Vo^vev  Co.  or  any  other  company  does 
not  so  conduct  its  business  as  to  give  the  community  that  best  servce  that  the 
community  wants,  the  community  will  give  that  license  to  serve  it  to  somebodv 
else.  So  that  the  Alabama  Power  Co.  has  to  bring  to  bear  its  indivitlual  initia- 
tive to  hold  its  position  ;  if  it  does  not,  it  loses  its  chance. 

Mr.  Wright.  Your  idea  is  that  the  public  reallv  controls  th^^e  things' 

Mr.  Frothingham.  Absolutely,  sir. 

Mr.  Wright.  In  the  first  place  the  commission  controls  the  issue  of  stocks  and 
bonds? 

Mr.  Frothingham.  Yes,  sir. 

Mr.  Wright.  And  then  it  fixes  the  rates? 

Mr.  Frothingham.  Yes;  but  that  control  of  stocks  and  bonds  is  relatively 
immaterial.  It  is  relatively  immaterial  how  many  stocks  and  bonds  are  out- 
standing on  the  property,  from  the  point  of  view  of  public  interest  in  it. 

Mr.  Wmght.  It  would  have  something  to  do  with  the  investment  would  it 
not? 

Mr.  Frothingham.  No  ;  it  would  have  nothing  to  do  with  the  investment  and 
it  would  have  nothing  to  do,  I  think,  with  the  rate  of  return  on  the  investment 
which  the  public  would  allow  on  the  investment  that  is  used  in  the  Dublic 
service.  ^ 

Mr.  Wright.  Why  do  you  think  it  is  wisdom ;  or  is  it  wisdom,  for  the  law  to 
require  that  the  issue  of  stocks  and  bonds  shall  be  first  determined  hx  these 
commissions? 

Mr.  Frothingham.  I  think  that  may  have  grown  up  largelv  because  before 
there  was  public  regulation  there  were  flagrantly  large  issues 'of  public-service 
securities. 

Mr.  Wright.  They  wanted  to  have  the  income  on  capitalization  as  expressed 
by  stocks  and  bonds. 

Mr.  Frothingham.  And  also  in  the  hope  that  they  could  put  valuation  in 
those  excessive  capitalizations.  It  is  desirable,  other  things  being  equal,  that 
there  shall  be  a  proper  adjustment,  and  that  the  valuation  on  a  property' shall 
bear  some  close  relation  to  the  securities  outstanding  against  it :  but  the  point 
is  that  it  does  not  make  any  difference  to  the  public,  because  the  public  says 
after  examination  that  this  concern  serving  the  public  can  make  such  and  such 
a  return  on  the  money  which  it  actually  uses  in  the  public  service. 

Mr.  Wright.  Do  you  think  the  public  would  fare  better  when  there  was  just 
a  threat  of  competition  or  when  competition  actually  existed? 

Mr.  Frothingham.  I  think  actual  competition  in  these  services  is  altogether 
to  the  disadvantage  of  the  public. 

Mr.  Wright.  You  think  you  would  rather  have  the  threat  of  competition' 

Mr.  Frothingham.  I  know  that  Mr.  Miller,  and  very  likely  some  other  gen- 
tlemen, feel  that  I  am  speaking  entirely  from  the  standpoint  of  my  special 
business,  and  my  special  desire  to  make  a  profit  in  it ;  but  I  have  studied  these 
problems  for  a  long  time  as  intelligently  as  I  could,  and  looking  at  them  from  a 
public  point  of  view,  I  am  sincerely  interested  that  the  best  public  service  shall 
be  performed,  and  from  that  point  of  view  alone  it  makes  no  difference  to  me 
whether  a  private  concern  or  a  public  concern  does  the  business;  but  I  am 
sincerely  convinced  of  the  fact  that  as  our  institutions  are  run  in  this  country, 


MUSCLE  SHOALS  PROPOSITIONS. 


967 


the  privately  managed  concern,  under  regulation,  secures  through  private  initia- 
tive and  close  application  to  the  problems  involved,  results  that  can  not  be 
gotten  in  any  other  way.  Therefore  I  hold  it  is  to  the  advantage  of  the  i)ublic 
to  have  these  concerns  run  in  that  manner. 

Mr.  Wright.  Do  you  not  think  that  with  competition  there  would  be  more  of 
initiative  and  that  the  public  would  get  the  benefit? 

Mr.  Frothingham.  Compeition  in  this  business  is  destructive,  just  as  I 
pointed  out  this  morning  in  the  case  of  La  Crosse,  Wis.  It  multiplies  invest- 
ment needlessly  and  the  cost  has  to  be  absorbed  by  the  community  in  some  way 
or  other,  whether  it  knows  it  and  realizes  it  or  not. 

Mr.  Wright.  Your  idea  is  that  it  might  be  better  to  have  one  great  central 
company  to  control  the  water  power  of  every  State,  or,  in  all  events,  one  central 
company  in  each  section. 

Mr.  Frothingham.  I  should  say  there  should  be  one. in  each  section.  There  is 
such  a  thing  as  getting  a  business  too  large.  Human  capacity  can  best  work 
within  limits.  Take,  for  instmce,  the  American  Woolen  Co.  The  American 
Woolen  Co.  has  grown  to  an  enormous  size  and  does  a  splendid  business.  But 
such  size  has  its  own  limitations.  Xo  one  man  can  in  detail  run  all  its  mills. 
What  happens  is  that  the  little  independent  woolen  mill  located  up  in  Maine,  or 
somewhere  else,  where  individual  application  is  at  its  best,  can  keep  on  running 
in  competition  with  the  American  Woolen  Co. 

You  want  a  unit  so  large  that  it  will  accomplish  the  economies  you  are  after 
and  still  be  within  the  comprehensive  control  of  a  single  agency.  When  you  get 
beyond  that  point  you  lose  in  efficiency.  It  is  better  not  to  have  everything  in 
one  basket,  but  to  have  a  basket  large  enough  to  accomplish  the  results  desired. 
I  think  a  basket  large  enough  to  hold  the  power  possibilities  I  have  mentioned 
in  Alabama,  where  the  problems  are  those  of  the  coordination  of  similar  re- 
sources sufficiently  close  together  in  distance,  sufficiently  tied  together  with 
regard  to  all  the  problems  involved,  one  central  agency,  can  do  the  work  and 
accomplish  the  result  better  than  scattered  agencies.  If  you  have  scattered 
agencies  you  have  to  have  intercorporate  relationships.  Y,ou  may  have  a  prop- 
erty and  I  may  have  a  property,  and  you  may  want  to  buy  current  from  me. 
We  have  to  make  a  contract,  and  in  the  making  of  that  contract  we  are  going 
to  stipulate  certain  things.  You  are  going  to  demand  conditions  that  you  think 
will  be  of  advantage  to  you,  and  I  am  going  to  stipulate  certain  conditions  that  I 
think  will  be  of  advantage  to  me.  I  am  going  to  interpret  that  contract  in  my 
favor,  and  you  are  going  to  interpret  it  in  your  favor.  That  means  that  you  can 
not  get  through  such  an  arrangment  the  simplicity  and  the  unity  of  control  and 
use  of  the  two  facilities  that  you  can  get  if  one  of  us  is  running  the  whole 
thing.    Do  I  make  my  point  clear? 

Mr.  Wright.  Oh,  yes.  Let  me  give  you  an  illustration  along  that  line.  Let 
us  say  that  we  live  in  a  small  town  and  there  are  two  banks  in  that  town,  and 
the  rate  of  interest  is  regulated  by  law.  Anything  charged  over  and  above  a 
certain  rate  is  usury  and  is  noncoUectible.  Each  bank  has  a  president  and 
board  of  directors,  and  a  certain  number  of  employees,  including  a  cashier  and 
two  or  three  bookkeepers. 

Mr.  Frothingham.  But  I  am  not  a  banker. 

Mr.  Wright.  But  I  want  to  give  you  this  illustration.  The  heads  of  these 
banks  and  the  stockholders  determine  that  it  will  be  more  economical  to  merge 
the  two  banks^and  that  they  could  run  one  bank  at  practically  the  same  ex- 
pense at  which  they  are  running  the  two.  They  find  that  they  could  cut  off 
all  the  overhead  and  other  expenses  of  one  of  those  banks,  and  that  thereby 
they  could  make  a  great  saving.  Do  you  think  it  would  be  better  for  that 
merger  to  take  place,  so  far  as  the  public  who  deal  with  the  banks  is  con- 
cerned, or  should  they  stay  in  competition,  with  the  increase  in  the  cost  incident 
to  operating  the  two  banks  instead  of  one. 

Mr.  Frothingham.  That  depends,  I  should  say,  on  conditions.  I  am  not  a 
banker,  and  I  am  not  a  student  in  the  intricacies.  But  I  should  say  that 
money  is  such  an  exceedingly  liquid  commodity  in  its  flowing  here,  there,  and 
everywhere  that  complete  consolidation  in  a  given  community  would  be  against 
the  interests  of  that  community. 

Mr.  Wright.  Although  the  rate  is  regulated  by  law? 

Mr.  Frothingham.  I  should  say  that  was  something  that  could  not  be*  regu- 
lated by  law,  sir. 

Mr.  Wright.  So  there  is  something  in  competition,  is  there  not,  that  pervades 
the  whole  of  life? 


968 


MUSCLE  SHOALS  PROPOSITIONS. 


Hill 


Mr.  FRbTiiiNGHAM.  I  thought  I  have  said  there  was ;  I  think,  indeed,  there  is. 

Mr.  Wright.  Finally,  Mr.  Frothingham,  the  consumer  pays,  does  he  not? 

Mr.  Frothingham.  The  consumer  pays. 

Mr.  Wright.  If  you  maintain  two  transmission  lines  when  one  would  do  the 
work,  the  public  pays  for  it? 

Mr.  Frothingham.  Yes. 

Mr.  Wright.  That  is  true,  in  everything,  is  it  not? 

Mr.  Frothingham.  Yes,  sir ;  and  for  that  reason  you  want  to  keep  the  invest- 
ment serving  the  public  at  the  minimum,  so  that  the  consumer  will  pay  as  little 

AS  possible. 

Mr.  Stoix.  Have  you  read  all  three  of  the  contracts  before  this  committee? 

Mr.  Frothingham.  I  have  read  two  of  them,  the  Ford  proposition  and  the 
Alabama  Power  Co.  proposition ;  I  have  not  read  the  other. 

Mr.  Stoll.  You  think  the  Alabama  Power  Co.  contract  is  the  better  contract? 

Mr.  Frothingham.  Unquestionably. 

Mr.  Stoll.  You  look  at  that  offer,  Mr.  Frothingham,  from  the  standpoint  of 
the  development  of  the  electrical  power  solely,  do  you  not? 

Mr.  Frothingham.  From  the  standpoint  of  putting  the  capacities  of  the 
Tennessee  River  to  the  greatest  possible  use  in  the  interest  of  all  the  public 
within  the  reach  of  that  power. 

Mr.  Stoll.  Have  you  taken  into  consideration  the  fact  that  the  development 
of  Muscle  Shoals  was  started  by  the  Government  primarily  to  make  nitrates  for 
.munitions  and  to  make  fertilizer  for  the  farmers? 

Mr.  Frothingham.  I  think  so. 

Mr.  Stall.  Have  you  taken  that  into  consideration? 

Mr.  Frothingham.  I  meant  this  morning  to  point  out  why  I  thought  the 
Alabama  Power  Co.'s  proposition  met  that  desire  on  the  part  of  the  Govern- 
ment. 

Mr.  Stoll.  They   do  not  undertake  to  operate  those  plants? 

Mr.  Frothingham.  No. 

Mr.  Stoll.  We  would  be  taking  two  bites  at  the  cherry,  would  we  not,  get- 
ting the  power  from  the  Alabama  Power  Co.  and  then  would  have  to  let  other 
contracts  to  make  nitrates  for  munitions  or  for  fertilizers? 

Mr.  Frothingham.  I  think  in  taking  two  bites  at  the  cherry,  both  cherries 
will  taste  a  great  deal  better. 

Mr.  Stoll.  We  will  have  to  go  through  the  whole  thing  of  developing  the 
mak.ng  of  nitrates,  or  make  different  contracts  with  other  parties. 

]Mr.  Frothingham.  I  have  a  feeling,  based  not  on  anything  I  know,  but 
based  on  experience,  that  if  there  is  a  demand  for  the  manufacture  of  nitrates, 
with  a  situation  as  clean  as  a  whistle,  as  it  would  be  for  an  independent  con- 
cern, expert  in  that  business,  to  lease  a  plant  from  the  Government  and  have 
100,000  horsepower  of  free  power,  and  with,  therefore,  a  minimum  demand  for 
new  capital  that  people  would  come  forward  to  do  that  business,  and  if  they 
did  that  business,  and  that  business  only,  you  would  get  more  and  better  fer- 
tilizer made  than  you  could  get  made  in  any  other  way. 

Mr.  McKenzie.  I  think  we  all  understand  that  the  Alabama  Power  Co. 
owned,  or  controlled,  at  least,  the  site  of  Dam  No.  2  prior  to  the  enactment  of 
section  124  of  the  national  defense  act  in  1916. 

Mr.  Frothingham.  I  understand  so. 

Mr.  McKenzie.  Had  the  Alabama  Power  Co.,  prior  to  that  time,  ever  under- 
taken to  interest  your  firm  in  the  financing  of  that  project? 

Mr.  Frothingham.  Never,  because  it  was  premature.    We  have  discussed  the 

situation  many  times. 

Mr.  McKenzie.  Since  the  enactment  of  that  legislation,  has  there  been  any 
attempt  on  the  part  of  the  Alabama  Power  Co.  to  have  you  fioat  its  bonds? 

Mr.  Frothingham.  The  Alabama  Power  Co.  has  talked  with  us  about  it  a 
good  many  times,  and  a  matter  of  as  recently  as  the  middle  of  last  year,  or 
somewhat  earKer,  the  njoney  market  was  in  such  a  condition  and  the  rates 
were  such  that  it  was  absolutely  impossible  to  raise  the  necessary  funds  to 
put  this  project  through  as  a  private  matter.  But  since  that  time  conditions 
have  so  changed  that  that  is  no  longer  true,  and  it  becomes  possible  to  dispose 
of  those  securities. 

Mr.  McKenzie.  After  listening  to  your  statement,  in  which  I  was  very  much 
interested,  because  I  think  you  have  ermnciated  some  very  sound  principles,  I 
have  been  wondering  whether  or  not  it  is  your  belief,  as  a  financier,  a  man 
engaged  in  financing  various  projects,  that,  standing  alone,  without  being  con- 


MUSCLE  SHOALS  PROPOSITIONS.' 


969 


nected  up  in  any  way  with  activities  in  that  region,  the  financing  of  the  Mus- 
cle Shoals  project  would  be  one  on  whieh  you  would  not  look  with  favor. 

Mr.  Frothingham.  Absolutely. 

Mr.  McKenzie.  Do  you  give  that  opinion  to  the  committee  as  your  firm  and 
fixed  judgment,  after  careful  consideration? 

Mr.  Frothingham.  As  a  proposition  of  financing  the  Muscle  Shoals  dam  as 
an  independent  situation  would  be  entirely  uninteresting  to  us. 

Mr.  McKenzie.  Then  would  you  agree  to  this  proposition,  that  it  can  only  be 
handled  in  one  of  three  ways:  First,  to  have  the  Government  go  ahead  and 
construct  the  dams  and  then  lease  to  someone ;  second,  to  permit  some  man  or 
some  corporation  with  sufficient  funds  in  bank,  such  as  it  is  alleged  Mr.  Ford 
has,  to  go  ahead  and  complete  the  project;  or  third,  to  enter  into  a  contract 
with  the  Alabama  Power  Co.,  or  some  other  going  concern  in  that  locality,  with 
which  this  project  could  be  hooked  up,  and  all  operated  together. 

Mr.  Frothingham.  I  think  those  are  the  three  alternatives ;  yes,  sir. 

Mr.  McKenzie.  Of  course,  you  stand  for  the  proposition  of  the  Alabama 
Power  Co.  as  being  the  most  feasible  and  best  for  the  Government? 

Mr.  Frothingham.  For  the  reasons  I  have  indicated. 

Mr.  McKenzie.  And  for  the  serving  of  the  general  public? 

Mr.  Frothingham.  Yes,  sir. 

Mr  MCKENZIE.  If  there  are  no  further  questions,  we  are  very  much  obliged 
to  you,  Mr.  Frothingham,  and  the  committee  will  stand  adjourned  until  lO.dO 
o'clock  to-morrow  morning,  when  we  expect  to  hear  Mr.  Mayo  again. 

Mr  Frothingham.  Mr.  Martin  calls  my  attention  to  the  fact  that  Mr.  Thur- 
low  the  engineer  for  the  Alabama  Power  Co.,  thinks  that  in  a  very  few  years 
these  southern  powers  will  be  exhausted,  and  his  judgment  on  that  matter 
would  be  belter  than  mine.  _       _       _  _      ,   - 

(Thereupon,  the  committee  adjourned  to  meet  to-morrow,  Tuesday,  March  7, 

1922.  at  10.30  o'clock  a.  m.)  

Committee  on  Military  Affairs, 

House  of  Representatres, 

Tuesday,  March  7,  1922. 

The  committee  met  at  10.30  o'clock  a.  m.,  Hon.  Julius  Kahn  (chairman)  pre- 

"sidinsT 

The  Chairman.  Gentlemen,  I  have  before  me  a  letter  from  Mr.  Hammitt, 
vice  president  of  the  Air  Nitrates  Corporation,  in  which  he  answers  quite  a 
number  of  questions  that  were  asked  him  when  he  was  on  the  stand.  He 
stated  at  the  time  that  he  did  not  know  but  that  he  would  look  over  the  rec- 
ords and  try  to  give  us  the  information.  I  believe  he  has  tried  to  do  that ;  and 
if  there  is  no  objection  we  will  put  the  letter  in  the  hearings. 

(The  letter  referred  to  follows:) 

Ajb  Nitrates  Corporation, 

New  York,  March  2,  1922. 

Hon.  Julius  Kahn, 

Chairman  Committee  on  Military  Affairs, 

House  Office  Building,  Washington,  D.  C. 
Dear  Sir:  At  the  hearings  before  your  committee  on  February  20  and  Feb- 
ruary 21  I  was  asked  to  supply  for  the  record  certain  information  that  I  did 
not  have  available  at  the  time.     The  purpose  of  this  letter  is  to  supply  the 

desired  information.  .  -  ^».     ,t.     -   •    /-. 

1  In  the  course  of  questioning  regarding  the  relations  of  the  Virginia-Caro- 
lina Chemical  Co.  and  the  American  Cyanamid  Co.,  I  was  asked  for  a  state- 
ment of  the  men  in  the  American  Cyanamid  Co.  who  own  stock  in  the  Virginia- 
Carolina  Chemical  Co.  and  the  amount  of  stock  owned  by  each.  As  1  prom- 
ised at  the  hearing,  1  have  made  inquiries  of  the  executive  officers  and  directors 
of  the  American  Cyanamid  Co.  and  have  been  informed  that  no  one  of  them 
owns  any  stock  in  the  Virginia-Carolina  Chemical  Co.  except  Mr.  S.  D.  Gren- 
shaw,  who  owns  10  shares.  In  this  connection  it  is  fair  to  state  that  the  rela- 
tions between  the  two  companies  are  better  shown  by  my  testimony  that  the 
Virginia-Carolina  Chemical  Co.  owns  approximately  26  per  cent  of  the  stock 

of  the  American  Cyanamid  Co.  ,       ,,     ^^     ,      t^  tt     i, 

2.  I  was  asked  to  supply  for  the  record  the  date  when  Mr.  Charles  E.  Hughes 
was  retained  by  the  American  Cyanamid  Co.  to  advise  on  questions  relating  to 
the  form  of  protection  that  could  be  given  the  American  Cyanamid  Co.  m  con- 
nection with  United  States  nitrate  plant  No.  2.  This  da^^^e  was  on  or  about 
May  15,  1918. 


970 


MUSCLE   SHOALS  PROPOSITIONS. 


i 


11. '^' 


r 


-:•■„■* 


3.  I  was  asked  to  supply  the  committee  with  a  statement  regarding  the  con- 
duct of  negotiations  between  American  Cyanamid  Co.  (and  its  subsidiary,  Air 
Nitrates  Corporation)  and  the  Goverament  so  that  the  committee  might  be 
advised  as  to  who  conducted  those  negotiations  on  both  sides.  On  behalf  of  the 
American  Cyanamid  Co.  and  the  Air  Nitrates  Corporation,  these  negotiations 
were  conducted  by  Mr.  Frank  S.  Washbum,  president  of  both  companies.  On 
behalf  of  the  Government  they  were  conducted  first  by  Brig.  Gen.  William 
Crozier,  as  Chief  of  Ordnance,  and  afterwards  by  his  successor,  Maj.  Gen. 
O.  C.  Williams.  Many  conferences  were  held  during  the  course  of  the  negotia* 
tions,  but  no  attempt  was  made  to  keep  a  complete  record  of  these  conferences. 
The  contract  of  November  16,  1917,  was  negotiated  for  the  Government  by 
General  Crozier  and  signed  by  Col.  J.  W.  Jones.  The  contract  of  June  8, 
1018,  was  negotiated  for  the  Government  by  General  Williams  and  signed  by 
Col.  Samuel  McRoberts.  Mr.  Washburn  and  Mr.  C.  M.  Grant  signed  the  con- 
tract of  November  16,  1917,  in  behalf  of  Air  Nitrates  Corporation,  and  the  con- 
tract of  June  8,  1938,  was  signed  in  behalf  of  Air  Nitrates  Corporation  by  Mr. 
Washburn  and  Mr.  A.  E.  Bonn. 

4.  I  was  asked  to  verif>'  for  your  record  the  list  of  employees  of  Air  Nitrates 
Corporation  who  received  compensation  of  more  than  $5,000  per  vear.  As 
such  list  is  published  at  page  3065  of  the  hearings  before  Subcommittee  No.  5 
of  the  Select  Committee  on  Expenditures  in  the  War  Department  of  the  House 
of  Representatives,  Sixty-sixth  Congress,  second  session,  volume  3,  serial  6 
parts  50  to  59  and  64  to  66,  I  find  this  list  is  correct. 

5.  I  was  requested  to  supply  for  your  record  the  correct  date  and  exact 
language  of  the  statute  referred  to  in  article  21  of  the  contract  of  the  Govern- 
ment with  the  Air  Nitrates  Corporation,  dated  June  8,  1918.  This  statute  was 
by  misprint  referred  to  in  copies  of  the  contract  before  your  committee  as 
"  Section  116  of  the  act  of  Congress  approved  March  4,  1919."  The  statute 
referred  to  was  approved  March  4,  1909.  and  the  section  referred  to  is  as 
follows  : 

"  Sec.  116.  (Contracts  to  which  two  preceding  sections  do  not  apply).  Noth 
ing  contained  in  the  two  preceding  sections  shall  extend,  or  be  construed  to  ex- 
tend, to  any  contract  or  agreement  made  or  entered  into  or  accepted  by  any 
incorporated  company  where  sucli  contract  or  agreement  is  made  for  the  general 
benefit  of  such  incorporation  or  company ;  nor  to  the  purchase  or  sale  of  bills 
of  exchange  or  other  property  by  any  Member  of  or  Delegate  to  Congress,  or 
Resident  Commissioner,  where  the  same  are  ready  for  delivery  and  payment 
thereof  is  made  at  the  time  of  making  or  entering  into  the  contract  or  agree- 
ment."    (35  Stat.  L.,  1109.) 

The  two  preceding  sections  referred  to  in  section  116  as  quoted  above  are 
as  follows : 

"Sec.  114.  (Member  of  Congress  not  to  be  interested  in  contract.)  Who- 
ever, being  elected  or  appointed  a  Member  of  or  Delegate  to  Congress,  or  a 
Resident  Commissioner,  shall,  after  his  election  or  appointment,  and  either 
before  or  after  he  has  qualified,  and  during  his  continuance  in  oflTice,  directly 
or  indirectly,  himself,  or  by  any  other  person  in  trust  for  him,  or  for  his  use 
or  benefit,  or  on  his  account,  undertake,  execute,  hold,  or  enjoy  in  whole  or  in 
part  any  contract  or  agreement,  made  or  entered  into  in  behalf  of  the  United 
States  by  any  officer  or  person  authorized  to  make  contracts  on  its  behalf,  shall 
i)e  fined  not  more  than  $3,000.  All  contracts  or  agreements  made  in  violation 
of  this  section  shall  be  void ;  and  whenever  any  sum  of  money  is  advanced  by 
the  United  States  in  consideration  of  any  such  contract  or  agreement  it  shall 
forthwith  be  repaid ;  and  in  case  of  failure  or  refusal  to  pay  the  same  when 
demanded  by  the  proper  oflicer  of  the  department  under  whose  authority  such 
contract  or  agreement  shall  have  been  made  or  entered  into,  suit  shall  at  once 
be  brought  against  the  person  so  failing  or  refusing  and  his  sureties  for  the 
recovery  of  the  money  so  advanced.     (35  Stat.  L.,  1109.) 

"Sec.  115.  (Oflicer  making  contract's  with  Member  of  Congress.)  Whoever 
being  an  oflicer  of  the  United  States  shall,  on  behalf  of  the  United  States,  di- 
rectly or  indirectly  make  or  enter  into  any  contract,  bargain,  or  agreement,  in 
writing  or  otherwise,  with  any  Member  of  or  Delegate  to  Congress,  or  anv 
Resident  Commissioner,  after  his  election  or  appointment  as  such  Member. 
Delegate,  or  Resident  Commissioner,  and  either  before  or  after  he  has  qualified, 
and  during  his  continuance  in  oflice,  shall  be  fined  not  more  than  $3,000."  (35 
Stat.  L.,  1109.) 

Respectfully,  yours, 

J.  O.  Hammitt, 

Vice  President. 


MUSCLE   SHOALS  PROPOSITIONS. 


971 


The  Chairman.  This  morning  we  have  nith  us  tht'  rcpres<sitativc  of  Mr. 
Ford,  and  we  will  be  very  glad  to  hear  him. 

ADDITIONAL  STATEMENT  OF  MR.   WILLIAM  B.   MAYO,   CHIEF 
ENGINEER  OF  THE  FORD  MOTOR  CO.,  DETROIT,  MICH- 

The  Chairman.  Mr.  Mayo,  will  you  kindly  state  to  the  coiiunittee  any  fur- 
ther communication  that  you  may  want  to  disclose  to  us. 

Mr.  Mayo.  When  I  left  here  before,  I  stated  that  we  would  make  :i  few  .i Itera- 
tions in  the  wording  to  clarify  the  meaning  of  our  offer. 

The  first  one  that  appears  is  in  regard  to  the  capital  stock,  in  paragraph  1, 
line  2.  after  the  parentlietical  expression  "  hereinafter  referred  to  as  the  com- 
pany," we  will  insert  "  witli  a  i)aid  capital  stock  of  not  less  than  .$10,000,tKX)." 

Air.  Miller.  Where  does  that  come  in? 

Mr.  Mayo.  Right  aft(T  the  parenthesis.  It  comes  after  the  word  "  comi)any  " 
in  the  second  line  of  paragraph  1. 

Mr.  Miller.  Not  less  than  $10,000,000? 

Mr.  Mayo.  Yes;  not  less  than  $10,000,000. 

Mr.  Hill.  What  will  be  the  exact  wording  of  that  change? 

Mr.  Mayo.  With  a  paid  capital  stock  of  not  less  than  $10,000,000. 

Then  in  paragraph  14,  line  2,  there  was  considerable  question,  if  you  remem- 
ber, in  regard  to  the  word  "  compounds,"  which  appears  after  "  fertilizer." 
We  are  striking  out  the  word  "  compounds  "  and  inserting  before  the  word  *'  fer- 
tilizer "  the  word  "  commercial,"  and  we  add  the  letter  "  s  "  to  the  word  "  fer- 
tilizer." It  is  in  the  singular  and  we  make  it  plural.  It  will  then  read,  "  The 
companay  agrees  to  operate  Nitrate  Plant  No.  2  at  the  approximate  present 
annual  capacity  of  its  machinery  and  equipment  in  the  production  of  nitrogen 
and  other  commercial  fertilizers." 

I  believe  the  farm  organizations  are  here  with  some  requests  as  to  changes, 
and  we  have  had  some  talk  with  them. 

Mr.  QuiN.  It  occurs  to  me,  Mr.  Chairman,  it  would  be  a  good  idea  to  let 
these  two  gentlemen  agree  as  to  what  changes  they  wan|:  to  make  without  put- 
ting Mr.  Silver  on  the  stand,  and  let  Mr.  Mayo  state  them. 

Mr.  McKenzie.  Are  there  any  further  suggestions  you  want  to  make  outside 
of  the  one  involved  with  the  farm  organizations? 

Mr.  Mayo.  I  do  not  think  so. 

Mr.  McKenzie.  If  not,  it  might  be  well  to  permit  the  niembers  to  ask  you 
such  questions  as  they  may  feel  disposed  to  ask  you  at  this  time  in  connection 
with  the  statement  you  have  now  made. 

Mr.  Mayo.  All  right,  sir. 

Mr.  McKenzie.  And  having  that  in  mind,  I  will  ask  Mr.  Greene  first  if  he 
desires  to  ask  any  questions. 

Mr.  Greene.  Mr.  INIayo,  have  you  given  any  further  thought  to  the  life  of  this 
proposed  lease,  a  century  period,  whether  Mr.  Ford  would  be  willing  to  come 
down  to  50  years? 

Mr.  Mayo.  He  would  not. 

Mr.  Gbeene.  Does  he  stand  absolutely  pat  on  the  100-year  proposition? 

Mr.  Mayo.  It  seems  so ;  yes,  sir. 

Mr.  Greene.  Suppose  we  bring  this  proposition  of  yours  out  on  the  floor,  and 
our  colleagues  ask  us,  "  Why  do  you  give  Mr.  Ford  100  years  under  the  peculiar 
conditions  attending  his  proposition,  and  yet  everybody  else  operating  a  public 
waterfall  under  the  law  must  subscribe  to  the  period  mentioned  in  the  water 
power  act  of  50  years?" 

Mr,  Mayo.  The  answer  is,  it  seems  to  me,  that  they  all  do  not  operate  under 
a  50-year  period. 

Mr.  Greene.  All  that  get  Federal  power  do. 

Mr.  Mayo.  Yes ;  but  this  we  do  not  consider  under  the  Federal  power  act. 

Mi;.  Greene.  Why  not?    Because  you  are  substituting  your  contract  for  it? 

Mr.  Mayc.  Yes,  sir. 

Mr.  Greene.  And  I  ask  why  should  you  have  that  advantage  over  your  fellow 
citizens,  under  the  law? 

Mr.  Mayo.  We  do  not  ask  for  any  advantage.  Mr.  Ford  has  made  an  offer, 
and  that  is  it. 

Mr.  Greene.  And  it  sets  you  up  distinctly  as  a  class  who  will  occupy  this  rela- 
tionship to  the  Govemmejit  so  that  you  will  have  a  contract  which  will  run  for 
100  years  to  utilize  certain  power,  whereas  other  men  utilizing  Federal  power 
are  only  permitted  to  contract  for  50  years,  and  then  only  under  certain  terms 
and  conditions,  because  they  are  restricted  in  the  use  of  the  power  even  at  that. 


1 


I 


972 


MUSCLE  SHOALS  PROPOSITIONS. 


Mr.  Mayo.  If  I  may  suggest,  this  is  in  a  different  category,  it  seems  to  me. 
This  is  a  combination  of  a  water  power  and  an  industrial  plant. 

Mr.  Greene.  In  other  words,  you  are  going  to  plead  here  a  public  policy  in 
the  name  of  Mr.  Ford  which  shall  only  apply  to  those  having  this  lease  and 
provides  that  the  same  possibilities  shall  not  be  open  to  other  citizens  of  the 

land.  ,    ,      .. 

Mr.  Mayo.  This  same  proposition  is  open  to  anybody,  it  seems  to  me. 

Mr.  Greene.  Yes ;  if  they  get  Muscle  Shoals  before  you  do. 

Mr.  Mayo.  There  is  only  one  Muscle  Shoals  and  only  one  project  of  its  kind. 

Mr  Greene.  I  realized  when  I  started  my  questioning  that  I  could  not  get 
you  to  go  back  on  your  own  proposition,  so  there  is  not  any  use  to  press  that  any 

further.  . ,      .x.    ,        x        i.  * 

Mr.  Mayo.  Of  course,  the  point  at  issue  is  that  we  consider  the  Investment  too 

large  to  take  the  risk  for  a  50-year  period. 

Mr  Greene.  I  know  that,  but  you  are  simply  inviting  not  only  class  legisla- 
tion but  individual  legislation,  which  sets  your  folks  apart  entirely  from  the  rest 
of  the  people,  under  the  law.  ,  .    ,    ^        .    * 

Mr.  Mayo.  I  do  not  think  so,  because  this  is  entirely  a  different  kind  of  project 
from  a  straight  water-power  project.    It  is  a  combination  of  many  things. 

Mr.  Greene.  It  is  a  question  perhaps  of  the  difference  between  tweedledee 
and  tweedledum,  because  it  all  implies  water  power,  and  the  principle  involved 
in  the  water  power  act  was  the  conservation  and  use,  under  governmental 
regulation,  of  water  power.  They  might  make  woolen  underwear  or  they  might 
make  Christmas  toys,  it  was  the  water  power  that  was  the  gist  of  the  thing, 
and  what  shall  be  done  with  the  public  water  power,  who  shall  have  it,  under 
what  terms,  and  for  how  long.    Now,  everybody  else  has  to  some  in  under  the 

50-year  period  except  you.  .    ,.    , 

Mr.  Mayo.  Everybody  else  is  treating  it  more  as  a  water-power  project,  I 

guess. 

Mr.  Greene.  That  is  what  this  is.  ^  ^^    ^  mi 

Mr  Mayo.  I  do  not  think  so.  I  think  it  is  a  coombmation  of  the  two.  The 
investment  in  the  industrial  plant  will  greatly  exceed  that  in  the  water  power. 

Mr.  Greene.  If  it  were  not  a  water-i>ower  project,  then  the  position  of  Muscle 
Shoais  would  not  be  the  particular  crux  of  the  whole  matter. 

Mr.  Mayo.  If  the  water  power  did  not  exist  no  project  such  as  we  have  in 

mind  could  be  carried  out  sit  all.  ,  x.         ^        4. 

Mr  Greene.  Exactly.  Now\  it  is  a  question  of  the  regulation  of  water 
power  and  no  amount  of  shading  the  meaning  of  words  can  change  that,  and 
so  far  as  the  Government  is  concerned  the  issue  is,  How  shall  we  dispose  of 
some  water  power,  under  what  terms,  to  whom,  under  what  regulation  as  to 
use  and  we  are  met  on  the  floor  with  the  suggestion,  "  Everybody  else,  Uncle 
Sam  that  you  let  have  water  power  is  tied  right  down  to  50  years,  and  is 
under  the  regulation  of  the  public  service  commisson  as  provided  for  in  this 
law  vet  you  propose  to  let  Mr.  Henry  Ford  have  a  water  power  for  twice  that 
period  and  under  terms  far  more  advantageous."  What  do  you  suppose  other 
people  are  going  to  say  about  that?  ^.1^4.^       „4.^^ 

Mr.  Mayo.  You  are  confining  yourself,  it  seems  to  me,  entirely  to  the  water 

power.  ,    ,  ,  ^      ^ 

Mr.  Greene.  Because  that  is  the  basis  of  this  contract. 

Mr.  Mayo.  I  do  not  think  wholly  so.  .  .         ,     ^v  „.^,  „ 

Mr  Greene.  If  it  was  not,  then  you  would  not  want  to  make  the  propos.tion. 

Mr  Mayo.  While  that  miiy  be  true,  yet  it  is  not  wholly  so,  because  if  the 
nitrate  plant  and  the  war  emei-geney  plant  were  not  there  I  doubt  if  Mr.  tord 
would  have  made  the  offer  as  it  now  stands  because  the  nitrate  plant  really  is  a 
part  of  the  prime  object. 

Mr.  Greene.  But  they  are  run  by  water  power. 

Mr.  Mayo.  Exactly ;  but  you  are  not  treating  the  water  power  alone,  because 

the  other  is  hooked  on  to  it.  ,      1    1.  i        i*. 

Mr  Greene.  Of  course,  as  we  all  know,  you  can  fix  up  a  little  alcohol  so  it 

is  not  called  alcohol  when  they  sell  it,  but  it  turns  out  to  be  alcohol  when  you 

^The  "chairman.  If  you  will  permit  me,  Mr.  Greene,  I  think  at  one  of  the 
hearings,  when  you  were  not  present,  there  was  evidence  brought  in  to  the  effect 
that  the  keokug,  Iowa,  plant  has  a  perpetual  right. 

Mr  Greene.  That  was  before  the  Federal  water  power  act  was  passed. 

Mr'  Mayo.  Hales  Bar.  on  the  Tennessc^e  River,  is  for  99  years. 

Mr.  Greene.  But  those  other  things  were  before  the  water  power  act  was 
passed,  as  I  recall. 


MUSCLE  SHOALS  PROPOSITIONS. 


973 


Mr   Mayo   I  think  you  are  correct  about  that. 

Mr.  GrfIne  we  are^alking  about  the  law  as  it  is  now.  Of  ^'-^;^'^'?^ 
as  I  have  said,  that  there  is  no  use  wearying  the  ^•«»»"^ttee  with  my  impor- 
tunities because  the  man  who  proposes  the  contract  can  not  be  made  to  go 
S  on  his  own  offer.  I  understand  that  and  I  will  not  wrury  .v-«;^"y  l«^^/{f/. 
I  would  like  to  again  ask  you  if  you  have  any  construction  to  put  upon  that 
final  proposition  in  your  offer  that  reserves  the  right  to  use  the  power  to  the 
heirs  and  assigns  of  your  corporation  forever.  Does  that  mean  just  exactly 
wha?  U  has  been  interpreted  to  mean  here,  that  no  matter  what  disposi  ion 
the  Government  itself  makes  of  that  property,  there  still  goes  w,th  it  the  right 
upon  the  part  of  your  people  forever  to  the  first  use  of  that  P^^e^^n  terms 
to  be  agreed  upon,  and,  of  course,  the  terms  may  be  enforced  one  vyay  or  the 
other:  do  vou  understand  that  gives  you  a  right  in  perpetuam  to  that  power? 

:^Ir  IM\YO  It  gives  us  the  preferential  right  at  the  same  price  you  can  get  from 
anyone  else.     We  do  not  have  any  advantage  over  anybody  else  in  price  or 

^^Mr^' Greene.  No;  the  only  advantage  that  amounts  to  anything  is  that  you 
have  the  power. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Greene.  And  nobody  else  can  take  it  away  from  you. 

Mr.  Mayo.  Apparently.  .^.         ,,     __         ^^  .     ..  ^ 

Mr  Greene.  Now,  what  is  your  judgment,  as  a  citizen,  Mr.  Mayo,  as  to  the 
nublic  policy  involved  in  the  United  States  Government  giving  any  living 
creature  the  right  to  use  this  power  in  perpetuam,  basing  the  contract  on 
present-day  conditions  and  the  contract  to  run  to  our  children  s  children  and 

for  all  the  generations  hence?  u^  ia  i.«,.^ 

Mr  Mayo  We  think,  under  the  conditions  of  this  contract,  w^e  should  have 
that  preference.  I  do  not  know  that  that  should  apply  to  every  kind  of  a 
contract  We  have  kept  the  war  emergency  plant  in  order  for  100  years  and 
we  have  invested  a  great  deal  of  money,  and  any  change  in  that  that  would 
so  fix  it  that  it  is  not  possible  to  take  the  power  right  from  under  our  feet 
would  be  agreeable,  but  we  can  not  be  left  with  a  very  large  investment  there 

and  with  no  power;  that  is  the  point.        ,,     „    ^  .^  *  1      •♦-i,  fv,i- 

Mr  Greene.  It  is  very  obvious  that  if  Mr.  Ford  is  as  successful  with  this 
enterprise  as  he  has  been  with  others  that  at  the  end  of  100  years  the  ori^nftl 
investment  at  Muscle  Shoals  will  have  been  returned  more  than  once  and  nobody 
then  owning  the  property  or  the  lease  would  have  ventured  a  dollar  into  it 
They  will  simply  be  heirs  to  the  thrift  of  the  century  before.  They  will  wake 
up  to  find  themselves  owning  something.  Do  you  think  it  is  altogether  con- 
sistent with  a  proper  public  policy  that  looks  to  the  future  in  the  disposition 
of  the  Government's  property  and  rights  that  we  should  mortgage  our  chil- 
dren's children's  children  to  this  proposition  to-day  when  we  have  not  the 
faintest  idea  what  conditions  will  confront  them,  socially  or  economically? 

Mr  Mayo.  I  do  not  see  that  you  are  mortgaging  it  in  any  way,  because, 
after  all  Mr.  Ford  has  got  to  pay  the  same  rate  that  anybody  else  would  pay. 

Mr.  Greene.  But  there  is  no  competition  if  he  does  that.  In  other  words, 
the  proposition  all  runs  against  the  Government  and  in  favor  of  your  people. 
In  other  words,  the  Government,  again,  can  not  choose  its  customer.  The 
GoverAment  has  something,  but  it  can  not  choose  the  customer  for  it,  because 
the  very  instant  that  you  pay  the  price  that  the  Government  asks,  as  you  will, 
nobody  else  who  offers  to  pay  the  same  price  can  have  the  property.  You 
leave  the  Government  in  a  peculiar  situation.  It  may  be  that  100  years 
from  now  what  your  folks  are  making  is  by  no  means  as  desirable  in  the 
public  interest  as  something  which  somebody  else  comes  in  with  a  tender  to 
make  but  Uncle  Sam  has  to  throw  his  hands  up  and  say,  "A  hundred  years  ago 
they  bound  me  to  sell  this  power  to  these  people,  no  matter  what  they  made.'* 

Mr  Mayo   I  think  Congress  has  the  right  to  take  it  away  at  any  time. 

Mr  Greene  It  has  the  right  to  break  faith,  if  you  call  it  a  right,  but  you  do 
not  urge  that  upon  the  Government  as  the  only  way  out  of  what  it  finds  to  be 
a  bad  bargain  when  it  went  into  that  bargain  with  its  eyes  open. 

Mr  Mayo  I  think  at  the  end  of  the  contract  period  the  Government  will  be 
able  to  get  just  as  much  out  of  that  power  as  though  it  was  a  wide-open  prop(»- 
sition  and  without  a  preference  in  the  contract.  ..         ^       .     .  , 

Mr.  Greene.  It  is  not  a  question  of  money;  it  is  a  question  of  principle. 
We  are  not  interested  in  the  mere  makeshift  that  might  obtain  in  a  bargain. 
We  are  charged  with  the  custody  of  public  property  and  we  are  interested  in 


974 


MUSCLE   SHOALS  PROPOSITIONS. 


^"i 


N 


the  principle  of  government  as  a  matter  of  public  interest  and  public  policy 
as  to  what  shall  be  done  with  it. 

Mr.  Mayo.  Strictly,  under  the  letter  of  the  contract,  we  have  a  preferred 
right  to  negotiate  upon  such  terms  as  may  be  agreed  upon. 

Mr.  Greene.  But  read  the  next  sentence :  "  If  the  said  leases  are  not  reu(nved 
or  the  property  covered  thereby  is  not  sold  to  said  company,  its  successors,  or 
assigns,  any  operation  or  disposal  thereof  shall  not  deprive  the  company,  its  suc- 
cessors, or  assigns  of  the  right  to  be  supplied  with  electric  power  at  reasonabh' 
rates  and  in  amounts  equal  to  its  needs,  but  not  in  excess  of  the  average 
amount  used  by  it  annually  during  the  previous  10  years." 

That  means  something  in  English  and  it  is  plain  enough  on  the  face  of  it. 

Mr.  QuiN.  Mr.  Chairman,  it  occurs  to  me  that  this  gentleman  has  declined 
to  change  that  part  of  the  offer,  and  we  went  over  all  that  in  the  direct  ex- 
amination. 

The  Chairman.  Of  course,  the  statement  that  Mr.  Quin  makes,  that  we  have 
gone  into  this  thing  on  direct  examination,  is  true,  and  if  the  witness  is  not 
prepared  to  make  any  alteration  in  that  language,  that  is  a  matter  for  the  com- 
mittee to  consider  when  the  whole  thing  is  taken  up  in  executive  sess  on. 

Mr.  Mayo.  What  would  happen  at  the  end  of  the  lease  if  you  made  a  new 
contract  on  this  wording:  "Terms  then  to  be  agreed  upon"?     Say  for  argu 
ment's  sake  you  made  a  contract  for  a  year,  at  the  end  of  the  year  where  would 
you  be? 

Mr.  Greene.  Mr.  Mayo,  you  know  that  article  17  is  divided  into  two  sen- 
tences: The  first  one  tells  what  you  may  do  by  way  of  negotiation,  and  the 
second  one  says  that  no  matter  what  is  done,  however,  this  one  particular 
thing,  the  right  of  your  company  to  power,  shall  not  be  disturbed. 

Mr.  Mayo.  But  that  is  at  the  end 

Mr.  Greene.  There  are  two  propositions  involved  there. 

Mr.  Mayo.  That  is  at  the  end 'of  the  period  only,  it  seems  to  me,  and  then 
you  have  the  right,  so  far  as  I  can  see,  to  furnish  the  plant  with  power  from 
any  source.     You  do  not  have  to  supply  it  from  that  particular  source. 

Mr.  Greene.  That  does  not  change  the  principle  of  the  thing.  That  is  only 
a  change  of  the  source  from  which  the  power  might  come. 

Mr.  Mayo.  That  is  true. 

Mr.  Greene.  And  it  is  binding  and  obligatory  on  the  United  States  Govern- 
ment always  to  furnish  the  power. 

Mr,  Mayo.  I  am  not  a  lawyer,  but  I  am  not  sure  you  are  right.  It  seems 
to  me  that  at  the  end  of  the  period  you  have  the  opportunity  to  make  a  new 
contract  on  terms  to  be  agreed  upon.  There  is  no  length  of  time  stated  for 
that  contract. 

Mr.  Greene.  What,  then  do  you  mean  by  language  that  is  as  explicit  and 
specific  as  this:  "If  the  said  leases  iire  not  renewed  or  the  property  covered 
thereby  is  not  sold  to  said  company,  its  successors  or  assigns,  any  operation  or 
disposal  threof— it  does  not  mjike  any  difference  what  it  is — shall  not  deprive 
the  company,  its  successors  or  assigns,  of  the  right  to  be  supplied  with  electric 
power,"  etc. 

Mr.  Mayo.  I  know ;  but  what  are  you  talking  about  at  all  times? 

Mr.  Greene.  I  am  just  talking  about  this  language  in  the  proposal. 

Mr.  Mayo.  But  you  are  talking  about  the  end  of  the  period.  • 

Mr.  Greene.  Yes ;  the  end  of  the  100  years. 

Mr.  Mayo.  Then,  supi)08e  you  make  another  shorttime  contract  at  that 
time,  when  that  one  would  lapse,  where  would  you  be? 

Mr.  Green.  This  says  that  at  the  end  of  tire  period,  no  matter  what  other 
negotiations  Uncle  Sam  proposes  to  enter  into  with  respect  to  the  disposal 
of  this  property,  there  is  one  thing  he  can  not  dispose  of,  or  become  free  of, 
and  that  is  the  right  of  your  people  to  that  power. 

Mr.  Mayo.  Yes ;  but  saying  that  you  make  a  new  contract  for  another  10  years 
and  then  at  the  expiration  of  that  10  years,  what? 

Mr.  Greene.  Unless  your  people  surrender  that  right  you  can  not  make  a 
new  contract  that  will  deny  that  right. 

Mr.  Mayo.  But  say  you  make  a  new  10-year  contract  with  Mr.  Ford  at  the  end 
of  the  period  for  10  years,  then  at  the  expiration  of  the  10  years,  what? 

Mr.  Greene.  You  have  to  make  a  new  ccmtract  based  upon  conditions  thac 
exist  at  the  end  of  the  old  one. 

Mr.  Mayo.  I  am  not  so  sure  about  that. 

Mr.  Greene.  You  have  to  take  things  as  they  are  before  you  can  change  tlio 
-contract. 


MUSCLE  SHOALS  PROPOSITIONS. 


976 


Mr.  Mayo.  You  have  to  take  things  as  they  are  at  the  termination  of  the 
100  years,  but  after  another  contract,  I  am  not  so  sure  about  it. 

Mr.  Greene.  This  provides  that  at  the  end  of  the  100-year  period,  that 
right  to  the  use  of  the  power  is  still  maintained,  no  matter  what  other  use 
is  made  of  the  property,  t  realize  again  that  you  can  not  get  a  man  to  go 
back  on  his  own  proposition,  but  I  am  simply  x>lacing  this  before  you  as  one 
of  the  serious  obstacles 

Mr.  Mayo  (interposing).  And  I  am  trying  to  justify  Mr.  Ford's  position. 

Mr.  Greene.  I  think  there  is  a  general  disposition  to  look  upon  this  proposi- 
tion with  the  idea  that  if  the  Government  can  salvage  its  property  and  if  the 
terms  are  reasonable  and  if,  perhaps,  the  public  benefit,  such  as  the  manufacture 
of  fertilizer,  is  a  part  of  it,  there  might  be  a  very  general  agreement  easily 
arrived  at ;  but  to  hogtie  the  United  States  Government  in  this  way  and  under 
these  conditions,  and  to  ask  the  Government  in  this  form  to  subsidize  your 
enterprise  against  all  other  private  capital  in  the  land,  will  make  trouble  on 
the  floor,  if  this  bill  ever  gets  there.  I  simply  leave  that  little  suggestion 
with  you. 

Mr.  Hull.  Mr.  Mayo,  I  was  not  here  when  you  began  your  statement,  and 
perhaps  you  have  covered  this,  but  to  my  mind  there  is  a  serious  difficulty  in- 
volved here.  I  am  not  saying  how  serious  it  is  because  I  have  not  definitely 
decided  in  my  own  mind,  and  I  presume  none  of  the  committee  has,  and  that 
is  in  regard  to  the  taking  over  of  the  Gorgas  plant ;  the  taking  away  from  the 
Alabama  Power  Co.  of  this  integral  part  of  a  plant  of  theirs.  I  do  not  think 
there  is  any  question  but  what  financially  we  would  involve  ourselves  consid- 
erably in  the  matter.  We  might  get  by  with  that  if  there  was  only  the  financial 
side.  However,  there  might  be  in  the  minds  of  the  committee  the  question  of 
the  moral  obligation.  If  we  should  decide  we  were  morally  obligated  to  return 
this  property  to  the  Alabama  Power  Co.,  of  course,  I  do  not  suppose  any  of  us 
would  want  to  override  that  objection.  Now,  in  case  we  should  feel  that  way 
about  it,  is  that  an  unsurmountable  proposition  wnth  the  Ford  people?  In  other 
words,  do  they  have  to  have  that  plant  in  order  to  make  this  contract?  I  will 
put  it  straight  and  frankly  because  we  want  to  know  about  it. 

Mr.  Mayo.  We  have  always  considered  it  very  necessary  to  supplement  our 
primary  power. 
.  Mr.  Hull.  I  understand  that,  and  I  can  see  that  it  is  quite  necessary. 

Mr.  Mayo.  It  is  the  first  steam  pow^er  available  and  the  cheapest  steam  power 
that  we  would  use. 

Mr.  Hull.  But  that  is  not  answering  the  question.  If  w^e  decide  that  we  are 
morally  obligated,  I  do  not  suppose  there  is  any  member  of  the  committee  who 
would  want  to  override  that  objection.  I  think  we  are  trying  to  be  fair  in 
this  proposition,  and  I  am  not  saying  that  it  is  my  opinion  at  the  present  time 
that  we  are  morally  obligated,  but  there  will  come  a  time  when  we  will  have 
to  decide  that  point,  and  when  we  decide  it,  if  we  decide  that  we  are  morally 
obligated  to  return  this  plant  to  the  Alabama  Power  Co.,  then  the  question  will 
come  up,  Will  the  Ford  people  consider  this  proposition  at  all  without  the 
Gorgas  plant? 

Mr.  Mayo.  Mr.  Ford  has  never  indicated  he  would  consider  it  without  that 
plant. 

Mr.  Hull,  could  I  answer  Mr.  Greene's  question  further?  Mr.  Waldo  has  just 
showed  me  this  pamphlet  which  has  the  water  power  act  in  it  and  it  refers  to 
what  you  were  talking  about.    In  section  15  it  says : 

"  That  if  the  United  States  does  not,  at  the  expiration  of  the  original  license, 
exercise  its  right  to  take  over,  maintain,  and  operate  any  project  or  projects 
of  the  licensee,  as  provided  in  section  14  hereof,  the  commission  is  authorized 
to  issue  a  new  license  to  the  original  licensee  upon  such  terms,"  and  so  on. 

Mr.  Greene.  But  that  is  optional  and  there  is  no  intervening  condition  as 
there  is  in  this  proposition.  There  is  no  option  left  the  Government  here. 
The  Government  may  dispose  of  its  property  and  it  may  lease  or  otherwise 
contract  that  property  at  the  end  of  100  years,  but  it  does  so  always  subject 
to  your  right  to  have  the  power  there.  That  is  the  way  your  proposition  reads 
and  that  is  the  way  the  average  man  will  read  it. 

Mr.  Mayo.  Do  you  think  they  can  take  it  away  from  the  original  licensee 
under  this  language? 

Mr.  Greene.  Yes;  they  can.  At  the  end  of  the  time  they  can  take  it  all 
away,  but  if  they  leave  it,  they  leave  it  with  them,  which  is  a  reasonable  propo- 
■ition  under  those  circumstances.     In  this  case,  however,  you  have  to  take 


92900—22- 


-62 


976 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


977 


it  up  from  another  angle.  You  offer  us  words  and  promises  for  our  heirs  but 
you  take  away  all  chance  of  our  carrying  out  those  promises.  You  say  we 
can  dispose  of  the  property  except  the  water  power. 

Mr.  Mayo.  If  they  take  this  property  away,  they  have  to  pay  for  every thmg 
that  the  licensee  has 

Mr.  Greene.  I  am  not  talking  about  the  question  of  money  but  the  question 
of  principle  and  the  question  of  the  proper  public  policy,  and  what  we  shall 
do  to  our  heirs  when  we  are  dead  and  gone  for  a  good  many  years,  and  they 
are  helpless  about  it.  Once  upon  a  time,  in  the  development  of  our  English- 
speaking  jurisprudence,  there  was  a  revolt  against  this  very  doctrine  of  rule 
by  a  dead  hand,  which  ruled  living  generations  from  the  grave  centuries  back. 
Now,  you  are  going  to  tie  us  and  our  children's  children  for  centuries  to  your 
contract.    I  do  not  care  to  ask  any  further  questions. 

Mr.  Hull.  Is  that  all  you  wanted  to  say,  Mr.  Mayo? 

Mr.  Mayo.  Yes;  thank  you. 

Mr.  Hull.  Mr.  Mayo,  you  have  read  Mr.  Cooper's  letter  to  the  committee 
under  date  of  February  21,  I  presume. 

Mr.  Mayo.  I  have  not ;  no,  sir. 

Mr.  Hull.  Has  not  your  attention  been  called  to  Mr.  Cooper's  letter  in  which 
he  makes  the  statement  that  if  we  accept  the  Ford  offer  it  will  cost  $1,- 
275,000,000  over  and  above  the  amount  of  money  received  from  Ford? 

Mr.  Mayo.  I  heard  Mr.  Cooper's  testimony  but  I  did  not  read  the  letter. 

Mr.  Hl-ll.  You  heard  the  testimony  along  the  same  line,  which  was  thi 
same  as  the  letter. 

Mr.  Mayo.  Yes. 

Mr.  Hurx.  Have  you  had  his  figures  analyzed? 

Mr.  Mayo.  They  appeared  so  ridiculous  to  me  I  did  not  attempt  it. 

Mr.  Hull.  The  figures  ought  not  to  be  ridiculous  if  you  put  them  down  and 
some  one  can  figure  them  out.  that  is  a  mere  matter  of  figuring.  As  I  under- 
stand your  proposition,  you  claim  that  you  return  the  money  that  the  Govern 
ment  will  spend  from  this  time  on,  with  4  per  cent  interest ;  is  not  that  true? 

Mr  Mayo.  Yes  sir. 

Mr!  Hull.  And  he  says  that  under  your  proposition  you  do  not  return  it  by 
^1,275.000.000. 

Mr.  Mayo.  I  know  it. 

Mr.  Hull.  Now,  surely,  there  is  some  one  who  can  figure  that  out  and 
straighten  that  out  and  bring  those  figures  together  and  tell  us  wherein  he  is 
wrong,  if  he  is  wrong. 

Mr.  Mayo.  We  can  do  that. 

Mr.  Hull.  I  should  certainly  like  to  have  that  done. 

Mr.  Mayo.  We  will  do  that  and  put  it  in  the  record,  if  you  wish. 

Mr.  Hull.  I  would  like  to  have  that  done. 

(The  statement  referred  to  follows:) 

Mr.  Cooper's  statement  of  the  losses  to  the  Government  under  the  Ford  offer 
is  based  upon  the  assumption  that  it  is  possible  for  the  Government  to  collect 
compound  interest  on  its  war  or  other  losses. 

One  does  not  lose  that  which  one  never  had,  and  never  had  a  possibility  of 
having,  and  the  Government  does  not  lose  interest  which  is  not  payable  and 
never  was  payable,  because  no  one  has  ever  offered  to  pay  compound  interest 
to  the  Government  on  its  expenditures. 

On  the  other  hand,  Mr.  Ford  offers  to  actually  set  up  a  sinking  fund  for  the 
benefit  of  the  Government,  and  provide  for  the  maintenance  and  administration 
of  the  fund  so  that  all  interest  earned  by  the  fund  shall  be  reinvested  for  the 
increase  of  the  fund.  The  higher  the  rate  which  the  fund  can  be  made  to  earn, 
the  more  quickly  the  Government's  investment  in  the  project  will  be  amortized 
and  refunded.  He  is  not  using  compound  interest  against  the  Government, 
but  for  the  benefit  of  the  Government.  There  is  nothing  theoretical  about  this 
advantage  to  the  Government,  for  the  sinking  fund  is  to  be  actually  set  up 
and  the  earnings  are  to  be  actually  realized  under  his  plan. 

If  we  were  to  follow  Mr.  Cooper's  method  of  figuring  on  Government  losses,  a 
compound  interest  that  can  never  be  realized,  then  we  should  do  the  same  with 
Government  gains.  The  Ordnance  Department  has  indicated  that  5  per  cenl 
of  $47  000,000,  or  $2,350,000,  is  a  reasonable  measure  of  the  annual  saving  to 
the  Government  through  the  assuming  by  Mr.  Ford  of  the  depreciation  on  the 
nitrate  plant  for  100  years. 


If  Mr.  Cooper's  statement  is  fair,  then  it  is  fair  to  assume  that  the  Govern- 
ment should  set  aside  this  amount  annually  and  let  it  draw  compound  interest 
at  4  per  cent. 

In  100  years  this  annual  saving  invested  at  4  per  cent  would  amount  to  the 
tidy  sum  of  $2,908,183,750,  and  we  have  not  included  any  item  of  Mr.  Ford's 
offer,  other  than  this  one  feature.  We  could  add  to  the  absurdity  by  including 
in  the  annuity  the  saving  due  to  guarding,  routine  maintenance,  etc.,  but  it  does 
not  appear  to  be  necessary. 

Mr.  Ford's  payments  under  his  offer  will  take  care  of  the  principal  and  in- 
terest of  a  4  per  cent  bond  issue  without  an  appropriation  by  ^Congress,  and 
we  believe  that  the  project  can  be  readily  financed  on  this  basis. 

Nitrate  plant  No.  2  will  produce  some  2,000.000  tons  of  completed  2-8-2 
fertilizer,  or  somewhat  more  than  25  per  cent  of  the  annual  fertilizer  consump- 
tion of  the  United  States.  If  Mr.  Ford's  economies  result  in  saving  only  $15 
per  ton  to  the  farmer,  on  only  this  amount  of  production  the  annual  saving 
would  be  $30,000,000,  and  the  saving  in  100  years,  without  interest,  would  be 
.$3,000,000,000. 

Mr.  James.  Mr.  Mayo,  in  response  to  a  question  by  Mr.  Greene,  you  read  a 
part  of  the  water  power  act.  Are  you  willing  to  strike  out  the  language  that 
you  use  in  section  17  and  use  the  language  you  read  to  the  committee  from  the 

water  power  act? 

Mr.  Mayo.  I  could  not  say  right  off  the  bat.  I  will  take  it  under  considera- 
tion, however. 

Mr.  James.  I  thought  that  was  your  explanation  of  what  you  thought  your 

language  meant.  .     ,    ^         .    ^  . 

Mr.  Mayo.  No;  I  simply  brought  that  up.  I  never  saw  it  before,  but  it 
seemed  to  me  it  was  quite  parallel.    I  will  take  it  under  consideration,  though, 

and  see. 

Mr.  James.  Mr.  Mavo,  when  you  were  before  the  committee  before,  I  said : 

"  Mr.  James.  When  the  Judge  Advocate  General  was  before  the  committee  the 
other  day,  the  matter  concerning  the  cost  of  the  flowage  rights  came  up,  and 
he  stated  that  Mr.  Ford  beleved  the  Government  could  acquire  those  cheaper 
than  anybody  else,  and  there  was  not  any  doubt  in  his  mind  that  Mr.  Ford 
intended*  to  reimburse  the  Government  for  those  expenditures,  and  that  when 
you  appeared  before  the  committee  you  would  agree  with  his  view  concerning 
that  matter." 

Have  you  taken  that  up  with  Mr.  Ford? 

Mr.  Mayo.  I  have,  but  he  has  not  changed  his  views  yet. 

Mr.  James  I  understand  that  Mr.  Worthington  in  his  conversation  with 
Mr.  Ford  had  the  impression  that  Mr.  Ford  intended  to  repay  the  Government 

Mr.  Mayo.  A  little  difference  of  opinion  has  existed  on  that,  and  we  have  not 
come  to  a  conclusion  as  yet. 

Mr.  James.  Have  you  talked  with  him  about  it? 

Mr   Mayo   Yes   sir 

Mr.  James.  When  you  were  before  the  committee  before,  and  when  Mr. 
Worthington  was  before  the  committee,  I  called  attention  or  asked  you  if 
nitrogen  could  not  be  used  for  some  other  purpose  besides  manufacturing  fer- 
tilizers, and  you  both  said  yes. 

Mr  Mayo   Yes  sir 

Mr.  James.  That  being  so,  why  not  strike  out  the  word  "  nitrogen,"  so  that 
it  w  11  read,  "  the  company  agrees  to  operate  nitrate  plant  No.  2  at  the  approxi- 
mate present  annual  capacity  of  its  machinery  and  equipment  In  the  pro- 
duction of  fertilizer  compounds." 

Mr.  Mayo.  The  nitrogen  capacity  of  the  plant  was  the  reason  for  putting 
that  in.    Everything  is  based  on  its  nitrogen  capacity. 

Mr.  James.  Could  we  not  put  put  in  some  language  there  by  which  the  nitrogen 
could  not  be  used  for  any  other  purpose  except  the  manufacture  of  fertilizer? 

Mr.  Mayo.  Does  not  this  imply  that  it  is  for  use  for  fertilizers? 

Mr.  James.  You  say  that  nitrogen  can  be  used  for  manufacturing  something 
else  besides  fertilizers ;  and  if  that  is  so,  there  is  no  prohibition  here  so  that  you 
can  not  use  it  for  any  other  purpose,  no  matter  what  you  may  intend  to  do. 

Mr.  Mayo.  We  might  say  nitrogen  for  fertilizer  and  other  fertilizers.  I 
think  we  could  take  care  of  that  all  right. 


978 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS   PEOPOSITIONS. 


979 


11 


m 


l" 


m 


Mr.  James.  That  might  make  it  better.  Major  Burns  said  this  when  he  was 
before  the  committee  in  answer  to  a  question  from  Mr.  Hull : 

"Now,  over  and  above  that  he  may  or  may  not  guarantee  to  run  it  as  a 
nitrogen-fixation  plant.  I  think  you  can  interpret  it  very  readily  to  the  effect 
that  he  does  agree  to  run  it  as  a  nitrogen-fixation  plant." 

Have  you  taken  that  up  with  Mr,  Ford  so  the  language  can  be  changed,  so 
that  there  will  not  be  any  doubt  about  it?  Major  Burns  seemed  to  think  there 
was  some  question  about  it,  although  he  thought  it  might  be  construed  in 
that  way. 

Mr.  Mayo.  \Vell,  nitrogen  is  one  of  the  component  parts  of  fertilizer. 

Mr.  James.  If  you  will  turn  to  page  209  of  Mr.  Burns's  testimony,  in  the 
middle  of  the  page  you  will  find  that  his  statement  is,  "  If  he  does,  that  is  a 
very  great  additional  benefit  to  the  Government  from  the  standpoint  of  pre- 
paredness." 

Mr.  Mayo.  I  think  this  is  plain.  It  ties  it  down  to  the  "present  annual 
capacity  of  its  machinery  and  equipment  in  the  production  of  nitrogen  am! 
other  commercial  fertilizers."    I  think  that  nails  it  down. 

Mr.  James.  I  am  not  an  attorney,  but  when  the  attorney  representing  the 
Ordnance  Department  has  some  doubt  about  it  it  seems  to  me  the  language 
ought  to  be  changed  so  there  will  not  be  any  doubt  about  it. 

Mr.  Mayo.  We  have  not  given  that  any  thought,  because  the  question  was  not 
brought  up  before.    No  matter  how  we  operate  we  guarantee  it  will  be  available. 

Mr.  James.  As  I  have  said,  I  am  not  an  attorney,  but  when  the  attorney  for 
the  Ordnance  Department  has  some  doubt  as  to  what  the  language  means  I 
say  again  that  it  seems  to  me  the  language  ought  to  be  changed,  after  con- 
sultation with  him,  so  that  you  both  understand  it  in  the  same  way. 

Mr.  Mayo.  On  the  other  hand,  the  attorney  of  the  Judge  Advocate  General'i* 
oflSce  was  sure  that  we  had  so  worded  our  offer  that  we  guarantee  it.  If  it 
Is  necessary  to  clarify  it,  I  think  we  can  do  it. 

Mr.  Kearns.  Mr.  Mayo,  you  speak  of  clarifying  this  contract.  If  the  com- 
mittee should  decide  to  go  to  Muscle  Shoals,  would  it  be  possible  for  Mr. 
For  1  and  yourself  to  accompany  the  committee  in  order  that  they  could  have 
a  chance  to  talk  with  him  and  with  you  together. 

Mr.  Mayo.  I  am  sure  I  could  go.    I  can  not  answer  for  Mr.  Ford. 

Mr.  Kearns.  I  was  talking  about  Mr.  Ford  and  whether  he  could  go  with  you. 

Mr.  Mayo.  He  may  be  able  to. 

Mr.  Kearns.  We  have  had  this  experience.  You  are  limited  in  your  power 
to  agree  to  do  certain  things  that  are  not  contained  in  the  contract,  but  with 
Mr.  Ford  there  on  the  ground  he  could  tell  us  whether  or  not  he  would  agree 
to  any  changes  we  wanted  to  make. 

Mr.  Mayo.  Well.  I  will  ascertain  if  he  can  go.  I  think  he  will  be  glad  to  if 
he  can. 

Mr.  Kearns.  Now,  you  have  authorized  a  change  in  the  contract  so  that 
this  company  that  is  to  be  organized  will  have  a  paid-up  capital  of  $10,000,000? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Kearns.  Would  that  $10,000,000  be  the  working  capital?  Would  that 
$10,000,000  be  put  in  the  business  to  operate  the  business  alone? 

Mr.  Mayo.  It  would  all  be  put  into  the  business.  I  could  not  say  just  how 
It  would  be  used — whether  it  would  be  working  capital  or  partly  plant  In- 
vestment. 

Mr.  Kearns.  That  is  what  I  wanted  to  know,  and  I  should  think  that  the 
committee  would  want  to  know  whether  this  $10,000,000  was  to  be  used  in 
carrying  on  the  business  there  or  whether  part  of  it  would  be  used  in  develop- 
ing the  plant. 

Mr.  Mayo.  Some  of  it  would  have  to  go  into  the  plant  most  assuredly. 

Mr.  Kearns.  You  would  not  be  able  to  say  how  much  of  the  $10,000,000 
would  be  used  in  conducting  the  business? 

Mr.  Mayo.  My  opinion  is  the  whole  $10,000,000  would  go  into  the  plant. 

Mr.  Karns.  You  would  have  to  have  working  capital  in  some  amount,  would 
you  not? 

Mr.  Mayo.  We  said  not  less  than  $10,000,000. 

Mr.  Kearns.  That  means,  then,  you  would  put  in  more  than  $10,000,000, 
probably? 

Mr.  Mayo.  Well,  whatever  is  necessary.    I  imagine  it  will  be  twice  that. 

Mr.  Kearns.  How  much  money  will  you  have  to  invest  for  the  purpose  of 
carrying  on  that  part  of  the  business  which  would  be  represented  by  the  manu- 
facture of  fertilizer? 


Mr.  Mayo.  I  do  not  know  that  I  could  answer  that.  Mr.  Ford  has  always 
said  he  would  put  in  suflicient  capital  to  properly  operate  it.  Now,  we  do  not 
know  what  that  will  run  to  in  amount. 

Mr.  Kearns.  That  is,  to  properly  operate  it,  manufacturing  110,000  tons  of 
ammonium  nitrate? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Kearns.  And  as  I  understood  your  testimony  before,  that  would  mean 
about  2,000,000  tons  of  manufactured  fertilizer;  that  is,  the  finished  product? 

Mr.  Mayo.  That  would  be  the  equivalent  of  2,000,000  tons  on  about  a  2-S-2 
mixture. 

Mr.  Miller.  Mr.  Mayo,  your  conference  with  Mr.  Ford  has  only  changed 
his  original  bid  or  his  offer  of  January  25  in  the  two  particulars  that  you  have 
9numerated  ? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  You  still  adhere  to  the  obligation  that  the  United  States  must 
acquire  the  title  to  this  Gorgas  steam  plant,  do  you? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  And  vest  it  in  Mr,  Ford? 

Mr.  Mayo.  Yes,  sir. 

Mr,  Miller.  Since  you  have  appeared  before  the  committee  very  able  argu- 
ments have  been  made,  pro  and  con,  on  the  rights  of  the  Alabama  Power  Co. 
under  their  contract  with  the  United  States  Government  regarding  this  Gorgas 
plant,  and  it  appears  that  it  is  going  to  be  an  exceedingly  troublesome  thing 
to  do,  and  promises  a  litigation  that  is  almost  appalling.  Some  of  our  col- 
leagues on  the  floor  of  the  House  may  adopt  the  view  that  to  undertake  to 
segregate  the  rights  of  the  Government  and  the  rights  of  the  Alabama  Power 
Co.  under  their  contract  as  they  are  sewed  together,  or  as  I  have  expressed  it 
l>efore,  lockstitched  and  bound  together,  I  do  not  know  how  we  can  do  it,  and 
thnt  may  defeat  the  entire  offer  of  Mr.  Ford.  Is  it  beyond  the  range  of  possi- 
bility that  Mr.  Ford  would  further  consent  to  a  modification  of  his  offer  so 
that  he  would  take  the  Gorgas  plant  in  its  present  condition  and  assume  the 
responsibility  of  segregating  the  Government's  rights  from  the  rights  of  the 
Alabama  Power  Co.? 

Mr.  Mayo.  Mr.  Ford  would  not  be  wiling  to  take  over  any  legal  work  in 
reference  to  it, 

Mr.  Miller.  Would  not  be  willing? 

Mr.  Mayo.  No,  sir. 

Mr.  Miller.  Then  so  far  as  the  Gorgas  plant  is  concerned,  the  offer  of  Mr. 
Ford  is  that  he  shall  have  all  the  property — I  am  referring  now  to  sub- 
<livision   (d)   of  section  11 — 

"  All  of  the  property  constituting  the  steam  power  plant  built  and  owned 
by  the  Government  at  Gorgas,  Ala.,  on  the  Warrior  River,  including  lands, 
rights  of  way.  build  ngs,  machinery,  material,  fixtures,  apparatus,  appur- 
tenances, tools,  and  supplies  and  the  transmission  line  from  the  Gorgas  steam 
plant  to  the  nitrate  plant  No.  2  at  Muscle  Shoals,  and  all  other  transmission 
lines  belonging  to  the  United  States  and  connected  with  any  of  the  aforesaid 
Government  properties." 

We  shall  vest  those  rights  in  Mr.  Ford.  I  was  in  hopes,  Mr.  Mayo,  that  some 
modification  of  that  paragraph  would  be  effected  by  which  Mr.  Ford  would 
take  over  that  i>lant  in  the  condition  it  is  in  now  and  fight  it  out  with  the 
Alabama  Power  Co.    You  think  he  would  not  do  that,  Mr.  Mayo? 

Mr.  Mayo,  I  thnk  he  is  of  the  opinion  that  the  Government  is  in  a  much  better 
position  to  untangle  it.  He  has  said  right  along  that  he  does  not  exi)ect  any- 
thing of  the  Government  that  they  could  not  straighten  out. 

Mr.  Miller.  But  if  the  Government  should  undertake  to  settle  it  along  the 
lines  indicated  by  Colonel  Hull,  of  the  Judge  Advocate  General's  office,  and 
the  court  should  hold  that  the  Alabama  Power  Co.  had  a  subsisting  right 
there  and  the  United  States  Government  was  bound,  according  to  its  contract 
vith  the  Alabama  Power  Co.,  it  would  be  an  utter  physical  and  legal  im- 
possibility for  the  United  States  Government  to  comply  with  Mr.  Ford's  offer, 
because  it  could  not  turn  over  to  him  this  property. 

Mr.  Mayo,  If  it  was  not  a  legal  possibility  I  am  of  the  opinion  that  he  would 
n<»t  ask  for  it.     The  opinions  we  have  are,  though,  that  it  is  quite  possible. 

Mr.  Miller.  But  our  contract  with  the  Ford  Co.,  in  the  event  that  it  was 
accepted  by  Congress,  absolutely  binds  the  United  States  Government  to  quiet 
the  title  to  the  Gorgas  steam  plant  and  vest  It  in  your  company. 

Mr.  Mayo.  Yes. 


980 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


981 


Mr.  ^^iLLEit.  Now,  suppose  we  should  undertako  that  and  at  the  en<l  of  the 
litigation  find  ourselves  in  the  condition  that  the  courts,  wlrch  constitute  our 
highest  authority,  hold  that  the  rights  of  the  Alabama  l*ower  Co.  are  defined 
in  their  contract  and  it  is  our  duty  to  sell  to  the  Alabanui  l^ower  Co.  in  the 
manner  i)rovided  for  in  the  r  contract,  thereby  mak'.ng  it  absolutely,  legally, 
and  physically,  impossible  to  comply  with  this  clause  of  Mr.  Ford's  otYor.  Now. 
we  may  find  ourselves  in  that  position  and  thereby  there  \\"(»uld  be  a  breach 
in  that  respe<^'t  in  the  contract. 

Mr.  Mayo.  Well,  I  think  some  satisfactory  arrangement  could  be  nuule. 

Mr.  Miller.  We  can  not  satisfy  him,  because  one  very  able  lawyer  has  ap- 
peare<l  before  us,  in  behalf  of  the  Alabama  Power  Co.,  and  he  has  niaint<iine<l 
that  it  will  be  impossible  for  the  United  States  Government  to  sell  its  interest 
in  the  Gorgas  steam  plant  to  anybody  else  in  the  world  except  to  the  Alabama 
Power  Co. ;  and  another  lawyer  on  the  other  side  advises  us  that  the  Alabama 
Power  Co.  has  not  any  rights  there.  Now.  we  have  conflicting  opinions  of 
lawyers  on  that  proposition,  which,  of  course,  is  to  be  expected. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  And  in  the  end  it  would  go  through  the  United  States  courts, 
and  we  may  find  ourselves  absolutely  in  a  condition  where  we  can  not  comply 
with  this  provision  of  your  offer. 

Mr.  M.\YO.  In  that  event  you  could  reimburse  us,  I  presume.  But  we  do  not 
think  you  are  going  to  have  any  difficulty  on  that  score. 

Mr.  Miller.  At  the  end  of  the  contract  it  is  provided  "  that  the  above  pro- 
posals are  submitted  for  acceptance  as  a  whole,  and  not  in  part " ;  and  if  it 
should  happen  that  we  were  unable  to  comply  with  Mr.  Ford's  offer  as  a 
whole,  is  it  not  your  understanding  that  that  would  vitiate  the  entire  offer  of 
Mr.  Ford? 

Mr.  Mayo.  It  would ;  yes,  sir. 

Mr.  Miller.  Now.  there  are  two  other  important  contracts  entered  into  by 
the  United  States  Government,  one  with  the  Air  Nitrates  Corporation  and 
the  other  with  the  American  Cyanamid  Co.,  regarding  the  operation  of  these 
plants  and  the  payment  of  royalties.  I  suppose  when  we  convey  these  plants 
to  Mr.  Ford's  company  that  company  would  take  them  subject  to  these  exist- 
ing contracts? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Miller.  I  believe  the  last  time  you  were  before  the  committee  you  gave 
it  as  your  judgment  that  bonds  could  be  sold  at  4  per  cent? 

Mr.  Mayo.  Yes,  sir. 

Mr.  M1LT.ER.  For  the  purpose  of  building  this  project  dow^n  there,  whether 
the  cost  be  $50,000,000  or  $42,300,000,  which  latter  sum,  in  your  judgment, 
would  be  the  cost? 

.Mr.  :Mayo.  Yes,  sir. 

Mr.  :Miller.  Have  you  any  further  light  to  give  to  the  committee  on  that 

matter? 

Mr.  Mayo.  I  do  not  know  that  I  have. 

Mr.  Miller.  You  have  no  more  information  as  to  the  ability  of  the  United 
States  Government  to  sell  these  bonds  at  4  per  cent  at  the  present  time  than 
you  had  when  you  were  before  the  committee  on  the  previous  occasion? 

Mr.  Mayo.  I  do  not  think  I  have. 

Mr.  Mio^R.  Have  you  still  the  idea  in  mind  that  these  bonds  could  be  sold 

at  4  per  cent? 

Mr.  Mayo.  I  certainly  have. 

Mr.  Miller.  I  would  like  to  get  a  line  on  that  suggestion  of  yours.  You  must 
be  basing  "it  on  some  understanding  or  conference  or  assurance  you  have  had 
from  financial  people.  Would  you  object  to  stating  to  the  committee  what  tin- 
basis  of  that  statement  is,  that  those  bonds  can  be  sold  at  4  per  cent? 

Mr.  Mayo.  Mr.  Ford  thinks  he  can  raise  that  amount  by  paying  not  over 

that  amount  of  interest.  ,  ^   .  ^         , 

Mr  Miller.  Mr.  Ford  thinks  he  can ;  that  is  rather  an  indefinite  statement.  . 
Would   Mr.   Ford   be   willing   to   put   that   in    his   contract,   that   he  hereby 
guarantees  tliose  bonds  to  be  negotiated  at  4  per  cent  Interest? 
Mr.  Mayo.  I  do  not  think  so. 

Mr.  Hill.  Mr.  Mayo,  on  page  374  of  the  record  I  asked  some  questions  ot 
Mr  Worthington.  I  do  not  remember  whether  you  were  present  at  that  time 
or  not,  so  perhaps  I  had  better  read  you  the  paragraph  before  that  in  order 
to  give  vou  the  connection.     I  asked  Mr.  Worthington  this  question: 


"Mr  Hill.  In  connection  with  your  expression  in  reference  to  the  allot- 
ment, whether  there  would  be  any  allotment  of  a  definite  amount  of  horse- 
power for  the  use  of  the  fertilizer  plant  and  the  nitrate  plant,  what  would 

that  be  in  value?  ,  ,     ,.  . 

"Mr.  Worthington.  In  that  particular  case,  measuring  the  production  of 
nitrate  plant  No.  2  in  ammonium  nitrate,  it  would  be  about  110,000  horse  power. 

"  Mr.  Hill.  You  spoke  of  it  being  from  100,000  to  110,000  horsepower. 

"  Mr   Worthington.  Stating  the  production  in  terms  of  ammonium  nitrate." 

I  then  asked  him  this  question,  which  I  want  to  ask  of  you  as  Mr.  Ford's 

renresentatlve  i 

"  Mr  Hill.  Would  it  be  a  thing  for  us  to  consider  here  in  connection  with 
section  14,  concerning  which  there  have  been  a  good  many  questions— you 
probably  recollect  that  the  Secretary  of  War  testified  that  he  was  not  clear 
as  to  the  guaranty  for  the  production  of  fertilizer,  so  we  have  been  particularly 
interested  in   section  14." 

Then  I  asked  him  this  definite  question,  which  I  should  like  to  ask  of  you : 

•*  Suppose  we  added  to  section  14,  in  the  third  line,  after  the  words  '  am- 
monium nitrate  per  annum,'  something  to  this  effect :  " 

This  is  a  suggestion  of  a  change  in  paragraph  14  of  the  Ford  amended 
offer,  and  I  am  asking  you  if  Mr.  Ford  would  be  willing  to  put  in  the  third 
line,  after  the  words  "ammonium  nitrate  per  annum,"  something  to  this 
effect:  "and  that  the  company  would  promise  to  devote  to  the  said  pro- 
duction 100,000  of  primary  horsepower  from  Dams  Nos.  2  or  3  or  from  the 
steam  plant  at  Gorgas  or  the  steam  plant  at  nitrate  plant  No.  2  throughout 

the  lease  period." 

Could  you  answer  that  question  for  Mr.  Ford,  whether  he  would  be  willing 
to  amend  section  14  by  adding  that  language? 

Mr.  Mayo.  Well,  I  can  hardly  see  the  necessity  of  it. 

Mr.  Hill.  .Just  let  me  explain.  Section  14  provides  for  nitrates  or  other 
fertilizer  products  in  terms  of  ammonium  nitrate. 

^i/iv   I^AYO   Yes   sir 

Mr.  Iln  L.  It  has  been  st.'!t«Ml  to  the  committee  that  that  was  equal  to  about 

100,000  horsepower? 

Mr.  Mayo.  Yes,  sir.  *  ^  ^.        ^ 

Mr.  Hill.  That  is  what  Mr.  Worthington  says.  Suppose,  in  the  perfecting  ot 
the  process  of  manufacture,  onlv  2.^.000  horsepower  would  be  necessary  for  the 
guaranteed  amount  of  fertilizer.  This  plant  is  in  the  center  of  the  Fourth 
Army  Corps  Area,  which  contahi«'<l  the  training  gronnds  of  most  of  the  eastern 
and  southern  divisions  during  the  late  war.  t^,  ^,  , 

In  the  event  that  any  further  national  emergency  came  about.  Camp  McClel- 
lan  and  all  those  other  camps  will  undoubtedly  be  used  again  for  national 
training  centers  for  troops.  Tlu\v  always  have  been  so  used  because  of  the 
climate.  I  am  very  much  InttMvsted  in  the  securing  to  the  Government  all  of 
the  electric  power  for  general  use  there  that  is  necessary.  So  if  later  on,  in 
order  to  produce  this  fertilizer,  thei-e  would  only  be  necessary  25,000  horse- 
power per  annum,  I  am  asking  if  Mr.  Ford  would  then  be  willing  to  turn  over  to 
the  Government  the  remaining  7r»,(XX>  horsepower  for  the  Government's  general 
puri)oses:  for  instance,  to  light  Camp  McClellan  or  to  use  it  for  anything  else 
there  that  it  might  be  necessary  to  use  it  for. 

The  Alabama  Power  Co.  has  made  an  offer  to  dedicate  1(X),000  secondary 
horsepower,  and  I  would  like  to  ask  y<»u  if  Mr.  Ford  wonld  be  willing  to  modify 
paragraph  14  by  guaranteeing  the  Government  during  the  terms  of  the  lease 
either  100,000  primary  horsepower  or  100.000  secondary  horsepower  for  use  for 
anv  purpose  the  Government  decided  to  pnt  it  to. 

Mr.  Mayo.  I  think  he  would  be  glad  to  guarantee  the  Government  something 

along  these  lines. 

Mr.  Hill.  Will  you  please  think  of  that  and  let  us  have  your  answer  to  it  in 
the  rec-ord,  because  w^e  will  be  aske<l  to  compare  that  with  the  offer  of  the 
Alabama  Power  Co.  or  the  Alabama  Power  Co.'s  suggestion?  Will  you  kindly 
put  in  the  record  an  answer  along  that  line? 

Mr.  Mayo.  Yes ;  I  will  be  glad  to  do  that. 

Mr.  Ford  understands  his  offer  to  operate  plant  No.  2  to  approximate 
present  capacity  as  a  guarantee  that  he  will  utilize  at  least  100,000  horse- 
power in  the  manufacture  of  conunercial  fertilizers.  He  will  use  as  much  of 
this  in  primary  power  and  as  much  in  secondary  power  as  will  give  greatest 
economy  under  operating  conditions.    Of  course,  in  a  national  emergency  such 


982 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


983 


J 


as  is  referred  to  by  Mr.  Hill  above  the  entire  power  capacity  of  the  project 
is  immeaiately  placed  at  the  disposal  of  the  Government. 

Mr.  Fields.  Mr.  Mayo,  as  I  read  section  17,  which  Mr.  Greene  discussed  with 
you,  I  do  not  find  the  word  "  forever  "  in  the  section  to  which  Mr.  Greene  re- 
ferred; I  do  not  find,  with  rejfard  to  the  company's  lease  that  the  word  "for- 
ever "  does  appear. 

Mr.  Mayo.  No,  sir. 

Mr.  Fields.  But  it  provides  that  it  sliall  be  done  upon  such  terms  as  may  then 
be  determined? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Fields.  I  just  wanted  to  straighten  that  out.  I  understand  that  your 
definite  answer  as  to  why  this  franchise  should  be  for  100  years  is  that  the  in- 
vestment that  will  be  required  is  entirely  too  large  to  oe  made  upon  a  50-ye«r 
franchise? 

Mr.  Mayo.  Yes,  sir. 

Mr.  McKenzie.  Mr.  Mayo,  I  want  to  ask  you  one  or  two  questions  in  relation 
to  paragraph  17,  concerning  which  Mr.  Greene  interrogated  you  at  some  length. 
I  think  I  understand  that  paragraph,  and  I  believe  I  understand  the  purpose  of 
Mr.  Ford  in  having  it  drawn  in  the  manner  in  which  it  is  drawn,  and  I  do  not 
fully  concur  with  my  friend  Mr.  Greene  as  to  the  danger  in  that  section  as  it  is 
drawn.  The  question  I  want  to  ask  you  is  this:  At  the  end  of  the  100-year 
period  the  Government  has  the  right  to  take  over  this  property  and  operate  it? 

Mr.  Mayo.  Yes,  sir. 

Mr.  McKenzie.  In  that  event  the  Government  undoubtedly  would  want  a 
market  for  this  power,  and  that  being  true,  there  is  no  question  in  my  mind 
but  that  the  corporation  then  existing  could  procure  power  from  the  Govern- 
ment, is  that  not  true? 

Mr.  Mayo.  Yes,  sir. 

Mr.  McKenzie.  However,  it  might  be  possible  there  is  one  contingency,  and 
I  think  that  is  the  one  in  the  mind  of  Mr.  Greene,  that  at  that  time  the  Govern- 
ment might  desire,  if  we  keep  on  drifting,  as  we  have  been  drifting  for  a  number 
of  years,  in  my  judgment,  the  Government  might  desire  to  enter  into  some  man- 
ufacturing activity,  or  socialize  the  plant  in  a  way,  and  in  that  event  the  Gov- 
ernment might  decline  to  sell  to  this  corporation  any  power ;  but  that,  of  course, 
is  problematical. 

Mr.  Mayo.  Yes,  sir. 

Mr.  McKenzie.  On  the  other  hand,  in  case  the  Government  should  decide  nor 
to  operate  it,  but  would  lease  it  to  some  one  else  other  than  the  successors  of  the 
Ford  corporation,  is  it  your  judgment  that  the  public  utilities  commission, 
which  undoubtedly  would  be  in  existence  in  the  State  of  Alabama,  or  that  the 
Federal  laws  regulating  such  matters  would  require  that  a  great  plant  such 
as  you  propose  and  have  visualized,  that  will  be  standing  there  on  the  banks  of 
the  Tennessee  River,  would  be  entitled  to  the  use  of  power,  and  that  no  political 
organization  or  any  other  combination  that  might  be  set  up  could  be  justified  or 
would  even  be  permitted,  under  the  law,  to  simply  say  to  those  people,  "  You  can 
not  have  power."  What  do  you  think  about  that? 
Mr.  Mayo.  That  was  the  whole  thought  in  framing  that  paragraph. 
Mr.  McKenzie.  If  that  is  true,  do  you  not  feel  that  in  case  there  are  some  of 
our  friends  like  my  friend  Mr.  Greene,  who  have  some  apprehension  about  the 
violation  by  that  language  of  established  precedents  in  our  country,  that  you 
could  leave  that  particular  part  of  the  paragraph  out  without  endangering  the 
people  who  will  own  the  stock  and  bonds  of  this  company  100  years  ifrom  now, 
and  eliminate  that  bone  of  contention,  which  apparently  has  been  engaging 
the  minds  of  some  of  the  people  who  have  been  studying  this  question? 

In  other  words,  Mr.  Mayo,  is  it  not  a  mere  incident  that  would  not  justify 
Mr.  Ford  or  his  representatives  in  arbitrarily  standing  on  that  one  little  point 
in  the  contract,  in  comparison  to  the  other  great  issues  involved?  Putting  it 
directly  to  you,  would  you  have  any  serious  objection  to  the  elimination  of  that 
paragraph? 

Mr.  Mayo.  We  had  not  thought  of  it  in  that  light.  There  might  be  some 
change  made  there.  When  we  were  framing  up  the  paragraph  Mr.  Ford's 
whole  thought  was  that  he  did  not  want  any  preferential  right  of  any  kind, 
except  that  he  did  not  want  to  stand  the  chance  of  the  power  being  taken  away 
from  the  plant. 
Mr.  McKenzie.  I  understand  that. 
Mr.  Mayo.  So  that  wording  was  framed  to  prevent  that  happening. 


Mr.  McKenzie.  I  think  I  perhaps  would  have  felt  a  good  deal  like  Mr.  h'ord 
on  that  proposition,  looking  100  years  into  the  future,  but  realizing  that  the 
Government  and  the  courts  of  our  country  are  usually  just  and  fair,  I  can  not 
feel  any  great  apprehension  of  any  danger  or  of  any  abuse  that  might  result 
to  the  successors  of  the  corporation  in  case  that  language  was  eliminated  from 
the  contract. 

Mr.  Mayo.  It  would  almost  amount  to  the  confiscation  of  the  property  if  we 
were  deprived  of  the  power, 

Mr.  McKenzie.  That  is  why  I  feel  that  you  would  be  protecte<l.  imdoubtedly, 
by  the  public  utilities  commission  if  that  commission  existed,  or  if  no  such 
commission  existed  certainly  you  would  be  protected  under  the  law.  havinsr  in 
good  faith  established  a  plant  alongside  of  this  stream  where  the  power  was 
to  be  used.  So  it  seems  to  me  you  would  have  some  rights  that  would  be  given 
consideration. 

Mr.  Mayo.  We  will  take  that  into  consideration. 

Mr.  Greene.  May  I  follow  that,  Mr.  McKenzie?  The  particular  emphasis 
that  I  am  seeking  to  give  to  this  proposition,  Mr.  Mayo,  is  upon  the  preroga- 
tive of  a  government  always  to  be  free  to  exercise  its  own  option  to  do  any- 
thing which  it  considers  a  matter  of  public  policy.  I  am  quite  confident  that, 
while  you  are  here  properly  representing  the  interests  of  this  immediate,  pros- 
pective investment  there,  you  do  not  want  that  proposition  to  embarras  the 
Government  in  any  possible  way  nor  lead  it  upon  a  policy  whjch  your  children 
might  want  to  repudiate.  The  word  that  is  a  stumbling  block  in  this  thing  is 
not  what  has  been  suggested  with  some  attempt  to  repeat  my  questions  here, 
but  is  the  words  "  to  have  power,"  which  involves  no  option  whatever.  It 
does  not  say  there  is  an  option  of  preferential  right  to  make  a  bid;  it  says 
the  right  to  have  power,  and  the  word  "  right "  has  a  very  clear  definition,  of 
course,  in  law.    A  right  is  a  right,  not  an  option. 

The  Chairman.  Will  you  let  me  also  ask  this  question  right  there  in  connec- 
tion with  your  proposition?  If,  as  Mr.  Mayo  suggests,  in  10  years  they  might 
come  to  an  agreement  that  10  years  would  not  void  this  language  that  Mr. 
Greene  is  referring  to,  because  it  would  also  always  give  Mr.  Ford  the  right  to 
have  his  property  protected  before  anybody  else. 

Mr.  GARREiff.  You  mean  the  first  10  years  following*  after  the  first  100  years? 

The  Chairman.  Yes. 

Mr.  Greene.  The  Government  could  only  sell  what  it  has,  and  if  it  has  a 
property  or  a  use  which  has  entailed  upon  it  another  use,  it  can  only  sell  that, 
and  that  entailment  is  in  the  words  **  right  to  have  power."  They  would  sell 
the  property  to  somebody  else  or  lease  it  to  somebody  else,  always  subject  to 
that  other  use. 

Mr.  Garrett.  In  the  next  10  years  the  contract  will  be  under  a  different 
agreement. 

The  Chairman.  They  may  not  make  a  different  agreement ;  they  may  insist 
upon  their  rights  under  this  agreement. 

Mr.  Garrett.  I  want  to  ask  Mr.  Mayo  this  question,  and  ask  that  you  con- 
sider it  in  connection  with  this  section,  which  seems  to  raise  a  question  of  the 
right  in  perpetuity.  I  want  to  ask  you  if  the  language  of  secton  17  shall  be  so 
modified  as  to  give  the  successors  of  the  Ford  corporation  at  the  end  of  100 
years  equal  rights  with  all  other  parties  under  then  existing  public  utility 
laws,  either  State  or  Federal,  whether  that  would  be  acceptable,  when  they  go 
to  make  a  new  contract ;  that  is  the  only  question  there  is  here. 

As  far  as  I  am  concerned,  I  do  not  think  that,  at  the  end  of  the  100  years 
there  will  be  any  more  question  than  there  is  now  that  the  people  and  every- 
body concerned  will  be  protected  by  the  public  utility  laws  of  that  time. 

Mr.  Greene.  I  do  not  doubt  it  I  do  not  want  to  be  wearisome  about  this 
thing,  but  I  think  you  will  find,  Mr.  Mayo,  that  many  people  who  are  perhaps 
now  disposed  to  some  such  disposal  of  the  property  as  may  be  contemplated 
in  the  Ford  offer  still  have  conscientious  reservations  about  the  terms  as  they 
involve  this  public  policy.  I  want  to  make  this  picture  plain,  if  I  may.  If, 
100  years  ago,  men  sitting  in  this  Congress  had  tied  up  to  some  specific  contract 
with  a  citizen  or  a  group  of  citizens  that  involved  certain  mechanical  agencies 
and  perpetuated  the  use  of  those  agencies  in  those  people  by  the  hard  and 
fast  terms  of  that  contract,  we  to  day  would  be  confronted  possibly  with  this 
very  situation :  At  the  time  the  fathers  made  that  contract  there  was  no  trans- 
portation by  steam;  electricity  was  unapplied  to  motive  power;  the  telephone, 
the  telegraph,  and  various  other  things  which  now  enter  into  the  very  texture 
of  this  contract  itself  were  not  in  existence,  and  mostly  unheard  of.    But.  they 


984 


MUSCLE   SHOALS   PROPOSITIONS. 


MUSCLE   SHOALS   PROPOSITIONS. 


985 


m 
i 


4 ,  ,y 


B. 


have  cofupletely   revolntioiiized  physical   existence  in  this  land,  let  alone  the 
economics  it  was  based  npon. 

If  we  to  day  nndertiike  to  make  a  hard  and  fast  contract  which  is  bindin.j: 
in  peri>etnam,'  it  may  be,  very  possibly,  that  in  1(K)  years  from  now  not  only 
is  the  concept  and  policy  of  our  Government  completely  changed,  but  the  Gov- 
ernment itself  mav  be  at  that  time  doin^-  thinjrs  which  most  of  ns  do  not  want 
it  to  do.  Not  only  that,  but  this  very  fact  is  possible,  that  we  no  longer  shnll 
dei^end  npon  water  power  for  motive  i)ower:  it  may  be  possible  that  the  dreams 
of  the  philosophers  and  engineers  of  extracting  power  from  the  great  reservoirs 
in  the  imiverse  are  applicable,  and  this  thing  is  entirely  out  of  the  question. 
It  m;iv  be  snid  that  works  to  the  interest  of  the  Government  as  much  as  to 
the  intjerest  of  Mr,  Ford,  but  yet  we  are  presently  engaged  in  mortgaging  a 
future  in  specific  detail.  The  fathers  very  wisely  provided  in  the  Constitution 
terms  of  generality,  so  that  those  provisions  would  be  general  enough  to  meet 
conditions  in  the  future.  Why  should  not  this  contract  be  written  in  the  same 
sort  of  way,  so  that  if  conditions  chjinge  the  Government  is  always  free,  it  is 
superior  to  any  interest  that  may  compete  against  it?     That  is  what  I   am 

asking  for.  . 

Mr.  Mwo.  I  do  not  wjint  you  to  think  you  are  wearying  me.  We  court 
the  full  vent  of  the  connnittee's  feeling  on  this  matter.  It  is  quite  a  different 
thing  to  sit  :iroun<l  and  criticize  a  <'ontra«t  than  it  is  to  sit  down  and  make  it 
»mt  of  whole  cU>th. 

^Tr.  Greene.  I  understand  that  thoroughly. 

Mr  Mayo.  The  only  instructions  we  had  from  Mr.  Ford  in  making  this  con- 
tract up  was  not  to  give  him  any  preferential  r  ght  of  any  kind,  with  the  excep- 
tion that  we  were  to  fortify  it  against  the  lability  of  having  the  power  taken 
away  from  the  plant.  We  worded  it  as  best  we  knew  how.  I  do  not  pretend  to 
sav  that  we  are  dead  right  or  that  we  have  it  in  the  host  form. 

Mr.  Greene.  While  it  is  true  thnt  presently  we  are  engaged  in  criticizing 
Mr  Ford's  offer,  if  we  take  it  to  the  floor  of  the  House,  it  becomes  our  offer. 

Mr.  Mayo    I  know  that,  and.  as  I  say,  we  wnnt  the  full  vi(-ws  of  the  com 
mittee.  and  vou  may  let  them  come  as  fast  nnd  ns  long  as  y<m  please. 

:^Ir.  Grkkne.  I  think  th.-t  you  nre  going  to  find — and  I  say  this  in  no  attempt 
to  interject  any  sort  of  dissension • 

Mr.  ISlAYo  (interposng).  There  is  no  resentment  <»n  my  part:  I  do  not  care 
how  far  vou  carrv  on  your  discussion. 

Mr  GKi-n<^NF  I  think  vou  are  iroinir  to  tin<l  a  good  many  jieople  who  study 
broad  (piestions  of  public  policy  are  not  content  to  listen  to  the  cry  abmit 
fertilizer  They  realize  thnt  down  under  th:it  there  is  every  vital  prmciple 
of  goverinnental  p(»licv  involved,  nnd  thnt  it  is  ])roposed  in  these  terms,  which 
will  cover  fertilizer, 'to  establish  a  policy  that  will  obtain  IOC)  years  from 
flow  and  it  is  a  little  discouraging  to  people  who  like  to  see  their  Govern- 
ment alvvavs  fre<>  to  keep  safe,  and  to  make  a  contract  in  which  it  will  keep 
safe  to  keep  that  contract  in  the  hoi>e  that  it  will  give  public  benefit,  and 
yet  to  be  sure  that  the  contract  has  within  it  powers  of  its  own  termination, 
m-oviding  against  the  contingencies,  not  of  a  day,  but  of  a  century. 

Mr  M\YO  Of  course,  Mr.  Ford  is  H)f  the  opinion,  I  think  that  the  niles  and 
regulations  for  operating  this  i)lant  will  be  so  laid  down  that  there  will  be 
n(rquestion  about  the  power  at  the  end  of  the  lease  period. 

Mr  Greene.  You  and  I  can  stiimlate  here,  and  we  would  be  very  much  in 
the  siime  relationship  to  it  that  Ben  Franklin  was  to  his  kite  and  his  door  key. 
It  is  true  that  he  got  a  little  glimpse  of  what  lightning  was,  but  he  never  saw 
a  Packard. 

Mr.  Mayo.  Tliat  is  true.  .        ^v,      v,         v.  i  «.i 

:Mr  HiLi  Mr.  INIayo,  it  is  obvious  from  the  questions  that  have  been  asked 
this  morning  that  this  committee  Is  very  much  interested  in  section  17. 

Mr.  Mayo.  Yes,  sir.  .^^  _  ,      „„,  i< 

Mr  Hill.  I  think  when  you  appeared  before  the  committee  on  February  34 
vou  made  a  very  clear  statement  of  that  subject,  and  I  want  to  read  to  you  two 
questions  that  I  then  put  to  you  and  two  answers  you  then  made,  and  the  ques- 
tion T  want  to  ask  vou  now  is  whether  you  have  said  anything  this  morning 
differing  from  the  answers  you  then  made,  or  whether  Mr.  Ford  is  ready  to 
make  any  change  in  the  position  you  then  took,  and  which  I  understand  you 

^^^l  invite'  your  attention  to  page  275  of  the  testimony  in  order  that  you  may 
look  at  it.  T  Shall  only  read  two  questions  and  two  answers  at  the  bottom  oi 
that  page: 


"Mr.  Hii.L.  Now,  then,  that  paragraph,  iiccording  to  Mr.  Ford's  intention, 
lueitns  that  after  the  100-year  period,  if  it  is  not  arranged  that  his  interests  or 
the  successors  of  his  company  shall  buy  the  property,  he  will  have  a  perpetual 
right  to  get  indefinitely  a  first  lien  on  power  that  is  producetl  there,  not  to  ex- 
ceed the  average  amount  used  annually  in  the  previous  10  years? 

"  Mr.  Mayo.  He  thought  he  ought  to  have  it,  everything  else  being  equal." 

J^Ir.  Hill.  That  is  a  very  urmsual  arrangement;  it  is  one  not  noticed  before. 
Here  is  the  proposition  which  he  puts  up,  as  I  understand  it :  It  does  not  make 
any  difterence  what  the  ultimate  position  is,  his  company  has  a  perpetual  first 
chiim  on  the  plant  after  the  100-year  period;  is  that  not  right? 

Mr.  Mayo.  Yes,  sir.     [Reading:] 

*'  Mr.  Hill.  Do  you  think  it  is  a  proper  thing  for  the  United  States  Govrrn- 
nient  to  tie  itself  up  in  reference  to  this  plant  forever": 

*'  Mr.  Mayo.  I  think  so ;  I  do  not  see  that  they  can  lose  anything  in  doing  so. 
They  can  always  exact  of  him  whatever  they  could  get  from  anybody  else." 

Mr.  Hill.  As  I  understand  it,  that  is  Mr.  Ford's  position. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Fields.  :Mr.  Mayo,  you  and  Mr.  McKenzie  api)arcntly  agree  that  this 
company  could  secure,  either  un<li>r  the  Federal  or  State  public  service  laws  at 
that  tinie,  the  rights  that  it  attempts  to  secure  in  paragraph  17.  If  you  are  cor- 
rect in  that,  this  paragraph  is  of  no  value  to  the  Ford  Co.,  except  that  it  would 
give  it  without  litigation  what  it  would  get  by  litigation,  thereby  saving  the 
trouble  of  going  into  litigation;  that  is  to  get  that  right  either  through  the 
Federal  or  State  public  service  commission  at  the  end  of  th(»  lease;  that  is,  to 
-ret  what  it  asks  for  in  this  paragraph. 

Mr.  Mayo.  Yes,  sir. 

Mr.  Wukzbach.  Mr.  Mayo,  in  line  with  the  questions  put  to  you  by  Mr. 
Greene,  in  reference  to  a  grant  in  perpetuity  involvcKl  in  this  contract,  is  it 
not  a  fact  that  whenever  the  Government  makes  any  grant  of  proi>erty — say 
land,  for  instance — that  the  Government  surrenders  all  control  of  that  property 
in  perpetuity? 

Mr.  Mayo.  I  think  so. 

Mr.  Wukzbach.  Without  reference  to  the  added  vtilne  that  iliat  jaoperty 
may  have  at  the  end  of  100  years,  or  at  the  end  of  l.OOo  years? 

Mr.  Mayo.  Yes,  sir. 

Mr.  WuRZBAcH.  lender  this  section  17  the  Government  retains  the  right  to 
operate  this  plant. 

Mr.  Mayo.  Yes,  sir. 

Mr.  WuRZBACH.  And  oniy  if  it  elects  not  to  operate  the  i)lant,  but  desires  to 
lease  or  sell  the  property,  the  Ford  Co.,  in  effect,  asks  for  an  equal  right  to 
become  the  purchaser  of  power  sufficient  to  operate  its  plants? 

Mr.  Mayo,  Yes,  sir. 

Mr.  WuRZBACH.  At  a  reasonable  rate? 

Mr.  Mayo.  Yes,  sir. 

Mr.  WURZBACH  Suppose  that  tliis  provision  was  not  in  the  contract  at  all, 
at  the  end  of  100  years  what  other  rights  would  the  Government  have  in 
addition  to  the  right  that  they  have  if  they  enter  into  this  contract  with  sec- 
tion 17  in  it?  They  could  either  operate  the  plant  or  they  could  sell  the  prop- 
erty or  lease  the  property,  and  if  they  sold  the  proiierty  they  would  sell  it  at 
a  reasonable  price,  and  if  they  lease  it  they  would  lease  it  on  reasonable  terms. 

Mr.  Mayo.  Yes  sir. 

Mr.  Wurzrach.  Or  if  they  sold  part  of  the  power  they  would  sell  it  on  rea- 
sonable terms. 

Mr.  I^ayo   Yes  sir 

Mr!  WURZBACH.'  So,  in  effect,  what  limitation  is  there  upon  the  Government  in 
section  17,  except  to  prevent  the  Ford  Co.  from  not  receiving  an  equal  oppor- 
tunity with  anyone  else  to  become  a  purchaser  or  contractor  with  the  Govern- 
ment? 

Mr.'  Mayo.  As  Mr.  Greene  brought  out,  of  course  they  wruhl  be  tied  to  one 

customer.  ,  „    ,.,. 

Mr.  WURZBACH.  Suppose  they  wanted  to  sell  to  S(mie  other  customer?  I  he 
conclusive  presumption  is  that  they  would  sell  It  on  reasonable  terms. 

Mr  Mayo    Yes  sir 

Mr*.  WURZBACH.  Is  not  that  all  that  the  Ford  Co.  reserves  the  right  to  do 

under  section  17? 
Mr.  Mayo.  I  think  so. 


.im 


986 


MUSCLE  SHOALS  PROPOSITIONS. 


^d 


Mr.  WuHZBACH,  So,  do  you  see  where  there  would  be  any  real  limitation  or 
restriction  upon  the  rights  of  the  Government  at  the  end  of  the  100  years? 

Mr.  Mayo.  I  thinli  with  this  reservation  in  the  contract  the  Government  could 
get  as  much  money  out  of  it,  whatever  they  might  do.  as  though  that  provision 
were  not  there. 

Mr.  WuKzBACH.  And  it  is  exceptional  from  the  usual  sale  of  property  by  the 
Government  or  the  usual  grant  by  the  Government  in  that  the  Government  is 
reserving  rights  it  does  not  usually  reserve  when  it  grants  land  or  other  prop- 
erty? 

Mr.  Mayo.  Yes,  sir. 

Mr.  Greene.  Do  you  see  a  parallel  botween  the  granting  of  land  by  the  Gov- 
ernment fcr  occupancy,  which  is,  of  course,  the  tirst  necessity  in  any  social 
order— that  is,  some  place  to  live — and  the  granting  of  a  natural  power  of  some 
kind,  stored,  like  mines,  or  quarries  or  water  power?    Are  they  analogous? 

Mr.  Mayo.  What  is  the  difference? 

Mr.  Greene.  A  thing  can  not  contain  any  more  than  it  will  hold.  Land  can 
only  be  occupied  by  a  man  as  a  homestead,  and  the  broad  purpose  is  to  give  him 
the  exclusive  right  to  use  it.  Water  power  may  be  disposed  of  by  many  agencies 
and  it  is  not  dependent  upon  occupancy. 

Mr.  Mayo.  I  think  it  is  the  same. 

Mr.  Greene,  Are  they  embraced  in  the  same  class,  like  tenant  holding,  or 
the  use  of  natural  powers? 

Mr.  Mayo.  Not  quite. 

Mr.  Greene.  There  is  quite  a  difference  in  the  philosophy  of  their  operation, 

is  there  not  ? 
Mr.  Mayo.  There  is  some  difference  between  an  ordinary  homestead  tenant 

and  a  public-property  tenant. 

Mr.  Greene.  Is  it  not  the  fact  that  the  Government  has  two  enactments  of 
law,  one  for  homesteading,  and  another  for  the  use  of  water  powers,  which 
are  provided  for  by  separate  acts  of  Congress,  based  upon  different  use? 

Mr.  Mayo.  Unfortunately,  I  am  not  very  conversant  with  the  law  in  respect 

Mr.  Greene.  I  do  not  think  the  analogy  holds.  I  think  there  is  a  different 
philosophy  engaged  in  their  use. 

Then  there  is  another  thing,  and  that  is  the  question  as  to  where  the  Gov- 
ernment would  come  out  at  the  end  of  the  hundred  years ;  I  do  not  mean  ex- 
pressed in  terms  of  money :  I  do  not  care  about  that. 

Mr.  Mayo.  I  know ;  you  are  referring  to  the  principle  involved. 

Mr   GreenEa  Yes 

Mr.  WUKZBACH.  I  do  not  suppose  Mr.  Greene  would  make  any  objection  if 
the  Government  should  undertake  to  sell  this  property  outright.  Still  it  would 
be  subject  to  the  same  conditions  if  it  was  a  matter  of  policy. 

Mr.  Mayo.  I  would  like  to  ask  Mr.  Greene,  if  he  were  the  owner  of  this  prop- 
erty how  he  would  protect  his  rights  at  the  end  of  a  hundred  years?  What  is 
your  suggestion? 

Mr.  Greene.  My  suggestion  is  that  any  man  engaging  in  a  contract  with  the 
Government  has  to  weigh  between  his  own  mind  and — not  using  the  term  in  a 
mean  sense— his  selfish  right  of  the  conservation  -of  the  interests  of  himself 
and  his  family  and  his  own  necessity,  with  relation  to  what  he  has,  as  one  unit 
in  the  great  whole  to  all  other  units  that  make  up  the  Government.  There  is 
quite  a  nice  balance  to  start  with. 

The  second,  perhaps,  is  that  Henry  Ford  and  all  of  this  living  generation 
will  have  passed  into  oblivion  long  before  this  contract  becomes  terminated  at 
the  end  of  the  100-year  period :  that  is,  such  parts  of  it  as  do  terminate,  and 
the  people  who  will  be  in  the  then  enjoyment  of  the  property  will  at  that  time 
be  in  the  enjoyment  of  property  thnt  has  been  paid  for  out  of  its  earnings, 
and  the  full  amount  of  its  capital  stock  will  have  been  returned  more  than 
once  in  all  probability,  and  they  will  have  made  no  original  investment  and 
incurred  no  risk. 

Mr.  McKenzie,  Will  you  permit  me  to  inject  this  at  the  end  of  your  question 
in  connection  with  this  matter,  Mr.  Greene?  Of  course,  there  is  a  very  wide 
distinction  recognized  now  between  the  disposition  of  what  might  be  termed 
natural  resources  and  of  property,  such  as  public  lands,  and  that  principle,  I 
think,  Mr.  Greene,  has  been  trying  to  bring  out  in  connection  with  that,  that  the 
Government  heretofore,  it  might  be  said  in  severe  criticism,  has  parted  with 
many  of  our  valuable  natural  resources  and  conveyed  them  to  private  interests, 
which,  perhaps,  was  a  mistake. 


MUSCLE  SHOALS  PROPOSITIONS. 


987 


Mr.  Mayo.  I  agree  with  you  on  that.  The  way  I  look  at  it  is  this:  If  the 
plan  is  successful,  the  plant  will  keep  on  increasing  in  size,  and  at  the  end  of 
the  100-year  period  it  will  be  larger  than  at  any  other  period,  hence  the  neces- 
sity for  safeguarding  the  power.  Where  will  you  be  if  you  do  not  protect 
yourself  in  some  manner?  You  say  it  has  paid  for  itself.  But  right  at  that 
period  there  may  be  many  stockholders  iii  it  that  are  new;  they  may  be  new 
investors  and  they  may  not  have  made  any  money  out  of  it. 

Mr.  Greene.  But  they  take  the  same  risk  that  everybody  does,  because  no 
generation  starts  even  with  the  i)eople  of  that  generation,  knowing  the 
conditions  of  that  generation.  The  whole  philosophy  of  the  English-speaking 
system  is  to  leave  each  generation  free  to  settle  its  own  policies.  As  a  business 
proposition  we  realize  that  you  have  to  fix  some  definite  period  of  time,  and 
we  have  set  upon  50  years  as  the  duration  of  a  water-power  project.  A  century 
is  a  long  time  when  we  have  to  consider  the  future. 

Mr.  Mayo.  There  is  no  difference  in  the  principle,  as  I  see  it,  whether  it  is  50 
years  or  a  hundred  years,  is  there? 

Mr.  Greene.  There  is  no  difference  in  the  principle  so  far  as  the  pure  logic 
is  concerned,  but  so  far  as  physical  effects  are  concerned  there  may  be  all  the 
difference  in  the  world.  So  it  is  recognized  that  the  term  of  years  is  not  the 
recognition  of  a  principle,  but  is  an  admitted  compromise. 

Mr.  Mayo.  There  was  considerable  difference  of  opinion  in  regard  to  the 
term  of  50  years. 

Mr.  Greene.  Oh,  yes ;  but  it  was  an  arbitrary  compromise ;  it  was  a  compro- 
mise in  the  lifetime  of  a  living  person. 

The  Chairman.  The  testimony  before  the  committee  is  to  the  effect  that  the 
Alabama  Power  Co.,  and  also  the  Air  Nitrates  Corporation,  believe  that  they 
have  a  bona  fide  agreement  with  the  War  Department  officials  turning  over 
to  them  nitrate  plant  No.  2. 

It  is  very  evident  to  me — and  I  have  heard  all  the  testimony — that  we  are 
going  to  have  litigation  on  that  proposition ;  whether  we  turn  it  over  to  you  or 
whether  we  give  it  to  either  of  those  other  companies,  it  is  going  to  bring  us 
litigation.  We  may  not  be  able  to  deliver  over  to  Mr.  Ford  the  plant  as  readily 
as  some  of  the  members  wouldl  like;  it  may  take  some  years  to  thrash  this 
thing  out  in  the  courts. 

Do  you  think  that  Mr.  Ford  expects  the  Government  to  expend  the  money 
in  the  litigation,  or  will  he  bear  that  expense  himself? 

Mr.  Mayo.  No,  sir ;  I  do  not  think  he  will  bear  the  expense,  but  he  does  not 
think  you  are  going  to  have  any  litigation  to  speak  of. 

The  Chairman.  Of  course,  he  has  not  been  listening  to  the  testimony  that 
this  committee  has  been  listening  to,  and  I  am  convinced  that  it  is  going  to 
result  in  litigation,  so  far  as  I  can  see,  whatever  we  do. 

Now,  of  course.  I  would  like  to  settle  this  matter  so  that  the  country  can 
begin  to  get  fertilizer  as  soon  as  possible,  and  that  the  whole  question  can  be 
settled  without  delay.  Do  you  not  think  if  Mr.  Ford  were  seen  about  this 
provision  it  is  possible  that  he  might  come  to  some  conclusion  which  would 
avoid  the  great  amount  of  litigation  that  evidently  might  crop  out?  Now,  I 
say  frankly  that  the  judge  advocate  general  has  made  a  firm  statement  to 
the  Secretary  of  War.  He  says  that  these  other  agreements  are  void,  that 
these  people  have  no  rights  at  all.  These  people  also  have  eminent  lawyers, 
and  they  have  been  consulted  regarding  the  rights  of  the  companies  during  the 
war,  and  their  coming  to  the  assistance  of  the  Government  at  the  Government's 
request  during  the  war,  doing  certain  things  for  the  Government  which  the 
Government  accepted.  Do  you  think  we  can  brush  that  all  aside  and  expect 
that  the  courts  will  brush  it  all  aside,  and  that  we  ought  to  be  compelled  to 
bear  any  expense  growing  out  of  that  condition?  Do  you  think  that  Mr.  Ford 
would  be  willing  to  take  the  thing  subject  to  any  possible  litigation? 

Mr.  Mayo.  I  think  if  Mr.  Ford  took  it  subject  to  litigation  there  would  be 
no  telling  where  he  was  "  at." 

The  Chairman.  Do  you  think  there  is  any  telling  where  the  Government  is 
*'  at,"  if  we  agree  to  practically  encourage  litigation? 

Mr.  Mayo.  It  is  the  Government's  business ;  not  his. 

The  Chairman.  Of  course,  this  whole  thing  really  is  a  matter  that  has  come 
up  in  comparatively  recent  months;  but  I  imagine  that  most  Members  of 
Congress,  and  I  am  sure,  so  far  as  this  committee  is  concerned,  we  did  not 
know  of  all  these  involved  situations  until  we  began  to  take  up  this  very 
matter. 


988 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOAI>S  PROPOSITIONS. 


989 


I 


Mr.  Mayo.  I  tfiink  that  Is  very  true,  ami  I  think  it  is  a  good  thing  that  they 
have  all  been  broufjht  to  light. 

The  Chairman.  I  think  so  myself. 

Mr.  ;Mayo.  Of  course,  Mr.  Ford  can  not  buy  litigation ;  you  can  never  tell 
vhat  the  price  is.  I  also  think  the  Judge  Advocate  General's  opinion  is  worth 
a  great  deal.  I  do  not  think  it  is  an  opinion  only.  I  think  it  is  backed  by  his 
consi<lerable  experience. 

The  Chairman.  I  have  a  great  deal  of  respect  for  the  Judge  Advocate  Gen- 
eral of  the  Army.  I  find  that  invariably  he  is  rght.  Once  in  a  while  he  is 
turned  down,  but  I  have  generally  found  him  pretty  solid.  But  yet,  since  I 
have  heard  all  tlrs  testimony,  I  have  my  doubts  on  that  very  thing. 

But  it  is  a  matter  which  you  might  take  up  with  Mr.  Ford  when  you  speak 
to  h'm  again,  and  you  mght  tind  out  whether  he  would  be  willing  to  consider 
a  proposition  of  that  kind. 

Mr.  Mayo.  I  was  pretty  conversant  with  all  the  facts  before  Mr.  Ford  made 
the  oflfer,  and  I  have  listened  to  a  great  deal  since,  and  I  have  also  read  and 
listened  to  a  great  deal  of  the  testimony.  As  far  as  I  am  personally  concerned, 
I  am  less  doubtful  now  than  I  was  when  we  started.  I  think  bringing  this 
whole  business  out  has  clarified  the  situation  quite  a  good  deal.  I  think,  too, 
that  all  the  so-called  troubles  will  vanish  very  quickly  when  something  is 
done.  It  would  be  a  crime  not  to  settle  this  matter  very  soon,  so  that  we  could 
get  into  the  river  this  summer,  if  we  get  the  contract.  If  this  dry  period  is 
lost  you  are  losing  lots  of  money  on  top  of  the  cost  of  upkeep. 

The  Chairman.  I  feel  that  it  ought  to  be  settled  quickly.  Tliat  is  why  1 
have  tried  to  carry  these  hearings  along  as  expeditiously  as  possible. 

IVIr.  Mayo.  Now,  Mr.  Chairman,  there  is  a  quest  on  in  regard  to  one  or  two 
changes  that  the  farm  organizations  were  talking  about,  whch  I  think  you 
desire  to  take  up. 

The  Chairman.  We  will  be  very  glad,  Mr.  Silver,  if  you  will  present  to  the 
committee  such  changes  as  you  have  to  suggest.  We  will  bi^  glad  to  have  those 
changes  presented  either  by  you  or  by  ISIr.  Mayo. 

ADDITIONAL  STATEMENT  OF  MR.  GRAY  SILVER,  REPRESENTING 

AMERICAN  FARM  BUREAU. 

Mr.  Silver.  Mr.  Chairman  and  gentlemen,  when  I  testified  before  you  a  few 
days  ago  I  stated  that  we  had  some  suggested  changes  under  consideration, 
and  I  now  desire  to  present  to  you  the  changes  I  referred  to  at  that  time.  In 
section  14,  in  subparagraph  (a),  the  last  1  ne  after  the  word  "industries,* 
change  the  period  to  a  comma  and  add  the  following:  "and  if  so  found  and 
determned,  to  reasonably  employ  such  improved  ntethods."  That  treats  of 
the  application  of  reseaix^h,  in  which  we  want  to  be  helpful,  and  which  we 
think  will  be  helpful  as  it  will  be  employed  in  The  business. 

The  Chairman.  What  is  that  suggested  change;  will  you  kindly  state  it 
again? 

Mr.  Silver.  In  .*<ection  14,  subhead  (a),  in  the  last  line,  after  the  word  "in- 
dustries," change  the  period  to  a  comma  and  add  these  words,  "  and  if  so  found 
and  determined,  to  reasonably  employ  such  improved  methods." 

The  next  suggested  change  is  in  section  15,  line  3.  We  suggest  that  there 
be  stricken  out  the  words  "  at  nitrate  plant  No.  2  "  and  that  before  the  word 
"  actually  "  there  l)e  inserted  the  word  "  fair ",  making  it  read :  "  shall  not 
exceed  8  per  cent  of  the  fair  actual  annual  cost  of  the  production  thereof." 
That  would  bring  up  the  question  under  consderation  of  the  board  of  farmers, 
ami  if  they  did  not  agree  it  would  follow  along  to  the  Federal  Trade  Com- 
mission for  determination.  The  suggestion  that  you  strike  out  the  words  "at 
nitrate  plant  Nt).  2"  was  for  the  purpose  of  bringing  all  the  manufacture 
there  within  this  contract:  we  were  going  to  limit  it  exactly  to  No.  2. 

The  next  change  is  in  paragraph  15,  line  17,  after  the  word  "  time,"  strike 
out  the  following  language,  "the  said  board  shall  also  determine  the  equital)le 
territorial  distribution  of  fertilizers  produced  at  nitrate  plant  No.  2,"  and 
insert  in  lieu  thereof  the  following: 

"In  order  that  such  fertilizer  products  may  be  fairly  distributed  and  eco- 
nomically purchased  by  farmers,  the  said  board  shall  determine  the  equitable 
territorial  distribution  of  the  same  and  may  in  its  discretion  make  reasonable 
regulations  for  the  sale  of  all  or  a  portion  of  such  products  by  the  company 
to  farmers,  their  agencies,  or  organizations." 


That  is  for  the  purpose  of  getting  this  fertilizer  product  to  the  farmers 
without  intermediate  and  unnecessary  cost. 

Those  are  all  the  suggestions  we  have  to  make,  Mr.  Chairman. 

The  Chairman.  Did  you  take  uj)  the  proixjsltion  referred  to  in  the  prior 
hearings  about  the  organ  zations  of  these  three  farmer  organizations  and  the 
use  of  the  words  "or  their  successors"  V     Did  you  do  anything  about  that? 

Mr.  Silver.  There  was  some  discussion  about  that  among  ourselves,  but  we 
felt  that  would  take  care  of  itself.     We  felt  that  the  language  was  ample. 

Mr.  QuiN.  Mr.  Mayo,  you  have  heard  the  suggestion  made  by  Mr.  Silver, 
com  ng  from  the  farmer  organizations? 

Mr.  Mayo.  Yes. 

Mr.  QuiN.  Are  those  satisfactory  to  you  as  the  representative  of  Mr.  Ford? 

Mr.  Mayo.  Yes,  sir. 

Mr.  QuiN.  You  agree  to  them? 

Mr.  Mayo.  Yes,  sir. 

ADDITIONAL  STATEMENT  OF  HON.  MARION  BUTLER,  ATTORNEYS 

FOR  MR.  FREDERICK  E.  ENGSTRUM. 

Mr.  Butler.  Mr.  Chairman,  I  would  like  to  have  the  privilege  of  making 
some  observations  to  the  committee  in  contrasting* the  two  propositions;  that  is, 
the  amended  proposition  of  Mr.  Ford  and  Mr.  Engstrum's  proposition.  In  the 
statement  which  I  made  previously  I  confined  myself  to  a  statement  of  the  ad- 
vantages of  the  Engstrum  proposition  alone,  without  attempting  to  contrast  it 
with  others  or  to  discuss  them  in  juxtaposition.  I  did  that  purposely  because 
I  understood  some  other  amendments  were  to  be  made  to  another  proposition, 
and  I  thought  it  would  be  more  appropriate  to  contrast  the  propositions  after 
they  were  complete.  And  besides  it  was  just  possible,  we  thought,  we  might 
waiit  to  ask  the  privilege  of  amending  our  proposition,  in  view  of  the  amend- 
ments to  be  suggested.  This  morning  we  have  no  amendments  to  offer  to  our 
pi'oposition  after  hearing  those  that  have  been  offered  to  the  Ford  proposition. 
We  are  ready,  and  desire  an  opportunity  if  the  committee  will  have  the  patience 
to  listen  to  us,  to  briefly  contrast  the  two  propositions,  or,  in  fact,  state  in 
parallel  columns  the  Engstrum  proposition  with  the  Ford  proposition,  with  the 
leading  points  of  each,  and  we  especially  ask  this  because  our  proposition  is  the 
only  one  that  proposes  to  devote  the  whole  plant  to  the  governmental  purpose 
of  making  nitrates  both  for  peace  and  war,  and  necessarily  our  proposition 
harl  to  be  very  different  from  the  others,  but  the  result  coming  to  the  public 
and  the  Government  are  so  clear  when  put  in  juxtaposition  that  we  feel  we 
would  like  to  make  that  statement,  and  it  might  be  of  service  to  the  committee 
in  the  analysis  of  the  propositions  which  are  before  you. 

The  Chairman.  I  will  be  glad  to  submit  your  proposition  to  the  committee 
when  we  go  into  executive  session. 

(The  committee  agreed  that  the  following  statement  should  be  inserted:) 

Washington,  D.  C,  March  13,  1922, 

Hon.  .Tunus  Kahn, 

Chainnan  Committee  on  Military  Affairs,  House  of  Representative*. 

Dear  Mr.  Chairman  :  Supplementing  my  oral  statement  in  explanation  of  the 
Engstrum  proposal  to  lease  Muscle  Shoals,  I  desire  to  ask  the  attention  of  the 
committee  especially  to  the  serious  scarcity  of  avail;d)le  nitrogen.  There  is  not 
in  sight  in  this  country,  or  esewhere,  sufficient  sources  of  supply :  the  demand 
for  nitrogen  is  increasing  faster  than  the  supply ;  therefore,  the  supply  is  rela- 
tively decreasing  all  over  the  world. 

The  statistics  presented  to  your  committee  by  the  Department  of  Agricidture 
show  that  the  supply  of  nitrogen  in  the  United  States  is  grossly  inade^piate;  that 
we  need  this  year  more  than  10,000,000  tons  of  commercial  fertilizer;  that  last 
year  we  used  only  half  of  that  amount.  The  statistics  also  show  that  the  amount 
of  nitrogen  needed  in  this  country,  for  fertilizers  alone,  has  been  increasing  on 
an  average  of  7*  per  cent  each  year.  This  means  that  in  nine  and  a  half  years 
we  will  need  twice  as  much  fertifizers,  or  20,00<1,000  tons.  This  amount  represents 
our  needs  in  time  of  peace;  but  if  war  should  come,  then  we  will  at  once  need  a 
greater  supply. 

The  evidence  before  you  also  points  to  the  early  exhaustion  of  Chilean  nitrates 
and  to  the  limited  and  inadequate  supply  in  this  country  from  coke  ovens  and 
the  few  other  minor  sources  of  supply.  All  agree  that  the  only  way  to  supply  the 
present  as  well  as  future  needs  is  by  the  fixation  of  nitrogen  from  the  air. 


990 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS   PROPOSITIONS. 


991 


We  use(i  iu  this  country  last  year,  for  all  purposes,  only  175,000  tons  of  nitro- 
gen in  the  form  of  ammonia,  while  Germany  used  over  500,000  tons.  She  got 
100,000  tons  of  that  ammonia  from  her  coke  ovens  and  from  waste  and  other  by- 
products ;  she  got  100,000  tons  from  the  air  by  the  cyanamid  process ;  and  she  got 
the  other  300,000  tons  from  the  air  by  the  Haber  process,  which  is  the  most 
efficient  process  for  the  fixation  of  atmospheric  nitrogen. 

It  is  obvious  that  the  United  States,  with  its  vast  area,  needs  and  should  use 
more  ammonia  for  fertilizer  alone  than  is  used  in  Germany,  with  its  compara- 
tively small  acreage ;  yet  we  used  last  year  less  than  one-fourth  as  much  as  Ger- 
many, In  fact  we  used  only  40  pounds  of  fertilizers  per  acre,  while  Germany 
used  188  pounds.  At  the  same  time  England  used  162  pounds  per  acre,  more  than 
four  times  the  amount  used  by  us,  while  France  and  even  Italy  used  twice  as 
much  nitrogen  for  fertilizers  per  acre  as  we  used  in  this  country. 

It  is  a  pregnant  fact  that  Germany  gets  the  bulk  of  her  supply  of  ammonia 
for  fertilizers  and  also  for  explosives  from  the  air,  and  that  she  gets  it  chiefly 
by  the  Haber  process.  From  that  source,  the  only  sufficient  and  unlimited 
source  of  supply,  we  are  not  producing  any. 

In  the  face  of  these  plain  facts  it  is  clear  that  we  need  to-day  all  the  nitrogen 
which  can  be  produced  at  Muscle  Shoals  by  both  nitrate  jilant  No.  1  and  nitrate 
plant  No.  2,  and  that  we  shoujd  lose  no  time  in  putting  both  plants  to  work  on 
full  time.  While  nitrate  plant  No.  2.  being  the  cyanamid  process,  is  the  largest 
and  will  for  that  reason  produce  for  the  present  more  nitrates  than  can  be  pro- 
duced by  plant  No.  1,  which  is  much  smaller,  yet  the  better  plant,  being  the 
Haber  process,  is  the  cheaper  process  and  holds  out  more  hope  for  the  future. 

No  one  who  is  concerned  in  providing  this  country  with  an  adequate  supply 
of  nitrogen  and  cheaper  fertilizers  can  favor  the  scrapping  of  plant  No.  1.  which 
would  mean  the  abandonment  of  the  Haber  process.  All  the  testimony  before 
your  committee  is  to  the  effect  that  the  Haber  process  is  the  better  of  the  two. 
and  that  it  has  the  gre.itest  possibilities  of  development:  and  all  agree  that 
nitrate  plant  No.  1  can  be  easily  remodeled  so  as  to  make  it  work  with  complete 
success. 

Indeed,  the  testimony  of  both  the  War  and  Agriculture  Departments  is  that 
we  now  know  how  to  make  plant  No.  1  the  most  efficient  Haber  process  plant  in 
the  world.  The  chief  defect  in  that  plant  is  the  want  of  an  effective  catalyst. 
The  composition  of  the  catalyst  used  by  each  country  is  a  secret.  When  we 
built  this  plant  during  the  war  we  knew  all  about  the  German  Haber  process, 
except  the  composition  of  the  catalyst  they  were  using.  We  tried  to  make  one 
and  failed ;  but  now  we  know.  The  one  other  defect  in  that  plant  is  the  mech- 
anism for  purifying  the  nitrogen  and  liydrogen  gases  before  they  are  passed  over 
the  catalyst  and  tied  together  to  make  ammonia,  but  we  know  now  how  to 
remedy  that  defect :  it  is  purely  mechanical. 

Since  the  war  we  have  made,  in  our  experimental  laboratories  here  in  Wash- 
ington, a  catalyst  which  is  to-day  the  best  in  the  world.  The  catalyst  used  by 
the  Germans  at  the  time  of  the  armistice  was  only  6  per  cent  efficient.  The  one 
which  we  have  made,  the  secret  composition  of  which  we  are  guarding,  is  16  per 
cent  efficient  as  the  German  catalyst  by  laboratory  tests,  and  I  think  all  experts 
agree  that  it  will  be  at  least  twice  as  efficient  in  practical  operation,  where  the 
conditions  are  never  as  favorable  as  in  the  laboratory. 

We  have  also  succeeded  since  the  war  in  making  the  largest  and  most  efficient 
electrolytic  cell  in  the  world.  This  cell  is  the  most  improved  method  known  for 
producing  hydrogen  gas.  It  is  most  efficient  where  you  have  cheap  hydro- 
electric power :  it  is  more  efficient  than  the  coke  and  water  method  for  producing 
hydrogen  gas  now  used' in  Germany  and  also  in  the  Haber  process  at  Syracuse, 
N.  Y.  This  new  electrolytic  cell  is  a  10,000-ampere  cell,  and  it  is  a  tested  suc- 
cess. The  largest  cell  which  had  before  been  built  and  successfully  used  was 
250  amperes.  So  we  have  perfected  a  cell  forty  times  larger  than  any  other  ever 
built  and  used,  which  means  greater  efficiency  and  economy  in  producing  ni- 
trates. Besides,  w*hen  we  put  this  electrolytic  cell  in  nitrate  plant  No.  1  we  will 
also  put  in  the  liquid  air  method  for  taking  the  nitrogen  from  the  air.  It  is  the 
hope  of  everyone,  however,  that  we  will  soon  learn  how  to  get  the  nitrogen  from 
the  air  by  electricity,  as  we  can  now  get  the  hydrogen  by  electricity  from  water. 

Therefore,  it  is  obvious  that  we  should  not  scrap  plant  No.  1,  first,  because  we 
now  need  all  the  nitrogen  that  can  be  made  by  that  plant,  and,  second,  because 
the  hope  of  the  future  development  of  the  art,  to  meet  the  growing  needs  for 
more  nitrogen  and  cheaper  fertilizers,  is  through  improvements  in  the  Haber 
process,  and,  third,  because  we  alrea<ly  have  in  the  possession  of  our  Government 


two  important  iminovements  on  the  Haber  process  (the  new  catalyst  and  the 
new  electrolytic  cell),  which  will  make  this  plant  at  once  the  most  efficient  on 
earth,  so  far  as  we  know,  for  the  fixation  of  atmospheric  nitrogen. 

I  submit  that  the  evidence  before  your  committee  shows  that  my  lease  of  this 
great  water  power  should  provide : 

1.  That  a  sufficient  amount  of  the  power  developed  at  Dam  No.  2  should  be 
used  from  the  beginning  to  operate  both  nitrate  plant  No.  1  and  nitrate  plant 
No.  2  at  their  full  capacity. 

2.  That  the  remaining  power  to  be  developed  at  Dam  No.  3  and  at  other  dams 
on  the  Tennessee  River  (and  also  by  means  of  storage  reservoirs  on  its  tribu- 
taries) should  be  conserved  and  used  to  operate  more  nitrate  plants  by  the 
cheap  Haber  process,  as  they  are  required  to  meet  the  growing  need  for 
nitrogen. 

I  submit  further  that  it  would  be  most  improvident  to  lease  Muscle  Shoals 
having  a  potential  future  of  at  least  1,000,000  horsepower,  >vith  only  enough 
i»ower  reserved  to  operate  nitrate  plant  No.  2,  which  will  produce  less  nitrogen 
than  our  present  needs,  with  all  the  remainder  of  this  enormous  water  power 
surrendered  and  mortgaged  to  a  private  monopoly  for  100  years  or  more. 

Agriculture  in  the  United  States  is  now  in  a  starved  condition  f(»r  want  of 
nitrogen.  With  our  needs  for  it  increasing  at  the  rate  of  7^  per  cent  a  year,  our 
starved  condition  will  be  100  per  cent  worse  at  the  end  of  the  next  9i  years. 
Indeed,  at  the  end  of  100  years  our  needs  for  nitrogen  will  be  greater  than  could 
be  supplied  by  the  whole  1,000,000  horsepower  which  can  and  will  be  developed 
at  Muscle  Shoals. 

The  Engstrum  proposal  provides  for  operating  both  the  nitrate  plants  at  their 
full  capacity  from  the  beginning,  and  also  provides  for  the  operation  of  another 
nitrate  plant  with  the  power  to  be  developed  at  Dam  No.  3 ;  and,  further,  for  the 
operation  of  still  other  nitrate  plants  as  fast  as  there  is  necessity  to  defvelop 
more  power  to  produce  more  nitrogen  on  this  river.  In  fact,  nitrate  plant  No.  1, 
instead  of  being  scrapped  should  be  enlarged,  as  soon  as  possible,  so  as  to  pro- 
<luce  more  nitrates  by  that  cheap  and  efficient  process.  The  cyanamid  process 
IS  much  more  expensive  and  is  being  abandoned  by  all  countries  which  have  U8e<l 
it.  In  short,  under  the  proposed  Engstrum  contract,  the  whole  water-power 
pro.iect  will  be  dedicated  for  50  years  to  producing  cheap  and  sufficient  nitrates 
for  national  defense  and  to  supply  the  growing  needs  of  agriculture  for  cheap 
fertilizer. 

Under  the  Engstrum  proposal,  this  property,  which  will  enormously  increase 
in  value,  will  be  returned  to  the  Government  at  the  end  of  50  years,  and  with 
no  strings  to  It.  We  ask  for  no  preference  at  the  end  of  the  SO^year  period ; 
if  our  company  has  not  handled  the  property  during  the  term  of  the  lease  so 
as  to  make  it  to  the  interest  of  the  Government  and  the  public  to  renew  the 
lease,  then  we  should  not  have  the  right  to  ask  for  any  preference,  because  we 
would  not  deserve  it. 

We  do  not  offer  to  capitalize  our  company  for  $10,000,000;  first,  because  we 
are  not  buying  any  property  from  the  United  States,  and  second,  because  we 
are  not  proposing  to  use  the  larger  part  of  this  power  for  a  manufacturing  pro- 
gram for  private  profit.  The  only  capital  which  we  will  need  will  be  sufficient 
for  operating  expenses  until  we  are  a  going  concern.  That  amount  our  company 
will  be  amply  able  to  furnish ;  indeed  Mr.  Ehgstrum's  private  means  is  amplv 
sufficient  for  that  purpose.  The  $10,000,000  capital  of  Mr.  Ford's  company  will 
be  needed  and  will  be  used  to  build  and  operaate  automobile  plants,  which 
will  use  the  bulk  of  this  power  for  private  profit.  Neither  the  Government 
nor  the  general  public  will  be  profited  to  the  extent  of  ohe  penny  by  the 
$10,000,000  capitalization.  On  the  other  hand,  it  means  the  robbery  of  the 
people  and  the  industries  of  that  section,  within  a  circle  of  1,000  miles,  of  all 
opportunity  to  get  cheap  power  from  Muscle  Shoals ;  and  it  means  the  robbing  of 
agriculture  for  100  years  and  more  of  the  benefit  of  all  that  enormous  cheap 
power  for  producing  cheap  fertilizers,  except  the  small  amount  needed  to  run 
the  one  nitrate  plant,  and  that  by  the  old  and  expensive  cyanamid,  process. 

The  Engstrum  Co.  will  be  a  going  concern  before  Dam  No.  2  is  finished.  We 
realize,  however,  that  our  profits  will  be  small,  if  any,  during  that  period: 
but  when  Dam  No.  2  is  completed,  there  will  then  be  an  assured  profit  under  our 
contract  both  to  the  Government  and  to  our  company.  But  no  matter  what  the 
capital  of  a  company  may  be  or  what  the  individual  wealth  of  its  stockholders 
may  be,  the  one  important  thing  needed  to  protect  the  interests  of  the  Govern- 
ment and  the  public  is  a  good  and  sufficient  bond,  acceptable  to  the  Govern- 
ment, and  that  we  are  prepared  to  furnish. 

92900—22 63 


992 


MUSCLE  SHOALS  PROPOSITIONS. 


If  Mr.  Ford's  proposal  should  be  accepted  the  Government  will  be  required  to 
spend  ovftr  $60,000,000  to  complete  Dam  No.  2  and  also  to  build  outright  Dam 
No.  3,  including  the  submerged  land,  which  the  Government  is  required  to  buy. 
After  the  expenditure  of  this  large  sum,  the  only  benefit  which  will  accrue  to 
the  public  will  be  from  the  operation  of  nitrate  plant  No.  2  to  make  fertilizers 
at  8  per  cent  profit.  This  will  require  only  100,000  horsepower,  while  the  re- 
maining 550,000  horsepower,  and  all  the  power  produced  at  Dam  No.  3  will  be 
used  by  Mr.  Ford's  company  for  other  purposes  and  for  private  profit.  Mr. 
Ford  does  not  begin  to  pay  the  Government  the  proposed  4  per  cent  interest 
on  this  new  $60,000,000  investment  until  after  the  dams  are  built,  and  it  will 
amount  to  only  $2,400,000  a  year  for  the  use  of  all  of  this  power  from  both  dams. 
In  addition,  the  Government  is  required  to  sell  outright  to  Mr.  Ford  both  nitrate 
plants,  including  both  of  the  completed  steam  plants  standing  by  them,  and  also 
the  Warrior  steam  plant  and  transmission  line,  with  the  large  limestone  quarrj- 
thrown  in,  for  the  pittance  of  $5,000,000.  One  of  these  nitrate  plants  has  cost 
$67,000,000  and  the  other  $13,000,000,  while  the  Government  has  spent  nearly 
$5,000,000  on  the  Warrior  steam  plant  alone.  This  means  that  property  which 
has  cost  $85,000,000  is  to  be  sold  outright  to  Mr.  Ford  for  $5,000,000,  which  is 
less  than  one-third  of  the  scrap  value  of  this  important  property.  But  why 
should  these  properties,  or  any  part  of  them,  be  scrapped  or  even  sold  at 
scrap  figures,  when  they  represent  an  investment  which  is  now  greatly  needed 
to  be  put  to  use  as  a  going  concern  to  serve  a  most  imperative  public  need? 

Again,  why  should  $60,000,000  more  of  public  money  be  expended  at  Muscle- 
Shoals  at  this  time?  Mr.  Ford  is  asking  the  Government  to  build  now  Dam 
No.  3  exclusively  for  his  own  private  purposes.  There  is  now  no  public  need 
that  will  justify  the  building  of  that  dam.  Every  dollar  put  into  it  would  be 
an  unwarranted  expenditure  of  public  money  for  private  use  and  profit. 

Under  such  conditions  the  inadeciuate  sum  of  Mr.  Ford's  offer  for  maintenance- 
and  the  small  sum  which  he  proposes  to  put  at  compound  interest  for  100  years 
to  amortize  the  investment  made  pales  into  insignificance,  even  if  the  Govern- 
ment should  seriously  consider  making  any  kind  of  lease  for  the  term  of  100 
years.  Besides  the  Government  is  required  to  purchase  the  interest  of  the 
Alabama  Power  Co.  in  the  Warrior  steam  plant,  which  amounts  to  several 
million  dollars  and  which  may  lead  to  long  and  exi>ensive  litigation,  to  say 
nothing  of  the  threatened  litigation  from  the  Air  Nitrate  Corporation,  if  the 
nitrate  plants  shall  be  sold  instead  of  leased.  Thus  there  are  two  basic  de- 
fects in  Mr.  Ford's  offer:  (a)  It  is  not  a  good  business  proposition  on  the  part 
of  the  Government;  (6)  it  defects  the  purpose  of  the  Government  as  declureil 
in  the  national  defense  act  by  diverting  the  public  money  already  invested,  and 
to  be  invested,  largely  to  serve  the  ends  of  a  private  monopoly,  instead  of  using 
all  of  the  same  to  serve  the  public  welfare. 

Under  the  Engstrum  proposal  the  Government  is  required  to  spend  only  the 
amount  of  money  necessary  to  finish  Dam  No.  2  and  to  redesign  the  two  nitrate 
plants,  which  is  estimated  to  be  within  $30,000,000.  We  agree  to  use  all  of  the 
power  that  is  necessary  to  run  both  nitrate  plants  at  their  full  capacity,  and 
besides  to  make  nitrates  regardless  of  whether  the  same  can  be  made  at  8  per 
cent  or  not.  No  one  can  now  and  probably  no  one  will  ever  be  able  to  make 
nitrates  at  any  profit  by  the  cyanamid  process. 

All  the  testimony  before  your  committee  shows  that  there  is  not  any  plan! 
to-day  for  the  fixation  of  atmospheric  nitrogen  which  is  able  to  produce  it  at  a 
figure  as  low  as  Chilean  nitrates  are  being  sold  at  the  present  time,  which  i^ 
from  $45  to  $55  per  ton.  Therefore,  Mr.  Ford  can  not  at  present  make  any 
nitrates  at  8  per  cent  profit,  but  he  can  make  automobiles  with  greater  profit 
at  Muscle  Shoals  than  he  can  at  Detroit ;  here  is  the  "  nigger  in  the  woodpile  " 
in  his  proposal. 

The  Engstrum  Co.  proposes  to  run  a  research  plant  to  develop  improved 
methods  for  producing  cheap  nitrates,  which  will  mean  cheaper  fertilizers.  I 
submit  that  vastly  greater  results  can  be  expected  from  a  research  plant  oper- 
ated under  conditions  where  the  whole  purpose  of  the  plant  is  to  produce  more 
and  cheaper  nitrates  than  under  a  lease  where  the  making  of  nitrates  will. 
at  best,  be  a  side  issue.  Under  the  proposal  of  Mr.  Ford  there  will  not  be 
produced  at  Muscle  Shoals  any  more  nitrates  at  the  end  of  100  years  than  will 
be  produced  the  first  year  of  the  lease.  There  will  be  little  purpose  in  operat 
Ing  an  eflicient  research  plant  when  the  Haber  process  has  been  discarded  and 
in  the  face  of  a  declared  purpose  never  to  increase  the  output  of  nitrates.    Th(^ 


MUSCLE  SHOALS  PROPOSITIONS. 


993 


fact  IS,  tliere  is  not  a  reasonable  giound  for  even  a  hope  that  Mr.  Ford  will  ever 
develop  any  improved  process  for  making  nitrates  at  less  than  present  prices. 

The  selling  price  of  tlie  Chilean  product   varies  greatlv   and   without  any 
apparent  canse^  The  j.rice  is   largely  arbitrary   and   is  based  apparently  on 

what  the  traffic  will  hear."  Nitrogen  is  the  most  important  and  the  most 
expensive  ingredient  of  commercial  fertilizer;  therefore  it  is  of  first  importance 
to  the  success  c.f  agriculture  and  to  assure  a  lower  cost  of  living  to  the  con- 
sumers rhat  nitrogen  should  be  furnished  much  cheaper.  Indeed,  the  food  sup- 
ply of  the  world  is  threatened  l^y  the  scarcity  of  nitrogen.  Besides,  the  only 
possible*  way  to  st(»p  tlie  growing  migration  from  the  farms  to  the  cities  i.s  to 
make  agricnltnre  more  profitable,  and  this  can  not  be  done  except  by  a  sufficient 
.supr)ly  of  cheap  fertilizers.  In  this  connection  it  is  important  to  keep  in  m?n<I 
the  facr  that  the  driving  of  our  high-class  yeomanry  from  the  soil  means  the 
lowering  of  our  standard  of  citizenship,  and  this  is  a  matter  of  the  gravest 
concern  to  any  country,  and  especially  to  a  Republic  like  ours 

To  meet  this  serious  situation  we  propose  to  sell  the  nitrates  to  be  produced 
at  both  plants  at  Muscle  Shoals  at  a  price  lower  than  the  cost  of  the  Chilean 
nitrates  and  at  a  price  to  be  fixed  by  the  Secretary  of  Agriculture.  This  mean.s 
^'}  ^JJ}'"^  nitrates  produced  will  be  sold  at  a  loss  for  the  present  of,  say,  from 
.^.T  to  ^W  per  ton.  To  cover  this  loss,  we  propose  to  sell  at  wholesale  all  of  the 
excess  power  produced  at  Dam  No.  2  not  needed  to  run  the  two  nitrate  nlants 
and  to  set  aside  one  mill  for  each  kilowatt  hour  of  power  sold  to  finance  or  to 
subsidize  the  making  and  selling  of  nitrates  and  fertilizers  at  a  price  below 
present  cost.  This  arrangement,  it  is  hoped,  will  be  of  short  duration,  because 
the  whole  vvorld  expects  early  improvements  to  be  made  in  the  Haber  process 
by  which  a  larger  amount  of  nitrogen  can  be  taken  from  the  air  at  a  cost  much 
below  the  present  selling  price  of  Chilean  nitrates 

When  that  hour  arrives  then  the  1  mill  per  kilowatt  hour  for  power  sold  will 
be  turned  by  our  company  into  the  Treasury  of  the  United  States.  Our  com- 
piiny  does  not  propose  to  ever,  make  one  dollar  of  profit  on  the  nitrates  and  fer- 
Ivi'^n.'r  ^ho -'171'  our  profit  will  be  derived  entirely  from  the  amount  at  which 
we  niay  be  able  to  sell  power  above  the  1  mill  per  kilowatt  hour.  On  the  esti- 
mated production  of  440,000  kilowatts  at  Dam  No.  2- this  1  mill  per  kilowatt- 
Nn"  9'Ii  U°-mVi/!A'  ^"''''"^  ^"^  ^^^  Government  on  the  new  investment  on  Dam 
tho  ?T  u^?"i^'?^  per  year,  every  dollar  of  which  will  go  into  the  Treasury  of 
the  United  States  or  be  used  in  the  making  of  cheap  nitrates  and  cheap  'fer- 
tilizers Here  is  a  return  of  .$3..=)00,000  on  an  investment  of  $30,000,000,  as 
S.Sk)  (^''  "^      ^^''  ''''"*  ''^*'"'"'  '''^'''^  '^  ^2,400,000  on  an  investment  of 

When  the  need  for  more  nitrates  calls  for  the  building  of  Dam  No  3  and  it 
will  come  w  thin  10  years  or  less  and  another  nitrate  plant  is  plac^  by  Dam 
^o.  .3,  then  the  Government  will  begin  to  receive  1  mill  per  kilowatt  from  that 
power  also :  and  if  the  power  developed  shall  equal  the  output  at  Dam  No  ^ 
then  the  return  to  the  Government  on  the  investment  at  both  dams  will'hp 
doubled,  or  .$7,000,000  a  year,  while  Mr.  Ford's  offer  of  4  per  cent  S  onlv 
$2,400,000  for  all  of  the  power  from  both  dams         "   ^^'^  "^  ^  ^^  ^^^  is  only 

AT.^'i^  ^!i^^*  ""^  '"^  ",'''  cash  return  from  the  Engstrum  proposal  above  that  under 
«  K-  K^'^'^^.n  P^^P?^«i-  -^'^t  the  benefits  to  agriculture  and  to  the  public  generally 
which  will  result  from  furnishing  nitrates  at  less  than  8  per  cent  profit  and 
especially  from  furnishing  an  ever-increasing  quantity  to  meet  the  CTowIn^ 
demands,  are  manyfold  greater.  ^  ^       growing 

The  Ford  proposal  must  be  accepted  or  rejected  as  a  whole.  The  Enestmm 
proposal  is  divisible,  the  construction  and  the  lease  for  operation  are  Srat^ 
and  distinct.  If  the  Government  prefers  itself  to  finish  Dam  No  2  and  ^f}llf^ 
itL"'^!f  ^  P?^"^^-  ^^^"  '^^  '^*"  '^^'^^  ^^^  property  when  it  is  ready  to  be  o^- 
oiT^proS''^'  '''^  ^'^  ""^^^^  *""  ^^""^^^  *^^  construction  also  under  the  termrof 
Respectfully  submitted, 

Mabion  Butler. 
(Thereupon  the  committee  went  into  executive  session    after  which  it  ad- 
Journed  to  meet  to-morrow,  March  8,  1922,  at  10.30  oVlock,  a.  m  ) 


i 


994 


MUSCLE  SHOALS  PROPOSITIOXS. 


*  ,  Committee  ON  Military  Affaiks, 

.  House  of  Representatives, 

Wednesday,  March  8, 1922. 
The  ciuniiiitlee  met  at  10.30  o'clock  a.  m.,  Hon.  John  C.  McKenzie   (actinc 
chairman)  presiding. 

Mr.  jMcKenzie.  Before  proceeiling,  I  would  like  to  have  it  stated  in  the  record 
that  Congressman  Fields,  of  Kentucky,  who  has  been  very  faithful  in  his  attend- 
ance upon  the  hearings  of  this  committee,  is  ill  this  morning  and  will  not  be  able 
to  \>c  present. 

I  understand  that  our  colleague,  Mr.  Bankhead  of  Alabama,  is  present  and 
desires  to  make  a  statement. 

Mr.  Bankhead.  Mr.  Chairman,  by  an  arrangement  I  had  with  the  chairman  of 
the  committee,  he  very  kindly  consented  that  the  Alabama  delegation  might  have 
an  opportunity  to  present  briefly  our  position  on  this  question,  and  it  has  been 
agreed  that  there  shall  be  three  short  addresses  made,  and  Mr.  Oliver  will  make 
the  first  statement,  followed  by  Judge  Almon.  and  I  shall  make  a  very  brief  con- 
cluding statement. 

Ml-.  ]McKknzie.  Just  as  you  wish,  Mr.  Bankhead. 

STATEMENT  OF  HON.  WILLIAM  B.   OLIVER,  A  REPRESENTATIVE 
IN  CONGRESS  FROM  THE  STATE  OF  ALABAMA. 

Mr.  Oliver.  Mr.  Chairman,  the  Alabama  delegation  has  received  a  letter  from 
Hon.  B.  M.  Allen,  of  Birmingham,  Ala.,  who  presided  at  a  large  mass  meeting  in 
Montgomery  on  Wednesday  last,  at  which  certain  resolutions  were  adopted,  and 
he  has  requested  that  the  resolutions  be  read  to  the  committee,  and  I  desire  to 
now  read  them.  They  are  very  complete  and  Informing,  and  set  forth  In  a 
forceful,  proper,  and  accurate  way  the  attitude  of  the  people  of  Alabama  on  the 
subject  to  which  the  resolutions  relate. 

Mkmobial  to  the  President  and  Congress  of  the  United  States  and  the 
(Committees  of  Congress,  AiK)i-rED  By  the  State- Wide  Mass  Meeting  Held 
in  the  City  Avditortum  at  Montgomery  on  Wednesday,  I^Iarch  1,  1922. 

We.  citizens  of  Alabama.  5.(KX)  strong,  representing  county  governments. 
iuunicii>al  authorities,  women's  clubs,  labor  biMlies,  chambers  of  commerce,  civic 
l)odies.  and  farmers'  organizations  from  every  quarter  of  the  State,  in' mass 
meeting  assembled  at  Montgomery,  with  full  confidence  in  both  the  justice  and 
wisdom  of  the  President  and  C-ongress,  do  hei-eby  declare: 

That  while  the  entire  Muscle  Shoals  stretch  of  the  Tennessee  River  lies 
within  the  l»orders  of  this  State,  the  right  to  control  and  regulate  the  river  in 
the  interest  of  the  Nation's  conunerce  has  been  ce<UHl  by  the  State  of  Alabama 
to  the  Federal  Govenimeiit.  We  recognize  the  fact  that  Muscle  Shoals  is  the 
projH-rty  of  the  Nation,  belonging  alike  to  the  people  of  all  of  the  States,  and. 
while  we  claim  no  greater  right  than  any  other  State  to  say  what  shall  be 
done  with  Muscle  Shoals,  we  believe  that  we  but  exercise  the  guaranties  of 
tile  Federal  Constitution  when  we  petition  Congress  that  this  great  national 
asset  be  not  employed  by  the  (Government  as  an  instrumentality  for  fastening 
upon  us  and  upon  our  children  an<l  our  children's  children  the  yoke  of  an 
oppressive  and  burdensome  monopoly. 

We  affirm  that  the  Alaliama  Power  Co.  now  ownis  and  controls  a  number 
of  splendid  power  sites  on  the  Coosa  River  in  this  State:  that  it  owns  and 
controls  all  of  the  available  power  sites  on  Little  River  in  Alabama :  and  that 
it  owns  the  wonderful  power  site  at  Cherokee  Bluffs  on  the  Tallapoosa  River 
in  this  State:  that  in  the  14  years  since  its  incorporation  it  has  built  one  power 
dam  in  this  State  and  coinmencefl  work  on  one  other  dam :  that  at  the  present 
rate  of  development  of  the  power  potentialities  alreadv  under  the  control  of 
this  consolation  more  than  100  years  will  go  by  before  all  of  these  dormant 
water  powers  are  harnessed :  that  it  has  been  the  policy  of  that  corporation  to 
deveh)p  only  such  power  as  can  be  sold  in  small  units  and  at  high  prices: 
that  controlling  as  it  does  all  of  the  great  water-power  sites  in  a  State  blesse^l 
by  G(h\  Almighty  with  wonderful  power  possibilities,  it.  a  foreign-controlled 
cori>oration,  is  in  position  to  litigate  with  any  American-ownwl  organization 
which  may  seek  to  develop  any  one  of  Alabama's  wasting  water  powers,  just 
as  it  now  threatens  to  litigate  with  Henry  Ford,  or  with  the  Covernment.  if 


MUSCLE   SHOALS  PROPOSinOXS. 


995 


either  seeks  to  build  Dam  No.  3  at  Muscle  Shoals,  or  to  control  the  Govern- 
nient-built  steam  plant  and  transmission  line  at  Gorgas :  that  in  spite  of  the 
fact  that  this  foreign-owned  corporation  has  long  enjoyed  exemption  from 
taxatMMi  in  this  State,  It  has  been  busy  ever  since  its  entrance  into  Alabama 
in  preeiiii)ting  every  great  power  site  within  our  borders,  and  in  so  copper  rivet- 
ing its  hold  on  all  ot  Alabama's  great  hydroelectric  potentiaLties  as  to  prevent 
for  all  time  their  development  by  any  possible  competitor:  that  it  has  been 
Its  policy  to  buy  these  power  nites  at  farm-land  prices  and  to  hold  them  in 
perpetuity  as  power  sites;  that  it  already  controls  the  utilities  in  our  principal 
cities  and  is  year  by  year  .securing  the  control  of  the  utilities  in  our  towns  and 
villages:  and  that  if  it  secures  Muscle  Shoals  it  will  have  perfected  its  con- 
trol of  all  of  our  gi-eat  water  powers  and  will  hold  in  its  selfish  grasp  all  of 
these  instrumentalities,  placed  within  our  borders  by  a  beneflcient  providence 
for  the  promotion  of  the  commercial  and  Industrial  welfare  (»f  all  the  peoi>le 

We  hold  that  it  would  be  a  travesty  on  legislation  if,  after  manv  years  of 
congressional  consideration  of  how  best  to  conserve  the  power  in  our  navigable 
streams  for  the  benefit  of  all  the  people  and  how  most  surely  to  preserve  them 
from  being  used  as  instalments  of  monopoly,  the  Nation's  greatest  water  i>ower 
should  be  handed  over  to  the  Alabama  Power  Co.  under  the  nati<mal  water 
power   act ;    and   we 

Further  hold  that  it  would  be  the  quintessence  of  legislative  folly  for  the 
(Government,  after  10  years  of  investigation  as  to  how  best  to  free  the  United 
States  from  its  dependence  upon  a  foreign  power  for  its  supply  of  nitrogen  for 
explosives,  in  the  event  of  war,  and  after  spending  millions  of  dollars  in  the 
construction  of  the  greatest  nitrogen  fixation  plant  in  the  world,  to  turn  over 
the  only  power  capable  of  successfully  operating  the  nitrate  plant  to  a  corpo- 
rat'on  ownefl  and  controlled  by  foreigners. 

We  remind  Congress  that  just  as  the  Alabama  Power  Co.  has  returned  evil 
for  goo<l  to  the  people  of  Alabama,  so  it  is  the  one  corporation  whose  dealings 
with  our*  country  in  the  grim  emergency  of  war  was  so  shameless,  selfish,  and 
conscienceless  that  when  its  conduct  was  investigated  by  a  select  committee  of 
Congress  the  minority  members  of  this  committee  joined  with  the  majority  in 
denouncing  its  brazen  and  sordid  betrayal  of  its  duty  to  a  war-be.set  nation 

Again  affirming  our  utmost  confidence  in  the  ability  and  the  desire  of  the 
Prrsident  and  the  Congress  of  the  United  States  and  the  committees  of  Congress 
to  reach  the  soundest  solution  of  the  pending  questions  relating  to  the  disposi- 
tion of  Muscle  Shoals,  we  wish  to  express  ourselves  with  regard  to  Mr  Henry 
Ford's  proffered  contract  with  the  Government.  The  subject  is  of  such  vital 
interest  to  the  people  of  Alabama  that  with  greatest  enthusiasm  they  have 
as.sembled  in  this  meeting  for  the  purpose  of  making  this  memorial: 

Upon  mature  deliberation,  we,  as  citizens,  do  express  our  firm  convi<tion  that 
it  is  to  the  best  interest  of  the  United  States  and  to  the  Interest  of  the  |)eopIe  of 
Alabama  that  the  offer  of  Henry  F(»rd  be  accepted  and  coiichKled  as  a  binding 
contract,  and  for  the  following  among  other  reasons : 

The  acceptance  of  the  Ford  offer  would  insure  the  operation  in  Alabama  of 
at  least  two  great  organizations  engaged  in  the  development  and  sale  of  hydro- 
electric energy,  and  would  further  insure  competition  in  the  distribution  and 
sjile  of  power  throughout  the  territory  which  can  be  reached  bv  transmission 
lines  from  the  several  power  sites  on  the  Tennessee  River  whose  development 
is  within  the  contemplation  of  the  Ford  offer. 

The  Ford  offer  insures  the  operation  of  United  States  nitrate  plant  No.  2  for 
a  period  of  100  years  for  the  production  of  fertilizers  In  time  of  iieace  and  for 
the  production  of  nitrates  for  explosives  in  the  event  of  war. 

It  insures  to  the  millions  of  farmers  throughout  the  United  States,  whose 
organizations  have  with  unanimity  indorseil  the  offer  of  Henry  Ford,  the  con- 
tinuous operation  of  this  Government-built  plant  for  the  production  of  nitrate 
fertilizers  in  competition  with  the  present  producers  of  nitrates,  by  a  company 
whose  profits  will  be  limited  to  8  per  cent,  ami  in  sufficient  volume  to  have  a 
controlling  influence  in  fixing  the  price  of  nitrates  and  nitrate  fertilizers  for 
agricultural  uses. 

The  Ford  offer  insures  to  the  people  of  the  United  States  the  operathm  of 
nitrate  plant  No.  2  and  its  maintenance  in  such  a  constant  state  of  readiness, 
with  a  trained  force  of  operatives,  as  to  guarantee  to  the  Government  and  its 
citizens  an  independent,  internal  supply  of  nitrates,  in  exact  accord  with  the 
announced  intention  of  Congress  as  expressed  in  section  124  of  the  National 
Defense  Act  of  1916. 


996 


MUSCLE  SHOALS  PROPOSITIONS. 


The  Fotd  offer  guarantees  the  construction  of  Dam  No.  3,  and  makes  provi- 
sion lor  use  by  the  people  of  the  United  States  for  purposes  of  navigation  of 
one  of  the  country's  largest  and  most  important  rivers  which  is  an  integral 
part  of  tlie  great  Mississippi  River  waterway  system. 

In  tlie  consideration  given  to  tlie  various  offers  for  Muscle  Shoals  much  has 
been  said  about  the  profit  and  loss  that  would  accrue  to  the  Government  of  the 
United  States  and  to  its  people  from  the  acceptance  or  the  rejection  of  the 
various  offers.  We  respectfully  urge  that  a  plan  which  looks  to  a  constant 
supply  of  cheap  fertilizers  for  the  farmers  of  the  Nation  through  a  period  of 
100  years,  which  insures  to  American  industry  during  that  period  the  use  of 
nearly  1,000,000  horsepower  of  electric  energj-,  which  provides  for  the  secur- 
ity of  the  Nation  in  the  event  of  war,  and  which  guarantees  the  navigability  of 
one  of  the  country's  greatest  rivers  for  all  time.  These  continuing  additions 
to  the  resources  of  the  Nation,  if  it  were  possible  to  express  them  in  terms 
of  dollars,  with  interest  at  4  per  cent,  will  in  the  course  of  100  years  add  so 
vastly  to  the  wealth  of  the  Nation  and  the  prosperity  of  its  people  that  any 
difference  in  the  price  of  the  nitrate  plant  as  fixed  in  the  several  offers,  anJl 
any  difference  between  the  purchase  price  offered  and  the  estimated  possible 
scrap  value  of  the  property,  is  dwarfed  into  insignificance. 

With  these  considerations  in  view  and  having  in  mind  tiie  freedom  of  our 
own  people  from  a  galling  and  oppressive  water-power  monopoly,  the  freedom 
of  the  American  farmer  from  a  burdensome  and  grinding  fertilizer  monoiK>ly, 
the  opening  of  a  great  river  to  navigation,  and  the  security  of  the  country  in 
the  event  of  war,  we  urge  the  President  and  the  Congress  of  the  United  States 
to  accept  the  offer  of  Henry  Ford,  whom  we  verily  believe  seeks  through  his 
offer  to  dedicate  to  the  American  people  and  esi>ecially  to  the  farmers  of 
America  his  genius  and  his  fortune. 

We  indorse  the  sentiment  "America  first"  and  Muscle  Shoals  first  for 
Americans,  and  above  all,  for  American  farmers.  Heni*y  Ford  is  a  typical 
American,  who  by  his  genius  has  done  more  for  country  people  and*  countrj' 
life  than  any  other  man  of  his  time.  A  man  who  has  the  trust  and  confidence 
of  the  great  masses  of  the  common  people,  as  evidenced  by  the  resolutions 
adopted  by  every  gathering  of  plain,  ordinary  Americans,  including  the  repre- 
sentatives of  4,000,000  farmers,  who  have  given  voice  to  their  sentiments  in 
regard  to  his  proposal  for  the  development  of  Muscle  Shoals. 

We  believe  the  issue  in  Congress  is  clearly  drawn.  It  is  a  contest  between  the 
people  and  the  interests  which  control  the  people's  fertilizer  and  iwwer  re- 
sources. 

On  behalf  of  the  army  of  the  unemployed,  in  the  interest  of  the  great  body 
of  plain  American  citizens,  in  the  name  of  millions  of  perplexed  and  burdened 
farmers,  we  beg  our  President  and  the  Congress  of  the  Unite*!  States  and  its 
committees  to  promptly  accept  the  offer  of  Henry  Ford. 

J.  L.  Andrews. 

Francis  Pattkiison  Walker. 

j.  j.  buffington. 

H.  C.  Rankin. 

Edw.  a.  O'Neal. 

s.  p.  mcdonai.ii. 

Chas.  L.  Harold. 

Edward  Doty. 

This  )>'siilution  was  unanimously  adopted. 

B.  M.  Allen.  Chairman. 

C.  E.  Johnson,  Srcrffanj. 
March  1,  1922. 

This  resolution,  I  feel,  represents  the  overwhelming  sentiment  of  the  people 
of  Alabama.  The  statement  by  Governor  Ta.vlor  before  this  conmiittee  is  evi- 
dence that  it  represents  the  sentiment  of  the  people  of  Tennessee.  The  unani- 
mous indorsement  of  the  Ford  offer  by  our  colleagues  from  the  sister  States 
of  Mississippi,  Louisiana,  Georgia,  the  Oarolinas,  Florida.  Arkansiis,  and  Texas 
show  that  it  represents  the  sentiment  of  these  States.  Allusion  has  been 
made  to  its  strong  indorsement  by  every  farm  organization  in  the  country. 
South.  East,  West,  and  North.  Likewise,  you  have  before  you  a  most  inform- 
ing statement  by  the  vice  president  of  the  Mississippi  Water  Valley  Associa- 
tion, in  which  without  reservation  he  states  that  it  represents  the  sentiment  of 
the  many  States  includetl  in  that  great  organization. 


MUSCLE   SHOALS  PROPOSITIONS. 


997 


It  is  interesting,  when  we  come  to  consider  the  proposal  before  you,  to  note 
that  this  was  a  project  which  Congress  determined  on  prior  to  the  war,  to  be 
primarily  devoted  to  the  Nation's  use  in  war  and  to  the  farmers'  use  in  peace ; 
and  it  is  not  surprising  that  the  farmers,  for  whom  it  was  built  and  con- 
structed to  serve  in  peacetime,  should  now  manifest  great  interest  in  the  offer 
of  one  who,  being  possessed  of  financial  ability  and  wiio  enjoys  their  confi- 
dence, is  willing  to  develop  it  along  the  lines  that  Congress  declared  should  be 
its  mission  in  peace. 

The  President,  in  recognition  of  the  importance  of  agriculture,  perhaps  may 
have  had  this  as  well  as  other  projects  in  mind  in  that  remarkable  address 
which  he  delivered  on  January  23  to  the  gathering  of  farmers  in  the  city  of 
Washington,  and  I  beg  to  invite  your  attention  to  some  striking  excerpts  from 
that  address  showing  the  present  condition  of  agriculture  and  the  importance, 
as  recognized  by  the  President,  of  taking  definite  action  along  constructive 
lines  at  this  time: 

"  If  agriculture  is  to  hold  its  high  place  there  nmst  be  the  most  liberal  policy 
in  extending  its  opportunity. 

*'  There  must  be  a  new  conception  of  the  farmer's  place  in  our  social  and 
economic  scheme. 

"  I  choose  to  call  the  vocation  of  the  farmer  the  most  useful,  and  it  ought  to 
be  made  one  of  the  most  attractive,  among  all  lines  of  human  effort. 

"  Concerning  the  grim  reality  of  the  present  crisis  in  agriculture,  there  can 
be  no  differences  of  opinion  among  informed  people. 

"  You  men  are  thoroughly  familiar  with  the  distressing  details  of  present 
comlitions  in  the  agricultural  community.  The  whole  country  has  an  acute 
concern  with  the  conditions  and  the  problems  which  you  are  met  to  consider. 
It  is  a  truly  national  interest  and  not  entitled  to  be  regarded  as  primarily  the 
concern  of  either  a  class  or  a  section. 

"  There  is  every  reason  for  us  to  consider  those  permanent  modifications  of 
policy  which  may  make  relief  permanent,  may  secure  agriculture,  so  far  us 
possible,  against  the  danger  that  such  conditions  will  arise  again  and  place  it 
as  an  industry  in  the  firmest  and  most  assured  position  for  the  future. 
**  Up  to  this  time  railroad  coMstruction,  financing,  and  operation  have  been 
unscientific  apd  devoid  of  proper  consideration  for  the  wider  concerns  of  the 
community.  To  say  this  is  simply  to  admit  a  fact  which  applies  to  practically 
every  railroad  system  in  the  world.  It  is  equally  applicable  to  the  railways  of 
continental  Europe,  in  whose  development  considerations  of  political  and  mili- 
tary availability  have  too  far  overweighed  economic  usefulness.  In  America 
we  have  too  long  neglected  our  waterways.  We  need  a  practical  development 
of  water  resources  for  both  transportation  and  power.  Waterway  improve- 
ment represents  not  only  the  possibility  of  expanding  our  transportation  sys- 
tem, but  also  of  producing  hydroelectric  power  for  its  operation  and  for  the 
activities  of  widely  diffused  industry." 

This  was  a  pleasing  statement  of  what  Congress  in  1916  had  the  vision  to 
see,  and  to  seek,  by  the  national  defense  act,  to  make  some  helpful  provision 
for. ' 

Is  it  surprising,  then,  when  the  war  was  over  and  the  proclamation  of  peace 
issued,  that  the  farmers  should  take  account  of  the  fact  that  here  at  Muscle 
Shoals  is  a  plant,  built  with  Government  money,  pursuant  to  the  directions  of 
Congress,  as  contained  in  this  1916  act,  now  practically  complete  and  ready  to 
serve  the  purpose  which  Congress  intended.  It  has  its  power  plant  at  Gorgas. 
on  the  Warrior,  its  transmission  line  from  there  to  the  nitrate  plant,  all  built 
with  Government  money.  There  is  now  needed  only  an  expenditure  of  some 
ten  or  twelve  million  dollars  which  Mr.  Ford  offers  to  supply  to  put  Nitrate 
Plant  No.  2  in  condition  where  it  will  be  prepareil,  from  current  supplied  by 
the  Gorgas  steam  plant,  to  begin  the  manufacture  of  fertilizers  for  the  farmers. 
The  farmers  look  upon  it  as  their  property,  because  Congress  dedicated  it  to 
their  use  in  the  national  <lefense  act  of  1916,  and  it  is  not  surprising  that  they 
have  begun  to  make  an  appraisal  and  survey  of  its  possibilities. 

Congress,  at  its  last  session,  thought  it  would  be  unwise  for  the  Government, 
without  a  definite  policy  of  operation  being  first  determined  on,  to  expend 
further  money  in  the  completion  of  the  power  dams.  Since  that  time,  there 
has  come  an  offer,  and  it  stood  as  the  only  offer  for  more  than  six  or  seven 
months,  discussed  pro  and  con  in  all  sections  of  the  country.  It  was  that 
offer,  thus  considered,  thus  dissected,  that  received  the  hearty  approval  of  the 
farmers  of  the  Nation,  and  of  every  business  interest,  except  those  in  some 
way  linked  up  with  power  or  fertilizer  companies,  or  like  projects.    So  I  think 


998 


MUSCLE   SHOALS   PROPOSITIONS. 


the  offep  is  uow  presented  to  the  committee  in  a  rather  unusually  strong  way, 
and  the  farmers  are  asking  for  nothing  more  than  present  assistance  from 
Congress  for  its  cooperation  in  making  a  working  concern  of  that  plant,  built 
with  Government  funds,  pursuant  to  the  direction  of  Congress  to  aid  agricul- 
ture in  peace. 

And  now,  if  I  may,  and  I  know  the  committee  will  understand  that  no 
discourtesy  is  intended,  because  I  have  the  highest  regard  for  every  member 
of  the  committee,  but  in  view  of  many,  I  fear,  misleading  press  reports,  I  have 
hurriedly  drafted  some  thoughts  which  I  wish  to  leave  with  the  comiuittee  for 
its  consideration. 

Whether  fairly  spoken  or  rightly  understood,  it  is  a  fact  that  the  Gonmiittee 
on  Military  Affairs,  according  to  some  press  reports,  makes  the  impression  on 
those  who  discuss  the  Ford  offer  and  the  Warrior  River  phase  of  the  case 
that  the  committee  shows  no  firmness,  nay,  I  had  almost  said  no  courage,  about 
the  Warrior  River  case,  and,  after  a  fashion,  is  made  to  appear  as  throwing 
up  its  hands,  since  members  of  the  committee  are  reported  as  perhaps  urging 
that  Mr.  Ford  and  his  representatives  should  in  some  way  negotiate  with  the 
Alabama  Power  Co.  and  wme  to  an  understanding  with  the  Alabama  Power 
Co.  about  the  Gorgas  plant. 

It  must  not  be  forgotten  that  Mr.  Ford  made  no  proposition  to  the  Alabama 
Power  Co.,  has  no  grounds  upon  which  to  approach  the  Alabama  Power  Co 
has  no  business  connected  with  the  Government's  Warrior  River  steam  plant,  or 
any  other  matters,  to  discuss  with  the  Alabama  Power  Co.,  and  even  if  Mr 
Ford  and  his  representatives  were  invited  by  the  Alabamti  Power  Co.  to  dis- 
cuss the  Warrior  River  case,  consider,  please,  what  a  disadvantage  Mr.  Ford 
is  at,  w^hen  the  impression  goes  out  through  the  press  that  the  (Government 
is  helpless.    It  is  unfortunate  for  the  committee  to  be  placed  in  a  i)osition 
whether  rightly  or  not,  I  do  not  know,  of  not  showing  firmness  and  serving; 
notice  on  the  Alabama  Power  Co.  that  the  Government  can  protect  and  will 
enforce  its  legal  rights  in  the  courts. 

I  respectfully  submit,  the  public— the  people  of  the  countrv— will  reasonablv 
expect  that  Congress  will  find  a  way  to  straighten  out  tlie  Warrior  River  diftl- 
culties  and  others— that  the  Congress  will  legislate  its  wav  out  of  the  difficulties 
if  there  be  any. 

Mr.  Parkeb.  Is  that  a  quotation  from  something  vou  are  reading,  Mr  Oliver'-' 

Mr.  Olivek.    No  ;  I  prepared  it  myself. 

Mr.  Parkeb.  It  is  your  own  statement? 

Mr.  Olr-eb.  Yes,  sir.  I  have  referred,  Mr.  Parker.  I  will  state,  to  impres- 
sions that  I  fear  the  public  may  have  from  newspaper  reports. 

Mr.  Parker.  I  heard  the  first  statement,  and  I  did  not  know  whether  the  last 
statements  were  quotations  or  not. 

^Ir.  Fisher.  Mr.  Oliver,  has  that  statement  you  are  reading  from  gone  broad- 
cast to  the  countiy— that  the  committee,  perchance,  has  a  lack  of  courage  in 
handling  the  Ford  offer? 

Mr.  Oliver.  I  said  that  the  press  reports  had  carried,  whether  rightly  or 
wrongly— perhaps  there  have  been  no  such  interviews,  but,  anyhow,  in  some  pa- 
pers there  have  been  reported  interviews,  sometimes  not  mentioning  by  name 
the  members  of  the  committee,  but  saying  that  interviews  with  the  committee 
show  that  perhaps  nothing  can  be  done,  in  view  of  the  fact  that  w^e  would 
apparently  be  tied  up  in  litigation  for  years  with  the  Alabama  Power  Co. 

Mr.  Fishek.  Do  I  understand,  then,  that  your  inference  is  one  obtained  from 
newspaper  reports  and  not  from  the  hearings  before  the  committee? 

Mr.  Oliver.  Absolutely.  I  thought  I  made  that  clear  in  my  statement.  I 
simply  say  that  I  fear  that  is  the  impression  the  public  will  have  from  these— 
I  am  willing  to  concede — unauthorized  publications  of  reported  interviews. 

The  following,  taken  from  an  editorial  from  Power,  exactly  expresses  the 
thought  I  am  trying  to  convey  to  you,  and  it  is  going  to  be  also  the  exi)ectation 
expressed  by  the  country  in  regard  to  the  Warrior  River  case : 

•'  As  concerns  the  legal  aspects  of  the  matter,  Mr.  Ford  has  every  right  to 
expect  clear  title  to  the  properties  should  his  proposition  be  accepted.  The  fact 
that  officers  of  the  Ordnance  Department  had  a  Government  power  plant 
and  transmission  line  built  on  property  belonging  to  a  private  company  when 
under  the  war  powers  it  could  have  exercised  the  right  of  purchase,  and  this 
without  consultation  with  the  Judge  Advocate  General's  office,  may  be  a 
matter  for  Congress  to  inquire  into,  but  it  places  no  obligation  upon  Mr.  Ford 
or  any  other  bidder.  It  is  a  matter  for  the  Government  to  straighten  out 
first." 


MUSCLE   SHOALS  PROPOSITIONS. 


999 


Evidently  they  had  gotten  the  impression  that  in  some  way  the  committee 
expected  Mr.  Ford  to  negotiate,  and  I  do  not  think  the  committee  has  ever  said 
4^hat.  I  do  not  think  you  have  said  anything  to  justify  that  statement  being 
made  in  the  press,  but,  nevertheless,  it  is  being  said — and,  I  think,  to  the  injus- 
tice of  the  committee.  As  Judge  Almon  says,  I  do  not  mean  to  charge  that  with 
reference  to  all  press  reports.  Many  of  the  press  reports  have  been  entirly  fair 
and  have  not  sought  to  attribute  to  the  committee  suggestions  of  this  kind. 

The  Judge  Advocate  General  having  advised  the  committee  that  the  Govern- 
ment can  acquire  the  transmission  rights  of  way,  powerhouse  sites.  Government 
building  sites  at  Gorgas,  etc.,  I  am  sure  that  the  committee  will  recommend  to 
Congress  the  necessary  legal  steps  to  take  in  order  to  secure  the  Govern- 
ment's rights  in  such  Government  plant  and  transmission  lines,  and  I  am 
sure  you  will  agree  tliat  it  would  be  unfortunate  and  unjust  to  the  committee 
for  the  public  to  get  the  impression  that  the  committee  shows  lack  of  firmness 
or  a  disposition  to  throw  up  their  hands  in  reference  to  the  Gorgas  plant. 
.  Now,  just  let  me  say  in  that  connection 

Mr.  Garkktt.  Before  you  leave  that  subject,  have  you  a  compilation  of  the 
press  reports  upon  which  you  base  that  statement,  except  the  article  from 
Power? 

Mr.  Oliver.  One  statement  api^eared  in  the  press  a  few  days  ago  quoting  Mr. 
Kahn  as  indicating  that  he  felt  a  commission  would  have  to  be  appointed  in 
view  of  the  legal  questions,  and  so  on ;  and  then  another,  I  think,  was  reported 
either  yesterday  evening  or  this  morning  purporting  to  be  an  interview  with 
Mr.  Kahn  in  which  he  is  quoted,  in  effect,  that  nothing  can  l>e  done  with  the 
Ford  offer,  because  it  might  involve  a  litigation  of  some  three  or  four  years, 
or  something  of  that  sort.  Now.  they  doubtless  have  drawn  a  wrong  inference 
from  an  interview  with  Mr.  Kahn.  I  recognize  he  may  feel  that  there  is  a  legal 
question  involved 

Mr.  Kearns,  Would  it  not  involve  some  three  or  four  years  of  litigation? 

Mr.  OLIVF31.  I  think  not,  Mr.  Kearns.  I  think  if  the  committee  should 
recommend  to  Congress  the  acrceptance  of  the  offer,  and  Congress  should  by 
vote  accept  the  offer  and  direct  the  condemnation  of  the  Gorgas  plant  and  the 
transmission  line,  you  W(mld  see  Mr.  Ford  in  full  control  of  it  and  operating 
nitrate  i>lant  No.  2  and  turning  out  fertilizer  in  less  than  15  months. 

Mr.  Fishek,  That  matter  was  suggested  when  you  were  before  the  com- 
mittee and  I  asked  you  the  question  as  to  whether  or  not  we  could  direct 
condemnation  proceedings  without  first  appropriating  an  amount  of  money  to 
cover  the  cost  of  the  land. 

Mr.  Olh^r.  Yes. 

Mr.  Fisher.  That  question  you  were  not  certain  about,  and  the  matter  is 
being  investigated  right  now.  Are  you  now  prepared  to  state  whether  it  is 
legal  to  proceed  with  a  condemnation  suit  for  the  Gorgas  plant — that  property 
which  the  Government  does  not  own  there — without  appropriating  first  some 
sum  of  money  to  cover  the  cost  of  the  land? 

Mr.  Oliver.  I  think  you  would  have  to  appropriate  some  sum  of  money. 

Mr.  Fisher.  That  was  just  the  question,  and  I  ask  you  how  much  you  thought 
ought  to  be  appropriated. 

Mr.  Oliver.  In  the  case  whi<5h  Mr.  Dent  read  to  the  committee  the  other 
day,  and  which  seems  to  be  an  authority  for  every  proposition  I  have  assenteil 
in  this  case  as  to  the  Government's  right  to  condemn,  there  is  discussed  that 
very  point,  and  it  is  held  that  even  though  the  amount  appropriated  was  ascer- 
tained afterwards  to  be  insufficient  such  fact  is  not  fatal;  so  if  you  appropriated 
some  reasonable  amount  and  ordered  condemnation,  the  condemnation  pro- 
ceedings could  lie  begun  at  once.  That  very  case  answej-s  fully  the  question, 
Mr.  Fisher,  I  think. 

!VIr.  Fisher.  You  recommend,  then,  without  any  consideration  of  the  state- 
ment from  the  Secretary  of  War — and  every  officer,  who  had  anything  to  do 
with  the  contract  with  the  Alabama  Power  Co. — that  we  proceed  to  condemn 
without  making  any  offer  to  settle  the  matter  amicably  prior  to  that  time? 

Mr.  Oliver.  No :  I  have  not  said  that.  I  simply  said  that  stmie  of  these  re- 
ports had  created  the  impression  that  the  negotiations,  perhaps,  ought  to  be 
made  by  Mr.  Ford  or  his  representatives :  and  that,  so  long  as  the  Power  Co. 
feels — from  certain  reported  interviews — that  the  committee  thinks  the  contract 
that  they  set  up  will  prevent  any  action  being  taken,  you  can  well  understand 
how  independent  the  Power  Co.  will  continue  to  feel ;  and  that  is  why  1 
wanted  to  call  the  attention  of  the  committee  to  the  reports. 


i 


A 


i 


1000 


MUSCLE  SHOALS  PROPOSITIONS. 


Mr.  Fisher.  I  wonder  if  you  are  aware  of  the  evidence  whicli  has  been  in- 
troduml  before  the  committee  about  the  intention  of  the  War  Department  and 
the  evidence  of  the  officers,  who  handled  the  matter  for  the  Government  and* 
who  stated  that  it  was  the  intention,  wlien  they  drew  that  contract,  that  the 
Alabama  Power  Co.  was  to  buy  the  plant  as  a  going  concern  and  not  as  a 
salvaged  concern? 

Mr.  Oliver.  I'nquestionably. 

Mr.  Fisher.  With  that  thought  in  mind,  the  Secretary  thinlvs,  and  the  other 
officers  thmk,  it  is  a  moral  obligation.  Now,  do  you  think  we  ought  now  as  a 
wmmittee,  to  enter  into  negotiations  for  an  amicable  settlement  with  the  Ala- 
bama Power  Co.  or  do  you  think  we  ought  to  just  order  that  direct  condemna- 
tion proceedings  be  instituted? 

Mr.  Oi^TCR.  I  am  very  glad  you  ask  the  question,  because  it  suggests  to  me 
that  It  IS  proper  at  this  time  to  call  your  attention  to  the  fact  that  it  is  but 
natural  that  some  of  the  Ordnance  officers  in  the  War  Department  may  feel 
very  friendly  to  the  claims  and  insistence  of  the  Alabama  Power  Co.,  because 
unfortunately,  it  was  through  them  or  some  emergency  officers  in  their  bureau* 
that  the  Government  was  imposed  upon  in  this  contract?    You  gentlemen  will 
recHll  how,  witliout  defense  from  any  one,  when  this  matter  was  before  Con- 
gress last  year,  :Mr.  Graham,  of  Illinois,  and  others,  condemned  not  onlv  the 
Alabama  Power  Co.  but  also  the  officers  of  the  Ordnam-e  Department  for*  their 
conduct  in  reference  to  this  very  contract?    Read  the  speech  of  Senator  Len- 
root,  in  the  Senate,  and  read  the  remarks  of  Senator  Borah  in  reference  thereto 
in  which  he.  after  Senator  Lenroot  had  explained  to  the  Senate  the  character  of 
the  contract  entered  into  by  Ordnance  officers  with  the  Alabama  Power  Co 
very  properly  inquired:  "And  are  those  officers  still  with  the  Government?  " 

Mr.  Fisher.  May  I  ask  whether  or  not  anything  was  done  as  a  result  of  that 
investigation  and  condemnation  toward  straightening  out  the  Government'*? 
rights  at  Gorgas? 

Mr.  Oliver.  I  do  not  think  anything  has  been  done:  but  I  feel  sure 

Mr.  Fisher   (interposing).  Any  resolutions  introduced? 

Mr.  Oliver.  I  think  this  committee  will  take  action  when  thev  come  to 
pass  finally  on  this  matter,  and  will  <lirect  what  should  be  done:  and  it  was 
for  that  purpo.se  that  I  called  attention  to  what  might  be  a  wrong  impression, 
doing  a  great  injustice  to  the  committee  and  to  C<mgress. 

Mr.  Parker.  That  is  just  what  I  want  to  speak  of. 

jNIr.  Oliver.  Yes. 

Mr.  Parker.  You  call  attention  to  the  impression  that  may  go  forth  if  we 
take  one  action  or  another.  You  do  not  mean  to  say  we  ought  to  consider 
for  a  moment  any  such  impression  in  doing  exactly  what  we  think  right  about 
this  case. 

Mr.  Olh-er.  I  feel  sure  the  committee  will  do  what  it  thinks  is  right. 

Mr.  Parker.  Then  I  do  not  think  it  worth  while  to  suggest  then  that  we 
may  be  subject  to  a  newspaper  attack. 

Mr.  Olh-er.  I  submit  that  I  have  my  own  opinion  about  that. 

Mr.  Parker.  Your  own  opinion. 

Mr.  Oliver.  And  I  think  you  will  agree  with  my  position  when  vou  under- 
stand my  purpose  in  calling  the  attention  of  tlie  committee  to  that'  fact. 

Mr.  Parker.  It  is  a  sort  of  threat. 

Mr.  Oliver.  No:  it  is  no  threat  in  the  slightest.  In  reply  to  Mr.  Fisher's 
questions,  that  the  Ordnance  officers  claim  this  and  that,  I  have  called  your 
attention  to  what  Congress  thought  about  it.  and  let  me  call  your  attention  to 
what  members  of  your  committee  have  said  about  it.  Take  Mr.  Miller,  for 
instance. 

Mr.  Fisher.  My  suggestion  was  not  that  we  ought  to  abide  by  what  was 
said,  but  wo  ought  to  investigate  it  further.  We  have  not  had  Colonel  Joyes 
before  us.  and  Colonel  Joyes  is  the  man  who  was  at  the  head  of  that  division. 

Mr.  Olivtjir.  Yes. 

The  (Chairman.  I  have  made  an  arrangement  to  have  him  before  us  on 
Friday  morning.     I  have  already  been  working  at  that,  Mr.  Fisher. 

Mr.  Olrer.  And  my  recollection  is  that  Colonel  Joyes  was  perhaps  the 
officer  that  Senator  Lenroot  had  in  mind  when  he  was  discussing  the  ques- 
tion and  the  inquiry  of  Senator  Borah  was  made,  to  which  I  have  referred. 
Reverting  to  Mr.  Miller's  statement  here  on  page.GGS,  he  said  to  Mr.  Martin, 
president  of  the  Alabama  Power  Co. : 

"I  see  very  plainly  what  the  contract  is,  but  I  have  been  wondering  if 
there  is  any  other  human  being  that  would  put  a  dollar  into  an  enterprise  on 


MUSCLE   SHOALS  PROPOSITIONS. 


1001 


such  a  basis  as  the  United  States  put  its  money  in  with  you.  Can  you  c«>u- 
ceive  of  any  institution  in  the  world,  or  can  you  conceive  of  the  United  States, 
4?xcept  in  the  extremity  of  war,  making  such  a  contract? 

"And  I  am  afraid,  Mr.  Martin,  that  I  am  forced  to  believe  that  you  took. 
advantage  of  the  Government  in  its  extremity  of  war." 

And  fuithor: 

"And  I  say,  sir,  that  it  looks  to  me  as  if  the  Alabama  Power  Co.  had  in- 
geniously interwoven  the  Government's  interest  along  with  yours  to  such  an 
extent  that  they  never  could  be  segregated  and  that  you  would  be  the  only 
man  that  could  become  the  purchaser." 

Further : 

"  It  is  ijla'n  that  they  got  the  power  and  I  see  the  end  of  the  horn  the  (Jov- 
f'rnment  is  coming  out  :n  thing  thing,  too,  notwithstanding  the  great  patriotism 
that  you  suggested  to  the  committee  his  morning,  Mr.  Martin." 

And.  Mr.  Miller  was  but  voicing  the  sentiment  of  Congress,  as  we  understood 
it,  and  as  it  was  expressed  on  the  floor  of  both  the  Housti  and  the  Senate  last 
year.  That  is  wh.^  1  say  that  we,  and  I  know  the  committee  do  not 
want  the  public  to  have  the  impression  that  the  committee  is  having  great 
trouble  in  even  giving  further  consideration  to  the  Ford  offer,  so  long  as  the 
Alabama  Power  Co.  stands  up  and  threatens  the  Government  with  a  lawsut. 

Mr.  Kf:arns.  Mr.  Oliver,  this  c(mtract  does  not  differ  from  thousands  of 
■other  contracts  made  with  the  Government,  does  it? 

Mr.  Oliver.  I  do  not  think  you  will  tind  any  other  contract  like  this,  for 
this  reason,  Mr,  Kearns:  Here  was  a  selection  of  the  site  of  a  natonal  pro.iect 
at  Muscle  Shoals 

Mr.  Kearns   (interposing).  I  untlerstaiid  that,  but  my  point  is 


Mr.  Oliver  (continuing).  And  the  very  comimny  that  Congress,  in  the  act 
of  3916  had  served  this  notice  on,  "the  Government  does  not  want  you  and 
will  have  nothing  to  do  with  you  in  building  its  nitrate  idants," — the  Alabama 
Power  Co..  was  responsible  for  the  proviso  that  was  put  in  section  124  of  the 
National  Defense  Act  of  1916.  Yet,  with  that  in  mind,  we  find  them  in  con- 
junction with  some  emergency  officers,  or  perhai)s  some  regular  officers  of 
the  Ordnance  Department,  making  an  agreement  look'ng  to  the  acquirement 
of  large  expenditures  by  the  Government,  for  what  purpose?  Expenditures 
looking  to  the  supplying  of  power  to  this  Muscle  Shoals  project,  which  in 
I>eace  and  in  war.  was  to  be  devoted  to  a  public  purpose.  I  say  that  .vou  will 
find  no  contract  during  all  the  war,  where  a  party,  served  with  notice  as  was 
the  Alabama  Power  Co.  in  1916.  seeking  in  a  selfish  wa.v,  as  indicated  in  the 
questions  by  this  connnittee  to  the  president  of  that  company,  to  have  the  Gov- 
ernment's money  so  expended  at  its  plant  and  on  its  property  that  it  could 
iiev<»r  be  separate<l  therefrom,  and  the  Alabama  Vo.  would  thus  become  the  only 
possible  i)urchas(M\ 

Mr.  Kearns.  Is  the  Government  so  weak  that  a  bunch  of  men  can  take  that 
advantage  of  it? 

Mr.  Oliver.  Absolutely  not,  and  I  do  not  believe  a  single  meml)er  of  this  com- 
mittee thinks  so. 

Mr.  Kearns.  The  Government  certainly  has  been  weak  in  all  the  contracts 
made  practically  during  the  war. 

Mr.  Oliver.  Unfortunately  the  contention  of  the  Alabama  Power  Co.  has 
been  that  the  Government  is  so  weak  that  it  can  not  help  itself  now.  I  do  not 
believe  that  you  and  other  Members  of  Congress  will  fail  to  find  a  way  in 
which  the  Government,  if  that  property  be  needed  in  the  oi>eration  of  a  great 
national  project  can  acquire  it.  We  are  not  helpless,  and  it  would  be  an  in- 
justice to  Congress  and  to  this  committee,  to  have  the  impression  go  out  that 
any  Member  of  Congress  or  any  committee  of  Congress  felt  that  the  claims  of 
the  Alabama  Power  Co.,  made  under  a  contract,  characterized  by  every  member 
that  ever  discussed  it,  as  unconscionable,  overbearing,  and  void,  couhl  prevent 
tlie  consideration  of  an  offer  for  the  plant,  and  I  do  not  believe  it  will. 

:Mr.  Stoll.  Is  the  fraud  that  vitiates  the  contract  apparent  on  its  face? 

Mr.  Olrer.  I  think  section  22  answers  it.  TTiat  section  is  a  complete  answer 
to  the  claim  of  the  Alabama  Power  Co.  that  any  one  had  authority  on  the  part 
of  the  Government  from  Congi*ess  to  bind  the  Government  in  the  alleged  sale 
of  the  plant  at  Gorgas.  I  think  ymi,  Mr.  Stoll.  very  clearly,  by  your  questions 
to  Mr.  Dent,  the  attorney  of  the  company,  demonstrated  that  point  beyond 
question. 

Now,  gentlemen,  I  had  not  intended  taking  up  this  much  time,  and  in  con- 
clusion I  simply  wish  to  say  I  recognize  that  this  is  a  matter  of  vast  importnnce 


1002 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOx\LS  PROPOSITIONS. 


1003 


i 


to  the  Nation.  T  question  whether  yon  am  fina  any  question  ineasni-inj?  up  to 
It  m  miportance  from  the  farmers'  standpoint  that  has  heen  presented  to  Con- 
gress since  the  war.  Fortunately  it  is  a  question  that  in  no  sense  concerns 
alone  any  section.  It  m  no  sense  has  ever  at  any  time  been  considered  as  parti- 
san, and  I  know  tiiat  in  approaching:  the  rightful  solution  of  this  problem  and 
m  seeking  to  provide  for  the  future  operation  of  this  plant,  in  accordance  with 
the  direction  of  Congress,  as  expressed  in  the  1916  national  defense  act  this 
committee  will  tind  a  way  whereby  it  can  be  Iveneticiallv  used  to  serve  those 
tor  whom  it  was  primarily  intended  to  serve  in  times  of  peace. 

STATEMENT  OF  HON.  EDWARD  B.  ALMON,  A  REPRESENTATIVE  IN 
CONGRESS  FROM  THE  STATE   OF  ALABAMA. 

,,/^^y-/^^%^^^'^'-  ^^^'-  Chairman  and  gentlemen  of  the  connnittee,  during  the  recent 
AV  orld  \\  ar  the  Government  constructed  at  ]Muscle  KShoals,  in  the  Tennesset- 
Kiver,  in  Northern  Albania,  two  nitrate  i)lants,  known  asts'o.*}.  1  and  •'  for  the 
fixation  of  atmospheric  nitrogen  to  be  used  for  the  manufacture  of  explosives 
for  war  purposes  and  fertilizer  in  peace  times.  The  war-time  cost  of  these 
plants  amounted  to  a  total  of  $85,423,078.73,  including  the  Oorgas  steam  plant 
and  the  A\aco  rock  quarrj-,  which  is  about  twice  the  amount  of  cost  of  con- 
struction in  normal  peace  times.  In  addition  to  this,  about  .$17,000  000  has 
been  expen<led  on  the  Dam  No.  2  at  INIus^-le  Shoals,  known  as  AVilson  Dani 
It  was  about  30  per  cent  complete  when  work  was  suspended  last  Mav  the 
appropriation  of  .$10,000,000  to  continue  work  on  the  dam  having  be^ii  de 
feated  by  11  votes  in  the  Hou.se  on  February  25,  1921.  Tlie  dam  is  a  part  of 
this  development  and  is  to  furni.sh  the  power  to  operate  the  plants 

At   the  small   nitrate  plant.   No.   1,   the   synthetic  process  of   the   General 
Cheimcal  Co.  which  had  not  been  developed  on  a  commercial  basis,  was  used 
J  he  Haber  process  was  not  available  in  this  country  at  that  time,  but  is  now 
and   is  being  used   succes.sfully,   I   am   infonned,   in   a   small   plant   at   Svra- 
cuse,  N.  Y.  I  ^.> 

Plant  No.  1  was  an  experimental  plant.  Certain  parts  of  it  were  not  a 
success.  The  War  Department,  has  decided  not  to  ask  Congress  for  the  large 
amount  of  money  that  would  l>e  necessary  to  make  it  a  success  but  has  ivcom- 
mejided  that  it  be  salvaged. 

The  large  plant.  No.  2,  at  Muscle  Shoals  uses  the  cyanamid  process  of  the 
American  Cyanamid  Co.  The  cyanamid  process  for  the  fixation  of  atmospheric 
nitrogen  is  one  of  the  oldest  and  best.  It  is  being  used  extensively  and  .suc- 
cessfully in  the  European  countries,  and  was  during  and  before  the  World 
War.  Plant  No.  2  was  built  in  about  eight  months,  being  completed  just  as 
the  war  ended.  It  is  100  per  cent  in  quantity  and  qualitv  of  production  con- 
tracted for,  viz,  110,000  tons  ammonium  nitrate  annually,  as  has  been  demon- 
strated by  a  number  of  Government  tests.  Both  plants  are  now  being  kept 
in  a  stand-by  condition. 

The  development  at  Muscle  Shoals  is  not  local ;  it  is  a  great  national  project 
and  is  nation-wide  in  the  uses  for  which  it  was  intended.  This  development 
as  planned  in  the  Ford  ofTer,  will  be  of  great  benefit  to  the  entire  countrv*^ 
Muscle  Shoals  was  selected  for  this  development  on  account  of  its  natural 
advantages,  namely,  within  the  safety  zone  prescribed  bv  the  military  authori- 
ties ;  the  greatest  water  power  east  of  the  Mississippi  River ;  in  close  proximity 
to  the  phosphate  beds,  coal,  coke,  limestone  rock,  and  all  other  raw  materials 
in  inexhaustible  quantities  needed  in  the  manufacture  of  muniti<ms  and  fer- 
tilizer; climatic  conditions  ideal;  central  point  for  the  distribution  of  fer- 
tilizer, tran.sportation  facilities  good  both  by  rail  and  water. 

This  <-oinmittee  in  191G  originated  the  I'aw  which  resulted  in  this  develop- 
ment. At  the  earnest  S(»licitiition  of  those  who  were  interested  in  the  Muestion 
of  national  defense  and  agriculture,  provision  was  made  in  section  124  of  the- 
national  defense  act,  api)ioved  .hine  0.  1910,  for  the  construction  of  one  or  more 
nitrogen  plants  to  be  used  for  the  manufacture  of  explosives  in  times  of  war 
and  fertilizer  in  peace  time,  to  be  operated  by  steam  or  water  power,  one  or 
both.  As  a  result  of  that  legislation  the  Government,  through  it-s  authorized 
representatives,  nia<le  tlie.se  improvements  i\t  Muscle  Shoals.  In  the  considera- 
tion of  this  question  it  is  most  inirK)rtant  that  you  bear  in  mind  that  these 
nitrate  plants  at  Muscle  Shoals  and  the  water-power  development  which"  has 
been  commenced  was  just  as  much  intended  for  the  production  of  cheaper  and 
better  fertilizer  for  the  farmers  in  times  of  peace  as  for  the  manufacture  of 


explosives  in  times  of  war.    This  was  clearly  the  expressed  intention  of  Con- 
gress when  their  construction  was  .authorized. 

After  our  experiences  during  the  World  War  everybody  agrees  that  this 
country  should  never  again  be  dependent  upon  a  foreign  market  for  a  supply 
of  nitrogen  in  times  of  emergency,  and  all  agree  that  nitrate  plant  No.  2  at 
Muscle  Shoals  should  be  preserved  and  maintained  as  a  part  of  our  national 
tlefense. 

Soon  after  the  beginning  of  the  present  administration.  Secretary  of  ^^'ar 
Weeks  announced  that  he  would  not  recommend  to  Congress  the  appropriation 
of  funds  with  which  to  complete  Muscle  Shoals  Dam  No.  2,  known  as  the 
Wilson  Dam,  unless  he  was  first  assured  that  there  would  be  a  market  for  the 
l)Ower  developed  by  its  completion  that  would  justify  the  additional  exi>endi- 
ture.  In  order  to  secure  this  information  the  Secretary  of  War  requesteil  the 
Chief  of  Engiii€?ers  of  the  War  Department  to  ascertain  from  water-power 
companies  and  others  who  might  be  interested  in  using  a  large  amount  of 
water  power  if  they  would  be  interested  in  taking  the  power  if  the  <lam  was 
finished. 

■  As  a  result  the  Chief  of  Engineers  received  several  replied — one  from  jthe 
Southern  Power  Co.,  in  which  it  was  not  only  stated  that  they  would  not*  be 
interested  in  taking  the  power  but  strongly  condemned  the  project,  declaring 
that  it  was  impracticable  and  worthless,  and  recommended  and  advised  again.st 
the  completion  of  the  development.  INIuscle  Shoals  has  become  very  valuable  in 
the  estimation  of  the  Southern  Power  Co.  and  other  water  power  and  ferti- 
lizer interests  since  Mr.  Ford  made  his  offer.    Why  this  sudden  change  or  heart? 

As  a  further  result  of  the  policy  of  Secretary  of  War  Weeks,  an  offer  was 
made  by  Henry  Ford  which  made  provision  not  only  for  the  completion  of  the 
Wilson  Dam  but  for  the  construction  of  the  other  dam,  No.  3,  thereby  develop- 
ing all  the  water  power  at  Muscle  Shoals  and  removing  all  obstruction  to  navi- 
vation,  and  also  providing  for  the  operation  of  the  large  nitrate  plant,  No,  2, 
for  the  manufacture  of  fertilizer. 

The  Ford  offer  was  made  on  the  8th  day  of  July,  1921.  Negotiations  were 
conducted  between  Mr.  Ford  and  the  Secretary  of  War  for  several  months, 
and  no  other  offers  were  made  until  after  the  B^'ord  offer  was  sent  to  Congress, 
February  2,  1922. 

While  negotiations  were  pending  between  Mr.  Ford  and  the  Secretary  of 
War,  the  president  of  the  Alabama  Power  Co.  announced,  through  the  press 
and  otherwise,  that  the  Alabama  Power  Co.  would  not  submit  an  offer  for  the 
Muscle  Shoals  property,  but  after  the  hearings  by  this  committee  on  the  Ford 
offer  had  commenced,  and  when  it  became  apparent  that  the  Ford  offer  would 
in  all  probability  be  accepted  by  Congress,  the  Alabama  Power  Co.  submitted 
an  offer  on  the  15th  of  February,  1922. 

The  Secretary  of  War  announced  that  he  was  without  authority  to  dispose 
of  this  property  and  sent  both  of  the  offers  to  Congress  with  his  comments,  but 
without  recommendations,  and  they  were  referred  to  the  Agricultural  Com- 
mittee of  the  Senate  and  this,  the  Military  Affairs  Committee  of  the  House. 

Extensive  hearings  have  been  held  before  this  committee  during  tlie  past  three 
weeks,  and  have  attracted  nation-wide  attention.  The  hearings  are  now  about 
completed.  Both  committees  are  planning  to  make  a  trip  of  insi)ection  to  Muscle 
Shoals  at  an  early  date.  You  have  been  very  patient.  You  have  given  all  a  hear- 
ing who  desired  to  be  heard.  I  have  attended  all  of  the  hearings  and  have  made 
a  careful  study  and  analysis  of  all  of  the  offers  for  Muscle  Shoals.  My  purpose  in 
addressing  you  is  to  show  you,  if  I  can.  that  it  will  be  to  the  interest  of  the  Gov- 
ernment and  the  public  to  recommend  the  acceptance  of  the  offer  of  Henry  Ford 
and  reject  that  of  the  Alabama  Power  Co.  I  shall  first  discuss  the  offer  of  Henry 
Ford  and  then  the  offer  of  the  Alabama  Power  Co. 

Mr.  Ford's  offer  of  July  8,  1921.  as  modifiefl  on  January  11,  1922.  was  put  in 
contract  form  by  the  Judge  Advocate  General,  and  is  ma«le  Exhibit  C  on  page  14 
of  House  Document  No.  167. 

Three  modifications,  as  I  remember,  have  since  been  agreed  to  by  Mr.  Ford  to 
clarify  some  parts  of  the  agreement,  namely,  (1)  that  his  company,  provided  for 
in  the  first  section  of  the  agreement,  is  to  begin  with  at  least  .$10,000,000  paid-in 
capital  stock;  (2)  that  section  14  be  modified  so  as  to  make  it  clear  that  nitrate 
plant  No.  2  is  to  be  operated  to  its  full  cai)acity  during  the  entire  period  of  the 
lease  for  the  manufacture  of  fertilizer;  (3)  that  the  board,  nominated  by  the 
farmers'  organizations  and  appointed  by  the  President,  as  provided  for  in  section 
15  of  the  agreement,  shall  control  the  sale  and  distribution  of  the  fertilizer  manu- 
factured at  plant  No.  2,  so  that  it  will  be  sold  direct  to  the  farmers  at  not  more 
than  8  per  cent  over  and  above  the  actual  cost  of  production.     [Reading:! 


ftil 


1004 


MUSCLE  SHOALS  PROPOSITIONS. 


"Mr.  ITord's  proposal  consists  of  two  parts:   (1)  To  lease  the  ilams  for  UH> 
years,  aiul  (2)  to  purchase  the  nitrate  plants  ami  accessories. 

PART  1 — OFFER  TO  l.KASE  THE  DAMS. 

Provimona  of  offer. 

1.  Mr.  Ford  a;?rees  to  pay  $5.j.000  annually  for  the  niaintt^nince  of 

dams,  locks,  etc.,  making  a  total  payment  in  100  years  of $5.  500,  000 

2.  He  agrees  to  pay  interest  at  4  per  cent  on  whatever  the  cost  may 

he  for  completing  hoth  dams.  If  this  amounts  to  $42,000,000 
(the  estimate  of  Mr.  Ford's  engineers),  the  total  in  100  years 
under  Mr.  Ford's  plan  of  payments  will  amount  to 161,040.  000 

3.  He  agrees  to  a  plan  of  amortization  sufficient  to  retire  S49.000.000 

in  100  years ____     49,000,000 

Total  payments  to  the  Government  under  Ford  offer  during 

100-year-lease  period 2ir»,  540,  000 

Cost  of  dams  (expended  and  proposed). 

There  has  been  expended  to  date  in  building  Dam  No. 

2,  about 27  000  000 

Cost  of  completing  Dam  No.  2 I__IIII  ,$23^000, 000 

Cost  of  building  Dam  No.  3 17,  000, 000 

40,000,000 

Total  Government  investment  in  Muscle  Shoals  dams  and 
hydroelectric  plants  will  amount  to  a  total  of 57,000,000 

"Oiarges  to  navigation:  Deducting  the  Jt;49,000.00<J  which  Mr.  Ford  repays 
froui  the  $57,000,000  total  cost,  leaves  $8,000,000  unrefunded,  which  is  less  than 
the  amount  stated  by  the  Fnited  States  engineers  as  chargeable  to  navigation, 
their  prewar  estimate  being  $8,575,000.  (See  H.  Doc.  20,  03d  Cong.,  2d  sess., 
p.  4,  par.  6.) 

"The  United  States  engineers  have  more  than  once  recommendeil  that 
$8,575,000  should  be  charged  to  the  navigation  improvement  of  the  Muscle 
Shoals  sti-etch  of  the  Tennessee  lUxer  under  the  very  plans  for  join  naviga- 
tion and  power  improvement  now  proposed. 

"  Earnings  from  Government  peace-time  investments  compared  with  Ford 
offer:  To  meet  the  terms  of  the  Ford  offer  and  produce  a  proportionate  return 
to  the  Govenmient,  the  Reclamation  Service,  representing  a  Government  net 
investment  of  $125,870,830,  would  have  to  show  an  annual  gross  income  of 
$10,180,132,  instead  of  $4,191,844,  which  it  now  shows.  The  Panama  Canal, 
representing  an  investment  of  $380,554,949,  would  have  to  earn  $32,450,886 
gross  revenue,  whereas  last  year's  total  revenues  were  only  $12,040,117.  (Based 
on  1921  report.) 

"part   TWO OFFER  TO  PURCHASE    NITRATE  PLANTS    AND   ACCESSORIES. 

"Provisions  of  offer:  Mr.  Ford  offers  to  purchase  nitrate  plants  Nos.  1  and 
2,  Waco  quarry,  and  the  Gorgas  steam  plant  and  its  transmission  line  for 
$5,000,000.  He  also  offers  to  maintain  nitrate  plant  No.  2  in  a  state  of  readi- 
ness to  be  promptly  operated  in  the  manufacture  of  materials  necessary  in 
time  of  war  for  the  production  of  explosives.  Thus  securing  the  benefit  of  its 
use  for  the  puri>ose  for  which  the  plant  was  originally  planned.  The  Govern- 
ment, therefore,  retains  every  advantage  of  the  nitrate  plant  in  time  of  war, 
but  pays  nothing  for  the  maintenance  of  the  nitrate  property  in  times  of  peace. 

Salvage  to  Government  from  war-time  investments  compared  with  Ford  offer. 


MUSCLE   SHOALS  PKOPOSITIONS. 


1005 


Government  property  sold: 

Muscle  Shoals  nitrate  plants 

Old  Hickory  powder  plant 

Wooden  ships,  United  States  Shipping  Board each. . 


Cost  of 
property. 


$85,423,078.73 

80,000,000.00 

800,000.00 


Salvage 
received. 


15,000,000.00 

3,500,000.00 

5,000.00 


Per  cent 

of  cost 

salvaged. 


5.85 
4.28 
0.63 


"  On  the  basis  of  the  price  leceived  for  the  wooden  ships  that  were  sold, 
^Ir.  Ford  would  have  offered  only  $567,0<X)  instead  of  $5,000,000  for  the  nitrate 
plants. 

"  Annual  cash  saving  to  Govei-nment  by  acceptance  of  Ford  offer :  The  Ford 
offer  when  accepted  will  stop  the  following  annual  cash  expenditures: 

1.  Guarding  an  maintaining  nitrate  plants  and  accessories   (fiscal 

year  ending  June  30,  1921),  depreciation  omitted $310,042.44 

2.  Guarding  and  maintaining  uncompleted   work  at   Dam   No.  2 

representing  a  yearlj    expenditure  of 384,000.00 

3.  Maintaining  Muscle  Shoals  Canal,  average  annual  cost 53,079.00 

Tfltal  annual  cash  saving 747,121.44 

Tills  is  interest  at  4  per  cent  on  $18,678,000. 

Cost  to  Government  of  the  Delay  in  Aeeepting  Ford  Offer. 

Average  annual    cash  return    to  the    Government    under    Ford 

offer $2, 155,  400.  00 

Annual  cash  expenditures    saved   at    Muscle    Shoals    by    Ford 
offer 747, 12L00 

Total  annual  loss  to  Govfernment  bj  delay 2, 902, 521. 00 

Average  monthly  loss 241,877.00 

Loss  since  Ford's  offer  was  made  8  months  ago 1,935,016.00 

"The  cost  of  the  delay  in  accepting  Mr.  Ford's  offer,  as  shown  above,  has 
already  amounted  to  1,935,016,  and  on  the  cost  basis  of  the  last  fiscal  year  the 
cost  is  piling  up  at  the  rate  of  $8,062.50  per  day. 

As  shown  from  the  foregoing  table  of  salvage  to  the  Government  from  war- 
time investments,  the  Ford  offer  for  the  nitrate  plants  at  Muscle  Shoals  will 
give  the  Government  the  highest  rate  of  salvage  it  will  have  obtained  from 
either  of  the  war-time  expenditures  included  in  that  list.  The  military 
cantonments  constructed  during  the  war  which  have  thus  far  been  salvaged 
have  brought  practically  nothing.  Many  of  them  have  been  completely  aban- 
doned and  their  buildings  are  going  to  waste,  for  the  reason  that  they  are 
not  even  worth  the  cost  of  "  scrapping." 

When  the  fact  is  taken  into  consideration  that  Mr.  Ford's  offer  for  the 
nitrate  plants  imposes  upon  him  the  obligation  to  keep  the  plants  in  reserve, 
at  his  expense,  for  the  use  of  the  Government  in  time  of  war  for  the  pro- 
duction of .  explosives,  his  bid  looms  large  in  comparison  with  the  prices 
obtained  for  the  other  war-time  investments,  from  which  no  further  returns 
will  be  secured.  So  there  has  not  been,  and  can  not  be,  any  just  criticism 
of  the  amount  offered  by  Mr.  Ford  for  the  nitrate  plants. 

Mr.  Ford  not  only  offers  a  very  jfair  price  for  the  nitrate  plants,  but  agrees 
to  keep  nitrate  plant  No.  2  at  Muscle  Shoals  in  an  up-to-date  running  condi- 
tion and  available  to  the  Government  without  cost  if  it  should  ever  be 
needed  for  military  purposes  and  the  manufacture  of  munitions.  It  is  now 
in  a  stand-by  condition,  expensive  to  guard  and  maintain.  The  older  it 
grows,  the  more  expensive  the  maintenance  charges  will  be.  With  the  very 
best  care  it  would  rust  out  and  greatly  deteriorate  in  value.  The  fixation 
of  atmospheric  nitrogen  is  a  comparatively  new  art,  and  it  will  be  improved 
from  time  to  time,  and  in  order  for  this  plant  to  ke^p  pace  with  the  progress 
of  the  art  and  be  an  up-to-date,  going  concern  in  the  event  of  a  military  emer- 
gency it  must  be  oi^erated  in  peace  time. 

Besides  the  act  of  Congress  making  provision  for  its  construction  pro- 
vided that  it  should  be  operated  in  peace  time  for  the  manufacture  of  fer- 
tilizer. So  the  acceptance  of  the  Ford  offer  preserves  this  plant  as  a  military 
plant  and  at  the  same  time  makes  provision  for  its  operation  by  private 
capital  in  peace  time  for  the  manufacture  of  fertilizer.  The  maintenance 
of  the  plant  by  the  Ford  Co.,  relieving  the  Government  of  all  expense  and 
keeping  it  in  an  up-to-date  running  condition,  is  of  inestimable  value  and 
would  save  the  Government  many  millions  of  dollars,  besides  the  advan- 
tages to  agriculture,  the  basic  industry  on  which  the  success  and  prosperity 
of  every  other  business  depends. 

Mr.  Ford  further  agrees  to  operate  nitrate  plant  No.  2  during  the  entire 
period  of  the  lease  to  its  full  capacity  in  the  manufacture  of  commercial  ferti- 
lizer and  sell  direct  to  the  farmers  at  a  price  not  to  exceed  8  per  cent  of  the 


\ 


1006 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


1007 


M 


■^.& 


actual  co^  of  production,  through  a  board  nominated  by  the  farmers'  organiza- 
tions and  appointed  by  the  President. 

The  present  capacity  of  the  plant  would  produce  about  2,000,000  tons  of  ferti- 
lizer, which  is  about  30  per  cent  of  the  amount  of  fertilizer  consumed  in  normal 
times.  It  has  been  clearly  shown  that  with  cheap  water  power  the  Ford  Co. 
can  make  fertilizer  at  about  one-half  of  the  present  price.  The  NAtion's  ferti- 
lizer bill  is  now  nearly  $250,000,000  annually.  Suppose,  for  the  sake  of  argu- 
ment, that  the  operation  of  the  Muscle  Shoals  plant  should  only  result  in  a 
20  per  cent  reduction  in  prices.  That  would  amount  to  $50,000,000  a  year 
saving  to  the  farmers,  and  this  amount  for  100  years  out  on  compound  interest — 
as  the  opponents  of  the  Ford  offer  have  undertaken  to  do  in  claiming  what  Mr. 
Ford  would  make  from  the  Government  in  compounding  interest — tVould  be 
over  $5,000,000,000,  saving  to  the  farmers  of  the  country. 

Mr.  Ford's  agieement  requires  his  company  to  be  responsible  for  the  upkeep 
and  repair  of  the  i>ower  houses  and  equipment  at  his  own  exi)ense ;  to  pay  the 
Government  $55,000  annually  for  the  upkeep  of  the  dams  and  locks  which  will 
save  the  Government  the  expense  of  maintaining  the  present  imperfect  facili- 
ties for  navigation  at  Muscle  Shoals,  amounting  to  from  $35,000  to  $85,000  per 
annum ;  also  to  pay  as  an  annual  rental  4  per  cent  on  the  actual  cost  of  the 
completion  of  the  dams;  and  in  addition  to  all  this,  create  a  sinking  fund  by 
paying  to  the  Government  $46,746  annually,  which,  if  invested  by  the  Govern- 
ment at  4  per  cent  interest,  would  amount  to  $49,071,035  at  the  end  of  the 
lease ;  if  invested  at  4J  per  cent  would  amount  to  $58,570,003. 

The  Secretary  of  War,  in  his  report  to  Congress  discussing  this  part  of  the 
Ford  offer  (H.  Doc.  167,  p.  7),  made  the  following  statement: 

"  Should  the  dams  be  constructed  at  a  cost  of  not  to  exceed  $42,000,000,  as 
estimated  by  Mr.  Ford's  engineers,  there  would  be  left  to  apply  on  the  invest- 
ment of  the  Government  heretofore  made  whatever  the  amortization  payments 
would  produce  in  excess  of  the  $42,000,000.  If  the  amortization  fund  should  be 
invested  continuously  at  4  per  cent  there  would  be  at  least  $7,000,000  to  be  thus 
applied,  but  should  it  be  invested  at  a  greater  rate  of  interest  the  amount  would 
bt;  increased  as  shown  by  the  following  table : " 

Amount  retired  hy  Mr.  Ford's  sinking  fund  at  various  rates  of  interest,  com- 
pounded semiannually. 


Account  of— 

Semi-, 
annual 
pay- 
ments. 

Life  of 
fimd 

(years). 

94 
97 

Amount  retired  at  following  interest  rates: 

• 

4  per  cent. 

$40,919,798 
8.152,137 

4^  per  cent. 

$48,783,949 
9,786,054 

4^  per  c«it. 

$58,319,350 
11.780.600 

5  per  cent; 

6  per  cent. 

Dam  No.  2 

Dam  No,  3 

$19,S68 
3,5()5 

$83,718,097 
17,150,545 

$176,030,810 
37,103,880 

Total 

49,071,935 

58,570,003 

70,100,049 

100,868,642 

213,134,600 

Note.— Payments  are  to  be  made  into  sinking  fund  semiannually  at  the  beginning  of  each  semiannual 
interest  period.  This  sinking  (or  retirement)  fund  has  notliing  to  do  with  Mr.  Ford's  interest  payments, 
but  represents  a  separate  fund  to  be  invested  at  the  liighest  interest  rate  obtainable  for  the  purpose  of 
returning  to  the  Government  within  the  lease  period  the  largest  amount  possible,  with  the  above  semi- 
annual payments,  consistent  with  safe  investment. 

The  Secretary  of  War  found  no  fault  with  this  part  of  the  Ford  offer,  nor 
do  I  remember  to  have  heaitl  of  any  criticism  of  it  by  any  member  of  this 
committee. 

A  group  of  i>owerful  interests  is  tloodng  Congress  and  the  country  with  all 
kinds  of  propaganda  filled  with  fals(»  and  misleading  statements  about  Mr. 
Ford's  plans  and  purposes.  One  very  elaborate  publication  was  issued  pur- 
porting to  tell  the  trutli  about  Muscle  Shoals,  and  a  large  part  of  it  was  an 
attempt  to  sliow  that  Mr.  Ford  would  devote  the  Muscle  Shoals  plant  to  the 
manufsicture  of  sulphate  of  ammonia,  and  this  product  would  have  but  little 
effect  upon  the  cost  of  fertilizer.  Mr.  Ford  does  not  intend  to  produce  sulphate 
of  ammonia  as  a  nitrogen  fertilizer  compound.  He  will,  of  course,  produce 
an)monia  by  the  air  nitrogen  fixation  process  and  mix  ammonia  with  phosphoric 
jMMd.  produced  electrically  from  phosphate  rock  obtained  nearby,  thus  making 
jimmonia  phosphate. 

Tlie  sjinre  publication  states  the  cost  of  completing  Dam  No.  2  would  be 
.«<.",:i.f»0(>,0()f>.  and  of  Dam  No.  3,  $24,000,000,  or  $57,000,000  for  the  completion 


of  the  dams.  The  facts  are  that  e.xperienced  and  responsible  c*on tractors 
have  offered  to  complete  Dam  No.  2  for  $23,000,000  and  build  Dam  No.  3  for 
$17,000,000,  making  a  total  of  $40,000,000  for  both.  The  estimate  of  Mr.  Ford's 
engineers  is  $42,000,000.  The  outside  estimates  of  the  engineers  of  the  War 
Department  is  about  $48,000,000,  and  they  admit  that  it  may  be  considerably 
less. 

Mr.  Ford,  according  to  his  offer,  is  to  construct  the  danrs  under  the  direction 
of  the  Chief  of  Engineers  of  the  War  Department.  It  will  be  to  his  interest  to 
do  it  as  cheaply  as  he  can,  as  he  is  to  pay  an  annual  rental  of  4  per  cent  on 
wliat  it  costs. 

Some  of  those  who  are  opposing  the  Ford  offer  have  criticized  the  4  per  cent 
on  what  it  costs  to  complete  the  dams  as  annual  rental  for  the  water  power.  To 
show  that  there  is  no  cause  for  such  criticism  I  submit  the  following  table  of 
Government  loans  now  outstanding  in  the  shape  of  bond  issues : 

Per  cent. 

Consols,  1930,  $500,724,050 _' 2 

Panamas,  1916-1936,  $48,954,180 i! 

Panamas,  1918-1938,  $25,947,400 2 

Panamas,  1961,  $50,000,000 3 

Postal  savings,  $11,774,020 2A 

Conversion,  1946-1947,  $28,894,500 3' 

"War  issues  * 

Liberty,  1932-1947,  $1,410,074.050 3| 

Liberty,  1932-1947,  $15,130.900 4 

Liberty,  1927-1947,  $66,362,800 1 4 

Victory,  1923,  $497,915,100 3J 

From  the  above  table  it  will  be  seen  that  bond  issues  prior  to  the  recent  war 
issues  were  on  a  basis  of  from  2  to  3  per  cent,  and  the  average  waib  under 
2i  per  cent.  It  also  shows  that  a  number  of  war  issues  were  at  4  per  cent 
and  less.  It  was  only  toward  the  end  of  the  war  and  in  the  most  serious  stress 
of  the  war  that  some  bonds  were  issued  at  a  rate  of  4i  to  4 J  per  cent. 

In  normal  times  our  Government  bonds  have  been  issued  for  much  less  than 
4  per  cent,  so  it  is  fair  to  assume  that  the  4  per  cent  which  Mr.  Ford  is  to  pay 
as  annual  rental  for  a  100-year  period  will  be  above  the  average  rate  that  will 
prevail  during  that  time. 

When  the  Ford  offer  is  accepted  Congress,  instead  of  appropriating  money 
from  time  to  time  to  complete  the  dams,  could  provide  for  the  issuance  of  4 
per  cent  bonds,  which  would  be  easily  negotiated.  The  intei*est  paid  by  the 
Ford  Co.  as  rental  for  the  power  would  pay  the  interest  on  the  bonds  and  the 
amortization  plan  would  liquidate  the  bonds,  and  in  this  way  the  completion 
of  the  dams  would  not  cost  the  Government  anything. 

There  has  been  some  criticism  of  that  part  of  the  Ford  offer  which  provides 
for  a  lease  of  the  water  power  for  100  years.  Practically  all  of  the  water- 
power  developments  up  to  this  time  provide  for  a  99-year  lease  period.  The 
criticism  of  this  feature  of  the  offer  seems  to  be  due  to  a  provision  in  the 
general  water-power  law  approved  June  10,  1920,  which  provides  for  50-year 
leases  with  rights  of  renewal. 

There  should  be  no  objection  to  the  Ford  offer  on  account  of  the  100-year  lease 
period ;  first,  for  the  reason  that  the  dams  at  Muscle  Shoals  were  approved  by 
the  War  Department  and  work  commenced  on  the  construction  of  one  of  them 
before  the  enactment  of  the  general  water-power  law;  second,  because  the  de- 
velopment at  Muscle  Shoals  is  in  a  class  to  itself.  There  is  nothing  else  like 
it.  Besides  the  dams  are  being  built  by  the  Government  and  will  be  the 
property  of  the  Government,  and  not  a  lessee. 

There  is  a  fall  of  134  feet  in  36i  miles.  The  fiow  of  the  river  is  72,000  second- 
feet  at  low  water  and  499,000  second  feet  at  high  water.  The  Wilson  Dam  is 
to  be  100  feet  high  and  4,425  feet  long;  Dam  No.  3,  14  miles  up  the  river, 
is  to  be  40  feet  high  and  6,725  feet  in  length  ;  the  two  together  developing  about . 
800.000  horsepower — more  than  has  ever  been  developed  at  any  one  place  in 
the  world. 

There  is  a  present  market  for  ,only  a  small  part  of  this  power.  It  will  re- 
quired a  number  of  years  to  secure  a  market  for  it  all.  Mr.  Ford  is  not  willing  to 
take  over  this  water  power  under  a  lease  for  less  than  100  years.  He  claims 
than  on  accounts  of  the  heavy  expenses  and  the  time  required  to  provide  a 
use  and  market  for  this  power  that  a  lease  for  less  than  that  length  of  time 
would  be  unreasonable. 

92900—22 64 


I 

[ 


1008 


MUSCLE   SHOALS  PROPOSITIONS. 


ill'. 


Oenera^  Beach,  Chief  of  Eujrineers  of  the  War  Department,  told  you  that  he 
thought  l()(>-year  lease  in  this  case  was  proper  and  rejisonahle  and  gave  his 
reasons.  Many  others  are  of  the  same  opinion.  The  Government  and  taxpayers 
are  fully  protected  during  the  entire  period  of  the  lease,  so  tliere  is  no  valid  ob- 
jection to  the  100-year  lease. 

The  chairman  of  this  committee,  after  hearing  this  feature  of  the  lease  dis- 
cussed by  a  number  of  witnesses,  announced  in  an  open  meeting  of  the  com- 
mittee that  he  saw  no  objection  to  the  100-year  lease  period  in  the  Ford  offer. 
The  fact  that  the  general  water-power  law  provides  for  a  50-year  lease,  with 
rights  of  renewal,  is  no  reason  why  this  lease  should  not  be  for  100  years,  for 
the  reasons  I  have  stated. 

The  general  water-power  law,  as  we  all  know,  was  a  compromise  measure 
in  many  respects  and  has  been  very  disappointing  in  results,  as  there  has  been 
but  little  water-power  development  since  that  time.  There  were  great  differ- 
ences of  opinion  among  the  Members  of  both  Houses  of  Congress  as  to  what 
the  lease  period  should  be.    A  gi*eat  many  favored  a  100-year  lease  period. 

Someone  has  suggested  that  section  17  of  the  Ford  offer  might  have  the  effect 
of  giving  the  Ford  Co.,  its  successors  or  assigns,  a  perpetual  right  to  at  least 
a  part  of  the  power  from  these  dams.  To  show  that  such  is  not  the  case  I 
refer  you  to  that  section,  which  is  as  follows : 

"  17.  In  order  that  said  company  may  be  supplied  with  electric  power  and  the 
farmers  with  fertilizers  after  the  termination  of  the  said,  100-year  leases,  should 
the  United  States  elect  not  to  operate  said  power  plants  but  determine  to  lease 
or  dispose  of  s^me,  the  company  shall  have  the  preferrecl  right  to  negotiate 
with  the  United  States  for  such  lease  or  purchase  and  upon  such  terms  as 
may  then  be  agreed  upon.  If  the  said  leases  are  not  renewed  or  the  property 
covered  thereby  is  not  sold  to  said  company,  its  successors  or  assigns,  any 
operation  or  disposal  thereof  shall  not  deprive  the  company,  its  successors  or 
assigns,  of  the  right  to  be  supplied  with  electric  power  at  reasonable  rates  and 
in  amount  equal  to  its  needs,  but  not  in  excess  of  the  average  amount  used  by 
it  annually  during  the  previous  10  years." 

Secretary  of  War  Weeks  made  no  objection  to  this  section  and  does  not 
construe  it  as  has  been  suggested.  Secretary  Weeks  has  this  to  say  about  that 
section  (House  Doc.  No.  167,  p.  8)  : 

"  This  paragraph  does  not  bind  the  United  States  to  a  renewal  of  the  lease 
and  is  in  no  way  an  attempt  to  control  the  policy  of  Congress  beyond  the  100- 
year  period  of  the  present  lease,  except  to  preserve  to  Mr.  Ford's  company  *  the 
preferred  right  to  negotiate  with  the  United  States  for  such  lease  or  purchase 
and  upon  such  terms  as  may  then  be  agreed  upon.'  It  also  attempts  to  preserve 
for  the  company  a  right  to  be  supplied  with  electric  power  for  a  period  not 
stated,  '  at  reasonable  rates '  in  the  event  the  power  plants  are  operated  or  dis- 
posed of  to  some  one  other  than  the  company." 

If  the  plants  of  the  Ford  Co..  or  its  successors  or  its  assigns,  depending  upon 
this  power,  should  be  denied  the  necessary  power  for  operation  at  the  end  of 
the  lease  it  would  amount  to  a  confiscation  of  their  plants.  The  provision  is 
reasonable  and  proper. 

The  building  of  these  dams  as  provided  in  the  Ford  offer  will  not  only  de- 
velop this  great  water  power  w^hich  has  been  going  to  waste  for  all  time,  but 
will  open  up  cheap  water  transportation  on  the  upper  Tennessee  River,  which 
runs  through  a  vast  area  rich  in  great  deposits  of  coal,  iron  ore,  marble,  slate, 
phosphate  rock,  zinc,  and  immense  forests  of  hardwood  timber,  all  of  which  is 
needeil  in  other  parts  of  the  country.  With  this  cheap  water  transportation  all 
these  materials  which  are  now  locked  up  for  want  of  transportation  facilities 
can  be  transported  in  the  Ohio  River,  thence  into  the  Mississippi  River,  and  to 
all  the  markets,  both  domestic  and  foreign. 

The  Air  Nitrates  Coi-poration,  a  subsidiary  of  the  American  Cyanamide  Co., 
with  a  capital  stock  of  $1,000,  constructed  nitrate  plant  No.  2  at  *a  cost  of 
nearly  $70,000,000  on  a  cost-plus  percentage  contract  and  collected  a  fee  of 
$1,500,000  in  addition.  This  company  claims  that  it  has  a  right  to  purchase 
nitrate  plant  No.  2  under  its  contract  with  the  Government.  There  was  no 
authority  for  the  execution  of  a  contract  by  the  Secretary  of  War,  or  any  other 
official,  at  the  time  of  the  execution  of  the  contract,  December  1, 1917,  obligating 
the  Government  to  sell  this  plant  to  the  Air  Nitrates  Corporation  and  that  part 
of  the  contract  is  null  and  void.  No  one  has  furnished  the  committee  with 
any  authority  to  support  such  a  contention.  A  representative  of  this  company 
did  appear  before  this  committee  and  claim  that  his  company  had  a  moral,  if 
not  a  legal,  right  to  purchase  plant  No.  2.    The  nature  of  the  contract  and 


MUSCLE   SHOALS   PROPOSITIONS. 


1009 


amount  which  has  been  paid  by  the  Government  to  this  company  clearly  .shows 
that  there  is  not  even  a  moral  obligation  on  the  part  of  the  Government.  This 
representative  also  stated  that  his  company  did  not  care  to  buy  the  plant  and 
in  addition  was  not  financially  able  to  purchase  it.  So  this  so-called  "option 
to  purchase  "  in  no  way  interferes  with  the  acceptance  of  the  Ford  offer. 

The  Judge  Advocate  General  of  the  War  Department,  after  a  careful  con- 
sideration of  this  question,  rendered  an  opinion  declaring  this  option  void,  and 
that  in  his  opinion  there  was  not  even  a  moral  obligation  on  the  part  of  the 
Government  to  sell  the  plant  to  the  Air  Nitrates  Corporation. 

The  Alabama  Power  Co.  also  claims  an  option  to  purchase  the  Gorgas  plant 
and  transniis.sion  line  from  Gorgas.  Ala.,  to  Muscle  Shoals.  The  .ludge  Advo- 
cate General  has  also  decided  that  this  is  void.  Attorneys  for  the  Alabama 
Power  Co.  and  my  colleague,  Mr.  Oliver,  have  discussed  at  length  every  feature 
of  the  contract  and  transactions  between  the  Government  and  the  Alabama 
Power  Co.  in  connection  with  the  Gorgas  plant  and  transmission  line  from 
Gorgas  to  Muscle  Shoals,  and  I  deem  it  unnecessary  to  undertake  to  add  any- 
thing to  what  has  been  said.  I  take  for  granted  that  you  will  act  upon  the 
opinion  of  the  Judge  Advocate  General. 

T  hoi)e  that  I  have  shown  that  the  afcei)tanei'  of  thp  Ford  offer  will  not 
cost  the  Government  anything  in  the  end.  But.  even  if  it  should  lose  some 
inlnrewt  during  the  construction  |)orio(1,  in  making  provis'on  for  the  manu- 
facture <tf  i\  cheaper  and  high-grade  concentrated  fertilizer  for  the  farmers 
in  those  sections  of  the  country  where  fertilizer  is  absolutely  necessary,  it 
w<nild  not  c-oinpare  with  the  amounts  which  have  l)een  ai)propriated  by  Con- 
gress for  the  reclamation  of  arid  lands  in  our  Western  States. 

The  Government  reclamation  of  the  arid  West  is  both  a  paternal  an<1  an 
iiit»'rnal  improvement  which  is  essentially  a  cooperative  arrangement  between 
the  Govrnment  and  private  parties.  The  summary  of  appropriations  made  by 
Congress  for  western  land  irrigation  to  1915  amounts  to  $116,824,894.82.  and 
of  that  amount  there  was  an  authorized  Government  bond  issue  of  $20,000,000, 
and  none  of  the?e  appropriations  in  aid  of  irrigation  improvements  in  the 
West  returns  any  interest  payment  to  the  Government. 

One  of  the  most  prominent  examples  of  the  reclamation  projects  of  the  West 
is  the  case  of  the  Roosevelt  Dam,  79  miles  northwest  of  Phoenix,  Ariz.,  this 
dam  being  284  feet  high  and  235  feet  long,  originally  estimated  to  cost 
$5,000,000,  but  the  total  cost  of  this  reservoir,  dam,  power  system,  diversion 
work!<.  canals,  drilliuL'.  etc.,  to  July  1.  191.S,  was  .$11.19.^.687.  The  money  was 
loaned  to  them  to  aid  in  irrigating  their  lands  without  interest  for  at  least 
20  years,  and  in  some  places  it  goes  on  into  a  revolving  fund  year  after  year 
without  any  interest  to  the  Government. 

The  Government  has  very  properly  assisted  and  encouraged  the  western 
farmers  to  water  their  arid  lands.  For  the  same  reason  the  Government  should 
at  least  give  Mr.  Ford  an  opportunity  to  aid  the  farmers  who  need  fertilizer. 

Other  countries  are  using  their  air-nitrogen  plants  successfully  for  the 
manufacture  of  fertilizer  and  are  making  most  valuable  contributions  to 
agriculture  in  this  way.  Our  country  is  making  progress  along  all  other 
lines;  why  not  this? 

What  is  the  cause  of  this  opposition?  It  has  been  conclusively  shown  <luring 
this  hearing  that  the  Ford  Co.  would  produce  fertilizer  by  reason  of  the  cheap 
water  power  and  the  Ford  Co.'s  business  methods  at  from  one-third  to  one- 
half  cheaper  than  the  present  prices  of  fertilizer. 

I  believe  that  everyone  who  has  studied  the  question  will  agree  that  Dr. 
Milton  Whitney.  Chief  of  the  Bureau  of  Soils,  and  an  expert  on  matters  per- 
taining to  fertilizer,  was  right  when  he  said  that  the  present  policy  pertaining 
to  the  manufacture  and  distribution  of  fertilizer  was  wrong  and  should  be 
remedied. 

I  have  no  doubt  but  that  this  committee  has  concluded  by  this  time  that  the 
manufacture  of  fertilizer  by  the  Ford  Co.  at  Muscle  Shoals  would  revolutionize 
the  fertilizer  business  in  this  country  by  reason  of  the  quality  and  price  of 
the  fertilizer  produced. 

When  the  war  ended  it  was  costing  the  Government  $1,000,000  an  hour.  One 
reason  was  that  those  who  sold  us  nitrates  and  explosives  of  different  kinds 
charged  any  price  they  pleased,  while  our  boys  were  fighting  and  dying  in  the 
trenches  in  France,    We  were  helpless;  had  to  get  our  nitrates  from  Chile. 

We  are  dependent  upon  Chilean  nitrate  for  nitrogen  for  war  and  fertilizer 
purposes.     We  have  paid  out  for  Chilean  nitrate  since  1867  the  enormous 


1010 


MUSCLE   SHOALS   PROPOSITIONS. 


sum  oi,  $821,183,624.12.  In  addition  to  this  large  sum  the  people  of  the  United 
States,  principally  the  farmers,  have  paid  to  Chile  an  export  duty  of  $11.87 
per  ton  on  Chilean  nitrates,  which  has  amounted  to  $163,647,780.63  since  1867. 

Why  should  the  farmers  of  the  United  States  continue  to  pav  tribute  to  a 
foreign  country  to  secure  nitrogen  for  fertilizer  purposes  when' there  is  over 
21,000,000  tons  of  nitrogen  in  the  air  over  every  square  mile,  when  we  have  one 
of  the  largest  and  best  nitrogen  plants  in  the  world,  equipped  and  planned  to 
take  the  nitrogen  from  the  air  and  convert  it  into  a  solid  substance  by  means  of 
the  patented  process  for  the  fixation  of  atmospheric  nitrogen,  and  thereby  lower 
the  prices  and  keep  our  money  at  home.  We  not  only  pay  a  high  pricefor  the 
Chilean  nitrate  and  an  export  tax,  but  high  ocean  freight  rates  for  four  or  five 
thousand  miles  to  the  nearest  American  port,  and  then  high  railroad  freight 
rates  to  the  station  nearest  to  the  farmer,  then  ujmally  a  long-distance  haul 
over  muddy  roads  to  the  farm  where  it  is  to  be  used.  After  all  of  this  expense 
it  contains  only  about  16  per  cent  of  nitrogen ;  the  balance  is  of  no  value  as  a 
plant  food  and  Is  what  is  usually  callled  filler.  Mr.  Ford  proposes  to  make  a 
concentrated  fertilizer  and  sell  it  to  the  farmer  and  let  him  do  the  mixing  if 
he  desires,  and  save  all  this  expense. 

The  American  representative  of  the  Chilean  Nitrate  Corporation  testified  be- 
fore the  Graham  Committee  on  War  Expenditures  that  the  price  of  Chilean 
nitrate  or  nitrate  of  soda,  as  it  is  commonly  called,  was  fixed  by  the  Chilean 
Nitrate  Commission  in  London.  He  also  stated  that  the  by-product  coke-oven 
companies  in  the  United  States  placed  the  same  price  on  their  annnonium  sul- 
phate in  proportion  to  nitrogen  contents.  He  further  stated  that  in  his  opinion 
if  the  Muscle  Shoals  plant  should  be  operated  for  the  manufacture  of  fertilizer 
that  the  Chilean  Nitrate  Corporation  would  have  to  sell  Chilean  nitrate  at  the 
same  price  that  it  would  be  sold  for  at  Muscle  Shoals.  So  it  is  easy  to  under- 
stand why  the  Chilean  Nitrate  Corporation  should  oppose  the  Ford  offer.  It 
has  no  competition  at  this  time  and  is  interested  in  keeping  down  competition. 

The  acceptance  of  the  Ford  offer  will  make  us  independent  of  this  foreign 
power  both  for  fertilizer  and  war  purposes.  The  quality  of  fertilizer  we  are 
now  using  is  inferior  and  the  prices  prohibitive  in  proporton  to  the  present  prices 
of  farm  proflucts.  We  have  been  diligent  in  our  effort  to  enact  legislation  in  the 
interest  of  the  farmers.  We  have  secured  large  amounts  of  national  aid  to 
rural  roads ;  we  have  provided  a  system  of  farm-loan  banks  for  the  purpose  of 
enabling  the  farmers  to  secure  long-time  loans  at  a  low  rate  of  interest ;  we  have 
revived  the  activities  of  the  War  Finance  Corporation  in  order  to  assist  the 
farmers  in  marketing  their  crops ;  we  have  recently  enacted  a  cooperative  mar- 
keting bill.  We  now  have  an  opportunity  to  do  something  further  by  accepting 
the  Ford  offer  and  protecting  the  American  farmer  from  further  imposition  by 
these  foreign  and  domestic  monopolies  who  fix  and  manipulate  the  prices  of  fer- 
tilizer at  their  will  without  any  regard  to  the  price  of  farm  products  or  the 
financial  ability  of  the  American  farmer. 

The  American  Cyanamid  Co.  and  the  Virginia  Chemical  Co..  the  biggest  of 
the  fertilizer  companies,  the  Alabama  Power  Co.,  J.  B.  Duke,  of  the  American 
Tobacco  Co..  and  the  owner  of  the  Southern  Power  Co.  with  its  vast  operations 
in  the  Carolinas.  are  all  opposed  to  the  Ford  offer  and  favor  the  offer  of  the 
Alabama  Power  Co.  They  are  all  intertwined  through  stock  ownership,  as  has 
been  shown  by  congressional  investigations.  If  the  Alabama  Power  Co.  should 
secure  Muscle  Shoals  there  would  be  formed  a  combination  of  interests  of 
water  power  and  fertilizer  with  power  for  evil  without  limit. 

There  is  always  great  danger  to  the  public  in  any  one  group  of  interests 
securing  control  over  any  industry.  It  is  but  natural  that  these  interests  should 
ob.iect  to  Henry  Ford's  getting  Muscle  Shoals.  They,  like  the  Chilean  Nitrate 
Coi-porataion,  do  not  want  any  competition,  either  in  the  fertilizer  or  water- 
power  business.  They  believe  in  monopoly.  They  profit  by  monopoly.  It  is 
pur  duty  to  try  to  protect  the  people  in  their  rights. 

There  are  six  and  one-half  million  farmers  in  the  I'nit»'d  States.  Thirty- 
eight  r>er  cent  of  our  population  live  on  farms.  The  annual  value  of  crops  and 
live  stock  amount  to  from  eleven  to  twenty -five  billion  dollars.  Agriculture  has 
an  investment  of  $80,000,000,000,  the  largest  investment  by  far  of  anv  other 
business.  The  next  largest  business  is  railroads,  with'  an  investment  of 
$20,000,000,000. 

The  shrinkage  in  value  of  the  crops  of  1920  amounted  to  $8,000,000,000.  from 
which  the  farmers  have  not  yet  recovered.  In  the  face  of  this  condition  of  the 
American  farmer,  the  price  of  Chilean  nitrate  has  advanced  $17  per  ton  within  the 
last  30  days,  with  further  increases  threatened.    The  fertilizer  known  as  8-3-3 


MUSCLE   SHOALS  PROPOSITIONS. 


1011 


has  advanced  from  $26  a  ton  to  $31  a  ton,  and  the  indications  are  that  it  will 
go  to  $36  in  a  short  time. 

The  National  Fertilizer  Association  opposes  the  Ford  offer.  It  has  flooded 
Members  of  Congress  with  literature  in  which  it  is  contended :  First  that  the 
Ford  Co.  can  not  make  fertilizer  at  Muscle  Shoals ;  and,  second,  that  it  can  not 
make  it  cheaper  than  it  is  now  being  sold.  The  president  of  this  association 
appeared  before  this  committee  and  made  the  same  claim.  If  this  be  true,  why 
should  they  be  so  concerned  about  the  Ford  offer?  It  is  verv  apparent  that  they 
believe  that  Ford  can  make  fertilizer  cheaper  and  that  it  will  materially  affect 
their  business.  This  same  representative  of  the  National  Fertilizer  Association 
contended  before  this  connnittee  that  a  monopoly  of  water-power  interests  was 
in  the  interest  of  the  people. 

The  Secretary  of  War,  in  his  rei)ort  to  Congress  on  the  Ford  offer,  made 
this  very  significant  and  pertinent  statement : 

"  In  this  time,  when  there  is  a  large  amount  of  unemployment,  it  is  not  w  itliout 
importance  to  consider  the  advanta^s  to  the  Nation  of  the  employment  of  the 
large  amount  of  labor  required  in  undertaking  this  development.  I  therefore 
urge  that  Congress  give  early  consideration  to  this  matter,  not  only  to  settle 
a  contraverted  question  but  to  furnish  employment  on  a  large  scale." 

Mr.  Ford  intends,  if  his  offer  is  accepted,  to  begin  work  inunediately  and 
give  employment  to  thousands  of  people  who  are  now  unable  to  secure  employ- 
ment. Mr.  Ford's  personal  representative,  Mr,  W.  B.  Mayo,  said  to  you  one 
day  last  week  that  Mr.  Ford  wanted  to  get  in  on  the  work  at  Muscle  Shoals  this 
summer  while  the  weather  is  good  and  the  river  is  low  and  before  there  is 
further  damage  to  the  unfinished  dam  and  machinery  and  equipment  at  the 
dam.  He  claims  that  the  development  of  his  company  will  eventually  result 
in  giving  employment  to  1,000,000  people.  This,  with  an  average  of  5  to  the 
family,  would  mean  5,000,000  people  employed  and  supi)Oi-ted  as  a  direct  result 
of  this  development. 

Can  anyone  doubt  for  a  moment  that  Mr.  Ford,  with  his  immense  capital, 
organizaticn,  and  wonderful  record  of  efficiency,  will  not  make  a  success  of 
this  undertaking?  Would  not  the  American  people  regard  it  as  a  national  crime 
to  reject  the  Ford  offer  and  prevent  this  development,  which  ^Vould  be  nation- 
wide in  its  beneficial  effects? 

Mr.  Greene.  Mr.  Almon,  do  you  want  to  leave  in  the  record  your  deliberate 
suggestion  that  the  rejection  of  the  Ford  offer  would  be  regarded  as  a  national 
crime? 

Mr.  Almon.  Well,  if  it  is  thought  that  expression  is  too  strong  I  will  say, 
"  Would  not  the  American  people  regard  it  as  a  national  calamity?  '* 

The  acceptance  of  the  Ford  offer  would  not  only  result  in  giving  employ- 
ment to  labor  on  a  large  scale,  provide  for  better  and  cheaper  fertilizer,  and  im- 
provement to  navigation,  but  that  part  of  the  country  within  a  radius  of  200 
miles  and  probably  more,  and  all  intervening  points  would  be  supplied  with 
cheap  power  for  all  purposes. 

It  also  means  the  investment  by  the  Ford  Co.  of  forty  or  fifty  millions  of  dol- 
lars in  equipping  the  nitrate  plant  for  the  manufacture  of  fertilizer  and  the 
establishment  of  other  industrial  plants. 

It  is  claimed  by  some  that  Mr.  Ford  can  not  make  a  success  of  the  fertilizer 
business  at  Muscle  Shoals ;  Mr,  Thomas  A.  Edison,  after  visiting  Muscle  Shoals 
and  making  full  investigation,  said  he  considered  that  it  was  a  practical  thing 
to  make  fertilizer  at  Muscle  Shoals;  that  there  is  nothing  complex  about  it. 
Is  not  his  opinion  worth  something? 

Many  said  that  Mr.  Ford  could  not  make  cheap  automobiles,  trucks,  and 
tractors  in  competition  with  those  engaged  in  the  business  when  he  commenced, 
but  in  this  they  were  mistaken.  Last  year  the  Ford  Co.  turned  out  1,013,958 
passenger  automobiles  and  trucks,  and  is  now  selling  an  automobile,  a  tractor, 
and  a  truck  for  $1,150,  and  claims  that  he  will  be  able  to  reduce  to  $1,000  if 
his  offer  for  Muscle  Shoals  is  accepted. 

The  success  of  Henry  Ford  is  the  marvel  of  the  century  when  we  realize  what 
he  has  accomplished  was  in  spite  of  the  powerful  opposition,  fighting  a  single- 
handed  battle.  The  great  masses  of  the  people  of  the  Nation  not  only  indorse 
his  offer  but  have  implicit  faith  in  his  ability  to  carry  out  the  big  plans  he  has 
in  view  if  he  gets  Muscle  Shoals. 

One  of  the  chief  causes  of  his  success  is  because  he  is  willing  to  help  his 
fellow  man.  No  one  ever  hears  of  friction  between  capital  and  labor  in  the 
great  manufacturing  plants  of  the  Ford  Motor  Co. 


1012 


MUSCLE   SHOALS  PROPOSITIONS. 


Henry  Ford  believes  in  high  wages  and  low  price  of  product.  On  that  basis 
he  has  been  a  wonderful  success.  In  this  respect  he  is  very  ditTerent  to  many 
of  the  leaders  of  financial  power  in  this  country. 

The  Ford  otfer  has  the  hearty  and  unanimous  indorsement  of  every  farm 
i>rK«nization  and  farm  newspaper  in  this  country,  and  their  i*epresentatlves 
have  appeared  before  this  committee  and  earnestly  urged  its  acceptance.  They 
are  equally  as  unanimous  and  unitetl  in  their  opposition  to  the  offer  of  the 
Alabama  Power  Co.  This  is  but  natural,  as  it  makes  no  provision  for  the 
manufacture  of  fertilizer  at  Muscle  Shoals.  The  representatives  of  these  farm 
organizations  have  visited  Muscle  Shoals  several  times  and  made  a  thorough 
investigation  of  its  possibilities  from  a  f^^rtilzer  standpoint  and  have  been 
unanimous  in  their  report  and  recommeiuh&:ions  in  favor  of  the  completion  of 
the  development  and  the  operation  of  the  plants.  They  regard  the  acceptance 
of  the  Ford  offer  as  the  only  hope  of  relief  from  the  Chilean  nitrate  and  fer- 
tilizer monopolies  and  trusts.  The  farmers  of  this  country  are  watching  closely 
the  action  of  Congiess  in  the  matter  of  t\\%  Ford  offer  and  will  not  be  satisfied 
unless  this  is  done.  They  are  intelligent  and  fully  understand  the  Ford  offer 
and  are  confident  that  if  it  is  accepted  that  the  Ford  Co.  will  revoluti^>nize 
the  fertilizer  industry,  destroy  the  monopoly,  and  give  them  cheaper  and  better 
fertilizer. 

The  Ford  offer  has  the  unqualifietl  indorsement  of  the  Mississippi  Valley 
Association,  an  organization  composed  of  strong  and  successful  business  men, 
representing  55  per  cent  of  the  population  of  the  United  States. 

The  Ford  offer  was  unanimously  indorsed  by  the  great  farmers'  conference 
which  was  called  by  the  Secretary  of  Agi-iculture,  Wallace,  at  the  request  of 
President  Harding,  which  was  in  session  in  the  city  of  Washington  for  five 
days  the  latter  part  of  January  of  this  year.  During  the  discussion  of  the 
Ford  offer  in  that  conference  only  one  voice  was  raised  against  it,  and  that 
was  by  an  oflScial  of  the  American  Fertilizer  Association. 

President  Harding  in  addressing  the  Washington  conference  of  farmers, 
among  other  things,  made  the  following  significant  statement : 

*'  Waterways  Jiave  been  too  long  neglected  in  America.  We  need  a  practical 
development  of  water  resources,  both  for  transportation  and  power.  A  large 
share  of  the  railroad  tonnage  is  coal  for  railway  fuel.  The  experiences  of  rail 
way  electrification  demonstrates  the  possibility  of  reducing  this  cost  and  in- 
creasing efficiency.  We  may  begin  very  soon  to  consider  plans  to  electrify  our 
pailroads  " 

Soon  after  this  address  was  delivered  by  President  Harding  Mr.  Mapothier, 
president  of  the  Louisville  &  Nashville  Railroad,  one  of  the  great  railway  sys- 
tems of  the  country,  announced  in  a  speech  in  Birmingham,  Ala.,  that  he  was 
in  favor  of  the  Ford  offer  for  Muscle  Shoals  and  if  it  was  accepted  by  Congress 
his  companv  would  like  to  make  a  trial  of  electricity  in  railroad  operation  on 
its  branch  line  from  Muscle  Shoals  to  Nashville,  Tenn.,  a  distance  of  about 

150  miles. 

The  800,000  horsepower  developed  at  Muscle  Shoals  would  conserve  6,500,000 
tons  of  coal  annually.  That  is,  the  water  power  would  be  equal  to  the  power 
generated  by  the  use  of  that  much  coal. 

So  when  the  water  power  is  developed  in  accordance  with  the  Ford  offer 
it  will  also  mean  a  conservation  of  coal  on  a  big  scale. 

The  Alabama  delegation  in  Congress  is  as  a  unit  in  favor  of  the  Ford  offer 
and  will  continue  to  work  together  very  earnestly  to  have  it  accepted  by 
Congress.  The  delegation  is  equally  as  strong  and  united  in  its  opposition  to 
the  offer  of  the  Alabama  Power  Co.  and  its  efforts  to  defeat  the  Ford  offer. 

The  delegations  from  a  number  of  other  States  have  also  indorsed  the  Ford 
oft'er.  Business,  civic,  and  commercial  organizations  in  all  parts  of  the  country 
have  pa.ssed  resolutions  urging  Congress  to  accept  the  Ford  offer.  I  don't  recall 
anything  that  has  ever  heretofore  attracted  such  a  nation-wide  interest  and 
favorable  indorsement.  Not  only  farmers,  but  merchants,  bankers,  and  pro- 
fessional men  have  made  known  to  Members  of  Congress  their  approval  of  the 
Ford  offer  and  their  desire  that  it  be  accepted.  It  would  sc»em  that  J)9  per 
cent  of  the  people  in  many  parts  of  the  country  favor  the  Ford  offer.  I  feel 
sure  this  is  true  in  the  State  of  Alabama,  which  I  in  part  have  the  honor  to 
represent  in  the  House.  I  am  also  sure  that  the  opposition  in  that  State  is 
just  as  strong  against  the  offer  of  the  Alabama  Power  Co.  and  its  eleventh- 
hour  effort  to  defeat  the  Ford  offer  and  perpetuate  its  monopoly  of  the  water 
power  of  Alabama. 


MUSCLE  SHOALS  PROPOSITIONS. 


1013 


This  sentiment  for  the  Ford  offer  and  against  that  of  the  Alabama  Power 
Co.  has  been  demonstrated  by  the  people  of  Alabama  and  other  parts  of  the 
country  by  means  of  petitions,  resolutions,  of  mass  meetings,  women  clubs, 
league*  of  women  voters,  posts  of  American  Legion,  labor  organizations,  and 
civic  organizations  of  all  kinds  urging  Congress  to  adopt  the  Ford  offer  and 
reject  that  of  the  Alabama  Power  Co.  These  expressions  of  the  people  have 
been  filed  with  this  committee  with  the  request  that  they  be  carefully  con- 
sidered. There  have  been  mailed  to  me  petitions  signed  by  practically  every 
State,  county,  and  municipal  officer  in  Alabama,  the  immediate  and  direct 
representatives  of  the  people,  urging  the  acceptance  of  the  Ford  offer  and 
strongly  protesting  against  that  of  the  Alabama  Power  Ci*.  I  will  not  ask  to 
encumber  the  printed  hearings  with  all  of  these  petitions,  but  I  do  ask  that 
one  be  inserted  in  the  record — that  of  Jefferson  County,  in  which  the  city  of 
Birmingham  is  situated,  the  headquarters  of  the  Alabama  Power  Co.  Y<m 
will  notice  that  it  is  even  signed  by  all  the  judges  of  the  court  in  the  city  of 
Birmingham.  I  will  only  ask  permission  that  a  few  of  the  resolutions  referred 
to  be  inserted  in  the  record. 

As  a  further  expression  of  the  people  of  the  Birmingham  district  I  ask  per- 
mission to  insert  in  the  record  a  copy  of  the  resolution  ]>assed  by  a  mass 
meeting  held  in  the  city  of  Birmingham  on  the  19th  of  last  month,  attendeil 
by  2,0(X)  persons — 1.000  niore  were  turned  away  for  lack  of  room — indorsing 
the  Ford  offer  and  expressing  their  unalterable  opposition  to  the  offer  of  the 
Alabama  Power  Co. 

The  sentiment  of  all  the  people  of  Alabama  was  well  and  very  forcefully 
expressed  in  a  memorial  addressed  to  the  President  and  Congress  and  commit- 
tees in  Congress  adopted  by  a  state-wide  mass  meeting,  5,000  strong,  at  Mont- 
gomery, Ala.,  on  Wednesday.  March  1,  1922,  which  it  is  agreed  shall  be  inserted 
in  the  record. 

Mr.  Chairman  and  gentlemen,  I  will  now  give  very  briefly  my  views  and  some- 
what of  an  analysis  of  the  Alabama  Power  Co.'s  offer,  and  then  I  will  have 
concluded. 

The  acceptance  by  Congress  of  the  bid  of  the  A-iabama  Power  Co.  would  mean 
])ractically  a  donation  by  the  Government  of  the  large  steam  power  plant  at 
Muscle  Shoals— nitrate  plant  No.  2,  which  cost  $12,326,392;  the  Gorgfts  plant 
and  transmission  lines,  which  cost  $4,676,000;  and  the  $17,000,000  which  has 
been  expended  on  the  construction  of  the  Wilson  Dam,  making  a  total  of 
$34,002,392. 

The  offer  is  deceptive  in  that  it  begins  by  offering  $5,000,000  for  the  two  steam 
plants  and  transmission  lines,  but  later  provides  that  the  cost  of  the  lock  at 
the  Wilson  Dam  is  to  be  deducted  from  this  amount.  One  or  more  of  the 
engineers  claim  that  the  lock  would  cost  approximately  $4,500,000.  Under  the 
offer  of  the  Alabama  Power  Co.  it  would  build  the  lock  and  would  have  its 
own  methods  of  bookkeeping,  and  it  could  easilv  make  it  cost  the  full  amount 
of  $5,000,000. 

The  $1,000,000  secondary  horsepower  offered  for  the  operation  of  nitrate 
plant  No.  2  would  not  be  used  by  the  Government,  and  the  Government  would 
not  be  able  to  lease  it  to  anyone  who  would,  for  the  reason  that  it  would  require 
from  $10,000,000  to  $15,000,000  working  capital  and  expenditure  to  convert  it 
into  a  fertilizer  plant.  Besides,  no  one  could  depend  upon  this  secondary  power 
available  for  8  or  10  months  in  the  year  with  which  to  operate  the  plant.  The 
steam  plants  having  been  conveyed  to  the  Alabama  Power  Co.,  neither  the  Gov- 
ernment nor  anyone  it  might  designate  to  operate  the  plant  would  have  any 
available  power  from  two  to  four  months  when  the  necessary  secondary  power 
was  not  available.  This  secondary  power  would  be  of  value  if  there  were 
auxiliary  steam  plants  or  primary  water  power  available.  It  would  be  of  value 
if  both  of  the  dams  were  built  and  if  storage  dams  were  built  in  the  upper 
Tennessee  River  and  its  tributaries,  as  Mr.  Ford  proposes  to  do  at  his  own  ex- 
pense, so  as  to  store  the  flood  waters  and  let  them  down  during  the  low  stages 
of  the  river,  and  thereby  convert  secondary  into  primary  power  at  the  Muscle 
Shoals  Dams. 

It  is  provided  in  section  2  of  the  offer  of  the  Alabama  Power  Co.  that  if  this 
secondary  power  is  discontinued  by  the  Government,  due  to  change  in  the  art  in 
the  production  of  fertilizer  and  munitions,  at  nitrate  plant  No.  2,  and,  for  no 
other  reason  as  the  offer  is  written,  that  the  Alabama  Power  Co.  is  to  purchase 
and  pay  for  the  same  in  accordance  with  a  schedule  to  be  set  forth  in  the 
license.    It  will  be  noted  that  this  is  to  be  done  in  the  event  the  Government 


1014 


MUSCLE   SHOALS  PROPOSITTONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


1015 


discontinues  its  power  for  the  reasons  stated  above,  which  might  never  occur, 
for  the  reason  that  the  Government  might,  and  in  all  probability  would,  never 
begin  to  use  it.  It  will  also  be  noted  that  the  amount  to  be  paid  the  Govern- 
ment for  it  in  such  an  event  is  to  be  fixed  in  accordance  with  the  schedule  set 
forth  in  the  license.  This  license  would  be  issued  by  the  Federal  Power  Com- 
mission, and  the  schedule  of  rates  fixed  thereby  would  be  a  matter  of  agreement 
between  the  commission  and  the  Alabama  Power  Co.,  so  the  Government  would 
be  at  the  mercy  of  the  Alabama  Power  Co.,  and  it  would  result  in  the  Govern- 
ment receiving  practically  nothing  for  this  secondary  power.  For  these  reasons 
I  feel  that  I  was  justified  in  saying  at  the  outset  that  the  acceptance  of  the  offer 
of  the  Alabama  Power  Co.  means  practically  a  donation  by  the  Government  to 
that  company  of  the  two  steam  plants,  transmission  lines,  and  the  Wilson  Dam, 
upon  which  $17,000,000  has  been  expended,  altogether  representing  a  total 
investment  of  $34,002,392  by  the  Government. 

If  the  offer  of  Henry  Ford  was  not  in  existence  I  do  not  believe  the  com- 
mittee or  Congress  would  consider  for  a  moment  the  acceptance  of  the  offer 
of  the  Alabama  Power  Co.     In  the  absence  of  the  Ford  offer  the  committee 
would  evidently  recommend  the  completion  of  the  Wilson  Dam  by  the  Govern- 
ment rather  than  make  this  donation  to  the  Alabama  Power  Co.  • 
The  Secretary  of  War  has  recommended  that  the  Dam  No.  2,  known  as  the 
Wilson  Dam,  be  completed  by  the  Government  in  the  event  the  Ford  offer  is  not 
accepted.    He  stated  that  the  revenue  from  the  sale  of  the  water  power  from 
the  Wilson  Dam  would  amply  justify  Congress  in  appropriating  a  sufficient 
amount  with  which  to  complete  it.     The  committee  and  Congress  would  cer- 
tainly conclude  that  it  would  be  better  to  spend  twenty  or  twenty-two  million 
dollars  more  to  complete  this  dam  and  own  it  for  all  time  rather  than  make 
the  donation  of  $34,000,000  worth  of  property  to  the  Alabama  Power  Co.  in  order 
to  Induce  it  to  spend  enough  money  to  complete  it  and  then  own  it,  and  if  the 
Government  acquired  it  at  the  end  of  50  years  would  have  to  pay  for  it  a  fair 
value  in  accordance  with  the  water  power  law.    If  finished  in  accordance  with 
the  Ford  offer,  it  would  be  the  property  of  the  Government  for  all  time.     If 
the  offer  of  the  Alabama  Power  Co.  was  accepted  there  is  no  way  by  which  any- 
one could  know  when,  if  ever,  the  work  upon  this  dam  would  begin.     When 
the  permit  was  issued  by  the  Federal  Power  Commission,  the  Alabama  Power 
Co.  would  have  two  years  under  the  water  power  law  to  begin  construction 
work  and  might  have  it  extended  an  additional  two  years.    So  the  statement 
in  the  offer  that  work  would  commence  within  a  reasonable  time  does  not  mean 
anything.    In  fact,  there  is  no  certainty  whether  a  permit  would  ever  be  issued 
to  the  Alabama  Power  Co.  by  the  Federal  Power  Commission  if  its  offer  should 
be  accepted  by  Congress.    If  a  permit  was  issued  the  company  might  never  be 
able  to  borrow  the  money  with  which  to  complete  the  Wilson  Dam.     In  fact, 
it  might  never  make  any  effort  to  raise  the  money,  but  its  real  purpose  inl 
making  its  offer  would  have  been  accomplished — that  is,  it  would  have  been  the 
means  of  defeating  the  Ford  offer.    Your  time  and  that  of  Congress  would  all 
have  been  in  vain,  and  the  Alabama  Power  Co.  would  continue  to  enjoy  a 
monopoly  of  the  water  powers  of  Alabama,  which  its  president  claims  and  in- 
sists would  be  in  the  interest  of  the  people.    I  deny  this;  the  people  deny  it, 
as  is  shown  by  resolutions,  petitions,  mass  meetings  opposing  the  offer  of  the 
Alabama  Power  Co.  and  its  methods. 

The  development  at  Muscle  Shoals  is  a  most  important  part  of  our  national 
defense.  There  is  located  our  great  munitions  plant.  Would  it  not  be  a  great 
piece  of  military  strategy  to  turn  it  over  to  a  lot  of  foreigners,  or  place  it  or  its 
principal  parts  under  their  control?  A  majority  of  the  stock  of  the  Alabama 
Power  Co.  that  can  be  voted  is  owned  by  foreigners.  They  own  a  large  part 
of  its  securities.  If  the  Alabama  Power  Co.  completes  the  Wilson  Dam,  it 
would  have  to  borrow  the  money  with  which  to  do  it.  It  is  natural  to  presume 
that  it  would  do  as  heretofore  and  borrow  it  from  foreigners. 

The  Alabama  Power  Co.  published  and  furnished  the  Alabama  Legislature  in 
1918-19  a  statement  as  to  its  business  and  how  it  secured  its  capital,  in  which 
appears  the  following  statement : 

"  The  capital  to  construct  the  work  was  obtained  in  England,  Germany,. 
France,  Belgium,  Canada,  and  a  part  in  the  United  States." 

The  Alabama  Power  Co.  is  owned  by  the  Alabama  Traction,  Light  &  Power 
Co.  (Ltd.),  which  is  a  corporation  of  the  Dominion  of  Canada,  and  that  it  i» 
very  largely  the  property  of  citizens  of  Great  Britain. 

It  is  bad  enough  for  this  corporation  under  foreign  influence  to  have  a 
monopoly  of  practically  all  of  the  water-power  sites  in  Alabama,  much  less  to 


get  its  clutches  on  all  of  the  water  and  steam  power  connected  with  the  Gov- 
ernment munitions  plant  at  Muscle  Shoals  and  strip  the  plant  of  all  of  its 
jibility  to  function  in  the  event  of  a  military  emergency. 

If  the  Ford  offer  is  accepted  it  will  be  controlled  by  Americans  and  American 
money,  and  under  no  obligations  to  any  great  financial  interests,  trusts,  or 
monopolies,  domestic  or  foreign. 

The  offer  of  the  Alabama  Power  Co.  can  not  be  regarded  in  competition  with 
the  Ford  offer.  It  is  entirely  in  a  different  class.  It  makes  no  provision  for 
the  building  of  Dam  No.  3,  no  improvement,  navigation  improvement,  nor  the 
operation  of  the  nitrate  plant  for  the  manufacture  of  fertilizer.  All  of  which 
is  provided  for  in  the  Ford  offer.  I  do  not  believe  that  the  committee  will 
consider  for  a  moment  favorable  action  on  the  offer  of  the  Alabama  Power  Co. 

It  would  seem  that  there  is  but  one  of  four  courses  for  this  committee  to 
follow,  viz: 

1.  That  of  scrapping  the  development  which  has  cost  over  $100,000,00,  as 
has  been  suggested  by  the  big  interests  opposing  the  Ford  offer.    Or 

2.  For  the  Government  to  complete  the  water-power  development  and  go  into 
tlie  business  of  selling  power  and  manufacturing  and  selling  fertilizer.    Or 

3.  Accept  the  offer  of  the  Alabama  Power  Co.  and  donate  to  it  the  steam 
power  plants  and  unfinished  dam.  representing  an  investment  of  .$34,000,000 
by  the  Government,  and  make  no  improvement  to  navigation  and  no  provision 
for  the  manufacture  of  fertilizer.    Or 

4.  Accept  the  Ford  offer  and  convert  a  large  war-time  expenditure  into  an 
investment  which  will  result  in  a  great  benefit  to  the  entire  country. 

It  would  be  almost  unthinkable  to  consider  the  first;  the  second  would  be 
very  objectionable  to  the  great  majority  of  people;  the  third  would  mean  the 
defeat  of  all  of  the  purposes  and  objects  of  the  Government  in  what  has  been 
done  at  Muscle  Shoals;  the  fourth  is  the  only  safe  and  sensible  course  to  pur- 
sue and  would  meet  with  the  approval  of  the  country  at  large. 

In  conclusion  I  most  earnestly  ask  that  when  you  have  completeil  your 
hearings  and  visited  Muscle  Shoals  that  you  will  come  to  the  conclusion  that 
the  offer  of  Henry  Ford  should  be  accepted,  and  that  you  will  not  only  recom- 
mend its  acceptance  in  your  report,  but  that  you  will  also  prepare  and  intro- 
duce in  the  House  such  a  bill  as  may  be  necessary  to  provide  for  its  accept- 
ance by  Congress. 

I  thank  you,  Mr.  Chairman  and  gentlemen,  for  your  attention  and  your 
courtesy  in  permitting  me  to  be  heard. 

(The  resolutions  referred  to  by  Mr.  Almon  follow.) 

Resolutions  Introduced  by  Hon.  C.  W.  Ashcbaft  and  Unanimously  Adopted 
BY  THE  Florence  Chamber  of  Commerce,  Florence  Rotary  Club,  and 
Florence  PjXchange  Club,  in  Joint  Meeting  Assembled,  Monday,  Febru.vry 
20,  1922 : 

Cittizens  of  Florence  in  mass  meeting  assembled,  take  note  of  the  following 
facts : 

1.  That  the  Alabama  Power  Co.,  doing  business  in  this  State,  is  owned 
principally  by  a  foreign  corporation  with  its  official  domicile  in  Canada  (see 
official  report  of  Graham  investigating  committee)  ;  that  the  majority  of  its 
stock  is  owned  in  Canada  and  England,  and  the  policy  of  the  company  is  there- 
fore necessarily  alien. 

2.  The  only  streams  of  Alabnma  offering  opportunity  for  power  developments 
of  considerable  proportions  are  the  Coosa,  Tallapoosa,  and  Little  Rivers,  and 
the  Tennessee  River  at  Muscle  Shoals. 

3.  That  the  Alabama  Power  Co.  has  bought  up  and  preempted  the  entire 
water-power  sites  and  rights  in  perpetuity  on  the  first  three  of  these  rivers, 
namely,  the  Coosa.  Tallapoosa,  and  Little  Rivers,  and  has  entered  upon  a 
program  of  development  by  themselves,  and  the  prevention  of  all  development 
by  others,  generally  estimated  to  cover  a*period  of  100  years.  Although  they 
have  now  been  operating  in  Alabama  almost  20  years,  they  have  completed  only 
one  unit  in  this  program  and  activities  already  displayed  give  no  promise  of 
completing,  within  the  100  years,  the  developments  already  preempted  by  them. 
It  is  therefore  evident  that  their  purpose  in  bidding  for  Muscle  Shoals  can  not 
be  based  upon  a  desire  either  for  opportunity  for  expansion  or  to  faithfully 
serve  the  public,  but  their  purpose  must  be  found  in  their  desire  to  entrench 
themselves  and  fasten  upon  the  people  of  Alabama  and  surrounding  States  for 
all  time  the  blight  of  their  complete  and  oppressive  monopoly.     By  inference 


1016 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITION'S. 


1017 


iii 


they  plead  loudly  against  a  100-year  lease  to  Henry  Ford,  but  thev  propose 
to  yield  nothing  of  the  stranglehold  which  they  have  acquired  in  perpetuity  on 
every  important  power  site  in  Alabama  except  Muscle  Shoals. 

4.  In  their  activities  instead  of  developing  navigation  conjointly  with  power 
their  development  prevents  navigation  in  any  continuous  form.  Their 
entire  interests  is  to  retard  development  of  power  and  navigation,  as  in  so 
doing  they  can  maintain  highest  possible  rates  for  power  and  delay  responsi- 
bility for  navigation.  Their  record  is  that  they  have  procured  municipal 
franchises  for  light  and  power  wherever  possible  and  retail  current  at  exhorbi- 
tant  retail  rates.  They  have  not  fostered  or  developed  industry  at  any  point 
they  serve  and  their  reputation  in  the  State  is  in  line  with  the  findings  of  the 
Graham  congressional  investigating  committee  in  reference  to  their  unpatriotic 
dealings  with  the  Government  during  and  following  the  war. 

5.  For  the  foregoing  reasons  we  conclude  that  should  Congress  accept  any 
proposal  from  Alabama  Power  Co.  that  would  give  them  control  over  Muscle- 
Shoals  it  could  only  result  in  delaying  developments  in  nil  other  streams  in 
Alabama  over  which  they  have  already  obtained  control  in  perpetuity,  or  delay- 
ing development  of  Muscle  Shoals. 

6.  Alabama  Power  Co.  has  no  experience  in.  nor  plans  for,  any  activity  out- 
side of  development  and  transmission  of  power,  and  therefore  could  not  be  ex- 
pected to  finance  or  develop  power  faster  than  development  of  Industry  by  others 
would  create  demand  for  power. 

7.  Being  a  corporation  owned  by  aliens,  the  citizens  of  the  United  States 
could  not  intrust  their  security  and  preparedness  as  a  Nation  to  the  mercies 
of  its  policy  makers,  who  are  men  whose  allegiance  is  sworn  to  other  countries. 

8.  On  the  other  hand,  Mr.  Henry  Ford  has  formulate<l  a  mammoth  plan  of 
industrial  development  that  grips  the  imagination  and  thrills  the  enthusiasm 
of  every  American  citizen,  and  seeks  power  for  its  operation.  He  is  to  the 
manor  born,  he  has  proven  himself  capable,  he  is  regarded  as  fair  in  all  his 
dealings.  American  citizens  wherever  located  have  confidence  that  he  can  and 
will  succee<l  in  the  construction  and  operation  of  a  great  industrial  section  in 
such  manner  as  to  not  only  give  employment  to  thousands  now  unemployed, 
but  also  to  aw^aken  new  and  inspiring  ideals  in  industrial  life.  He  came 
promptly  upon  invitation  of  his  Government,  and  not  at  the  last  hour,  and 
made  a  rea.sonable  proposal  to  immediately  develop  all  the  power  at  ]Muscle 
Shoals,  not  part  of  it,  and  to  imme<lint^ly  employ  the  whole  power  developed 
in  needed  industry,  and  to  immediately  make  navigable  the  river  for  the  benefit 
of  up-river  cities,  as  Decatur,  Guntersville,  Chattanooga,  and  Knoxville.  He 
also  proposes  to  ever  hold  the  plants,  processes,  and  personnel  subject  to  the 
immediate  call  of  the  Government  in  case  of  war,  and  to  operate  to  full  capacity 
for  the  benefit  of  the  farmers  in  times  of  peace. 

9.  While  legislation  and  court  rulings  in  every  quarter  have  conceded  to 
railroads,  banks;  in  fact,  all  forms  of  business,  and  to  organized  labor  the 
right  to  a  reasonable  profit  or  to  a  reasonable  wage,  only  Mr.  Ford  in  his 
proposal  for  Muscle  Shoals  has  offered  one  ameliorating  item  to  the  sad  condi- 
tion of  the  American  farmer,  to  whom  we  must  all  look  for  both  food  and 
raiment. 

10.  The  foregoing  facts  considered,  we  as  citizens  of  Alabama  and  of  the 
United  States  do  solemnly  resolve: 

First.  That  the  Alabama  Power  Co.,  whose  owners  are  citizens  of  foreign 
countries,  propose  to  buy  the  iwwer  plant  at  nitrate  plant  No.  2,  and  this  nitrate 
plant  is  the  only  such  plant  within  our  borders,  and  therefore  constitutes  tlie 
sole  item  of  preparedness  against  war  so  far  as  nitrates  are  concerned,  and  no 
matter  what  price  the  Alabama  Power  Co.  might  offer  for  this  steam  power 
plant  to  separate  it  from  the  nitrate  plant,  the  citizens  of  these  United  States 
would  be  worse  than  foolish  to  regard  the  offer  otherwise  than  as  coming  from 
*'  Greeks  bearing  gifts." 

Second.  In  view  of  their  large  holdings  of  other  power  sites  in  Alabama, 
which  they  neither  develop  nor  aflow  to  develop,  we  denounce  the  bid  of 
the  Alabama  Power  Co.  for  Muscle  Shoals  as  both  unpatriotic  and  contrary  to 
the  best  public  interest. 

Third.  Henry  Ford,  a  citizen  of  the  United  States  iu  whom  his  fellow  citizens 
believe  without  reservation,  has  in  response  to  the  call  of  his  Government,  made 
to  Congress  a  proi)osal,  which,  if  accepted,  will  immediately  procure  the  fuH 
development  of  all  the  water  power  at  Muscle  Shoals,  the  complete  navigation 


of  the  river  and  the  building,  within  our  day  and  generation,  of  an  industrial 
empire  that  taxes  the  imagination  to  comprehend. 

Fourth.  Therefore,  all  these  things  carefully  considered,  we  urgently  api)eal 
to  Congress  to  promptly  accept  the  Ford  proposal  and  with  the  least  possible 
delav  put  it  into  active  effect.  ^        ^  .      „ 

Fifth.  That  copies  of  these  resolutions  be  given  to  the  press,  and  sent  to  all 
Alabama  Senators  and  Representatives  in  Congress. 


ItKSOT.ITTlONS   OF   BlIlAIIiXtiHAM    M.VSS    MeKTING. 

Whereas  the  great  question  before  the  American  people  to-day  and  the  Cim- 
gress  of  the  United  States  is  the  proiier  utilization,  for  the  benefit  of  all  the 
people,  of  the  great  natural  resources  that  have  remained  dormant  for  100 
years  or  more  at  Muscle  Shoals,  Ala. ;  and 

Whereas  Henry  Ford,  the  mechanical  wizard  of  the  age.  has  made  a  proposal 
to  the  Government  that  meets  with  almost  unanimous  approval  of  the  people  of 
the  entire  Nation,  and  apparently  a  large  number  of  Representatives  in  Con- 
gress and  the  Senate :  and  ,     ,,      ,    ct      , 

Whereas  Henrv  Ford's  offer  for  the  operation  of  the  Muscle  Shoals  properties 
was  made  in  gooil  faith  to  the  proper  i)erson  as  spokesman  for  the  Government. 
Secretary  of  War  Weeks,  and  after  due  consideration  by  the  Secretary  of  W'ar 
was  submitted  to  Congress  for  its  approval  or  rejection,  and  was  apparently 
about  to  be  ratified;  and 

Wheieas  selfish  interests,  such  as  the  Fertilizer  Trust,  power  monoix)lies,  and 
others,  supported  by  the  gigantic  moneyetl  powers  of  Wall  Street,  are  opposed 
to  the  f  Jovernment  disposing  of  these  resources  in  a  way  that  would  be  of  benefit 
to  the  peoi>le  as  a  whole :  and  ..    .    ,         - 

Whereas  a  sequel  to  this  great  opposition  is  shown  by  the  submission  of  a 
bid  by  the  Alabama  Power  Co.,  a  foreign  corporation,  that  has  never  been  of 
any  material  benefit  to  anyone  other  than  the  stockholders,  who  are  citizens 
principallv  of  foreign  countries:  Therefore  be  it 

RenolVGd  That  we,  the  citizens  of  the  Birmingham  district,  in  mass  meeting 
assembled  this  the  19th  day  of  February,  1922,  go  on  record  as  being  unalterably 
opposed  to  the  Government  of  the  T'nited  States  considering  the  bid  of  the  Ala- 
bama Power  Co.  And  be  it  further 

Reftolred.  That  we,  the  citizens  of  this  district,  heartily  indorse  and  unquali- 
fiedly recommend  that  the  proposal  of  Henry  Ford  be  accepted  and  entered  into 
by  the  Government  for  the  oi>eration  of  the  Muscle  Shoals  properties.    And  be  it 

further  .,    .       l,.  .^    »     ^       •  i_. 

Reftolved  Tliat  these  resolutions  be  given  the  widest  publicity  by  furnishing 
same  to  the  press,  and  that  a  committee  of  five  be  appointed  by  the  chairman  of 
this  meeting  to  forward  copies  of  these  resolutions  to  our  two  Senators  and  our 
Representatives  in  Congress  and  the  committees  of  Congress  before  whom  the 
proposals  are  now  iiending. 


Petition  of  Offktals  of  .Teffkrson  Cot^nty,  Ala. 

Thk  State  of  Alabama. 

.Teffersox  County. 

The  Hon.  E.  B.  Almon, 

Washington,  D.  C: 
We  urge  the  Government  to  accept  the  offer  of  Henry  Ford  for  Muscle  Shoals 
because  we  believe  that  it  will  be  developed  by  him  for  the  benefit  of  the 
American  people.  We  protest  against  the  acceptance  of  the  offer  of  the  Ala- 
bama Power  Co.,  because  it  would  insure  to  it  the  control  of  every  large  water- 
power  site  in  Alabama  and  thereby  fasten  upon  our  people  for  all  times  a  water- 
power  monopoly. 


1$ 


m4 


4^ 


1018  MUS(XE   SHOALS   PROPOSITIONS. 

M.  P.  Stiles,  judge  of  probate,  Jefferson  County,  Ala.:  M.  V.  Henry 
county   treasurer;    William    E.    Fort   judge   criminal   division' 
circuit  court,  tenth  circuit:  H.  P.  Heflin,  judge  criminal  division, 
circuit  court,  tenth  circuit ;  Joseph  N.  Tate,  solicitor  tenth  judi- 
cial circuit  of  Alabama ;  C.  B.  Smith,  judge  civil  division,  circuit 
court ;  J.  O.  Sims,  judge  civil  division,  circuit  court ;  J.  B.  Aird 
judge  civil  division,  circuit  court ;  Hugh  A.  Locke,  judge  civil 
■      division,  circuit  court;  Wm.  J.  Waldrop,  clerk  of  circuit  court* 
Richard  T.  Evans,  circuit  judge ;  Romaine  Boyd,  circuit  judge ; 
D.  C.  Ball,  president  board  of  revenue;  Lacey  Etlmundson,  board 
of  revenue;  T.  E.  Huey,  board  of  revenue;  J.  W.  Givin,  board  of 
revenue ;  W.  B.  Copeland,  board  of  revenue ;  James  F.  Hawkins 
tax  collector;  J.  C.  Hartsfield,  sheriff;  L.  R.  Dillon,  tax  assessor' 
Jefferson  County;  M.  E.  Morris,  chairman  board  of  registrars' 
Conrad  H.  Ohme,  engineer,  Jefferson  County. 

STATEMENT  OF  HON.   WILLIAM  B.   BANKHEAD,  A  REPBESENTA- 
TIVE  IN  CONGRESS  FROM  THE  STATE  OF  ALAPATWTA 

Mr.  Bankhead.  Mr.  Chairman  and  gentlemen  of  the  committee.  I  shall  at 
least  earn  the  gratitude  of  the  committee  by  being  very  brief  in  the  concluding 
statement  I  shall  have  to  make,  because  it  is  about  time  for  the  noon  recess 

Ihe.  entire  Alabama  delegation,  Mr.  Chairman  and  gentlemen  of  the  com- 
nnttee.  are  grateful  for  the  opportunity  you  have  extended  to  us.  through  the 
courtesy  of  the  chairman,  to  appear  before  you  this  morning  and  present  to  you 
a  statement  of  the  expression  of  the  unanimous  attitude  not  onlv  of  our  entire 
delegation  m  the  House,  but  T  am  authorize<l  to  say  also  the  attitude  of  our 
representatives  in  the  Senate,  as  being  all  for  the  recommendation  by  this  com- 
mittee that  the  offer  of  Mr.  Ford  be  accepted  in  its  amended  form  and  reported 
to  the  House  for  favorable  action. 

I  am  not  going  at  this  late  hour  to  make  any  argument  on  this  proposition 
This  committee  has  been  extremely  patient  in  the  hearing  of  this  whole  case 
In  my  entire  service  in  Congress  T  do  not  recall  a  great  public  question  involved 
m  legislation  to  whieh  more  elaborate  consitleration  has  been  given  bv  anv 
committee,  and  I  think  the  committee  is  deserving  of  the  thanks  not  only  of 
other  Members  of  (^ongress  but  of  the  country  at  large  for  the  desire  it  has 
shown  to  understand  every  angle  of  this  great  national  question,  because  it  is 
a  big  question  It  involves  questions  of  large  national  policy  possibly  as  well 
as  vast  expenditures,  m  connection  with  the  solution  of  the  problem  with  which 
this  committee  has  to  deal. 

Centlemen,  you  have  heard  this  case.  The  record  will  soon  be  made  up  and 
t  is  going  to  be  a  questi<m  of  action  upon  the  part  of  this  committee  I  do  not 
know  what  consideration  the  committee  has  given  to  other  offers  that  have  been 
submitted,  but  the  controversy  seems  to  be  whether  you  shall  act  favorablv 
upon  the  proposition  of  Mr.  Ford  or  whether  you  shall  recommend  the  adoption 
and  acceptance  of  the  offer  of  the  Alabama  Power  Co.  This  committee  knows 
whMt  IS  involved  in  the.se  two  propositions.  You  know  what  Mr.  Ford  proposes 
to  do.  and  you  have  before  you  the  guaranties  of  his  undertaking,  and  vou 
know  what  the  offer  of  the  Alabama  Power  Co.'  is.  You  have  had  a  full  and 
complete  explanation  of  that  offer.  The  cards  have  been  laid  on  the  table  in 
this  proposition,  and  it  is  up  to  this  committee  and  to  the  Congre.ss  subsequentlv 
to  take  action  upon  it.  ^^uut-uiiy 

The  per>ple  of  the  State  of  Alabama,  the  great  preponderant  element  of  the 
Sffe?  ^^^'  ^^^^^'  ^^^  unquestionably  in  favor  of  the  adoption  of  the  Ford 

And  gentlemen,  without  undertaking  to  be  critical  of  the  Alabama  Power 
Co.— and  I  do  not  want  to  be  that— it  is  rather  significant,  and  I  think  it  should 
impress  this  committee,  that  where  there  is  what  is  claimed  to  be  a  local  cor- 
poration which  is  offering  a  competitive  bid  to  a  man  who  lives  in  a  different 
section  of  the  country— and  the  people  of  Alabama  are  fairlv  intelligent  people  • 
they  rate  up  with  the  ordinary  people  of  the  country  in  ^intelligence  and  in 
patriotisni  and  in  an  attempt  to  protect  their  own  interests  and  the  interests 
of  their  children--I  say  it  is  singularly  significant,  gentlemen  of  the  committee, 
^nnhf  i^^^Tn  Z^""  f  ""^  T""}  l^^.^^^ly  Interested  locally  in  this  proposition,  no 
haS^\^T^  the  standpoint  of  their  own  conception  of  their  own  best  interests, 
have  with  practical  unanimity  recommended  to  this  committee  and  to  the  Con- 


MUSCLE   SHi)ALS  PROPOSITIONS. 


1019 


<T- 


ress  of  the  United  States,  that  the  offer  of  the  Alabama  Power  Co.  be  rejected 
!and  that  the  offer  of  Mr.  Ford  be  accepted  by  the  Congress  of  the  United  States. 

Gentlemen  of  the  committee,  there  must  be  some  reason  for  that.  I  am  not 
going  to  go  into  an  analysis  of  the  psychology  of  the  situation  or  the  arguments 
presented,  because  that  would  be  tedious.  This  committee  is  perfectly  able 
to  form  its  own  judgment  on  those  questions. 

I  understand  what  has  been  set  up  as  the  most  difficult  question  the  com- 
mittee has  before  it  is  that  it  may  involve  litigation ;  and  it  must  be  admitted, 
gentlemen  of  the  committee,  that  it  will  inevitably  involve  litigation  if  the 
:si(!tions  and  assertions  of  the  officials  of  the  Alabama  Power  Co.  are  true,  and 
they  have  given  notice  to  this  committtee  and  to  the  world  that  they  propose 
to  stand  upon  their  rights,  as  they  see  them,  as  expressed  in  their  contract  with 
the  Government  of  the  United  States. 

It  resolves  itself  into  this,  if  you  accept  the  Ford  offer :  The  Government  of 
the  United  States  has  to  deliver  title  to  the  property  at  Gorgas  and  to  the  trans- 
mission lines  to  Mr.  Ford ;  but  if  it  is  involved  in  litigation,  as  it  probably  will 
be,  and  will  possibly  cost  the  Government  of  the  ITnited  States  some  additional 
money,  is  the  object  to  be  achieved  worthy  of  that  exi>enditure  and  of  that 
hazard?    I  submit  to  you  that  it  is. 

I  think  a  great  question  here  is  the  question  of  the  fertilizer.  I  do  not  speak 
of  the  farmers  from  the  standpoint  of  propaganda.  Some  suggestion  has  been 
made  here  that  probably  that  phase  of  this  case  has  been  stressed  too  much. 
But  the  great  vital  question  involved  in  this  proposition,  as  we  people  see  it, 
is  the  one  affecting  the  interests  of  the  farmers  of  this  country.  They  have 
been  subjected  to  the  exactions  of  opi)ressive  prices  for  fertilizers,  as  they  see  it. 
From  the  evidence  presented  to  this  committee  by  Mr.  Swann,  it  is  fair  to 
iissume  that  if  the  plant  at  jMuscle  Shoals  is  developed  and  completed,  the  cost 
of  fertilizer  to  the  farmers  of  America  will  be  very  greatly  reduced.  If  you 
reduce  it  one  third,  or  even  20  per  cent,  figuring  the  aggregate  of  millions  of 
dollars  that  the  farmers  all  over  America,  not  only  in  our  section  but  in  every 
section  of  the  country,  could  be  saved  by  the  operation  of  this  plant  on  that  one 
matter  alone,  gentlemen,  I  say  it  involves  the  proposition  of  the  national  pros- 
perity of  our  great  basic  industry,  which  would  justify  the  Government  of  the 
United  States  in  the  expenditure  of  some  money,  if  it  had  to  spend  it.  You  are 
familiar  with  the  proposition  by  which  it  is  proposed  to  amortize  the  amount 
of  the  additional  exiiense. 

There  you  have  a  great  plant,  constructed  under  the  authority  of  Congre.ss, 
und  if  you  accept  the  Ford  offer  .vou  have  that  great  plant  always  in  operation 
for  military  preparedness.  Some  of  the  members  of  the  committee,  judging 
from  their  expre.ssions,  regard  that  as  the  paramount  question ;  others  look  at 
it  more  particularly  from  the  aspect  of  the  production  of  fertilizer  for  the 
farmer. 

Then,  there  is  the  great  question  of  opening  the  Tennessee  River  for  naviga- 
tion. The  Ford  offer,  if  accepted,  will  practically  complete  the  navigation  of 
the  Tennessee  Kiver  from  Chattanooga  to  whore  the  river  flows  into  the  Ohio. 
So,  there  is  the  proposition — it  is  merely  a  question  of  action.  The  members 
of  the  Alabama  delegation,  the  members  of  the  Tennessee  delegation,  the  mem- 
bers of  the  M'ssissii>pi  delegation,  the  membf>rs  of  the  Georgia  delegation,  who 
are  the  men  most  immediately  interested  in  the  matter  from  the  standpoint 
of  l(H-ality,  after  a  full  and  fair  examination  of  all  of  the  aspects  and  all  of 
the  possil)ilities  arising  out  of  these  two  offers,  gentlemen  of  the  committee, 
i>?ul>mit  it  as  their  deliberate  judgment — and  we  are  merely  seeking  to  ex- 
press what  we  believe  to  be  for  the  best  interests  not  only  of  the  people  of  our 
States  and  the  people  of  all  the  other  States,  but  we  are  expressing  the  judg- 
ment of  the  membership  of  that  great  Mississippi  Valley  Association,  composed 
almost  exclusively  of  business  men,  representing  55  per  cent  of  the  total  popu- 
lation of  the  United  States,  who  come  to  you  with  a  very  carefully  prepared 
pamphlet  in  which  they  state  their  reasons  why  the  Ford  offer  should  be  ac- 
t:e|)tetl — after  a  very  careful  and  painstaking  examination.  The  are  hard-fisted, 
hard-headed,  bus'ness  men,  and  they  are  looking  out  for  what  they  conceive 
to  be  the  best  interests  of  the  population  which  that  association  represents,  and 
they  give  it  as  their  opinion  that  the  Ford  offer  should  be  recommended  for 
acceptance  by  the  Committee  on  Military  Affairs. 

Gentlemen,  we  appeal  to  you  upon  the  facts  in  tliis  case,  not  upon  prejudice, 
not  upon  rhetoric,  not  upon  any  ad  hominum  consiilerations  at  all,  but  upon 
the  pure  standpoint  of  what  is  for  the  real,  best  interests  of  the  American  peo- 
ple as  a  whole,  and  we  ask  you,  especially  the  IMembers  of  the  Alabama  dele- 


}  ■ 


it . 


Isf' 


1020 


MUSCLE  SHOALS  PROPOSITIONS. 


'ii|> 

^'-l' 


gation,  t()  report  fnvorably  upon  the  Ford  offer,  with  siu'h  sugrjjestions  as  t*^ 
the  legal  flifficiilties  as  may  be  suggested  to  the  committee  when  you  come  to 
frame  this  legislation. 

:Mr.  Cliairman  and  gentlemen  of  the  committee,  I  am  very  grateful  to  you. 

The  Chairman.  The  committee  feels  very  grateful  to  you,  Mr.  Bankhead,  for 
your  kind  statement  regarding  the  efforts  on  the  part  of  the  committee  to  get 
through  with  this  work,  after  a  thorough  and  deep  investigation  of  all  the 
problems  involved.      We  appreciate  it. 

Mr.  Byrns,  of  Tennessee,  would  like  to  have  a  few  minutes  to  speak  for  the 
Tennessee  delegation.    We  will  be  very  glad  to  hear  Mr.  Byrns  at  this  time. 

STATEMENT  OF  HON.  JOSEPH  W.  BYRNS,  A  BEPBESENTATIVE  IK 
CONGRESS  FROM  THE  STATE  OF  TENNESSEE. 

Mr.  BvKXs.  Mr.  Chairman  and  gentlemen  of  the  connnittee,  I  am  going  to 
ask  the  committee's  in<lulgence  only  for  a  word  or  two. 

The  Governor  of  Teimessee  appeared  before  the  C(»nnnittee  several  days- 
ago  and  stated  that  the  overwhelming  and  preponderant  sentiment  of  tiie 
people  of  Tennessee  is  in  favor  of  the  acceptance  of  the  proposal  made  by  Mr, 
Ford.  There  are  present  here  this  morning  every  member  of  the  Tennessee 
delegation.  l>f  course.  I  do  not  presume  to  speak  for  them,  but  I  feel  .sure 
that  they  will  agree  with  me  when  I  say  that  the  governor  very  correctly  ex- 
pressed the  sentiments  of  all  the  men.  women,  and  children  in  Tennessee.  And 
I  feel  sure  that  the  members  of  the  Tennessee  delegation  also  indorse  what  has 
been  said  in  a<lvocacy  of  the  acceptance  of  Mr.  Ford's  proposal  by  the  gentle- 
men from  Alabama,  who  have  just  concluded  their  remarks. 

Mr.  Chairman  and  gentlemen,  the  people  of  Tennessee  believe  that  a  com- 
pany with  a  record  of  monopolistic  cimtrol,  such  as  has  been  attested  by  the 
very  strong  resolutions  presentwl  by  Mr.  Oliver,  which  are  indorsed,  as  I 
understand  it,  by  the  entire  delegation  from  Alabama,  can  not  be  depended 
upon,  if  given  control  of  this  great  power  at  Muscle  Shoals,  to  utilize  it  in 
the  interest  of  the  general  public. 

The  i>eople  of  Tennessee  are  convinced,  and  I  very  earnestly  join  in  that 
conviction,  that  the  only  proposition  before  the  committee,  which,  if  accepted, 
guarantees  that  the  great  power  at  Muscle  Shoals  will  be  developed  in  the 
most  complete  numner.  and  that  after  its  development  the  general  public,  as  a 
result  of  su<:h  development,  will  receive  benefits  therefrom  is  the  proposition 
which  has  been  submitted  by  Mr,  Ford. 

As  has  been  forcibly  stated  here.  I  think,  by  the  gentleman  from  Alabama, 
Mr.  Oliver,  the  idea  of  Congress  in  first  making  it  possible  to  develop  this 
plant  at  Muscle  Shoals  was  to  utilize  it  in  case  of  war  for  the  manufacture 
of  nitrates,  ami  in  time  of  peace  tor  the  benefit  of  the  great  agricultural  in- 
terests of  this  country.  Mr.  Ford's  proi)osition,  as  we  view  it,  means  that 
that  power  will  not  only  be  developed  to  its  fullest  capacity,  but  it  means 
that  the  nitrate  plants,  which  are  intended  to  be  niaintainetl  by  the  (Government, 
will  be  utilized  in  time  of  peace  f<n*  the  benefit  of  the  general  i)ublic.  and  the 
farmers  in  particular,  and  maintained  to  an  up-to-date  standard.  It  also  means 
that  the  Tennessee  Itiver  will  be  made  navigable,  and  that  will  open  up  to  the 
country  all  of  that  rich  section  in  east  Tennessee,  which  abounds  in  minerals 
and  other  proilucts  so  useful  to  the  country  in  general. 

In  conclusion.  Mr.  Chairman  and  gentlemen,  I  want  to  emphasize  what  has 
already  been  said,  that  this  is  something  more  than  a  local  pioposition.  It  i& 
distinctly  a  national  proposition.  Of  course,  the  people  in  that  particular  terri- 
tory, those  who  are  local  to  it,  will  benefit  materially,  and  that  section  will 
benefit  materially.  But  it  is  a  national  proposition,  because,  as  was  stated 
by  one  of  the  most  <lis(ingu:shed  hydraulic  engineers  in  the  United  States  in  :i 
hearing  held  by  another  committee  last  winter,  the  development  of  this  power, 
the  demonstration  of  just  how  cheaply  power  can  be  generated  there  will  mean. 
the  general  development  of  water  power  throughout  this  country. 

Representing  one  of  the  <listricts  in  Tennessee,  and  on  behalf  of  Tennessee. 
HI>eaking.  as  I  believe,  the  sentiments  of  an  overwhelming  niajority  of  the 
people  of  that  State,  I  hope  that  this  connnittee  will,  in  its  wisdom,  see  fit  to 
recommend  the  acceptance  of  the  proi)osition  made  by  Mr.  Ford. 

The  Chaikman.  (lentlemen  of  the  committee,  this  concludes  the  hearing  this 
morning,  and  I  wouhl  like  to  ask  you  if  the  members  of  the  connnittee  will  be 
willing  to  stay  for  a  few  minutes  for  an  executive  session? 


MUSCLE  SHOALS  PROPOSITIONS. 


1021 


Mr.  Oliver.  May  I  say  to  the  chairman  that  a  newspaper  reporter  came  to 
me  after  I  concluded  my  remarks  and  said  that  he  thought.  perhai)s,  I  had 
rlone  the  reporters  an  injustice  in  saying  there  had  been  no  accurate  reports 
sent  out  I  do  not  know  who  sent  out  the  reports  to  which  I  have  had  refer- 
ence. One  of  them  api>eared  in  the  Washington  lN)st  of  this  morning,  and  I 
will  be  glad  to  supply  a  copy  of  that  report,  with  some  others  that  caure  to 
my  attention,  and  submit  them  to  the  connnittee  later.  Some  of  them  appeared 
in  the  Alabama  papers.  I  do  not  recall  any  repoits  iu)w  that  I  had  in  mind 
appearing  in  the  rei>ort  of  the  Associated  Press. 

The  Chairman.  I  saw  that  article  which  appearetl  in  the  Post  this  morning, 
and  I  asked  those  very  questions  that  are  referred  to  of  Mr.  Ford's  repre- 
sentative. 

Mr.  Oliver.  I^t  me  call  your  attention  to  this.  I  do  not  know  whether  you 
read  this  part  of  it.    It  says : 

"After  the  hearings  were  adjourne<i  yesterday  other  connnittee  members  said 
the  legal  barriers  to  acceptance  of  the  Ford  proposal  appeared  inescapable 
because  of  the  contracts  held  by  the  Alabama  I'ower  Co.  and  the  Air  Nitrates 
Corporation,  which,  those  concerns  claim,  give  them  exclusive  rights  to  pur- 
chase the  Warrior  steam  plant  and  nitrate  plant  No.  2,  resi^ectively." 

That  was  the  paragraph  I  had  special  reference  to  as  having  create<l  a 
wrong  impression :  that  was  what  I  had  in  mind  in  making  the  statement.  I 
have  seen  other  statements  of  that  kind  in  the  press. 

The  Chairman.  I  do  not  know  what  the  other  members  of  the  connnittee 
said,  but  I  do  say  that  I  did  say  those  things  to  Mr.  Mayo,  and  called  his 
attention  to  the  proposition  that  we  might  have  litigation  over  this  matter ; 
and  I  hoped  that  Mr.  Ford  would  be  able  to  agree  with  the  members  of  the 
committee  that  if,  in  case  of  litigation,  we  would  be  able  to  depend  uiK>n  him 
to  try  to  help  us  out. 

Mr.  Davis  of  Tennessee.  Mr.  Chairman,  will  the  conmrittee  hear  me  for  just 
half  a  minute? 

The  Chairman.  The  members  of  the  committee,  of  course,  would  be  glad  to 
hear  any  Member  of  Congress.  I  did  not  know  that  the  gentleman  wante<l  to 
appear  before  the  committee,  and  made  no  arrangements  for  him.  I  woiild  like 
to  get  into  executive  session  and  talk  to  the  connnittee.  We  can  i>robably 
arrange  for  you  to  apajiear  before  the  committee  at  the  next  meeting. 

Mr.  Bankhead.  Mr.  Chairman.  Mr.  McDulfie,  of  the  Alabama  delegation, 
would  like  to  have  permission  to  file  a  brief  statement  in  the  record. 

Mr.  McDiTFFiE.  Mr.  (Jhairnran,  I  am  not  asking  the  connnittee  to  indulge  me 
to-day,  but  I  wotild  like  i>ermission  to  file  a  brief  statement  in  the  record. 

The  Chairman.  If  there  is  no  dl)jection,  you  may  hand  your  statement  to  the 
reporter  and  it  will  be  i>rinted  in  the  record. 

(The  following  statement  was  submitted  by  Mr.  McDuflfie:) 

Mr.  Chairman  and  gentlemen  of  the  committee,  it  is  my  judgment  that  no 
question  so  far  reaching  in  importance  as  the  disposition  of  Muscle  Shoals  has 
presented  itself  to  Congress  or  any  committee  of  Congress  since  the  end  of  the 
World  War.  Your  problem  involves  not  alone  the  return  in  dollars  and  cents 
to  the  Government  upon  its  investment  of  a  hundred  millions  of  dollars,  but 
the  carrying  out  of  a  great  national  policy  of  preparedness  or  defense  in  the 
event  of  war  and  the  encouragement  and  development  of  our  basic  national  in- 
dustry of  agriculture  in  times  of  peace.  The  disposition  or  solution  of  your 
problem  at  Muscle  Shoals  is  a  question  which  I  feel  this  great  committee  will 
not  and  should  not  approach  from  the  standpoint  of  local  interest  or  partisan- 
ship. 

This  committee  has  always  claimed  to  be  a  nonpartisan  committee  in  its  work 
and  the  country  has  grown  to  know  it  as  such.  The  great  majority  of  the 
American  people  are  therefore  expecting  you  gentlemen  to  view  this  question 
and  pass  upon  it  in  the  light  of  its  importance  as  a  big  national  problem. 

Muscle  Shoals  is  the  child,  so  to  speak,  of  the  Committee  on  Military  Affairs. 
It  was  this  committee  that  saw  the  value  and  possibilities  of  that  second  great- 
est water-power  site  ori*the  American  Continent  and  embarked  upon  its  develop- 
ment. This  development  was  never  contemplated  as  a  scheme  to  make  money 
for  the  Government.  A  distinct  policy  was  in  view  when  the  Congress  decided 
upon  the  development  at  Muscle  Shoals,  just  as  we  had  certain  policies  in  view 
when  we  built  the  Panama  Canal  and  the  Alaskan  Railroad.  The  canal  has 
never  paid  a  return  on  the  investment  in  actual  dollars,  and  so  far  we  have  no 
reason  to  hope  the  Alaskan  Railroad,  which  has  cost  some  seventy-five  millions. 


4 


^  ■ 


'•i 


1022 


MUSCLE   SHOALS   PROPOSITIONS. 


li 


M*< 


will  s^on  be  a  source  of  revenue  for  the  Government,  though  each  of  theso 
governmental  projects  has  served  a  useful  purpose  and  is  the  result  of  broad 
vision  on  the  part  of  our  statesmen. 

Of  course  the  Oovemmfent  reaps  no  return  in  money  for  maintaining  an 
Army  and  Navy.  In  many  instances  the  improvement  by  the  Government  of 
our  rivers  and  the  development  of  reclamation  projects  have  never  paid  any 
appreciable  amount  on  the  money  invested.  I  think  it  can  be  assumed  there- 
fore, that  you  gentlemen,  while  anxious  always  to  secure  the  best  possible 
return  on  money  expended  or  to  be  expended  by  the  Government  at  Muscle 
Shoals,  can  not  and  will  not  permit  this  to  be  your  controlling  thought  in  pass- 
ing upon  any  offer  which  has  been  submitted  to  you.  The  main  question  appears 
to  me  to  be  the  carrying  out  of  the  policy  of  Congress  as  expressed  in  the 
national  defense  act  of  1916,  namely,  the  construction  or  development  of  plants 
for  making  explosives  and  fertilizer.  I  submit  that  the  offer  of  Henry  Ford 
more  nearly  conforms  to  that  policy  of  Congress  already  adopted  than  any 
other  offer  in  this  respect,  and  at  the  same  time  his  offer,  viewed  from  the 
standpoint  of  a  return  on  the  invested  capital,  is  better  than  any  other. 

Measured  by  other  investment  of  public  money  the  Ford'  offer  means  a 
greater  return  on  the  capital  invested  than  any  other  Government  enterprise 
I  can  now  recall.  While  you  figure  interest  on  the  amount  of  capital  invested 
in  the  plants  for  which  he  offers  five  million  cash,  you  should  figure  also  interest 
on  the  money  invested  in  the  Alaskan  Railroad,  the  Panama  Canal,  and  the 
reclamation  projects.  It  might  also  be  well  to  figure  on  the  investment  in  our 
merchant  ships,  some  of  which  were  offered  at  twenty-one  hundred,  though  they 
cost  about  $800,000. 

Now,  let  us  see  what  the  situation  is  with  reference  to  these  offers  for  the 
Muscle  Shoals  property.  You  will  recall  that  many  months  ago  the  question 
of  completing  Dam  No.  2  presented  itself  to  Congress.  At  that  time  when  we 
were  entering  the  readjustment  period,  the  Congress,  realizing  the  need  for 
the  practice  of  economy — rather.  I  would  say,  the  Congress,  realizing  that  a  very 
large  amount  of  money  had  already  been  expended  in  the  whole  project  at 
Muscle  Shoals — saw  fit  in  its  wisdom  to  stop  the  work  on  the  big  dam,  where 
some  seventeen  millions  had  been  expended.  At  that  time  I  do  not  think  Con- 
gress really  understood  the  value  and  possibilities  of  this  work.  Be  that  as 
it  may,  the  Secretary  of  War  was  directed  to  "  take  stock  "  as  it  were,  of  the 
property  and  ascertain  whether  or  not  the  project  was  one  in  which  the  Gov- 
ernment could  afford  to  invest  more  money  at  this  time.  The  Secretary  also 
endeavored  to  ascertain  whether  or  not  there  were  private  corporations  or 
individuals  who  would  be  interested  in  the  purchase  or  lease  of  the  project. 
After  "  taking  stock  "  the  Secretary  of  War  has  found  that  the  dam  must  be  com- 
pleted, and  has  said  so  without  hesitancy. 

General  Beach,  the  Chief  of  Engineers,  connnunicated  with  various  parties, 
rorporations,  and  individuals  to  ascertain  if  there  were  any  who  would  be 
interested  in  the  project.  Henry  Ford  was  the  first  to  make  a  substantial 
proposal  and  one  worthy  of  consideration. 

In  all  earnestness  let  me  ask  you.  gentlemen,  do  you  believe  there  would 
have  been  other  offers  for  this  property  and  especially  offers  from  the  Alabama 
Power  Co.  and  Engstrum  if  Henry  Ford  had  not  submitted  his  offer?  Sitting 
here  somewhat  like  a  jury  to  pass  on  all  the  otters  and  all  the  circumstances 
surrounding  them,  the  law  and  the  facts  in  the  case,  don't  ycm  know  beyond 
peradventure  that  this  offer  made  by  the  Alabama  Power  ('o.  would  never 
have  been  made  had  it  not  npiitared  fhat  Congress  might  look  with  favor  on 
the  Ford  offer? 

The  Alabama  Power  Co.  is  right  there  on  the  ground,  and  it  is  right  here  on 
the  ground  with  all  its  genius,  able  sponsors,  and  advocates.  That  company 
knew  probably  more  about  the  value  and  advantages  of  Muscle  Shoals  than 
any  other  comi>any  or  individual  could  have  known.  Why  did  it  not  submit 
its  offer  when  called  upon  by  General  Beach  or  at  least  within  seven  months 
after  the  Ford  offer  was  submitted  to  the  Secretary  of  War?  Surely  you 
gentlemen  put  no  credence  in  the  suggestion  that  capital  was  not  available 
to  them.  Is  it  not  remarkable  how  quickly  capital  bec^ame  available  just  as 
soon  as  this  committee  began  consideration  of  the  Ford  offer?  When  did 
these  threats  begin  about  litigation  long  drawn  out?  When  were  suggestions 
made  as  their  contract  which  is  beyond  question  a  void  contract?  In  so  far 
as  I  can  answer,  not  until  they  saw  that  Congress  would  consider  the  Ford 
offer,  and  now  they  rush  in  here  with  an  offer  of  .$5,000,000,  an  offer  to  complete 


MUSCLE   SHOALS  PROPOSITIONS. 


1023 


g. 


the  dam  without  cost  to  the  Government,  less  the  cost  of  locks,  etc.,  and  leave 
the  Government  in  control  of  its  nitrate  plants.  I  think  the  evidence  here 
will  justify  the  assertion  that  under  their  offer,  if, accepted,  they  would  get 
over  $30,000,000  worth  of  property  for  $500,000,  because  the  cost  of  the  locks  is 
estimated  to  be  $4,500,000. 

Has  it  occurred  to  you  gentlemen  that  the  offer  of  Henry  Ford  has  sud- 
denly made  the  money  market  easy  for  the  Alabama  Power  Co.?  If  so,  even 
that  company  owes  something  to  the  Ford  offer. 

I  think  the  evidence  before  this  committee  justifies  the  assertion  that  when 
Mr.  Duke,  the  owner  of  the  Southern  Power  Co.,  in  answer  to  General  Beach, 
condemned  the  Muscle  Shoals  project  and  said  its  completion  was  not  feasible 
and  that  he  would  not  be  "  interested  "  in  its  purchase  or  lease,  he  spoke  for 
the  gi-eat  family  of  interests  we  find  here  condemning  the  offer  of  Henry 
Ford.  In  that  family  we  find  the  American  Cyanamid  Co.  and  its  child, 
the.  Air  Nitrates  Corporation,  which  corporation  some  evidence  shows  con- 
sisted of  10  men  who  put  up  $100  each  and  drew  down  more  than  a  million 
dollars  from  the  Treasury— yet  they,  too,  were  great  patriots  in  times  of 
war.  We  find  the  Virginia-Carolina  Chemical  Co.,  a  member  of  the  National 
Association  of  Fertilizer  Manufacturers,  whose  president,  Mr.  McDowell, 
appeared  here  to  protest  against  the  Ford  offer.  We  further  find  in  that 
family  also  the  Southern  Power  Co.,  whose  president  and  owner  "was  not 
interested,"  and  next  we  find  the  Alabama  Power  Co.,  the  child  of  the  Ala- 
bama Light  &  Traction  Co.,  of  the  Dominion  of  Canada.  I  say  it  is  the  child 
of  the  Light  &  Traction  Co.,  because  all  of  its  common  stock,  its  voting  stock, 
is  owned  by  that  foreign  corporation,  which  is  probably  the  great  big  "  daddy  " 
of  them  all.        ^ 

I  do  not  wish  to  be  misunderstood.  I  would  not  heap  condemnation  on 
the  Alabama  Power  Co.  solely  because  it  is  the  offspring  of  foreign  capital. 
We  do  not  hate  capital  in  Alabama.  We  invite  capital  to  come  and  help  us 
develop  our  wonderful  natural  resources.  We  have  proven  that  in  Alabama, 
where  our  legislature  has  exempted  this  corporation  from  taxation  and  has 
made  it  the  recijiient  of  special  favors. 

It  matters  not  where  the  capital  comes  from,  so  long  as  it  is  decent,  we 
welcome  it  to  our  great  resources,  but  we  do  not  like  to  have  all  our  resources 
monopolized  by  any  sort  of  capital.  In  so  far  as  the  danger  comes  from  the 
investment  of  foreign  capital,  if  war  should  come  we  Americans  can  take 
charge  of  that  capital  in  just  about  15  minutes.  Of  course,  I  prefer  our  great 
wealth  to  be  owned  by  citizens  of  the  United  States,  but  this  is  not  the  controll- 
ing thought  in  the  minds  of  about  98  per  cent  of  the  people,  or  maybe  99  per 
^cent  of  the  people,  of  Alabama  who  are  appealing  to  you  to  accept  the  Ford 
offer. 

We  say,  gentlemen,  that  the  Alabama  Power  Co.  now  owns  practically 
all  the  available  water-power  sites  in  our  State ;  that  it  does  not  need  Muscle 
Shoals  in  carrying  out  its  plans  to  develop  the  power  and  all  the  power  the 
market  of  Alabama  will  need  for  several  generations  to  come.  We  beg  you  to 
consider  the  fact  that  if  this  great  water-pmver  project  is  given  over  to  the 
Alabama  Power  Co.,  that  company  will  have  a  complete  and  perfect  monopoly 
of  the  water-power  industry  of  the  State.  Give  this  project  to  the  Alabama 
Power  Co.  and  they  will  develop  it  only  in  accordance  with  needs  of  that  sec- 
tion for  power.  They  will  feed  it  out  as  the  demand  grows.  The  market  is 
not  there  now.  General  Beach  has  told  you  so.  Therefore  we  contend  if  the 
Alabama  Power  Co.  gets  control  of  this  project  it  is  not  unreasonable  to  say 
that  generations  will  pass  before  Muscle  Shoals  is  developed  to  its  fullest  ca- 
pacity. We  believe  if  you  give  this  contract  to  Ford,  he  or  his  company  or 
companies  will  immediately  begin  work  to  get  the  benefit  of  the  maximum 
amount  of  power  to  be  developed  there  and  on  the  upper  reaches  of  the  Ten- 
nessee, and  the  present  generation  will  reap  some  benefits  therefrom. 

Gentlemen,  it  must  appear  to  you  and  to  the  people  of  the  country  remark- 
ably strange  that  only  7  or  8  or  10  months  ago  the  very  same  interests,  speak- 
ing through  Mr.  Duke,  thought  Muscle  Shoals  should  be  scrapped,  or  at  least 
discouraged  its  completion,  are  now  saying  that  the  property  is  entirely  too 
valuable  to  sell  and  lease  to  Henry  Ford  for  the  sum  he  offers  and  under  the 
terms  of  his  proposal.  I  am  sure  every  man  on  this  committee  is  convinced 
beyond  a  doubt  that  the  action  of  Mr.  Duke  was  inspired  by  the  hope  that  this 
sreat  national  asset  at  Muscle  Shoals  could  be  secured  in  the  future  from  the 
Government  for  a  mere  song.  There  can  be  no  other  conclusion.  While  Mr. 
Duke  spoke  only  as  owner  of  the  Southerji  Power  Co.  there  is  no  escape  from 

92900—22 65 


1024 


MUSCLE  SHOALS  PROPOSITIONS. 


ft} 


^1 


#<^ 


the  condiusion  that  he  was  speaking  also  for  the  whole  family  of  interests  which 
have  since  protested  against  the  Ford  offer. 

Regardless  of  propriety^  it  is  but  natural  for  those  interests  with  which  the 
Ford  interests  would  compete  in  the  markets  of  the  country  and  the  world  to 
protest  against  the  Ford  offer.  INIr.  Ford  expects  to  make  aluminum  steel.  Of 
course  the  aluminum  interests  are  opposed  to  that,  and  probably  the  steel  inter- 
ests as  well.  The  hydroelectric  power  companies  of  the  country  do  not  care 
to  have  him  mixing  up  in  their  business.  He  expects  to  make  fertilizer.  He 
guarantees  to  make  fertilizer  and  fertilizer  products  in  an  amount  equal  to 
about  20  per  cent  of  the  demands  of  this  country.  He  has  gone  far  enough  to 
guarantee  to  organize  a  $10,000,000  company  for  his  operations.  Of  course, 
this  will  affect  the  price  of  fertilizer  and  the  fertilizer  interests  are  against  him. 
The  by-products  and  coke-oven  fellows  do  not  want  him  to  get  into  a  business 
that  will  materially  affect  their  business,  and  so  we  find  them  scorning  the  Ford 
offer.  So  on  it  goes  with  all  interests  who  fear  that  competition  which  will 
probably  come  with  the  Ford  interests  in  control  of  and  using  this  great  power 
development  of  1,000,000  possible  horsepower  and  probably  more  to  be  developed 
on  the  upper  reaches  of  the  Tennessee  River.  I  think  I  am  entirely  justifiable 
in  saying  that  the  interests  now  opposed  to  the  offer  of  Henry  Ford  actually 
fear  he  will  revolutionize  industry  along  several  lines. 

There  is  no  well-founded  fear  from  these  opposing  interests.  The  field  is 
big  enough,  broad  enough,  and  inviting  enough  for  all  the  genius,  vision, 
brain,  energy,  and  skill  of  each  of  these  interests.  The  field  for  the  uses  of 
hydroelectric  power  is  new  and  undeveloped.  I  believe  the  future  has  in 
store  thousands  of  uses  for  electric  energy  undreamed  of  by  the  masses  of  men. 

Your  problem,  gentlemen,  if  I  may  suggest,  is  not  one  involvi^  simply  a  clash 
between  individual  or  corporate  interests.  The  real  issue  before  you  is  how 
the  interest  of  the  people  and  of  the  Government  can  best  be  served. 

The  Alabama  Power  Co.  is  here  to-day  putting  up,  as  we  used  to  say  in  our 
day  of  football,  strong  "  interference."  They  are  trying  their  best  to  block 
the  game.  On  the  side  lines  there  are  not  many  rooters  for  their  team,  but 
the  representatives  of  the  people  of  this  country  had  better  keep  their  eye  on 
the  ball.  This  company  works  "  in  wondrous  ways  its  mysteries  to  perform." 
Of  course,  you  hear  threats  of  litigation.  Of  course,  you  hear  of  their  remark- 
able patriotism  in  times  of  war,  when  the  truth  is  this  company  was  actually 
hog  tieing  our  Government.  They  permitted  their  Government  to  build  a  unit 
which  can  hardly  be  separated  from  their  own.  They  permitted  the  Govern- 
ment to  construct  a  transmission  line  on  20  miles  of  their  right  of  way  and 
bought  the  rest  of  60  miles  of  right  of  way  in  their  own  name  on  which  to 
build  the  line  from  their  Gorgas  plant  to  Muscle  Shoals.  They  were  paid  a^ 
fee  of  some  $285,000  for  superintending  this  work,  the  Government  paying  for 
every  piece  of  material  and  every  hour  of  labor  used  in  the  construction  of 
this  unit  and  line  at  a  cost  of  nearly  $4,000,000.  Now  they  will  not  even  say 
what  a  reasonably  fair  value  of  this  jointly  owned  plant  and  line  is.  All  of 
these  things  were  done,  I  contend,  with  some  hope,  if  not  feeling  of  assurance, 
that  when  the  war  was  over  the  Alabama  company  would  fall  heir  to  the  prop- 
er^v  or  buy  it  for  a  nominal  sum. 

Shall  the  best  interests  of  the  whole  country  be  now  made  subservient  to 
the  rights  proclaimed  by  this  company,  which  they  secured  or  thought  they 
were  securing  from  the  Government  during  the  stress  of  war?  It  has  never 
been  made  clear  to  me  nor  do  I  believe  anyone  can  claim  that  the  Government 
is  legally  bound  by  a  contract  made  without  the  authority  of  law.  Surely 
there  is  no  legal  obligation  resting  upon  the  Government  under  this  contract. 
I  can  not  agree  that  there  is  even  any  moral  obligation  resting  on  the  Gov- 
ernment. The  Secretary  of  War  had  power  to  sell  but  not  the  power  to  con- 
tract to  sell  to  one  particular  company  sometime  in  the  future,  to  the  exclu- 
sion of  all  others  who  might  desire  to  purchase.  The  act  of  July,  1918,  gavc^ 
him  the  power  "  to  sell  and  report  to  the  next  Congress."  Therefore  even  should 
he  have  given  his  representatives  authority  to  act  for  him  they  could  not  bind 
the  Government  under  this  option  to  buy  as  set  out  in  the  contract. 

Here  we  have  the  best  interests  of  the  public  on  the  one  hand  and  the  claim 
of  this  corporation  on  the  other.  I  would  not  advocate  the  condemnation  of 
private  property  or  the  destruction  of  vested  rights.  It  is  a  very  easy  mattei* 
to  figure  out  what  the  actual  investment  is  and  the  value  of  the  interest  of  the 
Alabama  Power  in  the  Gorgas  plant,  which  is  beyond  question  a  part  and 
parcel  of  the  whole  project  of  the  Government  at  Muscle  Shoals  adopted  for 
the  making  of  nitrates  and  fertilizei;.     It  was  made  a  part  of  the  project  with 


MUSCLE  SHOALS  PROPOSITIONS. 


1025 


the  full  knowledge  and  consent  of  the  company,  even  though  they  may  never 
have  dreamed  that  anyone  would  offer  to  take  over  the  whole  project.  It  is 
true  that  the  company  conveyed  to  the  Government  their  title  at  Dam  No.  2 
for  $1.  They  say  in  their  advertisements,  which  they  are  now  running  in  prac- 
tically every  weekly  newspaper  in  Alabama,  setting  forth,  amongst  other  things, 
their  abundance  of  patriotism,  that  their  rights  at  this  dam  site  cost  them 
"just  under"  $500,000.  The  evidence  here  tends  to  show  that  it  cost  them 
$476,000.  Let  us  admit  that  this  is  true ;  yet  don't  you  know  they  had  in  view 
the  final  capture  of  this  big  dam  site  after  the  war  for  a  very  nominal  sum, 
with  the  dam  completed.  This  deed  passed  about  the  same  time  or  just  a  few 
months  before  the  signing  up  of  this  contract  that  is  so  full  of  patriotic  fervor. 
While  the  Alabama  Power  Co.  is  spending  so  much  money  advertising  its 
patriotism  throughout  our  State,  why  does  it  not  set  forth  the  terms  or  just  a 
few  of  the  terms  of  this  contract?  Why  does  it  not  publish  to  the  masses  of 
the  readers  of  these  county  weekly  journals  article  22  of  the  contract  and  the 
terms  under  which  they  were  given  an  option  to  purchase?  I  do  not  condemn 
the  officers  of  this  company  for  their  appearance  here  in  behalf  of  the  com- 
pany they  are  paid  to  represent.  I  know  and  like  many  of  them  personally 
and  would  not  speak  derogatory  of  their  integrity,  but  I  can  not  agree  that 
they  have  a  meritorious  case,  and  I  know  their  offer  can  not  compare  with  the 
Ford  offer  if  the  welfare  of  the  public  is  to  be  well  considered. 

I  have  presented  to  your  committee  memorials  and  petitions  from  every 
section  of  our  State  urging  the  favorable  consideration  and  the  acceptance  of  the 
Ford  offer.  I  may  be  mistaken,  but  I  am  firmly  convinced  that  a  majority  of 
the  people  of  the  whole  country  favor  his  offer.  They  favor  his  offer  because 
it  conforms  to  the  wise  policy  of  Congress  in  adopting  the  Muscle  Shoals  project, 
and  they  further  believe  Ford  should  be  given  control  of  this  great  project 
because  under  his  control  and  operation  the  full  benefits  of  its  development 
will  accrue  to  the  public.  They  believe  this  project,  this  great  national  asset, 
should  not  be  turned  over  to  any  company  exclusively  in  the  jwwer  business, 
and  with  which  the  making  of  explosives  and  fertilizers  is  of  secondary  con- 
sideration. They  believe,  and  I  believe,  that  Henry  Ford  or  his  companies  is 
the  only  agency  interestecl  that  will  develop  Muscle  Shoals  to  its  fullest  capacity 
and  give  the  people  of  the  country  the  direct  benefits  of  that  development. 

In  speaking  of  Mr.  Ford,  I  do  so  without  that  same  degree  of  admiration  or 
reverence  that  many  people  possess.  I  do  not  find  myself  in  accord  with  all 
of  his  economic  and  political  ideals.  I  must  confess  that  I  do  not  subscribe  to 
the  belief  that  he  can  immediately  give  employment  to  1,000,000  men  at  Muscle 
Shoals  if  his  contract  is  accepted.  It  might  be  done  ultimately,  and  I  think  will 
be  done.  I  do  believe,  and  you  gentlemen  as  well  as  all  others  must  admit,  that 
Henry  Ford  is  a  wonderful  genius,  a  great  financial  wizard,  and  stands  in  a  class 
by  himself  as  one  of  the  world's  foremost  captains  of  industry.  Indeed,  he  is  in 
a  class  by  himself,  and  as  some  one  has  said,  he  is  something  of  a  great  com- 
mercial iconoclast.  He  is  one  of  the  world's  richest  men,  with  a  world-wide 
business,  and  yet  a  business  that  is  not  interlocked  with  other  great  interests. 
He  asks  no  favors  of  the  moneyed  powers  and  begs  no  quarter  of  other  big 
JDusiness.  Everyone  must  admit  that  he  has  done  more  to  add  comfort  to  Amer- 
ican farm  life  and  given  greater  inspiration  toward  the  building  of  good  roads 
by  the  production  and  sale  of  his  automobile  than  any  other  hundred  men  in 
the  same  business  or  any  other  man  who  ever  lived. 

The  people  of  this  country  believe  in  Henry  Ford  as  a  great  developer. 
Ihey  believe  he  will  do  what  he  jiromises  to  do.  They  believe  he  will  make 
a  success  of  Muscle  Shoals  to  the  people's  benefit :  that  he  will  spend  fifty 
millions  and  more  if  his  contract  is  acccepted  to  make  agriculture  and  farm 
life  more  attractive  and  profitable  by  the  production  of  a  concentrated  and 
higher-grade  fertilizer.  We  believe  he  will  prove  that  the  fertilizer  industry 
IS  in  its  infancy,  just  as  the  expert  Doctor  Whitney  said  it  was.  If  he.  can  save 
to  the  farmers  of  this  Nation  the  freight  and  bagging  of  about  sixteen  hundre^I 
pounds  of  material  that  is  absolutely  without  value  as  a  food  for  plants  in 
every  ton  of  fertilizer,  then  the  great  benefits  he  will  bestow  upon  the  people 
of  the  agricultural  industry  alone  can  not  be  figured  out  in  dollars  and  cents. 
It  would  run  into  the  hundreds  of  millions. 

Of  course,  the  coastal  plains  and  the  Gulf  territory  now  use  most  of  the  com- 
mercial fertilizer  manufactured  in  this  country,  but  as  the  years  go  by  every 
section   of  this  country  where  agricultural   pursuits   are   followed   will   need 


'i 


1026 


MUSCLE  SHOALS  PROPOSITIONS. 


soil  and  plant  food  which  can  be  made  at  Muscle  Shoals.  In  this  respect  there- 
fore the  project  is  a  national  one,  to  say  nothing  of  the  preparedness  of  the 
Nation  by  having  a  plant  ever  in  readiness  to  make  explosives.  The  investment 
t)f  the  Ford  millions  at  Muscle  Shoals  will  add  much  to  the  taxable  valuations  of 
the  Nation.  You  will  recall  the  testimony  which  showed  that  immediately 
after  the  war  between  the  States,  North  Carolina  was  the  poorest  State  in  the 
Union  and  to-day  she  pays  more  taxes  per  capita  than  any  other  State  in  the 
Union  as  a  result  of  the  investment  in  hydroelectric  power. 

These  great  interests  here  who  are  fighting  the  Ford  offer  are  using  all  their 
wits  and  power  to  abate  your  decision  and  final  action,  and  trying  to  delay  the 
decision  of  the  Congress  as  much  as  possible.  What  better  way  could  they 
bring  about  delay  than  to  have  another  offer  presented  evei-y  week  or  so  and 
then  have  the  Alabama  Power  Co.  threaten  the  Government  with  a  legal  fight 
to  the  last  ditch.  If  they  can  persuade  you  that  the  Government  is  so  entangled 
>^»ith  them,  that  it  is  "  hog  tied  "  in  a  contract  that  will  becloud  the  real  issue, 
that  the  interests  of  the  Government  are  now  so  interwoven,  it  can  not  extricate 
itself  from  the  hold  they  have,  then  the  fight  of  the  interests  opposing  the  Ford 

offer  is  won. 

You  may  ask.  How  do  you  know  Mr.  Ford  will  live  up  to  his  proposal?  That 
question  was  asked  by  some  member  of  the  committee.  We  do  not  know  that 
the  sun  will  shine  to-morrow.  We  do  not  know  that  we  will  be  alive  to-morrow. 
We  judge  the  future  by  the  past.  If  a  man  has  always  lived  up  to  his  agree- 
ments, if  he  has  accomplished  every  task  he  has  undertaken,  and  especially 
if  he  has  the  means  to  carry  out  his  promises,  we  can  very  safely  predict  that 
he  will  continue  to  act  in  good  faith  with  his  fellow  man  and  w-ith  his  Govern- 
ment. Again,  the  very  proposal  itself  of  Mr.  Ford  provides  that  his  contract 
shall  be  forfeited  in  the  event  he  fails  to  live.  He  could  not  afford  to  break 
faith  with  the  Government. 

The  delay  in  disposing  of  Muscle  Shoals  has  already  cost  an  immense  amount 
of  money  and  is  to-day  costing  nearly  $10,000  a  day  to  keep  the  plants  and  prop- 
erty in  their  stand-by  condition.  It  has  been  estimated  by  Mr.  Smith  of  the 
Mississippi  Valley  Association,  comprising  55  per  cent  of  the  people  of  the 
country,  that  the  cost  to  the  Government  already  accrued  by  delay  in  com- 
pleting this  project  and  accepting  the  Ford  offer  would  amount  to  over  a 

million  dollars.  ^       ^  .  ^i.  x  ^i,      « 

Let  us  sav,  gentlemen,  that  you  find,  for  the  sake  of  argument,  that  the  offer 
of  the  Alabama  Power  Co.  is  the  best  offer  from  a  standpoint  of  finances.  Then 
I  ask  what  are  vou  going  to  do  with  the  nitrate  plants?  Are  you  going  to  put 
the  Government  into  business?  Let  us  hope  not.  I  maintain  that  the  Gov- 
ernment can  not  economically  operate  any  business.  Do  you  really  believe  that 
anyone  is  coming  along  to  offer  us  anything  for  the  eighty  millions  invested  in 
these  plants  without  the  assurance  of  more  than  100,000  secondary  horsepower 
with  which  to  operate  them.  If  not,  are  you  going  to  junk  them?  We  have 
had  enough  of  Government  operation  of  business.  We  have  not  forgotten  the  rail- 
road under  Government  control,  nor  a  merchant  marine  that  cost  us  $1,000,000 
a  day  net  loss  for  about  a  year.  If  you  do  not  put  the  Government  in  the 
business  of  making  fertilizers  at  Muscle  Shoals,  which  would  in  the  end  cost 
the  taxpayers  much  more  than  they  now  have  there  invested,  and  you  have  no 
offer  to  take  over  and  operate  the  nitrate  plants  by  private  capital,  how  will 
you  keep  a  plant  in  readiness  to  make  explosives  in  times  of  war?  These 
questions  all  find  their  answer  in  the  acceptance  of  the  offer  made  by  Henry 
Ford  He  is  the  only  one  who  has  come  forward  at  the  request  of  the  Govern- 
ment and  submitted  an  offer  that  in  my  judgment  you  can  seriously  consider. 
At  the  end  of  the  100-year  lease  to  him  the  property  returns  to  the  people. 
He  offers  to  pay  back  to  the  Government  the  cost  of  completions  of  the  dams, 
while  at  the  end  of  the  50  years  of  lease  to  the  Alabama  Power  Co.  the  Gov- 
ernment can  only  get  control  of  the  plant  by  paying  that  company  for  its 
investment  under  the  water-power  acts  of  Congress.  I  firmly  believe  the  peoplo 
of  this  Nation  would  derive  more  from  this  great  God-given  asset  at  Muscle 
Shoals  even  if  the  Congress  gave  the  whole  project  to  Henry  Ford  than  they 
can  ever  hope  to  gain  by  selling  it  under  any  other  offer  which  has  been  pre- 
sented to  you.  ,  „  ^  ,  .  ^x.  .  X  X  # 
On  behalf  of  the  people  of  my  district  and  my  State  and  in  the  interest  or 
the  public  let  me  suggest  that  the  proper  solution  of  your  problem  lies  in  the 
acceptance  of  the  offer  of  Henry  Ford.  .  ^  ^  ,^  * 
Mr.  Mabtin.  Mr.  Chairman,  I  wish  merely  to  ask  the  privilege,  in  behalf  of 
the  Alabama  Power  Co.,  of  filing  in  the  record  a  statement  answering  state- 


MUSCLE   SHOALS  PROPOSITIONS. 


1027 


nients  that  have  been  made  this  morning,  so  far  as  they  affect  the  Alabama 
Power  Co.,  as  we,  of  course,  would  have  no  opportunity  to  do  so  after  the  matter 
reached  the  committee. 

The  Chairman.  That  is  a  matter  which  the  committee  will  take  up  imme- 
diately after  we  get  into  executive  session.  Personally,  I  would  have  no  ob- 
jection to  it.  That  is  simply  fair  play,  so  I  think  there  wmII  be  no  objection, 
Mr.  Martin ;  I  will  take  it  up  with  the  committee. 

(Note. — The  committee  agreed  to  the  insertion  of  the  statement,  which  is  as 
follows : ) 

Statement  by  Thomas  W.  Martin,  President  Alabama  Power  Co.,  in  Answer 
TO  Statements  Made  Before  Military  Affairs  Committee  of  the  House 
OF  Representatives  on  March  8,  1922. 

1.  Congressman  Oliver  included  in  his  statement  certain  resolutions  which,  he 
stated,  were  adopted  at  a  mass  meeting  recently  held  in  Montgomery. 

The  first  charge  against  this  company  is  that  it  owns  and  controls  a  number 
of  power  sites  on  several  rivers  in  Alabama  and  that  in  14  years  since  its  incor- 
poration it  has  built  but  one  power  dam  and  commenced  work  on  another,  and 
that  it  has  been  the  policy  of  the  company  to  develop  only  such  power  as  could 
be  sold  in  small  units  and  at  high  prices. 

This  statement  is  both  misleading  and  untrue. 

By  act  of  Congress  of  1907,  authority  was  given  to  construct  a  power  dam 
on  the  Coosa  River  at  Lock  12,  and  the  development  was  completed  with  110.000 
horsepower  within  the  time  fixed  in  the  act. 

From  1912  to  1920  no  act  of  Congress  was  passed  granting  authority  to  con- 
struct dams  in  navigable  streams  at  any  place  in  the  United  States.  In  fact,  any 
construction  of  such  dams  was  prohibited  by  the  act  of  Congress  of  1899,  and 
this  act  was  construed  by  Government  engineers  even  to  require  Government 
approval  before  dams  could  be  constructed  on  the  Tallapoosa  and  Little  Rivers, 
because  such  dams  might  affect  the  navigable  capacity  of  the  Coosa  and  Ala- 
bama Rivers,  into  which  those  rivers  emptied. 

2.  In  1912  a  bill  was  prepared  by  Mr.  J.  W.  Worthington,  then  vice  president 
of  this  company,  to  authorize  a  second  development  on  the  Coosa  River,  and  it 
was  introduced  in  Congress.  The  bill  was  passed  by  Congress,  but  vetoed  by 
President  Taft  because  it  did  not  contain  certain  provisions  now  In  the  Federal 
water  power  act.  From  that  time  until  1920  water-power  development  was  dis- 
cussed continually  in  Congress,  and  during  that  time  no  special  act  of  authority 
was  given  for  any  development  to  proceed,  it  being  the  policy  of  Congi-ess  to 
await  the  passage  of  a  general  act  under  which  all  developments  would  be. 
placed  on  the  same  basis  respecting  the  terms  and  conditions  of  the  development. 

3.  Mr.  Worthington,  again  acting  under  the  instructions  of  this  company,  pre- 
sented a  proposal  to  the  Government  engineers  on  December  10,  1913.  for  the 
construction  of  Dams  Nos.  2  and  3  at  Muscle  Shoals  in  connection  with  the 
Cherokee  Bluffs  and  Little  River  storage  developments,  and  this  plan  was  recom- 
mended by  the  Government  engineers.    (H.  Doc.  20.  63d  Cong..  2d  sess.) 

The  public  in  Alabama  was  well  aware  that  the  Muscle  Shoals  Hydroele<'tric 
Power  Co.,  a  subsidiary  of  the  Alabama  Power  Co.,  originated  and  was  for  many 
years  active  in  keeping  before  the  i^eople  of  Alabama  the  importance  of  that  de- 
velopment, both  for  industrial  and  municipal  purposes  and  for  navigation.  After 
a  considerable  expense  and  years  of  labor,  the  question  assumed  more  than  local 
importance  until  Congress  provided  a  large  sum  with  which  to  make  the  necessary 
engineering  explorations,  the  collection  of  data,  and  information  looking  to  the 
adoption  of  the  project  by  the  National  Government  in  coperation  with  private 
capital.  No  one  at  that  time  in  Alabama  questioned  the  purposes  of  this  com- 
pany, impugned  its  motives  or  assumed  to  suggest  the  approach  of  a  power  mo- 
nopoly that  would  ultimately  throttle  and  retard  the  development  of  the  State. 
Many  of  those  who  now  denounce  the  company  were  its  most  enthusiastic  sui> 
porters,  and  with  full  knowledge  of  its  plans  to  connect  Muscle  Shoals  with  the 
storage  reservoirs  in  east  Alabama,  urged  that  the  work  go  forward.  Delegations 
journeyed  to  Washington  and  importuned  congressional  committees.  The  Ala- 
bama delegation  in  Congress  was  earnestly  active  in  advancing  the  plan.  Indica- 
tive of  the  popular  feeling,  the  Sheffield  Standard,  a  newspaper  published  in  one 
of  the  cities  where  the  development  is  located,  contained  the  following  editorial, 
in  1914,  entitled  "  Away  with  demogogy  "  : 

«♦  ♦  *  4c  Now,  after  30  years  of  waiting,  that  a  corporation  has  been  formed 
big  enough  and  with  sufficient  ability  to  develop  this  power,  many  ix>liticians 


I 


1028 


MUSCLE  SHOALS  PROPOSITIONS. 


4i|' 


m 


have  beevj  foolish  enough  to  raise  a  hue  and  cry  against  the  Muscle  Shoals  Hydro- 
electric Power  Co.  They  have  declaimed  throughout  the  length  and  breadth  of 
the  land  that  the  greater  water  power  at  Muscle  Shoals  is  about  to  be  seized  and 
appropriated  by  a  monopoly.  Other  politicians,  like  Mr.  Underwood,  Mr.  Dent 
Mr.  Heflin,  Mr.  Burnett,  Judge  Almon,  and  Mr.  Blackraon,  have  openly  declared 
m  favor  of  the  development  of  this  power  by  the  Muscle  Shoals  Hydroelectric 
Power  Co.  In  each  case  the  people  of  Alabama  have,  as  any  man  with  a  grain 
of  sense  knew  they  would,  rebuked  the  demagogue,  who,  for  his  own  selfish  rea- 
sons, has  stood  in  the  way  of  progress  and  development,  and  set  the  seal  of  ap- 
proval upon  the  constructive  statesmen  who  have  proclaimed  from  the  stump 
that  if  elected  to  office  they  would  encourage  and  support  the  development  of 
Alabama's  water  powers.     *     *     * 

"Corporations  of  old  adopted  'the  public-be-damned '  policv;  the  Muscle 
Shoals  Hydro-Electric  Power  Co.  has  adoptefl  the  '  publlc-be-told  '  policy.    *    *    * 

•'  Men  of  Alabama,  let  us  arouse  ourselves !  Mobile  Harbor  must  be  made  the 
gateway  of  the  Southern  States  to  the  Panama  Canal.  Reservoirs  must  be 
built  in  the  head%vaters  of  the  Tallapoosa,  which  will  conserve  the  spring 
freshets,  prevent  them  from  deluging  the  farms  in  middle  and  south  Alabama, 
and  turn  them  loose  during  the  periods  of  low  water,  so  that  Alabama's  rivers 
may  be  navigable  12  months  out  of  the  year.  The  vast  power  on  the  Coosa 
and  the  Warrior  and  the  Tallapoosa  and  the  Tennessee  must  be  harnessed  and 
put  to  work.  Let  us  have  more  James  Mitchels,  of  London,  bringing  British 
gold  for  Alabama's  development.  Let  us  have  more  J.  W.  Worthingtons  and 
Frank  S.  Washburns.  And  for  God's  sake  and  the  sake  of  prosperitv  and  de- 
velopment of  the  State,  let  us  have  fewer  Mabrys,  Wattses,  and  Callahans." 

4.  No  action  having  been  taken  by  Congress  on  our  proposal  of  1913-14,  a 
further  study  was  made  by  the  Government  engineers  and  the  same  plan  again 
approved  in  their  report  of  1916  (H.  Doc.  1262,  64th  Cong.,  1st  sess.),  excerpts 
from  which  we  have  filed  in  the  record.  It  was,  however,  recommended  in  the 
last  report  that  in  view  of  the  passage  of  section  124  of  the  national  defense 
act  of  1916,  action  on  the  proposal  be  suspended  until  it  was  determined 
whether  the  Muscle  Shoals  power  would  be  utilized  for  the  nitrate  plant. 

5.  In  1918,  after  our  country  entered  the  war,  the  Government  determined 
to  develop  the  Muscle  Shoals  power  for  war  purposes.  We  thereupon  donated 
the  Wilson  Dam  site  to  the  Government  and  transferred  to  it  for  $1  titles  and 
rights  in  connection  with  which  we  had  already  spent  just  under  $.500,000. 
The  Secretary  of  War  acknowledged  our  donation,  saying,  "  I  beg  to  acknowl- 
edge with  thanks  the  company's  generous  and  public-spirited  action."  The  act 
of  the  company  in  making  the  donation  was  commendefl  throughout  our  State 
by  those  who  felt  that  by  so  doing  we  had  hastened  the  development  and  had 
contributed  to  the  upbuilding  of  the  State. 

6.  Shortly  after  the  Federal  water  power  act  became  a  law,  in  1920,  we  filed 
application  for  a  second  power  development  on  the  Coosa  River  in  Alabama, 
to  have  an  installed  capacity  of  120,000  horsepower,  costing  upward  of  $8,- 
000,000.  The  application  was  granted  and  license  issued  to  the  company,  and 
construction  is  now  under  way  on  this  development. 

In  response  to  the  letter  of  the  Chief  of  Engineers,  we  advised  him  on  May 
28,  1921,  that  in  our  judgment  the  Muscle  Shoals  project  was  an  economical 
and  profitable  undertaking,  and  that  we  were  prepared,  as  in  the  past,  to  co- 
operate with  the  Government  in  any  way  desired  looking  to  its  completion. 

We  again  advised  the  Chief  of  Engineers  on  July  14,  1921,  that  on  account  of 
the  increased  demands  for  power,  we  would  have  to  proceed  promptly  with 
another  power  development  unless  the  Government  policy  at  Muscle  Shoals 
should  be  modified  to  permit  the  use  of  part  of  that  power  in  public  service. 

It  will  thus  appear  that  this  company  made  efforts  for  many  years,  through 
its  representative.  Mr.  Worthington,  and  others,  to  obtain  the  consent  of  Con 
gress  for  power  developments  in  Alabama,  but  the  laws  remained  unchanged 
until  the  Federal  water  power  act  was  passed.  This  was  well  known  to  at 
least  two  of  those  who  participated  in  the  Montgomery  mass  meeting,  namely, 
Mr.  J,  W.  Worthington,  formerly  an  officer  of  this  company,  but  who  is  now 
Mr.  Ford's  representative,  and  Mr.  J.  L.  Andrews,  one  of  the  signers  of  the 
resolution,  who  is  an  attorney  residing  in  Sheffield,  Ala.,  and  who  was  reg- 
ularly retained  by  this  company  in  the  Muscle  Shoals  district  from  1912  to 
January  1,  1922. 

Although  we  have  been  able  to  make  but  one  power  development  in  Alabama, 
there  being  no  Federal  legislation  until  1920.  we  have  extended  our  lines  in 
various  parts  of  the  State,  and  with  the  aid  of  reserve  steam  plants  now  have 


MUSCLE  SHOALS  PEOPOSITIONS. 


1029 


a  connected  load  in  excess  of  370,000  horsepower.  More  than  80  per  cent 
of  this  load  is  used  for  industrial  purposes,  and  we  have  many  consumers 
whose  demands  run  from  5,000  to  25,000  horsepower. 

7.  In  1907,  before  any  large  power  developments  were  made  in  the  State, 
the  average  cost  per  horsepower  year  was  $72,  and  in  1917,  due  to  the  direct 
influence  of  the  power  developments  of  our  company  and  others,  had  decreased 
to  $21  per  horsepower  year.  On  the  other  hand,  in  the  State  of  Mississippi  the 
cost  per  horsepower  year  was  $97  iii  1907,  and  this  had  decreased  to  $93  in 
1917.  In  this  period  of  10  years  there  was  no  water-power  development  in 
Mississippi,  and  hence  no  large  central-station  systems.  This  shows  in  the 
most  striking  way  the  great  advantage  to  the  public  of  having  power  dis- 
tributed to  the  public  and  also  answers  the  statement  that  our  company  has 
only  developed  power  which  it  could  sell  in  small  units  and  at  high  pric*es. 

8.  It  is  also  charged  that  our  company  controls  the  utilities  in  our  principal 
cities.  We  have  no  interest  in  the  utilities  at  Birmingham,  Montgomery,  and 
Mobile,  the  principal  cities  of  our  State,  but  furnish  the  power  to  the  utilities 
operating  in  Birmingham  and  Montgomery.  We  do  control,  however,  the 
utilities  in  a  number  of  the  other  towns  and  cities.  In  every  case  our  com- 
pany has  taken  over  utilities  or  constructed  systems  in  response  to  the  public 
demand  and  we  have  throughout  our  system  reduced  existing  rates  in  almost 
every  community,  or  put  in  new  and  lower  rates  for  all  classes  of  service.  We 
have  now  approximately  17,000  direct  customers,  and  including  the  customers 
of  other  utilities  there  are  more  than  60.000  consumers  of  light  and  power 
served  from  our  system. 

OWNERS   OF   company's    SECURITIES. 

9.  The  Alabama  Power  Co.  is  a  corporation  organized  and  existing  under  the 
laws  of  Alabama.  The  company  wsis  until  August,  1914,  largely  financed 
abroad.  We  have  stated  before  this  committee  and  on  various  occasions  iu 
Alabama  that  this  plan  of  financing  was  changed  on  account  of  the  war  in 
Europe,  and  since  1914  the  company  has  been  entirely  financed  in  the  United 
States.  AVe  have  also  stated  to  this  committee  that  if  we  proceed  with  the 
Muscle  Shoals  project  it  will  be  entirely  financed  in  the  United  States.  Con- 
gressman Almon  quotes  from  a  statement  made  by  this  company  in  1918  with 
regard  to  source  from  which  the  capital  was  obtained  for  our  early  develop- 
ment. He  only  quoted  a  part  of  that  statement,  which  contains  a  full  explana- 
tion of  our  financing  plan  since  1914,  and  I  am  sure  he  did  not  mean  by  omit- 
ting a  part  of  the  statement  any  unfairness  to  our  company,  but  if  he  had  made 
a  further  quotation  he  would  have  confirmed  just  what  we  have  on  several 
times  stated  to  this  committee.  Since  1914  the  flow  of  securities  to  this  coun- 
try has  been  so  great  that  of  its  total  issues  at  this  time  not  over  35  per  cent 
or  40  per  cent  are  held  out  of  the  United  States.  As  noted  above,  it  was 
widely  known  in  Alabama  in  1914  that  we  were  making  developments  with 
foreign  capital.  Congressman  Almon,  who  was  most  interested  at  that  time 
because  the  proposed  Muscle  Shoals  development  was  in  his  district,  not  only 
did  not  oppose  the  plan  but  openly  favored  the  development  by  our  company, 
as  noted  from  the  above  newspaper  comments. 

The  company  has  several  thousand  stockholders  in  Alabama  and  in  other 
sections  of  our  country.  For  many  years  a  large  majority  of  our  board  of 
directors  has  resided  in  the  State  of  Alabama.  The  plans  and  policies  of  the 
company  have  in  fact  been  controlled  by  citizens  of  that  State  for  many  years. 

To  safeguard  the  national  welfare,  the  Federal  water  power  act,  section  16. 
authorizes  the  President,  whenever  in  his  opinion  it  may  be  necessary,  to  take 
possession  of  any  project  constructed  under  the  act  "  for  the  purpose  of  manu- 
facturing nitrates,  explosives,  or  munitions  of  war,  or  for  any  purpose  involv- 
ing the  safety  of  the  United  States."  The  Secretary  of  War,  in  transmitting 
the  offer  of  the  power  company  to  Congress,  said  (par.  7)  :  "  This  broad  pro- 
vision of  the  act  is  of  special  importance  to  the  United  States  in  view  of  the 
location  of  the  nitrate  plants  at  this  community." 

Therefore,  it  is  of  no  importance  that  some  of  the  early  securities  of  the  com- 
pany are  held  out  of  the  United  States,  for  the  licenses  and  its  property  ar« 
always  subject  to  the  laws  of  the  State  and  Nation. 

THE  GORGAS   STEAM  PLANT. 

10.  The  Alabama  Power  Co.,  prior  to  1917,  acquired  and  owned  the  Gorgas 
steam  plant,  which  had  been  constructed  as  the  reserve  steam  plant  for  its 
system.     It  owned  a  small  tract  of  land  for  the  plant  site,  had  the  usual 


1030 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


1031 


tm 


facilities  for  such  plants,  including  water  intake  and  discharge  tunnels  and 
foundations  for  a  three-unit  plant.  In  order  to  provide  for  the  coal  neces- 
sary for  the  operation  of  the  plant  the  Alabama  Power  Co.  financed  the  coal 
operations  then  and  now  being  conducted  immediately  at  the  plant.  These 
facilities  made  it  possible  for  the  company  to  generate  steam  power  at  the 
lowest  possible  cost  to  supplement  the  Coosa  River  power  in  times  of  low 
water. 

When  the  Government  decided  to  construct  the  nitrate  plant  during  the 
war,  it  is  a  matter  of  record  in  certain  hearings  that  the  existence  of  this 
steam  plant,  together  with  the  large  hydropower  plant  of  the  company  on 
the  Coosa  River,  was  the  controlling  factor  in  the  location  of  the  nitrate  plant 
at  Muscle  Shoals,  because  it  was  necessary  to  have  a  large  amount  of  power 
within  six  months.  No  water-power  plant  could  be  erected  at  Muscle  Shoals 
within  less  than  three  or  four  years,  and  a  new  steam  plant  could  not  be 
erected  at  Muscle  Shoals  in  time  to  meet  the  requirements  of  the  Govern- 
ment at  nitrate  plant  No.  2.  Government  officials  then  turned  to  our  steam 
plant  and  to  our  system  in  general  for  this  immediate  supply  of  power.  It 
was  agreed  that  we  would  build  a  transmission  line  90  miles  to  Muscle 
Shoals,  and  we  did  build  the  line,  bringing  it  into  operation  within  less 
than  five  months,  thus  enabling  the  Government  to  obtain  power  in  advance 
of  the  schedule  on  which  the  work  was  then  proceeding.  The  company  was 
serving  many  industries,  and  at  least  80  per  cent  of  its  power  was  being  used 
by  those  which  were  classed  as  essential  for  the  production  of  materials  for 
use  in  the  war.  It  was,  of  course,  within  the  power  of  the  Government  to 
suspend  the  delivery  of  energy  to  any  of  these  consumers,  but  it  was  ad- 
mittedly of  great  importance  by  Government  officials  that  this  service  be  not 
interrupted. 

It  was  also  decided  that  the  Alabama  Power  Co.  at  times  could  furnish  some 
power,  but  it  did  not  have  sufficient  capacity  in  order  to  enable  the  company 
to  deliver  continuously  the  amount  of  power  needed  at  the  nitrate  plant.  The 
Warrior  facilities  for  installing  a  second  unit  were  so  far  advanced  that  six 
months  or  more  in  time  would  be,  and  were,  saved  by  making  the  extension  of 
that  plant.  Time,  as  we  all  know,  was  of  the  greatest  importance  in  the  war 
period  and  all  things  made  subordinate  to  that  important  factor.  Therefore 
the  Alabama  Power  Co.  was  directed  in  December,  1917,  by  the  Nitrate  Di- 
vision of  the  Government,  to  build  a  transmission  line  on  rights  of  way  of  that 
company  for  the  United  States,  and  to  erect  at  Warrior  on  its  lands  for  the 
United  States,  an  extension  to  its  Warrior  plant.  At  the  same  time  the  Alabama 
Power  Co.  agreed,  at  the  request  of  the  Government  officials,  that  if  the  law 
permitted  the  Government  to  sell  its  interests  in  these  facilities,  the  company 
would  purchase  them  at  fair  value.  The  desire  of  the  Government  was  to  pro- 
ceed in  the  quickest  possible  way  to  obtain  power,  having  also  in  view  limiting 
its  investment  and  making  a  plant  which  would  obtain  for  the  Government  the 
best  possible  salvage  after  the  war.  Those  Government  officials  who  know 
the  facts,  as  Secretary  Weeks,  Major  General  Williams,  Colonel  Joyes,  and 
Major  Burns,  have  raised  no  question  whatever  as  to  the  fairness  of  this 
contract  with  the  Government  and  have  expressed  the  view  that,  aside  from 
the  legal  phase  of  the  contract,  the  Government  has  a  moral  obligation  to 
carry  out  in  its  agreement  with  the  power  company. 

In  the  very  beginning  of  the  negotiations  the  Alabama  Power  Co.  explained 
tliat  the  cost  of  an  extension  of  the  capacity  desired  by  the  Government  would 
be  more  than  the  demands  of  the  company  warranted ;  however,  if  the  Govern- 
ment would  aid  it  in  securing  the  funds  with  which  to  make  such  an  extension 
that  it  would  do  so.  Effort  was  made  by  the  Government  officials  to  advance 
funds  with  which  to  build  the  plant,  but  it  was  found  that  there  was  no  law 
under  which  it  could  be  done.  Thereupon,  the  company  agreed  to  buy  upon 
demand  of  the  Government  its  interest  in  the  plant  and  substation  at  Gorgas. 
It  further  agreed  to  maintain  the  plant  and  to  pay,  during  the  time  the  Gov- 
ernment was  taking  power  under  the  contract  6  per  cent  interest  on  the  actual 
cost  of  the  Warrior  extensioon  and  the  Warrior  substation,  and  when  the 
Government  was  not  taking  power  under  the  contract  to  pay  the  Government 
for  the  power  generated  by  said  extension.  Here,  then,  is  property  of  the 
Government  located  where  it  has  a  going  value  as  compared  with  a  junk 
value  received  for  most  all  salvaged  property  acquired  during  the  war  emer- 
gency, and  maintained  without  cost  to  the  Government  under  an  agreement 
from  which  the  Government  will  always  receive  a  return  until  it  demands  the 
Alabama  Power  Co.  to  purchase  it  at  its  fair  value.    There  has  been  no  criticism 


of  the  rate  at  which  the  Alabama  Power  Co.  agreed  to  furnish  power,  but  on 
the  contrary  Colonel  Joyes  testified  the  Government  got  it  on  very  favorable 
terms. 

Reference  is  made  to  the  company's  letter  of  November  6,  1917,  to  the  Ord- 
nance Department,  with  regard  to  the  building  of  an  extension  to  the  steam 
plant  at  Gorgas.  It  was  soon  found  that  this  extension  would  not  furnish 
the  sufficient  power  required  by  the  Government  and  was  also  based  on  financing 
through  the  War  Credits  Board.  Here  again  those  who  wished  to  be  fair 
could  have  learned  that  the  program  desired  by  the  Government  was  different 
from  that  which  was  understood  by  our  company,  and,  of  course,  resulted  in 
an  increased  expenditure. 

Certainly  no  one  in  Alabama  who  wishes  to  be  fair  need  repeat  the  error  of 
the  Graham  report  to  the  effect  that  in  1917  we  had  at  Warrior  an  old  plant 
with  indifferent  machinery.  To  the  contrary,  our  plant  was  just  completed 
and  modern  to  the  last  detail  when  the  Government  took  up  the  matter  with  us. 
Those  ofl[icers  of  the  Government  who  know  the  real  facts  about  the  matter 
have  but  recently  spoken  plainly  and  finally  that  this  contract  was  one  of 
the  best  from  the  Government's  point  of  view  made  during  the  war  period. 
The  Graham  report  refers  to  our  system  as  being  a  small  system,  poorly 
equipped  before  the  war,  which  every  citizen  of  Alabama  knows  is  wholly  in- 
correct. All  of  our  plants  and  lines  were  new  and  modern  and  had  only 
been  in  service  some  three  or  four  years.  In  this  idea  alone  lies  the  principal 
error  of  the  Graham'  report,  for  it  was  on  that  erroneous  assumption  that  the 
committee  undertook  to  criticize  this  contract.  All  of  the  facts  have  been 
brought  out  at  the  present  hearing.  In  addition  to  the  investment  which  the 
Power  Co.  had  in  its  plant  at  Gorgas  prior  to  the  war,  it  has  many  lines  and 
stations  directly  connected  with  that  plant,  at  the  same  time  having  a  large 
investment  in  a  coal  mine  to  obtain  the  coal  required  for  its  operation.  The 
plant  is  absolutely  essential  to  enable  the  company  to  carry  out  its  public- 
service  obligations  in  times  of  low  water  on  the  Coosa  River.  There  is  no 
possible  place  at  the  site  for  two  plants.  The  plant  extension  in  which  the 
Government  has  an  interest  is  so  connected  with  V\e  situation  that  it  would 
not  be  possible  to  operate  them  separately.  This  was  the  view  from  the  first 
and  was  just  in  line  with  the  Government's  policy  in  many  plants  of  this 
nature,  as  well  as  for  shipbuilding,  munitions,  etc.,  whereby  existing  facilities 
of  manufacture  were  extended  to  meet  war  needs  and  at  the  same  time  enable 
the  Government  to  dispose  of  them  to  the  best  advantage  after  the  war.  It 
was  pointed  out  at  these  hearings  by  one  of  the  Government  officers  that  in 
respect  to  the  greatest  number  of  these  Government  contracts  the  owner  of 
the  land  had  the  right  to  refuse  to  buy  the  additional  facilities,  and  if  he 
refused,  they  should  be  removed  by  the  Government,  whereas  in  the  case  of  our 
contract  we  obligated  ourselves  to  buy  the  additional  facilities  at  fair  value 
to  be  fixed  by  arbitrators,  thus  insuring  that  the  Government  is  bound  to 
receive  a  very  substantial  value  for  them. 

If  Congress  should  direct  the  condemnation  of  only  a  part  of  our  land  at 
Warrior  it  would  destroy  the  usefulness  of  our  entire  plant  there  for  any 
other  purpose,  rendering  our  investment  in  coal  mines  practically  useless  to 
us  and  imposing  obligations  and  burdens  upon  this  company  which  would  be 
very  serious.  It  would  affect  our  ability  to  serve  many  customers  of  the 
company  if  their  power  supply  were  taken  away  without  any  opportunity  to 
obtain  other  power  for  their  continued  operation.  In  other  words,  we  wish 
to  point  out  definitely  the  very  serious  element  of  public  interest  involved  in 
such  a  course. 

THE  ATTITUDE  OF  THE  PUBLIC  IN  ALABAMA  TOWARD  COMPANY. 

11.  In  December,  1921,  the  Power  Co.  invited  many  citizens  of  the  State  to  the 
dedication  ceremony  of  the  Mitchell  Dam.  now  under  construction  on  the  Coosa 
River.  There  were  more  than  500  representative  citizens  in  attendance  at  the 
ceremony.  Public  comments  from  every  section  of  the  State  commended  the 
Power  Co.'s  public-spirited  attitude  in  its  undertakings. 

After  describing  the  dedication  ceremony,  this  statement  is  made  in  the  Mont- 
gomery Advertiser  of  December  20,  1921 :  * 

'•  Mr.  Martin  expressed  regret  that  Gov.  Thomas  E.  Kilby  found  it  impossible 
to  be  present  and  introduced  Attorney  General  Harwell  G.  Davis,  delegated  to 
represent  the  governor  on  the  occasion.  Mr.  Davis  delivered  a  message  from 
Governor  Kilby  in  which  the  executive  expressed  appreciation  of  the  great  serv- 


1032 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


1033 


lees  reiifiered  by  the  man  for  whom  the  dam  was  named;  of  the  value  of  navi- 
sntion  opened  by  this  construction,  as  well  as  the  energy  created. 

•'  President  A.  G.  Patterson,  of  the  Alabama  Public  Service  Commission,  speak- 
mg  for  that  body,  said  that  Alabama  recognizes  the  necessity  that  justice  and 
equity  be  done  both  to  the  utility  corporation  and  to  the  people  of  the  common- 
wealth ;  that  such  institutions  are  properly  regarded  as  servants  of  the  people, 
and  it  becomes  the  duty  of  the  commission  of  which  he  is  a  member  to  place  a 
reasonable  valuation  of  such  properties  and  then  to  permit  these  utilities  to 
make  a  fair  return  upon  their  investments.  He  said  that  the  commission  stands 
between  the  utilities  and  the  people. 

"  Oscar  Wells,  president  of  the  First  National  Bank,  of  Birmingham,  spoke 
of  the  gi-eat  value  of  the  service  to  be  rendered  by  the  further  harnessing  of  the 
Ooosa.  This  power,  he  said,  is  not  lessened  by  use,  nor  can  it  be  stored  up  for 
future  geneiations  by  not  being  used.  He  spoke  of  the  value  of  the  industries 
to  be  made  possible  by  the  eloctric  power  to  be  produced  at  Mitchell  Dam.  which 
will  be  distributed  over  1.500  miles  of  high-tension  lines  serving  more  than  16,000 
consumers  in  60  cities  and  towns  of  Alabama." 

The  Birmingham  Age-Herald  of  December  20,  1921.  contained  the  following : 

'•  In  the  absence  of  Governor  Kilby,  who  expressed  his  desire  to  be  present 
but  his  inability  to  attend  through  the  speaker.  Attorney  General  Harwell  G. 
Davis  made  a  short  talk  in  which  he  expressed  pleasure  as  an  official  of  the 
State  to  be  present  at  a  ceremony  connected  with  the  development  of  the 
resources  of  his  State.  He  referred  to  the  vision  of  Mr.  Mitchell  in  sensing 
the  measure  of  the  water  powers  of  Alabama  and  to  his  stoutness  of  heart 
in  putting  over  the  enterprise  in  sptte  of  many  difficulties. 

"  He  forecasted  the  time  when,  with  the  completion  of  the  Mitchell  and  the 
other  dams  to  be  built,  the  Coosa  would  be  navigable  from  Rome,  Ga,,  to  the 
Gulf  and  carry  Alabama  products  over  all  the  seas. 

"A.  G.  Patterson,  president  of  the  Alabama  Public  Service  Commission,  sai<l 
monarchs  of  Egypt  had  built  the  Pyramids  in  order  to  perpetuate  their  mem- 
ory, but  that  Mr.  Mitchell  had  built  to  sei*ve  mankind.  He  thought  Mr. 
Mitchell's  work  was  much  the  greatest.  Mr.  Patterson  outlined  the  duties 
of  the  commission  with  respect  to  utilities,  saying  it  was  to  see  that  they 
gave  service  to  the  people,  on  the  one  hand,  and  that,  on  the  other,  they  were 
enabled  to  give  that  service  by  being  allowed  to  earn  a  fair  return  on  a 
reasonable  estimate  of  the  value  of  the  service." 

The  Labor  Advocate  (Birmingham)  of  December  24.  1921,  contained  the 
following: 

*'  At  11  o'clock  Monday  morning  over  500  invited  guests  of  the  Alabama  Power 
Co.  arrived  at  the  sire  of  Mitchell  Dam.  This  dam  is  located  on  the  Coosa 
River  in  Chilton  County  and  is  an  ideal  location  for  a  stupendous  object  of  the 
kind.  At  12  o'clock  President  IVIartin  called  the  assemblage  together  and  made 
an  eloquent  and  statistical  address  as  to  what  the  company  proposes  to  do  at 
this  place.  He  was  followed  by  the  following  speakers:  Attorney  General 
Davis  and  A.  G.  Patterson,  president  of  the  Alabama  Public  Service  Commis- 
sion, and  Oscar  Wells  of  the  First  National  Bank  of  Birmingham." 

The  Chilton  County  News  of  December  22,  1921.  contained  the  following: 

"  Last  Mon<lay  one  of  the  largest  audiences  gathered  at  Mitchell  Dam  that 
has  assembled  in  Chilton  County  in  many  days  to  do  honor  to  the  memory  of 
Mr.  James  Mitchell  as  one  of  the  greatest  promoters  of  water  power  this 
country  has  ix)ssessed  in  many  years.     *     *     * 

"  Hon.  Harwell  Davis  was  present  and  expressed  Governor  Kilby's  regrets  at 
being  unable  to  attend  owing  to  pressing  business  reasons.  Mr.  Davis,  in  a 
few  well-chosen  remarks,  called  attention  to  what  a  wonderful  man  of  vision 
Mr.  James  Mitchell  was. 

"Mr.  A.  G.  Patterson,  chairman  of  the  Public  Service  Commission  of  Ala- 
bama, was  also  present  and  briefly  stated  how  the  public  service  commissioners 
had  endeavored  to  treat  the  great  company  fair  and  at  the  same  time  see  that 
the  public  received  their  share  of  the  resources.  He  also  did  not  fail  to  show 
the  great  responsibility  of  the  commission  of  which  he  is  chairman.  He  said 
that  he  was  glad  to  .see  these  great  developments  and  of  their  usefulness. 

"Mr.  Oscar  Wells,  president  of  the  First  National  Bank  of  Birmingham, 
made  the  last  address  of  the  occasion.  He  stressed  that  we  were  here  to  honor 
Mr.  Mitchell.  He  also  stated  that  bankers  were  always  interested  in  such 
wonderful  development.  He  said  that  with  such  enterprises  as  Mitchell  Dam 
completed   that  economy  could  exist   in  every   industry  in   the  country  and 


greater  developments  in  agricultural  pursuits  would  be  one  of  the  important 
factors  as  well  as  all  others." 

The  Birmingham  News  of  December  18,  1921,  contained  the  following : 

"  The  benefits  to  the  people  of  Alabama  from  the  developments  at  Mitchell 
Dam  are  threefold:  An  addition  of  100,000  horsepower  for  developing  indus- 
tries and  the  resources  of  the  State,  increasing  the  distance  over  which  the 
Coosa  River  can  be  navigated  the  year  round,  and  marking  a  long  step  forward 
toward  the  final  developments  which  will  open  the  whole  stream  to  year-round 
navigation;  in  preventing  damage  each  year  from  floods,  which  have  at  times 
greatly  hurt  the  agricultural  sections  and  many  of  the  towns  along  the  river." 

The  Gadsden  Daily  Times-News  of  December  19,  1921,  contained  the  fol- 
lowing : 

"  Several  hundred  representative  citizens  of  northern,  central,  and  southern 
Alabama  attended  the  dedicatory  exercises  at  Mitchell  Dam  on  the  Coosa 
River  near  Verbena  on  the  Louisville  &  Nashville  Railroad  to-day.     *     *     * 

"  The  Alabama  Power  Co.  has  been  for  several  years  expending  about 
$5,000,000  per  annum  in  development  and  this  schedule  is  forecasted  for  several 
years  to  come.     *     *     * " 

The  following  comments  appeared  in  the  Birmingham  Age-Herald,  of  De- 
cember 15,  1921 : 

**  About  ready  to  pour  concrete  in  Mitchell  Dam  near  Verbena.  That  close  to 
seeing  the  mighty  weight  of  the  Coosa  tumble  into  turbines  and  generate  an- 
other 120,000  horsepower  of  electric  current  to  drive  machinery,  oi)erate  car 
lines,  and  light  cities  and  homes  in  Alabama. 

"  Money  at  the  rate  of  $5,000,000  per  annum  has  been  pouring  into  .\labania 
and  counting  for  Alabama  development  in  this  one  avenue  of  natural -resource 
exploitation.  Money  at  that  rate  will  continue  to  come  into  Alabama  during 
a  series  of  years. 

"  At  first  one  does  not  sense  what  things  like  this  mean.  In  time,  as  they 
emphasize  the  individual's  prosperity  through  that  of  his  section,  light  begins 
to  shine  and  big  men  and  big  institutions  come  in  for  correct  estimate  of  their 
value  in  the  general  plan. 

"  It  is  no  small  thing  to  be  placing  $5,000,000  per  annum  in  a  State  in  ways 
that  count  for  the  permanent  good.  Amounts  like  that  are  not  obtainable  by 
small  men,  small  concerns,  isolated  effort,  individual  exertion.  They  come 
only  when  aggregate  capital  is  interested  and  feels  confidence  in  the  people 
and  places  where  the  investment  is  to  be  made.     *     *     * 

"  Alabamians  are  no  longer  afraid  of  a  man  or  concern  on  account  of  bigness. 
They  have  become  broad-minded  and  high-thinking  themselves  and  they  wel- 
come other  big  men,  big  brains,  and  big  capital.    It  is  well  they  do." 

12.  On  account  of  the  power  shortage  prevailing  during  the  fall  of  1921  and 
also  to  meet  the  needs  of  additional  power  during  the  present  year,  the  Secre- 
tary of  War  leased  the  Government  steam  plant  at  Sheffield  to  the  Alabama 
Power  Co.  We  have,  for  some  time  past,  rendered  assistance  to  the  power 
companies  of  Georgia,  North  and  South  Carolina  in  times  of  drought  and 
emergency,  and  the  lease  of  the  Sheffield  steam  plant  will  enable  this  service 
to  be  continued.  Following  the  lease  of  this  plant  by  the  Secretary  of  War, 
approval  was  expressed  in  almost  every  section  of  the  South  on  the  fact  that 
the  power  lines  of  this  company  had  been  connected  with  the  lines  of  the 
power  companies  of  Georgia,  thus  completing  the  interconnection  of  the  sys- 
tems of  the  companies  in  the  Southeastern  States.  In  view  of  the  statements 
made  by  one  of  the  Members  of  Congress  from  Alabama  regarding  the  public 
attitude  toward  our  company,  we  wish  to  refer  to  the  following  comments  con- 
cerning the  leasing  of  the  SheflSeld  steam  plant : 

The  Raleigh  News  and  Observer  of  October  28,  1921,  carried  the  following 
item,  which  shows  the  difficulties  experienced  by  industries  and  the  public  gen- 
erally before  the  lease  of  the  Sheffield  steam  plant,  the  necessity  for  additional 
generation  capacity  in  the  Southeastern  States,  and  the  means  adopted  by  the 
power  companies  in  this  section  of  rendering  assistance  to  each  other  in  cases 
of  emergency: 

"  Beginning  to-day,  the  Carolina  Power  &  Light  Co.  will  furnish  full  service 
to  60  large  cotton  mills  and  more  than  a  score  of  other  important  industries 
that  have  been  forced  to  shut  down  for  two  and  one-half  days  each  week  during 
the  present  month  because  of  lack  of  current. 

"Resumption  of  maximum  service  has  been  made  possible  by  arrangements 
that  have  been  made  to  receive  surplus  power  from  the  Alabama  Power  Co.  and 


(• 


1034 


MUSCLE   SHOALS   PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


1035 


m^ 


by  the  Operation  of  the  company's  auxiliary  steam  plant  at  Method,  which  has 
been  idle  during  the  summer  and  fall  on  account  of  the  drought. 

"  Water  for  the  operation  of  the  steam  plant  will  be  hauled  from  Crabtree 
Creek  over  the  Seaboard  Air  Line  in  tank  cars.  *  *  *  Several  weeks  ago 
the  company  made  efforts  to  secure  the  water  needed  for  the  operation  of  steam 
plant  from  wells,  but  has  been  able  to  secure  only  about  50,000  gallons  a  day, 
approximately  one-fourth  of  the  amount  required.    *     *     * 

"Although  power  companies  in  this  section  have  frequently  interchanged  cur- 
rent, the  Carolina  Power  &  Light  Co.  is  the  first  to  receive  current  through  sev- 
eral intervening  transmission  systems.  Current  is  not  actually  passed  from  Ala- 
bama to  North  Carolina,  each  of  the  intervening  companies  simply  giving  the 
company  next  in  line  an  amount  equivalent  to  that  received. 

"  The  linking  of  these  large  lines  so  as  to  make  possible  the  interchange  of 
current  is  in  line  with  investigations  made  by  the  Government  during  the  war 
with  a  view  to  the  greatest  utilization  of  hydroelectric  power,  but  the  scheme 
has  never  before  been  put  into  operation.    *    *    *." 

The  following  is  an  excerpt  from  an  item  appearing  in  the  Birmingham  Age- 
Herald  of  October  26,  1921 : 

"  The  Alabama  Power  Co.  began  to-day  transmitting  5,000  to  10.000  kilowatts 
of  steam  power  to  the  Georgia  Railway  &  Power  Co.  for  partial  relief  of  the 
power  shortage  in  North  and  South  Carolina,  a  distance  of  some  400  miles  from 
points  where  the  power  is  generated.  This  is  not  sufficient  to  meet  present 
urgent  requirements  in  those  States,  and  on  account  of  the  drought  it  may  be 
necessary  to  discontinue  such  transmission  of  power  at  any  time." 

The  fallowing  is  an  excerpt  from  an  editorial  of  the  Mobile  Register : 

"  Owing  to  the  long  season  without  quantity  rainfall  many  mills  in  North 
Carolina,  which  derive  their  power  from  water  flow,  have  been  idle  because 
the  streams  are  flowing  at  far  below  normal  capacity,  and  thus  have  greatly 
lessened  their  ability  to  produce  electric  current.  In  this  emergency  it  has 
been  found  feasible  to  utilize  the  excess  current  produced  in  Alabama  by  trans- 
mitting it  through  a  number  of  intervening  plants  to  Charlotte  and  other 
industrial  centers.  By  this  means  a  number  of  mills  have  been  enabled  to 
resume  activity  and  great  numbers  of  people  have  been  given  employment. 
This  is  an  achievement  worth  while,  and  indicates  the  wide  benefit  that  may 
follow  the  development  of  the  rest  of  Alabama's  potential,  including  that  of 
Muscle  Shoals.  Alabama's  possible  distribution  of  power  covers  many  States, 
not  only  adjoining  States,  but  those  lying  several  hundred  miles  distant." 

An  editorial  of  the  Atlanta  Constitution  of  October  28,  1921,  says,  among 
other  things : 

"  Hydroelectric  power  interests  in  the  States  of  (Georgia,  Alabama.  North 
and  South  Carolina,  and  Tennessee  have  joined  requesting  the  War  Depart- 
ment to  put  the  Federal-owned  steam  plant  of  Sheffield,  Ala.,  into  operation 
at  once  to  provide  additional  electric  current  for  power  as  a  safeguard  against 
the  threatened  deficiency  resulting  from  the  present  drought  throughout  the 
Southeast. 

"  The  situation  is  similar  to  that  which  seriously  crippled  industry  in  this 
section  in  the  fall  of  1918,  when  a  protracted  rainless  season  caused  such  a 
diminution  of  hydroelectric  power  production  that  extreme  measures  had  to 
be  adopted  to  guard  the  supply. 

*•  In  north  Georgia  it  was  necessary  for  all  power  consumers  to  curtail  their 
consumption.  Many  of  them  at  great  expense  were  forced  to  rehabilitate  the 
steam  plants  which  they  had  previously  abandoneil,  and  others  were  driven 
to  the  extremity  of  installing  entirely  new  steam  power  equipment  in  order 
to  keep  their  factories  running.     *     ♦     * 

"  Fortunately,  the  various  power  companies  in  five  Southeastern  States  in- 
volved have  cooperated  in  such  a  way  that  one  system  can  be  connected  with 
the  feed  wires  of  any  other,  the  effect  being  the  same  as  though  the  entire 
interlocking  and  interchangeable  system  were  fed  by  a  single  great  source  of 
electric  supply." 

The  following  is  an  excerpt  from  an  editorial  of  the  Brmngham  Age-Heraltl 
of  October  27,  1921 : 

'*  The  steam  power  plant  at  Sheffield,  built  by  the  Government  in  connection 
with  the  nitrate  works  there,  has  a  capacity  of  60,000  kilowatts,  or  90,000 
horsepower.     It  is  completed  and  ready  to  operate.     It  should  be  started. 

"  Rivers  are  low  in  Alabama,  the  Carolnas,  Georgia,  and  Tennessee.  The 
Alabama  steam  plants  operated  by  the  Alabama  Power  Co.  are  furnishing  what 


power  can  he  spared  to  help  out  the  distressing  situation  in  the  Carolina  mill 
sections.  If  the  Sheffield  plant  is  also  brought  into  service,  Alabama's  steam 
power  will  be  doubled  and  she  can  transmit  that  much  more  power  to  prevent 
industrial  and  financial  losses  in  these  sister  States. 

"The  Secretary  of  War  has  been  asked  by  Alabama's  public  service  com- 
mission and  the  commissions  of  other  States  to  allow  the  operation  of  the 
Sheffield  plant.  The  request  should  be  granted  and  the  plant  put  into  im- 
mediate service." 

The  following  is  an  excerpt  from  an  editorial  of  the  Union  Banner  of  Clanton, 
Ala.,  on  November  17,  1921 : 

"  This  action  of  the  Alabama  Power  Co.  is  deserving  of  praise  in  that  it  means 
that  many  people  will  be  restored  to  their  work  and  their  names  placed  back 
on  weekly  pay  rolls  by  the  resumption  of  operations  by  mills  and  factories 
upon  which  they  depend  for  the  daily  bread  and  clothing  of  their  families.  It 
means  that  the  consumption  of  much  raw  cotton  by  factories  in  those  States 
will  continue,  which  in  turn  will  draw  that  raw  cotton  from  the  markets  of 
the  South.  The  beneficial  influence  of  this  step  of  the  power  company  will  be 
felt  directly  in  many  cases  that  the  average  person  may  never  think  about." 

The  following  is  an  excerpt,  from  an  article  in  the  Washington  Post  of  October 
30,  1921,  quoting  an  Associated  Press  dispatch  from  Charlotte,  N.  C. : 

"  What  is  described  as  the  *  first  superpower  zone '  was  put  into  actual  opera- 
tion this  week,  according  to  announcement  to-night,  from  the  general  offices  of 
the  Southern  Power  Co.  here,  through  the  utilization  of  surplus  hydroelectric 
power  in  Alabama.  Half  a  dozen  textile  mills  in  central  North  Carolina, 
which  have  been  idle  for  weeks  because  of  lack  of  electric  power  resulting  from 
drouth,  were  enabled  to  resume  operations,  says  the  announcement. 

"The  Alabama  Power  Co.  transmits  power  to  Central  Georgia  Power  Co. 
That  companv  puts  upon  the  lines  of  the  Columbus  Power  Co.  a  like  amount 
of  its  own  power.  Similarly  the  Columbus  company  transmits  power  of  its 
own  generation  to  the  Georgia  Railway  &  Power  Co.,  which  in  turn  through 
its  tie-ins  with  the  Southern  Power  Co.,  delivers  to  the  local  company  a  like 
quantity  of  current.  The  Charlotte  company  then  delivers  t^)  the  Carolina 
Power  '&  Light  Co.  an  amount  of  power  equivalent  to  that  which  is  receive*! 
from  its  Georgia  connection." 

The  Birmingham  News  of  December  18,  1921,  contained  the  following: 

"  Recent  payment  of  huge  sums  of  money  by  corporations  doing  business  in 
Alabama  affords  signal  and  immediate  relief  to  the  educational  institutions  of 
the  State     *    *    ♦ 

"  Whoever,  therefore,  has  been  in  the  habit  of  constantly  prating  of  the  evils 
of  trusts  and  corporations  and  the  iniquity  of  *  foreign  capital '  should  pause 
a  while.  These  so-called  foreign  moneys  when  they  are  invested  in  Alabama 
industry  and  development  become  Alabama  moneys.  The  interests  promoting 
them  become  our  common  intere.sts.  They  plant  their  roots  here  with  a  view 
not  only  to  get  gains  but  to  grow  along  with  us,  contributing  their  pro  rata 
share  to  the  upkeep  of  the  government. 

"There  are  two  kinds  of  capital — the  sort  that  takes  all  and  gives  nothing 
and  the  capital  that  practices  reciprocity.  A  fool  should  be  able  to  discriminate. 
The  capital  that  creates  new  pay  rolls  and  that  develops  a  State's  natural  re- 
sources and  that  pays  substantial  taxes  into  municipal  and  county  and  State 
treasuries  is  benevolent  capital.  There  is  nothing  foreign  about  it.  It  makes 
no  matter  whether  its  stockholders  live  in  New  England  or  old  England,  whether 
in  Chicago  or  Zanzibar.  They  have  cast  in  their  lot  with  us  for  better  or  for 
worse." 

13.  There  might  be  added  many  other  statements  to  show  the  attitude  of 
the  public  toward  this  company  shortly  before  it  filed  its  offer  to  complete  the 
Muscle  Shoals  project.  Expressions  which  have  come  to  this  committee  from 
the  public  in  Alabama  have  evidently  been  largely  worked  up  by  propaganda. 

Shortly  after  the  filing  of  Mr.  Ford's  offer  articles  appeared  in  the  papers 
of  Alabama  to  the  effect  that  he  intended  to  build  cotton  mills,  automobile  fac- 
tories, nitrate  plants,  and  other  industries  in  a  75-mile  city  along  the  Tennes- 
see River ;  would  build  or  take  over  railroads  traversing  the  State,  open  coal 
mines,  ore  mines,  steel  mills,  make  aluminum,  employ  a  million  men,  and  add  to 
the  wealth,  prosperity,  and  happiness  of  every  section  of  Alabama  and  of  the 
South.  Many  of  these  statements  were  doubtless  printed  without  any  authority 
from  Mr.  Ford. 

At  the  same  time,  there  are  many  citizens  of  the  State  moved  only  by  public 
interest  who  feel  that  our  offer  should  be  accepted.     Still  others  think  the 


i 


1036 


MUSCLE  SHOAI^  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


1037 


Ford  offer  should  bo  accepted  but  are  not  in  sympathy  with  the  propajjanda 
against  this  company. 

The  jrovernor  of  the  State  in  a  recently  published  statement  said  with  ref- 
erence to  our  contract  with  the  Government  c(mcerning  the  Warrior  plant  and 
of  the  record  of  development  we  have  made  in  the  State : 

"We  are  told  that  the  Alabama  Power  ('o.  owned  the  site  on  which  the 
(Jorjras  i)lant  is  located:  tbat  it  owned  coal  mines  from  which  fuel  is  now 
ol)taine<l  for  the  operation  of  the  Gorpis  plant ;  and  that  there  now  exists  an 
ajxreement  in  writinjr  between  the  Fe<leral  (Jovernmeiit  and  the  Ahibama  Power 
Co.  whereby  the  Alabama  Power  Co.  oblijrated  itself  to  purchase  and  the  Gov- 
ernnsent  oblijrated  iti^elf  to  sell  the  Alabama  Power  Co.  the  Gorgas  steam  plant 
w  hen  it  ceased  to  be  useful  to  the  Federal  (Tovernment. 

•*  1  believe  contracts  between  the  Government  and  private  enterprises  or 
cor|M)rations  ai-e  just  as  sacre<l  as  contracts  between  individuals.  The  State  of 
.Mnbama  has  only  recently  gone  into  the  courts  in  an  effort  to  maintain  the 
terms  of  a  contract  made  in  goo<l  faith  between  the  State  and  a  private  cor- 
poration. If  the  (xovernment  will  not  carry  out  its  contracts,  how  can  we 
exi^ect  individuals  and  private  corporations  to  carry  out  their  contracts?  *  *  * 
"  Opponents  of  the  power  company  can  set»  notliing  good  in  its  past,  present, 
or  future,  forgetful  of  the  tremendous  benefits  the  State  has  derived  fronr 
the  development  by  the  company  of  watei-  powers  that  ran  to  waste  since  the 
beginning  of  time  until  the  money  of  the  company  served  to  harness  it  for  tlie 
use  of  the  State  and  its  people    ♦    ♦    *." 

In  February  16,  1922,  issue  of  the  Birmingham  News  this  editorial  state- 
ment is  made : 

"  In  order  to  carry  on  the  matter  and  complete  it,  President  Martin  made  a 
clean-cut,  business  offer  to  complete  the  Wilson  Dam  without  cost  to  the  Gov- 
ernment; with  the  initial  installation  of  240,000  horsepower  electrical  equip- 
ment, to  furnish  out  of  this  100.000  horsepower  free  to  the  Government  for 
operation  of  the  nitrate  plant  if  the  Government  desires  to  operate  it,  or  to 
furnish  to  the  designated  agent  or  lessee  from  the  Government :  to  take  out  a 
license  under  the  Government  gene,ral  water  power  bill,  and  the  lease  on  the 
Muscle  Shoals  plant  to  be  for  50  years  instead  of  100,  as  proposed  by  Ford: 
to  pay  ^o.OlKl.OOO  for  the  Gorgas  steam  plant  and  transmission  lines;  to  fur- 
nish power  free  to  operate  the  lock  gates  on  the  dam  in  aid  of  navigation,  and 
to  deliver  over  to  the  Government  whenever  national  emergency  exists  the 
whole  project — and  to  commence  work  at  an  early  date.  Moreover,  if  the  Gov- 
ernment should  decide  not  to  manufacture  nitrates,  then  the  100,000  horsepower 
of  current  set  aside  for  Government  use  will  be  purchased  from  the  Govern- 
ment." 

And  the  following  was  containefl  in  the  editorial  of  Sunday,  February  5, 
1922.  of  the  Birmingham  Age-Herald: 

"  The  Henry  Ford  offer  for  Muscle  Shoals,  as  submitted  to  Congress  by  Secre- 
tary Weeks,  is  undoubtedly  a  great  thing  for  this  section  of  the  South. 

"  On  the  other  hand,  as  a  whole  Mr.  Ford  is  asking  much  from  the  Government 
jind  is  extending  out  into  the  territory  of  the  Alabama  Power  Co. 

"  The  bid  calls  for  bis  acquirement  from  the  Government  of  the  Gorgas  steam 
plant,  which  was  first  built  by  the  Alabama  Power  Co.  and  added  to  by  the 
Government  during  the  excitement  of  war.  The  Alabama  Power  Co.  is  now  op- 
erating this  plant  and  it  seems  to  be  absolutely  necessary  for  the  power  com- 
pany to  have  it  to  supply  the  current  it  has  contracted  for  during  low-water 
periods  in  the  Coosa  River. 

"This  plant  is  some  90  miles  from  Muscle  Shoals.  It  is  connected  by  a 
power  line.  But  this  plant  is  also  connected  with  the  Alabama  Power  Co.'s 
lines  running  throughout  the  State,  and  which  supply  the  factories  and  the 
mines  and  all  sorts  of  manufacturing  enterprises  in  the  State  with  electric 
power.  Should  the  Government  give  this  steam  plant  to  Mr.  Ford,  the  Alabama 
Power  Co.  would  be  seriously  embarrassed,  and  naturally  it  would  fight  for 
what  it  has  always  considered  its  own. 

"  Mr.  Ford's  bid  to  the  Government,  which  includes  this  Gorgas  steam  plant, 
is  emphatic  in  that  the  Government  was  to  accept  his  entire  proposal  or  none 
of  it. 

"This  will  be  a  serious  problem  before  Congress— to  take  away  from  an 
actual  going  concern,  keeping  the  industries  of  this  State  in  operation,  its 
source  of  power,  to  include  it  more  or  less  as  a  gift  to  a  prospective  concern 
which  can  not  get  in  full  operation  for  several  years.    In  other  words,  can  the 


Government  afford,  by  an  act  of  Congress,  to  more  or  less  smash  the  Alabama 
Power  Co.  and  the  manufacturing  interests  of  Alabama  to  humor  Mr.  Ford  in 
bis  big  Muscle  Shoals  proposition? 

"As  Mr.  Ford's  proposition  reads,  it  would  appear  that  he  wants  everything 
or  nothing,  and  that  he  would  deprive  the  Alabama  Power  Co.  of  .its  present 
main  source  of  continued  electric  current — the  Gorgas  steam  plant.  This  does 
not  look  fair  to  the  writer.  Congress  should  find  means  of  adjusting  the  matter 
between  the  Ford  interests  and  those  controlling  the  Alabama  Power  Co..  which 
has  become  one  of  the  greatest  developers  of  Alabama. 

"  It  would  strike  the  fair-minded  man  that  Mr.  Ford  should  be  satisfied  with 
the  water-power  development  which  the  Government  is  to  pay  for  that  he  may 
operate  it  on  a  small  rental. 

"  The  Gorgas  plant  was  the  work  of  the  Alabama  Power  Co.,  built  by  it,  with 
Government  aid.  The  Alabama  Power  Co.  has  operated  it  all  the  time.  It  is  a 
necessity  with  this  company.  Therefore,  why  should  the  Government  dump  it 
in,  so  to  speak,  as  more  or  less  of  a  gift  to  Mr.  Ford,  when  the  Detroit  man 
recently  said  in  a  published  interview  that  he  was  opposed  to  steam-powei- 
electric  plants  and  wanted  to  have  nothing  to  do  with  such? 

"  The  Ford  Muscle  Shoals  proposal  by  itself  is  undoubtedly  a  great  one  for 
this  section  of  the  country  and  for  the  interests  of  the  Government ;  but  there  is 
a  limit  to  that  which  the  Government  should  turn  over  to  him  ;  and  the  Gorgas 
steam  plant  would  seem  in  honesty  and  justice  to  be  outside  of  that  limit. 

"  Let  Mr.  Ford  take  over  ^Muscle  Shoals — we  are  all  for  it — but  don't  let  us,  in 
our  eagerness  to  get  Mr.  Ford's  money  and  industry  down  here,  strangle  the  Ala- 
bama Power  Co." 

The  Chamber  of  Commerce  of  Birmingham,  the  largest  city  in  the  district,  on 
August  16,  1921,  adopted  the  following  resolution : 

"  Following  the  report  of  the  committee  appointed  to  look  into  the  develop- 
ment of  the  Muscle  Shoals  project,  which  report  was  made  by  Mr.  Thornton  Estes. 
it  was  moved  by  Mr.  Donald  Comer  and  seconded  by  Mr.  Murray  Brown  that  the 
board  of  directors  of  the  chamber  of  commerce  respond  to  the  appeal  of  the  Ten- 
nessee River  Improvement  Association  for  cooperation  in  the  work  which  it  is 
doing  in  the  interest  of  the  completion  of  the  dam  or  dams  on  the  Tennessee  River 
adjacent  to  the  Muscle  Shoals,  for  the  creation  of  hydroelectric  power  and  the 
manufacture  of  fertilizer,  by  undertaking  through  subscription  to  raise  the 
amount  requested  ;  and  that  the  president  either  continue  the  present  connuittec 
or  appoint  another  for  that  purpose. 

"  The  range  of  the  discussion  included  the  proposal  of  Mr.  Henry  Ford  made 
to  the  Secretary  of  War,  and.  while  it  seemed  to  be  the  best  one  available  for  the 
purposes  herein  recounted,  it  was  the  opinion  of  the  members  of  the  board  <»f 
directors  that  the  best  offer  should  be  accepted  if  others  were  made.  It  was  also 
made  clear  in  the  discussion  that  the  amount  of  money  which  the  Chamber  of 
Commerce  of  Birmingham  will  undertake  to  raise,  $5,000,  is  for  the  purpose  «»f 
helping  the  Tennessee  River  Improvement  Association  to  defray  the  legitimate 
expenses  of  presenting  to  Congress  and  to  Government  officials  all  of  the  facts 
with  respect  to  the  completion  of  the  dam  and  the  utilization  of  its  power  for  the 
benefit  of  the  producing  interests  throughout  the  country,  upon  which  use  the 
appeal  of  the  Tennessee  River  Improvement  Association  for  funds  was  l)ase«l. 
The  motion  prevailed." 

The  foregoing  resolution  was  reaffirmed  by  the  chamber  of  connnerce  at  a 
meeting  held  early  in  March,  1922,  as  being  its  attitude  toward  this  develop- 
ment. 

The  Birmingham  News  of  February  18.  1922,  contained  the  follo\ving  «Mli- 
torial : 

"  The  News  stands  to-day  where  it  has  always  stoo<l,  a  believer  in  the  great 
things  to  come  if  Ford  is  given  the  shoals.  The  News  has  never  ceased  to  give 
the  preference  to  Ford  in  every  particular.  Even  in  the  editorial  of  which  Mi-. 
Holland  so  bitterly  complains,  the  News  said  that,  despite  the  fact  that  the 
Alabama  Power  bid  seemed  very  much  better  from  a  purely  governmental 
financial  standpoint,  this  paper  still  believed  the  acceptance  of  the  Ford  offer 
would  bring  to  this  whole  section  its  greatest  development  and  would  ojien  :i 
vi.sta  of  possibilities  more  glorious  than  even  its  most  ardent  propagandists 
had  ever  dreamed.  The  News  said,  too.  in  that  editorial  that  no  matter  what 
the  outcome  was,  one  man  deserved  the  credit  for  the  development  that  was  now 
definitely  assured,  and  that  that  man  was  Henry  Ford,  whose  vision  had  rescued 
the  Muscle  Shoals  properties  from  the  Federal  junk  pile  to  make  them  the  center 
of  the  South's  great  future.     *     *     * 


1038 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


1039 


"  Fquikly,  the  tlevelopiiient  of  Muscle  Shoals  to  its  greatest  possibilties  means 
more  to  the  Birmingham  News  than  does  Henry  Ford,  the  Alabama  Power  Co., 
James  B.  Duke,  or  any  other  man  or  interest.  The  whole  future  of  this  section 
is  wrapi)eil  up  in  this  great  developmeot;  and  while  the  News  believes  its 
greatest  possibilities  lie  in  the  magic  hand  of  Henry  Ford,  this  paper  is  always 
open  to  conviction,  and  whoever  can  achieve  the  greatest  things  at  Muscle 
Shoals,  that  man  or  that  interest  is  entitled  to  the  properties,  provided  he  can 
make  the  Government  a  reasonably  good  offer  for  them  and  can  and  will 
properly  guarantee  that  he  will  carry  out  in  good  faith  the  promises  he  has 
made.     *     *     * 

*'  The  development  of  Muscle  Shoals  is  the  greatest  thing  in  the  immediate 
future  for  this  State,  the  South,  and  perhaps  the  whole  country. 

"  *  *  *  Muscle  Slioals  is  bigger  than  the  Alabama  Power  Co.,  it  is  bigger 
than  Henry  Ford.  Its  development  either  by  Henry  Ford,  the  United  States 
Government,  or  the  Alabama  Power  Co.  is  now  definitely  assured,  due  to  the 
vision  of  Henry  Ford,  and  the  News  rejoices  in  that  fact.  And  while  the  News 
wants  Ford  to  handle  the  development  and  believes  sincerely  that  that  would 
be  the  best  thing  for  the  country,  the  News  is  willing  to  abide  by  the  judgment 
of  Congress,  which,  after  careful  study  of  the  whole  situation,'  will  make  the 
award  to  that  man  or  interest  who  will  best  safeguard  the  rights  of  the  United 
States  Government  and  its  people  and  who  promises  to  bring  the  greatest  bless- 
ings to  mankind  from  the  development  that  is  certain  to  ensue,  no  matter  who 
gets  the  properties." 

The  Carbon  Hill  Journal,  Carbon  Hill,  Ala.,  of  March  9,  1922,  contained  the 
following  editorial : 

"  Bibb  Graves,  who  thinks  he  is  a  candidate  for  governor,  has  sent  the  Jour- 
nal a  copy  of  a  Montgomery  paper  containing  the  address  he  delivered  before 
the  mass  meeting  in  that  city  last  week.  We  refer  to  it  as  an  '  address  '  through 
courtesy.  As  a  matter  of  fact  it  was  a  vicious,  narrow-minded,  unfair,  and 
scurrilous  attack  on  one  of  the  greatest  industries  in  the  State — the  Alabama 
Power  Co.  If  Bibb  Graves  sees  fit  to  indorse  the  Ford  bid  for  Muscle  Shoals, 
that  is  his  right,  and  no  fair-minded  person  would  think  of  denying  him  this 
privilege.  But  just  how  he  expects  to  promote  the  Ford  interests,  and  inci- 
dentally his  own,  by  such  an  unwarranted  attack  on  the  power  company  is  not 
quite  clear  on  the  surface  of  things.  The  Ford  bid  will  have  to  stand  or  fall 
on  its  merits,  and  no  amount  of  abuse  of  another  bidder  by  a  cheap,  oflice- 
seeking  politician  courting  popular  favor  is  in  the  least  going  to  enhance  Ford's 
chances  of  securing  Muscle  Shoals. 

"  Bibb  Graves  may  be  a  smart  man,  although  his  Montgomery  address  would 
indicate  otherwise;  he  has  some  things  to  learn,  and  among  them  is  the  fact 
that  he  can  not  build  himself  up  by  tearing  others  down.  Any  man  guilty  of 
employing  such  contemptible  methods  to  advance  his  own  selfish  interests 
is  utterly  unfit  to  fill  the  exalted  office  he  seeks  to  obtain.  As  governor  he  would 
be  far  from  a  credit  to  the  State.'* 

Respectfully  submitted. 

Alabama  Power  Co. 
By  T.  W.  Mabtin,  President. 

(Thereupon  the  committee  went  into  executive  session,  after  which  it  ad- 
journed until  Friday,  March  10,  1922,  at  10.30  a.  m.) 


Committee  on  Military  Affairs, 

House  of  Represp:ntatives, 

Friday,  March  10,  1922. 

The  committee  met  at  10.30  o'clock  a.  m.,  Hon.  Julius  Kahn  (chairman)  pre- 
siding. 

STATEMENT  OF  COL.  J.  W.  JOYES,  BUREAU  OF  ORDNANCE,  UNITED 

STATES  ARMY. 

The  Chairman.  Gentlemen,  Colonel  Joyes,  of  the  War  Department,  is  here 
this  morning,  and  I  think  the  papers  show  that  the  colonel  was  the  gentleman 
who  on  behalf  of  the  Government  entered  into  negotiations  with  the  Alabama 
Power  Co.  at  the  beginning  of  the  expansion  of  the  nitrate  plant  at  Muscle 
Shoals. 

Colonel,  can  you  explain  to  the  committee,  in  your  own  way,  just  exactly 
what  the  dealings  were  w^hich  you  had  with  the  Alabama  Power  Co.  along  in 
1917  or  1918?    Did  you  begin  negotiations  with  that  company? 


Colonel  JoYES.  Practically  the  first  I  ever  heard  of  the  Alabama  Power  Co., 
except  in  reading  of  some  of  the  previous  hearings  before  committees  on  other 
matters — practically  the  first  I  heard  of  them  was  when  we  received  from  the 
American  Cyanamid  Co.  the  first  proposal  to  erect  a  nitrate  plant  for  the  Gov- 
ernment, at  its  request,  and  that  proposal,  after  setting  forth  a  description  of 
the  plant  to  be  put  up  and  the  terms,  discussed  the  question  of  how  to  pro- 
vide power. 

It  started  out  with  the  premise  that,  if  the  first  half  production  of  the  plant 
were  to  be  achieved  within  the  promised  time  of  six  months  from  breaking 
ground,  it  would  be  impossible  to  provide  power  in  a  plant  started  and  built 
ab  initio  in  that  time.  The  power  f-equirement,  as  you  all  know,  for  the  cyana- 
mid process  is  very  great,  and  a  power  plant  takes  time  to  build.  So  the  pro- 
posal of  the  American  Cyanamid  Co.  said  that  the  only  way  they  could  see  to 
be  sure  of  a  supply  of  power  in  time  for  the  operation  of  the  first  half  produc- 
tion of  the  nitrate  plant  within  six  months  from  date  of  breaking  ground  w^ould 
be  to  go  to  an  established  ^stem  where  a  supply  of  power  could  be  had,  and 
then  to  go  ahead  and  build  the  power  plant  for  the  remainder  of  the  power, 
which  it  was  hoped  could  be  done  by  the  time  that  the  remainder  of  the  plant 
production  was  ready.  They  suggested  in  that  proposal  that  an  arrangement 
might  be  made  with  the  Alabama  Power  Co.,  and  I  think  said  that  the  matter 
had  been  opened  with  the  Alabama  Power  Co.,  and  that  company  had  been 
told  that  they  might  expect  to  receive  an  inquiry  from  the  Government. 

Now,  it  was  at  that  time  represented  in  the  American  Cyanamid  Co.'s  pro- 
posal that  the  Alabama  Power  Co.,  unquestionably,  did  not  have  a  sufficient 
supply  of  uncontracted  power  or  unsold  power  throughout  the  year  to  meet  the 
demands  for  the  first  half  production  of  the  nitrate  plant,  but  that  at  cer- 
tain seasons  of  the  year,  and  especially  the  season  when  the  first  half  pro- 
duction was  expected  to  begin,  there  would  be  available  about  the  30,000  kilo- 
watts that  was  desired  out  of  the  run  of  the  river.  I  am  speaking  now  of  the 
Coosa  River  and  the  Alabama  Power  Co.  system.  In  other  words,  that  at  the 
time  when  we  needed  that  first  supply  of  power  it  would  be  available  over 
and  above  contract  requirements,  at  least  over  and  above  the  binding  contract 
requirements  that  could  not  be  set  aside. 

The  Chairman.  When  was  this? 

Colonel  Joyce.  This  was  in  the  fall  of  1917,  sir.  I  forgot  that.  The  first 
proposal  that  we  received  from  the  American  Cyanamid  Co.  was  in  October, 
1917. 

The  Chairman.  Now%  let  me  ask  you  this  question :  What  were  you  doing 
at  that  time? 

Colonel  Joyce.  I  thought  that  was  of  record.  I  was  at  that  time  chief  of 
the  nitrates  division  of  the  Ordnance  Office,  at  that  time  called  "  Division  T  " 
for  brevity.  We  prefered  not  to  give  it  any  name.  That  was  the  division  of 
the  Ordnance  Office  which  was  charged  with  the  conduct  of  all  matters  relat- 
ing to  nitrogen  fixation  under  the  Ordnance  Department. 

The  Chairman.  Were  you  stationed  at  Muscle  Shoals? 

Colonel  Joyce.  No,  sir ;  I  was  stationed  at  Washington. 

The  Chairman.  And  these  letters  came  to  you  at  Washington? 

Colonel  Joyce.  Yes,  sir.     * 

The  Chairman.  When  did  you  go  down  to  Muscle  Shoals,  or  did  you  go 
down  there? 

Colonel  Joyes.  The  first  trip  I  made  down  there  must  have  been  about,  prob- 
ably, August  or  thereabouts. 

The  Chairman.  August  of  1917? 

Colonel  Joyes.  July  or  August  of  1917 :  yes,  sir.  I  went  down  there  at  that 
time,  as  I  went  to  a  number  of  other  places,  looking  out  for  a  site  for  the 
first  installation  to  be  made  under  the  $20,000,000  appropriation  for  nitrate 
supply,  section  124  of  the  national  defense  act. 

Now,  coming  back  to  Mr.  Washburn's  (the  Cyanamid  Co.'s)  proposal,  after 
showing  that  the  Alabama  Power  Co.  would  have  available  at  the  time  we 
wanted  it  a  supply  of  powder  to  meet  our  needs  but  could  not  continue  to 
supply  that  throughout  the  year  without  further  construction,  he  went  on  to 
say  that  he  thought  the  Alabama  Power  Co.  already  contemplated  an  exten- 
sion of  their  station  but  could  not  make  it  at  the  present  time  on  account  of 
financial  conditions,  and  that  possibly  we  might  arrive  at  some  working  ar- 
rangement with  them. 


92900—22- 


-C6 


1040 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


1041 


The  Chairman.  What  position  was  Mr.  Washburn  in  at  that  time? 

Colohel  JoYES.  President  of  the  American  Cyanamid  Co. 

The  Chairman.  Was  he  connected  with  the  Alabama  Power  Co.  at  all? 

Colonel  JoYES.  I  had  no  reason  whatever  to  believe  that  he  was.  and  I  have 
since  looked  into  the  matter  considerably  and  heard  a  great  deal  of  Investiga- 
tion in  the  matter,  and  I  am  satisfied  he  was  not,  except  possibly  as  a  stock- 
holder.   He  had  been  previously  connected  with  it  as  an  official. 

The  Chairman.  But  not  at  the  time  that  he  spoke  to  you? 

Colonel  JoYES.  No,  sir;  I  do  not  know  that  of  knowledge,  you  understand, 
but  I  am  convinced  that  he  was  not. 

The  Chairman.  But  he,  at  least,  suggested  to  you  that  it  might  be  possible 
to  make  a  working  arrangement  with  the  Alabama  Power  Co.? 

Colonel  JoYES.  Yes,  sir;  and  then  as  we  commenced  negotiations  with  Mr. 
Washburn  he  submitted  in  succession  several  different  offers  which  were 
changed  to  meet  or  to  come  a  little  nearer  to  meeting  the  ideas  of  the  officers 
of  the  Ordnance  Department  and  of  the  War  Department,  and  along  about,  I 
think,  the  5th  or  6th  or  7th  of  November,  we  received  a  communication  from 
the  Alabama  Power  Co.  making  a  statement  of  their  power  situation,  premised 
upon  this  demand  which,  according  to  my  remembrance  at  this  time,  was  com- 
municated to  them  by  Mr.  Washburn. 

The  Chairman.  You  say  "we  received";  whom  do  you  mean  by  "we"? 

Colonel  JoYES.  I  think  the  letter  was  addressed  to  the  Division  T,  Ordnance 
Department,  which  was  my  division.  It  came  direct  to  me.  In  other  words. 
I  am  quite  sure  of  that,  sir.  That  letter  is  in  the  record  either  of  this  com- 
mittee or  some  other,  and  probably  several,  and  it  will  show  by  its  address,  I 
believe,  that  probably  Captain  Gaillard  can  tell  you  for  sure. 

Captain  Gaillard.  No.  sir ;  I  am  under  the  impression  it  was  addressed  to  you 
but  I  am  not  sure. 

Colonel  JoYES.  I  have  not  it  with  me.  but  it  is  in  the  record  in  several  places. 

Mr.  McKenzie.  Is  it  not  true.  Colonel,  that  a  number  of  those  communications 
were  addressed  to  the  Chief  of  Ordnance  of  the  United  States  Army? 

Colonel  JoYES.  They  might  have  been. 

Mr.  McKenzie.  And  not  to  any  particular  officer? 

Colonel  JoYES.  Some  of  those  offers  that  came  along  about  that  time  were  ad- 
dressed in  one  way  and  some  in  another. 

Mr.  McKenzie.  That  is  true. 

Colonel  JoYEs.  Sometimes  they  would  be  addressed  to  the  Chief  of  Ordnance 
and  then  in  parenthesis,  or  in  the  line  below,  "  Division  T,"  or  "  Division  so-and- 
so."  There  was  nothing  in  that,  I  believe,  to  have  any  particular  significance, 
Mr.  Kahn.  I  mean  to  say  that  the  form  of  address  and  just  where  it  came  did 
not  affect  any  of  the  negotiations  in  any  way. 

The  Chairman.  At  any  rate  the  letter  reached  you  as  the  head  of  that  Divi- 
sion T? 

Colonel  JoYES.  It  came  direct  to  me,  at  any  rate. 

The  Chairman.  Do  you  know  where  that  letter  is  at  the  present  time. 

Colonel  JoYES.  Oh,  yes;  it  is  in  the  Ordnance  Office,  in  the  correspondence 
files. 

The  Chairman.  Will  you  kindly  put  it  in  the  hearings  of  this  committee  at 

this  place? 

Colonel  JoYEs.  Very  good,  sir. 

The  Chairman.  Now,  continue  from  that  point,  if  you  please. 

Colonel  JoYES.  As  I  said,  we  had  several  different  successive  proposals  from 
the  American  Cyanamid  Co.,  and  they  were  considered  at  conferences  in  the 
office  of  the  Chief  of  Ordnance,  mainly,  running  up  to  the  evening  of  November 
13th  when  the  final  decision  was  made,  around  about  midnight,  a  little  before  or 
a  little  after,  and  then  we  started  work  at  once. 

Mr.  Washburn  took  the  train  the  next  day  to  New  York,  with  an  understand- 
ing that  as  soon  as  we  could  wire  him  that  the  agreement  reached  in  the  office 
of  the  Chief  of  Ordnance  had  the  approval  of  the  War  Industries  Board,  he  would 
get  on  the  train  immediately  with  some  of  his  engineers  and  people  and  go  down 
to  Muscle  Shoals,  and  that  I  would  meet  him  there.  So  that  within  two  or 
three  days  or  so  after  that  conference  I  started  for  Muscle  Shoals,  and  I  be- 
lieve at  that  time  there  was  no  communication  of  any  consequence  sent  to  the 
Alabama  Power  Co.  I  think  we  left  that  until  we  could  decide  upon  the  loca- 
tion definitely  and  get  the  nitrate  plant  started  so  that  it  could  move  along; 
but  I  may  be  wrong  about  that.    We  will  have  the  files  searched  and  if  there 


was  any  communicataion  sent  to  the  Alabama  Power  Co.  in  that  time  in  reply 
to  their  proposal  of  about  November  5,  we  will  have  it  put  in  the  record  along 
with  that. 

The  Chairman.  There  is  a  letter  of  November  6,  1917,  addressed  to  you,  and 
that  is  in  the  hearings,  and  I  will  have  the  clerk  read  it  and  see  if  you  recognize 
it.  It  is  the  letter  that  Mr.  Dent  offered  the  other  day  when  he  was  before  the 
committee. 

(The  clerk  read  the  letter  referred  to  as  follows :) 

November  6,  1917. 

Col.  J.  W.  JOYES, 

Division  T.,  Ordnance  Department,  Washington,  D.  C. 

Dear  Sir:  In  a  conference  to-day  Mr.  Frank  S.  Washburn,  president  of  the 
American  Cyanamid  Co.,  asked  the  Alabama  Power  Co.  to  formulate  a  definite 
proposal  as  to  what  it  was  prepared  to  do  in  the  way  of  supplying  power  to 
the  proposed  new  nitrate  works  at  Muscle  Shoals,  Ala.,  on  the  Tennessee  River. 

Until  such  time  as  there  shall  have  been  definitely  determined  the  details  of 
the  Government's  requirements  we  are  only  able  to  formulate  a  proposal  along 
general  lines,  and  one  which  may  be  considerably  modified  as  to  details  in  carry- 
ing it  out. 

The  financing  of  such  an  installation  at  this  time  would  not  be  warranted 
by  the  present  needs  of  the  Power  Co.,  but  it  is  prepared  to  cooperate  in 
every  possible  way  with  the  Government  in  the  undertaking  which  you  have 
in  view. 

We  estimate  that  the  necessary  additions  to  our  Warrior  River  steam  plant, 
and  the  trailsmission  lines  and  substation  necessary  for  delivering  power  at 
Muscle  Shoals,  will  cost  approximately  $2,250,000.  If  the  Government  will 
finance  the  undertaking  and  assist  in  deliveries  the  power  company  will  be 
prepared  to  install  with  maximum  urgency  the  necessary  steam  plant,  sub- 
stations and  transmission  lines.  The  company  will  supply  30,000  kilowatts 
delivered  to  the  Muscle  Shoals  substation  at  a  combined  energy  and  demand 
charge  of  7  mills  (0.007)  per  kilowatt  hour. 

The  Power  Co.  will  undertake  to  set  aside  3  mills  (0.003)  per  kilowatt 
hour  for  all  energy  supplied  under  this  proposal,  until  the  Government  has 
been  reimbursed  for  all  sums  advanced  to  the  company  in  this  connection. 

We  understand  the  power  requirements  of  the  proposed  nitrate  plant,  so  far 
as  this  company  is  now  concerned,  to  be  about  30,000  kilowatts,  which  must 
be  in  readiness  in  about  six  months.  The  company  can  be  in  readiness  with 
this  amount  of  power  within  the  time  required,  and  with  the  completion  of 
the  extension  above  referred  to  can  continue  to  furnish  this  amount  of  power 
regularly. 

The  company  has  contracts  with  the  Gulf  States  Steel  Co.,  Tennessee  Coal 
&  Iron  Co.,  many  coal  mines,  the  Southern  Manganese  Co.,  and  various  graphite 
products  companies,  all  of  which  are  directly  connected  with  the  proper  conduct 
of  the  war,  whose  continued  operations  will  not  be  affected  under  the  plan  pro- 
posed herein. 

The  Alabama  Power  Co.  has  available  considerable  apparatus  which  ordi- 
narily takes  a  long  period  to  obtain  and  which  might  be  used  in  connection  with 
the  proposed  work.  It  also  has  an  excellent  construction  and  operating  organi- 
zation with  a  long  experience  with  local  conditions. 

Holding  ourselves  at  your  orders  for  further  treatment  of  the  subject,  we 
are. 

Very  respectfully,  yours, 

Alabama  Power  Co., 
James  Mitchell,  President. 

The  Chairman.  Do  you  remember  that  letter? 

Colonel  JoYEs.  That  is  the  letter  to  which  I  had  reference  and  shows  I  was 
essentially  right  in  saying  it  was  addressed  to  my  division. 

Tlie  Chairman.  Yes. 

Colonel  JoYES.  It  came  to  me  at  any  rate. 

The  Chairman.  It  is  dated  November  6  instead  of  November  5. 

Colonel  JoYES.  Well,  I  had  it  November  5  or  6  or  7.  There  were  a  good 
many  at  that  time  and  I  get  them  mixed. 

The  Chairman.  After  you  received  that  letter,  what  did  you  proceed  to  do? 

Colonel  JoYES  As  I  said,  I  do  not  remember  whether  we  made  a  written 
reply  to  that  letter  at  the  time  or  not,  and  I  can  not  remember  whether  I  saw 


I 


1042 


MUSCLE  SHOALS  PEOPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


1043 


»^ 


any  ©f  the  Alabama  Power  Co.  officials  prior  to  about  the  end  of  November  or 
not,  but  we  will  have  the  records  looked  up  to  see  if  there  was  any  reply. 
There  was  nothing,  at  any  rate,  of  any  consequence,  nothing  significant  or 
definite. 

I  went  to  Muscle  Shoals  along  about  the  middle  of  November  and  stayed 
down  there — it  made  about  a  10-day  trip  and  I  got  back  in  the  latter  days  of 
November  and  immediately  took  up  the  going  over  and  examination  of  the  tenta- 
tive draft  of  contract  with  the  Cyanamid  Co.  for  the  nitrate  plant,  and  other 
things  depending  upon  that,  to  get  that  job  started  and  clear  the  way  for  that ; 
and  then  I  got  in  touch  with  the  Alabama  Power  Co.  people,  and  they  had  their 
representatives  come  to  Washington. 

The  Chairman.  When  did  you  complete  the  work  with  the  Cyanamid  people? 

Colonel  JoYES.  We  signed  the  contract,  actually,  on  the  4th.  of  December. 
1917,  if  I  am  not  mistaken.     I  think  that  is  correct.     I  am  pretty  sure  of  it. 

The  Chairman.  I  think  their  testimony  is  that  they  had  a  contract  which  the 
Government  entered  into  with  them  about  the  1st  of  December,  1917. 

Colonel  JoYES.  Well,  I  think  that  is  wrong,  sir.  My  remembrance  is  fairly 
clear  on  that,  that  it  was  signed  actually  on  the  4th  of  December.  Several 
things  seem  to  fix  that  pretty  definitely  in  my  mind,  and  it  was  dated  back 
to  the  16th  or  17th  of  November,  in  order  to  have  it  start  from  the  very  in- 
ception of  the  work. 

As  soon  as  we  got  clear,  along  about  the  1st  of  December,  perhaps  a  day  or 
two  before  or  a  day  or  two  afterwards,  the  Alabama  Power  Co.  officials  came 
to  my  office  in  Washington  by  invitation.  Mr  James  Mitchell,  the  president, 
and  I  think  Mr.  Martin,  then  vice  president  and  counsel,  and  possibly  others. 
Mr.  Walmsley,  for  example,  I  think  he  was  general  manager  or  something  like 
that  at  the  time.  I  have  those  people  particularly  in  mind  and  also  Mr. 
Thurlow,  chief  engineer,  and  the  reason  I  can  not  be  sure  who  was  there  at  the 
very  first  conference  is  because  they  were  in  there  at  different  times  in  other 
conferences  of  about  that  period,  sometimes  two,  sometimes  another  two,  and 
sometimes  all  four  of  them.  We  discussed  the  different  ways  in  which  we  could 
arrange  to  put  the  Alabama  Power  Co.  in  a  position  to  give  us  the  power  we 
had  to  have. 

The  first  proposition,  as  stated  in  their  letter,  was  the  Government  financing, 
naturally,  in  the  most  obvious  manner  by  loan  or  advance  of  money,  and  we 
could  not  see  any  earthly  way  in  which  we  could  do  that. 

The  Chairman.  Why  not? 

Colonel  JoYES.  Although  the  principle  was  recognized  as  being  sound  and 
proper,  we  saw  no  way  whntever  in  which  we  could  make  a  loan  to  the  com- 
pany at  that  time,  or  an  advance. 

The  Chairman.  Why  not? 

Colonel  JoYEs.  Because  we  could  net  find  any  legal  authority  for  it  at  all. 
We  looked  over  the  situation  pretty  hard  and,'  of  course,  in  peace  times  we 
would  not  have  looked  very  hard,  because  we  know  we  would  not  think  of  it ; 
but  in  war  times  we  looked  to  see  if  there  was  any  way  that  we  could  possibly 
do  it.  and  there  was  not  the  slightest  chance.  The  War  Finance  (Corporation 
and  War  C'redits  Board  had  been  established  about  that  time,  and  we  did  not 
know  just  how  they  were  going  to  function.  We  thought,  possibly,  from  their 
names,  they  might  help  out  in  a  situation  like  that,  and  I  sent  an  officer  from 
my  office  to  accompany  .some  of  the  Alabama  Power  Co.  officials  to  the  office  of 
the  War  Finance  CoriK)ration  and  AVar  Credits  Board  to  see  if  anything  could 
be  arranged  there  by  the  company  or  by  us,  but  nothing  came  of  it  at  all. 

There  was  another  thing  that  was  thought  of,  and  that  was  to  make  a  firm 
contract  for  a  certain  definite  amount  of  power,  and  make  an  advance  pay- 
ment upon  it,  but  we  had  had  numerous  decisions  that  had  been  made  in 
peace  times,  of  course,  and  there  was  nothing  to  upset  them,  to  the  effect  you 
could  not  make  an  advance  payment  on  a  contract  for  delivery  of  commodities, 
and  it  was  even  more  specific  that  you  could  not  do  it  for  power  from  any  of 
the  regular  appropriations.  So  we  did  not  know  what  to  do  there.  Later 
on,  there  were  ways  found,  decisions  and  opinions  given,  that  enabled  such 
tran3actions  to  be  carried  out,  but  that  was  way  along  in  1918  that  that  was 
done.  There  were  a  number  of  opinions  given  by  the  legal  officers  of  the  War 
Department  and  the  Ordnance  Department  which  kept  us  away  from  doinc 
either  of  the  two  things,  either  loaning  or  making  an  advance  payment,  either 
one. 

The  Chairman.  Wliat  do  you  mean  by  "  legal  officers?" 


Colonel  JoYES  (continuing).  It  was  very  embarrassing  and  later  on  we  did 
it  sometimes  in  defiance  of  the  opinions  because  we  had  to. 

The  Chairman.  What  do  you  mean  by  the  "  legal  officers  of  the  depart- 
ment " — do  you  mean  the  Judge  Advocate  General? 

Colonel  JoYES.  Yes,  the  Judge  Advocate  General  had  rendered  some  opinions. 
Also,  with  the  development  of  the  great  business  of  the  Ordnance  Department, 
it  was  found  absolutely  indispensable  to  establish  a  corps  of  lawyers  in  the. 
Ordnance  Department  to  give  prompt  and  ready  advice  as  to  the  daily  trans- 
actions coming  up  in  the  active  divisions  of  the  office,  and  some  very  eminent 
lawyers  were  attached  to  the  department  in  that  capacity. 

The  Chairman.  Do  you  remember  who  they  were? 

Colonel  JoYES.  Oh,  there  were  a  great  many  of  them,  sir.  I  remember  Mr. 
Ralph  Crews  for  one.    His  name  stands  out,  a  very  prominent  man. 

The  Chairman.  Where  did  he  come  from?     Where  is  his  office? 

Colonel  ,yoYES.  I  could  not  say,  sin 

The  Chairman.  Do  you  know  where  he  was  from  at  that  time? 

Colonel  JoYES.  No,  sir ;  I  do  not.    Possibly,  Major  Burns  might  know. 

Major  Burns.  He  is  from  New  York  City. 

The  Chairman.  New  York  City? 

Major  Burns.  Yes,  sir. 

The  Chairman.  Do  you  know  where  his  office  is  at  the  present  time.  Major? 

Major  Burns.  I  can  get  that  for  you,  sir.    I  do  not  recall  it  right  now. 

The  Chairman.  Can  you  let  me  know  just  exactly  where  his  office  is? 

Major  Burns.  Yes,  sir. 

Colonel  JoYES.  Any  of  those  officers  can  be  easily  found,  if  you  have  any 
communicatins  to  address  to  them,  or  if  you  want  to  build  up  the  record  by 
having  their  present  location  or  previous  location.  I  think  we  can  undertake  to 
furnish  that. 

The  Chairman.  All  I  want  is  the  truth  about  the  matter ;  that  is  all. 

Colonel  JoYES.  Yes,  sir.  Then,  another  name  that  comes  fo  me  is  that  of 
Col.  William  Williams,  who  was  one  of  the  negotiators  and  signed  some  of  our 
contracts  because  he  was  in  the  procurement  division  in  1918. 

The  Chairman.  He  has  gone  to  Japan. 

Coloney  Joyes.  Yes,  sir;  temporarily,  I  believe.  There  was  also— well,  I 
had  in  my  division  a  couple  of  men,  one.  Captain  Noble,  who  is  now  dead— he 
was  a  New  York  lawyer,  a  rather  young  man  but  a  very  good  lawyer,  and  I 
had  a  still  younger  man  later  on  named  Nightingale. 

The  Chairman.  Was  he  from  New  York  also? 

Colonel  Joyes.  I  think  so. 

Major  Burns.  I  think  he  is  from  California. 

Colonel  Joyes.  I  do  not  know.  He  went  to  California  after  a  while,  but  I 
think  he  came  from  the  East. 

The  Chairman.  What  part  of  California? 

Colonel  Joyes.  I  have  not  the  slightest  idea. 

The  Chairman.  Los  Angeles,   probably. 

Colonel  Joyes.  I  do  not  know.  Then  there  was  an  officer  named  Alexander 
Perry  Osborn,  a  New  York  lawyer,  who  belongs  to  a  firm  of  lawyers  there. 
He  was  a  rather  young  man.  Those  are  all  the  names  that  come  to  me  at  the 
moment,  but  there  were  a  number  of  others.  Mr.  Crews,  or  Colonel  Crews,  I 
think,  was  depended  upon  for  the  more  important  and  authoritative  advice. 

The  Chairman.  How  old  were  these  lawyers? 

Colonel  Joyes.  As  I  said,  several  of  them  I  have  mentioned  were  young. 
Colonel  Williams  was  a  much  older  man.  I  imagine  in  1918  he  was  between 
55  and  60,  certainly. 

PARTIAL    LIST    OF    LAWYERS    IN    ORDNANCE    DEPARTMENT     1917-18. 

Crews,  Ralph,  lieutenant  colonel:  Age,  42;  legal  residence,  Riverside,  111.; 
member  of  law  firm  of  Adams,  Crews,  Bobbs  &  Westford;  income  therefrom 
approximatetly  $20,000  per  annum ;  now  member  of  law  firm  of  Shearman  & 
Sterling,  35  Wall  Street,  New  York  City ;  commissioned  June  28,  1918. 

McKeehan,  Charles  L.,  lieutenant  colonel:  Age,  42;  legal  residence,  Phila- 
delphia, Pa. ;  B.  A.  and  LL.  B.,  University  of  Pennsylvania ;  law  lecturer,  Uni- 
versity of  Pennsylvania ;  present  address,  315  South  Twenty-first  Street,  Phila- 
delphia, Pa.;  commissioned  December  26,  1917. 

Griggs,  Maitland  F.,  lieutenant  colonel:  Age,  46;  legal  residence,  Irvington, 
^-  Y. ;  B.  A  and  LL.  B.,  Yale;  practicing  attorney,  New  York  City;  present 
address,  527  Fifth  Avenue,  New  York  City ;  commissioned  September  20,  1917 


I 


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MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


1045 


■: 


O^om,  Alexander  Perry,  lieutenant  colonel:  Age,  33;  legal  residence,  Gar- 
rison, N.  Y. ;  A.  B..  Princeton,  1905,  and  LL.  B.  Harvard,  1909;  assigned  to 
active  duty  June  28,  1917,  Washington,  D.  C;  to  France  February  20,  1918; 
returned  December  12,  1918 ;  demobilized  December  31,  1918 ;  resumed  practice 
of  law  with  Beckman,  Menken  &  Griscom,  52  Williams  S^treet,  New  York. 

Noble,  Raymond  Hull,  captain :  Age,  31 ;  legal  residence,  Brooklyn,  N.  Y. ; 
LL.  B.  and  LL.  ^M..  New  Y^ork  University,  1907  and  1909 ;  practicing  attorney ; 
commissioned  January  7,  1918.     (Now  deceased.) 

Nightingale,  Lionel  G.,  major:  Age,  37;  legal  residence,  Poughkeepsie,  N.  Y. ; 
mechanical  engineer  and  bachelor  of  arts,  Cornell,  1909  and  1915 ;  graduate  de- 
gree, juris  doctor;  present  address,  535  West  One  hundred  and  forty-second 
Street,  New  York  City ;  commissioned  June  19,  1918. 

Delafleld,  John  Ross,  colonel :  Age,  44 ;  legal  residence.  New  York  City ;  A.  M.. 
LL.  B.,  Princeton,  1896 ;  practicing  attorney.  New  York  City ;  present  address,  27 
Cedar  Street,  New  York  City. 

Galleher,  Parke  A.,  major :  Age,  30 ;  legal  residence,  Washington,  D.  C. ;  I-.L.  B., 
George  Washington  University ;  practicing  attorney,  Washington,  D.  C. ;  present 
address.  National  Metropolitan  Bank  Building,  Washington,  I).  C. ;  commissioned 
September  17,  1917. 

Low,  Benjamin  R.  C,  major:  Age,  38;  legal  residence,  Brooklyn,  N.  Y". ;  LL.  B.. 
Harvard,  1905 ;  member  of  firm  Low,  Miller  &  Low,  attorneys,  .30  Broad  Street, 
New  York  City ;  present  address,  58  Remsen  Street,  Brooklyn,  N.  Y. ;  com 
missioned  July  23,  1917. 

Pinanski,  Abraham  E.,  captain:  Age,  30;  legal  residence,  Boston,  Mass.: 
LL.  B.,  Harvard,  1910;  assistant  to  general  attorney,  Boston  Elevated  Railway 
Co.;  member  of  law  firm  Pinanski  &  Morris  101  Milk  Street,  Boston,  Mass.: 
present  address,  949  Blue  Hill  Avenue,  Dorchester,  Mass.;  commissioned  Au- 
gust 23,  1917. 

Williams,  Wiljiiam,  lieutenant  colonel:  Age,  55;  legal  residence,  New  York 
City ;  LL.  B.,  Harvard,  M.  A.,  Yale  and  Columbia ;  practicing  attorney :  present 
address,  1  West  Fifty-fourth  Street,  New  York  City;  commissioned  February 
12,  1918. 

Hawkins,  Richard  H.,  lieutenant  colonel:  Age,  39;  legal  residence,  Pitts- 
burgh, Pa. ;  Ph.  B.,  Yale,  LL.  B.,  University  of  Pittsburgh ;  law  lecturer.  Uni- 
versity of  Pittsburgh;  practicing  attorney,  Pittsburgh;  present  address,  140."i 
Squirrel  Hill  Avenue,  Pittsburgh,  Pa. ;  commissioned  February  8,  1918. 

Fairchild,  Arthur  W.,  major:  Age,  41;  legal  residence,  Milwaukee,  Wis.; 
B.  L.  and  LL.  B.,  University  of  Wisconsin ;  practicing  attorney ;  present  address, 
474  Kenilworth  Place,  Milwaukee,  Wis. ;  commissioned  October  15,  1917. 

Holcombe,  Amasa  M..  major:  Age,  35;  legal  residence,  Washington,  D.  C: 
M.  E.,  Massachusetts  Tech.,  1904;  practicing  attorney  (patents);  present  ad- 
dress, 3305  Eighteenth  Street,  Washington,  D.  C. :  commissioned  May  26,  1917. 

Hamilton,  E.  A.,  major:  Age,  28;  legal  residence.  New  York  City;  LL.  B., 
Cornell,  1913:  practicing  attorney.  New  York  City;  present  address,  128  West 
Eleventh  Street,  New  York  City ;  commissioned  June  12,  1917. 

Dodge,  Parker,  major :  Age,  34 ;  legal  residence,  Washington,  D.  C. ;  S.  B.  in 
M.  B.  Massachusetts  Tech.  (LL.  B.),  1907;  practicing  attorney  (patent),  Wash- 
ington, D.  C. ;  present  address,  724  Ninth  Street  NW.,  Washington.  D.  C. ;  com- 
missioned August  15,  1917. 

The  Chairman,  Were  these  other  young  men  of  draft  age? 

Colonel  JoYES.  Possibly  a  few,  sir.  Colonel  Crews  was  a  man,  I  should  say, 
of  about  40  or  45. 

When  we  got  these  negotiations  opened  up  in  December  with  the  Alabama 
Power  Co.  we  found  it  difficult  to  get  at  a  working  arrangement,  and  we 
saw  that  there  was  going  to  be  a  considerable  delay  in  getting  an  agreement. 
The  company  had  mortgages,  bonded  indebtedness,  and  it  had  a  lot  of  firm 
contracts  for  power,  taking  up  a  good  deal  of  its  production,  and  it  had  con- 
tracts for  secondary  power  also,  and  those  were  rather  annoying  in  the  way 
they  interfered  with  anything  like  a  commandeering  order  to  take  away  the 
power:  not  that  it  could  not  be  taken,  but  what  troubled  us  was  that  if  ^v(> 
took  the  power  by  commandeering  we  were  going  to  be  interfering  with  so 
many  of  the  industries  that  the  War  Industries  Board  was  telling  us  must  bt' 
Interfered  with  in  no  wayr  shape,  or  manner.  So  it  was  very  difficult.  an<l 
then  there  was  the  question  of  what  damages,  etc.,  the  company  could  recover, 
and  the  question  of  how  the  United  States  could  be  protected  in  whatever  it 
might  do.  The  probable  cost  and  complication  due  to  commandeering  appean  <1 
prohibitive. 


The  principle  had  been  established  already  of  building  extensions  to  plants 
where  the  Government  required  a  delivery  from  the  plants  of  more  than  their 
previous  capacity  could  give,  and  there  were  a  number  of  precedents  for  that — 
extensions  and  additions  to  machine  shops,  foundries,  powder  factories,  and 
everything  like  that.  It  was  the  only  way  we  could  have  gotten  along  at  all 
and  gotten  anything.  So  that  appeared  to  be  the  most  obvious  solution  of  it — 
to  build  an  addition  to  th  plant,  so  that  it  could  deliver  more  than  it  was 
capable  of  before  and  give  us  what  we  required;  but  how  to  get  that  in  and 
have  the  Government's  interest  protected  and  the  Alabama  Power  Co.'s  interest 
protected,  as  they  necessarily  demanded,  made  a  very  complicated  proposition, 
and  I  could  not  see  my  way  through  it.  I  did  not  have  a  very  big  staff  at  that 
time  of  people  I  wanted  to  turn  it  over  to,  and  I  said.  "  We  have  got  to  do 
the  thing  anyhow  and  we  will  find  a  way  to  do  it  after  we  have  got  it  started." 

So  I  drew  them  a  purchase  order,  simply  saying  "  Deliver  us  so  nmch  power 
by  such  and  such  a  time,  or  thereabouts,"  and  to  enable  them  to  do  this  1 
i.ssued .  them  another  order,  "  Put  in  an  extension  to  your  plant  for  which 
the  United  States  will  make  some  arrangement  to  finance,"  or  words  to  that 
effect,  and  another  purchase  order,  "  Build  a  transmission  line  from  your 
system  up  to  the  Muscle  Shoals  nitrate  plant;  start  at  it  right  away  and  we 
will  settle  the  terms  later  on."  Those  orders  were  safe,  as  they  were  capable 
of  later  treatment  as  commandeering  orders.  They  promptly  said  they  would 
work  under  such  an  agreement  as  that,  and  they  started  in. 

The  Chairman.  That  was  an  agreement  dated  December  7,  1917.  and  is  in 
the  hearings. 

Colonel  JoYES.  Yes ;  that  is  right. 

The  Chairman.  It  is  addressed  to  you  and  says : 

W^ASHiNGTON,  D.  C.  December  7,  1917. 

Col.  J.  W.   JOYES, 

Colonel,  Ordnance  Department,  United  States  Army, 

Washington,  D.  C. 

Sir:  This  company  acknowledges  receipt  of  your  purchase  order  (Executive 
tu'der  No.  154)  of  date  December  7,  1917,  for  the  construction  of  a  transmission 
line  from  our  steam  plant  on  the  Black  Warrior  River  to  the  site  of  the  pro- 
posed ammonium  nitrate  plant  at  Sheffield,  Ala. 

In  accordance  with  your  instructions  we  are  proceeding  to  book  this  order 
as  a  definite  order  on  behalf  of  the  Ordnance  Department,  United  States  Army. 
and  will  proceed  as  speedily  as  possible  toward  carrying  out  your  instructions. 
Yours,  very  truly, 

Alabama  Power  Co., 
By  Thos.  W.  Martin, 
Yice  President  and  General  Counsel. 

Do  you  remember  that  order? 

Colonel  JoYEs.  Yes,  sir. 

The  Chairman.  Is  that  the  one  you  have  reference  to? 

Colonel  JoYEs.  That  is  an  acknowledgment  of  the  order  I  had  reference  to. 

The  Chairman.  Yes. 

Colonel  JoYEs.  As  I  say,  I  wrote  three  orders — one  for  the  supply  of  the 
power,  another  for  the  addition  to  the  plant,  and  another  for  the  building  of  the 
transmission  line.  They  were  Nos.  154,  155,  and  156.  I  think  they  were  all 
dated  December  7.  They  were  in  part  superseded  by  later  orders,  somewhat 
modifying  the  requirements,  December  21  and  January  8. 

The  Chairman.  There  are  three  orders  here,  I  believe,  dated  December  7. 
Here  is  one,  order  156 ;  also  orders  154  and  155.    They  are  all  in  the  record. 

executive  order  no.  154. 

December  7,  1917. 
Alabama  Power  Co., 

Birmingham,  Ala.: 

By  authority  of  the  Chief  of  Ordnance,  you  are  hereby  given  an  order  to 
construct,  on  lands  owned  by  you  or  rights  of  way  under  your  control,  from 
your  steam-power  plant  on  the  Black  Warrior  River  to  the  site  of  the  proposed 
ammonium-nitrate  plant  of  the  Air  Nitrates  Corporation  at  Sheffield,  Ala.,  for 
the  present  known  as  the  United  States  Nitrate  Plant  No.  2,  a  transmission  line, 


I 


1046 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


1047 


m 


for  the  t)urposo  of  and  of  proper  capacity  for  transmitting  electric  current  of 
3-phase,  60-cycle,  and  about  110,000  volts.  This  line  to  be  built  as  economically 
as  possible,  being  for  the  temporary  use  of  the  United  States  in  transmission 
of  power  during  the  period  of  the  present  war,  or  thereabouts.  The  line  to  be 
the  property  of  the  United  States,  and  suitable  arrangements  to  be  made  as 
already  tentatively  agreed  upon,  to  cover  the  payment  of  actual  cost,  plus  a  per- 
centage thereof,  to  cover  use  of  the  Alabama  Power  Co.'s  lands  right  of  way 
construction  forces,  and  other  facilities,  etc.,  and  profit.  All  these  conditions 
to  be  embodied  m  a  future  contract. 

Priority,  class  A-1,  has  been  requested  from  the  War  Industries  Board  for 
the  manufacture  of  this  material  (copy  of  which  is  inclosed),  so  that  delivery 
may  be  made  at  the  earliest  possible  date. 

Although  this  writing  is  in  letter  form,  please  book  it  as  a  definite  order  on 
behalf  of  the  Ordnance  Department,  United  States  Army,  by  the  undersigned 
and  promptly  acknowledge  receipt  thereof.  * 

Very  truly  yours, 

J     W     JOYES 

Colonel,  Ordnance  Department,  United  States  Army. 


Col.  J.  W.  JoYEs,  WASHINGTON,  D.  C,  December  7,  1917. 

Ordnance  Department,  United  States  Army. 

Sir  :  Jhis  company  acknowledges  the  receipt  of  your  purchase  order  (Execu- 
tive Order  No.  154)  of  date  December  7,  1917,  for  the  construction  of  a  trans- 
mission line  from  our  steam-power  plant  on  the  Black  Warrior  River  to  the  site 
of  the  proposed  ammonium-nitrate  plant  at  Sheflleld,  Ala. 

In  accordance  with  your  instructions,  we  are  proceeding  to  book  this  order  as 
a  definite  order  on  behalf  of  the  Ordnance  Department,  United  States  Army, 
and  will  proceed  as  speedily  as  possible  toward  carrying  out  your  instructions 
Yours  very  truly, 

Alabama  Poweb  Co., 
By  Thos.  W.  Martin, 
Vice  President  and  General  Counsel. 


A  ,.  ^  December  21,  1917. 

Alabama  Power  Co.,  ' 

Birmingham,  Ala.: 

By  authority  of  the  Chief  of  Onlnaiiee,  you  are  hereby  directed  to  make  the 
following  modihcations  of  our  order.  XOT-1.54,  of  December  7  1917  • 

In  addition  to  the  transmission  line  proper,  ordered  in  XOT-154,  as  originally 

V^A^  *  t^  ^''?^i  ^ill  ^"^""^'^  ^^^^  suitable  transformer  station  for  step-up  to 
110,000  volts  at  the  Warrior  plant  end,  and  suitable  transformer  station  for 
step-down  from  line  voltage  to  12,000  volts,  or  thereabouts,  as  to  be  more  par- 
ticulariy  specifaed  by  inspector,  and  both  these  stations  to  be  complete  outdoor 
stations  with  proper  oil  switxjhes,  etc.,  details  to  be  approved  by  inspector 

All  facilities  contemplated  will  be  of  ample  capacity  to  carry  35,000  kilowatts 
continuously  without  injury  and  without  excessive  energy  loss  and  voltage  drop 
At  present  single  circuit  of  250,000  circular  mils  hard  drawn  stranded  copper! 
regarded  as  most  suitable,  this  to  be  definitely  decided  between  you  and  the 
undersigned.  «  i^  tu^ 

•It  ^fJ^y^  understood  that  every  effort  is  to  be  made  to  have  this  entire  line 
with  the  two  substations  in  readiness  for  use  by  June  1,  1918,  and  that  what- 
ever temporary  arrangements  are  necessary  for  taking  the  current  which  you 
will  then  have  to  take  from  your  own  lines,  instead  of  from  your  additional 
generating  capacity  which  we  expect  to  install,  must  be  provided  in  some 
manner  satisfactory  to  this  ofl3ce. 

In  addition  to  the  payments  mentioned  in  the  original  order  for  actual  cos*- 
the  percentage  will  be  6  per  cent. 

Nothing  else  on  order  to  be  changed. 

J     W     JOYES 

Colonel,  Ordnance  Department,  United  States  Army. 


War  Department, 
Office  of  the  Chief  of  Ordnance, 

Washington,  January  8,  1918. 
Alabama  Power  Co., 

Birmingham,  Ala.: 

By  direction  of  the  Chief  of  Ordnance,  purchase  order  XOT-155  and  letter 
(T-8277)  of  December  14,  1917,  are  hereby  canceled,  and  you  are  hereby  given 
an  order  to  purchase  and  install  for  the  United  States  as  a  temporary  addition 
to  the  steam  power  producing  facilities  at  your  Warrior  River  plant  in  Alabama, 
and  to  enable  you  to  supply  to  the  United  States  at  Sheffield,  Ala.,  the  supply 
of  power  contemplated  by  a  separate  purchase  order,  XOT-156,  Model  No.  1, 
of  even  date  herewitJi,  as  follows : 

1.  Thirty  thousand  kilowatt  turbo-generator  unit,  with  suitable  accessories, 
as  condensers,  switchboards,  battery  of  boilers,  etc.,  directly  necessary  tx)  its 
.service,  in  addition  to  what  you  now  have  installefl,  or  should  properly  put  in 
for  the  portion  of  your  plant  now  existing:. 

Also  to  install  the  foregoing  upon  your  existing  land  and  foundations,  etc., 
and  to  erect  thereover  a  temporary  building  for  the  protection  of  such  apparatus. 

Provided,  that  all  of  the  foregoing  work  is  to  be  performed  by  you,  subject 
to  the  approval  of  the  undersigned  and  on  the  basis  of  reimbursement  of  actual 
cost  plus  a  construction  fee,  in  consideration  of  which  you  will  allow  without 
special  rental  or  similar  charge  therefor  the  use  of  your  land,  foundations,  and 
other  property  as  needed,  the  actual  amount  or  percentage  of  such  construc- 
tion fee  to  be  embodied  in  a  future  contract;  .said  contract  to  be  mutually 
agreed  to  by  your  company  and  this  office,  or  in  the  event  of  disagreement,  to 
be  referred  to  a  competent  and  authorized  board  for  settlement. 

2.  Purchase  order  on :  Alabama  Power  Co. 

Although  this  writing  is  in  letter  form,  please  book  it  as  a  definite  order  on 
behalf  of  the  Ordnance  Department,  United  States  Army,  by  the  undersigned, 
and  sign  below  the  acknowledgment  and  acceptance  on  the  part  of  your  company. 

J.   W.   JOYES, 

Colonel,  Ordnance  Department,  United  States  Army. 
January  8,  1918. 

We  accept  the  above  order. 

Alabama  Power  Co., 
By  James  Mitchell, 

President. 
Thos.  W.  Martin, 
Vice  President  and  General  Counsel, 


January  8,  1918. 
Alabama  Power  Co., 

Birmingham,  Ala.: 

By  direction  of  the  Chief  of  Ordnance,  purchase  order  XOT-156  is  hereby 
canceled  and  you  are  given  this  order  to  furnish  certain  electric  power,  to  be 
specified  hereafter,  to  the  United  States  at  Sheffield,  Ala.,  viz : 

Upon  completion  of  the  transmission  line  from  your  Warrior  plant  to  Shef- 
field, which  line  you  are  to  construct  under  my  order  XOT-154,  you  will  fur- 
nish from  any  resources  of  your  system  such  part  of  10,000  kilowatts  as  the 
United  States  may  require ;  and  in  excess  of  that  quantity,  if  available,  as  the 
United  States  may  require. 

Also,  upon  completion  of  the  additions  to  your  Warrior  steam  plant  to  be 
built  by  you  for  the  United  States,  as  covered  by  my  order  XOT-156,  Mod.  2, 
which  completion  is  expected  to  be  about  August  1.  1918,  you  will  furnish  from 
said  addition  such  part  of  30,000  kilowatts  as  the  United  States  may  require, 
and  in  excess  of  that  quantity  if  available  from  your  system  as  the  United 
States  may  require. 

The  rates  for  power  and  other  terms  hereunder  to  be  embodied  in  a  future 
contract,  said  contract  to  be  nmtually  agi-ed  to  by  your  company  and  this 
office,  or  in  the  event  of  disagreement  to  be  referred  to  a  competent  and  au- 
thorized board  for  settlement. 


1048 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS   PROPOSITIONS. 


1049 


Altboiiffh  this  writing  is  in  letter  form,  please  boolv  it  as  a  definite  order  on 
behalf  of  the  Ordnance  Department,  United  States  Army,  by  the  undersigned 
and  sign  below  the  acknowledgment  and  acceptance  on  the  part  of  your  company] 

J.    W.   JOYES, 

Colonel,  Ordnance  Department,  United  States  Army. 
January  S,  1918. 


We  accept  the  above  order 


Vice 


Alabama  Power  Co., 
By  James  Mitchell, 

President. 
Thos.  W.  Martin, 
President  aM  General  Counsel. 


The  Chairman.  The  foregoing  are  the  orders  and  acceptances  under  which 
the  work  proceeded  with  the  exception  that  on  February  28,  1918,  these  orders 
were  given  the  status  of  an  agency  contract  to  facilitate  the  fiscal  arrangements 

Colonel  Joyes.  So  we  got  it  started.  They  wired  right  down  to  their  people 
and  got  them  starteti  on  the  acquistion  of  the  necessary  right  of  way  for 
the  transmission  line  and  began  to  work  on  the  addition  to  the  power  plant,  etc. 

The  Chairman.  These  letters  were  all  issued  here  in  Washington? 

Colonel  JoYES.  Yes.  sir. 

The  Chairman.  And  this  transaction  occurred  at  the  Capital,  here  in  Wash- 
ington ? 

Colonel  JoYES.  In  the  city  of  Washington ;  yes,  sir.  In  my  office,  which  at 
that  time  was  up  on  (J  Street,  and  these  letters  were  put  in  my  regular  file 
of  purchase  orders,  and  I  am  quite  pos  five  that  they  were  written  and  actually 
signed  on  the  day  indicate<l  by  the  date  upon  theuL  I  remember  that  pretty 
clearly. 

The  Chairman.  December  7.   I  think. 

Colonel  JoYEs.  December  7,  1917.  There  were  later  some  modifications  as 
to  the  capacity  of  the  apparatus  to  be  put  in,  etc. ;  copies  have  been  submitted 
(above)  to  make  the  record  correct.  The  reason  for  writing  the  purchase  order 
there  was  so  that  whatever  payments  we  might  have  to  make  or  anything 
would  be  based  upon  a  writing.  A  good  many  of  the  war  orders  were  placed 
by  telephone  or  telegraph  with  no  word  of  writing  at  all,  but  we  tried  to 
have  something  in  writing,  at  any  rate,  and  with  a  purchase  order,  especially 
when  it  is  accepted,  we  had  something  to  indicate  a  basis  of  partial  agree- 
ment, and  that  put  it  in  shape  where  we  would  get  the  work  done,  and  if  we 
came  to  a  satisfactory  agreement,  all  right,  and  if  we  did  not.  we  could  go  up 
to  somebody  that  had  the  ultimate  power  and  tell  them  to  decide  what  they 
would  do  for  payment  arrangements;  presumably,  the  War  Industries  Board 
or  some  special  board,  would  ultimately  have  passed  upon  it. 

We  then  took  occasion  to  try  to  work  out  a  proper  agreement.  I  had  a 
great  many  things  to  do.  but  I  carried  on,  nevertheless,  a  good  many  nego- 
tiations in  Washington  in  the  early  period ;  that  is,  December,  January,  Febru- 
ary, and  along  in  there  until  I  found  I  could  not  do  it  any  longer.  We  were 
not  getting  to  a  final  agreement,  and  I  turned  it  over  to  other  people  in  my 
office  to  take  it  up  with  the  Alabama  Power  Co.  people.  We  had  a  great 
d  fficulty  there  as  to  speed  of  negotiation  because  the  Alabama  Power  Co. 
have  offices  in  New  York  and  their  main  business  in  Alabama.  Some  of  their 
officials  were  at  one  place  and  some  in  the  other,  habitually,  and  we  were 
in  Washington,  and  all  of  us  were  busy. 

The  Chairman.  The  war  was  on  at  this  time? 

Colonel  JoYES.  Yes.  sir :  so  that  both  in  my  organization  and  in  theirs,  it  came 
to  a  point  where  a  good  deal  of  the  threshing  out  of  the  details  and  framing 
up  of  the  copy,  which  was  hoi»ed  might  be  the  final  shape,  was  left  to  sub 
ordinates,  and  we  let  it  go  abnig  for  a  while  in  that  way  and  a  draft  would 
come  up  and  sometimes  I  could  not  pass  it  and  sometimes  Mr.  Mitchell  could  not 
pass  it,  and  so  it  went  on.    After  a  while,  jiretty  well  along 

The  Chairman.  W^hy  could  not  you  pass  it? 

Colonel  JoYEs.  Oh.  well 

The  Chairman.  Or  why  could  not  Mr.  Mitchell  pass  it? 

Colonel  JoYEs.  Some  of  the  propositions  did  not  look  good  to  me.  They 
looked  not  favorable,  not  safe,  or  otherwise  unsatisfactory. 

The  Chairman.  To  the  Government? 


Colonel  JoYES.  Yes,  sir;  I  was  working  for  the  (Tovernment.  of  course. 

In  the  summer  of  1918,  I  got  very  impatient  about  the  progress  of  the  con- 
tract and  I  think  the  powei-  company  did,  too.  We  wanted  to  see  something 
settled,  both  of  us.  and  so  we  brought  the  negotiations  right  up  to  Washingtcm 
where  we  could  get  at  them  a  little  closer,  and  we  finally  arrived  at  a  c<»ntract 
fofm  that  we  thought  was  going  to  go  ihrough  all  right  and  going  to  be  satis- 
factory. At  that  time  there  had  been  a  reoi-ganization  of  the  Ordnance  Office, 
whereby  I  had  no  longer  any  authority  to  sign  a  contract,  and  all  contracts 
were  required  to  go  to  the  procurement  division  for  signature,  and  to  go  through 
a  regular,  uniform  process  of  api)rovals.  So  I  took  ths  Cinitract  over  to  tlie 
procurement  division,  to  general  ^MacKoberts.  who  was  at  the  head  of  it,  along 
hi  the  summer  of  1918.  an<l  told  him  the  situation,  and  he  said,  in  effe<t.  "  1 
wUl  refer  you  to  Colonel  Williams,  who  will  be  appointed  to  take  care  of  this 
situation  and  carry  it  to  a  conclusion."  Colonel  Williams  looked  the  contract 
over  and  he  said.  "  This  is  not  exactly  in  the  form  we  write  our  contracts.  I 
can  see  that  right  away,  and  we  will  want  to  examine  it  very  critically,  any- 
how, and  if  I  chop  it  all  to  pieces  and  start  fre.sh  I  will  ^eX  it  in  our  regular 
form  and  I  can  more  carefully  examine  it  and  see  that  it  fulfills  all  i-equire- 
ments."  So  he  started  to  chop  it  to  pieces  and  st^rt  all  over  again,  but  he  pre- 
served tlie  essence  of  the  ♦contract  and  worktnl  pretty  expeditiously.  We  all 
sat  with  him.  I  was  present  at  all  the  important  conferences  and  to<»k  a  leading 
part.  Nothing  was  done  that  I  did  not  concur  in,  and  the  contract  was  brought 
to  completion  and  finally  signed  on  about  November  7.  1918. 

The  Chairman.  Do  you  remember  whether  that  contract  had  article  22  in  it? 
I  think  that  is  the  number  of  the  article. 

Colonel  JoYES.  I  do  not  remember  the  articles  by  number.  I  know  it  had  at 
least  22  in  it,  sir. 

The  Chairman.  "  Article  22 :  Sale  to  or  purchase  by  contractor." 

Colonel  JoYES.  I  remember  that,  sir. 

The  Chairman.  Will  you  state  to  the  committee  as  clearly  as  you  can  what 
thit  section  is 

Colonel  JoYES.  You  mean  an  analysis  of  the  provisions  of  the  contract? 

The  Chairman.  Yes. 

Colonel  JoYES.  I  have  an  analysis  of  that  here  and  I  intend  to  change  nothing 
whatever  from  the  language  of  the  contract  but  to  put  it  in  shape  where  the 
different  alternatives  are  more  clearly  brought  forth.  I  can  hand  that  right 
over  to  you  and  there  are  several  other  copies  here,  if  the  mmebers  would  like 
to  see  them. 

(The  analysis  referred  to  is  as  follows:) 

Contract  T-69 — Alabama  Power  Co.  and  the  United  States. 

ANALYSIS  OF  SEVERAL  ALTERNATIVE  PROVISIONS  FOR   DISPOSAL. 


Time  or  conditions. 


Provisions  for  disposition. 


1.  After  3  vears  after  war  end. 


If  and  when  ace.  fund'  equals 
or  is  greater  than  actual  total 
cost. 


3.  At  any  time. 


Consideration,  etc. 


4.  After  Dec.  1, 1926,  or  before  if 
United  States  finally  cease 
to  take  energy.  (Ace.  fund 
less  than  actual  cost.) 


United  States  has  option  to  de- 
mand that  contractor  purchase 
Warrior  extension  and  Warrior 
substation. 
Contractor  may  demand  that 
United  States  convey  title  in 
Warrior  extension  and  Warrior 
substation. 
Contractor  may  demand  that 
United  States  convey  title. 
(Warrior  extension  and  War- 
rior substation.) 

Contractor  may  demand 

(a)  If  arbitration  value  equals 
or  is  less  than  ace.  fund,  United 
States  to  convev  title  to  Warrior 
extension  and  Warrior  sub- 
station, retaining  all  ace.  fund. 
(6)  If  arbitration  value  is  great- 
er than  ace.  fund,  United  States 
to  convey  title  to  Warrior  exten- 
sion and  Warrior  substation 
upon  payment  by  contractor  of 
excess  of  value  over  ace.  fund. 
(60-day  term  prascribed  for  either  , 
'f  or  ft  transfer.)  i 


At  arbitration  value.  (Excess  or 
deficiencj^  of  ace.  fund  to  be 
paid  by  United  States  or  con- 
tractor! respectively.) 

At  total  actual  cost.  (Excess 
ace.  fund  to  be  paid  back  to 
contractor.) 

At  total  actual  cost.  (Contractor 
pajring  any  excess  necessarv  and 
ace.  fund'  retained  by  L%ited 
States.) 

Value  fixed  by  arbitrator ,  and — 
At   arbitration   value,   or   any 

greater  amount  in  ace.  fund. 


At  arbitration  vaUie. 


1050 


MUSCLE   SHOALS  PROPOSITIONS. 


Contract  T-69 — Alahama  Power  Co.  and  the  United  States — Continued. 
ANALYSIS  OF  SEVERAL  ALTERNATIVE  PROVISIONS  FOR  orSPOSAL-Gontinued. 


Time  or  conditions. 


Provisions  for  disposition. 


Consideration,  ete. 


5.  If  contractor  fails  to  purchase 
on  United  States  demand. 


6.  If  (o)  not  sold  in  10  years  from 
1917,  or  (b)  if  not  sold  and  no 
energy  taken  by  United 
States  for  365  days. 


7.  If  United  States  take  no  energy 
for  2  years;  or  1927,  in  any 
event. 


United  States  may  sell  to  another 
not  for  operation,  but  must  re- 
move within  6  months. 


United  States  shall,  upon  de- 
mand, remove  Warrior  exten- 
sion and  Warrior  substation 
within  6  months  unless  United 
States  shall  exercise  its  option 
No.  1  to  demand  purchase  by 
contractor.  If  remove.  United 
States  returns  all  ace.  fund. 

United  States,  upon  contractor's 
demand,  to  remove  transmis- 
sion line:  Provided,  United 
States  may,  instead,  demand 
contractor  purchase  at  arbitra- 
tion value. 


This  being  not  a  sale  to  contractor, 
price  is  problematical.  ( Unitwl 
States  to  return  to  contractor 
only  such  part  of  ace.  fund  as 
may  remain  over  and  above  any 
excess  of  sale  price  over  original 
actual  cost  to  United  States. 
(NotUkely.) 

(No  sale,  therefore  no  price  x^ re- 
scribed,  unless  United  States 
exercises  option  No.  1  for  arbi- 
tration value.) 


Arbitration  value  if  sold. 
(This  for  transmission  line.) 


Colonel  JoYES.  I  think  that  helps  to  give  a  clear  idea  of  just  what  that  article 
means.  If  there  is  any  changed  meaning  in  that  from  any  of  the  provisions 
in  the  contract,  it  is  inadvertent.  I  do  not  think  there  is.  Before  I  start  to 
discuss  that  analysis  I  would  like  to  say  what  was  the  object  of  the  whole 
thing. 

The  Chaikman.  Yes. 

Colonel  JoYES.  The  object  was  this,  that  the  United  States  had  to  provide  addi- 
tional facilities  to  enable  the  power  company  to  give  it  the  power  it  wanted — 
to  sell  it,  of  course — and  having  provided  those  facilities,  it  wanted  to  get  some 
return  upon  its  expenditures  if  possible,  and  it  wanted  the  best  return  upon  its 
expenditures  that  it  could  get.  We  considered  very  carefully  how  we  could  do 
that.  We  possibly  could  have  taken  some  land  somewhere  down  there,  whether 
at  that  particular  place  or  not,  seized  the  land  or  bought  it,  and  gone  ahead  to 
build,  but  we  did  not  have  authority  to  buy  any  land  at  that  time.  The  fact  of 
the  matter  is  there  were  specific  legal  provisions  against  it. 

The  Chairman.  What  were  those  legal  provisions  against  it? 

Colonel  JoYEs.  Revised  Statutes,  3736. 

The  Chaikman.  Have  you  any  specific  bill  in  mind  that  contained  such  a 
provision  ? 

Colonel  JoYES.  This  was  not  a  bill ;  it  was  an  act,  a  definite  section  of  the 
Revised  Statutes  dating  back,  I  think,  to  1820  or  something  like  that,  providing 
that  no  land  could  be  purchased  without  specific  legislation  providing  for  it, 
and  there  was  another  section  of  the  Revised  Statutes,  355,  that  was  trouble- 
some. That  was  a  restriction  that  you  had  to  get  full  written  approval  of  title 
by  the  Judge  Advocate  General  and  also  get  cession  of  jurisdiction  by  the  State 
legislature  before  you  could  go  in  and  build  on  land. 

Now,  that  bar,  probably,  you  may  think  was  removed  by  legislation  in  the 
summer  of  1917,  but  it  was  not.  There  was  a  bill  passed  July  2,  1917,  which 
is  in  the  Statutes  at  Large,  volume  40,  page  241.  That  was  an  act  to  authorize 
condemnation  proceedings  of  lands  for  military  purposes,  and  it  gave  all  neces- 
sary powers  for  acquirement,  permanently  or  temporarily,  of  land  by  condem- 
nation or  by  purchase,  but  only  for  certain  purposes,  and  the  purposes  were  the 
prosecution  of  works  for  fortifications,  coast  defenses,  and  military  training 
camps.  Those  were  the  only  three  categories  of  purposes  mentioned.  We  were 
not  acting  under  any  one  of  the  three.  We  had  no  benefits  from  that  legislation 
whatever.  I  say  "we";  I  mean  either  the  work  under  my  charge  or  any  of 
the  work  of  the  Ordnance  Department  throughout.  I  called  that  situation  to 
the  attention  of  the  Chief  of  Ordnance  some  time  in  August,  1917,  and  recom- 
mended, for  the  sake  of  the  general  business  of  the  Ordnance  Department,  that 
he  have  it  changed  by  further  legislation,  and  he  told  me  it  was  already  in 
hand.    Ultimately  it  was  done.    The  act  of  October  6, 1917,  did  not  help  materi- 


MUSCLE   SHOALS  PROPOSITIONS. 


1051 


ally ;  but  the  act  of  April  11,  1918,  was  put  on  the  record  and  that  revises  this 
previous  legislation  bij'  putting  in  after  those  strictly  military  purposes — that  is, 
fortifications,  coast  defenses,  military  training  camps — the  words  "  and  for  the 
construction  and  operation  of  plants  for  the  production  of  nitrate  and  other 
compounds,  and  the  manufacture  of  explosives  and  other  munitions  of  war 
and  for  the  development  and  transmission  of  power  for  the  operations  of  such 
plants."  That  was  the  only  change  of  any  consequence  in  the  act  of  July.  That 
was  the  act  of  April 

The  Chairman.  April  11? 

Colonel  JoYEs.  April  11,  1918.  I  have  a  full  copy  of  that,  sir,  if  you  wish  to 
see  it.    I  am  sure  it  is  right. 

The  Chairman.  If  there  is  no  objection  on  the  part  of  the  committee,  we 
will  put  that  in  the  record.  I  do  not  think  it  has  been  put  in  the  record  hereto- 
fore. It  is  very  short  and  I  will  have  the  clerk  read  it  for  the  benefit  of  the 
record. 

(The  clerk  read  as  follows:) 

"  Condemnation  of  land  for  military  uses :  That  hereafter  the  Secretary  of 
War  may  cause  proceedings  to  be  instituted  in  the  name  of  the  United  States, 
in  any  court  having  jurisdiction  of  such  proceedings  for  the  acquirement  by 
condemnation  of  any  land,  temporary  use  thereof  or  other  interest  therein, 
or  right  pertaining  thereto,  needed  for  the  site,  location,  construction,  or  prose- 
cution of  works  for  fortifications,  coast  defenses,  military  training  camps,  and 
for  the  construction  and  operation  of  plants  for  the  production  of  nitrate  and 
other  compounds  and  the  manufacture  of  explosives  and  other  munitions  of 
war  and  for  the  development  and  transmission  of  power  for  the  operations  of 
such  plants;  yuch  proceedings  to  be  prosecuted  in  accordance  with  the  laws 
relating  to  suits  for  the  condemnation  of  property  of  the  States  wherein  the 
proceedings  may  be  instituted :  Provided,  That  when  the  owner  of  such  land, 
interest,  or  rights  pertaining  thereto  shall  fix  a  price  for  the  same,  which  in 
the  opinion  of  the  Secretary  of  War  shall  be  reasonable,  he  may  purchase  or 
enter  into  a  contract  for  the  use  of  the  same  at  such  price  without  further 
delay.  *  *  *  Act  of  July  2,  1917  (40  Stat.  241)  as  amended  by  act  of 
April  11,  1918  (40  Stat.  518). 

"  Chapter  XXIV,  act  of  July  9,  1918  (40  Stat.  895),  provides  that  during  the 
World  War" 

Colonel  JoYES.  I  think  that  is  hardly  pertinent  to  the  present  point.  I  have 
no  objection  to  your  reading  it,  but  it  is  a  note  I  made  on  the  paper  for  another 
purpose. 

Mr.  Garrett.  What  was  the  date  of  that  act? 

The  Chairman.  April  11,  1918. 

Colonel  JoYES.  There  is  one  thing  I  think  it  is  necessary  to  say  here  in  order 
to  clarify  that  particular  situation. 

The  act  of  April  11,  1918,  has  been  referred  to  before  and  it  reads  in  such  a 
way ;  in  fact,  it  says,  I  think,  that  it  is  the  act  of  July,  1917,  as  now  amended, 
but  the  idea  that  is  apt  to  be  created  by  that  is  that  the  amendment  is  some- 
thing inconsequential  and  that  the  act  of  1917  was  essentially  that  of  1918, 
which  is  utterly  wrong.  As  I  have  told  you,  the  act  of  1917  gave  the  Ordnance 
Department  absolutely  no  assistance  whatever,  because  it  mentioned  nothing, 
no  purpose,  with  which  the  Ordnance  Department  was  concerned  in  any  way, 
shape  or  manner,  and  the  putting  in  of  all  those  purposes  was  done  by  the 
act  of  April.  1918.  The  bill  that  the  Ordnance  Department  had  recommended 
and  which  started  its  course  was  a  mere,  brief  amendment,  making  no  mention 
specifically  of  the  nitrate  plants,  but  simply  intended  to  broaden  it  out  so  as 
to  include  munition  plants  and  so  forth  in  general  terms,  so  that  any  of  the 
additional  facilities  that  the  Ordnance  Department  had  to  have  could  be  pro- 
vided under  it.  The  specific  mention  of  the  nitrate  plants  and  the  power  was 
put  in  in  Congress,  I  believe. 

That  is  the  situation  as  to  the  law,  and  whatever  the  technical  construction 
of  it  may  be,  that  was  what  we  had  staring  us  in  the  face  and  was  what 
remedy  was  given  for  it. 

We  had  also  difficulty  about  anything  we  wanted  to  sell,  and  we  could  not 
figure  on  getting  a  return  of  the  expenditure,  especially  if  it  be  on  real  estate, 
by  providing  for  any  sale,  because  there  was  no  law  for  it;  in  fact,  I  think, 
there  was — well,  there  was  no  law  for  it.  I  do  not  think  I  could  cite  you  any- 
thing definitely  forbidding  it  but  it  was  understood  that  it  could  not  be  done, 
and  those  provisions  that  allowed  for  a  sale  came  in  later  on. 


1052 


MUSCLE   SHOALS  PEOPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


1053 


So  \j'e  cast  about  and  we  thonjcfht  the  best  tiling  we  could  do  was  to  arranjje 
that  we  should  take  the  temporary  use  of  the  land  and  such  facilities  as  we 
needed  of  the  Alabama  Power  Co.    There  was  no  bar  to  a  lease  or  to  a  rental, 
while  there  was  to  a  purchase.    There  could  be  no  difficulty  about  giving  up  a 
leasehold  while  there  might  be  about  something  that  you  held  in  fee,  so  that 
was  the  basis  we  thought  was  most  practicable.     You  may  say,  Why  did  we 
go  in  there  and  get  mixed  up,  interlocked  and  intertwined  with  a  going  con- 
cern so  it  could  not  be  gotten  away?    And  that  has  been  said,  and  the  reason 
was  this :  They  had  what  we  wanted  there,  and  at  that  time  when  we  were  in 
the  war,  when   we  found  what  was  needed,   we  went  after  it  and  took  it 
in  some  way  or  other.     Now,   they  had  there  the   land.     The  land  did  not 
amount  to  anything,  because  land  is  land,  and  at  lots  of  places  you  could  find 
ground  to  build  a  power  house  on,  but  you  can  not  build  a  power  house  on 
every  corner  lot  and  have  it  work  and  work  decently.    You  have  got  to  have 
water.    You  have  got  to  have  a  place  where  the  water  runs  right  through.    You 
have  generally  got  to  dig  down  25  or  30  feet  in  the  ground  to  get  it  to  ruti 
through  and  to  make  a  conduit  for  it.     Now,  the  Alabama  Power  Co.   had 
already  installed  a  steam-power  plant  at  Gorgas  on  the  Warrior  and  they 
had  just  completed  that,  and  they  had  left  a  blank  end  wall  to  it,  a  temporary 
end  wall,  with  the  express  purpose  of  extending  it  so  as  to  have  more  units. 
They  had  put  in  one  unit.     We  saw  their  plans  providing  for  it.     They  had 
led  the  water  for  the  condensers  in  through  underneath  this  one  unit  which 
they  had  installed,  carried  it  right  on  down  to  an  outlet  in  the  river  lower 
down,    all   concreted    in,   and    some   accessory    foundation    structures   on    the 
lower  levels  had   been   made   for   the   additional   extensions   that   they   con- 
templated. 
The  Chairman.  What  extensions  did  they  contemplate  at  that  time? 
Colonel   JoYEs.  They   contemplated   two   successive  extensions.     Now,   this, 
of  course,  is  not  positive  knowledge.     I  could  not  testify  to  this  under  oath 
or  anything  like  that,  but  I  am  sure  of  it,  as  I  have  been  told  it  many  times, 
and  I  have  seen  the  plans. 
The  Chairman.  Where  did  you  get  the  information  ? 

Colonel  JoYES.  From  officials  of  the  Alabama  Power  Co..  and  I  am  quite 
sure  I  have  seen  the  plans  and  I  have  seen  the  stnictures  on  the  ground  or 
in  the  ground  where  they  had  started  to  build.  They  had  started  the  founda- 
tions, the  substructure  of  the  foundations.  They  had  also,  as  I  say,  built  the 
channel  for  the  condensing  water  to  much  greater  capacity  than  would  be 
required  for  the  one  unit  that  they  had  installed.  They  had  built  it  of 
sufficient  capacity  for  three,  which  is  sufficient  proof. 

Having  those  things,  it  meant  a  considerable  gain  of  time  for  us,  and  time 
was  a  great  thing  with  us  because  we  wanted  the  power  in  six  months.  We 
wanted  to  be  sure  that  when  we  got  that  nitrate  plant  we  would  have  this 
steam  station  ready  to  back  it  up  and  not  have  power  fail  on  us  because  the 
river  was  low.  So  that  was  quite  an  object.  It  meant  not  only  taking  a 
piece  of  land,  so  much  area  of  land,  but  it  meant  taking  a  particular  piece 
of  land  with  already  certain  stinictures  belonging  to  the  power  company 
already  in  the  ground,  and  that  is  the  situation  that  made  it  so  particularly 
delicate  and  difficult  for  us,  and  reasons  which  I  think  will  clear  any  mind 
that  may  still  have  the  idea  that  there  was  a  deliberate  mixing  and  inter- 
locking of  things  that  was  objectionable. 

We  started  in  there  then  to  build  this  addition,  tying  it  right  into  the  other 
unit  that  the  Alabama  Power  Co.  already  had,  so  that  the  two  could  work  to- 
gether. You  could  not  have  them  two  separate  plants  feeding  power  into  the 
same  system  unless  you  had.  certain  elements  of  control  and  coordination. 
To  make  power,  alternating-current  power,  of  high  potential  you  have  got  to 
have  it  very  carefully  synchronized  before  you  can  put  the  output  from  two 
machines  into  the  same  line.  It  has  to  be  either  in  one  plant  or  you  have  to 
have  a  more  expensive  and  troublesome  installation  coordinating  it  in  two 
separate  plants.  So.  naturally,  we  built  it  to  go  right  into  the  one  thing  and 
make  a  unit  that  would  be  efficient  and  ready,  and  especially  we  felt  it  prefer- 
able to  do  that  because  that  gave  us  a  very  proper  and  correct  outlook  to  get 
some  money  back  for  the  United  States.  In  many  cases  where  the  Ordnance 
Department  had  at  that  time  to  put  in  additional  facilities  to  get  what  the 
Government  had  to  have,  we  thought,  "  This  is  all  lost  money ;.  this  is  sunk. 
It  is  an  expense  account  and  not  an  investment,  and  we  will  never  get  any  of 
it  back  " ;  but  here  we  had  an  assurance  of  getting  some  of  it  back. 


The  Chairman.  Did  you  know  at  this  time  of  the  act  of  June  3,  1916.  the 
national  defense  act,  which  forbade  any  private  company  mixing  in  with  the* 
Government  of  the  United  States  in  any  of  the  activities  at  Muscle  Shoals? 

Colonel  JoYEs.  No,  sir;  I  do  not  remember  any  such  language  as  that.  I 
mean  to  say,  with  all  due  respect,  that  those  words  you  have  used  there  were 
not  in  that  legislation  at  all,  and  I  remember  the  act  very  distinctly — section 
124. 

The  Chairman,  I  will  give  you  the  exact  words  of  section  124  of  the  national 
defense  act. 

Colonel  JoYES.  Yes,  sir. 

The  Chairman.  I  will  read  you  the  exact  language  : 

"  The  plant  or  plants  provided  for  under  this  act  shall  be  constructed  and 
operated  solely  by  the  Government  and  not  in  conjunction  with  any  other 
industry  or  enterprise  carried  on  by  private  capital.'* 

Colonel  JoYES.  Yes,  sir;  but  this  was  not  a  plant  or  plants  havine  any  con- 
nection whatever  with  that  act. 

The  Chairman.  You  did  not  construe  this  as  having  any  connection  with  the 
act  of  1916? 

Colonel  JoYEs.  Well,  it  was  not  a  matter  of  construing  it,  Mr.  Kahn,  it  wafi 
a  matter  of  knowing  that  it  absolutely  had  no  connection  with  it. 

The  Chairman.  How  did  you  arrive  at  that  conclusion? 

Colonel  JoYEs.  Because  we  never  spent  a  cent  of  the  money  under  that  pro- 
vision of  law,  under  that  section  124,  for  that  purpose,  either  for  the  Alabama 
Power  Co.  work  or  for  the  nitrate  plant  No.  2  which  it  was  to  serve. 

The  Chairman.  Just  explain  that  for  the  benefit  of  the  record. 

Colonel  JoYEs.  Well,  I  will  tell  you  about  that.  When  I  started  to  work  in 
the  nitrate  division  in  June,  1917,  the  matter  was  in  this  shape:  We  had  the 
report  of  a  commission  of  scientific  men,  business  men,  etc.,  which  had  recom- 
mended certain  steps  to  be  taken  under  section  124,  to  carry  out  the  responsi- 
bilities and  duties  of  the  President  thereunder,  and  those  recommendations 
had  been  approved  by  the  Secretary  of  War  and  by  the  President.  They  were 
turned  over  to  the  Chief  of  Ordnance  and  by  him  to  me  to  carry  out. 

They  were,  first,  to  make  a  plant— I  am  not  attempting  to  quote  anywhere 
near  verbatim,  but  the  essence  of  the  essential  points  were  these-  First  to 
make  a  plant  to  produce  about  60  tons  of  ammonia  per  dav  by  the  process  be- 
ing developed  by  the  General  Chemical  Co.,  which  was  a  process  for  the  svn- 
thetic  formation  of  ammonia  by  the  direct  union  of  nitrogen  and  hydrogen- 
and  ancther  step  was  to  put  in  a  small  plant  to  studv  the  oxidation  of  am- 
monia to  make  nitric  acid,  nitric  acid  being  a  principal  material  for  explosive' 
work;  and  again,  another  step  was  to  build  another  experimental  plant  for 
the  concentration  of  nitric  acid  from  the  strength  in  which  it  was  usually 
obtained  to  that  in  which  you  need  it  for  making  power,  etc.,  an  essential  and 
necessary  process  and  one  not  used  theretofore  here  in  this  country,  because 
when  acid  is  made  by  the  sodium  nitrate  process,  it  comes  out  strong.  When 
you  make  it  by  any  of  the  fixation  processes,  it  comes  out  weak,  and  it  has  to 
be  concentrated  before  it  is  usable  in  most  of  the  explosives  processes. 

Those  were  the  three  main  steps.  There  were  certain  other  inyestigations 
that  were  suggested  and  recommended,  some  for  which  small  allotments  of 
money  were  suggested— investigations  of  a  sodium  cyanamid  process  and  one 
or  two  others  and,  of  course,  general,  continuing  investigation  of  fixation  in 
general. 

I  started  in,  then,  at  the  beginning  in  July  to  put  in  a  plant  to  follow  out  that 
recommendation,  which  was  all  I  had  a  mandate  for,  and  we  put  in  the  United 
States  nitrate  plant  No.  1,  not  at  Muscle  Shoals  but  a  little  to  the  southwest  of 
the  city  of  Sheffield,  Ala.,  which  is  right  in  the  vicinity  of  Muscle  Shoals. 

The  vicinity  of  Muscle  Shoals  has  no  real  significance  to  that  plant  at  all, 
but  it  was  simply  that  there  was  a  plot  that,  all  things  taken  into  considera- 
tion, seemed  to  be  the  best  place  to  put  it  to  start  with.  That  plan,  unquestionably, 
comes  in  the  purview  of  section  124  of  the  national  defense  act.  There  is  lio 
doubt  about  it. 

The  Chairman.  The  money  used  for  its  construction  was  all  taken  from  the 
$20,000,000  referred  to  in  that*  act? 

Colonel  JoYES.  Yes,  sir.  We  started  in  with  that  thought,  bought  the  land 
with  that  money,  and  stadted  construction  with  that  money,  and  we  expected  to 
complete  it  all  out  of  that  money.  After  a  while  we  found  the  expense  was  getting 
heavier  than  we  anticipated  and  running  considerably  beyond  our  estimate.  We 
had  added  things  to  that  plant  for  war  purposes  that  were  never  con  tempi  ate<l 
in  the  nitrate  program  and  that  were  not  strictly  chargeable  to  the  $20,000,000, 


1054 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


1055 


either.  That  may  seem  to  be  a  detail  which  may  simply  bulk  the  record,  but 
it  explains  why  we  went  outside  of  the  $20,000,000  to  get  other  money  to  help 
out  in  plant  No.  1.    That  was  the  stiuation  there. 

In  the  fall  of  the  year  I  was  called  into  the  office  of  the  Chief  of  Ordnance 
and  was  told  that  the  situation  was  getting  quite  acute  as  to  the  supply  of  ex- 
plosives for  war  operations,  and  the  material  to  make  them  out  of;  that  they 
were  going  to  go  to  ammonium  nitrate,  a  mixture  of  ammonium  nitrate  and 
T.  N.  T.  for  shell  filler,  and  they  could  not  see  where  they  were  going  to  get 
enough  of  either.  They  were  trying  all  sorts  of  things  to  get  more  toluol  and 
more  ammonium  nitrate,  and  they  asked  me  if  there  was  any  fixation  process 
that  would  help  out  in  order  to  get  the  ammonium  nitrate  that  was  required  by 
the  program.  I  said  that  there  was.  They  said  what  process  would  you  use — 
the  same  one  that  the  committee  recommended  and  that  you  are  putting  in  at 
nitrate  plant  No.  1,  that  is.  the  synthetic  ammonium  process?  I  said,  no,  I 
would  not.  I  said  it  is  not  a  develoi)ed  process;  we  have  already  gone  to  a 
pretty  heavy  expense  in  the  plant,  on  a  pretty  large  scale  to  try  an  experimental 
process,  and  while  we  think  it  will  come  through  all  right,  it  may  not  come 
through  under  the  first  trial,  and  we  do  not  know  when  it  will  come  through ; 
I  would  not  trusty  it  for  necessary,  urgent  use,  not  at  all ;  and  the  only  thing  I 
know  of  that  you' can  trust  and  that  we  have  is  tlie  cyanamid  process. 

Mr.  Parker.  You  said  that  was  in  the  fall.     Was  it  1917  or  1918? 

Colonel  JoYES.  It  was  1917 ;  as  a  matter  of  fact,  it  was  in  October,  1917. 
They  asked  me  if  I  had  any  communications  from  the  company  that  controlled 
the  process.  I  had  one  tentative,  preliminary  one  we  had  gotten  from  the 
Cyanamid  Co.,  simply  to  find  out  what  they  had,  whether  it  was  going  to  be 
a  usable  process,  and  an  organization  that  we  could  depend  upon  in  the  event 
of  just  such  a  need  as  came  up.  We  showed  that,  and  we  were  told  to  get 
into  communication  with  the  Cyanamid  Co.  and  put  up  to  them  the  present 
requirements  and  see  what  kind  of  an  offer  they  would  make.  We  did  that, 
and  these  numbers  of  offers  that  have  come  out  in  the  several  investigations 
and  been  put  into  the  records,  were  brought  forth. 

I  think  the  first  of  those  serious  offers,  I  mean  the  first  offer  addressed  to  the 
war  needs  of  the  Government,  was  dated  October  29,  1917,  or  thereabout.  The 
final  one  was  dated  November  13,  1917. 

The  Chairman.  Did  that  come  from  the  Air  Nitrates  Corporation? 

Colonel  JoYES.  The  Air  Nitrates  Corporation  at  that  time  did  not  exist.  It 
came  from  the  American  Cyanamid  Co.  Those  proposals  stated  that  in  order 
to  do  what  the  Government  asked  them  to  do  they  would  form  a  subsidiary 
corporation,  of  which  they  would  own,  essentially,  all  the  stock,  to  carry  on 
such  of  those  war  activities  as  the  Government  wanted. 

What  I  wanted  to  emphasize  right  there  was  the  fact  that  the  cyanamid 
process  had  been  thoroughly  investigated — I  say  thoroughly — apparently 
thoroughly,  considerably  investigated  by  the  commission  that  had  been  estab- 
lished to  look  into  the  matter  of  nitrate  supply  before  I  ever  got  into  the  game 
at  all,  and  they  had  deliberately  kept  away  from  it,  and  recommende«l  a  trial 
of  this  newly  developed  process,  the  synthetic  ammonia  process,  instead. 
Therefore,  as  the  program  was  turned  over  to  me.  the  cyanamid  process  was 
put  aside,  and,  to  an  extent,  adversely  reported  upon,  because  it  was  considered 
that  it  was  not  the  process  which  promised  to  be  most  economical  in  the  pro- 
duction of  the  products  we  were  interested  in  in  the  near  future.  They  thought 
that  this  coming  synthetic  ammonia  process  promised  to  be  much  more  eco- 
nomical.   That  was  the  situation. 

So  there  was  nothing  in  the  way  of  a  mandate,  although  there  was  an 
adverse  mandate  as  to  the  bringing  of  that  plant  into  being  for  the  use  of  the 
cyanamid  process  under  section  124  of  the  national  defense  act. 

When  we  decided  to  build  that  plant,  however,  we  had  to  think  how  we 
were  going  to  do  it;  how  we  were  going  to  get  a  site,  and  where  we  wen* 
going  to  get  the  money  to  do  it,  and  so  on,  We  had,  as  I  told  you,  a  specific 
bar  on  the  statute  books  to  buying  any  land!  We  looked  through  the  appro- 
priation acts  and  we  found  no  money  appropriated  for  the  purchase  of  land, 
and  we  were  in  a  predicament  there.  We  could  get  the  money,  according  to 
opinions  which  we  had,  from  the  general  appropriation  acts  to  build  the  plant, 
but  we  could  not  get  the  money  to  buy  the  land.  So  the  only  way  I  saw  to 
do  it  was  to  take  some  of  this  money  provided  for  in  section  324  of  the 
national  defense  act  to  cover  the  purchase  of  land  alone,  and  I  got  an  allot- 
ment made  by  the  President  of  the  sum  of  $200,000  to  pay  for  the  purchase 
of  the  land  for  United  States  nitrate  plant  No.  2  at  Muscle  Shoals.    That  was 


put  on  my  books,  and  at  one  time  I  got  an  addition  to  it,  because  I  found 
that  the  anticipated  cost  of  the  land  went  beyond  what  money  I  first  got,  and 
there  was  altogether  allotted  to  me  $350,000  for  the  purpose  of  buying  the  land 
But  I  nev^er  spent  a  cent  of  it.  I  realized  the  disadvantage  of  using  that 
money  to  buy  the  land  for  the  nitrate  plant,  because  I  knew  the  onlv  way  we 
could  make  the  nitrate  plant  was  to  work  with  a  private  corporation,  and  the 
law  forbade  that.  So  we  were  not  in  a  pleasant  situation.  But  we  saw  no 
escape  from  it,  and  we  had  to  have  the  stuff,  and  we  went  on  with  it 

But  before  It  came  to  the  payment  for  the  first  parcel  of  land  there  was 
legislation  which  did  permit  the  purchase  of  land  out  of  the  general  appro- 
priations for  purchasing  munitions,  namely,  armament  of  fortifications  I 
am  referring  to  that  new  legislation,  the  act  I  just  read,  of  April  11,  1918  which 
removed  the  bars,  and  we  had  a  decision  thereunder  shortly  after  the  passage 
of  the  act  that  said  that  in  view  of  that  legislation  moneys  appropriated  bv 
the  general  appropriation  acts  for  the  purchase  of  munitions  could  be  used 
to  purchase  the  necessary  land  for  producing  the  munitions.  As  soon  as  I 
saw  this  decision  which  came  from  the  Judge  Advocate  General's  office  I 
went  out  and  said  we  will  get  out  of  this  embarrassment-of  buying  the  land 
for  this  plant,  where  we  have  got  to  work  with  a  private  corporation    out  of 

•  li^^''^  '^  }^^}^^  ^^''^  "^^^^'^  '^"^  «^«^v  what  I  did,  and  I  can  put  this  letter 
in  the  record  if  you  want  it.  This  is  dated  January  20, 1919,  Ster  I  had  learned 
of  the  decisions  under  which  the  purchase  of  land  was  allow^  to  be  made 
out  of  current  appropriations  for  war  munitions.     This  letter  was  addrSsed 

tt"?"/UJ^?*    ^^   conversations    on    the    desirability    of   paving    for    land    for 
United  States  nitrate  plant  No.  2,  Muscle  Shoals,  Ala.,  and  the  qua?^  therefm 
from  appropriations  other  than  'nitrate  plant'  (sec   124   n«finnnV  .iLI  fl  «  I' 
approved  June  3,  1916).  I  hand  you  the  fCowing^iemomn^^^^^^^ 
support  of  the  use  in  the  present  emergency  of  leneral  supp^V  appro^pri^t^^^^^^ 
sTpl/of^rtS  ^'  ^-tifications.'   for   land  purchased ,fec?s^I?rtrthe 

was'?hrwa^rimS^^^^^  ^'^'^^  '^^  ™*^  «*^t^«  -^-te  plant  No.  2 

I  had  those  words  underscored  in  the  original  letter— 
the  need   for   the   supply  of  ammonium  nitrate  and    fh^  na^n   ^^^   o     • 

nitrnfa  ^f  ^?^  .^u^  allotments  previously  made  for  purchase  of  sites  for  the 
nitrate  plants,  the  principle  was  followed  of  using  funds  out  of  th^Vr^^^L^- 
t'.on  'nitrate  plant '-that  is,  section  124  of  the  N^al  Defense  Tf^'^^ 

toT '^^'V"^'  ^i^,^^"^^  ^»^^*^^^^  ^^"t  the  applicab  S^of  ?hff^^^^^^ 

to  the  purchase  of  land,  and  it  was  considered  at  that  time  that  the  Jnnrn^lfo 

tion  "armament  of  fortifications"  could  not  be  used  for^he  pu^^^^^^^^ 

of  land  not  specifically  mentioned.'  purcnase  of  tracts 

onf  ^i?^^^^""', ''^  *^®  summer  of  1918   many  purchases   of  land  were  mado 
out  of  general  supply  appropriations  as  necessarily  incident  to  the  n^oonrpmlnf 

provided'"'"'  ^"""^'^  ^'  '^^  ""^"^^"^  '''  ^^'^^'^^  theVcts\'f'\rroSfon' 

Cirl^?^   ^""^l   ^^'    ^^^^    (T-58606),    I    submitted   the   specific   question   to   tbo 
Ordnance  Department  for   decision  in  regard  to  the^terof  TW^    q Z*-^ 
U!  rate  plants  3  and  4-at  Toledo  and  Cincinnati?  plants  stLt^^ 
eompleted-and  the  following  indorsements  were  made  thereupon :'' 

[First  indorsement] 

T  •    <.  ^  August  2  1918 

i^ieut  Col.  Ralph  Crews,  Contract  Section,  Procurement  Division 
To :  Lieut.  Col.  W.  M.  Crane,  jr.  ivibion. 

92900—22 67 


.  I 


i 


1056 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


1057 


2.  Y<^u  are  advised  tbat  the  armament  of  fortification  money  may  be  used 
for  the  purchase  of  land  for  nitrate  plants,  to  such  extent  as  is  fairly  ad- 
judged reasonable  and  necessary  in  the  carrying  out  of  the  purpose  set  forth 
in  the  appropriation,  viz : 

'•  For  purchase,  manufacture,  and  test  of  ammunition  for  mountain,  field,  and 
siege  cannon,  or  necessary  experiments  in  connection  therewith,  and  ma- 
chinery necessary  for  its  manufacture  and  necessary  storage   facilities." 

3.  If,  in  the  exercise  of  fair  judgment,  it  is  decided  that  all  of  such  land 
would  not  be  necessary  for  the  purpose  set  forth  above  because  of  the  fact 
that  some  of  the  nitrate  would  in  all  probability  be  used  for  other  purposes, 
correct  practice  would  require  an  estimate  of  what  portion  of  the  purchase 
price  is  fairly  to  be  attributed  to  the  carrying  out  of  that  purpose,  and  the 
armament  of  fortification  money  should  be  drawn  upon  only  to  that  extent. 

The  second  indorsement  upon  that  paper,  transmitting  it  down  to  me  as 
chief  of  the  nitrate  division  on  August  5, 1918,  reads  as  follows: 

Ordnance  Office, 
Estimates  and  Requirements  Division, 

August  5,  1918. 
To:  Chief  Nitrate  Division. 

1.  The  Chief  of  Ordnance  directs  attention  to  the  second  paragraph  of  the 
foregoing  and  instructs  that  the  nitrate  division  shall  proceed  in  the  matter 
of  purchase  of  land  for  the  nitrate  plants  in  accordance  therewith. 

John  R.  Simpson, 
Colonel,  Ordnance,  National  Army. 

"7.  Decision  of  July  10  referred  to  by  Colonel  Crews  in  the  first  indorse- 
ment above  was  J.  A.  G.  O.,  601,  July  10,  1918.  Digest  of  this  opinion  is  as 
follows : 

"  Public  property :  Secretary  of  War  may  acquire  power  plant  from  ordnance 
appropriations. 

"'Under  the  act  of  July  2.  1917  (40  Stat.  241),  as  amended  by  the  act  of 
April  11,  1918  (Public  No.  127,  65th  Cong.),  the  Secretary  of  War,  if  in  his 
judgment  the  acquisition  of  a  power  plant  is  reasonably  necessary  for  the 
expeditious  procurement  by  manufacture  of  ordnance  stores,  may  acquire  such 
power  plant  from  ordnance  appropriations.  The  Secretary  of  War,  upon  such 
terms  as  may  protect  the  Government,  can  legally  arrange  for  the  transmission 
over  private  or  municipal  lines  of  the  power  developed  at  such  plant  to  the 
points  where  the  same  is  desired  to  be  used.' 

"8.  Furthermore,  the  Ordnance  Department  informally  asked  the  Judge 
Advocate's  ofiice  ((X>-601-1014  Misc.)  to  be  shown  opinions  on  this  question, 
receiving  in  reply  four  inclosures,  three  being  correspondence  containing  opin- 
ions and  one  a  copy  of  Public  Act  127^  Sixty-fifth  Congress.  Copies  herewith, 
marked  inclosures  1-5,  inclusive. 

"  9.  The  Public  Act  127,  Sixty-fifth  Congress,  approved  April  11,  1918,  above 
referred  to,  appears  to  have  removed  not  only  specific  restrictions  of  section 
355,  Revised  Statutes,  but  by  conferring  authority  upon  the  Secretary  of 
War  in  time  of  war  to  institute  condemnation  proceedings  in  respect  to  any 
land  needed  for  specific  war  purposes  or  upon  agreement  as  to  price  to  pur- 
chaser to  write  a  contract  for  purchase  and  to  take  immediate  possession  of 
such  lands  did  also  remove  any  limitations  of  law  preventing  or  forbidding 
the  use  of  funds,  under  general  appropriation  acts  for  procuring  supplies,  for 
the  purchase  of  lands,  as  well  as  other  facilities  necessary  to  the  procurement 
of  such  supplies." 

The  line  of  reasoning  here,  of  course,  was  that  the  only  thing  that  had  pre- 
vented our  using  the  general  appropriations  in  the  past  for  purchase  of  land 
had  been  the  Revised  Statutes,  and  that  bar  was  lifted,  and,  furthermore, 
the  fact  that  the  legislation  of  1918  specifically  authorized  the  Secretary  of 
War  to  go  and  take  immediate  possession  of  lands  involved,  and  that  there 
must  be  some  provision  for  paying  for  them.  That  was  the  reasoning  upon 
which  it  was  all  based. 

"  10.  This  view  is  supported  by  the  following,  which  appeared  in  the  fourth 
indorsement,  .Judge  Advocate  General's  ofiice,  April  23,  1918,  on  Judge  Advo- 
cate General,  601  purchase : 

"  *  It  is  the  opinion  of  this  office,  therefore,  that  the  act  of  April  11,  191S. 
fairly  construed,  confers  authority  for  the  acquisition  of  either  title  in  fee  or  a 


temporary  interest  in  lands  needed  for  the  test  of  guns  and  other  munitions 
of  war,  for  the  manufacture  of  which  appropriation  had  been  made  by 
Congress.' " 

That  specific  decision  was  with  a  view  to  a  purchase  of  land  for  a  proving 
ground.    That  is  why  they  refer  it  to  the  test  of  guns. 

"  11.  That  opinion  confirmed  such  use  of  supply  appropriation  funds  for  the 
purchase  of  land  for  the  test  of  the  supplies.  If  the  approriation  be  available 
for  such  an  incident  to  the  procurement  of  the  supplies  appropriated  for  it 
would  seem  certain  that  it  could  be  used  for  such  an  essential  as  land  for  the 
manufacture  of  the  supplies." 
That  was  signed  by  me. 

Coming  out  of  that  I  was  given  a  new  allotment  out  of  the  armament  of 
fortifications  appropriation  to  pay  for  the  land  for  the  United  States  nitrate 
plant  No.  2,  and  the  original  allotments  made  for  that  purpose  out  of  the 
"  nitrate  plants,"  section  124  of  the  national  defense  act,  were  revoked  in  toto, 
every  cent. 
The  Chairman.  Did  you  return  that  money  back  into  the  Treasury? 
Colonel  JoYEs.  It  was  just  a  credit  on  my  books,  and  when  an  allotment  is 
revoked  it  means  that  the  credit  is  taken  back.  It  is  the  same  thing  as  if  I  had 
written  or  received  a  check  for  $350,000  and  I  drew  my  check  for  $350,000  back. 
As  a  matter  of  fact,  it  was  transferred  to  another  account  in  my  office; 
it  was  turned  over  to  plant  No.  1  to  help  finish  up,  I  think. 

The  Chairman.  The  money  for  plant  No.  1  was  taken  out  of  the  money 

Colonel  JoYEs  (interposing).  Yes,  sir;  but  I  say  that  that  $350,000  from  the 
national  defense  act  which  had  been  given  me  to  buy  land  for  plant  No.  2 
was,  I  think,  simply  transferred  to  plant  No.  1,  because  we  needed  more  money 
there.  At  any  rate,  it  was  credited  to  some  other  activity  or  else  taken  away 
from  me.  It  was  altogether  separate  from  any  connection  whatever  with  plant 
No.  2,  the  cyanamld  plant,  and  there  was  never  a  cent  of  it  spent  for  that  pur- 
pose at  all.  There  has  been  so  much  said  about  that  that  I  thought  I  had 
better  go  into  it  rather  elaborately  to  clear  it  up. 

The  Chairman.  We  are  very  much  obliged  to  you,  because  the  whole  thing 
seems  to  have  been  all  mixed  up. 

Colonel  JoYEs.  I  have  been  digressing.  Mr.  Chairman.  You  wanted  me  to 
analyze  the  provisions  for  sale  in  the  Alabama  Power  Co.  contract. 

The  Chairman.  Let  me  ask  you  this  question:  You  considered  that  nitrate 
plant  No.  1  was  constructed  under  the  act  of  June  3,  1916,  the  national  defense 
act? 
Colonel  JoYEs.  Absolutely;  yes,  sir. 

The  Chairman.  And  you  considered  that  nitrate  plant  No.  2  was  not  so 
constructed? 
Colonel  JoYES.  I  know  it  was  not. 

The  Chairman.  It  was  constructed  out  of  money  appropriated  for  armament 
of  fortifications? 

Colonel  JoYES.  The  money  appropriated  to  purchase  munitions  and  armament 
of  fortifications ;  yes,  sir.  I  think  every  penny  came  from  that  appropriation. 
There  may  have  been  some  other,  but  absolutely  not  a  penny  of  it  came  from 
the  national  defense  act,  I  am  sure  of  that.  We  were  afraid  to  go  on  with  it, 
because  of  the  talk  about  the  prohibition  against  working  with  a  corporation* 
We  could  not  do  it.  We  thought  we  might  do  it  in  the  first  place,  but  we  were 
afraid  all  the  time,  and  as  soon  as  we  found  a  way  out  we  got  out,  and  got 
out  quick,  and  everything  connected  with  it. 
The  Chairman.  That  is  very  instructive. 

Colonel  JoYES.  Coming  back  now  to  the  provisions  for  sale  in  the  Alabama 
Power  Co.  contract.  When  we  started  out  we  had  a  proposition  from  the  Ala- 
bama Power  Co.  which  said  if  we  would  advance  them  about  two  and  a  quarter 
million  dollars  they  would  put  in  there  necessary  facilities  as  their  own  invest- 
ment, and  would  then  furnish  us  the  power  that  we  wanted,  give  us  a  firm  demand 
for  it,  and  something  like  7  mills  would  be  the  price,  they  would  ask  for 
It  on  every  kilowatt-hour  which  we  bought  from  them,  and  they  would  give 
ns  back  so  much,  immediately,  or  set  it  aside,  to  make  an  amortization  fund 
to  pay  us  back  what  money  we  had'  advanced.  When  we  could  not  make  thf* 
loan  we  thought  we  would  make  the  construction  ourselves,  because  we  could 
see  a  color  of  a  way  to  do  it.  We  then  cast  about  to  see  how  we  would  be  sure 
to  get  some  of  that  money  back.  We  figured  we  would  try  to  have  some 
kind  of  a  repayment  to  us  each  time  we  made  a  payment  to  them  for  power, 
that  we  would  get  some  back  into  the  Government's  pocket  to  go  toward  the 


I 


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MUSCLE  SHOALS  PaOPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


1059 


repayment  of  a  good,  substantial  pan  of  the  money  we  liad  put  m  for  that 
•structure.  We  worked  always  along  those  lines,  and  when  we  looked  at  it 
we  said,  "How  are  we  going  to  fix  that  up;  what  are  we  going  to  do  with  itV 
If  we  take  the  money  back,  it  must  go  somewhere;  how  is  that  going  to  be 
treated *>  If  we  buy  the  power  from  the  Alabama  Power  Co.  and  pay  them,  and 
then  we  say  to  them,  *  Give  us  back  so  much,  then  we  can  put  into  the  Treasury 
what  comes  back,  and  that  will  be  a  partial  payment  for  the  purchase  of  that 
plant  by  them.'  "  It  was  the  only  way  I  see,  or  ever  did  see,  how  you  could 
handle  it  and  it  was  exactly  the  plan  that  was  being  followed  in  other  places. 
I  can  show  vou,  if  you  want  it,  that  instead  of  this  contract  being,  as  some 
jpeople  have  hinted,  an  unprecedented  monstrosity,  it  has  got  lots  of  good  prece- 
dents and  that  the  precedents  have  gone  further  than  it  went,  and  that  those 
that  went  the  furthest  got  the  best  ultimate  result  in  the  settlement  generally. 
The  CHAIRMAN.  Who  entered  into  the  contract  with  the  Alabama  Power  Co. 

for  the  Government?  . 

Colonel  JOYES.  The  signatory  officer  was  Col.  William  Williams. 

The  Chairman.  Did  you  have  anything  to  do  with  it? 

Colonel  JoYES.  I  had  a  gi'eat  deal  to  do  with  it :  all  the  time  I  took  a  leading 
nart  I  was  in  charge  of  all  the  negotiations  from  December,  1917,  up  to  about 
August  1918.  or  thereabouts,  and  from  that  time  on  I  took  a  leading  part  in 
the  negotiations.  Col.  William  WMUiams  was  the  one  who  was  looking  out 
to  see  that  the  thing  was  put  into  the  best  possible  legal  shape  it  could  be,  and 
vet  put  in  nothing  in  the  way  of  a  provision  that  I  did  not  assent  to.  There 
Were  other  people  with  us.  I  had  men  of  large  experience  in  power  matters, 
who  had  been  frequentlv  employed  by  several  of  the  big  investment  companies, 
and  I  had  some  lawvers  with  me  who  had  had  considerable  experience.  One 
man  who  helped  a  great  deal  a  number  of  times  was  Mr.  Anson  Burchard, 
vice  president  of  the  General  Electric  Co.,  who  was  in  a  strictly  advisory 
canacitv  so  far  as  anv  official  appointment  was  concerned ;  but  he  was  a  man 
who  had  been  brought^  in  by  Mr.  Stettinius  to  handle  some  of  the  certain  broad 
aspects  of  business  for  him  and  give  him  the  big  business  point  of  view  upon 
them  as  to  what  they  really  were. 

The  Chairman.  I  take  it  from  what  you  have  stated  that  by  reason  of  the 
fact  that  vou  did  not  use  a  dollar  of  the  money  that  was  appropriated  m  the 
act  of  19i6  and  vou  did  use  the  money  from  the  fortifications  allowances, 
at  nitrate  plant  No.  2.  you  felt  you  were  not  running  counter  to  any  of  the 
provisions  of  the  act  of  June  3,  191C,  in  building  that  plant. 

Colonel  JoYES.  I  felt  absolutely  confident  of  it,  sir;  did  it  with  that  intent, 
and  felt  absolutely  confident  we  were  perfectly  correct  in  it,  and  had  been  so 
advised  by  several  people  at  the  time.    I  never  had  any  doubt  of  it. 

The  Chairman.  I  think  that  is  about  all  the  information  we  want  on  this 
subiect  I  think  all  the  correspondence  that  you  say  Mr.  Williams  had  re- 
garding this  matter  you  have  either  read  to  us  or  it  is  in  the  record.  You  have 
read  to  us  those  things  which  we  did  not  have  in  the  record  before 

Colonel  JoYES.  I  have  read  no  correspondence  of  Colonel  Williams.  The 
correspondence  I  read  was  between  me  and  the  Ordnance  Office,  and  the  rnclos- 
ures  to  it  were  the  decisions  from  the  Judge  Advocate  General's  office. 

Mr.  Parker.  I  want  to  know  whether  the  correspondence  on  which  you  made 
the  agreement  with  the  Cyanamid  people 

Colonel  JoYES  (interposing).  Starting  that  work? 

Mr  Parker.  The  whole  thing  is  in  the  record  already? 

Colonel  JoYES.  Yes ;  I  think  that  is  all  in  the  record.       •  ,  ,      „,     ^„ 

The  Chairman.  Some  of  the  members  of  the  committee  will  want  to  ask  you 

^^Colonel  JoYES.  I  would  like  to  volunteer  one  thing,  Mr.  Chairman,  and  that 
is  in  connection  with  this  analysis  I  have  made  of  the  provisions  for  sale,  sev- 
eral copies  of  which  are  around  the  table.  That  was  intended  to  be  helpful, 
and  I  did  it  because  a  view  of  that  article,  Article  XXII,  or  whatever  the 
number  is,  is  very  difficult  to  get  from  reading  the  contract.  I  had  to  sit  down 
and  make  this  analysis  in  order  to  understand  it  myself  and  know  just  what  it 
meant,  in  spite  of  all  the  work  I  had  done  in  connection  with  it.  This  analysis 
first  gives  a  column  covering  the  time  or  conditions  under  which  the  different 
alternatives  come  up,  and  then  another  column  covering  the  provisions  for  dis- 
position, and  a  third  column  stating  what  consideration  there  is. 

The  first  section  of  that  article  says  that  three  years  after  the  end  of  the  war 
the  United  States  has  the  option  to  demand  that  the  contractor  purchase  the 


WaiTior  extension  and  the  Warrior  substation,  and  the  consideration  is  the 
arbitration  value. 

The  second  section  of  the  article  says  that  if  and  when  the  accumulated  fund 
shall  equal  or  be  greater  than  the  actual  total  cost  the  United  States  has  spent, 
then  the  contractor  may  demand  that  the  United  States  convey  title  in  the 
Warrior  extension  and  the  Warrior  substation  back.  In  that  case  the  United 
States  was  to  retain — and  you  will  find  that  the  contract  supports  this  state- 
ment absolutely — the  United  States  was  to  retain  the  total  that  had  been  paid 
in  by  the  Alabama  Power  Co.  to  it  from  time  to  time  while  it  was  buying  power 
from  them,  except  such  surplus  as  the  Alabama  Power  Co.  might  have  paid 
to  the  United  States  over  and  above  the  total  original  expense  of  the  United 
States.  In  other  words,  under  that  settlement,  if  we  took  power  from  them 
long  enough,  bought  enough  power,  under  the  contract  there  would  have  been 
enough  money  paid  in  by  the  Alabama  Power  Co.  to  the  United  States  to  more 
than  cover  the  actual  total  expenditure  that  we  had  made  on  the  proposition. 
In  that  event  they  could  demand  that  we  sell  to  them,  and  we  would  then  sell 
to  them  at  the  total  we  had  spent,  every  penny  of  it  back.  That  was,  of  course, 
hypothetical,  you  would  say,  a  thing  never  to  be  realized.  But  it  w^ould  have 
been  realized,  and  if  you  figure  it  out  I  think  you  will  find  that  if  we  had  gone 
on  to  the  end  of  the  period  contemplated  by  the  contract,  10  years,  it  would 
have  been  realized.  We  had  no  way  of  telling  at  that  time  how  long  the  war 
would  go  on,  and  whether  the  plant  would  have  a  use  after  the  war.  So  that  is 
not  altogether  hypothetical. 

The  third  alternative,  in  section  3,  said  that  at  any  time  whatever  the  con- 
tractor may  demand  that  the  United  States  convey  title  to  him,  provided  he 
pays  the  total  actual  cost  we  have  put  into  it. 

The  fourth  alternative,  in  section  4,  provided  that  after  December  1,  1926, 
or  prior  to  that,  if  the  United  States  finally  ceases  to  take  energy,  and  the 
accumulated  fund  is  less  than  the  actual  cost,  the  contractor  may  demand, 
eventually,  that  the  plant  be  sold  to  it  at  a  value  to  be  arrived  at  by  arbitration. 
Of  course,  if  we  are  going  to  provide  for  any  sale,  if  we  are  going  to  have  an 
agreement  that  is  worth  anything,  we  have  to  touch  upon  the  price.  We 
could  not  set  a  firm  price;  neither  side  could  then  set  a  firm  price,  because 
we  could  not  tell  what  the  conditions  would  be.  or  the  value  of  the  plant,  or 
anything  of  that  kind.  In  some  of  the  earlier  contract  drafts  we  wrote  that 
the  prewar  cost  would  be  the  price,  thinking  that  was  the  way  to  f^et  at  it. 
Ultimately  we  came  around  to  what  we  considered  a  much  happier  expression 
of  it,  that  the  value  as  fixed  by  arbitration  should  be  the  value,  and  I  think 
the  definition  of  that  value,  the  arrangements  for  arriving  at  it  are  sufficiently 
clear  in  the  contract  to  show  that  that  meant  a  fair  value  as  a  going  concern 
at  the  time  the  appraisal  was  made. 

The  principle  that  has  been  followed  in  settling  other  contracts  of  a  like 
status,  has  been  that  they  figured  out  a  reproduction  value  of  the  plant  at  the 
time  the  appraisal  was  made,  estimating  what  it  would  cost  to  build  that 
plant  at  the  time  of  settlement,  say.  for  example,  to  day.  Then,  assuming  a 
plant  actually  built,  say  in  1918 — it  has  been  used  for  four  years — and  you 
charge  off  four  years  of  depreciation,  four  years  of  the  life  of  the  plant  are 
gone.  So  you  arrive  at  a  fair  present  value,  and  naturally  there  may  be 
consideration,  and  I  think  should  be  and  would  be  consideration  given  to 
the  market  for  the  product  of  the  plant,  and  all  other  considerations  indicating 
its  value  as  a  going  concern.  That  was  the  thought  we  all  had  in  our  minds 
on  our  side,  and  I  am  sure  the  same  thought  was  in  the  mind  of  the  power 
company,  from  what  I  have  heard  them  say.  I  am  not  speaking  for  them,  but 
for  myself. 

The  fifth  proposition  was  another  option,  that  if  the  contractor  failefl  to 
purchase  on  the  demand  of  the  United  States,  the  United  States  may  sell  to 
another  party,  but  not  for  operation.  But  it  must  remove  all  of  its  property 
from  the  premises  of  the  power  company  within  six  months.  This  being  not 
a  sale  to  the  contractor,  the  price  is,  of  course,  problematical.  It  works  no  hard- 
ship upon  the  United  States  at  all. 

The  situation  was  this.  You  look  back  at  my  original  purchase  order  and  you 
will  find  that  I  called  upon  the  power  company  to  grant  us  the  temporary  use 
of  their  land  in  order  that  we  might  build  up  there  the  facilities  for  what  we 
wanted,  and  it  was  our  thought  all  the  time  that  it  was  a  temporary  use  of 
their  land  and  their  facilities.  There  are  plenty  of  precedents  for  that  in 
other  work  done  during  the  war.  There  was  a  coke-oven  contract  I  happened 
to  look  at  the  other  day,  signed  in  May,  1918,  to  build  a  coke-oven  plant,  and 


I 


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MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


1061 


build  it  upon  ground  leased  from  the  owners,  who  were  to  be  the  owners  of  the 
plant,  and  there  is  a  provision  there  for  the  sale  of  the  plant  back  to  the 
people  who  owned  the  land.  They  were  allied  to  near-by  steel  people,  etc.  To 
show  how  that  kind  of  a  contract  is  apt  to  work  out,  that  contract  was  settled 
in  1920,  and  the  Government  had  spent  $6,000,000  on  the  job,  and  it  was  closed 
out  by  payment  back  to  the  Government  of  $4,140,000,  about  70  per  cent  of 
tlie  Government's  war  expenditure  for  that  purpose,  brought  back  to  it  and 
recaptured.  I  happened  to  see  several  others  which  were  settled  about  in 
that  proportion,  anywhere  from  50-50  up  to  75  per  cent  of  the  original  ex- 
penditure came  back  to  the  Government. 

There  are  some  other  provisions,  such  as  financing  power  companies  at  other 
places,  where  the  Government  actually  put  in  money  after  an  arrangement 
was  made  by  which  they  could  do  it,  and  they  had  not  even  the  same  color 
that  we  had  here.  It  was  not  a  question  of  the  United  States  ever  owning 
anything.  The  United  States  just  put  the  money  in  the  bank  and  the  people 
drew  upon  it  without  any  restrictions  whatever,  other  than  the  business 
undertaking  to  put  it  into  the  plant  that  they  were  building  for  Government 
purposes.  They  put  in  some  money  of  their  own,  and  upon  final  settlement 
the  power  company  was  not  to  repay  all  of  the  advance,  but  got  credit  for 
depreciation,  excess  war  costs,  etc.  The  company  owned  the  plant  when  they 
got  through.  There  are  two  contracts — one  the  coke  oven  and  one  the  power 
plant — and  I  could  give  you  the  details  of  several  other  coke  ovens  or  power- 
plant  transactions  along  those  lines. 

There  is  still  another  proposition,  and  this  is  the  vital  point,  I  think,  in  the 
whole  of  article  22  of  the  contract ;  that  is,  in  section  6.  The  alternative  there 
is  provided  that  should  anything  be  wrong  or  unenforceable  in  any  of  the 
preceding  alteratives,  if  the  plant  be  not  sold  in  10  years  from  the  date  of  the 
contract,  1917,  or  if  for  any  reason  the  United  States  did  not  take  energy 
from  the  company  for  365  days,  the  United  States  shall,  upon  demand,  remove 
the  Warrior  extension  and  the  Warrior  substation  within  six  months.  In  other 
words,  it  ceases  its  temporary  use  of  the  property  of  the  Alabama  Power  Go. 
and  gets  out  of  the  way ;  that  is,  unless  the  United  States  shall  exercise  its 
option  No.  1  and  demand  that  the  contractor  purchase  at  the  arbitrated  value. 
That  is  all  there  is  in  that. 

Mr.  Pabkeb.  I  thought  No.  1  related  to  the  cost? 

Colonel  JoYES.  No,  sir;  option  No.  1  is  on  arbitration  value.  The  seventh 
provision  relates  to  the  transmission  line. 

The  Chairman.  You  have  just  one  more  provision? 

Colonel  JoYEs.  Yes,  sir;  the  seventh  relates  to  the  transmission  line,  and 
says  if  the  United  States  shall  take  no  energy  under  this  contract  for  two 
years,  or  in  any  event  in  1927,  the  United  States  shall  remove  the  transmis- 
sion line  from  the  Alabama  Power  Co.'s  premises,  unless  the  United  States 
prefers  to  demand  that  the  contractor  purchase  it  at  an  arbitrated  value — that 
is  the  gist  of  it. 

The  Chairman.  Mr.  McKenzie  will  yield  to  Mr.  Greene,  because  Mr.  Greene 
will  not  be  able  to  be  here  at  2  o'clock. 

Mr.  Greene.  Colonel,  I  rather  think,  on  reflection,  that  my  questions  have 
been  anticipated  in  some  of  the  questions  that  have  been  directed  to  you 
already.    But  I  want  to  be  quite  sure  I  understand  this  situation  as  you  do. 

Acting  under  the  direction  of  section  124  of  the  national-defense  act  you  es- 
tablished the  nitrate  plant  that  was  contemplated  by  it,  at  what  is  now  calletl 
nitrate  plant  No.  1.? 

Colonel  Joyes.  Yes,  sir. 

Mr.  Gbeene.  About  what  date  was  that  policy  determined  upon  and  work 
begun  or  preparations  for  it  begun? 

Colonel  JoYES.  I  am  quite  sure  it  was  within  a  day  or  two  of  July  13,  1917. 
It  was  within  a  day  or  two  of  that  date  that  the  matter  was  approved  by  the 
President  and  by  the  Secretary  of  War  and  handed  to  General  Crozier  and 
passed  over  to  me. 

Mr.  Greene.  What  was  your  understanding  of  the  language  of  section  124, 
that  the  Government  was  embarking  in  anything  like  an  established  and  con- 
tinuous manufacture  of  nitrate  and  fertilizer,  or  that  such  plant  as  was  to  be 
set  up  under  section  124  was  in  the  nature  of  experimental,  research  work, 
looking  toward  the  development  of  the  art? 

Colonel  JoYES.  I  think  the  language  unquestionably,  primarily,  covered  in- 
vestigation and  preliminary  searching  out.  and  at  the  same  time  the  act  did 
provide  specifically  that  the  President  might  take  over  processes  and  take  over 


power  facilities,  make  power  developments,  etc.  And  it  provided  for  the  sale  of 
the  proceeds,  etc.  I  thought  there  was  ample  provision  of  law  under  that,  if 
it  had  been  desired  to  do  it,  and  if  the  time  had  been  thought  to  be  ripe  to  go 
into  an  acthal  business,  the  business  being  primarily  for  munitions  and  material 
for  munitions,  and  rather  incidentally  for  agriculture. 

Mr.  Greene.  When  you  had  therefore  done  the  business  you  did  with  what  is 
now  known  as  nitrate  plant  No.  1  you  thought  you  were  in  compliance  with  sec- 
tion 124  of  the  national  defense  act,  and  that  you  had  carried  out  its  general 
intent  and  purpose. 

Colonel  Joyes.  Yes,  sir ;  but  not  necessarily  completely. 

Mr.  Greene.  As  far  as  you  went? 

Colonel  Joyes.  Directly  under  it. 

Mr.  Greene.  When  you  started  on  No.  2  that  is  the  time  you  divorced  your- 
self from  section  124  of  the  national  defense  act,  after  some  reflection,  and  after 
thought  about  it,  taking  counsel  to  make  yourself  very  clear  in  your  position 
that  you  were  no  longer  acting  under  that ;  believing  that  you  had  accomplished, 
as  far  as  you  had  gone,  the  purpose  of  section  124  in  another  place ;  is  that  your 
understanding? 

Colonel  Joyes.  Yes.  sir ;  especially  so  because  the  cyanamid  process  had  been 
quite  considerably  before  the  nitrate  commission,  which  made  recommenda- 
tions as  to  the  program  to  be  followed  out,  and  they  had  declined  to  recom- 
mend it.  I  would  prefer,  if  the  committee  is  interested  in  that,  that  you  look 
up  the  actual  wording  of  the  report  of  the  nitrate  commission.  I  can  give  it  to 
you,  if  you  desire  it,  because  I  would  be  afraid  that  a  little  turn  of  a  phrase 
might  have  a  wrong  meaning.  I  do  not  mean  to  say  they  ever  recommended 
against  it,  but  they  had  considered  and  passed  over  it,  and  recommended  other 
action. 

Mr.  Greene.  What  I  am  getting  at  is  w^here  you  differentiated  between  not 
merely  the  authority  and  limitation  of  section  124  of  the  national  defense  act, 
but  this  property  which  is  now  under  our  consideration. 

If  it  is  to  be  understood  that  nitrate  plant  No.  1  was  proceeded  with,  as  far  as 
it  did  go,  under  the  terms,  authority,  and  limitations  of  section  124  of  the 
national  defense  act,  then  we  are  to  understand  that  nitrate  plant  No.  2  was 
primarily  and  completely  a  war  proposition? 

Colonel  Joyes.  Absolutely  such,  in  my  opinion ;  that  was  my  intent,  and  that 
was  supported  by  the  nature  of  the  actual  need  which  inspired  the  creation  of 
plant  No.  2. 

(Thereupon,  the  committee  took  a  recess  until  2  o'clock  p.  m.) 

after  recess. 

The  committee  met,  pursuant  to  recess,  at  2  o'clock  p.  m. 

STATEMENT  OF  COL.   J.   W.   JOYES,   ORDNANCE  DEPARTMENT, 

UNITED  STATES  ARMY — Resumed. 

The  Chairman.  Colonel,  when  we  took  a  recess,  the  members  of  the  com- 
mittee were  about  to  begin  asking  you  questions.  Out  of  order,  Mr.  Greene, 
of  Vermont,  asked  you  a  few  questions.  We  will  now  begin  by  having  Mr. 
McKejizie  ask  you  some  questions,  he  being  the  senior  member  on  the  com- 
mittee. 

Mr.  McKenzie.  Colonel  Joyes,  you  are  a  commissioned  officer  in  the  Regular 
Army? 

Colonel  Joyes.  Yes,  sir. 

Mr.  McKenzie.  How  long  have  you  been  commissioned  in  the  Regular  Army  ? 

Colonel  JoYES.  My  first  commission  was  dated  in  1894,  June  12  or  there- 
abouts— 1894,  when  I  graduated  from  the  Military  Academy. 

Mr.  McKenzie.  You  are  a  graduate  of  the  West  Point  Military  Academy? 

Colonel  Jo  YES.  Yes,  sir. 

Mr.  McKenzie.  Have  you  been  continuously  assigned  to  the  Ordnance  De- 
partment? 

Colonel  Joyes.  I  have;  since  1897. 

Mr.  McKenzie.  You  explained  at  some  length  this  morning,  Colonel,  the 
different  funds  from  which  the  construction  at  Gorgas  and  also  at  Muscle 
Shoals,  used  in  construction  at  those  two  different  places,  and  gave  a  very 
interesting  explanation.  However,  do  you  consider  that  material  at  this  time 
so  far  as  this  committee  Is  concerned? 


1062 


MUSCLE  SHOALS  PBOPOSITIONS. 


o  S^lTli  ''^^'^^^'  ^  ^*^^  "^^  ^"y  ^P-^^on  about  that,  sir,  except  I  have  noticed 
a  good  fcany  remarks  on  the  record  before  to  which  considerable  imDirtanc^ 

mtnTof Ve^acts    ^^'  ''  '  ''''"^'''  ''  "''  ''"'"''''''  '"  ^'^^'^^  byTstTte' 

as^uStrnt  h^^n^dffn^tf^^^^^^^^^^^^^  ^^^  ^^^^^  «^  ^^^  ^^^^«^-' 

Colonel  JoYEs.  Yes,  sir. 

Mr.  Mckenzie.  And  as  such  chief,  if  I  understood  your  testimony  correctlv 
fZ  t-tw^"^  ^"i^''^  '^'"P^^^^  responsibility  for  all  Zt  occuSe^in  cS: 
tion  with  the  development  at  the  Warrior  steam  plant  and  at  Muscle  Shoals 

Colonel  JoYEs.  Yes,  sir.     The  purpose  of  the  Division  T,  later  called  the 

farVvL''ou7Tthr^-'f^'''\'  ^^'^^  ^^^^^"^^  "^  ^^^y'  1^17'  ^^«'  of  course,    he 
carrying  out  of  the  different  purposes  and  objects  of  the  national  defense  act 

section  124,  the  nitrate  supply,  which  was  largely  the  investLation  of  D^sfblP 
processes  and  perhaps  the  development  of  promising  p?ocessls ;  in  general  to 
lo^  around  and  see  what  we  could  find,  in  addition  to  the  car?vfne  onf  n? 
certain  specific  things  that  had  been  recommended  Sy  the  Nit^rtesCommis 
sion.  ^ow,  pursuant  to  that,  after  starting  out  on  the  special  \wkwS  the 
commission  had  recommended,  that  was  No  1  plant 

Co'o^efr^'f*  Yp^""  Iw-  ^/hnV'  '^^  ^^^'  ^^  ^^"  '^^'^  «*  ^^«t  commission? 
followed—  '  ""^^^  recommended  by  the  commission  and  we 

r.^n^  Mckenzie  (interposing).  I  mean  the  date  when  they  filed  the  report  of 
which  you  are  speaking.  iei««t  oi 

o.^'''?''^^  .^""J^^-  ^  ^J"''^  "'^^  ^^P^^'t  was  dated  May  11,  1917,  or  thereabouts 
and  It  had  been  under  discussion  for  some  little  time,  and  it  was  Sv  an 
proved  on  or  about  the  13th  of  Julv    1917     That   T  thi^iT  JLlu     ""^^y^ap- 
that  Mr  Baker.  Sec-retary  of  War^tad^^it  ovir'  wit'h'Sfs  aTd  thi  Pre«?de„rl 

!?,ffi.-^'.'J''' P'^^'^^'^^P^^^^.^^  ^'^^  ^"^  ^'^  two  others,  none  of  which  was  iH 

orderly  study  of  all  the  processes  that  might  be  heard  from  and  to  do  what 

we  could  to  investigate  them. 

T  ^?  the  course  of  that  a  prominent  process  was  the  cyanamid  process,  and,  as 

^^l'  li!^^  ?^'^f  ^'^^  ^^^^^  the  commission  had  considered  very  carefully  ind 
which  they  had  not  seen  fit  to  recommend  for  any  immediate  attention  by  the 
Government  for  several  reasons:  In  the  first  place,  it  was  a  thoroughly  devel- 
oped process.  Another  reason,  not  exactly  stated  by  the  commission,  but,  I 
think,  to  be  inferred  from  their  report,  was  that  they  thought  the  cyanamid 
process  would  not  be  the  most  economical  process  of  the  near  future;  but,  any- 
how, we  thought  It  worth  while  to  reexamine  that  a  little  bit,  realizing  that 
we  were  then  m  the  war  and  might  have  a  need  to  make  some  use  of  certain 
processes  of  fixation  for  the  immediate,  urgent  demands  of  the  war  We  cast 
about  to  see  what  we  could  use  in  an  emergency  of  that  kind,  and  we  decided 
in  our  mmds  that  the  cyanamid  process  was  the  only  process  we  could  use  for 
that  purpose,  and  so  that  was  the  answer  we  had  ready  to  make  when  we  were 
asked  if  we  could  help  out,  in  October,  1917,.  in  the  provision  of  needs  for  the 
war.  So  you  see  how  we  were  drawn  into  it  in  that  way.  It  was  rather  an 
incident,  due  to  the  fact  that  we  were  an  organization  already  established,  with 
some  information  as  to  fixation  processes. 

Mr.  McKenzie.  At  any  rate,  you  decided  that  you  would  undertake  to  process 
nitrates  m  two  ways— by  the  cyanamid  proces  and  also  by  the  so-called  Haber 
process,  or  the  synthetic  method,  I  believe  you  call  it. 

Colonel  JoYEs.  Yes,  sir. 

Mr.  McKenzie.  Now,  Colonel,  you  testified  this  morning  that  vou  had  a  num- 
ber of  assistants. 

Colonel  JoYES.  Yes,  sir. 

Mr.  McKenzie.  Who  were  also  commissioned  officers  in  the  Army? 

Colonel  JoYES.  Yes. 

Mr.  McKenzie.  Emergency  officers? 

Colonel  Joyes.  The  principal  ones  were ;  yes,  sir.  I  had  no  Regular  officers 
assigned  to  me  at  all  at  that  time.  I  had  a  number  of  men  commissioned  in 
the  National  Army,  or  Reserve  Corps  first  and  then  the  National  Army,  and 


MUSCLE  SHOALS  PBOPOSITIONS. 


1063 


then  some  of  them  later  on  got  commissions  in  the  Regular  Army,  but  I  also 
had  some  civilians.  *  o  j,  ^ 

Mr.  McKenzie.  Did  you  have  anything  to  do  with  the  procuring  of  commis- 
sions for  these  various  officers  that  were  under  vou  in  this  department' 

Colonel  Joyes.  Oh,  yes. 

Mr.  McKenzie.  You  did? 

Colonel  Joyes  The  only  way  you  could  get  an  officer  in  those  days  was  to 
try  to  find  somebody  you  thought  had  what  you  needed,  and  go  out  and  rustle 
for  him  and  fight  with  other  people  for  him. 

Mr.  McKenzie.  Was  Colonel  Williams  commissioned  at  your  request' 

Colonel  JoYES.  No,  sir ;  I  never  heard  of  him  until  I  took  the  contract  to  him  • 
at  least,  I  never  heard  of  him  directly. 

Mr.  McKenzie.  Were  any  of  the  officers  you  mentioned  this  morning  com- 
missioned at  your  request? 

Colonel  JoYES.  I  do  not  think  so.    Those  lawyers? 

Mr.  McKenzie.  Yes. 

Colonel  Joyes.  I  do  not  think  any  of  them,  except  possibly  Nightingale.  Cap- 
tain Noble,  I  think,  was  already  commissioned  before  I  got  him.  I  asked  to 
have  him  transferred  to  me  if  I  remember  correctly.  I  never  saw  him  until 
he  reported  for  duty.    I  know  that. 

Mr.  McKenzie.  Just  what  procedure  did  you  go  through  with  down  there 
when  you  wanted  to  commission  a  man?    Haw  was  it  brought  about? 

Colonel  Joyes.  Well  you  generally  tried  to  find  where  you  could  get  a  man 
who  had  what  you  needed.  You  generally  had  an  interview  with  him  to  find 
out  if  he  appealed  to  you  and  then  you  would  get  him  to  make  up  an  applica- 
tion and  pass  it  through  some  of  the  boards  that  they  had.  They  changed  the 
organization  several  different  times  during  different  epochs  of  the  war  but  you 
always  had  to  go  first  through  the  personnel  branch  of  the  Ordnance  Depart- 
ment and  get  them  to  O.  K.  it  and  then  get  the  man  commissioned  by  the 
"higher-ups"  in  the  War  Department.  It  was  a  pretty  slow  process  some- 
times and  sometimes  it  was  rather  easy. 

Mr.  McKenzie.  Is  it  not  true  that  frequently  a  man  was  commissioned  an 
officer  in  the  Army  on  the  recommendation  of  friends  who  might  come  to  inter- 
cede for  him — I  mean  in  the  different  staff  corps? 

Colonel  Joyes.  I  have  not  much  dout  that  was  done  in  some  cases  But  I 
do  not  think  that  the  intercession  of  friends  was  a  determining  factor  in  many 
appointments  made  during  this  war.  It  was  remarkably  clear  from  that  sort 
or  thing.  It  was  always  required  that  the  man  being  proposed  for  a  commis- 
sion or  seeking  one  would  have  to  put  up  some  letters  from  persons  that  he 
knew,  stating  what  kind  of  activities  he  had  been  engaged  in,  what  kind  of  edu- 
cation and  capabilities  he  had,  and  so  on.  It  was  always  preferable  and  more 
weight  was  attached  to  those  that  did  state  something  specific  about  his  capa- 
bilities, his  education,  and  the  kind  of  position  he  had  held  of  trust,  etc. 

Mr.  McKenzie.  I  do  not  take  it  that  that  is  material,  Colonel,  in  this  particu- 
lar examination. 

Colonel  Joyes.  No,  sir. 

Mr.  McKenzie.  Inasmuch  as  you  have  already  stated  that  so  far  as  these 
two  particular  contracts  are  concerned,  the  one  with  the  Alabama  Power  Co. 
and  the  one  with  the  Air  Nitrates  Corporation,  thev  had  your  unqualified 
approval. 

Colonel  JoYES.  Yes,  sir;  meaning,  of  course,  approval  in  the  sense  of  con- 
currence— not  necessarily  of  admiration  for  each  individual  point  of  the 
contract. 

Mr.  McKenzie.  But  you  O.  K'd  them. 
Colonel  Joyes.  I  officially  approved  them;  yes,  sir. 

Mr.  McKenzie.  And  you  were  the  representative  of  the  United  States  Gov- 
ernment that  had  the  power  through  your  inferior  officers  to  bind  the  Govern- 
ment in  these  two  contracts  and  did  do  so? 

Colonel  Joyes.  Essentially,  that  is  correct,  but  it  is  not  exactly  accurate, 
Mr.  McKenzie,  because  at  certain  times  I  did  not  have  the  delegated  power 
to  put  my  name  to  a  contract. 
Mr.  McKenzie.  I  see. 

Colonel  Joyes.  And  I  did  not  always  have  the  unqualified  power  to  sign  a 
contract  and  have  it  stand  and  go  forth  and  be  executed  without  approval  by 
some  other  authority. 

Now,  coming  to  this  Alabama  Power  Co.  contract,  for  example,  I  knew  you 
would  ask  questions  about  that  particularly,  so  I  happened  to  get  up  the  ap- 


1064 


MUSCLE  SHOALS  PROPOSITIONS. 


proval  records  for  that,  and  I  will  show  you  what  we  had  on  it.  I  think  I  have 
that  here.  Take,  for  instance,  this  Alabama  Power  Co.  contract;  this  is  what 
they  call  the  approval  sheet  that  was  attached  to  that  contract,  headed  with 
the  title  of  the  contract  and  signed  first  by  me  as  negotiator,  signed  by  C.  F. 
Beames,  major.  Ordnance  Department,  United  States  Army,  and  by  E.  P. 
Prentice,  major.  Ordnance  Department,  United  States  Army — and  I  will  say, 
by  the  way,  there,  that  Major  Beames  was  under  me  and  was  one  of  my  sub- 
ordinates. Then  there  was  Major  Prentice,  Capt.  G.  M.  Alexander,  Lieut.  Col. 
Dale  Bumstead,  Ordnance  Department,  Maj.  R.  H.  Swartwout,  Ordnance  De- 
partment. Those  four,  I  think,  were  all  officers  of  the  procurement  division 
of  the  Ordnance  Department,  and  it  was  their  especial  duty  to  examine  con- 
tracts that  were  put  up  to  them  and  give  them  an  examination,  and  sign  if 
they  concurred.  They  had  no  part  in  the  negotiations  and  were  therefore  in 
the  nature  of  officers  of  review.  Then,  below  that  appears  the  notation,  "Ap- 
proved by  Board  of  Contract  Review  of  Procurement  Division,  November  8, 
1918,  (signed)  W.  Arthur  Babson,  secretary."  Below  that  appears  this  state- 
ment: "I  concur  in  the  approval  of  this  contract,  (signed)  Anson  W.  Bur- 
chard."  He  is  the  vice  president  of  the  General  Electric  Co.  and  was  the  thor- 
oughly trusted  but  not  official  representative  of  the  Assistant  Secretary — 
first  Mr.  Stettinius  and  later  Mr.  Crowell. 

Mr.   McKenzie.  Colonel,   you   have  stated  that  the   report  of  the  nitrates 
commission  was  filed,  I  think,  some  time  in  May,  1917. 
Colonel  JoYES.  Yes,  sir. 

Mr.  McKenzie.  Up  to  that  time  had  you  taken  any  steps  to  develop  the 
production  of  nitrates? 

Colonel  JoYES.  I  had  not  been  connected  with  the  matter  at  all  until  the 
later  days  of  May,  1917.  I  was  in  command  at  the  Picatinny  Arsenal,  the 
powder  factory  in  New  Jersey,  and  was  brought  out  of  that  establishment 
about — I  left  there  about  the  27th  of  May  or  else  arrived  here  on  the  27th 
of  May. 

Mr.  McKenzie.  How  soon  after  that  did  you  become  interested  in  nitrate 
production  ? 

Colonel  Joyes.  Immediately  I  arrived  in  this  city,  in  the  last  days  of  May, 
I  was  told  that  that  was  my  duty  and  I  began  to  read  up  on  it,  because  up  to 
then  I  had  paid  no  particular  attention  to  it,  except  as  a  matter  of  news  and 
current  information ;  and  I  was  informed  of  the  report  of  this  commission 
and  was  told  that  it  was  just  waiting  to  have  the  attention  of  the  President 
and  the  Secretary  of  War,  which  I  told  you  we  got  about  the  middle  of  July — 
July  13th,  I  think. 

Mr.  McKenzie.  Now,  when  did  you  first  come  in  touch  with  the  Muscle 
Shoals  proposition,  the  cyanamid  proposition,  and  the  Alabama  Power  Co. 
proposition?    I  want  to  know  first  when. 

Colonel  JoYES.  In  September  of  1917,  pursuant  to  the  general  examination 
of  the  possible  processes  of  fixation  of  which  I  have  spoken  to  you,  I  decided 
that  we  would  like  to  know  a  little  more  about  the  cyanamid  process  than 
we  had  found  of  record,  and  I  had  my  office  get  in  touch  with  Mr.  Washburn, 
of  the  Cyanamid  Co.,  telling  him  we  would  like  to  know  a  little  more  about 
it.  and  should  like  to  hear  a  little  from  him  as  to  its  possibilities  and  so  on, 
and  people  from  my  office  had  one  or  two  interviews  with  him,  and  somewhere 
along  in  that  time  I  met  him,  but  the  talk  with  him  over  the  situation  was 
mostly  done,  I  think,  by  Colonel  White,  who  is  the  head  of  the  chemical 
engineering  department  of  the  University  of  Michigan  now  and  before  the 
war,  and  also  by  Captain  Gaillard  here.  Then  coming  out  of  that  we  thought 
it  well  to  have  an  explicit  statement  from  the  Cyanamid  Co.  as  to  what  they 
would  do  in  case  we  needed  them,  and  I  had  such  a  letter  from  them,  making 
a  specific  statement  as  to  the  general  character  of  the  terms  upon  which  they 
would  undertake  to  build  a  plant  for  the  United  States.  That  was  some 
tim'e  prior  to  the  date,  October  29,  that  I  cited  to  you  as  the  first  proposal 
for  the  Muscle  Shoals  plant,  because  it  was  not  a  proposal  specifically  for  the 
Muscle  Shoals  plant,  this  earlier  one,  nor  was  it  one  for  exactly  that  type  or 
size  of  plant.  You  get  the  difference  I  am  trying  to  make  clear  there? 
Mr.  McKenzie.  Yes. 

Colonel  JoYEs.  That  was  the  situation  then. 

Mr.  McKenzie.  Now,  you  had  been  in  charge  of  this  matter  from  the  latter 
part  of  May  until  September.  Had  you  had  the  matter  up  with  anyone 
else  other  than  Mr.  Washburn  prior  to  that  time? 


MUSCLE   SHOALS  PROPOSITIONS. 


1065 


Colonel  JoYEs.  We  had  conversations  with  a  gi*eat  many  people  as  to  dif- 
ferent processes.  I  had  had,  of  course,  some  conversations  or  talks  about  the 
cyanamid  as  well  as  other  processes  with  different  people. 

Mr.  McKenzie.  Up  to  that  time  had  you  visited  Muscle  Shoals  or  the  War- 
rior steam  plant? 

Colonel  Joyes.  Not  the  Warrior  steam  plant,  sir,  at  all,  but  I  had  visited 
Muscle  Shoals. 

Mr.  McKenzie.  When? 

Colonel  Joyes.  Some  time  probably  in  July  or  August.  The  way  of  that  was 
this:  I  was  hunting  for  a  suitable  place  to  build  the  first  nitrate  plant — just 
that — and  I  had  such  people  as  I  could  get  hold  of,  as  I  was  building  up  my 
orgJinization,  and  I  would  send  them  out  on  the  road  to  look  at  any  place  we 
thought  at  all  promising,  and  when  they  got  some  place  they  thought  would  be 
worth  while.  I  would  go  down  and  inspect  it.  In  the  coui*se  of  that  period  I 
made  probably  three  or  four  trips  myself  to  see  places  that  had  been  scouted 
out.  We  started  first  to  try  to  find  a  site  for  that  plant  in  the  western  end  of 
Virginia,  which  was  the  section  particularly  pointed  out  by  the  Nitrates  Com- 
mission, for  various  reasons,  but  mainly  because  of  its  proximity  to  the  sul- 
phuric acid  plant  of  the  General  Chemical  Co.,  at  Pulaski.  That  was  the  main 
reason.  We  tried  hard  to  get  one  around  there,  but  it  was  a  very  mount^iinous 
country,  very  uneven,  and  it  was  difficult  to  find  an  area  suited  fof  our  work, 
etc.    So  we  gradually  went  on  down  until  we  got  down  as  far  as  Muscle  Shoals. 

Mr.  McKenzie.  And  you  visitjed  Muscle  Shoals  in  July? 

Colonel  Joyes.  Somewhere  along  there. 

Mr.  McKenzie.  And  then  along  in  September  or  October  you  sent  for  Mr. 
Washburn,  as  I  understand  you? 

Colonel  Joyes.  Yes. 

Mr.  McKenzie.  And  then  you  entered  into  negotiations  with  Mr.  Washburn? 

Colonel  Joyes.  Yes. 

Mr.  McKenzie.  Did  he  represent  the  Alabama  Power  Co.  at  that  time? 

Colonel  Joyes.  He  did  not,  sir. 

Mr.  McKenzie.  He  represented  the  American  Cyanamid  Co.? 

Colonel  Joyes.  The  American  Cyanamid  Co. 

Mr.  McKenzie.  And  that  had  to  do  only  with  the  Muscle  Shoals  proiwsition? 

Colonel  Joyes.  Yes,  sir;  the  nitrate  plant  to  be  built  at  Muscle  Shoals. 

Mr.  McKenzie.  Now,  then,  when  did  you  come  in  touch  with  the  representa- 
tives of  the  Alabama  Power  Co.? 

Colonel  Joyes,  I  think  absolutely  the  first  point  of  contact  with  them  wa*: 
their  proposal  of  November  6,  I  think,  1917.  [Witness  subsequently  re<*alls  a 
letter  dated  Noy.  1,  1917.]  It  has  been  read  and  put  in  the  record,  which  came. 
I  am  sure,  before  I  had  seen  any  of  the  officials  of  the  Alabama  Power  Co.  even, 
or  any  of  their  properties,  or  anything,  and  then  following  that  we  had  some 
conversation  with  them,  which  I  do  not  think  began  until  the  latter  part  of 
November  or  early  in  December — somewhere  along  around  there. 

Mr.  IVIcKenzie.  At  that  time  had  you  decide<l  to  develop  Muscle  Shoals 
through  the  American  Cyanamid  Co.? 

Colonel  Joyes.  I  do  not  like  tjo  concur  in  the  use  of  that  expression.  "  develop 
Muscle  Shoals,"  but  at  that  time 

Mr.  McKenzie  (interposing).  Well,  that  may  be  a  wrong  term. 

Colonel  Joyes.  At  the  time  I  received  the  proposal  from  the  Alabama  Power 
Co.  we  had  not  decided  to  do  so,  because  that  was  dated  November  6,  and  re 
ceive<l  a  couple  of  days  later,  and  we  did  not  decide  until  the  meeting  ot  No- 
vember 13  to  accept  the  Cyanamid  ('o.'s  offer  and  to  build  the  nitrate  plant  at 
Muscle  Shoals.  The  reason  I  object  to  the  use  of  the  words  "  <levelop  Muscle 
Shoals"  is  because  that  takes  us  into  the  civil  engineering  part  of  it.  with 
which  I  had  no  connection  whatever,  tlie  dam  and  the  water-power  develoinnent. 

Mr.  McKenzie.  Then,  if  I  understand  your  testimony,  you  accepte<l  the  offer 
of  the  Alabama  Power  Co.  first. 

Colonel  .loYEs.  No,  sir :  we  received  it.,  but  did  not  accept  it. 

Mr.  McKenzie.  Then  you  accepted  the  proposition  of  the  American  Cyanamid 
Co.  along  in  the  afternoon,  was  it? 

Colonel  Joyes.  About  midnight,  November  13. 

Mr.  McKenzie.  Then  when  did  you  accept  the  Alabama  Power  Co.  proposi- 
tion? 

Colonel  Joyes.  The  only  acceptance  of  it  or  the  only  thing  that  could  be 
called  an  acceptance  of  it  were  the  purchase  orders  I  wrote  on  December  7, 
1917. 


1066 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


1067 


mi 


Mr.  M^Kenzie.  That  was  some  time  afterwards. 

Colonel  JoYEs.  Yes,  sir. 

Mr.  McKenzie.  At  the  time  you  were  having  this  interview  or  conversation  or 
conference,  whatever  you  might  term  it,  with  the  American  Cyanamid  Co  did 
you  at  that  time  have  in  mind  the  taking  over  of  the  Alabama  Power  Co  *>  " 

Colonel  JoYEs.  We  had  it  in  our  minds  that  in  order  to  carry  out  tlie  plans 
that  we  were  considering  with  the  American  Cyanamid  Co.,  we  would  have  to 
make  some  provision  for  getting  the  power  for  the  first  half  production  of  the 
nitrate  plant  from  the  Alabama  Power  Co.    There  was  no  other  place  to  get  it 

Mr.  McKenzie.  And  that  would  be  55,000  tons  or  thereabouts 

Colonel  JoYEs.  That  would  be  the  production  of  ammonium  nitrate  from  the 
nitrate  plant  and  the  power  for  that  was  variously  estimated  in  those  days 
There  was  some  uncertainty  about  it,  but  we  figured  from  thirty  to  thlrtv-flve 
thousand  kilowatts  would  carry  us  through  at  that  time. 

Mr.  McKenzie.  At  that  time  you  did  not  have  the  Haber  process  in  mind 
when  you  were  having  this  conference? 

Colojipl  Joyes.  We  had  it  very  prominently  in  mind,  because  we  were  build- 
ing a  plant  to  use  it— a  slight  variant  of  the  Haber  process— but  we  did  not 
contemplate  the  use  of  it  for  the  war  needs  which  were  then  being  stated  to 
us  as  so  urgent,  because  we  knew  and  we  were  getting  to  know  more  and  more 
every  day  that  we  could  not  reply  upon  it  being  in  production  at  anv  given 
definite  time.  '  ' 

Mr.  McKenzie.  Who  was  at  the  head  of  the  War  Industries  Board  at  that 
time,  Colonel? 

Colonel  JoYEs.  The  man  who  was  generally  recognized  as  the  active  head 
I  believe,  was  Mr.  Baruch.  '' 

Mr.  McKenzie.  Mr.  Barney  Baruch?  Did  you  have  anv  conversation  with 
him  about  this  matter? 

Colonel  JoYEs.  Yes ;  I  had  quite  a  few  conversations  with  him  and  with  hi« 
technical  assistants.  He  was  present  at  several  of  the  conferences  in  the  office 
of  the  Chief  of  Ordnance  at  which  the  several  successive  proposals  of  the 
American  Cyanamid  Co.  were  considered,  from  October  29  to  November  13 
1917.  Furthermore,  he  introduced  me  to  the  ruling  board  or  the  clearance  com- 
mittee, or  whatever  it  was  called,  the  committee  which  had  to  clear  any  big 
project,  in  the  War  Industries  Board,  when  we  presented  this  proposition  of 
the  American  Cyanamid  Co.  That  was,  I  think,  on  or  about  the  14th  or  15th 
of  November,  1917,  after  General  Crozier,  in  his  office  and  with  this  advice  had 
decided  to  take  it,  and  then  it  had  to  go  and  be  cleared  through  the  War  Indus- 
tries Board.  I  took  it  up  and  Mr.  Baruch  went  in  with  me  and  prese:ited  the 
matter  in  my  presence  to  this  board,  the  War  Industries  Board,  and  they  had 
some  discussion  of  it.    It  was  put  to  a  vote  and  approved. 

Mr.  McKenzie.  Now,  Colonel,  at  that  time,  of  course,  you  have  stated  vou 
had  in  mind  the  development  of  the  cyanamid  process  at  Muscle  Shoals  and  that 
the  Alabama  Power  Co.  was  a  secondary  consideration  from  which  plant  you 
expected  to  get  a  certain  amount  of  power  to  aid  you  in  the  initial  manufacture 
of  one-half  the  capacity  of  the  plant. 

Colonel  Joyes.  Yes,  sir. 

Mr.  McKenzie.  If  I  understood  your  testimony  this  morning,  vou  stated  that 
you  did  not  feel  disposed  to  take  over  the  plant  of  the  Alabama  Power  Co  at  that 
time,  which  would  disturb  them  in  their  sale  of  their  product  to  their  natrons  or 
customers. 

Colonel  Joyes.  It  was  e.ssentially  like  that,  only  it  was  not  consideration  for 
their  feelings  or  their  iwcketbooks  that  kept  us  from  doing  it.  It  was  a  consid- 
eration of  what  complications  would  arise  and  what  we  would  get  the  United 
States  into.  Of  course,  we  considered  everybody's  rights  and  we  did  not  want 
to  go  in  and  disturb  anybody  in  his  business  if  it  could  be  avoided ;  but  if  it  was 
essential,  and  if  it  was  going  to  be  advantageous  to  the  Government,  we  would 
not  have  hestated  a  moment. 

Mr.  McKenzie.  Now,  Colonel,  you  were  familiar  with  what  was  going  on  at 
that  time  all  over  the  country,  were  you  not? 

Colonel  Joyes.  Yes,  sir. 

Mr.  McKenzie.  That  thousands  of  acres  of  farms  were  being  taken  and  just 
blanket  authority  given  almost  over  entire  counties. 

Colonel  Joyes.  Yes,  sir. 

Mr.  McKenzie.  And  the  rights  of  the  people  just  simply  set  at  naught  because 
it  was  justifiable  on  account  of  the  fact  that  we  were  in  war.    Is  not  that  true? 

Colonel  Joyes.  That  is  true;  yes,  sir. 


Mr.  McKenzie.  Now,  then,  you  were  also  aware  of  the  fact,  were  you  not 
Colonel,  at  that  time,  that  Mr.  Baruch  as  president  of  the  War  Industries  Board 
was  also  in  charge  of  the  priorities  board? 

Colonel  Joyces.  Perfectly. 

Mr.  McKenzie.  And  that  he  stated  in  his  testimony  that  a  citizen  could  not 
even  get  a  piece  of  zinc  to  fix  up  his  kitchen  sink  without  a  priority  order  "^ 

Colonel  Joyes.  Yes;  that  was  rather  to  make  it  striking;  he  did  not  mean  it 
literally ;  but  the  idea  is  perfectly  sound. 

Mr.  McKenzie.  He  was  all-powerful? 

Colonel  Joyes.  Quite  right. 

Mr.  McKen;:'ie.  He  had  absolute  power;  more  power  than  anv  man  has  ever 
exercised  in  this  country.    Is  not  that  true? 

Colonel  Joyes.  Yes,  sir. 

Mr.  McKenzie.  Now,  then,  we  come  to  the  Alabama  Power  Co.,  and  you  say 
you  wanted  that  power  to  help  develop  the  first  unit  at  Muscle  Shoals ;  but  in- 
stead of  taking  the  strong  arm  of  Mr.  Baruch  and  reaching  out  and  putting  it 
on  that  plant  and  saying:  "'The  Government  needs  this  power,"  what  did  you  do? 

Colonel  Joyes.  I  will  tell  you  what  I  did  in  just  a  moment,  and  in  the  mean- 
while you  will  remember  that  this  morning  I  told  you  that  when  the  law  was 
passed  that  permitted  us  to  take  over  any  lands 

Mr.  McKenzie  (interposing).  Well,  we  did  take  lands,  however? 

Colonel  Joyes.  The  first  law  that  permitted  us  to  take  over  lands  or  com- 
mandeer lands  for  anything  except  military  camps  was  passed  on  April  11,  1918. 
For  military  camps  and  the  like  we  could  take  lands.  You  gentlemen  had  passetl 
a  law  permitting  us  to  do  that  in  July,  1917.  You  did  not  do  it  for  any  of  the 
munitions  production  at  all  until  April,  1918.  Again,  we  come  to  the  matter  of 
commandeering  supplies,  and  the  national  defense  act  of  1916  allowed  us  to  com- 
mandeer supplies. 

Mr.  McKenzie.  And  plants,  did  it  not? 

Colonel  Joyes.  But  let  us  look  at  the  language  of  that  act.  I  have  it  here, 
section  120.  This  is  a  copy  with  all  the  corrections  to  date,  but  the  index 
shows  that  this  is  just  exactly  as  it  was  originally  passed : 

"  Sec.  120.  Purchase  or  procurement  of  military  supplies  in  time  of  actual  or 
imminent  war :  The  President  in  time  of  war  or  when  war  is  imminent  is  em- 
powered, through  the  head  of  any  department  of  the. Government,  in  addition 
to  the  present  authorized  methods  of  purchase  or  procurement,  to  place  an 
order  with  any  individual,  firm,  association,  company,  corporation,  or  organized 
manufacturing  industry  for  such  product  or  material  as  may  be  required,"  etc. 

Now,  there  was  a  great  fight  over  that  language  in  1917,  and  I  remember  dis- 
tinctly hearing  a  lot  of  discussion  between  lawyers  and  officers  of  the  Govern- 
ment as  to  whether  power  could  be  considered  "product  or  material,"  as  ex- 
pressed in  the  language  of  that  law,  and  the  general  consensus  of  opinion  was 
adverse.  I  am  speaking  of  the  period  of  1917,  and  I  remember  hearing  a  num- 
ber of  discussions  and  I  remember  getting,  verbally,  opinions  from  people  in 
position  of  authority  or  in  a  position  to  know,  at  least,  who  told  me  that  vou 
could  not  consider  power  a  product  or  material.    Later,  they  did. 

Mr.  McKenzie.  Colonel,  I  do  not  want  to  weary  you. 

Colonel  JoYEs.  That  is  all  right. 

Mr.  McKenzie.  But  I  just  want  to  get  a  few  of  these  facts. 

Colonel  Joyes.  I  think  that  is  a  very  pertinent  point,  a  very  pertinent  point. 

Mr.  McKenzie.  What  was  the  capacity  of  that  Warrior  plant,  in  kilowatts 
or  in  horsepower. 

Colonel  Joyes.  The  plant  that  the  Alabama  Power  Co.  had,  the  steam  power 
plant  on  the  Black  Warrior  River,  was  generally  called  a  20,000-kilowatt 
plant.  That  means  that  running  about  as  it  would  be  expected  to  run  in 
service  it  would  deliver  about  that  amount  of  power  continuously,  capable  of 
going  perhaps  a  little  over. 

Mr.  McKenzie.  Would  that  have  furnished  you  sufficient  power  to  go  on 
with  the  construction  at  Muscle  Shoals? 

Colonel  Joyes.  Oh,  if  we  had  that  working  for  us  it  would  have  been  very 
useful  in  the  construction  period  and  would  have  given  us  a  considerable  por- 
tion of  what  we  wanted  for  our  first  production  at  the  Muscle  Shoals  plant; 
but  we  did  not  have  the  call  upon  that  without  taking  it  away  from  other 
people. 

Mr.  McKenzie.  That  is  the  point  I  am  getting  at. 

Colonel  Joyes.  When  we  talk  about  that  steam-power  plant  at  the  Warrior, 
you  really  can  not  divorce  that  from  its  function  or  its  place  in  the  system  of 


1068 


MUSCLE  SHOALS  PROPOSITIONS. 


the  Alabama  Power  Co..  The  company,  of  course,  had  water  power — some  60,000 
to  70,0bo  horsepower — and  the.v  aimed  to  sell  water  power  whenever  the  river 
was  running  enough  to  give  it.  Then,  like  all  other  power  companies  with 
run-of-the-river  power,  they  had  to  have  steam  stand-by  plants  to  bolster  that 
up,  and  when  the  river  was  only  running  about  15,000  Ijilowatts,  say,  and  they 
had  contracts  for  35,000  kilowatts  that  they  had  to  meet,  then  they  would  start 
up  this  steam  plant  on  the  Warrior  and  supply  the  other  20,000.  That  is  how 
it  was  run  and  organized. 

Mr.  McKenzie.  What  I  am  trying  to  get  at  is  your  justification  of  the  pro- 
cedure in  connection  with  this  plant,  having  in  mind  what  was  happening  all 
over  the  counti-y  in  other  places.  For  instance,  men  were  prevented  from  using 
their  automobiles  on  Sundays  in  order  to  save  gasoline  and  we  were  compelled 
to  eat  black  bread  in  order  to  conserve  flour  and  everybody  was  discommoded 
in  one  way  or  another,  and  at  the  same  time,  I  want  to  know  your  reason  why 
it  was  not  just  as  fair  to  say  to  the  Alabama  Power  Co.,  "  We  want  the  use  of 
your  power  for  so  long  a  time  while  we  develop  power  at  Muscle  Shoals,"  and, 
of  course,  they  would  have  received  compensation  for  it? 

Colonel  JoYES.  There  was  not  the  slightest  hesitation  to  do  that,  but  they 
could  not  make  any  additional  power,  any  more  than  they  had  facilities  to 
make. 

Mr.  McKenzie.  I  understand  that. 

Colonel  JoYES.  And  what  we  took  from  them  was  not  taken  from  them  but 
taken  from  their  customers.  We  had  a  list  of  their  customers  and  looked 
them  over  and  found  that  such  a  great  proportion  of  those  customers  were 
businesses  that  were  essential  to  the  war,  that  it  would  not  have  been  justi- 
fiable to  stop  the  power  for  them.  For  instance,  there  were  all  the  steel  mills 
at  Birmingham — I  do  not  mean  all  of  them,  but  many  of  them — that  took  the 
power,  and  there  were  ferromanganese  plants,  and  ferromanganese  was  one 
article  of  great  stringency,  and  I  think  it  had  about  one  of  the  highest  priori- 
ties of  any  branch  of  production,  and  there  were  other  things  along  that  line. 
Then  there  were  certain  other  things,  some  of  the  cities  depended  upon  it  for 
their  light  and  essential  power  of  that  nature,  and  altogether  we  thought  there 
were  too  many  of  those  things  to  make  it  possible  for  us  to  interfere  with  that 
supply  and  that  we  had  to  provide  some  additional  facilities. 

Mr.  McKenzie.  NoWf  you  built  a  transmission  line  and  you  got  some  power 
over  that  to  be  utilized  in  the  construction  at  Muscle  Shoals.    Is  not  that  true? 

Colonel  JoYES.  Yes  sir ;  it  was  ready  in  the  spring  of  1918. 

Mr.  IMcKenzie.  In  other  words,  you  got  whatever  the  Alabama  Power  Co. 
did  not  have  a  market  for  down  in  Alabama? 

Colonel  JoYES.  Provided  we  needed  it. 

Mr.  McKenzie.  Provided  you  needed  it;  yes;  but  the  thing  I  would  like 
to  have  you  explain  a  little  further,  if  you  can,  is  the  sacred  rights  enjoyed 
by  these  people  down  there  over  the  other  people  in  the  country,  and  why  you 
did  not  exercise  the  power  which  Mr.  Baruch  said  he  had,  to  simply  put  the 
strong  arm  of  the  Government  on  that  plant  and  utilize  it  to  such  extent  as 
the  Government  needed  it. 

Colonel  JoYEs.  I  have  told  you,  sir.  that  we  could,  although  there  might 
not  be  laws  for  it,  and  we  were  not  hesitating  to  do  that  a  moment,  so  far 
as  the  power  company  w^as  concerned,  but  it  was  not  taking  it  away  from  them, 
it  was  taking  it  away  from  the  industries  which  had  a  high  priority,  and  wo 
could  not  take  it  away  from  those  industries.  That  is  what  it  would  have 
meant  if  we  took  the  power  from  the  Alabama  Power  Co.  system  without  pro- 
viding some  additional  facilities.  Understand  it  might  have  been  done  at 
certnin  periods  of  the  year,  and  it  was  so  represented  to  us  by  the  Alabama 
Powr  Co.  We  saw  ourselves  from  an  analysis  of  their  records,  all  of  whicli 
we  had  and  looked  over  carefully,  that  at  certain  periods  of  the  year  they 
had  a  surplus  of  power  and  plenty  of  it,  and  we  could  have  had  it  without  ;i 
whimper  and  without  hurting  anybody  at  all.  There  was  some  more  we 
could  have  taken  without  hurting  the  essential  industries,  but  that  was  only 
for  a  brief  period,  and  if  we  went  in  to  rely  on  that  and  got  our  processes 
working  the  first  thing  we  would  know  we  would  be  up  against  a  period  when 
the  river  was  low  and  there  would  not  be  any  way  for  us  to  get  power  except 
then  to  take  it  away  from  ferromanganese  and  steel  and  some  other  things, 
and  that  was  not  a  tolerable  situation. 

Mr.  McKenzie.  At  that  time  the  Alabama  Power  Co.  had  a  modestly  con- 
structed plant  of  about  100  feet  square,  did  it  not? 

Colonel  JoYEs.  So  far  as  the  power  house  goes,  yes. 


MUSCLE   SHOAI^  PROPOSITIONS. 


1069 


Mr.  McKenzie.  A  brick  building. 

Colonel  JoYES.  A  brick  building. 

Mr.  McKenzie.  What  was  the  size  of  the  building  you  constructed  down 
there  and  what  was  the  character  of  the  construction? 

Colonel  JoYEs.  Something  like  the  same. 

Mr.  McKenzie.  The  same  size? 

Colonel  JoYES.  Something  like  it ;  a  little  larger. 

Mr.  McKenzie.  And  permanently  built? 

Colonel  JoYEs.  It  was  of  brick  construction,  brick  walls,  steel  to  support 
tlie  roof,  etc.,  about  what  you  have  got  to  put  up  to  put  in  modern  power 
machinery.    However,  we  called  it  temporary  construction. 

Mr.  McKenzie.  I  am  not  criticizing  the  construction. 

Colonel  Joyes.  We  called  it  temporary  because  we  said  we  were  making 
a  temporary  use  of  the  land.  There  was  a  reason  for  that  which  I  think 
it  is  well  to  state  here.  We  knew  the  Alabama  Power  Co.  was  bonded  pretty 
heavily  and  we  knew  that  if  we  went  in  there  and  took  the  temporary  use  of 
their  land,  essentially  as  a  lease,  we  were  in  some  danger  that  our  property 
might  become  subject  to  the  lien  of  the  previous  creditors,  and  we  did  every- 
thing we  could  to  safeguard  against  that,  according  to  the  best  advices  we 
had,  and  you  will  notice  in  the  contract,  in  one  place,  we  state  that  every- 
thing we  put  in  there,  on  the  land  of  the  Alabama  Power  Co.,  is  to  be 
regarded  as  "  personalty  "  and  not  subject  to  liens,  etc.  That  was  the  reason 
for  that,  and  that  is  why  I  want  to  be  rather  particular  about  saying  that  we 
stipulated  that  our  structures  should  be  regarded  as  temporary  and  as  per- 
sonalty. 

Mr.  McKenzie,  You  expected  only  to  use  this  as  a  war  activity  so  far  as 
the  Government  was  concerned? 

Colonel  JoYEs.  That  was  our  reason  for  putting  it  in,  sir;  and  yet  we  drew 
the  contract  for  power  for  10  years.  We  did  not  want  to  be  in  the  position 
that  if  a  need  should  exist  the  Government  would  be  debarre<l  from  having 
power  from  that  plant  "^vhich  it  had  built,  so  we  proceeded  to  tie  it  up  tight 
.so  that  we  could  get  our  power  for  10  years,  if  we  wanted  it. 

INIr.  McKenzie.  Now,  Colonel,  in  order  that  I  may  distinctly  understand  you 
and  be  sure  that  there  was  not  anything  put  over  on  you,  and  you  have  stated 
you  approved  all  that  was  done  down  there,  did  you  give  your  approval 
to  the  construction  of  12  dwellings  down  there  at  a  cost  of  $5,000  apiece? 

Colonel  JoYES.  Yes. 

^Ir.  McKenzie.  Permanent  dwellings? 

Colonel  Joyes.  They  were  permanent  'n  type  but  they  were  like  all  the 
rest,  they  were  denominated  as  temporary. 

Mr.  McKenzie.  They  would  last  for  years,  would  they  not? 

Colonel  Joyes.  They  would  last  for  years;. yes,  sir. 

Mr.  McKenzie.  You  also  built  some  20-odd  semipermanent  structures? 

Colonel  Joyes.  Yes,  sir. 

Mr.  McKenzie.  And  you  also  built  a  hospital  which  was  to  have  30  beds 
in  it? 

Colonel  Joyes.  Yes,  sir ;  a  simple  frame  building. 

Mr.  McKenzie.  And  a  moving  picture  show  building? 

Colonel  Joyes.  Yes,  sir. 

Mr.  McKenzie.  And  did  all  of  those  things  have  your  approval? 

Colonel  Joyes.  Yes,  sir. 

Mr.  McKenzie.  And  this  plant  is  situated  9  miles  out  from  the  railri>ad 
in  a  rather  deserted  sort  of  a  place,  is  it  not? 

Colonel  Joyes.  Yes,  sir;  at  the  mouth  of  the  coal  mine,  as  they  say  down 
there.     It  is  usually  regarded  as  an  ideal  situation  for  a  power  plant. 

Mr.  McKenzie.  Do  you  contend  those  things  were  all  necessary  for  the 
Government  ? 

Colonel  Joyes.  I  believe  so,  or  I  should  not  have  approved  them,  sir.  Of 
course,  people  might  argue  about  them  for  a  long  time  and  all  that,  but  you 
know  there  was  a  great  deal  of  talk  along  in  1917,  and  if  you  will  take  up  some 
of  the  old  newspapers  of  that  period  you  will  find  how  the  Government  officers 
were  criticised  for  not  providing  enough  amusements  and  comforts  and  medi- 
cal treatment  for  the  workers  on  the  plants,  and  this,  that,  and  the  other  thing, 
so  as  to  reduce  the  turnover — and  there  was  a  lot  of  that.  However  that  is,  I  say. 
I  think  that  a  good  deal  of  that  .sort  of  thing  that  was  generally  done  ouglit 
to  be  unnecessary,  but  the  situation  w^as  such  you  had  to  go  into  it  and  do  it 
if  you  wanted  your  work  done. 


1070 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOAI^  PBOPOSITIOlSrS. 


1071 


bamn  ^w^r  Pn    ,P    Tti'  ^^^"  ^^""^  ^^^^^  ^^^*  ^»  ^^'^  ^^"t^^ct  with  the  Ala- 
Colo^riovv^'  viL  ^^"  ^^."u  T'^  conserving  the  interests  of  the  Government. 

compushed  u  ^''' '  "^^^  ''"'"  "^^^^^  ^^•'^^^'  ^^^  ^^  ^^^^^  ^'^  a^" 

nf^inni^^J^K^if^-  ^"'^  ^'''"  ''""''^  ^^^^  ^^^''^^^  ^^^^  ^^^is  moming  that  in  the  month 

?i?  K    '  ^  i^^^^'^^^t', ""''  ^""""^  ™^°^^  ^°  the  early  part  of  19187  a  law  was  mssed 
which  would  enable  you  to  buy  propertv.  pas**ea 

Colonel  JoYES.  Yes,  sir ;  April  11,  1918 

unnrthp''f^TnfioT«''  TKl''^  ""'^^  ^^^  Alabama  Power  Co.  was  not  signed 
until  the  fall  of  1918,  after  the  enactment  of  that  law' 
(.V)lonel  JoYES.  Yes. 

Mr.  Mckenzie.  Now,  do  you  contend  that  it  would  not  have  been  possible 
for  you    as  the  representative  of  the  Government,  to  have  had  a  provision  in 

hat  contract  that  the  Government  would  have  the  right  to  buv  the  portion  of 
the  plant  belonging  to  the  Alabama  Power  Co.  or  the  Alabama  Power  Co.  have 
the  right  to  buy  that  of  the  Government;  in  other  words,  have  a  reciprocal 
contract  and  m  case  they  could  not  have  agreed  upon  the  price,  that  then  arbi- 
tratx.rs  might  come  m  and  fix  the  price?  Do  you  contend  that  you  could  not 
ha\e  put  in  that  sort  of  a  provision  in  order  to  protect  the  Government' 

Colonel  JoYEs.  I  could  have  stood  out  for  that  sort  of  a  provision  if  I  had 
thought  It  was  proper  and  right  and  advisable  to  do  it.  Unquestionablv,  after 
that  law  was  passed,  I  could  have  done  it.  but  there  were  a  number  of  things 
that  argued  against  it  aside  altogether  from  the  inclination  of  the  power  com- 
pany to  agree  to  it.     There  was  the  question  of  more  than  the  land  involved- 

r^ui.^^?^  "^^  question  of  the  practicability  of  the  operation  of  two  separate 
establishments  down  there  practically  in  the  same  kitchen.  It  would  be  like 
two  people  cooking  in  the  same  kitchen.  That  is  about  what  it  would  have 
amounted  to,  and  it  did  not  seem  to  me  to  be  a  feasible,  reasonable  set-up 
Furthermore,  at  that  time  we  had  gone  along  so  long  under  a  more  or  less 
reasonable,  temporary  working  basis,  which  was  based  and  rested  primarilv 
upon  my  original  order  which  said  that  we  wanted  tbe  temporary  use  of  their 
land.  It  was  an  implied  contract,  and  there  was  that  matter  to  be  considered 
I  would  not  have  thought  it  exactly  good  faith,  so  far  as  that  went,  whicli 
might  not  have  prevented  my  doing  it  if  I  thought  it  strictly  advisable  but  I 
thought  that  as  the  Government  had  been  obliged  to  go  down  there  and  put 
m  that  power  plant,  the  very  best  proposition  that  they  could  get  hold  of  was 
to  get  the  people  who  could  make  good  use  of  it  tied  up  so  that  they  would  have 
to  buy  it,  and  I  think  we  have  done  that. 

Mr.  Mckenzie.  Now,  Colonel,  this  is  my  last  question :  If  you  at  that  time 
could  have  looked  down  through  the  coming  months  to  this  present  moment 
you  can  see  where  such  a  provision  as  that  or  something  like  that  would  have 
saved  our  Government  considerable  embarrassment  at  this  time? 

Colonel  JoYES.  I  do  not  see  that,  sir.  I  would  say  that  we  were  not  looking 
for  embarrassments  or  looking  to  avoid  embarrassments;  we  were  looking  to 
see  what  we  could  do  to  protect  the  physical  property  and  assets  of  the  United 
States  and  its  equities,  and  we  think  we  did  that,  and  that  is  the  point  we 
were  after.  We  never  contemplated  for  the  sake  of  some  other  interest  any- 
body would  ever  wish  to  take  one  man's  property  from  him  and  hand  it  to 
somebody  else,  and  that  statement  is  made  with  no  impertinent  reflection  upon 
any  particular  offer  or  anything  of  the  kind,  but  it  is  the  situation.  We  were 
looking  out  to  protect  the  money  we  had  to  spend,  and  just  that 

Mr.  James.  Colonel,  you  had  some  trouble  doing  business  with  both  the  Ala- 
bama Power  Co.  and  the  American  Cyanamid  Co.,  did  you  not' 

Colonel  JoYES.  We  did  not  have  altogether  complete  harmony  at  all  times  • 
no,  sir. 

Mr.  James.  And  frequently,  in  order  to  do  business  with  the  American  Cyan- 
amid Co.,  you  had  to  follow  along  with  their  views? 

<'o^o?'pi  .foYEs.  Oh.  yes.  sir;  to  get  the  results  we  were  after 

Mr  James.  What  is  the  date  of  that  first  allotment  of  $300,000  that  was 
made  /  * 

Colonel  JoYEs  I  think  it  was  $200,000,  but  the  amount  is  immaterial.  I  can 
give  you  that,  sir. 

Mr.  James.  I  mean  for  nitrate  plant  No.  2 

Colonel  JoYES.  On  November  23, 1917,  the  sum  of  $200,000,  out  of  the  $20,000,- 
000  earned  by  section  124  of  the  national  defense  act,  was  allotted  for  the 
purpose  oi  purchasing  the  site  for  the  No.  2  nitrate  plant.    That  was  allotted  for 


the  President  on  that  day,  and  I  got  it  within  a  few  days  thereafter.  The 
exact  date  of  that,  I  think,  would  not  be  necessary,  but  it  was  within  a  few 
days  thereafter. 

Mr.  James.  When  was  the  first  payment  due  on  the  land  purchased? 

Colonel  JoYEs.  No  definite  date  ever  agreed  upon  for  that,  sir.  When  we 
went  down  there  we  took  over  the  land.  We  marked  out  what  we  wanted  and 
walked  around  and  then  a  local  board  was  established  to  go  out  and  see  the 
owners. 

Mr.  James.  That  was  the  air  nitrates  plant. 

Colonel  JoYEs  (continuing).  We  told  them  to  get  busy  and  get  their  evidence 
of  title  m  and  to  arrive  at  a  price  that  they  thought  was  reasonable  and  see 
wether  we  could  accept  it  or  whether  we  would  have  to  condemn  or  try  to 
condemn.  We  were  only  talking  about  condemning  in  those  days,  because 
we  had  no  authority  to  condemn,  but  anyway  we  talked  it  to  them.  It  takes 
a  long,  long  time  always  to  get  a  proper  certificate  of  title,  and  down  there 
It  seemed  as  if  it  took  an  interminable  time,  because  the  people  who  were  under- 
taking to  handle  the  business  for  us  were  trying  to  handle  it  all  in  a  lump 
and  we  could  not  get  anything  through  to  the  point  where  we  could  pay  for  it 
People  came  to  us  in  great  hardship,  apparently,  for  money.  They  had  been 
run  out  of  their  homes  and  they  wanted  the  money  and  we  could  not  draw  a 
cent  for  them,  because  we  had  not  got  suflJcient  proof  that  they  were  the  clear 
owners  to  pass  title.    That  was  a  year  after  that  time. 

Mr  James.  Are  you  talking  now  about  the  nitrate  plant  No.  1  or  No  2? 

Colonel  Joyes  I  am  talking  about  No.  2,  sir.  The  same  thing  wonld  ahnort 
apply  to  No  1,  but  we  had  a  little  less  trouble  there  because  I  started  that  i^ 
early  and  all  the  different  boards  for  keeping  control  of  this,  that  and  The  othe? 
T  hn^^dw  T  -fif^  ^^^ganized,  and  I  got  a  little  bit  the  jump  on  them  and  so 
I  handled  it  with  my  own  people,  and  I  was  able  to  push  that  a  little  better 
and  my  payments  were  made  there  a  little  more  promptly  than  they  were  made 
through  the  regular  channels  on  the  other  plant 

r.1^1    ii^^^'J^  "^.u^  ^f!?"*  November  23,  1917,  that  you  started  to  tell  the 

SiZ  IN?  T  *^^^^  *^^^  '^  *^^y  ^'^  ^^^  ^"^^  «^'^^  the  land  for  a  site  for  nitrate 
plant  No.  2,  you  would  condemn  their  land?  "iL*aie 

J^I^T^l  l^^^\^^^  did  not  ask  them  to  turn  it  over.    We  went  in  and  took  it. 
We  asked  them  to  agree  to  a  reasonable  price,  and  most  of  them  did     That  was 
.  largely  looked  out  for  by  some  of  the  local  interests  around  there,  the  associa 

Mr  ""J? '^  ^Z'\\    ^^^^  ^^"^"^"^  «^^  th^t  ^  reasonable  price  was  stS 
Mr.  James.  If  the  payments  had  been  made  at  that  time,  thev  would  havp 
come  out  of  the  national  defense  act,  would  they  not' 

«.f  ^1*"? ®^  fS^^^'  }  ^^^""^  '''^  probably  would  have  paid  them  out  of  that  because 
we  had  nothing  else  that  we  thought  we  could  pay  them  out  of  »«^»*use 

Mr  James.  And  if  the  money  had  been  paid  at  that  time  all'  the  sites  would 
have  been  under  the  national  defense  act? 
Colonel  Joyes.  Yes,  sir. 

Mr.  James.  That  was  your  intention  at  that  time? 
Colonel  Joyes.  That  was  the  intention  at  that  time,  sir 

««r«I'  it^^^-  -^"^  afterwards  you  found  out,  in  1919,  that  you  could  do  it  in 
some  other  way. 

Colonel  Joyes.  Yes,  sir. 

Mr.  James.  Do  you  figure  that  that  kind  of  bookkeeping  will  nullify  the 

taking /if r?.r*  ^^^°  you  purchased  this  ground  with  the  intention  of 
laKing  It  out  of  the  national  defense  act. 

di^  T  !!h^  '^''''^^'  ^  ^?  5^*  *^*"^  ^  *1"^*^  ^^t  y^"^  P^'^t'  I^  I  do,  you  mean  why 
made  ™'^  "^        '''*  ^  ^""^^  *^^  ^^""  ^*'''™  *^^  ^''^^  provision  that  was 

,-..^f-  •^^^^^s.  I  know  why  you  changed  your  mind.    If  the  land  was  paid  for 

0  ^h^/n^r""'  Pi^;  '^  ^^'^"^^  ^^^^  ^^^^  P^^d  for  out  of  money  allotted  you  out 
or  the  national  defense  act.  j  «  wui. 

Colonel  Joyes.  Probably;  yes,  sir. 

Mr.  James.  But  you  let  the  matter  drift  and  then  on  January  20,  1919,  you 

dSense  a^  ^''^''^  *''^'""  '^  '*''*  ""^  ^""""^  ""^^^"^  ^"""^  '""^^^^^  ^^  ^he  national 
Hn^^^^?^^  •I^'^^^-  ^*  ^^''^^  ^  different  thing  from  a  journal  entry.  What  I  had 
crPd^if  iT^^'^  ?l^i^^^^  «^™P^y  *«  ^^^^-^  ^  ^e^tain  fund  in  Z  ledger  on  the 
nr  hii^^      T^"^  ^  \^.^  ''^''^^  ^e°*  ^"^y  ^^  »t'  a"d  before  I  got  readv  to  spend  it 

01  before  I  was  able  to  spend  it,  then  I  had  another  account  to'charge  it  to 
It  never  was  paid  out  and  then  charged  over  again  from  account  to  account ;  no" 

92900—22 68 


1072 


MUSCLE   SHOALS  PBOPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


1073 


Mr.  James.  AVas  there  no  money  paid  on  any  of  that  land  until  1919? 

Colonel  JoYEs.  That  is  my  remembrance  of  it,  sir,  and  that  can  easily  be  veri- 
fied by  an  actual  examination  of  the  books  which,  of  course,  would  be  much 
more  reliable  than  my  remembrance  at  this  time.  I  am  quite  sure  of  it  but  I 
think  we  could  have  the  people  who  are  in  charge  of  the  books  now  go  right 
over  them  and  look  it  up  and  give  you  a  specific  communication  about  it.  That 
would  be  the  best  way.    I  am  confident  of  it. 

The  Chairman.  Who  has  charge  of  those  books  now? 

Colonel  JoYES.  Major  Burns.    He  was  here  this  morning  but  is  not  here  now. 

Captain  Gaillard.  I  am  from  this  office  and  I  will  get  that  information. 

The  Chairman.  Will  you  kindly  let  the  committee  know  about  that. 

Captain  Gaillard.  Yes,  sir. 

March  13,  1919. 
Memorandum  for  the  Secretary  of  War: 

I  hereby  authorize  and  direct  the  following  revocation  and  allotments  of 
funds  appropriated  by  the  Congress  in  the  "  section  124,  nitrate  supply  "  of  the 
act  approved  June  3,  1916,  namely: 

Revoked : 

The  sums  allotted  by  me  Nov.  27,  1917,  and  Mar.  2,  1918.  for  the 
purchase  of  a  site  for  an  ammonium  nitrate  factory,  aggre- 
gating  $350,000 

Allotted  for  use  by  the  Secretary  of  War : 

(ft)  For  the  purchase  of  United  States  patents  protecting  processes 

incident  to  nitrogen  fixation,  etc 10,000 

(b)  For  the  active  prosecution  of  investigation  of  processes  for 
the  industrial  production  of  nitrate  compounds  useful  in  the 
manufacture  of  explosives  or  fertilizers 340,  000 

Approved  April  8,  1919. 

WooDRow  Wilson, 

President. 
A  certified  true  copy :  4r-30-19. 

P.  B.  McConville, 
Lientenant,  Ordnance  Department,  United  States  Army. 

A  true  copy  of  a  certified'  copy,  signed  by  P.  B.  McConville,  lieutenant. 
Ordnance  Department,  United  States  Army. 

G.  B.  Attersall. 

Purchase  of  site  for  United  States  nitrate  plant  No.  2,  "  Nitrate  Plants,  Secre- 

retary  of  War,  allotment  F." 


1919. 

Feb.    4 
May  10 


P.  R.  117960 

Revocation  nitrate  No.  27  F  112.4 


$350,000 
350,000 


A  true  copy  of  a  page  for  the  ledger  of  the  nitrate  division. 


March  11,  1921. 


G.  B.  Attersall. 


Mr,  Kearns,  At  the  time  you  entered  into  negotiations  with  the  Alabama 
Power  Co.  did  you  have  the  right  to  condemn  the  land  ? 

Colonel  JoYES.  None  that  we  could  find  possible,  sir. 

Mr.  Kearns.  Then  that  is  the  reason  you  assign  why  you  did  not  condemn 
the  property? 

Colonel  JoYES.  That  was  only  one  of  the  reasons,  sir.  That  was  one  reason 
and  sufficient  for  that,  but  in  addition,  I  did  not  consider  that  it  was  a  prac- 
ticable or  a  reasonable  procedure  on  account  of  the  physical  situation  and  of  the 
complications  due  to  power  contracts,  and  litigation. 

Mr.  Kearns.  Did  you  enter  into  this  agreement  with  the  Alabama  Power  Co. 
partly  because  you  wanted  the  experience  and  advice  of  the  members  of  that 
company  ? 


Colonel  JoYES.  No,  sir ;  I  would  not  put  it  in  that  way.  We  wanted  their  ex- 
perience and  advice  in  the  actual  construction  work,  yes. 

Mr.  Kearns.  And  that  is  what  I  mean. 

Colonel  JoYES.  Yes;  but  we  could  have  hired  an  engineering  firm  for  that, 
but  it  was  much  more  desirable  to  be  done  by  them,  and  especially,  to  be  done 
by  them  when  they  were  contemplating  a  future  purchase,  because  that  would 
operate  to  keep  down  expenses  as  much  as  possible  and  would  cause  everything 
to  be  done  as  economically  as  possible. 

Mr.  Kearns.  When  you  first  went  to  Muscle  Shoals  for  the  purpose  of  view- 
ing this  as  a  future  nitrate  plant,  w^hat  activities  did  you  find  there.  Govern- 
ment or  otherwise? 

Colonel  JoYES.  There  were  no  Government  activities  of  any  consequence. 
There  was  a  small  establishment  of  the  Engineer  Corps  there  handling  the 
navigation  canals.  That  constituted  the  improvement  that  there  had  been 
for  the  Muscle  Shoals,  and  that  was  about  all  for  the  Government. 

Mr.  Kearns.  What  private  activity? 

Colonel  JoYES.  There  were  several  iron  furnaces,  several  in  Sheffield  and 
one  or  more  in  Florence,  right  across  the  north  side  of  the  river.  There  were 
minor  industries  but  none  of  any  great  consequence  other  than  the  iron  fur- 
naces. 

Mr,  Kearns.  Colonel,  on  the  land  now  occupied  by  the  Muscle  Shoals  proj- 
ect  

Colonel  Jo  YES    (interposing).  The  nitrate  plant  No.  2? 

Mr.  Keakns.  Yes;  what  activities  were  there,  if  any? 

Colonel  JoYEs.  Principally  farming,  cotton  raising,  mostly. 

Mr.  Kearns.  How  did  you  get  possession  of  that  land? 

Colonel  JoYES.  Well,  we  walked  right  on  and  took  it,  and  a  hx-al  commit- 


lee 

Mr.  Kearns.  Wait  just  a  minute.  When  did  you  take  possession  of  that 
land? 

Colonel  JoYES.  I  got  down  there  about  the  19th  or  20th  of  November,  I  should 
say. 

Mr.  Kearns.  1917. 

Colonel  Joyes.  Yes,  sir;  and  we  went  right  out  and  looked  over  the  ground 
and  decided  just  about  where  the  plant  would  necessarily  sft,  and  about  how 
much  area  we  were  going  to  want,  and  the  Cyanamid  Co.  was  told  by  me  to 
take  possession  of  it.  There  was  a  local  association  of  citizens  and  a  com- 
mittee. Colonel  Worthington,  whom  you  know,  was  at  the  head  of  it.  They  said 
they  would  smooth  out  all  the  difficulties,  and  we  essentially  took  possession 
of  the  land  we  wanted  and  continued  our  negotiations  with  the  owners  as  best 
we  could.    The  answer  as  to  time,  w^ould  be  the  latter  part  of  November,  1917. 

Mr.  Kearns.  What  property  does  the  Government  own  in  partnership  or  in 
conjunction  with  the  Alabama  Power  Co.? 

Colonel  Joyes.  What  property  does  it  own  in  partnership  with  the  Alabama 
Power  Co.? 

Mr.  Kearns.  Yes. 

('olonel  Joyes.  Absolutely  none,  sir. 

Mr.  Kearns.  What  properties,  then,  of  the  Alabama  Power  Co.  has  the 
(Jovernment  invested  money  in — any  place,  except  the  Warrior  plant  and  one 
of  the  transmission  lines? 

Colonel  Joyes.  For  every  bit  of  property  of  any  shape  or  description  for 
\\hicli  the  Government  spent  a  cent  the  title  is  vested  in  tlie  United  States 
absolutely. 

^Ir.  Kearns.  The  title  is  vested  in  the  United  States? 

Colonel  Joyes.  Absolutely. 

Mr.  Kearns.  How  much  money  did  the  Government  invest  in  properties 
that  were  at  that  time  owned  by  the  Alabama  Power  Co.  ?  How  much  did  you 
invest? 

Colonel  Joyes.  I  do  not  like  that  way  of  putting  it  I  could  not  answer  by 
Jigreeing  with  that  language.  We  did  not  invest  in  any  property  of  the 
Alabama  Power  Co. 

Mr.  Kearns.  The  Alabama  Power  Co. 

Colonel  JoY'Es  (interposing).  I  know  what  you  mean  and  I  am  only  trying 
to  be  exact  in  my  answer. 

Mr.  Kearns.  Then  why  not  answer  it? 

Colonel  Joyes.  We  put  in  the  neighborhood  of  a  little  over  $5,000,000  into 
equipment  and  structures,  which  under   the  contract  are  denominated  per- 


I 
I 


4 


Mi.  , 


1074 


MUSCLE  SHOALS  PROPOSITIONS. 


sonnlty  and  temporary,  which  are  located  on  hind  belonging  to  the  Alabama 
I'owerH'o.,  or  land  over  which  the  Alabama  Power  Co.  owns  an  easement  I 
think  that  is  as  good  a  reply  as  I  can  give  you  on  that. 

Mr.  Kearns.  The  real  estate  title,  however,  is  in  the  name  of  the  Alabama 
Power  Co.  at  this  time;  is  it  not? 

Ct)lonel  JOYES.  Yes,  sir;  but  we  are  not  claiming  any  real  estate  at  all.  We 
are  in  the  position  of  a  man  who  owns  an  automobile  in  another  man's 
garage. 

Mr.  Kearns.  You  claim  that  you  have  title  to  those  buildings  that  vou  con- 
structed  

Colonel  Jo  YES.  Absolutely. 

Mr.  Kearns  (continuing").  With  United  States  money? 

Colonel  Joyes.  Absolutely.  We  have  the  power  company's  statement  of  that 
the  power  company's  agreement  to  the  fact  that  that  shall  always  be  regarded 
as  personalty  and  not  subject  to  any  lien  they  may  set  up,  etc.,*  and  so  far  as 
It  IS  iwssible  shall  be  protected  against  former  liens,  etc.  B^irthermore  all 
property  is  required  to  be  prominently  marked  "United  States  property  "'and 
is  so  marked. 

Mr.  Kearns.  You  had  an  agreement,  or  you  had  a  clause  in  your  agreement 
or  contract  with  the  Alabama  Power  Co.,  that  when  vou  were  through  with 
this  property  you  were  to  sell  it  to  the  Alabama  Power  Co.  at  a  fair  value* 
is  that  right?  ' 

Colonel  Joyes.  Essentially  correct,  sir.  The  language  of  the  contract  of 
course,  will  throw  certain  shades  of  meaning  on  that,  but  that  is  essentially 
the  meaning  of  it. 

Mr.  Kearns.  The  contract  recites  a  fair  value,  does  it  not? 

Colonel  Joyes.  I  do  not  know.     I  will  have  to  look  it  up. 

Mr.  Kearns.  Well,  it  does. 

Colonel  Joyes.  I  think  it  does.     I  think  it  uses  that  expression. 

Mr.  Keabns.  Under  the  terms  of  this  contract,  were  the  arbitrators  to  deter- 
mine what  a  fair  value* would  be? 

Colonel  Joyes.  Yes,  sir.  I  had  better  answer  those  two  questions  together 
right  out  of  the  language  of  the  contract,  to  be  sure  that  there  is  no  misinforma- 
tion given  to  you.  In  the  first  section  of  article  22,  providing  for  the  sale  to 
or  purchase  by  the  contractor,  article  1  says,  "  at  the  value  fixed  by  arbitration 
as  hereinafter  provided."  The  second  section  says,  "  actual  cost  to  the  United 
States  of  the  Warrior  extension  " ;  section  3  says,  "  actual  cost  of  said  prop- 
erty " ;  section  4  says,  "  actual  cost  to  the  United  States  of  the  Warrior  exten- 
sion and  Warrior  substation  " ;  section  5-— there  was  no  value  stated  in  section 
5,  because  that  was  a  provision  for  removal  by  another  than  the  United  States ; 
section  6,  no  statement  as  to  the  value  there;  section  7  was  also  a  removal 
proposition,  and  nothing  said  about  the  value  until  you  get  down  to  the  last  line 
which  is  the  alternative,  and  there  it  says,  "fair  value  as  fixed  bv  arbitra- 
tion."   There  it  says  "  fair  value." 

Mr.  Kearns.  That  is  what  I  want  your  construction  of.  What  did  you  mean 
by  that? 

Colonel  Joyes.  All  right,  sir ;  I  will  get  to  that  in  a  moment. 

Mr.  Kearns.  Let  us  have  that  question  answered  here ;  that  is  what  I  want. 

Colonel  JoYEs.  All  right,  sir ;  I  get  your  point. 

Mr.  Kearns.  When  you  were  through  with  this  property,  the  Alabama  Power 
Co.  would  have  the  option  to  buy  it,  but  it  must  buy  it  at  the  fair  value 

Colonel  Joyes.  Yes,  sir. 

Mr.  Kearns.  Fixed  by  arbitrators. 

Colonel  Joyes.  Yes,  sir. 

Mr.  Kearns.  Now,  suppose  the  arbitrators  would  fix  a  value  below  what  the 
Government  thought  its  interest  was  worth,  would  it  not  have  a  right  to  go  into 
the  court  to  construe  what  was  a  fair  value? 

Colonel  Joyes.  Yes ;  as  to  the  right  to  go  into  court.  I  have  not  anything  to 
help  you  out  with  on  that  but  my  understanding. 

Mr.  Kearns.  How  would  you  determine  then  what  the  fair  value  would  be? 

Colonel  Joyes.  I  will  tell  you  what  I  think  the  fair  value  would  be,  and  I 
think  I  have  something  to  back  that  up.  It  would  be  somewhat  along  these 
lines.  The  arbitrators  would  try  to  decide  what  would  be  the  cost  at  the  time  of 
the  appraisal  or  arbitration. 

Mr.  Kearns.  Yes. 

Colonel  Joyes.  What  would  be  the  cost  under  the  conditions  prevailing  then 
of  reproducing  the  plant  in  toto  as  it  stood.    That  would  be  the  fair  reproduc- 


MUSCLE  SHOALS  PROPOSITIONS. 


1075 


IT  ^1     'u-1  '/  ''"'V^'^  Jif  technically  called,  and  the  repr<Khiction  value  would 
then  be  subject,  under  the  usual  rules  of  construction,  to  a  deduction  to  allow 
for    he  wear  and  tear  of  the  plant  due  to  the  use  which  it  had  a^^eadv  had. 
In  other  words  take  the  present  day.  for  example,  we  would  go  out  and  find  out 
if  we  were  arbitrating  it,  what  would  be  the  cost  of  building  that  plant  right 

TZ\Zto  ^^^(^'W^r^?.  ^""'^  ^'^'?i  ^^'^^  ^^  materials.  Supix>si  it  woSld 
amount  to  $3,000,000.  Then  we  would  say,  "  How  long  has  it  been  in  service  " 
and  let  us  say  three  or  four  years,  or  whatever  it  might  be,  and  we  will  sav  a 
plant  of  this  nature  by  the  establishe<l  rules  depreciates  so  much  per  cent  'per 
annum  and  suppose  we  would  say  7  or  8  per  cent  per  annum,  three  times  that 
i'o^JiliJ  ^^  -^  ^^  ^'^  P^^  ^^^*'  ^"^  ^e  would  lop  off  21  or  24  per  cent  of  our 
$3^000  and  then  we  would  have  the  fair  residual  value  at  this  time  Now 
I  think  It  would  also  be  in  order  for  the  arbitrators  to  consider  whether  the 
product  the  plant  was  to  make  was  still  in  demand  in  the  market  In  thi« 
case,  I  do  not  see  how  they  could  fail  to  say  that  there  was  a  splendid  demamf 
for  It,  and  yet  in  some  other  cases,  for  example,  steel,  if  somebody  had  a  steef 
furnace  made  on  this  same  set-up,  they  might  very  well  knock  something  off  of 
that  fair  reproduction  value  because  of  the  fact  that  the  market  was  so  bad 
lou  see  my  point  there.  •. 

Mr.  Kearns.  Yes. 

Colonel  Joyes.  And  I  think  that  Is  a  legitimate  rule  of  procedure  T  think  it  is 
one  that  would  be  followed  and  there  would  be  ample  justification  and  precedent 
for  it. 

Mr.  Kearns.  Do  you  know  anything  about  the  Ford  offer  for  this  pronertv 
down  there?  *     i    *^.^ 

Colonel  Joyes.  I  have  read  it  as  it  appeared  in  the  hearings   sir 
Mr.  Kearns.  Is  it  necessary  for  Ford  to  have  the  Warrior  plant  or  the  nron- 
there^^**^  ^^^^"^  ^^  *^^  Alabama  Power  Co.,  in  order  to  operate  his 'project  dow'n 

Colonel  Joyes.  I  do  not  so  consider  it.  To  develop  the  full  product  of  the 
nitrate  plant  No.  2  as  we  calculated  it  and  designed  it  would  require  more 
power  than  is  now  provided  for  in  the  equipment  of  the  power  plant  at  No  ">  nitrate 
plant,  but  having  that  in  mind  during  the  construction  period,  and  desirin**  to 
have  the  plant  itself  as  free  as  possible  of  any  interruption  from  the  outside 
and  not  dependent  upon  a  long  transmission  line  or  anything  of  that  kind  and 
furthermore,  because  we  thought  we  could  make  the  power  cheaper  in  the  one 
plant  at  Muscle  Shoals  if  we  continued  to  operate  it  for  any  considerable  time 
we  changed  the  plant  of  the  power  house  at  the  No.  2  nitrate  plant  before  it  got 
very  far  going ;  that  is,  in  the  early  part  of  1918,  and  in  addition  to  building 
It  with  ample  room  for  the  machinery  that  is  now  in  it;  that  is,  60,000  kilowatt 

nnH''/ooSS^''M^'  '^1^^^*  Pu"^y  ""^  '*'''''"  ^^^^^  ^^'^  «»  additional  power 
unit  of  30,000  kilowatts  or  perhaps  more,  which  would  give  the  plant  ample  power 
machinery  for  all  its  rated  capacity,  and  we  put  in  three  additional  boilers 
also,  so  that  there  w^ould  be  ample  steam  to  take  care  of  that  The  plant  is 
liberally  hollered  for  not  only  the  unit  that  is  now  in  place  but  for  a  30  000 
kilowatt  unit  in  addition,  I  believe.  I  am  not  a  powder  expert,  but  I  have  heard 
It  discussed  by  those  who  are,  and  they  told  me  that  they  considered  that  it  was 
liberally  hollered  for  an  ultimate  90,000  kilowatts.  Furthermore  there  is  the 
water  power  expected  from  the  Tennessee  River. 

Mr.  Kearns.  Now,  there  is  just  one  other  question,  Colonel,  I  want  to  ask  vou 
and  it  is  foreign  to  the  questions  I  have  been  asking.    This  may  be  in  the  record 
many  times,  but  I  do  not  recall  it.    Under  the  contract  that  you  entered  into 
with  the  Alabama  Power  Co.,  you  were  to  pay  61  mills  per  kilowatt  hour  for 
power,  were  you  not? 

Colonel  Joyes.  We  were ;  yes,  sir. 

Mr.  Kearns.  How  did  that  compare  with  the  price  the  Alabama  Power  Co 
was  charging  its  other  customers? 

Colonel  Joyes.  I  could  not  give  you  a  comparison  at  this  moment  that  would 
be  accurate  enough  to  be  worth  anything,  but  I  am  satisfied  that  it  was  all 
nght.  I  think  it  was  cheap  compared  with  their  general  schedule.  It  is  a 
very  difficult  and  complex  matter  to  compare  those  rates,  and  I  caii  not  sav 
at  the  moment  really  anything  that  would  be  worth  while.  You  see  it  depends 
upon  the  demand,  and  it  depends  upon  the  quantity,  etc.  When  I  say  the 
aemand,  I  mean  we  are  flatly  and  absolutely  entitled  to  30,000  kilowatts  there 
li^r  .  ^!*^^^-  ^^^''  w^  "^^y  take  5,000,  we  may  take  25,000,  and  we  have  no 
restrictions  on  that  at  all.  That  is  a  very  favorable  point  for  the  United  States 
we  can  demand  up  to  30,000  kilowatts  any  time  we  want  it,  and  insist  upon 


I 


1076 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


1077 


m^ 


haviiig  it,  but  we  are  not  tied  up  to  take  any  considerable  amount.  We  may 
take  at  the  rate  of  5,000  at  this  minute  and  later  on  in  the  afternoon  we  may 
be  taking  25,000.  Now,  the  private  customer  would  pay  for  that  and  would 
pay  for  it  hard.  I  have  sten  power  contracts,  I  was  looking  at  three  of  them 
the  other  day  and  made  some  notes  on  them  to  refresh  my  recollection,  if 
necessary,  and  they  were  contracts  where  the  Government  assisted  in  financing 
additions  to  the  plants.  There  was  the  West  Penn,  the  Duquesne  and  another 
company,  the  name  of  which  I  have  forgotten. 

Their  prices  were  stated  and  two  of  them  were  7.3  mills  and  one  of  them  8 
mills  i^er  kilowatt  hour,  but  in  each  of  the  three  cases  it  was  stated  that  that 
was  the  price  on  a  100  per  cent  load  factor.  Now,  that  means  that  if  the 
United  States  has  a  right  to  take  30,000  kilowatts  it  has  got  to  take  as  much 
as  30,000  kilowatts  or  else  it  pays  higher  for  it,  and  those  contracts  stated  that 
if  that  load  factor  was  not  lived  up  to — if  the  United  States  took  power 
at  any  other  load  factor,  then  they  would  pay  such  higher  rate  for  the  power 
other  than  that  stated  in  their  contract  as  the  published  schedules  provided  for 
the  reduced  load  factor.  Now,  that  is  the  usual  practice  because,  of  course,  if 
you  have  money  tied  up  in  a  dam,  you  have  got  to  figure  on  selling  and  making 
contracts  to  sell  power,  and  if  you  contract  to  satisfy  people,  according  to 
their  demands,  for  all  your  capacity,  you  want  to  sell  it.  It  is  perfectly  right 
and  proper  and  it  is  always  recognized.  That  was  the  situation.  There  were 
some  other  provisions  in  our  contract  as  to  that  rate,  and  I  could  not  let  it 
pass  without  telling  you  of  them,  while  we  are  about  it.  That  rate  was  based 
upon  a  stated  cost  for  coal  of  a  given  quality  and  was  liable  to  be  changed  if 
the  coal  increased  in  price  a  certain  amount.  Those  provisions  are  all  in  the 
contract  which  you  have  before  you  and  that  w^as  reasonable.  Nobody  could 
foresee  what  the  prices  were  going  to  be  for  the  next  10  years,  and  so  it 
was  left  in  that  way.  The  United  States  has  a  chance  to  call  for  arbitration  on 
that  power  rate,  also,  I  believe,  if  the  price  of  coal  should  go  down. 

Mr.  Miller.  Colonel,  you  state  that  the  first  you  ever  heard  of  the  Alabama 
Power  Co.  was  when  you  returned  to  Washington  and  you  ascertained  that  the 
American  Cyanamid  Co.  was  to  build  a  plant  for  the  Government. 

Colonel  JoYES.  Yes,  sir ;  except  that  I  had  heard  the  name. 

IVIr.  Miller.  About  when  was  that? 

Colonel  JoYEs.  That  was  about  early  in  November.  I  am  afraid  I  heard  you 
rather  incorrectly.  The  first  I  heard  of  the  Alabama  Power  Co.  in  a  business 
way  at  all  was  in  the  early  part  of  November  or  the  end  of  October. 

Mr.  Miller.  What  year? 

Colonel  Joyes.  1917;  when  I  first  heard  them  mentioned  by  the  American 
Cyanamid  Co.  in  its  propositions.  I  had  read  the  name,  but  I  had  paid  no 
attention  to  it  before  that. 

Mr.  Miller.  At  this  time  there  was  no  nitrate  plant  building  or  under  con- 
struction, except  the  nitrate  plant  authorized  by  the  national  defense  act 
of  1916. 

Colonel  Joyes.  No.  1;  yes,  sir. 

Mr.  Miller.  It  does  not  say  No.  1  or  No.  2,  but  simply  nitrate  plant. 

Colonel  Joyes.  I  understand  what  you  mean ;  yes,  sir ;  that  is  correct. 

Mr.  Miller.  There  was  $20,000,000  available  for  the  construction  of  a 
nitrate  plant  and  at  the  disposal  of  the  President  under  that  act? 

Colonel  JoYES.  That  was  the  original  appropriation ;  yes,  sir. 

Mr.  Miller.  That  was  long  prior  to  our  getting  into  the  war? 

Colonel  Joyes.  Yes,  sir. 

Mr.  Miller.  I  wish  you  would  state  where  that  $20,000,000  went — what  i^ 
went  into — that  is,  the  original  appropriation  under  the  national  defense  act. 

Colonel  Joyes.  You  will  understand  I  had  not  complete  control  of  the 
$20,000,000. 

Mr.  Miller.  When  you  came  into  possession  of  the  nitrate-production  propo- 
sition? 

Colonel  JoYEs.  I  can  tell  you  this  in  a  general  way.  I  think  you  will  find 
it  has  already  been  put  in  the  record  of  this  committee  earlier  where  it  was 
disposed  of,  and  I  am  sure  it  is  all  in  the  record  of  Mr.  Graham's  committee 
But  in  a  general  way  I  am  right  on  this  knowledge,  that  in  the  neighborhood 
of  $3,000,000  or  ,$3,500,000  was  spent  by  me  in  nitrate  plant  No.  1,  near 
Sheffield ;  some  considerable  portion  of  it,  but  not  much  in  present-day  ^'^- 
ures,  say,  not  over  a  million,  I  should  say,  was  spent  in  incidental  exijens*'?^ 
of  investigations  here,  there,  and  everywhere  by  me  or  my  successor  in  the 
nitrate  division ;  and  about  something  like  $14,000,000  or  so  was  turned  over 


to  the  Engineer  Corps  for  use  on  the  Wilson  Dam.  That  is  about  all  I  know 
at  the  moment  or  could  say  in  answer  to  your  question  now,  sir.  That  is 
essentially  a  broad  statement ;  correct,  but  bioad.  Some  of  it  is  still  unspent 
now.  a  little  amount. 

Mr.  Miller.  Nitrate  plant  No.  1  cost  in  the  vicinity  of  $13,000,000— some- 
where around  that  sum? 

Colonel  JoYEs.  Around  that,  sir,  meaning  by  that  the  entire  establishment. 

Mr.  Miller.  That  has  a  power  plant  connected  with  it,  has  it  not? 

Colonel  Joyes.  It  has  a  small  power  plant,  about  5,000  kilowatt  capacity 

Mr.  Miller.  Sufl3cient  to  run  it? 

Colonel  Joyes.  Sufficient  to  run  it;  planned  for  that.  There  is  no  use  in 
qualifying  it,  conditions  as  to  what  would  run  it  successfullv  were  uncertain 
but  it  was  designed  for  that  plant  specifically.  "  ' 

Mr.  Miller.  That  was  built  some  time  before  the  plant  was  constructed' 

Colonel  Joyes.  It  was  started  in  the  fall  of  1917. 

Mr.  Miller.  I  have  not  very  clearly  in  my  mind  the  necessity  of  this  War- 
rior extension ;  that  is,  the  purpose  it  was  to  serve. 

Colonel  Joyes.  If  T  do  not  hit  the  point  that  is  bothering  vou,  please  let  me 
know. 

Mr.  Miller.  I  will  let  you  know. 

Colonel  Joyes.  The  thing  is  this,  in  putting  up  the  Muscle  Shoals  nitrate 
plant 

Mr.  Miller  (interposing).  Which  one? 

Colonel  Joyes.  No.  2,  the  only  one  I  call  the  Muscle  Shoals  nitrate  plant— 
we  were  going  to  have  a  plant  to  produce  110,000  tons  of  ammonium  nitrate 
per  year.  The  contractor  said  that  he  estimated  or  believed  that  he  could 
build  that  plant  and  have  it  in  condition  to  be  producing  at  one-half  its  rated 
capacity  in  six  months  from  the  date  of  breaking  ground.  That  does  not  neces- 
sarily mean  a  half-completed  plant,  but  it  means  it  would  be  working  at  the 
rate  of  one-half  of  its  rated  capacity.  They  said  that  would  require,  as  best 
they  could  estimate  it  for  us  at  that  time,  around  30,000  kilowatts,  or  a  little 
more  than  that.  We  now  think  it  would  take  a  little  more,  but  that  was  about 
what  we  were  figuring  on  at  that  time;  and  the  point  was  how  to  get  power 
for  that  first  half  production  six  months  after  breaking  ground  for  the  plant. 
You  could  not  build  a  large  power  plant  in  that  time.  We  were  convinced  of 
that.  You  have  too  many  things  to  do ;  you  have  the  excavation  of  the  ground 
and  you  have  to  make  the  plans,  and  all  that  sort  of  thing.  So  we  were  con- 
vinced that  Mr.  Washburn's  suggestion  was  a  very  wise  one — that  we  tap  into 
the  Alabama  Power  Oo.'s  system,  where  they  had  already  some  power,  so  that 
by  the  time  our  nitrate  plant  would  be  ready  for  its  first  supply  they  would  be 
able  to  give  us  some  power  out  of  their  system ;  and  meanwhile,  with  our  addi- 
tion to  their  plant  they  w^ould  be  prepared  to  make  that  supply  continuously 
available  to  us.  So  we  went  down  and  contracted  with  them  for  the  power, 
and  put  in  the  addition  and  the  transmission  line. 

Mr.  Miller.  Could  you  not  have  built  the  power  plant  at  nitrate  plant  No.  2 
as  quickly  as  you  could  build  one  on  the  Warrior  River? 

Colonel  Joyes.  I  have  not  the  slightest  doubt,  if  you  started  under  the  same 
conditions  and  built  the  same  kind  of  a  plant,  that  you  could  do  that. 

Mr.  Miller.  You  could  have  built  the  plant  up  there,  as  you  subsequently  did 
build  it,  just  as  quickly  as  you  could  have  built  it  on  the  Warrior  River  and 
built  88  miles  of  transmission  line? 

Colonel  Joyes.  Provided  you  had  the  same  kind  of  plant  started  under  the 
same  conditions.    But  neither  of  those  provisos  was  realized. 

Mr.  Miller.  You  say  it  was  Mr.  Washburn's  suggestion  that  you  go  down 
there  and  get  in  connection  with  the  Alabama  Power  Co.  ? 

Colonel  Joyes.  That  was  his  suggestion,  sir. 

Mr.  Miller.  And  Mr.  W^ashburn  is  connected  with  the  American  Cyanamid 
Co..  you  say? 

Colonel  Joyes.  Yes,  sir. 

Mr.  Miller.  And  likewise  his  company,  or  a  subsidiary  of  his  company,  had 
the  contract  for  building  nitrate  plant  No.  2? 

Colonel  Joyes.  Yes,  sir. 

Mr.  Miller.  So  you  abided  by  that  suggestion  and  went  down  on  the  Warrior 
River  and  got  into  negotiation  with  the  Alabama  Power  Co.? 

Colonel  Joyes.  Yes,  sir. 

Mr.  Miller.  How  many  acres  of  land  is  there  at  the  power  plant,  or  the 
WaiTior  River  iK)wer  plant,  owned  by  the  Alabama  Power  Co.,  on  which  this 
Warrior  plant  stands? 


1078 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


1079 


Colonel  Jo  YES.  I  do  not  know. 
Mr.  \liLLt:R.  Approximately? 

Colonel  JoYEs.  I  should  say  in  all  probably  they  have  a  thousand  acres  or  so 
Mr.  Miller.  And  the  plant  occupies  but  a  small  portion  of  that,  I  suppose*^ 
Colonel  JoYES.  That  is  so.    Of  course,  we  spread  over  and  touch  upon  quite  a 
little  piece  of  it.     I  might  have  brought  up  the  plan  to  show  you  that,  but  here 
was  the  Alabama  Power  Co.'s  original  power  plant  [illustrating],  and  we  built 
alongside  of  it,  an  addition  to  it.    Then  they  had  an  outdoor  electrical  switch- 
ing station  that  set  over  here  [illustrating],  and  we  had  to  put  something  onto 
that.    Then  we  had  to  build  some  trackage  around  there  in  order  to  get  coal 
into  our  extension  and  to  get  the  ashes  out  of  it,  and  then  there  are  a  number 
of  auxiliary  buildings  that  were  about  there,  and  they  run  up  the  hill,  along  in 
the  neighborhood  of  one  of  the  housing  districts  that  the  Alabama  Power  Co 
had  provided.    Of  course,  that  was  the  logical  thing  to  do. 
Mr.  Miller.  It  was  necessary  to  repair  the  railroad  to  get  into  it,  too,  was  it 

Colonel  JoYEs.  Yes,  sir. 

Mr,  Miller.  You  went  down  there  and  entered  into  this  contract  for  the  con- 
struction of  the  extension  to  their  power  house,  an  extension  that  was  larger 
than  their  original  power  house? 

Colonel  JoYEs.  That  is  correct. 

Mr.  Miller.  About  one-quarter  larger? 

Colonel  JoYEs.  Yes,  sir ;  about  that,  I  should  say. 

Mr.  Miller.  Their  power  house  had  a  capacity  of  generating  about  25,000 
kilowatts,  did  it  not? 

Colonel  JoYEs.  Somewhere  in  that  neighborhood. 

Mr.  Miller.  And  the  one  the  Government  erected  was' capable  of  generatine 
about  33,000  kilowatts?  ^ 

Colonel  Joyes.  Thirty  thousand,  or  about  that  amount. 

Mr.  Miller.  Comparing  the  two  plants,  if  we  may  so  speak  of  them,  the  one 
financed  by  the  Government  and  constructed  by  the  Government  was  the  larger 
one  of  the  two? 

Colonel  .Toyes.  Yes,  sir.    - 

Mr.  MirxER.  In  the  first  place  you  entered  into  a  contract  at  6  per  cent  with 
a  maximum  commission  of  $225,000? 

Colonel  Joyes.  Yes,  sir. 

Mr.  Miller.  And  we  paid  them  $60,000  to  go  on  their  land,  in  the  first  place' 

Colonel  Joyes.  We  paid  them  $60,000,  which  was  defined  in  the  contract  as 
overhead  expenses  and  compensation  for  the  use  of  the  land  and  facilities 
and  so  forth.  ' 

Mr.  Miller.  Then  we  put  in,  or  you  say  you  expected  originally  to  put  in 
about  $2,500,000?  &         j         put  m 

Colonel  Joyes.  No,  sir ;  I  do  not  think  I  said  that 

Mr.  Miller.  Or  $2,250,000? 

Colonel  Joyes.  I  mentioned  that  figure,  but  I  do  not  think  I  said  that  was 
what  we  expected  to  put  in.  That  figure  was  mentioned  in  the  letter  of  the 
Alabama  Power  Co.  as  what  they  had  figured  they  might  put  in  an  addition 
which  they  had  under  contemplation,  and  which  they  thought  would  insure 
a  supply  of  power. 

Mr.  Miller.  Up  to  this  time  had  you  had  any  considerable  experience  in 
contracts  of  this  character,  or  business  negotiations  of  this  character *> 

Colonel  Joyes.  Nothing  of  this  character;  I  guess  nobody  had. 

Mr.  Miller.  Up  to  this  time  you  were  a  novice  at  this  kind  of  work^ 

Colonel  Joyes.  Yes,  sir;  but  not  in  business.  I  have  been  doing  a  good 
deal  of  business  for  the  Ordnance  Department  for  a  good  many  years 

Mr.  Miller.  I  mean  things  of  this  character. 

Colonel  Joyes.  Yes,  sir ;  this  was  quite  a  novel  character  of  work  for  every- 
body. 

Mr.  Miller.  You  say  one  of  the  reasons  you  did  this  was  because  you  could 
not  see  your  way  clearly  to  acquire  land.  What  is  the  sequence  of  time  in 
which  you  acquired  the  land  for  the  construction  of  nitrate  plant  No  2  at 
Muscle  Shoals,  as  compared  to  the  time  you  went  into  this  arrangement  with 
the  Alabama  Power  Co.  on  their  land? 

Colonel  Joyes.  We  took  the  land  at  the  nitrate  plant,  took  possession  of 
it,  before  we  had  gone  into  the  Alabama  power  work  at  all. 

Mr.  Miller.  You  had  by  some  means  or  other  acquired  the  land  on  which 
to  build  this  nitrate  plant  No.  2  at  Muscle  Shoals? 


Colonel  Joyes.  Yes,  sir. 

Mr.  Miller.  But  you  had  no  means  of  acquiring  the  land  on  which  to  build 
this  extension? 

Colonel  Joyes.  I  do  not  believe  I  said  that,  sir. 

Mr.  Miller.  I  am  asking  you  that. 

Colonel  Joyes.  I  mean  to  say  that  would  be  an  inaccurate  statement;  I 
might  have  said  it.  The  i)oint  is  this :  I  do  not  mean  to  say  it  would  have  been 
an  altogether,  utter  impossibility  for  me  to  acquire  land  and  take  it  away 
from  the  Alabama  Power  Co.,  or  buy  it  from  them,  provided  I  had  used  the 
money  out  of  the  national  defense  act,  which  I  did  not  want  to  do. 

And,  again,  there  were  other  considerations  than  the  actual  ability  to  find 
a  way  to  buy  and  pay  for  the  land.  There  was  the  question,  for  one  thing, 
whether,  if  we  made  a  power  house  down  there.  Did  we  want  to  own  the 
land?  I  thought  not — wisely  or  wrongly — I  thought  not.  I  think  that  it  was 
better  not  to  be  tied  up  with  the  ownership  of  land.  And,  then  again,  we 
had  other  things  than  the  land  to  buy  there.  It  was  a  question  of  the  facilities 
which  they  had  built  underground,  and  various  other  things,  more  or  less 
tangible,  and  some  of  them  intangible,  that  all  tied  in  together  and  gave  us 
what  we  wanted  there — the  ability  to  get  quickly  additional  facilities  for  pro- 
ducing power. 

Now,  another  thing:  There  was  on  the  transmission  line  a  great  deal  of  work 
involved  to  get  the  right  of  way.  There  were  a  great  many  ownerships  and 
if  the  Government  had  gone  down  there  we  would  have  had  to  go  ahead 
and  dicker  with  the  people,  many  people  through  that  country,  a  country  that 
was  unfamiliar  to  us.  The  power  company's  people  knew  the  country,  they 
had  worked  through  it  before,  and  they  had  certain  powers  under  the  State 
laws  to  commandeer  it  and  could  get  the  right  of  way  with  very  little  trouble, 
and  they  knew  how  to  do  it,  and  they  could  get  it  cheap  whereas  it  would 
have  cost  us  a  great  deal.  We  would  have  had  to  build  up  an  organization 
in  order  to  do  it,  and  we  would  have  had  some  trouble  about  it.  I  do  not  say 
that  is  a  vital  reason,  because  trouble  was  a  thing  we  did  expect  to  take ;  but 
we  had  to  think  about  what  the  possibilities  were  for  timely  accomplishment, 
and  we  had  to  give  that  a  certain  weight ;  that  is,  whether  we  could  actually 
physically  accomplish  the  job  within  the  proper  time  or  not. 

Mr.  Miller.  You  contracted  with  the  Alabama  Power  Co.  as  the  agents  of 
the  United  States  Government  to  do  these  things,  did  you  not? 

Colonel  Joyes.  I  did  not  know  that  we  made  that  an  agency  contract;  I  had 
forgotten  that,  if  we  did.  I  believe  we  simply  employed  them  as  the  contrac- 
tor to  build  it. 

Mr.  Miller.  I  think  you  will  find  it  the  way  I  stated. 

Colonel  Joyes.  It  may  be  it  is  an  agency  contract  and  I  may  be  wrong.  We 
called  them  contractors  in  the  contract,  I  think.  Are  you  not  thinking  of  the 
Air  Nitrates  Corporation  contract?  They  are  agents.  These  people  are  not 
agents  and  never  were;  they  were  simply  contractors.  I  do  not  think  you 
will  find  the  w^ord  agent  in  there. 

Mr.  Miller.  Let  me  refresh  your  memory  a  little  bit  on  that. 

Colonel  Joyes.  It  may  be  they  are  and  I  may  be  wrong  about  it. 

Mr.  Miller.  Turn  to  article  2  of  the  contract. 

Colonel  JoYES.  Article  2? 

Mr.  Miller.  Yes.  It  says :  "  Upon  the  approval  of  the  contracting  officer  of 
said  plans  and  specifications  for  the  Warrior  extension  and  the  Warrior  sub- 
station or  any  part  thereof,  the  contractor  shall  as  the  agent  for  and  at  the 
expense  of  the  United  States  " 

Colonel  Joyes  (interposing).  Where  is  that  paragraph? 

Mr.  Miller.  That  is  in  article  2. 

Colonel  Joyes.  "  New  facilities  at  Warrior  station." 

Mr;  Miller.  Yes ;  the  last  paragraph  of  that  article. 

Colonel  Joyes.  I  see ;  you  are  right  and  I  am  wrong  about  that. 

Mr,  Miller.  Let  me  call  your  attention  to  the  next  paragraph,  article  3, 
which  says :  "  The  contractor  shall,  subject  to  the  approval  of  the  contracting 
oflicer,  but  at  the  sole  expense  of  the  contractor."  There  is  a  vast  difference 
between  those  two. 

Colonel  JoY'ES.  Yes,  sir. 

Mr.  Miller.  Let  me  proceed  farther  in  section  3,  at  the  top  of  page  148  of 
the  printed  hearing,  where  it  says,  "  upon  the  approval  by  the  contracting  oflicer 
of  the  said  plans  and  specifications  or  any  part  thereof,  the  contractor  shall  as 


I 


1080 


MUSCLE   SHOALS  PROPOSITIONS. 


the  n^ent  and  at  the  expense  of  the  United  States  furnish  all  the  labor,  material, 
tools,  machinery,  equipment,  facilities,  and  supplies,  and  do  all  things  neces- 
sary to  clear  so  much  of  said  right  of  way,"  etc. 

Colonel  Jo  YES.  My  memory  is  at  fault,  unquestionably.  I  had  not  remem- 
bered that  there  was  a  mention  of  the  word  "  agent "  in  the  whole  contract. 
Mr.  Miller.  Let  me  refer  you  also  to  paragraph  3  of  the  same  article,  where 
it  says,  "  Upon  the  approval  by  the  contracting  officer  of  such  plans  and  speci- 
fications the  contractor  shall,  as  the  agent  for  and  at  the  expense  of  the  United 
States,  likewise  construct  the  quarry  main  line  on  a  right  of  way  to  be  pro- 
vided by  and  at  the  expense  of  the  United  States." 

Now,  everything  down  there,  Colonel  Joyes,  in  connection  with  the  Warrior 
steam  plant  was  on  the  property  of  the  Alabama  Power  Co.,  either  what  it 
then  had  or  what  was  subsequently  acquired. 

Colonel    JoYES.  Everything   denominated,   everything   covered   by    the    term 
"  Warrior  extension,  and  Warrior  substation  and  the  transmission  line,"  becau.se 
that  was  on  their  easement ;  but  not  the  Muscle  Shoals  substation. 
Mr.  Miller.  No. 

Colonel  Joyes.  That  was  the  only  exception. 
Mr.  MiLTJjR.  That  was  on  our  own  land. 
Colonel  Joyes.  That  was  on  our  own  land,  sir. 
Mr.  Miller.  I  wonder  why  that  was. 

Colonel  JoYEs.  That  was  at  the  Muscle  Shoals  end  of  the  line.  One  of  the  sub- 
stations was  at  the  place  where  the  power  was  produced  and  stepped  up  in  its 
voltage,  so  it  could  travel  along  the  line — like  an  elevator  carrying  the  voltage 
up.  Then,  at  the  other  end  there  had  to  be  another  elevator  to  carry  it  down, 
or  step  it  down,  and  that  was  on  our  property. 

Mr.  Miller.  The  first  was  on  the  property  of  the  Alamaba  Power  Co.  and  the 
other  was  on  the  property  of  the  United  States? 

Colonel  Joyes.  Yes;  those  are  transformer  stations  where  the  voltage  of  the 
current  was  stepped  up  so  as  to  travel  along  the  line  for  a  long  distance. 

Mr.  Mn.LER.  Yes;  I  understand  all  that.  Do  you  think  that  was  a  good 
business  proposition? 

Colonel  Joyes.  I  think  so :  as  good  as  could  be  expected  under  the  circum- 
stances of  the  war.  It  was  a  good  contract  for  the  war  period,  and  compared 
ffi"vorably  with  any  other. 

Mr.  Miller.  That  was  your  first  contract;  you  had  never  had  had  any  experi- 
ence in  such  matters  before? 

Colonel  Joyes.  I  am  quite  ready  to  admit  that,  but  I  think  it  was  doing 
pretty  well  for  the  first  time,  however  that  may  be. 
Mr.  Miller.  We  may  have  our  differences  of  opinion  on  that. 
Colonel  Joyes.  Yes. 

Mr.  Miller.  I  am  the  person  who  said  it  was  an  unconscionable  contract. 
Colonel  Joyes.  Very  well,  sir.    I  consider  it  a  good  one. 
Mr.  Miller.  So  we  may  frankly  understand  each  other. 
Colonel  Joyes.  Very  well,  sir. 

Mr.  Miller.  We  were  going  to  buy  this  product,  we  put  in  $5,000,000,  or  ap- 
proximately $5,000,000,  and  were  to  buy  the  electricity  from  them  at  a  price 
of  6^  mills  per  kilowatt  hour. 
Colonel  Joyes.  Quite  right,  sir. 

Mr.  MiiXER.  Approximately  what  was  the  company  charging  other  customers, 
so  far  as  you  know? 

Colonel  Joyes.  I  could  not  give  you  any  information  on  that  at  the  present 
moment.    I  have  been  separated  from  the  business  too  long  to  remember  it. 
Mr,  Miller.  You  can  see  the  deep  significance  of  that,  can  you  not? 
Colonel  Joyes.  See  what? 

Mr.  Miller.  We  were  simply  buying  electricity  down  there. 
Colonel  Joyes.  Not  quite  that. 
Mr.  Miller.  What  were  we  doing? 

Colonel  .Toyes.  Because  you  have  other  provisions  in  that  contract,  in  this 
way.  We  built  the  plant;  yes.  But  did  we  give  them  the  free  use  of  it?  No; 
they  rented  it  from  us.  They  paid  us  back,  or  were,  under  the  contract,  to  pay 
us  back  if  the  contract  had  been  operative,  for  the  supply  of  power ;  if  we 
had  not  stopped,  they  were  to  pay  us  interest  at  6  per  cent  per  annum  upon  the 
total  cost  of  what  we  had  spent  down  there — not  any  estimated  reduced  value, 
but  our  actual  expenses.  They  were  to  pay  6  per  cent  per  annum  on  that.  You 
will  find  that  fully  set  down  in  the  contract ;  and  if  you  will  turn  to  it,  you 
will  find  it  in  article  17,  "  Payments  by  contractor." 


MUSCLE   SHOALS  PROPOSITIONS. 


1081 


Mr.  Miller.  Now,  then,  that  6  per  cent  proposition  was  only  payable  so  long 
as  the  Alabama  Power  Co.  furnished  power  for  those  nitrate  plants. 

Colonel  Joyes.  Absolutely  not  both,  sir;  there  is  no  mention  of  both  nitrate 
plants  in  that  connection,  bearing  that  significance,  and  inevitably  having  that 
meaning.  It  says,  "  so  long  as  the  United  States  shall  require  the  contractor  to 
suppy  energy  to  the  United  States  for  the  operation  of  either  or  both  of  said 
nitrate  plants  " ;  that  is  a  different  thing.  It  goes  on,  "  the  contractor  shall  pay 
to  the  United  States  monthly  for  the  use  of  the  Warrior  extension  and  Warrior 
substation  interest  at  the  rate  of  6  per  cent  per  annum  upon  the  actual  cost  to 
the  United  States  of  said  extension  and  substation."    That  is  the  essence  of  that. 

Then,  paragraph  2  of  the  same  article  says,  "  during  such  period  as  the  con- 
tractor may,  under  the  provisions  of  article  21,  be  relieved  of  said  monthly 
payments  the  contractor  shall  pay  to  the  United  States  monthly,  in  lieu  of  said 
monthly  payments,  one  and  one-half  mills  for  each  kilowatt-hour  of  energy  pro- 
duced by  the  contractor  at  the  Warrior  extension."  Furthermore,  when  we 
were  taking  power  from  the  contractor  at  more  than  $30,000  worth  per  month 
we  were  to  receive  from  the  contractor  two  mills  toward  the  purchase  price. 
There  you  have  payments  consisting  of  interest  on  the  actual  cost  of  the  invest- 
ment, and  also  an  amortization  payment ;  and  also,  the  tenant,  so  to  speak,  was 
to  attend  to  all  the  upkeep  and  insurance.  So  that  essentially  put  them  in  the 
position  of  a  tenant  who  rents  from  you  something  that  you  own  at  a  fair 
rental  for  it  and  is  therefore  entitled  to  sell  you  the  product  of  that  plant  just 
as  if  he  owned  the  plant.    I  do  not  think  there  is  any  other  construction  to  be 

put  upon  it.  ... 

Mr.  Miller.  Let  me  read  some  portions  of  section  17.  It  says,  "beginning 
at  the  termination  of  the  period  of  the  preliminary  operation  mentioned  in 
article  14,  and  so  long  as  the  United  States  shall  require  the  contractor 
to  supply  energy  to  the  United  States  for  the  operation  of  either  or  both" 

Colonel  Joyes   (interposing).  Either  or  both. 

Mr.  Miller  (continuing).  "Of  said  nitrate  plants,  the  contractor  shall  pay  to 
the  United  States  monthly  for  the  use  of  the  Warrior  extension  and  Warrior 
substation  interest  at  the  rate  of  6  per  cent  per  annum  upon  the  actual  cost 
to  the  United  States  of  said  extension  and  substation."  Do  you  mean  to 
say  that  a  limitation  of  that  kind  does  not  apply  only  to  the  period  when  they 
shall  furnish  power  for  one  or  both  of  those  stations? 

Colonel  Joy'Es.  I  never  said  that. 

Mr.  MiLLFJi.  That  is  what  I  said. 

Colonel  Joyes.  You  said  there  was  a  limitation  on  there  when  they  were 
to  furnish  power  for  the  operation  of  both  nitrate  plants. 

Mr.  Miller.  Both  or  one  of  them.  I  said  both  where  I  should  have  said 
both  or  one  of  them. 

Colonel  JoYES.  I  have  to  look  out  what  the  meaning  of  my  reply  is,  so 
that  I  will  not  be  misunderstood.     Let  us  take  the  language  of  the  contract. 

Mr.  Miller.  We  understand  each  other.  You  need  not  be  afraid  of  that.  I 
am  asking  you  if  under  that  contract  the  $30,000  a  month  is  only  payable 
during  the  period  when  we  are  furnished  power  for  one  or  both  of  those 
plants? 

Colonel  JoYES.  The  $30,000  per  month,  which  is  the  minimum  payment 
which  we  undertake  to  make,  is  only  i>ayable  when  we  are  exercising  our 
demand  for  power,  and  that  demand  may  be  exercised  in  several  ways,  and 
without  remembering  the  exact  langimge.  I  am  sure  the  contract  carries  this 
meaning,  that  whatever  use  the  United  States  may  make  of  the  ix)wer  which 
it  chooses  to  set  up  a  demand  for  nn<lei'  this  contract  that  would  be  the 
ruling,  we  would  pay  the  $30,<X)0  and  we  would  get  our  rental  back  from 
the  company.  I  qualify  it  that  way.  sir.  because  there  is  a  provision  here 
which  we  may  pass  over,  if  we  wish,  the  right  to  set  up  a  demand  for  that 
power  to  some  other  party.  It  was  set  forth  in  the  beginning  that  the  funda- 
mental purpose  for  supplying  the  power  was  for  the  operation  of  nitrate  No. 
2,  and  naturally  we  had  that  in  our  m'nds.  Whether  the  contracts  says  S4» 
<»r  not.  I  think  it  would  be  quite  probable  that  it  did  have  some  limitations 
to  the  uses  of  the  nitrate  plant,  because 

Mr.  Miller   (interposing).  No  doubt. 

Colonel  .ToYES.  No  doubt — because  that  was  what  we  had  in  «»ur  minds; 
and  moreover,  it  might  well  have  <letermined  the  terms  of  the  contra<'t  on 
account  of  the  nature  of  the  demand  which  determines  the  cost  of  the  power. 

Mr.  Miller.  .1  have  been  wondering  why  this  was  done,  all  of  this  elaborate 
arrangement  with  the  Alabama  Power  Co.,  when  we  already  had  a  steam 
power  plant  at  plant  No.  1,  and  we  were  building  one  at  nitrate  plant  No.  2. 


1082 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


1083 


that  has  been  questioned,  and  I  have  questioned  it  mvse  f,  l)ut       rcert'iinlv  not 
U 1,  di^.5  "'achinery  that  would  be  put  In  for  any  pover^rodLTng  concern 
It  Is  direct  current  machinery,  for  one  thing.    There  is  some  alternntlns  cnrreT; 

smm'io^tiie'r^  "  ''  •■""'"^  ""•  ""^  ''"'•"™""-  "-"^  o  "im tXnt  -''i^rirf" 

cumoHnc^Tt''I?l/''''?t'  'Ji  "f  ■""  ^P"'."?  "*  '^^P=in«''>»  "n«l«"r  a.lvantageous  cir- 
cumstances at  all.    It  was  far  removed  from  the  coal  mines     We  lind  nn  -ul 

vantage  there.    On  the  other  hand  we  did  not  have  the  alv^ nta-e  of  beine  im" 
"r?m  Dl  -ntt'o  T'l't'  *'  P'"^«  "h^re  '»  -««  Soing  to  be  used    ft  wasTmles 

?a»  z:f^C7i^i^*' ''""'  ^''>-  -  ""* "  - "-  •-  ^-"  '^  - 

Mr  MiLLEB.  Here  was  a  steam  plant  and  a  lar-e  f?eneratinjr  plant  Whv  wa^ 
the  ste.ira  plant  and  the  big  electric  installment  not  made  at  plant  Xo  V  ''whr 
were  they  not  all  kept  down  there?  ^  "'    ^^^^ 

Colonel  JoYEs   They  were  not  put  there  at  nitrate  plant  No.  2  because  thov 
had  a  start  at  the  Warrior,  and  we  could  get  it  quicker  in  the  way  we  did Tt 
We  were  not  dependent  upon  the  completion  of  the  Warrior  extension  stenm 
plant  for  our  first  power  supply  from  the  Alabama  conii.any  nor  dM  it    u.^  om 
that  way  m  the  end.    We  got  power  from  the  Alabama  Power  Co.  as  soon  as  the 

nstSf'' wl";!^'^'  ^'^"''.^^ ''  '"  'r'^  ^^^^^^  ^^^  permanent  transfoiZrs  were 
tha  fronlv J  ^  ^""^^  ^^  ^^'''  ''''^*^^^  *^^  coustruction  work.  and  immediatelv 

the  transformers  were  m  we  had  some  available  to  run  our  plant.  We  therefore 
actually,  as  a  matter  of  fact,  had  power  under  that  contract  from  the  Alabama 
Power  Co  before  the  Warrior  extension  was  finished.  The  situation  was  this- 
We  tapped  a  system  which  at  certain  periods  had  an  available  power,  and  to  pro- 
tect our  supply  we  had  this  additional  AVarrior  extension,  and  the  whole  thing 
worked  out  as  planned,  so  that  by  the  time  we  needed  power  we  had  it  to  use 
^^VT''''  ^'%t«"l^iP"t  in  the  Warrior  extension  at  Gorgas  to  do  that  was 
simply  because  they  had  a  start  there,  and  that  is  whv  it  looked  good  to  us  It 
was  rnore  a  question  of  time  than  money,  the  time  which  would  have  been  con- 
sumed in  going  down  25  or  30  feet  into  rock  and  getting  a  water  conduit  for  the 

«?.Hl^f  l!3f  Z^!'^'''  ''•"'l?'^  ""^  "'^*  ^^^*  ^^  ^^^"--    That  was  all  done,  and  it  saved 
quite  a  bit  of  time  m  that  work. 

Ti/^^;  ^^11^^'-  ^y  ^^^  ^^"'^  ^'^^  o^'  33,000  kilowatts  were  to  be  delivered  at  the 
Muscle  Shoals  plant  No.  2  how  far  along  was  the  steam  plant  there  at  plant 

Colonel  JoYES.  It  is  rather  hard  to  coordinate,  but  its  main  structure  as  a 
building  was  very  far  from  completed.  I  think  the  outside  brick  walls  were 
Ti?-  ,"^.v.^u^°A.^®^°?-  ^^™^  ^*  *^®  ^^^^^^^  were  being  set  at  that  time.  I 
n^i^^il  ,  tI  ^^'""^  I  fan  say  to  you  is  that  it  was  very,  very  far  from  being 
completed.  If  we  could  show  you  the  progress  photographs  that  would  be  an 
accurate  reply  to  your  question. 

Mr.  Miller.  Let  us  take  another  angle  of  it.  At  the  time  you  got  30,000 
kilowatts  from  the  Warrior  plant  was  nitrate  plant  No.  2  ready  for  half  pro- 
duction ?  w  f 

ColonelJoYEs.  The  times  are  difficult  to  coordinate  from  memory.  We  really 
had  our  first  running  of  the  nitrate  plant,  the  actual  product  coming  through 

lL?^-f  ^^  J  ^^^^lo  ^y  *^^  ™^^^^^  ^^  October,  about,  speaking  from  memory ; 
tnat  is,  October,  1918. 

at^hP^?^i^;hi  Qnr2^^'^-?  this  que^ion  to  get  the  sequence;  that  is,  whether 
at  the  time  the  30,000  kilowatts  were  delivered  at  nitrate  plant  No   2    was 
the  plant  ready  for  half  production?    What  is  your  memory  on  that'    "     ' 
Colonel  JoYES.  I  should  say  they  were  just  about  even.    Probably  the  avail- 

r?«H.^Le    ^^^r'^^l  from  the  Alabama  Power  Co.'s  system  was  earlier  than  the 
readiness  of  the  nitrate  plant  to  use  it. 

Mr.  MiLi^.  How  did  the  completion  of  the  plant  ready  for  half  production 
compare  with  the  completion  of  the  steam  plant  at  nitrate  plaat  No  2? 


Colonel  Jo  YES.  The  nitrate  plant  was  ready  for  half  production  considerably 
before  the  power  plant  at  No.  2  was  ready. 

Mr.  MiLLEE.  You  mean  for  half  production? 

Colonel  JoYES.  Very  long  before,  because  that  complicated  unit,  the  turbo- 
generating  unit,  gave  us  trouble  and  parts  of  it  had  to  be  sent  back  to  the 
manufacturer,  and  it  took  many  months  to  get  them  back.  Of  course,  if  the 
war  had  continued  it  might  have  been  hurried  up  some.  I  have  not  really  re- 
freshed my  memory  on  those  dates.  I  have  been  disconnected  from  this  work 
for  nearly  two  years,  certainly  a  year  and  a  half,  and  I  do  not  want  to  be  taken 
as  making  a  definite  statement  about  these  comparative  things.  They  can  all 
be  verified  absolutely  for  you  if  you  desire. 

Mr.  MILLER.  Now  let  me  get  down  to  the  famous  paragraph  22  of  the  Alabama 
Power  Co.  contract,  which  I  believe,  you  said  worked  no  hardship  to  the  United 
States  Government. 

Colonel  JoYES.  Yes,  sir. 

Mr.  Miller.  Article  22  has  several  alternatives  in  it.  The  first  of  them  is 
that  the  Alabama  Power  Co.  shall  have  the  right  to  purchase  the  property  at  its 
fair  value. 

Colonel  Joyes.  That  is  the  first  one? 

Mr.  Miller.  That  is  one  of  them. 

Colonel  JoYEs.  I  do  not  think  that  is  No.  1.  No.  1  is  the  option  of  the  United 
States. 

Mr,  Miller.  It  says  "  at  any  time  subsequent  to  three  years  after  the  termina- 
tion of  the  war  " ;  why  was  that  put  in  there.  "  three  years  after  the  termination 
of  the  war,"  and  then  the  termination  of  the  war  was  to  begin  at  the  time  we 
formally  declared  peace? 

Colonel  JoYEs,  Yes,  sir. 

Mr.  Miller.  At  whose  suggestion  was  that  put  in,  yours  or  the  Alabama 
Power  Co.? 

Colonel  Joyes.  I  do  not  know,  sir.    Frankly,  I  can  not  recall  that. 

Mr.  Miller.  Subsequently,  there  is  another  paragraph  by  which  that  period 
can  be  extended  two  and  one-half  years. 

Colonel  Joyes.  That  period  of  three  years  extended  two  and  one-half  years? 
I  do  not  know  what  you  mean  there. 

Mr.  Miller,  Yes ;  I  think  so. 

Colonel  .ToYEs.  For  payment? 

Mr.  Miller.  Payment,  I  believe,  to  be  expended. 

Colonel  Joyes.  Oh,  yes. 

Mr.  Miller.  That  is  the  red-hot  part  about  buying  anything. 

Colonel  Joyes.  Yes:  but  you  do  not  expect  to  sell  a  three  or  four  million 
dollar  property  and  get  cash  across  the  table. 

Mr.  Miller.  Nt> :  but  within  three  years  after  the  war  came  to  a  close  certain 
rights  accrued  under  article  22. 

Colonel  Joyes.  Yes,  sir;  I  think  it  comes  back  to  me  a  little  bit  now.  I  can 
give  you  a  surmise  of  the  reason  for  thai:.  I  think  it  was  figured  that  that 
was  put  in  to  give  a  chance  for  some  little  stabilization  of  conditions  following 
from  the  war,  as  being  a  fair  thing.  I  believe  that  is.  essentiallv,  the  reason 
for  it. 

Mr.  Miller.  Yes :  and  we  must  keep  in  mind  also  and  under  our  eye  the  con- 
dition under  which  this  .$5,000,000  was  put  in;  it  was  put  in  at  a  time  when 
the  War  Finance  Corporation  would  allow  very  few,  if  any,  enterprises  to 
borrow  money  and  issue  negotiable  securities,  etc. 

Colonel  .Joyes.  I  am  aware  of  that.  At  times  they  were  giving  priority  to 
increases  in  power  plants. 

Mr.  Miller.  Oh,  yes:  in  some  places. 

Colonel  Joyes.  We  had  A-1  on  most  of  ours. 

Mr,  Miller,  That  paragraph  gives  the  Alabama  Power  Co.  the  right  to  ac- 
quire this  property  under  certain  conditions,  and  the  value  of  it  was  to  be 
arrived  at  under  arbitration  provided  for  in  the  contract,  and  the  pavment 
for  it. 

Colonel  Joyes.  Yes. 

Mr,  Milu:r.  The  term  "  fair  value "  has  a  very  deep  significance.  Colonel. 
I  do  not  know  whether  the  technical  use  of  it  was  considered  when  that  term 
"  fair  value  "  was  put  in  there. 

Colonel  Joyes.  That  was  undoubtedly  considered  at  the  time. 

Mr.  Miller.  Anyway,  that  "fair  value,"  in  your  judgment,  was  to  be  the 
fair  value  as  a  going  concern,  as  a  part  of  the  unit  of  the  Alabama  Power  Co. 

Colonel  Joyes.  That  was  fair  value  as  a  going  concern. 


I 


1084 


MUSCLE   SHOALS  PROPOSITIONS. 


Mr.  MiLLEu.  As  a  part  of  the  unit  of  the  Alabama  Power  Co.,  or  part  of  its 
prenerating  plant. 

Colonel  .ToYES.  Yes;  I  think  tliat  would  be  a  fair  meaning  to  rend  into  it. 
Whether  I  would  be  upheld  in  that,  I  do  not  know,  but  I  think  that  is  fair. 
It  acquires  a  cert.ain  additional  value,  I  think,  by  reason  of  its  being:  tied  in 
with  the  general  system,  and  I  think  we  will  get  that  when  it  comes  to  the 
manner  of  settlement. 

Mr.  Miller.  You  realize,  as  the  world  realizes,  that  this  Warrior  extension  is 
of  greater  value  to  the  Alabama  Power  Co.  than  to  any  other  person  in  the 
world. 

Colonel  JoYEs.  Precisely. 

Air.  Miller.  It  was  able  to  fit  it  in  with  its  system  so  that  it  would  become 

a  part  of  it? 

Colonel  JoYES.  Absolutely ;  and  therefore  I  believed  that  in  making  the  best 
possible  arrangement  in  the  contract  that  we  could  foT  them  to  buy  it  from  us 
we  were  making  a  considerable  advance  toward  the  best  possible  disposition 
that  could  be  made  of  it. 

Mr.  MiixER.  Why  did  you  not  write  into  the  contract  that  the  price  to  be 
paid  by  the  Alabama  Power  Co.  was  to  be  the  fair  and  reasonable  price  as  a 
going  concern,  as  a  part  of  the  Alabama  Power  Co.'s  system? 

Colonel  JoYES.  We  might  have  added  a  number  of  your  suggestions  to  the 
contract,  but  we  did  not  do  It.    You  were  not  there  to  help  us. 

Mr.  Miller.  You  had  a  number  of  able  lawyers. 

Colonel  Joyes.  We  would  have  taken  any  help  we  could  get ;  we  were  crying 

for  help. 

Mr.  Miller.  There  is  a  vast  difference  in  law.  Colonel,  between  a  fair  price 
and  a  fair  price  as  a  going  concern  and  part  of  the  property  of  another  man. 

Colonel  Joyes.  I  know  it,  but  let  us  take  the  facts.  I  am  not  a  lawyer,  but 
I  will  show  you  some  other  things  that  have  been  done  that  I  think  will  show 
you  how  those  things  have  worked  out.  Take,  for  instance,  the  case  of  the 
Utilities  Construction  Co.,  in  Lorain  County.  Oliio.  In  October.  1918,  that  com- 
pany had  a  power  plant  there  on  which  they  had  spent  about  $600,000.  The 
United  States  contracted  to  pay  about  40  per  cent  of  the  remaining  cost,  and 
the  company  w^as  to  pay  the  other  60  per  cent.  The  United  States  contracted 
to  buy  200,000.000  kilowatt-hours  at  8  mills.  The  United  States  actually  spent 
on  that  contract  $500,000  and  got  back  $300,000,  on  precisely  the  same  kind 
of  a  set-up  as  we  have  here.  We  went  into  the  Duquesne  plant  and  spent 
$578,000  and  got  out  of  that  $300,000  back.  That  was  on  the  same  kind  of  a 
proposition  as  this  one.  The  West  Penn  Power  Co.  contracted  for  1,700.000,000 
kiN»wart-hours  nt  7  mills  an<l  a  little  over,  and  we  were  to  spend  about 
$2,000,000  there  and  pay  not  over  40  per  cent  of  the  cost  of  the  building  and 
plant.  We  were  to  put  $2,000,000  in  the  bank  and  let  them  draw  as  they  saw  fit. 
W>  actually  had  to  put  up  more  money.  We  spent  $2,409,000  on  that  property, 
and  in  the  final  settlement  of  it  we  got  out  $1,204,500.  which  was  50  per  cent 
of  what  we  put  in,  and  all  of  those  people  had  similar  expressions  in  the 
contract,  not  the  identical  wording,  by  any  means. 

Mr.  Miller.  On  some  of  those  you  did  not  come  out  as  good  as  that. 

Colonel  Joyes.  That  is  quite  right,  sir.  Those  are  where  we  had  those  in- 
vestments in  power  plants,  but  I  have  also  some  data  relative  to  coke  plants. 
I  was  simply  showing  to  you  the  precedents  we  had.  I  think  we  have  some 
precedents  as  to  what  constitutes  "  fair  value "  in  the  settlement  of  such 
Government  contracts. 

Mr.  Miller.  This  was  the  pioneer  contract,  was  it  not?  The  others  were 
gotten  up  subsequent  to  this  one,  were  they  not? 

Colonel  Joyes.  Some  of  them  subsequent  and  some  of  them  prior.  I  think 
all  of  them  were  signed  prior  to  the  actual  date  of  the  signing  of  ours. 

Mr.  Miller.  But  the  laying  of  the  foundation 

Col.  Joyes  (interposing).  When  you  go  into  arbitration  I  think  you  would 
be  entitled  to  show  some  of  those  settlements  in  order  to  show  what  we  could 
get  on  this  contract. 

Mr.  Miller.  There  is  another  provision  to  the  effect  that  if  they  did  not  buy 
it,  according  to  arbitration,  we  were  to  have  the  privilege  of  selling  to  somebody 
else,  provided  the  other  fellow  could  not  run  it. 

Colonel  .Joyes.  We  had  the  privilege  of  doing  what  we  originally  agreed  to — 
get  off  their  land  and  move  out  of  the  house  we  had  rented. 

Mr.  Miller.  That  meant  scrapping  the  plant? 

Colonel  Joyes.  Essentially  scrapping  the  plant — giving  up  the  land  which 
we  had  taken  on  lease. 


MUSCLE  SHOALS  PROPOSITIONS. 


1085 


Mr.  Millek.  That  was  the  point  where  the  Government  was  at  a  disad- 
vantage in  not  having  the  plant  on  its  uwii  property,  Coloiu'l ;  that  is  the 
great  disadvantage. 

Colonel  Joyes.  The  proof  of  the  pudding  is  in  the  eating,  and  when  you  come 
to  make  a  settlement  you  will  find  you  will  get  your  money  back. 

Mr.  Miller.  Have  you  anything  in  mind  to  the  effect  that  you  would  get  all 
vour  money  back? 

*  Colonel  JOYES.  Not  all;  but,  if  you  will  get  a  fair  return,  you  are  doing  all 
that  can  be  expected.  If  we  had  decided  to  build  a  power  plant  of  our  own, 
we  could  have  done  it.  We  did  it  at  Muscle  Shoals.  That  power  plant  is 
built  on  our  own  property,  and  we  spent  about  $12,000,000  on  it,  but  1  under- 
stand the  best  thing  we  have  got  in  sight  for  it  now  is  an  offer  of  $5,000,000 
for  that  and  a  lot  of  other  things  thrown  in,  which  cost  us  .$80,000,000  or  so. 
That  does  not  look  much  better  than  the  Alabama  Power  Co.  proposition, 
does  it?  On  the  Alabama  Power  Co.  proposition,  if  we  do  not  get  back  60  per 
cent  of  the  money  we  put  in  there,  I  will  miss  my  guess;  I  would  be  willing 
to  wager  something  on  it  right  now. 

Mr.  MILLER.  You  are  figuring  on  the  Warrior  steam-plant  extension  as  a  tem- 
porary affair? 

Colonel  Joyes.  Certainly.  . 

Mr.'  MILLER.  Were  you  figuring  nitrate  plant  No.  2  as  a  temporary  affair? 
That  is  permanent,  is  it  not? 

Colonel  Joyes.  That  is  permanent;  yes. 

Mr.  Miller.  One  is  permanent  and  the  other  is  temporary. 

Colonel  Joyes.  What  I  am  talking  about  is  what  you  are  going  to  get  out  of 
this  or  out  of  both  places.  You  put  in  in  the  Warrior  extension,  etc.,  some 
$4,000,000  and  you  will  get  out  of  it  $3,000,000,  probably,  if  you  treat  it  as  a 
business  proposition.  But  take  this  proposition  at  Muscle  Shoals  right  now; 
it  cost  $12,000,000  or  $13,000,000,  and  if  you  want  to  treat  that  as  a  business 
proposition,  and  if  the  business  comes  along  for  it,  you  can  do  something  with 
it;  but  the  best  thing  in  sight  now  is  an  offer  of  about  $5,000,000  for  it,  and 
everything  else  in  the  bargain.  The  reason  you  have  not  got  anything  better 
in  sight  as  an  offer  for  the  Muscle  Shoals  steam  power  plant  is  that  it  is  not 
tied  into  any  producing  and  marketing  concern.  The  reason  you  have  a  good 
outlook  for  the  $4,000,000  we  threw  into  the  Warrior  plant,  if  you  want  to  put 
it  that  way,  is  that  we  are  tied  into  a  going  concern  and  we  have  a  perfectly 
plausible  and  good  customer  to  buy  it,  and  we  are  tied  up  to  him  in  the  best 
possible  way  to  get  good  money  for  it. 

Mr.  Miller.  That  is  your  idea  of  it. 

Colonel  Joyes.  That  is  my  idea;  yes. 

Mr.  Miller.  That  you  could  dispose  of  that  power  plant  hooked  in  with 
the  Alabama  Power  Co.,  w^iere  the  Alabama  Power  Co.  can  be  the  only  possible 
purchaser,  and  you  think  that  is  a  better  proposition  than  if  it  was  a  separate 
and  distinct  plant. 

Colonel  Joyes.  Very  much  better. 

Mr.  Miller.  You  consider  that  nitrate  plant  No.  1  was  built  out  of  the  fund 
provided  in  the  national  defense  act? 

Colonel  Joyes.  It  was;  yes,  sir. 

Mr.  Miller.  And  nitrate  plant  No.  2  was  built  out  of  other  funds,  not  out 
of  the  national  defense  act  funds? 

Colonel  Joyes    Yes    sir. 

Mr.  Miller.  You  spoke  about  the  President  setting  aside  $200,000,  and  then 
you  said  there  was  a  subsequent  allotment  of  $150,000  for  the  purchase  of  land. 

Colonel  Joyes.  Yes,  sir. 

Mr.  Miller.  You  did  not  use  it. 

Colonel  Joyes.  I  did  not  use  it  for  that  purpose. 

Mr.  Miller.  Why  did  you  not? 

Colonel  Joyes.  I  turned  it  back,  and  it  was  diverted  or  allotted  to  me  or 
somebody  else  for  other  purposes. 

Mr.  Miller.  Was  not  one  of  the  purposes  in  turning  it  back  so  that  there 
would  be  no  color  of  claim  that  the  nitrate  plant  No.  2  in  anywise  was  affected 
by  the  national  defense  act? 

Colonel  Joyes.  Precisely,  that  is  my  reason  absolutely. 

Mr.  Miller.  And  then  when  you  could  get  out  from  under  the  national 
defense  act  you  could  make  this  sort  of  arrangement  if  you  wanted  to,  so 
far  as  it  related  to  nitrate  plant  No.  2,  in  conjunction  with  the  offers  of  a 


1086 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


1087 


private  ^concern,  which  you  could  not  do  with  nitrate  plant  No.  1,  which  you 
could  not  do  if  you  bouplit  the  land  with  money  provided  under  the  national 
defense  act. 

Colonel  JoYES.  We  had  no  specific  legal  bar  against  working  in  conjunction 
with  a  private  corporation, 

Mr.  Miller.  Your  whole  theory,  then,  of  your  being  authorized  to  entwine 
this  Warrior  steam  plant  in  with  the  properties  of  the  Alabama  Power  Co. 
as  a  part  of  their  system  is  because  it  applies  exclusively  to  nitrate  plant  No.  2? 

Colonel  JoYEs.  Oh,  no;  not  at  all. 

Mr.  Miller.  Then  I  have  misunderstood  you. 

Colonel  JoYES.  I  think  you  have,  sir. 

Mr.  Miller.  I  understood  you  fully.     So  without  nitrate  plant  No.  2 

Colonel  JoYES  (interposing).  The  point  is  this  as  to  the  Alabama  Power  Co. 
We  built  those  facilities,  the  transmission  lines,  and  the  Warrior  extension, 
absolutely  and  specifically  for  the  purpose  of  securing  ourselves  power  to 
operate  the  first  half  production  of  nitrate  plant  No.  2  by  the  time  it  was 
ready,  and  we  did  it.  Now,  having  done  that,  and  having  provided  those 
facilities,  we  wanted,  through  our  contract,  to  have  as  broad  use  of  the  power 
provided  in  that  way  as  possible,  and  we  therefore  wrote  such  provisions  in 
the  contract  as  appear  in  that  way. 

Mr.  Miller.  That  the  warrior  extension  was  a  part  of  the  facilities  of  nitrate 
plant  No.  2,  a  part  of  it? 

Colonel  JoYES.  I  do  not  think  we  ever  said  that,  did  we? 

Mr.  Miller.  That  is  what  it  was  designed  for,  and  what  you  went  in  for,  to 
drive  the  first  unit  through. 

Colonel  Joyes.  No,  sir ;  we  said—"  I  do  not  recall  anything  that  put  that 
aspect  upon  it ;  it  was  to  give  us  the  power  upon  it ;  that  was  all."  We  were 
fixing  it  up  for  another  sort  of  power,  ultimately,  for  all  these  needs  at  nitrate 
plant  No.  2.  It  was  a  temporary  expedient,  which  might  be  used  for  greater 
or  less  time,  and  which  we  would  hope  to  use  as  little  as  possible,  because  we 
hoped  to  make  power  cheaper  at  the  bigger  plant  at  Muscle  Shoals,  and,  of 
course,  in  the  future  whatever  uses  might  come  for  the  nitrate  plants  in  the 
future  we  hoped  to  get  something  out  of  the  water  power. 

Mr.  Miller.  Perhaps  I  did  not  make  myself  plain.  If  the  warrior  steam  plant 
had  been  designed  as  a  part  of  nitrate  plant  No.  1  you  could  not  have  gone  into 
the  arrangement  with  the  Alabama  Power  Co.  which  you  did  go  into,  could  you? 

Colonel  JoYES.  I  think  there  would  have  been  some  doubt  about  it. 

Mr.  MiixER.  But  when  you  went  into  it  along  with  nitrate  plant  No.  2  and 
hooked  it  up  with  the  warrior  extension,  that  is,  hooked  up  the  warrior  exten- 
sion with  nitrate  plant  No.  2,  the  limitation  in  section  124  of  the  national  de- 
fense act  did  not  apply,  as  you  considered  it? 

Colonel  Joyes.  I  did  not  think  that  applied ;  no,  sir. 

Mr.  Miller.  That  is  just  the  difference  then. 

Colonel  JoYES.  My  point  about  that  is  this,  that  I  take  it  the  contract  for 
the  power  with  the  Alabama  Power  Co.  was  an  independent  proposition,  inde- 
pendent really  of  plant  No.  2,  for  that  matter,  because  it  was  a  separate  con- 
tract for  power.  It  stated  the  purpose  for  which  we  expected  to  use  the  power, 
and  that  determined  the  character  of  the  demand  and  the  place  where  it  was  to 
go  and  so  forth.  I  took  it  it  was  an  independent  proposition.  I  may  be  wrong 
about  that. 

Mr.  Miller.  If  nitrate  plant  No.  2  had  no  reference  to  the  national  defense 
act  why  did  you  locate  it  at  Muscle  Shoals? 

Colonel  Joyes.  Because  it  was  the  best  place  it  could  be  put.  When  we  were 
putting  it  there  we  were  not  affected  by,  and  did  not  take  into  consideration 
the  national  defense  act.  except  that  it  might  give  it  in  the  future  a  little  fur- 
ther value,  by  giving  a  cheap  water  power  nearby,  and  we  took  into  considera- 
tion a  lot  of  other  factors.  As  I  have  said  before  in  other  hearings  the  location 
down  there  is  very  good  in  a  number  of  w^ays.  We  have  a  good  place  down 
there,  a  level  place  accessible  to  the  river,  where  you  can  get  good  cooling  water 
for  the  power  station  and  have  the  great  mass  of  water  that  must  go  through 
the  processes  of  the  plant. 

Then  it  has  access  to  a  most  wonderful  deposit  of  limestone  of  the  very  par- 
ticular specification  required  for  that  process.  Then,  it  is  fairly  near  a  good 
supply  of  coking  coal.  The  limestone  proposition  is  one  of  the  biggest  things 
in  the  whole  problem.    They  figured  that  we  would  have  to  quarry  about  2,000 


tons  of  stone  a  day.  The  actual  needs  of  the  plant  would  call  for  about  1,200 
tons.  There  is  always  a  waste  in  quarrying  in  the  matter  of  dust  and  things 
of  that  kind,  and  we  expect  to  have  to  quarry  about  2,000  tons  a  day  in  order 
to  keep  the  plant  going  to  capacity.  That  is  some  stone,  and  you  do  not  want 
to  haul  it  very  far.  We  found  a  quarry  where  there  was  a  perfectly  good 
50-foot  bed,  which  had  been  analyzed  and  found  to  contain  98  per  cent  calcium 
carbonate.  Most  limestone  has  a  lot  of  magnesia  in  it  and  is  unfit  for  this 
particular  development.  We  went  around  and  hunted  until  we  found  a  good 
class  of  stone. 

Mr.  Miller.  So  that  was  just  the  place  to  put  the  plant— at  Muscle  Shoals- 
it  was  an  advantageous  place? 

Colonel  Joyes.  Oh,  yes;  it  was  advantageous  in  many  ways. 

Mr.  Miller.  Why  did  you  not  put  plants  3  and  4  there,  wliich  you  placed  at 
Cincinnati  and  Toledo,  if  this  location  had  so  many  advantages? 

Colonel  Joyes.  This  location  was  getting  sort  of  clogged  up — when  you  get 
so  much  in  there,  you  can  not  get  any  more— and.  then,  the  railroads  had  limi- 
tations. The  railroads  could  only  handle  so  much.  There  are  railroads  run- 
ning in  there— the  main  line  of  the  Southern  and  the  main  line  of  Louisville 
and  Nashville— and  there  is  a  little  branch  running  toward  Birmingham,  op- 
erated by  the  Southern  Railway.  They  could  handle  the  materials  for  plant 
No.  2,  and  that  was  just  about  their  capacity  business. 

Mr.  Miller.  I  see  we  have  2,200  acres  of  land  there. 

Colonel  Joyes.  The  reason  for  that  location  of  these  two  plants  at  Toledo 
and  Cincinnati  was  the  power  question,  the  same  thing  we  were  up  against — 
the  same  proposition  in  relation  to  power.  We  had  to  get  power,  and  we  had 
to  get  it  by  a  certain  time.  So  we  went  to  going  concerns  and  we  did  precisely 
what  we  did  here  in  this  "unconscionable"  contract.  We  repeated  it  over 
again,  only  worse.  We  started  to  do  the  same  thing  by  building  absolute  ex- 
tensions on  people's  property  at  Toledo  and  Cincinnati,  and  we  would  do  it 
again  under  like  circumstances. 

Mr.  Parker.  Colonel  Joyes,  without  going  into  the  exact  dates,  I  understand 
that  transmission  line  was  operating  and  giving  power  before  anything  else 
was  in  operation. 

Colonel  Joyes.  That  is  correct,  unquestionably. 

Mr.  Parker.  The  Warrior  plant  extension  was  next  to  operate  in  giving 
power.    What  was  the  next  thing? 

Colonel  Joyes.  What  was  the  next  thing? 

Mr.  Parker.  The  Warriof  extension  steam  plant? 

Coloiiel  Joyes.  The  Warrior  extension  steam  plant  was  operating  long  before 
the  Muscle  Shoals  steam  plant. 

Mr.  Parker.  How  about  nitrate  plant  No.  2?  Was  the  nitrate  plant  No  2 
ready  for  operation  before  or  after  the  Warrior  steam  plant  extension  was 
operating? 

Colonel  Joyes.  I  hesitate  a  little  on  those  exact  dates,  because  I  have  this  in 
mind 

Mr.  Parker  (interposing).  I  do  not  want  to  press  you  on  that. 

Colonel  Joyes.  The  Warrior  extension  was  finished  and  started  on  a  test  run 
and  after  running  a  certain  time  it  was  taken  down  and  certain  alterations 
made.    There  was  no  definite  break  of  the  turbine,  but  there  was  an  interrup- 
tion.   I  could  get  you  that  date  more  exactly. 

Mr.  Parker.  I  will  ask  you  to  state  the  exact  date  when  the  transmission 
Ime  came  into  operation,  giving  the  power ;  when  the  Warrior  extension  came 
into  operation  and  gave  power  over  that  line;  third,  when  the  nitrate  plant 
No.  2  was  completed  and  ready  for  operation;  and,  fourth,  when  the  Muscle 
bhoals  steam  plant  was  complete  and  ready  for  operation.  You  will  put  those 
on  the  record. 

Col.  Joyes.  Yes,  sir ;  we  will  get  you  the  exact  dates  of  all  that,  sir. 

(Subseq\iently  Colonel  Joyes  submitted  the  following:) 

CHRONOLOGY. 

November  13.  1917:  American  Cyanamid  Co.  proposal  to  build  United  States 
mtrate  plant  No.  2  submitted  and  accepted  by  Chief  of  Ordnance 
November  16,   1917:   Above  ratified  by   War   Industries  Board 
November  6,  1917 :  Date  of  Alabama  Power  Co.  proposal. 

92900—22 69 


1088 


MUSCLE  SHOALS  PROPOSITIONS. 


r>ec(Miiber  7,  1917 :  Orij;inal  purchase  orders  Ex.  orders  T-154,  T-155,  and  T- 
156  dirawii  by  ( 'olonel  Joyes  on  Alabama  Power  Co.  to  build  transmission  line, 
to  build  Warrior  extension,  and  to  furnisli  electric  energy,  respectively. 

December  21,  1017 :  War  Industries  Board  ratified  broad  lines  of  this  under- 
taking with  Alabama  l*ower  Co. 

December  21.  1917:  Order  additional  to  XOT-154  transmission  line,  to  cover 
transformer  station  ("substations"). 

January  8,  1918:  Orders  revising  XOT-155  (Warrior  extension)  and  XOT- 
156  (supply  of  energy). 

May  23,  1918:  Transmission  line  ready  for  operation;  and  power  (at  low 
voltage)  available. 

June  24,  1918 :  Alabama  Power  Co.  ready  to  deliver  power  to  U.  S.  N.  P.  No.  2 
at  44,(X)0  volts. 

July  1,  1918 :  U.  S.  N.  P.  No.  2  commenced  use  of  energy  from  Alabama  Power 
Co.,  over  transmission  line  (for  construction  and  preliminary  work). 

October  21,  1918:  Transmission  line  voltage  raised  from  44,()(X)  to  110,000 
volts. 

October  26,  1918:  First  operation  of  apparatus  (electric  carbide  furnace)  in 
actual  nitrate  production  at  U.  S.  N.  P.  No.  2  (same  power  previously  used  in 
preliminarv  operation  of  certain  plant  apparatus). 

N.  B.— At  this  time  U.  S.  N.  P.  No.  2  could  not  be  said  to  be  fully  ready  to 
enter  into  50  per  cent  capacity  production,  but  would  probably  have  been  ready 
for  successively  increasing  up  to  that  capacity  as  rapidly  as  such  work  should 
be  increased  in  a  new  plant,  which  rapid  progressive  increase  w^as  actually 
prevented  by  the  armistice,  November  11,  1918. 

November  12,  1918 :  "  Deflection  tests  "  upon  the  installe<l  turbogenerator  in 
Warrior  extension  made.  Thereafter,  on  account  of  armistice,  work  proceeded 
more  deliberately  than  it  had  previously. 

December  29,  1918 :  Turbine  in  Warrior  extension  operated  seven  and  one-half 
hours  with  power  load. 

.Tanuarv  4.  1919:  Preliminary  test  operation  Warrior  extension  terminated. 

JanuarV  11  to  February  1,  1918:  Operated  Warrior  extension,  supplying 
power  for  the  one-fifth  capacity  test  of  U.  S.  nitrate  plant  No.  2,  all  depart- 
ments. 

December,  1917:   Design  commenced  for  steam  power  station,  U.  S.  N.  P. 

No.  2. 

January,  1918 :  Construction  commenced  for  same  and  pushed  to  utmost  until 

armistice. 

August,  1919 :  Steam  power  station  U.  S.  N.  P.  No.  2  ready  for  full  operating 
test.  Could  undoubtedly  have  been  ready  earlier  but  for  slowing  up,  for 
economv,  after  armistice,  November  11.  1918. 

September  10  to  October  30,  1919:  Test  run  developing  troubles  in  turbine  of 
the  T^.  S.  N.  1*.  No.  2  steam  power  plant,  which  necessitated  returning  two  of 
the  three  rotors  to  Pittsburgh  for  repair  and  modification  by  builder. 

October.  1920 :  Retest  of  steam  power  plant  U.  S.  N.  P.  No.  2  carried  out  suc- 

cessfuUv. 

October  30,  1919 :  Last  of  construction  force  removed  from  U.  S.  N.  P.  No.  2, 
some  time  previous  to  w^hich  the  nitrate  plant  proper  had  been  completed  and 
put  into  condition  for  preservation  idle. 

Mr.  Pakker.  You  said  in  answer  to  a  question  that  you  could  build  the 
Muscle  Shoals  steam  plant  as  quickly  as  the  Warrior  steam  plant,  with  the 
same  plant  and  conditions. 

Colonel  JoYEs.  With  the  same  plant  and  starting  conditions;  yes,  sir. 

Mr.  Parker.  But  you  were  going  to  say  something  as  to  whether  you  had 

the  same  plant. 

Colonel  JoYES.  They  did  not  have  the  same  plant,  or  the  same  scale,  nor  the 
same  starting  condition. 

Mr.  Parker.  What  difference  was  there? 

Colonel  Joyes.  In  the  first  place,  the  scale  was  different.  The  Warrior  ex- 
tension was  a  30,000-kilow^att  plant,  and  the  Muscle  Shoals  plant  was  a 
60,000-kilowatt  plant.  The  Warrior  extension  was,  so  to  speak,  cheaper  and  a 
less  eflScient  type,  that  is,  it  was  not  planned  for  such  extreme  eflRciency  for 
cheap  operation  and  cheap  production  of  power  as  the  nitrate  plant  No.  2 
station.  It  did  not  have  such  elaborate  electric  controls,  and  there  were 
several  things  of  that  kind.    The  differences  of  conditions  were  these :  At  the 


MUSCLE  SHOALS  PROPOSITIONS. 


1089 


Warrior  plant  there  was  a  site  all  ready  and  it  had  all  the  underground  work 
;UI  ready  for  carrying  the  water  for  the  condensers  in  ample  volume,  and  that 
saved  us  a  great  deal  of  rock  excavating  and  concrete  work;  and  certain 
foundations  w^ere  in ;  the  ground  had  all  been  thoroughly  explored ;  the  actual 
construction  plans  had  been  drawn  by  the  Alabama  Power  Co.  with  a  view- 
to  using  them  to  build.  They  had  dock  facilities  there  so  they  could  run  a 
lighter  up  and  run  a  railroad  car  ashore  from  it.  They  had  the  possibilities  of 
greatly  improving  that  station  by  the  fixing  up  of  that  railroad,  and  in  the 
meanwhile  they  could  handle  all  of  their  heavy  freight  by  lighter  down  from 
a  nearby  station  on  the  river.  They  had  an  organization  all  built  up,  and  they 
had  just  about  completed  a  construction  job  for  themselves  and  were  ready 
to  take  on  a  new  one.  They  had  engineers  who  knew  the  country  thoroughly. 
Those  are  the  principal  things.  It  is  easy  to  see  that  when  we  got  those  things 
we  would  save  a  great  deal  of  time. 

Mr.  Parker.  That  is  why  you  expected  quicker  work  there  than  you  could  get 
at  Muscle  Shoals? 

Colonel  Joyes.  Yes,  sir. 

Mr.  Parker.  And  your  answer  to  that  question,  I  think,  already  given  will 
show  how  much  quicker  it  worked  out  after  all. 

Colonel  JoYES.  Yes,  sir ;  we  had  a  tremendous  amount  of  rock  excavation  to 
do  at  Muscle  Shoals. 

Mr.  Parker.  That  is  true ;  and  the  proof  of  the  pudding  is  in  the  eating,  and 
we  will  see  whether  you  did  get  it  earlier,  from  your  answer  to  my  questions 
awhile  ago. 

Colonel  Joyes.  Yes,  sir. 

Mr.  Parker.  Meanwhile,  beyond  all  that,  by  getting  through  the  Warrior 
steam  plant  extension  you  had  the  opportunity  of  getting  power  the  moment 
the  transmission  line  was  completed,  which  was  comparatively  a  very  small 
matter. 

Colonel  Joyes.  Perhaps  I  misunderstood  just  what  you  mean. 
Mr.  Parker.  It  was  a  comparatively  small  matter,  was  it  not? 
Colonel  Joyes.  We  had  actually  a  certain  amount  of  power  as  soon  as  the 
transmission  line  was  open. 

Mr.  Parker.  I  say  the  building  of  the  transmission  line  was  comparatively 
a  small  matter. 
Colonel  Joyes.  Yes,  sir;  it  was. 

Mr.  Crowther.  When  you  found  the  law  was  not  suflacient  for  you  down 
there,  or  that  you  were  handicapped,  why  did  you  not  try  to  get  some  legisla- 
tion?   It  would  not  have  taken  very  long;  it  could  have  been  gotten  In  a  verv 
few  days  could  It  not? 
Colonel  Joyes.  As  to  getting  land,  etc.? 
Mr.  Crowther.  Yes. 

Colonel  Joyes.  I  think  I  mentioned  that  when  my  attention  was  called  to 
that  act  of  July  2,  1917,  as  soon  as  I  realized  what  It  was,  I  went  In  and  saw 
General  Crozler,  In  August,  1917,  and  gave  him  a  memorandum,  and  I  believe 
that  IS  still  In  the  files.  I  called  his  attention  to  the  fact  that  It  did  not  do  the 
Ordnance  Department  any  good  In  Its  work,  that  we  ought  to  try  to  get  an 
improvement  In  the  situation,  and  he  told  me  he  already  had  It  up  at  that 
time,  and  I  think  he  went  at  that  pretty  promptly,  and  the  act  went  through 
and  was  approved  on  April  11,  1918. 
Mr.  Crowther.  Nearly  a  year  after? 

Colonel  Joyes.  The  better  part  of  a  year.  How  long  he  had  been  working  on 
It  1  do  not  know ;  I  would  not  like  to  say  to  you.  I  am  sure  I  went  to  General 
irozier  in  August  of  1917,  and  he  told  me  he  had  it  already  In  hand.  You  can 
ten  from  your  own  records  about  that.  There  was  a  bill  introduced,  which  was 
amended  and  resulted  finally  In  the  act  of  April,  11,  1918.  I  do  not  know  just 
^  iiat  time  it  was  introduced,  but  I  am  sure  it  was  early  in  the  session  *  It 
went  along  and  ultimately  was  enacted. 

Mr.  Crowther.  He  did  not  follow  up  that  legislation  with  the  pertinacity  and 
puguaclousness  with  which  most  legislation  Is  followed  In  the  House. 
Colonel  Joyes.  Probably  not. 

Mr^.  Crowther.  I  wonder  why?    From  whom  did  you  buy  the  land  for  nitrate 
plant  No.  1?    Did  the  Alabama  Power  Co.  own  any  of  it? 
Colonel  Joyes.  Not  to  my  knowledge.    W^e  had  75  or  80  ownerships  there. 
Mr.  Parker.  What,  in  your  estimation,  was  t]\e  cause  of  failure  in  produc- 
tion in  plant  No.  1? 


1090 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


1091 


Coionel  JoYES.  It  was  largely  a  mechanical  proposition.  We  had  leaks  in  the 
high-pressure  gas  pipe  lines,  and  it  resulted  not  only  in  fires  but  in  lack  of  a 
properly  pure  mixture.  There  were  several  things  that  were  not  apparently 
calculated  right,  in  just  the  right  proportion.  And  then,  too,  we  had  to  make 
changes  in  process  in  several  places.  We  finally  got  so  we  could  bring  our  mix- 
ture up  to  the  catalyst  in  pretty  fair  shape,  but  the  catalyst  at  that  time  had 
been  somewhat  hurt  by  the  impure  mixture  that  had  come  up  to  it,  and  it  was 
a  very  sensitive  catalyst.  I  am  saying  these  things  not  in  criticism  of  the  people 
who  worked  it  out,  but  to  show  you  how  it  fell  down.  They  use  a  different  cata- 
lyat  from  the  Germans,  partly,  perhaps,  because  they  did  not  know  what  the 
'<jferman  was  or  how  they  used  it ;  they  wanted  to  keep  clear  of  the  patent  rights 
which  the  Germans  had  and  which  could  not  be  gotten  except  as  a  favor  from 
the  Germans.  Furthermore,  they  were  looking  for  a  catalyst  which  would  work 
satisfactorily  at  a  lower  pressure  than  the  Germans  used.  The  Germans  useft 
3.000  pounds  per  square  inch,  and  this  process  was  designed  to  use  1,500  pounds. 

Mr.  Crowther.  Just  at  that  time  we  needed  nitrates  pretty  badly,  did  we  not? 

Colonel  JoYES.  We  did  need  them  pretty  badly. 

Mr.  Crowther.  Do  you  think  it  was  a  good  proposition,  generally,  to  go  into 
a  process  that  was  to  a  very  great  degree  experimental  at  that  time?  Do  you 
think  it  was  a  good  thing  to  go  into  that  process  in  time  of  great  necessity? 

Colonel  JoYES.  It  was  a  matter  of  research. 

Mr.  Crowther.  That  was  no  time  to  develop  research,  was  it,  when  you  abso- 
lutely needed  the  nitrates?  Was  it  not  the  thing  to  take  up  the  process  at  that 
time  that  you  knew  would  produce  ammonium  nitrate? 

Colonel  JoYES.  Absolutely  so,  in  your  fundamental  needs  for  the  war ;  but  at 
the  same  time  it  is  a  very  good  business  principle  to  carry  on  your  development 
work  in  order  to  be  prepared  to  have  something  better.  The  Germans  conducted 
researches  in  processes  during  the  war,  and  profited  by  it. 

Mr.  Crowther.  Did  the  Alabama  Power  Co.  purchase  the  right  of  way  for  the 
transmission  line  under  your  order,  or  at  your  suggestion?  Did  you  have  any- 
thing to  do  with  the  agreement  that  they  were  to  buy  the  right  of  way? 

Colonel  JoYES.  Of  course,  they  did  buy  that  on  their  own  account  and  paid 
for  it  with  their  own  money,  but  they  did  it  at  my  suggestion. 

Mr.  Crowther.  You  have  given  the  reason  why  you  could  not  have  enlarged 
the  No.  1  plant  so  it  could  have  been  used? 

Colonel  JoYES.  Yes,  sir. 

Mr.  Crowther.  That  was  impossible? 

Colonel  JoYES.  It  was  impracticable.  In  the  first  place,  to  build  a  power  plant 
at  No  1  or  any  place  near  Muscle  Shoals,  would  have  been  perfectly  possible; 
that  is,  to  build  a  power  plant  anywhere,  but  the  tremendous  amomit  of  con- 
densation water  that  is  required  for  a  power  plant  the  size  of  a  30,000-kilowatt 
plant  makes  it  necessary  that  it  be  on  a  river. 

Mr  Crowther.  What  was  the  water  power  at  Gorgas?  What  was  the  full 
horsepower  of  the  subsidiary  steam  plant?    What  was  their  combined  horse- 

^Colonel  JOYES.  Thev  do  not  strictly  combine.  They  work  together  and  re- 
inforce each  other.  *  In  the  Alabama  Power  Co.'s  system,  j^  T^^";; 
brance  of  what  I  have  seen  in  reliable  reports  is  that  they  had  67,000  oi 
68000  of  either  kilowatts  or  horsepower  of  water  power  on  the  Coosa,  aii.i 
machinery  for  that  was  installed  and  perhaps  some  portion  of  the  year  the 
river  would  run  enough  water  to  develop  that  much  power.  At  other  parts 
of  the  vear  they  we?e  down  possibly  to  12,000  or  13,000  or  14,000  kilowatts, 
which  was  all  they  could  get  out  of  the  Coosa. 
Mr.  Crowther.  Could  not  the  auxiliary  steam  plant  and  the  water  powei 

be  run  together? 

Colonel  Joyes.  Yes,  sir;  that  was  the  idea  precisely. 

Mr  Crowther.  Was  not  that  big  enough  to  supply  you  and  still  supply 
their  customers  with  whom  they  had  contracted— the  power  that  they  ha<l 
contracted  for— would  that  not  have  given  you  sufficient  power  to  run  one- 
half  of  the  plant?  .  ^       .  ,^       .  v,     ^  u       ,. 

Colonel  JoYEs.  We  were  thoroughly  satisfied  it  could  not  be  done,  by  an 
examination  of  their  lists  of  customers  and  their  actual  production  of  power ; 
that  their  combined  power  production  and  steam  production  was  not  sufficient. 
As  a  matter  of  fact,  they  had  to  run  at  one  time  as  an  adjunct  to  their  sys- 
tem, and  in  order  to  supply,  their    customers— they  had  to  operate  the  anti 


quated  Birmingham  Light  &  Power  Co.  station,  where  it  cost  them  a  pretty 
penny  to  get  the  power  they  had  to  have,  and  there  was  no  surplus. 

Mr.  Crowther.  Do  you  remember  who  was  present  at  the  famous  midnight 
conference  on  November  13? 

Colonel  JoYES.  At  the  present  moment  I  could  not  be  positive,  but  I  know 
General  Crozier  was  there,  and  I  was  there;  Colonel  White,  my  assistant; 
and  Captain  Osborne,  and  I  am  pretty  sure  Mr.  Baruch  was  there. 

Mr.  Crowther.  Yes ;  I  think  he  was  there. 

Colonel  JoYES.  And  probably  some  other  people  from  the  War  Industries 
Board.  I  have,  at  an  earlier  date,  looked  back  in  my  mind  and  tried  to  re- 
member that,  and  perhaps  I  put  one  or  two  other  names  down,  but  I  can 
not  recall  any  other  now.  Probably  Gen.  Samuel  McRoberts  (then  civilian), 
and  perhaps  Mr.  Brookings,  of  the  War  Industries  Board. 

Mr.  Crowther.  Because  this  nitrate  development  at  plant  No.  2  was  not 
paid  for  out  of  the  original  sum  as  set  forth  in  the  national  defense  act,  is 
it  your  contention  that  that  abrogated  the  general  principle  of  law  that  was 
contained  in  that  section  as  to  the  United  States  entering  into  conti;acts  or 
business  of  this  kind  in  partnership  with  private  corporations?  Do  you 
contend  that  because  this  money  was  not  used  that  that  removed  the  limita- 
tion? 

Colonel  Joyes.  I  do  not  think  I  would  put  it  that  way.  The  fundamental 
purpose  of  that  plant  was  that  it  was  not  an  act  of  the  President  or  his  agent 
under  the  legislation  contained  in  section  124  of  the  national  defense  act.  It 
was  not  intended  to  be  from  the  beginning,  by  anybody  that  I  know  of  who 
advised  the  President.  It  was  intended  purely  and  simply  to  help  the  Govern- 
ment in  its  war  needs,  and,  having  done  so,  we  found  the  most  certain  way 
to  get  it  was  to  work  with  this  corporation. 

Mr.  Crowther.  You  were  afraid  of  the  law  the  way  it  was;  you  thought 
it  might 

Colonel  Joyes  (interposing).  We  were  afraid  the  law  might  be  invoked 
and  make  us  trouble. 

Mr.  Crowther.  You  were  not  afraid  so  much  that  it  would  get  you  into 
trouble  as  it  would  keep  you  out  of  trouble  if  you  got  away  from  it. 

Colonel  Joyes.  Keep  us  out  of  trouble  by  getting  away  from  any  spending 
of  the  money.  We  were  afraid  the  spending  of  the  money  for  that  land  would 
raise  some  color  of  doubt  as  to  whether  we  had  done  it  properly.  Furthermore, 
I  would  say  that  there  was  a  great  deal  of  discussion  there,  some  very  bitter 
controversy  among  the  people  who  had  been  deputed  to  consider  that  and  advise 
as  to  the  use  of  these  different  processes,  and  we  wanted  to  be  in  accord  with 
all  of  them,  and  they  had,  none  of  them,  recommended  this  plan,  or  anything 
like  it,  under  the  national  defense  act,  and  we  did  not  recommend  it,  either. 
It  was  for  war  purposes  right  straight  through  from  the  start. 

Mr.  Parker.  I  forgot  to  ask  you  one  question.  You  stated  what  rent  was 
paid  by  the  Alabama  Power  Co.,  as  long  as  the  United  States  paid  for  power. 

Colonel  Joyes.  Yes,  sir. 

Mr.  Parker.  If  we  paid  for  no  power  what  did  the  Alabama  Power  C3o.  pay 
the  United  States? 

Colonel  Joyes.  The  Alabama  Power  Co.  is  not  obligated  to  pay  the  United 
States  a  rental  when  the  United  States  has  suspended  its  demand  for  power. 
They  still  have  to  take  care  of  the  property  and  to  keep  it  insured  and  repair 
damage  at  all  times.  But  if  they  use  the  power  machinery  for  their  own 
purposes,  and  they  have  done  so,  they  then  imy  us  IJ  mills  per  kilowatt-hour 
for  the  use  of  that  machinery.  In  other  words,  they  rent  the  machinery  from 
us  and  pay  1^  mills  per  kilowatt-hour  for  every  kilowatt-hour  of  the  iMJvver 
they  turn  out  for  their  own  purposes. 

Mr.  Parker.  Do  you  know  how  much  that  has  amounted  to  lately,  in  a  year? 

Colonel  Joyes.  It  is  variable,  but  I  was  informe<l  not  very  long  ago,  a  couple 
of  months  ago,  by  some  of  the  officers  here,  that  the  Alabama  Power  Co.  were 
operating  that  plant  up  to  above  100  per  cent  capacity.  I  do  not  know  how 
that  would  figure  out.  This  is  in  the  record  already.  It  would  amount  to  a 
perceptible  sum,  I  guess.  After  consulting  the  records  I  can  confirm  the  figure 
of  .$77,211.61.  given  by  Mr.  Martin,  for  the  year  1021,  as  substantially  correct. 
Final  reports,  adjusted  to  last  cent,  are  not  in  our  office  yet — but  it  was  cer- 
tainly over  $75,000. 

(Thereupon,  the  committee  adjourned  to  meet  Monday,  March  13,  1922,  at 
30.30  o'clock  a.  m.) 


I 


1092 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


1093 


%  Committee  on  Military  Affairs, 

House  of  Representatives. 

Monday,  March  13,  1922. 

The  committee  met  at  10.30  o'clock  a.  m.,  Hon.  Julius  Kahn  (chairman) 
presiding. 

STATEMENT  OF  COIi.   J.   W.   JOYES,   OKDNANCE  DEPARTMENT, 

UNITED  STATES  ARMY — Resumed. 

Mr.  FisHEB.  Who  was  it  in  1917  who  had  charge  of  the  study  of  the  nitrate 
situation  so  far  as  our  country  was  concerned,  in  the  War  Industries  Board? 
Was  there  a  committee  in  the  War  Industries  Board  that  had  charge  of  such 
matters? 

Colonel  JoYEs.  I  can  not  remember  at  this  moment  that  there  was  any  com- 
mittee in  the  War  Industries  Board  that  had  to  do  with  the  study  of  such 
matters.  Mr.  Baruch  himself  gave  considerable  attention  to  the  supply  of 
nitrates  and  was  very  active  in  consideration  of  that  and  in  pushing'  the 
fixation  methods.  He  was  active  in  forming— in  fact,  he  essentially  did  form, 
in  my  opinion,  the  international  committee  for  the  distribution  of  nitrate 
from  Chile — what  was  called  the  London  Executives — and  also  they  had  an 
American  board  to  control  the  distribution  of  Chilean  nitrate  in  so  far  as  the 
United  States  was  concerned— that  is,  to  state  the  United  States  requirements 
to  come  before  the  international  executives  against  the  requirements  of  the 
other  allies;  and  Mr.  Baruch  had  with  him,  as  his  immediate  assistants  on 
technical  matters,  including  nitrates,  Mr.  L.  L.  Summers  and  Mr.  Chase  and 
Mr.  MacDowell.  Mr.  L.  L.  Summers  and  Mr.  Chase — I  do  not  remember  Mr. 
Chase's  initials — but  he  and  Mr.  Summers  are  partners  in  New  York  City,  I 
thinks  as  consulting  engineers,  especially  on  chemical  processes.  He  is  con- 
MacDowell — Charles  H.  MacDowell — you  have  had  before  you.  He  is  con- 
nected with  the  Armour  Fertilizer  Works  and  I  think  is  now  president 
of  the  American  Fertilizer  Association.  Those  are  the  people  I  think  of 
now. 

As  to  the  study  of  fixation  processes,  there  was  a  committee  appointed  by  the 
National  Academy  of  Sciences  and  the  National  Research  Council  back  in 
1916,  and  that  sat  for  quite  a  while  and  made  a  report,  as  you  know.  That 
was  superseded  by  another  one  appointed,  I  think,  very  early  in  1917,  with 
some  of  the  same  members.  They  made  a  report  in  May,  1917,  and  that  Is 
the  one  under  which  we  started  to  work  and  built  the  No.  1  nitrate  plant. 
I  think  that  was  not  tied  in  with  the  War  Industries  Board.  That  is  my 
remembrance.  Later  on,  there  was  a  reconstituted  committee  appointed  by  the 
Secretary  of  War  in  1918  to  advise  on  certain  matters,  and  of  that  com- 
mittee Mr.  Summers,  of  the  War  Industries  Board,  was  a  member  at  that 
time  in  1918. 

Mr.  Fisher.  When  the  drive  came  on  your  department  to  tremendously  in- 
crease the  nitrate  supply,  with  whom  was  it  that  you  conferred?  Was  it  that 
committee  of  the  War  Industries  Board  that  you  conferred  with  before  you 
definitely  adopted  a  plan? 

Colonel  JoYES.  It  was  not  a  formal  committee,  but  there  was  a  meeting  held. 
The  first  I  heard  of  it  was  a  meeting  called,  I  think,  in  Mr.  Baruch's  own 
office,  and  I  am  quite  sure  that  both  Mr.  Summers  and  Mr,  Chase  were  present, 
probably,  also,  Mr.  MacDowell,  and  Majors  Burns  and  Backus,  Ordnance 
Department.  I  think  it  was  on  that  occasion  that  Colonel  Hoffer  was  present, 
who  was  in  charge  of  the  gun  and  ammunition  provision  for  the  Ordnance 
Departmeiit.  It  is  difficult  to  be  absolutely  certain  about  these  matters,  be- 
cause a  good  deal  of  time  has  passed,  but  at  any  rate  there  was  a  consulta- 
tion there  which  was  called  together  by  Mr.  Baruch  himself  to  consider  how 
to  provide  for  the  shell  filler,  especially,  that  was  stated  to  be  required  by 
Colonel  Hoffer.  He  was  the  man  who  brought  it  up.  I  think  that  has  been 
spread  pretty  fully  on  the  records  after  more  careful  search  and  therefore 
more  reliably  than  I  could  state  it  offhand  at  the  moment,  but  that  was  essen- 
tially the  situation. 

Mr.  Fisher.  Take,  for  instance,  the  contract  that  was  finally  signed  with 
the  Alabama  Power  Co.,  was  it  necessary  in  the  procedure  that  was  adopted 
in  the  War  Department  at  that  time  for  you  to  call  into  conference  or  have 
the  approval  of  other  officers  in  the  War  Department  besides  those  in  your 
immediate  division? 


Colonel  JoYES.  Oh,  yes;  indeed.  As  you  see,  my  immediate  division,  the 
Nitrate  Division,  did  not  even  sign  the  contract  and  did  not  even  draft  it.  We 
negotiated  with  the  man  who  drafted  the  contract,  Colonel  Williams,  and  who 
signed  it.  He  was  in  the  Procurement  Division.  It  had  been  thought  best  in  the 
reorganization  of  about  the  1st  of  January,  1918,  or  thereabouts,  to  put  all  the 
contracting  powers  in  one  division,  the  Procurement  Division,  which  was  behind 
by  Gen.  Samuel  McRoberts  (National  City  Bank)  and  contained  Col.  R.  P. 
Lamont,  Col.  Charles  N.  Black,  ex-Senator  Watson,  of  West  Virginia,  and 
other  business  men  of  large  caliber.  After  that  nobody  else  in  any  division 
signed  any  contract  or  placed  any  other  except  the  Procurement  Division. 
Anybody  who  had  his  requirements  stated  them  and  they  went  up  to  the  Pro- 
curement Division  to  be  met,  and  if  the  man  who  stated  his  requirements  knew 
of  a  way  to  get  them,  he  suggested  that ;  and  if  he  had  any  knowledge  or  was 
otherwise  in  a  position  to  assist,  he  went  up  and  helped  to  negotiate  or  led 
the  negotiations,  as  the  case  might  be.  In  our  case,  we  largely  led  the  negotia- 
tions ;  at  least,  we  prominently  assisted,  and  besides  Colonel  Williams,  who  was 
to  actually  sign  the  contract,  in  the  Procurement  Division,  there  were  several 
individual  officers  of  the  Procurement  Division  who  were  required  to  sign  as 
approving  the  arrangement  or  the  contract,  after  fully  drafted  and  completed.  I 
passed  in  a  page  of  approvals  on  the  last  day  I  was  here,  Friday,  which  showed 
just  the  names  of  those  officers  who  approved  it ;  and  in  addition  to  the  individu- 
als, there  was  an  approval  registered  on  that  sheet — I  think  it  was  called  the 
contract  board  of  review  of  the  Procurement  Division.  I  am  merely  referring  to 
that  now  and  not  naming  it,  because  it  appears  on  the  paper  which  I  sub- 
mitted, by  the  correct  name. 

At  that  time  I  did  not  pa.ss  in,  because  my  attention  for  the  moment  was 
diverted,  a  paper  which  I  have  on  the  table  here,  which  shows  where  I  applied 
for  clearance  on  the  contract  from  the  office  of  the  Purchase,  Storage  and  Traf- 
fic Division  of  the  War  Department,  General  Staff,  and  that  clearance  was 
granted.  There  was  also  a  clearance  which  had  to  be  obtained  from  them  by 
the  clearance  committee  of  the  War  Industries  Board,  as  a  final,  last  ratifica- 
tion. Here  is  a  paper  dated  November  8.  1918,  in  which  I  applied  to  the  clear- 
ance committee.  Purchase,  Storage  and  Traffic  Division,  General  Staff,  through 
Maj.  E.  B.  Glenny,  Ordnance  liaison  officer: 

"Subject:  Clearance  for  proposed  contract  with  Alabama  Power  Co.,  Bir- 
mingham, Ala.,  for  electric  energy,  etc. 

"1.  Clearance  by  the  clearance  committee  of  the  Purchase,  Storage  and 
Traffic  Division,  General  Staff,  and  by  the  clearance  committee,  War  Industries 
Board,  is  requested  for  a  proposed  contract  with  the  Alabama  Power  Co.,  Bir- 
mingham, for  the  furnishing  of  about  30,000  kilowatts  of  electrical  energy  for 
the  partial  operation  of  the  United  States  nitrate  plant  No.  2  at  Muscle  Shoals, 
Ala.,  and  for  other  uses  in  connection  with  the  production  of  ammonium  nitrate 
at  Muscle  Shoals  and  Sheffield,  Ala.,  a  draft  copy  of  which  contract  is  inclosed 
herewith. 

"  2.  To  furnish  the  power  requirements  at  nitrate  plant  No.  2,  now  estimate<l 
by  the  Air  Nitrates  Corporation  as  being  82,(XK)  kilowatts,  provision  was  made 
for  the  installation  of  a  60,000-kilowatt  steam  turbo  station  on  the  United  States 
reservation  acquired  for  said  nitrate  plant,  and  as  the  Alabama  Power  Co. 
had  a  recently  completed  steam  electric  generating  station  of  20,000  kilowatts 
capacity  located  on  the  Black  Warrior  River  near  the  coal  mines,  and  has  pro- 
vided in  the  original  construction,  water  intake,  subfoundation,  and  other  facili- 
ties required  for  a  proposed  future  extension  to  that  station,  and  could,  by  the 
construction  of  a  transmission  line  between  its  Warrior  generating  station  and 
IMuscle  Shoals,  supply  energy  for  construction  and  preliminary  operation  pur- 
poses, at  a  much  earlier  date  than  power  could  be  provided  for  at  Muscle  Shoals, 
it  was  considered  to  the  best  interest  of  the  Unitefl  States  to  take  advantage  of 
the  partially  constructed  facilities  at  the  Warrior  site,  and  to  use  them  to  the 
greatest  extent  possible  in  connection  with  the  installation  of  a  30,000-kilowatt 
Government  owned  unit  on  the  property  of  the  Alabama  Power  Co. 

"  3.  After  preliminary  negotiations  between  this  office  and  the  representatives 
of  the  Alabama  Power  Co.,  work  orders  were  issued  to  the  power  company  to  con- 
struct for  the  account  of  the  United  States,  a  30,000  kilowatt  extension  to  the 
power  company's  generating  station,  an  88-mile  transmission  line  from  Warrior 
to  Muscle  Shoals,  and  the  required  step-down  transformer  station  at  Muscle 
Shoals.  The  construction  work  progressed,  as  did  negotiations  with  the  com- 
pany pointing  toward  an  equitable  operating  arrangement,  and  suitable  provi- 
sion for  the  acquisition  of  the  additional  generating  capacity,  step-up  trans- 


I 


1094 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


1095 


m 


former  station,  and  other  facilities  at  the  Warrior  site,  at  some  future  time  by 
the  Alabama  Power  Go.  These  conditions  are  now  fully  embodied  in  the  at- 
tached draft  of  contract,  and  have  been  very  carefully  studied  by  legal  officers 
of  the  procurement  division,  and  others  specially  qualified,  so  that  every  assur- 
ance is  felt  that  the  agreement  embodies  the  best  conditions  possible  under  the 
circumstances  and  suitable  safeguards  for  the  interest  of  the  United  States. 

"  4.  Early  action  uixin  this  contract  is  requested,  particularly  in  view  of  the 
fact  that  power  in  greater  quantity  than  was  provided  in  a  temporary  power 
contract  entered  into  by  the  Air  Nitrates  Corporation  and  the  Alabama  Power 
Co.,  is  now  being  supplied  for  the  partial  operation  of  United  States  nitrate 
plant  No.  2. 

"  J.  W.  JOYES, 

"  Colonel,  Ordnance  Department,  United  States  Army." 

There  is  a  notation  below  that  over  the  signature  of  C.  F.  Beames,  major. 
Ordnance  Department,  U.  S.  A.,  one  of  my  assistants,  dated  November  12,  1918 : 

"  N0\'EMBER  12,  1918. 

"  Clearance  granted  November  9,  1918,  Army  No.  12835. 

*'  I  certify  clearance  to  contract  between  Alabama  Power  Co.  and  the  U.  S. 
No.  T.  69  was  granted  by  clearance  committee  and  given  clearance  Army  No. 
32835,  on  November  9,  1918. 

"  C.  F.  Beames, 
"  Major,  Ordnance  Department,  United  States  Army.'' 

That  is  the  record  of  the  clearance. 

Mr.  Fisher.  Coming  specifically  to  that  part  of  the  Alabama  Power  Co.  con- 
tract which  gave  to  them  the  option  to  buy  the  buildings  erected  by  the  Govern- 
ment, can  you  state  who  it  was  that  insisted  upon  that  provision?  Upon  whose 
insistence  did  that  provision  go  into  the  contract? 

Colonel  JoYES.  Well,  I  doubt  if  I  would  use  the  word  "  insistence,"  because  I 
think  both  sides  looked  upon  it  as  the  thing  to  do,  if  we  could. 

Mr.  Fisher.  Was  it  a  provision  that  had  been  included  in  any  other  contract? 
Was  it  included,  later,  in  any  other  contract  that  the  Government  entered  into 
for  like  work  or  like  construction? 

Colonel  JoYEs.  Yes,  sir;  it  was  quite  usual.  This  was  not  an  unprecedented 
contract  in  any  way,  shape,  or  manner  in  that  regard.  It  was  exactly  the 
same  kind  of  contract,  in  principle,  that  was  entered  into  in  many  other  cases, 
and  it  was  regarded  as  quite  normal.  They  had  various  differences  in  phrase- 
ology and  in  special  provisions,  but  it  was  quite  a  recognized  practice  and  con- 
sidered by  the  department  to  be  desirable.  I  have  a  letter  here  that  I  ran  into 
the  other  day  that  perhaps  would  be  significant  in  that  connection.  This  is  a 
letter  in  the  files  of  the  Ordnance  Department,  dated  May  3,  1919,  addressed  by 
the  Acting  Chief  of  Ordnance  to  the  Director  of  Operations  of  the  General  Staff, 
asking  a  certain  arrangement  for  the  settlement  of  contracts : 

"  May  3, 1919. 
"  From :  The  Ordnance  Department. 
"  To :  Director  of  Operations. 

"(Attention  of  Construction  Demobilization  Committee,  room  345,  State, 
War,  and  Navy  Building.) 
"  Subject :  Disposal  of  plants  built  for  and  by  the  Army  since  April  5,  1917. 

"  1.  Reference  is  made  to  your  memorandum  of  April  22  on  the  above  sub- 
ject A  partial  list  of  the  plants  on  which  a  considerable  amount  of  money  has 
been  spent  to  erect  buildings  and  fixtures  so  tied  to  the  land  that  separation 
would  be  diflicult  will  be  furnished  your  committee  shortly.  These  facilities 
are  grouped  under  district  offices  of  the  Ordnance  Department  under  whose 
general  control  they  come. 

"2.  With  regard  to  the  manner  in  which  these  facilities  were  acquired,  the 
Ordnance  Department  contracts,  as  a  rule,  were  production  contracts  made  on 
the  assumption  of  war  of  three  years'  duration.  Contracts  or  procurement 
orders  usually  contained  the  following  provisions : 

"(a)  As  the  primary  consideration,  production  of  a  large  amount  of  war 
material. 

"(6)  For  the  reason  that  the  contractor  was  experienced,  but  did  not  have 
sufficient  facilities  to  meet  the  demand  of  the  Government,  procurement  by  the 
contractor  of  (a)  land — as  a  manufacturing  site,  with  the  provisions  that  the 
lease  to  the  Government  would  be  nominal  and  that  the  Government  after  the 
war  or  termination  of  the  contract  would  first  give  the  contractor  preferential 
consideration  in  the  purchase  of  the  facilities  and  sell  them  to  him  or  remove 


the  facilities;  (6)  temporary  buildings  and  fixtures,  which  were  to  be  personal 
property  of  the  Government;  (c)  manufacturing  equipment,  which  was  to  be 
personal  property  of  the  Government. 

"  3.  The  conferences  preliminary  to  giving  orders  usually  were  conducted  on 
broad  principles.  The  duration  of  the  war  and  business  conditions  being  uncer- 
tain, agreement  by  the  contractor  to  purchase  the  buildings  and  fixtures  at  a 
determinable  price  after  the  war  was  not  considered  fair.  The  contractor  rep- 
resented that  he  wanted  to  buy  the  buildings  and  that  he  would  pay  a  better 
price  provided  he  was  allowed  to  specify  the  character  of  the  facilities  and  the 
construction  and  arrangement  of  the  buildings.  On  the  assumption  he  would 
do  this,  the  request  was  usually  allowed,  and  he  was  to  be  given  preferential 
treatment  if  the  buildings  were  sold.  As  a  general  rule,  the  buildings  were 
much  better  than  the  need  warranted,  and  much  better  than  would  have  been 
built  if  these  representations  had  not  been  made  by  the  contractor.  The  con- 
tractors in  most  cases  produced  a  small  amount  of  material  or  nothing. 

"  4.  As  a  rule  a  contractor's  existing  plant  was  modified  and  additions  were 
so  made  to  the  plant  that  efficient  production  would  result.  In  such  plants  the 
Government-owned  buildings  and  facilities  became  practically  a  part  of  the  con- 
tractor's plant.  Some  plants  were  built  in  such  a  manner  that  the  Government 
buildings  house  complete  processes  without  reference  to  the  contractor's  plant 
except  to  make  use  of  existing  transportation  facilities  and  utilities  such  as 
water  supply,  power  supply,  and  refuse  disposal." 

That  is  signed  by  W.  S.  Peirce,  brigadier  general.  Ordnance  Department, 
U.  S.  A.,  Acting  Chief  of  Ordnance.  That  is  all  that  I  copied  from  the  record, 
because  the  remainder  relates  merely  to  the  proposal  which  the  Ordnance  De- 
partment had  to  make  as  to  the  desirability  of  a  certain  method  of  settlement  of 
those  contracts. 

Now,  that  is  for  the  Ordnance  Department.  I  have  a  couple  of  publications 
that  came  out  in  1918  that  are  pertinent  to  this  particular  question,  and  may  be 
put  in  the  record  or  as  much  of  them  as  is  desired. 

On  August  3,  1918,  the  War  Department,  purchase,  storage,  and  traffic  divi- 
sion, of  the  General  Staff,  an  oflice  then  under  the  command  of  Maj.  Gen.  George 
W.  Goethals,  and  in  complete  control  of  all  matters  of  procurement,  whether  they 
actually  did  the  procurement  or  not,  issued  a  supply  bulletin  No.  13  headed : 

"Subject:  Contract  provisions  regarding  increased  manufacturing  facilities." 
It  began: 

"  1.  Where  increased  manufacturing  facilities  are  constructed  at  the  expense 
of  the  Government  or  where  their  cost  is  amortized  in  the  price  paid  by  the  Gov- 
ernment, the  contract  shall  provide  that  title  to  such  facilities  shall  vest  in  the 
United  States.  The  contractor  may  agree  to  take  such  facilities  at  a  fair  value  in 
diminution  of  the  profit  which  he  otherwise  would  make. 

"2.  Where  title  to  increased  manufacturing  facilities  vests  in  the  United 
States,  the  contract 'shall  provide  that  the  contractor  may  make  written  offer  to 
the  Government  to  purchase  such  facilities,  whereupon,  if  the  Government  ac- 
cepts such  offer  the  contractor  shall  become  obligated  to  pay  for  such  facilities 
at  their  appraised  value  at  that  time.  The  contract  shall  further  provide  that  if 
the  contractor  does  not  make  or  the  Government  does  not  accept  such  offer,  the 
Government  shall  have  the  right  to  remove  such  facilities  after  the  termination 
of  the  contract  within  a  time  reasonably  sufficient  to  effect  such  removal.  The 
contract  may  provide  that  the  Government  shall  have  an  option  at  the  termina- 
tion of  the  contract  to  purchase  at  an  appraised  value  the  land  on  which  such 
facilities  are  erected. 

"  3.  If,  in  any  case  of  such  increased  manufacturing  facilities,  it  is  desired  to 
make  a  contract  along  lines  different  from  those  herein  established,  the  approval 
of  the  superior  board  of  review  shall  first  be  secured. 

"  By  authority  of  the  Secretary  of  War. 

"  Geo.  W.  Goethals. 
"  Major  General,  Assistant  Chief  of  Staff. 
"  Director  of  Purchase,  Storage  and  Traffic." 

Here  is  another,  a  supply  circular  No.  128,  dated  December  13,  1918,  from 
the  same  office.  War  Department,  Purchase,  Storage  and  Traffic  Division, 
General  Staff.  This  is  likew'se  signed  by  Maj.  Gen.  Geo.  W.  Goethals. 
This  is  very  long.  It  begins  with  a  preamble,  "Attention  is  directed  to  the 
desirability  of  using,  where  applicable,  the  following  contract  provisions  on 
real  estate  and  structures  and  equipment  thereon."  There  is  so  much  of  this 
I  doubt  if  it  would  be  desirable  to  have  it  all  read.    Essentially,  it  is  giving 


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MUSCLE  SHOALS  PROPOSITIONS. 


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^^^w 


Standard  forms.  The  first  caption  is,  "Selection  and  purchase  of  site  of 
plant.  The  conti  actor  agrees  forthwith  to  select,"  etc.  That  is  in  case  where 
there  is  jictual  conveyance  of  the  land  in  fee  to  the  United  States, 

The  next  caption  is,  "Title  to  increased  facilities:  It  is  expressly  agreed 
that  the  buildings,  plant,  equipment,  machinery,  and  other  improvements,  etc., 
shall  become  the  sole  property  of  the  United  States  and  that  the  contractor 
shall  not  set  up  any  lien,  etc.,  against  them,"  etc. 

Mr.  Fisher.  Colonel,  have  any  steps  been  taken  whatsoever  under  the 
Alabama  Power  Co.  contract  to  make  settlement  accorded  to  the  means  pro- 
vided under  the  terms  of  the  contract? 

Colonel  JoYEs.  Not  to  my  knowledge,  sir.  The  matter  has  not  been  m  my 
charge  in  the  period  you  refer  to,  since  fairly  early  in  1919.  I  had  some 
connection  with  the  matter  of  the  nitrate  business  after  that  time,  but  the 
control  was  vested  in  Mr.  Arthur  Glasgow  and  Mr.  George  J.  Roberts,  civilians, 
in  order  that  they  might  try  and  find  a  business  arrangement.  Subsequently 
Maj.  J.  H.  Burns  has  been  in  charge.  . 

Mr.  Fisher.  In  the  construction  of  the  steam  power  plant  as  a  part  of  nitrate 
plant  No.  2,  does  that  generate  power  sufficient  to  carry  nitrate  plant  No.  2 

as  a  going  concern?  ,  .  ,    .       ^     ...    ^ 

Colonel  JoYES.  You   are  referring  to  the  steam  plant  which  is  at  nitrate 

plant  No.  2?  ,  v.  ^     ,     .. 

Mr.  FiSHEK.  How  much  power  can  be  generated  at  the  powerhouse  at  plant 

No.  2?  .  ^    . 

Colonel  JoYEs.  That  is  rated  at  60,000  kilowatts,  at  a  certain  power  factor. 
There  was,  of  course,  a  rating  given  to  it  in  kilo-volt  amperes,  which  is  a  some- 
what different  proposition  on  account  of  the  power  factor.  The  voltage  and 
the  amperage  being  not  in  phase  exactly  will  make  a  little  less  rendition  in 
kilowatts  than  would  be  the  product  of  the  volts  and  amperes.  The  units 
there,  as  I  remember  it,  are  rated  as  something  like  66.000  k.  v.  a.,  and  it  is 
something  like  that,  but  I  believe  that  unit  is  capable  of  running  a  little  over- 
load: essentiallv,  all  units  are,  but  I  would  not  say  that  that  should  be  run 
continuouslv  at  much  over  60,000  kilowatts  with  such  a  power  factor  as  it 
wUl  probably  have.  That  is  about  as  much  as  it  ought  to  give.  That  is  about 
80,000  horsepower,  and  I  believe  the  full  power  required  for  full  rated  pro- 
duction, 110,000  tons  of  ammonium  nitrate  per  year,  requires— well,  it  has 
been  variously  figured  and  there  is  a  little  discussion  and  uncertainty  as  to 
just  how  much  power  is  really  required,  but  it  has  been  variously  stated  at 
various  places  between  82,000  and  100,000.  I  think  it  comes,  myself,  fairly  well 
up  toward  100,000.  I  notice  that  there  has  been  the  statement  made  that 
the  60,000  kilowatt  unit  at  the  plant  would  run  the  plant,  and  it  may  be 
possible  that  it  would  skim  through,  for  some  such  reasons  as  these:  That 
the  apparatus  might  give  a  larger  yield  for  a  given  input  of  electric  power 
than  was  indicated  by  the  trial  test,  when  it  got  to  going  smoothly.  That 
is  problematical.  Again,  that  statement  may  have  been  predicated  upon  the 
running  of  the  steam  power  plant  a  little  overload.  As  to  that,  I  really  can  not 
say,  but  I  should  say  that  it  needs  a  little  more  power  than  is  really  present 
in  the  generating  unit  of  the  steam  power  plant  of  nitrate  plant  No.  2  to  pro- 
duce is  full  rated  production. 

Mr.  Fisher.  Have  you  examined 

Colonel  JoYEs  (continuing).  We  changed  the  plan  of  that  power  plant  early 
in  its  construction  and  increased  the  size  of  it  so  that  there  was  ample  room 
in  the  electric  generating  room  to  put  in  another  unit.  Something  on  the  order 
of  a  30,000-kilowatt  unit  could  be  put  in  there.  There  is  ample  space.  The 
boiler  capacity  is  sufficient  to  carry  it.  There  is  always  put  in  boiler  capacity 
that  is  expected  to  be  carried  as  spare  usually,  and  we  have  there  12  boilers,  3 
of  which  were  put  in  after  the  original  plans  were  made,  with  the  expectation 
that  that  would  be  a  more  liberal  allowance  of  spares  and  at  the  same  time 
would  provide  steam  enough  for  an  additional  30,000  unit  if  it  were  found 
necessary  at  any  time. 

Mr.  Fishes.  Have  you  examined  the  Ford  offer? 

Colonel  JoYES.  Yes,  sir;  sketchily.    I  would  not  say  I  have  studied  it. 

Mr.  Fisher.  Particularly  as  to  the  provision  in  the  Ford  offer  which  offers 
to  keep  the  nitrate  plant  No.  2  as  an  operating  chemical  plant,  so  that  the 
Government  can  have  it  as  a  laboratory  for  its  officers  or  employees,  would 
you  say  that  the  provisions  of  that  offer  would  mean  nitrate  preparedness 
for  our  country? 


Colonel  JoYES.  I  think  that  is  a  highly  advantageous  provision  in  his  con- 
tract, and  I  think  that  would  be  a  very  useful  contribution  toward  prepared- 
ness as  to  nitrogen  provision  of  the  United  States.  Its  research-laboratory 
feature  I  regard  as  very  desirable,  and  the  fact  that  it  keeps  the  plant  in 
readiness  to  produce  up  to  its  full  capacity  of  the  product  for  which  it  was 
built  is  also  a  very  desirable  provision,  and  in  so  far  as  the  capacity  goes,  it 
is  protection  for  the  United  States.  That  is  not,  however,  to  be  regardeil 
as  providing  all  that  the  United  States  would  need  in  that  regard.  I  qualify 
that  because,  to  be  entirely  and  absolutely  safe  in  the  matter  of  nitrogen  from 
the  military  munitions  standpoint,  that  is  not  all  that  is  required.  It  is  not 
complete  independence  of  Chile,  as  the  people  speak  of  it,  for  several  reasons. 
It  is  not  a  sufficient  quantity  and  the  product  is  not  brought  to  the  final  state 
which  makes  it  available  for  all  processes.  The  ultimate  product — ammonium 
nitrate — was  what  we  were  after  in  1917  and  1918.  That  would  not,  however, 
be  what  we  might  want  at  another  time.  It  would  not  help  us  one  iota  in  the 
manufacture  of  smokeless  powder,  because  smokeless  powder  requires  to  be 
made  out  of  cotton  or  paper  pulp  or  a  similar  cellulose  material,  and  to  be 
nitrated  with  nitric  acid;  and  not  only  that,  it  must  be  strong  nitric  acid, 
a  concentrated  nitric  acid,  and  there  is  no  provision  at  nitrate  plant  No.  2 
for  concentrating  the  acid.  It  comes  to  a  strength  in  the  towers  of  about  50 
per  cent  HN03,  and  the  rest  is  water,  and  I  think  that  is  about  as  high  as  it 
can  go  and  probably  higher  than  will  be  done  in  actual  practice  ordinarily. 
To  use  that  in  smokeless-powder  manufacture  it  must  be  stronger.  To  ship  it 
to  another  point  it  must  be  stronger,  because  the  weak  nitric  acid  corrodes 
iron,  while  the  strong  nitric  acid  will  not.  There  is  a  peculiar  situation  in 
that  regard.  You  see  therefore  the  reasons  why  I  qualify  my  statement  as  to 
"  full  preparedness,"  but  it  would  be  a  moat  desirable  step  toward  preparedness. 

Mr.  Fisher.  If  the  Congress  fails  to  accept  .the  Ford  offer,  has  the  Ordnance 
Department  or  the  War  Department,  to  your  knowledge,  any  program  for  the 
production  of  nitrates? 

Colonel  JoYES.  I  have  no  personal  knowledge  of  any  program  that  the  War 
Department  would  have  to  propose  at  this  time.  The  War  Department  did  pro- 
pose the  authorization  by  Congress  of  a  corporation  to  take  over  and  operate 
the  power  of  the  Wilson  Dam  and  all  the  nitrate  properties,  together  with  such 
cash  as  remained  on  the  books,  about  $1,500,000  or  so,  under  the  old  $20,000,000 
appropriation,  in  return  for  receiving  which  this  corporation  was  to  issue 
common  stock  which  was  to  go  to  the  United  States  in  toto.  Then  they  were 
to  have  as  an  operating  capital  about  $12,000,000,  w^hich  was  to  be  provided  by 
the  United  States  and  the  return  for  which  w^as  to  be  preferred  stock  issued  to 
the  United  States  in  toto.  In  other  words,  no  one  should  own  any  stock  in  the 
corporation  except  the  United  States.  The  directors  were  provided  for  and  all 
that  sort  of  thing.  It  was  also  proposed  that  to  get  the  operating  capital  of 
some  $12,000,  a  certain  amount  of  Chilean  nitrate  in  storage  would  be  marketed 
instead  of  trying  to  raise  the  money.  That  was  passed  in  modified  form  by  the 
Senate,  I  think,  in  the  session  of  1919 — I  can  not  remember  whether  that  was 
1919-1920  or  1920-1921,  but  it  was  passed  by  the  Senate  in  modifie<l  form  and 
failed  to  come  up  in  the  House  to  a  vote.  Since  then  I  believe  there  has  been 
no  effort  to  revive  it  on  the  part  of  the  War  Department. 

Mr.  Wright.  Colonel,  when  did  you  locate  nitrate  plant  No.  2? 

Colonel  JoYEs.  About  from  the  20th  to  the  23d  of  November,  1917.  It  was 
essentially  decided  that  it  would  go  to  the  vicinity  of  Muscle  Shoals  when  the 
proposal  was  accepted  in  the  office  of  the  Chief  of  Ordnance  and  by  him  on  the 
13th  of  November.  It  was  practically  a  foregone  conclusion  at  that  time, 
although  it  was  not  definitely  settled,  that  it  would  all  go  there  as  a  single  plant. 

Mr.  Wright.  When  did  you  actually  lay  it  out  and  go  down  there  and  take 
possession  of  the  land? 

Colonel  JoYES.  My  first  answer  covers  that  question,  about  the  20th  to  the 
23d. 

Mr.  Wright.  In  doing  that,  under  what  law  were  you  operating? 

Colonel  JoYES.  Under  the  general  laws  which  allowed  the  President  to  make 
provision  of  munitions  for  the  war,  under  the  appropriation  act  for  the  arma- 
ment of  fortifications. 

Mr.  Wright.  If  you  were  doing  that,  why  did  you  have  an  allotment  made 
out  of  this  $20,000,000  fund  created  by  the  national  defense  act  of  June,  1916, 
set  apart  with  which  to  buy  the  very  ground  you  were  going  to  place  the  nitrate 
plant  on? 


I 


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MUSCLE  SHOALS  PROPOSITIONS. 


1099 


ri 


■ii 


Colonel  .ToYEs.  Because  of  the  feeling  and  the  decisions  and  instructions  that 
were  given  by  those  in  authority  that  we  practically  could  not  use  the  general 
appropriations  for  the  purchase  of  land ;  and  that  was  barred,  in  so  far  as  law 
went,  by  two  sections  of  the  Revised  Statutes,  which  caused  the  great  trouble 
there,  section  355  and  section  3736;  355  was  about  the  examination  of  title  and 
certification  l\v  tlie  Attorney  General  and  permission  of  the  State  before  any- 
thing could  be  done  to  improve  land,  and  then  the  other,  section  3736,  was  that 
no  land  should  be  purchased  except  by  specific  act  of  Congress  mentioning  the 
land  specifically. 

Mr.  Wright.  Colonel,  did  you  have  much  trouble  acquiring  land,  even  in  the 
early  stages  of  the  war?  How  did  you  get  possession  of  all  these  vast  tracts 
on  which  you  constructed  cantonments  and  other  war  activities?  Did  you  just 
go  out  and  take  them? 

Colonel  JoYEs.  Congress  passed  on  July  2,  1917,  a  law  which  provided  for 
what  they  undoubteilly  figured  w^ould  be  the  most  urgent  neeils.  At  that  time 
nobody  swmed  to  have  thought,  for  some  unaccountable  reason,  of  the  munitions 
program,  but  they  passed  a  law  at  that  time  which  suspended  section  355  of 
the  Revised  Statutes  and  which  authorized  the  President  to  take  possession 
permanently  or  temporarily  of  any  lands  that  were  required  for  three  things— 
the  military  camps,  the  coast  defenses,  and  fortifications.  I  am  not  attempting 
to  quote  the  language,  but  there  were  three  things  mentione<l.  I  put  the  section 
in  evidence  the  other  day,  and  perhaps  I  had  better  speak  from  the  book. 

Mr.  Wright.  If  that  is  already  in  tlie  record,  I  do  not  want  it  repeated. 

Colonel  JoYES.  It  is  already  in  the  record. 

Mr.  Wright.  Well,  stop  right  there  on  that. 

Cohmel  .Toyes.  The  language  of  the  law  of  1917  is  right  here  at  the  bottom 
of  this  sheet  [indicating]. 

Mr.  Wright.  Now,  colonel,  if  .vou  had  $200,000  set  apart,  out  of  the  national 
defense  fund  with  which  to  buy  the  land,  how  were  you  going  to  pay  for  the  con- 
struction work  down  there  on  nitrate  plant  No.  2? 

Colonel  Joyes.  The  instructions  were  just  this:  I  was  given  allotments  out 
of  the  appropriation  which  is  oflicially  known  as  armament  of  fortifications  C. 
That  is  the  subhead  of  the  armament  of  fortifications  appropriation  which  has 
to  do  with  the  providing  of  ammunition  for  various  kinds  of  cannon,  and  that 
was  to  cover  all  the  expenses  of  the  plant.  The  only  reason  for  taking  the 
$200,0(X)  allotment  out  of  nitrate  plant  money;  that  is,  the  $20,000,000  of  the 
national  defense  act  was  that  that  was  the  only  place  we  could  see  where 
we  could  get  any  authority  to  buy  the  land.  It  was  used  in  the  same  way 
in  other  places.  '  I  know  we  drew  upon  it  for  the  land  for  the  nitrate  plants 
in  Ohio,  and  had  an  allotment  set  up  in  the  same  way  there ;  but  before  we 
came  to  spend  the  money  a  new  law  had  been  passed,  and  there  was  authority 
for  getting  the  land  from  armament  of  fortifications,  and  we  had  the  allot- 
ments revoked  in  the  same  amounts  originally  made,  and  we  had  new  allot- 
ments made  from  armament  of  fortifications,  and  paid  for  the  land  out  of  those 
allotments.  To  show  you  the  situation  as  to  land.  I  was  called  on  several 
times  to  consent  to  a  request  upon  the  President  to  allot  certain  sums  out  of 
the  $20,000,000  for  the  purchase  of  land  at  various  places  for  various  needs 
of  the  Ordnance  Department.  I  know  it  was  considered— I  am  positive  it 
was  considered  and  I  was  consulted  about  it,  where  it  was  actually  done  or 
not— that  money  should  be  taken  from  that  $20,000,000  to  buy  land  at  Perry- 
ville  for  that  plant  to  make  ammonium  nitrate  by  other  than  a  fixation  process, 
a  nonfixation  process,  and  for,  I  think,  one  of  the  big  powder  plants  at  Nitro 
or  Old  Hickorv:  I  do  not  remember  now  positively.  I  do  not  think  a  cent  of 
money  was  spent  for  any  such  purpose  out  of  the  $20,000,000.  but  I  know  it 
was  considered  and  I  was  consulted  about  it. 

Mr.  Wright.  Is  it  not  a  fact,  colonel,  that  when  you  were  locating  this 
nitrate  plant  that  the  only  authority  of  law  you  had  for  doing  so  was  the 
national  defense  act  of  1916,  and  that,  regardless  of  where  the  money  was  to 
be  derived  with  which  you  would  pay  for  the  construction,  that  the  authority 
for  establishing  these  plants  was  derived  from  the  act  of  1916? 

Colonel  Joyes.  I  would  not  say  the  authority  for  establishing  the  plants. 
It  could  hardly  be  said,  I  believe,  that  the  authority  for  establishing  the  plant 
could  be  given  by  the  national  defense  act,  which  appropriated  only  $20,000,000. 
We  knew  we  could  not  do  it  with  that. 

Mr.  Wright.  I  am  not  talking  about  the  fund  so  much. 

Colonel  .Toyes.  I  question  whether  we  had  any  authority  of  law. 


Mr.  Wright.  I  am  not  talking  al>out  the  fund  with  which  you  were  going 
to  pay  for  this  work  so  much  as  the  authority  you  had  for  slarting  the  work. 

Colonel  Joyes.  I  am  frank  to  say  to  you  tliat  I  think  tliere  was  very  (|ues- 
tionable  authority  for  doing  it. 

Mr.  Wrk.ht.  Did  you  know  exactly  where  you  were  wlien  you  were  estab- 
lishing these  plants,  as  a  matter  of  legality? 

Colonel  Joyes.  We  had  a  pretty  fair  idea  that  we  were  working  with  very 
little  backing  in  law  or  legislation  for  all  the  things  we  were  called  upon  and 
requirtnl  to  do. 

Mr.  Wright.  But  the  best  legislation  you  had,  so  far  as  these  nitrate  plants 
were  concerned,  was  the  national-defense  act  of  1916,  and  tlie  evidence  of 
that  is  that  the  very  money  with  which  you  were  to  pay  for  tlu»  land  was 
allotted  out  of  the  national-defense  fund. 

Colonel  .Toyes.  We  did  that,  sir;  not  because  it  was  authority  for  anything 
carrying  the  word  "  nitrogen  "  or  "  nitrate  "  but  because  it  carried  the  word 
"  land,"    That  was  the  only  reason,  sir. 

Mr.  Wright.  The  land  could  only  be  used,  if  you  paid  for  it  out  of  the 
$20,0()0,0(X)  for  nitrate  purposes,  for  the  establishment  of  nitrate  plants.  You 
would  not  have  been  authorized,  in  other  words,  to  have  taken  part  of  that 
$20,000,000  created  by  the  national-defense  act  of  1916  and  built  a  cantonment 
on  the  land  or  to  have  bought  the  land  and  built  a  cantonment  on  it. 

Colonel  Joyes.  I  do  not  think  we  would  have  gone  quite  that  far,  sir ;  but  I 
know  that  they  had  their  eyes  on  it  for  other  things  than  fixation  processes,  as 
I  told  you. 

Mr.  Wright.  Now,  your  idea  is  that  the  sole  means  by  which  to  determine 
under  what  law  these  plants  were  constructed,  especially  nitrate  plant  No.  2, 
would  be  with  reference  to  the  funds  with  which  they  were  paid  for? 

Colonel  Joyes.  I  think  that  is  a  legitimate  assumption. 

Mr.  Wright.  That  is  your  idea  about  the  whole  situation? 

Colonel  Joyes.  That  is  my  belief,  sir. 

Mr.  Wright.  And  that  is  the  reason  you  claim  now  that  nitrate  plant  No.  2 
was  not  constructed  with  reference  to  the  national-defense  act  of  1916? 

Colonel  Joyes.  Yes,  sir. 

Mr.  Wright,  l^ecause  it  was  not  paid  for  out  of  those  funds? 

Colonel  Joyes.  That  is  my  belief.  I  am  not  claiming  anything,  sir.  I  am 
not  making  any  advocacy  of  any  particular  point  of  view.  I  am  simply  giving 
you  what  light  I  can  on  it.  That  was  the  intent  we  went  under.  What  I  am 
here  to  say  is  that  the  whole  reason 

Mr.  Wright  (interposing).  Colonel,  let  us  understand  one  another.  I  am 
not  here  to  criticize  you,  I  am  going  to  assume 

Colonel  Joyes.  I  am  not  looking  for  it. 

Mr.  Wright.  I  am  going  to  assume  that  with  the  situation  surrounding  you, 
you  evolved  out  of  this  situation  the  best  contract  you  could. 

Colonel  Joyes.  We  tried  to.    What  I  would  like  to  say  to  you  is 

Mr.  Wright  (interposing).  And  what  I  mean  by  the  situation  is  that  your 
contracting  party  was  pretty  difficult  to  deal  with. 

Colonel  Joyes.  Oh,  yes,  sir. 

Mr.  Wright.  You  said  here,  last  week,  that  the  Alabama  Power  Co.  sub- 
mitted some  suggestions  in  the  drafting  of  this  contract  that  you  could  not 
meet. 

Colonel  Joyes.  Yes,  sir. 

Mr.  Wright.  Now  tell  us  some  of  the  claims  they  put  up  while  you  were 
negotiating  with  them,  if  you  recall  them? 

Colonel  Joyes.  That  is  a  pretty  hard  thing  to  come  back  to,  sir,  from  such  a 
long  distance  of  time,  but  I  will  do  my'best. 

Mr.  Wright.  Well,  I  suppose  some  of  those  suggestions  stood  out  promi- 
nently. ^What  were  the  ones  that  impressed  you  during  these  negotiations, 
as  to  the  claim  they  were  making  or  their  insistence  on  what  they  wanted, 
and  so  on,  that  you  did  not  think  could  be  met?  I  am  trying  to  get  the  attitude 
of  the  party  you  were  contracting  with.    That  is  what  I  want. 

Colonel  Joyes.  I  know.  I  had  some  extracts,  sir,  from  the  earlier  attempts 
at  a  contract  that  might  have  helped  a  little  bit  on  that.  Well,  for  one  thing, 
the  president  of  the  Alabama  Power  Co.,  Mr.  Mitchell,  in  some  of  the  very 
earlier  talks  had  suggested  or  had  hinted  at  some  improvement  of  the  water 
powers  in  Alabama  as  a  means  to  help  out,  and  I  told  him  we  could  not  think 
about  that. 


» 


1100 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


1101 


.jH|}' 


Mr.  Wright.  What  were  those  water  powers,  some  that  they  controlled? 

Colonel  JoYEs.  Yes,  sir;  I  believe  so,  along  the  Coosa.  Most  of  the  difficul- 
ties we  had  with  them  were  over  little  things  that  were  coming  up.  For 
instance,  they  would  want  us  to  put  in  a  little  bit  more  than  we  thought  we 
ought  to  put  in. 

Mr.  Wright.  What  do  you  mean  by  "  a  little  bit "? 

Colonel  JoYEs.  Sometimes  I  mean  a  very  little  bit  and  sometimes  I  mean  a 
big  bit.  That  was  not  an  accurate  expression,  Mr.  Wright.  I  should  not  have 
used  it.  I  mean,  for  one  thing,  in  the  beginning  it  was  represented  that  we 
ought  to  put  in  two  turbogenerators  down  there  in  order  that  one  might  be  a 

spare. 

Mr.  Wright.  That  turbogenerator  would  cost  about  $1,500,000,  would  it  not? 

Colonel  JoYES.  No,  sir ;  the  turbogenerator  costs  about  $350,000. 

Mr.  Wright.  But  installed  it  would  cost  about  $1,500,000? 

Colonel  JoYEs.  Installed,  it  would  cost  considerable. 

Mr.  Wright.  And  that  was  one  of  the  little  things? 

Colonel  JoYES.  No,  sir ;  I  told  you  that  I  used  that  word  inadvertently. 

Mr.  Wright.  Then  let  us  withdraw  that. 

Colonel  JoYEs.  It  would  have  been  better  not  to  use  that  word.  Then  they 
stood  out  for  more  boiler  capacity  than  we  wanted  to  put  in,  and  we  ultimately 
put  in  more  than  I  would  have  liked  to  put  in,  but  some  of  my  own  advisers 
finally  brought  me  around  to  that,  showing  that  we  would  be  in  a  better  posi- 
tion as  to  the  assurance  of  our  power  if  we  put  in  a  little  more  liberal  boiler 
canacitv 

Mr.  Wright.  Right  there,  Colonel,  you  had  a  good  deal  of  difficulty  in  stand- 
ing between  these  people  and  the  Government's  interest,  did  you  not,  all  along? 

Colonel  JoYEs.  I  do  not  think  I  would  ever  willingly  go  into  such  a  proposi- 
tion and  I  did  not  go  into  it  willingly. 

Mr.  Wright.  I  say,  you  had  great  difficulty.  It  was  a  hard  task  that  you 
had  to  protect  the  Government's  interest  as  against  these  people  with  whom  you 
were  contracting,  the  Alabama  Power  Co. 

Colonel  JoYES.  It  was  hard ;  yes,  sir. 

Mr.  Wright.  Right  there.  Colonel,  really  all  you  wanted  was  a  little  auxiliary 
power  to  come  from  this  plant? 

Colonel  JoYEs.  Quite  a  good  deal  of  auxiliary  power. 

Mr.  Wright.  Well,  some  auxiliary  power  to  supplement  your  steam  plant  at 
nitrate  plant  No.  2,  the  one  you  were  constructing? 

Colonel  JoYES.  No ;  that  is  not  quite  the  set-up.  What  we  really  needed  was 
enough  power  to  put  our  first  half  of  the  plant  into  production  and  be  able  to 
furnish  the  auunonium  nitrate  that  our  people  were  short  on  at  the  time,  when 
the  chemical  plant  was  expected  to  be  ready  to  produce  it. 

Mr.  Wright.  Well,  the  point  is  that  you  did  not  anticipate  going  into  the 
improvement  of  the  Gorgas  steam  plant  on  the  Warrior  River  on  as  large  a 
scale  as  they  wanted  you  to  go  into  it. 

Colonel  .ToYES.  Not  quite,  sir.  I  would  not  have  ever  willingly  spent  a  penny 
for  any  such  purpose  as  that  if  I  possibly  could  have  avoided  it. 

I^Ir.  Wright.  In  other  words,  they  impressed  you  with  the  fact  that  they 
had  built  this  plant  for  the  future;  that  they  had  installed  a  plant  there,  and 
tlieir  idea  was  to  increase  it  for  the  future  and  they  wanted  to  get  you  t/>  enter 
into  a  contract  with  them  by  which  they  could  do  that. 

Colonel  JoYES.  Well,  I  do  not  think  there  is  any  doubt  whatever  in  the  world 
that  the  Alabama  Power  Co.  was  quite  glad  we  came  in  there  and  did  it.  I 
do  not  doubt  it  at  all.  They  had  planned,  as  I  have  said,  the  improvements, 
and  they  had  ordered  their  turbine.  They  had  their  turbine  under  order,  and 
some  other  stuff.  I  noticed  in  the  hearings  the  other  day  that  their  president 
said  one  piece  of  apparatus  he  had  been  actually  forced  to  buy  and  had  it  in 
his  plant,  because  he  could  not  cancel  his  order,  and  they  had  not  been  able 
to  put  that  in,  or  had  not  done  so.  Their  reasons  for  not  doing  it  were  their 
own,  and  I  really  am  not  able  to  speak,  but  the  general  presumption  was  that 
perhaps  they  were  not  quite  ready  for  it  in  their  business  and  perhaps  they 
could  not  get  the  money,  either  one  or  both. 

Mr.  Wright.  Now,  you  have  mentioned  the  fact  that  one  suggestion  they 
made  was  to  improve  their  water  power  and  the  next  one  was  that  they  wanted 
two  of  these — what  do  you  call  them? 

Colonel  JoYES.  Turbo  generators. 

Mr.  Wright.  Two  of  these  turbo  generators  installed  instead  of  one.  Now, 
what  were  some  of  the  other  things  that  they  suggested? 


Colonel  JoYES.  I  have  told  you  that  they  advised  or  recommended  or  asked 
for  more  liberal  boiler  capacity  than 

Mr.  Wright  (interposing).  Than  you  thought  the  plant  required? 

Colonel  JoYES.  Than  I  thought  at  first  the  plant  required,  an<l  then  they 
asked  more  in  the  way  of  auxiliary  improvements,  such  as  are  always  necessary 
to  the  rimning  of  a  power  plant  in  an  isolated  place  like  that. 

Ur.  Wright.  Well,  did  you  have  much  difficulty  in  reaching  an  agreement 
with  them^bout  this  sale  proposition— section  22  of  the  contract,  I  believe  it 
jg, — which  you  have  analyzed  here? 

Colonel  JoYEs.  As  I  remember  it  there  was  a  considerable  amount  of  diffi- 
culty in  reaching  anything  like  an  agreement,  mostly  as  to  the  methods,  the 
time,  etc.  As  you  know,  in  their  very  first  proposal  they  said  they  would  put 
in  at  their  own  cost  an  extension  tc  their  plant  to  support  our  power  require- 
ments provided  we  would  make  them  or  get  them  a  loan.  Then  there  were 
various  other  ways  that  we  thought  of  to  try  to  achieve  the  same  end.  As  I 
said  the  other  day,  we  sent  them  around  to  the  War  Finance  Corporation  or 
AVar  Credits  Board  with  one  of  my  officers  to  see  if  they  could  not  get  something 

in  that  way. 

Mr.  Wright.  Now,  going  back  a  minute.  I  believe  you  said  last  week  that  the 
first  mention  you  recall  of  the  Alabama  Power  Co.  in  this  project  came 
through  the  American  Cyanamid  Co.  ? 

Colonel  JoYEs.  Yes,  sir ;  I  believe  so. 

Mr.  Wright.  AVas  that  directly  to  you  or  your  department  from  the  American 
Cyanamid  Co.  or  was  it  the  Alabama  Power  Co.'s  offer  mentioning  the  fact 
that  their  atteiition  had  been  called  to  the  matter  by  the  American  Cyana- 
mid Co.? 

Colonel  JoYES.  Their  name  was  mentioned  in  those  letters  or  proposals  from 
the  American  Cyanamid  Co.  of  various  dates. 

Mr.  Wright.  Can  you  give  us  the  date  of  that? 

Colonel  JoYEs.  They  were  at  various  dates,  from  October  29  up  to  November 
13.  and  in  several  of  tho.se  the  Alabama  Power  Co.'s  system  is  mentioned. 

Mr.  Wright.  Have  you  inserted  those  letters  in  the  record? 

Colonel  JoYEs.  They  are  all  in  the  record  of  Mr.  Graham's  sul>committee  on 
ordnance  war  expenditures. 

Mr.  Wright.  I  would  like  to  get  those  dates  in  this  record. 

Colonel  JoYES.  I  am  sure  it  is  mentioned  in  there.  The  first  I  heard 
directly  from  the  Alabama  Power  Co.  was  in  a  letter  from  them.  Now,  I  can 
not  remember,  but  I  think  it  is  likely  that 

Mr.  Wright  (interposing).  But  the  first  suggestion 

Colonel  JoYES  (interposing).  Pardon  me;  I  would  like  to  correct  one  thing 
I  said  the  other  day.  I  think- it  is  likely  I  said  the  other  day  that  the  first 
communication  I  had  from  them  was  their  proposal  dated  November  6  or 
thereabouts,  but  I  found  accidentally  in  looking  at  the  files  the  other  day  that 
there  was  an  earlier  letter  of  November  1,  1917.  That  is  a  difference  of' about 
five  days,  but  I  would  like  to  have  it  as  exact  as  possible.  That  was  a  general 
statement  that  their  attention  had  been  called  to  the  situation,  and  so  on. 
That  was  about  all. 

Mr.  Wright.  It  might  become  material,  Mr.  Chairman,  to  get  these  dates 
in  the  record.  I  do  not  think  they  are  in  the  record.  That  is,  the  dates  of  this 
correspondence  between  the  department  and  the  American  Cyanamid  Co.  and 
the  Alabama  Power  Co.  and  the  department. 

The  Chairman.  As  I  recall,  when  we  took  up  this  matter  originally  most 
of  these  dates  were  put  in  the  record. 

Mr.  Wright.  No,  sir ;  he  refers  here  to  the  report  of  the  Graham  committee 
and  says  they  are  in  there,  but  I  understand  they  are  not  in  this  record. 

The  Chairman.  Can  you  give  the  dates? 

Colonel  JoYEs.  May  I  refresh  my  memory  from  this  record  of  the  Graham 
committee  for  a  moment?    I  do  not  know  whether  it  is  in  this  volinne  or  not. 

Mr.  Wright.  I  do  not  care  to  consume  the  time  by  waiting  for  that  now. 

The  Chairman.  Colonel,^ can  you  get  those  dates? 

Colonel  JoYES.  Oh,  absolutely;  yes,  sir. 

The  Chairman.  And  will  you  please  put  them  in  the  record  ? 

Colonel  JoYEs.  I  will  be  very  glad  to  do  so,  Mr.  Kahn.  That  is  very  simple, 
and  they  are  very  closely  connected,  and  they  are  all  embraced  absolutely  in 
between  about  October  29  and  November  13. 

Mr.  Parker.  Are  the  letters  short? 

Colonel  JoYEs.  No,  sir;  the  letters  are  quite  long. 


I 


I 


1102 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


1103 


■i 


Mr.  Parker.  You  spoke  of  a  letter  in  which  they  offered  to  build  an  extension 
if  you*  would  lend  the  money.    Was  that  in  a  letter? 

Colonel  JoYEs.  Yes,  sir;  that  is  a  letter  that  would  occupy  about  a  page  of 
the  record  of  the  hearings. 

Mr.  Parker.  I  would  like  to  see  such  an  important  matter  as  that  put  in  just 
as  it  is. 

Colonel  JoYES.  Very  well,  sir. 

(The  witness  subsequently  submitted  the  following:) 

Memorandum :  Citations  of  mentions  of  or  allusions  to  loan  as  bftsis  of  addi- 
tional facilities  Alabama  Power  Co.  system. 

The  following  documents  pertinent  are  listed  for  convenience  of  reference,  as 
they  do  not  all  appear  in  the  records  of  this  committee ;  page  numbers  refer  to 
report  of  hearings  before  the  Subcommittee  No.  5  (Ordnance)  of  the  Select 
Committee  on  Expenditures  in  the  War  Department,  House  of  Representatives, 
Sixty-sixth  Congress,  first  session,  on  war  expenditures  (Hon.  William  J.  Gra- 
ham, chairman). 

Letters  from  American  Cyanamid  Co. :  October  13, 1917,  page  2937 ;  October  29, 
1917.  page  228;  November  5,  1917,  page  230;  November  12,  1917,  page  234; 
November  13,  1917,  page  238. 

Letters  from  Alabama  Power  Co.:  November  1,  1917  (quoted  immediately 
following  this  list)  ;  November  6,  1917,  page  2708.  (This  letter  of  November  6 
is  also  printed  at  an  earlier  point  in  the  present  hearing. ) 

Alabama  Power  Co.  (Inc.), 
New  York,  November  J,  1917, 
Col.  J.  W.  JoYES, 

Division  T,  Ordnance  Department , 

719  Fifteenth  Street  NW.,  Washington,  D.  G, 

Dear  Sir  :  The  officers  of  the  American  Cyanamid  Co.  advise  us  that  our  co- 
operation may  be  desirable  in  connection  with  the  early  supply  of  electric 
energy  for  the  production  of  nitrates  in  northern  Alabama.  We  wish  to  assure 
you  of  our  hearty  cooperation  in  any  measure  which  will  tend  to  facilitate  the 
Government's  ends  in  this  direction. 

At  present  our  nearest  point  of  distribution  to  the  proposed  nitrate  plant 
at  Muscle  Shoals  is  probably  our  steam  plant  on  the  Black  Warrior  Uiver,  which 
is  adjacent  to  ample  water  and  coal  supply.  We  now  have  installed  at  this 
plant  one  25,000  KVA  steam  turbin  unit  of  the  most  modern  type,  this  installa- 
tion haveing  been  completed  only  within  the  past  two  weeks.  In  addition,  we 
have  12,500  KVA  steam  plant  installed  at  Gadsden,  Ala,,  and  hydraulic  plant 
of  67,500  KVA  installed  at  Lock  12  on  the  Coosa  River,  45  miles  southeast  of 
Birmingham.  These  plants  are  all  in  to  pconnected  on  the  same  transmission 
system. 

We  believe  we  can  arrange  to  supply  some  30.000  kilowatt  capacity  on  any 
reasonable  notice  within  six  months,  and  this  amount  can  easily  be  doubled 
within  a  year  if  the  Government  will  lend  its  support. 

We  believe  you  nre  familiar  with  the  general  hydroelectric  possibilities  of 
Alabama  and  we  will  merely  add  that  with  Government  aid  we  believe  that 
we  can  give  the  Government  any  amount  of  hydroelectric  power  it  may  re- 
suire  within  a  shorter  time  than  it  can  be  procured  anywhere  in  the  central 
01  eastern  part  of  the  United  States. 

Any  further  data  you  may  desire  in  this  connection  we  shall  be  very  glad 

to  furnish  you,  and  we  are  requesting  our  chief  engineer,  Mr.  O.  G.  Thurlow, 

to  remain  in  Washington  in  case  any  further  information  may  be  desired. 

Very  truly  yours, 

James  Mitchell,  President. 

Note  that  the  earliest  communication  received  by  the  witness  from  the  Ameri- 
can Cyanamid  Co.,  namely,  that  of  October  13,  1917,  which  was  merely  a  pre- 
liminary outline  of  a  possible  but  indefinitely-described  war  plant,  contained 
an  intimation  that  power  could  be  secured  for  an  emergency  installation  in 
northern  Alabama  by  cross-connecting  various  power  lies  in  that  section  of  the 
country,  at  a  price  of  7  mills  per  kilowatt  hour,* but  did  not  hint  at  any 
financing. 

The  American  Cyanamid  Co.  in  letter  of  October  29,  1917,  outlined  alternative 
plans  for  a  Government  ammonia  plant,  and  one  containing  the  following : 

"  It  is  contemplated,  as  a  possibility  also,  that  the  Government  would  have 
to  provide  capital  for  the  construction  of  80  miles  of  transmission  line  at  an 
estimated  cost  of  $1,000,000." 


Note,  this  power  was  estimated  at  1  cent  per  kilowatt  hour  under  plan  3, 
the  following: 

"  Plan  No.  3  is  based  upon  the  Government's  loaning  lo  the  local  hydroelec- 
tric power  company  $2,500,000,  to  be  paid  by  the  power  company  at  the  rate  of 
3  mills  per  kilowatt  hour  on  the  ammonia  plant  switchboard  for  current  used 
by  the  ammonia  plant.  Until  the  full  amount  of  $2,500,000  is  repaid  the  charge 
for  power  would  be  1  cent  per  kilowatt  hour  and  7  mills  thereafter.  It  is 
naturally  impracticable  to  state  definitely  whether  such  an  arrangement  could 
be  made  but  the  prospect  is  at  least  a  favorable  one." 

"  The  $2,500,000  loan  to  the  local  hydroelectric  power  company  would  be  ex- 
pended in  the  installation  of  new  hydro  and  steam  generator  units  and  for 
transmission  line." 

The  American  Cyanamid  Co.  on  November  5,  1917,  proposed  a  plan  for  a 
plant  specified  in  two  parts: 

"  Part  1  provides  for  an  ammonia  gas  plant  of  a  capacity  of  500  tons  of  am- 
monia (NHa)  per  week,  receiving  its  power,  approximately  30,000  kilowatts 
continuously,  from  the  Alabama  Power  Co. 

"The  Alabama  Power  Co.  will  have  available  from  the  1st  of  June,  1918, 
to  the  1st  of  .January,  1919,  the  requisite  amount  of  power  for  part  1  without 
causing  its  customers  to  be  deprived  of  power  necessary  for  the  operation  of 
their  plants.  Subsequent  to  this  latter  date,  however,  it  will  be  necessary  to 
meet  the  growing  demands  for  power  and  the  contracts  upon  the  books  of  the 
Alabama  Power  Co.  for  increase  in  its  power  deliveries  and  for  furnishing  the 
power  required  for  part  1  to  have  installed  at  its  Warrior  River  steam  plant 
a  new  25,000  to  30,000  K.  V.  A.  turbo-generator  unit  with  the  requisite  boilers 
and  transformers.  The  most  convenient  and  economical  transmission  of  elec- 
tric power  from  the  lines  of  the  Alabama  Power  Co.  to  Muscle  Shoals  is  by  an 
82-mile  transmission  line  from  the  Warrior  River  plant. 

••  The  estimated  cost  of  these  addtions  to  the  physical  properties  of  the  Ala- 
bama Power  Go.  is  as  follows : 

Complete  installation  of  a  25,000  K.  V.  A.  turbo  generator  unit  at 
the  Warrior  River  power  station $1,250,000 

Outdoor  step-up  transformer  station,  substantially  30,000  K.  V.  A. 
capacity 300,000 

82-mile  transmission  line  from  the  Warrior  River  power  station  to  • 
Muscle  Shoals 700, 000 

Total 2, 250, 000 

"  The  Alabama  Power  Co.  has  offered  to  deliver  the  requisite  electric  i>ower 
for  part  1  on  the  switchboard  of  the  plant  at  Muscle  Shoals  for  7  mills  per  kilo- 
watt hour,  beginning  when  part  1  shall  be  in  readiness  to  receive  the  ix)wer. 
The  United  States  Government  is  to  loan  the  Alabama  Power  Co.  an  amount  of 
money  equivalent  to  the  cost  of  the  additions  to  its  property  mentioned  above 
and  estimated  at  $2,250,000,  and  not  to  exceed  $2,500,000,  which  is  to  be  repaid 
by  the  Alabama  Power  Co.  at  the  rate  of  3  mills  per  kilowatt  hour  of  the  power 
delivered  to  the  ammonia  gas  plant  at  Muscle  Shoals.  This  will  reduce  the 
out-of-pocket  cost  of  power  used  in  part  1  to  4  mills  per  kilowatt  hour  and  will 
discharge  the  indebtedness  of  the  power  company  to  the  Government  in  sub- 
stantially three  years." 

Attention  is  invited  here  to  the  mention  of  an  offer  by  the  Alabama  Power 
Co.  It  is  not  known  whether  that  referred  to  a  communication  from  the 
Alabama  Power  Co.  to  the  American  Cyanamid  Co.  or  to  the  proposal  addressed 
to  the  Ordnance  Department,  division  T,  by  the  Alabama  Power  Co.  under  date 
of  November  6,  1917. 

The  American  Cyanamid  Co.'s  proposal  of  November  13,  1917,  the  proposal 
accepted  by  the  Ordnance  Department,  contained  the  following: 

"  The  site  for  the  plant  suggested  as  the  most  desirable  is  in  the  vicinity  of 
Muscle  Shoals  on  the  Tennessee  River  in  northern  Alabama.  Power  is  available 
at  this  site  sufficient  for  the  operation  of  one-half  the  said  proposed  Government 
plant  from  the  Alabama  Power  Co.,  which  will  have  available  from  the  1st  of 
June,  1918,  to  the  1st  of  January,  1919,  the  requisite  amount  of  power,  without 
causing  its  customers  to  be  deprived  of  the  power  necessary  for  their  uses.  Sub- 
sequent to  this  latter  date,  however,  it  will  be  necessary,  in  order  to  meet  the 
growing  demands  for  power  upon  the  Alabama  Power  Co.  for  that  company  to 
install  at  its  Warrior  River  steam  plant  a  new  turbo-generator  unit  of  approxi- 
mately 30,000  KVA.. capacity,  with  the  requisite  boilers  and  transformers.    The 

92900—22 70 


1104 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


1105 


most  «onvenient  and  economical  transmission  of  electric  power  from  the  lines 
of  the  Alabama  Power  Co.  to  Muscle  Shoals  is  by  an  82-mile  tninsmission  line 
from  the  Warrior  River  plant. 

"  The  estimated  cost  of  these  additions  to  the  physical  properties  of  the  Ala- 
bama Power  Co.  is  as  follows : 

Complete  installation  of  a  25,000  KVA.  turbo-generator  unit  at  the 

Warrior  River  power  station $1.  250.  000 

Outdoor  step-up  transformer  station,  substantially  30,000-kilowatt 
capacity 300,000 

S2-mile  transmission  line  from  the  Warrior  River  power  station  to 

Muscle    Shoals '^<^'  ^^ 

Total 2,  250.  000 

"  The  Alabama  Power  Co.  in  a  proposal  dated  the  5th  instant,  addressed  to 
Col.  J.  W.  Joyes.  Division  T,  Ordnance  Department,  has  offered  to  deliver  30,000 
kilowatts  on  the  switchboard  of  the  proposed  Government  plant  at  Muscle  Shoals 
for  7  mills  per  kilowatt-hour,  beginning  not  later  than  the  1st  of  June,  1918. 
The  United  States  Government  is  to  loan  the  Alabama  Power  Co.  an  amount  of 
money  equivalent  to  the  cost  of  the  additions  to  its  property  mentioned  above 
and  not  to  exceed  $2,500,000.  The  loan  is  to  be  repaid  by  the  Alabama  Power  Co. 
at  the  rate  of  3  mills  per  kilowatt-hour  of  the  power  delivered  to  the  proposed 
Government  plant."  . 

The  undersigned  is  convinced,  from  intimate  acquaintance  with  the  busi- 
ness and  the  records,  that  the  Alabama  Power  Co.  submitted  no  proposal 
dated  November  5,  1917,  but  did  submit  one  dated  November  6,  1917-4he 
error  made  either  in  American  Cyanamid  Co.'s  letter  or  in  the  Ordnance  Office 
records,  but  appears  nominal;  the  essential  point  is  considered  well  estab- 
lished that  the  two  references  are  to  the  same  paper  and  that  but  one  pro- 
posal was  submitted  by  the  Alabama  Power  Co.,  namely  that  above  listed  as 
dated  November  6,  1917,  and  appearing  above  in  this  record. 

Aside  from  the  mention  of  the  Government  financing  a  loan,  etc.,  by  the 
American  Cvanamid  Co.  in  its  several  letters,  which  the  undersigned  had 
always  taken  as  indicating  the  result  of  inquiries  made  by  the  American 
Cyanamid  Co.  in  order  to  suggest  in  its  several  proposals  methods  of  pro- 
viding power  for  the  plants  proposed,  attention  is  invited  to  the  letters  from 
the  Alabama  Power  Co.  The  earlier,  that  of  November  1,  1917,  reprinted 
above,  opens  by  stating  that  the  American  Cyanamid  Co.  have  advised  the 
Alabama  Power  Co.  that  the  latter's  cooperation  may  be  desirable  in  con- 
nection with  early  supply  of  electric  energy  for  nitrates  in  northern  Alabama, 
assures  Alabama  Power  Co.'s  hearty  cooperation  in  any  measure  to 
facilitate  the  Government's  ends  and  proceeds  to  indicate  its  power  resources, 
to  state  its  belief  that  it  can  arrange  to  supply  some  30,000  kilowatts  on 
reasonable  notice  within  six  months  "  and  this  amount  can  easily  be  doubled 
within  a  year  if  the  Government  will  lend  its  support." 

Later  on  appears  the  statement  that  "with  Government  aid  we  believe 
that  we  can  give  the  Government  any  amount  of  hydroelectric  power."  In 
the  more  definite  proposal  of  the  Alabama  Power  Co..  dated  November  6, 
1917  reprinted  above  and  in  other  hearings,  the  power  company,  referring 
to  conference  with  Mr.  Frank  S.  Washburn  of  the  American  Cyanamid  Co., 
proceeds  to  formulate  a  proposal  along  general  lines  as  to  supply  of  power. 
After  stating  that  "  the  financing  of  such  an  installation  at  this  time  would 
not  be  warranted  by  the  present  needs  of  the  power  company,"  it  estimates 
the  cost  of  the  necessary  additions  to  its  Warrior  River  steam  plant  as 
approximately  $2,250,000,  and  states,  "if  the  Government  will  finance  the 
undertaking  and  assist  in  delivering,  the  power  company  will  be  prepared  to 
install  *  *  *  " ;  also  in  the  same  letter,  "  the  power  company  will  under- 
take to  set  aside  3  mills  per  kilowatt  hour  for  all  energy  supplied  under  thii^ 
proposal  until  the  Government  has  been  reimbursed  for  all  sums  advanced  to 
the  company  in  this  connection." 

J.    W.    JOYES, 

Colonel,  Ord.  Dept.,  U.  S.  A. 

Mr.  Stoll.  How  much  power  was  the  Alabama  Power  Co.  to  furnish  the 
Government? 
Colonel  JoYES.  How  much  did  it  furnish? 
Mr.  Stoll.  How  much  was  it  to  furnish? 


Colonel  JoYES.  I  can  check  it  up  right  out  of  the  contract,  to  be  exact.  Upon 
the  termination  of  the  preliminary  operation  provided 

Mr.  Stoll  (interposing).  I  just  want  the  amount;  I  do  not  care  for  anv 
discussion  of  it. 

Colonel  Joyes.  To  the  extent  of  the  capacity  of  the  Warrior  extension  at 
the  time,  and  that  meant  30,000  kilowatts,  approximately. 

Mr.  Stoll.  Is  that  from  the  plant  the  Government  built? 

Colonel  Joyes.  It  was  to  be  furnished  by  the  Alabama  Power  Co.,  regardless 
of  whether  they  furnished  it  out  of  that  plant  or  not. 

Mr.  Stoll.  Suppose  they  furnished  it  out  of  the  plant ;  was  that  a  part  of 
the  contract? 

Colonel  Joyes.  I  do  not  think  I  quite  get  your  point. 

Mr.  Stoll.  What  I  mean  is  this:  The  Government  furnished  all  the  monev 
to  build  the  Warrior  extension? 

Colonel  Joyes.  Yes,  sir. 

Mr.  Stoll.  Was  the  Alabama  Power  Co.  to  furnish  the  current  from  the 
plant  the  Government  built? 

Colonel  Joyes.  At  their  own  volition,  to  do  that  or  not. 

Mr.  Stoll.  We  were  to  pay  them  for  the  current  they  furnished  from  our 
own  plant? 

Colonel  .Toyes.  Yes;  because  they  rented  that  plant  from  us  and  were  to 
r»ay  for  the  rental  of  it.  They  paid  in  two  ways.  In  the  first  place,  whenever 
we  were  operating 

Mr   Stoll  (interposing).  I  do  not  care  to  go  into  a  discussion  of  that. 

(  (•h»nel  Joyes.  I  can  not  answer  your  question  without  telling  you  this,  that 
they  were  to  pay  6  per  cent  per  annum  of  the  total  cost,  plus  2  mills  per 
kilowatt  hour  that  they  furnished  us.  toward  the  amortization  of  the  plant 
Does  that  answer  your  question? 

Mr.  Stoll.  They  were  to  take  the  plant  that  was  built  bv  the  Government's 
money  ? 
Colonel  JoYEs.  Precisely. 

Mr   Stoll.  There  was  no  current  large  enough  to  pay  for  the  plant  itself? 

Colonel  Joyes.  They  were 

Mr.  Stoll  (interposing).  Is  that  true  or  not? 

Colonel  Joyes.  It  amounts  about  to  that,  I  think,  sir. 

Mr.  Stoll.  So  if  the  contract  had  been  carried  out  as  was  intended,  the 
plant  built  by  the  Government  money,  they  would  have  sold  the  power  to  the 
Government  and  thereby  paid  for  the  plant,  and  it  would  not  have  cost  them 
a  copper. 

Colonel  Joyes.  It  is  like  any  other  commercial  transaction. 

Mr.  Stoll.  It  would  not  have  cost  them  a  cent. 

Colonel  Joyes.  I  think  that  is  about  right.  I  think  in  most  every  direction 
nat  IS  so     A  man  puts  in  an  addition  and  he  selLs  the  product  at  the  cost 

Mr   ^'i^i  '"?i"'^'''^  ^l\^-  investment  in  the  plant  and  make  him  a  profit  besides. 

n  1  ^^?¥"  ^o  you  thmk  that  was  a  good  contract  for  the  Government' 

^oionel  Joyes.  I  consider  it  the  very  best  we  could  do  under  the  circumstances, 
. ,»  ,  '^  "^*  ^^  unprecedented  contract  by  any  means ;  there  were  others  on  the 
i^ame  basis  precisely  that  were  made  during  the  war. 

Mr  Stoll.  Did  Mr.  Washburn  have  anything  to  do  with  that  contract' 

i^oionel  Joyes.  To  my  knowledge,  nothing  whatever,  directly.  He  did  have 
tins  nmch  by  way  of  introduction  to  it,  that  he  went  and  spoke  to  the  officers 
or  riie  Alabama  Power  Co.  before  he  made  some  of  his  proposals  to  the  United 
'Mates,  and  he  suggested  to  them  that  they  might  be  called  upon  to  supply  some 

Mr.  Stoll.  This  contract  was  made  under  the  law  of  Julv  9,  1918,  which  au- 
thorized the  Secretary  of  War  to  sell  any  real  estate  or  plants  that  the  Govern- 
ment had? 

Colonel  Joyes.  I  do  not  know  that  I  would  be  positive  about  that,  sir.    I  think 
that  law  covers  it. 
Mr.  Stoll.  What  law  did  you  make  this  contract  under? 

Colonel  Joyes.  As  to  the  sale?  My  view  of  that  matter  at  the  time  was  this, 
sir- 

Mr.  Stoll  (interposing).  I  do  not  want  your  view;  I  want  to  know  what  law 
you  made  this  contract  under. 

<'olonel  Joyes.  I  am  free  to  say  I  do  not  know.  I  made  it  pursuant  to  a  prac- 
tice which  was  established  in  the  Ordnance  Department,  with  the  advice  of 
lawyers  and  with  the  full  consent  and  concurrence  of  my  official  superiors. 


1106 


MUSCLE  SHOALS  PEOPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


1107 


Mr.  *Stoll,  Do  you  know  of  any  law  which  gave  your  department  the  right  to 
give  a  concern  an  option  on  the  property  of  the  Government  for  a  period  of  six 
years,  tliereby  foreclosing  the  right  to  the  Government  to  sell  that  property? 

Colonel  JoYEs.  I  expect  I  can  give  you  one,  sir.  The  law  of  July  9,  1918,  I 
think,  clearly  does  so,  sir. 

Mr.  Stoll.  That  gives  you  the  right  to  sell? 

Colonel  JoYEs.  Yes,  sir. 

Mr.  Stoll.  This  is  not  a  sale. 

Colonel  JoYES.  In  my  opinion  it  would  come  very  close  to  being  a  sale. 

Mr.  Stoll.  No  ;  it  is  an  option  extending  over  a  period  of  years. 

Colonel  JoYES.  It  is  an  option,  sir ;  and  an  option  is  the  first  step,  I  believe, 
toward  a  sale. 

Mr.  Stoll.  But  this  is  a  contingent  option  extending  over  a  period  of  years. 
Do  you  know  of  any  authority  which  Congress  gave  you  or  your  department 
to  give  a  person  an  option  for  a  period  of  six  years  to  shut  out  the  right  of  the 
Government  to  sell  the  property  during  that  period  of  time? 

Colonel  JoYES.  I  am  not  prepared  to  say  I  do,  sir,  so  specifically  as  that ;  no. 

Mr.  Stoll.  Do  you  not  think  this  is  more  of  a  case  of  the  spider  and  the  fly — 
the  Alabama  Power  Co.  spreading  its  beautiful  net,  and  you  all  walking  right 
into  it? 

Colonel  JoYES.  No,  sir ;  I  do  not. 

Mr.  Stoll.  To  tie  you  up  hands  and  feet? 

Colonel  JoYES.  No,  sir ;  I  do  not. 

Mr.  Stoll.  It  lookis  very  much  that  way  to  me. 

Mr.  Garkett.  Where  was  this  contract  from  the  day  it  was  executed,  I  mean 
the  day  it  was  agreed  upon;  where  was  the  paper  itself  from  that  time  until 
November  7,  1918? 

Colonel  JoYES.  The  contract  with  the  Alabama  Power  Co.? 

Mr.  Garrett.  Yes ;  the  contract  with  the  Alabama  Power  Co.  that  was  agreed 
upon  back  in  November  or  December,  1917. 

Colonel  Joyes.  It  was  signed  in  1918,  and  I  think  it  bears  the  date  of  Decem- 
ber 1,  1917. 

Mr.  Garrett.  From  December,  1917,  until  November  7,  1918,  where  was  this 
paper;  in  whose  possession  was  this  paper? 

Colonel  Joyes.  There  was  no  such  thing  as  this  paper  at  all  those  times. 

The  Chairman.  That  is  all  in  the  hearings.  We  have  gone  over  that,  and  it 
is  all  in  the  hearings. 

Mr.  Garrett.  I  am  just  asking  where  that  paper  was  during  that  time. 

Colonel  Joyes.  I  mentioned  that  in  considerable  detail  on  Friday,  that  during 
that  period  we  were  endeavoring  to  arrive  at  a  definite  statement  of  the  rela- 
tions; in  other  words,  a  contract.  At  first  I  met  the  officers  of  the  Alabama 
Power  Co.  in  Washington  and  with  other  people  tried  to  arrive  at  an  agreement. 
Then  I  delegated  the  authority  to  some  other  people  to  negotiate  down  in  Ala- 
bama, either  at  the  Warrior  plant  or  in  Birmingham,  and  tried  to  settle  a  num- 
ber of  these  details  there.  That  came  back  to  Washington  again,  and  it  was  con- 
tinued on  there.  It  was  finally  brought  forward  considerably  toward  an  agree- 
ment, and  then  went  into  the  hands  of  Col.  William  Williams,  of  the  procure- 
ment division  of  the  Ordnance  Department,  along  about  July  or  August,  1918. 
The  negotiations  from  that  time  on  took  place  in  his  office.  He  went  into  it  in 
great  detail  and  proceeded  to  chop  it  up  with  scissors  and  to  get  it  into  regular 
arrangement  and  form. 

Mr.  Garrett.  During  all  this  time  work  was  being  constructed? 

Colonel  Joyes.  Yes,  sir. 

Mr.  Garrett.  Then,  as  a  matter  of  fact,  all  of  the  work,  or  at  least  90  per  cent 
of  the  work  done  on  the  Alabama  Power  Co.'s  premises,  the  extension  of  the 
Gorgas  plant  and  the  transmission  lines,  was  done  without  any  written  con- 
tract; is  that  not  true? 

Colonel  Joyes.  Except  this 

Mr.  Garrett  (interposing).  Was  that  true  or  not;  was  the  work  done  on  any 
written  contract? 

Colonel  Joyes.  I  believe  I  am  justified  in  saying  it  was,  to  this  extent,  that  T 
drew  a  purchase  order  to  start  the  work,  a  written  purchase  order,  requirini: 
them  to  do  thus  and  so,  subject  to  later  agreement  as  to  terms  of  payment,  etc. 
I  signed  that  and  it  went  out  on  the  formal  letterhead,  and  I  have  on  that,  I  be- 
lieve, an  acceptance  at  the  bottom,  by  the  Alabama  Power  Co.  If  I  am  correct 
on  that,  and  I  think  I  am,  those  purchase  orders  bore  my  signature  and  the  com- 
pany's acceptance — two  signatures  at  the  bottom — which  is,  in  effect,  a  contract. 


Mr.  Garrett.  What  do  you  mean  by  purchase  order -> 
Colonel  Joyes.  Those  are  in  the  record,  in  detail 
The  Chairman.  All  three  of  the  letters  you  read  are  in  record' 
Colonel  Joyes.  Yes,  sir. 

Mr.  Garrett.  I  know  this  is  very  wearisome,  but  vou  will   remember    Mr 
Chairman,  that  a  Member  who  sits  at  the  end  of  the  table  never  gets  a  chance 
to  ask  his  questions  until  the  others  are  through,  and  he  is  plac^  at  a  S 

ir/hTfn  1  in^^J.^""^' r"^^  ^^^^'"^^^  "^  ^^"^'^^  "Po^  the  Members  and  begin 
at  the  ta  1  end  of  the  class  once  in  a  while,  it  would  give  us  a  chance  to  mver 
these  questions  without  repeating  so  much. 

The  Chairman.  The  desire  of  the  chairman  is  to  get  through  with  this  We 
have  been  running  for  four  full  weeks. 

Mr.  Garrett.  If  the  Chair  will  look  at  the  record  he  w:il  see  that  I  have  asked 
fewer  questions  than  any  other  member  of  the  committee.  There  are  some 
things  I  want  to  find  out,  and  if  they  are  in  the  record  already  I  do  not  wa^t 
to  duplicate  them,  but  I  do  want  to  get  the  information 

The  Chairman^  They  are  in  the  record,  because  I  heard  them  myself 
^Mr.^  GARRETT.  Did  the  Alabama  Power  Co.  execute  a  bond  to  c^r^ry  out  this 

Colonel  Joyes.  There  w^as  a  bond  given 
end^of^t?^"""""  ^^^°  '''^'  ^^""^  executed,  a't  the  beginning  of  the  work  or  at  the 

ok2??T^^  ^''''^^'  J  ^vp^^i  rather  have  that  absolutely  verified  andgive  it  to  vou 
absolutely  correctly  in  the  record.  «  u  gi^e  n  lo  jou 

endY*  ^^^^^'^'  ^''''  ^"^  "^^  ^°*^^  whether  it  was  at  the  beginning  or  at  the 
Um^on  th7t!''sir.  '"''"''^  '''^^''  "^'^  '"^  ^'^"^  °^'^^''^  '■  "^y  ^^^^"«^^'  i«  ^^  "nre- 
contJa'ctr  ^^*^''  ^^^^^^  ^^**  *^^  ^''''^  ''^^'  "^^^^  ^'"^"^"^  ^^^^"^  signature  of 

to'ge^t  ?i^mTu  inT^'ry  few^'^^^rds^"^^"^"  ^'^^  ^^  ''  '  ^«"  '^'  ^^^^  '  --* 
The  Alabama  Power  Co.,  so  far  as  the  construction  of  this  extension  and  thA 
construction  of  the  transmission  line  was  concerned,  never  paid  out  a  doUar 
except  money  that  was  furnished  by  the  United  States;  is  that  true"  ?  .fo  not 
r?h.'S. -M-^'^^'V^i  ^^  *°y  ^^^^  P^^P^^*^'  ^"t  I  mean  L  to  the  construction 
?unds!  was  U  not"        "  ''^-''^'^''^-  ^  ««•    All  of  that  was  out  of  Governmen" 

fv.P'^lf/^^l  ^^7f?'  ^  ^^^"^^  ^^y  ^^^  *°  *ot«'  sir.    I  mean  that  in  this  wav   that 
tte  intent  of  the  contract  was  that  the  Government  should  bear  all  5  fhe  ex 
penses  of  such  work,  and  it  was  carried  out  practically  as  intended 
Mr.  Garrett.  That  is  a  sufficient  answer.  mcenaea. 

fuSrf^r&hLrrttroStX"'''^ ""' ""  ^^'^  •""  "^  *^^^"'"'«°* 

po^s.  ®*'''^'"-  ^  """^  ""*  """«"  ^^^'y  ««°t  they  might  have  paid,  for  all  pur- 

fofXh-"?  x  normZ"'  '°'"''"*"'  '^^""^  *"  '•'^y  ''«•'  t°  ^"^  ™»-y 

cJfoneY^^Es^^Yel'^tr  "^"^  "  '*^  ^^^  *"'  *^  ^^^e^-^^"*  in  the  contract? 
Mr.  Gabkett.  This  plant  was  built,  then,  upon  their  real  estate? 
oolonel  Joyes.  Yes,  sir ;  their  premises  leased  to  us. 

line  wS'^cSrme^df  ^^'  ""^"'"^  ^^^  "^'"^^'^^  "^^  ''"'"'  *"'  transmission 

Colonel  Joyes.  They  did,  sir. 
thflt'"',,?^''"^''- J'"'^„''°"*™'=t  provides  that  after  the  Government  has  done 
Ai^L     ''?r  ^*<="<'°  22  of  this  contract,  the  day  after  it  was  completed  thi 
t.  d  r»*  ^""'^'"  ^-  •^°""'  ^^"^  demanded  that  the  Government  s^n  itto  them 
contract  wouM"T°not7""*  ""^^  "**"  ^""^  '"  ^"^'^  '"'^  "  "nd"  the 

«t*^^il2?*l.''°^^®-  ^''*  •'^y  ^"e'"  it  was  completed— weU,  if  they  had  done  s» 
atjhat  time  I  think  they  would  have  had  to  pay  us  every  ^pemiy  we  p^ 

wamed^'tTraat  toe?""''  "'"'  *'  "'^'''  *"  '"'"'*'  *'*  *°  ^  •"""'  "  """y 
Colonel  Joyes.  I  believe  so,  sir. 


1108 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


1109 


Mr.  Garrett.  But  the  Government  could  not  compel  them  to  buy  it  before 
three  years  after  the  proclamation  of  peace  by  the  President,  could  they? 

Colonel  JoYES.  I  think  that  is  correct,  sir. 

Mr.  Garrett.  If  the  war  was  still  going  on,  you  would  have  a  contract  in 
which  you  would  be  paying  rent,  and  would  have  paid  enough  rent  to  have 
allowed  the  company  to  have  paid  for  the  plant  long  before  this  time,  under 
the  provisions  of  the  contract? 

Colonel  JoYES.  The  Government  is  to  pay  no  rent.  The  $60,000  lump  pay- 
ment covered  all  United  States  use  of  contractor's  premises,  etc. 

Mr.  Garrett.  And  still  the  Alabama  Power  Co.  would  have  the  right  to  de- 
mand a  sale  of  this  property  by  the  Government,  and  the  Government's  hands 
would  still  be  tied  by  the  Alabama  Power  Co.  if  the  war  was  still  going  on; 
and,  as  a  matter  of  fact,  its  hands  are  tied  because  it  has  not  been  three  years 
since  the  proclamation  of  peace  by  the  President,  and  the  Government  is  now 
tied  up  in  that  contract  in  that  way,  is  it  not? 

Colonel  JoYES.  I  think  that  is  so  sir. 

Mr.  Garrett.  That  is  all. 

Colonel  JoYES.  I  think  that  is  correct.  I  realize  that  is  one  feature  that 
may  well  be  open  to  criticism  as  being  unfavorable  to  the  Government.  I  think 
the  reason  for  putting  that  in  there  was  that  there  would  be  a  certain  period 
of  time  after  the  close  of  the  war  when  things  would  be  rather  involved  and 
difficult,  both  in  connection  with  financing  and  the  recovery  of  business,  etc., 
and  that  was  about  the  expectation  we  had  at  the  time,  that  it  would  be 
but  fair  to  allow  anybody  whom  we  would  require  to  make  a  purchase  a  little 
time  for  business  to  readjust  itself. 

Mr.  Garrett.  At  whose  suggestion  was  that  made? 

Colonel  Joyes.  I  am  very  sorry  I  am  unable  to  say  at  whose  suggestion  it 
was  made.  I  think,  in  all  probability,  it  was  at  the  suggestion  of  the  Alabama 
Power  Co. ;  I  think  so,  sir. 

Mr.  Garrett.  Colonel,  there  has  been  a  good  deal  of  discussion  here  in  this 
testimony  to  the  effect  that  you  did  not  know,  or  whether  or  not  there  was 
a  good  deal  of  discussion  in  your  conferences  as  to  your  power  to  do  the 
various  things  that  were  done  in  regard  to  this  matter.  Did  the  people  in 
your  conferences  ever  discuss  the  resolution  declaring  war  against  the  German 
Government,  and  in  that  resolution  did  they  fail  to  see  the  language  in  which 
Congress  pledged  not  only  the  resources  of  the  Government  but  every  re- 
source of  the  Nation  to  the  winning  of  that  war?  Did  anybody  ever  raise  the 
question  as  to  whether  or  not  that  superseded  any  peace-time  statute  that 
might  be  in  the  way  of  military  activity,  or  did  they  just  wait  for  some  law  to 
be  passed? 

Colonel  Joyes.  I  am  not  able  to  speak  for  what  other  people  thought  of,  sir, 
but  I  know  perfectly  well  that  there  was  a  general  feeling  expressed  that  the 
declaration  of  war  did  give  a  certain  latitude  to  the  Executive  and  to  the  officers 
who  had  to  work  under  him,  that  it  called  for  them  to 

Mr.  Garrett  (interposing).  It  gave  the  President  power  to  call  all  the  men  in 
the  country  to  arms,  did  it  not? 

Colonel  Joyes.  No,  sir;  I  do  not  think  so,  sir.  If  you  will  remember,  there 
was  a  great  deal  of  discussion  at  that  time,  and  there  was  great  reluctance  in 
getting  the  selective  draft  adopted.  There  was  no  universal  draft — never  was — 
because  you  would  not  give  it  to  us. 

Mr.  Garrett.  We  had  the  selective  service  law? 

Colonel  Joyes.  If  you  had  given  us  the  universal  draft — a  universal  draft  of 
man  iM»wer  and  of  money  power — there  never  would  have  been  any  such  fool 
contracts,  as  many  of  the  fool  contracts  that  have  been  written,  and  many  of 
them  a  re.  fool  contracts. 

Mr.  Garrett.  Do  you  say  this  was  a  fool  contract? 

Colonel  Joyes.  This  has  been  spoken  of  as  a  fool  contract,  and  I  do  not  blame 
you.  with  your  perspective  on  it  at  this  time  for  calling  it  that.  I  do  not  call  it 
that :  I  call  it  a  fairly  good  provision  to  meet  a  very  difficult  situation  which  we 
were  put  into  from  the  lack  of  law ;  that  is  my  opinion.  Many  another  man  ha^^ 
felt  the  same  way  about  it  and  has  said  it  in  much  stronger  language  than  that. 

Mr.  Garrett.  Your  idea  is  that  you  were  without  authority,  and  this  is  the 
best  contract  that  could  be  made  because  of  the  lack  of  more  authority. 

Colonel  Joyes.  That  is  right ;  that  is  my  opinion,  sir.  whether  that  lay  in  the 
law  or  not ;  but  it  is  my  opinion,  and  the  situation  I  found  myself  in,  as  many 
another  man,  also,  sir.    This  is  not  an  unprecedented  contract  at  all.     You  are 


talking  of  this  contract  as  though  I  was  the  only  man  who  presumed  to  do  that 
sort  of  thing. 

Mr.  Garrett.  I  am  not  presuming  anything  at  all.  This  is  the  contract  we 
have  before  us.  We  have  not  the  other  contracts  before  us,  and  this  is  the  one 
that  we  are  discussing.  If  the  other  contracts  were  before  us,  of  course,  they 
would  be  up  for  discussion,  but  they  are  not  here. 

Colonel  Joyes.  With  your  tolerance,  I  mention  it  for  this  one  reason,  that  I 
think  this  was  not  a  particular  provision  in  this  contract  which  you  have  up  for 
your  consideration ;  and  if  you  choose  to  consider  it  and  inquire  into  the  pro- 
priety of  my  action,  I  think  you  should  consider  in  connection  with  the  pro- 
priety of  my  action  that  there  were  other  contracts  that  did  the  same  thing, 
prior  to  and  after  I  did  it,  prior  to  and  after  the  writing  of  this  contract. 

Mr.  Garrett.  You  mean  section  22 ;  that  is  the  troublesome  section  of  this 
contract?  You  mean  there  are  other  contracts  that  contain  the  exact  language 
of  .section  22? 

Colonel  Joyes.  Absolutely  not ;  no  two  contracts  have  exactly  the  same  identi- 
cal language,  but  the  same  essential  provisions,  sir. 

Mr.  Garrett.  The  other  contracts  you  speak  of  gave  the  contracting  party  the 
right  to  demand  of  the  Government  that  the  Government  sell  at  any  time,  and 
in  those  contracts  the  Government  waived  the  right 


Colonel  Joyes  (interposing).  The  Government  never  waived  any  right  to 
anything. 

Mr.  Garrett.  In  such  an  optional  contract  as  this  one  the  contractor  would 
have  the  right  to  demand  the  sale  immediately,  but  yet  the  Government  could 
not  demand  purchase  by  the  contractor  until  some  other  time,  after  the  signing 
of  the  armistice.     Have  you  any  other  contract  just  like  that? 

Colonel  Joyes.  Why,  I  am  unable  to  cite  you  that  particular  thing,  sir,  but  I 
am  not  so  sure  that  I  can  not  do  it. 

(The  witness,  after  consulting  the  records,  sul)sequently  submitted  the  fol- 
lowing citations  from  contracts:) 

1.  Contract  dated  March  1,  1918.  between  the  Ford  Motor  Co.  and  the 
United  States,  by  the  Secretary  of  the  Navy,  covering  the  manufacture  of  100 
patrol  boats,  contains  the  provision  in  the  sixteenth  clause,  for  construction 
and  equipment  by  the  contractor  of  "  buildings,  building  slips,  plant,  and 
other  special  facilities,"  the  total  actual  cost  of  which  not  to  exceed  $3,500,000, 
was  to  be  paid  to  the  contractor  by  the  United  States  as  expenditures  therefor 
were  incurred ;  title  to  all  such  special  facilities  paid  for  by  the  United  States 
to  vest  in  the  United  States.  The  contract  further  provided  in  the  twentieth 
clause  that  upon  completion  of  work  under  the  contract,  a  compensation  board 
of  Navy  officers  should  appraise  all  such  facilities  in  two  parts;  the  first 
part  including  all  buildings,  building  slips,  and  appurtenances  not  susceptible 
of  removal  without  destruction ;  the  second  part  including  plant  and  other 
facilities  which  are  readily  removable.  This  clause  then  proceeded  to  allow 
the  contractor  the  specific  option  of  purchasng  at  such  appraised  price  or  of 
refusing  to  purchase,  although  the  word  "option"  did  not  appear. 

In  the  event  that  the  contractor  "shall  refuse  to  repay  the  amount  of  the 
appraisals,  or  either  of  them,  the  department  shall  have  the  right  to  enter 
upon  the  contractor's  works  and  remove  such  parts  as  shall  not  have  been 
accepted  as  are  readily  removable  and  to  wreck  such  parts  as  are  not  sus- 
cept  ble  of  removal  for  their  salvage  value,  provided  that  any  damage  done 
in  the  process  of  wrecking  to  the  contractor's  own  property  shall  be  made 
good  by  the  department." 

A  careful  reading  of  this  contract  does  not  disclose  any  special  provision 
covering  title  to  the  land  upon  which  Government-owned  facilities  were  to  be 
erected,  but  from  the  context  it  is  patent  that  the  structures  were  to  be  upon 
land  owned  by  the  contractor.    There  is  no  time  limit  upon  contractor's  decision. 

I  am  informed  that  a  supplemental  contract  increased  the  amount  liable  to 
be  spent  for  increased  facilities  and  also  that  in  the  final  settlement  of  the 
contract  the  Ford  J^Iotor  Co.  was  granted  title  to  practically  all  the  facilities 
provided  by  the  United  States,  makng  for  some  of  those  facilities  pay- 
ments approximately  70  per  cent  of  cost,  for  others  payments  at  various 
prices  ranging  from  70  per  cent  down  to  nothing,  and  some  small  portion  of 
the  facilities  being  actually  turned  over  to  the  Ford  Motor  Co.  without  com- 
pensation to  the  United  States. 


r 


I 


1110 


MUSCLE  SHOALS  PROPOSITIONS. 


I  am  informed,  although  I  have  not  verified  the  fact,  that  provisions  quite 
similar  to  the  foregoing  were  used  in  a  number  of  Navy  Department  war 
contracts. 

2.  Contract  No.  CS  105  made  by  the  Chief  of  Ordnance  with  the  Morgan 
Engineering  Co.,  of  Alliance,  Ohio,  for  eighty  12-inch  mortar  carriages,  model 
of  1918,  dated  January  26,  1918;  execution  completed  June  17,  1918: 
*  *  •  *  *  *  « 

The  contractor  agrees  to  provide  at  the  best  prices  obtainable  upon  land  now 
owned  by  the  contractor,  indicated  upon  Schedule  2  and  described  as  follows, 
to  wit.     *     *     *    the  following: 

Suitable  temporary  factory  building  of  approximately  210,000  square  feet 
floor  area,  at  a  cost  not  exceeding  $1,150,000,  in  accordance  with  the  plans  and 
specifications  referred  to  in  Schedule  3,  hereto  attached,  being  a  copy  of  a 
certain  approved  contract  by  the  contractor  and  George  A.  Fuller  Co. 

And  the  United  States  Government,  through  the  contracting  officer,  agrees 
to  pay  the  contractor  the  actual  cost  of  such  temporary  buildings  weekly  from 
time  to  time  as  the  work  of  construction  progresses  upon  statements  of  work 
done,  furnished  by  the  contractor  weekly  during  the  progress  of  the  work  and 
approved  by  the  contracting  officer. 

The  above  mentioned  plans  and  costs  include  all  cost  and  charges  incurred 
by  the  contractor  for  the  purpose  of  providing  complete  buildings  ready  for 
the  installation  of  the  necessary  machinery  without  additional  foundation,  but 
with  railway  tracks  and  sidings  to  the  buildings  aforementioned  and  adjacent 
storage  yards  used  in  connection  therewith. 

The  United  States  Government  agrees  to  pay  all  State  or  local  taxes  levied 
or  assessed  upon  such  buildings  and  the  land  occupied  by  such  buildings, 
storage  yards,  etc.,  during  such  period  as  said  buildings  mav  remain  upon 
said  land  and  be  the  property  of  the  United  States. 

Payment  of  these  items  to  be  made  by  the  contracting  officer  to  the  contractor 
after  such  payment  has  been  made  by  the  latter,  provided  that  such  payments 
of  taxes  shall  be  in  lieu  of  any  and  all  rental  charges  for  the  use  of  said  land 

It  is  distinctly  understood  and  agreed  that  said  buildings,  tools,  and  equip- 
ment are  and  shall  remain  the  property  of  the  United  States  Government,  and 
that  said  United  States  Government  will  remove  or  cause  same  and  every 
part  thereof  to  be  removed  from  the  property  of  said  contractor,  and  leave 
said  property  in  the  same  condition  as  before  said  buildings  were  erected 
thereon,  without  cost  or  charge  of  any  kind  to  said  contractor,  within  one 
year  after  peace  is  declared  with  the  German  Empire,  provided  that  if  the 
United  States  shall  desire  to  sell  said  buildings  without  removing  them,  then 
the  contractor  shall  have  the  first  right  to  purchase  same  at  the  highest'  price 
which  the  United  States  may  be  able  to  obtain  for  same,  and  provided  further 
that  the  time  of  removal  of  said  buildings  may,  at  the  option  of  the  United 
States,  be  further  extended  until  one  year  after  the  completion  of  such  contracts 
as  may  be  entered  into  between  the  contractor  and  the  United  States  either 
before  or  after  the  end  of  the  present  war. 

The  contractor,  by  and  with  the  assistance  and  approval  of  the  contracting 
officer,  will  purchase  at  the  best  prices  obtainable  (or  will  manufacture) 
cranes,  tools,  equipment,  shop  furniture  where  necessary  and  possible,  and 
office  furniture  and  equipment  necessary  for  the  purpose  of  operating  the 
plant  to  be  operated  in  said  buildings  under  the  terms  of  this  agreement,  and 
npt  to  exceed  in  cost  the  sum  of  $1,800,000.  The  contracting  officer  agrees  to 
pay  the  contractor  monthly,  or  oftener,  the  cost  of  all  such  machinery,  tools, 
and  equipment  aforementioned  as  same  may  be  purchased  or  manufactured 
from  time  to  time  by  the  contractor,  upon  bills  furnished  by  the  contractor  for 
such  purchases. 

*  *  *  *  *  *  *        . 

It  being  hereby  agreed  that  for  such  machinery,  tools,  and  equipment  as 
the  contractor  may  himself  manufacture  in  the  present  plant  he  shall  be 
paid  the  following  prices:  All  cost  of  (1)  direct  material  entering  into  the 
construction  of  such  articles;  (2)  cost  of  all  direct  labor  entering  into  the 
construction  of  such  articles;  (3)  percentage  of  overhead  obtaining  at  the 
time  of  manufacture  as  shown  by  the  cost  records  of  the  contractor;  (4)  10 
per  cent  upon  the  sum  total  of  the  foregoing  three  items. 


MUSCLE  SHOALS  PROPOSITIONS. 


1111 


All  such  tools  and  equipment  aforementioned  to  remain  the  property  of  the 
United  States  Government  and  to  be  removed  by  the  United  States  Govern- 
ment from  the  property  of  the  contractor  within  the  period  provided  for  the 
removal  of  the  buildings  aforementioned. 

m  *  *  t.  *  *  * 

The    Morgan    Engineering    Co., 
By  W.  H.  Morgan, 

President,  Contractor. 
Attest : 

W.  H.  Ramsey,  Serrefary. 
Samuel  McRoberts, 
Colonel,  Ordnance  Dept.,  U.  S.  National  Army,  Contracting  Officer. 

By  Chas.  N.  Black, 
Lieutenant  Colonel,  Ordnance,  National  Army. 
Witnesses : 

A.  F.  Morris. 
Boone  G.  Harding. 

A  true  extract  copy  of  contract  on  file  in  the  office  of  the  Chief  of  Ordnance. 

John  G.  Booton, 
Major,  Ordnance  Dept. 

3.  Contract  No.  CF  339  made  by  the  Chief  of  Ordnance  with  Dodge  Bros.,  of 

Hamtramck,  Mich.,  for  4,.544  recoi^  mechanism;  complete,  dated  November   1, 

1917;  execution  completed  November  13,  1017: 

*  *  «  «  «  #  * 

ARTICLES  CONTRACTED  FOR. 


Article  I.  The  contractor  agrees  to  make  for  the  United  States  the  following 
articles:  (a)  3,120  recoil  mechanism,  complete,  for  155  mm.  Howitzer  (Schnei- 
der) ;  (&)  1,424  recoil  mechanism,  complete,  for  155  mm.  G.  P.  guns  (Filloux). 

******* 

Art.  II.  Time  being  of  the  essence,  the  contractor  agrees  to  provide,  with  the 
utmost  dispatch,  at  the  best  prices  obtainable,  upon  land  now  owned  by  the  con- 
tractor, described  as  foUow^s,  to  wit :     *     *     *    the  following : 

1.  Suitable  factory  buildings  of  approximately  500,000  square  feet  floor  area,  at 
a  cost  not  exceeding  $1,500,000  as  per  plans  and  specifications  hereto  attached 
marked  Schedule  2. 

And  the  United  States  Government,  through  the  contracting  officer,  agi*ees 
to  pay  the  contractor  the  actual  cost  of  construction  of  such  buildings  monthly 
from  time  to  time  as  the  work  of  construction  progresses,  upon  estimates  of  work 
done,  furnished  by  the  contractor  monthly  during  the  progress  of  the  work, 
and  approved  by  the  contracting  officer  plus  the  sum  of  5  per  cent  on  the  actual 
cost  of  said  buildings  as  a  charge  for  organization  equipment,  building  equip- 
ment and  supervision  furnished  by  the  contractor  in  the  construction  of  said 
buildings.  Said  charge  of  5  per  cent  to  be  paid  by  the  contracting  officer  to  the 
contractor  upon  the  final  completion  of  said  buildings. 

And  the  United  States  Government,  through  the  contracting  officer,  also 
agrees  to  pay  all  costs  and  charges  incurred  by  the  contractor  for  the  purpose  of 
procuring  railway  tracks  and  siding  to  the  buildings  aforementioned  and  adja- 
cent storage  yards  used  in  connection  therewith,  and  also  all  State  or  local  taxes 
levied  or  assessed  upon  such  buildings  and  the  land  occupied  by  such  buildings, 
storage  yards,  etc.,  during  such  period  as  said  buildings  may  remain  upon  said 
land. 

Payment  of  these  items  to  be  made  by  the  contracting  officer  to  the  contractor 
within  one  month  after  such  payments  have  been  made  by  the  contractor. 

Such  payments  of  taxes  to  be  in  lieu  of  any  and  all  rental  charges  for  the  use 
of  said  land. 

It  being  also  understood  and  agreed  that  any  sums  which  may  hereafter  be 
refunded  by  the  railroads  on  account  of  such  trackage  aforementioned,  shall 
be  paid  to  the  United  States  Government. 

It  being  distinctly  understood  and  agreed  that  said  buildings  are  and  shall  re- 
main the  property  of  the  United  States  Government,  and  that  said  United 
States  Government  will  remove  or  cause  same  and  every  part  thereof  to  be  re- 
moved from  the  property  of  said  contractor,  and  leave  said  property  in  same 
condition  as  before  said  buildings  were  erected  thereon,  without  cost  or  charge 


1112 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


1113 


^  II 

iiqi 
lilt 


'fl|ii 


of  any  Ifliul  to  said  contractor  within  six  months  after  peace  is  declared  with  tlit 
Gernian  Empire,  provided  that  if  the  United  States  shall  desire  to  sell  said 
buildinj;s  without  removing  them,  then  the  contractor  s'hall  have  the  first  right 
to  purchase  same  at  the  highest  price  which  tlie  United  States  may  be  able 
to  obtain  for  same. 

*  *  t  *  *  4t  -      * 

By  John  F.  Dodge. 
President,  Contractor. 


Attest : 


A.  L.  McMeans.  Secretary. 

J.  H.  Kick, 
Lieutenant  Colonel,  Ordnance  Department, 

United  Statea  Army.  Contraetinp  Officer. 
Witnesses : 

F.  J.  Haynes. 
Geo,  L.  Lohrer. 

A  true  extract  copy  of  contract  on  file  in  the  Ordnance  Department. 

John  G.  Booton. 
Major,  Ordnance  Department. 

1.  Contract  No.  CF  420,  made  by  the  Chief  of  Ordnance  with  fiesta  Machiiu' 
Co.,  of  Pittsburgh,  Pa.,  for  9,000  tons  of  artillery  forgings,  dated  January  11, 
1918:  execution  complete<l  March  21,  191S: 

******* 

2.  The  United  States  will  pay  to  the  contractor  the  actual  cost  of  increased 
facilities  as  specified  in  Schedule  B  to  an  amount  not  to  exceed  $.")92.429. 

m  *****  * 

4.  Six  months  after  the  receipt  of  written  offer  of  sale  from  the  Chief  of 
Ordnance,  but  not  later  than  six  months  after  the  termination  of  the  war  be- 
tween the  United  States  and  the  Imperial  German  Government  or  its  allies, 
the  contractor  agrees  to  purchase  and  the  United  States  agrees  to  sell  the  addi- 
ticmal  fa<ilities  called  for  in  this  contract  belonging  to  the  United  States  at  a 
price  of  $242,458.  In  any  event,  however,  the  contractor  shall  not  be  required 
to  pay  for  such  facilities  prior  to  December  31,  1918. 

5.  in  the  event  ()f  the  termination  hereof,  the  United  States  agrees  to  either 
complete  the  additional  facilities  and  sell  them  to  the  contractor,  as  specified 
above,  or  to  restore  the  contractor's  plant  as  it  was  originally  before  altera- 
tions were  made  for  the  addition  of  the  addional  facilities. 

*****>::♦ 

3.  It  is  further  agreed  that  the  United  States  may  accept,  in  full  satisfaction 
of  this  contract,  such  lesser  quantities  of  the  articles  herein  contracted  for  as 
the  contracting  ofl^cer  may  designate;  but  in  this  case  the  contractor's  obliga- 
tion to  imrchase  additional  facilitie.^  at  the  price  specified  shall  cease,  unless 
the  United  States  shall  place  orders  with  the  contractor  for  other  articles  that 
can  be  produced  by  these  facilities  equal  in  value  to  the  value  of  the  portion  of 
the  contract  canceled. 

♦  ♦•**** 

]Mesta  Machine  Co.. 
Geo.  Mesta,  President. 
Samuel  McRoberts, 
Colonel,  Ordnance  Department,  U.  .V.  National  Army. 

By  Chas.  N.  Black, 
Lieutenant  Colonel,  Ordnance,  National  Army. 
Witnesses  : 

H.  F.  Wahr.  Secretary. 
Estklla  Swavely. 

A  true  extract  copy  of  contract  on  file  in  the  Oi-diumce  Department. 

John  J.  Booton. 
Major,  Ordnance  Department. 

Mr.  (Barrett.  I  think  you  will  agree  with  me,  under  this  contract,  who  else 
could  buy  this  property  from  the  Government  except  the  Alabama  Power  Co.V 

Colonel  JoYEs.  Nobody.  But  there  was  many  another  contract  that  con- 
taine«l  that  same  provision,  in  that  same  situation.  I  have  five  of  them  (m  the 
table. 


]Mr.  Parker.  So  far  as  not  already  in  the  record,  please  insert  everything  in 
the  way  of  correspondence,  which  constitute  a  part  of  the  mateiial  which 
you  have  handed  to  Colonel  Williams. 

Colonel  JoYES.  The  material  I  handed  to  Col.  William  Williams? 

Mr.  Parker.  Yes.  It  consisted  largely  of  correspondence  between  you  and 
the  Alabama  Power  Co. ;  and,  so  far  as  it  is  not  in  the  record,  I  want  it  i)Ut  in. 
Second,  please,  at  your  leisure,  state  why- 

Colonel  JoYES  (interposing).  I  expect 

Mr.  Parker  (interposing),  I  am  not  asking  you  to  answer  the  question  now. 
Please,  at  your  leisure,  state  any  reason  why  the  Alabama  Power  Co.  ought 
not  to  pay  interest  on  the  cost  when  they  have  possession  of  the  plant  and  are 
operating  it. 

The  Chairman.  If  you  will  kindly  insert  the  answers  to  tho.se  questions  at 
your  leisure,  that  is  all  we  will  require  this  morning,  ('olonel.  We  are  very 
much  obliged  to  you. 

(The  matter,  above  referred  to,  is  as  follows:) 

[Memorandum  to  Procurement  Division  in  re  proposed  construction  and  operating  con- 
tract with  Alabama  Power  Co.] 

September  5,  1918. 

1.  In  order  to  obtain,  through  the  medium  of  the  Alabama  Power  Co.,  an 
auxiliary  power  station  for  the  power  requirements  of  the  Nitrate  Division. 
Ordnance  Department,  it  became  necessary  first  to  construct  a  power  station 
and  transmission  line  with  Goverment  moneys ;  and,  second,  to  contract  for  the 
operation  and  ultimate  disposal  of  such  properties. 

2.  The  construction  and  the  work  orders,  under  winch  the  same  has  pro- 
ceeded, are  covered  by  the  first  portions  of  the  attached  tentative  contract, 
dated  INIay  20,  1918,  and  the  schedules  A,  B,  and  C,  relating  thereto. 

3.  All  materials  and  apparatus  are  covered  by  purchase  orders,  approved 
or  authorized  previous  to  August  31,  except  certain  as  yet  unauthorized  work, 
which,  however,  is  mentioned  in  schedules  A,  B,  and  C. 

4.  The  construction  of  the  Drifton  Branch  Railroad  extension,  approxi- 
mately 8,000  feet  of  new  line,  was  not  included  in  the  above  draft  of  contract, 
and  lio  work  or  purchase  thereon  has  occurred.  The  Alabama  Power  Co.'s 
representatives  have  agreed  to  provide  the  right  of  way  and  materials  and  to 
perform  that  work  under  this  contract  with  an  upset  price  to  the  I'nite<l  States 
of  ,$30,000,  plus  the  cost  of  the  track-rail  material.  The  future  maintenance 
of  such  extension  to  be  at  the  cost  of  the  Alabama  Power  Co.,  but  performed, 
if  desired,  by  the  United  States  by  the  Railroad  Administration.  (Embody  this 
in  schedule  C.) 

5.  The  operating  section  of  the  contract  to  be  along  the  following  lines : 

6.  The  30,000-kilowatt  unit  and  other  facilities  to  be  installed  at  W^arrior 
at  the  expense  of  the  United  States.  Also  transmission  line  to  nitrate  plant 
No.  2.    Both  on  property  and  right  of  way  of  Alabama  Power  Co. 

7.  The  power  company  shall  pay  the  United  States  as  annual  rental  for  the 
use  of  the  facilities  provided  by  the  United  States  hereunder,  an  amount  equal 
to  6  per  cent  of  the  cost  to  the  United  States  of  the  proposed  facilities  (exclu- 
sive of  transmission  line)  during  such  periods  as  the  I^niteil  States  may  re- 
quire from  the  service  contemplated  under  this  agreement ;  such  rental  pay- 
ment to  be  made  in  equal  monthly  installments. 

8.  In  determining  the  amount  on  which  the  power  company  shall  pay  interest, 
there  shall  be  deducted  from  the  amount  of  the  expenditure  by  the  Unite<l 
States  for  the  construction  of  the  Warrior  extension  the  amount  of  the  accumu- 
lated recapture  fund  in  the  hands  of  the  United  States  resulting  from  the  pro- 
posed retention  of  2  mills  per  kilowatt-hour,  under  the  provisions  of  the  con- 
tract, and  interest  charged  on  the  net  of  such  advance  after  such  deduction, 
interest  computation  to  be  made  semiannually  on  the  1st  day  of  .January  and 
July  of  each  year. 

9.  Power  company  to  operate  the  power  plant  at  Warrior  and  to  supply  cur- 
rent for  operation  of  United  States  nitrate  plants  No.  1  and  No.  2,  near  Sheffield. 
Ala.,  at  7  mills  per  kilowatt-hour,  delivered  to  the  switchboards  at  such  plants. 
110,000  volts,  3-phase,  alternating  current.  The  amount  of  energy  available  to 
the  United  States  for  such  operation  is  to  be  that  corresponding  to  the  capacity 
of  such  unit  and  any  other  power  which  the  power  company  may  have  available 
for  such  use. 


1114 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


1115 


10.  The  use  of  current  by  the  United  States  should  not  be  confined  to 
"  Sheffield  "  nor  to  '*  near  Sheffield,"  since,  for  example,  the  proposed  quarry 
operation  will  probably  be  near  Russelville,  some  30  miles  to  the  south. 

11.  During  such  periods  as  the  United  States  shall  require  the  service  from 
the  power  company  above  provided  the  United  States  shall  guarantee  a  minimum 
payment  for  current  to  be  supplied  pursuant  thereto  of  $30,000  per  month. 

12.  The  United  States  may  discontinue  the  demand  for  such  service  on  60 
days  notice  at  any  time,  in  which  event  the  United  States  shall,  during  the 
period  of  such  discontinuance  of  demand,  be  relieved  of  the  obligation  as  to 
minimum  monthly  payment  hereunder,  and  the  power  company  shall  correspond- 
ingly be  relieved  of  the  payment  of  rental  for  the  facilities  of  the  United  States 
during  the  period  of  such  discontinuance  of  demand  for  service.  Unless  the 
period  of  any  such  discontinuance  of  service  exceeds  60  days,  there  shall  be  no 
change  in  the  minimum  payment  or  rental  charges. 

13.  Such  service  to  be  restored  on  60  days  written  notice  by  the  United 
States,  after  which  the  minimum  payment  and  rental  charges  shall  become 
effective. 

14.  Rate  for  use  of  30,000  kilowatt  units  for  purposes  of  Alabama  Power  Co. 
during  periods  of  suspension  of  service  to  ,the  United  States,  under  provisions 
of  contract,  to  be  1^  mills  per  kilowatt-hour  generated  by  such  unit.  Boilers 
installed  at  expense  of  United  States  to  be  used  only  to  supply  steam  to  the 
30,000-kilowatt  unit. 

15.  The  30,000-kilowatt  unit  and  other  facilities  and  transmission  line  and 
substations  to  remain  the  property  of  the  United  States,  but  of  the  above  pay- 
ment of  7  mills  per  kilowatt  hour  the  amount  of  2  mills  per  kilowatt  hour  is 
to  be  retained  by  the  United  States. 

16.  When  the  amount  so  retained  by  the  United  States  aggregates  the  amount 
of  the  cost  to  the  United  States  of  the  30,000-kilowatt  unit  and  other  facilities 
provided  at  the  expense  of  the  United  States,  and  installation  expense  thereof 
exclusrive  of  the  transmission  line  and  Sheffield  substation,  then  the  title  to  the 
30,000-kilowatt  unit  and  other  such  facilities,  except  the  transmission  line  and 
ShelReld  substation  to  pass  to  the  power  company. 

17.  The  United  States  to  have  the  option  at  any  time  not  less  than  three 
years  after  the  termination  of  the  war  or  termination  of  the  supply  of  power 
hereunder,  whichever  may  be  the  later  date,  to  elect  that  the  power  company 
shall  take  over  the  30,000-kilowatt  unit  and  other  facilities  provided  at  the 
expense  of  the  United  States  at  a  value  to  be  determined  by  appraisal,  such 
appraisal  to  take  into  consideration  the  value  of  the  property  to  the  power 
company  under  the  then  conditions.  The  power  company  to  have  a  reasonable 
period  to  make  payment  of  the  amount  due  on  account  of  such  sale,  not  less 
than  five  years  or  more  than  10  years;  deferred  payments  to  bear  interest  at 
the  rate  of  5  per  cent  and  title  to  property  to  remain  in  the  United  States  until 
paid  for  in  full.  Credit  to  be  given  power  company  for  amounts  retained  under 
provisions  of  15. 

18.  Power  company  to  have  five  years  in  which  to  repay  amount  due  under 
appraisal  at  5  per  cent  interest,  payable  semiannually,  with  an  option  for  five 
years  additional  at  6  per  cent  interest.  Company  may  anticipate  payments  at 
its  option. 

19.  Power  company  to  assume  full  operating  responsibility  for  the  operation 
of  the  plant  and  to  maintain  apparatus  in  first-class  operating  condition,  and 
shall  make  good  any  damages  due  to  use,  accident,  or  otherwise. 

20.  Power  company  to  agree  to  continue  to  supply  power  for  the  requirements 
of  the  United  States  at  reasonable  prices,  taking  into  consideration  capital  in- 
vestment, operating  costs  and  reasonable  depreciation,  after  recapture  of  prop- 
erty by  power  company. 

21.  If  the  United  States  is  prepared  to  furnish  coal  to  power  company  at  a 
price  lower  than  that  on  which  energy  rate  is  based,  under  adjustment  clauses, 
power  company  will  accept  such  coal,  on  reasonable  notice  with  reference  to 
power  company's  obligations  to  accept  coal  from  other  sources.  Energy  rate 
to  be  adjusted  correspondingly  for  power  generated  by  coal  so  furnished  by 
United  States. 

22.  Energy  rate  based  on  standard  coal  at  $2.30  per  ton.  Adjustment  up 
and  down  for  variations  in  coal  cost. 

23.  Contract  to  become  effective  on  30  days'  written  notice  by  the  United 
States,  such  notice  to  be  given  not  later  than  December  1,  1918,  provided  the 
pr()i>osed  facilities  at  Warrior  are  completed  for  operation  at  that  time. 


24.  Temporary  power  to  be  furnished  in  the  meantime  on  basis  $12.50  per 
month  per  1,000-kilowatt  maximum  demand,  plus  5  mills  energy  charge,  as  pro- 
vided in  contract  draft  May  20,  1918. 

25.  Transmission  line  to  be  maintained  by  power  company  but  policing  trans- 
mission line  to  be  at  expense  of  United  States. 

Col.  J.  W.  JOYES, 

Ordnance  Department,  United  States  Army. 


[Memorandum.] 

In  reply  to  .Tiulge  Parker's  question  as  to  why  Alabama  Power  Co.  should  not 
have  been  required  to  pay  interest  on  cost,  I  would  say  that  we  thought  the 
company  should  pay  interest  and  contract  aims  to  require  interest,  as  follows : 

Whenever  United  States  has  a  "demand  "  right  for  power,  the  contractor  must 
pay  monthlv  interest  at  6  per  cent  per  annum  on  entire  cost.  As  facilities  were 
for  the  United  States  requirements  and  as  United  States  interests  prevented 
contractor's  agreeing  to  sell  power  regularly  from  Warrior  extension  it  was  felt 
to  be  only  fair  to  remit  such  payment  when  United  States  suspends  its  pur- 
chases of  power.  But,  in  that  case,  contractor  must  pay  li  mills  for  each 
kilowatt  hour  which  it  generates  itself,  for  its  uses,  by  the  operation  of  the 
Government's  facilities.  This  1^  mill  would  amount  to  more  than  6  per  cent 
per  annum  if  the  contractor  used  the  lacilities  to  their  full  capacity  continu- 
ously. 

Payment  for  full  use  facilities  below :  365  by  24  by  30,000  at  $0.0015,  $394,200. 
Interest  at  6  per  cent  on  $3,851,880.99,  $231,112.86. 

Interest  on  cost  of  Warrior  extension.  Warrior  substation,  and  Drifton  Rail- 
road : 

Furthermore,  the  contractor  is  required  at  all  times  to  maintain  the  proper- 
ties in  first-class  repair,  to  keep  them  insured,  and  to  make  good  all  dam- 
ages, etc. 

In  returning  the  proof  of  the  record  of  my  testimony  in  hearings  before  your 
committee  on  Friday,  March  10,  and  Monday,  March  13,  1922,  I  believe  it  neces- 
sary to  submit  the  following  brief  statement  as  to  my  general  attitude  and 
opinion  in  regard  to  the  contract  with  the  Alabama  Power  Co. 

The  trend  of  previous  hearings  and  of  the  questions  propounded  to  me  natu- 
rally led  to  presentation  of  facts  and  some  argument  by  me  in  support  of  the 
legality  and  justice  of  the  contract,  such  as  might  possibly  be  misconstrued  into 
an  advocacy  of  the  interests  of  the  Alabama  Power  Co. 

Such  an  advocacy  of  this  or  any  other  interest  in  opposition  to  that  of  the 
United  States  Government  is  far  from  my  intent.  On  the  contrary,  I  believe 
that  the  legal  rights  and  proper  equities  of  the  United  States  should  be  para- 
mount, and  that  in  the  contract  are  to  be  found  the  best  means  of  enforcing 
such  rights  and  protecting  such  equities  of  the  United  States. 

I  therefore  advise  tfiat  the  contract  be  respected  and  enforced  and  urge  that 
the  policy  of  the  Government  be  to  secure  In  the  manner  prescribed  In  the  con- 
tract the  most  advantageous  settlement  possible. 
Respectfully, 

.T.   W.    .TOYES, 

Colonel,  Ordnance  Department,  United  States  Army. 

STATEMENT  OF  DR.  CHARLES  L.  PARSONS,  CONSULTING  CHEMIST, 

WASHINGTON,  D.  C. 

The  Chairman.  We  will  now  hear  Dr.  Parsons.  Will  you  kindly  state  your 
name  in  full,  also  your  address,  your  present  business,  and  what  position  you 
occupied  during  the  war? 

Doctor  Parsons.  I  am  Charles  L.  Parsons,  and  my  address  is  1709  G  Street. 
Washington.  D.  C.  I  am  a  consulting  chemist.  During  the  war  I  was  quite 
closely  connected  with  the  whole  nitrogen  situation  and  a  number  of  other 
matters  that  were  handled  by  the  Bureau  of  Mines  of  the  Interior  Department. 
I  was  chief  chemist  and  chief  of  the  division  of  mineral  technology  of  the 
Bureau  of  Mines.  In  the  summer  of  1916  I  vvas  transferred  to  the  War  De- 
partment at  the  request  of  General  Crozier  as  their  chief  chemical  engineer 
to  go  to  Europe  and  investigate  the  whole  question  of  nitrogen  fixation  and  to 
report  back  to  him  my  conclusions.    After  that  I  was  made  a  member  of  the 


1116 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


1117 


Hjl;" 


nitrate  ^oiiniiission,  consistinjr  of  Admiral  Earle,  Dr.  W.  R.  Whituey,  Dr.  A. 
A,  Noyes,  Dr.  Gaiio  Dimn,  and  I  tliink  the  other  member  was  Mr.  E.  E.  Summers, 
of  the  War  Industries  Board.  1  am  not  quite  sure  of  that,  hut  I  have  the 
list  exact  if  you  desire  it. 

I  was  consulted  in  connection  ^^ith  technical  matters  with  reference  to  new 
plants  after  plant  No.  2  was  installed  at  Muscle  Shoals,  when  such  matters  were 
referred  to  the  commission  for  advice.  I  was  also  with  the  interdepartmental 
committee,  consisting  of  the  Secretaries,  of  Interior,  Agriculture,  and  War,  at 
the  time  they  took  their  special  trip  through  the  South  to  view  the  various 
localities  jn-oposed  for  the  lirst  nitrate  plant,  which  should  be  referred  to  as 
plant  No.  1.  and  the  trip  had  nothing  to  do  with  plant  No.  2.  Afterwards  I 
was  in  constant  consultation  with  them,  and  was  on  the  various  boards  that 
had  to  do  with  these  matters. 

I  am,  of  course,  more  especially  informed  on  the  technical  side,  or  the  chemical 
side  of  the  situation.  I  do  not  think  1  can  give  you  any  testimony  which 
would  be  worth  while  on  water  powers  or  law  or  contracts.  While  I  will  be 
very  glad  to  reply  to  any  question  of  fact,  of  which  I  have  knowledge  on  those 
matters,  I  do  not  think  I  could  give  you  an  opinion,  as  you  have  already  had  men 
before  you  who  are  much  more  expert  on  those  matters  than  myself. 

There  is  one  thing  that  I  ought  to  mention.  I  have  been.  I  think,  before  every 
committee  that  has  bad  this  matter  up  for  consideration.  I  was.  after  I  left  the 
Bureau  of  Mines  in  the  latter  part  of  1919,  connectefl  in  a  consulting  chemical 
capacity  with  the  Atmospheric  Nitrogen  Corporation,  whose  plant  is  now  operat- 
ing at  Syracuse ;  I  remained  with  them  in  a  consulting  capacity  until  August  15, 
1921,  when  their  plant  was  in  full,  successful  operation,  and  my  connection 
with  them  ceased  with  the  understanding  that  I 'was  entirely  free  thereafter, 
and  I  am  before  you  as  a  free  lance,  without  anyone  influencing  my  testimony. 
The  (^HAiRMAN.  That  plant  at  Syracuse  is  the  one  that  has  been  referred  to 
as  the  fixation  plant  No.  1.  which  is  different  from  the  plants  operated  by 
the  cyanamid  process? 

Doctor  r.VRsoxs.  You  are  coi-rect. 

The  Chairman.  What  is  the  name  of  that  process  olficiallyV 
Doctor  rARsoxs.  It  is  generally   spoken   of  as  the  General   Chemical  Co.'s 
process,  or.  if  you  wish  to  go  back  to  a  more  general  term,  it  is  a  modifica- 
tion of  the  Haber  process.    There  are  three  modifications  of  the  Haber  i)rocess, 
which  differ  slightly,  and  which  I  will  explain. 

Tbe  Haber  ]irocess  was  first  developed  in  Germany.  When  the  war  began 
they  Mere  making  7.000  tons  of  fixed  nitrogen  per  year  by  the  Haber  process 
there.  Tbeir  i»atents  called  for  operation  under  pressure  from  100  atmos- 
pheres to  800  atmospheres,  or  to  put  it  in  pounds,  from  1,.500  pounds  per 
square  inch  to  4,r>00  pounds  i)er  square  inch — very  high  pressures. 

Tbe  process  consists  in  the  direct  combination  of  nitrogen  and  hydrogen 
to  form  ammonia,  and  the  greatest  difficulty  in  the  process  to-day  is  to  pro- 
cure tbe  hydrogen  and  to  procure  it  cheap.  Modifications  of  that  process  have 
been  <levised,  but  information  could  not  be  obtained  ii\  1917  from  Germajiy 
which  would  enalde  us  to  put  in  the  German  process  per  se. 

Tbe  General  (^hemical  Co.,  in  order  to  be  free  from  the  German  patents, 
devised  a  process  which  worked  at  a  pressure  of  1,500  pounds  per  square  inch. 
In  France  (^laudc  has  devised  a  process  which  works  at  pressures  greater 
than  300  atmospheres,  in  fact,  he  works  at  pressures  of  900  atmospheres, 
which  would  be  nine  times  1,500  pounds  i)er  square  inch — a  very,  very  high 
I)ressure.  He  is  working  on  a  comparatively  small  scale,  but  succe.««sfuiry, 
in  France.  Otherwise  those  processes  are  much  alike,  and  they  are  often 
spoken  of  in  tbe  general  term'  as  the  Haber  process.  It  is  really  the  syn- 
thetic annnonia  process,  of  which  there  are  three  modifications  used  in 
the  world  to-day.  They  are  replacing  the  other  processes,  and.  so  far  as  we 
<'an  now  see,  within  a  few  years  this  will  be  the  only  process  used  for  nitrogen 
■fixation. 

The  ClHATRMAN.  Did  you  do  anything  at  Muscle  Shoals  wth  regard  to  nitrate 
plant  No.  Ti 

Doctor  Parsons.  With  reference  to  nitrate  plant  No.  2  I  was  called  into 
the  first  conference  held  in  General  Crozier's  ofl^ice,  and  the  details  of  that 
conference  are  set  forth  in  the  records  of  Mr.  Graham's  committee.  I  differed 
from  nearly  everyone  else  there  that  night  as  to  the  advisability  of  installing 
plant  No.  2  at  all.  I  went  back  the  next  day  and  wrote  a  letter  to  General 
Crozier  giving  my  full  opinion  and  reasons  therefor  and  mailed  it  to  him,  and 
after  that  I  had  nothing  to  do  with  plant  No.  2. 


The  Chairman.  What  was  your  objection  to  that  plant? 

Doctor  Parsons.  ;My  objection  to  that  plant  was  that  it  was  a  process 
that  was  becoming  obsolescent.  I  did  not  feel  at  that  time  we  had  reached 
a  stage  -where  the  installation  of  the  plant  was  necessary  for  war  purposes. 
I  believed  we  could  procure  our  immediate  needs  from  the  annnonia  produced 
by  the  destructive  distillation  of  coal,  of  which  we  are  making  something 
like  100,000  tons  every  year,  and  at  that  time,  if  I  remember  correctly,  about 
70,000  tons,  and  I  thought  that  ammonia  could  be  diverted  temiwrarily  with- 
out injury  to  the  other  industries  of  the  country  and  could  be  oxidized  and 
made  into  the  nitric  acid  that  we  might  need  for  any  short  period  of  emer- 
gency. So  I  favored  installing  at  first  the  process  of  the  General  Chemical 
Co.,  a  modification  of  the  Haber  process,  and  installing  it  as  a  small  unit 
so  we  could  determine  how  it  would  operate  and  the  necessary  details  for 
its  operation.    I  will  have  more  to  say  about  that  later. 

The  Chairman.  What  did  General  Crozier  say  with  regard  to  that  matter? 

Doctor  Parsons.  He  accepted  the  advice  of  the  Ordnance  officers  and  went 
ahead  with  plant  No.  2.  If  you  wish  the  letter  I  wrote  him  at  that  time  it  is 
in  these  hearings  on  the  Muscle  Shoals  development,  and  I  can  read  it  to  you, 
or  you  can  put  it  in  the  hearing,  or  simply  refer  tx)  it. 

The  Chairman.  Is  it  very  long? 

Doctor  Parsons.  It  is  approximately  one  page. 

The  Chairman.  Will  you  kindly  read  it?  What  hearing  is  that  which  you 
are  about  to  read  from? 

Doctor  Parsons.  This  is  a  hearing  on  the  sundry  civil  appropriation  bill  for 
1922,  on  the  Muscle  Shoals  (Ala.)  development. 

The  Chairman.  That  must  have  been  this  year. 

Doctor  Parsons.  The  hearing  was  last  year. 

The  Chairman.  What  committee  did  you  appear  before? 

Doctor  Parsons.  I  appeared  at  Chairman  Good's  request  before  the  subcom- 
mittee on  the  sundry  civil  appropriation  bill,  at  the  time  the  government- 
operated  nitrogen  corporation  was  being  considered. 

The  Chairman.  Was  that  in  1922? 

Doctor  Parsons.  That  was  on  the  appropriation  bill  for  1922. 

Mr.  Parker.  What  date  did  you  appear? 

Doctor  Parsons.  On  Wednesday,  February  16,  1921. 

The  Chairman.  Will  you  kindly  read  the  letter? 

Doctor  Parsons  [reading] : 

Department  of  the  Interior, 

Bureau  of  INItnks. 
Washington,  October  SI,  1011. 
Chief  of  Ordnance,  War  Department. 

Dear  General  Crozier:  Referring  to  the  conference  in  your  office  Monday 
evening  regarding  the  necessity  of  building  additional  ammonia  plants  for  the 
production  of  ammonium  nitrate  for  shell  filler,  I  have  given  further  careful 
thought  to  the  arguments  presented. 

Basing  my  conclusion  on  the  premises  that  600,000.000  pounds  of  shell  filler 
are  required  for  the  year  beginning  September  1,  1918:  that  the  necessary  forg- 
ings  can  not  be  obtained  for  increasing  the  size  of  the  ammonia  plant  to  use 
the  process  of  the  General  Chemical  Co.:  and  that  picric  acid  by  the  chlor- 
benzol  process  can  not  be  produced  in  sufficient  quantity  to  meet  the  deficiency, 
I  agree  that  it  may  be  necessary  to  install  plants  for  the  production  of  cyan- 
amid and  ammonia.  I  believe  that  a  thorough  canvass  of  the  i)icric  acid  sit- 
uation and  the  ability  to  divert  50,000  tons  of  ammonia  from  coke  plants  shoulil 
first  be  made.  I  am  strongly  of  the  opinion  that  the  cost  figures  for  the  pro- 
duction of  ammonia  as  presented  in  the  estimates  of  Mr.  Washburn  can  not 
be. attained  with  water  power  at  1  cent  per  kilowatt  hour  and  the  heavy  amorti- 
zation charges  required  on  the  proposed  plant. 

While  it  may  be  necessary  in  the  present  emergency  to  resort  to  every  known 
process  for  the  production  of  ammonia,  including  the  cyanamid  process,  as  was 
done  in  Germany,  I  can  not  feel  that  the  time  has  arrived  when  the  country  is 
driven  to  the  strait  of  accepting  any  such  proposition  as  that  proposed  by  Mr. 
Washburn,  president  of  the  American  Cyanamid  Co. 

Mr.  Washburn  proposed  to  furnish  the  technical  advice  and  engineering  ex- 
perience, the  patent  rights,  and  the  good  will  of  his  company  at  cost,  to  build, 
at  Government  expense,  a  plant  to  produce  from  500  to  1,000  tons  of  ammonia 
per  week  at  a  cost  for  the  larger  amount  estimated  at  $16,000,000, 'including 


m 


1118 


MUSCLE   SHOALS  PROPOSITIONS. 


■ 


m 


electricity  transmission  lines.  He  contemplates  no  personal  expenses,  finan^ 
cial  risk,  or  guaranty,  and  is  reimbursed  for  the  time  and  expense  of  his  em^ 
ployees.  He  claims  to  charge  no  royalty  during  the  period  of  the  war,  or  for 
three  years  in  case  the  war  ends  sooner.  He  agrees  to  furnish  the  electricity 
at  1  cent  per  kilowatt-hour,  or  approximately  $64.50  per  horsepower-year  On 
the  electricity  he  presumably  makes  a  profit,  how  great  is  unstated— but  his 
first  estimate  was  7  mills  per  kilowatt-hour,  as  given  to  Captain  White 

His  proposal  contemplates  his  ultimate,  if  not  immediate,  ownership  of  the 
plant,  without  cost  of  any  kind  to  himself  or  his  company.    This  is  to  be  ac- 
complished  by  charging  against  the  ammonia  produced  during  a   three-year 
period  an  amount  sufficient  to  amortize  the  total  construction  costs  of  the  plant 
which  is,  of  course,  to  be  kept  in  proper  operating  conditions. 

Plant  costs  at  the  present  time  are  excessive,  but  deducting  50  per  cent  of 
the  estimated  cost  of  plant  as  a  proper  loss  to  the  Government  to  cover  emer- 
gency conditions,  there  remains  $4,000,000  on  the  500-ton  plant,  or  $8,000,000 
on  the  1,000- ton  plant  of  actual  plant  value  under  normal  conditions  These 
figures  correspond  almost  exactly  to  the  $200  per  ton  nitrogen  capacity  per 
year  construction  costs  given  by  the  American  Cyanamid  Co.  to  the  nitrate 
committee  as  a  proper  estimate  for  the  construction  cost  of  a  cyanamid  plant 
not  counting  water-power  installation,  on  prewar  conditions— conditions  which 
will  probably  never  be  reached  in  this  country  again. 

Even  admitting  for  the  sake  of  agrument  the  correctness  of  the  construction 
estimates,  I  have  no  faith  in  the  estimates  for  ammonia  product  on  costs  as 
presented  previously  by  him  or  as  proposed  in  this  latest  communication  I 
have  no  hesitancy  in  saying  that  the  ammonia  costs  will  be  considerably  higher 
than  estimated  and  that  ammonia  by  the  cyanamid  process  has  never  been  made 
by  any  other  manufacturer  of  cyanamid  at  anything  like  these  figures,  allowing 
for  present  prices  for  power,  labor,  and  other  raw  materials.  I  wish  to  place 
myself  on  record  as  stating  that  they  will  be  exceeded  if  the  Government  builds 
a  plant  and  it  is  operated  by  the  Government  or  by  the  American  Cyanamid 
Co.  as  proposed. 

I  ask  particularly  that  you  note  the  following: 

1.  That  the  American  Cyanamid  Co.  will  obtain  through  ownership  of  the 
plant  a  profit  equivalent  to  from  $4,000,000  to  $8,000,000  at  the  lowest  estimate 
for  the  three-year  use  of  their  process,  without  financial  risk  to  themselves  or 
guaranty  or  responsibility  of  any  kind  whatsoever. 

2.  The  basic  patents  for  the  cyanamid  process  will  soon  run  out. 

3.  The  above  profit  is  equivalent  to  a  royalty  of  $50  per  ton  of  ammonia  pro- 
duced, or  approximately  $40  per  ton  of  nitrogen,  including  that  used  for 
munitions. 

J.  'I  h;>t  rho  r'.vnity  on  the  synthetic  process  is  nothing  on  munitions  and  only 
$5  per  ton  on  nitrogen  if  the  product  is  used  for  fertilizer. 

5.  That  profits  on  electricity  gold  will  be  paid  to  Mr.  Washburn  and  his  asso- 
ciates.   The  extent  of  this  profit  is  unknown. 

C.  That  a  probable  10  per  cent  profit  will  have  to  be  paid  to  some  construction 
company  that  builds  the  plant. 

7.  Most  important  of  all,  Mr.  Washburn's  proposal  plans  to  leave  the  cyan- 
amid industry  in  his  hands  after  the  war  is  over  for  the  production  of  fertilizer 
It  plans  unquestionably,  since  he  wishes  it  located  at  Muscle  Shoals,  to  force 
the  Government  to  subsidize  the  continuation  of  a  process  which  has  never 
commercially  found  place  in  the  United  States,  by  granting  to  its  horsepower 
in  quantity  far  below  the  market  price  of  horsepower  anywhere  else  in 
America,  thus  rendering  possible  a  continuation  of  a  process  which  can  not 
hope  to  exist  commercially  in  full  and  free  competition  with  more  modern 
processes  for  nitrogen  fixation.  I  believe  in  the  development  of  water  power 
at  Muscle  Shoals,  but  not  for  the  benefit  of  the  American  Cyanamid  Co  or  for 
purposes  of  nitrogen  fixation,  which  can  be  accomplished  much  cheaper  other- 
wise. 

If  the  cyanamid  process  must  be  resorted  to  it  should  be  remembered  that 
the  process  is  an  old  process,  well  known  to  many  engineers  both  in  this  coun- 
try and  abroad ;  that  the  larger  part  of  the  process  consists  in  the  production 
of  calcium  carbide;  that  the  Union  Carbide  Co.  and  other  carbide  companies 
are  equally  able,  if  not  better  able,  to  construct  this  portion  of  the  plant- 
that  engineers  can  readily  be  obtainable,  probably  in  this  country,  but  certainly 
in  Norway,  to  plan,  construct,  and  operate  cyanamid  plants  and  plants  to 


MUSCLE  SHOALS  PROPOSITIONS. 


1119 


convert  this  cyanamid  mto  ammonia;  that  the  basic  patents  are  soon  to  run 
out,  and  any  patent  suit  against  the  Government  would  undoubtedly  be  settled 
at  a  comparatively  low  figure;  that  electric  power  to  the  extent  of  about  20  00«^ 
h''f]?r  wLf  f«  ^^  PiH-ehased  at  Keokuk  for  $20  per  horsepower  year,  andTn 
Ii9  rlr  wL'  ^^^^l'^t)le  and  can  be  purchased  in  quantity  at  approximately 
$12  per  horsepower  year ;  and  that  power  can  be  produced  by  steam  plants 
for  from  $40  to  $4o  per  horsepower  year.  j'  »i    ^  i  vmim, 

I,  therefore,  can  see  no  reason  other  than  the  establishment  of  a  cvanamid 
monopoly  favorable  to  the  American  Cyanamid  Co.  for  locating  this  plZ  ac 
Muscle  bhoas  at  a  present  horsepower  cost  of  $64.50  per  holsepower  year 
This  IS  particularly  true  when  it  is  remembered  that  the  cost  of  horsepower 
is  one  of  the  chief  controlling  factors  in  the  cost  of  the  product  ^'♦^^^^l^^^^'^^ 

n.  rnnrS^t  /l^'J"^  ^^'""^  '\ ''  ^T''  expectation  or  plan  to  accept  the  proposal 
^lon?.^?:  fV  ^f  y.^'*^^  strongly  that  if  it  has  become  necessarv  to  erect 
plants  for  the  production  of  ammonia  through  cyanamid  theseDlants  shmiM 
belong  to  the  Government.  If  operated  for  fertiS  purposes  after  the  ^^r 
the  Government  would  then  be  in  a  position  to  direct  the  use  of  th  s  nlmU 
so  as  to  preclude  individual  subsidy.  ^ 

I  trust  you  will  pardon  the  length  of  this  communication,  but  I  feel  it  mv 
Yours\ery  Trul^  "^'^'^"^  "'"^  conception  of  the  action  proposeci  * 

Charles  L.  Parsons. 
The  Chairman.  When  was  that  written  to  General  Crozier-J 
Doctor  Parsons.  On  the  31st  day  of  October,  1917.     That  was  the  dav  after 
the  first  meeting  that  was  held  in  his  ottice.     I  was  there  until  2  o'clock  in 
the  morning,  and  you  will  find  the  details  of  that  in  the  other  heari m^s      i 
never  had   anything  to  do   with   that   nitrate  plant  after  that      Mr    Wash 
burns'  proposals  were  greatly  modified,  and  theV  got  very  much  better  terms 
before  they  finally  signed  the  contract,  as  you  know.     But    he  fTct  rema    ' 
^If  tl'::.^fil«/'''  then  about  the  reliability  of  the  cyanamid  process  as  a  process 

The  Chairman.  Did  General  Crozier  replv  to  that  letter'^ 
Doctor  Parsons.  I  am  not  sure;  he  may  have  acknowledged  it,  but  it  was 
no  more  than  an  acknowledgment.  ' 

nnnff^of"^^^'-  ^«/«"  l^now  whether  Secretary  Baker  saw  vour  letter' 
fee'^nls'in'^tr  matter.'  "''  '"'"^  ^"     '  '"^"  ^^^^^^^^^  ^^^-  ^--  -^  -^' 
him?^  Chairman.  How  did   he  know  that ;   did  you   have  conferences   with 

f^£?K^^^-^*^''^^^'^'  ^  *^^^  frequent  conferences  with  him;  we  went  on  the  trio 
Sh^o«^«^V^i^  P"''^^^  '^'  ^^^'^  ^^'^  ^^'^°*  «»  t^^  fi^«t  inspectioi.  trip  ?o  MuSe 
t^nir.h  ^.-^.h'^h^'^  ""T.  ^V^  '^"'^  ^^  ^^^y«  together,  and  I  was  quite  closeirin 
touch  with  him  and  had  letters  from  him  and  sent  letters  to  him  on  nitrogen 
fixation  matters  during  the  war.     Secretary  Baker's  attitude,  in  mv  opinfon 
was  entirely  correct  from  the  beginning  to  the  end  of  the  situation   ^         ' 
xne  CyHAiRMAN.  Did  he  agree  with  you  on  these  matters' 
Doctor  Parsons.  Secretary  Baker  agreed,  in  that  he  accepted    as  did   thp 
mitTJ'7  f^^j;^^f  i^«'  t^«  r^P^rt  of  the  committee  which  the  commUtt  sub 
Sil  ;  ^""1  ''^^'^^  ''''^  practically  the  report  which  I  made  to  the  Ordnance 
Department,  and  the  interdepartmental  committee  unanimouslv  were  for  the 

bas^tif".^  ""^'^  ^r  ^^^  ^^"^^^^'^  ^^  '^'^  P^^^^  ^^  ^^'^^'  Chattanooga,  on  the 
basis  that  no  great  amount  of  power  was  needed  for  nitrogen  fixation.     Plant 

hronlh7nlf'''''Z^'^  '^  '.'"'"'^  ^^.^^'^  ^'^  '^^  President,  as  has  been  clear?v 
Sn?,  •  ?»"*  I"  *^^  previous  hearings,  the  details  of  which  you  will  find  not 
only  in  the  hearing  referred  to  but  in  the  hearings  held  bv  Mr  Grahanrs 
committee  on  war  expenditures.  ^lananis 

.^J^^^P^'^l^^^^^-  ^^"^  *^^  President  order  the  work  to  begin  down  there  in 
the  letter  of  his  of  February  18,  1918? 

Doctor  Parsons.  I  think  it  would  be  better,  if  you  want  that  data  to  eet 
It  exact  on  the  report  of  the  interdepartmental  committee  to  General  Crozier 
suggesting  that  the  report  be  accepted  and  that  the  plant  be  put  at  North 

?orf".^?r^^-.  ^^"^^'^^  ^^^^^^^  ^^'^<^^^  ^^«"t  1<^  '^^y^  after  the  receipt  of  that 
report  that  the  whole  project  had  been  sent  to  Muscle  Shoals  by  the  President's 
order.  You  will  find  the  detail  in  Mr.  Graham's  hearing.  It  is  refeii-ed  to  in 
these  hearings  and  the  pages  given.  reienea  to  m 

92900—22 71 


1120 


MUSCLE  SHOALS  PEOPOSITIONS. 


MUSCLE  SHOAI^  PROPOSITIONS. 


1121 


Thfe  Chairman.  You  can  put  that  into  the  hearings  when  you  I^ok  it  up. 

Doctor  Pabsons.  The  page  reference? 

The  Chaibman.  Yes. 

Mr.  Miller.  The  reference  to  where  it  can  be  found  in  the  hearings  of  Mr. 
Graham's  committee. 

Doctor  Parsons.  I  will  do  that. 

The  Chairman.  The  President,  then,  gave  orders  to  proceed  with  the  work  at 
Muscle  Shoals  as  a  war  proposition,  did  he  not? 

Doctor  Parsons.  I  do  not  so  understand  it.  The  order  was  first  given  in  ref- 
erence to  plant  No.  1,  and  it  was  under  the  national  defense  act.  He  ordered 
plant  No.  1  to  Muscle  Shoals,  when  all  the  boards  had  favored  the  location 
of  it  elsewhere.  That  was  some  few  months  before  plant  No.  2  was  decided 
upon  at  all.  When  the  Ordnance  Department  decided  upon  building  plant  No. 
2,  it  naturally  followed  after,  because  plant  No.  2,  if  it  were  to  have  any  suc- 
cess at  all,  required  for  its  operation  considerable  power.  There  was  no  power 
developed  at  Muscle  Shoals  at  that  time.  During  the  war  they  had  to  get 
power  from  a  rapidly  built  steam  plant  or  from  some  power  company  that  might 
furnish  it.  It  was  generally  understood  that  by  ordering  it  to  be  built  at 
Muscle  Shoals  the  power  at  Muscle  Shoals  would  be  developed. 

The  Chairman.  Was  the  Wilson  Dam  begun  about  that  time  also  in  con- 
nection with  the  Muscle  Shoals  development? 

Doctor  Parsons.  I  am  afraid  I  have  not  those  dates  clearly  in  mind,  but  the 
Wilson  Dam,  as  I  understand  it,  was  not  started  for  some  time  afterwards. 
I  think  it  was  approximatetly  a  year  after,  but  that  can  be  easily  ascertained. 

The  Chairman.  Is  it  not  a  fact  that  when  the  President  ordered  that  work 
started  it  was  investigated  as  to  whether  the  completion  of  those  dams  could 
be  considered  a  war  emergency,  and  Mr.  Barney  Baruch.  who  was  then  at  the 
head  of  the  War  Industries  Board,  decided  it  was  not  a  war  emergency,  and 
ordered  the  work  on  those  dams  stopped? 

Doctor  Parsons.  I  would  rather  some  one  else  would  answer  that  question. 
I  do  not  know  definitely,  without  going  into  the  record.  I  think  you  will  find 
it  in  the  record,  answered  by  others.  I  know  that  later  there  is  no  question 
whatever  that  the  activities  on  the  dam  were  ordered  stopped  by  somebody. 
I  think  it  was  on  the  basis  that  it  would  not  be  needed  during  the  war.  Later, 
the  question  came  up  before  the  Nitrate  Commission,  of  which  I  was  a  member, 
in  regard  to  building  further  plants,  for  there  was  a  great  fear,  and  a  natural 
scare  from  the  submarine  raids,  that  we  might  be  cut  off  entirely  from  the 
Chilean  nitrates.  Then  they  considered  the  building  of  plant  No.  3  and  plant 
No.  4,  and  I  w^as  called  in  again,  for  the  first  time  on  that  situation,  as  a 
member  of  the  Nitrate  Commission.  At  that  time  I  voted  for  the  installation 
of  plant  No.  3  and  plant  No.  4  as  a  cyanamid  plant,  provided  they  would  put 
into  the  vote  the  following  words: 

"  Resolved,  That  in  view  of  the  present  emergency  and  the  necessity  for  ob- 
taining ammonia,  the  cost  being  secondary  in  the  present  emergency,  the  com- 
mission recommends  that  the  new"  nitrate  plant,  knowm  as  plant  No.  3.  be  con- 
structed and  operated  under  the  cyanamid  process." 

That  was  simply  because  we  had  the  data  and  the  trained  men  to  deal  with 
the  situation,  although  we  knew  that  the  cost  would  be  high  and  that  it  would 
be  a  very  difficult  thing  to  do.    The  commission  voted  unanimously  as  quoted. 

The  Chairman.  But  they  never  carried  out'  that  proposition  and  plant  No.  3 
w^as  never  built. 

Doctor  Parsons.  Plants  Nos.  3  and  4  were  started,  and  afterwards,  I  think, 
they  expended  on  plants  Nos.  3  and  4  approximately  .$20,000,000,  and  then 
scrapped  them  both  before  they  were  completed,  and  the  war  had  ended. 

I  can  now  reply  to  your  previous  question,  because  the  information  is  before 
me  in  these  hearings.  The  page  in  the  hearings  of  the  Graham  committee  is 
page  2578,  and  in  the  hearings  on  the  sundry  civil  bill  for  1922  you  will  find 
a  copy  of  the  data  on  page  216,  if  you  wish  it  inserted 

The  Chairman.  Is  it  very  long? 

Doctor  Parsons.  It  is  about  a  quarter  of  a  page. 

The  Chairman.  Will  you  kindly  read  it  for  the  record? 

Doctor  Parsons.  Mr.  Good,  speaking,  says: 

"  Right  in  that  connection,  in  the  hefi rings  before  the  Committee  on  War 
Expenditures,  on  page  2578,  appears  the  following,  the  question  being  asked 
by  Mr.  Graham: 


"  *  On  the  19th  of  September,  1917,  the  record  shows  a  memorandum  was 
given  to  the  Chief  of  Ordnance  .signed  by  Colonel  Joyes,  of  the  Ordnance  De- 
partment, and  a  memorandum  was  made  to  you  on  the  20th  of  September, 
1917  '— 

•'  This  question  was  directed  to  the  Secretary  of  War— 
" '  by  General  Crozier  about  this  subject.    In  this  memorandum  that  General 
Crozier  makes  I  find  the  follo^ving— this  is  simply  the  summary  of  his  con- 
clusions : 

"  •  I  think  that  the  examinations  made  indicate  the  limit  of  choice  to  four 
localities,  viz:  Chattanooga,  Knoxville,  Sheffield,  and  North  Birmingham,  and 
after  fully  considering  all  the  aspects  of  the  matter  it  is  my  opinion  that  the 
site  at  North  Chattanooga,  Tenn.,  having  been  adjudged  first  from  the  fertilizer 
standpoint  and  next  from  the  compromise  standpoint,  is  best  fitted  for  the 
constructions  now  contemplated,  and  I  recommend  its  adoption  and  the  purchase 
of  a  tract  of  500  to  600  acres. 

"  •  WnxiAM  Crozier, 
"  '  Brigadier  General,  Chief  of  Ordnanee,  United  States  Army: 

"  On  the  margin  of  that  memorandum,  dated  August  6,  1917,  is  a  postscript 
or  a  sort  of  note: 

"  •  The  original  letter,  471,86/2020-Nitrogen-j/z,  dated  September  20,  1917.  a 
memorandum  for  the  Secretary  of  War  signed  by  William  Crozier,  brigadier 
general,  Chief  of  Ordnance,  United  States  Army,  copy  of  which  you  alreadv 
have  been  furnished,  bears  the  following  postscript  in  long  hand : 

"'"The  President  has  selected  Sheffield.  So  informed  by  Secretary  of 
War  9/28.    W.  C."  '  " 

The  Chairman.  Have  you  any  opinion  about  the  cyanamid  process  yourself? 
Doctor  Parsons.  I  have  been  through  a  number  of  plants;  all  there  are  in 
this  country  and  several  in  Europe.     I  made  a  very  careful  study  of  the  procesB 
and  its  operation. 

The  Chairman.  Do  you  think  that  it  is  likely  to  be  superseded  by  new  inven- 
tions or  new  processes? 

Doctor  Parsons.  I  think  it  is  practically  already  superseded  by  the  Haber 
process  and  its  modifications,  and  on  that  I  can  give  you  some  very  definite 
data.  The  cyanamid  plant  in  Canada  is  practically  shut  down.  It  is  producing 
no  cyanamid,  or  very  little  cyanamid,  for  fertilizer.  The  cyanamid  plants  in 
Italy  are  closed.  The  cyanamid  plants  in  France  are  closed.  The  cyanamid 
plants  in  Dalmatia  and  Silesia  are  closed.  The  cyanamid  plants  in  Norway 
and  Sweden  are  closed.  The  large  cyanamid  plant  at  Odda,  Norway,  which  I 
had  the  pleasure  of  visiting  in  1916,  and  which  is  fully  equal  to  the  Muscle 
Shoals  plant  in  quality  and  one  of  the  best  con.structed  plants  I  ever  investi- 
gated. It  is  not  quite  one-half  the  size  of  the  Muscle  Shoals  plant,  is  now 
closed,  and  has  been  sold  at  auction  within  the  last  month  for  $10,000,  or  rather 
50,000  kronen. 

The  Chairman.  How  much  did  it  cost? 

Doctor  Parsons.  I  do  not  know,  but  a  very  large  .sum,  several  million  dollars. 
It  was  a  plant  for  producing  approximately  one-half  of  the  plant  capacity  at 
Muscle  Shoals ;  say,  from  80,000  to  100,000  tons  of  cyanamid  a  year,  or  some- 
thing less  than  20,000  tons  of  nitrogen. 

The  Chairman.  Doctor  Parsons,  it  is  now  about  half  past  12,  and  at  this  time 
the  committee  usually  takes  a  recess  and  meets  again  at  2  o'clock.  Could  you 
kindly  be  here  at  2  o'clock? 

Doctor  Parsons.  Certainly. 

(The  committee  thereupon  took  a  recess  until  2  o'clock  p.  m.) 

AFTKK  RECESS. 

The  committee  mt^^t,  pursuant  to  tiie  recess,  at  2  o'clock  p.  ni.,  Hon.  .Tolin  c\ 
McKenzie  (acting  chairman)  presiding. 

STATEMENT  OF  DR.   CHARLES  L.  PARSONS — Resumed. 

Mr.  McKenzie.  I  think  you  had  not  concluded  j'our  statement,  Doctor  Par- 
sons, when  we  adjourned,  and  you  may  proceed. 

Doctor  Parsons.  When  the  hearing  adjourned  I  was  replying  to  a  question 
of  the  chairman  with  reference  to  the  present  con«lition  of  the  cyanamid  process. 
I  had  just  stated  that  the  process  which,  in  all  the  other  hearings  I  had  stated 
was  in  a  condition  of  obsolescence,  has  practically  become  aln^ady  ol)solescent ; 


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MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


1123 


that  the  plants  in  France  are  closed  down ;  the  phmts  in  Italy  are  closed  down, 
one  of  them  fnlly  (there  are  two  in  Italy),  and  one  of  them  is  possihly  working 
on  very  short  time  making  some  products,  i)ut  not  cyanannd  for  fertilizer. 
The  plants  in  Sweden  are  closed  down  and  the  plants  in  Norway  are  closed 
down.  The  plant  across  the  border  in  Canada  is  closed  down  except  for  short - 
time  operations  for  a  few  profhicts  wliich  they  make.  They  have  no  expecta- 
tions of  g(ang  ahead  to  any  extent,  immediately,  so  far  as  I  am  informed;  iu 
fact.  I  am  infornje<l  to  tlie  contrary. 

This  plant  was  making  annnoninm  sulphate  by  sending  its  cyanamid  to 
Warners,  N.  J.,  and  tliey  closed  down  the  ammonium  sulphate  plant  in  July. 
1917.  I)ecause  they  could  not  operate  it  at  a  prolit.  At  that  time,  ammonium 
sulphate  was  selling  for  over  $100  per  ton.  Of  cour.se,  their  costs  were  higher 
then  than  they  are  now,  but  they  can.  not  oi)erate  it  to-day  and  they  have  no 
•expectation  of  operating  that  plant  again. 

Mv.  Miller.  Pardon;  what  plant  is  that? 

Doctor  Parsons.  That  is  the  annnoninm  sulphate  plant  of  the  American 
Cyanamid  Co.  at  Warners,  N.  J. 

]Mr,  McKenzie.  What  do  yon  mean.  Doctor  Parsons,  when  you  say  they  can 
not  operate,  that  they  can  not  operate  successfully  against  the  competition 
coming  from  foreign  countries? 

Doctor  Parsons.  They  can  not  operate  against  the  competition  that  is  com- 
ing frimi  this  country,  and  they  certainly  can  not  operate  against  the  compe- 
tion  which  may  come  from  foreign  countries,  because  annnonium  sulphate  is 
selling  in  Gernniny  t<»-day,  on  our  exchange,  for  approximately  one-half  the 
price  it  is  selling  in  the  market  here. 

Mr.  McKenzie.  What  is  the  competition  in  our  own  country  at  this  time  that 
they  have  to  meet? 

Doctor  Parsons.  The  competition  in  this  cimntry  at  the  present  time  is  am- 
monium sulphate  from  the  coke  ovens  by-prmluct.  They  were  not  able  to  sell 
their  product.  There  has  been  a  very  great  decrease  in  the  price  of  nitrogenous 
fertilizers  this  last  year.  i!s  I  think  has  already  been  pointed  out  to  this  connnittee. 
The  approximate  price  to-day  of  anmionium  sulphate  is  around  $50  a  ton.  It 
has  sold  in  very  large  (luantities  this  last  year  for  $-10  a  ton,  and  I  understand 
that  there  was  one  large  sale  at  $39  a  ton. 

Mr.  McKenzie.  The  product  received  from  the  coke  oven  is  a  by-product,  in 
a  sense,  is  it  not? 

Doctor  Parsons.  Yes;  but  there  has  been  more  made  than  the  country  would 
take,  and  we  have  exported  ammonium  sulphate  in  quantity  this  last  year. 
At  the  same  time,  I  do  not  want  you  to  get  any  false  idea  as  to  my  stand  with 
reference  to  that.  I  do  not  believe  that  that  condition  will  last  long,  for  I 
believe  that  this  country  is  going  to  take  and  use  all  of  the  fixed  nitrogen  we 
can  hope  to  make,  and  that  it  should  be  taken  and  so  used  by  the  farmers  in 
order  to  produce  crops  more  cheaply  than  they  can  do  it  by  labor  and  by  using 
more  land.  I  am  thoroughly  in  accord  with  concentrated  fertilization  and 
large  use  of  nitrogenous  fertilizers. 

Mr.  McKenzie.  There  is  not  any  patent  on  the  process  coining  from  the  coke 
oven,  is  there? 

Doctor  Parsons.  No.  There  is  no  patent,  either,  on  the  Haber  process  at 
the  present  time  that  keeps  us  from  using  this  process,  which  is  used  in  Ger- 
many  and  which  will  make  ammonia  a  great  deal  cheaper  than  any  other  proc- 
ess for  the  fixation  of  nitrogen  from  the  air. 

Mr.  McKenzie.  Right  in  this  connection.  Doctor  Parsons,  I  think  it  might  be 
well  for  you  to  say  if  you  have  any  opinion  as  to  whether  or  not,  notwithstand- 
ing the  fact  that  under  the  cyanamid  process  it  is  impossible  to  manufacture 
and  compete — whether  there  is  any  possible  chance  of  a  development  in  this 
country  that  will  reduce  the  price  of  this  very  essential  element  that  enters 
into  fertilizers. 

Doctor  Parsons.  May  I  come  to  that  in  a  moment  and  complete  what  I  havf 
to  say  about  the  cjauamid  process,  so  we  will  clear  that  up? 

Mr.  McKenzie.  Yes ;  you  may  answer  that  in  your  own  way. 

Doctor  Parsons.  That  plant  at  Warners,  N.  J. 

Mr.  Parker  (interposing).  What  is  the  name  of  that  place? 

Doctor  Parsons.  Warners.  That  plant  was  also  making  ammonium  phos- 
phate, a  very  concentrated  form  of  fertilizer,  which  it  is  very  desirable  we 
should  have  in  this  country,  but  they  were  also  obliged  to  close  that  plant  down 
six  months  ago  because  they  could  not  sell  the  product  at  a  profit. 


m 


To  give  you  a  direct  incident  which  lias  just  been  consunmiated  bearing  on 
this  matter:  The  large  cyanamid  plant  at  Odda.  in  Norwav.  which  I  visited  in 
1916  and  which  was  at  that  time,  I  think,  the  best  cvanamid  plant  in  the  world 
and  has  only  been  exceeded  since  by  the  one  at  Muscle  Shoals,  has  been  closed 
down  for  some  little  time.  On  the  11th  of  February  it  was  sold  at  auction, 
and  It  sold  for  50,000  kroner,  and  it  might  be  well  for  me  to  put  in  the  record 
here  an  extract  from  the  Chemical  Age,  of  Febiuarv  IS.  1922,  giving  that  data 
Fifty  thousand  kroner  at  normal  exchange  is  some*  $16.0fH1.  but  at"  present  ex- 
change it  is  only  approximately  $10,000  in  our  monev.  That  plant  was  an 
immense  plant.  They  are  making  this  change  with  tlie  expectation  of  adopt- 
ing there  a  modification  of  the  Haber  process.  As  it  is  imp<.ssible  to  convert 
a  cyanamid  plant  into  a  Haber  plant  or  to  practicallv  use  anvthing  of  impor- 
tance which  the  cyanamid  plant  has  in  the  Haber  operation 'thevreallv  got 
when  they  purchased  this  plant  at  auction,  what  might  be  considered  "a  low 
price  for  the  land  that  the  plant  stood  on ;  probablv  a  lower  price  than  thev 
otherwise  would  have  gotten,  because  they  have  to  dean  ofl'  most  of  the  struc- 
tures on  it  before  they  can  go  ahead  and  use  the  new  and  modern  process 

I  had  last  night  a  conference  with  three  Norwegians,  engineers  who  are  In 
the  city  on  other  matters,  whom  I  had  met  in  my  Euroi»ean  trips  and  thev 
tell  me  that  it  is  their  belief  that  the  cyanamid  plants*  in  (;erinanv  also  are 
closing  down  or  are  closed  down.  Now,  I  have  no  definite  informati(m  on 
that.  .Aly  own  information  is  that  the  cyanamid  plants  in  (Jermany  or  at  least 
some  of  them,  are  still  running,  and  may  run  for  a  while  vet  for  the  rea><on 
that  m  Germany  they  have  rather  special  conditions,  not  onlv  in  labor  but 
in  some  of  the  raw  materials,  which  the  cyanamid  plants  use,  for  example 
coal.  The  Haber  plant,  as  used  in  Germany,  requires  about  0  tons  to  6^  tons 
of  coal  per  ton  of  nitrogen  pro(luced.  The  cyanamid  plants  require  less  coal 
for  itrocess  purposes,  if  you  leave  power  out  of  consideration.  They  take  onlv 
li'om  8  to  34  t<ms  of  coal,  and  coal  is  a  very  great  factor  in  Germany  at  tlu» 
present  time.  Accordingly,  those  plants  will  probablv  survive  longer  than 
any  other  cyanamid  plants.  The.V  also  tell  me  that  "the  immense  nitrogen 
I)lant  at  Rjukan,  Norway,  run  by  the  Norsk  Hydro  Co.,  this  last  year  pur- 
chased from  Germany  direct,  considerable  quantities  of  Haber-made  ammonia 
in  tank  cars  delivered  at  Rjukan  for  one-half  the  price  jier  ton  of  nitrogen 
for  which  they  themselves  were  selling  it  for  in  the  form  of  calcium  nitrat»\ 
They  had  to  make  ammonium  nitrate,  and  it  was  far  cheaper  to  get  their 
ammonia  from  Germany  than  to  get  it  from  the  cyanamid  plant  at  (^dda. 
That  was  one  of  the  reasons  that  the  cyanamid  iilant  closed  down,  as  their 
market  was  taken  away  from  them  by  this  German  competition.  In  Germany 
ammonium  sulphate  is,  of  course,  selling  at  a  very  low  price.  That  also  has 
been  published  within  a  week  as  something  like"  $25  or  $30  a  ton  for  the 
ammonium  sulphate,  but,  of  course,  everything  in  Germanv  is  verv  low  to-«lav 
(The  article  referred  to  follows:) 

"ALRY    united    carbide    rNDERTAKlNG — TYSSEFALDENK    POWER    CO.     Bl'YS    ODDA 

FACTORIES. 

"  In  acccu-daiice  with  the  arrangements  discloi^ed  at  the  extraordinary  general 
meeting  of  the  company  in  December  last  (.see  The  Chemical  Age,  Vol.  V,  p. 
•S38),  the  foreclosure  sale  of  the  Odda  factories  was  held  on  February  11.  wlieii 
the  Tyssefaldene  Power  Co.  purchased  the  factories  for  50.(XK)  kroner,  it  will 
be  remembered  that,  acconling  to  a  statement  made  in  December  last,  the  pur- 
chasers were  owed  a  large  sum  of  money  by  the  Alby  Co.,  and  that  the 
Tyssefaldene  Co.,  together  with  the  English  syndicate,  intended  to  restart  the 
factories  within  six  months  for  the  producti(m  of  ammonium  sulphate.  Acconl- 
ing  to  an  agreement  reached  at  the  December  meeting  (jf  the  Alby  Co.,  an 
adjourned  extraordinary  general  meeting  will  be  held  not  later  than  Feb- 
ruary 28." 

Doctor  Parsons.  One  other  thing  I  would  like  to  call  your  attention  to  is  a 
statement  made  to  me  by  Mr.  Barton  in  the  summer  of  1920,  which  I  quoted 
in  the  record  because  it  is  somewhat  of  a  prophecy  which  I  fully  believed  in 
at  that  time.  Mr.  Barton  was  the  promoter  in  England  of  the  Norwegian  and 
Swedish  plants,  and  occupied  in  North  Europe  very  much  the  same  position 
to  the  cyanamid  companies  that  Mr.  Washburn  occupied  in  America.  Mr. 
Barton  stated  to  me,  "  Doctor  Parsons,  as  sure  as  we  sit  here,  the  cyanamid 
process  is  a  thing  of  the  past,  being  sure  to  be  replaced  by  the  synthetic 
ammonia  process."  That  was  two  years  ago,  and  has  been  in  accord  with  all 
the  testimony  I  have  ever  given  before  Congress. 


( 


1124 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


1125 


Now,  to  come  to  your  question  as  to  what  should  be  done.  I  think  there  is 
no  question  whatever  that  America  should,  can,  and  will  use  the  synthetic 
ammonia  process  for  the  fixation  of  nitrogen  no  matter  what  this  committee 
decides  with  reference  to  Muscle  Shoals,  because  it  is  an  absolute  economic 
certainty  that  a  process  which  is  developing  like  that  process  is  developing  is 
going  to  be  utilized  also  in  this  country. 

I  want  to  refer  to  a  statement  which  was  made  before  this  committee  and 
which  I  saw  in  the  press — I  have  not  heard  all  the  testimony — to  which  I 
want  to  take  very  strong  exception,  and  that  is  with  reference  to  certain  state- 
ments that  have  been  made  concerning  the  explosion  at  Oppau  as  affecting  the 
Haber  process  with  reference  to  plant  No.  1  at  Muscle  Shoals  and  as  to  its 
being  a  failure  and  to  certain  of  the  operations  at  Syracuse  which  are  abso- 
lutely incorrect  in  the  record. 

For  example,  the  statement  was  made  that  the  plant  was  located  at  Syracuse 
to  be  near  the  coke  ovens.  This  is  wrong.  It  has  no  connection  with  coke 
ovens.  The  statement  says  that  at  Syracuse  by-product  hydrogen  is  available. 
That  is  not  true.  They  do  not  use  one  pound  of  by-product  hydrogen,  and 
never  did. 

Mr.  Stoll.  Who  made  that  statement? 

Doctor  Parson.  Mr.  Worthington ;  that  is,  the  paper  says  he  did.  I  do 
not  know.  They  make  their  hydrogen  at  Syracuse  by  exactly  the  same  process, 
or  essentially  the  same  process,  that  they  make  it  in  Germany — from  coal  by 
the  action  of  carbon  on  water  and  steam,  and  that  is  why  the  big  steam  plant 
was  put  in  at  plant  No.  1.  Plant  No.  1  at  Muscle  Shoals  was  put  in  as  an 
experimental  plant  on  a  small  scale  in  order  to  get  the  necessary  information 
to  increase  it  in  size.  It  was  started  on  the  basis  of  22,000  tons  of  ammonium 
nitrate  per  year.  However,  only  one  unit  of  approximately  one-third  or  a 
little  more  of  that  plant  was  constructed. 

It  was  just  one-fifth  the  size  of  the  other  plant  contemplated.  However, 
only  one  of  the  units  was  put  in  in  order  to  get  information  to  build  the  rest 
of  the  plant.  They  only  had  a  very  short  time  after  that  unit  was  completed 
to  get  data  on  operations.  They  found  difliculties  exactly  as  the  Germans 
found  when  they  first  ran  their  Haber  plants  on  the  other  side  in  the  early 
history  of  that  process.  There  were  great  difficulties,  owing  to  the  high 
pressures  used  and  the  difficulty  of  preparing  the  catalyst  on  a  large  scale. 
They  could  prepare  it  easily  in  the  laboratory  on  a  small  scale.  Then  the 
armistice  came  and  the  plant  was  closed  down. 

The  Ordnance  Department  tried  to  make  arrangements  with  the  General 
Chemical  Co.  to  go  ahead  and  operate  plant  No.  1,  but  they  could  not  come  to 
an  agreement,  largely  because  the  General  Chemical  Co.  wanted  to  get  away 
from  any  question  of  government  relationship.  Their  engineers  had  claimed 
that  it  was  the  Government  engineers  that  kept  it  from  running  right  in  the 
first  place,  and  the  Government  engineers  claimed  that  it  was  their  engineers 
that  kept  it  from  running  right  in  the  first  place,  and  there  was  no  complete 
agreement  between  them.  Accordingly  the  General  Chemical  Co.  changed  its 
plans  and  started  to  build  a  new  plant  by  essentially  the  same  process,  changing 
a  number  of  the  mechanical  details  for  which  they  had  obtained  the  data  in 
the  operation  at  Muscle  Shoals,  changing  their  catalyst  and  some  other  details 
of  the  plant.  Then  they  built  a  plant  almost  immediately  at  Syracuse,  N.  Y., 
to  run  by  the  General  Chemical  Co.'s  process,  running  under  100  atmospheres! 
as  at  Muscle  Shoals.  That  plant  was  completed  in  very  short  order.  That 
plant  operated  perfectly  from  the  start.  So  far  as  I  know  it  has  not  closed 
down  a  day  since  it  started.  It  was  built  on  a  10-ton  basis,  and  it  has  been 
producing  over  12  tons  a  day  for  several  months. 

So  that  instead  of  plant  No.  1  being  a  failure,  in  my  opinion,  plant  No.  1 
has  thoroughly  justified  itself.  I  have  not  the  slightest  doubt  that  the  fixed 
nitrogen  which  is  to  be  made  in  the  future  in  America  is  going  to  be  made  by 
a  synthetic  ammonia  process,  whether  it  is  at  Muscle  Shoals  or  wherever  it 
may  be,  simply  for  the  reason  that  there  is  no  other  process  in  the  world  that 
for  a  minute  can  compete  with  it  commercially. 

In  Germany  the  Haber  process  is  operating  at  full  capacity,  turning  out 
300,000  tons  of  nitrogen  per  year,  about  90,000  tons  of  which  is  at  Oppau.  and 
the  other  210,000  at  Merseburg. 

At  Oppau  there  was  a  terrible  explosion,  probably  the  largest  that  ever 
occurred,  a  few  months  ago.  That  explosion  had  absolutely  nothing  to  do 
with  the  Haber  process.    It  was  an  explosion  of  ammonium  nitrate  mixed  with 


ammonium  sulphate.  They  had  4,500  tons  of  that  material  stored  in  one 
building.  You  have  stored  at  Muscle  Shoals  to-day  3,400,000  pounds,  or  some- 
thing over  1,500  tons  of  ammonium  nitrate,  which  would  explode  itself  if  it 
was  subjected  to  the  same  conditions.  That  amount  of  ammonium  nitrate  which 
is  in  storage  at  Muscle  Shoals  has  been  on  the  market,  offered  for  sale  within 
three  months,  and  the  highest  bid  they  could  get,  so  far  as  I  have  been  able 
to  find  out,  was  about  3f  cents  a  pound,  and  the  average  was  somewhere 
around  Si  cents,  which  is  a  very  low  price. 

The  Government  declined  the  bids  on  that  basis  and  none  of  its  was  sold, 
although  it  is  the  most  concentrated  form  of  nitrogen  you  have  in  America 
at  the  present  time,  and  ammonium  nitrate  if  put  out  by  itself  by  hand  on  the 
farm  would  be  a  most  excellent  fertilizer.  It  will  not  mix  readily  in  mixed 
fertilizer,  but  the  South  uses  large  quantities  of  sodium  nitrate  every  year  in 
the  form  of  sodium  nitrate  put  out  as  top  dressing,  and  the  ammonium  nitrate 
would  be  very  valuable  to  the  farmers  if  it  was  sold  to  them,  and  they  had  large 
bids  from  the  farmers  in  the  South,  some  of  which  I  have  personal  knowl- 
edge of. 

Now,  as  to  that  explosion  at  Oppau,  I  want  to  go  very  strongly  on  record  as 
saying  it  had  nothing  whatever  to  do  with  the  process  by  which  the  ammonium 
nitrate  was  produced.  Nobody  knows  why  it  took  place,  but  these  engineers 
.  with  whom  I  was  talking  last  night,  and  who  bring  me  the  latest  information, 
tell  me  that  there  is  talk  around  among  the  engineers  on  the  other  side  that  it 
was  due  to  the  fact  that  the  workmen  substituted  dynamite  for  some  of  the 
safety  powders  which  had  been  used  before  in  breaking  up  the  mass.  If  you 
take  4,500  tons  or  any  large  amount  of  ammonium  nitrate  with  ammonium 
sulphate  mixed  with  it  and  pile  it  up  in  large  piles  or  in  large  storehouses,  as 
it  was  piled  there,  it  cakes  together  in  a  mass.  They  had  been  blasting  it  out, 
as  they  needed  to  break  it  up.  Now.  the  rumor  is  as  stated,  and  I  wish  you 
to  understand  that  this  is  rumor  only — I  do  not  think  anybody  knows — I*  do 
not  believe  the  Germans  themselves  know  why  that  explosion  took  place. 

They  know  that  they  were  blasting,  but  the  rumor  is  that  the  workmen  were 
on  piecework  and  the  dynamite  would  break  up  the  mass  very  much  more  rapidly 
than  these  other  explosives ;  that  they  substituted  dynamite  to  break  up  the  mass 
instead  of  the  explosives  which  had  been  used  theretofore,  and  that  the  mass 
itself  then  went  off.  Now,  we  know  that  ammonium  nitrate  will  explode,  because 
we  had  a  big  ammonium  nitrate  explosion  in  this  country  at  Morgan,  N.J..  in 
the  latter  days  of  the  war.  Nobody  supposed  before  that  explosion  that  you  could 
ever  get  an  explosion  out  of  ammonium  nitrate;  but  they  got  it  there,*and  they 
got  It  in  Germany,  and  if  you  have  the  right  conditions  it  is  liable  to  go  off 
anywhere ;  but  I  still  think  there  is  no  danger  in  making  ammonium  nitrate  if 
It  is  properly  and  judiciously  handled ;  but  if  you  have  4,500  tons  of  it  around  I 
would  advise  you  not  to  try  to  break  it  up  with  dynamite  or  with  any  other  ex- 
plosives. 

The  Haber  plant  over  there  is  again  working.  This  plant  at  Oppau.  whicli 
was  supposed  to  be  wiped  off  the  face  of  the  earth,  is  now,  within  a  few  months 
after  this  explosion,  producing  nitrogen  again  to  capacity,  and  Germany  is  turn- 
ing out  something  like  2,000,000  tons  of  ammonium  sulphate,  or  its  equivalent, 
made  from  air  nitrogen,  and  using  most  of  it  in  Germany  for  concentrated  fer- 
tilization. So  that  I  think  there  is  no  question  whatsoever  as  to  the  future  of 
the  Haber  process,  and  I  believe,  and  believe  very  strongly,  that  the  one  pos.si- 
bility  of  making  fertilizer  with  any  degree  of  cheapness  is  through  the  develop- 
ment of  plant  No.  1  at  Muscle  Shoals,  and  that  you  can  never  hoi)e  to  do  any- 
thing with  plant  No.  2,  and  that  anybody  that  runs  it  will  lose  money  verv 
rapidly. 

I  would  like  to  call  your  attention,  because  a  few  matters  have  come  to  my 
notice,  to  Exhibit  B  before  this  committee  bearing  upon  the  same  argument. 
Some  one  of  this  committee  asked  Major  Burns,  of  the  Ordnance  Department,  to 
submit  an  estimate  as  to  the  commercial  operations  from  the  standpoint  of  profit 
and  loss  from  plant  No.  2  for  a  period  of  six  years.  He  has  done  that  in  your 
Exhibit  B.  Now,  Exhibit  B,  as  it  stands,  shows  a  loss  for  the  six  years  of  opera- 
tion of  $2,919,650.  To  get  that  loss,  however,  in  the  first  place,  he  puts  his  am- 
monium sulphate  at  $65  a  ton.  Ammonium  sulphate  may  go  up  in  price.  I  am 
not  predicting  markets,  but  it  is  my  opinion  that  ammonium  sulphate  will  never 
sell  for  any  long  period  of  time  much  higher  than  it  has  this  year,  on  account 
of  the  great  developments  of  the  processes  which  are  taking  place.  The  market 
price  at  the  present  time  is  approximately  $50  a  ton,  and  as  I  have  said,  large 
quantities,  thousands  of  tons,  have  sold  this  last  year  as  low  as  $40  a  ton.    If 


i 

IH 


1126 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


1127 


^?"  Jl"^  ^^'\*'"^'*. '"  ^^  '^^^  P^^  ^*'"-  ^^'^"^^  ^s  ^^^  present  market  price,  iiiste.-Hl 
!J^  r.,?'  ^\rV  Major  Burns  assumed  as  an  averajre  market  price  (not  "  cheao 
fertilizer,  hut  more  expensive  fertilizer),  you  will  jret  a  loss  on  tho^e  same 
hjxures  of  $22,209,650  for  operating'  plant  No.  2  for  six  years.  These  figures  come 
to  you  from  your  own  (Jovernment  experts,  and  are  ajrreed  to,  not  only  hy  the 
Ordnance  Department,  hut  hy  the  Njtrojjen  Fixation  Lahoratorv.  Mv*  own 
opinion  IS  that  the  expense  account  in  their  estimate  is  too  low,  hut  unless  you 
wish  me  to  j^'o  into  that,  I  think  it  is  unnecessary  to  -o  further  than  to  show  "the 
loss  \yhich  has  already  heen  indicattnl.  He  has  put  his  depreciation,  for  example 
tor  SIX  years  at  5  per  cent.  My  personal  opinion  is  that  those  plants  will  he 
obsolescent— T  think  they  are  ohsolescent  now ;  hut  if  you  make  them  obsolescent 
thnmjrh  the  six  years  it  is  much  more  than  that.  He  has  put  his  interest  for  six 
years  at  .>  per  cent,  jind  I  do  not  believe  that  any  industrial  corporation  of  any 
size  tor  the  next  six  years  is  soin;?  to  jret  their  monev  at  5  per  cent 

There  is  one  other  thing  with  reference  to  that  i)lant  wh'ch  I  think  should 
he  brought  to  your  attention,  which,  so  far  as  I  know,  has  not  been  brought 
before  you,  an:l  that  is  the  fact  tli.nt  if  the  cvanamid  plant  at  :Mu.scle  Shoals 
IS  operated,  there  will  be  approximately  4f>0,CK)0  tons  of  sludge  per  vear  that 
has  to  be  disposed  of.  Now,  -160,000  tons  of  sludge  per  vear  is  eriulvalent  to 
approximately  SOOm^  cubic  yards.  That  has  got  to  be 'disposed  of  an.l  put 
somewhere.  In  tne  hearings  which  have  gone  before,  tliev  have  assumed  it 
would  be  run  into  the  Tennessee  River.  It  is  my  opinion  tliat  if  it  is  run  into 
the  Tennessee  River  you  will  damage  navigation  far  more  than  you  will  help 
It  by  any  locks  you  may  put  in,  not  only  on  account  of  the  fact  that  a  "-ood 
portion  of  this  material  itself  will  be  dej)osite<l,  but  also,  owing  to  the  fact  Uiat 
It  is  an  alkaline  material,  and  it  is  well  known  that  alkaline  material  causes 
clay  m  water  to  coagulate  and  settle.  Wherever  the  waters  of  the  Mississippi 
River  or  any  other  mud<ly  river  come  in  contact  with  electrolytes  like  thev  <lo 
when  they  enter  the  Gulf  of  Mexico  and  touch  salt  water,  their  clay  is  de- 
posited and  deltas  are  formed.  If  you  put  this  quantity  of  material  into  the 
river  when  it  goes  by  the  plant  at  IMuscle  Shoals,  it  is  my  opinion  that  it  will 
not  be  six  months  l)efore  you  are  legislating  against  it,  and  the  disposal  of  the 
material  will  be  a  very  difficult  matter  on  account  of  this  large  amount 

There  is  another  matter  of  some  importance,  of  a  technical  nature  which 
it  seems  to  me  should  be  corrected.  I  happened  to  be  present  at  one  or  two  of 
the  early  hearings,  because  I  wanted  to  hear  IMr.  Swann's  testimony,  especially 
about  phosphate,  because  I  wantwl  to  know  what  he  had  done  in  his  plant,  and 
I  came  up  to  listen.  I  had  to  wait  through  one  or  two  hearings  before  he  came 
on,  and  I  heard  some  of  the  testimony  at  that  time,  and  I  have  seen  some  of 
the  printed  testimony  since  then.  I  understand  in  one  of  the  offers  that  is 
before  you  there  is  an  agreement  to  run  plant  No.  2  to  its  capacity  unless  pre- 
vented by  strikes,  and  lack  of  making  profit,  and  some  other  points  the  exact 
detail  of  which  you  can  get  from  your  testimony. 

The  question  was  frequently  asked  as  to  what  was  meant  in  that  offer  by 
the  equivalent  of  110.000  tons  of  ammonium  nitrate  or,  to  put  it  in  other  units, 
of  40,000  tons  of  nitrogen,  and  the  statement  was  made  that  the  equivalent 
reasonably  considere<l  wouhl  be  2,(XX),000  tons  of  commercial  fertilizer  of  2-8-2 
Now,  if  you  can  get  anybody  to  agree  to  make  2.000,000  tons  of  fertilizer  of 
2-8-2  at  a  cheaper  price  than  the  present  market.  I  think  I  should  be  in  favor 
of  any  such  offer,  but  I  want  to  be  sure  that  you  have  such  an  agreement  The 
point  is  that  2,000,000  tons  of  2-8-2  fertilizer  would  contain  40,000  tons  of 
nitrogen,  which  is  the  full  capacity  of  plant  No.  2  as  it  stands,  which  requires 
we  will  say.  100,000  horsepower  to  produce.  It  means  also  160.000  tons  of 
T*,Ot..  or  phosphoric  acid,  and  it  means  40,000  tons  of  K2O,  or  potash.  Now,  to 
produce  that  phosphoric  acid  by  the  electric-furnace  method  at  Muscle  Shoals 
would  take  very  much  more  power  than  to  produce  the  nitrogen,  and  to  pro- 
duce the  potash  from  potash  shales  would  also  require  its  quota  of  power,  so 
that  taking  it  on  the  very  lowest  possible  basis  of  power  production — and  I  can 
go  into  the  details  if  you  wish— it  would  require  approximately  100,000  horse- 
power for  the  40,000  tons  of  nitrogen  and  possibly  160.000  to  170,000  horsepower 
for  the  production  of  the  phosphoric  acid 'and  approximately  75,000  horsepower 
more  for  the  production  of  the  potash :  and  where  are  you  going  to  get  the 
power  if  this  is  going  to  be  done  as  a  power  proposition?"  You  simply  will  not 
have  any  power  to  run  the  automobile  factory  which  plant  No.  1  is  to  be  con- 
verted into.  Now,  that  is  not  an  equivalent  and  could  not  be  considered  by 
anyone  an  equivalent,  and  would  take  at  least  three  times  the  horsepower  if  it 
^yas  carried  out  by  the  methods  proposed. 


The  statement  was  made  that  the  2,000,000  tons  of  fertilizer  would  probably 
be  made  at  a  saving  of  33i  per  cent.  Now,  if  you  will  take  the  present  price 
of  that  am(mnt  of  fertilizer  and  i>ut  all  the  "  nitrate  "  which  could  be  made  in 
plant  No.  2  into  it  for  nothing,  the  saving  would  not  be  33^  per  cent  of  llie 
fertilizer. 

I  think  that  I  have  nothing  more  to  sjiy,  unless  there  are  some  questions. 

Mr.  McKenzie.  Doctor  Parsons,  do  you  have  an  organization  in  this  country 
of  chemists  such  as  yourself  V 

Doctor  Parsons.  Yes:  there  are  several,  the  Electric  Chemical  Society,  the 
Innstitute  of  Chemical  Engineers,  and  th*'  American  Chemieal  Society. 

Mr.  McKenzie.  I  presume  all  of  those  men  give  more  or  les^s  attention  to 
iiuitters  of  this  character? 

Doctor  Parsons.  Well,  some  of  them  specialize  more  in  this  line  than  others — 
some  work  on  steel  work  and  some  on  fertilizer  work  aiul  some  on  nitrates,  etc. 

Mr.  McKenzie.  In  your  statement  to  the  committee  have  you  been  voicing  the 
general  sentiment  or  views  of  tliis  organizaticm  or  these  various  organizations, 
or  are  they  j)riiicii)ally  your  own  views? 

Doctor  I'arsons.  None  of  the  organizations  has  taken  any  stand  on  the  matter 
whatsoever.  I  am  voicing  my  own  views  entirely,  which  I  believe,  however, 
!)0  i)er  cent  of  the  chemists  of  the  country  would  agree  with  if  they  went  into 
the  matter,  but  of  that  I  am  not  prepare<l  to  sjieak. 

Mr.  ^IcKenzie.  Do  you  know  of  any  distinguished  chemists  that  differ  from 
you  in  this  contention  about  the  cyanamid  process? 

Doctor  I*ARSoNS.  Not  anyone  who  is  not  interested  in  the  cyanamid  process; 
no;  nor  at  the  present  time.  They  have  disagreed  with  me  in  the  past  as  to 
what  the  future  of  the  cyanamid  process  would  be. 

Mr.  McKenzie.  Now.  I  want  to  ask  you  this  question,  ^Ir.  Parsons.  I  think 
you  have  made  a  pretty  strong  case  here  as  to  the  apparent  vanishing  of  the 
cyanamid  process 

Doctor  Parsons  (interposing).  I  want  to  call  your  attention  to  the  statement 
of  Doctor  Tolman,  who  is  one  of  our  very  highest  class  chemists.  He  states  in 
his  testinumy  that  they  estimate  now  a  cost  of  aliout  $65  per  ton;  that  that  is 
the  lowest  estimate  they  can  make,  and  he  is  at  the  head  of  your  nitrogen  fixa- 
tion laboratory.  If  you  can  not  make  ammonium  sulphate  at  less  than  $65  a  ton. 
yon  can  not  hope  to  sell  it  at  the  present  time,  and  certainly  not  at  a  profit: 
and  while  Doctor  Tolman  and  I  would  probably  disagree  as  to  what  the  cost  of 
ammonium  sulphate  by  the  cyanamid  process  would  be,  and  he  would  place  his 
ligures  considerably  lower  than  I  would  place  them,  still  he  has  stated  to  you 
after  careful  study  that  he  thinks  they  could  break  about  even  at  $65  per  ton 
for  ammonium  sulphate  with  power  at  three-quarters  of  a  mill  per  kilowatt 
hour  and  with  capital  charges  of  not  over  five  to  ten  million  dollars. 

^Ir.  McKenzie.  Are  you  .familiar  with  the  proposed  contract  submitted  by 
Mr.  Ford? 

Doctor  Parsons.  T  have  rea<l  it.     I  have  not  studied  it  with  very  great  care. 

Mr.  McKenzie.  Is  it  your  contention  that  under  that  contract  Mr.  For<l  wouhl 
l)e  compelled  to  proceed  with  the  manufacture  of  nitrates  under  the  cyanamid 
process,  or  could  he  utilize  any  new  development  in  the  manufacture? 

Doctor  Parsons.  You  have  got  to  go  to  the  testimony.  I  think,  to  find  out 
about  that. 

Mr.  McKenzie.  I  am  speaking  of  the  contract. 

Doctor  Parsons.  He  agrees  to  two  things,  as  I  understand  it,  and  one  of 
them  is  to  keep  plant  No.  2  in  a  stand-by  condition,  available  for  the  use  of 
the  public  defense  at  any  time;  and,  second,  to  operate  it  to  capacity  unless 
prevented  by  strikes  or  other  causes.  I  understand. he  has  stated  to  Secretary 
AVeeks  that  one  of  the  causes  would  be  inability  to  run  it  at  a  profit,  and 
that  Mr.  Mayo  gave  the  same  testimony,  and  all  other  representatives  of  his. 
I  am  sorry  Mr.  Ford  has  not  been  here  before  you  to  state  definitely  what  he 
means,  but  if  he  means  that  if  he  ^an  not  run  that  plant  at  a  profit  he  is  not 
going  to  run  it  I  do  not  think  he  will  ever  run  it,  and  I  think  that  stands  out 
practically  in  every  one  of  the  reports  that  have  come  to  you  officially. 

For  example,  there  is  a  big  "  If  "  in  every  one  of  the  propositions.  Secretary 
AVeeks,  for  example,  show's  clearly  in  his  testimony  that  he  does  not  consider 
that  this  offer  carries  any  real  assurance  or  guaranty  that  any  fertilizer  or 
nitrate  will  be  made. 

General  Williams  says :  "  If  the  Ford  offer  means,  in  the  case  of  the  No.  2 
plant,  that  such  plant  will  be  operated  at  its  approximate  capacity  for  the 
fixation  of  hitrogen,"  etc. 


1128 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE   SHOALS  PROPOSITIONS. 


1129 


GenQi-al  Beach  says :  "  Indirect  benefits  accruing  to  the.  United  States  are 
(6)  the  production  in  the  interest  of  the  public  welfare  of  large  amounts  of 
fertilizer  at  a  cost  not  exceeding  the  reasonable  cost  of  production,  providing 
that  the  production  of  nitrates  adapted  to  fertilizing  purposes  is  found  to  be 
practicable." 

The  Secretary  of  Agriculture  in  his  statement  to  you  was  no  less  noncom- 
mittal. The  authorized  statement  given  out  by  Doctor  Tolman  favors  the 
Ford  offer  only  "if  its  terms  are  sufficiently  definite  and  binding  to  make 
sure  that  the  plant  will  be  operated  continuously  for  the  manufacture  of 
fertilizer." 

Mr.  Ford,  according  to  Secretary  Weeks,  states  definitelv  that  plant  No.  2 
will  not  be  operated  unless  it  can  be  operated  at  a  profit,  and  Mr.  Mavo 
definitely  confirms  this  statement  in  his  testimony. 

Mr.  James.  This  morning  you  were  talking  about  several  talks  Mr.  Wash- 
burn had  with  the  committee  of  which  you  were  a  member.  You  talked  about 
his  proposition,  and  then  you  said  afterwards  that  thev  got  better  terms.  By 
"  they  "  you  meant  Mr.  Washburn  and  his  friends,  did  you  not? 

Doctor  Paesons.  No;  I  meant  the  Ordnance  Department.  They  got  very 
much  better  terms. 

Mr.  James.  The  Ordnance  Department  got  better  terms  at  last  than  they 
did  at  first? 

Doctor  Parsons.  Yes.  I  had  nothing  to  do  with  those  negotiations,  and  I 
know  nothing  about  them  except  as  they  are  in  the  record.  Mv  connection 
with  the  case  closed  that  evening,  and  I  was  not  called  in  again  on  plant  No.  2. 

Mr.  jA]^rES.  You  mean  at  the  first  meeting? 

Doctor  Parsons.  Yes,  sir. 

Mr.  James.  There  was  a  gentleman  there  that  night  from  New  York  called 
Mr.  MacRoberts? 

Doctor  Parsons.  No  ;  I  think  not. 

Mr.  James.  I  think  you  will  find  at  the  first  meeting— that  was  the  night 
Mr.  Baruch  was  there,  was  it  not? 

Doctor  Parsons.  No.  I  am  not  sure  whether  Mr.  Baruch  was  there  or  not. 
I  do  not  remember  that  he  was.  He  may  have  been.  I  would  have  to  refer  to 
the  previous  testimony  to  find  out  definitely.  I  remember  the  officers,  includ- 
ing Major  Crabs,  and  I  was  under  the  impression  that  I  was  the  only  civilian 
present. 

Mr.  James.  At  one  meeting  when  Mr.  Baruch  was  present,  there  was  a  Mr. 
AfcUoberts,  of  the  National  City  Bank  of  New  York,  present.  He  was  then 
a  (iv.lian  but  was  afterwards  a  colonel  in  the  Army,  and  he  was  the  man 
who  was  responsible  for  all  these  contracts  by  which  we  are  tied  up.  At  that 
meeting  I  supposed  that  the  men  who  went  there  were  men  who  knew  some 
thing  about  this  nitrates  proposition. 

Doctor  Parsons.  I  do  not  think  Mr.  Mclloberts  was  present  at  that  meeting 
but.  you  can  easily  find  out  from  the  hearings  before  Mr.  Graham's  committee, 
because  the  full  personnel  is  given  there. 

Mr.  James.  Do  you  know  anything  about  Mr.  McRoberts? 

Doctor  Parsons.  I  do  not.     I  have  no  knowledge  of  ever  having  seen  him. 

^Ir.  James.  You  never  heard  of  his  being  an  expert  on  the  nitrate  proposition? 

Doctoi-  Parsons.  No.  He  was,  I  think,  in  charge  of  contractual  relations 
in  the  Ordnance  Department,  because  I  know  when  we  came  to  make  the  con- 
tracts for  the  cyanide  plant,  which  I  had  charge  of  And  which  I  built  at 
Saltville.  the  contracts  had  to  go  over  to  Mr.  McRoberts,  but  I  dealt  with  a 
Major  or  Colonel  Black,  I  think  it  was,  in  the  matter,  and  never  saw  Mr. 
McRoberts  myself. 

Mr.  James.  Major  Joyes  testified  at  the  hearings  of  the  Graham  committee 
that  he  had  talked  with  Mr.  McRoberts  before  he  entered  the  Army  about 
this  matter,  and  I  was  just  wondering  whether  he  knew  anything  at  all  about 
the  nitrate  business. 

Doctor  Parsons.  I  have  absolutely  no  knowledge  of  it. 

Mr.  James.  You  were  not  consulted  about  nitrate  plant  No.  2  at  all? 

Doctor  Parsons.  No;  except  at  that  first  meeting,  at  which  I  put  my  opinions 
in  writing  the  next  morning,  because  I  wanted  to  be  on  record.  I  saw  very 
clearly  that  night  that  the  rest  of  them  did  not  agree  with  me  and  I  did  not 
want  to  be  in  a  position  later  where  I  would  not  have  a  full  memorandum  of 
the  occasion. 

Mr.  James.  Was  there  any  talk  that  night  of  plant  No.  2  being  used  for  the 
manufacture  of  fertilizer  after  the  war  was  over? 


Doctor  Parsons.  Not  that  I  remember.  It  was  built  almost  wholly — it  was 
built  wholly,  as  I  understand  it.  as  a  war  emergency.  It  was  not  expe<*ted  then 
that  it  could  compete  with  other  processes  on  the  fertilizer  basis. 

Mr.  Miller.  You  are  very  much  against  the  cyanami<l  process,  Doctor? 

Doctor  Parsons.  No;  I  am  not  against  it. 

Mr.  Miller.  As  compared  with  the  Haber  process? 

Doctor  Parsons.  I  think  there  is  absolutely  no  question  but  what  the  Haber 
process  is  the  process  of  the  future.  I  have  not  anything  against  the  cyanainid 
process  except,  in  my  opinion,  it  is  practically  obsolescent. 

Mr.  Miller.  The  plant  at  Syracuse  of  which  you  speak  is  on  the  Haber 
process? 

Doctor  Parsons.  A  modification  of  the  Haber  process. 

Mr.  Miller.  Built  by  the  same  company,  I  believe,  the  General  Chemical  Co.? 

Doctor  Parsons.  Built  by  the  same  compan.v  that  was  in  contractual  rela- 
tions with  the  Government  for  plant  No.  1 ;  yes. 

Mr.  Miller.  Plant  No.  1  is  a  failure,  you  say? 

Doctor  Parsons.  I  do  not  say  so:  no,  sir;  I  do  not  consider  it  a  failure  at 
all.  I  consider  it  the  first  trial  of  a  process  wh'ch  has  become  unusually 
successful  and  that  they  gained  the  information  from  it  which  they  hoi)ed 
to  gain  from  it  when  they  started  it. 

Mr.  Miller.  If  was  built  as  a  trial  plant,  then? 

Doctor  Parsons.  Yes,  sir. 

Mr.  Miller.  It  was  a  rather  dangerous  time — during  the  war — to  start  in  with 
a  trial  plant. 

Doctor  Parsons.  It  was  not  built  for  war  emergencies  at  all.  It  was  built 
under  the  national  defense  act,  with  the  idea  of  getting  a  supply  both  for  fer- 
tilizers and  for  the  use  of  the  country  in  time  of  war. 

Mr.  Miller.  Doctor,  there  was  certainly  an  impelling  force  in  Congress  to 
enact  this  legislation  when  the  world  was  ablaze  with  war  and  a  great  many 
people  of  that  day  and  hour  believed  that  ultimately  America  would  get  into  it 
It  was  certainly  felt  that  that  was  an  impelling  reason  with  the  prospects  we  had 
before  us.    That  is  the  way  I  view  it. 

Doctor  Parsons.  That  plant  was  built  after  very  careful  consideration  by  the 
best  talent  they  could  get  in  America  to  meet  the  purposes  of  the  national 
defense  act.  We  were  not  then  in  the  war.  I  am  wrong ;  that  was  determined 
upon  in  May  of  1917.  In  the  spring  of  1917  we  were  in  the  war,  but  there  was 
not  any  expectation  that  we  would  be  cut  off  from  Chilean  saltpeter  or  that 
there  would  be  any  such  demand  for  that  material.  It  was  in  the  latter  part  of 
that  year  that  the  urgency  came  on,  and  then  they  built  plant  No.  2  as  a 
war  emergency,  because  they  knew  they  had  all  the  data  to  make  it  a  success 
from  the  start.  The  other  plant  was  built  as  a  semicommercial  trial  plant  and 
is  a  successful  commercial  plant  in  Syracuse  to-day. 

Mr.  Miller.  You  mean  the  plant  in  Syracuse  was  built  as  a  semicommercial 
trial  plant,  or  the  one  at  Muscle  Shoals? 

Doctor  Parsons.  The  one  at  Muscle  Shoals,  which  is  only  about  one-third  com- 
pleted ;  that  i^  to  its  full  capacity. 

Mr.  Miller.  It  strikes  me  as  rather  peculiar  and  as  a  rather  bad  proposition, 
when  we  vrere  at  war  or  on  the  threshold  of  a  war,  for  anybody  to  advise  the 
Government  of  a  process  for  the  fixation  of  nitrogen  that  they  did  not  know 
would  be  a  success.  # 

Doctor  Parsons.  We  knew  at  that  time  that  that  process,  or  basically  the 
same  process,  was  a  very  great  success  in  Germany,  and  we  thought  that  it  would 
work  more  successfully  on  the  start  off  than  it  did ;  but  it  was  built  on  a  small 
scale  to  be  sure  of  that,  and  with  the  idea  of  getting  the  data  and  then  rapidlv 
increasing  it. 

Mr.  Miller.  Were  there  any  plants  then  in  existence  and  running  to  capacity 
in  Norway  and  Sweden  that  were  using  the  Haber  process? 

Doctor  Pabsons.  No,  sir;  there  was  none,  except  in  Germany,  and  we  could 
not  get  into  Germany  and  get  the  data.  We  had  to  simply  take  the  data  which 
the  General  Chemical  Co.  had. 

Mr.  Miller.  Now,  the  cyanamid  process,  you  say,  is  an  obsolescent  process, 
but  it  will  make  ammonium  nitrate? 
Dr.  Parsons.  Yes,  sir ;  and  that  is  why  it  was  used. 

Mr.  Miller.  As  between  a  surety  and  a  failure,  or  as  between  a  process  that 
all  agree  will  manufacture  what  we  are  after,  although  it  cost?  more,  as 
compared  with  a  process  that  we  do  not  know  how  to  follow  out,  it  seems  to  me 


» 


1180 


MUSCLE   SHOALS  PROPOSITIONS. 


that  in  time  of  war  the  better  judgment  is  to  follow  the  system  that  lias  beeu 
proved,  and  I  suppose  that  was  the  policy  that  the  Government  followed. 

Doctor  I'AKsoNs.  That  is  exactly  the  policy  upon  whicli  plant  No.  '2  was 
Iwiscd,  ;ui<l  to  which  I  tliink  no  one  has  taken  exception.  It  was  a  process  hy 
which  you  can  .s;et  anujionium  nitrate,  no  matter  what  the  cost  misht  l)e. 

Mr.  Mii.i.KU.  I  riiink  that  was  a  jrood  policy.  Now,  as  to  all  these  cyanamid 
factories  in  (iennany  which  you  say  have  closed  down.  Were  they  built  as  war 
emergencies,  and  was  the  one  in' Sweden  of  which  you  spoke  built  for  the 
immediate  sale  of  irs  product  to  Germany/ 

Doctoi-  pAHsoNs.  The  <mes  in  Norway  and  Swe<len  were  not  built,  as  I 
understand  it,  as  a  war  emergency,  because  they  were  built  Itefore  tlie  war. 
The  cyanamid  }>rocess  predated  the  Haber  process,  and  it  was  the  process 
whieh  people  expected  to  make  a  conunercial  profit  /rom  in  those  days. 

Mr.  MiLLKu.  But  its  outi»ut  was  taken  almost  exclusively  by  Germany,  was 
it  notV 

Doctor  Parsons.  No:  its  output  was  taken  ahnost  exclusively  l»v  tlie  Allies. 

Mr.  Mii.i.KK.  Ky  England? 

I)octor  Paksons.  By  England  and  France.  Most  of  it  went  to  France.  Its 
output  went  in  the  form  of  ammonia  and  that  was  sold  to  the  arc  plant  at 
It.jukan  that  had  nitric  acid.  They  converted  it  into  anunonium  nitrate  and 
produced  some  240.n(K>  t<;ns  of  ammonium  nitr.-ite  per  year,  (he  uimJoi-  porti<»n 
of  which  went  to  France  after  the  war  broke  out. 

Mr,  MiM.KK.  It  was  completed  Just  before  the  war  was  it  not? 

Doctor  Paksons.  They  were  all  greatly  enlarged  during  the  war,  because 
there  was  an  immense  market. 

Mr.  MiLi.Eit.  Then  we  might  say  that  the  inducing  cause  f(U-  the  construc- 
tion of  th<)se  inunense  plants  was  the  g*'eat  den.iand  foi-  .1  and  the  good  ju-ice 
which  prevailed  <luring  the  war? 

I>octor  Parsons.  That  had  a  very  great  effect.  There  is  no'  (piestion  but 
what  the  eidargement  was  due  to  that  almost  wholly. 

Mr.  MiFXKR.  You  spoke  of  this  large  plant  in  Norway.  I  beb'eve.  Iniving  been 
sold  for  an  unreasonably  small  sum  of  m<mey.  Do  you  know  the  circumstances 
of  that  sale?  Was  it  a  case  of  bankruptcy  or  forced  sale,  or  was  it  .just  a 
deliberate  change  in  processes? 

I)o<'tor  Paksons.  I  understand  it  was  u  case  of  i)ra<ticai  bankruptcy  by 
the  cyanamid  company,  but  that  the  people  who  control  the  cyanamid  company 
a?e  going  to  go  over  to  a  miMlitication  of  the  Haber  process,  and  that  they 
have  practically  got  to  clean  away  everything  there.  That  is  an  important 
point  that  you  are  bringing  out,  Mr.  Miller.  If  they  change  plant  No.  2, 
it  will  have  to  be  jiractically  wii>e(l  off  of  the  ground  before  it  can  be  used  for 
any  other  method  for  tixing  nitrogen.  You  could  not  any  more  make  nitrogen 
by  the  Hal)er  process  in  cyanamid  plant  No.  2,  at  Muscle  Shoals,  than  you 
could  make  shoe  strings  in  a  blacksmith  shop.  You  would  have  to  clean  out 
the  blacksmith  shoj)  and  start  fresh. 

Mr.  MiLLKK.  It  is  fundamentally  an  entirely  different  method  of  procedure? 

Doct<>r  Paksons.  Fundaujentally  an  entirely  different  method  of  piocedure. 

Mr.  MiLLKK.  You  are  not  connected  in  any  way  with  any  institution  manu- 
facturing by  the  Haber  process  in  any  wise? 

Doctor  Paksons.  I  am  not. 

Mr.  Mii.i.ER.  Your  statemmit  is  just  a  <'lean.  scientitic  <-omi)arison.  or  ji  <om- 
parison  from  a  scientific  standpoint  of  the  two  processes,  unprejudiced. 

Doctor  Parsons.  I  am  giving  you  ab.solutely  unprejudiced  testimony,  as  I 
understand  it,  as  I  have  always  done  before  ever>'  committee  of  Congress  before 
which  I  have  ever  api>eared. 

iMr.  Miller.  Then,  according  to  your  ideas.  Mr.  Ford's  proposition  can  not  be 
other  than  a  losing  busine.'^s  venture  so  far  as  the  numufacture  of  ammonium 
nitrate  as  an  ingredient  of  fertilizer  at  plant  No.  2  is  concerned? 

Doctor  Parsons.  Anyone  that  operates  ](lant  No.  2  will  lose  money  from  the 
day  he  starts  it.  if  he  is  going  to  try  to  fix  nitrogen  therein. 

Mr.  Miller.  There  is  no  exception  in  Mr.  ?^>r(l's  offer  that  he  will  n<»t  run  the 
plant  unless  he  can  run  it  at  a  protit.  He  agrees  absolutely,  and  at  all  events, 
to  run  that  plant.  There  has  been  some  quibbling  around  here,  but  the  contract 
itself  .says  that  he  will  run  the  plant  to  its  capacity.  True,  he  does  not  bin<l 
himself  to  the  production  of  ammonium  nitrate  exclusively,  but  to  other  fer- 
tilizer compounds,  unless  prevented  by  strikes,  fires,  or  unforeseen  accidents. 
The  element  of  a  commercial  success  does  not  figure  in  it. 


MUSCLE   SHOALS  PROPOSITIONS. 


1131 


Doctor  Parsons.  All  I  know  is  the  testimony  T  have  heard,  and  Secretary 
Weeks's  opinion  on  the  matter. 

Mr.  ^JiLLKR.  Yes;  there  has  been  a  lot  of  testifying  around  here.     I  iK'lieve 

that  is  all. 

Doctor  Parsons.  My  only  contenti<m  is  that  I  hope  that  if  he  is  to  run  plant 
No.  2  that  you  will  get  some  definite  guaranty  that  that  is  what  he  means,  and 
that  he  will  run  it,  either  Mr.  Ford  or  anylxxly  else. 

Mr.  Parker.  The  wonls  of  the  contract  are.  "The  company  agrees  to  operate, 
etc..  at  the  approximate  ju-esent  annual  capacity,  etc..  except  as  it  may  be  pre- 
vented by  strikes,  accidents,  fires,  or  other  causes  beyou«l  its  control.''  I  have 
had  some  difficulty  in  expounding  the  wonls.  ''  other  causes  beyon<l  its  control.*" 
and  whether  that  meant  in  case  it  was  impossil)h»  to  make  it  at  a  de<-ent  priee. 
Have  you  ever  known  that  phrase  used  in  a  contract  before? 

Doctor  Paksons.  I  have  not,  no ;  but  then  I  would  not  normally  be  expected 
to  know,  bccaiLse  T  know  very  little  al)oiit  law  and  am  taking  no  stand  here  as 

a  lawyer.  ,  ,.     x    ,        ^    1. 

Mr.  Parker.  The  plant  No.  2  c.vanamid  process  is  a  rather  complicated  sort  «»f 
manufacture,  and  goes  through  several  steps.    Whatds  the  first  thing  it  niakes? 

Doctor  Parsons.  Calcium  carbide. 

Mr.  Parker.  Is  that  a  thing  for  which  there  is  a  market? 

Doctor  Parsons.  Yes:  quite  a  lot  of  it  is  sold  in  the  United  States.  There 
are  other  jilants  in  the  United  States  larger  and  more  extensive  thsin  the  plant 
at  Muscle  Shoals.    It  is  manufactured  for  the  production  of  acetylene. 

Mr.  Parker.  Is  the  market  growing  or  not? 

Doctor  Pardons.  T  think  it  is.  but  I  can  net  speak  with  authority. 

Mr  Pakkfr.  You  can  not  say,  then,  if  it  had  water  power,  whether  there 
would  be  a  profiti\ble  market  for  the  calcium  carbide  without  going  any  ftirther? 

Doctor  Parsons.  I  think  there  would  be  a  market  for  calcium  carbide:  yes. 

Mr.  Parker.  And  that  they  could  make  it  as  cheap  as  anybody? 

Doctor  Parsons.  I  do  not  see  any  reason  why  they  could  not. 

Mr.  Parker.  The  next  thing  they  make  from  the  calcium  carbide  is  what? 

Doctor  Parsons.  Cyanamid. 

Mr.  Parker.  Cyanamid— what  is  that? 

Doctor  Parsons.  The  calcium  carbide  is  ground  fine  and  is  put  in  a  speola. 
form  of  furnace,  is  heated  locally,  and  pure  nitrogen  from  the  air  is  pumped 
into  the  mass. 

Mr.  Parker.  Then  pure  nitrogen  has  to  be  made. 

Doctor  Parsons.  Pure  nitrogen  has  to  be  made  from  the  air,  yes.  That  is 
done  by  liquefying  the  air  and  allowing  the  oxygen  to  boil  out. 

Mr.  Parker.  Is  that  an  expensive  process  or  not? 

Doctor  Parsons.  That  is  not.    It  is  a  very  cheap  process. 

Mr.  Parker.  Getting  the  nitrogen  is  a  cheap  process? 

Doctor  Parsons.  Yes. 

Mr.  Parker.  Is  getting  the  cyanamid  a  cheap  process? 

Doctor  Parsons.  From  the  carbide. 

Mr.  Parker.  No  ;  the  cyanamid  itself. 

Doctor  Parsons.  No  :  it  is  not  a  cheap  process.  You  have  to  make  the  carbule 
first.  Then  the  carbide  has  to  be  ground.  There  are  some  dangers  in  that 
grinding.  It  then  has  to  be  put  in  these  special  furnaces,  locally  heated,  the 
nitrogen  pumpefl  in.  and  the  hot  carbide  aosorbs  the  nitrogen  to  form  cyanamid. 

Mr.  Parker.  Is  there  a  market  for  cyanamid? 

Doctor  Parsons.  There  is  not,  to  the  extent  of  that  plant.  There  is  a  very 
limited  market  for  cyanamid,  and  at  the  present  time  there  is  practically  no 
market  for  cvanamid  at  any  price  it  can  be  made. 

Mr.  Parker.  So  that  the  profitable  part  of  this  manufacture  stops,  so  far  as 
that  is  concerned,  with  the  manufacture  of  the  calcium  carbide. 

Doctor  Parsons.  That  is  correct. 

Mr  Parker.  After  vou  have  made  the  cyanamid,  what  is  next? 

Doctor  P\RsoNs.  That  cvanamid  cakes  again  by  the  process  and  has  to  be 
reground  in  special  constructed  mills.     Being  reground,  it  is  then  put  in  large 

autoclaves. 

Mr.  Parker.  How  do  you  spell  that? 

Doctor  Parsons.  An  autoclave  is  essentially  a  pressure  boiler,  but  usually 
higher  pressure  than  an  ortlinary  pressure  boiler  would  be.  They  run  in  caustic 
soda  or  sodium  carbonate  and  then  run  in  steam  under  high  pressure.  Under 
those  conditions,  the  nitrogen  in  the  cyanamid  is  converted  into  ammonia  gas. 
That  ammonia  gas  is  later  partly  oxidized  to  nitric  acid  and  then  another 


1132 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


1133 


Is  there  any  market  for  them  at  all 


llt\^T  I  '  ammonia  gas  is  absorbed  in  nitric  acid  to  make  ammonium 
I  urate.  >.ow,  ammonium  nitrate  is  not  at  the  present  time  salable  for  fer^ 
tihzer.    They  would  have  to  put  in  a  sulphuric  acid  plant. 

Mr    Parker.  I  understand  that.    They  are  not  at  present  salable"  without 
changing  them  into  ammonium  sulphate.  ^iiduie  wiinout 

Doctor  Parsons.  Correct. 

Mr.  Parker.  Are  they  made  cheaply? 
for  any  purpose? 

Doctor  Parsons.  For  what? 

Mr.  Parker.  For  the  ammonia  gas. 

Doctor  Parsons.  Only  for  fertilizer  purposes  and  for  refrigeration. 

Mv.  1  ARKER.  ihere  is  a  market  for  it  for  refrigeration*^ 

Doctor  Parsons.  But  it  first  has  to  be  liquefied 

on'!heim:S-f^^'^i:t  purp^f^'  manufactured  there  cheap  enough  to  sell 

Mum^niM  ^T^  ?'';/"*'  ^tT^^  ''\  ^''''  ^^^^'^  ^"t«  competition  with  other 
arthat  plmit.  "'''  '""    '  "'""''^  ^'^'^'^P^'"'  ^^'''''  '^  ^'^^  ^^  produced 

Mr.  1*ARKER.  Why  is  the  other  much  cheaper^ 

Doctor  Parsons.  They  can  not.  They  can  make  it  much  cheaper  bv  the 
"nnand^ma^^^  "^^''  ''""  '''  ''"  '^'"""""^  P^^^«^'  «^  mattTwhat  ISe 

you'not^^"'^*'''*  ^""^  ^'^"^  sonrething  to  do  witli  putting  in  plant  No.   1,   did 

Doctor  Parsons.  I  did  not. 

Mr.  Parker.  I  misunderstood  you. 

bc^in'.^'*nni  in''1f  « ^  ^  ^'f '  something  to  do  with  the  board  that  advised  its 
Doing  put  in.    It  was  put  in  by  Government  engineers 

Mr.  Park KK.  You  afterwards  did  work  witli  the  Syracuse  company? 

J  doctor  1  arsons.  Atterwards  1  was  consulting  chemist  with  the  Svrflcnsf^ 
company  until  last  August,  when  their  plant  began  operating  ^y^atust 

Mr.  Pakkkr.  Do  you  know  why  the  i)rocess  failed  at  plant  No   If 
«-.  i'"^?^ ri*'^''?''^*'-  ^Z^*"  ''''^  consider   that   the  proi-ess  failed   at' No.   1,  but 

USPS  Thoti.T'"'?  ^"^7««f""y  i"  the  first  place  was  due  to  a  number  of 
causes  The  first  and  most  important  was  that  the  catalyst  which  at  that 
time  they  expected  ^to  use  could  not  be  made  on  a  large  scale  successfullv  as 
they  were  able  to  make  it  on  a  snmll  scale  in  the  laboratory         ^"^^^^^^""y'  «^ 

Mr.  I»ARKER.  Can  they  do  it  now? 

Doctor  Parsons.  They  do  it  now,  but  they  use  another  catalyst. 

3lr.  Parker.  Is  that  a  secret  catalyst? 

Doctor  I'ARSoNs.  It  is. 

explain^lhat^'lel-m?^'''"'^''"  '''^'  ^^''  ^*^'^'^''  '''^^  ^''''  ^""^^  ^^^^^^  P^^««"«  to 

Mr.  I'ARKER.  Catalyst? 

Mr.  McKenzie.  Yes. 

Doctor  Parsons.  A  catalyst  is  a  substance  which  by  its  presence  enables  n 

chemical   reaction   to  take  place  rapidly,  when  the  reaction  would  not  take 

lace  unless  the  catalyst  was  there.     It  has  been  explained  in  the  hear  ngs 

lefore,  and  possibly  to  you;  and  this  comparison  may  serve,  we  do  not  know 

how  a  marriage  could  take  place  without  a  minister 

Mr.  McKenzik.  Oh,  yes,  we  do. 

Doctor  Pausons.  Or  some  function  of  law. 

Mr.  Parker.  I  went  to  Gretna  Green,  and  at  Gretna  Green  thev  were  makinir 
sulphuric  acid.  They  burnt  the  sulphur  at  the  bottom  of  a  Wg^ower  They 
brought  a  blast  of  hot  air  down  a  large  tower,  and  they  would  have  gotten 
liothiiig  more  than  this  yellow  gas  that  comes  from  burning  sulp^mr  fxcept 
lor  the  presence  ot  a  platinum  screen  or  mesh  across  this  thing,  aLd  for  some 
^'ihZ"^'."  reason  the  screen  of  platinum  made  the  yellow  smoke  turn  ?n^o 
riglU Xut  that'^  '"''"  ''  '''"'''"^  ''^^^'  ^^^  absolutely  pure.    Am  1 

dio^'xiShsS^ll^^^^^^^  ^^^'^^^  ''  '^  -^  -  ^^"-^  -0^-     Sulphur 


Mr.  Parker.  Well,  we  generally  think  of  it  so.  It  is  the  kind  of  smoke  that 
comes  from  the  lighting  of  a  sulphur  match. 

Doctor  Parsons.  One  of  the  most  important  and  one  of  the  largest  catalyst 
processes  was  the  process  for  the  manufacture  of  strong  sulphuric  acid.  As 
you  say,  the  gas  which  comes  from  burning  sulphur,  which  you  get  when  you 
strike  a  sulphur  match,  and  air  are  passed  over  platinum  on  asbestos,  and  if 
the  platinum  is  there  they  combine  to  form  sulphuric  acid,  and  if  the  platinum 
is  not  there,  they  do  not.    Now,  that  is  what  a  catalyst  is. 

Mr.  Parker.  They  make  such  a  pure  sulphuric  acid  that  they  could  carry 
around  in  an  iron  receptacle. 

Doctor  Parsons.  Yes;  and  another  thing,  if  there  happens  to  be  any 
arsenic  in  that  sulphuric  acid,  the  platinum  will  not  work.  It  poisons  the 
platinum  the  same  as  it  would  poison  a  human  being. 

Mr.  Parker.  The  Agricultural  Department  people  said  they  had  a  first 
rate  catalyst  now\ 

Doctor  Parsons.  Yes;  they  have  an  excellent  catalyst,  the  best  in  the 
world. 

Mr.  Parker.  But  you  said  the  catalyst  was  a  secret. 

Doctor  Parsons.  The  catalyst  which  the  General  Chemical  Co.  uses  is  a 
secret. 

Mr.  Parker.  And  is  the  one  that  the  Agricultural  people  use  just  as  good? 

Doctor  Parsons.  In  my  opinion  it  is  better. 

Mr.  Parker.  Then  there  is  no  difficulty  about  the  catalyst  in  cari*ying  on 
this  manufacture  by  the  Haber  process. 

Doctor  Parsons.  That  is  quite  correct. 

Mr.  Parker.  Now,  what  other  difficulties  besides  the  catalyst  which  they 
had  there  were  there  about  that  process.  I  heard  something  about  leak- 
ages, etc. 

Doctor  Parsons.  That  was  the  second  great  difficulty.  Of  course,  it  was  (me 
of  the  first  experiences  that  the  mechanical  engineers  of  this  country  had  had 
with  pressures  of  1,500  pounds  per  square  inch  in  large  units,  and  there  were 
certain  leakages  and  certain  bulges  in  the  apparatus  which  they  had  difficulty 
to  fix.  They  have  overcome  that  absolutely  at  the  present  time,  and  since 
those  early  days  also  the  Chemical  Foundation  has  taken  over  the  German 
patents. 

Mr.  Parker.  Who  overcame  those  leakages?  Do  you  mean  that  the  Ord- 
nance people  down  at  Muscle  Shoals  have  overcome  those  leakages? 

Doctor  Parsons.  A  number  of  those  leakages  were  overcome  and  were  be- 
ing overcome  before  the  plant  closed ;  but  they  have  been  more  especially  over- 
come in  the  redesigned  plant  at  Syracuse. 

Mr.  Parker.  Would  you  then  advise,  and  would  it  be  necessary,  to  redesign 
plant  No.  1  to  make  it  worthy? 

Doctor  Parsons.  Y^es,  sir ;  I  think  it  would. 

Mr.  Parker.  How  much  would  that  cost,  taking  the  unit  they  have  there, 
that  costs  how  many  million  dollars? 

Doctor  Parsons.  I  do  not  think  I  could  give  you  that  cost  without  referring 
to  the  record. 

Mr.  Parker.  Would  it  cost  one-third  more  than  it  has  already  cost  or  one- 
fourth  or  one-fifth? 

T)octor  I'AusoNS.  I  think  that  plant  at  the  present  time  could  be  put  into 
operating  form  for  $1,500,000  to  $2,000,000,  with  about  30  tons  a  day  capacity. 

Mr.  Parker.  Do  you  know  what  was  the  original  cost  of  it? 

Doctor  Parsons.  There  were  a  great  many  other  things  in  the  cost.  There 
was  an  annnonium  nitrate  plant,  there  was  an  ammonium  oxidation  plant, 
there  was  a  gas  plant,  there  was  a  $1,300,000  steam  plant,  and  there  was  a 
nitric  acid  concentration  plant,  and  I  would  have  to  go  to  the  records 

Mr.  Parker  (interposing).  Were  all  those  things  separate? 

Doctor  Parsons.  All  those  things  are  separate  entities,  but  the  steam  plant 
is  essential  to  the  Haber  process  if  you  are  going  to  use  the  method  which  is 
used  at  Syracuse. 

Mr.  Parker.  You  have  to  have  a  steam  plant  and  then  what  do  you  get  to 
mix  with  it — do  you  get  hydrogen  in  the  same  way;  what  is  the  process,  by 
the  way? 

Doctor  Parsons.  In  the  Haber  process  as  operated  in  Germany  and  as  oper- 
ated at  Syracuse  and  as  was  contemplated  in  the  operation  of  plant  No.  1  at 
Muscle  Shoals,  the  hydrogen  is  obtained  by  the  action  of  steam  on  red-hot  coal 
or  coke.  It  is  impossible  for  me  to  explain  this  without  using  chemical  terms, 
although  I  will  try  to  do  it. 


\ 


1184 


MUSCLE   SHOAI^  PROPOSITIONS. 


MUSCLE   SHOALS   PROPOSITIONS. 


1135 


Mr.  Parker.  I  uiuleistaiul  that.    That  jjives  you  carbonous  oxide  gas? 

poctbr  Parsons.  That  gives  you  a  mixture  of  hydrogen  and  carbon  monoxide 

Mr.  Iarker.  Thar  is  what  they  used  to  call  carbonou^s  oxide,  and  it  is  the  "as 
that  burns  a  blue  flame? 

Doctor  Parsons.  Yes.  Then  they  pass  those  two  gases  over  a  srjeciallv 
prepared  catalyst,  which  consists  of  iron  oxide,  with  some  chromium  oxide  in  it 

Mr.  Pakker.  Is  that  a  secret? 

Doctor  Parsons.  It  is  supposed  to  be  more  or  less,  but  it  is  not.  I  know  about 
It  and  so  do  many  others.  I  think  the  temperature  is  about  350  degrees  Under 
those  conditions  carbon  monoxide  is  converted,  with  some  steam,  to 'another 
equivalent  of  hydrogen  and  to  carbon  dioxide,  and  you  get  just  as  much  more 
hydrogen  as  you  had  in  the  first  place.  The  carbon  dioxide  has  to  be  washed 
out  at  30  atmospheres  pressure  in  a  special  apparatus,  just  like  you  make  soda 

Mr.  Parker.  Is  there  any  expensive  chemical  required  to  take  it  out' 
^Doctor  I  arsons.  You  have  to  use  some  caustic  soda  to  get  out  the  last  part 

Mr.  Parker.  All  this  is  a  pretty  cheap  process  of  making  hydrogen,  is  it  nof 

Doctor  Parsons,  It  is  about  as  cheap  as  any  process  used  extensivelv  to  make 
hydrogen  in  the  world  to-<lay.  I  think  tliore  are  possibilities  of  other  cheaper 
processes.  In  fact,  the  basic  feature  of  the  Haber  process  lies  in  getting  chean 
hydrogen  I  understand  in  plant  No.  1,  so  far  as  the  cost  of  operation  is  con- 
TenTfn  Us'^purificat^oV      '''''  '''^'  "^  '^^  production  of  hydrogen  and  50  per 

Mr.  Parker.  That  can  be  done  cheaper  than  that,  can  it  not*^ 
tharT^ave^lwr  m^^^      '^  *'^'"^'  '^''"''  cheaper  than  that  now  by  the  improvements 
l^rlficaH.^^n'S  '"'"""  '""  ^--ection  with  plant  No.  1.  for  production  and 

Doctor  Parsons.  They  will  have  to  be  changed 

Mr.  Parker.  Which  part? 

Doctor  Parsons.  The  whole  of  it. 

Mr.  Parker.  The  whole  machinerv? 

Doctor  Parsons.  Not  the  whole  inachineiy,  but  there  will  have  to  be  verv 
extensive  changes  made  in  plant  No.  1  * 

Mr.  Parker.  What  will  that  cost? 

Doctor  Parsons.  That  comes  in  the  cost  I  have  given  you 

Mr.  Parker.  Having  gotten  .vour  h.vdrogen,  what  is  next' 

Doctor  Parsons.  They  run  the  nitrogen  in  from  the  air  at  the  same  time  that 
thpy  make  the  original  water  gas.  They  get  the  nitrogen  in  that  wav.  But  in 
my  opinion,  it  is  not  the  best  way  of  working.  The  proper  wav  to  work  it  in 
my  opinion,  is  to  get  the  nitrogen  from  the  Claude  or  Linde  liquor-air  plants 

Mr.  Parker.  I  thought  the  liquid  air  was  a  very  expensive  proposition. 

Doctor  Parsons.  Nitrogen  by  the  Claude  process  would  be  produced  for  about 
totar'cosr''      ^""^"'^  ^^^'"^  ^^^'  "^'^'^^  ^'^^^^  '^  a  very  small  proportion  of  the 

Mr.  I'AKKEii.  Is  it  exi)ensive  to  make  the  two  unite*' 

Doctor  Parsons.  Not  particularly. 

Mr.  Parker.  Is  that  where  the  catalyst  comes  in? 

Doctor  Parsons.  That  is  where  the  special  catalvst  comes  in 

Mr.  Parker.  Of  course,  you  were  employed  by  the  Syracuse  companv,  and 
y(m  can  not  tell  what  their  catalyst  was?  i      . ,  uuu 

Doc-tor  Parsons.  I  do  not  know ;  they  kept  it  secret  from  me 

Mr.  Parker.  Then  how  do  you  know  that  the  other  is  better' 

Doctor  Parsons.  I  have  seen  the  results  of  the  comparative  tests  made  in  the 
nitrogen  fixation  laboratory. 

Mr.  Parker.  That  is  only  a  laboratorv  experiment' 

Doctor  Parsons.  No.    They  have  there  a  pretty  big  plant  themselves. 

Mr.  Parker  lou  are  sure  that  the  catalyst  that  they  have  developed  in  the 
Agricultura  Department  laboratory  is  the  best  in  the  world,  and  thev  say 
they  think  it  is.  *        "^ 

I>octor  Parsons.  That  is  my  opinion  also. 

Mr.  Parker.  That  gives  you  the  ammonia? 

Doctor  Parsons.  That  gives  the  ammonia  ;  yes,  sir, 

Mr.  Parker.  What  is  next  in  the  Haber-  process? 

Doctor  Parsons.  That  completes  the  Haber  process. 


Mr.  Parkf:r.  How  do  you  turn  that  ammonia  into  explosives? 
Doctor  Parsons.  If  they  want  to  convert  that  into  explosives  it  is  blown 
with  air  over  platinum  gauze,  heated  red  hot,  and  under  those  conditions  the 
ammonia  burns  in  the  air.  not  to  nitrogen  and  water,  as  it  would  ordinarily 
hum.  but  the  platinum  acting  as  a  catalyst  converts  it  into  nitric  oxide,  which 
nl)sorbed  in  water  produces  nitric  acid. 

Mr.  Parker.  It  makes  a  rather  weak  nitric  acid,  does  it  not? 
Doctor  Parsons.  As  it  comes  from  amuK.nia  oxidation  it  gives  vou  approxi- 
mately :)0  per  cent,  as  Colonel  .loyes  told  you. 

Mr.  Parker.  Do  y(Ki  not  nee<l  much '- 

Doctor  Parsons  (interposing).  You  can  then  c-(uicentrate  it  in  a  special  con- 
centrating plant,  of  which  there  is  one  already  built  at  i)lant  N(».  1  which  was 
built  for  that  purpose. 

Mr.  Parker.  What  is  the  cost  of  concentrating  at  plant  No.  ]? 
Doctor  Parsons.  That  is  done  by  means  of  absorbing  the  water  with  sulphuric 
acKl  in  special  towers  and  then  boiling  cmt  the  nitric  acid. 

Mr.  Parker.  The  sulphuric  acid  absorbs  the  water 

Doctor  Parsons  (interp(»sing).  Then  the  sulphuric  acid  with  the  water  in 
it  is  again  boiled,  and  the  water  leaves  it.  and  they  use  it  over  and  over  again 

Mr.  Parker.  Is  that  a  cheap  process  of  getting"  the  nitric  acid,  on  the  whole 
or  IS  It  easier  to  get  it  by  using  .sulphuric  acid  and  the  Chilean  nitrates? 

Doctor  Parsons.  It  depends  entirely  on  the  price.  In  this  countrv  it  is  made 
entirely  by  the  Chilean  saltpeter  in-ocess,  and  probablv  will  be  for  .>^ome  time  to 
nune.  so  long  as  the  Chilean  saltperter  is  at  its  present  price. 

Mr.  Parker.  With  the  Chilean  salti)eter  at  its  present  price,  that  will  make 
the  nitric  acid  much  cheaper  than  it  is  to  make  it  the  other  way? 

Doctor  Parsons.  No;  I  am  not  prepared  to  say  that.  I  think  it  is  becau.se 
m  this  coiuitry  they  have  the  nitric  acid  plants  already  built,  and  as  I  under- 
stand it,  they  do  not  want  to  invest  the  cai)ital  to  make  the  change.  If  I  was 
going  to  start  in  to-day  to  put  up  a  large  plant  for  the  manufacture  of  nitric 
acid  I  should  do  it  by  the  oxidation  of  ammonia,  at  the  jn-esent  price. 

Mr.  Parker.  That  process  cloes  not  need  much  power,  but  needs  a  great  deal 
(►f  steam  and  coal,  <loes  it  not? 

Doctor  Parsons.  That  is  c<u-rect ;  the  Haber  process  recpiires  only  one-tenth, 
of  the  power  of  the  cyanamid  process,  and  about  one-fiftieth  of  the  power  of 
the  arc  i)rocess  used  in  Norway.  The  Norwegians  could  i>rofitably  turn  their 
plants  int(>  plants  to  use  the  Haber  prcK-ess,  and  I  think  thev  woiild  use  it  if 
it  were  not  for  the  complications  in  connecticm  with  the  Oerman  patents. 

Mr.  Parker.  If  you  were  to  use  plant  No.  1  for  the  manufacture  of  fertilizer 
I  suppose  .V(Mi  would  take  the  ammonia  and  pass  it  through  sulphuric  acid  to 
make  the  sulphate? 

Doctor  Parsons.  That  would  he  the  normal  procedure  at  the  i>resent  time. 
Mr.  Parker.  And  the  cheapest  way  to  get  sulphate  of  ammonia? 
Doctor  Parsons.  The  cheapest  way  to  get  .sulphate  of  ammonia  :  but  persimally 
I  am  incline<l  to  believe  that  we  are  going  to  develop  other  methods,  and  I 
should  not  be  at  all  sarprise<l  if  this  double  .suli)hate  and  nitrate  of  ammonia, 
which  is  credited  with  having  explode<l  in  (Jermany.  is  what  will  ultimatelv  be' 
u.sed. 

Mr.  Pakker.  You  would  ust^  th.it.  altlKMigh  they  had  that  tremendous  ex- 
plosion at  the  plant  in  (Jermany. 

Doctor  Parsons.  I  do  not  think  the  exph)sion  wa.s  due  to  the  composition 
of  the  material ;  I  think  it  was  due  to  some  other  cause. 

Mr.  Parker.  I  beg  your  pardon  for  askhig  you  so  many  scienCfic  ques- 
tions, but  I  thought  that  was  the  only  way  to  get  the  information,  both  for 
myself  and  other  members  of  the  committee. 

Doctor  Parsons.  I  am  very  glad  indeed  to  liave  your  help.  I  think  it  will 
interest  you  to  know  something  of  the  action  of  the  catalyst  in  the  oxidat On 
of  ammonia.  If  you  take  a  nrixture  of  anunonia  and  air  an<l  blow  it  through 
a  layer  of  platinum  gauze  which  is  heated  to  a  red  heat,  your  amnronia  and 
oxygen  will  combne  entirely  differently  from  any  other  'c«»mbinatioii  which 
tbey  can  be  made  to  make  under  any  other  conditions.  If  you  i>ut  iron  gauze 
there  or  copper  gauze  or  silver  gauze  the  action  does  not' take  place  Imt  if 
.you  use  the  platinum  you  can  blow  it  through  almost  as  fast  as  you  can 
blow  It,  and  practically  all  of  the  ammonia  will  be  <-onverted  into  nitric 
tJMde,  which  absorbed  in  water  makes  nitric  acid.  We  do  not  know  what 
<ioes  it.  but  we  do  know  that  that  is  the  action  that  takes  j^lace.  There  are 
»»*any  incidents  of  the  kind  in  connection  with  chemical  products. 

92900—22 72 


1136 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


1137 


Mr.  :|*ARKER.  The  platinum  is  used  to  a  certain  extent  for  a  catalyst,  and 
it  is  so  hard  to  j?et  at  present  that  I  wanted  to  ask  whether  this  catalyst, 
which  is  used  by  the  Department  of  Agriculture,  depended  upon  platinum  for 
its  composition. 

Doctor  Parsons.  It  does  not. 

Mr.  Parker.  Does  it  depend  upon  any  rare  metals  that  are  hard  to  get? 

Doctor  Parsons.  I  think  it  does  not  depend  on  rare  metals  only.  It  is 
generally  known  that  most  of  the  catalysts,  the  German  catalyst,  and  I  think 
the  General  Chemical  Co.'s  catalyst,  and  this  one  at  the  nitrogen  fixation  labora- 
tory, are  largely  iron,  and  it  does 

Mr.  Parker  (interposing).  Does  it  waste  very  fast? 

Doctor  Parsons.  No;  this  is  a  very  substantial  catalyst  that  they  have  here. 

Mr.  Parker.  Then  as  a  general  conclusion  you  think,  with  the  aid  of  the 
Department  of  Agi-iculture,  the  No.  1  plant,  with  an  expenditure  of  a  mil- 
lion and  a  half  dollars,  can  be  turned  into  a  productive  plant  for  ammonia 
at  reasonable  rates. 

Doctor  Parsons.  I  think  it  can ;  yes. 

Mr.  Quin.  Doctor  Parsons,  with  what  concern  are  you  connected  at  this 
time? 

Doctor  Parsons.  I  have  no  connection  with  any  concern  that  has  anything 
to  do  with  the  fixation  of  nitrogen. 

Mr.  Quin.  In  whose  interest  are  you  down  here? 

Doctor  Parsons.  I  am  here  at  the  request  of  the  conmiittee. 

Mr.  Quin.  When  these  two  nitrate  plants  at  Muscle  Shoals  were  started 
you  were  consulted  about  both  of  them,  but  you  did  not  agree  to  the  erection 
of  plant  No.  2,  as  I  understand  it. 

Doctor  Parsons.    That  is  correct. 

Mr.  Quin.  The  evidence  shows  that  plant  No.  2.  or  the  method  of  the 
fixation  of  nitrogen  by  the  cyanamid  process,  had  proven  to  be  a  success  in 
this  country.  Why  did  you  gentlemen  not  think  about  starting  that  plant 
first;  because  we  were  at  war,  and  that  is  what  the  plant  was  being  built  for? 

Doctor  Parsons.  Because  at  the  time  we  undertook  that  there  was  no  present 
emergency,  and  we  were  trying  to  put  in  a  process  which  would  be  capable  of 
being  used  for  fertilizer  also,  when  the  war  was  over. 

Mr.  Quin.  I  would  like  to  refresh  your  memory  on  that.  I  was  here  at  that 
time ;  I  have  been  on  this  committee  ever  since  1913,  and  in  1916  we  got  a  bill 
through  providing  for  the  establishment  of  nitrate  plants,  and  Mr.  Washburn's 
testimony  had  a  good  deal  to  do  with  it.  The  cyanamid  process  was  the  one 
that  they  thought  was  going  to  be  adopted.  Congress  declared  war  at  the  Presi- 
dent's suggestion  on  the  6th  day  of  April,  1917,  and  as  I  understood  it,  and  the 
Congress  understood  it,  we  were  in  danger  of  not  having  suflJcient  nitrogen 
from  the  Chilean  source.  We  did  not  know  whether  we  would  be  cut  off  from 
that  or  not,  and  you  claim  now  that  an  emergency  did  not  exist.  Well,  these 
gentlemen  went  ahead  and  built  plant  No.  1,  but  it  was  constructed  in  such  a 
way  that  it  did  not  succeed.    That  is  true,  is  it  not? 

Doctor  Parsons.  Its  first  trial  was  not  thoroughly  successful. 

Mr.  Quin.  They  testified  before  this  committee  that  that  plant  was  a  failure. 

Doctor  Parsons.  I  disagree  with  them.  At  its  first  trial  it  did  not  function 
any  more  than  the  Haber  plant  functioned  in  Germany  in  its  first  trial,  and 
they  had  to  go  over  it  and  try  it  out  two  or  three  times  and  rebuild  it  before  it 
finally  operated  fully  and  successfully. 

Mr.  Quin.  They  abandoned  it,  did  they  not? 

Doctor  Parsons.  No;  it  was  carried  on  and  made  a  perfect  success  at  Syra- 
cuse. 

Mr.  Quin.  You  mean  a  different  plant  was  erected.  There  was  a  difference 
between  the  plant  at  Syracuse  and  the  No.  1  plant  at  Muscle  Shoals. 

Doctor  Parsons.  The  process  is  essentially  the  same,  but  they  have  changed 
the  mechanical  construction,  and  they  have  changed  the  catalyst,  as  I  have 
already  testified. 

Mr.  Quin.  Why  did  they  not  change  that  and  make  the  process  at  Muscle 
Shoals  a  success? 

Doctor  Parsons.  Because  they  had  no  time  before  the  armistice.  They 
found  that  the  mechanical  construction  at  Muscle  Shoals  was  not  right  and 
that  the  catalyst  which  they  used  was  inefficient  and  could  not  be  made  in  large 
quantities. 

Mr.  Quin.  What  did  they  change  it  for  at  Muscle  Shoals? 

Doctor  Parsons.  They  did  not  change  it  at  Muscle  Shoals. 


Mr.  Quin    Some  gentleman  testified  that  by  making  certain  changes  in  the 
fesXd  that  way  ''"'^^  *^  ^'  ^  '"""'"  '^"'"     ^"™"  of  tSeff  e^ertl 

pro'^cTs^Tt  IZZZ  b?a'faifur??'"^  ^'^"^^^  ^  *^^  ^^^^^  ^^^^^^^  ^^'^ 

in^^e?o^s^u^ctVo7^h^sX^^^^   S^Ss^^^"^^  "^^  ^'  ^^«  ^^^^^^ 
Doctor  Parsons.  My  understanding  is  that  the  plant  was  built  down  there 

^\\l,nvi/n^^*^^•''  -''^"^  ^^^^  ^^  ^^"^  "  ^««^  consultation  between  the  Generll 
Chemical  Co.'s  engineers  and  the  engineers  of  the  Government,  and  that  toe 

wmZt'SrLnX^r^^^^^^^  P^  ''^'^'"  ^^^^^^«  ^"  t^^  plant^?onstructi?n 

Hhich  the  General  Chemical  Co.'s  engineers  did  not  thoroughly  agree  to-  and 

as  a  result  anyway,  both  of  them  felt  that  the  other  was  more  or  less  to  blame 

for  the  failure  of  its  early  operation.     But  as  a  result  of  tn^erfences  wS 

they  gained  there  a  ^ew  factory  has  been  built  which  is  functiSTcompSv 

and  functioned  well  from  the  first  day  it  turned  over  its  wheels        ^^^^P'^^^'^' 

Mr  Quin.  Then  the  one  they  constructed  with  Government  funds  at  Muscle 

Shoals  did  not  turn  out  the  stuff,  and  the  one  they  erected  for  themselves  did 

aXipared.'  '       ''''"  """^  *^'^  ^'^^"""^  "^^^"^^  ^^"^  ^^^^^  ^'  ^^^  than  they 
Doctor  Parsons.  The  one  they  erected  at  Muscle  Shoals  did  not  do  it   but 
if  they  had  gone  on  and  made  the  necessary  changes  and  installed  the  an 
paratus  which  they  now  have  installed  at  Syracuse  it  would  have  ftinctioned  • 

Sfly'aTXTe^^^^^^  ^^^^  ^^^^  ^^^  ^^^^^^  ^^-^  ^«  ^-'i^nL^g 

^l!\S^'i^'J^^^  ^^^^  P"*  ^"  ^^*^^t^  P^ant  No.  2,  after  they  had  experimented 
with  the  Haber  process.    They  knew  that  plant  No.  2  would  work,  dMth^y' 

Doctor  Parsons.  They  did  not  put  in  plant  No.  2  after  they  had  b^n  experi- 
menting with  plant  No.  1.  Plant  No.  1  was  barely  start^  when^Jndmons 
grevv  worse  and  the  Ordnance  Department  felt  that  it  was  absolutely  neces^?? 
for  the  sake  of  preparedness  to  push  the  construction  of  nitrate  plants  wS 
would  make  ammonium  nitrate  in  quantity  from  the  start.  We  had  cvaiTamM 
plants  on  this  side  of  the  water,  and  we  knew  positively  that  thev  coSld  make 
ammonium  nitrate  by  that  method,  irrespective  of  the  cost.  It  was  put  ?n  as 
an  emergency  war  measure,  and  ran  from  the  first  dav  it  was  completed 

Mr.  Quin.  They  have  testified  before  this  committee  that  there  are  new 
processes  now  which  are  liable  to  knock  out  both  of  these  processed  and  pr^ 

D^yo^^knrlb^t^Cf'*^^  ^'  ^'^"^  ^"^-"^^'  r  -^^^  *^^'  -^  costi^g'n'ow. 
Doctor   Parsons.  I   think   I   know   all'  the  processes   for   nitrogen    fixation 

Mr.  Quin.  They  did  not  tell  us  what  they  are. 
tuZ^^u'  Paksons.  They  are  referring  unquestionably  to  the  improvements  in 
the  Haber  process,  because  they  are  the  only  ones  actunllv  doing  it  to-dav 

Mr.  Quin.  Did  you  read  the  report  of  the  British  Nitrogen  Products 'oom- 
nnssioii,  appointed  for  the  purpose  of  looking  into  the  fixation  of  nTtrog^^ 

Doctor  Parsons.  I  did,  and  I  read  it  with  care  "urogen. 

Mr  Quin.  In  that  report,  of  1920,  that  commsision,  consistinff  of  eminent 
scientists,  doctors  of  chemistry  and  kindred  subjects,  stated  several  thinS  and 
ZT^  "?  ^l  f  ^^^"^  ^^^*  "  *^^  commission  recommends  tS  th  s  cvfnam"d 
process  should  be  established  in  Great  Britaiu  without  delav,  either  bv  pHvSto 
enterprise,  supported,  if  necessary,  by  the  Government,  or  'as  a  publi^  work  '^ 
What  do  you  say  about  that  report  of  the  British  commission' 
diiHnir  wa^^'^'"''''^/  say  that  the  report  of  the  British  commission  was  made 
curing  war  time.  I  was  in  consultation  with  the  most  of  the  members  of  that 
<onmiittee  frequently  during  the  war.  I  saw  them  on  the  othe?  .Idl  and  I 
saw  Doctor  Harker  on  this  side.  I  know  most  of  the  important  men'on  tlip 
commission  personally,  and  some  of  tliem  intimatelv. 

Mr.  Quin.  This  was  in  1920? 

Doctor  P.VRSONS.  That  is  when  it  was  issued,  not  when  it  was  made     Thev 
know  ?i  '"  England  that  they  should  put  in  both  processes,  so  that  thev  would 

nSt  on  v%nrfT?o'??  K^  ^''''^-  ^^^I  ffS  ^"  ^^""^  "^P^"*  "^^^^  ^  recommendation 
not  only  for  the  Haber  process,  but  they  spoke  in  much  higher  terms  for  the 

Haber  process  than  the  cyanamid  process,  and  the  Haber  process  is  bein- 
loL^  o"  f^^?}?^^^  *^^o-day,  and  the  cyanamid  process  has  been  completelv  aban"^ 
doned  and  will  never  be  put  in  England  or  any  other  country,  in  my  opinion 


1138 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


1139 


Mr.  QuiN.  Do  you  not  jjive  some  weight  to  Mr.  Ford's  statement  that  he  could 
put.  in  and  wouhl  put  in  the  cheapest  process? 

Doctor  I'AKsoNS.  I  do  not  know  what  Mr.  Ford  will  do.  There  is  nothins: 
to  indicate  it  in  the  testimony. 

:Mr.  QriN.  His  enjjineer  said  they  can  make  this  stuff  50  per  cent  cheaper 
than  it  is  heing  made  now. 

Doctor  Parsons.  No;  Mr.  :Mayo  said  33 J  per  cent.  Mr.  ^layo  also  stilted  that 
ho  had  not  ma<le  any  estimate  of  cost. 

Mr.  QuiN.  They  hind  themselves  to  run  that  plant  at  its  full  capacity  for 
fertilizer,  and  that  is  what  every  farmer  of  this  country  is  interestetl  in,  outside 
of  their  patriotic  spirit  for  national  defen.se.    Do  you  not  think  that  is  true? 

Doctor  Parsons.  I  do  not  so  understand  it.  I  understx)od  from  the  testimony 
that  they  would  not  run  it  except  at  a  protit.  But  I  am  not  arguing  against 
Mr.  Ford. 

Mr.  QuiN.  As  to  what,  proce.ss  his  engineers  might  have  in  mind,  you  know 

nothing  about  that? 

Doctor  Parsons.  Except  as  contained  in  their  testimony.    I  have  read  that. 

]Mr.  Qi'TN.  There  has  been  a  great  deal  of  discussion  about  the  different 
pnx^esses,  and  about  the  fertilizer  that  could  be  made  and  about  the  prices  at 
which  it  could  be  made.  But  I  have  been  looking  for  somebody  to  tell  us  why 
it  is  that  a  cow  that  is  red,  that  eats  green  grass,  gives  white  milk.  But.  we 
have  not  had  that  yet.  There  is  not  any  doubt  but  what  they  have  got  the  water 
wliich  they  can  dam  up  to  get  the  horsepower,  is  there? 

Doctor  Parsons.  I  have  every  reason  to  believe  they  will  get  the  horsepower 
if  they  dam  the  river. 

Mr.  QriN.  There  is  no  doubt,  if  they  get  that  that  they  can  make  the  same 
kind  of  fertilizer  down  there  that  is  made  elsewhere. 

Doctor  Parsons.  I  think  horsepower  has  but  little  relation  to  that. 

Mr.  QiiN.  You  think  these  men  are  all  mistaken? 

Doctor  Parsons.  I  think  the  farmer  has  been  made  a  cat's-paw  from  the 
beginning  to  try  to  get  the  Muscle  Shoals  project  built.  He  has  been  shi)wn 
a  beautiful  "  mirage  "  by  those  who  have  their  own  objects  to  attain. 

Mr.  QuiN.  There  are  some  people  who  believe  in  the  farmer  being  taken 

care  of. 

Doctor  Parsons.  I  believe  in  that,  too.  most  heartily. 

Mr.  QuiN.  Do  you  not  think  if  you  can  get  that  big  plant  running  down 
there,  it  will  have  a  salutary  effect  on  the  production  of  fertilizer? 

Doctor  Parsons.  Not  so  faf  as  plant  No.  2  is  concerned.  I  do  not  believe  Mr. 
Ford  or  anyone  e'se  can  operate  plant  No.  2  to  make  fertilizer. 

Mr.  QuiN.  Do  you  believe  Mr.  Ford  is  going  to  lose  his  fortune  on  that  propo- 
sition? 

Doctor  Parsons.  I  think  if  Mr.  Ford  runs  plant  No.  2  to  its  capacity  to  make 
nitrates,  he  will  lose  all  hs  fortune  in  20  years.  I  simply  want  you  to  be  sure 
that  he  will  do  it. 

IMr.  QriN.  I  do  not  think  Mr.  Ford  needs  any  guardian,  so  far  as  that  it 

concerned. 

Mr.  Fisher.  How  long  were  you  in  the  employ  of  the  Federal  Government? 
Doctor  Parsons.  From  the  sunnner  of  1911,  August,  I  think,  until  the  1st  ol" 

November  1919. 

Mr.  Fisher.  When  the  war  broke  oirt  in  Euroi)e,  or  immed'ately  thereafter, 
and  our  Government,  through  its  offic  als.  began  to  i>lan  a  nitrate  program,  I 
win  ask  you  whether  or  not  they  did  not  put  you  on  a  commission,  with  your 
exi)enses*paid,  and  also  paying  you  a  salary,  while  you  traveled  all  over  Europe, 
examining  different  types  of  nitrate  plants? 

Doctor  Parsons.  That  is  correct. 

Mr.  Fisher.  I  will  ask  you  whether  or  not  when  you  came  back  you  later 
severed  your  connection  with  the  Government,  and  ever  since  that  time,  in  every 
single  effort  that  the  United  States  has  made  to  carry  out  a  nitrate  program,  in 
connection  with  ^Muscle  Shoals  you  have  volunteered  as  a  witness  against  the 

Government. 

Doctor  Parsons.  I  have  not.  I  appeared  as  a  witness.  I  have  been  called 
in  before,  and  I  did  it  before  I  was  out  of  the  Government,  and  I  have  not 
changed  my  testimony  from  the  first  minute,  from  the  time  I  wrote  a  report 
for  the  Government  up  to  and  including  to-day. 

Mr.  Fisher.  Doctor,  you  have  always  been  opposed,  have  you  not,  to  what  the 
other  experts  recommendeti? 


Doctor  Parsons.  Oh,  no;  they  agreed  with  me  absolutely  on  the  or  ginal 
report,  and  they  adopted  my  report  practically  unanimously.  That  is  all  in 
the  record. 

Mr.  Fisher.  You  appeared  before  the  Senate  Committee  on  Agriculture  and 
opposed  the  proposition  that  the  Government  then  presented,  did  you  not? 

Doctor  Parsons.  I  did  not.  I  did  not  appear  before  the  Senate  Committee  on 
Agriculture  at  all.    I  was  not  there. 

Mr.  Fisher.  You  did  not  oppose  the  proposition  when  it  was  before  the  Ohu- 
mittee  on  Appropriations,  to  complete  the  dam? 
Doctor  Parsons.  In  the  House — my  testimonv  is  here. 
Mr.  Fisher.  Before  the  House  committee. 

Doctor  Parsons.  P.efore  the  House  committee  I  did  not  oppose  the  building 
of  the  dam  on  the  basis  of  the  power  being  used  for  the  development  of  indues- 
tries  in  the  South.     I  am  not  opposed  to  it  to-day;  I  am  in  favor  of  it  to-day. 

.Air.  Fisher,  ^^'henever  the  Government  connects  the  completion  of  the  dam 
with  the  manufacture  of  nitrates  or  fertilizer,  then  you  oppo.se  it? 

Doctor  Parsons.  I  have  always  stated,  and  I  so  state  now.  that  the  idea  nf 
building  or  completing  D.im  No.  2  with  the  idea  of  using  that  power  through  the 
cyanamid  process  for  the  fixation  of  nitrogen,  if  that  is  the  idea,  is  a  false  idea 
an<l  will  not  lea<l  to  the  conclusion  you  expect. 

Mr.  Fisher.  When  you  testified  "before  the  Committee  on  Appropriations  of 
the  House  on  the  sun<lry  civil  appropriation  bill,  when  the  projw.sition  of  com- 
pleting the  dam  was  being  considered,  you  stated  that  the  Atmospheric  Nitrogen 
Corp.  at  Syracuse,  N.  Y..  had  a  process  which  they  perfected.  Have  they  ever 
manufactured  nitrate  by  that  process? 

Doctor  IV\rsons.  They  have  run  it  successfully  from  the  day  it  started  opera- 
tion uj)  to  the  present  time.  That  pltmt  was  built  for  an  output  of  10  tons  per 
day,  and  it  has  turned  out  12  tons  per  day  practically  continuously  from  the  dav 
the  first  wheel  turned  over. 

Mr.  Ftshfr.  Is  that  concern  owned  in  part  by  the  Solvay  Co.? 
Doctor  Parsons.  No;  the  Semet-Solvay  Co. 
Mr.  Fisher.  Are  they  all  American  citizens? 
Doctor  Parsons.  To  the  best  of  my  knowledge  and  belief,  yes. 
Mr.  Fisher.  The  Solvays  are  all  American  citizens? 
Doctor  Parsons.  In  this  country? 
iMr.  Fisher.  T  mean  tlie  stockholders. 

Doctor  Parsons.  As  far  as  I  know.  It  may  be  that  the  Belgian — it  is  the 
Semet-Solvay  Co.  an<l  the  (;eneral  Chemical  Co.  that  own  this  plant,  not  the 
Solvay.  The  Solvay  Process  Co.  was  originally  a  Belgian  company.  They 
started  a  subcompany  in  this  country  to  produce  sodium  carbonate.  Some  of  its 
stock  is  still  held  in  Belgium  probably,  but  it  has  never  been  questioned  as  to 
the  ownership  of  its  stock  in  any  essential  at  any  time  by  the  Alien  Property 
Cnstodijin  or  others.  The  Semet-Solvay.  T  think,  is  not  owiied  in  Belgium,  or 
Mt  least  T  never  heard  that  it  was.  The  General  Chemical  Co.  is  an  almost  com- 
pletely American  company,  started  and  (developed  in  this  country  by  an  Ameri- 
can capital,  and  none  but  Americans  control  its  affairs,  .so  far  as  I  know. 

Mr.  Fisher.  When  you  appeared  before  the  Honse  Committee  on  Appropria- 
tions in  opposition  to  the  appropriation  for  the  completion  of  the  dam  there  was 
no  other  question  befr)re  that  conunittee  at  that  time  except  the  completion  of 
the  dam.  but  you  still  i^ppo^^^'l  the  appropriation. 

Doctor  Parsons.  I  opposed  it  simply  and  solely  on  the  basis  of  its  being  used 
for  the  fixation  of  nitrogen  :  that  it  was  not  warranted  for,  and  I  directly  and 
definitely  stated  that  I  agreed  entirely  with  Colonel  Cooper  that  it  should  be 
completed  as  a  dam  for  the  industrial  development  of  the  South. 

^Ir.  Fisher.  Did  you  not  have  it  .stated  to  ycm  at  that  hearing  that  the  only 
question  that  they  had  for  decision  was  in  connection  with  the  monev  askeil  for 
the  coini)letion  of  the  dam? 

Doctor  Parsons.  I  think  Mr.  Byrns  did  make  that  statement,  and  I  told  him. 
ns  all  the  testimony  shows,  that  the  whole  thing  that  the  bill  was  being  pnt 
through  Congress  for  was  to  carry  out  plans  for  the  so-called  nitrogen  corinu-a- 
tion.  This  propo.sed  corporation  was  to  be  run  by  the  Government,  without 
faxes,  without  interest,  without  amortization,  and  entirely  free<l  from  the  trust 
laws,  in  competition  with  American  industry,  putting  the  Government  in  business 
in  a  way  that  it  has  never  been  in  business  before.  I  did  not  believe  in  the  dam 
being  completed  for  any  such  purpose,  but  if  the  completion  of  the  dam  was  to 
be  for  the  benefit  of  public  utilities,  selling  lli€>  power  to  the  cities  around,  op 


1140 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


1141 


sellinjr  ij  to  any  chemical  or  metallurgical  industry  that  was  down  there,  I  was 
entirely  in  favor  of  it,  and  I  am  to-dav. 

Furthermore,  I  think  it  is  perfectly  possihle  to  make  a  nitrogen  tixation 
industry  at  Muscle  Shoals  wliich  will  be  a  thoroughly  successful  industry  ami 
which  will  do  a  good  deal  of  what  hoi>e  it  will  do  for  the  farmer,  if  vou  will 
do  It  right  But  If  you  are  going  to  bring  it  into  politics  the  wav  it  has  been 
done,  It  will  never  help  the  farmer  on  the  basis  of  running  plant  No  2  and  set- 
ting away  from  the  power  proposition. 

If  you  wouhl  like  to  know  what  I  think  should  be  done,  I  shall  be  glad  to 
give  an  outline  of  it  to  you. 
Mr.  Fisher.  I  will  be  glad  to  have  it. 

Doctor  Parsons.  I  think  the  Government  should  first  find  out  what  it  has  to 
sell  and  then  having  found  that  out  it  can  put  this  before  the  people  of  the 
country  and  offer  it  to  them  for  bids  and  sell  it  to  the  highest  bidder,  who  will 
put  it  through  for  the  purposes  you  want. 

Mr.  Fisher.  Are  you  not  aware  of  the  fact  that  the  Secretary  of  War  through 
the  Chief  of  Engineers,  communicated  with  every  concern  in  the  United  States 
which  he  thought  was  interested  in  the  development  of  Muscle  Shoals? 

Doctor  Parsons.  As  I  read  it,  he  asked  them  what  they  thought  shouhl  be 
done  with  it,  and  whether  they  had  any  suggestions  to  make,  and  one  or  two 
of  them  did  make  suggestions.  It  has  never  been  formulated  as  to  what  vou 
had  to  sell,  and  nobody  knows  to-day  what  you  have  to  sell  down  there  and 
the  minute  it  is  known  what  you  have  to  sell  I  think  you  will  get  offers  for  it 
I  thing  if  plant  No.  1  was  put  up  for  sale,  with  a  certain  amount  of  power  t.l 
i-o  with  it,  I  could  myself  obtain  associates  and  make  a  nitrogen  industry  down 
:here  along  modern  lines,  the  same  as  they  are  doing  in  German  v,  the  same 
•A6  they  have  started  to  do  in  Norway,  the  same  as  they  are  doing  in  England 
and  just  as  they  are  planning  to  do  in  France,  and  in  Italy,  and  as  they  have 
started  to  do  at  Syracuse,  which  will  fix  nitrogen  and  make  nitrogen  fertilizer 
much  cheaper  than  you  will  ever  get  it  by  any  possible  use  of  the  cvanamid 
process.    I  think  it  can  be  done  successfully. 

Mr.  Fisher.  The  trouble  is  that  the  Secretary  of  War  has  not  received  any 
offers  except  the  ones  we  are  now  considering. 

Doctor  Parsons.  Nobody  can  make  an  offer,  because  thev  do  not  know  what 
they  are  offering  for.  They  are  all  tied  up  with  lawsuits  and  politics,  and  you 
do  not  know  what  you  can  make  an  offer  for. 

Mr.  Fisher.  Do  you  know  of  any  other  concern  than  those  who  have  made  the 
offers  we  are  now  considering  have  communicated  with  the  War  Department, 
or  with  the  Chief  of  Engineers,  to  find  out  what  the  Government  has  to  sellV 

Doctor  Parsons.  They  have  considered  the  situation,  and  I  do  not  think  you 
will  get  any  more  offers  as  long  as  it  is  tied  up  with  the  political  situation  as  it 
is  at  the  present  day. 

Mr.  Wright.  Doctor,  you  think  probably  there  will  be  something  developed 
by  which  the  production  of  commercial  fertilizer  will  be  greatly  reduced  in  price? 

Doctor  Parsons.  I  beg  your  pardon. 

Mr.  Wrmjht.  You  think  there  will  be  some  art  or  arts  develoi>ed  which  will 
greatly  reduce  the  price  of  commercial  fertilizers? 

Doctor  Parsons.  I  hope  so.    Fertilizer  at  the  present  time,  or  rather  fertilizer 
constituents,  are  cheaper  than  they  have  been.  I  think,  in  the  history  of  the 
■  world  ;  at  least  some  of  them  are. 

Mr.  Wright.  Conditions  are  not  normal  now. 

Doctor  Parsons.  I  do  not  expect  to  see  much  advance  from  present  conditions, 
if  they  are  not  normal.  I  think  that  Germany  having  a  surplus  and  increasing 
as  she  is  increasing,  that  before  very  long  nitrogen  compounds  will  be  imported : 
in  fact,  they  are  now  from  abroad.  I  think  we  are  going  to  have  competition 
which  will  keep  down  the  price  of  ammonium  sulphate. 

Mr.  Wright.  Upon  the  whole,  you  think  the  art  will  be  developed  by  which 
the  cost  of  production  will  be  decreased  iu  price? 

Doctor  Parsons.  I  have  every  reason  to  think  so.    I  believe  in  progress. 

Mr.  Wright.  But  you  do  not  think  that  can  be  done  by  the  cyanamid  process? 

Doctor  Parsons.  I  never  was  more  certain  of  anything  in  nW  life  than  I  am 
of  that. 

Mr.  Wright.  T  understand  the  Ford  offer  is  based  on  using  the  cyanamid 
process  ? 

Doctor  Parsons.  So  he  states — at  plant  No.  2. 

Mr.  Wright.  Let  me  call  your  attention  to  section  14  of  the  Ford  offer  as  modi- 
fied.   I  will  read  it  to  you  as  it  has  been  modificxl.    It  says :  "  The  company  agrees 


to  operate  nitrate  plant  No.  2  at  the  approximate  annual  capacity  of  its  ma- 
chinery and  equipment  in  the  production  of  nitrogen  and  other  commercial  fer- 
tilizers (said  capacity  being  equal  to  approximately  110,000  tons  of  ammonium 
nitrate  per  annum)  throughout  the  le;ise  period,  except  as  it  may  be  prevented 
by  strikes,  accidents,  fires,  or  other  causes  beyond  its  control ;  And  further  agrees 
(a)  to  determine  by  research  whether  by  means  of  electric  furnace  methods  and 
industrial  chemistry  there  may  be  produced  on  a  commercial  scale  fertilizer  com- 
pounds of  higher  grade  and  at  lower  prices  than  fertilizer-using  farmers  have 
in  the  past  been  able  to  obtain,  and  to  determine  whether  in  a  broad  way  the 
application  of  electrictiy  and  industrial  chemistry  may  accomplish  for  the'agri- 
cultural  industry  of  the  country  what  they  have  economically  accomplished  for 
the  other  industries,  and  if  so  found  and  determined  to  reasonably  employ  such 
improved  methods." 

Doctor  Parsons.  How  does  that  differ  from  the  original?  It  sounds  prett>' 
much  the  same  to  me. 

]Mr.  Wright.  The  only  change  is  in  line  2  of  that  section,  striking  out  the 
word  "  compounds  "  and  using  the  word  "  fertilizer  "  and  inserting  the  word 
"commercial"  before  the  word  "fertilizer,"  and  then  there  is  added  to  sub- 
section (a)  of  section  14  this  language,  "and  if  so  found  and  determined, 
to  reasonably  employ  such  improved  methods." 

Doctor  Parsons.  I  can  not  see  any  essential  differeYice  between  that  and  the 
original.     It  is  the  other  clauses  in  there  which  make  the  basic  difficulty  in  the 
whole  situation. 
Mr.  Wright.  That  is  the  stumbling  block  to  you. 

Doctor  Parsons.  No:  there  is  the  testimony  that  they  will  not  do  it  unless 
they  can  do  it  at  a  profit. 

Mr.  W^right.  I  am  drawing  your  attention  to  what  processes  Mr.  Ford  is 
going  to  use  under  this  offer.  I  want  to  know  if  you  insist  that  he  is  confined 
to  the  cyanamid  process? 

Doctor  Parsons.  I  say  in  plant  No.  2,  yes;  and  he  has  stated  that  plant 
No.  1  is  going  to  be  converted  into  an  automobile  factory. 

Mr.  Wright.  Let  us  see  what  he  offers  about  plant  No.  2  as  modified.  Sec- 
tion 14  provides  that  he  agrees  to  operate  the  plant  at  the  approximate  annual 
capacity,  and  that  is  followed  by  subsection  (a)  in  these  words,  "to  determine 
by  research  whether  by  means  of  electric-furnace  methods  and  industrial 
chemistry  there  may  be  produced  on  a  coramercinl  scale  fertilizer  compounds 
of  higher  grade  and  at  lower  prices  than  fertilizer-using  farmers  have  in 
the  past  been  able  to  obtain,  and  to  determine  whether  in  a  broad  way  the 
application  of  electricity  and  industrial  chemistry  may  accomplish  for  the  agri- 
cultural industry  of  the  country  what  they  have  economically  accomplished 
for  the  other  industries,  and  if  so  found  and  determined,  to  reasonably  employ 
such  methods." 

Doctor  Parsons.  I  think  that  is  highly  desirable,  but  he  promised  to  conduct 
this  research  in  the  first  place. 
Mr.  Wright.  That  is  part  of  his  agreement? 
Doctor  Parsons.  Certainly. 

Mr.  Wright.  Then  he  is  not  confined  to  the  cyanamid  process,  is  he.  in  the 
operation  of  plant  No.  2? 

Doctor  Parsons.  Yes;  because  plant  No.  2  was  only  built  for  the  cyanamid 
process  and  can  not  be  converted  into  anything  else  for  the  fixation  of  nitro- 
gen. I  do  not  deny  that  thit  is  quite  possible  that  those  carbide  furnaces  might 
be  used  as  Mr.  Swann  told  you,  for  the  conversion  of  certain  phosphoric  rocks 
into  concentrated  phosphoric  acid,  but  "that  is  a  question  for  the  future  to 
determine.  We  are  at  the  present  time  profitably  spending  a  good  deal  of 
money  through  the  Bureau  of  Soils  and  through  the  Nitrogen  Fixation  Labora- 
tory for  certain  purposes  along  those  lines.  The  Bureau  of  Soils  has  been 
working  for  some  time  on  the  production  of  phosphoric  acid  by  electric-furnace 
methods,  and  they  have  made  a  great  deal  of  progress,  which  is  being  utilized 
in  three  plants  in  this  country,  two  of  them  running  and  one  closed  down. 
Mr.  Wright.  Your  whole  testimony  is  based  on  the  proposition  that  Mr. 
Ford's  offer  only  contemplates  the  manufacture  of  commercial  fertilizer  or 
compounds  by  the  use  of  nitrate  plant  No.  2,  which  uses  the  cyanamid  method 
and  employs  the  cyanamid  method. 

Doctor  Parsons,  My  testimony  has  not  been  so  directed  at  all,  although  you 
may  think  so.  My  testimony  has  been,  so  far  as  possible,  to  explain  to  you  the 
technical  processes  for  the  fixation  of  nitrogen. 


1142 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


1148 


tI»" 


m 


Mr.  WRitiiiT.  I  will  say  as  far  as  your  testimony  relates  to  this  provisiim  of 
the  Ford  contract. 

Doctor  Parsons.  My  testimony  is  that  phmt  No.  2  can  not  be  utilized  for  the 
fixation  of  nitrogen  coraniercially  and  can  not  be  converted   into  any  other 
known  process  or  any  process  wliich  is  even  in  sight  for  the  fixing  of  nitrogen. 
Mr.  Wrkjht.  P^xcept  by  the  use  of  the  cyanaraid  method. 
Doctor  Parsons.  By  the  use  of  the  cyanamid  methml  or  any  other  method. 

Mr.'  Wright.  You  construe  the  offer  to  mean  that  lie  is  going  to  confine  him- 
self to  the  cyanamid  method  in  the  operation  of  plant  No.  2. 

Doctor  Parsons.  If  he  is  going  to  fix  nitrogen  at  plant  No.  2.  that  is  the  only 
method  he  can  use.  I  am  not  talking  about  the  other  things  he  may  develop 
In  phosphoric  acid  and  jiotash  and  other  schemes,  which  may  be  visionary  or 
may  turn  out  to  be  practical. 

Mr.  Wright.  What  I  want  you  to  see,  if  I  can,  is  that  in  addition  to  his 
positive  offer  to  oi)erate  plant  No.  2  at  the  approximate  present  annual  capacity 
of  its  machinery  and  equipment  in  the  production  of  nitrogen  and  other  com- 
mercial fertilizers  on  the  basis  of  110,000  tons  a  year,  he  further  agrees  to 
"  determine  by  research  whether  by  means  of  electric- furnace  methods  and  in- 
dustrial chemistry"  that  these  ingredients  am  be  produce<l  on  a  more  eco- 
nomical basis:  and  it  he  so  finds,  to  emjiloy  those  methods.  That  would  cover 
your  objection,  would  it  not? 

Doctor  Parsons.  No  ;  if  j'ou  turn  that  i)ower  over  to  him  I  want  you  to  get 
from  him  .some  kind  of  an  agreement  that  he  will  do  it. 

3Ir.  ^^'IJIGHT.  I  am  talking  about  the  manufacture  of  fertilizer  compounds. 
I  am  not  talking  about  power. 

Doctor  Parsons.  I  do  not  think  you  have  any  assurance  whatsoever  that  you 
are  going  to  get  any  comtnercial  fertilizer  compounds,  and  my  opinion  is  that 
before  that  immensely  valuable  project  is  turned  away  from  "the  people  of  the 
United  States  you  should  have  some  definite  assurance  or  contract  that  can 
not  be  questioned. 

Mr.  Wright.  You  do  not  think  it  is  a  good  thing? 

Doctor  Parsons.  I  can  not  see  that  it  is. 

Mr.  Wright.  Although  he  agrees  to  operate  the  plant  at  its  present  annual 
capacity  and  agrees  further  that  he  will  determine  by  research  whether  the  cost 
can  be  reduced  by  any  kind  of  new  method,  and  if  it  can  be  he  will  employ  that 
method? 

Doctor  Parsons.  He  does  not  so  agree.  There  is  another  proposition  in  there 
in  reference  to  '•  other  causes."  or  something  like  that. 

Mr.  Wright.  You  said  this  morning  that  you  were  not  a  lawyer. 

Doctor  Parsons.  I  am  not. 

Mr.  Wright.  And  you  would  not  care  to  be  catechized  about  legal  or  financial 
questions  or  in  reference  to  the  construction  of  the  contract? 

Doctor  Parsons.  I  said  about  legal  questions  of  the  construction  of  the  con- 
tract I  did  not  think  my  opinion  would  be  of  any  value. 

Mr.  Wright.  These  words  over  which  y<Mi  stunible  so  nuich  are  the  words 
in  section  14,  where  it  says,  "except  as  it  may  be  prevented  by  strikes,  acci- 
dents, fires,  or  other  causes  beyond  its  control."  Those  words  do  not  mean  and 
can  not  mean  that  he  is  confined  to  that  process  in  the  making  of  ingredients. 
Those  wonls  are  siuqily  intended  to  include  those  things  that  no  human  agency 
can  control,  or  probably  can  not  control,  such  as  strikes,  fires,  or  accidents; 
and  the  words  "other  causes  beyond  its  control"  are  all  of  that  same  class  of 
words  along  the  same  line  of  meaning. 

Doctor  I'ARSONs.  I  interpi-eted  it  just  the  way  Mr.  Mayo  interpreted  it,  and 
Secretary  Weeks,  and  as  the  Secretary  of  Agriculture  an<l  all  who  have  looked 
into  the  situation  from  an  absolutely  unbiased  standpoint  evidently  interi)reted 
it,  and  I  think  they  see  it  as  I  see  it. 

Mr.  Wright.  I  presume  one  might  rea.sonably  infer  you  are  against  the 
Ford  offer? 

Dr.  Parsons.  As  it  stands:  yes  sir.     I  think  you  can  better  it  very  greatly. 

Mr.  Wright.  What  is  that  substance  that  you  assume  is  going  to  be  turned 
into  the  river  and  tlestroy  navigation? 

Doctor  Parsons.  It  is  the  sludge  that  comes  from  the  conversion  of  the 
cyanamid  and  ammonia. 

Mr.  Wright.  Do  you  not  think  that  a  place  has  been  provided  to  care  for 
that,  besides  putting  it  into  the  river? 

Doctor  Pabsons.  No  ;  I  do  not,  to  that  extent 

Mr.  WRKiHT.  That  it  has  been  thought  would  relieve  that  condition? 


any  given 


Doctor  Parsons.  If  you  have  provided  for  300,000  cubic  yards  for  some 
years;  yes. 

Mr.  Stoll,  Where  is  your  office? 

Doctor  Parsons.  No.  1709  G  Street,  Washington. 

Mr.  Stoll.  Have  you  attended  many  of  these  hearings? 

Doctor  Parsons.  Here? 

Mr.  Stotx.  Yes. 

Doctor  Parsons.  No,  sir. 

Mr.  Stoll.  Any  of  them? 

Doctor  Parsons.  I  came  here  to  hear  Mr.  Swann's  testimony,  and  incident- 
ally, as  he  was  delayed,  while  I  was  waiting  to  hear  his  testimony  I  heard 
certain  of  the  other  testimony,  and  I  have  read  certain  parts  of  tiiat  wliich 
you  have  had  printed  since. 

Mr.  Stoll.  Are  you  connected  with  any  fertilizer  companies? 

Doctor  Parsons.  I  am  not,  directly  or  indirectly. 

Mr.  Wright.  There  is  one  question  I  forgot  to  ask.  I  believe  all  scientific 
men  differ  widely  on  these  scientific  questions. 

Doctor  Parsons.  I  do  not  think  scientific  men  differ  at  all  on  the  Haber 
process  to-day. 

Mr.  Wright.  Is  not  that  characteristic  of  scientific  men? 

Doctor  Parsons.  We  are  human  beings  like  everybody  else. 

Mr.  Wright.  Did  you  ever  see  two  doctors  who  would  agree  about 
proposition? 

Doctor  Parsons.  Medicine  is  not  an  exact  science — chemistry  is. 

Mr.  Wright.  You  are  an  expert,  are  you  not? 

Doctor  Parsons.  You  will  have  to  judge  that  for  yourself. 

Mr.  Wright.  Is  it  not  a  fact  that  they  do  not  ever  agree — and  I  am  not 
saying  anything  to  their  <liscredit — l)ut  on  a  proposition  like  this,  for  instance, 
you  say  that  the  cyanamid  process  is  obsolete,  and  that  the  Haber  process  is 
the  correct  i)rocess:  while  a  man.  who  is  just  as  eminent  as  you,  would  follow 
you  on  the  stand  and  he  wouhl  swear  that  the  Hid)er  in-ocess  was  impracticable 
.111(1  the  cyanamid  process  was  the  only  one  that  was  feasible. 

Doctor  Parsons.  I  wouhl  like  to  find  one  in  America  that  will  say  that  at  the 
present  time — who  is  still  sane. 

Mr.  Wright.  I  i\o  not  think  you  will  ever  get  two  of  them  that  will  agree. 

Mr.  Millkr.  I  see  in  the  British  Nitrate  Commission's  report  that  they  siieak 
very  highly  of  the  arc  process  or  the  electric  process.    That  makes  nitric  acid 
does  it? 

Doctor  Parsons.  Yes;  that  is  one  of  the  basic  resisons  why  it  is  not  used  in 
this  country  ;  and  also  It  is  very  wasteful  of  power.  It  uses  five  times  as  much 
power  as  the  cyanamid  process,  and  it  uses  approximately  .lO  times  as  much 
liower  as  the  Haber  process.  If  it  was  not  for  the  Haber  patents— and,  I 
think,  I  have  a  basis  for  this  statement  (it  can  not  be  used  in  Noi-way.  alth<mgh 
it  can  be  used  in  the  United  States) — I  think  the  arc  process  in  Norway  would 
be  changed  into  the  Haber  process  in  a  year,  because  they  could  use  their 
water  power  and  make  their  hydrogen  electrolitically,  and  they  could  turn 
out  five  times  the  amount  of  nitrogen,  in  ammonium  salts  Insteail  of  nitrates, 
than  they  can  to-day,  and  do  it  cheaper. 

Mr.  Miller.  There  are  two  of  tho.se  plants  in  my  (.mntry  in  the  far  West: 
The  American  Nitrogen  Products  Co.,  with  a  small  idant  at  a  place  called 
La  Grange;  and  another  one  near  Vancouver;  and,  I  think,  thev  are  very  suc- 
cessful. 

Doctor  Parsons.  I  think  one  of  them  has  opeiated  :  and  I  think  it  was  suc- 
cessfully operated  on  .sodium  nitrate,  which  was  taken  by  the  dye  industry 
several  years  ago;  but  at  the  present  time  there  is  no  market,  be<ause  the  Ger- 
mans are  sending  it  in.  I  do  not  think  that  they  have  ever  sold  nitric  acid  ex- 
tensively commercially  or  ammonium  nitrate  for  fertilizer  purposes  or  any  fer- 
tilizer constituents  to  any  extent  or  have  any  exjiectation  of  doing  so. 
Mr.  Miller.  I  know  they  are  shipping  nitric  acid  in  tank  cars  out  there. 
Doctor  Parsons.  You  have  a  limited  market  on  the  Pacific  coast  for  nitric 
acid,  which,  if  that  phmt  is  .small,  it  can  probably  take  for  awhile. 

Mr.  McKenzie.  The  cost  of  plant  No.  2  is  something  like  $67,000,000,  I  believe? 
Doctor  Parsons.  $69,000,000,  and  a  little  over. 

Mr.  McKenzie.  Are  you  familiar  with  the  so-called  Alabama  Power  Uo's 
offer? 

Doctor  Parsons.  I  have  not  read  it;  but  I  have  heard  just  about  this:  That 
the  offer  comprises  an  offer  to  complete  the  dam  without  cost  to  the  (iovem- 


1144 


MUSCLE  SHOALS  PROPOSITIONS. 


MUSCLE  SHOAI.S  PROPOSITIONS. 


1145 


W^' 


Co.'s  offer 
have  that 


W 


nit'iit.  on  i\  50-year  basis,  and  that  they  are  to  give  the  Government  100,000 
horsepower.  Beyond  that  I  Iiave  no  knowledge  of  the  offer.  I  have  not  read 
it ;  I  do  not  know  a  single  officer  of  the  Alabama  Power  Co.  personally,  and  I 
do  not  know  any  of  them  by  sight,  except  Mr.  Martin,  and  I  would  not  have 
known  him  except  that  he  happened  to  stand  up  and  answer  a  question  on  the 
day  that  Mr.  Swann's  testimony  was  given,  just  before  Mr.  Swann  testified. 

Mr.  McKenzie.  You  understand  that  under  that  offer  the  Government  retains 
these  two  plants,  No.  1  and  No.  2? 
Doctor  Parsons.  Yes,  sir. 

Mr.  McKenzie.  Did  you  hear  Mr.  Martin's  testimony,  in  which  he  stated 
that  they  have  been  approached  or  had  some  information  that  certain  companies 
would  be  willing  to  take  over  these  plants  and  operate ;  when  he  was  questioned 
as  to  whether  the  Government  would  be  at  a  great  disadvantage? 

Doctor  Parsons.  I  did  not  hear  his  testimony.  I  did  not  know  he  made  that 
statement.     I  have  not  read  his  testimony. 

Mr.  McKenzie.  I  think  it  is  true  that  he  made  the  statement  substantially  as 
I  have  put  it  in  the  record.  According  to  your  testimony  you  look  upon 
I)lant  No.  2  as  merely  junk  and  think  that  it  is  absolutely  worthless  so  far  as 
a  manufacturing,  going  plant  is  concerned. 

Doctor  Parsons.  Yes  on  the  last  statement:  no  on  your  first  statement.  I 
think  plant  No.  2  should  be  left  for  some  time  until  we  have  our  commercial 
plnnts  in  the  country  prepared  to  turn  out  nitrogen;  in  view  of  possible 
emergency  plant  No.  2  should  be  kept  available  for  the  production  of  raw 
material  for  explosives.    I  think  that  very  strongly. 

^Ir.  McKexzie.  But  it  is  your  contention,  however,  that  it  would  be  impos- 
sible for  any  company  to  undertake  to  successfullv  manufacture  nitrates  at 
that  plant? 

Doctor  Parsons.  That  is  very  strongly  my  opinion ;  yes,  sir. 

Mr.  M(  Kenzie.  Then,  as  a  matter  of  fact,  if  the  Alabanui  Power 
should  be  accei>ted  you  think  that  the  Government  would  simply 
plant  standing  there  without  ever  being  operated  at  all. 

D<.ctor  Parsons.  I  think  so,  unless  they  might  possibly  operate  it  for  cal- 
cium carbide.  You  might  possibly  do  that,  which  would  enable  vou  to  pay 
all  th<'  expenses  in  connection  therewith.  That  is.  a  certain  amount' of  calcium 
carbide  would  be  taken  in  the  South  for  the  manufacture  of  acetj^lene  "-as 
for  autogenous  welding.  For  that  purpose  you  might  utilize  that  plant  and 
have  it  pay  for  its  upkeep. 

Mr.  McKenzie.  But  do  not  operate  it  as  a  plant  for  fertilizer  production 

Doctor  Parsons.  1  think  the  other  hundred  thousand  horsepower  should  be 
used,  and  could  be  used  to  very  great  advantage:  I  think  it  might  be  used  in 
the  electrolysis  of  water,  which  would  help  plant  No.  1  to  obtain  the  hydrogen 

There  is  a  little  calculation  I  have  made  showing  what  interest  it  might  be 
possible  to  obtain  from  the  hundred  thousand  hor.sepi)wer  which  is  unques- 
tionably salable  by  the  Government.  The  estimates  which  the  Ordnance  De- 
partment put  in  are  based  on  three-quarters  of  a  mill  per  kilowatt  hour  If 
you  sell  that  horsepower  for  three-quarters  of  a  mill  on  the  average  it  amounts 
to  $607,000  a  year,  and  if  you  take  that  $657,000  a  year  and  put  it  in  a  sinking 
fund  as  the  smaller  sum  which  Mr.  Ford  offers  is  suggested  to  be  put  into  a 
sinking  fund,  that  $657,000.  in  94  years  at  4  per  cent  compounded,  as  given 

iV^Vl^T^*1''•^''!,^^'vf  '^^'^'  "^^^^  ^^  ^^"«1  ^«  $676,572,030,  instead  of 

{*>40.000,000,  which  the  other  one  would  amount  to  on  exactly  the  same  basis 

At  5  per  cent  interest  it  would  be  over  $1,200,000,000. 

Mr.  McKenzie.  You  have  in  mind  the  offer  of  the  Alabama  Power  Co  ^ 
Doctor  Parsons.  No;  I  have  in  mind  the  question  of  the  sale  of  lOo'ooo 

horsepower.     I  do  not  care  whether  the  Alabama  Power  Co.  sells  it  or  anybody 

^^?V    ^?'^^'^"  ^^'^  '^'  *^"^  ^  ^^'""^  ^^  '^  perfectly  salable  at  that  figure. 

^(^^^^  V^'  ^^^  ^^^^ba»"a  ^oxvev  Co.  only  offers  to  give  to  the  Government 

100,000  secondary  horsepower. 

Doctor  Parsons  I  am  talking  about  the  first  secondary  horsepower.  In  the 
testimony  before  the  sundry  civil  .subcommittee  of  the  Committee  on  Appropria 
tions  in  February.  1921,  Colonel  Cooper  estimatetl  secondarv  horsepower  at  1  ^ 
mills,  and  the  primary  horsepower  at  4.4  mills,  and  I  am  putting  this  at  three" 
quarters  of  a  mill.  I  say  I  think  you  would  have  no  difficultv  in  selling  it  at 
that  price.  *  *  il  ^t 

Mr.  McKenzie.  You  have  given  us  some  startling  figures  in  connection  with 
this  proposition.    What  do  you  say  it  would  cost  the  Government,  or  Mr  Ford 
or  anyone  else,  to  transform  plant  No.  2  from  a  cvanamid  plant' 


Doctor  Parsons.  Plant  No.  2  can  not  be  transformed  without  transforming  it 
from  the  ground  up,  or  building  a  new  one,  or  transferring  it  from  the  ground 
on  which  it  stands  and  building  a  new  one. 

Mr.  McKenzie.  How  does  it  injure  the  ground. 

Doctor  Parsons.  The  plant  is  not  prepared  for  it.  There  are  a  few  things  in 
it  which  could  be  used ;  for  example,  the  power  line,  and  a  small  portion  of  the 
liquid-air  plant,  and  one  or  two  minor  things  might  be  used  in  the  Haber  process 
later,  but  the  furnace  building  can't  be,  nor  would  there  be  any  use  for  the  auto- 
clave plant  or  the  cyanamid  plant.  The  ammonium  nitrate  plant  could  be  used 
the  same  as  at  plant  No.  1  for  the  production  of  ammonium  nitrate.  I  think, 
furthermore,  that  anyone  purchasing  plant  No.  1  should  eliminate  from  plant 
No.  1  every  particle  of  machinery  with  vi^hich  the  General  Chemical  Co.  de- 
signed, so  that  they  couhl  get  rid  of  any  possible  lawsuits  or  difficulties. 

Mr.  McKenzie.  How  much  did  you  say  it  would  cost  to  change  plant  No.  1  so 
it  would  be  an  up-to-date  plant  for  the  manufacture  of  this  product  under  the 
modified  Haber  process? 

Doctor  Parsons.  I  believe  plant  No.  1  can  be  converted  into  a  plant  which 
would  opei'ate  successfully,  perhaps,  on  a  30-ton  basis,  the  original  basis  of  the 
plant,  for  between  one  and  a  half  and  two  million  dollars. 

Mr.  McKenzie.  I  want  to  ask  you  just  one  question  in  conclusion.  Are  we  to 
understand  that  if  we  accept  the  Ford  offer,  or  the  offer  of  the  Alabama  Power 
Co.,  that  the  Government  would  lose  this  $1,200,000,000? 

Doctor  Parsons.  I  have  not  said  the  Government  was  going  to  make  this 
money.  The  Government  is  not  in  the  habit  of  putting  its  money  in  a  sinking 
fund  and  keeping  it  for  94  years  and  compounding  it  semiannually,  as  the  plan 
proposed  in  the  Ford  offer  would  do.  according  to  the  statement  prepared  by  the 
Secretary  of  War.  I  simply  said  that  there  was  a  comparison ;  Mr.  Ford  has 
spoken  of  a  sinking  fund  of  $40,000  annually  on  Dam  No.  2.  Here  is  another 
sinking  fund,  identically  parallel,  of  $657,000  incurred  annually  from  Dam  No.  2, 
which,  if  you  do  the  same  thing  with  it,  would  amount  to  that  money  in  that 
time.    But  I  do  not  think  the  Government  is  going  to  do  it. 

Mr.  McKenzie.  If  w^e  got  the  power,  then  we  could  sell  the  power  and  keep 
the  fund  together  that  length  of  time,  putting  all  those  things  together:  that  is 
what  it  would  amount  to? 

Doctor  Parsons.  It  would  amount  to  that,  taken  exactly  from  the  Secretary 
of  War's  figures.  If  you  take  that  figure  of  $19,868,  counting  it  for  94  years, 
as  given  by  him,  it  amounts  to  $40,919,798,  and  you  will  find  by  division  that  $1 
.semiannually  in  94  years  amounts  to  $2,059.58.  If  you  multiply  one-half  of 
$657,000  by  that  figure,  you  will  get  the  figure  I  gave  you,  $676,572,a^>0,  and  the 
figures  are  right,  because  I  had  somebody  else  check  them,  and  I  know  they  are 
right. 

Mr.  McKenzie.  We  are  very  much  obliged  to  you  for  the  testimony  you  have 
given  us,  and  the  committee  will  now  stand  adjourned,  subject  to  the  call  of 
the  chairman. 

(Thereupon  the  committee  adjourned,  subject  to  the  call  of  the  chairman.) 


MUSCLE  SHOALS  PROPOSITIONS. 


1147 


Appendix  A. 


Mr.  Cooper  is  an  associate  of  Stone  &  Webster  (Inc.)  as  vice  president  and 
a  director  of  the  Mississippi  Ri^-er  Power  Co.,  which  sells  power  to  St.  Louis, 
East  St.  Louis,  Hannibal,  Alton,  Quincy,  Burlington,  Fort  Madison,  Keokuk, 
and  adjacent  territory.    It  is  one  of  the  largest  hydroelectric  plants  in  the  world. 

Other  Stone  &  Webster  Co.  (Inc.)  properties  are:  Baton  Rouge  Electric  Co.; 
Blackstone  Valley  Gas  &  Electric  Co. ;  Cape  Breton  Electric  Co.  (Ltd.)  :  Central 
Mississippi  Valley  electric  properties ;  Columbus  Electric  Co. :  Columbus  Power 
Co. ;  Columbus  Railroad  Co. ;  Connecticut  Power  Co. :  Dallas  Citv,  Illinois,  Light 
Co.;  Eastern  Texas  Electric  Co.;  Edison  ?:iectric  Illuminating  Co.,  Brockston  • 
Edison  Light  &  Power  Co.,  Abingdon  and  Rockland;  El  Paso  Electric  Co.;  Fall 
River  Gas  Works  Co. ;  Fort  Madison.  Iowa.  Electric  (^o. ;  Galveston  Electric  Co. ; 
Galveston,  Haston  Electric  Co. ;  Galveston.  Haston  Electric  Railwav  Co. ;  Haver- 
hill Gas  Light  Co.;  Houghton  County  Electric  Light  Co.:  Houghtcin  F]lec- 
tric  Traction  Co. ;  Key  West  Electric  Co. :  Lowell  Electric  Light  Corporation  • 
MiUerton  Electric  Light  Co. ;  Mississippi  River  Power  Co. ;  North  Texas  Elec- 
tric Co. ;  North  Texas  Traction  Co. ;  Nova  Scotia  Tramway  &  Power  Co  ( Ltd  )  • 
Pacific  Northwest  Traction  Co. ;  Paducah  Electric  Co. ;  Pawtucket  Gas  (^o ' 
New  Jersey;  Ponce  Electric  Co.;  Public  Service  Investment  Co.;  Puget  Sound 
Electric  Railway;  Puget  Sound  Interurban  Railwav  &  Power  Co  •  Puget 
Sound  Power  «&  Light  Co. ;  Reno  Power,  Light  &  Water  Co. :  Savannah  Electric 
Co.;  Savannah  Power  Co.;  Sierra  Pacific  Electric  Co.;  Svdnev  &  Glace  Bay 
Railway  Co.  (Ltd.)  ;  Tacoma  Railway  &  Power  Co.;  Tampa  Electric  Co  •  Tar- 
rant County  Traction  Co.;  and  Trucker  River  General  EIectn<'  Co. 


Appendix  B. 


Copy  of  Proposed  Amended  Contract  for  Completion  and  Lease  op  Muscle 

Shoals  by  Frederick  E.  Engstrum. 

THE    engstrum   PROPOSAL  TO   LEASE   MUSCLE   SHOALS. 

War  Department, 
Washington,  February  24,  1922. 
Dear  Mr.  Speaker:  I  inclose  herewith  an  offer  for  the  Muscle  Shoals  properties 
submitted  by  Frederick  E.  Engstrum  which  I  think  should  be  considered  in  con- 
nection with  the  investigations  now  being  made  by  Congress. 

John  W.  Weeks, 
mi     o  TT  ^  Secretary  of  War. 

Ihe  bPEAKER  OF  THE  HOUSE  OF  REPRESENTATIVES. 


Ame7ided  Form  of  Proposed  Contract  for  Completion  and  Lease  of  Muscle  Shoals  Project 

,  by  Frederick  E.  Engstrum. 

fOmit  the  words  struck  through  and  insert  the  words  printed  in  italics.] 


1.  Parties.— Memoranda  of  contract  made  this day  of 


1922,  by  and 


between  the  Government  of  the  United  States,  partv  of  the  first  part,  and  hereinafter 
referred  to  as  the  Government,  and  Frederick  E.  Engstrum,  of  the  city  of  Washington, 
D.  C. ,  for  and  in  behalf  of  a  corporation  to  be  formed  by  him  to  carrv  out  the  provisions 
of  this  contract  and  to  be  governed  by  a  board  of  seven  directors,'  one  to  be  selected 
by  the  Secretary  of  War,  one  by  the  Secretary  of  Agriculture,  and  the  remaining  five 
by  proponent,  party  of  the  second  part,  and  hereinafter  referred  to  as  the  lessee. 

2.  Lease.— The  lessee  hereby  leases  all  the  property— real,  personal,  or  mixed— 
now  owned  or  hereafter  acquired  by  the  Government  in  connection  with  or  forming 
1146 


part  of,  or  the  pooocooion,  use, — eonotructie«— t«ai«4€flaflee7-epefft4iefl7  or  extension 
of  the  Muscle  Shoals  project,  or  any  part  or  appurtenance  thereof,  including  excluding 
the  steam  plant,  located  at  Gorgas,  Ala.,  on  the  Warrior  River,  together  with,  bjit  in- 
cluding the  transmission  lines  from  said  plant  to  Muscle  Shoals  for  use  at  present  location 
or  elsewhere  as  uMl  best  serve  the  purposes  of  this  lease.  Said  property  is  included  or 
intended  to  be  included  in  the  maps,  deeds,  descriptions,  invoices,  lists,  and  schedules 
furnished  to  the  lessee  by  the  Government  and  receipted  for  and  such  maps,  deeds, 
de3criptions,  invoices,  lists,  and  schedules,  together  \vith  receipts  for  same,  herein- 
after referred  to  as  the  schedule,  shall  be  a  part  of  this  agreement  and  shall  bind  both 
parties  as  truly  as  if  they  were  written  herein. 

3.  TeIrm. — This  lease  is  to  continue  in  full  force  for  a  period  of  50  years  from  date 
the  lessee  acquires  possession  of  the  property.  The  lessee  shall  return  said  property 
at  the  termination  of  this  lease  to  the  Government  in  good  operating  condition,  subject 
to  damage  beyond  fault  or  control  of  the  lessee. 

4.  Plans  and  Specifications. — It  is  mutually  agreed  by  both  the  Government 
and  the  lessee  that,  for  and  in  consideration  of  the  lease,  construction,  operation, 
rights,  privileges,  payments,  and  other  considerations  hereinafter  mentioned  or 
otherwise  provided  for  in  this  agreement,  that  the  lessee  will  construct  Dam  No.  2, 
power  station,  steam  plant  No.  2  to  a  capacity  of  90,000  K.  W.  and  steam  plant  No.  1 
to  a  capacity  of  10,000  K.  W.  and  such  other  structures  now  under  construction  or  agreed 
to  be  constructed  at  Muscle  Shoals,  on  the  Tennessee  River,  in  the  State  of  Ala- 
bama, and  hereinafter  referred  to  as  the  "Property,"  as  are  set  forth  and  described 
more  particularly  in  the  maps,  plans,  specifications,  photographs,  and  other  engi- 
neering data  (hereinafter  referred  to  as  the  plans),  copies  of  which  have  been  delivered 
to  lessee  and  duly  receipted  for  by  lessee,  and  such  plans  thus  receipted  for  are  hereby 
made  an  essential  part  of  this  contract  and  are  as  binding  on  both  parties  as  if  they 
were  fully  set  forth  and  written  herein.  When  the  Government  shall  require  the 
construction  of  Dam  No.  3,  for  which  there  are  no  complete  engineering  plans,  the 
lessee  agrees  and  is  to  build  the  same  on  plans  and  specifications  to  be  prepared  by  the 
Government  and  on  a  location  to  be  approved  by  the  Government,  and  the  Icnocc 
will  ■lease  the-  same  under  the  terms  of  -this  contract.  Lessee  also  agrees  to  build,  at 
dam  No.  3,  another  nitrate  plant,  of  the  most  improved  process,  by  plans  and  specifications 
submitted  to  and  approved  by  the  Secretary  of  War  and  the  Secretary  of  Agriculture,  which 
plant  shall  hare  the  sam^  relative  output  capacity  to  the  power  to  be  generated  at  dam  Ao. 
S,  as  is  the  combined  capacity  of  nitrate  plants  Nos.  1  and  2  to  the  power  to  be  generated 
at  dam  N^o.  2:  other  dams  and  nitrate  plants,  which  may  be  built,  to  conform  to  the  same 
terms. 

5.  Locks  or  Lifts. — It  is  further  agreed  that  the  lessee  will  construct  for  the  Gov- 
ernment the  locks  or  lifts  for  the  purpose  of  maintaining  na\igation  over  the  dam  or 
dams  to  be  constructed  at  Muscle  Shoals. 

6.  Manufacfure  of  Nwrat^s^: — The-lessee-egfees-te-e^efate-tfee-fiitrate-f Iffi^pT 
now  a  part  of  the  property  (whieh-ha¥e-a«-es^fB^4ed-eftpaei4y-ef-4£€-;€€€-4t'efe-yei' 

'  into  that-iftay-hcrcinftftef--b€-fe«ilt7-te-flS£««fa€4«f  e 
tds  or  mij{^t«fe8-and-e€«F.plete-l€rtiligei'e-ae-gf  jpy6¥€^-ty-4fee 

fri   mm    iij  i  uiiiiiiLiii  u  u|.»iiMin)ii  ui   ui it,  pinTiTTfTitTtiTiciic^ttir 

after  it  acquirer  pogtjcgsion,  and  ao  soon  ap  auffieient  pewer-is-generated-by-the-hydfe- 
olcotric  plants  belonging  to  the  property,  it  will  opera4e-at-l«fi-eafiaeity-all-4hf-f  leBte 
that  can  be  operated  from  the  rceci^o  of  the  oalc  of  the  fcrtilii^er  eompe^ndeT-tegefhef 
with  the  rcocipto  from  onc-fl^l-j^ei^kilewaH-hetty^-ffefls-eale-ef-aH-ffewef-gfj^trfiteft 

6.  Manufacture  of  Nitrates. — When  the  two  nitrate  plants,  now  a  part  of  the 
property,  which  plants  have  an  estimated  capacity  of  120,000  tons  of  ammonium  nitrate  per 
annum,  have  been  redesigned  and  reconstructed  as  herein  provided  to  manufacture  such 
nitrates  as  are  needed  for  commercial  fertilizers,  fertilizer  compounds  or  mixtures  as  ap- 
proved by  the  Secretary  of  Agriculture,  the  lessee  agrees  to  operate  said  plants  under  the 
following  conditions:  As  soon  as  adequate  hydro-electric  power,  generated  at  dam  No.  2 
becomes  available,  lessee  will  commence  to  operate  both  plants  and  will  continue  .mch 
operation  to  the  capacity  they  can  be  operated,  after  deducting  operating  expenses,  from 
the  receipts  of  the  sale  of: 

(a)  Nitrates  and  fertilizer  compounds, 

(b)  Seventy- five  per  cent  of  all  marketable  by-products  not  required  for  the  manufacture 

of  nitrates  or  fertilizer  compounds, 

(c)  66  2-3%  of  all  power  generated  in  excess  of  that  required  to  operate  the  plants,  which 

is  sold  by  lessee  either  to  itself  or  to  other  parties,  provided  that  the  price  at  which 
power,  if  any,  is  sold  to  lessee  is  subject  to  approval  by  the  Secretary  of  War. 
The  term  ''Operating  expenses^'  as  used  herein  shall  be  undir stood  to  include  the  neces- 
sary and  legitimate  expenses  for  the  proper  operation  of  the  entire  plant  for  the  purpose* 


I 


\ 


1148 


MUSCLE   SHOALS  PROPOSITIONS. 


MUSCLE  SHOALS  PROPOSITIONS. 


1149 


set  forth  in  this  agreement,  including  maintenance,  alteration,  repairs  and  replacements 
but  not  including  the  salaries  of  officers,  directors,  general  manager,  supervising  engineer 
and  counsel  fees  of  the  operating  company,  the  lessee. 

When  additional  dams  and  nitrate  plants  shall  have  been  built,  they  shall  be  operated 
by  the  lessee  under  the  same  terms,  except  that  the  percentage  of  receipts  from  the  excess 
power  sold  from  such  dam  or  dams,  which  is  to  be  turned  into  the  fund  for  the  operating 
ojsuch  plants  or  to  be  paid  into  the  treasury,  as  the  case  mxiy  be,  shall  be  15%  thereof  instead 
oj  66  2-3%  of  such  power  from  Dam  No.  2  {as  provided  in  subparagraph  (c)  above)  and 
shall  be  in  addition  thereto. 

7  Alterations  of  Nitrate  Plants.— It  is  also  agreed  that  the  lessee  will  make 
such  alterations,  additions,  or  changes  in  the  nitrate  plants  as  may  be  required  to 
produce  the  nitrates  or  other  fertilizer  compounds  approved  by  the  Secretary  of 
Agriculture,  and  to  be  completed  within  the  time  required  to  produce  hydro-electric 
power  at  Dam  No.  2.  After  the  plants  have  been  put  in  operation  under  this  lease 
the  lessee  shall  make  such  additions  or  changes,  from  time  to  time,  as  may  be  necessary 
to  produce  the  required  fertilizer  or  fertilizer  compounds  approved  by' the  Secretary 
of  Agriculture,  and  such  changes  and  the  coot  of  producing  Gomplctc  fcrtiliBcrs,  are 
^9  Y^  ^^^  ^  ^^  operating  charge,  from  the  fundo  on  hand  derived  from  the  ottle 
of  fcrtihacf  compoundo,  and  the  power  not  required  te-epefftt€-4he-pJafi4T 

8  Plans  of  Alterations.— It  is  agreed  that  the  lessee  will  furnish  the  Secretary 
of  VN  ar  copies  of  the  plans  and  specifications  of  the  proposed  changes  to  be  made  in 
the  nitrate  plants  to  fit  them  to  produce  the  nitrates  and  fertilizer  compounds  approved 
by  the  Secretary  of  Agriculture.  Such  alterations  are  to  be  so  designed  as  to  keep  the 
mtrate  plant  No.  2  m  condition  to  produce  explosive  compounds  with  the  least  delav 
and  expense. 

9.  Research.— The  lessee  agrees  to  maintain  and  operate  a  research  department 
in  cooperation  with  the  Agriculture  Department  of  the  Government,  for  the  purpose 
01  developing  the  processes  for  the  fixation  of  atmospheric  nitrogen,  the  cost  of  research 
work  to  be  charged  to  operating  expenses  of  the  plant. 

10.  Construction.— Lessee  agrees  to  begin  construction  within  60  dayo  from  the 
a  reasonable  time  after  it  is  given  possession  of  the  property  and  to  continue  such 
construction  m  a  diligent,  business,  and  workmanlike  manner  until  all  construction 
work  pro\ided  for  under  this  contract  shall  be  completed,  according  to  terms  herein- 
aftef  set  forth,  mthin  three  jears  from  the  time  of  possession,  reasonable  extension  of 
time  to  be  granted  for  delays  over  which  the  lessee  has  no  control. 

11  Changes.— It  is  further  agreed  that  at  any  time  during  the  construction,  if, 
in  the  opinion  of  either  party  herein,  the  structures  pro\-ided  for  in  the  plans  have 
become,  or  are  liable  to  become  weak,  dangerous,  uncertain,  or  inefficient,  they  may 
request  changes,  extensions,  or  additions  to  be  made  in  the  plans  for  the  purpose  of 
increasing  the  strength,  stability,  duty,  endurance,  or  efficiency  of  the  dams,  locks 
power  stations,  or  other  structures  to  be  built  by  lessee  under  pro^•isions  of  this  con- 
tract, such  changes,  extensions,  or  additions  shall  be  submitted  to  the  engineer  repre- 
senting the  other  party  and  to  the  surety  company  furnishing  the  bond  of  the  lessee, 
and  if  such  changes,  extensions,  or  additions  shall  be  approved  by  the  engineer  repre- 
senting the  other  party  and  the  surety  company  thev  are  to  become  a  part  of  this 
contract  and  become  as  binding  on  both  parties,  and  the  bonds  of  the  lessee  as  if 
originally  written  herein. 

12.  Arbitration.— It  is  also  provided  that,  in  event  a  request  of  either  party  for 
changes,  extensions,  or  additions  in  the  plans  for  any  of  the  purposes  set  forth  in  the 
foregoing  paragraph  of  this  contract  has  been  approved  by  the  suretv  on  the  bond  of 
the  lessee,  and  has  not  been  approved  by  the  engineer  representing*^ the  other  party, 
then  the  questions  of  endurance  or  strength  of  such  material  or  members  as  can  be 
determined  by  physical  test  shall  be  submitted  to  the  United  States  Bureau  of  Stand- 
ards for  final  determination,  and  all  questions  as  to  the  effect  of  the  proposed  changes 
extensions,  or  additions  upon  the  increase  of  strength,  stabilitv,  duty,  endurance,' 
or  eflSciency  of  the  dams,  locks,  power  stations,  or  other  structures  to  be  built  under 
this  agreement,  the  plans  for  the  changes  as  requested  shall  be  submitted  to  the  engi- 
neering faculty,  or  such  members  thereof  who  will  undertake  the  work,  of  one  or 
both  of  the  follo^^•ing-named  universities  or  schools  of  technologv:    Massachusetts 
Institute  of  Technology,  (Cambridge.  Mass.;  Cornell  University,  Ithaca,  N.  Y.;  and 
the  report  of  such  faculty  or  faculties,  if  submitted  to  more  than  one,  together  with  the 
report  of  the  Bureau  of  Standards,  shall  be  final,  and  if  such  report  of  the  Bureau  of 
Standards  and  faculties  of  technical  schools,  mentioned  herein,  show  that  the  pro- 
posed changes,  extensions,  or  additions,  will  materially  increase  the  strength,  stability, 
duty,  endurance,  or  efficiency  of  the  structures  affected  bv  the  changes,  extensions, 
or  additions,  then  such  changes,  extensions,  or  additions  shall  become  a  part  of  the 
working  plans  of  this  contract,  the  same  as  if  they  were  originally  written  herein, 
or  had  been  approved  by  the  engineers  of  both  parties  and  the  surety  bond. 


13.  C'osTS  OF  Tests. — It  is  also  understood  and  agreed  that  the  cost  of  testing, 
consulting,  or  other  expenses  caused  by  the  request  for  changCH  in  the  plans,  as  pro- 
vided for,  shall  be  a  part  of  the  construction  cost  provided  herein. 

14.  Representatives. — It  is  understood  and  agreed  that  during  the  time  of  con- 
struction that  both  parties  hereto  shall  designate  an  engineer  to  represent  them  on  the 
work  and  the  acts  of  such  engineer  shall  be  binding  as  to  the  party  designating  him 
as  a  representative. 

15.  Investment. — It  i.=!  agreed  that  the  lessee  will  not  be  required  to  invest  in  the 
manufacture  of  nitrates  or  other  fertilizer  compounds  any  money,  other  than  that 
received  from  the  oalc  of  the  products  of  thc-»ityate-f3laB46-^j«e-^ffiiH-f€f-jtiJfc^a44- 
hour  received  from  the  sale  of  power  in  cxcooo  of  that  required  to  op€fa4€-4h€-pI«»t 
sources  enumerated  in  paragraph  6.  The  lessee  agrees,  however,  to  advance  all  the  money 
that  may  be  necessary  for  '^operating  expenses^'  until  sufficient  funds  are  received  from  the 
sources  enumerated  in  paragraph  6;  the  said  money  so  advanced  to  be  reimbursed  as  soon 
as  practicable. 

16.  Sale  of  Products. — It  is  further  agreed  that  the  lessee  will  sell  all  fertiligcf 
nitrates  and  fertilizer  compounds  produced  by  the  plant  at  prices  and  on  conditions 
and  t«rms  approved  by  the  Secretary  of  Agriculture,  and  also  will  sell  all  by-products 
not  required  in  the  manufacture  of  fertilizer  compounds,  for  which  there  is  a  market,  arid 
all  excess  power  for  which  there  is  a  market:  it  being  understood  and  agreed  that  primary 
power  may  be  sold  and  the  nitrate  plants  may  be  operated  by  secondary  power  to  the  extent 
that  the  same  can  be  done  to  assure  the  best  financial  returns  for  the  operation  oJ  the  plant 
and  to  produce  a  maximum  of  nitrates  and  fertilizers  under  this  contract. 

17.  Additional  Plants. — It  is  further  agreed  that  in  event  the  development  of 
power  for  use  and  sale  from  this  plant,  together  with  the  receipts  from  the  sale  of 
products,  should  be  insufficient  to  proiluce  the  amount  of  fertilizer  compounds  re- 
quired to  supply  the  demands,  the  lessee  agrees  to  construct,  under  the  terms  of  this 
s^reement,  other  power  plants  or  storage  reservoirs,  upon  sites  owned  by  the  Gov- 
ernment and  selected  by  the  Secretary  of  War  and  itself,  said  plants  or  storage  reser- 
voirs to  be  constructed  and  operated  under  the  general  terms  of  this  agreement  for  the 
purpose  of  enabling  it  to  provide  the  fertilizer  compounds  to  meet  growing  needs. 

18.  PnoFiTO  FROM  NiTRATEQ. — It  is  afee-ferthef-agyeed-thftt-^rhen  nitratee-eag-be 
made  at  a  profit  or  when  the  coot  of  the  Qamc-ha6--b€€BHge-f€dge€d-4fea4-4h€-f^iflds 
ariDing  from  the  oalc  of  cxccna  power  aftd-feftiligef-eefBpewfids-afe-Be^-flfedfd-ifi-^heJe 
or  in  part  for  financing  Bueh-pfedtterieas-as-hei-eiB-pfevidcdT-tfee-eaid-itijR^e-^hall-tfe 
paid  by  the  Icooce  into  the  Treaoury  of  the  United-^tatesr 

18.  Profits  from  Nitrates. — It  is  further  agreed  that  when  nitrates  for  fertilizers  and 
fertilizer  compounds  can  be  made  at  a  profit,  or  when  the  cost  of  the  same  has  been  so  reduced 

that  the  funds  arising  from  the  sources  enumerated  in  paragraph  ti  are  not  needed  in  whole, 
or  in  part,  for  financing  such  productions  as  herein  stated,  the  said  funds,  not  needed  Jor 
operating  expenses,  sliall  be  paid  by  the  lessee  into  the  Treasury  of  the  United  States. 
When  said  funds  paid  into  the  Treasury  shall  be  in  excess  of  the  amount  received  from  sale 
of  excess  power  as  described  in  pragraph  6,  it  is  understood  and  agreed  that  during  the 
period  such  conditions  exist,  fertili-.ers  are  made  at  a  corresponding  profit  and  the  lessee 
shall  be  entitled  to  twenty -five  per  cent  of  such  profit. 

19.  Consideration. — In  consideration  of  the  performance  of  the  foregoing  proposals 
and  conditions  the  Government  shall  agree  to  pay  to  the  lessee  the  coot  plus  5  per  cent 
eifor  the  completion  of  Dam  No.  2,  the  initial  alterations  of  nitrate  plant.s  No.  I  and 
No.  2,  ftftd  the  completion  of  the  locks  at  Dam  No.  2,  the  completion  oj  steam  plant 
No.  1  to  a  capacity  oJ  10,000  K.  W.  and  steam  plant  No.  2  to  a  capacity  of  90,000  K.  W. 
and,  when  required  by  the  Government,  to  build  for  the  building  of  Dam  Xo.  3  and 
nitrate  plant  No.  S  and  the  locks  at  Dam  No.  3  and  additional  dams  and  nitrate  plants 
and  storage  reservoirs,  the  actual  cost  of  the  same,  respecttively ,  togetfier  wi*h  a  fee  oJ  five 
per  cent  on  such  cost  in  each  case,  on  the  aame  tcrmo,  in  monthly  payments,  as  per 
estimates  of  the  engineers  upon  schedules  of  work  performed.  The  cost  in  each  case 
18  to  be  deterniined  by  the  lowest  responsible  bid  resulting  from  a  pubhc  offer  by  lessee 
and  by  the  contract  awarded  by  lessee  to  such  bidder  subject  to  approval  by  the 
Secretary  of  War.  It  is  understood  and  agreed,  however,  tha*  if  the  Government  shall 
decide  to  finish  dam  No.  2,  that  lessee  will  accept  a  lease  subject  to  tfiat  modifi.cation  of 
this  proposal. 

20.  Payments. — It  is  agreed  herein  that  the  engineers  representing  the  Govern- 
ment and  lessee  wiH  sfiall  on  the  first  of  each  month  furnish  the  lessee  and  the  Secretary 
of  War  an  estimate  of  the  work  performed  and  a  statement  of  the  amount  earned  by  it 
lessee  during  the  preceding  month. 

21.  Stores,  Stock,  and  Equipment. — All  stores,  supplies,  equipment,  including 
engineers'  supplies,  files  and  instruments,  and  other  loose  personal  property  now  on 
or  about  the  premises,  whether  or  not  required  for  construction  purposes*  but  not 


I) 


I 

I 


1150 


MU.S(^LE   SHOALS   PROPOSITIONS. 


MUSCLE    SHOALS    PROPOSITIONS. 


1151 


idiii*;  Hubsiatence  stores,  shall  })ecome  the  property  of  the  lessee  upon  the  execu- 
01  this  contrart. 


inclii 
tion 


It  io  further  ngrce<J-4hftt-«g-a-f.af4-eMfe€-€€tFfffifati<-fi-lef 
the  pcrtormanec  ot  thio  oontraot  the  lees€e-w4»-i-etfti«-the-pr6€€€de-ly^»-4h€-e«J€-eJh 
power  not  required  io  0)K'nt4^4he-^aft4-CT-pJaBtPra«<^-i€fJ<g-ef-lJf4F;-fe=v€f-f.£^-«t€^e 
the  1  mill  per  kilowatt  hour  reqwyed46f-jifla«ejfig-the-f fed^etif f-ef-ffitijjgef-tfg)- 
poundo^  or  to  be  paid  into  the  UBite4-S4a4€P-^rea6^fy-ae-g€44erth-jfl-4hie-agf€eift€fi^ 

22.  Compensation.— It  is  further  agreed  that  as  compensation  for  the  performance  of 
this  contract  the  lessee  shall  retain: 

(a)  The  proceeds  from  the  sale  of  .S3  1-3%  of  excess  power  from  Dam  No.  2  not  required 
to  operate  the  plant  or  plants,  and  locks  or  lifts;  the  other  66  2-3%  to  he  con- 
tributed for  operating  expenses  as  provided  in  paragraph  6;  and,  when  Dam  No.  3 
is  built,  the  proceeds  from  the  sale  of  25%  of  excess  power  from  Dam  No.  3  not 
required  to  operate  nitrate  plant  No.  3  and  loch  or  lifts  at  Dam  No.  3,  the  other 
7,5%  to  be  contributed  toward  the  operating  expenses  as  provided  in  paragraph  6; 
the  saine  percentage  last  above  named,  to  apply  to  all  other  dams  and  nitrate 
plants  that  may  be  built  hereunder. 

(h)  The  proceeds  from  the  sale  of  twenty-five  per  cent  of  all  by-products  for  which  there 
shall  be  a  market  and  not  required  in  the  manufacture  of  fertilizer  compounds  or 
mixtures;  the  other  seventy-five  per  cent  to  be  contributed  toward  operating  ex- 
pends as  provided  in  paragraph  6. 

(r)  Twenty-five  per  cent  of  the  profits  on  the  manufacture  of  fertilizer  compounds  if 
and  when  the  same  shall  be  made  at  a  profit  as  provided/or  in  paragraph  18;  the 
other  seventy-five  per  cent  to  be  contributed  toward  operating  expenses  as  provided 
in  paragraph  6. 

23.  Power  for  Locks.— The  lessee  agrees  to  furnish  to  the  Government,  free  of 
charge,  all  power  recjuired  to  operate  the  locks  or  lifts  which  are  to  be  operated  by  the 
Government. 

24.  Emergency  Provision.— The  lessee  agrees  to  place  the  property  or  any  part 
thereof,  at  the  disposal  of  the  Government  in  the  event  of  war  or  any  other  public 
emergency,  or  to  operate  the  same  for  the  Government  to  manufacture  nitrates,  ex- 
plosives, or  munitions  of  war  or  for  other  purposes  necessary  for  the  safety  of  the 
United  States,  as  the  Government  may  require. 

25.  Bond— The  lessee  agrees  to  protect  the  Government  for  the  full  and  faithful 
performances  of  the  contract  by  giving  a  good  and  sufficient  suretA^  bond,  to  be  ap- 
proved by  the  Government. 

2(3.  Inspection.— It  is  agreed  that  the  Government  experts,  inspectors,  and  ac- 
countants can,  at  all  reasonable  times,  examine  the  books,  papers,  accounti^,  meters, 
and  such  other  accessories  of  the  plant  necessary  to  satisfy  them  whether  or  not  the 
lessee  is  executing  this  contract  in  good  faith. 

27.  Repairs.— It  is  also  agreed  that  should  the  foundation  of  Dam  No.  2  be  found 
defective  or  show  excessive  leakage,  the  Government  will  pay  to  the  lessee  the  expense 
of  the  necessary  repairs,  including  a  reasonable  allowance  for  overhead. 

28.  Proposal  Divisible. —  The  above  proposals  are  submitted  for  acceptance  in  whole 
or  in  part  «,s  provided  in  section  JU  hereof  Upon  acceptance  it  shall  be  binding  upon  the 
Government,  and  the  lessee,  its  successors  and  assigns;  and  all  contracts,  leases,  and  other 
instruments  necessary  or  appropriate  to  effectuate  the  purpose  of  this  proposal  as  accepted 
shall  be  duly  e.recuted  and  delivered  by  the  respective  parties  above  mentioned. 

In  witness  whereof,  the  United  States  of  America  has  caused  these  presents  to  be 
2xecuted  by  the  Secretary  of  War,  pursuant  to  the  authority  conferred  upon  him  by 

act  of  Congress,  approved  the day  of ,  1922,  entitled  "An  act  to  provide  for 

the  lease  and  completion  of  Muscle  Shoals  and  other  purposes, "  and  the  said  Fre(lerick 
E.  Engstrum  has  set  his  hand  on  the  day  and  year  first  herein  above  set  forth. 

United  States  of  America, 

By ,  Secretary  of  War. 

Frederick  E.  Engstrum. 


Washington,  D.  ('.,  April  17,  1922. 
Hon.  Julius  Kahn, 

Chairman  House  Committee  on  Military  Affairs. 

My  Dear  Mr.  (^hairman:  I  beg  to  submit  herewith  an  amended  form  of  proposed 
contract  for  completion  and  lease  of  Muscle  Shoals  project  by  Frederick  E.  Engstrum. 
The  parts  to  be  omitted  are  struck  through  and  the  parts  inserted  are  in  italic. 

This  amended  proposal  is  submitted  partly  to  clear  up  points  that  were  brought 
out  by  questions  of  members  of  the  committee  during  the  hearing  before  the  House 


committee  and  partly  as  the  result  of  a  personal  inspection  made  by  Mr.  Engstrum  of 
the  various  properties  pertaining  to  the  Muscle  Shoals  project. 

It  is  beUevea  that  tne  amended  proposal  will  clear  up  many  points  about  which 
there  seemed  to  be  doubt  in  the  minds  of  members  of  the  committee,  and  also,  it  is 
believed,  that  the  changes  made  will  all  result  in  advantages  to  the  Government. 
The  material  amendments  are  as  follows: 

Paragraph  2:  The  Warrior  steam  plant  is  eliminated.  The  inspection  of  the  prop- 
erty indicates  that  this  plant  is  so  intimately  interwoven  with  the  Alabama  Power 
Co.  plant  that  it  really  forms  an  integral  part  of  that  plant  and  probably  can  not  be 
separated  therefrom  without  seriously  interfering  with  its  efficient  operation. 

Paragraph  4:  Capacity  of  nitrate  plants  No.  1  and  No.  2  is  increased  by  5,000  kilo- 
watts and  30,000  kilowatts,  respectively.  Such  increase  becomes  necessary  to  replace 
power  lost  by  eliminating  the  Warrior  plant,  the  sales  value  of  which  is  reported  by 
the  Ordnance  Department  to  be  $3,000,000.  Plants  No.  1  and  No.  2  can  be  modified 
as  proposed,  it  is  estimated,  for  less  than  $1,500,000,  thus  saving  the  Government 
about  $1,500,000.  This  low  estimate  is  due  to  the  fact  that  steam  plant  No.  2  has 
boiler  inst;allation  now  for  90,000  kilowatts  and  electrical  installation  for  only  60,000 
kilowatts,  but  the  foundations  are  prepared  for  the  installation  of  90,000  additional 
kilowatts  electrical  power. 

Paragraph  4  also  provides  for  construction  of  nitrate  plants  at  other  dams  and  reser- 
voirs that  may  be  constructed  in  the  future;  such  new  plants  to  have  same  capacity 
ratio  to  power  produced  at  such  dams  as  is  the  ratio  of  plants  No.  1  and  No.  2  to  Dam 
No.  2. 

Paragraph  G:  This  paragraph  is  rewritten  and  materially  modified.  As  rewritten  it 
enumerates  clearly  and  definitely  the  sources  of  revenue  that  are  to  be  applied  by  the 
lessee  to  the  manufacture  of  nitrates,  etc.,  at  nitrate  plants  No.  1  and  No.  2.  It  defines 
what  is  understood  by  the  term  * '  operating  expenses  "  and  lays  down  definitel  y  the  policy 
under  which  nitrate  plants  are  to  be  operated,  if  and  when  additional  dams  and  nitrate 
plants  shall  have  been  constructed.  It  is  perhaps  pertinent  to  call  attention  to  the 
fact  that  under  paragraph  6  when  additional  dams  and  nitrate  plants  are  constructed 
the  lessee's  share  of  the  receipts  from  the  sale  of  excess  power,  generated  at  such  dams, 
will  be  reduced  from  33J  per  cent  to  25  per  cent.  This,  it  is  believed,  is  practicable, 
due  to  the  fact  that  lessee's  overhead  and  general  expenses  for  the  operation  of  such 
additional  plants  will  not  increase  in  the  same  proportion,  and,  consequently  this 
reduction  in  his  receipts  is  made. 

Paragraph  15:  The  addition  to  this  paragraph  is  a  specific  statement  that  the  lessee 
agrees  to  advance  the  necessary  funds  for  operating  expenses  until  the  funds  enumer- 
ated in  paragraph  6  shall  become  adequate  for  that  purpose. 

Paragraph  16:  The  material  addition  to  this  paragraph  provides  that  secondary 
power  may  be  used  to  operate  the  nitrate  plants  when  this  can  be  done  to  insure  the 
best  financial  terms  so  as  to  produce  the  maximum  amount  of  nitrates. 

Paragraph  18:  This  paragraph  provides  for  the  disposition  of  funds  received  from 
various  sources  enumerated  in  paragraph  6,  when  they  are  not  wholly  needed  for  the 
production  of  fertilizers,  etc.  It  also  defines  when  it  is  agreed  that  a  profit  is  made 
on  the  manufacture  of  fertilizers  at  the  price  fixed  by  the  Secretary  of  Agriculture, 
and  that  when  such  profit  is  made  that  the  lessee  shall  be  entitled  to  25  per  cent  of 
said  profit.  This  furnishes  a  motive  for  lessee  to  improve  to  the  utmost  the  processes 
of  manufacture  and  reduce  to  the  minimum  the  operating  expenses. 

Paragraph  19:  The  material  charge  in  this  paragraph  provides  that  in  case  the 
Government  should  so  elect  it  may  itself  finish  dam  No.  2  by  its  own  engineers,  and 
lessee  will  accept  the  lease  subject  to  that  modification. 

Para,graph  22:  This  para^aph  is  entirely  rewritten  as  a  result  of  the  modifications 
made  in  paragraph  6.  This  paragraph  provides  that  the  lessee  shall  retain  33 J  per 
cent  of  the  proceeds  received  from  tne  sale  of  all  power  not  required  to  operate  the 
nitrate  plant  or  plants  and  locks  or  lifts  generated  at  dam  No.  2  and  steam  plants 
No.  1  and  No.  2,  but  that  in  case  additional  dams  be  constructed  lessee  will  retain 
only  25  per  cent  of  the  proceeds  of  corresponding  sales  at  such  dams.  This  paragraph 
also  provides  that  lessee  shall  retain  25  per  cent  of  profits  of  the  sale  of  all  by-products, 
and  finally  in  case  a  profit  should  be  made  on  fertilizers,  under  the  provisions  laid 
down  in  paragraph  6,  he  shall  be  entitled  to  25  per  cent  of  such  profits.  It  should  be 
remarked  that  this  paragraph  is  complementary  to  paragraph  6,  and  should  be  inter- 
preted accordii^ly. 
Paragraph  28:  This  is  a  new  paragraph  and  is  self-explanatory. 
A  careful  reading  of  this  amended  proposal  is  requested,  because  one  of  the  main 
objects  in  making  the  amendments,  aside  from  clearness  and  definiteness,  has  been 
to  make  the  interests  of  the  lessee  parallel  with  the  interests  of  the  Government,  so 
that  he  shall  have  the  proper  motives  for  the  utmost  economy  in  operation  and  the 

92900—22 73 


1152 


MUSCLE   SHOALS  PROPOSITIONS. 


ereatast  efforts  in  improving  the  processes  for  fixation  of  nitrogen  and  for  the  pro- 
duction of  fertilizer  compounds.  It  has  also  been  attempted,  to  clarify  the  policy 
contained  in  this  proposal,  to  devote  all  available  sources  of  revenue  to  the  production 
of  fertilizers  at  reduced  prices  in  time  of  peace  and  to  have  the  plants  in  condition  to 
produce  nitrates  for  explosives,  with  the  least  possible  delay,  in  time  of  war  or  other 
emergencies;  and  this  proposal  makes  this  policy  applicable  to  the  whole  project, 
however  far  it  may  be  extended  in  future.  In  so  far  as  lessee  is  informed,  this  proposal 
is  the  only  one  submitted  which  guarantees  with  definite  provisions  that  sucn  policy 
shall  prevail. 
Respectfully  submitted. 

Frederick  E.  Engstrum. 


INDEX. 


Acts  of  Congress.     (See  Legislation.) 
Advantages  to  the  United  States : 

Under  Alabama  Power  Co.  proposal^  Page. 

Opinion  of  Mr.  Martin gjg 

Opinion  of  Secretary  of  War I "_  774-776 

Under  Engstrum  proposal — 

Statement  of  (Mr.  Butler) _    991-993 

Summary  of  (Mr.  Engstrum) "_I ""_  896  1146 

Under  Ford  proposal —  ' 

Comparison  of  present  and  first  proposals  of  Mr.  Ford  by  Sec- 
retary of  War g_8 

Opinion  of  Chief  of  Engineers I 20-21 

Opinion  of  Chief  of  Ordnance I **    19 

Opinion  of  Mr.  Worthington,  of  the  Tennessee  River  Improve- 
ment Association 384-385 

See  also  Estimates :  Savings  to  the  Government.  *    ' 

Agriculture,  Department  of: 

Statement  regarding  farmers,  fertilizer,  and  Ford  proposal 316 

Agriculture,  Secretary  of.     (See  Secretary  of  Agriculture.) 
Air  Nitrates  Corporation : 

Administrative  ofl5cer  of  the  Government  might  be  authorized  by  law 

to  make  a  binding  offer  to  (Mr.  Hammitt) 453 

Capitalization   (Mr.  Hammitt) ~~      443 

Claims  option  to  purchase  nitrate  plant  No.  2   ( Secretary  of  War's 
report) ^ 

Construction  of  nitrate  plant  No.  2  by.  under  contract  ( Secretarv  of 

War's    report) -, 

Contract  with — 

Acceptance  of  Alabama  Power  Co.  proposal  would  seem  not  to  in- 
terfere with  (letter  from  Secretary  of  War) 775-776 

Acceptance  of  Engstrum  proposal  would  not  interfere  with  (Mr. 

Butler) gjg 

Acceptance  of  Ford  offer  is  in  no  way  interfered  with  by  so- 
called  "  option  to  purchase  "  of  (Mr.  Alnion) 1  1008-1009 

Analysis  of  payments  by  the  Government  under  (Mr.  Miller  and 
Mr.  Hammitt) 468-473 

Aames  of  persons  who   conducted   negotiations  on   both   sides 

(letter  from  Mr.  Hammitt) 979 

Names  of  the  10  men  whose  services  were  delivered  to  the  Gov- 
ernment under   (Mr.  Hammitt) 495 

Text  of 135-144 

Text  of  first  contract  of  November  16,  1917 Z_  511-518 

When  plants  are  conveyed  to  Mr.  Ford's  company  that  company 
will  take  them  subject  to  existing  contract  with  the  Govern- 
ment regarding  operation  of  plants  and  payment  of  royalties 

(Mr.  Mayo) 93Q 

Contract  with,  legal  questions  involved  in — 

Mr.  Ford  will  not  bear  the  expense  of  any  litigation  that  the  Gov- 
ernment may  have  in  settling  any  agreement  (Mr.  Mayo) 987 

Nature  of  the  contract  and  the  amount  which  has  been  paid  by 
the  Government  to  this  company  clearly  shows  that  there  is 
not  even  a  moral  obligation  on  the  part  of  the  Government 
(Mr.  Almon) _ ^     1008,1009 

1153 


1154 


INDEX. 


INDEX. 


1155 


m\ 


Air  Nitrates  Corporation— Continued. 

Cbutraet  with,  etc.— Continued.  Page. 

Opinion  from  Judge  Advocate  General's  office 24 

Opinion  of  Major  Burns 238-239 

Statement  of  Mr.  Hammitt,  vice  president I 443-519 

(See  also  American  Cyanamid  Co.,  contract  with.) 
Cost-plus  fee  received — 

For  constructiuD  of  nitrate  plants  (Major  Burns) 226,232,238 

No  profit  made  for  construction  of  nitrate  plant  (Mr.  Hammitt).     ' 446 
Disbursing  officer  of  the  Government  in  connection  with  work  of 

(Mr.  Hammitt) 499 

Intercorporate  relations  with  Alabama  Power  Co.  (Mr.  Worthington)_      389 

No  connection  between  companies  (Mr.  Hammitt)—^ 448 

Intercorporate  relations  with  American  Cyanamid  Co.    (Mr.  Ham- 
mitt)    _      _  _    443  144 

Letter  of  March  2,  1922,  of  Mr.  Hammitt,  vice  president,  supplying 

certain  information  for  the  record,  text  of 969-970 

Organization  of — 

(Mr.  Kearns) 7g 

Process  of  (Mr.  Hammitt) I I__Z '_'__  505-506 

Owned  by  American  Cyanamid  Co 136 

Procedure  the  Government  might  follow  in  making  proposition  to  sell 

nitrate  plant  to  (Mr.  Hammitt) 491 

Royalties  for  process  of  (Mr.  Weeks) 44 

Statement  of  Mr.  Hammitt,  vice  president I~_  443-519 

Would  make  no  offer  for  nitrate  plant  No.  2  if  the  cTovemment  con- 
tinues to  hold  it,  unless  the  Government  provides  a  subsidy  (Mr 

Hammitt) 453.484 

{See  also  American  Cyanamid  Co.) 
Air  Reduction  CJo. : 

Royalties  payable  to — 

Mr.  Weeks 44^  47 

Table  showing Z_IIIZI      556 

Alabama  Farm  Bureau  Federation: 

Letter  of  February  17,  1922,  opposing  Alabama  Power  CJo.  proposal, 

text  of 574 

Alabama  law  exempts  companies  engaged  in  development  of  hydroSectrlc 

energy  for  10  years  (Mr.  Martin) 420 

Alabama  Power  Co. : 

Ability  of,  to  finance  its  proposal  (Mr.  Martin) 857-858 

Attitude  of  the  public  in  Alabama  toward  (Mr.  Martin) 1031-1038 

Banker  control  over,  by  Harris,  Forbes  &  Co.  or  Coffin  &  Burr  ex- 
plained  (Mr.  Frothingham) 957 

Capital  stock  of  (Mr.  Martin) IZI__I      740 

Charged  Government  6i  mills  per  kilowatt-hour  for  power  (Mr.  Mar- 
tin)       674-676 

Chronology    of   transactions    of    the    Ordnance    Department    with 

(Colonel  Joyes) 1087-108S 

Citations  of  mentions  of  or  allusions  to  loan  as  a  basis  of  additional 

facilities  Alabama  Power  Co.  system  (Colonel  Joyes) 1102 

Contract  with — 

Act  of  April  11,  1918,  authorizing  condemnation  of  land  for  mili- 
tary uses,  text  of  (Colonel  Joyes) 105] 

Advises  that  it  be  respected  and  enforced  (Colonel  Joyes) 1115 

Analysis  of  several  alternative  provisions  for  disposal  of  Gorgas- 

Warrior  steam  plant  (Colonel  Joyes) 1049-1050,1058-1060 

Approval  sheet  attached  to,  with  list  of  signatures — 

Colonel    Joyes 10(34 

Major    Booton 887-888 

Bulletin  issued  by  General  Goethals  bearing  upon    (Mr.  Mar- 
tin)   &48-640 

Character  of,  was  not  at  all  unprecedented  (Colonel  Joyes) 1004 

Citations  from  contracts  similar  to  (Colonel  Joyes) 1109-1112 

Date  of,  execution  of — 

Mr.    Dent 751-752,753 

.  Mr.  Mahoney  and  telegram  from  Colonel  Beames 703, 706 

Mr.    Martin 647,680-681 


Alabama  Power  Co. — Continued. 

Contract  with — Continued.  Page. 

Government  can  not  sell  Gorgas -Warrior  steam  plant  to  a  pur- 
chaser who  can  operate  it  except  Alabama  Power  Co.,  and 
if  Government  does  not  .sell  to  them  it  nnist  take  plant  off 

their  land  (Mr.  Miller  and  Mr.  Martin)   677  679 

Government's  hands  are  effectively  tied  by  (Mr.  McKenzIe) '664 

Legislation  authorizing  execution  of  (Mr.  Martin) 722-7*>3 

Letter  from  Acting  Chief  of  Ordnance  bearing  upon,  text  of  "    " 

(Colonel  Joyes)        1094-1095 

Letter  from  Colonel  Joyes  to  the  clearance  committee  requesting 
clearance  for  proposed  contract  for  electric  energy    etc     text 

of    ((^olonel   Joyes) !_____'_  1093-1094 

Letter   from   General  Goethals  bearing  upon,  text  of   (Colonel 

Joyes)         __ 1094-1095 

IMemorandum  m  re  instructions  for  disbursements  under  agency 

contracts  with  particular  reference  to,  text  of 717-718 

Memorandum  to  Procurement  Division  in  re  proposed  construc- 
tion and  operating  contract  with  Alabama  Power  Co.,  text  of 

(Colonel    Joyes) 1113-1115 

Not  executed  until   work  on   Gorgas- Warrior  steam   plant  had 

been  largely  completed   (Mr.  Martin) 647 

Orders  and  acceptances  under  which  the  work  proceded,  text  of 

(Colonel  Joyes) 1045-1048 

Outline  of,  in  re  Warrior  power 720-721 

Part  of  contract  drawn  up  by  Colonel  Williams  and  part  by  Ala- 
bama Power  Co.   (Mr.  Martin) I 666 

Profit  made  by  company,  contract  provisions  for  (Colonel  Hull)_      180 
Purpose  of  company  in  term  of  contract  relative  to  three-year 

postponment  of  sale  (Mr.  Oliver) 771 

Situation  which  led  up  to  (Colonel  Joyes) 1039-1049 

Suggested  basis  for,  for  power  for  Air  Nitrates  Corporation 

plant  at  Sheffield 709-710,729-730 

Suggestions  of  the  company  which  were  not  accepted  by  the 

Ordnance  Department  (Colonel  Joyes) \  1099-1101 

Summary  of  article  22  of  contract  (Major  Burns) 70 

Supplemental,  text  of 651-657 

Text   of 150-171 

Work  on  Gorgas-Warrior  steam  plant  largely  completed  before 

execution   of    (Mr.   Martin) 647 

Would  not  interfere  with  Engstrum  proposal  CMr.  Butler) 918 

Contract  with,  legal  action  involved  in — 

Action  by  Government  which  would  test  construction   (Colonel 

Hull) 203 

Article  22  of  contract  is  not  a  binding  agreement  on  part  of 

Government  (Mr.  Oliver) 760 

Claims  of  Alabama-  Power  Co.  would  not  involve  three  or  four 
years  of  litigation  if  Congress  should  by  vote  accept  offer  of 
Mr.    Ford   and   direct   condemnation  •of   Gorgas   plant    (Mr. 

Oliver) 999 

Dent  Act  has  been  fully  met  and  complied  with  and  is  not  ap- 
plicable to  contract   (Mr.  Oliver) 774 

Discussion  of  legal  phases  of  (Mr.  Oliver) 764-774,83^-836 

Government  plant  practically  part  of  plant  of  Alabama  Power 

Co.   (Major  Burns) 209-210 

If  Congress  declares  property  of  company  is  necessary  for  public 
use  and  condemns  same,  the  company  has  right  to  contest  that 

question  in  the  courts  (Mr.  Dent) 817-822 

If  Congress  should  cause  Gorgas-Warrior  steam  plant  to  be  con- 
demned and  taken  over,  the  necessity  for  thus  taking  it  over 

could  not  arise  in  any  court  (Mr.  Oliver) 765 

General  statement  on   legal   rights  of  the  company   under   its 

contract   (Mr.  Dent) 742-764,816-833 

Legislation  bearing  upon   (Mr.  Dent) 749-752 

Mr.  Engstrum's  proposal  does  not  involve  any  litigation  in  con- 
nection with— his  offer  is  the  use  of  the  Gorgas  plant  under  a 
lease  that  would  come  within  the  contract  the  Government 
has  with  them   (Mr.  Butler) 914-915 


1 
}\ 


1156 


INDEX. 


INDEX. 


1157 


Alabama  Power  Co. — Continued. 

Contract  with,  etc. — Continued.  Page. 
Mr.  Ford  would  not  be  willing  to  take  over  any  legal  work  in 
reference  to  segregating  the  Government's  rights  under  exist- 
ing contract   (Mr.  Mayo) 979,987-988 

National  defense  act — 

Contract  not  governed  by  (Mr.  Dent) 747-748 

Ordnance  Department  did  not  make  contract  with  Alabama 

Power  Co.  under  authority  of  (Mr.  Martin) 723-724,732 

(See  also  Alabama  Power  Co. :  Gorgas- Warrior  steam  plant. ) 

Opinion  from  Judge  Advocate  General's  Office 24,  25 

Opinion  of — 

Chief   of   Ordnance 18,19,69,90 

Colonel  Hull 177,194-195,203 

Major  Burns 212,225-229 

November  16,  1921,  of  Acting  Judge  Advocate  General 132-134 

Plan  was  that  contract  provide  that  the  United  States  would,  if 
permitted  by  law,  sell  Warrior  extension  to  the  company  on 

its  demand   (Mr.  Martin) 644 

Secretary  of  War  on  August  31,  1918,  issued  Bulletin  No.  50, 
relating  to  act  of  July  9,  1918,  on  sale  of  war  supplies  (Major 

Booton) 886 

Supply  Bulletin  No.  13,  of  August  3,  1918,  on  contract  provisions 
regarding  increased  manufacturing  facilities,  text  of  (Major 

Booton) 886-887 

Would  not  be  held  binding  on  United  States  by  any  court  (Mr. 

Quin) 295 

Damages  payable  to,   for  land,   would  probably   be  high    (Major 

Burns) 213 

Damages  payable  to,  might  amount  to  about  $4,000,000  (Mr.  Dent)--      748 

Dates  partial  payments  of  fee  were  made  to  (Mr.  Martin) 708 

Denounced  by  resolution  adopted  at  a  mass  meeting  of  5,(X)0  citizens 

of  Alabama   (Mr.  Oliver) 994-996 

Discussion  as  to  whether  the  $17,000,000  the  Government  has  put  into 
the  dam  will  be  absorbed  and  used  by  (Mr.  Miller  and  Mr.  Fro- 

thingham) 953-954 

Donated  abutment  sites  valued  at  $500,000  to  Government  for  Dam 

No.  2  in  1918  (Mr.  Martin) 669-671,698-699 

Gorgas-Warrior  steam  plant — 

Acts  of  May  10  and  July  9,  1918,  conferred  no  authority  for 

Government  to  sell  such  property  as  (Mr,  Oliver) 765-767,  770 

Company  paid  the  Government  $77,211.61  during  year  1921  for 

use  of  (Mr.  Martin) 683 

Company  received  $285,000  for  constructing  (Mr.  Martin) 663 

Company  understood  clearly  that  there  was  no  law  under  which 

the  United  States  could  agree  to  selk  to  it  (Mr.  Martin) 644 

Constructed  by  company  under  contract  (Secretary  of  War's  re- 
port)    5 

Every  dollar  spent  by  Government  on  plant  is  on  property  of  Ala- 
bama Power  Co.   (Mr.  Martin) 679 

Government  has  vested  right  to  acquire,  by  condemnation,  in- 
terests of  company  in   (Mr.  Quin) 695-69*» 

Indivisible  and  incapable  of  physical  division  from  plant  of  com- 
pany .(Mr.  Martin) 676-677,688 

Investment  and  expenses  in  connection  with,  amounted  to  $1,- 

016.515.61  (Mr.  Martin) •     65<) 

Investment  of  company  in  plant  compared  with  investment  of 

the  Government  (Mr.  Martin  and  Mr.  Miller) __  666-667, 673-674,  67i> 
Legislation  giving  authority  to  executive  branch  of  Government 

to  sell  such  property  as,  text  of  (Mr.  Martin) 64r> 

National  defense  act  had  no  connection  whatever  with  construc- 
tion of  (Colonel  Joyes) 105:> 

National  defense  act,  plant  was  provided  for  in  (Mr.  Almon)__  741-742 
Not  necessary  for  Mr.  Ford  to  have,  or  the  property  that  belongs 
to  the  Alabama  Power  Co.,  in  order  to  operate  his  project 
(Colonel  Joyes) 1075 


Alabama  Power  Co. — Continued. 

Gorgas-Warrior  steam  plant — Continued.  Pag«. 

Operated,  maintained,  and  insured  at  expense  of  company  (Mr. 
Martin) 673-674 

Ordnance  Department  has  absolute  right  to  sell  plant  to  com- 
pany without  reporting  to  Congress  (Mr.  Dent) 752,761 

Should  be  sold  to  company  (Major  Burns) 211 

Suggested  basis  for  lease  or  purchase  of  proposed  plant,  text  of, 

dated  December  19,  1917 714 

(See  also  Gorgas-Warrior  steam  plant.) 

Graham  report  on,  was  based  on  an  error  (Mr.  Martin) 1031 

Has  assisted  and  encouraged  the  Federal  Phosphorus  Co.,  but  that 

company  is  entirely  independent  (Mr.  Swann) 436 

History  of  (Mr.  Martin) 641-642,1027-1029 

If  Congress  should  direct  condemnation  of  only  a  part  of  land  of,  it 

would  destroy  usefulness  of  entire  plant  (Mr.  Martin) 1031 

If  this  company  should  secure  Muscle  Shoals  there  would  be  formed  a 
combination  of  interests  of  water  power  and  fertilizer  with  power 

for  evil  without  limit  (Mr.  Almon) 1010 

Intercorporate  relations  with  Air  Nitrates  Corporation  (Mr.  Worth- 

ington) 388-389 

No  connection  between  companies  (Mr.  Hammitt)-J 448 

Intercorporate  relations  with  American  Cyanamid  Co. — 

At  one  time  intercorporate  relations  were  very  close  (Mr.  Worth- 

ington) 389 

No  connection  between  companies  (Mr.  Hammitt) 448,486 

Is  in  the  business  of  making  electricity  for  general  use  and  for  need- 
ful service  (Mr.  Frothingham) 949 

Letter  of  April  2, 1921,  from  Gen.  L.  H.  Beach  to  the  company  inviting 

suggestions  in  regard  to  the  Muscle  Shoals  dam  project,  text  of 789 

Letter  of  May  28,  1921,  to  General  Beach  giving  suggestions  in  regard 
to  Muscle  Shoals  dam  project — 

Comment  on  (General  Beach) 99     k 

Text  of 38-40,790-792 

Letter  of  June  18,  1921,  from  General  Beach  to  the  company,  text  of _      796 

Letter  of  November  6, 1917,  to  Col.  J.  W.  Joyes,  text  of 1041 

Letter  of  February  18,  1918,  donating  land  at  Muscle  Shoals  to  the 

Government,  text  of 670 

Letter  of  February  20,  1918,  to,  from  Secretary  of  War  accepting 

donation  of  land,  text  of 670, 671 

Letter  of  May  24,  1919,  to  Col.  J.  W.  Joyes,  text  of 656-657 

Letter  of  July  14,  1921,  to  General  Beach,  text  of 797 

Letters  between  Ordnance  Department  and  Alabama  Power  Co.  per- 
taining to  construction  of  Gorgas- Warrier  steam  plant  and  trans- 
mission line,  which  led  up  to  the  contract  between  this  company 

and  the  Government,  text  of 709-722 

Letters  of  December  7,  1917,  from  Ordnance  Department  giving  the 
company  orders  to  construct  transmission  line,  furnish  power  to 
Sheffield,  and  to  construct  the  Gorgas-Warrior  steam  plant  (Mr. 

Martin) ■_ 730-732 

Memorandum  of  conference  of  December  8,  1917,  between  the  com- 
pany and  the  Ordnance  Department,  text  of 712-713 

Mr.  Mitchell,  president  of  the  company,  and  his  associates  acquired 
stock  of  Muscle  Shoals  Hydro-Electric  Power  Co.  in  1912    (Mr. 

Martin) 779 

Mr.  Mitchell,  president  of  the  company,  and  his  associates  took  over 
Birmingham,    Montgomery,    and    Gulf    Power    Co.    in    1912    (Mr. 

Martin) 730 

Monopoly  alleged — 

If  company  acquires  Muscle  Shoals  project  it  will  have  a  com- 
plete monopoly   (Mr.  McDuffle) 1023 

Statement  showing  this  untrue  (Mr.  Frothingham) 949-050 

National  defense  act- 
Company  was  responsible  for  the  proviso  that  was  put  in  section 
124  of  (Mr.  Oliver) lOOl 


i 


1158 


INDEX. 


Alabama  Power  Co. — Continued. 

Ownership  of —  Page. 

Financed  entirely  in  America  to  the  extent  of  about  $23,000,000 

since  1914   (Mr.  Martin) 641 

Is   controlled    by   Canadian    corporation  but    stockholdings   are 

largely  held  in  America   (Mr.  Martin) 726,738,740-741,851,860 

Millions  of  dollars  of  capital  were  found  abroad  for  developing 

first  project  of  company  (Mr.  Martin) 641 

Owned   by   Alabama   Traction,   Light   &   Power   Co.    (Ltd.)    of 
Canada,  an  alien  corporation,  citizens  of  Great  Britain   (Mr. 

Quin)   294 

Probably  controlled  by  Canadian  company,  organized  under  laws 

of  Alabama   (Mr.  Worthington) 361-362 

Securities  of,  approximately  35  or  40  per  cent  now  held  abroad 

(Mr.    Martin) 642 

Stockholdings  (Mr.  Martin) 738 

Owns  abutment  sites  and  flowage  lands  at  proposed  Dam  No.  3,  which 

Government  would  construct  under  Ford  offer  (Mr.  Martin) 669, 

684-685 
Paid  between  $40,000  to  $50,000  for  additional  right  of  way  acquired 

for  transmission  line  (Mr.  Martin) 684 

Prices  received  for  power  sold  by  (Mr.  Martin) 665 

Proposal  of.     (See  Proposal  of  Alabama  Power  Co.) 
Rates  charged  by,  for   hydroelectric   power   supplied  to   large   con- 
sumers from  1917  to  1921,  inclusive,  table  showing  (Mr.  Martin)  __  681-682 
Service  now  rendered  by,  to  customers  and  municipalities  (statement 

of   company) 777 

Statement  of — 

Mr.  Dent,  attorney  for 640 

Mr.  Mahoney,  commercial  manager 703-706 

Mr.  Martin,  president 640-702, 

706-741,  762,  774-816,  837-885,  946,  1027-1038 
Mr.  Martin,  president,  in  answer  to  statements  made  before  Mili- 
tary Affairs  Committee  of  the  House  of  Representatives  on 

March  8,  1922 1027-1038 

Stockholders  of  (Mr.  Martin) 690 

Mr.  Washburn  was  stockholder,  is  not  now  (Mr.  Martin) 643 

Table  showing  rates  for  electric  current  sold  by,  at  Huntsville,  Ala., 

in  effect  January  1.  1922  (Mr.  Worthington) 363 

Value  of  plant  of,  estimate  of  (Major  Bums) 217 

Washburn,  Frank  S.,  was  president  of,  from  1913  to  1915,  continued 

as  director  of  until  1916  (Mr.  Martin) 684,  687 

Would  not  be  injured  by  the  development  of  cheap  power  for  sale  by 
Mr.  Ford.     The  public  would  be  greatly  injured   (Mr.  Frothing- 

ham) 057 

Alabama  public  utility  act.  text  of  pertinent  sections 55-56 

Alabama  Traction,  Light  &  Power  Co.  (Ltd.)  owns  the  common  stock  of 
Alabama  Power  Co. — about  52  per  cent  of  Alabama  Traction,  Light  & 
Power  Co.  stock  is  held  in  this  country  and  Canada  and  48  per  cent  in 

other  countries  (Mr.  Martin) 690 

Almon,  Hon.  Edward  B.,  Representative  in  Congress  from  Alabama,  state- 
ment  741-742,  1002-1018 

Aluminum,  for  present  manufacture  of  Ford  cars — amount  of  horsepower 

necessary  (Mr.  Cooper) 429 

Amalgamated    Phosphate    Co.,    intercoporate    relations    with    American 

Cyanamid  Co.  (Mr.  Hammitt) 504 

American  Agricultural  Chemical  Co.,  large  company  producing  fertilizer, 

stock  of  (Mr.  Weeks) 29 

American  Aluminum  Co.,  intercorporate  relations  with  American  Cyan- 
amid Co. — no  connection  between  companies  (Mr.  Hammitt) 505 

American  Cyanamid  Co. : 

Assets  and  liabilities,  statement  of  (Mr.  Hammitt) 465-466 

Capital  stock  of  (Mr.  Hammitt) i 504 

Chronology    of    transactions    of    the    Ordnance    Department    with 

(Colonel  Joyes) 1087-1088 


INDEX. 


1159 


American  Cyanamid  Co. — Continued. 

Contract  with —  Page. 
Contract  of  this  character  ought  to  be  void  on  the  ground  of  pub- 
lic policy  (Mr,  McKenzie) 453 

Hughes,  Mr.  Charles  Evans,  acted  as  counsel  in  connection  with 

protection  article  of  contract  (Mr.  Hammitt) 445, 

451^52, 474,  488,  501 
Law  firm  of  Sullivan  &  Cromwell  represented  company  in  con- 
tract matters   (Mr.  Hammitt) 488,501 

Names  of  persons   who  conducted   negotiations   on  both   sides 

(letter  from  Mn  Hammitt) 970 

No  profit  made  from  (Mr.  Hammitt) 446 

Reasons  for  protection  of  stockholders  in  agreement  (Mr.  Ham- 
mitt)         445 

Summary  of  protection  granted  (Mr.  Hammitt) 446 

Text  of 135-144, 144-150 

When  plants  are  conveyed  to  Mr.  Ford's  company,  that  com- 
pany will  take  them  subject  to  existing  contract  with  the  Gov- 
ernment regarding  operation  of  plants  and  payment  of  royal- 
ties (Mr.  Mayo) qqq 

Contract  with,  legal  questions  involved  in — 

National  defense  act,  relation  to  (Mr.  Hammitt) 447,448,460 

Opinion  from  Judge  Advocate  General's  OfRco. 25 

Opinion  of  Chief  of  Ordnance 18, 19 

Statement  of  Mr.  Hammitt,  vice  president 443-519 

Wants  to   avoid   determination   of  legal   obligation   in   the 

courts   (Mr.  Hammitt) 447 

(See  also  Air  Nitrates  Corporation:  Contract  with.) 

Cyananrid,  amount  of,  sold  in  year  (Mr.  Hammitt) 518-^19 

Dividends  paid,  statement  of  (Mr.  Hammitt) 445 

Home  office  of  (Mr.  Hammitt) 485 

Intercorporate  relations  with  Air  Nitrates  Corporation   (Mr.  Ham- 
mitt)   443-^44 

Intercorporate  relations  with  Alabama  Power  Co. — 

At  one  time  intercorporate  relations  were  very  close  (Mr.  Worth- 
ington)       389 

No  connection  between  companies  (Mr.  Hammitt) 448,486 

Intercorporate  relations  with — 

Amalgamated  Phosphate  Co.   (Mr.  Hammitt) 504 

American  Aluminum  Co.,  no  connection  between  companies  (Mr. 

Hammitt) 505 

Central  Georgia  Power  Co.,  no  connection  between  companies 

(Mr.  Hammitt) 4gQ 

Columbus  Power  Co.,   no  connection  between   companies    (Mr. 

Hammitt) 435     , 

Georgia  Railway  &  Power  Co.,  no  connection  between  companies 

(Mr.    Hammitt) 4^5 

Owl  Fumigating  Corporation  (Mr.  Hammitt) 504 

Tennessee   Power  Co.,  no  connection  between   companies    (Mr. 

Hammitt) 4S6 

License  agreement — 

Amounts  payable  under  (Mr.  Parker  and  Mr.  Hammitt) 479-480 

Text    of 144-150 

Monopoly  of  (Mr.  Hammitt) 451^52,503 

Operations  of  (Mr.  Worthington) 389 

Ownership  of,  per  cent  of  capital  owned  in  foreign  countries   (Mr. 

Hammitt) 505 

Owns  Air  Nitrates  Corporation 136 

Patents  of — 

Government  has  no  authority  to  grant  a  license  for  use  of,  to 

a  lessee  of  nitrate  plant  No.  2  (Mr.  Hammitt) 503 

List  of 149-150 

Principal  ones  will  expire  in  1932  (Mr.  Hammitt) 478 

Products  of  (Mr,  Hammitt) 518-519 


1160 


INDEX. 


INDEX. 


1161 


American  Cyanamid  Co.— Continued. 

Royalties —  p 

Mr.    Weeks ^^ 

Payable  to,  if  Mr.  Ford's  offer  is  accepted  (Mr.  Miller  and ~Mr! 

Hammitt) 477-479 

Payable  to,  table  showing __"  _~_  ~_  55Q 

Securities  of,  have  been  handled  by  Sperling  &  Co.,  of"London'(Mr' 
Hammitt) _  _        _  ^gg 

Statement  of  Mr.  Hammitt,  representative  of  the~company"II_III~443-5i9 

Stockholders,  leading,  of  (Mr.  Hammitt) 4^7 

Stockholdings  of  Mr.  Duke  and  Virginia-Carolina  Chemical  Co    (Mr 
Hammitt) 4^7  ^gg  5^3 

Stockholdings  of  Mr.  Duke,  president  of"  Southern  Power  Co.,  are  24    ' 

per  cent  of  stock  of  (Mr.  Bower) 623 

Stockholdings  of  Virginia-Carolina  Chemical  Co.  are  26  per  cent  of 

stock  of  (Mr.  Bower) _      523 

{See  also  Air  Nitrates  Corporation.) 
American  Farm  Bureau  Federation : 

Authorized  to  designate  candidates  for  a  board  to  control  price  and 

distribution  of  fertilizer  products,  text  of  Ford  proposals 12, 16 

Indorses  Ford  proposal,  reasons  stated  (Mr.  Bower) 615-638 

Legal  successors  of,  discussion  of  (Mr.  Silver) 575-576,613-614 

Letter  of  January  9,  1922,  suggesting  Muscle  Shoals  bond  issue,  text 

of ___  569-570 

Letter  of  February  7,  1922,  and  resolutions  indorsing  Ford  offer,  text 

of ^ 41_42 

Organization  of  (Mr.  Silver) 609 

Report  of  its  Muscle  Shoals  committee,  text  of 544-567 

Resolutions  indorsing  Ford  proposal,  text  of  (Mr.  Silver) 542-543 

Statement  of  Mr.  Bower,  assistant  in  Washington  office 615-638 

Statement  of  Mr.  Silver,  Washington  representative 542-615 

Ammonia : 

Cost  of  production  of,  in  by-product  coke  ovens  (Mr.  Bower) 620 

Explanation  of  how  it  is  turned  into  explosives  (Doctor  Parsons)—    1135 
For  fertilizer,  less  used  in  United  States  last  year  than  in  Germany, 

England,  France,  and  Italy  (Mr.  Butler) 990 

Sources  of  (Doctor  Whitney) 347 

Ammonium  nitrate: 

Description  of  making  (report  of  Muscle  Shoals  committee  of  Ameri- 
can Farm  Bureau  Federation) 547-548 

Discussion  of  nitrogen  compounds  and  of  fertilizer   (Doctor  Whit- 
ney)   322-349 

Estimated  cost  to  manufacture  (Major  General  Williams) 82 

Gives   good    results   when   used    as   a    fertilizer    (letter    of    Doctor 

Whitney) 337 

Of  no  use  for  national  defense  without  products  of  other  plants  which 

have  been   scrapped    (Mr.   Hammitt) 484 

Table  showing  detailed  estimate  of  cost  of  sulphate  of  ammonia  and 
nitrate  of  ammonia  at  United  States  nitrate  plant  No.  2  (Major 

General  Williams) 97 

Table  showing  manufacturing  cost  of.  at  United  States  nitrate  plant 

No.    2 553 

(Sec  also  Nitrogen  compounds.) 
Ammonium  sulphate : 

Analysis  of  statistics  of  production  for  1918  ( report  of  Muscle  Shoals 

committee  of  American  Farm  Bureau  Federation) 550 

Approximate  price  to-day  is  around  .$50  a  ton  (Doctor  Parsons) ___    1122 
Cost  of  production  of,  at  Muscle  Shoals,  would  be  from  30  to  50  per 

cent  more  than  present  wholesale  market  price  (Mr.  Hammitt)—      456 
Cost  of  production  of,  by  Mr.  Ford,  estimate  of   (Major  Burns)  __      216 
Description  of  making  (report  of  Muscle  Shoals  committee  of  Ameri- 
can Farm  Bureau  Federation) _    547-548 

Discussion  of  (Major  General  Williams) I "II~_"      81-82 

Discussion  of  nitrogen  compounds  and  of  fertilizer   (Doctor  Wlirt" 

ney) _  322-349 

Duty  of  $12  a  ton  on,  in  tariff  bill,  obtained  by  by-product  coke-oven 
interests  (Mr.  Bower) _' _       _      621-622 


Ammonium  sulphate — Continued.  Page. 

Duty  on,  quotation  from  an  argument  for,  prepared  by  the  Koppers 

Co.,  of  Pittsburgh  (Mr.  Bower) C19 

Is  a  by-t)roduct  with  a  preferential  first  market  for  the  ammonia 

liquors  before  farmer  gets  any  for  fertilizer  (Mr.  Bower) 621 

Not  needed  for  fertilizer  (opinion  of  Doctor  Whitney) 333-334 

Overproduced  in  this  country  at  present  (Mr.  MacDowell) 526 

Quantities  necessary  annually  to  replace  nitrogen  tak^n  from  soil  by 

grain  crops  (Mr.  Bower) 618 

Table  showing  detailed  estimate  of  cost  of  sulphate  of  ammonia  and 
nitrate  of  ammonia  at  United  States  nitrate  plant  No.  2   (Major 

General  Williams) 97 

Table  showing  estimate  of  results  of  operation  by  Government  of 
United  States  nitrate  plant  No.  2  for  period  of  6  years  (Major  Gen- 
eral   Williams) 84-85 

Table  showing  manufacturing  cost  of,  at  United  States  nitrate  plant 

No.  2 554 

Total   actual  production  of,  in  1920,  as  fertilizer   ingredient    (Mr. 

Bower) 621 

Use  of  nitrate  plant  No.  2  to  manufacture,  could  not  show  a  profit 

(Mr.  Hammitt) 463 

(See  also  Nitrogen   compounds.) 
Ammonium  sulphate  plant: 

Capital  necessary  to  convert  nitrate  plant  No.  2  into,  estimated  at 

$3,000,000   (Major  Burns) 209,220 

Amortization.      (See  Sinking  fund.) 

Appendix  A.  Stone  &  Webster  (Inc.)  hydroelectric  plants 1146 

Appendix  B.  Copy  of  proposed  amended  contract  by  Frederick  E.  Eng- 

strum , 1146 

Applications : 

Under  Federal  water  power  act,  limited  to  three  years  (section  5) 

(Mr.   Worthington) 380-3x1 

Appropriation : 

For  completion  of  work  on  Dam  No.  2;  question  was  raised  as  to 

whether  it  was  subject  to  a  point  of  order  (Mr.  Almon) 742 

Necessary,  if  Mr.  Ford's  proposal  is  accepted,  $40,000,000  to  $50,000.- 

000  (Secretary  of  War's  report) 8 

None  needed,  under  proposal  of  Alabama  Power  Co.  (Mr.  Martin) 812 

Appropriations : 

Use  of,  in  Muscle  Shoals  construction  (Colonel  Hull) 198-199 

Arc  process: 

Description  of  (Mr.  Mayo) 251 

Description   of    (Report  of  Muscle  Shoals  committee  of  American 

Farm  Bureau  Federation) 559 

Ashcraft,  Hon.  C.  W.: 

Resolutions  introduced  by,  text  of 1015-1017 

Automobiles : 

It  would  take  about  250,000  horsepower  to  make  all  the  aluminum 

necessary  for  the  present  manufacture  of  Ford  cars  (Mr.  Cooper).      429 
Mr.  Ford  can  make,  at  Muscle  Shoals  with  greater  profit  than  at 

Detroit   (Mr  Butler) 992 

Nitrate  plant  No.  1  to  be  used  for  manufacturing  parts  (Mr.  Mayo) 258 

Baekeland,  Dr.  L.  H. : 

Statement  before  Senate  Committee  on  Agriculture  and  Forestry  re-  - 
garding  cost  of  manufacture  of  nitrogen  fertilizer  (]^Ir.  Bower) __      619 
Balance  sheet: 

Government,  at  Muscle  Shoals  during  first  six  years  of  Ford  lease 

of  Dam  No.  2  (Mr.  Mayo) 301 

Government,  of  Muscle  Shoals  during  construction  and  for  first  six 

years  under  Ford  proposal  (Mr.  Mayo) 248 

Of  two  largest  fertilizer  companies  shows  a  loss  of  above  $20,000,000 

last  year  (Mr.  Swann) 436 

Bankhead,  Hon.  William  B..  Representative  in  Congress  from  Alabama; 

statement 1018-1020 

Reach,  Maj.  Gen.  Lansing  H.,  Chief  of  Engineers : 

Analysis  of  Ford  proposal 19-21 

Statement 98-131 

(See  also  Engineers,  Chief  of.) 


I 


1162 


INDEX. 


Beam^,  Col.  C.  F. :  p^g,^ 

Kepresented  Ordnance  Department  in  making  contracts 648 

Birmingham,  Montgomery  &  Gulf  Power  Co. :  Taken  over  by  Mr.  Mitchell 
president  of  the  Alabama  Power  Co.,  and  his  associates  in  1912  (Mr' 
Martm) ^      •      -^ 

Board  to  control  fertilizer  products:  ~  ~ 

Text  of  Ford  proposals _      ^2  ig 

Bond^^^  "^*^  ^'^^^^  questions  involved:  Fertilizer ~products,~board~ to  control.) 

Z?.,^^J^^^^  "°^^^  Engstrum  proposal,  text  of  proposal 899 

Will  be  given  for  the  faithful  performance  of  evervthiug  Mr   Eng- 
strum's  corporation  agrees  to  do  as  lessee,  and  is  to  be  approved  bv 

the  Goveniment   (Mr.  Butler) 915  gon  qo-i  004  nor 

Bond  issues  by  the  Government :                                                   '       '       '  J^4-jj& 
For  Muscle  Shoals  proposition- 
Farmers  would  subscribe  to  (opinion  of  Mr.  Shaw) 573-574  582 

Letter    from    American    Farm    Bureau    Federation    suggesting,     ' 

text    or RfiQ    KTfl 

For  payment  of  construction  of  dams;  could  "be  "issued"  in"  blocks  at 

4  per  cent  (Mr.  Mayo) 272  980 

Booton,  Maj.  John  G.,  in  charge  of  contract  section,  Ordnance  Depart- 
ment,   statement 885-889 

Bonder,  R.  F.,  assistant  in  Washington  office  of  American  Farm" Bureau 
Federation : 

Statement 615-638 

Statements  of,  on  February  15,  1921,  before  House  Committee  on 
Appropriations  regarding  use  of  secondary  power  for  manufacture 

of  nitrates  (Mr.  Martin) Rni-«nft 

British  Nitrate  Commission :  "  ^^ 

Quotations  from  report  of — 

Mr.    Bower ^19^25 

Mr.  Silver 557^558 

Reference  to  report  of  (Mr.  Worthington)___^ I 364-365 

Burns,  Maj.  James  H.,  Ordnance  Department,  statement 70-71  207-240 

Butler,  Hon.  Marion,  attorney  for  Mr.  Engstrum : 

Letter  to  Chairman  Kahn,  dated  March  13, 1922,  text  of 989-993 

T^v  r.^lH!fJ?^^i 7-r— 900-935, 989-993 

By-product  c^ke-oven  interests: 

Actively  engaged  in  defeating  completion  of  nitrate  plant  No.  2  (Mr. 

Bower) 621-622 

Claim  that  they  are  fully  protecting  interests  of  the  farmer  not  true 

(Mr.   Bower) * ^24 

Obtained  duty  of  $12  a  ton  on  ammonium  sulphate  in  tariff  bilC  after 
having  opposed  completion  of  nitrate  plant  No.  2  (Mr.  Bower) __  621-62*> 
Byrns,   Hon.   Joseph  W.,   Representative  in   Congress   from   Tennessee 

statement '    ^q^o 

Calcium  carbide  could  be  produced  at  nitrate  plant  No.  2  (Mr.  Parker 7"      481 
Calcium  cyanamid.     (See  Cyanamid.)  ^  ~      ^^ 

Capital  investment  of  Mr.  Engstrum's  corporation : 

Amount  of,  considered  entirely  immaterial,  since  the  lessee  is  civinff 

a  bond  (Mr.  Butler) _  _        ^^q 

Company  not  entirely  without  means,  will  have  a  sufficient  capital  for 

an  operating  company  (Mr.  Butler) 920 

Comparison  of,  with  that  of  Mr.  Ford's  company  (Mr  Butler) ~      991 

Mr.  Butler  thinks  they  can  meet  Mr.  Miller's  suggestion  that  the  com- 
pany have  a  stated  paid-up  capital  of  from  $1,000,000  to  $5,000,000 

(Mr.   Butler) __!___  922 

More  practicable  for  the  personnel  of  the  companv'to  become  per- 
sonally responsible  In  addition  to  the  bond ;  would  be  better  than 

putting  up  a  lot  of  idle  money  (Mr.  Butler) 923 

Capital  investment  of  Mr.  Ford's  company : 

Capital  stock  will  not  be  less  than  $10,000,000  (Mr.  Mavo)  971  <)7S 

Discussion  of  (Mr.  Mayo) ^___IZ~I  383 

Estimate  of  (Mr.  Worthington) II 1-1111381-382 

Minimum  figure  to  start  with  would  be  cost  plus  operating'cap'ital 

(Mr.  Mayo) __  242 


INDEX. 


1163 


Capital  investment  of  Mr.  Ford's  company— Continued.  I*aK^- 

Mr.  Ford  will  probably  put  $5,000,000  in  fertilizer  plant,  to  start  with 

(Mr.  Mayo) 308 

Probably  $25,000,000  or  $30,000,000  will  be  invested  within  a  few  yenrs 

(Mr.  Mayo) 259 

Carbide.     (See  Calcium  carbide.) 
Caro,  Dr.  N. : 

Production  of  nitrogen  compounds  at  nitrate  plant  No.  2— 
Statement  on — 

Mr.  Mayo 252-253 

Mr.  Silver 564 

Carrying  charges  on  construction  of  dams : 

Table  showing,  estimated  by  Chief  of  Engineers 20 

Catalyst : 

Definition  of  (Dr.  Parsons) 1132-1133 

Fixed  nitrogen  research  laboratory  has  developed  the  best  In  the 

world  (Dr.  Parsons) 1134 

Since  the  war  the  Government  has  made  a  catalyst  which  is  the  best 

in  the  world   (Mr.  Butler) 990 

Central  Georgia  Power  Co. : 

Intercorporate  relations  with  American  Cyanamid  Co.,  no  connection 

between  companies  (Mr.  Hammitt) 486 

Letter  of  May  20,  1921,  from— inadvisable  for  Government  to  develop 

Muscle  Shoajs 118-121 

Chief  of  Engineers.     (See  Engineers,  Chief  of.) 
Chief  of  Ordnance.     (See  Ordnance,  Chief  of.) 
Claude  process : 

Much  more  efficient  method  of  producing  nitrogen  compounds  than  the 

cyanamid  process  (Mr.  MacDowell) 522 

Requires  about  one-tenth  of  the  horsepower  used  by  the  cyanamid 

process  (Mr.  MacDowell) 590 

Coffin  &  Burr : 

Alabama  Power  Co.'s  proposition  will  probably  be  financed  by  (Mr. 
Frothingham) 963 

Banker  control  over  Alabama  Power  Co.  explained   (Mr.  Frothing- 
ham)        957 

Have  handled  bonds  on  hydroelectric  properties  all  over  the  United 

States  and  in  Canada  (Mr.  Frothingham) 959 

Coke-oven  interests.     (See  By-product  coke-oven  interests.) 
Columbus  Power  Co. : 

Intercorporate  relations  with  American  Cyanamid  Co.,  no  connec- 
tion between  companies  (Mr.  Hammitt) 486 

Letter  of  May  20,  1921,  from,  inadvisable  for  Government  to  develop 

Muscle  Shoals 118-121 

Contracts: 

Liability  of  the  Government ;  opinion  of  Colonel  Hull 199-200 

(See  also  subheading  "Contracts"  under  the  following:  Air  Nitrates 
Corporation ;  Alabama  Power  Co. ;  American  Cyanamid  Co  ;  Gen- 
eral Chemical  Co.) 
Contracts  of  Mr.  Ford,  if  unfulfiUed ;  legal  recourse  of  the  Government : 

Opinion  of  Colonel  Hull 19(^191, 202-203 

Opinion  of  Mr.  Weeks 28-29 

Text  of  Ford  proposal I HH        iq 

Conversion  of  atmospheric  nitrogen,  description  of,  extract  from  a'paper 

by  R.  O.  E.  Davis,  United  States  Bureau  of  Soils  (Mr.  Mayo) 251 

C^ooper,  Hugh  L.,  consulting  engineer : 

Analysis  of  statement  that  cost  to  Treasury  under  Ford  proposal 

would  be  $1,275,000,000 638^639 

Statement 40^-429,  638-639 

v^ore  recovery  at  dam  sites,  table  showing 114 

Cost  of  construction  under  Engstrum  proposal ;  cost  fixed  by  the  lowest 
bidder,  and  5  per  cent  fee  on  that  low  and  fixed  cost  is  asked  (Mr. 
Butler) _      9;,^9 

Cost  statement  of  United  States  nitrate  plants  Nos.  1  and  2  and  Warrior- 
Sheffield  power  station  and  transmission  line  (memorandum  of  Chief 
of  Ordnance) 21-22 


1164 


INDEX. 


INDEX. 


1165 


%  Faga. 

Cost  to  Government  of  the  delay  in  accepting  Ford  offer,  table  showing 

(Mr.  Almon) _    1005 

Costs : 

Dam  No.  2— 

$16,251,038.14  (total  expenditures)   (Secretary  of  War's  report).  4 

$17,159,610.42  (total  allotments)   (Secretary  of  War's  report)—  4 

Gorgas- Warrior  steam  plant.     (See  Costs:  Warrior- Sheffield  power 
station  and  transmission  line.) 

Nitrate  plant  No.  1,  $12,887,941.31  (Chief  of  Ordnance) 21 

Nitrate  plant  No.  2 — 

Including  Muscle  Shoals  substation,  $69,674,000  (approximately) 

(Chief  of  Ordnance) ig 

Including  Waco  quarry,  $67,555,355.09  (Chief  of  Ordnance)  _ _"__        22 

Power  plant  of,  $12,000,000  (approximately)   (Major  Burns) 218 

Total,  including  maintenance  to  July  1,  1921,  $106,203,016.07    (Mr. 

Weeks) 36 

Under  contract  with  Air  Nitrates  Corporation,  $69,000,000  (approxi- 
mately)   (Colonel  Hull) igo 

Under  contract  with  Alabama  Power  Co.,  $4,676,000  (approximately) 

(Colonel  Hull) 180 

Waco  quarry — 

$1,179,000  (approximately)    (Chief  of  Ordnance) 18 

$1,179,076.80  (Secretary  of  War) * __  5 

$1,302,962.88  (Chief  of  Ordnance) 22 

Warrior-Sheffield  power  station  and  transmission  line — 

$4,676,000  (approximately)   (Chief  of  Ordnance) 18 

$4,979,782.33  (Chief  of  Ordnance) __        22 

$938,057.35  (Chief  of  Ordnance) 22 

Costs  of  maintenance,  Muscle  Shoals  proposition;  in  stand-by  condition 
approximately  $200,000  a  year  spent  by  Engineer  Department  (Major 

General  Beach) 104, 106 

Credit  of  the  Government  under  Ford  proposal : 

Can  be  lent  to  Muscle  Shoals  proposition  at  4  per  cent  (Mr.  Mayo)__      268 

Will  be  loaned  at  not  to  exceed  4  per  cent  (Mr.  Worthington) 373 

Cyanamid : 

Amount  of  limestone  necessary  for  making  (Major  General  Williams)  _        78 
Amount  of  sold  in  year,  by  American  Cyanamid  Co.  (Mr.  Hammitt)  _  518-519 
Table  showing  manufacturing  cost  of  calcium  cyanamid  (lime-nitro- 
gen) at  United  States  nitrate  plant  No.  2 552-553 

Use  of  nitrate  plant  No.  2  to  manufacture,  would  show  heavy  loss 

(Mr.  Hammitt) 463 

(See  also  Nitrogen  compounds.) 
Cyanamid  process: 
Description  of — 

Doctor   Parsons 1131-1132 

Mr.  Mayo 252 

Report  of  Muscle  Shoals  Committee  of  American  Farm  Bureau 

Federation 547-548 

For  the  tixation  of  atmospheric  nitrogen  is  one  of  the  oldest  and  best 

(Mr.  Almon) 1002 

Is  being  abandoned  by  all  countries  which  have  used  it  (Mr.  Butler).      991 
Is  practically  already  superceded  by  the  Haber  process  and  its  modi- 
fications  (Doctor  Parsons) 1121 

Many  cyanamid  plants  in  foreign  countries  have  been  closed  (Doc- 
tor Parsons) 1121 

Much  less  efficient  method  for  producing  nitrogen  compounds  than 

the  Haber  and  Claude  processes  (Mr.  MacDowell) 522 

Requires  more  horsepower  than  Haber  or  Claude  process  (Mr.  Mac- 
Dowell)          522 

Used  in  titrate  plant  No.  2  (Major  Burns) 208-209 

Will  be  obsolete  in  five  years  in  so  far  as  production  of  nitrogen  for 

fertilizer  purposes  is  concerned  (Mr.  MacDowell) 521,522 

Cyanide  process : 

Description  of  (Mr.  Mayo) 251 


Dams :  p^^^^ 

Capacity  in  kilowatt  hours  of  Nos.  2  and  3   (statement  No.  2,  Mr 

Cooper) 4JJ 

Completion  of,  will  increase  amount  of  navigation  (Mr.  Quin)I 293 

Construction  and  operation  of — 

Text  of  Alabama  Power  Co.  proposal 770 

Construction,  lease,  and  operation  of—  ~      " 

Text  of  Engstrum  proposal coj 

Text  of  Ford  proposal !__!__       " 13-14 

Construction  of,  maximum  time  needed  two  years  (Mr.  Mayo)_  !___      269 

Construction  to  be  by  Mr.  Ford's  company,  from  plans  bv  Chifef  of 
Engineers — 

•  Present  Ford  proposal 13  14 

Construction  to  be  by  the  United  States- 
First  Ford  proposal j^ 

Cost  of  completing,  as  estimated  by  Mr.  Ford's  "engineers,  has  not 
been  guaranteed  by  Mr.  Ford.     (Secretary  of  War's  report) 5 

^^fir^^^^^^P^^*^"^'  ^^  estimated  by  Mr.  Ford's  engineers,  inadequate 

(Mr.  Cooper) i. ^-^j 

Cost  of  completing,   by   the  Government,   would  be  warranted   by 

amount  of  transportation  (Mr.  Quin) 39^ 

Cost  of  completing  Nos.  2  and  3  estimated  at  $50,000,000 ;  appropria- 
tion  asked  to  cover  contingencies  (Major  General  Beach) 102 

Cost  of  completing  Nos.  2  and  3  estimated  by  Chief  of  Engineers  to 
De  «}>ou,uuu,ooo f)fk 

^^IL^^^™^^^*^"^  ^^^-  ^  ^^^  ^  estimate'd'"by"Mr~Almon"fo'be 

$40,000,000 ififvi 

Cost  of  completing  Nos.  2  and  3  estimated  by  Mr.  Ford's  euVineers 

at  $42,230,000  (Mr.  Mayo) 1 ^   ^^ugineerb       ^^^ 

Cost  of  completing  Nos.  2  and  3,  not  including  locks,  estimated  bv  Mr 

Ford  to  be  $30,000,000  (Mr.  Worthington) 1  _  _*      333 

Cost  of  construction  of,  if  completed  by  private  party  instead'of  bv 
the  Government,  would  show  saving  of  approximately  $16,000,000 
(Mr.  Mayo) '    300-301 

Cost  of  Nos.  2  and  3  will  be  wiped  out  by  sinking  fund,  if  invested 
by  Government  at  4i  per  cent  (Mr.  Mayo) 047 

^^foo^}^^^}J.  ^^  ^^^'   ^   ^^^   ^'   estimated   by   Mr.   Cooper'  to"be 

$»t5,17o,4/5 • _ 42Q 

Fall  of  water  at,  figures  of  (Mr.  Cooper) ___IIIZII_'I I_      426 

Horsepower  to  be  generated  at  Nos.  2  and  3  (Mr.  Mayo) ogi 

/¥oo  ^^^^  P^^^  ^  P®^  ^^°*  interest  on  total  cost  of  Nos.  2  and  3 
($83,175,475),   would    save   the   United    States   Treasury   $1275- 

000,000  during  lease  period  (statement  No.  4,  Mr.  Cooper) L '_      413 

Keokuk,  horsepower  at  (Mr.  Cooper) 40(5 

Mr.  Engstrum  will  build  extra  dams  as  fast  as  necessarv,  and  use  all 
this^development  in  producing  cheaper  nitrates  (Mr*  Butler )__  904,913 

Cost   of  construction,  estimated  at  $1,400,000    (Major  General 

Beach) ^14 

Navigation  project,  not  in  this  proposition  (Mr.  Weeks) 61 

No.  2 — 

Alabama  Power  Co.  donated  abutment  sites  valued  at  $500  000 

to  Government  in  1918,  for  (Mr.  Martin) 669-671.698-699 

Alabama  Power  Co.  would  apply  for  license  under  Federal  water 
power  act  to  complete  and  operate,  text  of  proposal 775 

Construction  to  be  by  Alabama  Power  Co.  under  its  proposal— _      776 

Construction  to  be  by  ^Ir.  Ford's  company  from  plans  by  Chief 
of  Engineers,  under  Ford  proposal ' 1 13 

Cost  of  (report  of  Muscle  Shoals  Conunittee  of  American  I^'arm 
Bureau  Federation)  551-55'> 

Cost  of,  $16,251,038.14  (total  expenditures)    (Seeretarv  of  War's 

report)   \ 4 

Could  not  be  salvaged  at  any  value  (Mr.  Cooper) 416 

Desirable  that  it  be  completed  by  the  Government  if  Ford  pro- 
posal be  not  accepted   (Mr.  Cooper) 425, 4'>6 

Desirable  that  it  be  completed  by  the  Government  if  Ford  pro-~ 
posal  be  not  accepted   (Secretary  of  War's  report  and  state- 
ment)   9,60,^5 


1166 


INDEX. 


INDEX. 


1167 


I 


Damsi— Continued. 

No.  2— Continued.  ^^^' 

Dimensions  of,  when  completed  (Secretary  of  War's  report) 4 

Discussion  as  to  wlietlier  the  $17,000,000  the  Government  has  put 
into,  will  be  absorbed  and  used  by  the  Alabama  Power  Co.  (Mr. 

Miller  and  Mr.  Frothingham) 953-954 

Government  could  lease  horsepower  on  basis  of  a  return  of  5 
per  cent  on  all  money  invested  in   (if  Ford  proposal  be  not 

accepted)     (Mr.    Cooper) 417 

Horsepower  developable  (Major  General  Beach) . 124 

Letter  from  Woodrow  Wilson  dated  February  23,  1918,  text  of—        64 
Letter  of  May  28,  1921,  from  Alnbama  Power  Co.,  to  General 

Bench  giving  suggestions  in  regard  to,  text  of 790-792 

Mr.  Engstrum  believes  he  can  complete,  by  the  Government  pay- 
ing him  5  per  cent,  at  less  expense  than  the  Army  engineers 

could  complete  it  without  the  5  per  cent  (Mr.  Engstrum) 938 

Must  either  be  completed  or  blown  up  and  removed  from  the 

river    (Mr.   Butler) ^'^" 

National  defense  act  gave  authority  for  construction  of  (Secretarj' 

of  War's  report)    — — J 

Offers  of  Mr.  Ford  to  lease i^'  i&-ii 

Operation  and  maintenance.    (SreDams:    Repairs,  maintenance, 

and  operation.)  . 

Overhead  in  construction  of,  under  Engstrum  proposal  explained 

(Mr.  Engstrum) — --  ^^^ 

Purpose  ofe  construction  to  reduce  cost  of  operating  nitrate  plants 

(Major  General  Beach) ^^ 

Reported  upon  by  Secretary  of  War %^s^ 

Status   of  construction,  30  per   cent   completed    (Secretary   of 

War's  report  and  statement) — ---  4;^2 

Time  necessary  to  complete,  estimate  of  (Major  General  Beach )_  10^ 

Time  necessary  to  complete,  estimate  of   (Mr.  Cooper) 418 

Water  will  be  raised  100  feet  (Major  General  Beach) 109 

Will  render  14.7  miles  of  Muscle  Shoals  navigable  (Secretary  of 

War's   report) ° 

No.  3—  .  rr.         ^^^ 

Acquirement  of  lands  and  flowage  rights  for.     (See  Flowage 

rights.)  ^  ,  ^  ^        4. 

Government  would  construct,  under  Ford  proposal,  on  abutment 

sites  and  flowage  lands  owned  by  Alabama  Power  Co.  (Mr. 

Martin) 669,684-685 

Mr.  Engstrum's  proposal  does  not  require  the  building  of,  at 

present,  but  does  provide  for  doing  it  later  (Mr.  Butler) 903 

No  justifiable  reason  to  build,  at  this  time  (Mr.  Butler)—  917,918,992 
Not  desirable  to  build  if  Ford  proposal  be  not  accepted   (Mr. 

Weeks)    

Offers  of  Mr.  Ford  to  lease ^^*2t 

Reported  upon  by  Secretary  of  War 4-5 

Time  necessary  to  construct,  estimate  of  (Mr.  Cooper) 418 

WiU  render  63  additional  miles  navigable  (Secretary  of  War's 

report) ■- ^ 

Repairs,  maintenance,  and  operation  under  Alabama  Power  Go.  pro- 
posal— text  of  proposal 776 

Repairs,  maintenance,  and  operation  under  Ford  proposal- 
Maintenance  of  (Mr.  Miller  and  Mr.  Mayo) 274 

Might  be  more  desirable  to  have  Mr.  Ford  maintain  Dams  Nos. 
2  and  3  and  omit  annual  payments  proposed  (report  of  Secre- 
tary of  War) :iZ—^--l         ^ 

Operation  and  maintenance  of  Nos.  2  and  3,  cost  to  Mr.  Ford 

(statement  No.  3,  Mr.  Cooper) ^^^"^H 

Payments  specified  considered  adequate  by  Chief  of  Engineers—        19 

Text  of  first  and  present  proposals 10, 11, 14 

Should  the  Ford  proposal  be  accepted  the  Government  would  be  re- 
quired to  spend  over  $60,000,000  to  complete  Dam  No.  2  and  build 

Dam  No.  3  (Mr.  Butler) 992 

Statement  showing  cost  per  horsepower  year  to  Mr.  Ford  for  power 
to  be  generated  at  Nos.  2  and  3  (Mr.  Mayo) 265-266 


Dams — Continued.  Page. 

Table  showing  core  recovery  at  dam  sites 114 

Would  extend  navigation  about  90  miles   (Mr    Mayo) I_I      295 

Dent,   Hon.    S.    Hubert,   jr.,    attorney    for   Alabama    Power   Co.,   state- 
ment.  g4Q  742-764,  81(^-833 

Dent  Act; 

The  purpose  of  this  law  has  been  fully  met  and  complied  with  and  is 
not  applicable  to  contract  with  Alabama  Power  Co.  (Mr.  Oliver)  __      774 

Text   of 657—660 

Depreciation.    (See  Estimates :  Nitrate  plant  No.  2,  depreciation  on.) 
Diagrams : 

Consumption    and    supply    of   inorganic    nitrogen    (Major    General 

Williams)    _     _        75 

Disposition  of  Muscle  Shoals  proposition : 

Alabama    Power    Co.    proposal    indorsed    by    Mr.    Frothingham,    of 

Coffin  &  Burr 950-954,968 

Dam  No.  2 — 

Desirable  that  it  be  completed  by  the  Government  if  Ford  pro- 
posal be  not  accepted   (Mr.  Cooper) 425,426 

Desirable  that  it  be  completed  by  the  Government  if  Ford  pro- 
posal be  net  accepted  (Secretary  of  War's  report  and  state- 
ment)  9   60   65 

Must  either  be  completed  or  blown  up  and  removed  from  the 

river  (Mr.  Butler) 917 

Opinion  of  Major  General  Beach 103 

Recommendation  in  report  of  Muscle  Shoals  Committee  of  Ameri- 
can Farm  Bureau  Federation,  dated  May  31,  1921 565 

Not  desirable  to  build  if  Ford  proposal  be  not  accepted   (Mr. 

Weeks) .» 31 

Desirable  that  an  administrative  officer  of  the  Government  be  author- 
ized to  dispose  of  property  on  best  terms  obtainable  (Mr.  Ham- 
mitt)  454,  455 

Ford  offer  better  proposition  than  that  of  Alabama  Power  Co.,  finan- 
cially, for  the  Government,  for  the  interests  of  agriculturists ;  and 
for  maintenance  of  plant  for  manufacture  of  explosives  (Mr. 
Bower) 632 

Ford  offer  indorsed  (Mr.  Almon) 1003 

Ford  offer  indorsed  by  Alabama  delegation  in  Congress  as  a  unit  (Mr. 
Almon) 1012 

Ford  offer  indorsed  by  Governor  of  Tennessee 319-322 

Ford  offer  indorsed  by  Mr.  Worthington  of  the  Tennessee  River  Im- 
provement Association 355.  384-385 

Ford  offer  indorsed  by  petition  of  officials  of  Jefferson  County,  Ala. 

(Mr.   Almon) • 1017-1018 

Ford  offer  indorsed  by  resolutions  adopted  by  Florence  Chamber  of 
Commerce,   Florence  Rotary  Club,  and   Florence  Exchange  Club 

(Mr.   Almon) 1015-1017 

Ford  offer  indorsed  by  resolutions    of    Birmingham    mass    meeting 

(Mr.  Almon) ' 1017 

Ford  offer  indorsed  by  resolutions  of  the  American  Farm  Bureau 

Federation 542-543 

Ford  offer  indorsed  by  Senators  from  Alabama  (Mr.  Bankhead) 1018 

Ford  offer  would  be  most  favorable  trade  the  Government  has  ever 

made  with  an  individual  (Mr.  Fields) 608 

Gorgas-Warrior  steam  plant  should  be  sold  to  Alabama  Powder  Co. 

(Major  Burns) 21I 

Inadvisable  for  Government  to  develop    (letter  from  southeastern 

powder  companies) 118-121 

Nitrate  plant  No.  1— 

No  one  can  favor  scrapping  of,  who  is  concerned  with  providing 
this  country  with  an  adequate  supply  of  nitrogen  and  cheaper 

fertilizer  (Mr.  Butler) 990 

Ordnance  Department  has  recommended  that  it  be  disposed  of 

(Major   Burns) 208 

Recommendation  in  report  of  Muscle  Shoals  Committee  of  Ameri- 
can Farm  Bureau  Federation,  dated  May  31, 1921 565-567 

92900—22 74 


1168 


in'dex. 


1169 


Disposition  of  Muscle  Shoals  proposition — Continued. 

Nitrate  plant  No.  1 — Continued.  !*»«•• 

Should  not  be  scrapped ;  could  be  redesigned  and  made  the  most 

efficient  Haber  process  plant  in  the  world  (Mr.  Butler) 903 

Nitrate  plant  No.  2 — 

Opinion  of  Major  General  Williams 73 

Opinion  of  Mr.  Hammitt 456 

Recommendation  in  report  of  Muscle  Shoals  Committee  of  Ameri- 
can Farm  Bureau  Federation,  dated  May  31,  1921 565-567 

Reconnnended  that  it  be  maintained  for  production  of  nitrates  for 

war  purposes  (Mr.  MacDowell) 529,538-539 

Statement  of  Department  of  Agriculture 316 

Opinion  of  Mr.  Duke,  president  of  Southern  Power  Co 115-116, 117 

Opinion  of  Mr.  Hammitt 456 

Opinion  of  Mr.  Miller 80 

Opinion  of  Mr.  Weeks 52,63 

Recommendation  that  the  Government  finish  (Mr.  ('ooper) 416, 

417,  418,  425,  426 
Recommendations  in  report  of  Muscle  Shoals  Committee  of  American 

FaiTu  Bureau  Federation,  dated  May  31,  1921 565-567 

War  Department  opposed  to  scrapping  (Major  General  Williams) __        84 
War  Department  proposed   that   a  Government-owned   corporation 
take  over  and  operate  the  power  of  Dam  No.  2  and  all  the  nitrate 

properties  (Colonel  Joyes) 1(K>7 

Would  be  most  improvident  to  lease  Muscle  Shoals  with  only  enough 
power  reserved  to  operate  nitrate  plant  No.  2  with  the  remainder 
of  this  enormous  water  power  surrendered  to  a  private  monopoly 

for  100  years  (Mr.  Butler) "_      991 

Dr i  f  t(  >n  Ra  ilroa  d  : 

Contract  with  Alabama  Power  Co. — 

Opinion  of  November  16,  1921,  of  Acting  Judge  Advocate  Gen- 
eral   132-134 

Text  of 150-171 

Cost  the  Government  $50,421.94  (memorandum  of  Chief  of  Ordnance)  _        22 

Description  schedule  in  contract 170 

Government  paid  $30,000  and  Alabama  Power  Co.  paid  $105,000  for 

cost  of  construction  (Mr.  Martin) 693 

Duke,  James  B.,  president  of  Southern  Power  Co. : 

Controls  Virginia-Carolina  Chemical  Co.   (Mr.  Bower) 623,637 

Letter  of  June  24,  1921,  from — inadvisable  for  Government  to  develop 

Muscle    Shoals 115-117 

No  connection  with  proposed  corporation  under  the  Engstrum  pro- 
posal (Mr.  Butler) 930 

Statement  regarding  alleged  connection  of,  ^yith   Virginia-Carolina 

Chemical  Co.  (Mr.  Hammitt) 496 

Stockholdings  in  American  Cyanamid  Co.  (Mr.  Hammitt) 467,496 

Stockholdings  in  American  Cyanamid  Co.  are  24  per  cent  of  stock 

(Mr.    Bower) 623 

Electric  current : 

Table  showing  rates  for,  sold  by  Alabama  Power  Co.  at  Huntsville, 

Ala.,  in  effect  January  1,  1922  (Mr  Worthington) 363 

Electric  light  and  power  security  issues  in  1921,  table  showing 356 

Electrical  transmission  of  power: 

Alabama  Power  Co.  sending  250  miles  (Major  General  Beach) 101 

Electrification  of  railroads: 

Advantages  of  (extract  from  report  of  Chief  Engineer  W.  S.  Murray 

on  the  superpower  survey)    (Mr.  Silver) 585-586 

Discussion  of  (Mr.  Worthington) 355 

In  Alabama  and  other  Southern  States  should  require  240,0()0  horse- 
power (Mr.  Martin) 799 

Electrolytic  cell: 

Since  the  war  the  Government  has  made  the  largest  and  most  efficient 

in  the  world  (Mr.  Butler) 990 

Engineers,  Chief  of: 

Analysis  of  the  Ford  proposal 19-21 

Letter  inviting  proposals  relative  to  Muscle  Shoals,  text  of 99 

{See  aUo  Beach,  Maj.  Gen.  Lansing  H.) 


INDEX. 


Engstrum,  Frederick  E.,  president  of  the  Newi^ort  Shipbuilding  Corpora- 
tion : 

Amendments  to  offer.  Appendix  B 1146 

Has  had  two  contracts  with  the  Quartermaster's  Department  for  the 

building  of  concrete  ships  (Mr.  Engstrum) 937,938 

Proposal  of.     {See  Proposal  of  Mr.  Engstrum.) 

Statement 895-900, 935-939 

Estimates : 

Amount  obtainable  from  the  100,000  horsepower  salable  by  the  Gov- 
ernment can  be  figured  as  $1,357,854,750  (Doctor  Parsons) 1144 

Appropriation  necessary  if  Mr.  Ford's  proposal  is  accepted,  $40,000,000 

to  $50,000,000  (Secretary  of  War's  report) 8 

Carrying  charges  on  construction  of  dams,  $13,320,000  (memorandum 

of  Chief  of  Engineers) 20 

Construction  plant  at  Dam  No.  2 — 

$2,990,433  (present  value,  as  estimated  by  Army  officers,  quoted 

by.  Mr.  Wurzbach) 885 

$4,740,807  (book  value  as  given  by  Army  officers,  quoted  by  Mr. 

Wurzbach) 885 

Cost  of  making  river  navigable  over  Muscle  Shoals,  if  dams  are  not 

constructed,  $8,000,000  (approximately)  (Major  General  Beach) ___       122 

Dam  No.  1,  $1,400,000  (Major  General  Beach) 114 

Dam  No.  2— 

$23,000,000    (Mr.  Almon) 1004 

$23,280,000  (Mr.  Ford's  engineers) 20 

$25,000,000   (Chief  of  Engineers) 20 

Dam  No.  3— 

$17,000,000   (Mr.  Almon) 1004 

$19,000,000  (Mr.  Ford's  engineers) 20 

$25.000,(K)0  (Chief  of  Engineers) 20 

Dams  Nos.  2  and  3 — 

$30,000,000  (not  including  locks)    (Mr.  Ford's  estimate  given  by 

Mr.    Worthington) '_       333 

$42,230,000   (Mr.   Mayo) 267 

$45,000,000  (total  new  money  that  must  be  spent  by  the  Govern- 
ment to  carry  out  Ford  offer)   (Mr.  Mayo) 249 

$50,000,000   (Chief  of  Engineers) 20 

$60,000.0(X)  (should  the  Ford  proposal  be  accepted)  (Mr.  Butler) _      992 

$83,175,475  (total  cost)    (Mr.  Cooper) 411,414 

Deficit  to  the  Government  in  interest  payments  during  construction 

ami  for  first  six  years  under  Ford  proposal,  $7,359,800  (Mr.  Mayo)_      248 
Expenditures  of  the  Government  under  Engstrum  proposal,  $30,000,- 

000.  estimated  (Mr.  Butler) 992 

Expenditures  of  the  Government  under  Ford  proposal — 

Compared  with  payments  to  the  Government    (Mr.  Miller  and 

Mr.   Mayo) 262-265 

Discussion  of  (Mr.  Miller  and  Mr.  Mayo) 267-273 

Interest  compounded  on  $83,175,475  would  be  a  loss  to  Treasury 
of  $1,275,000,000  at  end  of  lease  period  (Mr.  Cooper)  (analysis 

of  this  statement  by  Mr.  Mayo,  p.  976-977) 410,414,638-639 

Interest  comiwunded  on  investments  of  Government  as  figured 

by  Mr.  Cooper  can  not  be  done  (Mr.  Bower) 626 

Statement  given  by  Mr.  Morin   (analysis  of  this  statement  by 

Mr.  Mayo,  p.  249) 249 

Will  not  exceed  $45,000,000  (Mr.  Mayo) 249 

Flowage  rights  at  Dam  No.  2,  $350,000  in  1916 ;  $383,490  actual  cost 
of  6,612.4  acres ;  $40,000  estimate  of  cost  of  remaining  600  acres ; 
$423,490  total  amount  of  item  (from  record  of  Chief  of  Engineers, 
U.  S.  Engineer  Office.  Florence,  Ala.,  statement  of  July  31,  1921) 

(Mr.  Mayo) _        25§ 

Flowage  rights  at  Dam  No.  3— 

$1,000,000    (minimum)    (Mr.   Ford's  engineers) 243 

$1,500,000   (maxinmm)    (Mr.   Ford's  engineers) 243 

$1,500,000   (Mr.  Weeks) 43 

$2,331,000   (Chief  of  Engineers) 20 

$2,700,000   (rough  estimate)    (Mr.  Cooper) 422 


1170 


INDEX. 


INDEX. 


1171 


Estimates— Continued.  ^**** 

If  Ford  proi)osal  be  not  accepted  sind  the  Government  completes 
Dam  No.  2.  tlie  present  investment  of  the  (Tovernment  might  be 
.$21i,000,000  instead  of  .$40,000,000  to  $50,000,000  (report  of  Sec- 
retary   of   War) 9 

If  Gorgas-Warrior  steam  plant  is  left  in  Mr.  Ford's  proposition,  the 
Government  must  condemn  contractual  rights,  plant,  and  land  of 
Alabama  Power  Co.,  involving  about  $4,000,000  (Mr.  Dent) 748 

If  Gorgas-Warrior  steam  plant  is  left  in  Mr.  Ford's  proposition,  the 
Government  will  be  giving  him  equivalent  of  approximately 
$9,000,000    (Mr.    Dent) ^48 

Locks  of  Dam  No.  2,  $2,500,000  (Mr.  Weeks) 46 

Navigation,  prewar  estimate  by  United  States  engineers  of  amount 

chargeable  to.  $8,575,000  (Mr.  Almon) 1004 

Nitrate  plant  No.  1,  redesigning  of,  $4,000,000  (maximum)  (Mr. 
Butler) 9^^ 

Nitrate  plant  No.  2,  depreciation  on — 

$2,500,000  (Army  engineers'  estimate,  quoted  by  Mr.  Bower). —      631 

$2,500,000  annually   (Mr.  Mayo) . 249 

$6,000,000  for  six  years  (Major  General  Williams) 85 

Nitrate  plant  No.   2,   redesigning  of,   $3,000,000    (maximum)     (Mr. 

Butler) ^^ 

Right  of  way  for  transmission  line,  no  estimate  made  of  probable  cost 

(Major  General  Williams) 80 

Salvage  value  of  Dam  No.  2,  could  not  be  salvaged  at  any  value 

(Mr.  Cooper) 416 

Salvage  value  of  Gorcas-Warrior  steam  plant.  (See  Estimates:  Sal- 
vage value  of  Warrior-Sheffield  power  station  and  transmission 

Salvage  value  of  nitrate  plant  No.  1,  $600,000  (Chief  of  Ordnance)—        18 

Salvage  value  of  nitrate  plant  No.  2— 

$6,700,000  (rough  estimate)    (Mr.  Hammitt) 500 

$7,250,000  (as  scrap)  (Chief  of  Ordnance) 18 

$11,640,000  (as  operating  concern  and  scrap)  (Chief  of  Ord- 
nance)         18 

Salvage  value  of  Waco  quarry — 

$102,000  (as  scrap)  (Chief  of  Ordnance) 18 

$857,0(X)  (as  operating  concern)   ( Chief  of  Ordnance ) 18 

Salvage  value  of  Warrior-Sheffield  power  station  and  transmission 

line —  ^o 

$860,000  (as  scrap)  (Chief  of  Ordnance) 18 

$3,675,000  (as  operating  concern)   (Chief  of  Ordnance) 18 

Salvage  value,  total,  of  plants — 

$8,812,000  (as  scrap)  (Chief  of  Ordnance) 18 

$10,032,000  (as  operating  concern)  (Chief  of  Ordnance) 18 

$16,272,000  (as  operating  concern  and  scrap)  (Chief  of  Ord- 
nance)         ^8 

Less  than  $5,000,000  (excluding  nitrate  plant  No.  2)   (Colonel 

Hull) 190 

Savings  to  the  Government  under  Alabama  Power  Co.  proposal — 

Discussion  of  (Mr.  Martin) 845-850 

Government  would  be  relieved  of  obligation  of  putting  up  from 

$.50,000,000  to  $80,000,000  more  in  the  project  (Mr.  Martin) 878 

Would  be  at  least  $2,000,000  a  year  in  form  of  an  outlay  in  inter- 
est ;  it  saves  its  annual  losses  by  way  of  maintaining  and  up- 
keeping  the  dam  and  gates  (Mr.  Martin) 856 

Savings  to  the  Government  under  Engstrum  proposal,  statement  of 

(Mr.  Butler) 992 

Savings  to  the  Government  under  Ford  proposal — 

$9,090,200  shown  in  Government  balance  sheet,  during  first  six 

years  (Mr.  Mayo) 301 

$475,840,000   (Mr.  Fields) 607-608 

$2,908,183,750  can  be  figured  as,  at  end  of  100  years  (Mr.  Mayo).      977 
Table  showing!  annual   cash   saving  amounting  to  $747,121.44 
(Mr.  Almon) 1005 


Estimates — Continued.  P«««. 

Table  showing  estimate  of  results  of  operation  by  Government  of 
United  States  nitrate  plant  No.  2  for  period  of  six  years  (Major 

General  Williams) 84-85 

Estimates  of  maintenance: 
Nitrate  plant  No.  2 — 

Could  be  maintained  by  amount  payable  for  power  leased  (Major 

General  Williams) 89 

$4,000,000  for  20-year  period  (Major  (General  Williams) 85 

Expenditures  of  the  Government : 

Analysis  of  (Major  Burns  and  Mr.  Miller) 218-219 

For  river  development  (Mr.  Hull  and  Mr.  Cooper) 425 

Total,   $106,203,016.07    (Mr.   Weeks) 36,42 

Under  contract  with  Air  Nitrates  Corporation,  statement  of  Colonel 

Hull 180 

Under  contract  with  Alabama  Power  Co.,  statement  of  Colonel  Hull—      18a 
Explosives : 

Explanation  of  how  ammonia  is  turned  into  (Doctor  Parsons) 1135^ 

Time  necessary  to  convert  fertilizer  plant  (nitrate  plant  No.  2)  into 
plant  for  producing,  under  Ford  proposal  (Major  General  Wil- 
liams)         98 

Fair  value: 

Discussion  of  definition  of  term  (Mr.  Martin  and  Mr.  Wright) 697 

Discussion  of  possible  method  of  determining  (Colonel  Joyes)-__  1074-1075 
Farm  implements: 

Possibility  of  manufacture  of,  as  outcome  of  completion  of  Muscle 

Shoals  project  under  Mr.  Ford's  proposal  (Mr.  Quin) 294 

Farm  mortgages: 

Estimates,  of   (Mr.   Quin) 39^ 

Fiirmers: 

Alabama  Power  Co.  proposal  makes  no  provision  for  (Mr.  Bower )__      616 
If  Government  charges  Mr.  Ford  8  per  cent  interest  on  water  power 

it  will  be  paid  in  cost  of  fertilizer  by  (Mr.  Bower) 631-632 

Representatives   of,   to  control   price  and   distribution   of  fertilizer 

products,  text  of  Ford  proposals 12, 16 

Use  of  concentrated  fertilizer  by,  will  come  about  as  fast  as  demand 

is  created  and  supply  is  made  available  (Mr,  Swann) 437-438 

Farmers  Educational  and  Cooperative  Union  of  America : 

Authorized  to  designate  candidates  for  a  board  to  control  price  and 

distribution  of  fertilizer  products,  text  of  Ford  proposals 12, 16 

Indorsed  Ford  proposal  by  resolution  (Mr.  Bower) 630 

Membership  of   (Mr.   Silver) 577 

Resolution  adopted  February  8,  1916,  regarding  fixation  of  nitrogen 

as  a  fertilizer    (Mr.  Bower) 615-616 

Farmers'  organizations.     {See  Alabama  Farm  Bureau  Federation,  Ameri- 
can Farm  Bureau  Federation,  Farmers  Educational  and  Cooperative 
Union  of  America,  National  Grange.) 
Federal  Phosphorus  Co. : 

Has  been  assisted  and  encouraged  by  Alabama  Power  Co.,  but  is 

entirely  independent  (Mr.  Swann) 43^ 

Process  of  making  concentrated  fertilizer  (Mr.  Swann) 431-434 

Statement  of  Mr.  Swann,  president 431-442 

Federal  Power  Commission: 

If  Mr.  Ford  is  to  have  a  straight  lease  he  would  be  exempted  from 
action  of  Federal  water  power  law  or  laws  of  Alabama  (Mr. 
Cooper) 418 

Jurisdiction  of,  excluded  under  Ford  proposal  as  written  (statement 
No.  3,  Mr.  Cooper) 413 

Might  regulate  sale  of  power  by  Mr.  Ford  (Secretary  of  War's  re- 
port and  statement) 9,54,56 

Proposal  of  Alabama  Power  Co.  complies  with  the  policy  of  the' 
Government  as  laid  down  by  (Mr.  Frothingham) 952 

Under  Alabama  Power  Ck>.  proposal,  would  issue  license  to  company 

for  completion  of  Dam  No.  2  (text  of  proposal) '_      776 

Federal  water  power  act : 

Alabama  Power  Co.  would  apply  for  license  under,  to  complete  and 
operate  Dam  No.  2,  text  of  proposal 775 


1172 


INDEX. 


INDEX. 


1173 


Federal  water  power  act — Continued.  Page. 
*  Provision  of,  bearing  upon  Alabama  Power  Co.  proposal  (Mr.  Mar- 
tin)   854-855 

Text  of  section  5,  pertaining  to  applications  for  licenses  (Mr.  Worth- 

ington) 380-381 

Fertilizer : 

Agriculture,  Department  of,  statement  regarding  farmers  and  Ford 

proposal 316 

Alabama  Power  Co.,  does  not  guarantee  to  manufacture  (Mr.  Hower)_       630 
Amount,  of,  Mr.  Ford  will  produce — 

Mr.  Mayo 259 

Mr.  Silver 590  602 

Mr.  WortJiington 366-^67,  378-379,  385-386!  402 

Amount  of  power  needed  to  produce  2,(X)0,000  tons  of  commercial  fer- 
tilizer at  Muscle  Shoals  (Doctor  Parsons) 112r) 

Annual  production,  statistics  of  (Doctor  Whitney) 339 

Balance  sheets  of  two  largest  companies  show  a  loss  of  above  $20,- 

000,(X)0  last  year  (Mr.  Swann) 430 

Board  to  control  price  and  distribution  of  products — 

Text  of  Ford  proposals 12, 10 

(See  also  Legal  questions  involved:  Fertilizer  products,  board  to 
control. ) 
Can  be  furnished  to  farmer  at  one-half  of  present  cost  by  establish- 
ment of  nitrogen   industry   with  proper  Government  cooperation 
(statement  of  Mr.   Washburn,  president  of  American  Cyanamid 

Co.,  on  February  9,  1916)   (Mr.  Bower) 623 

Can  be  produced  at  Muscle  Shoals  more  cheaply  than  in  any  other 

place  in  the  United  States  (Mr.  Worthington  and  Mr.  Qiiin) 398 

Can  not  be  manufactured  at  a  profit  at  nitrate  plant  No.  2  (Mr.  Ham- 
mitt) 462-4as 

Companies  producing,  largest  (Mr.  Weeks) 29 

Concentrated — 

Description  of  development  of  process  of  making  (Mr.  Swann )_  431-434 

Market  will  be  found  for.  ae  fast  as  developed  (Mr.  Swann) 437 

Statement  of  Mr.  Swann  regarding,  does  not  accord  with  develop- 
ment of  the  art  as  scientists  and  farmers  understand  it  to- 
day   (Mr,   MacDowell) 520 

Use  of,  by  farmers  will  come  about  as  fast  as  demand  is  created 

and  supply  is  made  available  (Mr.  Swann) 437-43S 

Concentration  of,  beyond  a  certain  limit  will  injure  seed   (Mr.  Mac- 
Dowell)  516,  520,  521 

Consumption  of — 

Discussion  of  (Mr.  MacDowell  and  Mr.  Fields) 529-531 

Increased  on  average  of  7^  per  cent  yearly  up  to  1914  (Mr.  Mac- 
Dowell)        529 

Cyanamid  for  ingredient  of,  amount  of,  sold  in  year  by  American 

Cvanamid  Co.  (Mr.  Hammitt) 518-519 

Difference  between  cost  of  production  and  selling  price  (Mr.  Silver)-  572-573 

Discussion  of  (Mr.  Silver) 605 

Discussion  of,  and  of  nitrogen  compounds  (Doctor  Whitney) 322-349 

Effect  on  cost  of — 

By  operation  of  nitrate  plant  No.  2  (Major  General  AVilliams)___  82-8;^ 
By  proposed  operations  of  Mr.  Ford — 

Major    Burns 216 

Mr.  Bower 623 

Mr.   Cooper 427 

Ford  proposal  may  benefit  farmers  (Major  Burns) 237 

Ford  proposal  to  produce,  indorsed  by  American  Farm  Bureau  Fed- 
eration   41-42 

Formula  of  8,  3,  and  3 — 

Doctor  Whitney 348 

Major  General  Williams 94-95 

Furnaces  at  nitrate  plant  No.  2  could  be  changed  to  produce   (Mr. 

Swann) 435 

High  grade,  production  of,  at  nitrate  plant  will  reduce  freight  rates 

(Mr.   Bower) 627 


Fertilizer — Continued.  '  Pa««- 

High  price  of  nitrogen  has  established  lower  grade  of  (Mr.  Bower).-       627 
If  Government  charges  Mr.  Ford  8  per  cent  interest  on  water  power, 

farmers  will  pay  it  in  cost  of  (Mr.  Bower) 6Jil-(>32 

If  Mr.  Ford  were  in  the  fertilizer  business,  farmers  would  get  much 

cheaper  fertilizer   (Mr.  Silver) 572-573 

If  potassium  phosphate  is  produced  at  Muscle  Shoals  it  could  be  used 

to  fix  by-product  col^e-oven  ammonia  gas  and  produce  a  complete 

fertilizer  of  verj'  high  concentration  (Mr.  Swann) 433 

Is  not  sound  public  policy  for  Mr.  Ford  to  manufacture,  at  nitrate 

plant    (Mr.  MacDowell) 537 

Language  of  section  14  of  Ford  proposal,  discus.sion  of — 

Mr.  Hill  and  Mr.  Mayo 981 

Mr.  James  and  Mr.  Mayo 977-978 

Language  of  section  14  of  Ford  proposal  modified  (Mr.  Mayo) 971 

Language  of  section  15,  discussion  of — 

Mr.  Crowther  and  Mr.  Mayo 307-308 

Mr.  Silver 574-576.  588-591.613-614 

Mr.    Worthington 378-379 

Language  of  sections  14  and  15  of  Ford  proposal,  suggested  changes 

in,  agreed  toby  Mr.  Mayo  (Mr.  Silver) 988-989 

Largest  tonnage  ever  produced  was  8,000,000,  in  1918,  and  prices  were 

highest  in  that  year  (Mr,  Bower) 627 

Less  .anunonia  for,  used  in  United  States  last  year  than  in  Germany, 

England,  France,  and  Italy  (Mr.  Butler) 990 

Letter  of  Aug.  14, 1922,  from  the  Bureau  of  Soils,  text  of 336-343 

Method  of  producing  phosphoric  acid  and  use  as  ingredient  of  (Mr. 

Swann ) 432-433 

Methods  of  production  ( report  of  Muscle  Shoals  committee  of  Amer- 
ican Farm  Bureau  Federation) 548-540 

Mr.  Ford  can  not  make,  cheaper  than  is  being  made  at  present  (Mr. 

MacDowell)    537 

Mr.  Ford  could  not  discontinue  manufacture  of,  until  every  effort  is 

exhausted   (Mr.  Mayo) 302,309 

Mr.  Ford  could  not  state  that  he  would  use  all  products  of  nitrate 

plant  No.  2  for  fertilizer  alone  (Mr.  W^orthington) 366-367 

Mr.  Ford  hopes  to  start  producing  within  a  year  (Mr.  Mayo) 257 

Mr.  Ford  intends  to  produce  completed  product  at  8  per  cent  above 

cost,  at  nitrate  plant  No.  2  (Mr.  Mayo) 253 

Mr.  Ford  or  anyone  else  can  not  operate  nitrate  plant  No.  2  to  make 

fertilizer  (Doctor  Parsons) 1138 

Mr.  Ford  understands  his  offer  to  guarantee  that  he  will  utilize  at 

least  100,000  horseiK)wer  in  the  manufacture  of  (Mr.  Mayo) 981 

Mr.  Ford  will  be  able  to  produce  at  one-half  the  cost  of  production 

by  other  firms  (Mr.  Mayo) 284 

Mr.  Ford  will  be  able  to  produce  at  33^  per  cent  cheaper  than  it  is  be- 
ing produced  at  present  (Mr.  Mayo) 303 

Mr.  Ford  would  be  turning  out,  in  less  than  15  months  if  Congress 

voted  to  accept  his  offer  and  directed  condemnation  of  Gorgas  plant 

(Mr.  Oliver)  999 

National   Fertilizer  Association  opposed   to  Ford  contract,   reasons 

stated    (Mr.  MacDowell) 523-527 

Necessary  ingredients  can  be  obtained  from  raw  materials  in  vicinity 

of  Muscle  Shoals  (Mr.  MacDowell) 535,536 

Nitrate  plant  No.  2  can  produce  about  one-fourth  of  all  nitrogen  used 

in    (Mr.  Weeks) —        45 

Nitrate  plant  No.  2  could  make  one-half  of  the  nitrogen  content  of  fer- 
tilizer used  in  the  United  States  annually  (Major  Bums) 230 

Nitrate  plants  Nos.  1  and  2  will  produce  about  one-third  of  fertilizer 

needed   (Mr.  Butler) 917 

No  need  for  nitrogenous  product  at  present  (Mr.  MacDowell) 521,538 

Number  of  different  brands  of,  and  analysis  of  plant-food  content 

(Mr.  Bower) 628-629 

Number  of  finished  tons  which  could  be  produced  at  nitrate  plant 

No.  2  (Mr.  Mayo) 302,308-309 


1174 


INDEX. 


INDEX. 


1175 


Fertilizer— Continued. 

Obligation  of  Mr.  Ford  to  produce—  p-~ 

Colonel  Hull ^''''' 

Doctor  Parsons ii2n  iT^i 

•  Mr.  Mayo III::::::::: ^Im 

Mr.  Silver ^2^'^ 

Mr.  Weeks III::::: of^k^i 

Mr.  Worthinglon Hi:  llfkll 

The  one  possibility  of  making  fertilizer  with  any  d~e'gre"e"  oFcheaDness 
IS  through  the  development  of  nitrate  plant  No  1  Thfoovern- 
ment  can  never  hope  to  do  anything  with  plant  No.  2,  and  any- 

sonJ)  """"'^  '^   "^"^   ^""^^  ^'"''^^   '^^''^   ''''P^^^y    (Doctor   Par- 

(Major  General  Williams) qa 

Percentage  of  nitrogen,  phosphoric  acid,  aVd"  pVtaVh  L~eceisiryTo"~pro~ 

duce  a  balanced  ration  (Mr.  Bower) _  __     ___  _  _  go? 

Phosphate  ingredient  can  be  obtained  within  a  radius  of  100  miles 

of  plants  (Mr.  Mayo) ORI 

Phosphate  rock  can  be  smelted  in  an  electric "furnace"7nd" phos- 

P    .  ^.^,^''^c,^^"^^^*^  ^"^^  "^^  ^»  industry,  which  will  reduce  present 
costs  (Mr.  Swann) ^04 

•     Possibility  of  making  potash  ingredient" near" plants  (Mr.  Mayo)'I  28S 

^?li^^^.'^^^V**f  ^^  production  of,  by  Mr.  Ford,  to  American  faVmer 

(Mr.  Weeks) _  ^f- 

Power  to  be  furnished  by  Alabama  Power  Co.  for  production" of  text 

of  proposal l____      776 

Present    capacity    of   plant   No    2   would    produce    about    2,000000 
tons  of  fertilizer,  and  with  cheap  water  power  the  Ford  Co   can 
make  fertilizer  at  about  one-half  the  present  price  (Mr.  Alnion)_     1006 
Price  of,  can  not  be  reduced  33J  per  cent  by  operation  of  nitrate  plant 

No.  2  (Doctor  Parsons) ^127 

Price  of,  limits  consumption  in  this  country  (Mr.  Bower) !__  617  618 

Probabilities  of  production  by  Mr.  Ford  (Mr.  Weeks)  ___^ 28-29 

Production  of,  at  nitrate  plant  No.  2,  not  needed  at  present  (Mr 
MacDowell) *      g„g 

Production  of.  by  Mr.  Ford,  would  probably  depress  the  market  (Mr 
Hammitt) ^     J      q^ 

Production  of,  may  not  be  profitable  (Mr.  Weeks) -_II_I_  _Z___I~29  35-36 

Production  of,  text  of  Engstrum  proposal '     007 

Production  of,  text  of  Ford  proposal I ]  i^Iq 

Production  of.  under  Alabama  Power  Co.  proposal ;  lease  of  nitrate 
plant  by  an  independent  concern,  with  100,000  horsepower  of  free 
power  supplied,  would  produce  more  and  better  fertilizer  than  anv 

other  way  (Mr.  Frothingham) _        9^ 

Products  which  can  be  manufactured  at  nitrate  plant  No  2  and  com" 

mercial  outlook  (Doctor  Tolman) 313-319 

Profit  of  manufacturer  limited  but  not  profit  of  middleman    under 

Ford  proposal   (Colonel  Hull) _      jgo 

Proportion   to  be  produced  by  Mr.  Ford  of  total  used  in  United 

States  (Mr.  Weeks) 44-45 

Reason  for  opposition  of  industry  to  Ford  proposal  (Mr  Bower) _Z  619-621 
Resolution  of  the  Farmers'  Educational  and  Cooperative  Union  of 
America  and  of  the  National  Grange  adopted  February  8    1916 

regarding  fixation  of  nitrogen  (Mr.  Bower) ' 615-616 

Results  of  producing,  at  this  great  plant  simply  staggeringrit  is  a 
tremendous  governmental  function,  reaching  to  every  person  in 
the  Nation  (Mr.  Butler) Q29 

^^nt^'^r,  }^^^^  ^J  P^^'^^f .^J2?  °^'  ^y  MirFo"r"d",'^n"b"e"estrmat^ 
at  $5.000,(XX),0(X)  at  end  of  100-year  period  (Mr.  Almon) 10O6 

Secretary  of  Agriculture  would  regulate  the  amounts  to  be  offered  for 
sale,  under  Engstrum  proposal  (Mr.  Butler) 906 

State  of  the  art  of  making  is  very  new  (Mr.  Cooper) I "      424 

Statement  of  Dr.  L.  H.  Baekeland  before  Senate  Committee"  on 
Agriculture  and  Forestry  regarding  cost  of  manufacture  of  (Mr 
Bower) [__•      ^^^ 


Fertilizer — Continued.  Pag* 

Statement  showing  number  of  tons  of  commercial  fertilizer  Mr.  Ford 

could  make  at  plant  No.  2  (Mr.  Worthington) 367 

Statements  of  Frank  S.  Washburn,  president  of  American  Cyanamid 
Co.,  before  Committee  on  Agriculture  on  February  9  and  March* 

16,  1916,  regarding  (Mr.  Bower) 618-619,623-624 

Statements  of  Frank  S.  Washburn,  president  of  American  Cyanamid 
Co.,  prior  to  the  war,  based  on  conditions  radically  different  from 

preseHt  conditions  (Mr.  Hammitt) 449 

Statements  relative  to  reduction  of  cost  of  production  of,  by  nitrogen 

fixation  methods  (Mr.  Bower) 619 

Table  showing  average  increase  per  acre  of  all  fertilizer  experiments 
in  the  United  States  published  up  to  1910,  with  the  number  of  ex- 
periments reported  up  to  that  time 345 

Table  showing  consumption  of,  in  United  States,  fiscal  years  ending 
1913  to  1920  (from  American  Fertilizer  Handbook  for  1921)    (Mr. 

Mayo) 1 292 

Table  showing  estimate  of  results  of  operation  by  Government  of 
United  States  nitrate  plant  No.  2  for  period  of  6  years  (Ma lor  Gen- 
eral  Williams) 84-85 

Table  showing  fertilizer  production  (Major  General  Beach) 106 

Table  showing  fertilizer  tonnage  by  States 96,107,343 

Table  showing  fertilizer  tonnage  in  1913  and  1919 341 

Table  showing  total  acreage  in  crops  in  1919,  the  tonnage  of  fertilizer 
sold  in  each  State,  and  the  additional  amount  of  amonia  required  to 
bring  the  intensity  of  use  at  least  up  to  the  present  practice  in 

Georgia 340-341 

Term  "unit,"  in  connection  with,  explained  (Mr.  Bower) 635 

To  be  produced  at  a  capacity  equal  to  110,000  tons  of  amonium  nitrate 

per  annum,  under  specified  conditions  (text  of  Ford  proposal) 15 

To  be  produced  at  nitrate  plant  No.  2,  not  to  be  sold  at  a  profit  in 

excess  of  8  per  cent  (text  of  Ford  proposals) 12, 16 

United  States  used  last  year  only  175,CKX)  tons  of  nitrates  for,  to 
Germany's  500,(X)0  tons,  and  at  least  half  of  what  United  States 

used  was  imported  from  Chila  (Mr.  Butler) 901 

Use  of  nitrate  plant  No.  2  to  make  various  ingredients  of  (Mr.  Ham- 
mitt)   463-464 

Use  of  secondary  power  for  production  of  nitrates  under  proposal  of 

Alabama  Power  Co.  (Mr.  Martin) 801 

(See  also  Amonium  sulphate.) 
(See  also  Nitrogen  compounds.) 
Financing  by  the  Government :  W^hen  Ford  offer  is  accepted  Congress,  in- 
stead of  appropriating  money  to  complete  the  dams,  could  provide  for 
issuance  of  4  per  cent  bonds.    The  interest  paid  by  the  Ford  Co.  would 

pay  the  interest  on  the  bonds  (Mr.  Almon) 1007 

Fixed  Nitrogen  Research  Laboratory,  statement  of  Doctor  Tolman,  direc- 
tor of 3ia-319 

Flowage  rights: 

Alabama  Power  Co.  owns  some  flowage  lands  at  site  of  proposed  Dam 

No.  3  (Mr.  Martin) 684-685 

Cost  of,  estimated  at  $1,000,000  (minimum)   (Mr.  Ford's  engineers).      243 
Cost  of,  estimated  at  $1,500,000  (maximum)   (Mr.  Ford's  engineers).      243 

Cost  of,  estimated  at  $1,500,000  (Mr.  Weeks) 43 

Cost  of.  estimated  at  $2,331,000  (memorandum  of  Chief  of  Engi- 
neers)         20 

Cost  of.  estimated  at  $2,700,000  (rough  estimate)   (Mr.  Cooper) 422 

Cost  of  land,  and,  should  be  included  in  cost  of  enterprise    (Mr. 

Weeks) i___ 30 

Cost  of,  Mr.  Ford  should  pay  interest  on  (Mr.  Cooper) 422 

Cost  of,  should  be  charged  to  navigation  (Mr.  Mayo) 243.247,250 

Discussion  of  (Mr.  Weeks) 57 

Government  and  Ford  estimates  for  (Mr.  Mayo) 243.246,247 

Interpretation  of  Ford  proposal  regarding — 

Colonel   Hull 178 

Major  General  Beach 113 

Secretary  of  War's  report 6 

To  be  acquired  by  the  United  States,  text  of  Ford  proposal 14 


1176 


INDEX. 


For(|.  Henry,  proposals  of.     (Sec  Proposals  of  Mr.  Ford.) 

Frothiiijxhani,  Francis  E.,  of  Coffin  &  Burr.  Boston,  Mass. :  Page. 

Indorses  Alabama  Power  Co.  proposal 950-954,968 

Statement 947-969 

General  Chemical  Co. : 

Contract  with,  legal  questions  involved  in — 

Letter  of  December  14,  1921,  of  Acting  .ludge  Advocate  (Jeneral_  174-177 

Opinion  from  Judge  Advocate  General'^  Office 24 

Extracts  from  the  minutes  of  a   regular  meeting  of  the  executive 
committee  of  the  General  Chemical  Co.,  held  on  the  1st  dav  of 

June,  1917 __"__  204-205 

Letter  dated  June  5.  1917,  placing  certain  patents  and  processes  for 
the  production  of  nitrates  at  the  disposal  of  the  President,  text 

of 203-204 

Patents  of.  letter  of  December  14,  1921.  of  Acting  Judge  Advocate 

General,   text   of 174-177 

Royalty  for  ja-ocess  (Mr.  Weeks) 44 

(Jeorgia  Railway  &  Power  Co.: 

Intercorporate  relations  with   American  Cyanamid   Co..  no  connec- 
tion between  c<mii>anies  (Mr.  Hannnitt) 486 

Letter  of  :May  20.  1921,  from:  inadvisable  for  (xovernment  to  develop 

Muscle    Shoals 118-121 

Germany  developing  water  power : 

Magazine  article  describing  Neckar  River  project ,^54 

Goethals,  Gen.  <;.  W. : 

Mr.  Engstruni  has  secured  the  services  of.  as  engineer  in  charge  of 

construction   (Mr.  Butler) 9.S5 

Text  of  bulletin  issue<l  by,  bearing  upon  contract  with  Alabama  Power 

Co 048.649 

Gorgas- Warrior  steam  plant: 

Alabama  Power  Co.  received  $285,000  for  constructing  Gorgas-Warrioi- 

steam  plant  (Mr.  Martin) 66.T 

Alabama    Power   Co.'s   investment    and   expenses   amounted    to   $1,- 

016,515.61  in  connection  with  the  plant  (Mr.  Martin) 650 

Analysis   of   several    alternative    provisions    for    disposal     (Colonel 

Joyes) 104^-1050,1058-1060 

Can  not  ofnecessity  be  essential  to  the  development  of  Muscle  Shoals 

(Mr.  Dent) 752-7(30 

Cheai»er  to  use  for  making  power  than  steam  plant  at  nitrate  plant 

No.  2    (Mr.   Mayo) 257,292 

Cheapei-  to  use  for  making  power  than  the  two  stand-by  steam  plants, 

therefore  it  is  very  necessary  at  present  (Mr.  Butler) 914 

Consi«lered  necessary  by  Mr.  Ford  to  supi)lement  primary  power.     It 
is  the  first  and  cheapest  steam  power  Mr.  Ford  would   use   (Mr. 

MaycO 975 

Contract  with  Alabama  Power  Co. — 

Government  can  not  sell  to  a  purchaser  who  can  oiierate  it.  ex- 
cept Alabama  Power  Co.,  and  if  Government  does  not  .sell  to 
them   it   must   take   it   off  their   land    (Mr.    Martin    and   Mr. 

Miller) 677,679 

Legislation  bearing  upon  (Mr.  Dent) 749-752 

Opinion  of  Nov.  16.  1921,  of  Acting  Judge  Advocate  General__  132-134 

Outline  of 720-721 

Text  of 150-171 

Text  of  supplemental  contract 651-657 

Work  largely  completed  before  execution  of  (Mr.  Martin) 647 

Cost  (memorandum  of  Chief  of  Ordnance) 22 

Description  of  (Major  Burns) 213 

Description  schedule  in  contract 167-169 

Every  dollar  spent  by  Government  on  this  plant  is  on  property  of 

Alabama  Power  Co.  (Mr.  Martin) ' 679 

Gorgas  plant  Is  not  adapted  for  two  operations  (Mr.  Martin) 668 

Government  has  vested  right  to  acquire,  by  condemnation,  interests  of 

Alabama  Power  Co.  in  Gorgas- Warrior  steam  plant  (Mr.  Quin)__  695-()9(J 
Government  is  bound  to  receive  a  very  substantial  value  for   (Mr. 
Martin) 1031 


INDEX. 


1177 


Gorgas- Warrior  steam  plant — Continued.  VAge. 

Govennnent  plant  can  be  separated  from  plant  of  Alabama  Power  Co. 

(Mr.    Worthington) 361-362 

If  Alabama  Power  Co.  is  unwilling  to  purchase,  the  Government  must 
remove  plant  (Major  Burns) 210 

If  Congress  should  cause  this  plant  to  be  condemned  and  taken  over, 
the  necessity  for  thus  taking  it  over  could  not  arise  in  any  court 
(Mr.  Oliver) 765 

If  left  in  Mr.  Ford's  proposition,  the  Government  must  condemn 
contractural  rights,  plant,  and  land  of  Alabama  Power  Co..  in- 
volving about  .$4,000,000  (Mr.  Dent) 748 

If  left  in  Mr.  Ford's  proposition,  the  Government  will  be  giving  to 

Mr.  Ford  ecpiivalent  of  approximately  $9,000,(X)0  <  Mr.  Dent) 748 

Indivisible  and  incapable  of  physical  division  from  plant  of  Alabama 
Power  Co.   (Mr.  Miller) 67ti-677,  6S8 

Investment  of  Alabama  Power  Co.  in  steam  plant  at  (Jorgas  com- 
pared with  investment  of  the  Government  (Mr.  Martin  and  Mr. 
Miller) <W>(M>67,  673-674, 679 

Is  practically  part  of  Alabama  power  plant  (Major  Burns) 209 

Legislation  giving  authority  to  executive  branch  of  Government  to 

sell  such  property  as,  text  of  (Mr.  Martin) 645 

Letters  between  Ordnance  Department  and  Alabama  Power  Co., 
pertaining  to  construction  of  Gorgas-Warrior  plant  and  transmis- 
sion line,  which  led  up  to  contract  between  the  Alabama  Power  Co. 
and  the  Government,  text  of 709-722 

Letters  of  December  7,  1917,  from  Ordnance  Department  to  Alabama 
Power  Co,  authorizing  construction  of  Gorgas  extension  (Mr. 
Martin) 731-732 

Natioiuil  defense  act,  relevancy  of.  to  construction  of.  {See  Legal 
questions  involved:  National  defense  act.) 

Necessarv  that  it  be  included  in  Ford  proposal  (Mr.  Worthington)—       351 

Not  necessaiv  for  Ford  to  have  this  plant  or  the  property  that 
belongs  to  the  Alabama  Power  Co.  in  order  to  operate  h:s  project 
(Colonel  Joyes) IJJIf' 

Offer  of  Alabama  Power  Co.  to  purchase,  text  of  proi)osal <<6 

Offers  of  Mr.  For<l  to  purchase,  text  of  proposals 11,15 

Operated,  nuiintained,  and  insured  at  expense  of  Alabama  Power 
Co.   (Mr.  Martin) 673-674 

Option  to  purchase  by  the  Alabama  Power  Co.,  legality  questione<l 

(Secretary  of  Wars  report) ' '^^* 

I'ower  cheaper  than  at  plant  No.  2,  because  transportation  of  coal 
is  not  necessary   (Mr.  Mayo) -•»< 

Rented  to  Alabama  Power  Co. — 

Company   paid   Government  $77,211.61    during   1921    for   use  of 

(Mr.  Martin) ^"^^ 

Netted    the    Govermuent    about   $75,000    during   calendar    year 

1921    (Secretary  of  War's   report) ^       ^ 

Reported  upon  by  Secretary  of  War 5.  (►.  s 

Sale  of  plant — 

Acts  of  May  10  and  July  9.  1918.  conferred  no  authority  for 
(Tovernment  to  sell  such  property  as  Gorgas-Warrior  steam 

plant    (Mr.  Oliver) 765-767,770 

Alabama  Power  Co.  understo(Hl  clearly  that  there  was  no  law 
under  which  the  United  States  could  agree  to  sell  Warrior  ex- 
tension to  the  company   (Mr.  Martin) (»44 

Ordnance  Department  has  an  absolute  right  to  sell  plant  with- 
out reporthig  to  Congress  (Mr.  Dent) 752,761 

Salvage  value  estimated  by  Chief  of  Ordnance 18 

Should  be  eliminated  from  Ford  proposal  (Major  Burns) 211-212 

Should  be  sold  to  Alabama  Power  Co.  (Major  Burns) 211 

Situation  which  led  to  construction  of   (Mr.  Martin) 642-651 

Statement  about  (Major  General  Williams) <K) 

Statement  by  Mr,  Martin,  in  answer  to  statements  made  before 
Militarv  Affairs  Committee  of  the  House  of  Representatives  on 
March  '8,  1922 1029-1031 

Suggested  basis  for  contract  between  Alabama  Power  Co.  and  United 
States  for  power  for  Air  Nitrates  Corporation  plant  at  Sheffiehl. 
text   of 70a-710,  729-730 


1178 


INDEX. 


Gorgas- Warrior  steam  plant — Continued.  Paga 

Suggested  basis  for  lease  or  purchase  of  proposed  steam  plant,  text 
of 714 

Was  not  physically  possible  to  extend  and  increase  original  plant 

and  make  extension  a  separately  contained  plant   (Mr.  Martin )__       672 
Haber  process: 

Description  of — 

Doctor  Parsons lllG,  1133-1134 

Major  Bums 220 

Mr.  Mayo 252 

Report  of  Muscle  Shoals  committee  of  American  Farm  Bureau 

Federation 559 

Discussion  of  (Doctor  Tolman) * 316-317 

Explosion  at  Oppau  had  nothing  to  do  with  (Doctor  Parsons)--  1124,1125 
Government   now   possesses   two    important    improvements   in    (Mr. 

Butler) 991 

Has  practically  already  superseded  the  cyanamid  process   (Doctor 

Parsons) 1121 

Is  operating  at  full  capacity  in  Germany,  turning  out  3(X),000  tons  of 

nitrogen   per    year    (Doctor    Parsons) 1124 

Most  efficient  process  for  the  fixation  of  atmospheric  nitrogen   (Mr. 

Butler) 990 

Much  more  efficient  method  of  producing  nitrogen  compounds  than 

the   cyanamid   process    (Mr.   MacDowell) 522 

Nitrate  plant  No.  1  could  be  redesigned  at  a  maximum  cost  of 
$4,000,000  and   made  most   efficient  Haber   process  plant  in  the 

world   (Mr.  Butler) 903 

Requires  about  one-fifth  of  the  horsepower  used  by  the  cyanamid 

process   (Mr.  MacDowell) 522 

Requires  only  one-tenth  of  the  power  of  the  cyanamid  process,  and 
about  one-fiftieth  of  the  power  of  the  arc  process  used  in  Norway 

(Doctor   Parsons) 1135 

There  is  no  patent  which  keeps  us  from  using  it.  It  will  make 
ammonia  cheaper  than  any  other  process  for  the  fixation  of  nitro- 
gen  from   the  air    (Doctor   Parsons) 1122 

Haber  process,  modified  by  General  Chemical  Co. : 

First  trial  of,  at  nitrate  plant  No.  1  was  not  thoroughly  successful. 

Does  not  consider  plant  was  a   failure    (Doctor  Parsons) 1136 

Has  never  been  worked   out    (Mr.   Worthington) 380 

Now   accomplished   fact    in   America   on   commercial   basis    (Major 

Burns) 208 

Statement  about  (Major  Burns) 208 

Unsuccessful  at  nitrate  plant  No.  1  (Major  General  Williams) 78 

Hammitt,  J.  O.,  vice  president,  Air  Nitrates  Corporation : 

Letter  of  March  2. 1922,  supplying  certain  information  for  the  record, 

text  of 969-970 

Statement 443-519 

Harris,  Forbes  &  Co.,  banker  control  over  Alabama  Power  Co.  explained 

(Mr.  Frothingham) 957 

Horsepower : 

Allotment  of,  to  fertilizer  plant  under  Ford  proposal   (Mr.  Worth- 
ington)   385-386 

Cost  of  installing  each,  at  Dam  No.  2  (report  of  Muscle  Shoals  com- 
mittee of  American  Farm  Bureau  Federation) 561 

Cvanamid  process  requires  more  than  Haber  or  Claude  processes 

\Mr.  MacDowell) 522 

Developable  at  Dam  No.  2  (Major  General  Beach) 124 

Developable  at  Muscle  Shoals — 

Mr.  Cooper 420 

Mr.  Miller 369 

Discussion  of  amounts  to  be  produced  at  various  units  and  rates  at 

which  it  could  be  sold  (Mr.  Mayo) 261-262,  275-280 

Government  could  lease,  on  basis  of  a  return  of  5  per  cent  on  all 
money  invested  in  Dam  No.  ^  (if  Ford  proposal  be  not  accepted) 

(Mr.  Cooper) 417 

Keokuk  Dam  (Mr.  Cooper) 426 


INDEX. 


1179 


Horsepower— Continued.                                                                ,  .  ^  r.  ^        ^*'** 
Table  showing  amounts  generated  at  the  principal  completed  hydro- 
electric developments  in  the  Carolinas,  Georgia,  Alabama,  and  Ten- 
nessee  (Mr.  Worthington) 389 

Table  showing  water  power  at  Muscle  Shoals ^^ 

(See  also  Power.) 
Hughes,  Charles  Evans,  counsel  for  American  Cyanamid  Co.  in  connec- 
tion with  protection  article  of  contract  (Mr.  Hammitt) ^  ^^' 

^  451-452,474,488,501 

Hull,  Col.  John  A.,  Acting  Judge  Advocate  General:  ^oi  oa^ 

Statement 131-JOo 

( See  also  Judge  Advocate  General's  Office. ) 
Hydroelectric  development : 

Coffin  &  Burr  have  handled  bonds  on  hydroelectric  properties  all 

over  the  United  States  and  in  Canada  (Mr.  Frothingham )____ 9o9 

Description  of  entire  region  of  Mississippi,  Tennessee,  Louisiana, 
Texas,    Oklahoma,    and    Arkansas,    in    relation    to    (Mr.    Froth-  ^ 

ingham) ^I'^l 

Hydrographs,  Tennessee  River,  at  Florence.  Ala ia».  ^ly 

Interest ' 

Compounded  at  4  per  cent  on  Government's  investment  of  $83.- 
175,475,  would  be  a  loss  to  Treasury  of  $1,275,000,000  at  end  of  lease 
period  (Mr.  Cooper)  (analysis  of  this  statement  by  Mr.  Cooper, 
pp.    638-639) ^^410,414 

Compounding,  on  investments  of  Government,  as  figured  by  Mr. 
Cooper  can  not  be  done — 

Mr.  Bower 626 

Analysis  of  Mr.  Cooper's  statement  by  Mr.  Mayo 976-97 1 

Cost  of  carrying  the  expenditures  during  preliminary  periods  not  cus- 
tomarily considered  in  Government  work  (memorandum  of  Chief 
of  Engineers) 20 

Fair  to  assume  that  4  per  cent  Mr.  Ford  is  to  pay  will  be  above  aver- 
age rate  for  Government  bonds  (Mr.  Almon) 1007 

Government  does  not  receive,  for  investments  in  river  and  harbor  im- 
provements, railroad  land  grants,  etc.  (Mr.  Quin  and  Mr.  Worth- 
ington)   - 391-392,  394-395 

Under  Alabama  Power  Co.  proposal  the  100,000  horsepower  that  is 
furnished  the  Government  has  an  equivalent  money  value  which 
might  be  taken  as  interest  on  the  Government's  investment  already 

put  into  Dam  No.  2  (Mr.  Frothingham) 954 

Interest  rates : 

Bonds  for  payment  of  construction  of  dams  could  be  issued  by  the 
Government  in  blocks  at  4  per  cent  (Mr.  Mayo) 272,980 

Conservative  to  use  4  per  cent  in  calculating  cost  to  United  States 
Treasury  of  Ford  proposal  (Mr.  Cooper) 414 

Credit  of  the  Government  can  be  lent  to  Muscle  Shoals  proposition  at 
4  per  cent  (Mr.  Mayo) 2^ 

Credit  of  the  Government  will  be  loaned  for  Muscle  Shoals  proposi- 
tion at  not  to  exceed  4  per  cent  (Mr.  Worthington) 373 

Hydroelectric  developments  (Mr.  Worthington) 355 

If  Government  charges  Mr.  Ford  8  per  cent  on  water  power,  farmers 
will  pay  it  in  cost  of  fertilizer  (Mr.  Bower) 631-632 

Table  showing  electric  light  and  power  security  issues  in  1921 356 

Table  showing  interest-bearing  debts  of  the  Government  (Mr. 
Silver) 608 

Table  showing  per  cent  of  interest  on  Government  loans  now  out- 
standing in  the  shape  of  bond  issues  (Mr.  Almon) 1(X)7 

Under  Engstrum  proposal  Government  pays  5  per  cent  in  addition  to 

the  cost  of  construction  (Mr.  Butler) 911,919 

Will  cost  the  Government  4^  or  4J  per  cent  to  get  money  on  which  ^Ir. 

Ford  will  pay  4  per  cent  (Mr.  Hill) 382 

Investment  of  the  Government: 

In  properties  included  in  Alabama  Power  Co.  proposal  amounts  to 
$34,000,000  (Mr.  Quin  and  Mr.  Martin) 852^53 

In  properties  included  in  Ford  proposal  amounts  to  approximately 
$85,000,000  (Secretary  of  War's  report) 8 

{See  also  Expenditures  of  the  Government.) 


1180 


INDEX. 


INDEX. 


1181 


.Toy^,  Col.  J.  W.,  Ordnance  Department:  Pag«. 

Letter  of  May  24,  1919,  to  Alabama  Power  Co.,  text  of        657 

Representative   of   the   Government   wht)   entered   into   negotiations 

with  the  Alabama  Power  Co.  and  the  American  Cyanamid  Co__  1038, 1065 

^>tatement lO'iR-iiif^ 

Judjre  Advocate  General's  office :       "       ~  ~  -lvoo-j.xio 

Letter  of  December  14,  1921,  to  The  Adjutant  General,  questions  in 

re  contract  with  General  Chemical  Co 174-177 

Memorandum  of  January  17,  1922,  sale  of  nitrate  plants-__I_r___Z  173-174 
Memorandum  of  .January  28,  1922,  legal  questions  involved"  in  Ford 

proposal 23-25 

Opinion  of  November  16,  1921,  in  re  contract  with  Alabama'Power 

^^ _  m2-i^ 

(See  al^o  Hull,  Col.  John  A.)  -lo^-io* 

Jurisdiction  of  this  committee  (Committee  on  Military  Affairs) 65 

Keokuk  dam,  horsepower  at  (Mr.  Cooper) 426 

Koppers  Co.,  of  Pittsburgh,  quotation  from  an  argiim~e"nt  "for  a  duty  on 

sulphate  ot  ammonia  prepared  bv  (Mr.  Rowpr^  a-in 


Land  : 


prepared  by  (Mr.  Bower) 619 


Damages  payable  to  Alabama   Power  Co.  would  probably  be  high 

(Maj.  Burns) 213 

Revised  Statutes,  3736,  prevented  Ordnance  Department  from  buying 
land  at  tmie  contract  was  made  with  Alabama  Power  Co    (Col 
Joyes) ^    ^     ^^^^ 

(Krc  also  Right  of  way  for  transmission  line.) 
Land  and  flowage  rights.     (See  Flowage  rights.) 

•  Lawyers,  partial  list  of,  in  Ordnance  Department,  1917-18__  1043-1044 

Leases:  w^tj-xvnr. 

Properties  Mr.  Engstrum  offers  to  lease,  text  of  proposal 896-897 

Propertied"  Mr.  Ford  offers  to  lease,  text  of  proposals 10-11  1.V14 

Length  of — 

Discussion  of — 

Major  (Jeneral  Beach 100-101.10.3-104 

Mr.  Cooper 4^-  ^^g 

Mr.  Mayo  _  243,  285^288,  304-307 

Mr.  Qu:n  and  Mr.  Worthington * 393-.394 

50-year  term — 

Asked  for  under  Engstrnni  i)roposal   (Mr.  Butler) 907  991 

Text  of  Engstrum  proposal '397 

Under  Federal  water  power  act.  text  of  Alabama  Power  Co 

proposal -j^ 

Mr.  Ford  would  not  consider  50-year  period  (Mr.  Mavo) 285  971 

Xo  objection  to  10()  years  (Mr.  Worthington) ' 3.53-3.54' 3.5S 

100  years  too  long.  50  years  preferable — 

Mr.  rooi>er . 4^5  4^4 

Mr    Weeks 31-.32,  54,  63 

Ihere  shouhl  be  no  objection  to  the  Ford  (»ffer  on  account  of  the 

300-year  lease  period  (Mr.  Almon) 1007-1008 

Renewal  of — 

Under  Alabama  Power  Co.  proposal  Government  has  right  of 

recapture  at  end  of  50-year  period,  text  of  proposal 

Under  Engstrum  proposal — 

Xo  preference  asked  at  en<l  of  50-.vear  period  (Mr.  Butler )__       991 
Propei-ty  to  be  returned  to  Goverinnent  at  en<l  of  50-year 

l»eriod,  text  of  proposal 397 

Under  Ford  proiKisal  preferred  claim  of  Mr.  Ford's  companv  to 
be  furnished  with  power  beyond  100-year  period- 
Mr.  Cooiw 419  42.-^26 

Mr.   Crowther 4gg 

Mr.    Mayo '^8r^-2SS~3m^07~ 97^75 J)Vr^^^^ 

Text  of  proposals -,-i  ^^ 

Leasing  act  of  July  28.  1892.  text  of I I-l-IIIU'I        26 

Legal  questions  involved: 

Air  Nitrates  Corporation — 

Administrative  officer  of  the  Government  might  be  authoriztnl  bv 
law  to  make  a  binding  offer  to  (Mr.  Hamraitt) '_      453 


775 


Legal  questions  involved — Continued. 

Air  Nitrates  Corporation — Continued.  !*««•' 

Claims  option  to  purchase  nitrate   plant   No.   2    (Secretary   of 

War's  report) 6 

Procedure  the  Government  might  follow  in  making  proposition 

to  sell  nitrate  plant  No.  2  to  (Mr.  Hammitt) 491 

Air  Nitrates  Corporation,  contract  with — 

Mr.  Ford  will  not  bear  the  expense  of  any  litigation  that  the 
Government    may    have    in    settling    any    agreement     (Mr. 

Mayo) 987 

The  nature  of  the  contract  and  the  amount  which  has  been  paid 
by  the  Government  to  this  company  clearly  shows  that  there 
is  not  even  a  moral  obligation  on  the  part  of  the  Government 

(Mr.  Almon) 1008-1009 

Opinion  from  Judge  Advocate  General's  Office 24 

Opinion  of  Major  Burns 2.38-239 

Statement  of  Mr.  Hammitt,  vice  president 443-519 

Alabama  Power  Co. — 

Damages  payable  to,  would  probably  be  high  (Major  Burns) 213 

Legislation  giving  authority  to  executive  branch  of  Government 
to  sell  such  property  as  Gorgas-Warrior  steam  plant,  text  of 

(Mr.  Martin) 645 

Plan  was  that  contract  provide  that  the  United  States  would,  if 
permitted  by  law.  sell  Warrior  extension  to  the  company  on 

its  demand  (Mr.  Martin) 644 

Understood  clearly  that  there  was  no  law  under  which  the 
United  States  could  agree  to  sell  Warrior  extension  to  the  com- 
pany   (Mr.   Martin) 644 

•  Alabama  Power  Co.,  contract  with — 

Action  by  Government  which  would  test  construction    (Colonel 

Hull 203 

•            Article  22  of  contract  is  not  binding  agreement  on  part  of  Gov- 
ernment  (Mr.  Oliver) 760 

Character  of  contract   was  not  at  all   unprecedented    (Colonel 

Joyes) 1094 

Claims  of  Alabama  Power  Co.  would  not  involve  3  or  4  years  of 
litigation  if  Congress  should  by  vote  accept  offer  of  Afr.  Ford 

and  direct  condemnation  of  Gorgas  plant  (Mr.  Oliver) 099 

Date  of  execution  of  (Mr.  Martin) 647,  680-(Wl 

Dent  Act  is  not  applicable  to  (Mr.  Oliver) 774 

Discussion  of  legal  phases  of  (Mr.  Oliver) 704-774.8.33-836 

General  statement  on  legal  rights  of  the  company  under  its  con- 
tract (Mr.  Dent) 742-764,816-833 

If  Congress  declares  property  of  company  is  necessary  for  public 
use  and  condemns  same,   the   company    has   right   to  contest 

that  question  in  the  courts  (Mr.  Dent) 817-822 

If  Congress  should  cause  Gorgas-Warrior  steam  plant  to  be  <'on- 
dennied  and  taken  over,  the  necessity  for  thus  taking  it  over 

could  not  arise  in  any  court  (Mr.  Oliver) 765 

Legislation  bearing  upon  (Mr.  Dent) 740-7.5:: 

Mr.  Engstrum's  proposal  does  not  involve  any  litigation.  His 
offer  is  the  use  of  the  Oorgas  plant  under  a  lease  that  would 
come  wil'hin  the  contract  the  Government  has  with  them  (Mr. 

Butler) 914-915 

Mr.  Ford  would  not  be  willing  to  take  over  any  legal  work  in 

reference  to  segregating  the  Government's  rights  (Mr.  Mavo)--      979. 

987-^88 

Opinion  from  Judge  Advocate  General's  office 24,25 

Opinion  of  Chief  of  Ordnance 18,19,69,90 

Opinion  of  Colonel  Hull 177,194-19.5.203 

Opinion  of  Major  Burns 212,22.5-229 

Opinion  of  Nov.  16,  1921,  of  Acting  Judge  Advocate  General___  1.32-134 
Secretary  of  War  on  Aug.  31,  1918,  issued  Bulletin  No.  50.  relat- 
ing to  the  act  of  July  9, 1918,  on  the  sale  of  war  supplies  (Major 

Booton) 886 

Statement  of  Mr.  Martin,  president 640-702,  706-741 

Summary  of  article  22  of  contract  (Major  Burns) 70 


1182 


INDEX. 


Legal  questions  involved — Continued. 

Alabama  Fower  Co.,  contract  witli — Contineud.  Page. 

Supply  Bulletin  No.  13  of  Aug.  3,  1918,  on  contract  provisions 
regarding  increased  manufacturing  facilities,  text  of  (Major 

Booton) 886-887 

Text  of 150-171 

Would  not  be  held  binding  on  United  States  by  any  court  (Mr. 

Quin) 295 

American  Cyanamid  Co. — 

Wants  to  avoid  determination  of  legal  obligation  in  the  courts 

(Mr.  Hammitt) 447 

Contract  with — 

Contract  of  this  character  ought  to  be  void  on  the  ground  of 

public  policy  (Mr.  McKenzie) 453 

Opinion  from  Judge  Advocate  General's  office 25 

Opinion   of  Chief  of  Ordnance 18,19 

Statement   of  Mr.   Hammitt 443-519 

Text    of 135-144,144^150 

Patents  of;  Government  has  no  authority  to  grant  a  license  for 

use  of,  to  a  lessee  of  nitrate  plant  No.  2  (Mr.  Hammitt) 503 

Authority  of  Congress  to  condenm — 

Does  not  extend  alone  to  property  essential  to  permanent  opera- 
tion of  a  Government  project   (Mr.  Oliver) 765 

Limited  to  property  that  is  essential  to  carry  out  fundamental 

Government  purpose  (Mr.  Dent) 748 

Contract  of  Mr.  Ford,  if  unfultilled— 
Legal  recourse  of  the  Government — 

Colonel    Hull 190-191,202-203 

Mr.    Weeks 28-29 

Text  of  Ford  proposal ig 

Drifton  Railroad- 
Contract  with  Alabama   Power  Co..  text  of 150-lTl 

Opinion  of  November  16,  1921,  of  Acting  Judge  Advocate  Gen- 
eral     132-134 

Fertilizer,  production  of — 

Interpretation  of  Ford  proposal — 

Major    Burns 215 

Mr.  Silver 590,602 

Language  of  section  15  of  Ford  proposal — 

Mr.  Crowther  and  Mr.  Mayo 307-308 

Mr.    Silver 574-576,588-591,613-614 

Mr.    Worthington 378-379 

Liability  of  Mr.  Ford  for— 

Colonel   Hull 201 

Colonel  Hull  and  Mr.  StoU 197 

Doctor   Parsons 1140-1142 

Mr.    Weeks 28-29, 37 

Mr.  Ford  could  not  discontinue  to  manufacture  cheap  fertilizer 

until  every  effort  was  exhausted   (Mr.  Mayo) 302,309 

Mr.  Ford  could  not  state  he  would  use  all  products  of  nitrate 

plant  No.  2  for  fertilizer  alone   (Mr.  Worthington) 366-367 

Mr.  Ford  understands  his  offer  to  guarantee  that  he  will  utilize 
al;  least  100,000  horsepower  in  the  manufacture  of  (Mr.  Mayo)_      981 
Fertilizer  products,  board  to  control — 

Legal  successors  of  American  Farm  Bureau  Federation  in  re 

lation  to  (Mr.  Silver) 57^-576, 613-614 

Nonpermanency  of  (Colonel  Hull) 2OO 

Flowage  rights — 

Interpretation  of  Ford  proposal  regarding — 

Colonel    Hull 173 

Major  General  Beach 113 

Secretary  of  War's  report Q 

General  Chemical  Co.,  contract  with — 

Letter  of  December  14,  1921,  of  Acting  Judge  Advocate  General, 

text  of 174-177 

Opinion  from  Judge  Advocate  General's  office 24 


INDEX. 


1183 


Legal  questions  involved — Continued. 

Gorgas-Warrior  steam  plant —  Pag«. 

Acts  of  May  10.  and  July  9.  1918.  conferred  no  authority  for 
Government  to  sell  such  property  as  (iorgas-Warrior  steam 
plant    (Mr.   Oliver) 76;V767,  770 

Analysis  of  several  alternative  provisions  for  disposal  (Colonel 
J<»yes 1049-10.50,1058-1060. 

Contract   with  Alabama    Power  Co.,   text   (►f 1.50-171 

Government  can  not  shH.  to  a  purchaser  who  can  operate  it  ex- 
cept Alabama  I»owcr  Co.,  and  if  the  (iovernment  does  not  sell 
to  them  it  must  take  plant  off  their  land  {Mr.  Martin  and  Mr. 
Miller) 077^  ^79 

If  plant  is  left  in  ^Ir.  Ford's  proposition  the  Government  nuist 
condemn  contractual  rights,  plant,  and  land  of  Alabama  Power 
Co..  involving  about  .$4.0fK),000   (Mr.  Dent) 748 

Investment  of  Alabama  Power  Co.  in  steam  plant  at  Gorgas  com- 
pared with  investment  of  the  (Jovernment  (Mr.  Martin  and 
Mr.    Miller) 666-667,673-674,670 

Opinion    of    November    16,    1921,    of    Acting*  Judge    Advwate 

General 132-134 

option  to  purchase  by  rlie  Alabama  Power  Co.,  legalitv  questioned 

(Mr.  Weeks) ____'___ 5-6 

Ordnance   Department   has  absolute   light   to   sell   to   Alabama 

Power  C(».,  without  rei)orting  to  Congress   (Mr.   Dent) 752.761 

Government  has  veste<l  right  to  acquire,  by  condemnation,  interests 

of  Alabama  Power  Co.  in  steam  plant  at  Gorgas  (Mr.  Quin)__  69^-696 

Jurisdiction  of  this  committee  (Committee  on  Militarv  Affairs) 65 

Jurisdiction  over  sale  of  i>o\ver  by  Mr.  Ford —  '  * 

Federal   Power  Commission"  excluded   under   Ford   proposal   as 

written  (statement  No.  3,  Mr.  Cooper) 413 

Federal  Power  Commission  might  regulate  (Secretary  of  War's 

report  and   statement) _* 9  54  56 

If  ]Mr.  Ford  is  to  have  a  straight  lease  he  would  be  exempted' 
from  action  of  Federal  water  power  law  or  laws  of  Alabama 
(^Ir.    Cooiier) ^^g 

Power  to  be  sold  would  probably  be  under  State  of  Alabama  law 

(Mr.   Mayo) 943 

Price  will  be  controlled  by  the  Public  Utility  Commis.sion  of  Ala- 
bama  (Mr.  Worthington) ^jq 

Public  Service  Commission  of  Alabama  might  regulate   (Secre- 
tary of  War's  report  and  statement) 9  .54  56 

Land,  purchase  of —  ~  ''    ' 

Revised   Statutes.  3736,  prevented   Ordnance  Department   from 
buying  land  at  time  contract  was  made  with  Alabama  Power 

Co.  (Colonel  Joyes) jq;^ 

Liability  of  estates  under  laws  of  Michigan 179-180 

,   Liability  of  the  (Government   under  contracts;   opinion   of  Colonel 

X'  *.  ^"JVi 199-200 

National  defense  act — 

Appropriation  of  .$20,000,000  under,  use  of  (Major  Burns) 199 

Contract  with  Alabama  Power  Co.  not  governed  by  (Mr.  Dent) .747-748 
Contract  with  Alabama  Power  Co.  not  made  under  authority 

of   (Mr.  Martin) 723-724  732 

Contract   with    American   Cyanamid   Co.,    relevancy   of   act   to~ 

(Mr.    Hammitt) 447,448  460 

Dam  No.  2  was  constructed  under  authority  of   (Secretary  of 

War's  report  and  statement) * 4 

Gorgas-Warrior   steam   plant,   construction   of,   had   no   connec- 
tion whatever  with  act  (Colonel  Joyes) 1053 

Gorgas-Warrior  steam  plant,  relevancy  of  act  to  (Mr.  Kahn) 641 

Gorgas-Warrior  steam  plant  was  provided  for  in  (Mr.  Almon)_  741-742 

Nitrate  plant  No.  1  was  constructed  under  (Colonel  Joyes) 1057 

Nitrate  plant  No.  2  was  not  constructed  under  (Colonel  Joyes) 1057 

Nitrate  plant  No.  2— 

Authority  for  construction  of,  discussion  of  (Col.  Joves  and  Mr 
AVright) :_ 1098-1099 

92900—22 75 


1184 


INDEX. 


IXDEX. 


I^gal  qiiestioiL*;  involved— Coiitinuen 
'    Nitrate  plant  No.  2— Continueil.  Page 

Authority  for  con.striiction  of  wa.s  not  in  national  defense  act 

(Col.    Joyes) __  ^^-, 

Deed  ought  to  contain  reservation  (~Mr.  Parlver)!  -IIIZII'IIZZI        48 

Maintenance  of,  in  condition  for  war  emergency,  i"nterp7etation 

of  Ford  proposal  (Col.  Hull) *  "ni-ono 

Proposal  of  Alabama  Power  Co.— 

Acceptance  of.  would  seem  not  to  interfere  with  contract  with 

Air  Nitrates  Corporation  (letter  from  Secretary  of  War)___  775-770 

interpretation  of  clause  regarding  purposes  for  which  the  Gov- 
ernment may  use  the  power  to  he  furnislied  by  the  company 
(Mr.    Martin) 8i4_^xi  8(>3-8f>4 

Recapture  clause  would  relate  only  to  investinent  of  the  com- 
pany   (Mr.  Martin) o^^ 

Proposal  of  ^Ir.  Engstrum—  ~  " 

Acceptance  of,  would  not  be  interfereil  with  by  present  contracts 
of  the  (government  with  the  Air  Nitrates  Corporation  or  the 

Alabama  Power  Co.  (Mr.  Butler) qiq 

Proposal  of  Mr.  Ford— 

Acceptance  of,  would  not  be  interfere  1  with  bv  so-called  "  option 

to  purchase"  of  Air  Nitrates  Corporation  (Mr.  Almon)___  1008-1009 
Amount  of  money  to  be  put  in  as  working  capital  is  sufficient 

guaranty   (Mr.  Mayo)_ ^qq 

Can  not  be  acceptetl  under  existing  law  (Mr.  Hammitt)__IZ_     450,454 
Clause  iiught  be  added  to  protect  Government  against  mortgages 

being  placed  by  company  (Mr.  Mayo) 281 

•  ^.lability  to  fulfill  contract — 

.Iplonel  Hull 190-101,  195-197,  201-202,  20a 

Mr.  Miller  and  Mr.  Mavo 9^Q_9fti 

Mr.    Stoll '_ ZZ__Z  __"ZZZ'Z~Z"ZZZ  197 

Mr.    Weeks ZZ"28^29,"37,"5(>-51,  57 

lext  of  I'ord  proposal,  sect'on  IS i(] 

]Mr.  Ford  wouhl  not  ob.iect  to  added  clause  in  deed  regarding  pro- 
ducthm  of  explosives  in  time  of  war  at  nitrate  plant  No    2 

(Mr.   Ma.vo) gj^j^ 

Opinion  from  Judge  Advocate  (teneral's  office Z ^3-^5 

Term  •'  head  of  any  executive  department  " — 

Can  not  l)e  construed  to  designate  a  head  of  a  bureau  of  a  de- 
partment  (Mr.  Oliver) y^.^. 

Understood  to  include  chiefs  of  bureaus  (Mr.  Dent) 750  giy 

Legislation : 

Alabama  law  exempts  companies  engaged  in  development  of  hydro- 
electric energy-  for  10  years  (Mr.  Martin) I 420 

Alabama  public  utility  act  of  October  1,  1920,  text  of  pertinent  sec- 


1185 


tions. 


^    ^,      .  . ~ 55-56 

Authorizing  execution   of  contract   with  Alabama  Power  Co.    (Mr. 

Martin ) 722-723 

Authorizing  executive  branch  of  Government  to  sell  such  property" as"" 

Gorgas-Warrior  steam  plant,  text  of  (Mr.  Martin) 645 

Condemnation  of  land  for  military  uses,  text  of  act  of  April  11,  1918, 

authorizing  (Colonel  Joyes) 1051 

Dent  Act,  text  of 657-660 

Federal  water  power  act,  text  of  section  5  i)ertaining  to  applications 

for  licenses  (Mr.  Worthington) 380-381 

Leasing  act  of  July  28,  1892,  text  of 26 

Liability  of  estates  under  laMS  of  Michigan 179-180 

National  defense  act.  text  of  section  124 25-26 

Levering,  J.  H.,  civil  engineer,  statement 939-946 

License  agreement: 

With  American  Cyanamid  Co. — 

Amounts  payable  under  (Mr.  Parker  and  Mr.  Hammitt) 479-480 

Text  of 144-150 

Lime-nitrogen.     (See  Cyanamid.) 

Load  factor,  definition  of  term  (Mr.  Martin  and  Mr.  Thurlow) 868 


Locks : 

Construction  of  and  payment  for —  Page. 

Text  of  Alabama  Power  Co.  proposal 776 

Text  of  Ford  proposal 10-11 

Construction  of,  text  of  Engstrum  proposal 897 

Dam  No.  2,  cost  to  complete  estimated  at  .$2,500,000  (Mr.  Weeks) 46 

ii^ee  also  Repairs,  maintenance,  and  operation  of  dams  and  locks.) 
Louisville  &  Nashville  Railroad,   division   running  into  Muscle  Shoals 

will  be  electrifietl  if  Mr.  Ford  develops  power  (Mr.  Worthington) 355 

Mac'Dowell,  Charles  H.,  president  National  Fertilizer  Association,  state- 
ment   519-542 

McDuffie,  Hon.  .John,  Representative  in  Congress  from  Alabama,  state- 
ment    1021-1026 

Mahoney,  F.  D.,  commercial  manager  Alabama  Power  Co. : 

Statement 703-706 

Was  consulting  engineer  to  Ordnance  Department  during  the  war 703 

Maintenance.     (♦See  Estimates  of  maintenance.) 

aiaintenance  of  dams  and  locks.     (See  Repairs,  maintenance,  and  opera- 
tion of  dams  and  locks.) 
Marberly,  Captain,  disbursing  officer  of  the  Government  in  connection 

with  the  Air  Nitrates  Corporation  (Mr.  Hammitt) 499 

Market  for  power.     (»SVe  Power,  market  for.) 
Martin,  Thomas  AV.,  president  Alabama  Power  Co. : 

Statement 640-702,  706-741,  762.  774-816,  837-885,  946.  1027-1038 

Statement  of,  in  answer  to  statements  made  before  !ililitary  Affairs 
Committee  of  the  House  of  Representatives  on  March  8,  1922__  1027-1038 
Mayo,  William  B..  chief  engineer  of  the  Ford  ^lotor  Co.,  Detroit,  Mich., 

statement 241-311,  383,  971-988 

Michigan  law  on  liability  of  estates 179-180 

Mitchell,  James,  connection  with  Alabama  Power  Co.  (Mr.  Martin).  640-641,779 
Modifications  to  safeguard  Government's  interest  suggested  by  Secretary 

of  War  relative  to  Ford  proposal 1 9 

Alortgages: 

Clause  might  be  added  to  Mr.  Ford's  proposal  to  protect  Government 

(Mr.   Mayo) 281 

On  farms,  estimates  of  (Mr.  Quin) 396 

Muscle  Shoals  Canal : 

Annual  cost,  average  (Mr.  Fields) 607 

Annual  cost,  probable  (Ma.lor  General  Beach) Z         108 

Muscle  Shoals  Hydro-Electric  Power  Co.: 

Mr.  Mitchell,  president  of  the  Alabama  Power  Co.,  and  his  associates 
acquired  stock  of  (Mr.  Martin) 779 

Plan  of  development  of  Muscle  Shoals  situation  in  1912  (Mr.  Martin)  _       779 

Proposal  of  December  10,  1913,  for  development  of  sites  2  and  3  on 
the  Tennessee  River,  text  of 782-784 

Report  of  May  18,  1914,  of  Board  of  Engineers  for  Rivers  and  Har- 
bors on  bid  of  company  for  development  of  sites  2  and  3  on  the 
Tennessee  River,  text  of 781-782 

Statement  about  (Mr.  Martin) Z"  ZZ_Z  779-787 

Worthington,  Mr.  J.  W.,  sold  his  interest  in,  in  1912,  but  continued  as 

officer  of  the  company  until  February,  1920  (Mr.  Martin) 779 

Muscle  Shoals  proposition : 

All  stores,  supplies,  equipment,  and  other  loose  personal  property  now 
on  or  about  the  premises  to  become  property  of  Mr.  Engstrum's 

^^  corporation,  text  of  proposal 399 

"All  stores,  supplies,  equipment,"  etc.,  under  Engstrum  proposal 
would  amount  to  $3,5<K),000.  which  could  be  sold  back  to  contractor 
at  a  cost  of  at  least  $5,000,000  (Mr.  Levering) 939 

American  Farm  Bureau  Federation,  report  of  its  Muscle  Shoals  com" 

mittee , 544-567 

Benefits  of  operation  of,  in  production  of  fertilizer  Nation  wide ;~  is 
a  tremendous  governmental  function  reaching  to  every  person'  in 
the  Nation  (Mr.  Butler) 909 

By-product  coke-oven  interests  actively  engaged  in  defeating  comple- 
tion of  (Mr.  Bower) 6*>l-622 

Disposition  of.     (See  Disposition  of  Muscle  Shoals  proposition  )  ~ 


1186 


INDEX. 


INDEX. 


1187 


Muscle  Shoals  i)roi)ositi()n — Continued.  ,  Page. 

Financing  of,  standing  alone,  without  being  connected  with  activities 
in  the  region,  would  not  be  looked  upon  with  favor  by  Mr.  Froth- 
ingham 969 

Government  losing  millions  annually  from  nonuse,  depreciation,  and 
maintenance  (Mr.  Wright) 297 

Importance  of  best  T>ossible  constructi<m  on  Muscle  Shoals  property 
emphasized  (Mr.  Butler) 907 

Lease  of,  text  of  Engstrum  proposal 896-897 

National  Fertilizer  Association  oppose<l  to  Ford  contract,  but  inter- 
ested in  development  of  power  at  Muscle  Shoals  (Mr.  Mac- 
Dowell) 523-527 

Plan  of  development  of  Muscle  Sh<mls  situation  in  1912  (Mr.  Martin )__  779 

Shipping  facilities  in  relation  to  (Mr.  MacDowell) 532 

Statement  No.  3  re  operation  and  maintenance  of  Muscle  Shoals 
water  powers  (Mr.  Cooper) 412-413 

Table  showing  Government  balance  sheet  under  Ford  proposal  (Mr. 

Mayo) : 301 

National  defense: 

Acceptance  of  the  Ford  offer  will  make  us  independent  of  the  supply 

of  Chilean  nitrate  (Mr.  Almon) ^ 1010 

Acceptance  of  the  Ford  offer  would  not  mean  full  preparedness  but 

would  be  a  desirable  step  toward  preparedness  (Colonel  Joyes) 1097 

Alabama  Power  Co.  does  not  propose  to  maintain  nitrate  plant  No.  2 
in  condition  to  produce  nitrates,  but  undertakes  to  give  the  Gov- 
ernment power  and  money  (Mr.  Hull  and  Mr.  Martin) 813 

An  idle  plant  in  stand-by  condition  100  per  cent  better  preparedness 

(Mr.  Hammitt) 456 

An  operating  plant  could,  no  doubt,  be  used  for  the  production  of  ex- 
plosives far  sooner  than  a  plant  in  stand-by  condition  (report  of 
Secretary  of  War) 8 

An  operating  plant  more  protection  to  the  Government  in  case  of  war 
(statement  of  Mr.  W^ashburn,  president  of  American  Cyanamid 
Co.,  on  February  11,  191G)   (Mr.  Bower) 023-624 

Discussion  of  nitrate  preparedness  (memorandum  of  Chief  of  Ord- 
nance)      17-18, 19 

(Mr.  Weeks  and  Mr.  Fisher) 60 

Estimate  of  amount  the  Government  will  pay  for  nitrate  prepared- 
ness under  Ford  proposal  (memorandum  of  Chief  of  Ordnance) 19 

Interpretation  of  Ford  proposal  relative  to  guaranty  to  use  nitrate 
plant  No.  2  for  the  fixation  of  nitrogen — 

Major  Burns 215 

Mr.  Worthington 403 

Maintenance  of  nitrate  plant  No.  2  in  condition  for  war  emergency, 

interpretation  of  Ford  proposal   (Colonel  Hull) 201-202 

Maintenance  of  nitrate  plant  No.  2  in  interest  of,  recommended  (Mr. 
MacDowell) 529,  538-539 

Nitrate  plant  No.  2  of  no  use  for,  without  products  of  other  plants 
which  have  been  scrapped  (Mr.  Hammitt) 484 

Nitrate  plant  No.  2  should  he  kept  for  (Mr.  MacDowell) 538 

One  of  the  important  features  of  the  Engstrum  proposal  is  that  the 
nitrate  plant  will  be  ready  to  produce  nitrates  for,  in  time  of  war 
(Mr.  Butler) 1 929 

Provision  for.  under  Alabama  Power  Co.  proposal,  text  of  proposal 776 

Provision  for,  under  Engstrum  proposal,  text  of  proposal 899 

Provision  for,  under  Ford  proposal,  text  of  proposal 16 

Time  necessary  for  conversion  of  nitrate  plant  No.  2  from  fertilizer 
plant  into  plant  for  production  of  explosives,  under  Ford  proposal 
(Major  General   Williams) 98 

Time  necessary  for  conversion  of  jihosphoric  acid  furnaces  for 
making  fertilizer  back  into  carbide  furnaces  for  producing  am- 
monium nitrate   (Mr.  Swann) 439 

Time  necessary  to  change  nitrate  plant  No.  2  from  stand-by  condi- 
tion to  capacity  production,  estimate  of  (Major  General  Wil- 
liams)         86 


National  defense  act:  Pai«. 

Alabama  Power' Co.  was  responsible  for  proviso  that  was  put  in  sec- 

ti(m  124  of  (Mr.  Oliver) lOOl 

Chief  interest  of  Mr.  Engstrum's  proposal  is  the  operation  of  Muscle 

Shoals  property  as  provided  for  in   CMr.  Butler) 908,928 

Text  of  section  124 25-26 

(See  also  Legal  questions  involved:  National  defense  act.) 
National  Fertilizer  Association : 

Does  not  make  any  proposition  U*  operate  nitrate  plant,  yet  opposes 

Ford  proposal   (Mr.  Bower) 1 625 

Does  not  object  to  proposal  of  Alabama  Power  Co.  (Mr.  Bower) 629 

List  of  members  of.  Appendix  A ,^ 889-893 

Opposed  to  Ford  projiosal   (Mr.  Bower) 62i) 

OpiK)sed  to  Ford  i>roposal,  reasons  stated   (Mr.  MacDowell) 523-527 

Purposes  of  (Mr.  MacDowell) .522-.523 

Statement  of  Mr.  MacDowell,  president 519-542 

National  Grange: 

Authorized  to  designate  candidates  for  a  board  to  control  price  and 

dii^^tribution  of  fertilizer  products;  text  of  Ford  proposals 12,16 

Membership  of  (Mr.  Silver) 577 

Resolution  adoptetl  February  8.  1916,  regarding  fixation  of  nitrogen 

as  a  fertilizer  (Mr.  Bower) 615-616 

Natural  resources: 

Alabama   (Mr.  Quin  and  Mr.  Worthington) 396 

Tennessee  (Mr.  Quin  and  Mr.  Worthington) .396 

Tennessee  River  valley  (Mr.  Worthington) 386-388 

Navigability  of  Tennessee  River: 

General  Beach 122, 129 

Hon.  A.  A.  Taylor 320,321^322 

Mr.  Worthington 370-371.  404 

Navigation : 

Amount  estimated  by  United   States  engineers  before  the  war  as 

chargeable  to,  was  $8,575,000  (Mr.  Almon) 1004 

Building  of  dams  necessary  to  complete  (Mr.  Martin) 813,849-^850 

Completing  dams  will  increase  amount  of  (Mr.  Quin) 293 

Dam  No.  2  will  render  14.7  miles  of  Muscle  Shoals  navigable;  Dam 

No.  3,  63  additional  miles  (Secretary  of  War's  report) 5 

If  nitrate  plant  No.  2  is  operated,  there  will  be  approximately  460,000 
tons  of  sludge  per  year  to  be  disposed  of,  and  if  run  into  the  Ten- 
nessee River  it  will  damage  navigation  far  more  than  the  locks 

that  may  be  put  in  will  help  it  (Doctor  Parsons) 1126 

Proposal  of  Alabama  Power  Co.  would  make  river  navigable  to  ex- 
tent of  pool  created  by  Dam  No.  2  (Mr.  Martin) 813 

Would  be  extended  about  90  miles  by  proposed  dams  (Mr.  :Mayo) 295 

Would  not  alone  justify  proposed  expenditures  of  Government  (Mr. 

Worthington) 407 

(See  also  Transportation.) 
Nitrate : 

War  Department  now  has  on  hand  about  220.000  tons  (Mr.  Weeks).        57 
Nitrate  plants : 

Alterations,  additions,  and  changes  in.  text  of  Engstrum  proposal--  897,898 
Nitrate  plant  near  Chicinnati,  Ohio— <'ost,  .$7.321,400— has  been  re- 
tained by  War  Department   (Major  General  Williams) 86 

No.  1— 

Acreage  of  plant  site.  1,900  acres 18 

Chief  defects  in,  and  remedies  therefor  (Mr.  Butler) 990 

Chief  of  Ordnance  has  stated  that  if  modified  and  ma<le  an  oper- 
ating plant,  capacity  would  be  30  or  more  tons  per  day  of 
ammonia    (Mr.    Butler) ' 913 

Cost  of  (report  of  Muscle  Shoals  connnittee  of  American  Farm 
Bureau  Federation) 551 

Cost  of  construction,  ,$12,887,941.31  (memorandum  of  (Miief  of 
Ordnance) 21 

Cost  of  maintenance  during  fiscal  year  1921,  .$75,506.42  (memo- 
randum of  Chief  of  Ordnance) 21 

Cost  of  maintenance  or  stand-by  expense,  table  showing 556 


1188 


INDEX. 


INDEX. 


1189 


Nitrate  plants — Continued. 

No.  1 — Continued.  Page. 

Could  be  put  into  operating  form  for  $1,500,000  to  $2,000,000,  with 

about  30  tons  a  day  capacity  (Doctor  Parsons) 1133 

Has  a  complete  steam  plant  ready  to  operate,  which  can  be  used 

until  the  dam  is  completeil  (Mr.  Butler) 904 

Idle,  proved  unsuccessful  in  a  test  operation  (Secretary  of  War's 
rej)ort) ^ 

Instead  of  being  a  failure,  plant  No.  1  has  thoroughly  justified 
itself  (Doctor  Parsons) 1124 

Letter  of  Acting  Judge  Advocate  General  in  re  contract  with 

General  Chemical. Co.,  text  of 174-177 

Mr.  Engstrum  proposes  to  use  for  the  manufacture  of  nitrates 

(Mr.  Butler) '_ 902 

National  defense  act,  plant  was  constructed  under  authority  of 

(Colonel  Joyes) 1Q57 

Not  desirable  to  produce  nitrates  there  (Mr.  Worth ington) 363-365 

Olrers  of  Mr.  Ford  to  purchase,  text  of n  15 

The  one  possibility  of  making  fertilizer  with  anv  degree  of  cheap-      * 
ness  is  through  the  development  of  (Doctor  Parsons) 1125 

Ordnance  Department  has  reconnnended  it  be  disposed  of  (Major 
Bums) 208 

Reported  upon  by  Secretary  of  War___l ~  __  5 

Salvage  value  estimated  by  Chief  of  Ordnance I__        18 

Should  not  be  scrapped ;  could  be  redesigned  and  made  most  effi- 
cient Haber  process  plant  in  the  world  (Mr.  Butler) 903  990 

Statement  about —  * 

Major  Burns 207-'>08 

Major  General  Williams 1 I_I '^~_J1  67^ 

Synthetic  process  of  the  General  Chemical  Co.  was  used  at  (Mr 

Almon ) '     JQQ.7 

To  be  used  for  manufacturing  parts  for  Ford  automobile  busi- 
ness  (Mr.  Mayo) oko 

No.  2—  ^^^ 

Acreage  of  plant  site,  not  including  Waco  quarry,  2,306  acres,  ac- 
quired for  $237,711   (Secretary  of  War's  report) 5 

Air  Nitrates  Corporation  would  make  no  offer  for,  if  the  Govern- 
ment continues  to  hold  it,  unless  the  Government  provides  a 
subsidy   (Mr.  Hammitt) 434 

Alabama  Power  Co.  does  not  propose  to  maintain  in  condition  to 
produce  nitrates,  but  undertakes  to  give  Government  power 
and  money  (Mr.  Hull  and  Mr.  Martin) 813 

American  Cyanamid  Co.  has  made  no  profit  from  construction  of 

(Mr.  Hammitt) 440 

Ammonium  nitrate  of  no  use  for  national  defense," without  prod- 
ucts of  other  plants  which  have  been  scrapped  (^Ir.  Hammitt)-      484 

At  its  present  capacity  would  produce  about  2,<XK),000  tons  of 

fertilizer   (Mr.  Almon) 1006 

Authority  for  construction  of,  discussion  of  (Colonel  Joyes  and 

Mr.  Wright) 1098-1099 

By-product  coke-oven  interests  actively  engaged  in  defeating  com- 
pletion of  (Mr.  Bower) 621-622 

Calcium  carbide  could  be  produce<l  at  (Mr.  Parker) 481 

Can  not  be  operated  commercially  without  a  subsidy  (Mr. 
Hammitt) 45(j 

Can  produce  about  one-fourth  of  all  nitrogen  used  in  fertilizer 

(Mr.    Weeks) 45 

Can  produce  one-half  of  the  nitrogen  content  of  fertilizer  used  in 

the  United  States  annually  (Major  Burns) 230 

Capital  necessary  for  conversion  into  ammonium  sulphate  plant 
estimated  at  $3,000,000    (Major  Burns) 1 209,220 

Cost  of  (report  of  Muscle  Shoals  committee  of  American  Farm 
Bureau  Federation) 551 

Cost    of    construction,    including    Waco    quarry.    $67,555,355.09 

(memorandum  of  Chief  of  Ordnance) 22 

Cost  of  maintenance  during  fiscal   year  1921,   including  Waco 

quarry,  $201,674.63  (memorandum  of  Chief  of  Ordnance) 22 


Nitrate  plants — Continued. 

No.  2 — Continued.  •  Page. 

Cost  of  maintenance  estimated  at  $4.000,(K)0  for  20-year  period 

(Ma.1or  General   Williams) 85 

Cost  of  maintenance  or  stand-by  expense,  table  showing 556 

Cost  to  the  Government  to  maintain  in  stand-l)y  condition  (Major 
Burns) 239 

Could  be  maintained  bv  amount  payable  for  power  leased  (Major 
General   Williams) 89 

Cyanamid  process  of  the  American  Cyanamid  Co.   is  used  at 

(Mr.   Almon) 1002 

Depreciation  estimated  at  $2,.">(K),tHM)  annually   (Mr.  Mayo) 249 

Depreciation  estimatetl  at  $6,(HX).000  for  6  years  (Major  Gen- 
eral   Williams) 85 

Description  of  (report  of  Muscle  Shoals  committee  of  American 
Farm  Bureau  Federation) 544-546 

P^conomical  operation  of,  deiiends  chiefly  uixui  completion  of 
hydroelectric  plant  of  Dam  No.  2  (report  of  Muscle  Shoals 
committee  of  American  Farm  Bureau  Federation) 560 

Fertilizer  products  produced  not  to  be  sold  at  a  profit  in  excess 

of  8  per  cent   (text  of  Ford  proposals) 12,16 

Furnaces  could  be  changed  to  produce  fertilizer  (Mr.  Swann) 435 

Government  can  never  hope  to  do  anything  with,  and  anybody 
that  runs  it  will  lose  money  very  rapidly  (Dr.  Parsons) 1125 

Govennnent  has  no  authority  to  grant  a  license  for  use  of  pat- 
ents of  American  Cyanamid  Co.  to  a  lessee  (Mr.  Hammitt)—      5(^ 

Idle,  except  that  power  plant  is  leased  (Secretary  of  War's 
report) 5 

If  changed  it  will  have  to  be  practically  wiped  off  the  ground 
before  it  can  be  used  for  any  other  method  for  fixing  nitrogen 
(Dr.  Parsons) 1130 

If  it  can  not  be  operated  at  a  profit,  then  no  subsidy  is  Involved 

in  selling  plants  to  Mr.  For<l  for  $5,000,(X)0  (Mr.  Bower) 632 

If  air.  Ford  runs  to  its  capacity  to  make  nitrates,  he  will  lose 
all  his  fortune  in  20  years  (Doctor  Parsons) 1138 

If  operated  there  will  be  approximately  460,000  tons  of  sludge 
per  year  to  be  disposed  of,  and  if  run  into  the  Tennessee  River 
it  will  damage  navigation  far  more  than  the  locks  that  may 
be  put  in  will  help  it  (Doctor  Parsons) 1126 

Importance  of  location  of.  for  manufacturing  nitrates  (report  of 
Muscle  Shoals  committee  of  American  Farm  Bureau  Federa- 
tion)    : 548 

Interpretation  of  Ford  proposal  relative  to  guaranty  to  use,  for 
the  fixation  of  nitrogen — 

Major   Burns 215 

Mr.  Worthington 403 

Is  not  sound  public  policy  for  Mr.  Ford  to  use,  for  manufacture 
of  fertilizer    (Mr.   MacDowell) 537 

Letter  from  Doctor  Parsons  to  Chief  of  Ordnance,  dated  October 
31, 1917,  objecting  to  the  installation  of  plant  No.  2,  text  of_  1117-1119 

Maintenance  of,  for  production  of  nitrates  for  war  purposes, 

recommended   (Mr.  MacDowell) 529,  538-539 

air.  Ford  could  not  state  he  would  use  all  products  of,  for 
fertilizer  alone   (Mr.  Worthington) 300-367 

Mr.  Ford  intends  to  produce  a  coinplete  fertilizer  at  8  per  cent 

above  cost  (Mr.  Mayo) 253 

Mr.  Ford  or  anyone  else  can  not  operate  plant  No.  2  to  make 

fertilizer  (Doctor  Parsons) 1138 

Mr.  Ford  would  be  operating  and  turning  out  fertilizer  in  less 
than  15  months  if  (Nniir^vss  voted  to  accept  Ford  offer  and 
directal  condemnation  of  Gorgas  plant  (Mr.  Oliver) 9i>9 

National  defense  act — 

Plant    was    not   con.«^tnicte(l    under   authority    of    (Colonel 

.loyes) 1057 

Relation  of,  to  construction  of  plant  (Mr.  Hammitt)-  447,448,460 


1190 


INDEX. 


INDEX. 


1191 


Nitrate  plants — Continued, 

No.  2 — Continue.!.  Pagt. 

Needs  a  little  more  power  than  is  really  present  in  the  generat- 
ing unit  of  its  steam  power  plant  to  produce  its  full  rated 

production  (Colonel  Joyes) 109(5 

No  need  for  products  of,  for  agriculture  at  present    (Mr.  Mc- 
Dowell)  521,  538 

Number  of  tinished  tons  of  fertilizer  which  could  be  producecl" 

(Mr.  Mayo) 302,308-309 

Offers  of  Mr.  Ford  to  purchase,  text  of 11,  ir> 

Option  to  purchase  by  Air  Nitrates  Corporation,  legality  ques- 
tioned (Secretary  of  War  report) !___! 5-0 

Power  from  Gorgas- Warrior  steam  plant  not  needed  to  oi>erate 

(Major  General  Williams) 79 

Power  plant  of.     (See  Power  plants.) 

Present   equipment   of   Government    to    produce   nitrates    (Mr. 

Weeks) 3g 

Proceilure  the  Government  might  follow  in  making  proposition 

to  sell  to  Air  Nitrates  Corporation   (Mr.  Hanunitt) 491 

Production  estimates  of  nitrogen  cimiponnds  (Dr.  Whitney) 348 

Production    of    high-grade    fertilizers    at.    will    reduce    freight 

rates    (Mr.   Bower) _      q^I 

Production  of  nitrogen  compounds  at — 

Opinions  of  Dr.  Caro  and  ^Ir.  Washburn  on  (Mr.  Mayo)__  252-*>53 

Statement  of  Dr.  Caro  on    (Mr.  Silver) ' 564 

Products  which  can  be  manufactured  at,  and  connnercial  outlook 

(Dr.   Tolman)__ .313-319 

Proposal  of  Alabama  Power  Co.  limits  operation  of.  to  100.000 
secondary  horsepower,  which  would  mean  shutting  <lown  per- 
haps 4.  5,  or  6  months  of  the  year  (Mr.  Bower) aSO 

Reported  upon  by  Secretary  of  War ~  5 

Salvage  value  estimated  by  Chief  of  Ordujuice___I 18 

Salvage  value  estimated  by  Mr.  Hanunitt "      506 

Statement  about — 

Major  Burns 2O8 

Major  Genei-al   William.^ r__I_I_I 67^9 

Statement  showing  number  of  tons  of  commercial  fertilizer  Mr 

Ford  could  make  (Mr.  Worthington) ^      307 

Steam  phint.  kilowatt  output  of I ~      220 

Table  showing  estimate  of  results  of  operation  by  Government 
of  Cnited  States  nitrate  plant  No.  2  for  period  of  six  vears 

(Major  General  Williams) 1 84-85 

Table  showing  manufacturing  cost  of — 

Annnonium  nitrate  at 553 

Ammonium  sulphate  at 554 

Time  necessary  for  conversion  of  fertilizer  plant  into  plant  for 

producing  explosives    (Major  General   Williams) 98 

Time  necessary  for  conversion  of  phosphoric  acid  furnaces  for 
making  leitilzer   back   into  carbide  furnaces   for  producing 

annnonium   nitrate    (Mr,   Swann) 439 

Time  necessary  t«»  change,  from  stand-by  condition  to  capacity 

production,  estimate  of  (Major  (Jeneral  Williams) *_         80 

To  be  turne<l  over  to  the  Cniteil  States  if  required  for  the  na- 
tional defense — 

Text  of  Alabama  Powef  Co.  propo.sjjl 77(5 

Text  of  Ford  proiM)sals y2. 1(» 

I'se  of.   for  manufacture  of  fertilizer   ingredients    C^Ir.    Ham- 

mitt) 462^04 

\alue  to  (government   w!e:i   operated   under  section   1(5  of  Mr. 

Ford's   contract    (Mr.   Mayo) 295 

War-time  pro<luction  of  explosives  at.  Mr.  Ford  woidd  not  ob- 

je<t  to  added  clause  in  i\ee*\  regarding  (Mr,  Mayo) 30:{ 

Was  constructed   out  of  money  appropriated   for  arnuiment  of 

fortifications    (Colonel    .Toyes)    1057 

Will  be  a  simple  matter  to  redesign,  ready  to  make  either  nitrates 
for  fertilizer  or  nitrates  for  explosives;  maximum  estimate 
$3,000,000    (Mr.   Butler) 904 


Nitrate  plants — Continued.  Pa8«. 

Nos.  1  and  2  will  produce  about  one-third  of  fertilizer  neede<l   (Mr. 

Butler) 91T 

Operation  of  nitrate  plant  No.  1,  text  of  Ford  proposal 15 

Operation  of,  text  of  Engstrum's  proposal 897 

Power  to  be  develojjeil  at  Dam  No.  3  and  other  dams,  under  Eng- 
strum  proposjil.  should  be  conserved  and  used  to  operate  more 
nitrate  plants  by  the  Haber  process  (Mr,  Butler) 991 

Sale  of— 

Memorandum  of  January  17,  1922,  of  Acting  Judge  Advocate 

General 173-174 

Sufficient  amount  of  power  would  be  furnished  under  Engstrum 
proposal  to  oi)erate  both  plants  at  their  full  capacity  (Mr.  Butler)-      991 

Table  showing  maintenance  or  stand-by  expense  of  nitrate  plants 
Nos.  1  and  2 556 

Table  show  ng  world  <apacity  of  air  nitrogen  plants  (Mr.  Mayo) 250 

Nitrate  preparedness.     {See  National  defense.) 
Nitrates: 

British  Nitrate  Commission — 

Quotations  from  report  of  (Mr.  Silver) 557-558 

Reference  to  report  of  (Mr.  Worthington) 364-365 

Can  produce  enough  of,  at  plants  Nos.  1  and  2  now  to  have  a  bene- 
tichil  effect  u|Km  the  price  of  Chilean  nitrates  (Mr.  Butler) 918 

Chilean,  are  an  absolute  monopoly  (Mr.  Bower) 624 

Chilean  beds  will  be  exhausted  in  100  years  (Mr.  Bower) 619 

(Chilean,  duty  i»aid  for.  by  United  States  up  to  July  1,  1919,  amounted 

to  $163,647,080.(J8  (Mr.  Bower) 624 

Chilean,  present  cost  aJMHit  $48  or  $50  per  ton,  practically  one-fourth 
of  which  is  a  duty  i>aid  to  the  Chilean  Government.  Price  can  l>e 
put  up  or  down,  because  it  is  a  monopoly  (Mr.  Butler) 924 

Editorial  from  the  Oil,  I'aint,  and  Drug  Reporter,  of  January  23, 1922. 
regarding  supply  of  (Mr.  Bower) 626 

If  the  Muscle  Shoals  project  is  to  be  used  to  benefit  agriculture,  then 
nitrates  i)r<Kluced  there  must  be  sold  at  a  price  below  the  present 
selling  price  of  Chilean  nitrates  (Mr.  Butler) 906 

Letter  from  the  (Jeneral  Chemical  Co..  dated  June  5, 1917,  placing  cer- 
tain i)atents  an<l  processes  for  the  production  of  nitrate  at  the  dis- 
posal of  the  President,  text  of 203-204 

Mr.  Engstrum  proposes  to  use  nitrate  plant  No.  1  for  the  manufac- 
ture of  (Mr.  Butler) 902 

Mr.  Engstrum  will  buihl  extra  dams  as  fast  as  necessary  and  use  all 
this  development  in  producing  cheai>er  nitrates  (Mr.  Butler)  !H>4.  913 

Mr.  Engstrum  will  never  have  to  make  a  pound  of,  under  his  contract 

(Mr,  Levering) 940 

Mr.  Ford  can  not  make,  at  present  at  8  per  cent  profit,  but  he  can 
make  automobiles  with  greater  profit  at  Muscle  Shoals  than  he  can 
in  Detroit  (Mr.  Butler) 992 

Nitrate  commission — 

I'ersonnel   of    (Doctor  Parsons  > 111.5-1116 

Report  of,  references  to  (Colonel  Joyes) 1062,1064,1092 

Produced  at  Muscle  Shoals  should  be  sold  to  farmers  at  a  price  to  be 
approved  by  the  Secretary  of  Agriculture  (Mr.  Butler) 905.  993 

TTiKler  proposal  of  Mr.  Ford  there  will  not  be  produced  any  more 
nitrates  at  the  end  of  100  years  than  will  be  produced  the  first 
year  of  the  lease  (Mr.  Butler) 992 

Cnited  States  used  last  year  only  175,000  tons  of,  for  fertilizers,  to 
(Jermany's  500.(X)0  tons,  and  at  least  half  of  what  United  States 

used  was  imported  from  Chile  (Mr.  Butler) 901 

Nitride  process: 

Description  of  (Mr.  Mayo) 251 

Nitro,  W.  Va.,  smokeless  powder  plant:  Cost,  estimated  salvage  value, 

and  sale  price,  figures  of  (Major  General  Williams) 86 

Nitrogen : 

About  7  tons  to  every  square  foot  of  ground  (Mr.  Mayo) 292 

Consumption  and  supply  of  inorganic  nitrogen  in  United  States,  1900- 

1920,  diagram  showing  (Major  General  Williams) 75 


1192 


INDEX. 


INDEX. 


1193 


Xitrog»en— roiitiimed.  Page. 

Conversion  of  atmospheric  nitrojren,  description  of  (extract  from  a 
paper  by  R.  O.  E.  Davis,  United  States  Bureau  of  Soils)  (Mr. 
Mayo) 251 

Demand  for,  i?v  inci^asin.2:  faster  than  the  supply  (Mr.  Butler) _!__  989-990 
I>em:unl  for,  to  replace  quantities  tnlien  from  soil  by  crop.s — 

Mr.  Bower ' g-jg 

Report  of  Muscle  Shoals  Committee  of  American  FarinBureau 

Federation. 564-565 

Fixed,  in  the  future,  is  going  to  be  made  by  a  synthetic  ammonia 
process,  simply  for  the  reason  that  there  is  no  other  process  in  the 
world  that  can  compete  with  it  commercially  (Doctor  Parsons) 1124 

Fixed  Nitrogen  Research  Laboratory,  statement  of  Doctor  Tolman, 
director  of 313-319 

Haber  process  is  the  most  efficient  process  for  fixation  of  atmos- 
pheric nitrogen   (Mr.  Butler) 990 

Tliirh  pi'ice  of,  has  established  lower  grade  of  fertilizer  (Mr.  Bower).       627 

Limiting   factor   in    crop   production   in   most   worn-out   soils    (Mr 

Bower) *      gj^ 

Need  for.  increasing  at  the  rate  of  U  iier  cent  a  year.  At  end  of 
30(1  years  our  need  will  be  greater  than  could  be*  supplied  by  the 
whole  1.000,000  horsepower  which  can  be  developed  at  Muscle 
Shoals   (Mr.  Butler) 99^ 

N<>  nee<l  for  i>roduct  for  agi'iculture  at  present  (Mr.  MacDo\velT)__~522  538 

rro<luction  of.  under  cyanamid  process,  will  be  obsolete  in  five  years 

(Mr.    :MacDowell) 521  522 

Quotations  from  report  of  British  Nitrate  Commissi(»n  showing  rea-"  ' 
sons  for  reconmiendation  that  nitrogen  fixation  pn^cess  should  be 
established  in  Great  Britain  (Mr.  Bower) 625 

Research  department  for  the  development  of  processes  for  the  fixa- 
tion of.  text  of  Engstrum  proposal 397 

Table  showing  e.stimated  supply  and  consumption  of.  for  1924  and 
1930,  in  tons  of  pure  nitrogen 555 

Table  showing  nitrogen  in  red  clover  and  co\\T)eas 555 

Table  showing  world's  production  of  mixed  inorganic  nitrogen 556 

Nitrogen  compounds: 

Are  by-products  of  industries  that  depend  upon  the  sale  of  a  maior 

product  for  existence  (Mr.  Bower) _  g26 

Discussion   of — 

r>octor  Tolman Qiq_?MQ 

Doctor  Whitney ~_ "^J^^^"^"  32^9 

Mr.  F<»rd  could  i)robably  stabilize  price  (Major  Burns )___"___"___       oie 
No  business  in  United  States  engaged  primarilv  in  production  of  (Mr 
Bower) I "       g^n 

Percentages  of  nitrogen  in  (Major  Burns)  11 ~ ~~~      023 

Profluction  of.  at  nitrate  plant  No.  2,  opinions  of  Dr.'N.  Caro  ~and 

Mr.  Washburn  on  (Mr.  Mayo) __  950.053 

•Production  of,  at  nitrate  plant  No.  2,  statement  of  Doctor  Caro  on 

(Mr.    Silver) _ rya-A 

Table  showing  comparative  prices  of I-II-II— _IIIIII~II~      556 

A\'ill  be  produced  much  more  efficiently  under  the  Haber  and  Claude 

methods  than  by  the  cyanamid  process  (Mr.  MacDowell) _      522 

(See  aJm  Ammonium  nitrate,  ami  Ammonium  .suljihate  ) 
Nitn.gen  i^n.ducts  committee  of  the  :Ministry  of  Muniti(.ns  of  W.-ir  of  the 

P.ntisli  (Joverinupnt.     i  See  British  Nitrate  Conunission  ). 
Nitrogen  situation  : 

Aiinlyzed   by  Chief  of  Onlnance j« 

Atmospheric  Nitrogen  Corporation  of  Syracuse,  Haber  process  has  been 

developed  by  (memorandum  of  Chief  of  Ordnance) 17 

Discussion  of  (Mr.  MacDowell) 5'>3-527 

Necessity  for  an  increased  nitrogen  supply   (Report  of  Mu'scle  Shoals" 

Committee  of  American  Farm  Bureau  Federa.tion 549-550 

Nitroguanidine :     Discussion  of  {Doctor  Tolman) 315 

^'^'««?^^^*'  ^^^  ^^"^  Reporter:     Editorial  from  i~ssue~o~f  January  23 

1922,  regarding  nitrate  supply   (Mr.  Bower) '      gog 


Old  Hickory  plant:  Cost,  estimnted  salvnge  value,  an<l  sale  price  fig- 
ures of   (Major  (ieneraj   Williams) '__  _         gg 

Oliver,   Hon.   William   B„    Representative   in   Congress   from    Alabama : 

Statement 764-774.  833-836.  J}94-1002 

Operating  costs :  Annual  expen.ses  of  Mr.  Ford,  when  <l{iiiis  Nos.  2  and  3 
are  completed,   estimate  of    (Mr.   Cooper) 400 

Operation  of  dams  and  locks.  (;S'ce  Repair.s,  maintenance,  and  operation 
of  dams  and  locks). 

Oppau:  Explosion  at.  had  nothing  to  do  with  the  process  by  which  am- 
monium nitrate  was  produced  (Doctor  F^arsons) "  11-M  11*>^ 

Ordnance,  Chief  of :  .  -  ,  xa-j 

Analysis  of  the  Ford  proposal 17-19 

Table  showing  cost  of  United  States  nitnite  plants  Nos.  1  and  2  and  War- 
rior-Sheffield power  station  and  transmission  line •>l-*>-^ 

(»S'ec  also  Williams.  Maj.  Gen.  C.  C). 
Ordnance  Department : 
Contract  with  Air  Nitrates  Corporation- 
Text   of  135-144, 144-1.-.0 

Text  of  first  contract  of  November  10.  1917 ."jll-nig 

Contract  with  Alabama  Power  Co.     Text  of 150-171 

Contract  with  American  Cyanamid  Co.     Text  of 135-144, 144-150 

Letters  between  department  and  Alabaniti  Power  Co.  i)ertaining  to 
construction  of  Oorgas-AVarrior  steam  plant  and  transmission  line, 
which  led  up  to  the  contract  between  the  company  and  the  (Govern- 
ment,  text  of 709-722 

Letters  of  December  7,  1917,  giving  the  Alabama  Power  Co.  orders  to  ' 
construct  transmission  line,  furnish  power  to  Sheffield,  and  to  con- 
struct the  Gorgas- Warrior  steam  plant  (Mr.  Martin) 730-732 

Memorandum  of  conference  of  December  8,  1917,  between  Alabama 

Power  Co.  and  the  department,  text  of 712-713 

Owl  Fumigating  Corporation: 

Intercorporate   relations  with  American  Cyanamid  Co.    (Mr.   Ham- 
mitt) 504 

Panama  Canal:  Annual  total  revenues  compared  with  terms  of  Ford 
offer    (Mr.   Almon) 1004 

Pjirsons,  Dr.  Charles  L.,  consulting  chemist,  statement 111.5-1145 

Patents : 

American  Cyanamid  Co. — 

Government  has  no  authority  to  grant  a  license  for  use  of,  to  a 

les.see  of  nitrate  plant  No.  2  (Mr.  Hainmitt) 503 

List  of 149-150 

Principal  ones  will  expire  in  1932  (Mr.  Hammitt) 478 

Genernl  Chemical  Co.,  letter  of  Dec.  14,  1921,  of  Acting  Judge  Ad- 
vocate General,  text  of 174-177 

Payments  by  the  Government :  Under  Engstrum  proposal,  cost  plus  5  per 

cent  of  construction,  text  of  propo.sal 899 

Payments  to  the  Government: 

Under  Alabama  Power  Go.  proposal — 

Compared  with  cost  of  plants   (Mr.  Martin) 808-809.878-879 

Text   of  proposal 776 

Under  Engstrum  proposal — 

Compared  with  Ford  offer   (Mr.  Butler) 993 

Text    of   proposal 898-899 

$3,.500,000   a   year   on   Government's   investment   of   .$30,000,000 

(Mr.  Butler) . 993 

Under  Ford  proposal — 

Compared  with  construction  costs  of  dams — 

Mr.  Miller  and  Mr.  Mayo 262-265 

Mr.  WeJks  and  Mr.  Parker 49 

Compared  with  cost  of  plants   (Mr.  Weeks) 45-47,52 

Compared  with  estimate  of  salvage  value  made  by  Chief  of  Ord- 
nance         18 

Considered    inadequate    (Major    General    Williams) 71-72 

Fair  to  assume  that  4  per  cent  which  Mr.  Ford  is  to  pay  will  be 

above  average  rate  for  Government  bonds   (Mr.  Almoin 10()7 


1194 


INDEX. 


INDEX. 


1195 


Paymq^its  to  the  (iovernment— rontinued. 

Under  Ford  jiroposal— Continued.  Page. 

If  Mr.  i';;>i'<^»  I>ays_4  per  cent  interest  on  t(»tal  cost  of  dams  Nos. 
^  ami  6  i^M.l toAlo),  would  save  U.  S.  Treasury  $1,275,000  000 

durmjj  lease  period    (Mr.  Cooper) L__'___      413 

(Analysis  of  this   statement  by  Mr.  Cooper) 638-6.^ 

Money  on  which  ^Mr.  Ford  will  pay  4  per  cent  will  cost  the  Gov- 
ernment 4^  or  4$  per  cent   (Mr.  Hill) 309 

Reporteil  upon  by  Chief  of  En^ineers___ " ia_o7 

Reiwrted    upon    by    Secretary   of   War ~       6^7 

Statement  No.  1— Re  difference  between  Mr.  Ford's  lease  pav~ 
nients  to  the  United  States  Treasury  and  the  amount  the 
treasury  will  have  to  pay  out  if  IMr.  Ford's  proposal  is  ac- 
cepted as  written   (Mr.  Cooi)er) 410-411 

Statement  No.  4— Re  showing  if  4  per  cent  interest  is  paid  bv  Mr 
*or<l  on  total  cost  of  dams  Nos.  2  and  3,  and  pays  $79  432 
annually  to  amorfze  $83,175,475,  which  is  the  above  total 
cost   (Mr.  Cooper) ^^g 

$2  4()0,000   a    year   on   Government's   investment   of  $60,000  000 

(Mr.    Butler) _^  0^2 

W'll  cost  the  (iovernment  4^  or  4f  per  cent  to  get' mJnev "on  which 
Mr.  Ford  will  pay  4  per  cent   (Mr.  Hill)  *  qqo 

(Sec  aim  Sinking  fund.)  — '      "^^^ 

Phantom  freights : 

Description  of,  in  connection  with  steel  industry  (Mr.  Silver)         507-5(58 
Phosphate  rock:  Principal  deposits  are  Tennessee  lump  rock  very  near 

Aluscle  Shoals  and  in  Florida   (Mr.  Swann)  aa(\ 

Phosphates:  *^ 

Necessary  ingredient  of  fertilizer,  can  be  obtained  within  a  radius  of 

100  miles  of  plants  (Mr.  Mayo) 90^ 

(See  aiso  Potassium  phosphate.)  ~~  -     —  ^  x 

Phosphoric  acid: 

Method  of  producing  and  use  as  fertilizer  ingredient  (Mr.  Swann )_  43*>-433 
Phosphate  rock  can  be  smelted  in  an  electric  furnace  and  phosphoric  " 
acid  collected  for  use  in  fertilizer  industrv  which  will  reduce  pres- 
ent costs  (Mr.  Swann) __!_      4,34 

Table  showing  estimated  cost  (exclusive  of  interest  charges)  of  pro'- 
ducmg  phosphoric  acid  by  the  electric-furnace  method,  assumin«r 

power  at  $25  iier  horsepower  year ^      554 

Use  of  nitrate  plant  No,  2  to  manufacture,  as  fertilizer  ingredient 

(Mr.  Hammitt) ^ aqa 

Pittsburgh  plus  agreement,  de.scription  of  (Mr.  Silver) I Z  567-568 

S.ilvjige  value  of.     (See  Salvage  value  of  phints.) 

Table  showing  food  requirements  of  (Mr.  Bower)  aot 

Potash:  ^-' 

Approximately   100  per   cent   of  supply   being  imported   nt  present 

(Mr.  Bower) «oq 

Neces.sary  ingredient  of  fertilizer — 

Cheaper   to   buy   French   and   German   product   that    make    at 

Muscle  Shoals  (Mr.  MacDowell) '__  535  53^ 

Cheaper  to  buy  German  product  that  produce  at  present   (Mr       ^ 
Swnnn) "      ^^^ 

Difficult  to  use  homemade  product  because  of  high  freight  rates 

(Mr.  MacDowell) ^      533 

Possibility  of  making,  near  plants  (Mr.  Ma.vo) _I 953 

Two  plants  in  vicinity  of  Searles  Lake,  in  San  Bernardino  Countv 

Calif.   (Mr.  MacDowell) '_[       r^ 

Potassium  phosphate,  if  produced  at  Muscle  Shoals,  could  be  used  to  tix 
by-product  coke  oven  anunonia  gas  and  produce  a  complete  fertilizer  of 
very  high  concentration  (Mr.  Swann) ___     __  s'iQ^ 

Power:  ^^"^ 

Alabama  Power  Co.  charged  Government  Gi  mills  per  kilowatt-hour 

for  (Mr.  Martin) j _  074-676 

Alabama  Power  Co.  would  not  be  injured  by  development  of  cheap 
power  for  sale  by  Mr.  Ford ;  the  public  would  be  greatlv  injured 
(Mr.  Frothingham) ___'_  gg-- 


Power — Continued.  Page. 

Amount  of,  needed  to  produce  2,000,0(X)  tons  of  commercial  fertilizer 
at  Muscle  Shoals  (Doctor  Parsons) 1126 

Capacity  in  kilowatt  hours  of  Dams  Nos.  2  and  3   (statement  No. 

2,   Mr.    Cooper) , 411 

Clieaper  to  make  at  Gorgas-Warrior  steam  plant  than  at  plant  No. 

2   (Hr.  Mayo) 257,292 

Cheai>er  to  make  at  Gorgas-Warrior  steam  plant  than  at  the  two 
stand-by  plants  at  present  (Mr.  Butler) 914 

Comparison  of  amount  developable  at  Muscle  Shoals  with  develop- 
ment in  the  Carol inas,  Georgia,  and  Tennessee  (Mr.  Worthing- 
ton) '- 389 

Cost  of  transmission  fnmi  JNIuscle  Shoals  to  Southern   Power  Co.'s 

market  prohibitive   (letter  of  Mr.  Duke) 116 

Demand  for  sale  of,  discussion  of  (Mr.  StoU  and  Mr.  Butler) 932 

Developable  at  Dam  No.  2  (Mr.  Martin) 810 

Developable  at  Muscle  Shoals — 

Letter    from    Mr.    Duke 115-116 

Letter  from  southeastern  power  companies 118 

Mr.  Cooper 420 

Report  of  Muscle  Shoals  committee  of  American  Farm  Bureau 

Federation 560-561 

Developable  on  Tennessee  River  (Mr.  Worthington ) 392 

Discussion   of  amounts   of  horsepower   to  be  produced   at   various 

units,  and  rates  at  which  it  could  be  sold  (Mr.  Mayo)—  261-262,  275-280 

Distance  transmissible — 

Alabama  Power  Co.  sending  250  miles  (Major  General  Beach) 101 

Four  hundred  miles  (Mr.  CJooper) 428 

Economical  operat  on  of  nitrate  plant  No.  2  depends  chiefly  uiwn 
completion  of  hydroelectric  plant  at  Dam  No.  2  (rei)ort  of  Muscle 
Shoals  committee  of  American  Farm  Bureau  Federation) 560 

Estimate  of  interest  f>btainable  from  the  100,000  horsepower  salable 

by  the  Government   (Doctor  Parsons) 1144 

Estimrates   of   sales   price   will   prove  disappointing    (letter   of  Mr. 

Duke)     116-117 

If  Mr.  Ford  were  to  pay  4  per  cent  on  $83,000,000   (total  cost  of 

dams)  he  would  still  be  getting  cheap  power  (Mr.  Cooper) 421 

Market  for,  from  development  of  Dam  No.  2  (Mr.  Martin) 798-799 

Market  for.   from  IVIuscle  Shoals    (letter   from   southeastern   power 

companies)    118 

Market  for.  from  iMuscle  Shoals  dam,  overestimated  (letter  from 
Mr.    Duke) 116 

Mr.  Engstrum  proposes  to  sell  surplus  at  wholesale,  and  set  aside  1 
mill  for  each  kilowatt-hour  of  power  sold  to  be  paid  into  L^'^nited 
States  Treasury  as  rental  for  the  lease  of  the  property  (Mr.  But- 
ler)     906,911,912,925,928,993 

Mr.  Engstrum*s  corporation  hoi)es  to  sell  at  wholesale  to  all  con^ 
panies  nearby    (Mr.  Butler) 912 

Mr.  Ford  intends  to  use  all  produced  (Mr.  Mayo) 262,265 

Mr.  Ford  wishes  to  take  interest  burden  off  of  (Mr.  Worthington )__      380 

Mr.  Ford  would  get  cheapest  power  on  the  American  Continent  (Mr. 
Cooper)    421 

Mr.  Ford  would  sell  to  railroad  in  order  to  get  cheap  transporta- 
tion  rates    (opinicm  of  Mr.  Worthington) 358 

Monopoly  of,  tor  the  development  of  one  special  thing  which  has 

been  done  at  Niagara,  should  be  avoided  (Mr.  Butler) 934 

One  of  principal  factors  consideretl  by  Mr.  Ford  in  making  bid  (Mr. 

Mayo) 275 

Original  interest  of  IMr.  Ford  in  Muscle  Shoals  proposition  (Mr. 
Worthington) 369 

Possible  demand  for  one-third  of  total  producible  within  200  miles  of 
Muscle  Shoals  (Mr.  Mayo) 282 

"  The  power  situation  during  the  war  "  extracts  from  this  report  by 
Colonel  Keller,  Cori>s  of  Engineers 792-795 

Preferred  claim  of  Mr.  Ford's  company  to  be  furnished  with,  beyond 
100-year  period.     (See  Leases,  renewal  of.) 

Prices  received  by  Alabama  Power  Co.  for  (Mr.  Martin) 665 


1196 


INDEX. 


INDEX. 


1197 


Power-v-CoiitiDuejl.  Page. 

Probable  needs  of  Alabama  Power  Co.  (Major  General  Beach) 112 

Proceeds  from  sale  of,  to  be  taken  as  compensation,  under  Engstrum 

proposal,  text  of  proposal 399 

Railway  electrification  in  Alabama  and  other  southern  States  should 

require  240.000  horsepower  (Mr.  Martin) 799 

Returns  to  the  cori)oration  under  Engstrum  proposal  depend  entirely 

upon  Its  ability  to  make  a  profit  out  of  excess  of  (Mr.  Engstrum )__      936 
Revenue  derivable  from  sale  of,  by  the  Government    (letter  from 

southeastern  power  companies) 119  ^oq 

Secondary,  available  at  Muscle  Shoals,  records  of  30  years  showing    ' 

(Mr.  Martin) g^^ 

Secondary,  use  of,  for  production  of  nitrates,  under  proposal  of  Ala- 
bama Power  Co.   (Mr.  Martin) gQ^ 

Statement  No.  2,  re  amount  of  low-tension  hydroelectric  energy  deliv- 
ered to  generator  station  bus  bars  that  will  be  created  by  the  com- 
pletion of  dams  Nos.  2  and  3  according  to  the  requirements  of  Mr 

Ford's  proposal  (Mr.  Cooper) 411-412 

Statement  No.  3,  re  operation  and  maintenance  of  Muscle  Shoals 

water  powers   (Mr.  Cooper) 41'>-413 

Statement  showing  cost  to  Mr.  Ford  for,  per  horsepower  year    at  " 

dams  Nos.  2  and  3  (Mr.  Mayo) I    265-*'66 

Supplied  by  Alabama  Power  Co.  (Major  Burns) I I__      009 

Table  giving  general  statement  concerning  power  situation  in  Ala- 
bama and  contiguous  territory  (Mr.  Martin) 799 

Table  showing  rates  charged  by  Alabama  Power  Co.  for  power  sup- 
plied, to    large    consumers    from    1917    to    1921.    inclusive    (Mr 

Martin ) _ 681-6S2 

Table  showing  water  power  at  Muscle  Shoals 555 

There  is  possible  power  load  by  1926  of  880,0(X)  horsepower    (Mr. 

^lartiiu    _  Y99 

To  be  funiisbed  by  the  Alal)ama  Power  Co. — 

Estimate  of  value  of  (Mr.  Martin) 841,845 

EsHinated  that  secondary  power  will  be  available  82  per  cent 

of  the  time  (Mr.  Martin) g^Q 

Interpretation  of  clause  regarding  purposes  for  which  theGov- 

erninent  may  use  (^Ir.  :Martin) 814-815,863-864 

Is  to  be  the  second  10(),0<»0  horsepower  available  (Mr.  Martin )'__      814 
Is  to  be  the  second  100,0(K)  horsepower  which  is  available  82  per 
cent  of  the  time,  or  approximately  one-fifth  of  the  year   (Mr 

^liller  and  Mr.  Frothingham) 955 

Text  of  proposal ~ 77^ 

To  be  sold  by  Mr.  Ford — 

Conditions  suggested    (Secretary  of  War's  report) 9 

Federal  Power  Commission  might  regulate  (Secretary  of  War's 

report  and   statement) 9  54,56 

If  Mr.  Ford  is  to  have  a  straight  lease  he  would  be  exempted' 
from  action  of  Federal  water-power  law  or  laws  of  Alabama 

(Mr.  Cooper) ^^^ 

Jurisdiction  of  Federal  Power  Commission  excluded"  under  Ford 

proposal  as  written  (statement  No.  3,  Mr.  Cooper).       413 

Price  will  be  controlled  by  the  public  utility  commission  of  Ala- 
bama   (Mr.   Worthington) 375 

Public  service  commission  of  Alabama  might  regulate  (Secretary 

of  War's   report) 9  54  5^ 

Relevancy  of  Alabama  public  utility  act  to  (Mr.  WeeKs) !__' 54^56 

Would  probably  be  under  State  of  Alabama  law  (Mr.  Mayo) 243 

To  be  used  by  Mr.  Engstrum — 

Power  to  be  developed  at  Dam  No.  3  and  at  other  dams  would 
be  conserved  and  used  to  operate  more  nitrate  plants  by  the 

Haber  process  (Mr.  Butler) 991 

Sufficient  amount  would  be  used  from  the  beginning  to  operate 

both  nitrate  plants  at  their  full  capacity  (Mr.  Butler) 991 

Text  of  proposal ^ 397 

To  be  used  by  Mr.  Ford — 

At  least  100,000  horsepower  will  be  utilized  either  to  produce  fer- 
tilizer or  in  a  national  emergency  will  be  placed  at  the  Gov- 
ernment's disposal  (Mr.  Mayo) 981-982 


Power — Continued.  ^  Page. 

Total  horsepower  developed  by  the  three  steam  plants-  to  which  ^Ir. 

Ford  will  get  title  is  125.000  (report  of  Secretary  of  War) 9 

Tremendous-  amount  of,  to  be  put  in  hands  of  one  man    (Mr.  Mac- 

Dowell) 53S 

Tremendous  calamity  lo  the  South  if  its  greatest  water  power   is 

taken  out  of  field  of  public  utility  for  100  years  (Mr.  (Nniper) 424 

Would  be  necessary  to  expend  over  .$50,0(K),0(X)  in  a  manufacturing 

plant  in  order  to  use  total  produc.ble  (Mr.  Mayo) 282 

(See  also  Horsepower.) 
Power  plants: 

Nitrate  plant  No.  1,  a  comple  e  steam  plant  ready  to  operate,  and  ctm 

be  used  until  the  dam  is  completed  (Mr.  Butler) 904 

Nitrate  plant  No.  2— 

Cost  approximately  $12,000,000  (Major  Burns) 218 

Leased  to  Alabama   Power  Co.,  lease  is  revocable  at  any  time 

(Secretary  of  AVar's  report) 5 

Offer  of  Alabama  Power  Co.  to  purchase,  text  of  proposal 770 

Present  revenue  from  rental,  minimum  of  $120,000    (Secretary 

of  War's  report) 9 

(See  also  Gorgas- Warrior  steam  plant.) 

Properties  Mr.  Engstrum  offers  to  lease,  text  of  proposal 890-897 

Properties  Mr.  Ford  offers  to  purchase : 

Property  which  has  cost  the  Government  $85,000,000  is  to  be  sold  out- 
right to  Mr.  Ford  for  $5,000,000  (Mr.  Butler) 992 

Text  of  proposals 11.15 

Properties  the  Alabama  Power  Co.  offers  to  purchase,  text  of  proposal 776 

Proposal  of  Alabama  Power  Co. : 

Ability  of  company  to  finance  (Mr.  Martin) S57-858 

Acceptance  of,  by  Congress  would  mean  practically  a  donation  of 

$34,002,382    (Mr.  Alinon) lOl.n 

Acceptance  of,  would  seem  not  to  interfere  with  con'ract  of  the  Gov- 
ernment  with  the   Air  Nitrates  Corporation    (letter  fronj   Se<-re- 

tary  of  War) 775-776 

Advantages  of — 

Letter  from  Secretary  of  War 774-776 

Mr.   Martin 813 

Analysis  of  (Mr.  Almon) 1013-1015 

Answers  the   requirements  of  the  Government  100  per  cent    (Mr. 

Frothingham) 950-951 

Coffin  &  Burr  will  probably  finance  (Mr.  Frothingham) 96:? 

Compared  with  that  of  iNIr.  Ford  (Mr.  Martin) 884-SS5 

Completely  complies  with  the  policy  of  the  Government  as  laid  down 

by  the  Federal  Water  Power  Commission  (Mr.  Frothingham) 952 

Defects  in  (Mr.  Levering) 943-944 

Denounced  bv  resolution  adopted  at  a  mass  meeting  of  5,000  citizens 

of  Alabama  (Mr.  Oliver) 994-996 

Depreciation  plus  maintenance  cost  annually  of  plant  No.  2,  $2,700,000 
(Army  engineers'  estimate),  is  taken  over  by  Mr.  Ford,  and  in  two 
years  he  will  pay  the  Government  more  than  Alabama  Power  Co. 

would  pay  in  cash  (Mr.  Bower) (531 

Disadvantages  of,  as  compared  with  Ford  offer  (Mr.  Almon) 1015 

Does  not  guarantee  to  manufacture  fertilizer  (Mr.  Bower) (530 

Estimated  return  Government  would  receive  under  (Mr.  Fields  and 

Mr.  Martin) 845-850 

Ford  proposal  better  than,  reasons  stated  (Mr.  Bower) 632 

If  accepted,  that  company  will  have  a  complete  and  perfect  monopoly 

of  the  water-power  industry  of  the  State  (Mr.  McDuffie) 1023 

If  accepted,  the  company  would  get  over  $30,000,000  worth  of  prop- 
erty for  $500,000  (Mr.  McDuffie) 1023 

If  the  Government  does  not  use  all  of  100,000  horsepower  provided  for 
in,  then  Alabama  Power  Co.  would  purchase  what  the  Government 

does  not  use  (Mr.  Martin) 815 

Indorsed  by  Mr.  Frothingham,  of  Coffin  &  Burr,  bankers,  Boston, 
Mass 950-954.968 


1198 


INDEX. 


INDEX. 


1199 


Proposal  of  Alabama  Power  Co. — Continueil.  Page. 

Involves  tinancing  of  Wilson  Dam  and  the  powerhouse  development, 

the  payment  of  }is5.000,C)(X)  for  Sheffield  s  eam   jilant  and  (Jovern- 

ment's  interest  in  Gorgas-Warrior  plant,  and  in  a<lditi()n,  furnish- 

inj;  (Government  1(X),00()  stvondary  horsepower  for  its  uses  at  the 

nitrate  plants  (Mr.  Martin) 8(M)-801 

Is  deceptive  in  that  it  hejfins  hy  offerinj^  $5.(XK>.0(H).  ).ut  later  provides 
that  cost  of  the  lock  is  to  he  deducted  from  this  amo\int.  The 
company  would  hu.ld  the  lock  and  would  have  its  own  methods  of 
ho()kkeepinji;  and  it  could  easily  make  it  cost  the  full  .$r>,00(>,(KX) 

4  (Mr.   Almon) 1018 

Is  unquestionably  a  betler  contract  than  that  of  Mr.  Ford,  from  the 
standpoint  of  putting  the  cai)acities  of  the  Tennessee  River  to  the 
greatest  possible  use  in  the  interest  of  the  public  wiiliin  reach  of 

that  power  (Mr.  Frothingham) 90S 

Limits  the  operation  of  nitrate  plant  to  1(X),0(X)  secondary  horsepower, 
which  would  mean  shuiting  down  perhaps  4,  5,  or  6  months  of  the 

year  (Mr.  Bower) 6.30 

Makes  no  in-ovision  for  the  farmer  (Mr.  Bower) 616 

National  Fertii  zer  Association  does  not  object  to  (Mr.  Bower) 620 

(>ppose<l  by  Alab.nna  Farm  Bureau  Federation 574 

()pp:)sed    by    petition    of    officials    of    .leflferson    County,    Ala.     {Mr. 

Alnum) 1017-1018 

(>prK)sed  by  resolutions  adopted  by  Florence  Chamber  of  Commerce, 
Florence     Rotary     <Uub.     and     Florence     Exchange     Club     (Mr. 

Almon) 1015-1017 

Opposed  by  resolutions  of  Birnnngliam  mass  meeting  (Mr.  Almon )_  1017 
Provisions  of  Federal  water  power  act  bearing  upon  (Mr.  Martin)-  854-855 
Statement  of  February  15,  1922,  accompanying  proposal,  text  of__  777-778 

Text    of 776-777 

I'ndertakes  to  give  (rovernment  power  and  money,  but  does  not 
propose  to  maintain  nitrate  plant  No.  2  in  condition  to  produce 

nitrates  (Mr.  Hull  and  Mr.  Martin) 813 

Would  relieve  Government  of  obligation  of  putting  up  from  $50,- 

(X)0,000  to  $80,0000,000  more  in  the  project    (Mr.   Martin) 873 

(>?cf  (ilMo  Estimate.^:   Expenditui-es  of  the  Government;   and   Esti- 
mates: Savings  to  the  Government.) 
Proposal  of  Mr.  Engstrum  : 

Acceptance  of,  does  not  interfere  with  the  present  contracts  of  the 
Air  Nitrates  Coi*poration  and  the  Alabama  Power  Co.  with  the 

United    States    (Mr.    Butler) 918 

Acceptance  of,  does  not  involve  any  litigation  in  connection  with 
the   contract   tlie   Government   now   holds   with   Alabama   Power 

Co.     (Mr.  Butler) 914-915 

Advantages  of  (Mr.  Butler) 903-910,991-993 

Amendments  to  appendix 1146 

As  absurd  as  it  is,  it  is  a  better  contract  than  that  of  the  Alabama 

Power  Co.  or  the  Ford  contract    (Mr,  Levering) 940 

Bond  will  be  given  for  the  faithful  performance  of  everything  the 
cori>oration  agrees  to  do  as  lessee,  and  is  to  be  approved  by  the 

(Government   (Mr.  Butler) 1 915 

Chief  interest  of.  is  the  operation  of  Muscle  Shoals  property  as  pro- 
vided for  in  the  national  defense  act  (Mr.  Butler) 9<^)S,  92S 

Defects  of   (Mr.  Levering) 939-940 

Disadvantages  of  Ford  proposal  as  compared  with   (Mr.  Butler )_  989-993 
Does  not  ask  for  a  subsidy  from  the  Government.    A  part  of  the  profits 
from  sale  of  i)ower  will  be  used  to  sub.^idize  the  making  of  nitrates 

(Mr,  Butler) 905-906.929 

Explanation  of  certain  paragraphs  (Mr.  Butler) 907-908,916 

Fifty-year  lease  asked  for  under  (Mr.  Butler) 907 

Government  pays  5  per  cent  in  addition  to  the  cost  of  construction 

under  (Mr.  Butler) 911,919 

Importance  of  best  possible  construction  on  Muscle  Shoals  property 

emphasized  in  (Mr.  Butler) 907 

Letter  of  submittal  to  the  Secretary  of  War,  dated  February  23, 

1922,  text  of 895-896 


Proposal  of  Mr.  Engstrum — Continued.  ^*«** 

No  connection  between  proposed   corporation  and  Mr.   Duke    (Mr. 

Butler) 930 

No  connection  between  proi^osed  corporation  and  Virginia-Carolina 

Chemical  Co.   (Mr.  Butler) 930 

No  preference  asked  at  end  of  50-year  period  (Mr.  Butler) 991 

Pavments   to   Government   under,   compared   with   Ford   offer    (Mr. 

JButler) 993 

Returns  to  the  corporation  depend  entirely  upon  its  ability  to  make  a 

profit  out  of  excess  power  (Mr.  Engstrum) 936 

Sections  15  and  18,  discussion  of  (Mr.  StoU  and  Mr.  Butler) 931 

Services  of  Gen.  G.  W.  Goethals  have  been  secured  as  engineer  in 

charge  of  construction  (Mr.  Butler) 935 

Text  of 896-899 

Text  of,  amendment  to  section  19,  regarding  cost  of  construction  (Mr. 

Butler) 907 

There  will  be  seven  directors  in  all  in  the  proposed  company;  Mr. 
Engstrum  one,  Mr.  Butler  one,  two  to  be  named  by  the  Government, 

and  three  others  by  the  company  (Mr.  Butler) 930 

Tried  to  make  it  safe  for  the  proposed  company,  did  not  want  to  take 

any  element  of  chance  (]Mr.  Engstrum) 937 

{See  also  Estimates:    Exiienditures  of  the  (Government,   and  Esti- 
mates: Savings  to  the  Government.) 
Proposals  of  Mr.  Ford  : 

First,  dated  July  8,  1921— 

Reported  upon  by  Secretary  of  W^ar 3-9 

Text  of 10-12 

Letter  of  .January  11,  1922,  modifying  first  proposal,  text  of 13 

Present,  dated  January  25,  1922 — 

Acceptance  of,  is  in  no  way  interfered  with  by  option  of  Air 

Nitrates  Corporation   (Mr.  Almon) 1008-1009 

Advantages  of.  estimate  of  $475,840,000  saved  to  the  Government 

(Mr.  Fields) 607-608 

Advantages  of,  possible  (Major  Burns) 237-238 

Advantages  to  the  Government  as  compared  with  first  proposal 

(Secretary  of  War's  report) 6-8 

American  Cyanamid  Co.,  which  denounces,  as  a  subsidy  at  4  per 
cent  interest,  askeil  for  identical  thing  at  3  per  cent  in  1916 

( ^Ir.   Bower) : 623 

Analysis  of — 

Chief  of  Engineers 19-21 

Chief  of  Ordnance 17-19 

Mr.  Almon 1003-1006 

Better  proposition  than  that  of  Alabama  Powder  Co.,  financially, 
for  the  Government,  for  the  interests  of  agriculturists,  and  for 
maintenance   of   plant   for   manufacture   of   explosives    (Mr. 

Bower) 6.32 

Can  not  be  accepted  under  existing  law  (Mr.  Hammitt) 450,454 

Clause  might  be  added  to  protect  Government  in  event  of  mort- 
gage being  placed  by  company  (Mr.  Mayo) 281 

Compared  with  that  of  Alabama  Power  Co.  (Mr.  Martin) 884-885 

Comparison  of  Advantages  and  disadvantages  by  Chief  of  Ord- 
nance         19 

Defects  in  (Mr.  Levering) 942-943 

Depreciation  plus  maintenance  cost  annually  of  plant  No.  2, 
$2,700,000  (Army  engineers'  estimate),  is  taken  over  by  Mr. 
Ford  and  in  two  years  he  would  pay  the  Government  more  than 

Alabama  Power  Co.  would  pay  in  cash  (Mr.  Bower) 631 

Disadvantages  of  Alabama  Power  Co.  proposal  as  compared  with 

(Mr.   Almon) 1015 

Disadvantages  of,  as  compared  with  Engstrum  proposal    (Mr. 

Butler) 989-993 

Discussion  of  (Secretary  of  War's  report) 3-9 

Discussion  of  certain  sections  of  (:Mr.  Mayo) 2.59-261 

Fertilizer  can  be  furnished  to  farmer  at  one-half  the  present  costs 
under  (Mr.  Bower) 623 

92900—22 76 


iH 


1200 


INDEX. 


n 


Proposals  ^t  Mr.  Ford — Continued. 

Present,  dated  January  25,  1922 — Continued.  Page. 

$5,000,000  offered  for  ])Iants  compared  with  estimate  of  salvajje 

value  made  bj'  Cliief  of  Ordnance 18 

Gorgas-Warrior  steam  plant,  necessary  that  it  be  incHuded  in 
proposition   (Mr.  Worthington) 351 

Gorgas-Wai'rior  steam  plant  not  necessary  for  operation  of  proj- 
ect (Colonel  Joyes) 1075 

Gorgas-Warrior  steam  plant  should  be  eliminated  from  (Major 
Burns) 211-212 

Government  balance  sheet  of  Muscle  Shoals  during  construction 

and  for  tirst  six  years  under  (Mr.  Mayo) 248 

Government  expenditures  under,  will  amount  to  $1,275,000,000 

(Mr.  Cooper) 410 

Indorsed  by  Alabama  delegation  in  Congress  as  a  unit  (Mr. 
Almon) 1012 

Indorsed  by  American  Farm  Bureau  Federation 41-42 

Indorsed  by  American  Farm  Bureau  Federation,  reasons  stated 

(Mr.  Bower) 615-632 

Indorsed  by  American  Farm  Bureau  Federation  resolutions  (Mr. 
Silver) 542-543 

Indorsed  by  Farmers'  Union  by  resolution  (Mr.  Bower) 630 

Indorsed  by  Governor  of  Tennes.see 319-322 

Indorsed  by  Mr.  McDuffie,  a  Representative  in  Congi'ess  from 
Alabama 1022 

Indorsed  by  Mr.  Worthington  of  the  Tennessee  River  Improve- 
ment Association 355 

Indorsed  by  petition  of  officials  of  Jefferson  County,  Ala.  (Mr. 
Almon) 1017-1018 

Indorsed  by  resolution  adopted  at  a  mass  meeting  of  5,000  citi- 
zens of  Alabama  (Mr.  Oliver) 994-996 

Indorse<l  by  resolutions  adopted  by  Florence  Chamber  of  Com- 
merce, Florence  Rotary  Club,  and  Fh>renee  Exchange  Club  (Mr. 
Almon) 1015-1017 

Indorsed  by  resolutions  of  Birmingham  mass  meeting  (Mr. 
Almon) 1017 

Indorsed  by  Senators  from  Alabama  (Mr.  Bankhead) 1018 

Language  of  section  14.  discussion  of — 

Mr.  Hill  and  Mr.  Ma.vo .981 

Mr.  James  and  Mr.  Mayo 977-978 

Language  of  se<tion  14  modifietl  (Mr.  ^Mayo) 971 

Language  of  section  15,  discus.sion  of — 

Mr.  Crowther  and  Mr.  Mayo 307-308 

Mr.   Silver 574-576,  588-591,  613-614 

Mr.  Worthington 378-379 

Language  af  sections  14  and  15,  suggested  changes  in,  agreed  to 
by  Mr.  Mayo  (Mr.  Silver) 988-989 

Mr.  Ford  can  not  make  nitrates  at  8  iier  cent  profit  at  present, 
but  he  can  make  automobiles  at  IMuscle  Shoals  with  greater 
profit  than  at  Detroit  (^Ir.  Butler) 992 

Mr.  Ford  offers  to  purchase  property  which  has  cost  the  Gov- 
ernment $85.(X)0.000  for  the  pittance  of  $5,000,000  (Mr.  But- 
ler)  - 992 

Mr.  Ford  wouhl  not  object  to  added  clause  in  the  deed  regarding 
production  of  explosives  in  time  of  war  at.  nitrate  plant  No. 
2   (Mr.  Mayo) 303 

Mr.  Ford's  intention  to  spend  amount  necessary  to  develop 
plant  to  use  all  power  producible  (Mr.  Mayo) 282 

Modifications  suggested  by  Secretary  of  War 9 

Must  be  accepted  as  a  whole  and  not  in  part 16 

Opposed  by  National  Fertilizer  Association   (Mr.  Bower) 629 

Opposed  by  National  Fertilizer  Association,  reasons  stated. 
Mr.  Mac'Dowell) a.-  523-527 

Payments  to  Government  under  Engstrum  proposal  compared 
with  (Mr.  Butler) 993 


INDEX. 


1201 


proposals  of  Mr.  Ford — Continued. 

Present,  dated  January  25,  1922 — Continued.  Pag«. 

The  people  of  this  Nation  would  derive  more  from  Muscle 
Shoals  even  if  Congress  gave  the  whole  project  to  Henry 
Ford  than  they  can  ever  hope  to  gain  by  selling  it  under  any 

other  offer  which  has  been  presented  (Mr.  McDuflie) 1026 

Power  developable  one  of  prime  factors  considered  in  making 

bid    (Mr.  Mayo 275 

Proposal  of  Alabama  Power  Co.  is  unquestionably  a  better  con- 
tract than    (Mr.  Frothingham) 968 

Purchase  price  of  plants   compared   with   estimate  of  salvage 

value  made  by  Chef  of  Ordnance 18 

Reasons  of  fertilizer  industry  for  opposition  to  (Mr.  Bower)  _  619-621 
Relat'on  of  purposes  of  Tennessee  River  Improvement  Associa- 
tion to   (Mr.  Worthington) 400 

Reporteil  upon  by  Secretary  of  War 3-9 

Results  that  might  be  expected  should  Mr.  Ford  develop  cheap 
power  for  sale,  discussion  of  (Mr.  Miller  and  Mr.  Frothing- 
ham)   956-957 

Statement  No.  1  re  difference  between  Mr.  Ford's  lease  pay- 
ments to  the  United  States  Treasury  and  the  amount  the  Treas- 
ury will  have  to  pay  out  if  Mr.  Ford's  proposal  is  accepted 

as  written  (Mr.  Cooper) 410-411 

Statement  No.  2  re  amount  of  low-tension  hydroelectric  energy 
delivered  to  generator  station  bus  bars  that  will  be  created  by 
the  completion  of  Dams  Nos.  2  and  3  according  to  the  require- 
ments of  Mr.  Ford's  proposal  (Mr.  Cooper) 411-412 

Statement  No.  4  re  showing  if  4  per  cent  interest  is  paid  by  Mr. 
Ford  on  total  cost  of  Dams  Nos.  2  and  3,  and  pays  $79,432  an- 
nually to  amortize  $83,175,475,  which  is  the  above  total  cost 

(Mr.  Cooper) 413 

Statement  of  Department  of  Agriculture 316 

Summarized  (Secretary  of  War's  report) 6 

Table  showing  cost  to  Government  of  the  delay  in  accepting  Ford 

offer   (Mr.  Almon) . 1005 

Table  showing  Government  balance  sheet  under  Ford  proposal 

(Mr.   Mayo) 301 

Terms  of,  compared  with  income  of  Reclamation   Service  and 

Panama  Canal  (Mr.  Almon) 1004 

Text  of 13-17 

Text  of,  modifications  in  (Mr.  Mayo) 971 

Text  of,  modifications  in  language  of  sections  14  and  15  agreed 

to  by  Mr.  Mayo  (Mr.  Silver) 988-989 

'Two  basic  defects  in  (Mr.  Butler) 992 

Will  be  of  lasting  benefit  to  agriculturists  (Mr.  Bowser) 631 

Would  be  most  favorable  trade  the  Government  has  ever  made 

with  an  individual  (Mr.  Fields) 608 

(See  also  E.stimates:   Expenditures  of  the  Government;   and  Esti- 
mates: Savings  to  the  Government.) 
Public  Service  Commission  of  Alabama  : 

Alabama  public  utility  act,  text  of  sections  of 55-56 

If  Mr.  Ford  is  to  have  a  straight  lease  he  would  he  exempted  from 
action  of  Federal    water   powei-  law  or   laws   of    Alabama    (Mr. 

Cooper)    418 

INIight  reguliite  sale  of  power  by    Mr.  Foi'd    (Secretary's    War's  re- 
port)  9.  54.  50 

Power  to  be  sold  by    Mr.  Ford   would   probably  be   under   State   of 

Alabama  law  (Mr.  Mayo) 243 

Price  at  which  Mr.  Ford  would  sell  power  would  be  controlle<l  by  the 

Public  Utility  Commission  of  Alabama  (Mr.  Worthington) 370 

Purchase  offers  made  by  Mr.  Ford,  text  of 11.15 

Railroad  land  grants : 

Government  does  not  receive  interest  for  (^Ir.  Quin  and  Mr.  Worth- 
ington)   394-395 

Reclamation  Service: 

Annual  gross  income  compared   with  terms  of  the  Ford   offer  (Mr. 

Almon) 1004 


1202 


INDEX. 


Rentals  offered  by  Mr.  Engstrimi :  Page. 

;Mr.  En^struni  i)roi>oses  to  sell  the  surplus  power  at  wholesale,  and 
set  aside  1  mill  for  each  kilowatt-hour  of  ix)wer  sold,  to  be  paid 
into  the  Unitecl  Stfites   Treasury   as   rental   for  the    lease  of   the 

property    (Mr.  Butler) 906,911 

Rentals  offered  by  Mr.  Ford : 

Analysis  of  (Mr.  Morin) 247 

Dam  Xo.  2,  text  of  proposals 10,13-14 

Dam  Xo.  3,  text  of  proposals 11, 14 

Letter  of  January  11,  1922,  modifying  first  offer,  text  of 13 

(»s'ee  r//«o  Payments  to  the  Goveinment:  Under  Ford  Proposal.) 
Repairs,  maintenance,  and  operation  of  dams  and  locks: 

Comparison  of  Alabama  I'ower  Co.  prorK)sal  with  that  of  Mr.  Ford 

(Mr.    Martin) 851 

Under  Alabama  Power  Co.  proposal ;  text  of  proposal 776 

Under  Engstrum  proposal :  repairs  necessary  should  the  founda- 
tion of  Dam  Xo.  2  be  found  defective,  to  be  paid  for  by  the  Gov- 
ernment, text  of  proposal 899 

Under  Ford  proposal — 

Maintenance  of  dams  (Mr.  Miller  and  Mr.  Mayo) 274 

flight  be  more  desirable  to  have  Mr.  Ford  maintain  Dams  Nos. 
2  and  3,  and  omit  annual  payments  proposed  (report  of  Sec- 
retary of  War) 9 

Payments  si)ecitied,  considered  adequate  by  Chief  of  Engineers-        19 

Text  of  first  and  present  proposals 10, 11, 14 

Research : 

Department  of,  for  the  development  of  processes  for  the  fixation  of 

atmospheric  nitrogen ;  text  of  Engstrum  proposal 897 

Determination  by,  whether  there  may  be  produced  fertilizer  com- 
pounds of  higher  grade  and  cheaper  prices ;  text  of  Ford  proposal-        12 

Free  power  furnished  for ;  text  of  Alabama  Power  Co.  proposal 775 

Right  of  way  for  transmission  line: 

Alabamji  Power  Co.  paid  about  $40,000  to  $50,000  for  additional  right 

of  way  acquired  (Mr.  Martin) 684 

Contract  with  Alabama  Power  Co.,  text  of . 150-171 

Revised  Statutes,  3736.  prevented  Ordnance  Department  from  buying 
land  at  time  contract  was  made  with  Alabama  Power  Co.  (Colonel 

Joyes) 1050 

River  and  harbor  improvements: 

Government  does  not  receive  interest  for  investments  in  (Mr.  Quia 

and  Mr.  Worthington) 391-392 

Statement  showing  actual  total  expenditures  for,  from  the  fiscal  year 
ended  June  30,  1896,  to  the  fiscal  year  ended  June  30,  1920,  inclu- 
sive (statement  compiled  by  J.  H.  McGann,  clerk  of  the  Committee 

on  Rivers  and  Harbors) 391 

Rivers : 

Canadian,  western  United  States,  and  foreign,  discussion  of    (Mr. 

Parker  and  Mr.  Frothinghara) 960-963 

Principal  power-producing  streams  of  Georgia,  discussion  of   (Mr. 

Wright  and  Mr.  Frothingham) 963-964 

Roosevelt,  Theodore,  statement  in  Outlook  of  October  12,  1912,  regard- 
ing soil  fertility  (Mr.  Bower) 616-617,630 

Royalties : 

Contract  with  American  Cyanamid  Co.,  text  of 147-148 

.  Payable  to  Air  Nitrates  Corporation  (Mr.  Weeks) 44 

Payable  to  Air  Reduction  Co. — 

Mr.   Weeks 44, 47 

Table  showing 556 

Payable  to  American  Cyanamid  Co. — 

Mr.  Weeks 4T 

If  Mr.  Ford's  offer  is  accepted  (Mr.  Miller  and  Mr.  Hammitt)  477-479 

Table  showing 556 

Payable  to  General  Chemical  Co.  (Mr.  Weeks) 44 

Sale  of  plants,  article  19  of  contract  with  Air  Nitrates  Corporation,  text 
of 142 


INDEX. 


1203 


Salvage  estimates:  Page. 

Nitro,  W.  Va.,  smokeless  powder  plant,  compared  with  sale  price 

(Major  General  Williams) 86 

Old  Hickory  plant,  compared  with  sale  price   (Major  General  Wil- 
liams)          86 

Salvage  to  Government  from  war-time  investments  compared  with  Ford 

offer,  table  showing   (Mr,  Almon) 1004 

Salvage  value  of  plants.     {See  Estimates:  Salvage  value.) 
Savings  to  the  Government.      (See  Estimates:   Savings  to  the  Govern- 
ment) 

Scrap,  valuation  of  plants  as,  estimated  by  Chief  of  Ordnance 18 

Searles  Lake,  in  San  Bernardino  County,  Calif.,  two  potash  plants  in  vi- 
cinity of  (Mr.  MacDowell) 540 

Secretary  of  Agriculture  would  fix  the  price  of  nitrates  to  be  sold  under 
Engstrum  proposal,  and  also  the  amount  of  nitrates  and  commercial 

fertilizer  to  be  offered  for  sale  (Mr.  Butler) 905,906 

Secretary  of  War: 

Mr.  Baker,  report  of,  dated  June  28,  1916,  relative  to  Muscle  Shoals 

situation 4 

Mr.  Weeks — 

Letter  of  February  21,  1922,  from,  transmitting  proposal  of  Ala- 
bama Power  Co.  to  Congress,  text  of 772-773 

Report  of,  dated  February  1,  1922,  discussing  Mr.  Ford's  pro- 
posals     3-25 

Shipbuilding,  Mr.  Engstrum  has  had  two  contracts  with  the  Quartermas- 
ter's Department  for  (Mr.  Engstrum) 937,938 

Shipping  facilities  in  relation  to  Muscle  Shoals  proposition    (Mr.  Mac- 
Dowell ) 532 

Silver,  Gray,  Washington  representative  of  American  Farm  Bureau  Fed- 
eration, statement 542-615, 988^989 

Sinking  fund: 

Amount  paid  to  Government  during  lifetime  of  lease,  under  Ford 

proposal,  discussion  of  (Mr.  Miller  and  Mr.  IMayo) 310-311 

Comment  on  plan  by  Chief  of  Engineers 19 

Cost  of  Dams  Nos.  2  and  3  will  be  wiped  out  by,  if  invested  by  Gov- 
ernment at  4^  per  cent  (Mr.  Mayo) 247 

Discussion     of     Ford    proposal     for    (J^Ir.    Worthington    and     Mr. 

Miller) 373-374,377 

Table  illustrating  decrease  in  net  investment  of  Government  due  to 

operation  of  a  sinking  fund  (Mr.  Mayo) 299 

Table  showing  amount  retiretl  by  Mr.  Ford's,  at  various  rates  of 

interest,  compounded  semiannually  (Secretary  of  War's  report) 7 

Will  finally  wipe  out  entire  cost  to  Government  of  completing  project 

(Mr.   Mayo) _* 099 

Soil  fertility : 

Future  of  Nation  depends  upon  maintenance  and   continuance  of 

(Mr.   Bower) 610 

Statement  of  Theodore  Roosevelt  in  Outlook  of  October  12.   1912. 

regarding    (Mr.  Bower) 616-617,630 

Soils,  Bureau  of: 

Letter   of  August   14,   1922,   in   regard   to   the   fertilizer    industrv, 

text  of 3.36-343 

Statement  of  Dr.  Whitney,  Chief  of 322-349 

Southeastern  power  companies,  letter  of  May  20,  1921,  from ;  inadvisable 

for  Government  to  develop  Muscle  Shoals 118-121 

Southern  Cotton  Oil  Co.,  largest  cottonseed-meal  producer  in  the  South, 

owned  by  Virginia-Carolina  Chemical  Co.  (Mr.  Bower) 023 

Southern  Power  Co. : 

Letter  of  .Tune  24.  1921,  from ;  inadvisable  for  Government  to  develop 

Muscle   Shoals 115-117 

Muscle  Shoals  has  become  very  valuable  in  the  estimation  of  the,  since 

Mr,  Ford  made  his  offer  (Mr.  Almon) IO03 

Stated  they  would  not  be  interested  in  taking  the  power,  but  strongly 

condemned  the  Muscle  Shoals  project  (Mr.  Almon) 1003 

Sperling  &  Co.,  securities  of  American  Cyanamid  Co.  have  been  handled 

by  (Mr.  Hammitt) 486 

Statements.   {See  Tables.) 


1204 


INDEX. 


INDEX. 


1205 


*  Page. 

Steam  plants.     {See  Gorjjas-Warrior  steam  plant,  and  Power  plants.) 

Stone  &  Webster  (Inc.)  bydroelettric  plants  (Api)en(lix  A) 1146 

Subsidy : 

American  Cyanamid  Co..  wbicb  denounces  Ford  proiiosition  as  a  sub- 
sidy at  4  per  cent  interest,  asked  for  identical  tbing  at  3  per  cent 

in  1916   (Mr.  Bower) 623 

Enffstrum  proposal  does  not  ask  for  a  subsidy  from  tbe  Government ;  a 
part  of  tbe  profits  from  sale  of  power  will  be  used  to  subsidize  tbe 

niakinj?  of  nitrates  (Mr.  Butler) 905-906,929 

If  nitrate  plant  No.  2  can  not  be  operated  at  a  profit,  tben  no  subsidy 

is  involved  in  selling  plants  to  Mr.  Ford  for  .$5,000,000  (Mr.  Bower) _      632 
Nitrate  plant  No.  2  can  not  be  operated  connnerciallv  witbout  (Mr. 

Hammitt) 456 

To  ^Ir.  Ford- 
Opposed  by  Mr.  Hammitt,  of  tbe  American  Cyanamid  Co 4i58 

Proiwsed  development  is  not  a  subsidy  (Mr.  Silver) .573,579-580 

Word  might  be  applied  to  war  material  sold  by  tbe  Government,  argu- 
ment developed  showing  (Mr.  Fields  and  Mr.  Silver) 606 

Word  not  applicable  to  proposition  (Mr.  Hull) 458 

Sullivan   &  Cromwell,   law   firm,   represented   American    Cyanamid   Co. 

in  contract  matters  (Mr.  Hammitt) 488,  501 

Sulphate  of  annnonia.'    (f^ee  Ammonium  sulphate.) 

Sulpliuric  acid,  equipment  for  production  of,  shipped  to  Muscle  Shoals 

from  former  Government  plant  at  NashviUo 548 

Swann.  Theodore,  president  Federal  Phosphorus  Co.,  statement 431-442 

Synthetic  ammonia  process :  Fixed  nitrogen  which  is  to  be  made  in  the 
future  is  going  to  be  made  by  a,  simply  for  the  reason  that  there  is 
no  other  process  in  the  world  that  can  compete  with  It  commercially 

(Dr.  Parsons) 1124 

Synthetic  process  of  the  General  Chemical  Co.,  was  used  at  nitrate  plant 

No.  1.   (Mr.  Almon) 1002 

Tables : 

Alabama  Power  Co.  rates  for  electric  current  at  Huntsville,  Ala.,  in 

effect  January  1.  1922  (Mr.  Worthington) 363 

Amount  retired   by   Mr.   Ford's   sinking  fund   at  various  rates  of 

interest,  compounded  semiannually   (Secretary  of  War's  report).  7 

Analvsis  of  Mr.  Morin's  statement  of  non-interest-bearing  charges 

onDam  No.  2  (Mr.  Mayo) 249 

Annual   cash   saving  to   Government   by  acceptance   of  Ford  offer 

(Mr.  Almon) 1005 

Average  increase  per  acre  of  all  fertilizer  experiments  in  the  United 
States  published  up  to  1910,  with  the  number  of  experiments  re- 
ported up  to  that  time 345 

Carrying  charges  on  construction  of  dams   (memorandum  of  Chief 

of'  Engineers) 20 

Comparative  prices  of  nitrogen  compounds 1 556 

Consumption  of  fertilizers  in  the  United  States,  fiscal  years  end- 
ing  1913    to   1920.      (From   American    Fertilizer    Handbook    for 

3921)    (Mr.  Mayo) 292 

Core  recovery  at  dam  sites 114 

Cost  statement  of  United  States  nitrate  plants  Nos.  1  and  2  and 
Warrior-Sheffield  power  station  and  transmis.sion  line  (mem- 
orandum of  Chief  of  Ordnance) 21-22 

Cost  to  Government  of  the  delay  in  accepting  Ford  offer  (Mr.  Almon)  _    1005 
Costs  and  estimates  of  nitrate  plants  Nos.  1  and  2  (report  of  Muscle 

Shoals  Committee  of  American  Farm  Bureau  Federation) 551 

Costs  and  estimates  of  the  Wilson  Dam  (Dam  No.  2)  (Report  of 
Muscle  Shoals  Committee  of  American  Farm  Bureau  Federa- 
tion)  551-.552 

Detailed  estimate  of  cost  of  sulphate  of  annnonia  and  nitrate  of 
nmnvonia   at   United   States  nitrate  plant  No.  2    (Major  General 

AVilliams) 97 

Electric  light  and  i)ower  security  issues  in  1921 .356 

KIstimnte  of  results  of  operation  by  Government  of  I'nited   States 

nitrate  plant  No.  2  for  period  of  6  years  (Major  General  Williams).  84-85 


Tables— Continued.  '*«f*- 

Estimated  cost  (exclusive  of  interest  charges)  of  producing  phos- 
phoric acid  by  the  electric-furnace  method,  assuming  ix>wer  at  $25 

per  horsepower  year 554 

p:stimated  salvage  value  of  ordnance  property  in  tbe  State  of  Ala- 
bama (memorandum  of  Chief  of  Ordnance) 18 

Estimated  supply  and  c<msuniiition  of  nitrogen  for  1924  and  1930, 

in  tons  of  pure  nitrogen •*55 

Fertilizer  production  (Major  General  Beach) ^  106 

Fertilizer  tonnage  by  States 96,107,343 

Fertilizer  tonnage  in  1913  and  1919 341 

Food  requirements  of  plants  (Mr.  Bower) 627 

General  statement  concerning  power  situation  in  Alabama  auil  con- 
tiguous territory   (Mr.  Martin) 799 

Government  balance  sheet  at  Muscle  Shoals  during  first  6  years  of 

Ford  lease  of  Dam  No.  2  (Mr.  Mayo) 301 

Government  balance  sheet  of  Muscle  Shoals  during  construction  and 

for  first  six  years  under  Ford  proposal   (Mr.  Mayo) 248 

Illustrating  decrease  in  net  investment  of  Government  due  to  opera- 
tion of  a  sinking  fund  (Mr.  Mayo) 299 

Interest-bearing  debts  of  the  Government  (Mr.  Silver) 608 

Maintenance  or  stand-by  expense  of  nitrate  plants  Nos.  1  and  2 556 

Manufacturing  cost  of  ammonium  nitrate  at  Unite<l  States  nitrate 

plant  No.  2 553 

Manufacturing  cost  of  ammonium  sulphate  at  United  States  nitrate 

plant  No.  2 554 

Manufacturing  cost  of  calcium  cyanamid  (lime-nitrogen)   at  Uniteil 

States  nitrate  plant  No.  2 552-.5.5.3 

Nitrogen  in  red  clover  and  cowpeas 5.55 

Per  cent  of  interest  on  Government  loans  now  outstanding  in  the 

shape  of  bond  issues  (Mr.  Almon) 1007 

Rates  charged  by  Alabama  Power  Co.  for  hydroelectric  power  sup- 
plied to  large  consumers  with  service  requirements  comparable  to 
those  of  the  United  States  Government  at  nitrate  plant  No.  2  (Mr. 

Martin) 681-682 

Resources  of   the  Tennessee  Valley  and   immediate  vicinity    (Mr. 

Worthington) 387 

Royalties  payable  to  Air  Reduction  Co.  and  American  Cyanamid  Co._      556 
Salvage  to  Government  from  war-time  investments  compared  with 

Ford  offer  (Mr.  Almon) 1004 

Showing  the  total  amounts  of  horsepower  of  the  principal  completed 
hydroelectric  developments  in  the  Carolinas,   Georgia,   Alabama 

and  Tennessee  (Mr.  Worthington) 389 

Statement  No.  1,  re  difference  between  Mr.  Ford's  lease  payments  to 
the  United  States  Treasury  and  the  amount  the  Treasury  will  have 
to  pav  out  if  Mr.  Ford's  proposal  is  accepted  as  written   (Mr. 

Cooper) 41(M11 

Statement  No.  2,  re  amount  of  low-tension  hydroelectric  energy  de- 
livered to  generator  station  bus  bars  that  will  be  created  by  the 
completion  of  Dams  Nos.  2  and  3  according  to  the  requirements  of 

Mr.  Ford's  proposal  (Mr.  Cooper) 411-412 

Statement  No.  3.  re  operation  and  maintenance  of  Muscle  Shoals 

water  powers  (Mr.  Cooper) 412^13 

Statement  No.  4,  re  showing  if  4  per  cent  interest  is  paid  by  Mr.  Ford 
on  total  cost  of  Dams  Nos.  2  and  8.  and  pays  .$79,432  annually  to 
amortize  .$88.175  475.  which  is  tbe  above  total  cost  CMr.  Cooper) __  413 
Statement  showing  actual  total  expenditures  for  maintenance  and 
improvement  of  rivers  and  harbors  from  the  fiscal  year  ending 
June  30,  1896.  to  that  ending  June  30,  1920,  inclusive  (statement 
compiled  by  J.  H.  McGann,  clerk  of  the  Committee  on  Rivers  and 

Harbors) 391 

Total  acreage  in  crops  in  1919,  the  tonnage  of  fertilizers  sold  in  each 
State,  and  the  additional  amount  of  ammonia  required  to  bring 
the  inte>*ity  of  use  at  le."st  ui)  to  the  present  practice  in  <}eor.L'ia_  840-341 

Water  power  at  Muscle  Shoals 555 

World  capacity  of  air  nitrogen  plants  (Mr.  Mayo) 250 

World's  production  of  mixed  inorganic  nitrogen 556 


1206 


INDEX. 


^  Pago. 

Taylor,  Hon.  A.  A.,  Governor  of  the  State  of  Tennesssee ;  statement—  319-322 
Tennessee  Power  Co. : 

Intercorporate  relations  with  American  Cyanamid  Co.;  no  connec- 
tion between  companies   (Mr.  Hammitt) 486 

Letter  of  May  20,  1921,  from ;  inadvisable  for  Government  to  develop 

Muscle  Shoals 118-121 

Tennessee  River: 

Cost  of  making,  navigable  over  Muscle  Shoals,  if  dams  are  not  con- 
structed, estimated  at  something  over  $8,000,000  (Major  General 

Beach) 122 

Erratic  flow  of,  reason  stated  (Mr.  Frothingham) 965 

Extreme  minimum  flow  of,  7,000  second-feet  CMr.  Frothingham)—  947,954 
Greatest  vahie  in.  may  only  be  realized  by  tying  together  by  trans- 
mission lines  the  capacities  of  the  Coosa  and  Tallapoosa  Rivers 

(Mr.  Frothingham) 948 

Hydrographs  of,  at  Florence,  Ala 118,119 

Is  in  itself,  as  an  independently  power-producing  stream,  disappoint- 
ing and  of  very  little  availability   (Mr.  Frothingham) 948 

Is  the  greatest  water  power  in  the  Southeast  only  if  coordinate*!  with 
the  other  power  and  storage  reservoir  possibilities  in  the  vicinity, 

otherwise  it  is  of  comparatively  little  value  (Mr.  Frothingham) 

962-963, 965 
Navigability  of — 

General    Beach 122,129 

Hon.  A.  A.  Tayh»r .S20.  321-322 

Mr.   Worthington 370-371,404 

Navigation   of.   w<mld  not   alone  justify  proposed   expenditures   of 

Government  (Mr.  Worthington) 1 407 

Tennessee  River  between  Browns  Island  and  the  railroad  bridge  below 
Florence.  Ala. : 

Extract  from  report  of  Maj.  H.  Burgess  of  March  22.  1016.  on  pre- 
liminary examination   of 788-789 

Letter  of  June  26,  1916.  from  Chief  of  Engineers  on   preliminary 

examination  and  survey,  text  of 786-787 

Proposal   of  December  10,   1913.   of  Muscle   Shoals   Hydro-Electric 

Power  Co.,  for  development  of.  text  of 782-784 

Report  of  ^lay  IS,  1914,  of  Board  of  Engineers  for  Rivers  and  Har- 
bors on  proposed  development  of,  text  of 781-782 

Tennessee  River  Improvement  Association: 

Purposes  of  (Mr.  Worthington) 400 

Statement  of  Mr.  Worthington.  chairman  of  executive  con)mittee__  351-408 

Tennessee  River  Valley,   natural   resources  of   (Mr.   Worthington) 386-388 

Tolman,  Dr.  Richanl  C.  director.  Fixed  Nitrogen  Research  I^iboratory. 

Department  of  Agriculture,  statement 313-319 

Transmission  line.     (See  Right  of  way  for  transmission  line,  atul  War- 

rior-SheflieUl  transmission  line.) 
Transmission  of  power,  electrical:  Ahibama  Power  Co.  sending  250  miles 

(Major  General  Beach) 101 

Transportation : 

Tlie  building  of  the  dams  as  provided  in  the  Ford  offer  will  open 
up    cheap    water    transportation    on    the   upper   Tennessee   River 

(Mr.   Almoii) lOOS 

Cost  of  completing  dams  by  the  Government  would  be  warranted  by 

amount  of  (Mr.  Quin) 396 

(See  also  Navigation.) 
Trust  fund  under  Bngstrum  proposal — 

One  mill  per  kilowatt  hour  of  power  sold  to  be  set  aside  for,  to  go 
into  United  States  Treasury,  or  into  financins:  of  nitrates    (Mr. 

Butler) 909,928 

When  business  gets  dull,  all  the  corporation  has  to  do  is  to  tinker 
with  the  nitrate  plant,  and  use  up  all  the  money  in  (Mr.  Lever- 
ing)       939 

Unemployment  would  be  relieved  by  construction  of  dams  (Secretary  of 

War's    report) 9 

Urea,  description  of   (Dr.  Tolman) 313,317 


.INDEX. 


1207 


Virginia-Carolina  Chemical  Co. : 

Interest  of  Mr.  Duke  in —  Pa«e. 

Company  controlled  by  Mr.  Duke   (Mr.   Bower) 623,637 

Statement  regarding  Mr.  Duke's  alleged  connection   with    (Mr. 

Hammitt) ___! 496 

Large  company  producing  fertilizer    (Mr.   Weeks) 29 

No  connection   with  the  proposed  corporation  under  the  Kngstnim 

proposal     (Mr.    Butler) 930 

Stockhohlings  in  American  Cyanam  d  Co. — 

Mr.    Hammitt 467,  496,  503 

Are  26  per  cent  of  stock  (Mr.  Bower) 623 

Waco  quarry : 

Acreage  of  460  acres,  acquired  for  $52,962.88   (Secretary  of  War's 

report) 5 

Cost,  $1,179,078.80   (Secretary  of  War's  report) 5 

Cost,  $1,302,902.88  (memorandum  of  Chief  of  Ordnance) 22 

Idle  at  present  (Secretary  of  War's  report) 5 

Offers   of  Mr.  Ford   to   purchase,  text   of 11,15 

Salvage  value  estimated  by  Chief  of  Ordnance 18 

War,  Secretary  of.     (See  Secretary  of  War.) 
■"Warrior-Muscle  Shoals  transmission  line: 

Salvage  value  estimated  by  Chief  of  Ordnance 18 

(Sanie  an  Warrior-Shetheld  transmission  line.) 
Warrior-Sheflield  transmission  line : 

Consists  of  wooden  poles  with  copper  wire 195 

Constructed  bv  Government  on  land  owned  by  Alabama  Power  Co. 

(Mr.  Weeks) 40 

Contract  with  Alabama  Power  Co. — 

Opinion  of  November  16,  1921,  of  Acting  Judge  Advocate  Gen- 
eral   132-134 

Text  of 150-171 

Cost  of  construction  (memorandum  of  Chief  of  Ordnance) 22 

Cost  of  maintenance  (memorandum  of  Chief  of  Ordnance) 22 

Description  schedule  in  contract 169 

Offer  to  purchase  by  Alabama  Power  Co.,  text  of  proposal 776 

Salvage  value  estimated  by  Chief  of  Ordnance 18 

(Same  an  Warrior-Muscle  Shoals  transmission  line.) 
Warrior  steam  plant.     (See  Gorgas-Warrior  steam  plant.) 
Washburn,  Frank  S.,  president  of  American  Cyanamid  Co. : 

Production  of  nitrogen  compounds  at  nitrate  plant  No.  2,  statement 

on  (Mr.  Ma.vo) 253 

Statements  of — 

On  February  9  and  March  16,  1916.  before  Committee  on  Agricul- 
ture regarding  fertilizer  industry  ^Mr.  Bower) 618-619,623-624 

Prior  to  the  war,  based  on  conditions  radically  different  from 

present  conditions  (Mr.  Hammitt) 449 

Stockholdings  of,  in  American  Cyanamid  Co.  (Mr.  Hammitt) 504 

Was  president  of  Alabama  Power  Co.  from  1913  to  1915,  continued  as 

director  until  1916  (Mr.  Martin) 684,687 

Was  stockholder  in  Alabama  Power  Co.,  is  not  now  (Mr.  Martin) __      643 
Water  power : 

Principal  power-producing  streams  of  Georgia,  discussion  of    (Mr. 

Wright  and  Mr.  Frothingham) 963-964 

Table  showing,  at  Muscle  Shoals ^ '_ ^ .555 

Tennessee  River  is  the  greatest  in  the  Southeast  only  II'  it  is' coordi- 
nated with  other  power  and  storage  reservoir  possibilities  in  the 
vicinity;  otherwise  it  is  of  comparatively  iittle'va^u^  (Mi*,  irotn- 

ingham) ^ .:_..:__: '  iBe2-l«63.  965 

{See  also  Power.)  .  • 

Weeks,  Hon.  John  W.,  Secretary  of  War : 

Report  of,  dated  February  1,  1922,  discussing  Mr.  FcrC's  prcposrts__    3-25 

Statement _^ '__ 25-66 

(See  also  Secretary  of  War.) 
Whitney,    Dr.    Milton,    Chief,    Bureau    of    Soils,    Department    of   Agri- 
culture,  statement 322-349 


1208  INDEX. 

Williams,  Col.  William:  Page. 

Office  order  No.  1.j7,  of  1918,  which  appoints  among  others  Lieutenant 
Colonel  Williams,  Ordnance  Department,  as  a  contracting  officer, 

text  of   (Major  Booton) 887 

Ilepresented  Ordnance  Department  in  making  contracts 648, 

666, 683,  727-728, 881 
Williams,  Maj.  Gen.  C.  C,  Chief  of  Ordnance: 

Analysis  of  Ford  proposal 17-19 

Statement ' 67-98 

Table  showing  cost  of  United  States  nitrate  plants  Nos.  1  and  2  and 

Warrior-Sheffield  power  station  and  transmission   line 21-22 

Wilson,  Woodrow,  letter  of  FebriiaiT  23,  1918,  relative  to  Dam  No.  2, 

text   of 64 

Wilson  Dam.     {See  Dams:  No.  2.) 

Worthington,  J.  AV.,  chairman  of  the  executive  committee  of  the  Ten- 
nessee River  Improvement  Association : 
Sold  his  interests  in  Muscle   Shoals  Hydro-Electric  Power  Co.  in 
1912,  but  continued  as  an  officer  of  the  company  until  February, 

1920  (Mr.  Martin) 779 

Statement... 351-408 

o 


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